Principles: Life and Work

by Ray Dalio

One of our clients in the mid-1980s was Alan Bond, an audacious entrepreneur who was one of the richest people in Australia. A self-made man, he was famous for being the first non-American to win the America’s Cup yacht race in its then 132-year history. Like Bunker Hunt, he eventually bet badly and was forced to declare bankruptcy. I advised him and his team on their way up and stayed on through his downfall, so I watched the tragedy unfold from up close. His was a classic case of confusing business with speculation and only hedging when it was too late. Bond borrowed U.S. dollars to buy assets like breweries in Australia. He did that because U.S. interest rates were lower than they were in Australia. Though he didn’t realize it, he was speculating that the U.S. dollar, in which he would have to pay back his loans, would not rise. When the U.S. dollar did rise against the Australian dollar in the mid-1980s and his Australian-dollar beer-sales earnings weren’t enough to pay his debts, his team called me for advice. I calculated what Bond Corp’s position would be if they hedged on currencies and saw that doing so would lock in losses that would ruin them, so I advised them to wait. When the Australian dollar rallied, I advised them to put the hedges in place, but they didn’t because they believed the currency problem had gone away. Before long, the Australian dollar plunged to new lows and they called me in for an emergency meeting. There wasn’t much they could do without l...