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Introduction
My business partners and I have been on a multidecade journey to discover the optimal portfolio. We recognize that we will never reach the destination of this lifelong crusade – investing is like an impossible puzzle that has no perfect solution. But we have set out as our mission to endlessly progress toward the ultimate goal. Fortunately, we have the opportunity to explore potential answers with some of the most sophisticated investors in the world. As Co‐Chief Investment Officer of Evoke Advisors, a multibillion‐dollar SEC‐registered investment advisor in Los Angeles, I regularly engage with well‐respected investment managers and industry thought leaders. We at Evoke have also been blessed to build a network of some of the greatest investment minds of our time, including CIOs of leading institutional investors and founders of the world's largest and most successful money managers. As students of the market with an intense focus, we have gleaned insight over the years from repeated interactions with the smartest investors who are also searching for similar investment answers.
Investing can be incredibly humbling. Mistakes are inevitable and seem to conveniently transpire just when you think you've figured it all out. This is evidently one of those industries in which the more you learn the more you realize how little you know. It is interesting to take a step back and observe that we know so much more now than we did 20 years ago, but that only means that we will certainly be more knowledgeable 20 years from now. This simple recognition is imperative because it prevents complacency and forces us to march on and continue the search. The crystallization of the end goal also makes it easier to find other like‐minded individuals from whom we can expand our learning.
For me, a monumental step forward occurred in 2005 when I was first introduced to Bridgewater Associates. As an institutional investment consultant at Merrill Lynch, I was seeking insightful investment managers to allocate the billions of dollars that were entrusted to my team and me. Our group was founded and led by John Ebey, one of the brightest investment minds I have met to this day. John is also one of the most genuine, charming, and generous individuals I have ever known. However, his greatest talent may be his remarkable storytelling abilities. He's the one who originally discovered Bridgewater, which he eloquently conveys in a story that I repeat next.
Bridgewater is the largest hedge fund in the world and typically only works with major pools of capital such as sovereign wealth funds, enormous pension plans, and college endowments. Unlike most investment firms, they typically do not cater to high‐net‐worth individuals, evidenced by their current stated minimum client size of $5 billion! John had known of Bridgewater by reading about them and hearing good things from investors he highly respected. John is not bashful, particularly when it comes to pursuing solutions to investment problems for clients. He called Bridgewater's front desk and asked to speak with an investment professional who would answer his questions about their strategies. No one returned his call. He tried again and again without success. He concluded that the likely reason for the lack of response was that he worked at Merrill Lynch, which is better known for advising wealthy families (rather than institutions with over $5 billion in assets).
John's persistence eventually paid off and he was able to set up a time to meet with someone at the firm. He flew from Los Angeles to Bridgewater's campus in rural Westport, Connecticut. Thanks to his charming demeanor, the meeting swiftly transitioned from the normal discussion about investment philosophy to him instantly gaining favor. He was introduced to the top professionals in the firm shortly thereafter and eventually became one of Bridgewater's favorite clients. They even studied his presentation style and asked for tips to better inform how they interacted with clients.
The next time Bridgewater was in Los Angeles, John set up a time for me to meet them. I was captivated by their unique approach from that initial meeting, and I set out to learn as much as I could from this organization. John started to allocate our client capital to Bridgewater's strategies, officially launching my multidecade relationship with this firm.
Bridgewater is first and foremost a research organization. They have been publishing their “Daily Observations” every business day for over 30 years. These deliberately private pieces are reserved for their clients, and they are designed to provide an over‐the‐shoulder peak into the firm's latest thinking. The Daily Observations are widely considered so insightful that they have essentially become required reading for managers of the largest pools of capital across the globe and for leading central bankers and policymakers. My first task upon discovery of this gold mine was to download and print every Daily Observations in their client archive. My reading stack of past “wires,” as they are commonly termed, measured over six inches thick and continued to grow since new wires came out every day. I read every single one and attained more investment knowledge in three months than I had collected in my previous six years.
Ray Dalio founded Bridgewater in 1975. Ray is among the most successful and highly regarded investors of all time and one of the wealthiest individuals in the world. Ray hired my business partner, Damien Bisserier, at Bridgewater in 2004, when the firm had about 200 employees (today they have over 1,500). Damien started his Bridgewater career in the research department and worked his way to a client‐facing role because of his passion for helping sophisticated institutions solve complex investment problems. I was one of Damien's clients, which is how we originally connected.
The year 2007 was a major turning point. Damien set up a meeting with Ray and me, which was the first time that I had ever met him in person. He explained the origins of his investment philosophy and what led to his work that formed the foundation for his All Weather portfolio, which is commonly referred to as “risk parity” today. Ray had been searching for years for a simple portfolio that could be used to manage his family's assets for generations. As a professional investor he appreciated the difficulty of timing markets and generating “alpha,” so his goal was to identify an investment solution that was completely passive: a set‐it‐and‐forget‐it portfolio that is designed to deliver attractive returns while surviving all the bumps along the way. He walked me through the logical sequence for his pioneering work and creation of All Weather.
It was a memorable hour that culminated in my asking a simple question: If this is so obvious, then why is this approach so different from the conventional portfolio? Ray said that he had grappled with that very question for years and finally concluded that it was because of a lack of smart, independent thinkers. We are educated in school to read and regurgitate what we learned on exams and papers. Those who master this process tend to excel in school and earn highly coveted job offers. At work, they are generally trained to follow the lead of others before them, and the process repeats itself. Rarely are we encouraged to challenge convention and discern the truth by investigating the core issues ourselves. Inertia and peer risk can also play material roles in prolonging the status quo. Both can prevent adoption of new approaches even when there's agreement that it is better. The pull to follow others and the risk of being different and looking wrong can be powerful forces that require both independent thinking as well as high conviction to overcome.
To reach the All Weather framework he had to challenge the assumptions he had been taught at Harvard Business School and through broadly accepted investment tenets. He had to think independently to, in effect, reinvent the proverbial wheel. One of Ray's gifts is his intuitive drive to avoid blindly accepting traditional perspectives and to start from the most basic level to uncover his own conclusions. He described it as going from assumption A to assumption B and so on until you reach the conclusion. Most people don't go back to A, they start at E since it is widely viewed as the truth. If you start at E, then you end up in the same place as everyone else, but if you start at A you end up where he did.
I learned from Ray not to accept investment assumptions on their face without doing the independent work to determine if I arrive at the same point. Therefore, I took what he taught me and set out to figure it out on my own. This sparked a multiyear research project and development of a 10,000‐page Excel spreadsheet as I studied 100 years of financial market data.
