Has Ray Dalio lost the pulse? The founder of the $160 billion hedge fund Bridgewater Associates is all over the place spouting his management philosophy of radical transparency. He has been making TV appearances, attending conferences, and whenever possible plugging his new book, “Principles.” There’s even a TED talk touting his “believability-weighted idea meritocracy”—whatever that means. And now Mr. Dalio is trying to bust into China to manage even more money.
The investment whiz lives and manages by a set of principles that employees have to memorize. The list is filled with gems you might encounter at a silent yoga retreat. “Most problems are potential improvements screaming at you.” Or this reworked cliché: “While most others seem to believe that pain is bad, I believe that pain is required to become stronger.”
Speaking of pain, Bridgewater is losing money this year. Through July its flagship fund is down 3%, while the market is up more than 10%. Does this transparency stuff even work? Bridgewater videotapes every meeting and arms workers with iPads filled with apps like the emotion-relief Pain Button and the co-worker-rating Dot Collector. Mr. Dalio must figure that only under these conditions will employees tell the truth instead of what he wants to hear. Maybe this is all a distraction. But you’ve got to be a little cuckoo to run a giant hedge fund, and I think Mr. Dalio is crazy like a fox.
The core of investing is quite simple: Determine what everyone else thinks, and then figure out in which direction they are wrong. That’s it. No one tells you what they think. You’ve got to feel it. That’s why Wall Streeters say things like, “We are lowering our above consensus expectations earnings estimates.” It’s all about figuring out what is priced into a stock right now. That’s the pulse of the market, the collective mind meld aggregated into stock prices. I know from experience this is the hardest part of running a hedge fund. You can find the greatest story ever, but if everyone already knows it, there’s no money to be made.
And the pulse changes with each government statistic, each daily ringing of cash registers and satellite images taken of parking lots. That’s why stocks trade every day. Real-world inputs and the drifting pulse drive the psychotic tick of the stock market tape. Once you feel the pulse, then and only then can you figure out how everyone’s wrong about tomorrow, next month or next year. And believe me, they’re always wrong. Stocks rarely tread water.
How do you find that pulse? It’s hard enough to invest your IRA. Can you image managing $160 billion? Wall Street analysts have earnings estimates that no one trusts. There are whisper numbers and the chaos of message boards and tweets.