LEGENDS OF TRADING: THE STORY OF RAY DALIO
Ray Dalio is, amongst the most talked-about hedge, fund managers, in the world when. He speaks people, listen and, when he takes action others. Do too. His. Methods, have sometimes been criticized, but, more often they have been imitated. And spurred, on new approaches, to investing and, business, the way. He runs his company has, influenced, how other companies, are run - even, outside the, financial services, industry. Bridgewater. Associates. His company, has consistently. Been one of the largest hedge funds in the world, over. The decades Dalio has been in business he has stayed ahead of the curve truly. Understanding. And anticipating. The macro picture while, delivering consistently. Enviable, returns, for his investors. This. Is a man as shapes the direction, of an entire industry. This. Is his, story. Raymond. A Leo was born on August, 1st, 1949. In Jackson, Heights in Queens New York his, father was a jazz musician and his mother was a homemaker, Raymond. Was the only child, Ray. Had a very close relationship with, his mother who sadly died when he was just 19 years old his. Dad work, late hours which, meant that he didn't have a close relationship with him as a child, danio, describes him as a reasonable, man, dealing, with an unreasonable. Kid he, and his father did however, become close after his mother had died and he, admired his father's, strong character. Daniel. Described, himself as a curious, independent. Thinker as a child he. Was enthusiastic, and excited about. Visualizing, his goals, he. Would learn by taking a chance and failing, at things he. Says he used to strive for a lot and fail well and believes, that this is the key to success. He. Didn't enjoy school, as he wasn't interested, in the things that they were learning and found, it hard to remember facts, and follow instructions, but, he was curious about finding, out things for himself. He. Enjoyed playing baseball, and touch football with his friends, but his mum would encourage him to study before playing outside although, he would never be interested in this, however. When, Dalio was excited. About something nothing. Could hold him back and he would give it his full determination. He. Had a newspaper, round at age 8 and many, other paid jobs. He. Was struggled to do the jobs at home like chores and things that his parents asked him to do but, outside of home he was really keen to do them because it meant earning money he, learnt a lot through his outside jobs. Daniel. Began his experience, with investments, when he was 12 years old when he began caddying, our golf club it, was an exclusive Golf, Club where many of the customers, were men that worked on Wall Street he. Was here everyone, talking about the stock market because it was doing so well at the time and people were making a lot of money. He. Would pick up tips while he was working. He. Then saved up his wages and used three hundred dollars to buy shares in Northeast. Airlines he. Chose this stock because it was the only company he has heard of with on the $5, per share he. Got very lucky with this trade as he managed to triple his money but, this got him hooked, he. Thought trading, in the stock markets, was easy because of this and a way to make easy money. After. His first experience, he, started collecting coupons, for free annual reports, from fortune 500, companies, and he read all of them this, was the start of him building his investment, library he. Believes to be a successful, trader or entrepreneur, he needs to accept being painfully. Wrong a lot of the time but, needs to look at things through the eyes of others to learn more he, speaks a lot about this in his writing, about his principles. And the concept, is something that has followed his entire life. Dalio. Continued, with the stocks while at high school and managed to build up thousands, of dollars in. The meantime he, would be bunking off school of his friends Dalio, says he always loved being around other people and going out with friends and still, does but, is still an independent, thinker. Between. 1967. And 1969. They, were big and unexpected. Price declines. He. Learnt a lot through this because he realized the future, is not necessarily, what you expect. He. Didn't realize this at the start of 1967. Though so, he started buying more stocks even though they were going down and then lost a lot of money until, he realized, what was going wrong. Due. To not taking much interest, in school valios, grades suffered, in high school and he didn't make the grades he needed to get into college so, he only got in on probation, instead. But. College was a very different story to high school he, loved it because he could learn about subjects, he was actually interested. In and he enjoyed the freedom that came from living away from home it. Was also in college that he took up Transcendental.
