Ray Dalio: Cash Was Trash, but Now It’s Looking Like Your Most Attractive Investment
When investing, if the facts change, you should change your mind.
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Ray Dalio is the world’s 71st richest person.
He’s a deep thinker.
He’s intellectually curious.
And he has a philosophical approach to investing.
Dalio’s company once hosted a group of cattle ranchers as clients, and he wanted to make it a memorable party, so he hired a stripper.
The stripper, dressed as a cowboy, put on a performance that involved a striptease and a lasso routine. Although the incident was controversial and some employees were offended, Dalio said it was a valuable learning experience.
He realised that his actions had created an uncomfortable environment for some of his staff, leading him to reassess the company’s culture.
The event inspired Dalio to create his “Principles.” These guidelines have since become the foundation of Bridgewater Associates’ corporate culture.
Ray Dalio’s book “Principles” is about being super open, listening to different opinions, and making decisions based on what’s best for everyone. That crazy story with the stripper shows how Dalio’s unique experiences have helped shape his way of leading and creating an incredible company culture.
Once, Jim Haskel, an employee of Dalio’s, emailed him openly criticising a meeting Dalio had led. Haskel thought the meeting was disorganised and Dalio’s performance was subpar.
Instead of being defensive or punishing the employee, Dalio appreciated the feedback, acknowledged his shortcomings, and even shared the email with the entire company.
It highlights Ray Dalio’s commitment to being open leads to an excellent environment for talking freely and always learning. Because of this, Bridgewater Associates have grown into one of the world’s most significant hedge funds.
Thanks to his reputation as one of the world’s top hedge fund managers, folks can’t help but eagerly listen to Dalio’s every word as if it’s their lifeline.
One deeply held opinion Dalio shared during an interview was that “cash is trash,” referring to the notion that cash is the worst investment due to its loss of buying power.
Ray Dalio—Source
“I’ve been quoted saying cash is trash. What most investors think is the safest investment is the worst investment.
It’s important because it loses buying power.
I would say to investors not to judge anything in your returns or your assets in nominal terms or how many dollars you have.
View it in terms of inflation-adjusted dollars, and with cash, like this year, you’ll lose four or five per cent to inflation.
So, pay attention to that because I believe it’ll be the worst investment.
Beyond that, the important thing is to diversify your portfolio well”
When the Facts Change, You Should Change Your Mind.
Dalio has since changed his mind about cash being trash.
In a recent interview, he shared his thoughts on the current state of the economy and the role of the Federal Reserve.
According to Dalio, we’ve been in the 12th and a half economic debt cycle since 1945. He explained that these cycles involve economic weakness, stimulus, debt, inflation, and monetary tightening.
Dalio pointed out that in 2020, the combination of COVID-19 and a shift in wealth distribution led to the government sending out checks to citizens.
This funding was provided by the Federal Reserve, leading to an imbalance and a lot of money in the system. As a result, we’re now experiencing higher interest rates, with cash becoming more attractive.
When interest rates go up, and money gets harder, areas of the economy and market that need cash flow, like tech stocks, private equity, and venture capital, start to struggle.
Dalio emphasised that we’re witnessing a classic cycle, but with the accumulation of debt and money since 1945, there are concerns about the value of the dollar and the global economy.
Dalio urges you to pay more attention to the enormous economic cycles, their impact on the world, and the value of your money.
Ray Dalio — Source
“Previously, Cash used to be trashy, as it had negative real rates.
But now, with real interest rates going from minus 175 basis points to plus 175 basis points, cash has become relatively attractive.
It’s not only appealing in relation to bonds but also to stocks. As rates go up and money becomes tight, cash emerges as an increasingly viable option for investors.”
Final Thoughts
Ray Dalio’s ever-evolving perspective on investments reflects his experience and adaptability.
He’s not afraid to change his mind when the facts change, as seen with his recent shift from “cash is trash” to recognising cash as an attractive investment option.
And I agree with him. Money is drying up.
As interest rates rise, stock prices plummet, and money becomes tighter, sitting on cash is emerging as a viable choice for investors.
When Ray Dalio shares his insights, it’s worth listening in and considering how these ideas might impact your financial decisions.
He says not only is cash more appealing compared to bonds, but it’s also becoming more attractive than stocks.
As interest rates rise and money becomes harder to borrow, investors find cash a more suitable option.