I love stories of people rising up out of harsh or even ordinary, middle class lives to ones of great influence, wealth and power. Individuals who have experienced life, as most of us have, are generally better suited for having a complete understanding of how markets and economies really work. This is due to the fact that they have firsthand experience making it to the top. Unlike those who are born with a silver spoon in their mouths, this personal experience of making dreams real can teach everyone crucial lessons for any endeavor.
These rags-to-riches stories are perhaps best personified by Ray Dalio, founder of Bridgewater Associates -- the largest hedge fund in the world.
Dalio was born in Queens, NY in 1949 to a jazz musician and stay-at-home mom. He was never very good at early schooling, wanting to understand the "whys" behind everything. Rout memorization just wasn't his thing. He caddied in summers to earn spending money and would listen keenly to the golfers talking about stocks and other investments. Those conversations sparked a lifelong obsession with the financial markets.
Taking the few dollars he managed to save from his caddie tips, 12 year-old Ray purchased shares in Northeast Airlines. The shares promptly tripled in value, cementing his love of the financial markets at an early age. After graduating from Long Island University in 1971, he worked as a clerk on the New York Stock Exchange, then obtained an MBA from Harvard Business School in 1973. Soon after graduating, Ray launched Bridgewater Associates from his apartment. The firm has since grown to manage about $120 billion of institutional money. The firm posted 23% returns in 2011, a year when the average hedge fund lost 4%.
Today, Bridgewater is the world's largest hedge fund.
Dalio takes a macro approach to investing. Ranked No. 33 on the Forbe's 400 list, Dalio considers the markets to be like a machine. He believes by figuring out how the economic machine works will lead to wise investment decisions. This is in contrast to the average hedge fund manager who micro-manages every decision by only looking at the numbers on the screen.
Ray's investments and life itself is guided by a series of principles that are both simple and complex at the same time. (I have linked to these principles here and believe every investor can benefit by a careful read.)
The thing I respect the most about Bridgewater and Ray Dalio is the commitment to transparency. Basically, this means he is open about his mistakes and encourages this trait in others. In many hedge funds, investors are kept in the dark about what the firm is doing except for the occasional monthly or twice-yearly manager letter. Bridgewater investors receive a daily newsletter, monthly performance updates, quarterly reviews and even conference call briefings from Dalio himself.
Every investor can learn an amazing amount from this rags-to-riches hedge fund manager. Let's drill down deeper into his stock holdings and take a closer look at two of his top performers for the second quarter of 2012.
1. Symantec (Nasdaq: SYMC)
This computer security and storage company is Bridgewater's top performer for the second quarter of 2012. The fund owns 1.7 million shares and the stock price has jumped 24.7% in the second quarter of 2012. The company owns the popular Norton anti-virus line of software and has a $13 billion market cap. It does not pay a dividend, but has total cash of $4.11 billion with an operating cash flow of $1.74 billion. The operating and profit margins are even more notable, at 17% for both. Technically, the stock has been in a rip-roaring uptrend since July 24. The stock price pushed all the way to $19.50 prior to slipping back and finding support at $17.50. This pullback has set up a perfect value zone buy opportunity in the $18-$18.50 range. If shares can break resistance at $20.50, I can easily see this stock at $25 in the next year.
2. Walgreen Co. (NYSE: WAG)
This company is perhaps as diametrically different then Symantec as you can imagine. It operates a chain of old-school, brick-and-mortar drug stores in the United States. It is Bridgewater's second top-performer for the second quarter of 2012. Climbing 22.2% in this quarter, the fund holds about 801,000 shares of the drug store chain. Although the company has projected 20% EPS growth for 2013 and is valued at a discount to both Wal-Mart (NYSE: WMT) and CVS (NYSE: CVS), the technical picture is indicating potential exhaustion of the up-move. A breakout above the $37 level will invalidate the bearish pattern, creating a solid entry for those looking to go long on this stock.
Risks to Consider: Just because the world's largest hedge fund owns these stocks does not mean you can't lose money with them. These aggressive up moves are often met with selling, so it's important to always use stops and position size properly.
Action to Take --> I like Symantec right now as a buy. Despite similar performance, I'd hesitate to purchase Walgreen's right now. It will take a solid close above $37 to interest me in buying Walgreen's, and then only as a short term, momentum play.