Ray Dalio Reveals How His Costliest Blunder Turned Into His Best Investing Lesson

Ray Dalio is a hedge fund manager who founded Bridgewater Associates, one of the world’s largest hedge funds.

A multi-billionaire, Dalio is known for his investing acumen. While growing up middle class, he used the money he earned from caddying at a local golf course to start his investing journey. He faced many setbacks, learning from each, with one major set back in 1982 that helped him learn the lessons he needed to succeed going forward.

Key Takeaways

• Ray Dalio is one of the top hedge fund managers in the world
• During his career, he has used his setbacks to learn and advance his career, saying “loss is a great teacher. I have a principle: pain plus reflection equals progress.”
• He advocates for a portfolio composed of fifteen good uncorrelated return streams.

Ray Dalio’s Big Mistake

Ray Dalio says that the biggest mistake in his career came in 1982, after he had founded Bridgewater Associates. That year, he predicted that the economy would enter a depression and positioned his firm’s investments based on that hunch.

Ultimately, he was incorrect, with the economy continuing to grow and not enter recession until 1990. This led to massive losses, both to his company and personally. He recounts having to borrow $4,000 from his father to pay the bills and laying off many employees.

What He Learned

Dalio says that his failures, including his mistake in 1982, were essential to his learning, helping him grow as an investor. His 1982 mistake helped him reframe his mode of thinking, shifting it from a blind confidence and thinking “I’m right” to a more questioning “how do I know I’m right” that helped him examine his beliefs and hunches more effectively.

He also learned that surrounding himself with people who think differently from him would be a major boon. By bringing other smart people into the room to disagree with him and stress-test his theories, Dalio could examine situations from multiple sides and be more likely to come to the right conclusions.

Dalios says this his failures were a large part of his learning how to build a strong portfolio. He advocates for finding fifteen good, uncorrelated return streams, claiming that it allows him to outperform the market while reducing risk significantly.

The Bottom Line

Learning from other people’s mistakes is one of the best ways to learn because it saves you from having to make those costly mistakes yourself. One of the most important lessons to learn from Dalio’s previous failures is to have a sense of open-mindedness.

It’s important to be confident in yourself, but don’t be afraid to consider others’ points of view. By seeing things from multiple sides you can get a clearer view of a situation. Rather than pushing away people who don’t think like you or that have differing view points, bring them in and collaborate so you can all become stronger together.