Ended: Oct. 17, 2015
His most painful experience was trading pork bellies in his personal account in the early 1970s. Because hard commodities had stop limits, if the commodity hit a certain price of “limit,” it would stop trading for the day. During one dark week, pork bellies traded down further and further, causing them to hit their daily limit price day after day and forcing Dalio to stay in the position. He ended up losing “damn near everything.” “It was great in that it was terrible,” says Dalio, reiterating that you always learn more from the bad experiences in your life than the good. “It was a fantastic learning experience.”
To help clients better comprehend what was going on, Dalio penned a 20-page explanation of how the economy works called “A Template for Understanding What’s Going On” that Bridgewater included in its 2008 annual report to investors.
“From a business point of view, everybody told me each time that I was crazy because the thing wouldn’t sell,” says Dalio. “I would say I don’t care if it sells.”
Key to his investment process is writing down why he makes each decision so that after he closes the trade, he enhances his learning by comparing what happened to why he made the decision. What he did right and what went wrong.
Starting in 1995, Appaloosa made a lot of money during the Latin America crisis, as the firm held big positions in Argentina, Brazil, and Venezuela. Tepper saw that people had finally recognized the inflection point in Latin America, after which the market moved up. And that’s what the firm has done since in other countries. For example, in Argentina, they figured out they had to watch bank deposits. Tepper says: “As soon as money started coming back in the country, that market took off. So we were able to figure out the right variable, to look at the right thing to focus on. And when it changed, we were fairly early and we were able to make a lot of money.” Appaloosa’s fearlessness has served investors well. The