By conventional metrics, Ray Dalio is among the most successful investors the world has ever seen and the Principles he applies are worth emulating. But is he worth emulating?
There is no ambiguity on this. If you can come out of no place and create something like Bridgewater Associates, the world’s largest hedge fund, you must be one heck of a smart man. So is the founder, Ray Dalio, just that? If some perspective is needed on what is it that Dalio has built, come to terms with the following numbers. Because as he articulates from every forum that matters, “Be precise."
a) As reported by Institutional Investor’s Alpha, of the top 100 firms that make it to the list, Bridgewater Associates had a firm capital marginally in excess of $122 billion.
b) As against that, number two on the list is AQR Capital, with a firm capital of $69.6 billion and JP Morgan Asset Management is at number three, with $45 billion.
Managing a hedge fund of this size bring fees and profits that make Ray Dalio one of the richest men in the world and Bridgewater Associates the most successful hedge fund on the planet. That is also why investors of all kinds across the world are waiting with much anticipation for 27 September, when his book, Principles: Life and Work, will be out on the shelves. Everybody wants to know what is it about his Principles that makes Dalio and the firm as successful as it is.
Now, by his own admission, Dalio is a man who does not mince words, says it as it is, sticks to reason and logic, and believes in a culture of “radical transparency"—which means, you never state anything behind somebody’s back. Either you tell them what you think to their face or shut up—but do not talk behind their back. If need be, strong words may be used. Some people can take it. Those that do survive the place. And those who don’t are expelled from the system.
That is why, in keeping with the spirit of Dalio, I must place this on the record, and state it bluntly: I do not intend to invest a single rupee to buy Ray Dalio’s “Principles".
I have my reasons, all of which I feel strongly about, and I intend to say it in as many words. Because Ray Dalio would have it no other way.
If track records are anything to go by, I believe the 500 plus pages in the book will contain regurgitated tripe from a 123-page book—or manual, if you will—that goes by the same name and every Bridgewater employee is expected to commit to rote. If you may be inclined to go over what it contains, it is available for downloads in multiple formats.
I also believe Dalio’s Principles is destined to go down in the annals of history as among the remnants of an “industrial era". Not for anything else, but because artificial intelligence and machine learning are increasingly doing the job of managing complex financial instruments far better than humans can. This is evident from the jump in rankings of hedge funds that deploy algorithms to trade better. That is a digression, though, in this narrative.
To come back to Ray Dalio, his philosophy insists that while opinion and feedback ought to be blunt and brutal, it must be supported with evidence. Much poring over what is available in the public domain and listening to his statements later, I am going to attempt just that. Be blunt and brutal.
Ray Dalio, you reap what you sow
Now, Journalism 101 insists you attempt to reach out to a person and seek comment before attempting to write about them. I did not. My reasons are straightforward. And to show Dalio the mirror, I seek cover using the Principles he espouses. The statistical probability of Dalio responding to my request for any comment is close to zero. Various reasons for this exist.
a. Hedge funds are misunderstood in practically every part of the world. In India, it is a nascent industry and policymakers are still grappling with the real nature of this beast. Now, when there are problems with understanding what hedge funds are exactly and how they operate in mature markets, why should it be any better in India? In fact, probability and reason suggest, it will be lower. Both would suggest to Dalio it would be a waste of his energy to expend time on blokes like me.
b. When Ray Dalio has spoken to the media, it has been with established brand names in the business like Henry Blodget—after much deliberation and arriving at certain ground rules. Blodget has a reason to engage with Dalio because his audiences and markets are deeply interested in what men in the hedge fund business do. I am interested to the extent that the decisions men like Dalio make can impact economies across the world—India included. But I do not have the bandwidth to engage in understanding what may be the terms of engagement with “cranky" men like Dalio from 10,000 miles away.
c. In any case, Dalio’s engagement with Henry Blodget was compelled after The Wall Street Journal published a scathing piece on Dalio and the culture at Bridgewater in January this year. I am not entirely sure if Dalio may have responded to Blodget’s overtures had it not been for this piece.
The apparent reason Dalio reached out to Blodget is because the WSJ report attributed the report to multiple employees at the firm and others who have seen him from close quarters. It suggests that “Bridgewater wants day-to-day management—hiring, firing, decision-making—to be guided by software that doles out instructions". Dalio did not take kindly to this.
Is Ray Dalio a cranky man?
A little earlier, I used the word “cranky" to describe Ray Dalio. In Dalio’s world, that is an “opinion". And all “opinions" must be qualified. Again, I have my reasons.
