Bridgewater Associates founder Ray Dalio has recently released a free PDF entitled Principles for Navigating Big Debt Crises. Dalio has written this for the 10-year anniversary of the financial crisis.
It's got quite the endorsement from former Federal Reserve Chairman Ben Bernanke himself, who said: "Ray Dalio's excellent study provides an innovative way of thinking about debt crises and the policy response."
You can download the free .pdf here.
And if you haven't already, be sure to also check out Dalio's first book, Principles which is quite the tome of knowledge on his ways of thinking and approaching things.
Showing posts with label ray dalio. Show all posts
Showing posts with label ray dalio. Show all posts
Friday, October 19, 2018
Ray Dalio's Principles for Navigating Big Debt Crises: Free PDF
Tuesday, January 23, 2018
Ray Dalio Interview From Davos: Market Melting Up, Keep Eye on Interest Rates
Bridgewater Associates founder Ray Dalio appeared on CNBC today from the World Economic Forum in Davos to give his thoughts on the economy and markets. Here's some of the highlights and videos.
- Said the markets are in a 'Goldilocks' period after a beautiful deleveraging as everything is 'pretty good' with a big jolt of stimulation coming from tax laws. He says we're at the 'later part of the cycle' and there's a lot of cash on the sidelines (banks, corporations, etc). "We're going to be inundated with cash."
- Thinks it might eventually lead to a market blow-off. Thinks markets will continue to melt up: "If you're holding cash, you're going to feel pretty stupid." Says last part of the cycle could perhaps last a year.
- Focused on interest rate policy as even a little change there can lead to a bear market. Dalio says you can't have a significant rise in interest rates without knocking over asset prices. It seems he's saying anything above 4% could potentially get dicey. Says there's much more interest rate sensitivity than before.
- Also notes that the various bonuses companies are paying out from
the tax cuts won't move the needle much on the wealth gap as the middle
class has been most impacted by soft income growth. He's not worried about an immediate downturn, but if there's a good chance there's a downturn in 2-3 years, he's worried about how the difference between rich and poor will affect things.
- On bitcoin, he doesn't know how to value it but thinks it's been a bubble. Thinks the blockchain technology is useful but doesn't have any other comment.
Embedded below are the videos of Ray Dalio's interview on CNBC:
And if you haven't already, be sure to check out Dalio's new book, Principles.
Tuesday, September 19, 2017
Ray Dalio's Reading List
Ray Dalio, the founder of hedge fund Bridgewater Associates, has penned a book called Principles. He's been doing various interviews about it and recently joined Tim Ferriss' podcast. During the interview, Dalio outlined some of the books he's read and enjoyed, as well as others he has stacked up in a pile that he's going to read. He said curiosity is the driving force behind him reading so much.
Ray Dalio's Reading List
Dalio was also asked to list books he would give to anyone graduating high school or college. Here were his 3 picks:
Be sure to also check out Dalio's own new book, Principles, about all he's learned over the years.
And if you're looking for recommendations from more smart investors, check out Charlie Munger's recommended reading list, as well as many others linked in the right sidebar of Market Folly.
Wednesday, September 13, 2017
Delivering Alpha Conference Notes 2017: Robertson, Dalio, Chanos, Cooperman & More
CNBC and Institutional Investor's Delivering Alpha Conference just took place and featured many big name speakers. Here's notes from the event itself and summaries of television interviews as well:
Delivering Alpha Conference Notes 2017
Julian Robertson (Tiger Management)
Robertson noted that interest rates need to increase because there's a bubble forming in the stock market. Since rates are low, stocks don't really have much in the way of competition for money. He also predicts that Trump will ask Janet Yellen to stay on as Federal Reserve Chair.
He recently got back into Alibaba (BABA). He previously owned it at "a very low price" (seven years ago) but sold it around $100 but now he's back in. Says it's unbelievable how the company has seen 50% in earnings. While other investors claim it to have accounting issues, Robertson said, "It would have to be such a giant fraud. I mean, I can't imagine anything would be that colossal."
Argued that Apple (AAPL), Facebook (FB), and Google (GOOG) are cheaper than they would have been in the 1960's, 70's or 80's. On Netflix (NFLX), he noted "does anyone not like it?" He said it "might be a little out of reach" now but it's still tempting him because it's run by good people and he loves it.
He likes the cruise industry, saying that "(It) has come of age. And older people my age are attracted to the cruise ship industry. And they are booming right now, and all over the world they are booming. And I think they're for the golden oldies."
Robertson still also owns Air Canada: "We got into it at around 8 or 9. And it's now 23, approaching 24, and the multiple is about the same as when we got in, which is all of five times earnings. So we have too much Air Canada, but I can't make myself sell it."
Also noted he doesn't think he'll ever understand Bitcoin.
He also continued to share his view that part of the hedge fund crisis is exacerbated by the fact that there's so many of them now and they compete against each other.
Robertson also gave advice to the younger generations: be sure that you love the field and let that be what guides you.
Ray Dalio (Bridgewater Associates)
Dalio's biggest concerns were the following: wealth gap, social conflict, and various financial burdens (debts and pensions).
"I think we're probably in a 2.5% type of growth environment. I mean, the real question is, to some extent, whether you can unleash the productivity by some of the changes that a pro-business environment can produce."
He thinks tax reform etc will be a watered down version and will come later.
