Would you play poker for $1 million?

“Timing the market is basically playing poker with the best players in the world who play around the clock with nearly unlimited resources,” says Ray Dalio. He should know. He’s the billionaire founder of the largest hedge fund company in the world, the $160 billion Bridgewater Associates. If you’re trading your own investment account, you may be the weak hand in a very high stakes game.

Are you at the right table?
When you’re picking stocks or trying to time the market, you’re essentially playing cards against Ray and the more than 1,500 highly educated and highly focused market experts working for him at Bridgewater. Unless you have some special insight or advantage that cancels out the collective experience and PhD power of those guys, your basis for beating the market pretty much comes down to luck. Remember, investing is a zero sum game so for you to win, Ray’s team or someone else must lose.  

Surprises that work for you
So what does Ray suggest? Diversify. “It’s the surprises that ultimately determine which asset class will do well,” he says. “If we have a real good growth surprise, that would be very good for stocks and not great for bonds. If we have a surprise drop in inflation, it would be good for bonds.” By holding a mix of different assets, he advises, it allows you to reap the benefits of surprises, whenever and wherever they happen.

Diversify, why?
Wait a minute. Ray, the master of the universe with an army of analysts at his disposal, the stockpicking guru, telling us to diversify?! Yes. Although he’s made his billions at the stock market poker table, his advice for individual investors is a portfolio that will perform through all types of investment environments and earn the long-term returns of the market as a whole. That keeps you out of the business of predicting inflation, interest rates, and economic growth and lets the market work for you.

We completely agree. If you love to gamble, do it with cards and chips, not your financial future. We’d be happy to help!

Max Osbon – mosbon@osboncapital.com