We Study Billionaires - The Investor’s Podcast Network - TIP 037 : Billionaire Ray Dalio and other Market Wizards (Investing Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 37 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is The Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish, and Sting Broderson. Hey, how's everybody doing out there?

Starting point is 00:00:30 This is Preston Pish, and I'm your host for The Investors Podcast. And as usual, I'm accompanied by my co-host Stig Broderson out in Denmark. And today we've got a really good book that we're going to be discussing. The name of the book was Hedge Fund Market Wizards by Jack Swagger. And for anybody that knows Jack Swagger in the investing community, he's one of the best writers out there. And the reason that we really like Jack Swagger so much is because he just asked such intelligent questions. When you're going through the book and you're reading some of his initial questions are pretty generic, but then he really gets into the meat and potatoes of everyone's investing approach.

Starting point is 00:01:05 And I think that because he has such a firm understanding of investing himself, he's able to ask some of these really intelligent questions. So he's able to extract some knowledge out of these just top level performers, these guys that are managing just billions of dollars. And it's a really awesome opportunity to just kind of step into their world and really kind of be able to extract those key elements. Without further ado, Stig and I've got this episode laid out into two different segments. The first segment, we're going to be talking about the top themes that we were able to pull from the book. And then in the second part of the episode, we're going to go ahead and just highlight a few of the hedge fund managers that we found to be the most interesting or that had probably the best results. So what's really fascinating in the book is that Jack Swagger goes through. Fifteen people were interviewed in this book.

Starting point is 00:01:51 Each one of them either managed a billion dollar kind of portfolio or their billionaires themselves. Like Ray Dalio is one of the people in the book. Ray Dahlia's personal net worth is $16 billion. So you got some high net wealth people that were interviewed in this book. And it was just amazing to see how he kind of – I think the most amazing thing for me was the difference in all of their different approaches. That's the thing that was really quite fascinating. So what we're going to do is we're going to highlight the things that we found that were common amongst all the different people that he highlighted in the book. Because I think that's what gives people probably the best tools that they could,

Starting point is 00:02:28 implement into their own strategy because if every one of these guys is doing the same thing, or at least one of these same elements, you probably need to be thinking about that in your approach as well. So the first theme that we're going to talk about that we saw amongst all 15 of these people was the idea of asymmetrical trades. So what this is is that these gentlemen are not going to take on a trade. And I'm going to be using the word trade instead of investing, just because there was a lot of people in this book that had a short-term approach to the way that they were making money in the market, which flies completely in the face of the way that Warren Buffett invests, and that's how Stig and I talk about our investing.

Starting point is 00:03:10 So, and just so you know, that's still how we look at things. We really haven't changed our approach to investing, but we want to highlight this idea of this asymmetrical trades because these gentlemen don't take on a position in a stock, a bond, an option unless they feel that they have an enormous upside versus a very small and minimal downside. And that's what he means by taking on an asymmetrical trade. And we saw this amongst each person was, hey, my upside is 60% and my downside is probably 2% or really small and minimal.

Starting point is 00:03:47 Because of that, you saw a lot of people in this book that really didn't take on a lot of short selling for a long. term strategy. Now, they talked a lot about short selling. Don't get me wrong. But in general, a lot of the people did not like to short sell because they limit their upside with that. They want to be on the option of that. Whenever they want to short sell, they typically went into the options arena because they would have a much larger upside versus the downside. Go ahead, stick. I see you have a point on that. Yeah. And one of the things that I really noticed was the Swagger, whenever he was into you and people, he wanted to talk about the fantastic return

Starting point is 00:04:25 that they were getting. But, you know, all I guess, as far as I read it, they wanted to talk about how they were limiting their downside. And I actually thought that was quite interesting because they weren't too much about, yeah, I had 20% last year or 25%. That wasn't that important. It was more about risk management. So I just think that, especially in the Times they're in right now, is something that's really profound for me when I hear about these successful investors. On that point stick, I found it really cool that most of these guys wanted to talk. about their losses. They wanted to talk about their bad years or like these really bad experiences. They almost always gravitated towards that in these interviews. And what I also found interesting is when

Starting point is 00:05:07 you track back to the start that most of all these gentlemen had, it almost always started because they had a really bad experience. Yeah. Like they had, they started off. They had some maybe big returns up like the first year or something like that and then they just got slaughtered in the market like lost half or like 75% of their entire net worth and then they were able to adjust their investing style and they were able to basically take it on a whole different course from that point. Yeah. And on that note, I think that one of the common denominators were that they would keep updating themselves. They would keep learning. And I think that was why they were talking so much about their own mistakes.

Starting point is 00:05:48 And that was also something Redalia was talking about that. He was really learning from his mistakes. And at the very beginning, I know we would talk more about Redalia, but he said that in the very beginning, he was writing down his mistakes and how he did it. But he also soon figured out that he didn't have time enough to do all the mistakes in the world. That was simply a too slower of an approach.

