All achievers

Ray Dalio

Hedge Fund Master

The markets are my instrument.

Ray Dalio was born in Jackson Heights, in the borough of Queens, New York City. An only child, his mother was a homemaker, his father a jazz musician who played clarinet and saxophone in night clubs such as Manhattan’s Copacabana. When Ray was eight, the family moved farther out on Long Island to the suburban community of Manhasset. The young Ray Dalio enjoyed sports and playing with his friends, but disliked the routine of school, particularly rote memorization. He was far from lazy, however. For spending money, he held down a paper route, mowed his neighbors’ lawns and shoveled snow from their driveways. From age 12, he worked as a caddy at the Links Golf Club, an exclusive course where his customers included the Duke of Windsor (formerly King Edward VIII of England) and the former vice president (soon-to-be president) Richard Nixon, as well as many Wall Street investors.

In an address to the Academy delegates and members at the 2012 International Achievement Summit, Ray Dalio describes the principles that guide his business decisions.
Ray Dalio addresses the Academy delegates at the 2012 International Achievement Summit in Washington, D.C.

In the boom years of the 1960s, talk on the golf links centered on the surging stock market and Ray Dalio was intrigued. With $300 he had saved from his caddy earnings, he bought shares of Northeast Airlines. At five dollars a share, it was the only major company whose stock he could afford. As it happened, Northeast became the object of a merger effort, and the 12-year-old caddy quickly tripled his investment. Ray Dalio was hooked. He read the annual reports of major companies, and engaged older investors in conversation. By trial and error, he learned principles he has continued to apply in his investing career. He found that even careful research can result in mistakes, and that mistakes can be expensive. He also learned that the only way to beat the market is to be right when others are wrong. When he formed an opinion of the prospects of a given stock, he asked the smartest investors he knew to critique his reasoning. By the time he graduated from high school, he had assembled a stock portfolio worth several thousand dollars, a significant amount for a teenager in the late ’60s.

Given his unexceptional academic performance in high school, Ray Dalio had some difficulty finding a college. He eventually enrolled at C. W. Post College, a campus of Long Island University in nearby Brookeville. Although he continued to buy and sell stocks in college, Dalio also became interested in commodity futures. The low margin requirements attracted him to this sector, where he saw an opportunity to earn a considerable profit on a minimal investment.

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Ray Dalio, the son of a jazz musician, began investing at age twelve. He bought stock shares for $300 and tripled his investment after a corporate merger was announced. Dalio went on to graduate from Harvard Business School and then worked on the floor of the New York Stock Exchange and invested in commodity futures. In 1975, Dalio founded the investment management firm, Bridgewater Associates, which forty years later, became the largest hedge fund in the world, with $160 billion in assets under management. His estimated net worth is $16 billion.

In addition to his business interests, he followed music enthusiastically, and when the era’s most popular band, the Beatles, traveled to India to study meditation, Ray Dalio thought there might be something in it for him too. The Beatles’ guru, the Maharishi Mahesh Yogi, taught Transcendental Meditation (TM), a modern adaptation of an ancient Indian practice for clearing the mind of irrational feelings in order to perceive reality more clearly. Ray Dalio became a daily practitioner of TM, a discipline he has continued to find helpful throughout his life. He found that meditation improved his concentration and allowed him to think more creatively, which assisted him in his college studies. Free at last to choose his own courses and follow his own interests, Dalio blossomed academically. With his excellent academic record in college, he won admission to Harvard Business School.

In the summer of 1971, between college and graduate school, he worked as a clerk on the floor of the New York Stock Exchange. There, he witnessed firsthand the effects of an international financial crisis and President Nixon’s fateful decision to sever the relationship between the dollar and the value of gold. This marked the end of the post-World War II Bretton-Woods agreement, under which the exchange rates of the world’s major currencies had been fixed, and the price of gold set at $35 an ounce. The day after the President’s announcement, stock prices rose by 33 percent. A period of sustained inflation was about to begin, and the prices of many commodities, not least gold, were to rise dramatically over the next decades. Ray Dalio was ahead of the curve in learning about commodity prices, but the events of 1971 also taught him the importance of currency exchange rates, and he set out to master that subject as well.

