What Hedge Fund Manager Ray Dalio Can Teach You About Decision-Making
Tl;dr: success is achieved through thinking for yourself, valuing the best ideas of people (and not the ideas of the best person), and cultivating meaningful work and meaningful relationships.
Ray Dalio is the founder and co-CEO of Bridgewater Associates, one of the biggest hedge funds in the world.
A hedge fund is a company that handles and manages its clients’ money with the purpose to have the highest returns possible.
As such, Ray Dalio’s net worth is estimated to be at about $18 billion.
Ray Dalio, like almost all other billionaires, never really wanted to be rich.
As he puts it out in his book that I recommend (Principles: Life and Work), what he sought throughout his life was meaningful work and meaningful relationships which eventually led him to build one of the most successful companies of these past 50 years.
Ray Dalio’s Life
Ray Dalio was born in Long Island, USA.
At 12 years old, he started investing in the stock market despite not understanding a thing about it and tripled his money thanks to luck (as he puts it).
He fell in love with playing the market and studied finance at university, later getting a job in commodity trading (goods that haven’t been refined yet, for most cases, like food or energy).
After a couple of years living a typical Wolf of Wall Street life, he eventually punched his boss in the face, got fired, and started his own company out of his small apartment.
It’s funny to think about it, but Bridgewater wasn’t destined to be a hedge fund originally.
It was a financial consulting company.
Ray Dalio was so good at advising that his clients started handing him money, so he started investing it, quite successfully in fact, which allowed him to grow his company.
And this is where things get interesting and why I picked up Ray Dalio’s book in the first place: it’s not that Ray Dalio was good at investing, or finance.
In fact, his book starts with him explaining that he’s quite dumb (like Jack Ma) and that his success came from the fact that he was more able to deal with the unknown than with what he knew.
And this is key.
As such, what Ray Dalio excelled at is one of the greatest skills for wealth, health, and happiness, something taught in all business schools around the world and something great leaders are recognized for: decision-making.
It’s easy to see why good decision-making is the greatest skill ever.
A decision is an investment one makes in his life, hoping it will turn out to yield higher rather than poor results.
As Warren Buffett puts it, you only need to be right once or twice in your life.
This is because the decisions we make now while seeming rather random and unimportant, may have drastic consequences on our lives, the lives of others, and sometimes, the entire world.
Am I exaggerating?
Ask the guy that ate a bat in China in December 2019.
The consequences of this single action ended up being… dramatic.
Not even Greta Thunberg managed to stop the world economy to this extent.
As the saying goes, a butterfly flaps its wings, a hurricane devastates China.
So decision-making matters, and it matters in all areas of life.
While a bad decision now is a great story later as I once read somewhere, a good decision now is an enormous investment in your future.
The decision to go to sleep early will make you more productive the next day, which may or may not help you be creative and find great ideas.
Following a healthy diet now will drastically decrease your chances to get cancer later, which may not only be good for you but also help millions of people if you end up being a successful singer, writer, politician, or NGO director.
We can also see it the other way around.
Nokia’s decision not to take the iPhone seriously cost them…well, their mobile phone business.
There are millions of other examples of bad decisions that led to catastrophic outcomes, such as driving drunk or being vegan.
These show how important it is to draw lessons out of our mistakes in order not to make them in the future and improve our decision-making skills.
Ray Dalio understood early on that decision-making was not an art, but a science.
As he improved, he developed arrogance which shielded him from the possibility that despite a lot of work and thinking…he might be wrong.
So, inevitably, he suffered a terrible blow at the beginning of the 80s and lost all his and his clients’ money, having betted on a recession that never came.
He lost so much money that he had to let all of his employees go and borrowed money from his dad to survive.
That failure hurt so much that it destroyed whatever arrogance was left in him.
Drawing lessons, he started building his company from the ground up, and that included changing his decision-making process.
Since his last decision had cost him nearly everything, he decided he’d need to improve his capabilities.
He wrote down all the principles he had acquired about how to make decisions in various areas and entered these principles into computers to compare his decision with the computer’s.
And it worked!
Sometimes, when the computer and he disagreed, he’d further think about the disagreement and make the appropriate decision.
As his decision-making improved thanks to feedback, doubt, and more data, more and more people came to him for financial advice and investment requests.
And Bridgewater became the company it is today.
So, what do we retain from Ray Dalio’s life?
First, that decision-making is the single greatest skill one can learn to develop.
Second, that decision-making is not so much about what one knows, but more about what one doesn’t know.
Indeed, if you knew with certainty about the outcome of a decision, you wouldn’t have much trouble making it.
The art of decision-making is therefore realizing what you don’t know and subsequently manage to acquire the needed knowledge or to hedge your decisions by protecting yourself against the risks.
Third, it is impossible to be 100% certain of the outcome of a decision for most cases. This should urge you to doubt more, to be more open-minded and less arrogant. But more on that later.
Of course, there are many more great lessons we can draw from Ray Dalio’s life, such as his attachment to radical transparency and radical open-mindedness.
But more on that later.
In the meantime, try to weigh your current decisions regarding the future consequences it will yield.
Hopefully, this will inspire you to eat healthily, stop smoking, and exercise.