“Life is like a game where you seek to overcome the obstacles that stand in the way of achieving your goals. You get better at this game through practice. The game consists of a series of choices that have consequences. You can’t stop the problems and choices from coming at you, so it’s better to learn how to deal with them.” — Ray Dalio
Ray Dalio is the founder of the world's biggest hedge fund firm, Bridgewater Associates, which manages some $160 billion. Dalio’s methods are controversial and include videotaping meetings and encouraging brutal honesty among his staff, but they have proven particularly effective during the recent years of market turmoil and volatility. Dalio profited in 2011 by investing in U.S. and German government bonds, as well as U.S. Treasury inflation-protected securities. Bridgewater is now such a gold mine that the firm itself has become an attractive investment and Dalio has recently been selling stakes in the firm to his clients.
Ray Dalio -- Background & bio
Ray Dalio was born in Jackson Heights, Queens during 1949. At the time, his family had no connections to the finance industry. Ray’s father was a jazz musician who played the clarinet and saxophone at Manhattan jazz clubs. Ray Dalio first started to gain an interest in the financial world when he was around 12. At the time, he was working as a caddy at the Links Golf Club, which was close to his school. Wall Streeters used to frequent the club and Dalio soon started to learn.
It was the 1960s and the market was booming, Dalio, who was only 12 at the time, was obsessed with the talk on the golf course, which usually revolved around the markets.
Ray picked up tips and advice from the club’s members and soon purchased his first stock; Northeastern Airlines. At $5 per share, Northeastern was the only stock Dalio could afford, he had saved up $300 from his job at the golf course.
Ray was extremely lucky with this first pick. Soon after he purchased the stock, Northeastern received a takeover at three times the price Dalio had paid for it. Ray Dalio was hooked immediately. In his own words, “I figured that this was an easy game.”
By the time Dalio went to college, he had built a stock portfolio worth several thousand dollars.
After achieving an excellent academic record at college, Ray Dalio went on to win admission to Harvard Business School.
Between college and graduate school, during the summer of 1971, Dalio worked as a clerk on the floor of the New York Stock Exchange. After his first year at Harvard, he spent the summer trading commodities at Merrill Lynch for his own account. Taking the experience from Merrill, Dalio returned to Harvard, and, with a group of friends, set up a small commodity trading company called Bridgewater Associates.
After leaving Harvard, Dalio went to work for a Dominick & Dominick, LLC but only stayed for a year, before moving to Shearson Hayden Stone, the brokerage firm run by Sanford Weill -- who later went on to help create CitiGroup.
At Shearson, Dalio worked in the commodity-futures department. His job; to advise farmers, cattle ranchers and grain producers in particular on how to hedge risks. By his own account, Dalio was frustrated with Shearson’s management structure, which ultimately lost him his job. After leaving Shearson, some Dalio’s clients continued to support him and he persuaded some to hire him as a consultant Bridgewater Associates was born. Trading out of his two-bedroom apartment at the age of 26, Dalio’s new business advised a few corporate clients on currency exchange and interest rate risks.
Ray Dalio: Bridgewater
From the Bridgewater website:
Bridgewater manages approximately $169 billion in global investments for a wide array of institutional clients, including foreign governments and central banks, corporate and public pension funds, university endowments and charitable foundations. Approximately 1,500 people work at Bridgewater, which is based in Westport, Connecticut.
Founded in 1975 out of a two-bedroom apartment, Bridgewater remains an independent, employee-run organization. Throughout its 40-year history, Bridgewater has been recognized as a top-performing manager and an industry innovator. Bridgewater was one of the few firms to have positive performance during the 2008 financial crisis. The firm has received over 50 industry awards and various recognitions in the past 10 years; including awards for industry innovation, performance, quality of research, client service and client satisfaction, quality of operations and operational infrastructure. Additionally, in 2014 Bridgewater received industry recognitions for: Best in Institutional Portfolio Management, Best in Risk Budgeting, Top Workplaces, Best Client Service, Investment Company of the Year, Overall Excellence, and multiple awards for Innovation and Performance. Its clients and employees routinely give Bridgewater top satisfaction ratings in annual surveys.
