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).

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.

15th January 2012: Trading Books For 2012

On my possible reading list for 2012 from Wiley Finance:

 

1. Michael Goodkin’s The Wrong Answer Faster: the inside story of the quantitative finance firm Numerix and the physics models that Goodkin developed to model financial markets. I look forward to some backgammon tips.

 

2. Maneet Ahuja’s The Alpha Masters: an insider’s guide to the money management strategies of hedge funds — I hope it’s on a par with Andrew Lo’s research (MIT).

 

3. Jack D. Schwager’s Hedge Fund Market Wizards: the fourth book of interviews in Schwager’s hugely influential Market Wizards series — will it live up to the excellence and insight of the previous three books?