Principles ray dalio pdf download

Author : Summareads Media File Size : Summary of Principles In A. Nutshell Publishings — in. Author : In A. Nutshell Publishings File Size : Summary of Principles Essentialinsight Summaries — in. Author : Essentialinsight Summaries File Size : Summary Principles Rapid-Summary — in. As excited as we were about this new approach, we proceeded cautiously.

We gave the system a 10 percent weight initially and it made money in nineteen of the twenty months in our test period. I knew that asking these institutional investors to invest such relatively modest amounts would make it hard for them to turn us down. Its returns depended only on how good we were in outperforming others.

We also showed them how we expected the cumulative performance to unfold and what the expected range of performance around that would be. For our clients, it was a bit like being presented with the design of a plane that had never flown before but looked radically better than any other plane on paper. Would anyone be courageous enough to get on board?

Frankly, we were thrilled that any of them were willing to try. For over twenty-six years now, that new type of plane has flown exactly as we anticipated, making money in twenty-three of these years having only modest losses in the other three and making more money in total for our clients than any other hedge fund ever. While the investment management concepts that underlie Pure Alpha eventually changed our industry, the journey from conception to general acceptance took many years of learning and grinding work by a group of dedicated partners.

This included trading foreign government bonds, emerging market debt, inflation-linked bonds, corporate bonds, and the currency exposures that came with the foreign investments. In our most unconstrained bond portfolios, we would make about fifty different types of bets, way more than traditional bond managers traded. Doing so gave us a big edge and landed us at the top of many investment performance tables year after year. Our Pure Alpha product was just the first of a number of innovative designs we brought to our clients.

In , we had become the first currency overlay managers for institutional investors. At the time, institutional investors were placing larger portions of their portfolios into global equity and bond markets.

While investing internationally added valuable diversity, it also added unmanaged currency exposure. This was a big problem because the currency exposures added risk without adding any expected return. We had traded currencies for years and had developed expertise in portfolio engineering, so we were in a prime position to solve this problem. Eventually we became the largest active currency manager in the world.

We also produced several other new and effective ways of managing money that flew exactly as they were designed. With each one, we gave clients clearly stated performance expectations expressed in a chart that showed an accumulated profit line and the expected variations around that line.

We could do this because the systemization of our decision-making process allowed us to stress-test the performance of our decision making under a wide variety of conditions. What was great is that we made the most of our mistakes because we got in the habit of viewing them as opportunities to learn and improve. By the time the mistake was discovered, the damage was several hundred thousand dollars.

But since mistakes happen all the time, that would have only encouraged other people to hide theirs, which would have led to even bigger and more costly errors. I believed strongly that we should bring problems and disagreements to the surface to learn what should be done to make things better. As we consistently tracked and addressed those issues, our trade execution machine continually improved.

Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur. For that reason I insisted that an issue log be adopted throughout Bridgewater. My rule was simple: If something went badly, you had to put it in the log, characterize its severity, and make clear who was responsible for it. If a mistake happened and you logged it, you were okay. This way managers had problems brought to them, which was worlds better than having to seek them out.

The error log which we now call the issue log was our first management tool. I learned subsequently how important tools are in helping to reinforce desired behaviors, which led us to create a number of tools I will describe later. Before long, things came to a boil. He is very bright and innovative. He understands markets and money management. He is intense and energetic. He has very high standards and passes these to others around him. He has good intentions about teamwork, building group ownership, providing flexible work conditions to employees, and compensating people well.

The odds of this happening rise when Ray is under stress. At these times, his words and actions toward others create animosity toward him and leave a lasting impression. The impact of this is that people are demotivated rather than motivated. This reduces productivity and the quality of the environment. The effect reaches far beyond the single employee.

The smallness of the company and the openness of communication means that everyone is affected when one person is demotivated, treated badly, not given due respect. That hurt and surprised me. I never imagined that I was having that sort of effect. These people were my extended family. What was I doing wrong? Were my standards too high? For Bridgewater to continue to be a one-in-ten-thousand—type company we had to have exceptional people and hold them to extremely high standards.

Was I demanding too much? This looked to me like another one of those fork-in-the-road cases in which I had to choose between one of two seemingly essential but mutually exclusive options: 1 being radically truthful with each other including probing to bring our problems and weaknesses to the surface so we could deal with them forthrightly and 2 having happy and satisfied employees.

And it reminded me that when faced with the choice between two things you need that are seemingly at odds, go slowly to figure out how you can have as much of both as possible. My first step was to make sure I knew exactly what the problems were and how to handle them.

So I asked Bob, Giselle, and Dan what they thought was going on. We agreed that being this way was essential, but since it was making some people feel bad, something had to change. While those people I had contact with understood me, liked me, and in some cases even loved me, those who had less contact with me were offended by my directness.

