Few people in business are as controversial as Ray Dalio. The simple mention of his name in conversation might elicit both admiration and disdain. Success can have that effect. Most people don’t usually reach that level of success by adopting a conventional approach. What sets Dalio apart from other successful entrepreneurs is perhaps his underlying drive for success; rather than fearing failure, he fears boredom and mediocrity much more. According to Dalio, humans make a multitude of decisions in our lives that are essentially wagers of different magnitudes. Rather than just making those decisions and moving on, it is worthwhile to consider how we make them because they ultimately affect the quality of our lives. In this article, we will look at the rollercoaster ride that is Ray Dalio’s life and how he was able to make it back on top even after his most brutal falls. Before we dive in, let us look at what guided him to become the co-chief investment officer of the world’s largest hedge fund.
Who is Ray Dalio?
Raymond Thomas Dalio is an American billionaire investor and hedge fund manager who has served as co-chief investment officer of Bridgewater Associates since 1985. The business is still the world’s largest fund in terms of assets. It was founded in 1975 and by February 2020, it was managing $160 billion in assets for the entire corporation. Dalio demonstrates that even the largest funds can be tremendously profitable. According to Forbes, his net worth as of June 2022 is predicted to be $19.1 billion. Dalio is considered one of the most significant financial innovators. In fact, he’s popularized numerous widely used techniques and metrics such as risk parity, currency overlay, portable alpha, and global inflation-indexed bond management. Dalio was born in New York City. Here, he developed an early interest in finance, dabbled in investing in high school, and increased his “passion for the market” while attending Long Island University’s C.W. Post College before getting an MBA from Harvard Business School in 1973. While stocks proved to be the preferred career route for HBS’s aspiring financiers, Dalio was indifferent; he simply wanted to sell commodities. He’s shared that he begged Merrill Lynch’s director of commodities to hire him for the summer. Nevertheless, not only did no one at HBS offer him this job, but Wall Street was also unable to offer one. However, following graduation, he was appointed as director of commodities at Dominick & Dominick – a brokerage firm. The interaction was brief since the company collapsed along with the stock market. Dalio then moved on to Shearson but immediately recognized that its work culture wasn’t a good fit, and he was fired a little over a year later. At this point, Dalio had been unemployed for two years after graduating from HBS. Luckily, he wasn’t entirely out of luck since he had been trading his account on the side since graduating from business school. On a positive note, when he was let go, Dalio left on good terms and kept in touch with his brokers and their clients because they valued his advice and were willing to compensate him for it. Soon enough, he realized he could leverage his circumstances to start his own business. In 2020, Bloomberg ranked him as the world’s 79th wealthiest person. In addition to his primary job, his other accolades include being the author of How the Economic Machine Works; A Template for Understanding What is Happening Now, published in 2007, where he explains how the economy works like a machine; Principles: Life & Work about business management and financial philosophy in 2017; and Principles for Navigating Big Debt Crises, published in 2018, where he the concept of debt plights. According to The New York Times best-seller list, his second book was described as a “gospel of radical transparency.” Additionally, during the International Achievement Summit in Washington, D.C., in 2012, Dalio won the American Academy of Achievement’s Golden Plate Award, which was presented to him by the Carlyle Group co-founder David Rubenstein. CNBC named Principles: Life & Work one of the top 13 business books of 2017. aiCIO Magazine and Wired Magazine went a step further to dub Dalio the “Steve Jobs of Investing.”
The successes & failures of Ray Dalio
1) Bridgewater Associates
In 1975, Bridgewater Associates was born. Dalio’s roommate at the time had just moved out, and he converted the extra bedroom into an office. He worked with one other person and hired an assistant. While others may have dwelled on the struggle of running a start-up and creating a company from scratch, Dalio barely spent time thinking about these challenges. For Dalio, being able to do what he loved and serving a vision bigger than himself was a gift far greater than anything his corporate job had offered him. Dalio’s goal was not to revolutionize investing. Instead, he decided to serve his customers in the best way he knew how. Dalio had acquired an interest in understanding the underlying cause-and-effect interactions of markets even before enrolling at HBS. His ongoing research led him to establish a new technique for price determination, allowing him to anticipate market movements before competitors. Dalio’s approach was different from the one he had learned in economics lectures, where supply and demand were both quantified in terms of quantities sold. He discovered that measuring demand as the amount spent (rather than the quantity purchased) and looking at who the purchasers and sellers were and what they bought and sold was considerably more feasible. This unique method was one of the primary reasons he was able to detect economic and financial movements that others missed. This key insight powered much of Bridgewater’s early success and, by the late 1970s, the company was gaining traction. But that was about to change.
In the early 1980s, Bridgewater saw the fallout from the silver crisis. According to his models, Dalio anticipated a depression would soon hit the U.S. economy. Instead, the U.S. witnessed an economic boom. Rather than denying his mistake, however, he admitted his mistake. Dalio claimed that after eight years in business, despite being right more often than he was wrong, he was back at square one. He even mentioned that he had lost so much money that he couldn’t pay the individuals who worked for him. This meant he had to fire them one by one until the company was down to one employee: himself. Losing individuals he cared about and almost losing his ambition was an excruciating experience for him. They say that everyone will be confronted with a major incident at some point in their lives; it’s simply a matter of when. A disaster always brings with it a choice.
