Ray Dalio is the founder of the world’s largest hedge fund, Bridgewater Associates, which, as of last month, manages approximately $154 billion in global investments. Forbes estimates Dalio’s net worth to be $15.3 billion, placing him within the top 30 on the magazine's list of the 400 richest Americans. With one of the most impressive track records in the history of the hedge fund industry, the unconventional life and methods of Ray Dalio offer a fascinating study for aspiring traders and investors.

Early Life

Born in 1949 in the borough of Queens in New York City, Ray Dalio was an only child. His father was a jazz musician who played both the clarinet and saxophone; from him Dalio inherited a lifelong love of music.

When Dalio was eight, the family moved to the suburban community of Manhasset on Long Island. Although he wasn't a stellar student, he was industrious, earning money from jobs here and there, such as a paper route. From the age of 12, he worked as a caddy at the exclusive Links Golf Club, where the stock market was a common topic of conversation.

The young Dalio learned about stock trading from club members and, with $300 he had saved, invested in  Northeastern Airlines, an affordable stock at $5 per share. It proved to be a lucky move as the company was taken over shortly thereafter, tripling the value of the shares. 

His early success spurred him to research, and he began to delve into annual reports and seek advice from experienced investors. Dalio continued to invest successfully during his high school years and grew his account substantially by the time he graduated.

Higher Education

While attending Long Island University, Dalio continued to invest in the stock market and began to learn about commodity futures. The futures market was appealing in part due to relatively low margin requirements that allowed him to take larger positions with less capital. Unlike in high school, Dalio excelled academically in college and later gained admission to Harvard Business School. 

Early Career

After graduating from Harvard, he spent a year at Dominick & Dominick, LLC, as director of commodities. He later moved to Shearson Hayden Stone, where he worked in the commodity-futures department giving advice on hedging risk. (For more, see How Companies Use Derivatives To Hedge Risk.) However, after a fateful disagreement with a departmental boss, he was fired from the company.

Bridgewater Associates

Dalio founded Bridgewater in 1975 at the age of 26, initially operating out of his two-bedroom apartment. He began by advising corporate clients on currency exchange and interest rate risks. The firm’s growth was boosted after gaining McDonald's (MCD) and one of its major suppliers as clients. Bridgewater went on to manage investments for the World Bank and Eastman Kodak Co. (KODK) during the 1980s. The firm now works with clients that include foreign governments, central bankspension funds and university endowments. Based in Westport, Conn., it's grown to approximately 1,500 employees.

Like George Soros of the Quantum Fund, Dalio is a global macro investor aiming to profit from the anticipation of worldwide economic trends using a range of financial instruments. Broad diversification characterizes the firm’s investment strategy, avoiding the risk associated with being concentrated is a single sector. As an analyst, Dalio occupies himself with understanding the puzzle of how economic and financial events relate to each other. 

In 2007, Bridgewater foresaw the end of the housing and lending bubble and the danger of insolvency among large banks. In the aftermath of the 2008 financial crisis, it achieved a positive performance when most funds suffered large losses. (For more, see The 2007-08 Financial Crisis In Review.)

Remarking on the caliber of Dalio’s operation, former Federal Reserve chairman Paul Volcker, told The Economist that he sometimes feels that Dalio has “a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.” 

Bridgewater Culture

At Bridgewater, truth and excellence are the highest values. Dalio encourages staff to challenge views and find truth by removing ego from decision-making. In 2011, Dalio published a lengthy manual called "Principles" that outlined his core views on investing and corporate management. Critics have sometimes described the firm as cultish, pointing to the charismatic leader, well-defined values and secluded location. (The firm's office is located in a wooded area.)

Personal Life

Dalio and his wife Barbara have four sons and live in Greenwich, Conn. He enjoys rock music, outdoor activities and hunting. Dalio is also famously a longtime practitioner of Transcendental Meditation.

Philanthropy

In 2011, Dalio signed The Giving Pledge. Led by Bill Gates and Warren Buffett, The Giving Pledge is a commitment by the world's wealthiest individuals and families to give the majority of their wealth to philanthropy. He has also created The Dalio Foundation, with assets of more than $800 million, which has provided support to areas such as conservation and education.

The Bottom Line

With an average lifespan of five years, the majority of hedge funds fail, which is consistent with the Efficient Market Hypothesis that suggests it's impossible to beat the market repeatedly over time on a risk-adjusted basis. Bridgewater, with 40 years of operation and an impressive track record, is an outlier. Along with a handful of other firms such as Renaissance Technologies, it serves to undermine the credibility of the Efficient Market Hypothesis. (For more, see World's Top 10 Hedge Fund Firms.)