Starting point is 00:06:10 So he had to do something different to capture all the mistakes. But he kept talking about his mistakes, which, you know, I'm thinking if I'm a redale and I'm worth like $18 billion, I would probably more be talking about how successful I am and why I'm successful, but he didn't do that. And there was the same thing for all the people in the book that kept talking about the failures and how they learned from that mistake. And I just thought that was really profound. Well, okay, so that's the first point is asymmetrical trades and how they're always trying

Starting point is 00:06:39 to look for those big opportunities. The next one that we're going to talk about is whether you, you're right or you're wrong and that it really doesn't matter. All that it matters is whether you're actually able to beat the market. And so this idea was something that you saw a lot of gentlemen in this book talk about. And I completely agree with it because you can have the best theory in the world. You can have, let me give you an example. So Stig and I really enjoy accounting.

Starting point is 00:07:09 And people that have this accounting background typically like to go in and determine what they think the value of a company is. That's the really kind of the essence of the Warren Buffett approach. And so we're very quantitative people. We like to get in there. We like to see what we think the cash flow is going to be. Then we discount those back to the present day value and we come up with this value that we think that the company is worth. And so let's say we come to the determination that we think the company is worth $70 at a certain discount rate and it's currently trading on the market for $50. So we think that the company might be undervalued by $20. So it doesn't matter whether we're right or wrong.

Starting point is 00:07:47 It matters whether we hold that position long enough that it actually becomes worth $70. That's the difference between being right and wrong and being able to make money in the market. And that's what these gentlemen we're all saying in the book is, you can have the best philosophy in the world. But if you can't stand by it until you actually get results, you're probably going to not last very long and being a stock investor. So I really like that point because it is. is so true and you see a lot of academics specifically, and I don't mean to bash at the academic world, but you see a lot of academics that come up with all these great theories. But you know what?

Starting point is 00:08:22 If you don't know how to apply it in the real world so that you can actually make money, the theory is worthless in application. Okay, so moving on to the next theme that we had, this is one that we've been saying probably a lot on the show. So we're going to probably breeze over this pretty quickly. But something that we saw that was really interesting amongst all these different traders was the fact that they are using a strategy that works for them. When you looked at each person, each person had a different approach and each person had results to back up that their approach works. Like there's no disputing that what they're doing is a successful way to invest. So for me, it was just a really good representation that you're seeing in the book. You're seeing,

Starting point is 00:09:04 hey, this guy is successful, the next guy is successful. And they're implementing strategies that are just so different. And you look at their personality. The one guy they talked about his personality where he's like yelling on the phone and he like smashed, I don't know, 25 phones or something like that. So his personality is just really rambunctious. But when you look at a guy like Warren Buffett, it's completely different. Now, I'm sure Buffett's returns are infinitely better than this other gentleman that I'm referring to. But the fact of the matter is this guy was successful. He was a successful trader.

Starting point is 00:09:34 Now, you might not agree with his approach in the way that he acts in the office. But you can't dispute the fact that the guy is not implementing. a strategy that beats the market. And so his personality, and my whole point in saying this is his personality is completely different than another person's personality, which is different than the next person. And so you have to kind of match your personality with your investing approach. And something that I liked about the book is you can look at these different gentlemen say, hey, I'm a lot like this guy. That's kind of the way I see the world. And maybe you can dig into his approach a little bit more. So that's probably the part that I think is good for maybe an early

Starting point is 00:10:10 investor as they'd be reading this. I was really exciting reading this book and how it happened was actually that Preston sent me an email that he would really eat this book up and so I was really excited about it and then I saw it was like 16 hours because I'm listening to all my books

Starting point is 00:10:26 and it's just thought oh no 16 hours that's a long time but I think it was the in my opinion it was almost like the shortest book I ever read because it was so good like I had to cancel appointments and this was just fantastic book I was just eating it up

Starting point is 00:10:41 but the funny thing is that there was like 15 people and I probably say I could implement strategies from one of them, one and a half perhaps. Yeah. I mean, a lot of these strategies that they were talking about, even though that Swagger had, you know, did a great job about making it more simple and details, you know, I do consider myself a somewhat intelligent person, but I had no clue how they did it. Like, they were talking about how they were trading all these options and how they were

Starting point is 00:11:09 trading volatility. and I don't know. I don't know. What about you, present? What were you thinking like, yeah, this is so obvious

Starting point is 00:11:16 why I should be doing that or is it just me? I got the exact same impression from this book. So I'm reading it and it's just like, I'm like, wow, like,

Starting point is 00:11:25 really, is that, this is really how this guy is doing it? Like, there was times, there was a few people in there. I was like, there is no way that strategy could last over the long term.