He likened the current environment to 1937 in terms of the early stages of a tightening.
Dalio thinks that we're in an environment with a lot of conflict: political, conflict between parties, conflict between countries. "This is very important. This is even more important than how the tax changes are going to take place."
The Bridgewater founder then talked about balancing alpha and beta. He said gold is essential and part of that balance. He called it "an effective diversifier of assets" as well as "an alternative version of cash." He feels it should be 5-10% of everybody's portfolio.
He also thinks it'd be terrible if Gary Cohn left the administration and it'd be bad for the market too.
When asked what he's most worried about, Dalio mentioned risks like North Korea, but said his bigger worry is long-term: wealth and social gap and the conflicts that arise from that. He's worried about the various debt and pension burdens.
We also recently posted Ray Dalio's TED talk which takes you inside a meeting at Bridgewater. He also has penned a new book, Principles.
Leon Cooperman (Omega Advisors)
He said that "Conditions that normally lead to significant market decline are either not present or not forecastable."
"The market is in a zone of fair and full valuation. I see very few signs of exuberance."
Stocks mentioned by Cooperman include First Data (FDC), which he's owned for some time now and called very cheap.
Also, United Continental (UAL), which he felt has solid management that's identified a lot of cost opportunities. He thinks earnings there can see around 15% over the next few years. Operating profits could rise by 50% over the next few years and the company has bought back 2% of its shares
He also pitched two energy ideas: Hess (HES), as well as WPX Energy (WPX). "The solution for low oil prices is low oil prices. These two (stocks) have growing production profiles and a net asset value well above current prices at existing oil prices." He thinks oil is headed higher to $60. Says the sector has been overly discounted. Says Hess in particular will increase production.
He also likes Shire (SHPG), citing its growth, positive pipeline, and the expectation of stock buybacks.
Said bonds look like they're in a bubble but at same time notes the Fed has been 'forcing people into risk' via its monetary policies. It will change one day he says, but not yet.
Boaz Weinstein (Saba Capital)
He warned investors to avoid junk bonds. Argued that half or a third of junk bonds today are held by retail investors, who have a ton of exposure, partly due to the rise of ETFs. He feels the high yield market is overheated and he's short bonds of various retailers and hospitals. At the same time, he's long equity of some of those same companies. "Equity is at a much more rational price and credit markets are ignoring those signals."
Noted that portfolio protection is cheap but few are buying it. "Does everyone think they can get out on the top?"
Jim Chanos (Kynikos Associates)
He says that "what's worked will continue to work" and monetary will stay easy and investors will live with the valuations.
Chanos says it's easier to find short ideas in this environment, but those ideas "don't work" due to the underlying upward trend. He says the market was far more correlated last year than it has been this year.
He's short Continential Resources (CLR). "People have been looking at the industry with rose colored glasses. This is a problem with the North American shale business. If we don't get a pickup in the company's fortunes in the back half of the year it's going to struggle."
Jeff Smith (Starboard Value)
Pitched Perrigo (PRGO), generic drug maker. Says a lot of these products are sold on Amazon now and the company can expand sales of its over-the-counter medicines via that channel. Shares have been undervalued from pricing pressures.
Also mentioned Altaba (AABA) as a top idea. This is the former Yahoo stub that is left after selling the core Yahoo business. What's left is a stake in Alibaba (BABA) and Yahoo Japan, etc. It's basically a holding company.
Mick McGuire (Marcato Capital)
The activist investor has taken a new stake in Terex (TEX), the company that makes construction equipment. They started buying last year and roughly own around 1.1 million shares per a recent SEC filing as they own 6% of the company
McGuire feels the company should see a revenue boost after a strategic re-positioning. It's in the middle of an operating turnaround and is reducing SG&A, so there's operational profit upside. The company also switched its sourcing program which could potentially save them around $500 million annually. Thinks shares could triple, and has already doubled since he invested in 2016.
Chamath Palihapitiya (Social Capital)
The venture capitalist who now also runs public investments, said that he's massively long cryptocurrency bitcoin. He calls the blockchain technology disruptive.
He argued that tech investors need to look at a company's ability to innvoate: "There's just this massive trade right now between the disruptors and the disrupted." He says there's a lot of opportunity to be long disruptors and short the disrupted.
Jamie Dimon (JPMorgan Chase)
He called bitcoin worse than Tulip Bulbs and thinks it will eventually blow up. Said he'd fire any of his traders trading bitcoin for being stupid. Says it could go up to $100,000 before it blows up, who knows. His daughter bought it, it went up, now she thinks she's a genius, he said. Thinks it could be vulnerable to government intervention.
Thinks government policies are stifling growth. If things changed, we'd see 3% growth rather than sub 2% which we've seen annualized now. Singled out small businesses as most impacted.
Argued banks in the US are very sound at the moment. Says the successor to JPMorgan is inside JPMorgan.
Mary Erdoes (JPMorgan Asset Management)
When asked about US stocks or bonds, she said none of the above. Sees enormous opportunities in Europe, Japan, and emerging markets. Thinks that some investors are worried about emerging markets due to the US dollar as an 'anchor' currency.
Steve Mnuchin (Treasury Secretary)
He says that tax reform is too important not to be passed and that it can occur this year and might even be retroactive back to the beginning of 2017. Said the President's number one concern is North Korea and security. Said hedge funds wouldn't have the carried interest provision under Trumps tax proposal.
