 Good day fellow investors. Ray Dalio recently came out with an interview for CNBC and then also at the Greenwich Investors Conference discussing the risk and reward of this stock market. However, he doesn't go into detail there and I really want to explain what he is saying, but by covering the following topics really in depth. Ray Dalio's track record, who the hell is Ray Dalio and why should we keep him in mind when thinking about investing, risk and reward when it comes to investing, interest rates, the stock market is in the ninth inning, what should an investor do? So let's start with Ray Dalio's track record to see whether we should listen to him or not. I made a comment also on Jeremy's channel, who started this and who led me to the conference there, how investors are not thinking that much about risk and he is asking me what about his big underperformance over the past six years, just bad luck or bad strategy. Let's see, investing is about risk and reward and investors should first focus on risk, later on reward. However, if you look at the SAP 500 over the last 10 years, it more than tripled and nobody is even thinking about risk because when you see this one, there is practically no risk. It is a straight line up, everything goes up and in the environment we have been living, everything went up because interest rates went down and were at zero for a very, very long time. If you look at Dalio's performance first, tip ranks is a shitty performance track recorder, so forget about that. Nevertheless, let's even assume this is correct, Ray Dalio 47% over the last six years, the SAP 500 108%. This is one, but let me go a little bit back and add a little bit more of cyclicality to this. If we look at Ray Dalio's pure alpha performance, look at this annual returns, annualized returns 16% since 1991 till 2012, then add the six years at 56% and we get to 11%, which is in line with the SAP 500. However, over the past 30 years, the SAP 500 went just up, everything was positive, it was a positive economic environment for stocks while the pure alpha strategy is designed to perform well in all four economic environments. SAP 500, it goes up and down and we haven't yet seen the downturn that will come after this bull market. However, when that happens, the alpha portfolio from Bridgewater will stay at least flat or even increase. So that is where, give it a cycle and then you see why Ray Dalio is managing 180 billion dollars because he is protecting those people's money and giving a return to it. So the risk, he firstly focuses on risk and then again, risk and performing well in all four environments that nobody knows what will happen. So the old weather is designed to perform well in each of these four environments and over the last 45 years, we have had one with growth in economy, growth in expectations, everything good for stocks and interest rates going down and the old weather portfolio performed equally to the SAP 500. However, if we have one of the environments we have had in the past like 15 years of stocks going nowhere, 40 years of stocks going nowhere, then you will see how the old weather portfolio outperforms. The 15 years there, the last 15 years where stocks went nowhere, Ray Dalio made 16% annualized. So that's the big difference. So don't take, when you measure performance, please don't take one bull market that was rigged with lower interest rates. As Ray Dalio says now in the conference, he says that most of the investing environment is long equities and only in the next bear market we will see who is swimming naked to use Buffett's analogy. So only in the next bear market we will see who is taking too much risk and who is protecting himself against the risks there that are always there. The key is just whether the risks materialize sooner or later. So that's important. Give it a cycle when measuring performance. Now when it comes to the current stock market risk and reward, as I said, and I will repeat it again, investing is about risk and reward and investors should focus on risk and only later on reward. First, don't lose money. Second rule, don't lose money. Third rule, look at the first two rules as with Buffett's say. In this environment, everybody thinks, okay, we are taking 10 years, five years historically, everything was well and it will continue to go so. You should be at least older than 45 to comprehend what was going on in 2002-2003-2008-2009. Most of investors are seeing only this fear of missing out, stocks will go up, Trump is pushing stocks higher, fiscal stimulus, lower taxes on corporate interest rates, everything is long equities, even the economy is long equities. As Ray Dalio would say, the world is leveraged long, the bear market will be the separator between the winners and the losers. When you put all that into the short term debt, long term debt cycle and productivity, we are in the eighth inning of the short term debt cycle, tax stimulation, tightening, assets are fully priced. What does Ray Lio mean when he says assets are fully priced? It means that the upside is limited, the downside is huge. And that's something we have to explain now when we talk about interest rates, because it's all relative and it's all priced into the curve. I'll explain that in a moment. So how strong is the economy? The Fed is expected to increase raise, they expected three times in 2019, another time in December. So interest rates, the two-year treasury is close to 3%. Now, if the Fed raises another one percentage point over the next 14 months, we are at 4%. And then you have a problem, because 4% no risk from the government is much more attractive than a 2% dividend yield from stocks. So if the dividend yield from stocks expected goes to 3%, that's a 50% decline in stocks. If there is a recession, if earnings fall, that's an even bigger decline in stocks. So people should think about that. For example, the current earnings yield on the SAP 500 is 4.5%. That's just 1.5% above the two five-year treasuries. If the two five-year treasuries go to 4%, you should expect a risk premium on stocks of at least 3%. Then we are at an earnings yield of 7%, keeping earnings equal, and then you are already 40%, 40% down, and that would hit the economy, hit earnings, and then you can easily go 60%, 70% down, which is the risk of the market. Further, there is a big discrepancy into the supply and demand for government debt. If government debt, if there is a discrepancy in the demand and supply, interest rates have to go higher and the US government has to borrow more and more and more to refinance its own debt, it has to borrow just to pay the interest rates, which is usually called a pyramid scheme or a Ponzi scheme. So that's a very, very big issue that will come in the next decade, and then you might see interest rates go even higher and the Fed will not be able to do anything to prevent it, because the government will need to fuel those huge, huge deficits. There are different expectations on the budget, what the president assumes, and what are the real expectations. So this is all discounted in the curve. The curve is not flat yet, but add one percentage point onto that, and then asset prices will be pressured to go lower, lower and lower. So what should an investor do? See about the risk and reward related to your personal goals, personal finance goals. See about what can happen to your stocks and how would that affect your life. That's it. If your investments are separated from your lifestyle, then simply wait, buy around the world, buy as those small bubbles, as Ray Dalio says, we are not in a big bubble, we are in many, many small bubbles, as those small bubbles around the world pop by those when they are cheap and get significantly better investment returns with much less risk. If you want to build an all-weather portfolio, that's a lot of work, but that's also something that might work. And in the previous video about Dalio, we said how he suggests between 8 and 10% of a portfolio exposure, he probably means risk exposure to gold. So thank you for watching. If you like this first risk, then reward approach to investing, please subscribe to this channel, because that's what we do here.