What if you knew how the largest Hedge Fund manager in the World thinks and what they were really like starting from zero? Ray Dalio makes the business case for his '3 secrets' building Bridgewater Associate to the largest hedge fund in the world with a net worth of $18.6Bn. by Forbes in 2019.
And the difference between education how the Chinese "top down" approach to raising a child and the American "bottoms up" way of raising a child.
Now let get into a controversial topic, diversification when it comes to investing, is Ray Dalio more diversified, when we look at how Ray Dalio set up his portfolio , its not as niche as other players. In 1986, the Chinese has increased their income by 26 times. They gone from 2% GDP to 22% GDP. Poverty rate in China when from 88% to 1% in 2019 and increased life expectancy by 10 years.
Reduce risk without reducing reward. There is a common misconception in investing that, if you are reducing the risk , you are also potentially reducing the returns . And the secret is , this is the most high paying skillset to have on Wall Street.
Say if we use Dalios formula , Bridgewater has like 1,500 employees . Say if the average listener to this podcast has a formula that Dalio has, what edge do Bridgewater has that somebody else has whether they are an individual investor or a hedge fund manager, is it discipline? Is It patience?
Ray Dalio, the son of a jazz musician, began investing at age twelve. He bought stock shares for $300 and tripled his investment after a corporate merger was announced. Dalio went on to graduate from Harvard Business School and then worked on the floor of the New York Stock Exchange and invested in commodity futures.
In the boom years of the 1960s, talk on the golf links centered on the surging stock market and Ray Dalio was intrigued. With $300 he had saved from his caddy earnings, he bought shares of Northeast Airlines. At five dollars a share, it was the only major company whose stock he could afford. As it happened, Northeast became the object of a merger effort, and the 12-year-old caddy quickly tripled his investment. Ray Dalio was hooked. He read the annual reports of major companies, and engaged older investors in conversation. By trial and error, he learned principles he has continued to apply in his investing career. He found that even careful research can result in mistakes, and that mistakes can be expensive. He also learned that the only way to beat the market is to be right when others are wrong. When he formed an opinion of the prospects of a given stock, he asked the smartest investors he knew to critique his reasoning. By the time he graduated from high school, he had assembled a stock portfolio worth several thousand dollars, a significant amount for a teenager in the late ’60s.
Who were Dalio in high school, was he a great student with 4.0 GPA?Was he playing sports , does investing require above average intelligence? Everybody in your world meet new people that investors that pay very close attention to
- How Buffett Style Future Cash Flow Investing Works
- Next Tech Trend, what will future look like
- Acquire certain distressed debt
- How China is challenging existing World power will have Conflicts, in the last 500 years, it happened 16 times, 12 of the times, there were wars. [17.46]
- How Dalio's 3 secrets is going shape the world economy within the next 5 years.
- How China ‘family first’ and America individualism
They often start with a trade war just like the 1930s, and that led to a technology war, geopolitical war and now , there is a capital war.
Now let get into a controversial topic, diversification when it comes to investing, is Ray Dalio more diversified, when we look at how Ray Dalio set up his portfolio , its not as niche as other players. In 1986, the Chinese has increased their income by 26 times. They gone from 2% GDP to 22% GDP. Poverty rate in China when from 88% to 1% in 2019 and increased life expectancy by 10 years.
Reduce risk without reducing reward. There is a common misconception in investing that, if you are reducing the risk , you are also potentially reducing the returns . And the secret is , this is the most high paying skillset to have on Wall Street.
[8.22]
Lets talk about correlation, and the power of diversification. And the secret of improving your risk and reward ratio
So is this an art that is teachable?
[9.08]
[10.21]
So why are there so many average investors trying to bet against the consensus and be right?
[11.28]
Say if we use Dalios formula , Bridgewater has like 1,500 employees . Say if the average listener to this podcast has a formula that Dalio has , what edge do Bridgewater has that somebody else has whether they are an individual investor or a hedge fund manager, is it discipline? Is It patience?
[11.43]
What is the edge or formula for someone out there listening to this say, guess what I’m gonna build the next Bridgewater.