Steve Schwarzman (Blackstone Group)
He's optimistic on tax reform, saying the 'worst' we'd do is a tax cut somewhere around 25-28%.
He thinks the biggest risk to markets are geopolitical, in particular North Korea. He said "i would not be buying office buildings in Seoul" though didn't comment further on how this would affect investment decisions.
Schwarzman also argued that he relationship between China and North Korea is not friendly as it is perceived to be. "The Chinese do not want a nuclearized Korean peninsula, and they're very serious about that. They also don't want to have a shooting war occur and have 20 million refugees from North Korea go into China. So it's complicated for them as to what they do."
Barry Sternlicht (Starwood Capital)
"It feels like the ocean is full of money, but it could evaporate." Says he's most worried about potential problems from North Korea or Syria.
Wednesday, September 6, 2017
Ray Dalio's TED Talk on Idea Meritocracy
Bridgewater Associates founder Ray Dalio gave a TED talk on what idea meritocracy looks like at his hedge fund.
The talk focuses on how to build a company where the best ideas win. Dalio talks about algorithmic decision making and his history as an investor and how he began to learn from his mistakes.
He would write down his lessons and it became a set of principles which eventually were developed into algorithmic decision making. Dalio has also recently published a brand new book, Principles.
He notes, "In order to be an effective investor, one has to bet against the consensus and be right."
Dalio walks through the biggest mistake he ever made and how it made him ask himself in any future decisions: "How do I know I'm right?" He gained humility.
The Bridgewater founder also takes us inside a meeting at Bridgewater and shows how they collect data on each person's ideas and believability. Dalio says they do this because people naively and arrogantly hold opinions in their mind that are wrong. But if you zoom out and gain perspective, you can see things through everybody's eyes and view things collectively.
"Collective decision making is so much better than individual decision making if it's done well. It's been the secret sauce behind our success."
Embedded below is the video of Ray Dalio's TED Talk:
Be sure to also check out Dalio's brand new book, Principles.
Wednesday, March 8, 2017
Bridgewater's Ray Dalio on Radical Transparency & Building a Culture
Ray Dalio of Bridgewater Associates sat down with Charles Duhigg at The New York Times New Work Summit to talk about building culture and how it relates to his hedge fund where he encourages radical transparency.
Dalio says: "I want an idea meritocracy. I want independent thinkers who are gonna disagree. The most important thing I want is meaningful work and meaningful relationships and the way to get that is through radical transparency."
Dalio also notes he gave everyone at Bridgewater a copy of Duhigg's book, The Power of Habit.
The Bridgewater founder feels this transparency (once you get over the emotional reaction of the 'naked truth') develops much deeper, more meaningful conversations.
On markets, he went on to add: "The markets teach you humility and they teach you what works. You have to be an independent thinker in markets to be successful because the consensus is built into the price. You have to have a view that's different from the consensus. When you have a view that's different from the consensus, you're gonna be wrong a certain number of times. It teaches you humility. The most important thing is to have humility and to think about 'how do I get the best decision?' It doesn't have to come from me, I just want to be right."
Dalio concluded: "Decision making should be two steps: the first step is taking in information, particularly if there's disagreement, and then to make a decision ... it's so stupid not to take the time to take in and explore disagreement that might help you prevent yourself from being wrong."
Embedded below is video of Ray Dalio's interview:
Tuesday, September 13, 2016
Delivering Alpha Conference Notes 2016: Singer, Dalio, Chanos, Miller & More
CNBC & Institutional Investor's Delivering Alpha Conference is underway and below are some notes. This post will be updated throughout the day as the various speakers/panels are ongoing:
Delivering Alpha Conference Notes 2016
Paul Singer (Elliott Associates): Said that it's a "very dangerous time in global markets" right now. Argued central bank independence doesn't really exist. Noted that Bank of Japan is basically a top-10 shareholder of various Japanese corporations but the economy hasn't rebounded. Called it insane, "It's not working, but they keep going." Feels that investors are careless about inflation threat. Says sell long-term bonds. "There will come a time when inflation, despite growth suppressive policies can blow through targets and surprise everyone." Says we're basically in the middle of close to a 40 year experiment in how leveraged a system can be, and in how many ways. Thinks gold as a directional asset is underrepresented in portfolios "as the only money and store of value that has stood the test of time that is, in my view, undervalued and underpriced in today's world and sort of is the opposite of confidence in central banks."
Ray Dalio (Bridgewater Associates): Discussed ways to spur economic growth with Timothy Geithner. Dalio says, "We're in a situation where central banks want to drive you out of cash and out of bonds." Called it a dangerous situation, as central banks run out of assets to buy and push investors into riskier assets. Dalio thinks raising rates is risky as it's not priced into the yield curve. "There's only so much you can squeeze out of a debt cycle and we're there, globally."
Jim Chanos (Kynikos Associates): Still short Alibaba (BABA), says they're "buying anything that's for sale, just burning cash." He's also still short Tesla (TSLA) and SolarCity (SCTY). Says the two companies combining basically puts TSLA on a path to potential bankruptcy.
