BILLIONAIRE HEDGE-FUND MANAGER WARNS A “REVOLUTION” IS COMING
Ray Dalio is extremely worried there’s about to be an uprising in America. BY BESS LEVIN
APRIL 5, 2019
Bridgewater Associates founder Ray Dalio lives a pretty comfortable life, on account of the $16.9 billion to his name. But there’s something keeping him up at night, and it’s not the nagging sense that, at 69, he doesn’t have nearly enough time on earth left to spend that giant chunk of change. It‘s that there’s about to be an uprising in America, spurred by the widening wealth gap, and we all know who tends to fare the worst when the pitchforks come out.
Writing in a new essay on LinkedIn, the founder of the world’s largest hedge fund says that while capitalism has worked out exceedingly well for him, he’s also “seen capitalism evolve in a way that it is not working well for the majority of Americans because it’s producing self-reinforcing spirals up for the haves and down for the have-nots.” In turn, that’s created “widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.” Dalio, who owns a 185-foot yacht, sites statistics that show:
Wages for the majority of Americans have been stagnant since 1980, with those who grew up in the middle class earning less than their parents as the income gap between the poorest and richest grows wider than ever;
Wealth determines the quality of education a child will receive, and because “richer communities tend to have public schools that are far better funded than poorer communities,” the “income/wealth/opportunity gap” gets reinforced; Dalio writes that not educating kids well is “the equivalent of child abuse” and “economically stupid”;
Americans earning less and dying younger—men at the bottom will likely die 10 years earlier than men at the top—has direct (negative) consequences on the economy.
“Disparity in wealth, especially when accompanied by disparity in values, leads to increasing conflict and, in the government, that manifests itself in the form of populism of the left and populism of the right and often in revolutions of one sort or another,” Dalio writes, saying that this makes him especially “worried what the next economic downturn will be like.” Dalio—who believes that firing people “is not a big deal”—would to make clear that the staggering gap between the haves and the have-nots is 100 percent not at all due to “evil rich people doing bad things to poor people” (or “lazy poor people and bureaucratic inefficiencies”), but “how the capitalist system is now working.” To avoid people like, for instance, Ray, being eaten for dinner when the revolution comes, he advises that:
The solution . . . lies in better leadership at the “top of the country;” treating the wealth and income gap as a national emergency; a bipartisan commission to re-engineer the economic system; more accountability, presumably for elected officials; minimum standards for health care and education; some redistributive taxes on the wealthy; and more coordination of monetary and fiscal policy to stimulate growth.
Value
Investing World is a blog dedicated to promoting the multidisciplinary
approach to investing and development of – as Charlie Munger describes
it – a latticework of mental models. Although largely focused on linking
to investing and economic material it deems of interest, it will also
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reading or watching, and will occasionally post investment ideas that it
thinks are worthy of either investment or further investigation by
those with a value investing philosophy.
“Find what turns you on.” Warren said this in response to a question about what advice he’d give to his younger self 50 years ago. He wasn’t talking about sex, but about what you do for a living. And while we’ve all heard “Do what you love”, it’s telling that this is the one thing he’d tell his younger self — it’s that important to happiness. If you do what turns you on, you will be much further along the road to contentment.
Don’t worry about what everyone else is doing. Charlie, who is impressively intelligent, said one of the big advantages that Berkshire Hathaway has had is that Warren and Charlie don’t need to worry about what everyone else is doing (in the investment world). Too many people get caught up in watching everyone else, and letting that influence them, that they lose their inner compass. Instead, figure out the guiding principles that matter the most to you, and let go of the need to check on what everyone else is doing, and the need to compare what you’re doing with everyone else.
Know your strengths. These two guys are very aware of their limitations — they almost never invest in tech companies, for example, because they don’t understand it well — and instead of feeling the need to go into their weak areas, they stay with their strong areas. They know what they’re strong at, and focus on that. Letting go of the need to do everything, and being happy with focusing on less, is an important contentment lesson.
Fewer and higher quality. Warren & Charlie have a “fewer is better” investment philosophy, where they aren’t nearly as active as your usual Wall Street investor … but they focus on a handful of really strong investments. Warren suggests that investors imagine they have a punchcard with 20 punch holes … once you make 20 investments in your lifestime, your punchcard is used up. If you did this, you’d really make them count.
This is the guiding principle, btw, in my book The Power of Less. You don’t need more — instead, be more discerning, and happy with less.
Know what you like and forget the rest. Warren Buffet, one of the world’s wealthiest men, has a nice but modest house and a surprisingly modest Cadillac (that he drives himself), and eats at his favorite (but pretty ordinary) restaurants … he can afford much more extravagance, but forgoes it because he knows the simple things he likes in life. He could have much, much more, but knows that he doesn’t need it. How many of us do that? Just enjoy the things we like, and not worry about what else we could be enjoying, or what everyone else is enjoying.
There will be some who say, “Sure, it’s easy to be content when you’re rich and successful,” but I think this is missing the point. They are successful because of these lessons.
I learned that inspiration for contentment can be found in surprising places, including in Omaha, where everyone I met had a kind word for me, and a smile on their faces. I left with a smile myself.
Carol Loomis, Editor for Warren Buffett, Leaves Job After 60 Years
Carol Loomis is retiring after a 60-year career at Fortune magazine. She also edits Warren Buffett’s writing, like his annual letter to Berkshire Hathaway shareholders.Credit Chang W. Lee/The New York Times
In
January 1954, a bright-eyed 24-year-old from Cole Camp, Mo., walked
into Fortune magazine’s offices at Rockefeller Center. Armed with a
college journalism degree and work experience writing for a Maytag
company magazine, she took an entry-level job assisting Fortune’s male
writers.
