Ray Dalio - Risk, Return, and Asset Allocation

Tano Santos (0:01)

Welcome to a new season of the Value Investing with Legends podcast. I'm your host, Tano Santos, the Robert Heilbrunn Professor of Asset Management and Finance at Columbia Business School and the Faculty Director at the Heilbrunn Center for Grand Ham and Door Investing.

I'm here with my co-host, Michael Mabusen, an Ajan Professor at Columbia Business School, and also a faculty member at the Heilbrunn Center. So Michael, how are you?

Michael Mabusen (0:24)

I'm doing great, Tano, and I have to say it was a real pleasure to be able to have the opportunity to sit through some of your block week with the Value Investing students late this summer. It was lots of fun to watch you in action and get all that material across.

Tano Santos (0:37)

So I taught my Modern Value class, which is the first course that the students from the program take before tackling all the classes in the Value Investing program. And it was wonderful to have you there. It was a little bit nerf-racking, I have to say, because you are the master in the classroom.

So don't think that it was without any stress whatsoever.

Michael Mabusen (0:56)

Well, you were fabulous and I learned a lot. So thank you for letting me sit in.

Tano Santos (1:00)

Thank you.

So we start a new season with one of those names that almost defines an entire era in investing. I have said before that the best investors have a model of how companies and markets work. These models are useful because they encode information and past experiences, but also because they allow learning and testing, even when informal.

Updating these models, testing and retesting in light of experience is an important feature of any good investment strategy. But I guess today is it a leak of his own when it comes to this. In fact, the scope of his ambition is breathtaking, even for an academic. In his latest book, he says, and I quote, I am on a mission to figure out how the world works and to gain timeless and universal principles for dealing with it well. It's both a passion and a necessity for me. Ray Dalio, founder of Bridgewater Associates, welcome to the Value Investing with Legends podcast.

Ray Dalio (1:54)

I'm so excited to be here.

Tano Santos (1:56)

Thank you so much. Ray Dalio needs no introduction, of course. He's the founder and now CI mentor of Bridgewater Associates, the largest head fund in the world. He's a New Yorker through and through. And like my wife, he grew up in Queens.

He graduated in finance from Long Island University in 1971 and earned an MBA degree from Harvard Business School in 1973 Early on in his career, he traded commodity futures. In fact, he worked as director of commodities in one of the venerable New York financial services firms, Dominic and Dominic, then to another of the old names in finance, Jershon Hyde and Stone, and finally founded Bridgewater in 1975

He's been married to his wife, Barbara, for more than 40 years, father, grandfather to five, grandchildren, noted philanthropist, and on top of that, a bestselling author of How the Economy Machine Works, Principles, Life and Work, Big Debt Crisis, and his most recent one that is going to feature prominently in our conversation, The Changing World. So, thank you again, Ray, for being here with us.

Ray Dalio (2:57)

Thank you for having me.

Tano Santos (2:58)

So we're going to start a little bit with your family background and what took you to finance. Your father was a noted musician, so we were curious about, you know, before we start talking about your career as an investor, tell us a little bit about your family background and how you became interested in finance and asset management.

Ray Dalio (3:13)

My dad was a jazz musician, and my mom was pretty much a stay-at-home mom, but I grew up doing errands, errands meaning jobs like I would had a paper route and I caddied. And when I was caddying in the 60s, the stock market was hot.

So I took my caddying money when I was 12, and I put it in the stock market. I mean, I didn't know what I was doing. The first stock I bought, the only reason I bought it was it was the only company that I heard of that was selling for less than $5 a share, and I figured I could buy more shares. So if it went up, I'd make more money. That was my dumb idea. But what happened was this company, which was about to go bankrupt, got acquired by some other company, it tripled in value. And so I got hooked.