Ray Dalio: his book ‘Principles’ feels as though he is sharing what served him and his firm well just as the seasons and the game are about to change © Bloomberg
Ray Dalio has a book coming out this week. Investors in the firm he founded, Bridgewater — and investors more broadly — would be wise to take note. Chief executives’ books can be powerful contrarian indicators.
Jack, former General Electric chief Jack Welch’s memoir, marked the top for that corporation. Now, 16 years after publication, the company’s stock trades at less than half of its peak value.
More recently, Conscious Capitalism, Whole Foods Market co-founder John Mackey’s opus on “higher purpose, stakeholder integration, conscious leadership, and conscious culture and management” preceded a final stock price surge in 2013. Before rumours of Amazon’s interest in the company started to circulate, Whole Foods’ shares had lost almost 60 per cent of their value.
Mr Mackey’s book-writing experience is a cautionary tale about C-suite overconfidence. When an executive thinks he or she not only has the material, but also the time, to write a substantive book — and agents and publishers believe there is a wide, mainstream audience for it — sentiment must be soaring.
Neither a powerful business leader nor a major publisher is going to move forward unless each is certain of success: the investment is high. Whether financial gain or prestige, there must be a clear pay-off.
That kind of certainty only exists near extreme peaks in confidence. Unlike magazine cover stories, also frequently strong contrarian indicators of sentiment, books involve long lead-times and large resource commitments. When the contract is signed, the executive and publisher are betting that there will be an extraordinary reception six, 12 and sometimes even 18 months out. Like speculative stock investors, they must be certain their gamble will pay off well into the future.
That gamble, though, requires a broad audience. CEO writers must be well-known and well-respected. In a crowded publishing world, their names must immediately generate not just interest, but enthusiasm. Executive books are about satisfying pent up demand, something, again, achievable only when confidence is high.
To be fair, not all CEO books have been good contrarian indicators. Howard Schultz of Starbucks and Sheryl Sandberg of Facebook both defy the trend. Ms Sandberg’s best-selling Lean In preceded a six-fold increase in Facebook stock.
That said, her latest book, Option B, about overcoming adversity (written with bestselling author and business professor Adam Grant) has all the signs of a peak-in-confidence text, as it stretches Ms Sandberg’s perceived expertise well beyond the business world. At the top, it seems there is nothing a successful executive cannot handle masterfully.
And that is my concern with Mr Dalio’s upcoming book. Principles: Life and Work has little to say about investing, which is Bridgewater’s core business and what some would say is his greatest skill. Instead, it focuses on the “unconventional principles that helped him create unique results in life and business — and which any person or organisation can adopt to better achieve their goals”.
When CEOs believe their “principles” can help “anyone” to “achieve their goals”, hubris has set in. Mr Dalio’s book reminds me all too much of Jack. It feels as though Mr Dalio is sharing what served him and his firm well just as the seasons and the game are about to change.
Given that Mr Dalio’s business is investment, the implications are likely to extend far beyond the Bridgewater campus. Like Mr Welch before him, Mr Dalio could be unwittingly calling a big peak in the equity markets.
If the book curse holds, stock investors could end up feeling like recently-departed GE chief Jeff Immelt.
The writer is president of Financial Insyghts and an adjunct professor at the College of William & Mary