Hedge Fund Market Wizards by Jack Schwager

Market Wizards by Jack Schwager

I just read the Hedge Fund Market Wizards by Jack Schwager – you might question why I read this  book and what it has to do with Build  my Balance Sheet – well as I said in a previous post I wanted to find out more about Ray Dalio and there was a chapter on his approach and his company Bridgewater – the world’s largest hedge fund in this book so I borrowed it from my local library

I learnt the following from this very well experienced investor

  • you need to diversify your portfolio and diversification is dependent on capturing assets into your portfolio that are uncorrelated- this allocation can improve your return/risk  by 5 to 1.
  • Dalio focuses on the underlying drivers (rising growth, falling growth, rising inflation and falling inflation) as it is these underlying drivers which are expected to affect the positions of assets – so drivers are the cause and correlations are the consequence – so to have a diversified portfolio it is necessary to select assets with different drivers
  • you need to pick your portfolio based on the environments you could be faced with and the idea is to put equal risk in each scenario to achieve balance
  • Finally Ray Dalio has a very open approach to communication and says that mistakes provide the path to improvement
  • his  system is run by computers with rules that are seldom modified

In conclusion – Ray Dalio has understood the system and in this new world of volatility, to build a strong Balance Sheet – we also need understand the dynamics to make informed decisions

Lesson for kids

Always follow people that are experts in their area as from them you can learn very quickly and not make basic mistakes yourself – get a good mentor/or teacher to learn from