Ray Dalio predicts doom and gloomā€¦ Should we listen?
Last week, we got many questions regarding Ray Dalio’s CNBC interview and LinkedIn essay.
I won’t go into the details of the essay… all we need to know is that it predicts a market crash, debt crisis, and economic meltdown (of course).
The question people are asking is... Should we listen to Dalio's predictions?
Here’s the hard truth: making investing decisions based off solely on opinion (whether it is our own opinion, or that of a loud-mouthed expert on TV...) is probably the easiest way to lose money in the market.
Hedge fund managers have a dismal track record of underperforming the S&P 500, mainly because opinion and ego are lethal to our success in the market.
So how can we make money consistently in the market? And should we trust anyone’s market predictions?
Before I answer those questions, let’s take a closer look at Ray Dalio himself.
Ray Dalio is one of the most respected minds in Finance today.
This man came up with many of the innovations and products that Quant funds now use to make money (and create havoc in the markets).
These innovations include Risk Parity funds (which accelerated the big selloff in late 2018), and various Quantitative strategies which are now in wide use across the financial industry.
So, this much is clear: Ray Dalio is one of the smartest minds in Finance.
In fact, he’s absolutely brilliant.
And that is often what gets people into trouble in the market.
Whenever people find evidence that they’re smarter than everyone else, they begin to fall into the trap of trying to predict the future.
Anyone can fall into this trap… it’s human nature.
The trouble is, no one can predict the future consistently. It doesn’t work. Never has, and never will.
Here are just a few recent examples, to illustrate the point
Ray Dalio in January 23, 2018 (three days before the market top).
In late January 2018, Ray Dalio stated on television that anyone who was holding cash (i.e. anyone who wasn't buying stocks) was going to feel pretty stupid (his words).
Just over a week later, the stock market plunged more than 10%. Anyone who followed his advice effectively bought at the top.
Ray Dalio on September 12th, 2018 saying the market has over two innings left.
Near the September 2018 highs, Ray Dalio attempted to predict the future again, saying that there’s no bubble yet, stocks are great... and the economy is still two years away from recession.
Then (as if by magic) the market collapsed nearly 20% right after he made that statement.
Ray Dalio being bearish on January 2019, near the lows of the year
In late January 2019, Ray Dalio (and nearly every other hedge fund manager) became bearish… claiming a terrible recession was upon us.
The stock market then proceeded to rally 20% from there.
The World's Biggest Hedge Fund Manager
vs.
The Market
Who Wins?
Ray Dalio is Chairman of the world’s largest hedge fund (Bridgewater Associates).
Over the past twenty years, Bridgewater has delivered great results for investors (that’s why they’re the biggest).
This year, however, Bridgewater’s Pure Alpha fund (their flagship fund) is down 4%, while the S&P is up 26%... so I can’t blame them for grumbling about the market on television.
Bridgewater’s “All-Weather Fund” (which is supposed to perform well in all market conditions) is up 16% this year... which is nice, but well under the S&P 500's total return.
In other words, Ray Dalio (one of the smartest people on Wall Street) has been proven wrong repeatedly for the past year.
And the same can be said of almost every other hedge fund manager.
That’s what the market does best: it consistently proves the loudest, most confident investors wrong.
I’m not trying to pick on Ray Dalio here.
I have personally learned a lot from him.
Ray Dalio’s contributions to Finance are too numerous to list here.
And I have read his (brilliant) book several times over the past two years. I consider his book required reading for anyone who works for me.
Yes, I’m actually a Ray Dalio fan. His Principles have been amazing.
But these examples show that even the smartest people on Wall Street can’t see the future, and are often wrong.
Trading and investing are about managing uncertainty, and waiting until the market proves us right before becoming confident.
Trading is not about predicting the future… In fact, we don’t even need to predict the future to make a fortune on the market… and I will discuss exactly why that is, in next week’s blog post.
So the next time you see a “smart person” making a prediction about the market on TV, you’ll understand that it’s just one person giving their opinion.
Instead of relying on others’ opinions, we can just focus on what works: following the charts and the liquidity data, while waiting for the market to give us easy opportunities.
If we don't like the way a market is behaving at that moment, we don't have to participate.
Complaining about the market “not behaving properly” doesn't make us any money.
Instead, savvy people (like the Strategic Trading Community) find that everything becomes easy when we accept the current reality, use it to our advantage, and plan around it.
So how do we protect ourselves from the effects of others’ opinion?
That is a big topic, which we will cover in future posts and videos.
For now, I strongly recommend the book Nobody Knows Anything, which does a great job of delivering this key point.
Once we start looking past others’ opinion, we can focus on what really matters in the market: Price Action and Liquidity Data.
And that’s what we do in the Strategic Trading Community.
Victory Loves Preparation.
The MCI Algorithm gave us an early signal that markets across the world were about to become bullish…
back when the S&P was still languishing near its October lows.
Here is the simple truth:
Liquidity and Money Flows are the key drivers of stock market prices.
Once we understand that, we gain an overwhelming advantage over other traders.
Strategic Trading members are enjoying direct access to the MCI Algorithm’s charts… with fresh signals every evening.
Armed with these charts, our members can see hidden changes in the market… before most other traders even realize what’s happening.
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