Principles

Principles

*Ray Dalio*

In the summer of 1982, Ray Dalio sat in a television studio preparing to go live on Wall Street Week, the most-watched financial program in America. He was thirty-two years old, and he was certain. He had studied every debt crisis going back to 1800. He had run the models. He had consulted the history. Mexico had just defaulted. American banks had lent out 250 percent of their capital to shaky borrowers. The dominoes, in his mind, were already tipping. He leaned into the camera and told the country: "There'll be no soft landing. I can say that with absolute certainty, because I know how markets work."

The Federal Reserve responded by flooding the market with liquidity. The stock market jumped by a record amount. What followed was not the depression Dalio had predicted. What followed was the greatest eighteen-year noninflationary growth period in American economic history.

Dalio was catastrophically wrong. Not just wrong in the way that traders are sometimes wrong, the ordinary coin-flip error of a bad bet. Wrong in a way that cost him everything he had spent eight years building. One by one, he had to let his employees go. His closest colleague, Paul Colman, packed up his family and drove back to Oklahoma with tears on both sides. Dalio sold his second car. He borrowed four thousand dollars from his father to cover the family's expenses. He was left alone in what had once been a firm, staring at the question every ambitious person eventually has to face: do you quit and take the safe road, or do you figure out how to do this differently?

He chose differently. And that choice, more than any market call he ever made, is the real subject of this book.