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Bridgewater / Ray Dalio
- Nathan Wailes
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Founder of Bridgewater Associates, one of the largest hedge funds (if not THE largest) in the world. Has a reputation for being unusual, but knowledgeable. In his interview w/ Charlie Rose he seems like a really nice, smart, down-to-earth guy, but with some very unusual ideas that may rub people the wrong way (even though they seem like very effective ideas).
His Writings:
His ebook, "Principles":
http://www.bwater.com/Uploads/FileManag ... ciples.pdf
THE ALL WEATHER STORY
how bridgewater associates created the all weather investment strategy, the foundation of the ‘risk parity’ movement.
http://www.bwater.com/home/research--pr ... ategy.aspx
- this is a very interesting read, well worth re-reading a few times to absorb it. There were some parts I had a hard time digesting.
Q: It seems pretty fundamental to this strategy to pick your investments based on their past behavior, because past volatility helps determine how "risky" the asset is seen to be. This behavior seems to have gotten other funds into trouble in the past. Are there any conceivable circumstances that could lead this strategy to be a bad one?
Date-Specific Material:
2010.07 - Acceptance speech at the Hedge Fund Industry Awards
http://www.youtube.com/watch?v=4mCgG1XbBHw
http://www.youtube.com/watch?v=69t12xlSi3A
2011.03 Institutional Investor - Ray Dalio's radical truth
http://www.institutionalinvestor.com/Po ... ID=2775995
- “People overfocus on ‘What do I do today? What trade do I make?’ We focus on ‘How does it work? How does the world work?’ ” says Prince
- DALIO says making a lot of money has never motivated him. But like many a driven entrepreneur, he grew up with little. “I have been very lucky because I have had the opportunity to see what it’s like to have little or no money and what it’s like to have a lot of it,” he writes in the “Principles.” Beyond being able to cover the basics, he says, wealth isn’t that important.
- Raised on Long Island the son of a homemaker and a jazz musician, Dalio has admitted being a poor student as a youth. He says he is better at conceptualizing than being precise.
After getting a degree in finance at Long Island University in 1971, Dalio then went to Harvard University, where he received an MBA in 1973. By 1974, he had been hired as the head of futures at Shearson Hayden Stone, the firm Sandy Weill would use as the initial building block of his Wall Street empire. Upon being fired for insubordination, Dalio decided to start Bridgewater.
- Dalio didn’t start off managing money; he sold a daily market commentary letter (a precursor to the “Observations”) and also offered risk management services for corporations.
- Prince remembers getting the research when he was running the treasury department of the Banks of MidAmerica in Tulsa, Oklahoma. “I was 24 years old ... and I needed some help, and kind of by chance happened to see some Bridgewater research,” he recalls. Prince was working with David Moffett, who would later become CEO of Freddie Mac. “David knew more about economics than I did, and he read this thing that Ray wrote and said, ‘That’s the best thing I’ve ever read on how the economy works.’ ”
- The availability of Bridgewater staffers to clients puts most large hedge funds to shame. In an industry that often gets away with vague quarterly letters and twice-yearly conference calls, Bridgewater inundates clients with data. “I read ‘Daily Observations’ every single day,” says Michael Rosen, CIO at consultant Angeles Investment Advisors in Santa Monica, California, who has recommended Bridgewater to clients and has gotten the newsletter for years. “That gives me a lot of confidence that they’re doing research and work at a breadth and depth that very few come close to.”
- Celeghin estimates that most hedge fund managers with assets of $10 billion or more have fewer than 10 full-time client-facing staff, accounting for between 2% and 4% of total head count. If Celeghin’s industry estimates are correct, that makes Bridgewater’s client-facing staff—which comes to 12% of employees—an industry leader.
2011.04 - NY Magazine - The billion-dollar aphorisms of Ray Dalio
http://nymag.com/news/business/wallstre ... io-2011-4/
- They also studied Japan’s “lost decade” and the Latin American debt crisis of the eighties and used what they learned to program red flags into Bridgewater’s trading system. In the spring of 2008, one of these flags, a risk metric for credit-default spreads, prompted Bridgewater to pull its entire positions in several banks—including Lehman Brothers and Bear Stearns—the week before Bear Stearns imploded. In the years since, seeing the crisis coming has become the hedge-fund version of having been at Woodstock, but Dalio and his team actually did it.
