Ray Dalio was so broken at the start of his career that he had to borrow $ 4,000 from his father – and learned 2 key lessons that put him on the road to the billionaire status

“It was painful,” Dalio told a billionaire colleague, the co-founder of Carlyle Group, David Rubenstein, in a conversation at 92nd rue de New York in July. But that also had a deep impact, he continued.

“It changed my approach to everything,” said Dalio, adding that he had learned two key lessons from this episode.

After having withdrawn alone to found Bridgewater in 1975, Dalio said that he had reached his lowest point around 1980-1981, when he had calculated that the United States had lent more money to the countries they could not reimburse and predicts a major debt crisis. When Mexico was lacking on its debt in 1982, Dalio thought that its position will be chargeable, even in the face of the serious economic crisis it provided. However, he “could not have been wrong”. Instead of a slowdown, the stock market has increased and monetary policy has been attenuated, which is expensive. This calculation error left him financially devastated, forcing him to borrow $ 4,000 from his father to respond to family expenses.

“No one does everything perfectly, not even Warren Buffett,” Dalio told Rubenstein, but this episode gave him “humility” to accompany his “audacity”, he said, as well as a very simple lesson in “the power of diversification”.

Dalio’s lessons

This humiliating episode has fundamentally changed Dalio’s perspective, he said, leading to two transformative ideas:

• Lesson 1: Cultivate humility and question your own certainty. Experience made Dalio deeply think about how he could really know if he was right. This new approach led him to a practice that he started about 35 to 40 years ago: a break to reflect and note the specific criteria he would use to make a decision. This act of documentation forced a more in -depth reflection, and it later realized that these criteria could be coded and tested in retro to assess their effectiveness over time. This systematic approach to decision -making, which he calls “principles” (having written thousands), has become the foundation on which Bridgewater Associates was built. It is also the title of the Best Seller of the New York Times of Dalio.

• Lesson 2: embrace the power of diversification. The crisis also led Dalio to assess diversification could reduce the risk up to 80% without decreasing yield. This revelation has become the “bottom of bridgewater”, he said, from where the company experienced coherent positive yields, with an average of 11.8% during the 30th and more, with only minimum annual declines. His investment mantra has become “15 good non -correlated return flows”, designed to have similar expected yields, which he has found considerably reduces the risks and increases the return to risk report of a factor of five.

For Dalio, this quasi-riney period was not simply a setback but a deep educational experience which redefined its investment strategy and its personal philosophy. Now that he is in a “stage of life where you transmit things”, Dalio said that he finds a “great joy” to share these learned mechanisms and to cause and effect relationships with others. Its objective is not to frighten people, but to provide an understanding, operating on the principle that “if you worry, you do not have to worry and if you do not worry, you should worry”, because concern can prevent what we fear. Its background of personal financial rocks has finally become the foundation of its lasting success and its commitment to teaching others how to sail in complex financial landscapes.

Dalio’s new book on how countries will break

Going to break was in Dalio’s mind because of the subject of his new book: How the countries broke: the big cycle. Dalio, who often issues warnings about social media on the national debt record of 37 billions of dollars, wrote on LinkedIn that he wanted to write this book because he sees the United States and other countries “head for the equivalent of economic heart attacks”. He said he wanted to explain the mechanisms and principles he has used since he learned of these key lessons in the early 1980s.

He compares the credit / market system to the human circulatory system, “bringing nutrients to all parts of the body that make up the markets and the economy”. If this does not produce enough income to serve the debt and interest, then “the debt service will accumulate as a plaque which eliminates other expenses”.

In a declaration provided to FortuneDalio said one of his principles concerns the recognition of major cycles and models.

“The same major basic cycles that push these systems to change have occurred thousands of times before for the same reasons”, and he describes the “overall debt cycle” in this book because he thinks that the world is “on the verge of very big changes”.

It is the product of daring years, sprinkled with a large dose of humility and constant diversification.