Tuesday, October 25, 2011

Ray Dalio of Bridgewater


I had the chance to watch Ray Dalio of Bridgewater Associates being interviewed on the PBS talk show Charlie Rose last week.

Ray Dalio is one of the most successful money managers of our generation. Starting in 1975, his firm now manages approximately $125 billion for a wide variety of clients, including some of the largest public pension plans. Last year, Bridgewater was the top performing hedge fund in the United States, proving that size isn't necessary a deterrent to performance.

Unfortunately I was not able to figure out how to imbed the video from Mr. Dalio's appearance. However, if you have 37 minutes at some point, and want to hear from one of the Best, I would encourage you to visit http://www.charlierose.com/ and watch the entire interview.

Bridgewater is a "macro" investor, which means that they place their investment bets based on their work on global economic and market trends.

One of the most interesting parts of the interview, in my opinion, is how much Mr. Dalio says that his firm focuses on what they don't know. Unlike many investors - who make a specific forecast, then invest accordingly - Bridgewater considers a wide range of scenarios, and tries to figure out investments that will do well in a variety of different outcomes.

In this tendency Bridgewater is not alone. It seems to me most of the best investors - including Warren Buffett - spend more time on downside risks than they do opportunities. Despite their enormous success, Dalio and Buffett are humble enough to recognize that events often take place that virtually no can anticipate, and they make their investments accordingly.

Dalio has an editorial in this morning's Financial Times in which he repeats some of the themes that he discusses on the Charlie Rose program.

Dalio believes there are three important trends to consider right now:
  1. We are in the midst of a massive de-leveraging process. Dalio notes that he is not only concerned about the huge government debts around the globe, but also the massive amount of debt that individuals also have amassed. In his opinion, the process of reducing this debt will be a drag on economic growth for years;
  2. Governments are largely out of ammunition. Dalio believes there is are few alternatives left for our elected officials to improve the current economic climate;
  3. We are at each other's throats. The tone of any policy debate has become incredibly nasty and strident, and no one seems to want to try to come up with any workable solutions. This, in Dalio's opinion, is probably the biggest danger to our economies and markets.
Here's the final paragraph of Dalio op-ed piece:

If we calm down and work together to properly manage this difficult situation....we can get through this deleveraging without great pain. If we can't, we may experience an economic, social and political collapse.