THE BOTTOM LINE: The 'Trump trade' is back and Ray Dalio breaks down the bitcoin bubble

This week:

  • Business Insider CEO Henry Blodget speaks with Ray Dalio, the founder of Bridgewater Associates, the world’s biggest hedge fund. Dalio discusses his assertion that most portfolios should have gold allocated at 5-10%, if for no other reason than it’s a great diversifying asset. He also shares his thoughts on bitcoin, which he says is not an effective medium of exchange, because it’s difficult to buy things using it. Dalio calls bitcoin a speculative bubble, and says it lacks intrinsic value.
  • Dalio breaks down one of the fundamental tenets of his investment approach: that you have to bet against the consensus and also be right. He argues that the following the consensus isn’t viable, because it’s already reflected in the price of an asset. Dalio thinks that, based strictly on an odds basis, a person has better odds of being successful in the Olympics than in the market. He says that, in general, investors buy high and sell low, and uses that as evidence to show that the average man shouldn’t be playing the proverbial game.
  • Business Insider executive editor Sara Silverstein takes a close look at the so-called Trump trade, which has rebounded amid optimism around a Republican tax plan that’s scheduled to be released next week. She specifically cites an index of companies paying high taxes, which would benefit most from the proposed corporate tax cut. After falling over the past few months, the gauge has recovered, and JPMorgan says that the broader S&P 500 stands to benefit greatly from lower taxes.
  • Silverstein also discusses comments made by Jim Febeo, senior vice president of government relations at Fidelity Investments, who stresses the importance of budget reconciliation. Jurrien Timmer, Fidelity’s director of global macro, adds the caveat that most long-term investors don’t need to react to short-term events.
  • Silverstein talks with University of Chicago Booth School of Business professor Luigi Zingales about whether companies should maximise market value. Zingales discusses a research paper he authored, which makes the point that profit maximization is important to shareholders, but it’s not the only thing they care about. Put simply: shareholder welfare is not equal to market value.
  • Building on the debate around profit maximization, Silverstein and Zingales touch upon comments made by imprisoned former pharmaceutical executive Martin Shkreli. Zingales says that while the pursuit of peak profits has become the corporate mantra, that isn’t a hard-and-fast rule. He then talks about how private companies often have considerations beyond profit, and tend to worry more about the well being of employees. Zingales also mentions how the divesting of socially conscious investors is driving the focus on profitability, while not hurting companies.

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