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Ray Dalio: The king of the rich hedge fund industry

Ray Dalio

According to Forbes World’s Billionaire lists published on March 2013, Ray Dalio became number 28 in U.S making a big advance comparing with 2012 rank, as he was number 88.  In the interim, he jumped in the annual list to be 76th in the worldwide with a net worth of $ 12.5 B.

Dalio was born in August 1, 1949 to a jazz musician in Jackson Heights Queens, New York. His first trade was placed at the age of just 12 when he bought shares of Northern Airlines for $300 tripling his investment after airline merged with another company. He studied finance at Long Island University and got and MBA from Harvard in 1973. After completing his education, Dalio worked on the floor of the New York Stock Exchange and invested in commodity futures. He later worked as the Director of Commodities at Dominick & Dominick LLC. Dalio traded futures early in his career and founded Bridgewater Associates in 1975 when he was just 25. From the moment, he started managing money keeping notes in a trading diary with the hope that his ideas could later be re-tested.

Ray is known as the king of hedge fund industry, who controls the world’s biggest hedge fund Bridgewater Associates which has about $130 billion in assets.  His flag ship fund ‘Pure Alpha’ has had an average annual return of 15% from 1992 – 2010 and has never suffered a loss over 2%.  Big bets on U.S. and German government bonds saw his funds surge about 20% in 2011; a year where most hedge funds struggled.

By studying and dissecting the basic reasons and outcomes from historical financial events he has been able to translate this insight into computer algorithms that scan the world in search of opportunities.  He says by doing this research it provides “a virtual experience of what it would be like to trade through each scenario”. Dalio focuses heavily on understanding the processes that govern the way the financial markets work.

Our man does not believe in an approach devoid of understanding fundamental cause-effect relationships.  He has however been able to use technical analysis to identify mispriced assets based on fundamental information. So say that Ray gives fundamentals analysis the back seat to technical analysis would not be entirely accurate.

While the hedge fund industry as a whole has an average correlation to the S&P 500 of 75%, Dalio claims to have discovered 15 uncorrelated investment vehicles. Bridgewater focuses mostly in the currency and fixed income markets but uses powerful computers to identify mispriced assets on dozens of markets all over the world.  To find so many different uncorrelated investments requires stepping well beyond the realm of the stock exchange.

Ray Dalio has written a company manual called “Principles” to share his life and business management principles with his employees

“I learned to be especially wary about data mining – to not go looking for what would have worked in the past, which will lead me to have an incorrect perspective.  Having a sound fundamental basis for making a trade, and an excellent perspective concerning what to expect from that trade, are the building blocks that have to be combined into a strategy”

Ray Dalio

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