2011.06 Why Countries Succeed and Fail Economically
http://www.bwater.com/Uploads/FileManag ... ewater.pdf
Overview:
pp1-3 he describes how the global share of GDP for all the countries out there has changed over time
pp3-5 he begins to offer some broad ideas about the factors that influence these changes
pp6-10 he describes the typical 5-step economic cycle: 1) countries are poor and think they're poor, 2) they're getting rich quickly but still think they're poor, 3) they're rich and think of themselves as rich, 4) they're becoming poorer but still think of themselves as rich, 5) they go through deleveraging and relative decline, which they're slow to accept.
pp10-17 he gives the case of England as an example for the cycle he described in 6-10
My Thoughts:
- the cycle he gives here reminds me very, very strongly of the cycle of wealth/poverty that is at the center of the book "The Good Earth"
- Why did China and India become "decadent"? (footnote 9 on p1) He says that this and their overindebtedness lead to their decline against England, but off the top of my head it seems that Western Europe had a huge technological and societal/institutional advantage over China/India.
- he uses the words "gaining" and "losing" to refer to a nation's % of global GDP; you need to keep in mind that that may not be the way that you will want to evaluate whether a country is on the right path or not. eg If I'm president of the US and nuke every other country in the world I will allow the US' share of global GDP to increase dramatically, but I won't have done the US a favor.
- might it be a better idea to look at per-capita GDP rather than global share of GDP when comparing countries? the US has a huge population relative to the UK, so to say that the US beat out the UK in global share of GDP b/c of productivity gains and WW2 (p2) seems to fail to control for the major factor of population.
- very important prediction: "we believe that in another 15-20 years emerging countries will produce about 70% of global GDP, China will produce about 25% and India will produce about 12% as they did in the mid-19th century" (p2)
- the chart on p3 of the US' global share of GDP that shows a spike after WW2 invites the question, "what would that chart look like if you manipulated the data so that the GDP of other countries in the world didn't experience a WW2-decline, but instead kept growing at whatever rate they were growing at before?"
- p3 is very interesting. here's my attempt at a summary: market forces push the world in the direction of equal pay around the world (b/c people will try to find someone to do the job more cheaply in another country). The reason this hasn't already happened is b/c of obstacles (eg education, institutions, etc). So the big Q you need to ask when you're looking at different countries is: are the obstacles that are holding them back permanent or are they likely to go away in the near future?
- very mportant prediction: "we believe [the development of the emerging economies is] where the big investment opportunities of the century lie." (p4) this seems to be in line with what jim rogers says.
- p7 - This page, esp. paragraph 3, really drove home how inflation can be caused (is always caused?) by a general increase in the amount of debt being employed in an economy (if I'm understanding this correctly)
2011.10 - great interview with charlie rose
http://www.charlierose.com/view/interview/11957
- he mentions that one of his favorite books is "Einstein's Mistakes"
- he does not come off as well in conversation as a Buffett or Obama but if you actually listen to the ideas he's putting forward they seem absolutely first-rate.
- ~25:00 re: the Buffett rule (more taxes on the rich) - he thinks the government will just end up wasting the money. he likens the situation to the dilemma a parent is faced with when deciding whether to leave his child a lot of money; the more important thing (in his opinion) is to make sure the child is self-sufficient, and just handing over a lot of money may make the situation worse.
- at the very end he sums up his opinion of the world. if i understood him correctly, he thinks a best case scenario ("if everything is orderly") is 1-2% growth in the US economy over the next 10 years, but he's pessimistic that we'll even be able to achieve that best case scenario.
2011.10.26 interview with the economist (20min)
http://buttonwood.economist.com/post/18 ... -indicator
- it's pretty hilarious how he basically gets repeatedly asked for tips on what to invest in; it reminded me of Livermore's saying that people never cared when he would talk in broad strokes about what he thought was going on in the world, they just wanted to be told what stock to buy and when to sell. and that was 100 years ago!
