Billionaires always see a storm before it comes, and it just happens that the biggest storm of all time is coming. Ceos. Hedge fund managers and venture capitalists worldwide are preparing for one of the most serious crises in history. Many actually think that we're already in a recession, but the world just hasn't, realized it.

Yet this video will unravel the strategies that are being used by billionaires to hedge themselves, against the upcoming downturn and how you can as well. Most people assume that timing. The market is impossible and that's true for the most part time in the market is extremely difficult, but you don't need to know the exact timing to prepare billionaires, frequently implement strategies that hedge themselves against incoming crises by hedging their wealth. They will succeed in any situation.

In the scenario of a crisis happening those who hedge their wealth will be the only ones with their heads above the water take elon musk's strategy as an example of this elon believes that we are already in a recession that could last from 12 to 18 months. But he isn't trying to time the market with his stock holdings instead of being 100 certain that a crisis is coming, he looks at the future as a probability. Economic landscapes are fluid and you should never be binary as to whether a crash will occur or not. Rather than going all in on his economic prediction that could be wrong.

He is simply just hedging for the worst outcome. How do you assess our current economic situation? Well, predicting economic economics is always difficult, um and and want to assign probabilities to these things um, but, ironically, i did. Last year, people asked me what i think about the economy i said well, i think we might enter a recession in approximately uh uh spring of 2020 of 2022, called it nailed it. Um yeah actions speak louder than words, and elon's actions are no different.

He recently decided to lay off 10 of salary tesla employees in preparation for a macroeconomic disaster. The reason why elon is laying off employees is for capital preservation. It might not seem like cash's importance during an inflationary period, but cash flow is king during recessions. This not only applies to businesses, but also retail investors.

Like yourself, the federal reserve has overextended its balance sheet by over 5 trillion dollars and plans to reduce the money supply over the next couple of years. This means that the fed doesn't have the leeway to hand out free money like before. If the economy crashes in the coming months, money will become scarcer even if inflation remains elevated. Elon already experienced the scarcity of money during the dot-com bubble and he highly advises businesses to get their hands on cash while they can make sure you're not running things too close to the edge from a capital standpoint that you've got some capital reserves to last through Uh irrational times, because in the in the past, when there's been a recession um it has gone.

It's amazing, it's flipped like a light switch. I mean david. Do you remember this? When from the from the paypal, you know ex-paypal days when, when we uh raised 100 million dollars in march of 2000 uh, and we literally, we had the demand was so high. We had uh people like vc's, like just literally without even a term sheet wiring money into our account.

Um, we'll send the term sheet later literally we're like we like sleuth out our our bank, account number and wire money in and we're like where'd. This come from and it's like, oh um, they so it was like there was literally fire hosing money in march of 2000 and and then in april 2000 the market went into free fall and it went from money. Raising money was trivial to even good companies could not raise money uh in a month um. So it's just important to bear in mind like that.

You know. Paypal almost went bankrupt in in 2000 uh we came close um, but but thankfully we would raise that that hundred million dollars in in march 2000 uh without which we would be uh, could we game over? Basically, while elon is one of the leading innovators he's, not the only one laying off employees, peloton, fired 20 of its workforce, carvana cut 12 of its total staff, which totals to 2 500 employees and coinbase paws. The hiring of new employees withdrew existing job offers and laid off 18 of its workforce. All of these layoffs have one similarity.

Macroeconomic concerns coinbase cited current market conditions as one of the primary reasons for its layoffs, an article written by the chief people officer of coinbase, lj brock explained how adapting quickly and acting now will help us to successfully navigate this macro environment and emerge even stronger, enabling Further healthy growth and innovation, we talked about how businesses need cash flow to survive, but this also applies to people like yourself, think about your monetary inflows and outflows like a business. You have income flowing in, and expenses flowing out by subtracting your expenses from your income. You can calculate your operating cash flow now. Take that operating cash flow and subtract your taxes to get your net cash flow.

Although your cash flow might be positive right now, it could easily disappear in the coming months. That's why we have to focus on capital preservation. There are a vast array of methods to hedge, your portfolio against market downturns, many of which i've covered on this channel. One of the most well-known methods is to simply short.

The market. Carl icon manages over 21 billion dollars as an activist investor, and lately he has been shorting. The market icon is known for being a corporate raider. This means that he frequently takes over companies and sells them for a profit by stripping the companies of their assets, even though many dislike icon, he is certainly one of the greatest investors of all time.

He averaged an annual return of over 26 from 1968 to 2014, which is considerably higher than warren buffett's returns. Icon went on cnbc earlier in 2022 to describe why he believes there could be a recession or depression coming soon, ikon uses a volatile strategy, which means that he has to hedge his portfolio against considerable downturns. Carl icon has been purchasing credit default swaps on mortgages of corporate offices and shopping malls. Purchasing credit default swaps is equivalent to shorting on steroids by purchasing credit default swaps on corporate offices and shopping mob mortgages.

Icon is essentially shorting physical stores. This acts as a hedge against his long positions. Remember that hedging doesn't mean that you're time in the market. It simply means that you're protecting your portfolio for the worst outcome.