Starting point is 00:11:34 And then he'd be like, and so he's been doing this for 25 years. You're just like, what? But yeah, no, I love the book because it really kind of opened my eyes to the fact that there are people out there that can do some crazy stuff and still be successful in their approach. I think if you would have told me that somebody had some of these different approaches, I would have said there is no way that will last over the long term. And so I'm obviously wrong because there's proof in their performance.

Starting point is 00:12:05 But I'm right there with you, Stig. there was maybe a couple, two, maybe three people that I'd say, yeah, I think that that's probably something that I could implement into my own approach. But don't take that as, you know, you should avoid reading the book altogether because what I really liked about the book was that it really challenged a lot of my own ideas. And I love that. I really like when that happens because that's where, you know, you're able to uncover truth in your own life and your own approach. and that's what I really liked about it. Yeah, and just another point on that, because I was thinking with myself,

Starting point is 00:12:42 who would I invest with if I had to invest in some of these people here? And I got to say, you know, someone like Greenblatt a lot like his work and someone like Redallio really impressed me. I knew them a lot beforehand, but I don't think I would be comfortable investing with some of the other guys, even though they've been, you know, beating the market for like 20 years, because basically I don't. understand what they're doing in how it works like it does. Like you have someone saying, I think it was Larry Benedict who said, yeah, so whenever the

Starting point is 00:13:13 market has dropped three days, I would usually go long because that's just my experience that it will make sense to do that. And I really don't want to give that guy my money, right? I mean, it doesn't make any sense to me. Come on. No, I felt the same way, man. I was like, really? Like, are these guys, I wouldn't even be comfortable saying something like that even if I

Starting point is 00:13:35 did believe it. You know, and I mean, it's in the book. These guys are saying some of this stuff. And I just, you know, I liked it, though. I thoroughly enjoyed reading some of these stories because they were, they were very surprising. I think some of them were really surprising. All right. So this, this next point is one that I really want to talk about because I think this is very important. So one of the gentlemen, I forget which one it was, there's three different ways to beat the market. Okay. You can pick stocks better. That's one way. So that would really kind of go into. to maybe the Warren Buffett approach. He's the master of picking the stocks that are better than the other ones on the market.

Starting point is 00:14:12 That's why he outperforms it. The next one, the next approach is that you can time the market better. And I think everybody, if you tell somebody that you know when the market's going to hit a top or a bottom, how much do you believe that person's Stig? I don't know. Do you think people believe us when you say the market is overvalued, Tristan? Well, I think there's a difference in saying that you feel like the market is becoming overvalued, and you're calling a top or a bottom. Yeah, I agree with you.

Starting point is 00:14:42 And so I think that if you have a person that tells you, hey, we are at the top, baby, you need to sell. I think you need to run away from that person as far as you can get. And so if you're trying to pick stocks better than the other person, I think that that's hard to do. I think it can be done, but I think it's hard to do. if you're trying to time the market, I think that's almost impossible to do. Okay. And so then the third approach is you can adjust your exposure at a better point in time. And so if you're looking at those three different options, the first two are extremely difficult to do.

Starting point is 00:15:15 The third one, I think, is a lot easier to do where you are, again, limiting your downside. And so when you look at all these gentlemen, the one thing that they really had in common was they were adjusting their exposure, whenever they felt like they were in risky times or high overvalued times. And because they were adjusting that exposure into something that was much safer that would protect their principle, they were able to really circumnavigate all these financial storms like 2008. A lot of these guys were in the green in 2008, 2009. And I think a lot of that had to do with they were not in a position where they were trying to get their money out after the market had already gone down 25%.

Starting point is 00:16:01 They had adjusted their exposure to equities or whatever the big risk at the time was, and they were in a position that they were going to just basically protect their principal during those periods of time. And I think that is a huge learning point that people can really take away from this book. So the next point that we have kind of goes hand in hand with that one, and that's that these gentlemen were always preparing themselves for the Black Swan. I know we've mentioned that book a few times, and to be honest with you, Stig and I have that on our list to go through an entire review of the Black Swan because that was one of Jeff Bezos's favorite books. That was, I think Michael Bloomberg also subscribes to the lessons in that book.

Starting point is 00:16:42 But anyway, these gentlemen were always prepared for that one big event that they could not predict. And if that event did hit, they were not going to lose 50% of their net worth. They were only going to lose a very small percentage of their net worth if that Black Swan would come on. along. So I found that to be a very important point for people that are really have focused portfolios. You know, Warren Buffett talks huge about having a focused portfolio. But at the same time, Warren Buffett also has, what is it, 70 operational subsidiaries and I don't even know how many non-operational subsidiaries. So he's diversified. Like, don't think for a second that he's not diversified. But the real point here is you've got to be prepared. Let's say half of your portfolios in

Starting point is 00:17:27 one particular pick. We don't see that amongst any of these people. They do not have that much focus. They have maybe 10%, you know, maybe 15% at most. And when you're doing that, you're protecting yourself from that big catastrophic event that could wipe you out. Okay, so the last thing that we're going to talk about is this idea of the efficient market hypothesis. So everybody that's a Warren Buffett fan knows how much he dislikes the efficient market hypothesis. hypothesis. And you know what? We found that same theme amongst every single person in this book. For anybody who's not familiar with the efficient market hypothesis, the idea is quite simple, is just that at any given point in time, the market is properly valued. So right now, wherever the Dow Jones or the S&P 500, whatever metric you want to use for the equity market in the United States, these people in academia is pretty much where all these people live.

