In an interview with David Rubenstein at the 92nd Street Y, Dalio described this chapter in his life as “one of the worst cases, and one of the best cases for [him].” The thesis behind Dalio’s early investments centered around Mexico’s default on U.S. loans in 1982. Even though Dalio thought he was positioned to capitalize on an “economic crisis,” he admitted, “[He] couldn’t have been more wrong.” The reality was that the U.S. eased monetary policy, and the stock market boomed afterward.
Dalio was devastated. As he told Rubenstein, “[He] was so broke that [he] had to borrow $4,000 from [his] dad in order to pay for family bills, and this was painful.”
But Dalio didn’t let this early failure destroy his confidence. Quite the contrary: He discovered two crucial lessons that propelled him to billionaire status.
From conviction to caution
Dalio’s first question following the disastrous trade in 1982 was how he could trust his assumptions. That inner criticism gave Dalio a character trait he credits with his later success: humility. When talking about this early failure, Dalio said it “gave [him] the humility [he] needed to balance with [his] audacity.”
That, in turn, led Dalio to develop the unique decision-making method he calls “principles.” Simply put, this strategy involves writing down the reasoning behind a decision and testing it before putting it into practice.
“Whenever I was making decisions, if I would pause and reflect and write down the criteria that I would use to make that decision, it would make me think more deeply about it. And then I learned that I could put those into code and then backtest them so I would know how my decision-making would work,” Dalio explained.
However, simply slowing down and analyzing decisions wasn’t enough to build Bridgewater. Dalio also needed a way to manage risk so he could consistently deliver returns to investors.
To solve that problem, Dalio turned to diversification. After his misstep with the Mexico debt default, Dalio said, “I understood the power of diversification and how diversification could reduce risk by up to 80% without reducing returns.” He revealed his “mantra” for a well-diversified portfolio is to have “15 good uncorrelated return streams” at any given time.
Judging by Bridgewater’s later success with these two core strategies, it’s hard to argue with Dalio’s methodology. According to a recent Reuters report, Bridgewater held $92 billion in assets under management as of 2025.
