Principles by Ray Dalio

[sthealth_wealth]

Anyone read it?

Quick synopsis is it's Ray's autobiography. First third is his life story. Second third is his work/life principles that made him successful. Third third is his economics and investing principles.

Only about halfway through but really enjoying it.

The most relevant thing I want to bring up is his success in active management. With all the strong emphasis on index funds, active investing had become the devil to me. However this book has opened my mind to it a bit.

Why don't more people give their money to smart, successful investors or firms like bridgewater to invest?

[Complete_newbie]

My experience: active investing is awesome when that investing is done actively by me and NOT via the market. When in the market I go passive index/ETF.

I'll let others chime in and answer why giving your money to someone trying to actively invest hasn't worked for small investors (try calling Bridgewater and see if they'll take your money)

A dentist/doctor setting up his practice and running it is actively investing and kicking some rear in ROI (hopefully)

[G]

sthealth_wealth wrote:

Why don’t more people give their money to smart, successful investors or firms like bridgewater to invest?

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Every once in awhile, the news runs a story about the latest lottery winner.  Those folks get a pretty big check, even after the various levels of taxation.

Should more people play the lottery?

[Zaphod]

sthealth_wealth wrote:

Anyone read it?

Quick synopsis is it’s Ray’s autobiography. First third is his life story. Second third is his work/life principles that made him successful. Third third is his economics and investing principles.

Only about halfway through but really enjoying it.

The most relevant thing I want to bring up is his success in active management. With all the strong emphasis on index funds, active investing had become the devil to me. However this book has opened my mind to it a bit.

Why don’t more people give their money to smart, successful investors or firms like bridgewater to invest?

Click to expand...

There are numerous successful active managers, and depending on how its ranked, more than 50% will actually beat the market so its not impossible. What they dont do, is beat their fees and return that to you, so theyre simply taking too much of the alpha for themselves. The other issue is, those that beat the market one or some years are unlikely to do so over the next few. Its fleeting.

Theres a reason we can name almost all of the successful investors and an even more omninous reason that the majority of them started in the late 70s early 80s, aka, started with a generational low in PE and a generational high in interest rates with the back drop of huge technological changes in business, tax changes, etc...that served as a massive tailwind. This is even more damning of risk parity given the way that strategy is structured and what it takes advantage of. Its also a bit of a stretch to call basic risk parity active investing, its more of an allocation and leverage play, not active investing in the sense of picking stocks. They are taking advantage of leverage aversion and the above tailwinds.

Obviously his personal principles are not necessary for success, this is simply his interpretation since he succeeded and thats what he did. Everyone else who succeeded in the same field did not have these 'principals' so its not as if they actually mattered, maybe to him, but maybe he would have (and i suspect so) been successful with another schema.

Finally, the reason people dont give their money to smart active investors is its nearly impossible to find them ahead of time. Now, given the paradox of skill (look this up its very interesting), the amount of alpha left in the market is decreasing and fees make active management much worse on average. The only ways to beat the market are risk exposure, leverage and concentration away from the market portfolio (essentially just risk). They work, but also increase the odds you have ruinous consequences and are harder to hold over long term periods due to increased volatility.

[Donnie]

Bridgewater has $160B of AUM. Renaissance has $80B. Hedge funds as an asset class have $3T of AUM. No shortage of people investing in these.

[Hank]

Donnie wrote:

Bridgewater has $160B of AUM. Renaissance has $80B. Hedge funds as an asset class have $3T of AUM. No shortage of people investing in these.

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Just because many people are investing in hedge funds doesn't mean that it's necessarily a wise idea.  https://www.bloomberg.com/view/articles/2017-09-27/buffett-s-hedge-fund-bet-was-a-virtual-sure-thing

[Donnie]

Hank wrote:

Donnie wrote:

Bridgewater has $160B of AUM. Renaissance has $80B. Hedge funds as an asset class have $3T of AUM. No shortage of people investing in these.

Click to expand…

Just because many people are investing in hedge funds doesn’t mean that it’s necessarily a wise idea.  https://www.bloomberg.com/view/articles/2017-09-27/buffett-s-hedge-fund-bet-was-a-virtual-sure-thing

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Who said it was a wise idea?  The OP asked why don’t more people invest in active managers.  I was just pointing out that many people do.

One Renaissance fund has earned 35%+ annual returns since inception in 1988, so yes, I would invest in it if I could.

[Peds]

sthealth_wealth wrote:

Anyone read it?

Quick synopsis is it’s Ray’s autobiography. First third is his life story. Second third is his work/life principles that made him successful. Third third is his economics and investing principles.

Only about halfway through but really enjoying it.

The most relevant thing I want to bring up is his success in active management. With all the strong emphasis on index funds, active investing had become the devil to me. However this book has opened my mind to it a bit.

Why don’t more people give their money to smart, successful investors or firms like bridgewater to invest?

Click to expand...

do you know how much he is worth? lots of people give him money....lots of money.

[Hatton]

I just read his wikipedia entry.  He is among the 100th richest people in the world.  I read a few months ago that the state of Conn was worried he might leave if they increased taxes any more.  He is important to their tax base evidently.  Most hedge funds charge 2 and 20.  Meaning an AUM fee of 2% and 20% of any profits.  Even if the fund does well it must overcome a significant hurdle.  That being said yes I might invest if I had enough money.

