‘Cash is trash!’
Or so bellowed the legendary investor Ray Dalio at Davos last week.
‘Get out of cash. There’s still a lot of money in cash.’
His gist was that sitting on cash is going to cost you in missed opportunities.
And a lot of people are doing just that.
Goldman put out a note last week that suggested a lot of investors were still sitting on the sidelines. And if this fire power moved in, stocks could move a lot higher still.
The note stated:
‘There may still be room for a more bullish rotation alongside the better growth/rates mix we expect.’
For his part, Ray Dalio later added:
‘You have to have balance … and I think you have to have a certain amount of gold in your portfolio.’
So, are they right?
Is it really time to go full bull-crazy and get out of cash?
Let’s have a look…
Which one is it, Ray?
Given the melt-up rally of late, this is perhaps surprising advice from someone who has voiced such bearish opinions in the past.
As recently as July 2019 in a widely distributed essay entitled ‘The New Paradigm’, Dalio seemed sceptical of equity (share) investments (my emphasis):
‘Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating.
‘As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash).
‘I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.’
As you can tell, Dalio is a good old-fashioned gold bug. Plenty of my fellow editors here at work are, too.
Personally, I prefer Bitcoin [BTC].
And I’m not as pessimistic as some either. I continue to think the right equities will continue to do well too. But you’ve got to pick wisely.
Who’ll be right?
Time will tell…
Much is made of Dalio’s investing prowess and that of his hedge fund Blackwater.
But I sometimes wonder what makes someone a ‘legend’…
Is it their returns?
The story you don’t hear too often is that Dalio’s hedge fund returned a miniscule 0.5% last year. Compare that to the silent dumb money in a stock standard S&P 500 index fund that made 25% last year.
Should I now start pre-facing my sentences with ‘the legendary index fund…’?
Even my little old small-cap service made an average gain of 28% last year and Dalio has probably forgotten more about investing than I’ll ever know!
Am I a legend!? (And can someone tell my wife…!)
I jest of course…
But there’s a grain of truth too.
Legends are often good storytellers who’ve made some money once. It doesn’t mean they’ll make it again. And it doesn’t mean you should copy them without thinking.
Warren Buffett is clearly an investing legend and yet if you’d followed the ‘Oracle of Omaha’ you’d have missed out on exponential investments like Google, Facebook, Amazon, and Apple over the past two decades.
Incidentally, Buffett clearly disagrees with Dalio’s ‘cash is trash’ outlook and is sitting on a huge $128 billion war chest.
The point is this…
I personally believe there’s no one better at managing your money than you.
And while you can take advice, read research and follow experts you respect and like, understand that no one knows what the future holds.
Not you, me, nor Ray Dalio. Not even Warren Buffett.
You’ve got to make you own decisions.
In fact, I think you’ve actually got a big advantage over someone like Dalio who has a mountain of money to manage and a public persona to promote.
Your edge over the ‘Dalios’ of the world
Here’s the thing…
You have a far easier time of investing some of your funds in small-cap stocks riding exponential trends than Dalio. He’s too big to even consider them.
Plus, by having less money you’re a lot nimbler.
You can get out of a stock or thesis if you’re wrong a lot faster, too. Imagine trying to get a few billion out of trade without the market knowing?
But the biggest advantage is that you only answer to one person — yourself.
And that means you can ignore the short-term noise and focus on the long-term big picture.
How will the world look in five years?
How about 10?
It’s actually not as hard as you might think to find trends you can be fairly certain are going to shoot exponentially higher over the years.
It takes a bit of thought and a lot of patience, but the next exponential investing opportunities are there for the taking right now.
No matter the current market drama.
Off the top of my head there’s the ageing population trend, the rise of big data, and the surging growth in battery technology to name just three.
You can be almost certain each of these will be big news over the coming decade.
Find investments in areas like this, and you could be set in tremendous, fast-growing stocks well before any ‘legends’ are.
You never know, you might even become an investing legend yourself!
Editor, Money Morning