« For all weather conditions. »
In the Systems 101 course—available for Pro members here—, we are teaching the six absolute must-haves for a system to be considered successful:
- Edge
- Teachable
- Repeatable
- Long run survival
- Good money management
- You
(note: If you want a further explanation for each of the six bullet points, refer to “Module 1: Demystifying Systems” and, please, abstract my Tony Montana accent)
Today I want to add one more key to a successful system:
7. A paper napkin
Although not required, it is desirable. In this case, it represents simplicity. If you can draw your system’s main strategy and also encompass its concept in an ordinary paper napkin, preferably during an informal dinner, hand it to a friend and he/she understands it with little to no effort, dude, you’re good.
Ray Dalio, the famous hedge fund manager, philanthropist, founder, co-chairman and co-chief investment officer of investment firm Bridgewater Associates, one of the world’s largest hedge funds, did just that with his prosperous All Weather Portfolio. It is so simple you can trace it on a piece of napkin and teach anyone how it works.
That is how you know you really know something: when a paper napkin is all you need to explain your strategy to someone else.
Chart of the Day
All Weather Portfolio (paper napkin version)
“The table illustrates our view of how different macro environments (i.e. rising growth, falling, growth, rising inflation, and falling inflation) benefit different asset classes. By balancing risk equally across the four environments, we can consistently earn asset class risk premiums while minimizing the portfolio’s susceptibility to any one environment.”
Bridgewater – The All Weather Strategy 4Q09 —
Video of the day
4 Factors Ray Dalio Uses to Construct his All-Weather Portfolio
Despite 2017’s record-breaking bull market, investors are still keen on finding portfolio allocations constructed to weather the fiercest of fiscal storms. Renowned investor, best-selling author and founder of Bridgewater Associates Ray Dalio created the “All-Weather Portfolio” which he designed with ultimate balance in mind. Dalio tested his portfolio against some of history’s greatest market fluctuations to insure his formula for reducing risk while maintaining returns stood the test of time. Dalio spoke with Investopedia Editor-In-Chief Caleb Silver about the four factors he uses to build the all-weather portfolio.
Today’s line up
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
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