It was clear that I needed to be better understood and to understand others better. I realized then how essential it is that people in relationships must be crystal clear about their principles for dealing with each other. That began our decades-long process of putting our principles into writing, which evolved into the Work Principles. Those principles were both agreements for how we would be with each other and my reflections on how we should handle every situation that came up. Since most types of situations arose repeatedly with slight variations, these principles were continually refined.

As for our agreements with each other, the most important one was our need to do three things: 1. Put our honest thoughts out on the table, 2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and 3. Have agreed-upon ways of deciding e. I believe that for any organization or for any relationship to be great, these things are required. Having our work principles written out and getting in sync about them in the same way we had with our investment principles were essential for our understanding each other, especially since our unique way of operating—this radical truth and radical transparency—that led to our unique results is counterintuitive and emotionally challenging for some.

Trying to understand how we could get our meaningful work and meaningful relationships through this straightforwardness led me to speak with neuroscientists, psychologists, and educators over the decades that followed. I learned a lot, which I can summarize as follows. How that conflict is managed is the most important driver of our behaviors. That fighting was the biggest reason for the problems Bob, Giselle, and Dan raised.

Back then, we showed that a few bright guys with computers could beat the big, well-equipped establishment players. Now we were becoming the well-equipped establishment ourselves. As the number of decision rules and the amount of data in our systems grew more complex, we hired young programmers who were better than us in converting our instructions into code and smart new grads right out of college to help with our investment research.

One of these new whiz kids, Greg Jensen, joined Bridgewater as a college intern in Because he shined, I grabbed him as my research assistant. Over the decades that followed, he contributed a lot, grew into the co-chief investment officer role with Bob Prince and me, and became a co-CEO. He also became like a godson to me. We also invested in more and more powerful computers. I answered that a portfolio of leveraged foreign inflation- indexed bonds with the currency hedged back to U. The bonds needed to be foreign because there were no U.

Thinking about this later, I realized that we could create an entirely new and radically different asset class, so Dan Bernstein and I researched such a portfolio more closely. In fact, it would be uniquely effective because we could engineer it to have the same expected return as equities but with less risk and with a negative correlation with bonds and equities over long time frames.

We showed this research to our clients and they loved it. Before long, we became the first global inflation-indexed bond manager in the world. In , U. Treasury deputy secretary Larry Summers began looking into whether the U. Dan and I traveled down to Washington to meet with Summers, his Treasury colleagues, and a number of representatives from well-known Wall Street firms.

It was a large room with a table in the middle and a press gallery off to the side. Larry Summers has since said that the advice he got from us was the most important in shaping this market. When the Treasury did create the bonds, they followed the structure we recommended. In my years as an investor, I had seen all sorts of economic and market environments and all kinds of ways that wealth could be created and destroyed.

I knew what drove asset returns, but I also knew that no matter what asset class one held, there would come a time when it would lose most of its value. This included cash, which is the worst investment over time because it loses value after adjusting for inflation and taxes. I also knew how difficult it was to anticipate the swings that cause those losses.

That meant I had to create a mix of assets that could be good in all economic environments. I knew which shifts in the economic environment caused asset classes to move around, and I knew that those relationships had remained essentially the same for hundreds of years. There were only two big forces to worry about: growth and inflation. Each could either be rising or falling, so I saw that by finding four different investment strategies—each one of which would do well in a particular environment rising growth with rising inflation, rising growth with falling inflation, and so on —I could construct an asset-allocation mix that was balanced to do well over time while being protected against unacceptable losses.

Since that strategy would never change, practically anyone could implement it. It was another industry-shaping concept. Seeing its success, other investment managers followed with their own versions.

With our people and culture producing these industry-shaping investment products, Bridgewater really took off. Our head count had doubled, so we moved out of our strip mall office into a larger space situated in a nature preserve on the banks of the Saugatuck River.

But while we continued to grow, it was never clear sailing. Building the business while managing investments required me to do two challenging jobs simultaneously and develop two distinct skill sets, while being a good father, husband, and friend.

The demands of these roles changed over time, so the skills and abilities I needed changed as well. Most people assume that the challenges that go along with growing a large business are greater than those of growing a smaller one. That is not true. Going from a five-person organization to a sixty-person organization was just as challenging as going from a sixty-person organization to a seven-hundred- person organization—and from a seven-hundred-person organization to a 1,person one.

They were just different. For example, when I had no one to manage, I had the challenge of having to do almost everything myself.

When I learned and earned enough to pay others, I had the challenge of managing them. Similarly, the challenges of wrestling with market and economic swings were constantly changing. Very soon we faced another critical choice: What kind of company did we want to have? Should we continue to grow or stay about the same size?

By , I had come to believe that we needed to grow Bridgewater into a real institution instead of remaining a typical boutique-sized investment manager.

