Ray Dalio made his first investment in the stock market when he was 12 years old. He’d been working odd jobs — delivering newspapers, mowing lawns, caddying at golf courses — and invested in the only stock he could find that was less than $5 a share. Before he knew it, the shares tripled in value. Just like that, Dalio said, “I got hooked on the game.” 

The now legendary investor is the founder and co-chief investment officer of Bridgewater Associates, one of the world’s largest hedge funds. He’s also a celebrated author on finance and geopolitics, including the New York Times bestseller Principles: Life and Work. More than one publication has referred to him as the “Steve Jobs of investing.” 

In October, Dalio joined Tano Santos, the Robert Heilbrunn Professor of Asset Management and Finance at Columbia Business School, and Michael Mauboussin, head of consilient research for Counterpoint Global at Morgan Stanley Investment Management and a CBS adjunct faculty member, on their podcast Value Investing with Legends. In the episode, Dalio offered his expertise in the evolution of wealth throughout history, the future of innovation, and the trajectory of US partisan politics. These are four key takeaways from their conversation. 

Innovative Portfolios

Dalio credits his hedge fund’s early success to two overarching strategies. The first was to systematize his decision-making. “I never really thought about going into the hedge fund business as much as I thought about return streams,” he said. To do that, he started testing decision rules — if-then statements that govern investing decisions. “I created a bunch of decision rules that would produce return streams.”

Dalio’s second strategy was to separate his portfolios into the best alphas (investments with the highest returns) and the best betas (investments with greater volatility but better growth potential). At the time, hedge fund managers were universally putting alpha and beta in the same asset class. But Dalio realized that convention wasn’t necessary. “I can construct a well-diversified, uncorrelated mix of alphas that’s going to give me a higher ratio of return to risk,” he said. 

Understanding Economic Forces Means Understanding History

Dalio became a household name 15 years ago when he successfully anticipated the 2008 financial crisis. His edge, he said, was his historical knowledge. On August 15, 1971, he was a clerk on the floor of the New York Stock Exchange when President Richard Nixon announced that US currency would no longer be exchangeable for gold, ending the Bretton Woods System. “I walked on the floor of the New York Stock Exchange on August 16th and I expected it to go down a lot,” he said. “[But] it went up the most [it had] in decades.” 

Being blindsided like that inspired him to turn toward history — a market condition like that hadn’t happened in his lifetime, but maybe he could explain it through the lens of past market conditions. “I decided I should go back in history and see if they happened before, for mechanical reasons,” Dalio explained. 

That instinct has turned him into a leading market forecaster. And it was his understanding of the mechanisms leading up to the Great Depression that allowed him to anticipate the 2008 recession. “I follow it like a doctor follows cases,” he said. 

The Age of Innovation Isn’t Over

Central to understanding investment is understanding the future of growth. Some have suggested that the age of innovation — from indoor plumbing to the steam engine to vaccines — has come to an end. But Dalio is firmly in the other camp, believing that our greatest innovations are yet to come. “The innovations we’re having now are about thinking — and thinking applies to everything,” Dalio said. “I’m very much a believer that … this is going to create a productivity miracle.”

In his most recent book, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail, Dalio argues that productivity is the most important force in causing the world’s total wealth, power, and living standards to rise over time. But productivity is only one of five major forces acting on nations — and the only positive force. 

He pointed to three more internal conditions — rising national debt, wealth disparity, and the rise of populism — as major forces in states that ultimately fail. The fifth condition, he said, is external: the rise of a challenging international economic power, much like China is for the United States today. When asked if he expects the United States to go to war with China in the next 10 years — through either economic sanctions or military force — he said it was “a flip of a coin.” 

“I’m not a book writer,” he said. “I’m a guy who’s got a bet on what’s going to happen in the next few years.” 

Bipartisanship Is Vital to Our Future

Despite having spent years analyzing why and how nations fail, Dalio said he doesn’t lie awake at night. “I have a principle: If you worry, then you don’t have to worry. And if you don’t worry, you need to worry,” he said.

One thing that does concern him is the nation’s deep political divisions. “We need to be very strong in the middle to fight against the extremes,” Dalio said. “If I were president, I’d have a bipartisan cabinet … in which skilled people from both sides come up with reforms.” 

His priority, he said, would be addressing the “terrible disparities in opportunity” in the United States and prioritizing the health and happiness of the population. “If you look at societies throughout time … if you can provide those things, not only do you have a fairer society and less risk of conflict, it’s cost effective,” he said. “We have to reform capitalism so it works for most people to create equal opportunity.”