Starting point is 00:18:25 So all of Stiggs people, I'm just... Thank you very much, Preston. I'm just joking. I have nothing against academia. I truly value what they do. But this is one of those things that I think a lot of people, that you see a lot of conflict between the people that are in application mode sitting on Wall Street, running these big companies that are making large amounts of money, they go toe to toe with all of academia

Starting point is 00:18:52 that believes that the efficient market hypothesis is real and actually works. So, Stig, I know you got some points on this. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

Starting point is 00:19:19 From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people. are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to, but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations,

Starting point is 00:20:12 and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real?

Starting point is 00:20:47 because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on,

Starting point is 00:21:28 it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, Demycifying AI at Nessuite.com slash study. The guide is free to you at netseweet.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world.

Starting point is 00:22:16 and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing

Starting point is 00:22:51 sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. Yeah. I got to give a shout out to more professor because, you know, he talks about. told everybody, including me of course, that we had to believe in the efficient market

Starting point is 00:23:19 hypothesis. And every time we talked about this, he always ended his sentences with this, investment bankers drive Ferrari and I drive a Kia. But I just want to say that the market is efficient. And I think that was his strong belief that he could observe that a lot of people in the stock market was rich than he was, but he just really felt that there was nothing as well-proven. as the efficient market hypothesis. So it's kind of contradictory, and I remember back when the market crashed back in 2008. We were still told that it was because the market was efficient. And it just didn't make sense to me.

Starting point is 00:24:00 How can you cut the market in half and say it was efficient before and efficient after? It just doesn't get sense to me. I think even academia, I mean, they tell you that, but like your professor said, And that's why I drive it. So he knows that the model kind of works. I think that's the best. And I think we talked about this in a previous episode where maybe it was Jim Rickards or I forget whether maybe we even read it in this book.

Starting point is 00:24:28 I don't remember where I read it. But somebody was talking about the reason that academia uses this model is because it's the only model that they can apply mathematics to. So if you get into something that has an uneven distribution, the mathematics on everything just kind of breaks down. And so how are you going to teach that as a professor when you're trying to teach your students the different models? If they can't back it up with mathematics, well, you know, that doesn't work. So you kind of have to subscribe to this efficient market hypothesis in academia because you've got to be able to do the mathematical models and grade the homework assignments, I guess. Yeah, and we had one of the investors in the book.

Starting point is 00:25:06 He was being tested in the efficient market hypothesis when he was back in college. And he refused to give the right answer. So he was actually, it was just hilarious. He was putting a note on the front page of his test. And he was saying, I don't believe in efficient market hypothesis. And this is why. And of course, he failed the course. But, you know, I just really like that.

Starting point is 00:25:29 I would have failed him. You would have failed him. Yeah. No, I wouldn't have. All right. So let's talk about, there's a really, really good example in this book that I absolutely love that just smashes this efficient market hypothesis with a hammer. This is this gentleman, Edward Thorpe is his name.

Starting point is 00:25:49 And so Edward Thorpe, for anybody who knows who Edward Thorpe is, he wrote a book called Beat the Dealer. And we're going to talk about this a little bit more later on. But Edward Thorpe has beaten the market 227 months. He has 227 winning months out of 230 months of trading. And so if we were going to use a binary, let's just say, true or false kind of prediction, is he going to beat the market or is he not going to beat the market in this particular month? And you got 220.

Starting point is 00:26:23 So if we were going to turn that into like a heads or tails flip of the coin, if you were going to flip a coin 230 times and it landed on heads 227 times, you would either think there's something wrong with that coin or there's something else going on here. because in order for that to happen, it's a one times 10 to the 63rd power chance that you would actually do that. So for anybody that's a numbers person, you know the probability is pretty much impossible. That is just insane odds. And I think that when you look at him and you look at all these other people out there that have similar numbers, like Ray Dalio, I think he's only had, what, two or three down years and like 35 years of trading or something.

Starting point is 00:27:08 something like that, it's totally crazy. It's totally nuts. So the fact that you have so many people that are doing this, I think just absolutely shatters the idea that the efficient market hypothesis is a real model that works or that represents what's happening in real terms. I just don't see that to be the truth. So let's keep talking about Edward Thorpe. So Edward Thorpe was probably one of the more interesting people that they talked about in the book. And the reason I felt that way is just because of the way that they started off talking about him. So Edward Thorpe is just a mathematical genius. He is a statistics guru.