Ray Dalio meets with delegates of the Academy of Achievement at Ford's Theatre in Washington, D.C. during the 2012 International Achievement Summit.
Ray Dalio meets with Academy delegates at Ford’s Theatre during the 2012 International Achievement Summit.

The summer between Dalio’s two years at Harvard was spent trading commodities at Merrill Lynch. When he returned to Cambridge, his formerly obscure specialty had become a hot topic. Dalio and some Harvard friends set up a small company they called Bridgewater Associates to trade in commodities. Little resulted from this first venture, but Dalio retained the Bridgewater name for later use. With commodity prices — especially oil — rising dramatically, the Federal Reserve raised interest rates to rein in inflation, the stock market plummeted, and investors rushed towards commodities. When Ray Dalio arrived in the troubled Wall Street of 1973, he was a rare creature, a Harvard MBA with expertise in commodities trading.

Dalio spent a year at Dominick & Dominick, LLC, before joining Shearson Hayden Stone as a trader. At the time, Shearson was headed by Sanford Weil, soon to become a Wall Street legend as architect of the merger that created CitiGroup. By his own account, Dalio chafed under the hierarchical structure of Shearson, and matters came to a head at a New Year’s Eve party when he came to blows with his department head. Despite this altercation, a number of his trading clients retained their faith in him, and he left Shearson to trade independently for his remaining clients. Operating out of his own two-bedroom apartment, at age 26 he re-launched Bridgewater Associates as a small trading firm. Independence in business coincided with a newfound stability in his personal life when Ray Dalio met and married Barbara Gabaldoni.

At first, Bridgewater Associates advised a few corporate clients on currency exchange and interest rate risks, but as these clients benefited from his advice, his insights were sought by a wider audience of investors. McDonald’s and one of its major suppliers signed on as clients, and Bridgewater began to grow dramatically. Ray and Barbara Dalio moved to Connecticut to start a family, and in 1981, the Bridgewater offices moved with them. In 1985, Bridgewater signed the World Bank’s employee retirement fund as one of its clients. Kodak’s retirement system followed in 1989.

Ray Dalio at the Academy of Achievement's 2012 Banquet of the Golden Plate with his wife Barbara and Academy of Achievement delegates Philip Thigo of Kenya and Julia Fan Li of Canada.
Ray Dalio at the International Achievement Summit’s 2012 Banquet of the Golden Plate reception in Washington, D.C., with his wife, Barbara, with Academy student delegates Philip Thigo of Kenya and Julia Fan Li of Canada.

As Bridgewater’s client list grew, so did the scope of its investments. Dalio employs an investment approach called “global macro,” investing on a large scale around the world on the basis of broad systemic factors. Dalio made a careful study of market history, finding previous examples of phenomena that his competitors believed were unprecedented. He built Bridgewater by anticipating changes in currency exchange rates, commodity prices, inflation and GDP growth in the world’s economies.

In 1991, Bridgewater opened a hedge fund known as Pure Alpha. The name refers to the differential between the overall average returns of a given market, labeled “beta,” and those that exceed the market return, termed “alpha.” Dalio’s Bridgewater was one of the first firms to clearly identify and base a strategy on the distinction between the two classes of returns. Pure Alpha has become Bridgewater’s flagship fund, earning an average annual yield of 18 percent.

CEO of Bridgewater, Ray Dalio outside of Bridgewater's Westport offices. "A member of the board of the National Fish and Wildlife Foundation, he’s an avid fisherman and bow hunter who has gone after everything from Cape buffaloes to wild boars. He says that his attraction to outdoor activities—he also enjoys snowboarding—is primarily a manifestation of his appreciation for the beauty and sophistication of nature. By comparison, he says, 'anything that man sees or does is overly simplistic.'" (Ben Baker/Fortune Magazine)
Ray Dalio outside of Bridgewater’s Westport offices. A board member of the National Fish and Wildlife Foundation, he’s an avid fisherman and bow hunter who “has gone after everything from Cape buffaloes to wild boars. He says that his attraction to outdoor activities—he enjoys snowboarding—is a manifestation of his appreciation for the beauty and sophistication of nature. By comparison, he says, ‘anything that man sees or does is overly simplistic.'”

