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World's Greatest Hedge Fund Manager

Posted April 9, 2019

Ray Dalio is billed as the world's greatest hedge fund manager. At least that is what they said when he was on 60 Minutes Sunday night touting his book Principles.

On the program, he talked about the wealth gap, the pending social revolution, and his personal guilt at being so rich without actually earning it...

His main point was that there is a lack of opportunity for poor people to move into the middle class, which has produced a surge of socialism in the young. Ray, in his dotage, wants to remake capitalism so that it allows for opportunity to the poorest and acts as an elevator for social status.

That’s all well and good, but he didn’t mention the end of the gold standard, the privatization of profits, and the socialization of loss brought about the Federal Reserve — the very basis of his wealth. His spiel is hypocritical hogwash and virtue signaling at the highest level. Hell, he got his. Time to close the door.

It is the continuous claptrap we’ve been force-fed like the proverbial French goose from foie gras-slurping liberals for decades. Ray wants absolution without confessing his sins.

Quite frankly, it's boring.  

But what you and I really want to know is how he became the multibillionaire owner of Bridgewater Associates with $250 billion under management. And more, importantly, how he picks his stocks.

I want to learn from the world's greatest hedge fund manager so I can replicate his results. After much investigation, the answer is more crap. Ray is more salesman than stock picker.

Fees, Costs, and Losers

Ray’s company requires clients to have at least $7.5 billion (billion with a "B") of investable assets in order to buy into the hedge fund. According to the New York Times, investors pay between $500,000 and $4 million in fees to Bridgewater.  

Who has that kind of money? Pensions, for the most part. Teachers and firefighters.

According to Yahoo Finance, Bridgewater has two primary funds: the All Weather 12% fund and the Pure Alpha Fund.

The higher-performing Pure Alpha Fund hasn’t beaten the market in the past five years. It returned 3.46% in 2013, 2.48% in 2014, 3.34% in 2015, 2.00% in 2016, 1.25% in 2017, and 1.93% in 2018 (through October 29). The Pure Alpha Fund has delivered (since 1991) a compound annual return of 8.63%.

To put this in perspective, the long-term average return of the S&P 500 is 11.69%. So he should feel guilty. And that’s not counting the excessive fees.

Growth Cures All Ills

Bridgewater was the fastest-growing asset manager from 2000 to 2005, when it stopped accepting new money. And to be fair, Bridgewater called for the 2008 meltdown and, according to Barron’s, spared its investors from most of the stock market crash.

But back to the old man facing mortality and wanting to make peace with his god. Ray Dalio feels we are heading for a social revolution because Wall Street insiders like him constantly get bailed out while the middle class takes it on the chin.

The solution Ray Dalio has proposed is higher taxes on the rich, with the idea that the government will spend money productively.

That is, of course, no solution at all. Baltimore spends $15,000 per student per year with miserable results.  

The government will not and cannot spend the money productively. The real solution is less government and more capitalism. And not the crony capitalism that Ray got rich on.

Stock Picking

Anyway, rant aside, I am more interested in learning how Ray and Bridgewater pick stocks. Perhaps we can learn at the feet of the master.

Alas, Ray’s Principles reads like a blueprint on how to build an organization. I’ll give you that Ray runs a tight ship.

The book has a chapter titled “5-step process to get what you want,” which includes such brilliant metaphysical chestnuts such as “Have clear goals” and “Diagnose problems to get at their root causes,” as well as, “Design a plan.”

Where Are the Customers’ Yachts?

Yes, Dalio got rich, but it is clear that he did it not because he made his clients money, but because he executed a very legal and prodigious scam.  

Wall Street is a racket, and you can transfer your responsibility to make money via your own knowledge and resources, and there will be plenty of people like Ray who will placate your lack of courage with fees.

Or you can be your own man, take responsibility for your money, and learn something.

First things first: Don’t buy Principles. There are many great books out there from people who built their fortunes from the stock market and not on the backs of investors.

Five Great Investment Books

On their 16th birthdays, I’ve given my children Rich Dad, Poor Dad by Robert Kiyosaki.

It’s an easy read and gets them thinking about assets, liabilities, and the fundamental nature of capitalism. For example, most people think a car is an asset. It isn’t. They also have no idea about the concept of compounding interest. It will make you rich. The vast majority of schlubs work for money, instead of having their money work for them.

Pony up the $8 for this book, and you’ll be on your way...

Read Beating the Street by Peter Lynch, which encourages investors to buy what they know.  

Lynch was an investment warlord. Lynch ran the Fidelity Magellan Fund between 1977 and 1990. During this 13-year period, the fund posted an annual average return of 29%, beating the S&P 500 index in 11 out of 13 years and building the fund’s assets from $20 million to $14 billion.

Good lord, what an investor.

Read Liar’s Poker by Michael Lewis. Anything by Lewis is great, from Moneyball to The Big Short. I read Liar’s Poker when I was 18, and it’s just great. It tells the inside story of the buildup to the ’87 crash from sitting at the mortgage desk of the Salomon Brothers. Really, it's a fantastic book. I think I’ll read it again.

Also read the Intelligent Investor by Benjamin Graham, who is the father of value investing and the mentor of Warren Buffett. I’ve written about this book before, and it belongs solidly in the canon.

And every list needs the Encyclopedia of Chart Patterns by Thomas N. Bulkowski. There is a dog-eared copy that lives on my desk. Never buy or sell a stock without looking at the chart first.

If you don’t understand support, resistance, and trend lines, you are just giving money away.

And as far as Ray Dalio goes, he can take his easy money and guilt-ridden hypocrisy and stuff it.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.

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