Starting point is 00:27:46 And so he kind of got his start by really dispelling some of the ideas that you can't beat casino odds. And so he took it upon himself to try to mathematically prove that certain games, blackjack and surprisingly roulette, he felt that he had a formula that he could beat the casino in those two games. So with Blackjack, he is the guy who developed the idea of counting cards. There was a movie, what was the name of the movie that they had the MIT students go out to Vegas? Do you know the name of that, Stig? Yeah, I think it was it was 21, the one with Kevin Spacey. Yeah, 21 with Kevin Spacey.

Starting point is 00:28:26 So that method for beating Blackjack was Edward Thorpe, who wrote this book. And the name of the book was, let me see here at my notes, beat the dealer was the name of the book. Edward Thorpe came up with that strategy. So in addition to that, Edward Thorpe thought that he could beat roulette. And so I'm reading this book and I'm like, how in the world could you beat roulette? Like that is just so mathematically improbable. I want to say the odds or something like around 47% for you to win.

Starting point is 00:29:00 if you're just playing like the blacks and the reds because of the green element on the roulette will for anybody that's familiar with roulette. But Edward Thorpe had a different opinion. So the way he did this, and they talk about it in this book, it's fascinating, the interview. He talks about the idea that if he could figure out the velocity of the ball spinning around the wheel, if he knew how fast that ball was going, he could maybe, and this was his theory, he could maybe determine where the ball would land on and on which number. So what he did, this is amazing, what he did is he put a device in his shoe that he could click with his foot.

Starting point is 00:29:44 And what he was doing is he was timing the velocity of the ball going around the roulette wheel. So let's just say he was using the green mark on the wheel as like a point that he could mark against the ball as it was rolling in. the opposite direction. So he would mark it when it passed at the first time and then when it passed at the second time, he'd click the button a second time. And then I think it was maybe a secondary person. I can't remember how it went exactly. But there was a secondary person that knew the velocity and the probability of where that ball and the number that ball was going to land on. And then they would place their bets. And he says that in this book, he says that he was able to prove it out. He was able to implement this strategy successfully. And the rest is history. So this is

Starting point is 00:30:28 kind of guy that you're dealing with. And this is also the same guy that beat the market 227 months out of 230 with his strategy. And if I remember right, he was doing it through options. He was basically an options expert and he was implementing options strategies that were just beating the pulp out of the market. So that was an amazing story in this book. I would argue that the book was worth buying just for that story alone where he discussed Edward Thorpe.

Starting point is 00:30:54 Yeah. And I think his humor was fantastic because he was saying, I can't understand why the casinos are so mad at me. Yes, there might be a few that can use my system and the casinos will lose a bit of money. But he was saying there are so many people coming to Vegas and think they can beat the house now because I told people that they can't do that. And the casinos are making much more money out of that than they're losing to someone like me. So I just like that analogy that he was having.

Starting point is 00:31:21 No, this was a good story. All right. So let's go on to, and just so you guys know, we're in the second part of the segment where we're talking about a few of the people that we really liked in the book. So the next one we're going to talk about is Ray Dalio. So I want to come clean because whenever we first did the Tony Robbins book, this was on episode 18 where we talked about Tony Robbins' new book called Money. He talked about Ray Dalio until he was blue in the face.

Starting point is 00:31:45 And now I feel like I'm the person who's talking about Ray Dalio until I'm blue in the face. And the main reason why is, you know, if you remember back to that episode, Stig and I were really kind of beaten Tony Robbins up and Ray Dalio up because of the fact that he said that he would invest in gold. He said that at the time, what was it, 7.5% of the portfolio should be in gold. Is that what he said? So for me, I'm, you know, I hate eating crow and going back on anything that I say. But at the same time, I feel like I have a deep obligation to be honest with people here and tell you kind of the way that Stig and I have been looking at things. So ever since that interview, whenever Ray Dalio, this gentleman who has a net worth, personal net worth of $16 billion, he manages the biggest hedge fund in the entire planet, said that he would have 7.5% of his portfolio and gold.

Starting point is 00:32:39 I did not understand that for the life of me. I was like, why in the world would this guy be saying that? I mean, for the last, what would it be, five months, I have been researching the living daylights out of Ray Dalio and trying to read every single thing I can get my hands on with this. guy to try to understand why he had that opinion. And I feel like I totally understand his opinion now. And it really comes down to the fact that Ray Dalio got his start as a commodities and currency trader. And so Ray Dalio understands currencies. He understands commodities very well. And he started this company called Bridgewater, which we've talked about a lot. We've told people about the video that he made.

Starting point is 00:33:21 And his company currently has $120 billion in assets that they manage, which is just unprecedented. And what's even more unprecedented is his performance. Okay. So when we talk about Ray Dalio's performance, let me give you a few stats here. So you kind of understand the magnitude of his performance. So he has a fund, and it's called the Alpha Fund. And this fund tries to perform it 18% annually is what this fund tries to do. is what this fund tries to do.

