Ray Dalio: The principles that made me a billionaire

**Ray Dalio** (0:00)
You want to be successful? Here's the mantra for investing.

**Sam Parr** (0:03)
I got my pen.

**Ray Dalio** (0:03)
The most fundamental question is, how do I have the upside without having the downside? That approach was the basis of Bridgewater, going from having to borrow $4,000 from my dad to the largest hedge fund, most successful hedge fund in the world. I created personality tests. I gave it to Elon Musk, I gave it to Bill Gates, I gave it to Rick Hastings. Maybe I should probably not tell stories, but...

**Sam Parr** (0:27)
No, no, no, that's what we do here.

**Shaan Puri** (0:29)
You don't have to make it to the top to be happy.

**Ray Dalio** (0:30)
What's the top? There's no correlation between the level of happiness in your life and the amount of money that you made. So you have to have a purpose. What do you want to do with the money that is so important? You better answer that question.

**Shaan Puri** (0:52)
You were, in some regard, a little bit of a late bloomer in terms of traditional metrics of success.

**Ray Dalio** (0:57)
Oh, yeah.

**Shaan Puri** (0:58)
I think you were 34, 35 You had like two kids, I think. You had just laid off the five employees that you had had. And you're like, look, dad, I've lost it all. Can you like close your eyes and like remember that conversation?

**Ray Dalio** (1:11)
So I started Bridgewater in 1975 and in 1981 and 82, interest rates were not the emerging countries had a lot of debt. And I calculated that those countries were not going to be able to pay their debts and they were going to have big debt crisis. And that was a very controversial point of view. And then Mexico defaulted in August of 1982
So I was asked to testify to Congress about what this is all about and what might happen to the economy. I thought the economy was going to be a disaster. I couldn't have been more wrong. Okay. So I lost money for me, I lost money for my clients, and I had to lay off everybody. I was so broke, I had to borrow $4,000 from my dad. So then my choice was, am I going to put on a suit and tie, go in, commute, and work for somebody in that capacity? And I knew that I wasn't very good at working for people. Now, that was painful. That changed everything in my life. That created the bottom at Bridgewater, and that just kept going up because of what I learned. I learned two things. First of all, I learned humility to balance my audacity, okay? I didn't have much humility. I'd say, I'm right, I'm going to be right, and all that. And then I learned how to diversify my bets and substantially reduce my risk without reducing my returns because I didn't want to have reduced the upside. I knew that I had to reduce the downside.
And so, I really learned and taught myself really my mantra. Okay, here's the mantra for investing. You want to be successful?
This will, this is the holy grail of investing. Find 15 good uncorrelated return streams.

**Shaan Puri** (3:10)
How did you come up with 15?

**Ray Dalio** (3:11)
Well, I just looked at the math of it, okay? So in other words, what are the marginal benefits of diversification given the different levels of correlation? And I have that on a chart that keeps reminding me, okay? If you can get out to 15, you can get down to about, reduce about 80 percent of your risk without reducing your return. That means that you increase your return to risk ratio by something like a factor of five, okay? In other words, wow. So that means you can get the upside without having the downside, okay? And then humility, you know? I wanted people to kick the shit out of whatever I thought to try to do that and then have that. And that change in that approach was the basis of Bridgewater going from having to borrow $4,000 from my dad to the largest hedge fund, most successful hedge fund in the world.

**Sam Parr** (4:15)
If we wanted to be better investors, what do you think the most common mistake smart guys can make when it comes to investing?

**Ray Dalio** (4:23)
They don't have a game plan.

**Sam Parr** (4:24)
So what's a good game plan look like? How do you know if you have a good game plan?

**Ray Dalio** (4:27)
Well, the way that I did it was every time I would make a decision, but this is the building of all principles I did, but particularly in the markets, every time I would make a decision, I would go back and study if I made that decision, because of these circumstances, how would it have worked in the past?