Over the years, Dalio applied the insights he had gained from his study of meditation to understanding the psychological factors that influence market decisions and company management. The greatest obstacle to rational decision-making, he found, was “the ego barrier,” the desire to prove oneself right and others wrong, even in the face of evidence to the contrary. Under Dalio’s leadership, Bridgewater has adopted a management style he describes as “radical transparency.” Criticism of fellow colleagues and analysis of their mistakes are encouraged and valued, as long as they contribute to the learning process. Secrecy, gossip and behind-the-back criticism are prohibited. All meetings are videotaped and the recordings are made available to the entire organization. Dalio outlined his business management philosophy in 2005 in a 100-plus-page essay, “The Principles.” Bridgewater’s emphasis on transparency extends to investor relations as well. Clients receive a daily newsletter, monthly performance updates, a quarterly review and frequent conference-call briefings.

In 2006, Bridgewater analysts calculated that total debt service in the U.S. was exceeding income, and that the economy was headed towards a major deleveraging. Bridgewater made major investments in U.S. Treasury bonds, gold and the Japanese yen. Dalio foresaw that the boom in home mortgage finance in the U.S. would come to an end in 2007, and met with the Secretary of the Treasury in Washington to warn him that the large banks which were deeply invested in mortgage-backed securities were in danger of insolvency. In the spring of 2008, Bridgewater pulled out of several large banks, including Lehman Brothers and Bear Stearns. A week later, Bear Stearns failed and panic overtook the international financial markets.

At the 2012 Summit of the Academy of Achievement, Ray Dalio addresses an audience that includes Academy Chairman Wayne R. Reynolds, Summit Host Catherine B. Reynolds, and Academy members Ralph Nader, Natasha Trethewey and Mayor Antonio Villaraigosa.
At the 2012 Summit, Ray Dalio addresses an audience that includes Academy Chairman Wayne Reynolds, Summit Host Catherine B. Reynolds, and Academy members Ralph Nader, Natasha Trethewey and Antonio Villaraigosa.

In the crisis that ensued, most investment funds posted massive losses, while Bridgewater’s Pure Alpha fund posted gains of nine-and-a-half percent. In the troubled year that followed, Dalio shared his understanding of the deleveraging process in an essay called, “A Template for Understanding What’s Going On.” The markets continued to validate Dalio’s approach. In 2010, Bridgewater’s Pure Alpha fund rose by 45 percent, or $15 billion, more than the combined profits of Google, Amazon, Yahoo and eBay combined.

While Bridgewater’s workforce grew to well over a thousand employees, it remains an independent, employee-run organization. In 2010, Ray Dalio sold roughly 20 percent of the company to Bridgewater employees. He has declined all suggestions to take the company public, which he believes would dilute its essential identity. The common element of Dalio’s strategy is to perform well in any market conditions. Following the crisis, Bridgewater opened new funds, including All Weather and Pure Alpha Major Markets, founded in 2011. The All-Weather fund charges lower fees, and seeks to match market return, whereas Pure Alpha charges a two-percent fee and 20 percent of any return over market, the usual fee structure for a hedge fund. Pure Alpha Major Markets was originally capitalized with $42.5 billion from existing clients. Its strategy is similar to that of the original Pure Alpha, but with an increased focus on the European bond market.

Ray Dalio, founder of the world's largest hedge fund, Bridgewater Associates, receives the Golden Plate Award of the Academy of Achievement from Awards Council member David Rubenstein, co-founder of The Carlyle Group.
Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, receives the Golden Plate Award of the Academy of Achievement from Awards Council member David Rubenstein, co-founder of The Carlyle Group.

In 2011, Bridgewater reported returns of roughly 23 percent, while the average hedge fund was losing four percent or more. It was estimated that Ray Dalio earned $3.9 billion that year, placing his net worth in the neighborhood of $11 billion. In July 2011, Ray Dalio officially relinquished his title as CEO of Bridgewater Associates, and assumed the title “Mentor.” He continues to serve as Co-Chief Investment Officer.