Starting point is 00:33:51 In 2008, when the market was down 50%, his fund returned 8.7% in the green. Okay, so that's like beating the market by like 60% to 70% depending on which index you're using. In 2010, okay, just after, you know, everything had the total meltdown, he had a 44.8% return. That's totally insane. in 2011 when the market was down a little bit that year.

Starting point is 00:34:22 He was like up in the 30 or 40% range. So his returns are totally astronomical. So his approach is so much different than Warren Buffett. So Warren Buffett is a micro guy. He's looking at the individual companies. He's trying to find companies that are undervalued when you're comparing it to a 10-year treasury. But Dalio, what he's doing is he's looking at the macro picture. is a macro trader.

Starting point is 00:34:49 And I'm going to try to explain his investing approach a lot better for people so that they understand this. So the first thing you've got to understand with Ray Dalio's approach is that he breaks things down into four different quadrants. And he uses two different things to determine that. The first thing that he looks out is inflation for whatever particular country that he invest in. And just so people know, his fund is completely.

Starting point is 00:35:17 computer managed. He is not picking the companies like Warren Buffett is. He has a computer algorithm that is picking stocks completely hands off, and this thing is making the selections for him. And in the interview that in this book, he talks about that and he talks about how 99% of all his trades are done by a computer. I find that absolutely fascinating. But anyway, going back to his approach and how he's doing this.

Starting point is 00:35:45 So what he does is he looks across the world. He's not just looking at the U.S. He's looking at all markets across the world. And he's distributing all of his picks in all these different markets to mitigate his risk. So we were talking about probabilities earlier. This is where Ray Dalio comes in. So he has just countless thousands of different picks. Now they're nested inside of ETFs and other vehicles.

Starting point is 00:36:12 So he's distributing that across many different platforms. I mean, he's not completely inequities. In fact, a lot of his money is not inequities. And I think that that's something that's amazing. So back to this quadrant. So the first variable that he's looking at is inflation. Is inflation rising or is inflation decreasing? Then the other variable that he's looking at is the economy, GDP, is it growing or is it slowing?

Starting point is 00:36:39 And whenever you have these two variables, you're able to break things into a four-peach. quadrant. So let me give you an example. If he finds an economy in the world that it has a rising inflation and a growing GDP, that is in one of the four quadrants. So the opposite of that quadrant would be a slowing GDP and a decreasing inflation or deflation occurring. That's a different quadrant. Then you could have on the opposite sides of those quadrants would be an accelerating growth, but a declining inflation. So whenever he looks at these different quadrants, he has different asset classes that he's willing to invest in each one of these

Starting point is 00:37:24 quadrants. So let me give you an example. If he finds an economy that has a rising inflation and growing GDP, think China, okay, that's a quadrant that he would be comfortable investing in emerging equities. He'd be interested in investing in emerging bonds. spreads, things like that. There's different asset classes in that quadrant that he's willing to buy. As the economy, let's say we're talking about China here, let's say that their inflation starts to slow and their growth, their GDP growth starts to slow. As that magnitude decreases,

Starting point is 00:38:01 he automatically starts moving into a more cash position. Okay. So I'm just providing a brief example of how he's doing this, but it's a very dynamic approach, and he's using inflation and growth in order to determine which asset class he needs to be in. Now, I could go on more details, but I think over audio, and as you guys are listening to it, it's going to be a little bit hard for people to follow, and it's probably something that you need to read and kind of absorb yourself. We're talking about this a little bit on our form, on the Warren Buffettforum.com. You go in there and maybe search for some of the different results where I've been talking about Dallio. And I've also provided some links to some of the different documents where I'm learning more about Ray's approach.

Starting point is 00:38:47 But absolutely fascinating. I think one of the biggest highlights that we can talk about that occurred during this interview is Ray Dahlia had the quote. He says, diversification is the holy grail of investing. And I totally agree with him because you are limiting your downside. You are distributing your risk. My personal opinion, but based on the performance that I've seen, the approach that he has, I think this person is probably the rising star that everyone needs to watch. Let's take a quick break and hear from today's sponsors.

Starting point is 00:39:19 No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation

Starting point is 00:39:51 across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more.

Starting point is 00:40:38 Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account. is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit plus 500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants

Starting point is 00:41:24 will qualify. Plus 500, it's trading with a plus. investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise Income Fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise income fund in just minutes.

Starting point is 00:42:10 The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risk, charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement.

Starting point is 00:42:37 All right. Back to the show. One of the thing that impressed me with Radalia was that he was talking about these rules because I think that if you read the book, you might be thinking, well, I just need Redalia's computer program. If I had this program, I could also beat the market the same way as he's doing. But what he's talking about is that he has some rules. And as Preston said, more than 99% of his stocks, for instance, they are picked by a computer.

