by Tom Taulli | September 9, 2011 1:43 pm
Out of near obscurity, John Paulson became the world’s most successful investor over the past few years. Back in 2007 and 2008, he made a fortune by shorting the subprime market. He then made another fortune by buying banks — like Bank of America (NYSE:BAC) and Citigroup (NYSE:C) — as well as gold, such as with SPDR Gold Shares (NYSE:GLD).
But this year, Paulson’s results have been disastrous. For his flagship fund, the loss is roughly 34% (it peaked at nearly 40%).
So who is next to take Paulson’s place as the world’s best? Well, according to a recent piece in Bloomberg, it looks like a good pick would be Ray Dalio, who manages Bridgewater Associates — an operation with about $122 billion in assets.
At 62, Dalio certainly has the advantage of seeing his share of market cycles. As a result, he tends to move against investment groupthink.
Of course, this is far from easy — especially in today’s turbulent markets. After all, might we see a repeat of the 2008 crash?
Anything can happen. And this is why Dalio scours many types of investments to find money-making opportunities. For example, during the recent market plunge, he invested heavily in gold as well as various currencies and U.S. Treasuries. He also was shorting stocks.
Consider that for 2011, Dalio’s Pure Alpha II fund has returned 25.3%, and its average annual gain is an incredible 15% since 1991. This is the kind of track record only seen by legendary investors like George Soros, Paul Tudor Jones and James Simons.
In light of all this, what can a typical investor learn from Dalio?
First of all, research is critical. Every trade goes through an extensive due diligence process. Next, Dalio looks at the major global economic trends. As we’ve seen over the years, the financial markets are highly connected.
Finally, it’s a good idea to take a broad look at investments. Often, this means not just buying stocks but also shorting them. With volatile markets, this approach certainly can be a big help in providing for strong long-term returns.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.
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