By 2013, Bridgewater Associates had grown to 1,400 employees, managing approximately $150 billion for its investors. While most hedge funds cater to high-net-worth individuals as well as institutional clients, Bridgewater’s client base consists almost entirely of institutional investors, including foreign governments and central banks, pension funds, university endowments and charitable foundations. Roughly a third of these are public pension funds, such California’s state employee retirement fund (CalPERS) and the Pennsylvania Public School Employees’ Retirement Find; another third are corporate pension funds such as those of Nabisco, McDonald’s and General Motors, and perhaps a quarter are government-run sovereign wealth funds, such as that of Singapore. In both 2012 and 2013, Bridgewater was recognized for having earned its clients more than any other hedge fund in the history of the industry.

NEW YORK, NY - DECEMBER 11: Chairman and Co-CIO, Bridgewater Associates Ray Dalio speaks onstage during The New York Times DealBook Conference at One World Trade Center on December 11, 2014 in New York City. (Photo by Thos Robinson/Getty Images for New York Times)
December 11, 2014: Chairman and Co-CIO, Bridgewater Associates Ray Dalio speaks onstage during The New York Times DealBook Conference at One World Trade Center in New York City. (Thos Robinson/Getty/New York Times)

Investors and policymakers around the world, including central bank presidents and chiefs of state, subscribe to Bridgewater’s newsletter, Daily Observations. Ray Dalio’s prescient insights into the working of the world’s economy have led to closely-watched appearances as a commentator in financial publications and media outlets, including CNBC, Bloomberg, and The Wall Street Journal.

Ray Dalio, as of 2016, has amassed a personal fortune of $16 billion. Along with Bill Gates and Warren Buffet, Ray Dalio has signed “The Giving Pledge,” committing to giving half of his net wealth to charity over the course of his lifetime. He has created The Ray Dalio Foundation to channel his philanthropic contributions. Today, Dalio and his wife, Barbara, make their home in Greenwich, Connecticut, where they have raised four sons. In his off-hours, he enjoys music, hunting and fishing.

In 2017, Dalio announced plans to step down as Co-CEO of Bridgewater, remaining as one of the firm’s two Chief Investment Officers.

Read  Principles by Ray Dalio.
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Inducted in 2012

Ray Dalio is the founder and owner of Bridgewater Associates, the world’s largest and most successful hedge fund manager. The firm manages approximately $150 billion in global investments for institutional clients including foreign governments and central banks, pension funds, university endowments and charitable foundations.

The son of a jazz musician, Dalio began investing at the age of 12 when he bought shares of Northeast Airlines for $300, tripling his investment when the airline merged with another company. In 1975, at age 26, he founded Bridgewater Associates in his two-bedroom Manhattan apartment. As the firm expanded, he wrote a 100-page essay, “Principles,” to share his management philosophy with his employees. Dalio believes his team must be “radically truthful and transparent” to achieve excellence. “We need to know what’s true,” he asserts, “especially those things that we would rather not be true.”

As the first decade of the 21st century drew to a close, Bridgewater ranked as the largest and best-performing hedge fund firm in the world. Its clients and employees routinely give Bridgewater top satisfaction ratings in annual surveys. In 2011 alone, Ray Dalio personally earned more than $3 billion. The business press estimated Dalio’s net worth at close to $11 billion, making him one of the wealthiest self-made men in America.

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You’ve spoken about individuals who shape the world we live in and the particular qualities they share. What is the process these people, “the shapers,” go through that perhaps the rest of us do not?

