Ray Dalio’s How The Economic Machine Works

 

Ray Dalio is the legendary founder of the Bridgewater hedge fund which manages $US150 billion for the World Bank and pension fund clients. Dalio is influential for sharing his management principles that inform Bridgewater’s strategic subculture (PDF). He has now shared a 30-minute video on his personal model of global macro dynamics.

 

Maneet Ahuja has a chapter-length interview with Dalio in her book The Alpha Masters (Hoboken, NJ: John Wiley & Sons, 2012) in which he talks about how to learn; how he founded and built Bridgewater; dealing with the World Bank; and how to deal with crises:

 

If you’re limiting yourself to what you experienced, you are going to be in trouble. . . . I studied the Great Depression. I studied the Weimar Republic. I studied important events that didn’t happen to me. (p. 12).

 

Dalio says if you have 15 or more good, uncorrelated bets, you will improve your return to risk ratio by a factor of five. He calls this the holy grail of investing. “If you can do this thing successfully, you will make a fortune,” he says. “You’ll get the pot of gold at the end of the rainbow.” (p. 17).

1st June 2013: Proposal for ISA’s 2014 Annual Convention

The International Studies Association is holding its Annual Convention for 2014 in Toronto, Canada.

 

Below is one proposal I have submitted for consideration by the International Political Economy and International Security sections:

 

Geopolitical Flashpoints, Systemic Risk & Distal-Influenced Spatiality

 

Abstract: Geopolitical flashpoints and systemic risk are now global arbitrage opportunities for hedge funds and political risk firms. Bridgewater (Ray Dalio), AQR Capital Management (Aaron C. Brown), PIMCO (Bill Gross & Mohamed El-Erian), Roubini Global Economics (Nouriel Roubini), and Stratfor (George Friedman & Robert D. Kaplan) have each contributed to media, policy, and practitioner debates about the 2008-10 rare earths bubble, the United States pivot toward Asia, and Iran-Syria-Russia oil speculation. This paper uses develops a Bayesian inference framework which emphasizes distal (far away) and spatial cause-effect relationships, in order to explain how hedge funds and political risk firms as non-state actors can enact global arbitrage and actively influence/shape public debates. I integrate analytical research from the sociology of finance (Donald MacKenzie), international security (Stephen G. Brooks), critical world security (Michael T. Klare & Naomi Klein), intelligence studies (Amy B. Zegart, Robert Jervis, & Gregory Treverton), hedge funds (Andrew Busch & Andrew Lo), and fictional speculation (Richard K. Morgan), to develop a new, inductive theory-building alternative to current explanations that emphasize proximate (near) and temporal causes. This paper advances new understanding about ‘casino capitalism’ (Susan Strange), expert networks, hedge fund activism, and political risk arbitrage.

2nd July 2012: Ray Dalio

I’ve spent the past few weeks reading about Bridgewater hedge fund founder Ray Dalio who is notorious for his management principles (PDF). The Economist and Barron’s have profiled Dalio recently and he updated his model of how the economy works. Dalio also did extensive interviews for Maneet Ahuja‘s The Alpha Masters and Jack D. Schwager‘s Hedge Fund Market Wizards. Dalio’s secret is to find 15 different and uncorrelated alpha streams; to separate alpha from beta exposure; to have a 6-18 month timeframe for holding; and to control transaction and execution costs.