Ray Dalio: the seer blindsided by a bug

When the financial crisis struck in 2008, Ray Dalio’s hedge fund was well prepared to profit and he has since enjoyed a reputation for prescience. He was, he admits, not so fortunate this time round.

“It’s never easy to admit that you’re wrong, especially when you have previously earned fame (and billions of dollars) by calling the future right,” says Gillian Tett in the Financial Times. Yet Ray Dalio has done just that. The founder of the world’s largest hedge fund, Bridgewater Associates, with a personal fortune previously estimated at £18bn, concedes he was badly wrong-footed by the coronavirus market turmoil –  “in sharp contrast to the 2008 financial crisis, when he and his team predicted events with such prescience that they profited handsomely”. This time around, Dalio’s $160bn flagship fund is down by about 20% because, as he admits, Bridgewater’s analytic systems couldn’t “offer any guidance” about a rare event such as a pandemic.

A Young Turk humbled

Dalio will surely be taking it in his stride. A key story in Dalio’s best-selling book – part memoir, part how-to guide – tells of his meltdown in 1982, when a series of bad bets on bonds nearly imploded his fund, wrecking his reputation as a Young Turk of the markets, says The New York Times. “Being so wrong – and especially so publicly wrong – was incredibly humbling and cost me just about everything,” he writes. “I saw that I had been an arrogant jerk… betting everything on a depression that never came.” He had to let all his staff go and borrow from his father to pay his bills.

Ultimately, Dalio’s love of markets saw him through. It began at a young age in the early 1960s. Growing up in Long Island, the son of a jazz musician, he started investing at 12, getting tips from golfers for whom he caddied. The first stock he bought was Northeast Airlines. Thanks to “a lucky merger”, the young investor “tripled his money”, notes CNBC, and he was “hooked”. By the time he graduated from high-school, Dalio had built an impressive portfolio worth thousands. After a stint at Harvard Business School, Dalio headed for Wall Street, becoming a commodities trader at Shearson Hayden Stone. But he was “temperamental” and didn’t last long, says The Times. In 1974, he punched his boss at a party; shortly after he was fired. The following year, aged 26, he founded Bridgewater from his apartment in New York city.

Calmed by meditation

Aside from its performance (over four decades, the firm has made more money for its investors than any other hedge fund in history, according to Bloomberg), Bridgewater is best known for its unique culture, says The New York Times. Staff at his fund rate performance during meetings, scoring colleagues out of ten for open-mindedness, creativity and assertiveness and so on. Their overall rating is taken into account in investment decisions. Critics have likened this “social experiment” to Big Brother – there are horror stories about the “often brutal feedback” and turnover among new employees is high.

Still, Dalio claims to have overcome his own fiery tendencies by practising transcendental meditation. He says he is now far more interested in “the gorgeousness of nature, not the things you buy”. Based on the assumption that what he calls the “success” phase of his life is over, Dalio is no longer chasing personal glory – though doubtless recent setbacks will galvanise him to make good the fund’s losses. Confident that his legacy has been secured by the uptake of his principles, he says he now feels “free to live, and free to die”. Ommmmmm.

Recommended

Cryptocurrency roundup: bitcoin hits a new record high
Bitcoin & crypto

Cryptocurrency roundup: bitcoin hits a new record high

In the week when bitcoin hit a new high, we look at what’s been going on in the world of cryptocurrencies this week.
22 Oct 2021
Green finance is set to be the most powerful financial repression tool yet
Bonds

Green finance is set to be the most powerful financial repression tool yet

The government has launched its “green savings bond” that offers investors just 0.65%. But that pitiful return is in many ways the point of “green” fi…
22 Oct 2021
Andrew Hunt: why it's a great time to be a deep value investor
Value investing

Andrew Hunt: why it's a great time to be a deep value investor

Merryn talks to Andrew Hunt, author of Better Value Investing, about his adventures in the market's dark underbelly, looking for the hated and neglec…
22 Oct 2021
Equities are not a good inflation hedge
Economy

Equities are not a good inflation hedge

Institutional investors are definitely now worried about inflation. But they're not yet worried enough to flee to cash, says John Stepek
22 Oct 2021

Most Popular

How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021
The after effects of the gas-price shock
Economy

The after effects of the gas-price shock

In the wake of the recent spike in the natural gas price, we can expect slower growth, an industrial recession – and a newly assertive Russia, says Ma…
17 Oct 2021