Carl Icahn (Icahn Capital): Said he's requesting from the FTC the right to own up to 50% of Herbalife's (HLF) outstanding shares. Currently has the right to around 35% of the company. Re: the market, "I think it's very dangerous in the market right now. If they don't raise rates, I think we're in a major bubble." There's a problem either way with a dilemma if you raise rates or if you don't. Says the economy is messed up because of people like Janet McCabe at the EPA. Also: "I hate to be immodest but I've returned 28% annualized since inception."
Marc Lasry (Avenue Capital): Said that you can "make a lot of money on direct lending," stepping in for reluctant banks. On investing - find people who are talented / engaged / who care and invest with and then don't worry about daily/monthly liquidity.
Bill Miller (Legg Mason): Likes Amazon (AMZN) or Facebook (FB) compared to Alphabet (GOOG/L) due to the growth rates and margins. Thinks AMZN doubles in 3 years. Also likes Valeant Pharmaceuticals (VRX) long, one of his larger positions. His main trade idea was long S&P 500, short 10-year Treasury (dividend yield on S&P is higher).
Robert Bishop (Impala Asset Management): Best idea was Teck Resources (TCK): improving China demand, management has cut costs, end of metals 5-year downtrend. Says Freeport McMoran (FCX) still has a worrisome debt picture.
Barry Sternlicht (Starwood): Real estate in New York City is "a disaster" with rents at the high-end down 15%. Noted the problem many investors face: "you have to invest in something, you can't just sit in cash." On Tesla, says he loves the car but would probably be short the company. Questioned Pinterest's valuation, arguing it seemed like a lot of money for a bulletin board. Said Doppler Labs could be like the next Oculus Rift.
Mary Erdoes (JPMorgan): "They're called crowded trades when they don't work and momentum trades when they do work." Says it's time to weed out the stock pickers who aren't the best.
Dawn Fitzpatrick (UBS): Likes merger-arbitrage, argues that bank prop trading desks exiting keeps spreads attractive and wide on bigger deals. Said short-term alpha is harder and that investors need to be more patient. Says women are less emotional investors and better at cutting losers.
Thursday, September 17, 2015
Bridgewater's Ray Dalio Interview on Bloomberg
Bridgewater Associates founder Ray Dalio recently appeared on Bloomberg to share his thoughts. He said he doesn't care whether the Federal Reserve raises by 25 basis points, but he doesn't see the reason for it.
Dalio notes that quantitative easing has a diminishing scale of returns as it will work less than it did last time. He goes on to say, "We will have a downturn" and that it will be worrisome because the Fed won't really have the tools to fight it.
He says the environment we're in means that if you can't have interest rate moves, you'll have currency moves.
Dalio says that, "What worries me is what the next downturn looks like with asset prices where they are and the lesser ability of central banks to ease monetary policy."
He feels the Fed is too worried about the short-term debt cycle and not enough about the long-term debt cycle and he doesn't get it. Dalio notes,
"The United States is in the midpoint of its short-term debt cycle. Capacity utilization, GDP gap and, so as a result, we're talking about whether the Fed should tighten or not. That's what central banks do in the middle of it. And we're near the end of a long-term debt cycle. Because that cycle of being able to raise -- you have interest rates going to zero. You have spreads that are -- have come down. So the spreads that have come down means that asset prices have gone up. In other words, so now the expected return of asset classes is -- are all very low. Cash, we know that bonds are going to two and a quarter percent. You know that you're going to get for the next 10 years two and quarter percent on your bonds. The equity price premiums look like three and a half or four percent on that. So all of the asset classes now are aligned in normal risk premiums, that kind of thing. That's why if interest rates rise faster than it's discounted in the markets, those markets are discountable."
On China, he says "they have to rebuild a new economy to replace the old economy." He says China had the equity bubble as speculators rushed in, but he says this is normal for emerging economies. He says China is going to be "just fine."
Over the next 10 years, Dalio says you're gonna have returns that are probably gonna average around 3-4% and it's a major pension fund problem.
Embedded below are videos of Dalio's interview on Bloomberg:
Video 1
Video 2
Video 3
Video 4
Video 5
Video 6
Video 7
Video 8
For more from this manager, head to Ray Dalio on how the economic machine works.
Friday, December 5, 2014
Ray Dalio & Larry Summers: An Examination of How the Economic Machine Works
This is a slightly older video from this summer, but it's still worth watching. Larry Summers sat down with Bridgewater Associates' founder Ray Dalio at Harvard in a presentation entitled: An Examination of How the Economic Machine Works.
Embedded below is the video of the conversation between Summers and Dalio:
For more from Bridgewater, we've previously posted up lessons from Ray Dalio as well as Bridgewater on economic principles.
Tuesday, September 24, 2013
Ray Dalio & Bridgewater on Economic Principles
Earlier this morning, we posted up Ray Dalio's new video: 'How The Economic Machine Works.' In conjunction with this video, Bridgewater Associates has also published a draft of 'Economic Principles.'
The .pdf dives into much more depth and highlights an in-depth look at deleveragings (including the 1930's US and Weimar Republic) and also features a look at productivity and why countries succeed and fail over the long term.
The sizable 210-page document is embedded below:
Don't forget to check out Ray Dalio on how the economic machine works if you'd rather view a quick summary.
Ray Dalio on How the Economic Machine Works
Ray Dalio, founder of hedge fund Bridgewater Associates, just released a video entitled How The Economic Machine Works (in 30 minutes). In it, he strives to outline the viewpoint that's guided him over the years.
