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Date : 12/05/2022

On Investment Strategy And Management Philosophy: What We Can All Learn From Ray Dalio

Ray Dalio established Bridgewater Associates out of his two-bedroom apartment in New York City in 1975. According to Fortune magazine, Bridgewater has evolved into the fifth most important private corporation in the United States, and Dalio has been named to Time magazine’s list of the world’s 100 most influential people.

Bridgewater is a pioneer in the use of big data, machine learning, and algorithmic programming approaches to build economic machines and yield better returns. Bridgewater’s term for the simplification of complicated economic systems into interdependent stocks and flows anchored by cause and effect links, around which the firm trades, is “economic machine.”

It oversees $160 billion on behalf of 350 of the world’s most prestigious and sophisticated institutions, including central banks, foundations, global pension funds, foreign governments, and university endowments.

As a macro investor, Dalio looks at economic patterns for opportunities and hazards, as opposed to micro-investing that prioritises company-specific technical research. In the 2000s, Dalio’s macro perspective is a momentous investment strategy that earned Bridgewater special acclaim. 

Prior to the 2008 financial crisis, Dalio noticed symptoms of trouble as a long-time student of the economy. He made changes to the Bridgewater portfolios to brace for a downturn by creating the All-Weather Portfolio, a lazy portfolio he designed to function well in all types of market conditions, be it deflation, inflation, economic growth, or decline. The strategy paid handsomely through minimised loss and better returns. While the typical hedge fund lost 19 per cent in 2008, Bridgewater’s Pure Alpha fund increased.

The Ray Dalio principle and investment style

The billionaire macro investor is best known for his economic views, but he’s also recognised for his management philosophy and the concept of “radical transparency,” which he discussed in detail in his 2017 book, “Principles: Life and Work,” and on his LinkedIn page.

Dalio was recently questioned on LinkedIn about the two most important habits to develop. Rather than requiring an early sleep or the elimination of carbohydrates, he stressed the importance of curiosity and character.

“I’m not sure how to best build curiosity in people, but I’d say the habit of asking a lot of questions like ‘why’ in order to make sense of things is good,” Dalio wrote on LinkedIn.

When it comes to building character, Dalio had some insight into coping with the pain of failure, writing:

“As for character, the most important habit is to go to the pain because it will strengthen you which will give you the power you need to be successful. Pain + Reflection = Progress. With practice the pain won’t be as painful and you will begin to see the pleasures of the successes so that going to the pain will make you feel good rather than bad.”

Ray Dalio created the “Risk Parity” concept, which is essentially an investment strategy that is “about balancing risk, not cash numbers,” as he defines it.

This means that, regardless of the economic cycle in which we find ourselves, portfolios should be constructed using assets that are not associated with one another and that, taking into consideration times of economic growth and inflation, always have assets that generate positive and better returns.

Much of Dalio’s tremendous success has been credited to a combination of his brilliance, investment strategy and aptitude, and the eccentric culture of his staff over the years. Ray Dalio is a living legend in the financial world who every micro and macro investor should learn from, whether he is describing the workings of the economic machinery or making us reflect on the principles that govern portions of our life.

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