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- Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world’s largest hedge fund, with about $150 billion in assets under management.
- Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success."
- Fundamental to his lessons are transparency and a willingness to codify lessons learned from making mistakes.
- Visit Business Insider’s homepage for more stories.
For the past couple years, Ray Dalio’s life has been in transition.
He still spends most of his time as the co-CIO of Bridgewater Associates, the hedge fund he founded and built into the largest in the world, but he’s also focused on passing on what he’s learned.
Dalio stepped back from office management in 2017 and published his first book, "Principles: Life and Work," later that year. He’ll be publishing his core investment principles in the next year or so, but his unique life philosophy is core to everything he’s done at Bridgewater.
In a recent episode of Business Insider’s podcast "This Is Success," Dalio took us through key career moments since founding Bridgewater in 1975, and what universal lesson he pulled from each. You can find that episode and those lessons below.
Hitting rock bottom in 1982 resulted in a change from focusing on what he knows to focusing on what he doesn’t know.
TED
Dalio built a name for himself shortly after founding Bridgewater out of his apartment in 1975.
In 1982, he attracted attention for a call he made two years earlier. He had the unpopular opinion that American banks were lending too much to emerging Latin American countries, but was proven right when Mexico’s president announced the country could not pay back its $80 billion in debt, $20 million to $30 million of which was owed to the US’s largest banks.
Now that he looked like he knew what he was talking about, analysts — and even the US Congress — turned to him for insights as to what would happen next. He was unequivocal: The US economy was headed for a massive downturn.
Except that the Federal Reserve cut the discount rate, and the stock market went up — and kept going up for years, marking one of the great bull markets in American history. Not only was Dalio wrong, but the exact opposite of what he staked everything on happened.
"As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go, and I was so broke I had to borrow $4,000 from my dad to help pay for family bills," Dalio said.
As he recovered, he realized that he didn’t want to stop taking risks, but needed to do so with more humility, and with a new focus. "It made me be much more open-minded, to diversify better, to deal with my not knowing," he said. "Whatever success I’ve had in my life has been due more to my knowing how to deal with what I don’t know than because of anything I know."
An employee’s mistake taught Dalio to track what does and doesn’t work.
Bridgewater Associates via TED
One time in the early ’90s, Dalio’s head of trading at the time, Ross Waller, forgot to put in a trade — and the mistake cost what Dalio remembers as "several hundred thousand dollars."
He didn’t fire Waller (Waller didn’t leave until 2004 and has had a long and successful career). Instead, Dalio used the occasion to implement a new approach at Bridgewater.
"I put into place an error log, which we now call an ‘issue log,’ in which everybody in the company has to write down whenever anything goes wrong so that they bring it to the surface and we learn from it," he said.
It was the first time Dalio created a management tool, and that one would grow into many. Today at Bridgewater, employees have "baseball cards" that track their skills and performance and make it visible to all, and they use the "Dots" iPad app as a real-time forum for commentary during a meeting.
The experience with Waller proved to Dalio that not only should people be given second chances after making mistakes, but that these mistakes can be capitalized on for determining new ways to reinforce desired performance.
A tough conversation with his leadership team taught him about how "radical transparency" can improve relationships when used correctly.
Neil A. Landino, Jr.
By 1993, Dalio was convinced that unfiltered truth would keep Bridgewater running smoothly. Except not everyone was in full agreement.
One day that winter, three senior executives, including co-CIO Bob Prince, asked Dalio for a meeting and sent him a memo ahead of it. The letter said that while Dalio was great at his job and cared about his team, he was, essentially, acting like a jerk. They said his words and behavior made employees feel "incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, or otherwise bad."
Dalio was upset, and he searched for a compromise between the poles he had set for himself: either we’re honest with each other or happy. He decided that "radical transparency," as he called it, was crucial for Bridgewater, but that boundaries and expectations had to be set.
"When you’re not getting along with somebody or you’re having a disagreement, stop, put that aside for a moment, go to a higher level, and then say, ‘How should we be with each other? What are our ground rules for operating, and why?’" Dalio told us. "Then go back into your disagreement, and follow those protocols about how you should be with each other."
See the rest of the story at Business Insider
See Also:
- Ray Dalio shares what he’s learned from his succession plan at the world’s largest hedge fund
- ‘Pain is a great teacher’: How Ray Dalio, the world’s most successful (and mysterious) hedge-fund founder, came back from financial ruin
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Source: Business Insider – rfeloni@businessinsider.com (Richard Feloni)