Squawk on the Street+ Ray Dalio 09/28/23

SPEAKER_1 (0:00)

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Sara Eisen (0:31)

Good evening, everyone, and welcome. I'm honored to be here and to be talking to Ray, who I'm excited for this conversation.

Obviously, now he said all the great highlights, but it started in a two-bedroom apartment, really, which I think we should go back to and hear about some of the highlights, and grew into the biggest and most successful hedge fund in history, and changed the way investors do their job. It shaped investments like risk parity and alpha overlay. There's too many things to talk about, Ray, but take us back to the story of how you began, and what some of the key milestones as you think about a lifetime achievement award along the way.

Ray Dalio (1:12)

Well, I'm so glad you're asking because of my relationship with MFA.

So, I started trading futures in 1968 I would say something like 15 years, that's all I could do. It allowed me, there were so many markets.

The only reason I got into futures and what we might call the hedge fund business is because it had low margin requirements and I could trade almost anything. So, it was part of the process of watching it go from agricultural futures to financial futures and all of that. And the MFA was always so important in that. And so, the reason I'm here today more than anything is because of the warm feelings that I have for the MFA in that industry. But anyway, as you say, when I was a kid, I started to, I got hooked on markets when I was 12

When I caddied, I caddied, I earned odd jobs. And the stock market was hot at the time and I would talk to people I caddied with and then I'd put my money in the markets. You know, I'd save up 50 bucks and I'd put my money in the markets. And I remember the first stock I bought, the only criteria I had was it was the only company I ever heard of that was selling for less than $5 a share. And I said, I could buy more shares so if it goes up, I'd make more money. Which was a dumb idea. It was a dumb idea. But that company which was about to go bankrupt got acquired and it tripled.

Sara Eisen (2:48)

What company?

Ray Dalio (2:49)

Northeast Airlines was the name of it, Northeast Airlines. And so it tripled and so I was hooked like the game. The game and then also you can make money of the game, which was great.

So anyway, I'll tell you a couple of stories.

Sara Eisen (3:06)

You adapted your investing style from there.

Ray Dalio (3:08)

Yeah, I probably would many other similar stupid moves. Anyway, so just to tell you, so after college, I graduated college in 1971 An important event for me was I was clerking on the floor of the New York Stock Exchange in 1971

And on August 15th, 1971, I followed markets. And on August 15th, 1971, President Nixon gets on the television and says we're going to default on our obligation to give you the gold for the money. And so I found, wow, that's unbelievable. So I went back on Monday morning and I thought the stock market was going to go down a lot and the stock market went up a lot. And I didn't understand why because it was the first evaluation that I had gone through. And then I went back and studied history and I found that in March 5th, 1933, Roosevelt did the exact same thing.

And I understood the mechanics of why. And I learned an important lesson then about being wrong. We'll get into some of the other mistakes.

But I learned, and it's very relevant for today, that many of the most important things that surprised me, surprised me because they didn't happen in my lifetime before, but they happened many times in history. So studying that period, for example, allowed me and Bridgewater to anticipate the 2008 financial crisis, because the exact same thing happened. Interest rates hit zero, they have a debt crisis. How do you deal with that? You print a lot of money and you buy it. That whole dynamic I wouldn't have understood. So anyway, I'm giving you a long-winded view, but that's a quick cut through.