Meditation Which. He still does to this day he. Says it helped him a lot through his life to, keep him thinking clearly and he attributes, a lot of his success to this you, often him praise the benefits, of Transcendental. Meditation, in his interviews, or in, his writing. While. At college, Dahlia also learns about commodity, futures, from an older classmate, these, were attractive to him because it meant that he could trade with low margin, requirements, so, he could leverage the amount of money he had to invest and therefore, potentially make, more money back. Then commodities, futures, were things like corn, and soybeans and, the cultural, products this. Is what he began to learn about, he, majored in finance and got, accepted to Harvard, Business School. Before. Starting, at harvard's ray took a job on the floor of the New York Stock Exchange in the summer he, spent this time learning about the currency market, and the cause-effect, relationship. Of the price movements, including how, people reacted, to different, news. The. Following summer while everyone, else was interested, in currencies, and stocks he, then got a job at Merrill Lynch trade, in commodities futures. As this was what he was really interested in. While. He was working some, of the currency markets crashed and from, this he learned that when everyone, thinks the same thing and bets, on that same thing is usually, going to affect the price and you shouldn't bet on it most. Things have happened before because, of cause-effect, relationships. So, everything, can be logical, if you approach it in the right way these. Sorts of experiences, really. Shaped the way he built his approach to investing, and trading after. This stock, trading stop being so popular and commodities. Trading was back in fashion again because. Of danios experience, in this and his MBA from Harvard, Daniel, was highly sought after he. Ended up working for a brokerage firm called, Dominic and Dominic, as director. Of commodities, setting. Up a commodities, division, for them whilst. Working for the company he still worked on his own investment, accounts, and continued to learn a lot through his losing, trades he, especially learned a lot about risk control. He. Says in trading. You have to be defensive and aggressive at, the same time if you, are not aggressive, you are not going to make money and if you are not defensive you, are not going to keep money he. Went on to leave Dominic, and Dominic for a more successful firm, which was called Shearson, he. Was in charge of the futures hedging, business he, was helped quire's to manage price risks, in their business by using futures, which, also allowed him to learn a lot about grain, and livestock he. Spent a lot of his time in Texas, and got to know all the cattle producers, and grain growers very well he, said he built a second, life with them. However. He, was only as sure 'some for a year until he was fired for punching, his boss in the face he, says he was too wild to work there everyone. In the company and all the associates, really, liked Dalio, and trusted, his information, and advice so. Because of this he, decided to set up his own firm. Dalio. Set up Bridgewater, associates, in 1975. He, did this from his two-bedroom, apartment. The, name Bridgewater came because they had initially attempted, to sell commodities from the u.s. to other countries, therefore. They were bridging, the waters however. It then moved on to become more of a consultancy, firm. Essentially. He would put himself in the shoes of his clients, and tell, them what he would do if he was them looking, at their accounts, and breaking down the financial, or market, risks and how to manage these for. Example in 1977. He made a trip to the USSR.
As A combined, business trip and a honeymoon with his wife as the, Russians needed advice on commodities. It. Was during this time that he began writing his models, or principles, behind the decisions, that he was making it, was, also where he took his belief in cause-effect. Relationships. A step further, when. He was learning about quantities, such as grain he, would learn about every, single, part of the business so. That way he could predict every detail, and the yields, that this would lead to this. Would later mean he could predict how much cattle would be eaten the grain and therefore, how much grain would be sold and produced he. Says by. Knowing how many cattle, chickens and hogs were being fed how, much grain they ate and how fast they gained weight I could, project both when and how much meat would come to the market, and when and how much corn and soy milk would, be consumed, likewise. By seeing how much acreage, was planted, with corn and soybeans, in all of the growing areas, doing, regressions, that showed how rainfall, affects the yields, in each of these areas and applying, weather forecasts. And rainfall, data I could project the timing, and the quantity, of corn and soybean, production. To. Him it was all just a machine of logical, cause-effect, relationships, these. Relationships, are what gave him his decision-making, rules, and principles which. He records each time he. Used to write on the back of envelopes, and other bits of paper and draw charts, and colored pencils until. He first got a PC, and could start programming, exactly, what he needed this. Way he could work out exactly how, prices would move and what, would be best for him to bet on he. Measured demand in the amount spent and studied, who the buyers were this, way he could find out moves that people measure in supply and demand in the traditional, way missed, the. Whole principles, process, became something he would stick with from, then on writing. Down principles, in putting them into the system and then following them the, system would end up working things out for him was, he input the information so. It would effectively, be making, a decision for him. Choirs. Would call him for his advice and his observations. This, would take too much time he, would write it all down instead, he. Says this was good as it would force him to reflect on everything every. Day he, still does this now and millions, of people still read this every single day it has been praised for being ahead of the market with predicting, some major events although, has also gained some criticism, particularly in recent years. Dalio. Started managing company, exposures, by buying and selling financial, instruments, on their behalf, for either a percentage or a fixed fee two. Of his biggest clients, were mcdonald's, and lane processing.
Which Was one of the biggest chicken producers in the country. Mcdonald's. Approached Dalio to tell him about some new products called the chicken McNuggets. But, were reluctant to release it because chicken prices, might be unstable and it would be difficult to sell the Nuggets as standardized. Price. Chicken. Sellers didn't want to sell us fixed, price as they were worried their costs would go up and they also wouldn't, get enough profit. Valeo, thoughts about the cause-effect and, realized, that the chicken could be seen as a simple, machine consisting. Of a chick and its feet so the main and most volatile, cost the chicken producer, needs to think about was, the price of chicken feet, Dalio. Showed Lane processing. How to use corn and soy futures, to lock in their costs, this, way they were able to fix their prices, which, then made the chicken more affordable, for McDonald's. This, meant they were able to go ahead and, release the Chicken McNugget, all thanks, to Ray Dalio. Never, ever been such chicken, before new, chicken, McNuggets, crispy nuggets of boneless chicken, you dip in your choice of what afford great tasting sauces, new, chicken, McNuggets. 20. Piece party pack he, did similar things for cats war meat markets as well he, would work by using his clients, knowledge of their own business and the way they worked as a machine, and dahlias knowledge of the markets, this, works brilliantly and, was profitable, for both parties. Between. 1979. And 1981. The economy, was not looking, good and markets, were very volatile, in, March, 1981. Dalia, wrote an observation. Predicting, a bad depression and, was confident, about this prediction, this. Was very controversial. But, Dalio believed in his prediction, because of all of his observations, up until that point he, even got others to scrutinize, his observations, and calculations to. Find any flaws but, they couldn't see anything different Dalia. He, held on to his best and it looked like Dalia was correct, in his predictions, and his decision, starts, to pay off he. Was featured publicly. Declaring, that he was predicting a depression, however. In late, 1982. Ray. Dalio lost, almost everything. Because, of this prediction in fact. What happened, is that in, his own words the, stock market began a big bull run and over the next 18, years the, US economy enjoyed, the greatest, non-inflationary, growth, period in his history, danio. Says his experience over, this time was, like a series, of blows to the head. He, said it was a humbling experience because he was so publicly, wrong he, also says that in retrospect, it, was one of the best things that happened to him because, it taught him a lot, he, said before this he, was overconfident, and didn't, do his historical, research properly.
