It’s one of the first things a person new to Bridgewater Associates learns, assuming they read the manual. Its right up near the top: Initiates are instructed to “recognize that effective, innovative thinkers are going to make mistakes” (Principle no. 9). They are not, however, to feel bad about those mistakes. They are to love them (no. 10) and reflect upon the pain they cause. (no. 17), because it is unacceptable not to learn from them (no. 8). Well, there sure is a hell of a lot to love, reflect upon and learn from right now.
The damage as of August: an 18.6% drop in the flagship Pure Alpha II fund…. First, Bridgewater’s computer models initially misread the markets for a second year in a row. Then, big clients began to head for the exits. Investors pulled a net $3.5 billion during the first seven months of the year. Industry consultants expect more to follow.
The innovative thinker behind those Principles, Ray Dalio, also teaches that one has “nothing to fear from the truth” (no. 2) and that it is critical to “evaluate people accurately, not ‘kindly’” (no. 100). In that spirit, here’s some not-particularly-kind evaluations, which will no doubt thrill Dalio, as he’s on record as adoring such criticism.
Bridgewater insiders are concerned that the firm lost its way as Dalio cultivated his iconoclast image, hit the Davos circuit and published his 2017 best-seller, “Principles,” his rules for life and business…. Former employees said that Dalio’s broader profile has distracted him from the firm. He has also resisted changing the computer models, they said, including adding new types of data that’s standard at other firms such as tracking oil tankers and credit card activity.
Well, having failed to probe so they had a good enough understanding of whether problems are likely to occur before they actually do (no. 95), Dalio & co. have gotten around to probing “deep and hard” (no. 90) into all of the losses their competitors managed to avoid, with Dalio himself working as much as 70 hours per week to fix his machine. If we’re being radically transparent (no. 6), however, and have earned the right to have an opinion (no. 24a), it all might just be a bit too little, too late.
This year’s changes to the models could eventually pay off—Bridgewater has famously thrived after downturns despite struggling at first…. A similar bounce back this time could come too late for some investors who may have already lost faith in Dalio. Since stepping back from CEO duties, his public persona has been shaped by his book, celebrity friends including Sean Combs and even attendance at last year’s Burning Man festival.