Born in 1949 in New York City, billionaire investor Ray Dalio is the founder and co-chair of Bridgewater Associates: looking after $160 billion worth of investments, both the world’s largest hedge fund and one of its most successful. The son of a jazz musician, Dalio early on exhibited greater monetary than musical chops. At the tender age of 12, he started working as a caddie on a golf course where a lot of the people often discussed stock trading. Inspired by this, he splashed his $300 savings on shares of Northeast Airlines, a now-defunct regional carrier. His investment eventually tripled when control of Northeast was acquired by legendary aviation mogul Howard Hughes. Dalio was clearly onto something... ✨

After graduating from Harvard Business School, Dalio did stints at the New York Stock Exchange and several investment banks before founding Bridgewater in 1975 out of his Manhattan apartment. Dalio’s experience trading currencies and commodities led to him focusing Bridgewater on “global macro” investment: investing in a wide range of assets globally and trying to make money from broad macroeconomic and political trends.

In August 2007, Dalio made headlines with his predictions that the world was on the brink of financial crisis. He was soon proven right – and while most of his peers hemorrhaged money in the subsequent years, Bridgewater managed to turn a profit. In fact, Dalio’s money-making prowess is nothing short of phenomenal: since the firm’s inception, Bridgewater has made over $50 billion in net investment profits, more than any other hedge fund in the world.

So what’s behind this remarkable success? There are many reasons, but foremost among them is Dalio’s strict adherence to a set of principles he’s developed over the years. He has shared many of these through speeches, memos – and in 2017, a 600-page bestseller called Principles.

Above all, Dalio believes that cause-and-effect relationships exist almost everywhere – and that if you can figure them out, there’s money to be made. When investing in commodities like soybeans and corn, for example, Dalio would forecast demand by looking at how many cattle, chicken, and hogs were being fed and how much grain they ate: one of the “causes” in the cause-effect dyad (big shout out to Star Wars IX). To estimate supply, he’d look at how much soybean and corn acreage was being planted and how rainfall affected their yields – another “cause”. Dalio would then reconcile these two causes to arrive at the “effect” – how grain prices were likely to move in the future – and use that to profitably trade soybeans and corn. 🌱

Another key principle is diversification, which Dalio views as the holy grail of investing. This is especially true when it comes to different asset classes – groups of similar assets such as stocks, bonds, real estate, and so on – that don’t move in the same way in a given economic environment. Specifically, Dalio believes 15 such “uncorrelated” investments can reduce a portfolio’s risk by 80% without sacrificing any significant return. Who said there’s no such thing as a free lunch?

Dalio’s investing is also guided by the principle that economies and financial markets experience long-term cycles – and that it pays to understand these. If this sounds rather daunting, then you’ll be pleased to hear that Dalio put together a short video explaining how these cycles work. For now, suffice to say that the economy undergoes protracted expansion (e.g. after the 2008 financial crisis), contraction (e.g. during the Great Depression), and long-term trends when it comes to inflation – the rate at which the prices of goods and services increase. These different environments have different impacts on different asset classes – and Dalio thinks riding those long-term waves beats constantly trying to time the market.

He’s also an advocate for being radically open-minded. That means trying to avoid having any biases – and to accept when you’re wrong. No one knows this better than Dalio: in the early 1980s, he lost almost everything betting that the economy was about to head south, even testifying in Congress and on TV to that effect. When meltdown failed to materialize, the resulting losses forced Dalio to dismiss all his employees as he could no longer afford to pay them…

While Ray Dalio has a whole host of other principles, the ones above are some of his most important when it comes to investing. Creating a portfolio meant to perform well in all economic environments – and walking through how you can construct something similar – is exactly what Dalio set out to do. ⛳

The takeaway: Ray Dalio is a successful investor who sticks to a series of investment principles, including cause and effect relationships, riding long-term trends, diversification, and being radically open-minded.