I was discussing the AI boom with a client and the question of whether we are heading towards another bubble came up. Ray Dalio, founder of Bridgewater Associates is sounding the alarm. Heavy borrowing to fund AI infrastructure together with rising interest rates could bring the party to an end sooner than many expect.
His point is worth thinking about. Bubbles do not burst simply because valuations look expensive. The real trouble often starts when investors need cash to repay loans or meet higher financing costs and assets that once looked like a gold mine suddenly have to be sold.
Interestingly, I am more bullish than Dalio although I do not have his billions to back up my view! I believe the AI revolution still has plenty of room to run. Being bullish does not mean ignoring the risks and a great technology does not make every investment linked to it a great one. Just ask those who went through the dot-com bust.
Rather than trying to call the top, I prefer to position portfolios for different market conditions. This is where I see a role for multi-strategy investing. By drawing on different markets and trading strategies, it can help diversify a portfolio and manage volatility when traditional assets struggle.
Why depend on one engine when we can have several working for us? I am not suggesting we run for the exit just because Dalio sounds the alarm.