Page 96 - Ray Dalio - Principles

our heads all the markets and all the influences on them and
then bring them together into a portfolio of bets. We would
have had to hire and supervise a bunch of different investment

managers, and because we couldn’t have blind faith in them,
we’d have had to understand how each one made their
decisions, which would mean watching what they were doing
and why so we could know what to expect from them, while
dealing with all their different personality issues. Why would I
want to do that? It seemed to me that that way of investing or
managing an organization was obsolete, like reading a map

instead of following a GPS. Of course, building our system
was hard work—it had taken us over thirty years to do it.

Having too much money to manage can hurt performance,
since the costs of getting in and out of positions can be high
because being too big can push the markets. Making over 40
percent in 2010 had put us in the position of having to return a
lot of money to clients who actually wanted to give us more to

manage. We were always careful to stay safely short of being
too big, lest we kill the goose that lays the golden eggs.

Our clients didn’t want their money back—they wanted us
to grow it. So we were presented with the puzzle of how to
maximize our capacity without hurting our performance. We
hadn’t looked at that before, because we’d never had that
much money. We quickly discovered that if we just tweaked

what we did and created a new fund that managed money the
same way as Pure Alpha but invested it solely in the most
liquid markets, our expected returns would be the same and
the expected risk (i.e., volatility) only slightly higher.

We programmed this new approach into our computers,
back-tested it to see how it worked in all countries and time
frames, and explained it to our clients in detail so they could

thoroughly understand the logic behind it. As much as I love
and have benefited from artificial intelligence, I believe that
only people can discover such things and then program
computers to do them. That’s why I believe that the right
people, working with each other and with computers, are the

key to success.