Ray Dalio - Asset Allocation, Risk Parity, Diversification (CNBC)

Full video here http://video.cnbc.com/gallery/?video=3000142389 In this shorter segment of the full CNBC video Bridgewater's CEO Ray Dalio discusses his investment philosophy for achieving a balanced structured portfolio and thereby superior asset allocation. He explains how the macro environment of growth and inflation needs to be carefully matched against the portfolio's volatility of bonds, equities and other assets. [Achieving Strategic Asset Allocation with Risk Parity] "There is the strategic allocation mix which we call 'All Weather'. It has to do with making all the assets the same risk parity. The problem is when people try to diversify and they own equities, and equities have volatility that's large, or they own assets that do well when the economy does well and do badly when the economy does badly, they have a concentration of risks in some assets. They need to do .... so that bonds and equities and pieces have comparable impacts. So that whatever happens in the economy has a balancing effect. That's the All weather piece. We have a lot of diversified bets. It's very important for most people to know when not to make a bet! If you come to the poker table you're going to have to beat me. The nature is a very small percentage of people take money in the poker game. They don't know if it's a good investment or a more expensive investment." [On Bonds vs. Stocks and Diversification of Risk in all periods] "The problem of a stock and a bond portfolio, if you put 50 per cent of your money in stocks and 50 per cent of your money in bonds, the problem is you have about 80 per cent of your risk in stocks and about 20 per cent of your risk in bonds. So you don't have diversification. Imagine if you had a bond portfolio with the same volatility as stocks and you went through the financial crisis. Most of the decline in your portfolio would have been protected because the stocks would have gone up in value by an amount that would have offset the other. You have to have comparable amounts of risk in that."

Comments

1. Ray Dalio is a fucking asshole. This moron thinks Bridgewater is his fiefdom. It's not. We live in a country which follows the rule of law. Read this article in the New York Times that shows how this fuck-face Dalio is like a cult leader. http://www.nytimes.com/2016/07/27/business/dealbook/bridgewater-associates-hedge-fund-culture-ray-dalio.html?_r=0
2. if you don't understand what he says. ..invest with bridgewater
3. That's why he is a billionaire
4. Stocks are more volatile. stocks can go up double, triple, 10x times in price or go down 30%, 50% 90% or even bankrupt. he means stock prices swing a lot more than bond prices.
5. It's a good question. I don't follow textbook portfolio allocation anymore and do not speak for Bridgewater. But it sounds like the approach is to try to equalize the contribution of volatility of each asset class to the portfolio overall and to do this in every period. Thereby achieving, in theory at least, the perfect hedge over time. It's then down to the skill of the manager to try to pick winners. But the risk I can see is that future volatility is never constant. 80/20 would then change.
6. how does he come up with those figures about the risks between stocks and bonds (80/20)?