[sthealth_wealth]

@zaphod that type of explanation was what I was looking for. I didn't consider the difference between risk parity and active investing.

However, regardless of if it's "active investing" or not, I get the sense that the general consensus is to invest in index funds instead of firms with a proven track record of beating the market. If the investing that successful firms do is so "fleeting" wouldn't they go out of business? Or is it ignorance or laziness of people that give them money that keeps them alive in spite of their fleeting success.

I also disagree with your argument that his principles aren't necessary for success in his field. Bridgewater was built on his fundamental principles of taking a historical and analytical perspective of the markets, adding it to his algorithm, then over time, improving the algorithm when his returns don't match what he expects. According to the book, it seems like he's mastered hedging or active investing to where he makes informed and accurate decisions that yield favorable returns consistently.

Outside of the financial/economical component, he built Bridgewater Associates on what he calls radical transparency and truthfulness. It's so extreme that employees wear cards that show what their strengths are (in addition to taking personality tests), and are assigned roles according to their strengths. These principles and more led him to build not just a successful investing firm, but the most successful one on the planet (i.e. the most money).

These things just sparked a "what if" in my mind; the possibility that there are people/firms out there that can reliably beat the market.

@peds yes he's worth a lot. I don't know the exact number, but it was enough for me to spend the $20 on the 600 page book lol

@hank thanks for that article. It helps balance the scale a bit learning Buffett raves index funds over hedge funds.

[sthealth_wealth]

G wrote:

Every once in awhile, the news runs a story about the latest lottery winner.  Those folks get a pretty big check, even after the various levels of taxation. Should more people play the lottery?

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Yes I understand the lottery point. Reason I'm using Ray and Bridgewater as an example is because their success is far from luck. It's consistent and based in analysis and reasoning to where investing decisions are made by a computer algorithm they built from scratch. Fortune 500 companies and entire countries are confident enough in it to give them their money.

[notadoc]

hatton1 wrote:

I just read his wikipedia entry.  He is among the 100th richest people in the world.  I read a few months ago that the state of Conn was worried he might leave if they increased taxes any more.  He is important to their tax base evidently.  Most hedge funds charge 2 and 20.  Meaning an AUM fee of 2% and 20% of any profits.  Even if the fund does well it must overcome a significant hurdle.  That being said yes I might invest if I had enough money.

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One Top Taxpayer Moved, and New Jersey Shuddered

"Our top-heavy economy has come to this: One man can move out of New Jersey and put the entire state budget at risk. Other states are facing similar situations as a greater share of income — and tax revenue — becomes concentrated in the hands of a few."

https://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-new-jersey-shuddered.html

 

[Hatton]

notadoc wrote:

hatton1 wrote:

I just read his wikipedia entry.  He is among the 100th richest people in the world.  I read a few months ago that the state of Conn was worried he might leave if they increased taxes any more.  He is important to their tax base evidently.  Most hedge funds charge 2 and 20.  Meaning an AUM fee of 2% and 20% of any profits.  Even if the fund does well it must overcome a significant hurdle.  That being said yes I might invest if I had enough money.

Click to expand…

One Top Taxpayer Moved, and New Jersey Shuddered

“Our top-heavy economy has come to this: One man can move out of New Jersey and put the entire state budget at risk. Other states are facing similar situations as a greater share of income — and tax revenue — becomes concentrated in the hands of a few.”

https://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-new-jersey-shuddered.html

 

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I stand corrected it was not Conn but NJ but both hedge fund guys.

[VagabondMD]

I read about half. I enjoyed the story of his professional life the most. The actual principles were repetitive to me and became tedious, and I stopped reading it. I was more interested in how he ran his business (culture, philosophy, operations, family involvement) than I was in his investing processes and acumen.

[Zaphod]

sthealth_wealth wrote:

 

I also disagree with your argument that his principles aren’t necessary for success in his field. Bridgewater was built on his fundamental principles of taking a historical and analytical perspective of the markets, adding it to his algorithm, then over time, improving the algorithm when his returns don’t match what he expects. According to the book, it seems like he’s mastered hedging or active investing to where he makes informed and accurate decisions that yield favorable returns consistently.

 

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Then explain how on earth anyone else has ever been successful in the field then if the principles are necessary? His field is investing and remember what necessary means, aka wouldnt happen without it, meaning no one else would be successful and clearly they are. Given Its a dangerous conflation to look back on success and pick out one odd thing literally no one else has done and make that the ultimate tenet of your success. Its not an argument really, its just a plain fact that one doesnt need his principles to be successful, proven by every other person you've ever heard of before. Chanos, Thorpe, Simons, Buffett, etc...etc...didnt have those same principles and they did alright.

Again, Dalio founded bridgewater in 1975, the year after (1974) many many people (buffett included) say was one of the best years in recent history to invest. Timing could not have been better. And for risk parity which in a very simplified version reduces allocation of stocks very low and then leverages the bond portion of the portfolio to get an equivalent market return (of a higher stock allocation) adjusted for risk there was not a better time. A very large amount of the success he's enjoyed (and everyone else from the era) can be attributed to this background macro environment. The number of very successful investors with decades long track records also happens to equal statistical chance.