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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