Ray Dalio is the founder and head of the largest, and also one of the most impressive hedge funds, in the world, Bridgewater Associates.
He made an appearance on CNBC while in Davos at the World Economic Forum.
Here are some highlights, but make sure you watch the interview:
Dalio said:
ā¢ 2013 will be a transition year - cash will move into 'stuff' ā goods, financial assets (like gold and equities), and services.
ā¢ theres so much cash in the financial system because of all the Fed has done, and since cash has a negative real return, its got to go somewhere as risks diminish. Holding cash is becoming less desirable.
ā¢ in his scenario, U.S. investors pile in to stocks, which drives the market higher, and gives the Fed the impetus to raise rates, to tighten, and that is followed up by a pullback across risk assets.
ā¢ Dalio is bearish on Europe, noting the terrible economy and the restructuring is too gradual. He believes Europe will suffer a depression or a 'lost decade.'
ā¢ "The way to look at any market ... is to look at the buyers and sellers and to understand who's buying and who's selling and what the motivations are behind that."
ā¢ "Too many investors are reactive decision makers ā if something has gone up, they say "Aaah, that's a good investment," they don't say "that's more expensive." It's the most common mistake in investing. You have to look ahead and say what is the transaction? What will determine the buyer and the seller?"
Dalio also draws the analogy that investing is a lot like playing poker:
"The bets are zero-sum. In order for you to beat me in the game, its like poker, its a zero sum game. We have 1,500 people that work at Bridgewater, we spend hundreds of millions of dollars on research, and so on. We've been doing this for 37 years and we don't know that we're going to win. We have to have diversified bets. So it's very important for most people to know when not to make a bet. Because if you're going to come to the poker table, you're going to have to beat me, and you're going to have to beat those who take money. So the nature of investing is that a very small percentage of the people take money essentially in that poker game away from other people who don't know when prices go up whether that means it's a good investment or if it's a more expensive investment."
