Bridgewater Associates founder Ray Dalio — who has been called both “the Steve Jobs of investing” and “the philosopher king of the financial universe” — in a new interview on March 25 warned that there’s a stock market bubble that’s “halfway” to the magnitude of 1929 and 2000.
Speaking to Yahoo Finance Editor-in-Chief Andy Serwer, the co-chairman and co-chief investment officer of the world’s largest hedge-fund firm which holds about $150 billion assets under management, cautioned that some high-performing stocks have benefited from single-minded speculative trading focused on price.
Dalio, who has seen a lot of bubbles in his time and has studied even more in history, attributed recent market volatility to a rotation toward traditional companies that didn’t benefit from the pandemic-era trades as much as some tech firms. Market rotation is when money stays in the stock market but moves from one style, sector, or attribute to another.
“What’s happened is that — like a lot of cycles go — a lot of new ideas, new technologies, new things come along, and they make fabulous revolutions,” Dalio said. “And they grow things — and that’s great.” “But there’s a tendency of investors to extrapolate the past and not pay too much attention to price, and when that happens you start to emerge as somewhat of a bubble,” he added.
“By our measures, the bubble is not what it was in 2000 and not what it was in 1929,” he said. “But it’s kind of like halfway there.”
Investors piled back into traditional companies amid a recent shift away from the high-flying technology stocks that led markets higher for most of 2020 when the S&P 500 ended the year with a total return of about 18%.
“The kind of the meat and potatoes type of companies didn’t benefit as much from those and they’re fairly stable,” he says. “So that’s why you’re starting to see that kind of rotation.”
The latest round of stimulus checks may interrupt the current market shift, Dalio said. Analysts at Deutsche Bank estimated last month that the latest round of stimulus checks could pump $170 billion into the stock market.
“Now that can change — it can come and go in these phases — like when people get stimulus checks, and then you know, they might be hot on the exciting things and they run up again,” he said.
However, stimulus in these conditions-economy on its knees, millions of people unemployed, and businesses bankrupt-is not stimulus but relief.
Dalio was born in 1949 in, New York. According to the New York Magazine, Dalio began investing at age 12, buying shares of Northeast Airlines for $300 and tripling his investment after the airline merged with another company.
He received a bachelor’s degree in finance from Long Island University (CW Post) and an MBA from Harvard Business School. After completing his studies, Dalio worked on the floor of the New York Stock Exchange and in 1975, he founded Bridgewater Associates from his two-bedroom New York City apartment. Bridgewater in 2012 became the largest hedge fund in the world and the same year Dalio appeared on Time magazine’s list of the 100 most influential people in the world.
Dalio attributes Bridgewater’s success to its unique culture. He describes it as “a believability-weighted idea meritocracy” in which the people strive for “meaningful work and meaningful relationships through radical truth and radical transparency.”
Bridgewater lost $12.1 billion for investors in 2020- but he’s still the best-performing hedge fund manager of all time, with net gains of $46.5 billion since inception, according to LCH.