Doing this would make us better in many ways—better technology, better security controls, a deeper talent pool—all of which would make us more stable and permanent. This meant hiring more people in technology, infrastructure, and other areas, as well as additional HR and IT staff to train and support them.

Giselle argued strongly that we should not grow. She believed that introducing a lot of new people would threaten our culture, and that the time and attention that hiring, training, and managing them required would dilute our focus.

I felt about this fork-in-the- road choice the way I felt about most others—that whether or not we could have our cake and eat it too was merely a test of our creativity and character. For example, I could envision ways in which technology would help us get the most out of people. After a fair amount of wrestling with these questions, we decided to go ahead. At first, this took the form of shared philosophy statements and emails to the entire company.

Then, whenever something new came along that required me to make a decision, I would reflect on my criteria for making that decision and write it down as a principle so people could make the connections between the situation, my principle for handling these situations, and my actions.

By having them explicitly written out, I could foster the idea meritocracy by having us together reflect on and refine those principles—and then adhere to them.

The number of principles started small and grew over time. By the mid- s, Bridgewater was beginning to grow rapidly, and we had a number of new managers trying to learn and adapt to our unique culture—and who were increasingly asking me for advice.

I was also beginning to have people from outside Bridgewater ask me how they could create idea meritocracies of their own. Over time, I encountered most everything there is to encounter in running a company, so I had a few hundred principles that covered most everything. That collection of principles, like our collection of investment principles, became a kind of decision-making library. As the company grew bigger, how that happened evolved. But as we grew, that became logistically impossible, which was a real problem.

Without transparency, people would spin whatever happened to suit their own interests, sometimes behind closed doors. Problems would be hidden instead of brought to the surface where they could be resolved. To have a real idea meritocracy, there must be transparency so that people can see things for themselves. To make sure this happened, I required that virtually all our meetings be recorded and made available to everyone, with extremely rare exceptions such as when we were discussing very private matters like personal health or proprietary information about a trade or decision rule.

All this openness led to some very frank discussions about who did what and why, and as a result we were able to deepen our understanding of our different ways of thinking. That insight led us to explore psychometric testing as a way of learning how people think differently. Her assessments proved spot-on and provided a great road map for how they would develop over the years.

Because that testing process had been so successful, I worked with her and others to try to identify the best tests for determining what the people I worked with were like. I began to look for other tests that could help us deepen our understanding of each other. This was slow going at first, largely because most of the psychologists I met were surprisingly squeamish about exploring differences. But eventually I found a few great people, especially a psychologist named Bob Eichinger, who pointed me to a number of other very useful tests.

The results astounded me. Over and over again, the same people would walk into the same meetings, do things the same ways, and get the same results without seeking to understand why. Recently I came across a study that revealed a cognitive bias in which people consistently overlook the evidence of one person being better than another at something and assume that both are equally good at a task. This was exactly what we were seeing. At first, this idea met a lot of resistance.

Most people found that having this information out in the open for everyone to see was more liberating than constraining because when it became the norm, people gained the sort of comfort that comes with just being themselves at work that family members have with each other at home.

Because this way of operating was so unusual, a number of behavioral psychologists came to Bridgewater to evaluate it. I urge you to read their assessments, which were overwhelmingly favorable. One day he went to the front desk of the hotel where he was staying while he looked for an apartment and smashed their computer.

He was arrested and thrown in jail, where he was beaten up by guards. Ultimately, he was diagnosed with bipolar disorder, released into my custody, and admitted to the psychiatric ward of a hospital. That was the beginning of a three-year roller-coaster ride that took Paul, Barbara, and me to the peaks of his manias and the depths of his depressions, through the twists and turns of the health care system, and into discussions with some of the most brilliant and caring psychologists, psychiatrists, and neuroscientists at work today.

There is nothing to prompt learning like pain and necessity, and this gave me plenty of both. At times I felt as though I was holding Paul by the hand as he was dangling over a cliff—from one day to the next, I never knew whether I could hold on or if he would slip from my grip.

I worked intensely with his caregivers to understand what was going on and what to do about it. Paul was once wild—staying out till all hours, disorganized, smoking marijuana and drinking—but he now faithfully takes his meds, meditates, goes to bed early, and avoids drugs and alcohol.

He had loads of creativity but lacked discipline. Now he has plenty of both. As a result, he is more creative now than he was before and is happily married, the father of two boys, an accomplished filmmaker, and a crusader helping those who struggle with bipolar disorder.

His radical transparency about being bipolar and his commitment to helping others with it inspires me. I remember watching him shoot one scene based on a real conversation between us in which he was manic and I was struggling to reason with him.

I could simultaneously see the actor playing Paul at his worst while the real Paul was at his best, directing the scene. As I watched, my mind flashed over his whole journey—from the depths of his abyss, through his metamorphosis into the strong hero standing in front of me, someone on a mission to help others going through what he had gone through.