The
young woman, Carol Loomis, navigated the magazine’s “Mad Men”-like
culture, on one occasion slapping a married colleague whom, she
delicately recalled, “had an agenda.”
She proved herself as a reporter
but had to battle gender stereotypes. In 1970, she fought her way into
an Economic Club of New York dinner after its director said he did not
want “any frivolous little Smith girls looking for a free dinner and the
chance to spend an evening with 1,200 men in black tie.”
After
60 years at Fortune, Ms. Loomis is retiring as one of the country’s
most venerated financial journalists, with a collection of work that
reads like a history of modern Wall Street.
“She has an analytical mind and she keeps learning,” said Warren E. Buffett,
the billionaire investor and a close friend. “We males never do that. We quit at about 15. We just think we know it all. At 85, she is interested in learning more.”
In
the 1960s, she wrote one of the first articles about hedge funds. She
reported two cover articles on the risk of derivatives in the mid-1990s,
long before those instruments contributed to the near-collapse of the
global economy.
A 1999 piece, “Lies, Damn Lies and Managed Earnings,”
presaged the wave of accounting scandals a few years later. On Monday,
Fortune will publish her final article before she retires, a piece about
one of the world’s most powerful financiers, Laurence D. Fink of
Black Rock.
Ms.
Loomis is perhaps best known as Mr. Buffett’s Boswell. She has been
Fortune’s resident expert on Mr. Buffett since meeting him in 1966, and
each year edits the annual shareholder letter of Mr. Buffett’s company,
Berkshire Hathaway, an unusual role for a financial journalist. The two
speak nearly every business day and are frequent bridge partners,
playing mostly over the Internet.
She
will have more time now for bridge. At her age, she said, it was
becoming too difficult to jump on a plane and take extended trips to
write the deeply reported, lengthy magazine features that she worked on
throughout her career.
“I
began to realize that some of the things that a Fortune writer needs to
do, just take for granted, become a little bit harder at this age,”
said Ms. Loomis, seated in a Fortune conference room on Wednesday. “I
didn’t want to be a Fortune writer who was constrained in any way.”
Ms.
Loomis stressed that her departure had no connection to the recent
spinoff of Fortune’s parent company, Time Inc., from the media
conglomerate Time Warner. In fact, she said she was never fond of Time
Inc.’s 1989 merger with Warner Communications.
Ms. Loomis and Mr. Buffett at a Fortune magazine event in Washington in 2010.Credit
Jemal Countess/Getty Images for Time Inc.
“I
think it’s good that we’re out here on our own, don’t have to send
money to Time Warner, and we sent a lot of money to Time Warner,” she
said.
When
Ms. Loomis started at Fortune, she was surrounded by journalistic
luminaries. The magazine’s masthead included Hedley Donovan, who would
go on to succeed Henry Luce as the editor in chief of Time Inc. William
H. Whyte, author of “The Organization Man,” the seminal book about
corporate culture, and the famed photographer Walker Evans, were also on
the magazine’s staff.
She
soon became a luminary herself. Among her influential articles was a
1966 piece about another former Fortune employee, Alfred Winslow Jones,
considered the father of the hedge fund industry.
For decades, readers
contacted Fortune for copies of the piece to use as a blueprint for
using hedging techniques to make money on both rising and falling
stocks. Ms. Loomis cast something of a skeptical eye on Mr. Jones’s
fund, calling his record in forecasting the market “only fair.”
Alan
Farnham, a former Fortune writer who worked at the magazine during the
1980s and ’90s, said Ms. Loomis taught him how much work went into
producing great journalism. He worked for her as a researcher, and
remembers her arriving at the office with a suitcase of documents and
poring over them for days.
“She would research something to the nth
degree before any of the interviewing started,” he said. “It was evident
by every word and deed that she was committing herself to an
uninterrupted siege of work.”
Fortune’s
editors helped Ms. Loomis over her six-decade career — she is Time
Inc.’s longest-serving employee — by allowing her a flexible schedule.
In 1968, after she had her second child, her editors let her take
summers off. As she hit her mid-60s, she cut her schedule to working
seven months a year. And last year Andrew Serwer, Fortune’s managing
editor, agreed to cut back her output to three lengthy features a year.
“We
wanted to keep her and we wanted to keep her happy,” Mr. Serwer said.
“You should be flexible for your most important employees.”
She
was introduced to Mr. Buffett by her husband, John, a retired partner
at First Manhattan, the New York investment manager. The couple, married
54 years, are longtime Berkshire Hathaway shareholders. They raised two
children in Larchmont, N.Y., the Westchester suburb where they still
live.
Now
that she is officially retired, Ms. Loomis said she hoped to first
catch up on the lunches she missed while finishing her article on Mr.
Fink and BlackRock. She also needs to find a place for the nine boxes of
reporter’s notes cluttering her garage. And she looks forward to
playing more golf and bridge.
Ms.
Loomis also plans to continue her regular conversations with Mr.
Buffett and assist him with his writings. After editing the Berkshire
Hathaway shareholder letter for nearly 40 years, she likes to remind Mr.
Buffett that he still needs her help. She said that dangling
participles and the passive voice were persistent problems.
“I kid him,” she said, “that he missed the class on active verbs.”
My daily struggle is to understand what is important, to my situation, in the constant barrage of information on the Internet. What can and should be ignored? Is my purpose to seek distraction, novelty and entertainment? Or is the goal and purpose to my Net Surfing to gain valuable knowledge? What do I hope to accomplish?
“There are things that attract human attention, and there is often a huge gap between what is important and what is attractive and interesting."
- Yuval Noah Harari
And Donald Trump has not helped make being informed easy with all his mixed messages.
“If the doors of perception were cleansed every thing would appear to man as it is, Infinite. For man has closed himself up, till he sees all things thro' narrow chinks of his cavern.”
