This week we sit down with Ray Dalio of Bridgewater Associates. Dalio is the founder, chairman, CIO and outgoing CEO of the firm, which manages $160 billion dollars. Dalio has been a global macro investor for more than 45 years, having started Bridgewater out of a two-bedroom apartment in New York City in 1975. He’s also the author of the New York Times bestseller, Principles: Life and Work, and is known for the practical yet unconventional theory of economics he spells out in his video series “How the Economic Machine Works.”
We discuss his role in the creation of each of a) treasury inflation protected securities (TIPS); 2) U.S. dollar futures index; 3) Risk Parity; 4) China’s stock market; and 5) Chicken McNuggets.
Dalio describes how failure led him to the develop a new philosophy, one that focused on honest ownership of errors that should lead to reflection and learning. He this insight led the firm’s development and culture to evolve over time; how the art of “thoughtful disagreement” was a key to getting to the best ideas, regardless of ownership; and why an idea meritocracy is the best approach for running any business. The primary goal: raising your probability of being right.
Everytime he puts on a trade, he wrote down the criteria, and then subsequently performed a post-mortem on each trade. His analysis of each decision rule was then validated across different times and geographies. That eventually led to the creation of a decision making systems that operated “like a GPS” to assist the investment of Bridgewater’s capital. The success of this in markets led Dalio to apply a similar decision-making process for managing the firm, its structures, procedures and people.
You can stream/download the full conversation, including the podcast extras, on Bloomberg, iTunes, Overcast, and Soundcloud. Our earlier podcasts can all be found on iTunes, Soundcloud, Overcast and Bloomberg.
Next week, we speak with, Jeffrey Sherman, Deputy Chief Investment Officer of Doubleline Capital.
Ray Dalio & the Machinery of Finance (TBP, September 15, 2011)
Principles: Life and Work by Ray Dalio
Dalio’s recommended books
The Hero with a Thousand Faces (The Collected Works of Joseph Campbell) by Joseph Campbell
The Lessons of History by Will Durant
River Out of Eden: A Darwinian View of Life by Richard Dawkins