Leading indicators of an economic contraction, page-254

Thanks for the article.

Yes, I also came across that one on my online search, but I was really looking for some official, audited figures because one never knows the basis on which the media presents things.

I'm surprised the Bridgewater Associates website doesn't provide any investment performance figures.

Their website is very professional and content-rich, full of all sorts of impressive essays, videos and other dynamic visual attractions.

But zero mention anywhere of investment performance, though.

For an enterprise that invests as its core competency, the single most important thing one would expect to be shown is how effectively it does so.


No matter.

If we take the media article at face value, then the 12%pa annual investment return between 1991 and 2018 compares to the 10.1% annualised investment return generated by "US Shares " (which would be the most relevant benchmark for a fund like Bridgewater).

I hate to tell you this, but 190bp pa outperformance is not that impressive, given the likely elevated tracking error an absolute return investment strategy like this would have.

Because its not only the headline investment return figure that counts when it comes to assessing the quality and competence of an investment manager, but its also the volatility of those returns that matter just as much.

So, an investment manager that generates 3%pa outperformance on average over time, but with a low standard deviation of returns around that average, would easily be more highly recommended by asset consultants than an investment manager averaging, say, 5%pa outperformance , but where the returns are highly volatile from one year to the next.

Which is why most investment funds who want to be taken seriously will post not just long-term annualised investment returns as a headline number, but also each individual annual return figure.

And despite the little that I know about this particular fund (but based on what I do know about the nature of returns generated by hedge funds in general, and especially those that have a strong macroeconomic basis!), I sense that the 2%pa outperformance was not generated in a smooth, steady manner each year; rather, it was a case of generating spectacular returns in some periods, and meaningful underperfomance in others.

This highlighted extract from the article you posted tends to confirm my intuitions:



Unfortunately for those who were invested in Bridgewater's pure alpha strategy over that 2012 to 2017 period, it was a particularly strong periods for investment markets, with the S&P500 Index and the Dow Jones Industrial Index each rising by 13%pa over that period, and the Nasdaq Composite Index by 18%pa.

So for those 5 years, Bridgewater generated negative alpha of around 10%pa (!), presumably because the fund was positioned for the big market falls that never came.

And yes, investors in the fund did get some reward in 2018 when markets fell sharply in the second half of that calendar year, with the fund generating near-15% gain compared to the 7%-8% falls in the value of the major equity market indices, so 23% alpha.

But as an investor over that particular 6-year period, the value of your capital would at one stage have been 40% lower than had it been invested in a mere index fund, and ever after last year's strong outperformance by Bridgewater, you'd still be 20% worse off at the end of 2018.

And I'll wager that, based on the strong rebound in the market this year, the Bridgewater fund will again have generated meaningful negative alpha, calendar year-to-date.

So that means for the better part of 7 years - which is a menaingful investment time frame - you would today be some 25% worse off than if your money was not invested with any active manager. That is significant foregone value.

And that, I think, only serves to support the point I was making in an earlier post, namely that trying to time the market is risky because, even if you finally end up being right, the longer you are wrong, the cumulative opportunity cost reaches a level that means you might never catch up.


Make no mistake; Ray Dalio is infinitely smarter than I am (after all, he's worth billions, I'm not).

But based on the information that I have been able to glean, my sense is that his real smarts possibly lie in being an extremely good marketer.

But him being a uniquely smart investor? I see no evidence of that where it counts.
Sorry.