He is the kind of man who has governments and heads of state eating out of his hand or waiting to meet him. In any case, hedge funds have a reputation for being notoriously impervious. But that is because the nature of their business is such and no malice ought to be attributed on that count. That is why a report in The Wall Street Journal ought not to have bothered Dalio as much. But it did. So much so that he mounted a rant against the WSJ on LinkedIn: “… We’ve had a history of (Rob) Copeland and (Bradley) Hope writing misleading stories about Bridgewater even when we co-operated with them… "
I would have given Dalio the benefit of the doubt if he had explicitly pointed to other instances where the journalists whom he had named in the post on LinkedIn have attempted to malign him. On every note he writes, he qualifies any statement he makes with a footnote that contains data or caveats. There were none here. Instead, it contained allegations. Minus data or caveats, my mind feels compelled to dismisses his allegations.
Not just that, he went on a rampage and tried to tarnish The New York Times as well, which had nothing to with the episode. But he had statistics that suggested public confidence in the media is at an all-time low, and that the media business must be regulated much like the financial services industry is.
This raises a few issues that violate all the “Principles" he espouses:
• The hedge fund industry—of which Ray Dalio is the biggest player—is not subject to scrutiny in the US by the Securities and Exchange Commission (SEC) like others in the financial services industry. By what yardstick, then, can he ask for regulation when he is the beneficiary of an unregulated environment? To my mind, this makes Dalio a cranky character.
• And if he has data (which is what he swears by) to prove public confidence in the media is at an all-time low, why did he have to feel hurt by a report in the WSJ? The emotion he displays is at conflict with the data he quotes. This, too, violates his Principles, and suggests crankiness to me.
• Then there is no escaping that he insists on “radical transparency" in his firm and that free speech in all forms be encouraged. If that be the case, why feel “hurt"? Why insist free speech be curbed? This is out of character for a personality that has always argued in favour of free markets. Episodes like these suggest not just being cranky, but churlish as well.
• But above all else, his responses to a news report displays “emotion". As Dalio has articulated clinically in his manifesto repeatedly, reason must prevail over emotion. He failed.
Ray Dalio is out of sync
To gain a job at Bridgewater, potential employees must go through much scrutiny. This includes psychological profiling as well. No rocket science here. Many organizations practice it through the much-hyped Myers-Briggs Type Indicator (MBTI). The problem with MBTI, though, is that it has been rubbished in peer-reviewed journals. It owes its origins to work done in the early 20th century by a mother-daughter duo, had not been peer-reviewed, and the insights it offers are as good as Linda Goodman’s Sun Signs.
MBTI is a theme that had attracted my attention in the past because a lot many organizations continue to persist with this ridiculous practice. I have invested much time on the test and engaged in multiple conversations around it with practising psychologists. All of them concur that it is not a reliable indicator and that we do not live in a black-and-white world where only 16 kinds of people exist. There are nuances and this test cannot capture them all.
My grouse with Ray Dalio and the entity that is Bridgewater is that when it comes to economics and the markets, they have consistently managed to beat everybody else because they could spot what others couldn’t. That is why they got to where they are now.
Why is it that Dalio and his company didn't refuse to look at something as ridiculous as MBTI for what it is? Instead, to gain an entry into the organization, MBTI is one of the first tests people must go through. The data it throws is captured, and all of it goes into a proprietary software system. This violates Dalio’s Principle again of questioning the convention. If anything, it insists the man is not just cranky, but pig-headed.
Ray Dalio is certainly not a ninja
Then there is more crock that Principles is filled with. Because space may not permit, I feel obliged to restrain myself a bit. But indulge me for a while longer. Dalio tries too damn hard to be a philosopher. “With practice, you will eventually play this game like a ninja, with skill and a calm centredness in the face of adversity that will let you handle most of your numerous other challenges as well."
But he ends up sounding like a shaman. He is hardly calm and a ninja he most certainly is not. I’ve attempted to place some evidence to that extent above. If any evidence is needed, consider his take on Donald Trump as a case in point. To put it mildly, Ray Dalio’s prognosis on the Trump presidency has been nothing short of disastrous.
“Our very preliminary assessment is that on the economic front, the developments are broadly positive—the straws in the wind suggest that many of the people under consideration have a sufficient understanding of how the economic machine works to run reasonable calculations on the implications of their shifts so that they probably won’t recklessly and stupidly drive the economy into a ditch."