Starting point is 00:43:05 But he keeps changing the rules. And just let me give you one example. Well, he keeps updating the rules. I think it may be a better way to say it. Yeah. Yeah, so yeah, keep updating rules. And let me just give an example of that because when he's, for instance, looking at UK, and he gave an example about oil prices.

Starting point is 00:43:22 So when he's looking at UK that has been an oil importer, for a long time. And now it's an old exporter after they found a lot of oil in the North Sea. That means that he needs to update his rules. So this is not a static program. As president, saying this is very dynamic. So it's very dynamic because he has to account for a lot of different events. But based on those events, he is updating his rules that are basically beat in the market.

Starting point is 00:43:50 He's not looking at the individual company and saying, I want to concentrate my, my portfolio on this type of security. He's saying this bundle of securities are really interesting because this, this and this. And now I'm buying the diversified performance of that bundle. And I was just, I found that's really, really interesting. And really, perhaps that was probably the time that it makes sense to me because also to give a shout out for the book, the Tony Robbins book that Preston was mentioned before. I think the problem was really also confused us was that it was kind of like a formula,

Starting point is 00:44:29 like you should always have 20% long-term bonds. And that system just didn't make any sense to me. But I want to say I'm a believer now. Perhaps not as much as Preston, but it makes sense to me now why he is beating the market. Well, and I think that the, and this is no dig against Tony Robbins, because I have a lot of respect for what Tony Robbins does. But I think that his book definitely comes across that way like, hey, this is, is what Ray Dalio said and you should always have 7.5% in gold, which is not what Ray Dalio is saying

Starting point is 00:44:57 at all. And I think that's where the disconnect. And I think that was one of the reasons why we didn't like it when we read it is because that's how we read it was, hey, this is, this is fixed. This is what it is. And that's not his approach at all. Whenever you look at the way that Ray Dalio has everything structured, it is just amazing. And what he's doing is when I'm talking about those quadrants, how he has a quadrant for rising GDP and rising inflation. So that makes up 25% of his portfolio is he is looking for economies around the world that fit that criteria. And at the same time, he's looking for economies that have the negative inflation and decreasing GDP. He's trying to put 25% of his portfolio into that quadrant.

Starting point is 00:45:40 So as the world is constantly changing and this dynamics is constantly changing, he is constantly adjusting the allocation of his assets in each one of those different quadrants. So absolutely fascinating. I'm sure Stig and I will be talking about some of this stuff through future episodes. We will definitely be more than happy to talk to people about this on our forum. So if you've got more questions, ask them over there. So the last person we're going to talk about, and then we'll wrap up this episode was Joel Greenblatt, which we've got enormous respect for Joel Greenblatt. For anybody who doesn't know, Joel Greenblatt came up with a thing called the Magic Formula.

Starting point is 00:46:16 Joel also wrote the book, the little book that beats the market. And he also wrote the book, You Can Be a Stock Market Genius. I think that if anybody is really trying to look at his approach and how he invest, those are probably the two best places to start. I think you'll probably get a more profound overview of how he does it in those books than you would in this interview. And in this interview, they really kind of talk more about his philanthropic adventures with his education. He's trying to reform the education system. Absolutely awesome read. I really enjoyed reading about that.

Starting point is 00:46:52 And I'll tell you, he's really cracking the code on it. That's what I took away from it, at least. And I think that it was a really valuable discussion. And I think that if you're interested in philanthropy, I think that this is probably a fantastic thing to look at and see the impact that he's making. So, you know, I think that the Groo Greenblatt chapter was really good because I learned a lot from that because Greenblatt,

Starting point is 00:47:15 he's really influenced by Warren Buffett and Warren Buffett's approach to investing. But I also found the difference between Greenblatt and Redali really interesting because what Greenblatt is saying is that you really don't have to update your rules. Now, he's saying that if you follow the magic formula, just really, really short,

Starting point is 00:47:34 he's looking at cheap companies and high-quality companies using two different metrics. If you are just following that formula, then you will beat the market. So it was kind of a different approach than Redalio. And even though that Joe Greenblatt, if you really know him, he has come with a few updates and a bit,

Starting point is 00:47:53 tweaks and tweaks, I think that was really interesting that following rules, updating or not, you can actually beat the market. I mean, at least that was his thesis. So I've got to ask you,

Starting point is 00:48:10 because I thought a lot about this, do you think that you can beat the market simply by following a simple formula? Do you think that's the way to go for a lot of investors? I mean, if you look at Toby's book, Toby Carlisle, who's in our mastermind, I would say yes. I mean, he pretty much shows it through back testing. And I know a lot of people get a little concern when you say the word back testing. But, I mean, he throws Joel Greenblatt's magic formula up against, you know, his recommendation, which is the quires multiple.

Starting point is 00:48:44 And, you know, yes, I do think that you can. I think that it's really important that if you would try to go down that route, you have to be consistent. You can't do it for five years. And then whenever you get taken to the cleaners because the market's down, that you move into a different strategy and think that you're going to have good results. Yeah, because I think it was actually in Greenblatt's section, when he was talking about this, the last decade, the 2000s.

