A Look at Ray Dalio’s ‘Radical Truth’
By: Ibillionaire Capital
Tags: Pure Alpha, Bridgewater Associates, Ray Dalio, All Weather, Billionaire Insights

At the helm of the world’s biggest hedge fund firm, Ray Dalio is one of investing’s most captivating figures.

The billionaire subscribes to a very clear and specific set of values in business and in life. He promotes radical truth and transparency in all aspects of life, including — and especially — within within the walls of his firm, Bridgewater Associates. In a 2011 publication entitled Principles, Dalio declares “there is nothing to fear from truth.”

Life and Education

Ray Dalio was born in Jackson Heights, Queens and is the son of a jazz musician and a homemaker.

Growing up, he delivered newspapers, mowed lawns and shoveled driveways for cash. He got a job as a caddy at age 12 — the same year he made his first investment. He bought shares of Northwest Airlines, subsequently tripling his money thanks to a merger.

Dalio completed his undergraduate studies at Long Island University and received an MBA from Harvard Business School.

Career

Early in his career, Dalio spent time at the New York Stock Exchange, Dominick & Dominick LLC and Shearson Hayden Stone, focusing largely on commodity futures. His stint at Shearson came to an end soon after after a night of drinking that resulted in the now-billionaire slugging his boss.

In 1975, Dalio founded investment management firm Bridgewater Associates in Westport, Connecticut, bringing back to life an idea he’d toyed with while at Harvard. At first, Bridgewater advised corporate clients on currency exchange and interest rates, but growth cam fast. In 1985, Bridgewater signed the World Bank’s employee retirement fund as one of its clients, and in 1989, it landed Kodak’s retirement system.

Bridgewater Associates became the world’s largest hedge fund in 2012, and Dalio is among the highest-earning asset managers in the world.

Investment Philosophy

Ray Dalio is a “global macro” investor. He focuses on understanding national economies and investing on a large scale around the world on the basis of broad systematic factors. His thesis goes beyond stocks and entails investing in varieties of markets, including U.S. and international bonds, and using leverage to bolster exposure.

The billionaire views the economy in a mechanical manner. “The economy is like a machine,” he writes in a lengthy document outlining his view of economic principles. “At the most fundamental level it is a relatively simple machine. But many people don’t understand it — or they don’t agree on how it works — and this has led to a lot of needless economic suffering.”

In a 30-minute video, the billionaire outlines his view of the economy and its workings:

Bridgewater’s culture and approach to business are direct reflections of Ray Dalio’s worldview. Everyone within the organization is encouraged to take a stance of “radical openness,” regardless of the conflict and discomfort that may be incurred. All activities within the firm are taped.

Bridgewater Associates has two primary funds: All Weather (which has low charges and seeks to match overall market return), and Pure Alpha (which includes standard 2/20 fees and aims to beat the market with limited risk).

Notable Plays

Dalio was one of the few individuals to foresee the 2008 financial crisis.

In 2006, Bridgewater analysts calculated that total debt service in the U.S. was exceeding income, driving the economy towards a major deleveraging. The firm anticipated a bad end to the housing-and-lending boom, with Dalio going as far as to warn the Bush administration of what was to come.

When the crisis did hit, Bridgewater flourished. Its Pure Alpha fund posted 9.5% gains in a year when most hedge funds posted major losses.

In October 2008, Dalio published How the Economic Machine Works: A Template for Understanding What is Happening Now, what he called a “simple-minded explanation” of the economic landscape. His view continued to pay off over the next few years, and Bridgewater reported returns of roughly 23% in 2011.

More recently, Bridgewater’s performance has lagged. In 2012, the Pure Alpha fund gained just 0.8%, and in 2013, it rose 5.35%. Moreover, the All Weather fund ended 2013 down 3.9%.

Dalio did manage a bit of a turnaround last year, with All Weather returning 8.6% in 2014, net of fees. Pure Alpha returned 3.6% during the same period — not exactly impressive — but got a strong start to 2015, gaining 4.4% in January alone.

Quotes

“I believe that one of the best ways of getting at truth is reflecting with others who have opposing views and who share your interest in finding the truth rather than being proven right.”

“Don’t worry about looking good — worry about achieving your goals.”

“There is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes.”

“Principles are ways of successfully dealing with the laws of nature or the laws of life.”

“The economy is like a machine.”

Videos

How the Economic Machine Works

Company Culture and the Power of Thoughtful Disagreement

Ray Dalio: Monetary Policy Effectiveness Waning

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