Hedge fund titan Ray Dalio says to succeed in markets, you need to bet against the consensus — and be right

Bridgewater Associates founder and Chairman Ray Dalio told CNBC on Tuesday he believes the Federal Reserve won’t unwind its $4.4 trillion balance sheet, or portfolio of assets, as quickly as the central bank has indicated.

That’s OK, he said, adding “there’s no compelling reason to tighten monetary policy.”

“We need to be careful,” he said.

As for the stock market, Dalio said, “I don’t see anything that would cause a downturn right now,” except tighter monetary policy.

The Fed starts its two-day September meeting on Tuesday.

Meanwhile, Dalio also addressed his unusual corporate culture of an “idea meritocracy.” He said it helps the hedge fund bet correctly against the consensus in the markets — a key for investors to make money.

Collective thinking works, the billionaire said on “Squawk Box.” Getting everyone on the same page is key but it must come through testing theories for why they might be wrong, he added.

Decision-making at Bridgewater is data-driven, Dalio said. He describes his practice of analyzing situations and writing down the criteria around them. Dalio said he wants to be able to lean on tangible past experience when the same types of situations present themselves.

Last week, at the CNBC-Institutional Investor Delivering Alpha conference, Dalio said, “the greatest tragedy of mankind — or one of them — is that people needlessly hold wrong opinions in their minds.”

Bridgewater, the world’s largest hedge fund with about $162 billion assets under management, is known for strong returns and an unusual corporate culture in which employees rate one another’s credibility on a number of dimensions, and everyone can see the ratings. Votes by employees with higher believability ratings are given greater weight in decision-making.

Dalio started Bridgewater out of his two-bedroom apartment in New York in 1975. His ascent to becoming a titan of Wall Street was not without setbacks, however, as he describes in his new book, “Principles: Life and Work.”

Dalio wrote about how he actually went broke eight years after he started Bridgewater, but he said the experience was “one of the best things that ever happened to me because it gave me the humility.”

Bridgewater’s Pure Alpha II fund has had an 11.9 percent annualized return since its inception in 1991. So far, in 2017, it’s down 2.5 percent.

The All-Weather fund, designed to perform in all market conditions, is up 8.5 percent in 2017. It has had an 8.1 percent annualized return since it started in 1996.

In March, Dalio completed a seven-year management transition, stepping down as co-CEO. The 68-year-old remained chairman and kept his role as co-chief investment officer.

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