2011/12/13 - Is Ray Dalio the Steve Jobs of Investing?
http://ai-cio.com/channels/story.aspx?id=3735
2012/01/02 - bridgewater's predicting slow growth for years
http://online.wsj.com/article/SB1000142 ... 64726.html
2012/02 - I spoke to someone who interned for a summer at Bridgewater
a lot of drinking
a culture of extreme wealth compared to deloitte
they pay you a lot of money
they don't pay as much as some other places in finance, but he said ppl prefer bridgewater b/c it's the smartest environment
he said that he would copy bridgewater's model for any inward-facing company
he said you don't mind the criticism at bridgewater after a while
he told his manager that he thought he wasn't a good manager
he saw ray dalio around when he was working there
he said dalio made $1 billion over the summer that he worked there
2012/03/06 - Charlie Rose's Green Room (prob. recorded in the fall of '11)
http://www.charlierose.com/view/clip/12215
a favorite book: Will Durant's "The Lessons of History"; after having read some of it I can see why he would like it; the book can be seen as an earlier version of Dalio's own writings (eg "Why Countries Succeed and Fail Economically") in that it tries to come to conclusions about the nature of the world by looking at a bunch of different historical episodes and asking what has remained the same between all of them.
2012/03/10 - Ray Dalio: Man and Machine (had some info I didn't know about)
http://www.economist.com/node/21549968
- "He has read little academic economics but has conducted in-depth analysis of past periods of economic upheaval, such as the Depression in America, post-war Britain and the hyperinflation of the Weimar Republic. He has even simulated being an investor in markets in those periods by reading daily papers from these eras, receiving data and 'trading' as if in real time."
- "In the early 1980s Mr Dalio started writing down rules that would guide his investing. He would later amend these rules depending on how well they predicted what actually happened. The process is now computerised, so that combinations of scores of decision-rules are applied to the 100 or so liquid-asset classes in which Bridgewater invests. These rules led him to hold both government bonds and gold last year, for example, because the deleveraging process was at a point where, unusually, those two assets would rise at the same time. He was right."
- "A huge amount of Bridgewater’s efforts goes into gathering data on credit and equity, and understanding how that affects demand from individual market participants, such as a bank, or from a group of participants (such as subprime-mortgage borrowers). Bridgewater predicted the euro-zone debt crisis by totting up how much debt would need to be refinanced and when; and by examining all the potential buyers of that debt and their ability to buy it. Mr Volcker describes the degree of detail in Mr Dalio’s work as “mind-blowing” and admits to feeling sometimes that “he has a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.”"
2012.04.12 - How to Get a Job at Bridgewater By Ray Dalio
http://www.businessweek.com/articles/20 ... ot-dot-dot
Interest in the subject matter is a minor consideration. Unlike a lot of firms, we look at what someone is like rather than what they did before. We are first interested in people’s values, second interested in their abilities, and least interested in their precise skills. We want independent thinkers who are willing to put aside their egos to find out what is true. Did the candidate come up with a new idea and build it out? Like if when he was 15 he mowed lawns and developed that into a business by getting others to mow lawns with mowers he bought them. We ask people questions that actually don’t have a right or wrong answer, such as: Should there be a market for transplant organs? The answer doesn’t really matter. It’s totally great if the person’s thinking on the subject ends in a different place than the beginning, because moving forward together to get at the best answer is more important than being right from the outset.
Dalio is the founder and president of investment management firm Bridgewater Associates.
— As told to Ben Paynter
2012.05.19 Barron's Interview
http://online.barrons.com/article/SB500 ... rticle%3D1
- "The ECB said it would lend euro-zone banks as much money as they wanted at a 1% interest rate for three years. The banks then could buy government bonds with significantly higher yields, which would also produce a lot more demand for those assets and ease the pressure in countries like Spain and Italy." - I need to learn more about this; it sounds unsustainable.
- "What is happening in Europe now is essentially the same, almost totally analogous, to what happened in the U.S. in 1789." - I need to learn more about this
- The EU is going to have to decide whether it's going to have a central taxing/spending authority or abandon the euro.
