How Ray Dalio built the world’s richest and strangest hedge fund (2011)

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#5

Post by imaginenore » Sat, Mar 05, 2016, 10:35 PM UTC

ImTalking wrote: post #4

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

Your conclusion is based on the assumption that the market is completely random and unpredictable. Which is demonstrably not true - high frequency trading, insider trading, general predictable events that affect the market.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#6

Post by ImTalking » Sat, Mar 05, 2016, 10:54 PM UTC

imaginenore wrote: post #5

ImTalking wrote: post #4

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

Your conclusion is based on the assumption that the market is completely random and unpredictable. Which is demonstrably not true - high frequency trading, insider trading, general predictable events that affect the market.

The market is random and unpredictable when it's random and unpredictable. And it's the opposite when it's the opposite. There will always be a small segment of traders who will do well. Doesn't mean that they are the Oracle of Delphi. It just means that, in a large enough sampling, the probability of those people existing is not zero. There is nothing in HFT that supports an argument of predictability unless you are another HFT possibly. Insider trading is a crime specifically because it removes the randomness of the market so I'm not sure why that's listed. And if there were, as you say, general predictable events then that does nothing to support the idea that Bridgewater has any special access to those.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#7

Post by melling » Sat, Mar 05, 2016, 11:04 PM UTC

ImTalking wrote: post #6

imaginenore wrote: post #5

Earlier quoted context omitted.

Your conclusion is based on the assumption that the market is completely random and unpredictable. Which is demonstrably not true - high frequency trading, insider trading, general predictable events that affect the market.

The market is random and unpredictable when it's random and unpredictable. And it's the opposite when it's the opposite. There will always be a small segment of traders who will do well. Doesn't mean that they are the Oracle of Delphi. It just means that, in a large enough sampling, the probability of those people existing is not zero. There is nothing in HFT that supports an argument of predictability unless you are…

Dr James Simons says the market isn't random.

https://en.m.wikipedia.org/wiki/James_Harris_Simons

https://www.ted.com/talks/jim_simons_a_rare_interview_with_t...

Now I'm not sure who to believe, some random guy on the Internet, or a mathematcian who has consistently beat the market.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#8

Post by Xcelerate » Sat, Mar 05, 2016, 11:07 PM UTC

ImTalking wrote: post #4

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

I'm not sure why you got downvoted. Survivorship bias is a well-known phenomenon. I would be interested in distinguishing between hedge funds that do well because some "necessarily must" and those that actually have some kind of advantage with their algorithms. But how can you actually tell which is the case?

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#9

Post by Wonnk13 » Sat, Mar 05, 2016, 11:19 PM UTC

Whatever "culture" of radical honesty they have does not translate at all to other workplaces. My first experience with an ex-BW manager left me crying at the coffee machine all afternoon. just my n=1 anecdote.

Re: How Ray Dalio built the world’s richest and strangest hedge fund (2011)

#10

Post by ImTalking » Sat, Mar 05, 2016, 11:27 PM UTC

Xcelerate wrote: post #8

ImTalking wrote: post #4

All investment funds are a charade. The probability that a firm like Bridgewater exists with higher than average returns is not zero. Nothing about Bridgewater would indicate that they somehow 'get it' whilst the other funds don't. It's strictly probability, or more accurately, it's strictly a bell-curve.

I'm not sure why you got downvoted. Survivorship bias is a well-known phenomenon. I would be interested in distinguishing between hedge funds that do well because some "necessarily must" and those that actually have some kind of advantage with their algorithms. But how can you actually tell which is the case?

I don't think you can. If on every trade you flip a coin, but intelligently limit your losses and ride your wins, you will beat every fund-manager on the planet. Nothing to do with smarts or algorithms. And even if you have good risk management, if you trade long enough, there will always be the perfect-storm 'meltdown' scenario. However, as I originally said, it's all probability and there will be a small group of managers who will never experience the meltdown (or the meltdown is waiting in their future).