- Hedge fund guru Ray Dalio offered three investment tips amid coronavirus concerns.
- Dalio cautiouns against investing when there is no "big edge" to exploit.
- Dalio says the coronavirus impact could "become very large" in the near-term.
Hedge fund guru Ray Dalio wrote in a LinkedIn blog post on Tuesday his fundamental investing rules haven’t changed despite coronavirus concerns.
Dalio, Co-Chief Investment Officer and Co-Chairman of the world’s largest hedge fund Bridgewater, explained his three most important principles of investing. These include: 1) don’t invest when there is no “big edge” to take advantage of, 2) don’t bet big on any one investment, and 3) it’s better to stay clear in the face of big unknowns than take a position.
Despite achieving Wall Street fame over the decades, Dalio acknowledged he is “dumb shit” when it comes to analyzing viruses. But after speaking with multiple experts, there are three events going on simultaneously that shouldn’t be confused with each other.
First is the virus itself. It will “almost certainly” go away but before doing so usher in an “uncontained global health crisis” with high economic and human costs. In the near-term, the U.S. will ramp testing which will notably increase the number of confirmed infections. The stresses on hospitals “could become very large” and Dalio wrote he expects “much more serious problems” moving forward.
Second is the economic impact. Dalio wrote the economic impact from the virus will likely be short-term in nature and followed by a rebound.
Third is the impact on stocks. Governments worldwide will certainly implement business-friendly activities to help with an economic rebound. But the market impact on leveraged companies in countries most impacted by the coronavirus will “probably be significant.”
Central banks across the world can cut rates and increase liquidity all they want and this won’t result in individual people going out to buy stuff, he wrote. This holds true across the world.
The bigger problem certain central banks across Europe and Japan face is that they are “virtually out of gas” from years of prior activity. So it is difficult to imagine how any stimulus programs will work in the first place.
“So, it seems to me that containing the economic damage requires coordinated monetary and fiscal policy targeted more at specific cases of debt/liquidity-constrained entities rather than more blanket cuts in rates and broad increases in liquidity,” he wrote.
What Matters Most
Last, and perhaps most important, is something that tends to go overlooked in media outlets. The most important asset an investor needs to protect is themselves and their family and loved ones.
This valuable asset demands immediate action to hedge against the worst-case scenario.