Quote of the Year: The Secret To “Beating The Market”

So, Ray Dalio, who is arguably one of the very best investors of all time, manages a hedge fund that up until last year had enjoyed an 18-year run without a single negative calendar-year return print. Remarkable!!

Well, alas, last year ended the streak; Bridgewater Associates’ Pure Alpha Fund delivered its investors a -0.5% loss in 2019.

Has Dalio lost his touch? Is it time for his investors to move on to younger, greener (or less grey), pastures? Well, the fund has been closed to new investors for years, and, reportedly, there remains $5 billion of anxious investor money on its waiting list. 

Personally, I side with the sentiment of those hopeful of getting a chance to invest their capital with Dalio. In my view, while I at times disagree with his assertions, he is a rare thinker among investors, economists and historians, and he remains exceedingly sharp at the tender age of 70.

Hedge fund manager Colm O’shea — while being interviewed for Hedge Fund Market Wizards — said, words to the effect, that toward the end of a bull market the smart money loses assets under management as it begins to adjust to evolving (and deteriorating) general conditions. 

The “dumb money”, the perennial bulls, thus captures those fleeing “smart-money” assets as it continues to buy as the market melts higher — in the face of waning fundamentals. 

Ultimately, when the inevitable collapse occurs, the forever-bulls wail on that no one could’ve seen it coming, but, as O’shea suggested, that was clearly not the case for those who did the work.

I’ll bet you bigtime that at some point in the future (who knows how long) we’ll look back and say, yep, Dalio knew exactly what he was doing.

For perspective, here’s some wisdom from another of history’s phenomenally successful money managers, Joel Greenblat:

“….to beat the market, you have to do something different from the market. And if you are going to do something different, sometimes you will underperform significantly.”  


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