1:14 AM

eToro-ing the world's largest Hedge Fund: Part 1 - Technical Introduction
For those of you who prefer videos, i have done a series on my YouTube channel here (insert Link)

This is not supposed to be detailed instructional into All-Weather, it is too complex for me to describe here and my YouTube videos but i hope it is general enough for my copiers so you do not need a finance degree to understand.

I will likely do a Udemy course to help describe the methods in more details, but this is a general overview.


Only 2 schools of thought have consistently returned good amount of profits
- Global Macro (Soros, Dalio, Druckenmiller, Rogers)
- Micro/Value investing (Buffet, Munger, Pabrai)

This is an application of Dalio's methods.

This is no secret as Dalio has always been transparent to a very high degree, and he was kind enough to offer an allocation strategy in Tony Robbins book, Money Master the Game.

It involves two important aspects

4 seasons
No not the hotel!

Every economic enviroment can be descibed in 4 seasons.

1.      High Inflation, High Growth
2.      Low Inflation, High Growth
3.      High Inflation, Low Growth
4.      Low Inflation, Low Growth

In any season certain assets will perform well and certain will not.

Source: http://www.wallstreetoasis.com/blog/all-weather-ray-dalios-approach-to-the-ultimate-investment-case-study

Here a graphic of what Dalio proposes.
So if one were to own assets equally, it should be theoretically possible to return in most economic environments and those that you lose it is not too bad.
E.g. when times are Low Inflation, Low Growth. Times are bad, equities are down, the market is cranky. Long Term Treasury bonds and Gold performs well cause no one wants to take risk and rather have a "safe" environment.

2) Risk Parity

The second theoretical part you need to understand is that risk is different per asset.

For instance,
- Google Stocks in Jan 2006 @ $235. Now $832
- 250% increase in 10 years
- 25% Per Year

- 10 year bond in Jan 2006 – Yield 4.30%
- 4.30% per year

This makes sense because bonds have lower risk. But what happens if i borrow money or lever the bonds up say 5x? This will change 10 year bonds return to 21+% a year.

Yes, leveraging increases risk but that is the point of risk parity, changing allocation to match the risk: return ratio for each instrument. 

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