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Ray Dalio explains how to hedge risk amid the coronavirus scare

Bridgewater founder says fears over the spread of th virus have triggered a 'flight-to-quality market action'

Ray Dalio, billionaire and founder of Bridgewater Associates

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“When you don’t know, the best investment strategy is to be smartly diversified across geographic locations, across asset classes, and across currencies.”

That’s how Ray Dalio, founder of hedge fund behemoth Bridgewater Associates, said he is approaching the stock market in light of the coronavirus outbreak, according to his latest LinkedIn post.

Dalio said fears of the spreading coronavirus have triggered a “flight-to-quality market action” that continues to pressure stocks while giving a lift to hedges such as gold, bonds and the dollar.

“Let me be clear that I’m a ‘dumb sh*t’ when it comes to pandemics because what I don’t know about them is more important than what I do know,” he acknowledged. “We expect to do a lot more homework that will give us a richer perspective.”

The Dow Jones Industrial Average staged a big comeback on Thursday, closing with a triple-digit gain after selling off early. The S&P 500 and Nasdaq Composite both closed higher, as well. Gold, seen as a safeguard against equity pullbacks, managed to hold gains.

“We want to pay attention to what’s actually happening, what people believe is happening that is reflected in pricing (relative to what’s likely), and what indicators that will indicate the reversal,” wrote Dalio, who’s made more money for his clients since 1975 than any other hedge fund, according to Bloomberg.

Last week at the World Economic Forum in Davos, Dalio told CNBC in an interview that investors should be buying this market, rather than sitting on the sidelines. “Get out of trash,” he said. “There’s still a lot of money in cash.”

This article was published by FN's sister title MarketWatch