That he was horribly off the mark is one thing. President Trump’s team is leaving the ship. Even as this dispatch is being written, Gary Cohn, the chief economic adviser to the Trump administration, has expressed his displeasure at the way things are going, and has suggested he may be on his way out. On his part, Ray Dalio is petrified. Because his analyses of the Trump presidency have always gone wrong.
Incidentally, this is the kind of analysis that ought to compel him to going back the “Principles" (see Page 32 of his manual) and ask himself the questions he insists on everybody ask of themselves:
• In diagnosing problems, how willing are you to “touch the nerve" (i.e., discuss your and others possible mistakes and weaknesses with them)?
• Are you willing to get to root causes, like what people are like?
• Are you good at seeing the patterns and synthesizing them into diagnoses of root causes?
• How confident are you that your assessment of your ability to diagnose is accurate?
• If you are confident of your self-assessment, why should you be confident (e.g. because you have a demonstrated track-record, because many believable people have told you, etc.)?
If these questions are any indicator and Dalio’s notes on Trump’s a pointer, “Ray Dalio—like the market he so dearly loves—will always fail to analyze Trump if they continue to rely on the fact-based analysis that drive both Ray Dalio and the market."
It’s time he called it a day.
Ray Dalio sounds maniacal
Then there are some passages from his Principles that strike me as particularly perverse. Consider, a few, for instance.
a. “I believe that what is bad and most punished are those things that don’t work because they are at odds with the laws of the universe and they impede evolution."
By these yardsticks, the law of the jungle ought to prevail. Only the most powerful ought to survive. There is no place for the weak or the meek. So, what is it that you are trying to suggest, Mr Dalio?
b. “I believe that pursuing self-interest in harmony with the laws of the universe and contributing to evolution is universally rewarded, and what I call ‘good’. Look at all species in action: they are constantly pursuing their own interests and helping evolution in a symbiotic way, with most of them not even knowing that their self-serving behaviours are contributing to evolution. Like the hyenas attacking the wildebeest, successful people might not even know if or how their pursuit of self-interest helps evolution, but it typically does."
1. If I were to look at this very clinically, are you trying to justify the greed-is-good culture on Wall Street and other markets across the world?
2. I see another problem here. When you are constantly pursuing your own interests, do you know when to stop? When do you give up on, say, earning money, and chase some other goal? When do you know this much is enough? When do you tell yourself, I need to look at something else?
c. “In return, society rewards those who give it what it wants. That is why how much money people have earned is a rough measure of how much they gave society what it wanted—NOT how much they desired to make money. Look at what caused people to make a lot of money and you will see that usually it is in proportion to their production of what the society wanted and largely unrelated to their desire to make money. There are many people who have made a lot of money who never made making a lot of money their primary goal. Instead, they simply engaged in the work that they were doing, produced what society wanted, and got rich doing it."
This sounds like a specious argument. You just happen to be in the business of money, where the return on investment (ROI) is measured in terms of money. That is the only metric you have to go by. Take that metric out and what will Ray Dalio measure his life by?
For instance, while researching the recent tragedy that happened in Gorakhpur following the outbreak of encephalitis, I heard of Milind Gore, a scientist who now works in Gorakhpur and has been researching the theme for many years now. I am still to meet him. But I have heard very many good things about what he has managed to accomplish.
Or, for that matter, there are people like the doctors Abhay and Rani Bang. By any which yardstick, they can live the First World life in any part of the world of their choosing. But they chose to live their lives out in the Naxal-heavy Gadchiroli district of Maharashtra. Their mission in life has been to reduce the infant mortality rate in one of the most poverty-stricken parts of the world. I plan to visit them later this year.
By Ray Dalio’s metrics, the contributions to society of people like Gore and the aforementioned doctors are significantly lower than his. How much more stupid can that argument get? A footnote in the “Principle" that elucidates this hypothesis suggests that people like them are not rewarded handsomely because it is a function of demand and supply.
That is both ridiculous and specious. Demand for people like Gore and the Bangs' services are high. The challenges against them continue to be the highest, and the ROI they have generated cannot be imputed into their personal net worth, but in the GDP of the region over the generations to come.
This is wealth that is concentrated not in the hands of an individual, but will proliferate over generations and make a society richer. When the grim reaper comes calling, Gore and the Bangs may perhaps smile and say they did their job.
Given that you, Ray Dalio, have expended some thought in your pages on death being the natural order of things, with examples such as hyenas attacking the wildebeest being in the natural order of things, will a smile come as naturally to you as well?