Billionaire investor and Bridgewater Associates founder Ray Dalio reflected on one of the most formative — and humbling — periods of his early career, which not only left him broke but also taught him a valuable lesson.
Although Bridgewater would eventually grow into the world’s largest hedge fund, its early years in the 1970s were far from smooth, as Dalio highlighted in a recent interview with Bloomberg.
Dalio, known for his investing prowess, admitted that the firm came close to collapsing, a near-failure, which he now describes as “one of the best experiences of my life.”
The 1979 Miscalculation
The veteran market investor said the turning point was in 1979 as a result of a wrong assessment of the economy, costing him and his clients money.
Dalio, at that point, had believed that the US economy was on the brink of a massive debt crisis. He reasoned that the newly-appointed Federal Reserve Chair, Paul Vocker, had begun aggressively tightening monetary policy. Meanwhile, American banks had lent heavily to foreign countries — in many cases, more than those nations could realistically repay.
Dalio concluded that a global deleveraging shock was imminent. His warning drew national attention, landing him on Wall Street Week and even before Congress.
“I can say with absolute certainty that if you look at the liquidity base in the corporations and the world as a whole, there’s such a reduced level of liquidity that you can’t return to an era of stagflation,” Dalio said.
But the crisis never materialised, and Dalio said his call coincided with almost the bottom of the stock market.
“And I couldn’t have been more wrong. That was the exact bottom of the stock market. And I didn’t really understand enough the impact of easing and so on. So I lost money for me, I lost money for clients,” Dalio said in this interview.
A Costly Lesson in Humility
While the consequences for Dalio were severe, so much so that he had to borrow $40000 from his father to take care of his family’s needs, his takeaway from the entire experience was learning.
Looking back, it was the most painful experience I could imagine — but it was also the best thing that ever happened to me, because it taught me humility, Dalio said while posting a snippet of this conversation on X.
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