3 Main Forces That Drive The Economy
Dalio identifies 3 main forces:
1. Productivity growth
2. Short term debt cycle
3. Long-term debt cycle
He also says that, "credit is the most important part of the economy and probably the least understood." Dalio also notes that it's the biggest and most volatile part of the equation. He opines further below.
Embedded below is Ray Dalio's video of how the economic machine works:
For more from this hedge fund manager, we've highlighted lessons from Ray Dalio in Hedge Fund Market Wizards.
Monday, April 15, 2013
Top 10 Highest Paid Hedge Fund Managers of 2012
Institutional Investor's Alpha is out with their annual ranking of top earning hedge fund managers. Here's the list:
Top 10 Highest-Paid Hedge Fund Managers of 2012
1. David Tepper (Appaloosa Management): $2.2 billion
2. Ray Dalio (Bridgewater Associates): $1.7 b
3. Steven Cohen (SAC Capital): $1.4 b
4. Jim Simons (Renaissance Technologies): $1.1 b
5. Ken Griffin (Citadel): $900 million
6. Eddie Lampert (ESL Investments): $750 m
7. Stephen Mandel (Lone Pine Capital): $580 m
8. Leon Cooperman (Omega Advisors): $560 m
9. David Shaw (D.E. Shaw): $530 m
10. Dan Loeb (Third Point): $380 m
Tepper finds himself atop the list after a solid 2012, returning around 30% after fees. Lee Cooperman's firm also turned in great numbers last year (up around 28%) as did Ken Griffin, whose Citadel returned over 25%.
Of the managers listed, over half make a solid portion of their investments via equity strategies (though Appaloosa also focuses on distressed and Third Point also dabbles in mortgages). Two managers listed are primarily quant funds (RenTec, D.E. Shaw). Eddie Lampert's earnings are largely tied to Sears (which his hedge fund owns a large stake in) and shares rallied in 2012.
II Alpha ranks all the way up to the top 25 managers and you can view the full list here.
Wednesday, February 27, 2013
Lessons From Ray Dalio: Hedge Fund Market Wizards
We're pleased to present another guest post from David Shvartsman over at Finance Trends Matter where he has a lot of great posts about investing/trading process, behavioral finance, and more. You can subscribe to his RSS feed here. Without further ado:
Lessons From Ray Dalio
In our second installment of "Lessons from Hedge Fund Market Wizards", we'll offer up some trading and macroeconomic insights pulled from Jack Schwager's interview with Ray Dalio of Bridgewater Associates.
You've probably heard of Ray Dalio if you have even a cursory knowledge of the hedge fund industry (or the Forbes billionaires list), so let's get right to it. These notes will fill in the rest of the story.
1). Dalio is the founder and former CEO (now "mentor") of Bridgewater Associates, a fund that has returned more money ($50 billion) for investors than any hedge fund in history.
2). Bridgewater still manages to achieve excellent returns on a huge base of capital and has done so over a long period of time. It is among the few hedge funds with a 20-year track record.
3). Dalio believes that mistakes are a good thing, as they provide an opportunity for learning. If he could figure out what he (or someone else) was doing wrong, he could use that as a lesson and learn to be more effective.
4). His life's philosophy and management concepts are set down in a 111 page document called, Principles, which drives the firm's culture and daily operations. Identifying and learning from mistakes is a key theme. It also advocates "radical transparency" within the firm; meetings are taped and employees are encouraged to criticize each other openly.
5). "The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking required to succeed in school". Ray notes that school education emphasizes instructions, rote learning, and regurgitation. It also teaches students that "mistakes are bad", instead of teaching the importance of learning from mistakes.
6). If you are involved in the markets, you must learn to deal with what you don't know. Anyone involved in markets knows you can never be absolutely confident. You can't approach trading by saying, "I know I'm right on this one." Dalio likes to put his ideas in front of other people so they can shoot them down and tell him where he may be wrong.
7). "The markets teach you that you have to be an independent thinker. And any time you are an independent thinker, there is a reasonable chance you are going to be wrong."
8). Ray learned in his early working years that currency depreciation and money printing are good for stocks. He was surprised to see US stocks rise after Nixon closed the gold exchange window in 1971 (effectively ending the gold standard). The lesson was reinforced when the Fed eased massively in 1982 during the Latin American debt crisis. Stocks rallied, and of course, this marked the beginning of an 18-year bull market.
9). From these earlier experiences, Dalio learned not to trust what policy makers say. He has learned these lessons repeatedly over the years (much like our previous "Market Wizard", Colm O'Shea).
10). Dalio vividly recalls a time when he was nearly ruined trading pork bellies in the early 1970s. He was long at a time when bellies were trading limit down every day. He didn't know when the losses would end, and every morning he'd hear the price board click down 200 points (the daily limit) and stay there. The experience taught him the importance of risk management - "I never wanted to experience that pain again".
11). "In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you're not going to make money, and if you are not defensive, you are not going to keep money.".
12). Bridgewater views diversification and asset correlation differently than most. As Dalio puts it, "People think that a thing called correlation exists. That's wrong.". Instead, he describes a world in which assets behave a certain way in response to environmental determinants. Correlations between say, stocks and bonds, are not static, but are changing in response to "drivers" (catalysts) that can cause assets to move together or inversely.