Ray Dalio: I think for everybody, in order to be successful, there are five steps that you go through essentially.  But everybody has their goals. What is their goal and passion?  So you have goals.  And then what happens is you’re going after your goals and you encounter your problems.  So encountering problems, and then the big difference between people is how they approach those problems.  People who get bummed out by the problems don’t learn from it.  Who learns from them?  So those who recognized the problems are excited that they get into those problems or mistakes. Mistakes are learning experiences.  The pain that comes for that mistake, every time you have pain it’s an indication that something is at odds.  So the people who have the pain are the people then who will go into that and realize that if they solve that pain, solve that problem, understand what that is representative of — not just the one problem — but that problem is a certain type of problem that will happen over and over and over again in your life, and if you can solve, “How do I deal with that kind of problem?”  The third thing that everybody needs to do is, if they have problems on the way to their goals, that they diagnose those problems and they get to the root cause — the real root cause.  The real root is often — is typically — what people are like.  Can you go to what you’re like?  Can you go to your mistakes?  Can you go to your weaknesses?  Right.  Can you go to other people’s mistakes and weakness?  Some people, because of ego barrier, can’t do that,  so if they don’t recognize their own mistakes, their own weaknesses, or other’s mistakes and weaknesses — what the root cause may be and what they’re like because of ego barriers — if they can’t go there, they’re going to repeat those mistakes. They’re going to have them over and over again.  So it’s the process essentially of saying, at that stage, “What am I like?”  Everybody has strengths and everybody has weaknesses.  The weaknesses are the other side of the strengths.  So let’s say if you’re a right brain/creative person, you may not be reliable. Because just the way you think necessitates you to think a certain way, that means you can’t think in another way.  That means you’re going to keep bumping into that thing that’s standing in your way.  But unless you can embrace, “I’m not reliable,”  right, and deal with it, you won’t get around it. It’s still going to continue to be a barrier.  Right.  So the diagnosis to the root cause is important.  So then if you diagnose, then you have to design what you are going to do about it that works.  So let’s say you are very creative but not reliable.  Okay, you have to find the means of first of all embracing that, and then saying, “If I’m not reliable, what do I? Do I work with a reliable person? Do I learn reliability? Do I have some compensating mechanism?” Because I can’t let that lack of reliability stand in the way of my goal. As long as I keep doing that I’m going to keep running into problems.

Ray Dalio commended the book Einstein's Mistakes, which relates how the great physicist made use of his errors and miscalculations to pursue a clearer understanding of the nature of the universe.
Ray Dalio recommended the book Einstein’s Mistakes: The Human Failings of Genius relates how the great physicist made use of his errors and miscalculations to pursue an understanding of the nature of the universe.

So you have to design what you do about the problems. And then when you’re designing what to do about the problems, you have to follow it through. You have to follow through, or do the thing you design. Doing the thing you design requires self-discipline and so on. People have to do those things in order to be successful. Right. They have to know what their goals are. They have to diagnose their problems down to the root cause, the real root cause. They have to design ways to get around them, and then they have to have the self-discipline to follow that. It’s a continuous iterative process. So that’s what we keep doing. I would say that all of the shapers are doing that. So they don’t mind the problems. That’s their adventure. A wonderful book is Einstein’s Mistakes. You hear his struggles. He wouldn’t have been cutting-edge, he wouldn’t have been inventive if he didn’t go through that. So when you’re looking at the personality characteristics, the personality characteristics lend themselves to doing that five-step process well.

In his book The Outliers, Malcolm Gladwell says it takes something like 10,000 hours of working at something to become remarkable, to become extraordinary. I think you’re also describing a person who is very driven, who has great tenacity and doesn’t let things get in the way of the goal.

Ray Dalio: Yes, of course. It’s an element, but…

It’s the mixture of the elements that matter.  You could have a tremendous tenacity, but you’re studying, you’re learning, you’re trying to memorize and remember everything that you’re being taught and you’re really trying hard.  You could have great tenacity.  You need the making sense of something, you need to embrace reality.  You need these other dimensions.  Right.  So I think the things that we started to talk about just before, the things that these people have a need for is: First, they need to — most fundamentally — make sense of things, which is a very different kind of learning process.  It’s a very internalized learning process.  It’s not a memory-based process.  So none of these people — unlike the population as a whole — none of these people have a desire to follow instructions.

How is that different from other people?

