Ray Dalio founded Bridgewater in 1975 from his two-bedroom apartment and grew it over 47 years into the global institution it is today. Over those years, Ray has been Bridgewater’s CEO, CIO, and Chairman, shaping the firm’s innovative approaches to investing and its unique culture. He stepped down from being CEO in 2017, as Chairman at the end of 2021, and in the summer of 2020 he transitioned his CIO role to focus on mentoring the Investment Committee (led by Bob Prince, Greg Jensen, and several other key investors and asset class leads) which is responsible for the oversight and evolution of Bridgewater’s investment strategies. With the completion of the transition, in September of 2022, he now serves Bridgewater as a mentor to the CIOs and Investment Committee, a member of the Operating Board, and as a senior investor, which he plans to do for the rest of his life.
Here we tell the story of Ray's life and career journey, from first becoming an investor, then starting and building Bridgewater, to now being in a new phase of his life in which he is turning the firm over to the next generation of leaders and passing along the principles he learned to help others succeed.
Ray’s Life Journey
Ray grew up an ordinary kid in a middle-class Long Island neighborhood, his father a jazz musician and mother a homemaker. He got hooked on investing at age 12 when caddying at a local golf course at a time when the market was hot and everyone was talking about stocks. He saved up his caddying money to buy his first stock, Northeast Airlines, describing this first investment as "the only company that I ever heard of that was selling for less than $5 a share. This was a stupid rationale of course, but I got lucky as the company was nearing bankruptcy but got bought out, which led it to triple.” That experience set Ray on a path to become one of the most successful investors of his time1.
In high school he had no interest in studying but continued to have a passion for "playing the markets." He barely got into CW Post college but, because he was able to pursue his passion and major in finance, he graduated at the top of his class. In 1969, he learned the practice of Transcendental Meditation, to which he attributes much of his success. After graduating college in 1971, he went directly to Harvard Business School where he received an MBA in 1973. After short stints with two Wall Street firms, he started Bridgewater in 1975 out of his two-bedroom apartment in New York City.
In Bridgewater's early days, Ray helped institutional investors by both consulting and actively managing their exposures, largely in the commodities and futures markets. He also shared his investment thinking in daily research commentary called “Bridgewater Daily Observations” that were sent to clients via Telex. In time, the quality of this research attracted Bridgewater’s first institutional fund to manage directly: a $5 million account from the World Bank in 1985. Many institutional investors followed. Today the Daily Observations remains one of the most highly sought-after market commentaries by investors and policymakers across the globe.
Under Ray's leadership, Bridgewater eventually became the largest hedge fund in the world, making more money for its clients than any other hedge fund1. These results were due to Bridgewater’s innovative ways of investing and its unique culture. The firm’s compelling investment approaches prompted Chief Investment Officer magazine in 2011 to compare Ray to Steve Jobs in an article entitled, “Is Ray Dalio the Steve Jobs of Investing?”, and he was named by TIME magazine as one of 2012’s “100 Most Influential People in the World” because of the impact his thinking has had on global macroeconomic policies. In 2016 Fortune Magazine called Bridgewater the fifth “most important private company in the US.”
In 2017, when Ray stepped down as CEO, his primary goal shifted to helping others be successful by mentoring them and by passing along the principles and tools that had helped him succeed. He has shared his principles in books, videos, and digital apps that have been read or viewed by more than 150 million people worldwide. A complete list of his publications and multimedia offerings are available at www.principles.com.
Ray is now in the process of writing a final book to pass along his economic and investment principles.
While some have attributed Bridgewater’s success to Ray’s unusual way of thinking, he credits it not to something unique about him personally but to his stumbling upon a principled approach that anyone can follow. This approach produces rapid gains in understanding how reality works and helps with developing principles for dealing with it well. Below is a brief summary of his approach:
- Life is a journey to learn about your own nature and find the right paths that are consistent with it.
- While on this journey, you will constantly encounter realities that can teach you and help you evolve your ability to deal with reality well. Doing this effectively is the key to living up to your potential.
- Reality works like a machine with everything we encounter being the result of cause-effect relationships.
- Because most everything happens repeatedly in slightly varied versions, by studying many cases of something, you can understand the cause-effect relationships behind how it works and come up with principles for dealing with it well.
- Being explicit about your principles and stress-testing them improves your decision making and likelihood of success.
- In order to be successful, you need to work well with others. The most important determinant of the success of a group of people is its culture.
- Having both meaningful work and meaningful relationships is the most effective way of having a successful culture and highly rewarding in and of itself.
- How you deal with what you don't know is much more important than what you know.
For a more comprehensive overview of this approach and many other principles Ray has shared, see the books and animated videos mentioned above.
The Impact of Principles in Shaping Bridgewater
The impact of this approach is apparent in how Ray built both Bridgewater’s investment systems and its company culture.
Ray built Bridgewater’s investment approach around achieving a timeless and universal understanding of how economies and markets work and developing principles for dealing with them well. Since the same things happen over and over again for basically the same reasons, he studies as many cases as possible in developing his principles. Doing this well generally requires understanding, and successfully simulating, all the major countries’ markets over at least the last 100 years, or for as long as they existed. That is because if something big happened before, it might happen again, and the only way to know if things will be different in the future is to know why they were different in the past.
The investment principles are then expressed into algorithms that are back-tested through many cases and turned into computerized decision-making systems that work together with human decision-making to decide which positions to hold. This approach is also innovative in that it involves investing in liquid stock, bond, currency, and commodity markets across the world, has been designed to be unbiased to the environment (i.e., to perform equally well in bull and bear markets), and can be tailored to meet each clients’ specific return and risk preferences. The process is designed to produce the highest level of return given the desired level of risk, not the highest possible level of return. Risk management is of paramount importance because it only takes one really bad period to knock an investor out of the game.
It is because of this approach that Ray and Bridgewater have been industry leaders and innovators for nearly five decades. Over the decades, Ray has been an industry pioneer with inventions such as separating alpha and beta and engineering them into return streams that can be combined and reengineered to achieve different levels of expected risks based on client objectives and the "All Weather/risk parity" approach that has been adopted across the investment industry. Ray also created the "Pure Alpha" approach to building portfolios of uncorrelated alphas, and currency overlay and active inflation-indexed bond investment management.
In shaping Bridgewater's culture, Ray set out to create “an idea meritocracy in which meaningful work and meaningful relationships are the goals, and radical truthfulness and radical transparency are the ways of achieving the goals.” By “idea meritocracy,” he means a culture in which the best ideas win out regardless of where they come from and without regard to hierarchy. By “meaningful work,” he means work that those doing it consider important so they feel that they are on a mission to produce greatness together. And by “meaningful relationships,” he means that there is mutual caring and consideration among the team.
Ray believes that these goals are best achieved through radical truthfulness so that there are no misunderstandings. Radical truthfulness also creates trust because there are no hidden criticisms or agendas. He believes that radical transparency helps to foster radical truthfulness because letting people see for themselves what is happening prevents spin and office politics. This approach is described in his TED Talk and explained more thoroughly in his book, Principles: Life and Work.
Most importantly, Ray built an organization of people that at first were helping him on his mission, then became his partners, and have now taken over the leadership themselves to operate in these ways and improve on them.