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“Behavioural Edge”, the competitive edge of Bridgewater Associates

Learn how Ray Dalio is completely open about the two key factors that have contributed to the success of his company.

Bridgewater Associates is an American investment management firm. It was founded by the billionaire investor Ray Dalio in 1975. The company is the biggest hedge fund in the world since 2012. You’re probably wondering what is the secret to this success. Actually, it’s all aboveboard. Indeed, Ray Dalio is completely open about the two key factors that have contributed to the success of his company; namely their investment strategy and their “behavioural edge”.

What is the “Behavioural Edge”?

Behavioural Edge is Bridgewater Associates’ secret weapon. Fund managers that work at the company learn to improve their decision-making, risk management and execution of strategy. How? Learning more about themselves. In this way, they understand how they process information, make decisions and interact with the external environment.

The Behavioural Edge is an important factor because it influences the investment strategy making it more effective.

  1. Their investment strategy: ‘Reducing and synthesizing complex systems into interdependent stocks and flows underpinned by cause and effect relationships. It’s a machine or quant-type approach to investment.

  2. Their ‘behavioural edge’ and culture: This is built around key principles which underlie everything the firm does and which they almost religiously adhere to. Bridgewater are always learning about themselves and how they interact with their external environment.

The first factor is not necessarily unique to Bridgewater, however, the second aspect is unique to Bridgewater. It is something they work incredibly hard to develop and which has proved to provide a significant ‘Behavioural Edge’.

Their ‘behavioural edge’ seeks to capture the upside of human ability, such as high-quality decision-making, pattern recognition, creativity, and ability to abstract. It also seeks to reduce the negative aspects of human frailties, such as ego, hubris, biases and mental shortcuts.

It helps them to:

  • Minimising the impact of behavioural biases

  • Reducing ego-driven behaviours.

  • Countering over-confidence.

  • Improving risk management effectiveness.

  • Having a more objective and realistic assessment of markets and ideas.

  • Calibrating improved decision-making processes.

  • Creating automated decision-making aids and algorithms.

This brings me back to this question of ‘is everyone doing something similar or is Bridgewater the only one’?

Only you can decide what is right for your business, one thing is for sure, BridgeWater has been one of the biggest Hedge Funds in the world for ten years, the must be doing something right, are you?


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