Keys to success — Perseverance

Ray Dalio: For most people, you go to school, they tell you what class to go to,  what classes to take.  This goes on all the way through university.  “Do this, do this, do this…” and then you go into the class and they say, “Learn this,” and, “This is the information,” and it’s a largely memory-based and instructional-based process. This is not what these people do.  Right?  This is not. So the path, what they have is a strong, strong desire to understand and make sense of reality.  How does reality work?  So they’re all very independent-thinking and, and rebellious.  They don’t mind saying, “Screw you. This is what makes sense and I’ve got to go down that path.” They’re comfortable with ambiguity.  They love ambiguity. Some people don’t like ambiguity. Most people, they say, “I’m nervous about ambiguity.”  They love to go in the space of what’s ambiguous, because that’s where the discovery is. They love making mistakes, the process, they understand that making mistakes — you know, loosen up! It’s like you’re going to ski or something.  You can’t learn how to ski unless you’re falling.  So they don’t mind the falling.  They’re not embarrassed about making mistakes.  They’re not worried also about the approval of others.  So many people are constantly saying, “Oh well, risk!”  The whole different definition of risk — what’s risky?  They’re not worried about what people think of them, right?  Is that risk or failure?  The term of failure is a totally different thing.  Failure is part of a learning process.  Right?  What’s the risk of failure?  What, you’ll be embarrassed? Risk of failure? How do you distinguish failure from learning?  In your whole life,  “failure” implies that it stopped, that the game stops.  If it’s part of a  “You’re failing and then you learn,” then that learning is part of the moving forward.  So that is what the process is like.  Fail, learn, move forward.  And constantly do that, because you’re cutting-edge.  You’re going where people haven’t been before, in inventiveness.  That’s exciting to those people.  So that’s a different kind of approach to life.  It’s a different way of being.

Academy of Achievement delegate Zachary Frankel meets hedge fund impresario Ray Dalio at the 2012 International Achievement Summit in Washington, D.C.
Academy delegate Zach Frankel meets Ray Dalio at historic Ford’s Theatre in Washington during the 2012 Summit.

You said earlier that “ego barriers” keep people from recognizing their own weaknesses. Why is that, and where did you get your ability to look at your own weaknesses?

Ray Dalio: You’re asking a two-part question, so I think I probably should explain what I mean by this ego thing. I think that the ego barrier is the worst problem. This is going to take a few minutes.

People are so attached to being right, and yet the tragedy is it could be so easy to find out how you’re wrong.  If you just said to yourself, “I’m not sure that I’m right, and let me go find people who have alternative point of views and let me have quality conversations.”  Not to pay attention to their conclusions, but to the thought process.  So thoughtful discussion, worrying about being wrong but not to the sense of being paralyzed. Or moving forward, but in the sense of trying to create discovery, to have an exchange. To go after the person who has the most different point of view, who is the most thoughtful, and then have a conversation to see their point of view.  Whether a person could be both open-minded and assertive at the same time, that creates a discovery process.  It creates a fabulous learning.  That process itself reduces the probability of being wrong and produces a great deal of learning.  People are so hung up on being right.  Starting their discussion and deriving some sort of satisfaction if, at the end of the discussion, they were where they began the discussion. That doesn’t make any sense, because there’s not going to be any learning.  So ego plays an important role in that.  The people that feel like, “I’m good. I’ve got it,” won’t learn.  If you’ve got it, you won’t learn.  So you have to get rid of this ego barrier, “I’ve got it” thing.

Every human being has weaknesses.  And, as I say, it’s the opposite side of thinking.  In other words, if you have a brain that works one way, and you’re doing certain things that allow you to do things that way that you’re excelling, it means that your brain is working in a manner that has its pluses that will cause minuses.  So the creative person who is not reliable, or the reliable person who is not creative. But if they don’t embrace that they’re going to continue to encounter that.  Ego barrier is the worst thing, and if we were raised differently, just imagine in the schools all along that people will always say, “Everybody makes mistakes.  Everybody has weaknesses.  The key is really to understand what your mistakes and weaknesses are so that you can learn from them.”  I think punishment is a terrible concept.  Punishment means that you made a mistake and you’re being punished.  I think instead of punishment, every time somebody makes a mistake you should say, “The only thing that you need to do to get out of your punishment is, first, think, “What kind of mistake was that?”  So if I’m in a situation like that again, how would I deal with it differently? Not to make that mistake. So that learning should come from the mistake, not punishment, because you’re teaching people not to make mistakes, which is where the learning comes from.  Not the appreciation that if you keep doing this over and over again, you’re going to keep encountering the same outcomes.