All-Weather Billionaire

Is Ray Dalio insane?

Source: Wikipedia

The hedge-fund manager founded his firm, Bridgewater Associates, in 1975. The firm now managers over $150 billion, and Dalio is worth more than $15 billion. Bridgewater has about 1600 employees and bets on global macroeconomic trends using active asset allocation across stock indices, bonds, currencies, and commodities. They primarily uses a set of algorithms to trade their massive positions across markets. About 5-10% of their algos are revised or added each year.

Dalio is also known for his Principles, an amalgamation of 210 maxims and aphorisms that govern how Bridgewater is run. They range from the timeless (“Do not feel bad about mistakes”) to banal (“Force yourself to do difficult things”). The most radical part is right up front and it pervades Bridgewater’s culture: Don’t fear the truth: be radically transparent. This means Bridgewater is filled with cameras and recording devices, and employees are constantly being evaluated and evaluating one another.

For most of us, this would be more than a little creepy. It’s supposed to foster a meritocracy, where the best and the brightest rise to the top. It certainly provides a lot of data with which to rank workers. Bridgewater seems to have a lot of co-managers and co-CIOs. But it also creates a lot of initial turnover: about 30% of employees quit in the first two years.

Now Dalio is codifying his Priniciples into a governing document that will function as by-laws for the company after he retires. This has some logical appeal. Since algorithms rule his money management machine, he’s trying to turn his management style into a set of business management algos as well—run by a set of artificial intelligence programs. He says that it’s like moving from monarchy to constitutional democracy. Once you have the founding document, society can then run itself, independent of any single personality.

But we already have the equivalent of constitutional democracy. It’s called the public corporation. Yes, there are abuses and problems with reporting and governance and management. But for the most part, public businesses run fairly efficiently because they have to. And they don’t need creepy cameras and colleagues recording everything and sending our report cards. Also, people aren’t machines. They adapt and change as society evolves. It’s unlikely that a computer algorithm will be flexible to change with them.

It’s natural for successful business-people to want to create a legacies that outlive themselves. Bridgewater is massive, and Dalio has been massively successful. Dalio isn’t crazy. He’s just running into the limits of his own success.

Douglas R. Tengdin, CFA

By | 2017-08-10T08:03:45+00:00 August 10th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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