- "While the deleveraging of European banks and reduced European imports will be a depressant on the world economy, global markets and economic conditions won't collapse, because countries outside of Europe will be able to replace retrenching European bank lending with other sources of lending."
2012.06.14 Ray Dalio Is Building a Baseball Card Collection
http://nymag.com/daily/intel/2012/06/ra ... ction.html
- very interesting; i'm convinced that a website like this will exist in the future. a combination of facebook and linkedin and okcupid that matches people up with employers in as-effective-as-possible a way. the website could even branch into evaluating people's abilities on various tasks to make sure employers could trust that the people knew what they were doing.
2012.06.15 Ray Dalio Interview w/ the Greenwich Town Party
http://www.youtube.com/watch?v=KEUXWYNtSs8
- main bit of info: he says his son studied happiness in a class and learned that (apparently) there's no correlation between money and happiness.
2012.10.08 - Ray Dalio on Meditation
http://vimeo.com/50999847
- "Meditation has given me centeredness and creativity...it's also given me peace, health."
- "It gives me the ability to look at things without the emotional hijacking, without the ego, in a way that gives me a certain clarity."
- "It also gives me an open-mindedness, because the experience itself is a very open-minding experience. There's no thoughts, just clarity, just that absence. And that open-mindedness is where I find that creativity comes from. So it's like if you're taking a hot shower and the idea comes to you, you grab the idea. So I find that a lot of creativity is just these ideas that seem to be passing through, that I grab." [This reminds me a LOT of what I've read about Thomas Edison. Apparently Edison would in his chair with a metal object in his hand that would drop whenever he fell asleep, and then when it woke him up (from falling from his hand) he would immediately write down what he was dreaming about.]
- "Meditation, more than anything in my life, was the biggest ingredient for whatever success I've had. And it's come from that centeredness, and that sense of rising above things."
2012.09.12 Hour-long Talk @ Council on Foreign Relations
http://www.youtube.com/watch?v=SFaRazMpxcM
2:12 - he thinks a big problem that a lot of people have is being caught off-guard by things that have happened in the past but have never happened in their own lifetimes
~38-40min - I don't understand why it's important to buy actual assets and not just buy financial assets
~44min - he calls gold a currency, contradicting the way ben bernanke described it
~50min - very good question; I honestly don't understand Dalio's response
~57min - he contradicts Kyle Bass, saying that he's not worried about Japan imminently exploding
~57:43 - he's asked about Jim Rogers' prediction that we'll have a really bad year in 2013. He says he doesn't think it's likely.
2012.09.12 Ten Minute Interview w/ Foreign Affairs
http://www.youtube.com/watch?v=Pux0ye8egPQ&noredirect=1
2012.10.27 - Academy of Achievement (Washington DC) - Interview
http://www.achievement.org/autodoc/page/dal1int-1
2012.12 DealBook Conference
http://www.livestream.com/dealbook/vide ... bb95d3f715
2013.03.07 Daily Beast - Bridgewater May Be the Hottest Hedge Fund for Harvard Grads, but It’s Also the Weirdest
http://www.thedailybeast.com/articles/2 ... rdest.html
- not much new info.
- check out the movie "The Master" by the director of "There Will Be Blood"
- check out http://www.onedayonejob.com/jobs/bridge ... ssociates/
- apparently there may be fewer top-undergrads going into finance because of its recent reputation problems. The article suggests more people are going into entrepreneurship / silicon valley stuff.
2013.08.14 - Dalio Patched All Weather’s Rate Risk as U.S. Bonds Fell
http://www.bloomberg.com/news/2013-08-1 ... -fell.html
- good read
- the article references this white paper by ben inker:
The Hidden Risks of Risk Parity Portfolios
http://news.morningstar.com/pdfs/GMOHiddenRisks.pdf
2013.09.06 - Japan Society - Where does the Future of Investments Lie? (1 hr video)
http://www.japansociety.org/webcast/whe ... -economies
2013.09.22 How The Economic Machine Works by Ray Dalio
http://www.youtube.com/watch?v=PHe0bXAIuk0
- Response: BloombergBusinessweek - What Billionaire Ray Dalio Gets Wrong About Money
- Article highly rec'd in the response: S&P - Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves
2013.11.11 - Dalio @ Dealbook Conference 2013
http://www.businessinsider.com/ray-dali ... ce-2013-11
One audience member asked him if we would open Bridgewater Associates today.
