
Hedge Fund Is Building an Algorithmic Model From Its Employees’ Brains - newscasta
http://www.wsj.com/articles/the-worlds-largest-hedge-fund-is-building-an-algorithmic-model-of-its-founders-brain-1482423694
======
chollida1
I think this....

> Mr. Dalio returned to run Bridgewater earlier this year after stepping back
> to a mentor role six years ago.

Is what's driving almost all of his new found desire for a unified AI to run
everything.

Here you have a man who by any measure has been wildly successful, he tried
stepping back and letting other take over but ended up finding that the team
he left in charge didn't make the exact decisions he would have.

If the story ended there it wouldn't be in any way surprising, who hasn't left
a team and second guessed the decisions that the new leaders have made.

It turns out that when you are worth 15 Billion one of the things you can do
is hire a shit load of AI experts, like one of the heads of IBM's Watson team,
to build an AI to make decisions based on WWRDD, "What would Ray Dalio Do"?

Since his first retirement failed, this is his new take on how to have his
second retirement go smoother. Just build an AI that bases all decisions on
the Bridge water principles that he wrote down years ago.

see: [https://www.principles.com/](https://www.principles.com/)

As an aside, he recently let Tony Robbins publish his ideal portfolio, the all
weather portfolio. It's actually a pretty strong portfolio for the average
person.

[http://awealthofcommonsense.com/2014/11/back-testing-tony-
ro...](http://awealthofcommonsense.com/2014/11/back-testing-tony-robbins-
weather-portfolio/)

[http://www.moneysense.ca/invest/raining-on-the-all-
seasons-p...](http://www.moneysense.ca/invest/raining-on-the-all-seasons-
portfolio/)

~~~
yannickt
> see: [https://www.principles.com/](https://www.principles.com/)

This is a very, very good read. Thanks for sharing.

~~~
th0raway
You might disagree with the read if you actually saw what the implementation
of said principles looks like. There's plenty of articles out there about what
those principles do to a psyche, but let's forget about those: The culture is
still broken because there is no sensible way to have real transparency in an
environment with power differentials.

In any situation with a broken status quo, openness by those that disagree
will just get them squashed. In practice, change occurs in the dark: The
people that have a different idea hide in a corner, bake the idea in secret,
build allies in secret, and only reveal it when they cannot be squashed down.
It works with different ways of investing, with tolerance to LGBT, interracial
marriage... instant openness in an environment that is against you will ruin
you unless you are powerful.

The principles, as applied, lead to an appearance of openness, where people
have to toe the party line and only disagree when they know they can win
politically. Otherwise, the powers that be will find you and make sure your
disagreement can't go anywhere.

And how do you get power? In practice, by toeing the party line. Only by
agreeing with the people above you, those that have been blessed as the
smartest, you can get any credibility. And yes, this is something that is
actively codified in Bridgewater's culture.

I wish external researchers had access to the internal ratings and surveys
that Bridgewater employees fill in all the time. The patterns in them are the
definition of a dystopia and groupthink.

~~~
yannickt
> " instant openness in an environment that is against you will ruin you
> unless you are powerful."

You make some good points, and I especially like this one.

------
alexc05
> Mr. Dalio has the highest stratum score at Bridgewater, and the firm has
> told employees he has one of the highest in the world.

So this billionaire is designing a human-ranking system based on some criteria
on which he scores number one in the world?

In examining a system for bias I certainly hope they factor in the fact that
the guy who paid billions for scientists to research factors under the "total
human awesomeness scale" also somehow managed to find that the guy signing all
the cheques was the same guy scoring a perfect 10 million every time.

I wonder if the scientists working on quantifying human greatness for Kim
Jong-Un are using the same scale?

Couch it in whatever scientific BS you want, it sounds like we just read some
sort of billionaire's ego-rotica.

~~~
dasfaha
The strata in the article are based on the work of psychologist Elliot Jacques
who as far as I can tell created this independently of Dalio and Bridgewater.

Strata are related to a person's ability to handle complexity, and Jacques
argued that this is related to the time horizon a person can handle. For
example, the role of a shop floor employee selling widgets does not need to
consider what happens more than 1-3 months in the future, however the store
manager has to think about a year into the future, the owner of the chain has
to consider what happens 2-3 years down the line and so on.

