Episode 07: Ray Dalio's Life & Career | Mind Blowing Investment Strategies | Billionaire Advice
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Hey what’s up everybody? I’m Mike Germinario and I teach investing.
In this show we’re going to learn about Ray Dalio. Who he is. What he does. How he does it. Then we’re going to talk about Dalio’s advice for individual investors, people like you and me.
So here we go. Ray Dalio is a billionaire investor who founded what became the world’s largest hedge fund Bridgewater Associates. Dalio is also a generous philanthropist as he joined The Giving Pledge – which is a pledge for billionaires to donate over half their wealth to charity. Aside from donating his wealth, he also shares his knowledge both on social media and through published books. These include:
So much more than a typical fund manager, Dalio worked with McDonalds in the 1980’s to help launch their Chicken McNuggets. Behind the scenes, suppliers were concerned about selling chicken to McDonald’s at a fixed price because the cost of feeding all those chickens is variable. So if the prices of corn and soy meal rose, the suppliers would have to eat the loss. Dalio helped put together a custom futures contract that allowed the suppliers to be comfortable selling their chicken at a fixed price. Basically, a guarantee against future rising prices of corn and soy meal. No Ray Dalio. No McNuggets.
And check this one out. In 1997, when the US Treasury issued inflation-protected bonds for the first time, guess who they turned to for help on how to structure them? None other than Ray Dalio. Without Dalio, TIPS as we know them today may not exist.
As an investor, Dalio is probably best known for figuring out a storm-proof investment strategy, designed to perform no matter what happens.
His “All Weather” or “All Seasons” strategy answers this question:
“What kind of investment portfolio would one need to have to be absolutely certain that it would perform well in good times and in bad – across all economic environments?”
So whereas most investors say “I think this is going to happen, so I’ll invest in XYZ.” Dalio flips the script and says “I can’t be certain of what will happen, so I’m going to weatherproof my portfolio to win.”
The “All Weather” strategy works like this. According to Dalio there are only four things that move the price of assets:
So if we sketch out four boxes, each representing 25% of risk, we’ll have “Growth” and “Inflation” in the column headers; and “Rising” and “Falling” in the row headers.
So the first box is Growth Rising. Dalio says that the assets that perform here are:
The second box is Inflation Rising. Dalio says that the assets that perform here are:
The third box is Growth Falling, and Dalio says the assets that perform here are:
The fourth and final box is Inflation Falling and Dalio says that the assets that perform here are:
That’s the “All Weather” portfolio and as you can probably tell it’s a little advanced for most mom-and-pop investors like me and you. That’s why Dalio shared his “All Seasons” portfolio in the book “Money, Master the Game” written by Tony Robbins.
Here he has a simplified version that gets a similar result for everyday investors to utilize. And it goes like this:
Here’s why we should care about this. Because the All Seasons strategy provides reliable returns with minimal volatility. In other words, we’re getting bond-like risk with equity-like returns.
Going back to Tony Robbins book he has some really cool stats comparing the S&P 500 vs. All Seasons. Let’s take a look at some of them now.
So from 2013 going back 75 years the S&P lost money 18 times. All Seasons only lost money 8 times.
In that same period, the S&P’s largest single loss was -43%. All Seasons was just -4%.
And the average loss for the S&P was -11%. For All Seasons it was only -2%.
Now check this out. For the period 1928 to 2013…
The S&P lost money 24 times. The All Seasons only 14 times.
In the heart of the depression the S&P lost -64%. The All Seasons lost only -21%.
The average loss was -14% for the S&P, and only -4% for All Seasons.
The wisdom Ray Dalio has shared has definitely taken my investment game to the next level, and I hope it helps you out too.
If you learned something please click the subscribe button. I also have a free guide for you – 5 simple rules of investing. Click the link in the show notes to get your copy.
I’m Mike Germinario, never leave money on the table of life and I’ll cya next time!
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