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Ray Dalio, Bridgewater Associates Speech and Principles

July 21, 2011

I have a confession to make. I ardently admire Ray Dalio (in a professional manner of worship), regardless of the furor over his principles, or the world’s biggest hedge fund reign*. Full disclosure: I have yet to finish reading his principles. And yes, Ray ranks among the top of my long list of hedge fund managers/traders that I put on a pedestal. See “Reminiscences of a Stock Operator” cheat sheet. Part 1 for another one.

So, without further ado, five points of wisdom gleaned from the parallels of Ray’s speech and principles:

1) Speech: Mistakes more important to Ray. “It’s fear of failure that has been the main driver. The greatest improvement that we ever had is when we had more challenging times.”

Principles: "While most others seem to believe that mistakes are bad things, I believe mistakes are good things because I believe that most learning comes via making mistakes and reflecting on them. While most others seem to believe that finding out about one’s weaknesses is a bad thing, I believe that it is a good thing because it is the first step toward finding out what to do about them and not letting them stand in your way. While most others seem to believe that pain is bad, I believe that pain is required to become stronger."

2) Speech: “Ingredients for success are people and culture… Most important qualities are character, common sense and creativity.” Most important, quality is value which takes precedence over natural abilities and lastly, skills."

Principle #45: "Think about their very different values, abilities, and skills. Values are the deep-seated beliefs that motivate behaviors; people will fight for their values, and values determine people’s compatibility with others. Abilities are ways of thinking and behaving. Some people are great learners and fast processors; others possess common sense; still others think creatively or logically or with supreme organization, etc. Skills are learned tools, such as being able to speak a foreign language or write computer code. While values and abilities are unlikely to change much, most skills can be acquired in a limited amount of time (e.g., most master’s degrees can be acquired in two years) and often change in worth (e.g., today’s best programming language can be obsolete in a few years). It is important for you to know what mix of qualities is important to fit each role and, more broadly, with whom you can have successful relationships. In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important."

3) Speech: “Truth sometimes has to include things like things you are not good at, what your weaknesses are... Greatest barrier people have in their own personal evolution is not understanding their weaknesses and running into them all the time.”

Fundamental principle: "Truth — more precisely, an accurate understanding of reality — is the essential foundation for producing good outcomes.

4) Speech: “Revolution or evolution is the process of learning.. I love mistakes and I love problems… Knowing what you don’t know is even more important than knowing what you know.”

Principle #96: "Don’t 'pick your battles.' Fight them all. If you see something wrong, even something small, deal with it. Because 1) small badnesses can be symptomatic of serious underlying problems; 2) resolving small differences of perception may prevent more serious divergences of views; and 3) in trying to help to train people, constant reinforcement of desired behavior is helpful. The more battles you fight, the more opportunities you will have to get to know each other and the faster the evolutionary process will occur; and

Principle #107: Understand that you and the people you manage will go through a process of personal evolution. Personal evolution occurs first by identifying your strengths and weaknesses, and then by changing your weaknesses (e.g., through training) or changing jobs to play to strengths and preferences. This process, while generally difficult for both managers and their subordinates, has made people happier and Bridgewater more successful. Remember that most people are happiest when they are improving and doing things that help them advance most rapidly, so learning your people’s weaknesses is just as valuable for them and for you as learning their strengths."

5) Speech: Independent thinking. “We are in a zero sum game… the consensus is reflected in the price. You have to be able to think independently.”

One of the Fundamental Life Principles: "In a nutshell, this is the whole approach that I believe will work best for you — the best summary of what I want the people who are working with me to do in order to accomplish great things. I want you to work for yourself, to come up with independent opinions, to stress-test them, to be wary about being overconfident, and to reflect on the consequences of your decisions and constantly improve."

*Source: http://www.hedgetracker.com/article/Dalios-Bridgewater-Associates-retains-position-as-top-US-Hedge-Fund

Ray Dalio’s Westport-based Bridgewater Associates continues to reign as the United States’ largest hedge fund. According to the Wall Street Journal, Bridgewater, which manages $50.9 billion as of July 1, outranks J.P. Morgan Asset Management - which takes second place with $41.1 billion in assets under management (AUM) - by nearly $10 billion. The bulk of JPM’s hedge fund assets are managed by Highbridge Capital Management, its multi-strategy hedge fund management subsidiary.

All principles mentioned above are copied verbatim.

Speech by Ray Dalio, Bridgewater Associates:



About the author:

beta.hedge
Graduated with BA Economics from National University of Singapore. Passed Level 1 of the CFA examination and CAIA Level I Candidate. Long-biased US equities, with strong focus on small to mid-cap stocks (NYSE, NASDAQ, AMEX, OTC & ADR) utilizing fundamental and technical analysis.

Agnostic investor, trader, writer and perpetual student of the market.

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