Starting point is 00:49:08 And he was saying that the average investor in the best mutual fund actually made a loss. Whereas the fund did something like 18%. Now that I think about it, it might be actually in the little book, the pizza market. I might interchange those two. But as Preston was saying, if you are, if you're not persistent doing a formula trade, that really doesn't make any sense. And all of this where Toby is doing and Jim Greenblatt is doing, I think it's perfectly fine.

Starting point is 00:49:37 but you have to remember that they're looking at really long time spans. And a lot of investors that jump back and forth, you know, into the market. And if you do that, then formal investing is probably not for you. Okay. So I think we've talked enough about the book. I think you guys got an idea of how complex and how much stuff's in it. But what we're going to do right now is we're going to go to a question from our audience. So our question comes from Jonathan Brasso.

Starting point is 00:50:02 And here's his question. Hey, Preston and Stig. Love the show. This is Jonathan Brasso. And my question is, how do you stay grounded in your value investing principles when all these different macroeconomic factors and other outside information is constantly creeping in? Thanks. Yeah, the first thing I want to say is that it really depends on which kind of security you're looking at. So, for instance, if you're looking at one stock, I think it would be wrong to say something like, Because the debt in Japan is sky high, then something should happen to that single security.

Starting point is 00:50:44 Again, given that it's not heavily exposed to Japan. And that's also why when Preston and I were talking about that the stock market in general is overvalue, that's because we are speaking to a lot of people and a lot of people have a lot of different stocks. I mean, if I would be speaking to Preston specifically about my own portfolio, then you might pay more attention to that security and less attention to the maximum. situation. So, I mean, that's, that's, I just want to say that's very different. And then, for instance, if you're looking at something like a bond, which is just very different than a stock, then macro might be more relevant for you. It might be more relevant to look at the interest

Starting point is 00:51:23 rates. It's extremely relevant to look at the interest rates. And since you're talking about a loan, a bond is basically a loan. Yes, the debt situation for our country might be a genuine, you know, problem for you, a general concern for you. But Clearly, when you manage your own portfolio with individual securities, what I think a lot of people are doing, it doesn't matter if the debt in France is higher or not. This is just not the right way to look at it. So I would say that you need to identify which macroeconomic indicators are important to your portfolio and the way that you invest. And I think that's probably also why you would see Warren Buffett pay much less attention to this than Redalio. That's not because one is smarter than the other.

Starting point is 00:52:05 That's because it's more relevant for RedDalue to look at this. And while it's more relevant for Warren Buffett to look at the micro factors. Yeah, and I think whenever you look at their two approaches, they're just really different. Warren Buffett is a hardcore equity and bond guy in the United States. That's where he has really focused a lot of his attention, where Dalio is really much more of a world investor. So the approaches aren't the same. And at the end of the day, Buffett has had, what's his return like 19. 6% average return since his inception of Berkshire Hathaway.

Starting point is 00:52:40 So at the end of the day, Buffett's returns, they're better than Dahlios, okay, so far. And, you know, Buffett's a micro guy. The best way to ground yourself is to study, study, study, be a learning machine. You know, if you have a long drive to work, you should be knocking out a book a week, you know, and if it's in something that you really have a vested interest with it, whether it's investing or whatever your interest is, put that focus and put that effort into what that thing is that you're really trying to understand. And that's truly how you ground yourself because the truth is going to emerge, the more that you study and learn it. So that's the best advice I can give you.

Starting point is 00:53:19 But, okay, so that's all we have for you guys this week. We really enjoyed the question from Jonathan. Thank you for submitting that. Stig and I will send you a free signed copy of our book, the Warren Buffett accounting book. And for anybody else out there, if you've got a question, go to AsktheInvesters.com and you can record your question there. Also, head over to our forum, the warrenbuffetforum.com. And if you have any questions or you want to bring up any points that we discussed during this episode, you can do it there and Stig and I hang out there all the time.

Starting point is 00:53:44 So we'd love to have you over there. And feel free to sign up on our mailing list if you'd like to get our executive summary of any of our books. For this book that we just did, the hedge fund market wizards, we type up an executive summary. It is like four pages long. We will send that off to you guys and then you can read through. and if you want to see more finer points of any of the people that we discussed, you can get that in our executive summary. We send that out for free. We don't send out any spam.

Starting point is 00:54:10 We hate spam. So, sign up on our list at theinvestorspodcast.com and you can get our free executive summaries. So we really appreciate everyone joining us, and we'll see you guys next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. www.com. Submit your questions or request a guest appearance to the Investors podcast by going to www. www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book.

Starting point is 00:54:45 This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

We Study Billionaires - The Investor’s Podcast Network - TIP 037 : Billionaire Ray Dalio and other Market Wizards (Investing Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.