13). By studying how asset prices move in response to certain drivers, Bridgewater looks to build portfolios of truly uncorrelated assets. By combining assets that have very slight correlations, they are able to diversify among 15 assets (instead of 100 or 1000 more closely linked assets). This helps them cut volatility and greatly improve their return/risk ratio.
14). We are currently in the midst of a "broad global deleveraging" that is negative for growth. Since the United States can print its own money, it will do so to alleviate the pressures of deflation and depression. The effectiveness of quantitative easing will be limited, since owners of bonds purchased by the Fed will use the money to buy similar assets. Dalio elaborates on our future economic course and possible policy approaches to these problems throughout the interview. There's a lot more in Schwager's chapter with Ray Dalio. These notes just scratch the surface on Bridgewater's process and their quest for the Holy Grail of investing. There is also an addendum to the chapter containing Dalio's big picture view of long-term economic cycles and a historical "stage analysis" of the economic rise and fall of nations.
If you missed it, check out Finance Trends Matter's other guest post: Jack Schwager on Hedge Fund Market Wizards.
Thursday, January 24, 2013
Ray Dalio: Cash Will Move Into 'Stuff' in 2013
Ray Dalio, founder of Bridgewater Associates, spoke with CNBC at Davos about a myriad of topics. Dalio started Bridgewater with $5 million and now manages $130 billion. His Pure Alpha hedge fund ended 2012 up 0.8% though his long-term returns are much more impressive.
Cash Will Move Into 'Stuff'
The Bridgewater founder thinks 2013 will be a year of transition as
cash moves into 'stuff' like goods, services, financial assets
(equities, gold, etc).
He points out that there's so much cash in the system due to central bank action. Since cash has a negative real return, he argues that it has to go somewhere as risks are being reduced. The desire to hold cash is being reduced.
Dalio laid out his framework as essentially a scenario where US investors pile into stocks driving markets higher which will then give the Fed confidence to start to tighten, which will then cause a pullback across risk assets.
Bearish on Europe
However, he's quite bearish on Europe it seems noting that there's a terrible economy with a gradual restructuring. He says there will be a depression there or a 'lost decade'.
Wisdom From Dalio
Dalio also had a some fantastic quotes about approaching investing, saying that,
"The way to look at any market... is to look at the buyers and sellers and to understand who's buying and who's selling and what the motivations are behind that."
He went on to note that,
"Too many investors are reactive decision makers... if something has gone up, they say 'ah, that's a good investment,' they don't say 'that's more expensive.' It's the most common mistake in investing. You have to look ahead and say what is the transaction? What will determine the buyer or seller?"
Dalio also points out:
"So much of the driver of any asset class returns is based on how events actually transpire relative to expectations. So there's a certain discounted growth rate in equities."
Lastly, Dalio made an excellent analogy comparing investing to poker:
"The bets are zero sum. In order for you to beat me in the game, it's like poker, it's a zero sum game. We have 1,500 people that work at Bridgewater, we spend hundreds of millions of dollars on research, and so on. We've been doing this for 37 years and we don't know that we're going to win. We have to have diversified bets. So it's very important for most people to know when not to make a bet. Because if you're going to come to the poker table, you're going to have to beat me, and you're going to have to beat those who take money. So the nature of investing is that a very small percentage of the people take money essentially in that poker game away from other people who don't know when prices go up whether that means it's a good investment or if it's a more expensive investment."
This analogy is not a new concept and there are actually many similarities between poker and investing/trading. Numerous hedge fund managers play poker (like David Einhorn) and we've highlighted the link between hedge fund managers and poker.
Embedded below are the videos of Dalio's interview from Davos:
Video 1
Video 2
For more on this legendary investor, Dalio is profiled in the book The Alpha Masters. You can also check out Dalio's other in-depth interview on QE3, gold and other topics.
Friday, September 21, 2012
Ray Dalio on QE3, Gold, China, Europe, Economy & More (Interview)
Bridgewater Associates founder Ray Dalio appeared on CNBC this morning for a rare interview. Bridgewater manages $130 billion and is listed as the top hedge fund by net gains since inception. Here's a summary of Dalio's thoughts from this morning as well as the videos:
On QE3 and the US Dollar
Dalio said that QE3 was a good plan. When you ease interest rates, it stimulates private sector credit growth. And then after that you utilize quantitative easing. He feels the US dollar is squeezed due to lots of dollar denominated debt, but after this squeeze he says it's going to decline in the near-term.
On China
The hedge fund titan points out that China can have 6% growth and still think that's depressing all while the US has 2% growth.
Just yesterday we posted about how Jim Chanos is still short China. And of course we've also highlighted the China hedge fund bear thesis.
On Gold
He says "it should be part of everyone's
portfolio to some degree because it diversifies the portfolio." He
likens gold to an alternative version of cash and over the long term he
says it's better than cash. "Money can be produced, but gold is
somewhat limited."
On Europe
Bridgewater's founder says there's going to be a "managed depression" in southern Europe in the next few years, and thinks we'll see both a combination of monetary policy (money printing) and a deleveraging and restructuring of debt over there. He says the euro is "likely" to stay together and it is controlled by southern Europeans, though there's more risk for the currency in later years.
On His Biggest Worry
He worries about social distortion and another leg down in various economies causing them. He notes that deleveragings can be painful and we've posted up Dalio's in-depth look at deleveragings before.