The answer is yes.
Dalio said the most important decision you would make when picking a job is finding a culture where you would flourish and be yourself.
2013.12.16 - Motley Fool - A Massive Hedge Fund Gradually Shifts Its Largest Bet
http://www.fool.com/investing/general/2 ... erfor.aspx
As the U.S. markets continue to gain traction, it appears Bridgewater is taking profits along the way and reallocating the proceeds to emerging markets...The fund still has deep exposure to U.S. equities but may be anticipating a general investor rotation into emerging markets as the global economy improves and investors regain their risk appetite.
2014.03.11 - NYTimes Blog - The Surprisingly Large Cost of Telling Small Lies
http://boss.blogs.nytimes.com/2014/03/1 ... blogs&_r=0
https://news.ycombinator.com/item?id=7499098
Recently, I caught up with one of our angel investors for lunch: Peter is a brilliant entrepreneur from England who has lived all over the world. He has built several businesses and now lives a dream life with a house on a harbor, a happy family and a broad smile.
As our conversation drifted from an update of my company to a deep discussion about life itself, I asked him what he thought was the secret to success. I expected the standard “never give up” or some other T-shirt slogan, but what he said took me by surprise. “The secret to success in business and in life is to never, ever, ever tell a lie,” he said.
[...]
Peter maintains that telling lies is the No. 1 reason entrepreneurs fail. Not because telling lies makes you a bad person but because the act of lying plucks you from the present, preventing you from facing what is really going on in your world. Every time you overreport a metric, underreport a cost, are less than honest with a client or a member of your team, you create a false reality and you start living in it.
You know the right path to take and choose another, and in so doing you lose control of the situation. Now, rather than tackling the problem head on, you have to manage the fallout from the lie. I know people who seem to have spent their entire careers inflating the truth and then fighting to meet the expectations they have set.
[...]
I recently discovered firsthand the corrosive effect of lying. For several years, I have worked as a director of a nonprofit organization. We do great work in the community but as a team we have always floundered. A few weeks ago, I caught the leader of our group lying — not whoppers, but a series of tales about why he was late, why someone could not make a meeting or why emails had not been read. I confronted him and he justified his lying, saying that it avoided unpleasant consequences.
It was obvious why our team wasn’t working: People didn’t trust each other. The result was a culture of obfuscation and backstabbing in which we achieved less than we were capable of achieving. Staff members and volunteers became disheartened and eventually left. The leader’s constant lies, no matter how insignificant they seemed to him, had caused a breakdown of integrity and trust in the organization, and without integrity and trust nothing worked.
- 2014.03.12 - Harvard - A Conversation with Ray Dalio and Lawrence Summers
- 2017.03.22 - Bridgewater - Daily Observations - Populism: The Phenomenon
- 2017.08.10 - Bloomberg - Dalio’s Quest to Outlive Himself
- Overall: This article contains a lot of information that people already familiar with Dalio & Bridgewater will already be familiar with.
- Some interesting quotes:
- Dalio says he’s thinking about open-sourcing the computer code Bridgewater has developed, an artificial intelligence program dubbed PrincipleOS that does everything from summarize meetings to analyze reasons a person might be feeling anger, confusion, or embarrassment when interacting with a colleague. The programs could automate about three-quarters of Bridgewater’s management decisions within the next five years, according to the company.
- He’s also planning a second title that will detail his economic and investment principles, which he’s closely guarded for years.
- This rule of law, rather than rule by whoever is in charge, is “closer to the U.S. legal system” than any guidelines or policies a typical company might have, Dalio says. The effort led by senior managers and board members involves building out and expanding in extraordinary detail a governance structure based on the Principles, he says.
- This reminds me of my "People Programming" idea. The tricky thing is, just like with the legal system, it isn't easy to automate the process of creating these rules.