Ray Dalio has been called “Wall Street’s Oddest Duck” for his highly unusual approach to management, but no one has ever questioned his brilliance.
He turned his company Bridgewater Associates into the world’s largest hedge fund, with $US160 billion in assets, and amassed a personal fortune estimated at around $US15.2 billion.
Dalio runs Bridgewater according to the theory of “radical transparency,” which means that all meetings and interviews are recorded and archived, and any level of employee is encouraged to criticise another if necessary. Every Bridgewater employee is given a copy of the 123-page manual he wrote on leadership.
It includes a section in which Dalio outlines the habits he believes took him from a lower-middle class childhood to one of the most powerful people in finance. We’ve summarized them below:
1. Working for himself and not just doing what others wanted him to do
Dalio writes that he hated school as a boy because he could not find practical applications for things he was forced to memorize. He decided that he wanted to be successful, requiring him to be motivated. And to be motivated, he had to work for himself.
He started delivering newspapers, mowing lawns, and caddying, and at the age of 12 he made his first investment in the stock market.
“All the work I ever did was just what I needed to do to get what I wanted. Since I always had the prerogative to not strive for what I wanted, I never felt forced to do anything,” Dalio writes.
2. Coming up with the best independent opinions he could to advance his goals
When he started investing as a kid, he began cutting out coupons from issues of Fortune magazine that could be mailed in for annual reports for Fortune 500 companies. He gathered as many as possible and took an amateur shot at figuring out the market.
It’s the same attitude he’s taken toward managing his employees. At this point, he’s used to Bridgewater being called cultish and weird, but he’s consistently responded by saying that the employees who work there naturally fit into the firm’s unique culture. And it’s certainly been working for them.
3. Surrounding himself with smart people and learning from the way they thought
Dalio says that as a novice investor, he started the habit of asking the opinion of anyone he deemed a somewhat savvy investor — his stockbroker, the people he caddied for, and even his barber.
“I never cared much about others’ conclusions — only for the reasoning that led to these conclusions,” he writes. “That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people.”
4. Being wary of overconfidence and limiting exposure to high-risk situations
Dalio has grown Bridgewater so tremendously because he lowers his risk as much as possible before making a decision.
“Sometimes when I know that I don’t know which way the coin is going to flip, I try to position myself so that it won’t have an impact on me either way. In other words, I don’t make an inadvertent bet. I try to limit my bets to the limited number of things I am confident in,” he writes.
5. Reflecting on how he made decisions and figuring out why they led to either success or failure
A major portion of Dalio’s manual is dedicated to decision-making and analysis of results. He says that learning to appreciate failure early on was very valuable for him:
I learned that each mistake was probably a reflection of something that I was (or others were) doing wrong, so if I could figure out what that was, I could learn how to be more effective. I learned that wrestling with my problems, mistakes, and weaknesses was the training that strengthened me. Also, I learned that it was the pain of this wrestling that made me and those around me appreciate our successes.