On a Possible Downturn in the US Economy
The
Bridgewater founder said that the odds of an unmanaged downturn are
"comparatively low." He likens it to flying on a plane where you could hit an air pocket and that's when problems could arise.
Dalio's Rules of Investing
He says, "I don't get caught up in the moment. I think so many people are reactive and they see things in a very short-term way." He goes on to say that, "almost all important events never happened in your life." He looks at what's happened in the past and uses that as a template for rules for each scenario essentially saying 'if this happens, do that.'
Dalio is profiled in the new book The Alpha Masters which we recommend reading. For even more thoughts from Bridgewater's leading man, check out this recent in-depth interview with Dalio from a few days ago.
Monday, September 17, 2012
Ray Dalio In-Depth Interview on a Myriad of Topics
Bridgewater Associates founder Ray Dalio recently gave an hour-long interview at the Council on Foreign Relations where he touched on a myriad of macro, economic, and investing topics.
It's rare to get such an in-depth look from one of the world's top investors, so instead of summarizing we highly recommend watching the whole interview with Dalio below:
Hat tip to PragCap for finding this.
We've posted tons of other great resources on Bridgewater below:
- Ray Dalio interviewed in the book The Alpha Masters
- Dalio on deleveragings
- Bridgewater the top hedge fund by net gains since inception
Monday, May 21, 2012
The Alpha Masters: Review of Maneet Ahuja's Book on Dalio, Paulson, Tepper, Loeb & More
Ahuja is CNBC's hedge fund specialist and co-creator of the Delivering
Alpha summit. Through her roles, she's developed quite the rolodex and
has put it to work by giving readers unprecedented access to prominent managers. With a foreword by PIMCO's Mohamed El-Erian and an afterword by Myron Scholes, Ahuja's book profiles the following nine managers:
Chapter 1: The Global Macro Maven - Ray Dalio, Bridgewater Associates
Chapter 2: MAN versus Machine - Pierre LaGrange & Tim Won, MAN Group/AHL
Chapter 3: The Risk Arbitrageur - John Paulson, Paulson & Co
Chapter 4: Distressed Debt's Value Seekers - Marc Lasry & Sonia Gardner, Avenue Capital
Chapter 5: The Fearless First Mover - David Tepper, Appaloosa Management
Chapter 6: The Activist Answer - Bill Ackman, Pershing Square Capital
Chapter 7: The Poison Pen - Dan Loeb, Third Point
Chapter 8: The Cynical Sleuth - Jim Chanos, Kynikos Associates
Chapter 9: The Derivatives Pioneer - Boaz Weinstein, Saba Capital Management
The book's cover photo is the perfect depiction of what many perceive the hedge fund industry to be: money and secrecy hidden behind locked doors (or in this case, a bank safe deposit box). But just as the cover suggests, Ahuja has unlocked the door to the industry's top titans and she lets you in on some of their secrets and little known facts.
How David Tepper Named His Hedge Fund
One such tidbit is found in Chapter 5 about David Tepper. While Market Folly often details Tepper's portfolio activity, The Alpha Masters sheds light on little known facts such as why he selected the name 'Appaloosa Management' for his firm to begin with.
It's always interesting to learn what hedge funds are named after because they often tell a story or reveal information about the managers themselves. In Tepper's case, it simply highlighted his desire to make money.
Ahuja writes,
"Tepper and Walton only needed the perfect name for their new venture. Greek mythology was popular at the time and they first decided on Pegasus, the flying horse, before discovering it was already taken. So Walton went to the library and came back with a book on horses. They knew they needed a name that started with 'A' to be first to receive faxes on trades, which was how orders were processed back then. They had learned well from their stints at Goldman that two minutes could make or break you. The first name they came across was 'Achaikos' but they found it too hard to pronounce. So they skipped ahead and settled on 'Appaloosa.' And the fund was born."
Why The Alpha Masters is a Must-Read
This book is a compilation of stories and fascinating facts about nine top managers. We've been tracking these prominent hedge funds for years, but The Alpha Masters kept peeling back layers of intricate details.
At first glance, some of the historical background on the managers' lives may seem tedious and boring. But then you realize that Ahuja has included these anecdotes because it paints a picture as to who the manager was and what they've become.
These stories told in the manager's own words make you feel as if you're simply at lunch with a friend reminiscing about their past. But Ahuha has masterfully taken that friend and replaced them with a hedge fund titan removed from Wall Street's trillion dollar pedestal. And when you've finished reading, these seemingly untouchable god-like moneymaking machines have morphed into mere mortals just like you.
After all, like many entrepreneurs and small business owners today, these hedge fund icons at one point in their lives took a big risk, pursued their dreams, and started their own firms. Ahuja chronicles the entire journey (even before the fund's inception) and the real value is seeing what each manager had to go through to get where they are now. As these dream chasers soared to amazing altitude, they now tell their success stories as luminaries sure to inspire the ascension of the next master money managers.
But apart from the human element, this book does exactly what its title implies: it's unlocked the genius of the world's top hedge funds by giving you tons of access to people you'd probably never meet as well as stories and wisdom you'd probably never hear otherwise.
The most valuable aspect of this book is that it gives you a front row seat in a classroom full of hedge fund icons detailing their investment thought process, what mistakes they've learned from, how they've developed as investors, and what it takes to succeed. While many perceive hedge funds to be secretive, Ahuja has acquired astute anecdotes from top managers and purveyed them for all investors to learn from. And, unbeknownst to us, it was a pleasant surprise to find MarketFolly.com listed as a reference at the end of the book.
