The Investing Strategy That Made Bridgewater Big and Dalio Rich 

Since I’ve already written about and introduced you to Ray Dalio as a business builder, you may be interested to know something about his approach to investing.

According to the company literature, Bridgewater’s overall investment strategy is based on Dalio’s investment philosophy, which is simple: Follow big economic trends – like changes in interest rates, inflation, or global growth – and invest based on where things are headed. Instead of focusing on traditional asset types, like stocks or bonds, Dalio’s analysts look at how much risk each piece adds to the mix.

Then they balance the portfolio around that, with a strategy Dalio calls “risk parity.” (This is where it gets a little complicated, at least for me.) Dalio says his analysts use leverage (betting on borrowed money) and short selling (betting against stocks) as a means of diversification.

As I said, I don’t understand how he uses leverage and short selling to somehow increase yields and decrease risk. And since Commandment Number One in my Investment Rulebook is: Don’t invest in anything you don’t understand, I’m not going to be putting any of my money with Birdgewater now. But Dalio’s track record merits further study.