Billionaire hedge fund legend Ray Dalio thinks investors aren’t paying attention to obvious factors in meme stock trading.
Dalio says in a new post on X that there’s always a “current most popular meme” that everyone believes in but is bound to lose its status.
“These memes typically are due to a mix of extrapolating what happened before and emotional considerations. Also, most investors typically don’t take into consideration market pricing. In other words, they tend to identify what has been a great investment (e.g., a strongly performing company) as great, and they don’t pay enough attention to its pricing, even though its pricing (whether it is cheap or expensive) is the most important thing.”
Dalio says this behavior sets the stage for potential market missteps, especially in the current economic climate.
At this time, it is typical for almost everyone to be looking to make money by buying assets that they believe will go up (rather than betting on them going down), and they quite often use leverage.”
Dalio’s meme trading advice follows dire warnings he’s recently issued about the US economy. Earlier this month, Dalio argued in an interview on PBS that the government needs to lower its budget deficit as a percentage of GDP from 7% to 3%.
“It has to be done with three things, and it has to be spread out among these three things, because any one of those three things would be too painful. Those three things are tax revenue, spending cuts and interest rates.
Although Congress and the president in the process does not deal directly with the third of those, right now a trillion dollars – half of our deficit – is interest payments, and not only do we have a trillion dollar interest payment, in the next year, we have nine trillion dollars of debt maturing that has to be either rolled over or sold…
So there’s what I call my 3%, three-part solution, which was very similar to 1991-1998. It was cut by 5% of GDP, the budget deficit, in those years was cut by 5% of GDP by spreading it around. So those are the three things that are needed.”
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