Returning The Boon
According to Dalio, there are three stages in one’s life:- First is we are dependent on others and we learn; Second is when others depend on us and we work and finally third is when others no longer depend on us and we no longer need to work. We can basically enjoy life.
By the year 2011, Dalio had reached the third stage in which he wanted to enjoy his life. He wanted to free the company from the “Key Man Risk”, which means the risk the company faces when it loses a very important person. This de-risking activity required Ray to find people who can replace him in his two important roles, Chief Executive Officer (CEO) and Chief Investment Officer (CIO) of the company. Bridgewater Associates was now going to change from a founder led organization to a professional led organization. So, in 2011, he stepped down as CEO and Greg Jensen and David McCormick were the new CEOs.
Now replacing Ray Dalio as the CIO was a very difficult task. He was also known as the Steve Jobs (Apple’s co-founder) of the investment industry due to the innovations he bought in the industry. Some of the similarities that were discovered between the two were- both were rebellious, independent thinkers and worked relentlessly for innovation and excellence. So, the person whom he was looking for as his replacement should have a lot in common. Like, independent thinking, strong mental maps in order to think clearly, resilient, wider vision, systematic and practical.
He also pointed out a very controversial term in this chapter, “Concern for others” as a personality test. According to him, the people who have low concern for others are the ones who succeed in life. This however was explained by him as, successful people are the ones who do not care to please others and hence work relentlessly towards their goal. It has nothing to do with empathy or donation.
The chapter towards the end shifts the focus towards how Ray helped in solving the European debt crisis. In 2010, Ray, due to his systematic investment procedure, had been able to figure out that Europe was about to face a debt crisis worse than 2008. In 2012, the European Central Bank (ECB) governor, Mario Draghi took a bold decision to buy bonds in order to improve liquidity in the economy. This could avert the debt crisis for a while, however, Ray was convinced that it could not have happened unless they printed money.
Printing of money was considered inflationary by the European government, however, Ray was able to convince them via a lot of calculations over several meetings that it wasn’t inflationary if it was done at the right timing. There was low demand in the European economy during this time. Hence if they printed more money, the demand gap would first be filled and thereafter demand would be over supply, increasing prices. Low demand could lead to deflation (reduction in prices of goods) that is also a very dangerous event for any economy. Hence Ray could convince the ECB to print more money in order to stimulate the economy faster. This as per his previous experience (abolition of gold reserve in 1970s) was good for the market. The same we could see in the times of COVID when all the central banks printed money in order to keep the economy stable, increased the stock prices. This is why Ray stresses that understanding history is important.
Ray through his experience of the economy has created a very informative video which every economic and market enthusiast must watch – “How the economic machinery works”