Ray Dalio runs the world’s biggest hedge fund firm and has a net worth that Forbes estimates at $15.6 billion. But he calls himself “a professional mistake maker.” That attitude may be the key to his immense success.
Ray Dalio, founder of hedge fund firm Bridgewater Associates. (Photo by Astrid Stawiarz/Getty Images... [+]
Dalio shared his views about mistakes, learning, success, philanthropy and more in a candid discussion with Harvard University psychology professor Robert Kegan at the Milken Institute Global Conference in Beverly Hills on Monday. Kegan spent a week at Dalio’s hedge fund firm and wrote a chapter about it for his book. In the discussion Monday, titled “Meaningful Work and Relationships Through Radical Truth and Transparency,” the conversation centered on the way Dalio has built the culture, operating process and employee development at Bridgewater Associates, his hedge fund firm, with the focus on airing disagreements as a way to reach investment decisions.
“Can we be straight with each other? Can we work it through? That’s the essence of it,” Dalio said, describing his firm’s operating philosophy. “Would you like to know your weaknesses? Might you find it painful to find them? That’s what it’s about,” he added.
Dalio started Bridgewater Associates in a two-bedroom apartment in 1975. Today it employs 1,500 people and manages about $150 billion in assets. Dalio ranked 9th on Forbes 2016 list of Highest Earning Hedge Fund Managers & Traders, earning an estimated $500 million in 2015. His funds delivered a mixed performance last year.
Some tidbits from the conversation:
On Disagreement:
Dalio has written down his ideas in something called “The Principles,” available for download on the Bridgewater website. Kegan noted in the discussion that it has been downloaded 2 million times.
Disagreement is a routine matter at Bridgewater. “In order to be successful in markets ... you need to have a view that’s different from others … but there’s a high probability that you’re wrong, so you need to thrash it out.” Thrashing out differences of opinion can be painful, Dalio admitted. One of his principles is “Pain Plus Reflection Equals Progress.” Elaborating, Dalio said: “Pain probably indicates something is wrong. I found my best learnings came from painful experiences.” That’s because he is always trying to learn from them.
On Mistakes:
Dalio said he’s made plenty of mistakes. “I’m a professional mistake maker. I’m lucky two-thirds of my trades are right.” Asked what his biggest mistake was, he recalled being on Wall Street Week in 1982 and calling the bottom of the stock market. Mexico did default on its debt in 1982 and then the Fed eased rates, Dalio recalled. He turned out to be wrong about the stock market’s reaction to so much debt being extended to Latin American countries.
“I learned that every time I made a mistake, I would write it down. What I was finding is … that instead of just making a decision, thinking about what are the criteria for making the decision. That helped me a lot. That helped others a lot. When the next one came along we had an agreed upon way of dealing with it.”
Harvard Professor Robert Kegan and hedge fund manager Ray Dalio at the Milken Global Conference,... [+]
On Success:
“Success comes from knowing what you don’t know, more than coming from what you do know,” Dalio said. “Nobody has all that’s needed to be successful. We need teams.” And the teams use something that Dalio calls “believability-weighted decision making.”
On Meditation:
Dalio said he's done transcendental meditation since 1969. "It is a means of centering yourself. It gives you equanimity. It means a lot to me," he said.
On Why Bridgewater Is Not A Cult:
Kegan noted that some people call Bridgewater a cult. Dalio’s response: “It’s the opposite of a cult,” Dalio said. “It’s independent thinking. Think of it as similar to a legal system. You can work yourself through that disagreement. It brings out the talents and weaknesses of people. People can have a path to success.”
On Wealth And Philanthropy:
“In terms of the money I think it’s a full cycle. I started with nothing ... dust to dust ... I don’t’ think giving my kids a lot of money is a good idea. The best thing I could give them is strength. Struggling gives you strength.”
Dalio signed the Bill Gates and Warren Buffett-backed Giving Pledge, a promise some super-rich have made to give away at least half of their wealth to charity. “I think that's [signing the Giving Pledge is being] a good role model.” And, Dalio, said that members of the Giving Pledge learn about philanthropy. “I also admire those two people [Gates and Buffett] a lot.”
On Why Dalio Decided To Talk At Milken Conference About How Things Work At Bridgewater:
“I’m 66 years old and I’ve learned some things that are valuable. And I think they are misunderstood. I learned some things I want to share.”
Follow me on Twitter at @KerryDolan