Definitely check out The Alpha Masters (hardcover) or Kindle e-book version here.
Friday, March 30, 2012
Top 25 Highest Earning Hedge Fund Managers of 2011
AR Magazine has revealed a list of the top 25 highest earning hedge fund managers from 2011. This is their 11th year of doing the rankings and they found that the upper echelon earned an average of $576 million and a combined total of $14.4 billion. Here's the top five:
1. Ray Dalio (Bridgewater Associates): $3.9 billion. You can view Ray Dalio on deleveragings, his newly released research paper
2. Carl Icahn (Icahn Capital Management): $2.5 billion. One of his holdings was featured as a previous stock of the week: what Carl Icahn sees in WebMD.
3. James Simons (Renaissance Technologies): $2.1 billion. We just recently posted up Jim Simons' presentation at MIT. Simons is one of the top earners on this list despite having retired.
4. Ken Griffin (Citadel): $700 million. You can view some of Citadel's latest moves here.
5. Steven Cohen (SAC Capital): $585 million. We've posted up recent portfolio activity from SAC Capital as well.
It's interesting to compare the above individual earner list to the list of the top 10 hedge funds by net gains since inception as there is no doubt some overlap.
Other Notable Earners: Chase Coleman from Tiger Global slides in at the sixth position. Recall that his fund saw big gains from private investments that IPO'd during last year. Andreas Halvorsen of Viking Global earned $300 million and Paul Tudor Jones (Tudor Investment Corp) earned $175 million.
New Additions to the List: 2011 saw plenty of new faces on AR's list including: Philippe Laffont of Coatue Management, Boaz Weinstein of Saba Capital, Jeffrey Ubben of ValueAct Capital, Paul Singer of Elliott Management, Renaissance's Robert Mercer and Peter Brown, as well as Bridgewater's Greg Jensen and Robert Prince.
Notably Absent: AR mentions that the most notable absentee from the list is John Paulson. He fell off after a weak 2011 performance wise after he was the top hedge fund earner the year prior. George Soros misses the list after he returned outside investor money and converted his hedge fund into a family office.
You can view the rest of the top 25 earners list here.
Friday, March 23, 2012
Bridgewater's Ray Dalio on Deleveragings
Bridgewater Associates founder Ray Dalio recently put out a research paper entitled, "An In-Depth Look at Deleveragings." Given that Bridgewater is the top hedge fund by net gains since inception and that Dalio doesn't give his views in public that often, this 30+ page paper is surely a must-read.
In summary, the piece basically says that deleveraging in the purest sense of the word equals debt reduction and debt monetization. Dalio writes that "good" deleveraging stimulates economies via monetary stimulation and that "bad" deleveragings cause recessions and in turn, usually deflation.
To compare and contrast the two, he walks through six periods as examples of each: The Great Depression, Japan's lost decade, the UK from 1947-69, the US financial crisis, as well as Weimar Republic's hyperinflation.
Put your macro hat on via the full article below: Ray Dalio on Deleveragings
Those who have followed Dalio's scarce appearances also know that he has a dim view of the economy this year. For more from the legendary manager, head to Dalio's interview with Charlie Rose.
Be sure to also check out Ray Dalio on his principles.
Wednesday, February 29, 2012
Top 10 Hedge Funds By Net Gains Since Inception
Bloomberg is out with an interesting piece examining the top 10 hedge funds by net gains since inception. The list contains the who's who among the hedge fund elite and is pretty much who you'd expect to be on it.
The data was compiled by LCH Investments NV (part of the Edmond de Rothschild Group) and is based on audited reports from each investment firm, discussions with the funds, as well as confidential sources.
Top 10 Hedge Funds By Net Gains Since Inception
1. Ray Dalio's Bridgewater PureAlpha: $35.8 billion net gain since 1975
2. George Soros' Quantum Endowment: $31.2 bn net gain since 1973
3. John Paulson's Paulson & Co: $22.6 bn net gain since 1994
4. Seth Klarman's Baupost Group: $16 bn net gain since 1983
5. Brevan Howard: $15.7 bn net gain since 2003
6. David Tepper's Appaloosa Management: $13.7 bn net gain since 1993
7. Bruce Kovner's Caxton Associates: $13.1 bn net gain since 1983
8. Louis Bacon's Moore Capital: $12.7 bn net gain since 1990
9. Thomas Steyer's Farallon Capital: $12.2 bn net gain since 1987
10. Steve Cohen's SAC Capital: $12.2 bn net gain since 1992
One interesting tidbit here is that Louis Bacon's Moore Capital makes the top ten, but his mentor Paul Tudor Jones (Tudor Investment Corp) does not. Tudor was largely responsible for seeding Bacon's fund by sending him investors that Tudor had to turn away back when he was first getting started.
Compare the above to the top 10 biggest hedge funds in 2010 and it's no surprise that there's considerable overlap as some of the most successful hedge funds have become some of the largest. Also, the two funds that have been around the longest on the list (Bridgewater and Soros) are the two that occupy the top positions.
Five of the managers above are featured in our Hedge Fund Wisdom newsletter and you can see their latest investments in our brand new issue.
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