Ray Dalio: You Have to Be Right When Others Are Wrong

Ray Dalio is an American businessman and founder of the investment firm Bridgewater Associates, a firm known for being the world’s largest macro hedge fund company, with US$122 billion in assets.

Mr. Dalio was born in Jackson Heights, Queens, New York City. His parents were Italian immigrants and he grew up as an only child. At the age of eight, his family moved farther out on Long Island to the suburban community of Manhasset, where he had multiple jobs in order to earn some money. He worked mowing his neighbors’ lawn, had a paper route and shoveled snow from different driveways. He also worked as a caddy at the Links Golf Club, where some of his customers included the Duke of Windsor and the former vice president Richard Nixon, as well as many different Wall Street investors.

The building of a fortune

While being a 12-year-old caddy, Ray Dalio became interested in the surging stock market. He had saved $300 from his caddy earnings and decided to invest them in shares of Northeast Airlines, spending five dollars per share – it was the only major company whose stock he could afford. Thanks to the merging of Northeast, Dalio soon tripled his investment. He was then hooked and started reading the annual reports of major companies, got engaged in important conversations with older businessman and learned the principles that would, later on, guide him through his investing career: 1. Even careful research can result in mistakes, and that mistakes can be expensive. 2. The only way to beat the market is to be right when others are wrong. By the time Dalio graduated from high school, he had assembled a stock portfolio worth several thousand dollars, a substantial amount for a teenager in the late ‘60s.

Ray Dalio was always an average student with pretty ordinary grades. For this reason, he had a hard time enrolling a decent college. He eventually became a student at C.W. Post College, a campus of Long Island University in nearby Brookeville. He kept investing in stocks, but during his college years he saw a greater potential in commodity futures, due to the low margin requirements, he felt attracted to this sector and earned a considerable profit on a minimal investment.

During college, Dalio was finally free to choose his own courses and follow his own interests, he blossomed academically and had a great academic record in college, which allowed him to be admitted to Harvard Business School in order to get an MBA, like Bill Ackman and other business men that would become as important as him later in wall-street history.

Harvard Square Station_american business man_Ray Dalio_patrick dwyer_
Image courtesy of Juan Pablo González at Flickr.com

Bridgewater Associates

As Dalio became an expert in trading commodities at Merrill Lynch – firm in which Patrick Dwyer currently works at as a wealth advisor- , while being a Harvard student. He and some Harvard friends decided to set up a small company they called Bridgewater Associates to trade in commodities. This first venture wasn’t quite successful, but Dalios kept the Bridgewater name for further use. After leaving Harvard, Dalio arrived in the troubled Wall Street of 1973. He was a special creature with a Harvard MBA and expertise in commodities trading working at a plummeted stock market.

With enough experience in the trade market, at age 26, Dalio re-launched Bridgewater Associates as a small trading firm which worked independently for some clients he had met while working in Shearson Hayden Stone. He decided to have a fresh start since he got into a fight with Shearson that led to his resignation.

In the beginning, Bridgewater Associates advised a few corporate clients on currency exchange and interest rate risks. As clients saw Bridgewater Associates potential, they started to refer a wider audience of investors. McDonald’s and one of its major suppliers signed on as clients, and Bridgewater began to grow exponentially. In 1985, Bridgewater signed the World Bank’s employee retirement fund as one of its clients, then Kodak’s retirement system followed in 1989.

Under Dalio’s leadership, Bridgewater has adopted a management style he describes as “radical transparency.” Honesty, criticism of fellow colleagues and analysis of their mistakes are cheered and valued, as long as they contribute to the learning process and growing of the company. Dishonestly, secrecy, gossip and behind-the-back criticism are forbidden. All meetings are videotaped and the recordings are made available to the entire organization. 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.

Nowadays, Bridgewater’s workforce has over a thousand employees. The company remains as an independent, employee-run organization. Only 20% of the company was sold to employees in 2010. Dalio believes that making the company public will dilute its essential identity. The common element of Dalio’s strategy is to perform well in any market conditions.

In July 2011, Ray Dalio officially abandoned his title as CEO of Bridgewater Associates, and assumed the title “Mentor.” Nowadays, he continues to serve as Co-Chief Investment Officer and is considered to be one of the wealthiest men in the U.S with a net worth of 15.9 million dollars.

To learn more about Ray Dalio, click here.

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