Among the 100 wealthiest investors in the world, Ray Dalio
cuts an iconic figure in the sometimes cookie-cutter arena of
hedge funds and finance.
Not only does he manage the world's biggesthedge fund ,
Bridgewater Associates, with approximately $140 billion under
management, he is also a big-game bow hunter, meditation
practitioner, and firm believer in radical honesty. Dalio didn't
earn his $12 billionnet worth by following anyone but himself.
All investors can learn valuable lessons from this one-of-a-kind
Ray Dalio's Biography
Dalio wasn't born with a silver spoon and was far from a gifted
student, but he learned from an early age to work for what he
wanted. The son of a jazz musician and a stay-at-home mom, he
knew he wanted spendingmoney . His first jobs were the mundane
employment of many suburban youths: He ran a paper route,
shoveled snow, and washed dishes in a restaurant.
When he was 12 years old, his life took a turn that would
place him on the road to vast wealth: He started working as a
golf caddy. Carrying the clubs of businessmen from hole to hole,
he overheard much talk about thestock market andinvesting .
Acting on his curiosity, he purchased his firstshares of stock.
He chose Northeast Airlines because it was the only one he found
selling for less than $5 a share. Fortunately for Dalio, the
company received abuyout offer resulting in his shares tripling.
He was quickly hooked on the market, and the rest is history.
His attraction to the market led to attending Harvard Business
School. During his summers at Harvard, Dalio traded commodities
while landing a job as an assistant to Merrill Lynch's director
of commodities. Next, he worked onWall Street for two years and
in 1975 launched Bridgewater from his New York City
Ray Dalio'sInvestment Strategy And Big Wins
Dalio is a macro investor who adheres to a strict sense of
ethical ideas that create the bedrock for his investing and the
way Bridgewater is operated. He lays out these principles in a
treatise titled, appropriately, "Principles," a 123-page
manifesto that is required reading for all Bridgewater
Boiled down to its essence, "Principles" teaches readers that
they should always think for themselves and that "Truth, more
precisely an accurate understanding of reality is the essential
foundation for producing good results." In other words,
understanding reality for what it is, not what you think or wish
it is, is the fundamental core for living a successful life.
Dalio shared specific investment strategy at the Bloomberg
Markets 50 Summit in 2011. He emphasized that when building a
portfolio, the ideal number of uncorrelated return streams is 15.
Dalio believes that at exactly 15 uncorrelatedinvestments , an
investor's riskfactor is reduced by 80%.
In addition, he likes to balance his portfolio
betweeninflation risk and growth. He observes data through the
prism of knowing the economic environment. All potential
environments are illustrated in this diagram from
The ideal portfolio is one that does not rely on predicting
deflationary shifts yet provides balance. The explanatory report
from Bridgewater'sAll Weather fund puts this idea is a practical
"Bonds will perform best during times of
disinflationaryrecession ,stocks will perform best during periods
of growth, andcash will be the most attractive when money is
tight. Translation: Allasset classes have environmental biases.
They do well in certain environments and poorly in others. As a
result, owning the traditional equity-heavy portfolio is akin to
taking a huge bet on stocks and, at a more fundamental level,
that growth will be above expectations."
Dalio said it best in an interview from Davos with
"I think the important thing here if I'm an investor is that
the most important thing you can have is a goodstrategic asset
In other words, you're not going to win by trying to get what
the next tip is -- what's going to be good and what's going to be
bad. You're definitely going to lose. So, what the investor needs
to do is have a balanced,structured portfolio -- a portfolio that
does well in different environments."
In other words,diversification within a balanced structured
portfolio is the key to Dalio's investing success. What I find
most useful is his saying that despite all its researchers and
market experts and spending hundreds of millions of dollars,
Bridgewater doesn't know what's going to win and what's going to
lose -- which is why the firm makes alot of diversified bets.
Dalio isn't aspeculator who has singular big wins or losses.
He makes many diversified bets rather than a handful of all-in
Ray Dalio's Portfolio: What's He Holding Now?
As a macro-orientedfund , Bridgewater has more than 90% of its
ofemerging markets and the S&P 500index . This breaks down to
33% allocated to
Vanguard MSCI Emerging MarketsETF (
, 30% in the
SPDR S&P 500 ETF Trust (
, and 28% in the
iShares Trust (
. The most recent stock additions include
Boston Properties (
Expeditors International of Washington (Nasdaq:
Action to Take -->
Every investor should take the time to read Ray Dalio's
"Principles." This manual provides a powerful case for his
philosophy and worldview. Regardless of whether you agree or
disagree with his overall ideas, there are nuggets of wisdom that
can help provide true understanding. In addition,note Dalio's
insistence on the need for diversification within an investment
portfolio. He obtains this diversification through ETFs built
upon his macro outlook of theeconomy .
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