June 19, 2020

Covid and the Little Investor

Everybody and his sister has an opinion about Covid and the state of the world today. Although we don’t begrudge anybody their First Amendment right, it does make it hard to plan for a comfortable retirement.  Who are you supposed to listen to get your ducks in a row? Obviously, there are no guarantees in investments, but if you want to look for advice from somebody, maybe the best person would be somebody incentivized to make it work. Maybe somebody who – going forward - doesn’t want to lose another twenty five billion dollars. 

Meet Ray Dalio. Mr. Dalio is the fund manager for Bridgewater Associates, the largest hedge fund in the world. He knows something about money. He also knows something about losing it. Due to Corona related activity, the hedge fund has recently shrunk 15%. It dropped from $163 billion in assets to $138 billion. In other words, a $25 billion loss. (Luckily that number is so big it doesn’t cause me any consternation. However, that twenty that I left in my pants when they went through the wash last week... You don’t even want to hear about it.) 

Clearly the situation deserves some insight if we want to move forward productively. Ray Dalio is of the opinion that we’re seeing the onset of a new business era. In a Bridgewater note he writes, “Globalization, perhaps the largest driver of developed world profitability over the past few decades, has already peaked. Now the U.S.-China conflict and global pandemic are further accelerating moves by multinationals to reshore and duplicate supply chains, with a focus on reliability as opposed to just cost optimization.” 

What that means is that the era of easy profits is over. For a long time companies have been able to take advantage of globalization and ever increasing efficiencies to spin golden returns. However, if Ray is right, that ability is now on the wane, and companies will have to get solid and focus on stability. Unfortunately, not every company is primed to do that. We could potentially be seeing a lot of corporate shuttering with only the most grounded riding out the storm. 

That in turn means that the little investor should do some investment soul searching. Is the stock market really positioned to be the end-all like it’s always been, or does conservative stability now get a seat at the table? All of a sudden a little grounded self direction sounds like a mighty fine idea. 

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