Well, i we have a very large uh position, uh on shorting, the walls through the cmbx through a derivative and that whole market is a huge market. I think it's got a lot of uh a a lot of the market itself. I i think, is manipulated to some extent and we have you're going to be hearing from us on that in that area. But that is an area that i think has problems, certainly in the b and c malls and in other real estate i mean you, you can't ignore the fact that - and i don't know if this is a a change that will continue.

But you you, don't: have people going to offices all the time anymore? Obviously, and i think that is going to militate against the real estate area. Perhaps icon is shorting an industry that is outdated and in the process of being disrupted by innovation. Another billionaire fund manager named leon cooperman, is implementing a similar strategy. Cooperman averaged an annual return of 12.4 from 1991 to 2018, which is over three percent more than the s p's average return similar to icon cooperman also foresees a recession and is currently 68 net long.

This essentially means that 68 of its portfolio is long on stocks, and the remaining 32 is short in the market. Although a lot of billionaires are hedging through short positions, many of you are likely not comfortable with the risk of shorting stocks. Cooperman himself has said that purchasing stocks is historically a strong hedge against inflation. Before initiating his short position in april 2022, he actually called himself a full invested bearer.

This means that, despite calling for a bear market, he had no short positions whatsoever. So, instead of shorting the market, he was actually just holding stock to hedge against inflation. Another popular hedging method is to purchase short-dated put options on your existing stock holdings. Cooperman has publicly stated that he has put options on microsoft, google and amazon.

Despite having long positions in all three companies, this allows him to be protected against a short-term sell-off, while still being positioned well for the long term. His put options are a hedge against short-term downturns, while his stock holdings are for long-term gains. Some investors might think this is pointless, but you have to put this into the context of beta and alpha beta is the volatility of your portfolio in relation to the stock market. The s p 500 has a beta of one.

If you have a portfolio that is two times more volatile in the market, then that means your portfolio. Beta is two. If your portfolio is half as volatile as the s p, your portfolio's beta is 0.5. Alpha.

Is a risk adjusted return that subtracts a factor of beta from your return? This means that it accounts your return for volatility. If your portfolio has higher volatility, then your alpha goes down because you're subtracting beta this also works on the other side. Lower volatility typically equates to higher alpha high alpha is what fund managers strive for because it adjusts your returns for the risk that you're taking by having hedged bets like put options against long stock positions? Cooperman is increasing. His alpha billionaire fund manager, chamf polychopatia, is also preparing for a stock market crash.

He believes that those who go for alpha instead of beta will be the only survivors of the upcoming downturn. It made a sub-economic decision like the idea that, over the last four or five years you optimized for anything except the market. Beta was kind of dumb. You know, and it's and and the worst thing that you could have done in that period was confuse alpha and beta, meaning alpha is what you are able to do because of your discrete skill versus anybody else.

Beta is when just the market goes up said differently. You could take any nba player and put them on a high school basketball team and they would be the you know: college player of the year, any single one. Okay, that's beta yeah. If you then can be the mvp of the mba.

That's alpha yeah, okay, and i think that a lot of folks um were made to feel very silly or you know a downer or a wet blanket in these last few years. Who will probably have the last laugh? Another fund manager named jeffrey gunlock, recently launched a fund that aims to tackle the current and future economic issues. Gunlock manages over 140 billion dollars to his mutual funds that have consistently beaten their respective indices. Gunlog's newest fund is called the double line: shiller cape etf.

The cape ratio stands for the cyclically adjusted pde ratio. This ratio essentially adjusts the pde ratio for cyclical fluctuations and earnings. Gun lock, is using the cape etf to find the most undervalued sectors in the market. The reason why gunlock chose the cape ratio is because it divides the price of a stock by the company's 10-year average of inflation-adjusted earnings.

This allows them to ignore short-term earnings fluctuations and effectively pick out the long-term winners. These long-term winners are those that have stood the test of time, regardless of the broader economy. The last hedging method is to simply diversify your portfolio. This is most commonly used by ray dalio, who is known as the king of hedge funds, due to his focus on alpha through his allocation that includes almost every asset.

He is protected in almost any macroeconomic environment. This chart lays out the assets that dalio holds and is fund. The y-axis is inflation, which increases and decreases as it moves up and down respectively. The x-axis is the u.s gdp growth.

You can see from this graph how dalio includes assets that perform well in any macro environment, so its fund is essentially macro neutral by adding more asset classes, you'll be able to increase alpha by reducing volatility. This is because you're adding uncorrelated assets out of similar, if not the same long term returns. Dalio calls this strategy the holy grail, because it's the key to succeeding in the hedge fund, space billionaire hedging strategies all differ in their own ways, and it's our choice as retail investors to choose the one that suits us best in this video we've talked about initiating Short positions, buying, put options, purchasing, inflation-resistant stocks, allocating capital to time-tested companies and diversifying your portfolio. Investors can choose one of these strategies or even use a mix of them in order to maximize alpha.

Remember that it's usually never a good idea to time the market timing, the market is notoriously difficult and would involve either going all in on shore positions or simply holding 100 cash. Both of those are historically losing strategies that typically lead investors to lose all their money or miss out. Let me know if you'd like me to do a deep dive on any particular strategy. If you enjoyed this video, please hit the like button and subscribe and i'll see you in the next one.