Bridgewater's unique results are a product of its unique culture. Truth and excellence are valued above all else. In order to be excellent we need to know what's true, especially those things that we would rather not be true, so that we can decide how best to deal with them. We want logic and reason to be the basis for making decisions. It is through this striving to be excellent by being radically truthful and transparent that we build meaningful work and meaningful relationships.
Ray Dalio: 20 Key Principles
Dalio runs Bridgewater according to 210 principles that he's collected in a manual for his employees. Unfortunately, there’s not enough room to go through all the principles here, so here are the top 20. You can find the full PDF manual of 210 principles here; Principles by Ray Dalio - Bridgewater Associates
- Recognize everyone's differences.
In order for everyone to work well as a team each team member must understand their own and everyone else's differences.Bridgewater employees are given personality tests so that managers can determine how they can best be managed.
- Build your team carefully.
Staying on the topic of team building, Dalio notes that it is essential to build a strong team around you that won’t let him, or other managers down.
"Don't hire people just to fit the first job they will do at Bridgewater; hire people you want to share your life with...look for people who sparkle, not just 'another one of those.'"
- Run your team like a machine.
"Micromanaging is telling the people who work for you exactly what tasks to do and/or doing their tasks for them. Not managing is having them do their jobs without your oversight and involvement. Managing means: 1) understanding how well your people and designs are operating to achieve your goals, and 2) constantly improving them. To be successful, you need to manage.”
- Recognize what you don't know.
"Successful people are great at asking the important questions and then finding the answers. When faced with a problem, they first ask themselves if they know all the important questions about it; they are objective in assessing the probability that they have the answers; and they are good at open-mindedly seeking believable people to ask,"
- Minimize risk.
"Recognize opportunities where there isn't much to lose and a lot to gain, even if the probability of the gain happening is low.” This rule doesn't just apply to investing it also applies to business opportunities and Bridgewater’s new recruits.
- Remember the 80/20 Rule — 80% of the effects come from 20% of the causes.
"Be an effective imperfectionist. Solutions that broadly work well (e.g., how people should contact each other in the event of crises) are generally better than highly specialized solutions (e.g., how each person should contact each other in the event of every conceivable crisis), especially in the early stages of a plan. There generally isn't much gained by lots of detail relative to a good broad solution," The best leaders are able to determine the importance of the tasks in front of them and finish the important ones first.
- Find outcomes that will keep you improving.
Like Charlie Munger, Dalio believes that everyone should always strive for continual self improvement. Over a month (or any longer period of time) the frequency of met and exceeded expectations should be on an upward trajectory.
Dalio says that your decisions should be made with this trajectory in mind. "Avoid the temptation to compromise on that which is uncompromisable," and don't try to please everybody with every choice you make for the team.
- Place the utmost importance on truth.
"Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up about it,"
- Teach your team that it's okay to fail if it results in learning something.
Dalio believes that managers need to expect mistakes from both their employees and themselves.
"Create an environment in which people understand that remarks such as 'You handled that badly' are meant to be helpful (for the future) rather than punitive (for the past). While people typically feel unhappy about blame and good about credit, that attitude gets everything backwards and can cause major problems. Worrying about 'blame' and 'credit' or 'positive' and 'negative' feedback impedes the iterative process essential to learning,"
- Be direct and honest with employees, and ask them to do the same.
"The main reason Bridgewater has improved at a much faster rate than most other companies over the past 30 years is that we seek out problems and find systematic ways of eliminating them,"
Dalio places an emphasis on employees telling the truth at Bridgewater. He has actually fired employees for talking behind a coworker's back. "If you talk behind people's backs at Bridgewater you are called a slimy weasel”.
- Know what constitutes a problem and identify them when they arise.
