A wrong call in 1982 wiped out Ray Dalio and taught him humility
He told Congress a depression was coming, then lost his money and his clients' money and had to start over.
My First Million · Ray Dalio: The one thing I do differently before investing a single dollarIn August of 1982, Ray Dalio had the spotlight every forecaster wants. The founder of the investment firm Bridgewater, which he had started in 1975, had calculated that emerging countries with a lot of debt would not be able to pay what they owed. When Mexico stopped paying that month, a view that had seemed controversial suddenly looked correct, and lawmakers invited Dalio to explain the crisis.
He told them that the American economy was headed for disaster.
He could not have been more wrong. No disaster came. Dalio lost money for himself and for his clients, and he had to lay off everybody he employed. He was so broke that he had to borrow $4,000 from his dad.
He went from testifying to Congress to borrowing from his father.
Dalio said his choice then was whether to "put on a suit and tie," commute in, and work for someone else, because he knew he "wasn't very good at working for people." He decided to stay out on his own and learn from what the failure had exposed.
That pain changed everything, he said. That was the bottom at Bridgewater, and what he learned there powered everything that followed.
He said he learned two things. The first was, in his words, "I learned humility to balance my audacity." He said he had not had much humility before, saying, "I'd say I'm right. I'm going to be right and all that."
The second was how to build a safer mix of bets while still reaching for large gains. He did not want to give up on upside, so he studied how to combine investments that behaved differently, so the whole portfolio would be steadier. From that low point, with borrowed money in his pocket and no staff behind him, he started again.
Questions people ask
Why didn't the U.S. economy collapse after Mexico defaulted?
The Federal Reserve cut interest rates, which lowered borrowing costs and helped stocks and bonds rise. U.S. banks, regulators, and international lenders also stretched out and restructured the loans to Mexico and other debtors, so the losses arrived slowly instead of all at once.
What does it mean to spread bets so one call can't ruin you?
It means owning investments that do not all rise and fall for the same reason, such as stocks, bonds, gold, and bets in different countries. When one bet fails, another can hold steady or gain, so the whole portfolio survives a wrong forecast.
What happened to Bridgewater after that low point?
Dalio rebuilt it around written rules and diversified portfolios, and it grew into the world's largest hedge fund, managing money for governments, pensions, and other large institutions. The 1982 failure remained the origin story he returned to for the humility lesson.