A defining moment
It was a turning point in Dalio’s life, pushing him to make a difficult decision, but he recognized that that was the proper reaction. Making a choice doesn’t make executing that choice any easier. According to him, it taught him that one of the keys to being a successful investor is only to take bets that he is highly confident in and to diversify them well. With time, this approach paid off. At first, he was so broke after the crash that he couldn’t even afford a plane ticket to Texas to see a prospective client, even though the fees he had collected were many times the cost of the ticket, so he didn’t make the trip. He gradually accumulated clients, revenue, and a new team. With time, his upswings increased in magnitude, and his downswings were both tolerable and educational. He never thought that what he was doing while building (or rebuilding) a company was just getting the things he needed to play the game.
The road back
Over the years, Bridgewater gradually expanded. The company had six employees by 1983. By the end of the 1980s, this had grown to roughly two dozen personnel, and by 1995, it had grown to forty-two. By 1995, they were managing $4.1 billion in 1995, and this rose by several multiples to $32 billion five years later. However, success did not eliminate the overarching difficulty. On the contrary, obstacles continued to manifest in new forms. Bridgewater’s achievement took almost two decades to achieve. It began with a concept Dalio believed in and culminated in a reality far more extensive than anything he could have imagined. Dalio labels those who accomplish this feat as “shapers,” a group in which he includes himself in and defines as “someone who comes up with a distinctive and worthwhile concept and develops it beautifully, generally despite the doubts and opposition of others.” In other words, transformative achievement comes from believing in a goal so thoroughly that a person is unafraid of the opposition of others. But where does this power originate from?
The failure taboo
Failure is taboo, but it can be a critical part of success. Dalio’s transformation journey is marked by what he refers to as “his abyss” between 1979 and 1981. An abyss, an ordeal, a crash, whatever you want to call it, elicits a paradigm shift when the reality we had imagined to be stable and steadfast comes crashing down. According to Dalio, a person’s life will crash and burn. They may fail in their career or with their family, lose a loved one, be involved in a catastrophic accident or sickness, or learn that their imagined life is no longer possible. There are numerous ways in which a person can crash. They will be in pain and may believe they lack the strength to continue. They almost always do, but their final success is dependent on them comprehending that failure can be good fuel for success, even though it may not appear that way at the time. Tragic events happen to everyone, but only a few people use them as a springboard for something far better. Those who have had the misfortune of experiencing an abyss of their own would never wish it upon anyone else. They also know they would never trade it because it’s one of the most transformational experiences they can go through, launching them on a trajectory they never thought possible. The lessons of a major crash do not emerge quickly. Failure comes with unintended consequences: dread disguised as uncertainty, grief, and despair. According to Dalio, this is only debris that will settle over time. However, living in the rubble is not something any rational person would want. The failures of a person’s past can easily haunt them in the present. Essentially, their ego is screaming at them to leave! They immediately want to return to land or whatever circumstance is safe for them. Most individuals take this route because sitting calmly in the abyss is difficult. Many people believe that the purpose of life is to avoid pain, but the only way to overcome failure is to push through it. If a person manages to stay still in the abyss for long enough, they realize it isn’t as bad as they initially thought. According to Dalio, pain is a first-level consequence. Optimizing against it is a dumb move. The first result is pain. The longer-lasting consequence is resilience. To succeed, people need to optimize for the latter. Individuals who choose what they really want over the sufferings that push them away from what they truly desire have a better chance of having a successful life. An epic-scale failure turns the world upside down, causing people to lose interest in money, job titles, and material items in favor of meaning and happiness. Everything material is revealed to be a mirage, while everything abstract becomes palpable. Making money as a goal is pointless since money has no intrinsic value; its value is determined by what it can purchase, and money cannot buy everything. While money is essential, having meaningful work and meaningful connections is even more critical. Dalio stated that meaningful work and relationships were and continue to be his core priorities and that everything he did was for them. Working for money is a desirable option, but working for meaning is the most gratifying thing. We mistakenly believe that opportunities are fixed when we look to the future. We cannot comprehend all of the possibilities that are open to us. If we scramble back to the “safe” path, we close ourselves off these opportunities. This means that if you have the strength to face the unknown, you open yourself up to possibilities you never even knew existed. Dalio knew this as he emerged from his own abyss.
Like most entrepreneurs, Ray Dalio experienced his fair share of ups and downs in his professional career. However, if there is one lesson that we can take away from his life experiences, it’s that perseverance is key. Additionally, rather than becoming a victim of money and power, it is essential to realize the bigger picture and work towards pursuing a mission that involves the happiness of others as well. Instead of solely focusing on selfish reasons for his rise to the top, Dalio consistently kept his loved ones and employees at the back of his mind because he knew that he would not be where he is today without them. At the end of the day, the important thing is to fight the barrier of self-doubt and keep going even if there is a possibility of failure.
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