"To perceive problems, compare how the movie is unfolding relative to your script — i.e., compare the actual operating of the machine and the outcomes it is producing to your visualization of how it should operate and the outcomes you expected. As long as you have the visualization of your expectations in mind to compare with the actual results, you will note the deviations so you can deal with them,"
When you discover the problem identify and use specific names for the mistakes made in the process, don’t gloss over anything. You only learn from mistakes if you understand what those mistakes are.
- Determine the root of problems.
Find the root of the problem and eliminate it, don’t treat problems as one-offs since they're just the manifestation of a certain behavior or bias.
- Be accurate instead of kind with evaluations.
This follows Dalio’s methodology of being truthful and getting to the root of all problems. Dalio’s advice to Bridgewater’s managers is to discuss employee's performance objectively and plan for improvement.
"Child psychologists, dog trainers, and other behavior modification specialists will tell you that constant, no-exception feedback is fundamental to good training.”
- Guide your employees' evolution.
"So give people your thoughts on how they might approach their decisions or how and why you would operate in their shoes, but don't dictate to them. Almost all that you will be doing is constantly getting in synch about how they are doing things and exploring why.”
- If someone isn't working in a role, take them out of it.
"People who repeatedly operated in a certain way probably will continue to operate that way because that behavior reflects what they're like.” If a person doesn't fit a role, move that person to another role.
- Help employees understand their problems and how they were resolved.
Bridgewater’s managers and employees need to do a post-mortem on resolved problems in order to get to the root of the issue and learn from past mistakes.
- Build your team around achieving your goals.
Managers and the head of the company should hire employees that will help them achieve their goals. Teams that share the same goals and are working along the same lines produce the best performance.
- Always achieve what you set out to do.
"You can make great things happen, but you must MAKE great things happen. Times will come when the choice will be to plod along normally or to push through to achieve the goal. The choice should be obvious.”
- Get in synch.
Dalio teaches his employees to work at a level where there is a mutual understanding of what needs to be accomplished. One way to achieve this is by using conversations about a certain project as a means of reaching conclusions rather than just brainstorming.
- Understand that making a hire is the most important decision you can make.
This follows on from several of the points above. The new team member must share the same values as the rest of the company and fit will into the existing company structure. Hiring the right people is key to business success.
Bob Prince, Co-Chief Investment Officer of Bridgewater, explains the concept of Balance that underlies the Risk Parity approach.
Published June 2010 | Updated as of August 2011: Ray Dalio, founder of Bridgewater Associates, explains how to structure a portfolio to target a 10% return with 10-12% risk.
How Bridgewater associates created the all-weather investment strategy, the foundation of the ‘risk parity’ movement
- Formula for Economic Success - Part 2 - October 31, 2012
- Formula for Economic Success - Part 1 - October 30, 2012
- Seeing Today's Crisis from Two Worlds - June 18, 2012
- Hedge Fund Returns Dominated by Beta - May 3, 2012
- Asset Class Returns in Deleveragings - April 19, 2012
- A Beautiful Deleveraging - February 24, 2012
- Update on the Seismic Shift - January 3, 2012
- Approaching the Seismic Shift - April 25, 2011
- More Will Likely be Necessary from the Fed - July 29, 2010
- The New Decade: 2010-2019 - January 11, 2010
- A Modern Day D-Process - April 28, 2009
- Great Moves! - September 19, 2008
- An Inflection Point in Banking - April 29, 2008
- Hedge Funds Selling Beta as Alpha (An Update) - May 24, 2005
- The Biggest Mistake in Investing - August 18, 2004
- It's All Macro - May 7, 2004
- The Next Decade - January 5, 2000
- The First Day of the New...Decade, Century, or Millennium - January 4, 2000
Ray Dalio: Quotes
"I believe that one of the best ways of getting at truth is reflecting with others who have opposing views and who share your interest in finding the truth rather than being proven right"
"There is giant untapped potential in disagreement, especially if the disagreement is between two or more thoughtful people"
"Be wary of the arrogant intellectual who comments from the stands without having played on the field."
"The pain of problems is a call to find solutions rather than a reason for unhappiness and inaction, so it's silly, pointless, and harmful to be upset at the problems and choices that come at you."