He devised an interview protocol to determine at which level a person is
capable of thinking at to be use to match employee's with roles for which they
are suitable. Being in the highest stratum means having a time horizon of
20-30 of which Jacques believed only a handful of people are capable of in
each generation.

~~~
pdog
Dr. Jaques divided people into eight strata based on their innate capabilities
and limits.

Most of us if we're honest with ourselves are on the level of Strata 1–4.
(Even to presume we're Stratum 4 is being generous.)

Strata 5–8 are the rarefied elites. They're typically CEOs of large companies
and business leaders.

Stratum 9 and higher—like Mr. Dalio—are the rare geniuses who are capable of
thinking into the far future (100+ years) and working on problems of
extraordinary complexity.

~~~
azag0
No one can think 100 years into the future, that's just ridiculous. Chaotic
systems -- all real-world human systems on some time scale -- are
unpredictable no matter how awesome you are.

~~~
xzel
I mean clairvoyantly sure, but why not imagine the future? Traveling to Mars,
autonomous and flying cars, intergalactic space travel etc. type problems are
all thinking in a long range, certainly not 5 to 7 years. Look at something
like planes even, which took humans years to have the right tools. Thats why
people mull over the possibilities of an outcome to reach their goal, which
could very well be a long term, 100+ year goal. Instead of worrying about the
unpredictability, you can hope the unpredictability will lead to answers for
questions you can't answer yet; thats the whole reason for research labs at
Google and such, working on longer term problems, finding what's missing now
and shelving things for later when we might be able to accomplish the goal.

------
Vindicis
It reminds of "managing the numbers". Not to say Dalio himself doesn't know
what he's doing. But translating that to software, yeah...good luck.

It's challenging enough to translate simple trading systems into machine code,
and have it reproduce human results. At least that's my experience.

To distill your knowledge and wisdom down to a set of algorithms, the complex
interactions, discretion on when to use and ignore certain ones, being able to
learn from results by adding in new "rules" and discarding old ones that no
longer work such that you've identified the correct parameters/situations
applicable?

Best of luck with that one. Not a place I'd ever want to work.

~~~
alistproducer2
>It's challenging enough to translate simple trading systems into machine code

I can attest to this from my experience with a bot I'm trying to build to
handle my personal finances. When I sat down to try and encode the seemingly
simple decisions I make like whether to pay a bill now or wait until the next
check, things got really complicated really quickly.

~~~
codemac
I'm struggling a lot to get access to my bank's "bill pay" interface. Any
recommendations for banks that support building out automation like this?

There are very small things I'd like to implement (budgeting, auto-
categorization of expenditures) and some type of bill pay as well.

~~~
alistproducer2
<strike>I can't really help you on bank API's</strike>. My bot uses webdriver.

Actually I can help with that: [https://openbankproject.com/for-
developers/](https://openbankproject.com/for-developers/)

~~~
codemac
Huh.. Looks like they don't support my bank, but really love the project!

I'll have to check out webdriver, thanks!

------
ashnyc
I am a big believer is what he is doing. I worked both in financial firm and
now have my own small factory. There is so much wast in financial firms. in
the early 1990s, people with MBA where getting 100k a year for just doing
spreadsheets. On top of that, it is not a full days worth of work. the work
was not rewarding and it was high stress. The paycheck was great, for sure. I
am trying to do that same thing now with my small manufacturing shop. Ordering
of raw materials, Manufacturing allocation, labor etc are all controlled by a
software. These are all boring jobs that an AI will do a much better job at.

~~~
saosebastiao
Why does it have to be an _artificial_ intelligence? The field of Operations
Research has basically perfected automated and optimized decision making in
pretty much every heavy industry out there, and they've been doing it since
before computers even existed by using mathematical modeling.

------
leroy_masochist
Since reading it maybe 6 or 7 years ago, I've thought Principles is a great
handbook for personal reflection and self-improvement, especially in that it
continually guides all discussion back to the lodestar of thinking for oneself
and asking "is this true?".

However, I'd also say that Principles is a lousy "how to manage people"
manual, because it tries to algorithmically describe how to deal with
unpleasant interactions that require emotional intelligence, and harps really
hard on the concept of "the truth will set you free and if you can't handle
the truth you need to GTFO of our culture". Reading this article has
reinforced that opinion.

Two other random observations here:

\- These guys are a big Palantir client...I wonder if Palantir has any role in
building this new system. They weren't mentioned in the article.

\- Isn't "Overseer" is a really, really fucking bad formal job title for
anyone at any organization?

~~~
turc1656
> _Isn 't "Overseer" is a really, really fucking bad formal job title for
> anyone at any organization?_

Yeah. At my company we just include anyone who would fit that billing as a
member of the Panopticonal Oversight Committee so that they can also keep
their regular title.

------
sharemywin
That has got to be the worst case of group think ever. What happens if you
challenge one of the "principles"?

