BIG ANNOUNCEMENT COMING TOMORROW
Anyone who has followed the hedge fund space for some time will have come across the name Ray Dalio. Ray is a 74-year-old billionaire who made his money as the founder and boss of the world’s largest hedge fund, Bridgewater Associates. I think Ray is brilliant; he is a deep thinker and is incredibly good at understanding and explaining the very complex nature of financial markets and world order. Ray is also famous for his management style of radical transparency and idea meritocracy. Along with all the wisdom came Ray’s philosophical Bible of Principles. He turned them into a bestseller and was always quick to point to Bridgewater’s success because of “The Principles.” I should add that he is also a philanthropist, giving away hundreds of millions, maybe even a few billion. To say I have been in awe of Ray for decades is an understatement. However, over the last few years, I started to wonder a little about Ray, as his plans for retirement and finding a successor seemed to always be delayed. It is not uncommon for a founder to struggle to let go of their baby. However, there seemed to be something off with some high-profile sackings and lawsuits that followed. Then came Rob Copeland’s book, The Fund, which I could not put down. He makes Logan Roy of Succession fame look like a puppy. Strangely, despite all my adoration, I believe the book is probably accurate and that Ray is also somewhat of a monster. Sadly, as I grow older and maybe a little wiser, I have come to believe most billionaires are narcissists with a sprinkle of megalomania.
Ok that is enough of the gossip. Let me get to the good stuff. Ray pioneered a strategy called the All Weather Strategy decades ago, which set Bridgewater up for the incredible success they subsequently enjoyed. As the name suggests, the strategy was designed to withstand all weather conditions and make money most of the time. Let me save you the expensive fees these bulge bracket asset managers charge and show you how a simple All Weather Strategy would have performed over the last 50 years. I am using System Trader software to generate these reports.
Portfolio Diversification
The weights of the portfolio are fixed and rebalanced on a monthly basis to make sure they stay within their fixed guidelines. This concoction was Ray’s genius recipe. In order for us to go back to 1969, which is long before the ETFs we have used were in place, we use data proxy’s that System Trader has in its database. As you can see, anyone today with a retail brokerage account can trade the All Weather Strategy. To be a client of Bridgewater Associates, you typically need an account size of $100 million. I am not suggesting that Bridgewater doesn’t add some extra alpha in the way they build their portfolio using sophisticated instruments that allow them to achieve exposures in a cost-effective way. With that backdrop, let me answer the burning question of whether All Weather is still all weather.
Performance
Conclusion
Long-time readers will know I go straight to the risk-adjusted returns represented by the Sharpe Ratio to compare apples with apples. The All Weather Strategy has an incredible Sharpe Ratio of 0.99 over nearly 55 years. This compares to the S&P 500, the benchmark, with a Sharpe Ratio of 0.51.
Yes, it is true that the same $100,000 invested in 1969 is worth more if you invested it in the benchmark, but you would have had a maximum drawdown double that of All Weather. The All Weather strategy is picking up a lot of flack at the moment, as it is currently still in a drawdown that is -14% at the moment. As it holds a significant portion of bonds, it has had a horrible few years, 2022 in particular.
I still think this is an excellent portfolio strategy that will stand the test of time through all weather conditions. Go Ray.