[12.36]
Why competing in the markets is harder than competing in the olympics but how do the average investor at least have a chance of winning?
[13.33]
A lot of people might say that is a boring formula , that is outdated, this whole diversification .
[14.37]
By now, you are getting a sense of how risk management and creating an optionality in your portfolio
[14.57]
Bridgewater has 1,500 employees, how many of the employees are spending time on politics , since Dalio mentioned two things that intrigued him in high school, politics and economy and how its tied to each other. And the question is, is Bridge water focused entirely on politics, regulation, laws,
This Geopolitical war, which involves technology will have a big impact to your investment today.
[23.00]
So which produces better results? A top down approach or bottoms up approach?
[26.44]
If Huawei is a company which has tremendous lead in 5G technology, an American perspective of the rules would be China pumping money into Huawei is what the rules should be. So if Huawei were to do business with the U.S don;t they have to play by their rules with the CFO and the whole ?
[28.12]
So with how many iphones are sold in China and how China allowed American businesses to market their products and how 5G is playing the influence of Huawei even though they weren’t on a lot of phones yet and how big the race of 5G it is today.
So the bigger question today, whether it is China or the U.S , would I rather have my government control me or a corporation control me? Would I rather have the U.S government spy on me or a corporation spy on me. Well, i’d rather have corporation spy on me because their motives going to be profits, okay then, you might ask , the government is maybe they are trying to get data.
In Dalio’s recent paper, why and how capitalism needs to be reformed, link in the description , so China is looking whats going on in the world, they know the U.S is doing good and they knew the Karl Max the communist manifesto flop a and they keep communism at the top, well thats not freedom of the press, but the economy, maybe thats capitalism, so now th big question is, is the U.S the leader or they rely on U.S even though they want to compete against them. And They have made in China 2025 with IP and all these im sure you read about in the news.
[29.33]
In Dalio’s paper, he talked about most capitalists don’t know how to divide the economic pie well and most sociliasts don’t know how to grow it well.
[29.46]
In Dalio’s paper, why and how capitalism needs to be reformed, he mentioned one’s income growth results from one’s productivity growth, which results from one’s personal development. So let’s look at how we are developing people. Let’s start with children
Which is one point he was making about education which we want to cover here.
[30.00]
Last but not least “I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. This is now true for capitalism . So now our question to Ray Dalio, do you believe the fundamentals of capitalism is an evergreen philosophy.
So what is America? It’s a country of equal opportunity.
[33.00]
A lot of references in the paper mentioned how the top 1% in the 30’s versus, the top 1% has the same bottom 90%, is this suggesting that we might have faced in the 30s which contributed the great depression , where there is a large income and wealth gap and now we are seeing the same that is happening in the U.S & China and that income inequality is the biggest crisis happening in America and wealth inequality.
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So are we going to leave the freedom to the popullist or going to other regimes that are controlling their people, so tell, you can do better in a free market, so you get out. Then a friend of mine, inspired me to pick up a book , then a got inspired, then i failed miserably when trying to invest and then i make a few million dollars in my late 20’s. That happened, because somebody said hey, what you gonna do with this? But the same person who offered me a book offered 50 other people to read the book. So based on stats, Ray dad’s last name is not Vanderbilt , and Rockefeller but he made Dalio meant to the world.
So as a parent, what we are also forgetting is what the kid is going home into.
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And with the internet and social media , does Dalio think there is any room for a media company to come out , a platform, that is not Fox, that is not CNN, Wall Street Journal , whatever it is that is in middle where somebody can go to it and say , does Dalio think it’s going to happen? Probably not.
How to start with a conclusion and add on filters which is consistent with the conclusion.
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The process of replacing yourself as a CEO , now the question is if you were to go again and replace yourself as a CEO with the culture, the principles, how do you process, to determine who to bring in to your organization and what does Ray Dalio looks for? Is it internal, or external.
I wanna hear your thoughts , send me a tweet @hooiterrence , since we talked about China, , since we talked about China and what you think about this episode.