Ray’s childhood and early influences

On August 8, 1949, in Queens, New York, Raymond Thomas Dalio, or simply, Ray Dalio, was born. The son of a jazz musician and a housewife, he was not the most diligent in school, but he was the most curious.

From an early age he had the drive to generate income, so he got a job as a paperboy in his neighborhood, a job that provided him with enough income to buy his first airline stock.

As a novice investor, he was thrilled to see that his first decision was the right one and he made a profit from the purchase of those first shares. He came to think that investing in the stock market was a way to make easy money until he lost almost everything he had invested almost on a hunch, without doing any prior analysis. From this he learned that there is no such thing as a sure thing in the stock market.

Sometime later he got a job at a golf club where investors and stockbrokers came. Ray listened to investment conversations while picking up the balls and passing the clubs to the players, who also gave him tips.

Education and career path

Dalio attended the modest Long Island University for his undergraduate studies, but with excellent grades, which eventually allowed him to enter Harvard Business School. Ray showed his skills as an investor, since, before graduating, he was already managing the resources of some of his classmates and thanks to this he paid for his studies.

After finishing his graduate studies, Ray Dalio joined a firm that managed resources based on commodity solutions. Dalio became convinced of the importance of having these options in a portfolio because, according to him, they help diversify risk in times of crisis.

Ray was doing very well in this company, and even reached a management position, however, he had differences with his boss to the point of blows, a situation that cost him his dismissal.

The birth of Bridgewater

After being fired in 1975, he began to form, from his home, his own company. He began managing capital for his former clients, then sold financial reports and recommendations, and ended up managing large capital flows.

Failure and life lesson

Very sure of himself and his financial ability, in the mid 80’s, Ray Dalio made a series of decisions that led him to bankruptcy and the need to lay off all his employees.

With a hint of defeat, but aware that it was his ego and arrogance that led him to that situation, he went to his father to borrow $4,000 to invest it and recover.

In 1983 he founded Bridgewater, the world’s largest hedge fund manager, which currently has more than 1,500 employees and manages the capital of several large companies and, as if that were not enough, since 1985 has had an agreement with the World Bank Pension Fund.

Investment principles and style

His experience of failure and his tenacity to learn from it and correct his mistakes led him to write a PDF which he initially distributed for free on the Bridgewater website, but its success was such that he decided to extend it and publish it in conventional form, already selling more than a million copies.

Principles is a lesson on the principles that should govern people’s lives in at least three fundamental aspects: life principles, work principles and investment principles.

Around this last aspect, investment principles, Ray Dalio has developed his principle of “Risk Parity,” which as he explains it, “It’s about balancing risk, not dollar amounts.” 

This means that portfolios should be composed based on assets that are not correlated with each other and that, taking into account times of economic growth and inflation, always have assets that offer positive returns regardless of the economic cycle in which we find ourselves.

In a game theory scheme, it looks like this:

Ray Dalio defined his investment strategy as the “All weather portfolio”, and defined its composition as follows so that, regardless of the time, the risk is always equalized.

Ray Dalio today enjoys his own honorary position in his company, and his thinking has gone viral, both for his books and for comments such as “money is garbage”, with which he defends the relevance of having gold in a healthy portfolio.

Whether he is explaining the workings of the economic machinery or making us reflect on the principles that govern aspects of our lives, Ray Dalio is today a living legend in the financial world that every investor should learn from.