~~~
Declanomous
Sounds like you lose upside down Christmas trees at the company party, get
demoted from co-CEO, get fired, or get chewed out so hard you cry in the
bathroom.

Honestly, I just read a few other articles about Bridgewater Associates, and
even though it seems cult-like, I think the principles probably help prevent
group-think. For instance, the second most important goal is no talking about
people behind their back. If any of the companies I worked at had this rule,
I'd think they were trying to make people toe the company line. However, this
rule actually supports the first rule, encouraging transparency, really well.

For instance, have you ever been in a situation where you are doing something
wrong, only to find out later that people noticed but nobody told you? The
consequences aren't that bad if your tie is on backward, but I've made
expensive mistakes because nobody spoke up, and I've been in organizations
where there was such a negative stigma around "confrontation" that mistakes
happened all the time and gossip was rampant.

Studies have shown that groups that are told they much come to a consensus
make worse decisions than groups that are encouraged to disagree. The
difference can be pretty marginal, but a marginal difference in return can
result in huge gains or huge losses when you are dealing with markets.

It definitely reflects poorly on a company when stories come out about
employees crying in the bathroom. One can only imagine the psychological
horrors that must go on at such a company! However, in my experience, there is
a certain kind of person whose entire self-worth is based on their success.
They are typically very high achieving, but failure is an anathema to them.
They try to avoid failure at all costs. They end up under incredible strain,
because failure is inevitable.

I've known a lot of people like this. There was one person I knew who was so
stressed when she didn't know a question on an exam that she ended up vomiting
all over the test. Another time, I caused a woman to cry in Model U.N. by
vetoing her Security Council resolution as the Russian Federation. If you know
anything about Russia and the Security Council, a veto is not exactly an
uncommon measure from them. However, it meant we ended 5 days of debate on an
issue without passing a resolution. She took the veto as hard as if I had
vetoed a judgement of her character. She was a grad student at a prestigious
school, so I'd say she had to have been in her mid-20s, which is definitely
old enough to be working at a high-powered investment firm.

I personally think I'd like that environment. I do really well when I have a
lot of autonomy, and I don't need much supervision to work. I hate it when
people don't criticize my work. It just makes me paranoid; I know I'm not
perfect, and I know there are flaws. I learn from every critique and failure.
I know a lot of people that would have a mental breakdown in that environment
though. It's hard to tell who those people are ahead of time though, because
they are such high-achieving individuals, and their anxiety about failure is
basically invisible.

So, to answer your question more seriously, I think their continued success is
evidence that they must comfortable challenging their beliefs. However, I do
think a holy book full of principles seems a little cult-like, especially in
light of the fact that they are building an AI clone of their CEO.

~~~
sharemywin
seems to me like challenging peers is ok, but don't dare challenge management.
So, yes you'll get day to day issues worked out, but things like ethics,
general strategy, and other high level issues you run into problems. So, when
they f* u* it will be huge...because the whole organization will be blinded to
it.

------
sailfast
"Hit a nerve - a prized attribute." It would be interesting to see how quickly
the company as a whole (and the system, if possible) responds to the results
of incentives. Does the culture quickly regress to fooling the algorithm or
does a cat and mouse game result?

Either way not something I'd want to use to drive culture, but an interesting
take on how to "institutionalize" a culture and cultural norms even long after
one has left the business.

~~~
cheez
They already have a system that people game all the time. It doesn't work.

------
brilliantcode
I had a good chuckle reading this article:

> At Bridgewater, most meetings are recorded, employees are expected to
> criticize one another continually, people are subject to frequent probes of
> their weaknesses, and personal performance is assessed on a host of data
> points, all under Mr. Dalio’s gaze.

I think this is a testament to the disconnect between people in this space and
technology. The idea that some mythical holy grail technology will produce
alpha is as illusive as relying on automated trades.

> Bridgewater says about one-fifth of new hires leave within the first year.
> The pressure is such that those who stay sometimes are seen crying in the
> bathrooms, said five current and former staff members. This article is based
> on interviews with them and more than a dozen other past and present
> Bridgewater employees and others close to the firm.

And it confirms my suspicions. I stopped reading here because it's another PR
piece for Bridgewater.

I think we will see a small homage to Bridgewater in Mr. Taleb's upcoming
books as an example of "techno-irrational exuberance" along with other
hilarious _empty suit_ moments described in the book Fooled By Randomness.

------
arcanus
How could any quant models _not_ be based on the brains of their inventors?

~~~
sailfast
From the article, it doesn't appear this has anything to do with quant models
- they're looking to optimize how their employees conduct the work and how
they are managed as personnel. This does not seem to target their trading
strategies at all.

------
jkestelyn
The 1980s called, they want their expert systems back.