He. Ended up having to dismiss, all his employees, as he couldn't afford to pay them and went, to his dad for money and had to sell possessions, he, said it was devastating, that he may have to give up on his dream and he had to make a decision, whether he was going to give up and find a job or carry on he. Decided to carry on he. Went on to do a lot of self-development he, says you must learn how to fail well because, failing, can lead to improving on yourself by. Failing well I mean being able to experience, painful failures, that provide big learnings, without, failing badly enough to get knocked out of the game, he. Spent a lot of time working out his mistakes and realized. He would need to look at himself objectively. And change, himself he. Realized he had developed a fear of being wrong so, instead of thinking he was right all the time he, needs to change this and begin asking how. Do I know I am right. He. Decided the best way would be to find other independent. Thinkers who see things differently to him that. Way they can challenge what he thought and then between them they could discuss opinions, and would end up getting to the right result he. Needs these people, to be like-minded and, to stick to the same principles. Dalio. Gradually, added clients, and grew a new team he, managed to rebuild the company back up to his former success. New. Technology, helps do this over the years to, assist the decision making process, as well, as having like-minded. People on his team, Dalio. Is a strong believer in a system that he calls idea, meritocracy. Which, allows everyone, to have a say in any discussion. By the more valuable you are in that field the, more weight your opinion, carries, also. Knowing what people are like and how they think helps. Them to keep on top. By. 1983. They were back up to six employees and there, was a growing demand for the company's research, so. They hired a seventh employee and started, selling their research as well this. Attracted, many institutional. And governmental, clients. And as the new dimension, to the company, the, company continued. To go from strength to strength. He. Says that first you must dream big you can have anything, you want but. Not everything. You want so, you need to prioritize so, that you can make sure you get there you, may have to cut some other things in order to do this Danny, o says life, is like a game where you seek to overcome the obstacles, that stand in the way of achieving your, goals you, get better at this game through, practice, the, game consists, of a series of choices that have consequences, you. Can't stop the problems, and choices, from coming at you so it's best to learn how to deal with them, there. Are a number of points that define dahlias, approach which we can all learn from, firstly. He lives his life by a series, of principles which, he has also written down his employees, to learn as well he, recommends, everyone writes, down their principles, the process they used to make decisions and, then follow these again in future this. Also ties in with his belief in the cause-effect relationship. In everything. If you, can figure out these relationships. You, can figure out what you need to do to trade or invest successfully, in something, based, on the relationships, between different aspects. Of the markets, or industries, and finally. Dalio. Is willing to accept being, wrong in fact, he took it a step further, and actually sought, out people that were intelligent and independently. Minded enough to, really put his thinking to the test and to point out his flaws if you, always want to be proven right you, are unlikely, to get ahead particularly. In the markets, as being wrong it's just part of the process learn. From your mistakes find. Out what went wrong and what was behind it, then write it down and move on to the next one Bridgewater, still, prides itself on transparency. Amongst, employees and even goes as far as to record all meetings, and interviews so. Everyone, can see anything, they want they, call this level of honesty and openness, radical. Transparency. The. Concept, behind idea, meritocracy. Is very important, and this transparency. Helps all employees, to feel that being open and honest is the best way forward that. Way they can speak their mind, disagree, with people and it will all work for the good of the company as a whole this. Is the same for all of his 1,700. Employees around, the world who currently manage a hundred, and sixty billion dollars in assets is this.
Sort Of approach to constant. Development really trying to figure out the way things work and learning from all decisions, that, has allowed Dalio, to make such fantastic, investment. Decisions, and to, amass a net worth of around seventeen, billion, dollars, he, has become at one of Time Magazine's top. 100, most, influential. People in the world and, he has vowed to donate. More than half his fortune to charitable, causes within his lifetime, a fitting, gesture, for a man that put people and relationships ahead. Of his wealth has succeeded. Just, the same if you. Like this video you may want to check out our previous episodes. On people such as Paul, Tudor Jones Jesse. Livermore and Carl Icahn the. Link to the playlist is down below hit the thumbs up button if you're enjoying this series and would like to see more legends, of trading, and investing, and don't, forget to subscribe so you don't miss any of them thank, you so much for watching. You.