That journey through hell gave me a much deeper understanding of how and why we see things differently. I learned that much of how we think is physiological and can be changed. I also learned how people can control how their brains work to produce dramatically better effects. This was nothing new. Since I started Bridgewater we always had some problems because we were always doing bold new things, making mistakes, and evolving quickly.

So we built our technology in a light and flexible way, which made sense at the time but also created a number of hairballs that badly needed untangling. That same approach of moving quickly and flexibly had been true throughout the company, so several departments had become overstretched as we grew. It had always been fun being cutting-edge, but we were having a hard time becoming rock-solid, especially in the noninvestment side of the business.

In I was working about eighty hours a week doing my two full-time jobs overseeing our investments and overseeing the company , and in my opinion not doing well enough at either. I felt that I, and the company more broadly, were slipping from being pervasively excellent. From the get-go I had toggled acceptably between investment management and business management.

But now that we were a bigger company, the business management side was demanding much more time than I had to give it. I conducted a time-and-motion study of all of my investment and management responsibilities; it showed it would take me about hours a week to achieve the level of excellence that I would be satisfied with in overseeing both our investments and management. That was obviously impossible. Since I wanted to delegate as much as possible, I asked whether the things I was doing could be done excellently by others, and if so, who those others were.

To me, the greatest success you can have as the person in charge is to orchestrate others to do things well without you. A step below that is doing things well yourself, and worst of all is doing things poorly yourself.

In fact, I was still struggling to achieve the second-highest level doing things well myself , even though Bridgewater was extremely successful. At the time, there were people working at Bridgewater, with fourteen department heads.

I had structured the reporting lines so that I both reported to the Management Committee and held its members accountable for their oversight of the company. I wanted them to also own the responsibility of producing pervasive excellence and I wanted to be at their service in helping them achieve it. In other words, I knew that we needed to understand all important economic and market movements, not just those that happened to me, and to make sure the principles we were using to position ourselves would have worked in all past times and all other countries.

In , this gauge indicated that a bubble of debt was nearing its bursting point because the costs of debt service were outpacing projected cash flows.

Because interest rates were so close to 0 percent, I knew that central banks could not ease monetary policy enough to reverse the downturn the way they had in prior recessions. This was the exact configuration that had led to past depressions. My mind and gut flashed back to my —82 experience.

I was now both thirty years more knowledgeable and a whole lot less confident. While the dynamic in the economy seemed clear to me, I was much less sure I was right.

That experience also drove me to learn a lot more about debt crises and their effects on the markets, and I researched and traded through a number of them, including the Latin American debt crisis in the s, the Japanese debt crisis of the s, the blowup of Long-Term Capital Management in , the bursting of the dot-com bubble in , and the fallout from the attacks on the World Trade Center and Pentagon in With the help of my teammates at Bridgewater, I took history books and old newspapers and went day by day through the Great Depression and the Weimar Republic, comparing what happened then with what was happening in the present.

My fear of being wrong pushed me to seek out other smart folks to poke holes in my view. I also wanted to walk key policymakers through my thinking, both to stress-test it and to make them aware of the situation as I saw it, so I went to Washington to speak with people in both the U. Treasury and the White House. Though they were polite, what I was presenting seemed too far-fetched to them, especially when by all outward indications the economy seemed to be booming.

He worked through all our numbers and was concerned by them. Though we thought we were well prepared, we were as worried about being right as we were about being wrong. Betfarhad had me come to the White House to meet with him. We walked him through the numbers and he literally turned white. Two days after our meeting with Geithner, Bear Stearns collapsed. Our flagship fund made over 14 percent in , a year when many other investors recorded losses of more than 30 percent.

We would have done even better had we not feared being wrong, which led us to balance our bets instead of arrogantly and foolishly putting more chips at stake. The debt crisis was another one of those like the one in , which were both like many more before them and many more that will come.

I enjoyed reflecting back on my painful mistakes and the value of the principles they gave me. When the next big one comes along in twenty-five years or so, or who knows when, it will probably come as a surprise and cause a lot of pain unless those principles are properly encoded in algorithms put into our computers.

The Fed model failed. The IMF model failed. So that left me asking myself: What happened? So I think the lesson of the crisis is to do a lot more work to make sure that the finance people are talking to the macroeconomist people and building models that are more robust.

As a result of our success, policymakers reached out to us more, which led me to have a lot more contact with senior economic policymakers in the U. The book is both instructive and surprisingly moving. Forty years later, Bridgewater has made more money for its clients than any other hedge fund in history and grown into the fifth most important private company in the United States, according to Fortune magazine.

He argues that life, management, economics, and investing can all be systemized into rules and understood like machines. You are looking for Ebook Principles? You will be happy to know now. The Principles PDF is available on our online library. With our online resources, you can find Principles or any type of ebook, for any type of product. Read online Principles eBook Here.

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