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check out how much Ray Dalio the founder of Bridgewater the most successful hedge fund of all time makes he made two billion last year which is about 5.5 million per day or two hundred and twenty eight thousand three hundred and ten dollars per hour if he work 24 hours a day without sleep which he didn't he gets a solid eight hours and these numbers are why they call him Big Daddy Dalio actually they call him that because he forced them to Bridgewater has this amazing culture called radicals transparency where everyone is completely honest with each other so Ray was simply like if I'm being honest I'd like you to call me Big Daddy he originally wanted Big Poppa but it was already taken by some guy in Brooklyn oh right uncle transparency what an idea you know one time I had a boss that tried that and we did it for about three hours at which point he left the office and he didn't come back it was too radical for him so from that point on everything became radically opaque see radical transparency is no joke and as you could probably imagine the company eventually folded but anyway how did a raid al you'll make this much money that's what we're gonna talk about in this video so I was out doing my normal reading and one of the best things you can read on Fridays is macro ops macro music's so Ty Lee wrote this one and he said that in the beginning of 2018 Dalio went on TV and Davos and said something along the lines of you would look pretty stupid holding cash in 2018 and as we know and as I explained in previous videos cash then went on to be one of the best performers of 2018 and of course the internet took notice and they trashed a Leo making fun of him because his Davos prediction was wrong and people just wrongly assumed the Dalio just stuck to that call for the full year but obviously that's not what the best traders and investors do they're fallible so Dalian is hedge fund pure alpha updated their outlook as the year played out which is Tyler again says is something every good trader does and they posted some killer numbers their best since 2011 so a link to the full article here from the institutional investor and it says Ray Dalio Bridgewater associates topped most other hedge funds last year when his flagship pure alpha strategy posted a fourteen point six percent gain and that's amazing considering how many hedge funds blew up in 2018 tons of them closed tons of them had huge redemptions like Einhorn for example but Big Daddy and his Bridgewater babies they are on a different level as a good nickname that had big daddies babies I'm sure Bridgewater associates love going out and introducing themselves as Big Daddy's baby so the 2018 return not only marked the strategies best performance since 2011 but it also resulted in a mega payday for Dahlia who personally netted a cool two billion according to preliminary estimates and that's after he made 1.3 billion in 2017 and 1.4 billion in 2016 and we already talked about this but that two billion breaks down in two hundred twenty eight thousand per hour that's insane so this pure alpha strategy that we're talking about has generated an annualized return of twelve percent since its inception in December 1991 but it posted a long streak of mediocre returns from 2012 through 2017 producing gains in the low single digits each year which is understandable because every strategy even the amazing dahlias has cycles they're gonna go through cycles where they do really well and other cycles where they don't do as well but even so even with the bad years pure alpha has made money in each of the past eighteen years and only lost money in three years of his total existence again another amazing feat and even this 12 percent since inception is just incredible especially considering that these guys are managing billions and billions of dollars and the more money you have in the account the harder it is to make those outsized returns which a lot of newer investors don't realize so when they see 12% from Dalio they're like oh who cares but no it's ridiculous and here's another stat when I said before that Bridgewater was the most successful hedge fund of all time that's absolutely true because Bridgewater had generated forty nine point seven billion in total net gains since the firm's inception which is more than any other hedge fund firm and this is the number before they're fifteen percent gain in 2018 so they really are the best now I think they have three strategies total but their two main strategies are pure alpha which is the one we've been talking about and then also all weather so pure alpha invests in more than 150 markets and is prepared to go longer short in each of these markets so here's another article from fortune that explains pure alpha a little more Bridgewater actually had a good section on its website that used to explain it but I don't know what happened to it so the idea of pure alpha was to separate alpha from beta so beta is the passive return that a portfolio might get from the ups and downs of the benchmark such as the S&P 500 where alpha is the measure of the actual managers return with the same risk in X of the beta so it's funny because a lot of mutual fund managers and even hedge fund managers they're just harvesting beta which means they're going along with the market and producing if they're really good what the market produces actually it's something crazy like 90% of mutual fund managers underperform their benchmark and all of that is beta so if you just passively through your money into an ETF you'd be doing the same thing so I Dalio call this strategy his pure alpha strategy is because it had nothing to do with those beta returns and the whole pure alpha strategy comes from Ray Dalio is idea of the holy grail of investing so he says the holy grail is 15 or more uncorrelated return streams either beta or alpha according Adalia such a portfolio reduces risk by 80 percent but of course the tricky part is finding a large number of reliable uncorrelated money-making sources of alpha in the first place it's very easy everyone we're doing and it requires venturing far beyond the bounds of equities today Bridgewater's computer scan the world for opportunities in roughly a hundred different categories or as we saw before that's actually a hundred and fifty ranging from directional bets on the price of industrial metals to relative bets on pairs of emerging market countries interest rates so if I didn't mention before Bridgewater is global macro which means they get into absolutely everything and having the funds so widely diversified reduces the risk of a major blow up and it limits the impact the pure alpha can have on any one market so a few things here when Dalia was talking about uncorrelated he's not looking at it simply like putting two charts on top of each other and seeing how closely they move together Dalio has deep deep research that goes back hundreds of years seeing how different assets work with each other in different types of market environments so it's way more advanced than pretty much anyone else which is why he's so successful at it so I'm sure if you actually saw his portfolio at some points in time it wouldn't make sense you would think okay these things are definitely correlated but that would just be our simple understanding of how these things work where he knows way way more with his deeper research and the second reason this is good is because they have so many billions of dollars that they don't want to affect any one market too much so having 15 uncorrelated investments you could really spread out all that money and the other strategy that Dalio uses is called the all-weather strategy which last year lost a little over 6% now the all-weather strategy still takes them to account that holy grail of uncorrelated investments but the all-weather was actually the first strategy to teach everyone about risk parity and risk parity is an approach to invest and portfolio management which focuses on allocation of risk usually defined as volatility rather than the allocation of capital so each asset like if they have bond stocks real estate they will contribute equally to the portfolio's overall volatility so basically in simple terms what risk parity is is putting a certain amount of money into each asset and these won't be equal amounts the amounts will be based on how volatile that acid is so you can think about it like each day each asset class will contribute the same amounts of gains or losses to the total portfolio so you really spread out the risk between all those asset classes now obviously it's a little bit more complicated than that and the way Dalio does it again is in off purely looking at charts of volatility in just a short term he looks at the multiple hundreds of years data which makes it very different than what you and me could come up with by just looking at thinkorswim for a few hours now on top of all those uncorrelated investments Dalio as we've seen also has multiple strategies working together so we saw that the all-weather portfolio lost a little more than 6% last year but the Alpha clearly made up for it now let me know down below what you think a big Daddy value and let me know what you're doing to reduce the risk in your portfolio because oftentimes what we think is reducing risk like investing in multiple different stocks instead of just one I mean it is reducing risk but not really compared to what someone like Dalio is doing because all equities usually move the same way but anyway comment down below with that or say something anything at all we'll talk about it and I know this video probably made you feel like you're missing out on returns like Dalio so if you're feeling that make sure you check out my full mole trading guide you can download it for free just click the link in this video or down below in the comments and description throw in your email address and it'll be sent to you and basically it goes over multiple strategies you can use to avoid feeling emotions like FOMO while you're trading because emotions like FOMO are what are gonna screw up your returns they make you do stupid things so check that out and don't forget to subscribe to this channel and hit that Bell for an email notification when our next video comes out we do at least three a week all business and market related so subscribe and I'll see you in the next video bye
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