Two Schools of Investing

Two hedge fund honchos had a conversation at a conference in New York recently, and Forbes reported on this conversation between Bill Ackman and Ray Dalio. The two contrasted their very different but successful investing approaches. The bottom line is that Dalio worries about a lot of things these days while Ackman is less worried.

When asked about the current market environment, Dalio said he is worried about so-called tail risks, unexpectedly severe market moves like the 2008 crisis, as the Federal Reserve contemplates a rise in interest rates. With investors chasing ever scanter yields and driving up the price of perceived safe assets like U.S. stocks, bonds and real estate, Dalio said “what I think going forward over the next few years is that the risk of a downside is material.”

Furthermore, Dalio said he believes expectations for corporate profits are running far too high and not accounting for the drag of rising rates. He characterized profit margin expectations as ”unsustainable” and argued asset prices are at risk over the next three years. “I always think about what is the biggest tail risk,” Dalio said before stating Bridgewater is long bond exposure.