Ray Dalio, 71 (above) enjoys a well-earned reputation as one of the smartest investors in the planet. As a result the multi-billionaire founder of the world’s largest hedge fund, Bridgewater Associates, has an army of devotees. They’ll take comfort from yesterday’s update of Dalio’s ‘bubble indicator’ showing US stocks in general are not in the danger zone.
A bubble, by Dalio’s definition, is an asset trading at an unsustainably high price. After living through a number of these outliers since he started Bridgewater in 1975, and by studying from history, Dalio devised a ‘bubble indicator’ which asks six questions. As the summary below shows, lights are flashing for tech stocks. But it tells us the overall US market is OK.
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Dalio concludes that ‘the aggregate bubble gauge is around the 77th percentile today for the US stock market overall. In the bubble of 2000 and the bubble of 1929 this aggregate gauge had a 100th percentile read.’ As the Once graphic below illustrates – speaking louder than 1 000 words.
But Dalio does warn that some stocks are in ‘extreme bubbles – particularly emerging technology companies’. Overall, however, just 5% of the US’s top thousand companies are in this territory, around half of the number in 2000. However, it’s yet another warning for those replicating the BizNews share portfolio which is heavy in “emerging tech”. Naspers included.
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