~~~
arisAlexis
exactly what I thought, this is a new gen expert system

------
blazespin
Bridgewater manages $160 billion, the most of any hedge-fund firm. It has
earned clients twice as much total profit as any rival, says LCH Investments
NV, a firm that puts client money into hedge funds. Mr. Dalio personally
earned $1.4 billion last year, according to research firm Institutional
Investor’s Alpha.

------
zitterbewegung
I have heard that Amazon tried to do this with hiring with really bad results.

~~~
alexc05
Can you expand on this at all? An article anywhere with a detailed write up?
It sounds fascinating.

------
dkarapetyan
Another megalomaniac looking for religion where it can not be found: radical
transparency, humans and economies as machines, personality tests to determine
stratums, daily ratings called "dots" (which incidentally is what Palantir
calls their ratings as well). Then again maybe the article makes the place
sound more like a cult than it actually is in reality.

------
Malic
Sounds like a horrible place to work! If things go as planned, "Horrible Place
to Work(tm)" will have in install package for it.

~~~
julienchastang
Yeah, really.

"The pressure is such that those who stay sometimes are seen crying in the
bathrooms, said five current and former staff members."

What's the upshot? Seven figure salaries or something?

~~~
lintiness
there are people crying in the bathrooms at every big firm on the planet.

~~~
bbcbasic
Solution is to move the bathrooms into the open plan. No more slacking or
being aa wimp in private.

Or even better give everyone nappies so they can clean themselves on their own
dime. Once they get home.

------
Hydraulix989
You can't possibly get enough training data for this.

~~~
adventurer
I don't think it is fair to say it is not possible. There is an AI system out
there that has correctly predicted the superfecta for the Kentucky Derby based
soley on user predictions.

[http://www.newsweek.com/artificial-intelligence-
turns-20-110...](http://www.newsweek.com/artificial-intelligence-
turns-20-11000-kentucky-derby-bet-457783)

~~~
bbcbasic
I work for a company that bets on the horses, and yet they use broadly similar
techniques. But this doesn't replace humans at all.

Also as an aside, correctly predicting a superfecta happens quite a lot, and
it is hard to tell from sample size of 1 if this was luck, skill or a
combination of both. Probably a combination of both - their algo may have
reduced the odds to 200-1 for example, and luck did the rest.

------
ry4n413
[https://www.bloomberg.com/news/articles/2016-09-11/bridgewat...](https://www.bloomberg.com/news/articles/2016-09-11/bridgewater-
said-to-get-22-5-billion-in-new-money-since-2015)

------
JabavuAdams
Horrible, but I can sympathize.

Living alone now after 22 years of co-habiting. Tempted to encase myself in
cameras and sensors and train a model of ... me.

What would Jaba do? If it's a dumb thing, then help him not do it...

------
cmurf
I'm gonna guess these employees have a work for hire contract of some sort, so
that their ideas or potentially copyrightable or patentable methods, belong to
their employer.

~~~
hendzen
So does every large technology company including Google, Apple, Twitter,
Facebook, Netflix, etc.

~~~
vitus
As do a number of major universities (CMU, Harvard, MIT, Stanford, and plenty
more, I'm sure). If I had to guess, these contracts are generally a lot more
prevalent in fields where people are regularly creating intellectual property.

------
known
There is no algorithm for trader's instincts;

------
ajamesm
FYI, I was able to dodge the paywall and read the article by copying the URL
into Google to get their referral, then clicking the top link.

~~~
FT_intern
not sure why the regular search links aren't working anymore when you click
web. The link in "Top stories" section worked

~~~
puddintane
Seems to be related to the title - if I take the article title from the actual
page, google's first result works.

However if I take the title from here it goes to the paywall.

I wonder if Google has recently adjusted the algorithm for this? Makes me
wonder if they actually like paywalls, as I've always thought Google was
against them.

------
nradov
Odd, I submitted the same story but it wasn't picked up as a duplicate.

[https://news.ycombinator.com/item?id=13238860](https://news.ycombinator.com/item?id=13238860)

------
bedhead
I would assign a small chance to Bridgewater being a ponzi scheme. I am not
the first person to be skeptical of the firm and there have constantly been
rumors about them.

------
bjornlouser
"Though outsiders expected Mr. Ferrucci would use his talents to help find
hidden signals in the financial markets, his job has focused more narrowly on
analyzing the torrent of data the firm gathers about its employees. The data
include ratings employees give each other throughout the work day, called
'dots'"

This -- Isn't -- JEOPARDY!! This is shit.

