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Ray Dalio is one of the most successful traders of all time. He grew up in a middle-class family on Long Island and started working when he was 12. He earned money from tips while he was a golf caddy. The turning point for him is that most of these golfers worked on Wall Street, and so he became interested in the market. He worked for many Wall Street professionals during his time there, including Wall Street veteran George Leib. Leib and his wife, Isabel, invited Dalio to their Park Avenue apartment for family dinners and holiday gatherings. The couple’s son, a Wall Street trader, later gave Dalio a summer job at his trading firm. He began investing at the age of 12 when he bought $300 worth of Northeast Airlines stock and tripled his investment after the airline merged with another company. By the time he reaches high school, he has amassed an investment portfolio of several thousand dollars.
In 1975, he earned an MBA from Harvard Business School, shortly after leaving Harvard, he took his first Wall Street position at Shearson Hayden Stone, where he worked in agricultural commodity futures, providing guidance to ranchers on how to hedge against the risks to their business. On New Year’s Eve in 1974, after a row, he punched his superior in the face. After his subsequent departure from Shearson, Dalio persuaded some of the agricultural clients to hire him as a consultant, and thus started Bridgewater – initially his company did not even have an office and he worked from the family home in New York. The company thrived in the 1980s era and in 2011 became the largest hedge fund in the world. Bridgewater currently manages over $130 billion in assets.
Another exciting story is that he predicted the global financial crisis in 2007. He explains the same in his essay “How the Economic Machine Works: A Template for Understanding What’s Happening Now”. Apart from the essay, his book “Principles” is also popular among traders and investors. He also draws on his experience of introspection and corporate experience.
Ray Dalio often sees prices rise on bad news and fall on good news in the forex market. Based on his view, the critical question is not what the number of economic news will be, but what is expected. For example, the US GDP number may be better than expected in the economic data, but the future forecasts in the GDP report may be very poor and therefore the price of the USD will fall after the announcement.
The Ray Dalio Principles
Dalio runs his business based on a set of principles that he wrote down and which he strongly believes everyone should write down and use in their own decision-making processes. Recognizing the causal relationships underlying complex realities is key to success, and unlocking these relationships is the most effective way to guide trading and investing decisions. Specifically, Dalio attributes Bridgewater’s success to his adherence to the following principles:
- It is extremely important to consistently learn from life’s lessons, adapting to new realities and increasing the ability to manage reality.
- The world – and markets – work like a machine, even the most complex realities are the result of cause and effect relationships.
- History tends to repeat itself. Although there may be variations, a careful study of the cause-and-effect relationships underlying past phenomena makes it possible to understand ongoing processes and develop strategies to respond to them.
- Success depends on the adoption of specific principles, testing them and sticking to them.
- Working together with others and establishing a positive group culture is another key to achieving goals.
- Addressing knowledge gaps is even more important than the use of knowledge.
Ray Dalio believes in sharing his success story with other traders and investors. He has also donated more than $700 million to various philanthropic movements. His Dalio Foundation supports education, nature conservation and microfinance.
Head of Trading Dimitar Kalapov