"Don't worry about looking good - worry about achieving your goals."
"The best advice I can give you is to ask yourself what do you want, then ask 'what is true' — and then ask yourself 'what should be done about it.' I believe that if you do this you will move much faster towards what you want to get out of life than if you don't!"
"More than anything else, what differentiates people who live up to their potential from those who don't is a willingness to look at themselves and others objectively"
"I believe that understanding what is good is obtained by looking at the way the world works and figuring out how to operate in harmony with it to help it evolve."
"Life is like a game where you seek to overcome the obstacles that stand in the way of achieving your goals. You get better at this game through practice. The game consists of a series of choices that have consequences. You can't stop the problems and choices from coming at you, so it’s better to learn how to deal with them."
"I believe that for the most part, achieving success — whatever that is for you — is mostly a matter of personal choice and that, initially, making the right choices can be difficult."
"If you can stare hard at your problems, they almost always shrink or disappear, because you almost always find a better way of dealing with them than if you don't face them head on. The more difficult the problem, the more important it is that you stare at it and deal with it.
"Unlike in school, in life you don't have to come up with all the right answers. You can ask the people around you for help — or even ask them to do the things you don't do well. In other words, there is almost no reason not to succeed if you take the attitude of One: total flexibility — good answers can come from anyone or anywhere. Two: Total accountability. Regardless of where the good answers come from, it's your job to find them."
"Watch out for people who think it's embarrassing not to know."
"By and large, life will give you what you deserve and it doesn't give a damn what you like. So it is up to you to take full responsibility to connect what you want with what you need to do to get it, and then to do those things."
"Once you accept that playing the game will be uncomfortable, and you do it for a while, it will become much easier (like it does when getting fit). When you excel at it, you will find your ability to get what you want thrilling."
"You'll see that excuses like "That's not easy" are of no value and that it pays to "push through it" at a pace you can handle. Like getting physically fit, the most important thing is that you keep moving forward at whatever pace you choose, recognizing the consequences of your actions."
"Life is like a giant smorgasbord of more delicious alternatives than you can ever hope to taste. So you have to reject having some things you want in order to get other things you want more."
"People who worry about looking good typically hide what they don't know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future."
"People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices."
"People who acquire things beyond their usefulness not only will derive little or no marginal gains from these acquisitions, but they also will experience negative consequences, as with any form of gluttony."
"Since the only way you are going to find solutions to painful problems is by thinking deeply about them — i.e., reflecting — if you can develop a knee-jerk reaction to pain that is to reflect rather than to fight or flee, it will lead to your rapid learning/evolving."
"There is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes."
"I have found that by looking at what is rewarded and punished, and why, universally — i.e., in nature as well as in humanity — I have been able to learn more about what is "good" and "bad" than by listening to most people's views about good and bad."
"I believe that we all get rewarded and punished according to whether we operate in harmony or in conflict with nature's laws, and that all societies will succeed or fail in the degrees that they operate consistently with these laws."
Ray Dalio: Articles
February 2014: An article about the “most important lessons learned from Ray Dalio and his colleagues at Bridgewater” and their unconventional approach to investing.
August 2013: Bridgewater is profiled as a “model of effective performance management” in this People & Strategy article on feedback oriented work environments.
Summer 2013: Ray Dalio named one of the seven newest members of Alpha’s Hedge Fund Hall of Fame recognized for having a profound impact on the industry and their investors.
May 2013: Ray Dalio awarded Institutional Investor’s Manager Lifetime Achievement Award. “For Raymond Dalio the key to success in the markets is to have an independent point of view. few investors have been more independent — or more innovative — than the 63-year-old founder of Bridgewater Associates.”
March 2013: LCH Investments reports that Bridgewater again tops the list of hedge fund managers that have made the most money for clients in the history of the hedge fund industry.
May 2013: Bridgewater was rated highest out of 180 asset managers at IPE’s inaugural Pension Fund Perception Programme awards.
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