Ray Dalio

“Don’t be a perfectionist, because perfectionists often spend too much time on little differences at the margins at the expense of other big, important things.
Be an effective imperfectionist.”

Early life

Raymond (Ray) Thomas Dalio was born on the 8th of August 1949 in New York City and grew up in Long Island. During his childhood, he had all kinds of jobs, because it meant earning money. He lived during the time of the Vietnam war but had an exemption due to hypoglycaemia.

He attended the Finance major at C.W. Post College of Long Island, which he graduated from in 1971. He then got into Harvard Business School where he received an MBA in 1973. In 1975, he launched Bridgewater Associates, the world’s largest hedge-fund.

In the 60´s, the US was peaking, and so was its stock market. Dalio caddied during this time, so he would hear comments in the golf course. He was just twelve when he took his caddying money and started buying stocks. With the help of the Fortune 500 reports, he started building a portfolio. Every time there was a fluctuation in the stock market, whether because of gold increasing in world markets, the first oil shock or the Watergate scandal, Dalio always studied and tried to understand why it was happening, which abled him to notice patterns.

Ray Dalio’s net worth is estimated to be 16.9 billion USD. In 2020, Bloomberg ranked him the world’s 79th wealthiest person. In the latest SEC filings, Bridgewater Associates has disclosed 430 total holdings and its value is calculated to be 8,314,872,000 USD.

Career

Before starting at Harvard, he worked as a clerk on the New York Stock Exchange. The next summer he got a job at Merrill Lynch, trading Commodity Futures. Dalio then worked as a broker for Dominick & Dominick LLC (now Dominick and Dickerman LLC), as a director of commodities. After that, Ray Dalio was employed by Shearson, where he managed the futures hedging business. He was fired after a year for punching his boss.

Due to Dalio´s exceptionalism, his thoughts and analysis have been requested by multiple seniors of the political, the economic, and the financial dimensions. Dalio has been asked to advise the leaders of several countries and institutions

during periods of economic uncertainty during crisis such as the European Sovereign Debt´s or the Sub-Prime´s. The company has grown as a result of Dalio’s genius and, as of today, it has $138 billion in assets under management.

Investment Strategy

Dalio employs a Global Macro investing strategy. Bridgewater was built through the anticipation on changes in currency exchange rates, commodity prices, inflation and GDP growth in the world’s economies. The best example of Ray Dalio´s seniority in the world of finance is the success of Bridgewater Associates that runs the two biggest individual funds in the world, Pure Alpha and All-Weather.

Bridgewater has had a rich history and, as so, it has employed many different investment strategy´s within Global Macro investing. These have ranged from the pioneering in Alpha overlay in the late 80´s and inflation-indexed bonds in the 90´s to the first implementation of Risk Parity investment, a strategy he calls “The Holy Grail of Investing”, with the All-weather Fund´s approach. All these strategies envision the optimal point of returns relative to risk. Alpha overlay builds actively managed portfolios to generate excess returns despite the underlying assets’ class. All-weather´s approach creates a portfolio that is ready for, according to Ray Dalio, the two biggest causes of volatility in the market, inflation and economic growth, thus guaranteeing returns in all market situations.

Best Investments

In the late 70´s McDonald’s had envisioned the “Chicken nugget” but was not willing to risk production, because of chicken meat´s price volatility. On the other hand, Lane Processing, the biggest American chicken producer, was not willing to sell its inventory at a fixed price due to the possibility of an increase in production cost. Dalio concluded that out of all the components on the production of a grown chicken, the most volatile component was the ration. Hence, he proposed Lane Processing a mix of Corn and Soy futures to guarantee stable production costs and McDonald’s agreed to start production. It’s worth noting the causal relationships that Dalio created between commodities, as these were the basis for his investment models. This isolated situation is insightful to his approach on investment as it mirrors many of his models and underlines the depth of his understanding on the inner functioning of the market.

In 1982, Hilda Ochoa, the World Bank´s Executive Director of Investments, entrusted the company with $5 000 000 worth of US Bonds. When the prevision was a decline in interest rates, the company would purchase 20-year Bonds, else cash would be the option. Although not the biggest responsibility, the company´s management was perfect. New investors appeared and within 8 years that account had increased to $180 000 000.

Worst Investments

Bridgewater´s worst misreading was in 1982. The US Banks had borrowed 250% of their capital to foreign countries. He only saw two possible outcomes: either the Federal Reserve accelerated inflation, or it created a deflationary depression. Dalio bought Treasury Bonds, and Gold Futures. The Federal Reserve started printing money on the 3rd quarter of 1982. Bridgewater´s mistake was to not consider the possibility of deflationary economic growth, due to the abundance of dollar on foreign debts that, once paid, created deflationary pressures on the US and created an opportunity to decrease interest rates without causing inflation. This error almost costed his entire career.

Philanthropy

Dalio is an active philanthropist. He created the Dalio Family Foundation, in 2003, with an initial capital of 11 million USD, but up until now, the Dalio family has given over 5 billion USD to the foundation. This money supports microfinance, ocean protection (OceanX), inner-city education, and other foundations or projects, such as polio eradication projects, the David Lynch Foundation, Fund for Teachers and Ted’s Audacious Project. In April 2011, Dalio and his wife joined Bill and Melinda Gates in The Giving Pledge, a commitment to give more than half of his wealth to charity.

This article is in our December Newsletter