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Greg Jensen - CIO in Bridgewater | Investment Conference 2024 | Norges Bank Investment Management

Summary of Greg Jensen's Speech at the Investment Conference 2024

Short Summary:

Greg Jensen, CIO of Bridgewater Associates, outlines the firm's philosophy of achieving excellence through continuous improvement and systematic decision-making. He emphasizes the importance of deeply understanding the economic system, building great portfolios, and having a strategy for being wrong. Jensen describes a process that involves identifying timeless and universal truths about markets, systematizing beliefs, and diversifying investments to manage risk. He highlights the use of algorithms to analyze data and make investment decisions, emphasizing the importance of a robust learning process and compounding understanding within the organization.

Detailed Summary:

Section 1: Introduction & Philosophy of Excellence

• Jensen defines excellence as continuous improvement, both individually and organizationally.
• Bridgewater focuses on deeply understanding the economic system and building great portfolios.
• He emphasizes the importance of identifying fundamental truths about markets and systematizing beliefs.

Section 2: Core Concepts of Bridgewater's Philosophy

• Fundamentals: Understanding the true causes of market movements, focusing on timeless and universal principles.
• Systematization: Rigorously documenting reasoning and logic behind investment decisions, allowing for testing and refinement.
• Strategy for Being Wrong: Diversifying investments to manage risk and mitigate the impact of inevitable mistakes.

Section 3: Timeless and Universal Truths

• Jensen presents two fundamental truths about markets:
  • The price of anything is the amount of currency spent divided by its quantity.
  • The price of something is the discounted economic conditions that affect it.
• These principles provide a foundation for building a robust investment process.

Section 4: Systematic Decision-Making

• Jensen emphasizes the importance of writing down reasoning and logic behind investment decisions.
• He uses the example of Bridgewater's 1980 Bond system, a yellow piece of paper with rules for buying and selling bonds.
• This systematic approach allows for constant improvement and testing of beliefs.

Section 5: Checking and Refining Beliefs

• Jensen demonstrates how to check the validity of investment ideas by testing them against historical data.
• He shows a profit curve of an investment rule that worked well for a period but then became ineffective.
• This highlights the need for continuous refinement and adaptation of beliefs.

Section 6: Knowing What to Expect

• Bridgewater uses cone charts to visualize expected risk and return for each investment idea.
• This allows for automatic quality control and helps manage expectations.
• It enables investors to plan for drawdowns and avoid reacting emotionally to market fluctuations.

Section 7: Diversification and Uncorrelated Return Streams

• Jensen argues that the Holy Grail of investing is to have 15-20 uncorrelated return streams.
• He emphasizes the importance of diversifying investments across different strategies and markets.
• This approach helps reduce overall risk and improve reliability.

Section 8: Balancing and Diversifying Risk

• Jensen advocates for allocating risk to different investment strategies rather than simply allocating capital.
• This involves taking high-risk strategies and lowering their risk, and vice versa, to achieve diversification.

Section 9: Pure Alpha and Combining Different Perspectives

• Jensen explains how Bridgewater generates alpha by combining different perspectives on markets.
• He describes a process that involves four different "people" arguing with each other, each representing a different approach to trading.
• These perspectives are then systematically combined to form a single view of the market.

Section 10: Risk Budgeting and Portfolio Construction

• Bridgewater translates its market views into a risk budget, allocating risk across different strategies and markets.
• This approach allows for a balanced risk profile across a diversified portfolio.
• Jensen emphasizes that investors don't need to have a view on everything, focusing instead on areas where they have strong conviction.

Section 11: Compounding Understanding

• Jensen highlights the importance of compounding understanding within an organization.
• He describes a process that involves:
  • Storing all knowledge in a computer-readable and human-readable format.
  • Establishing a rule book for translating ideas into actionable strategies.
  • Continuously learning from mistakes and adapting to new information.
• This compounding process allows for continuous improvement and growth within the organization.

Notable Quotes:

• "Excellence is so core to us."
• "We measure Excellence by what we mean by it is continuous Improvement."
• "The price of anything is equal to the amount of currency spent on it divided by its quantity."
• "The price of something is equal to the discounted economic conditions that affect it."
• "The Holy Grail of investing is to have 15 to 20 uncorrelated return streams."
• "You don't have to have a view on everything."
• "We make everything that we've done... computer readable and human readable."
• "The same way that you're an investment can [compound], if you continue to compound."