Page 81 - Ray Dalio - Principles

I knew which shifts in the economic environment caused
asset classes to move around, and I knew that those
relationships had remained essentially the same for hundreds

of years. There were only two big forces to worry about:
growth and inflation. Each could either be rising or falling, so
I saw that by finding four different investment strategies—
each one of which would do well in a particular environment
(rising growth with rising inflation, rising growth with falling
inflation, and so on)—I could construct an asset-allocation mix
that was balanced to do well over time while being protected

against unacceptable losses. Since that strategy would never
change, practically anyone could implement it. And so, with
help from Bob and Dan, I created a portfolio mix that I could
comfortably put my trust money in for the next hundred or
more years. I called it the “All Weather Portfolio” because it
could perform well in all environments.

Between 1996 and 2003 I was the only “client” investing in

it because we didn’t sell it as a product. But in 2003, the head
of Verizon’s pension fund, a longtime client, told us he was
looking for an approach to investing that would do well across
all environments. After Verizon made its investment, others
quickly followed, and a dozen years later we were managing
nearly $80 billion. It was another industry-shaping concept.

Seeing its success, other investment managers followed with
their own versions. It is now generically called “risk parity”
investing.

TO REMAIN A BEAUTIFUL

BOUTIQUE OR BECOME A GREAT

INSTITUTION?

With our people and culture producing these industry-shaping
investment products, Bridgewater really took off. By 2000, we

were managing more than $32 billion, almost eight times what
we had been managing just five years before. Our head count
had doubled, so we moved out of our strip mall office into a
larger space situated in a nature preserve on the banks of the