Ray Dalio: This is the Holy Grail of Investing

You want to be successful? Here's the mantra for investing. I got my pen.

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 a personality test. I gave it to Elon Musk. I gave it to Bill Gates. I gave it to Reed Hastings.

Maybe I should probably not tell stories, but... No, no, no. That's what we do here. You don't have to make it to the top to be happy. What's the top?

There's no correlation between the level of happiness in your life and the amount of money that you make. 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.

You were, in some regard, a little bit of a late bloomer in terms of traditional metrics of success. Oh, yeah.

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 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 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 raw 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, you know, 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 of Bridgewater, and then it 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 um i really learned and taught

myself really my mantra okay here's

the mantra for investing you want to be successful this

will um this is the uh holy grail of investing find 15 good uncorrelated return streams

How did you come up with 15? 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% 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, you know, to try to do that and then have that.

And that change in that approach was the basis of Bridgewater going from,

you know, having to borrow $4,000 from my dad to the largest hedge fund, the most successful hedge fund in the world.

If we wanted to be better investors, What do you think the most common mistake smart guys can make when it comes to investing?

They don't have a game plan. So what does a good game plan look like? How do you know if you have a good game plan?

Well, the way that I did it was every time I would make a decision, 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 in these circumstances, how would it have worked in the past?

And I would know the track record of that decision. And that would give me also greater understanding of how things work.

And so then I would have a decision rule. And then I would program it into the market, into the computer.