jakiro
Author: Wu Bin
“Pain + Reflection = Progress”.On August 1, Beijing time, Ray Dalio, founder of Bridgewater Fund, shared his “farewell letter” on social media, pain and reflection tempering the ups and downs of investment journey.With 75-year-old Dalio selling all his remaining stake in Bridgewater and leaving the board, the Generation Investment Legend “retired”.
Dalio, founder of Bridgewater Fund (data photo)
Last week, Bridgewater said in a letter to clients that it had repurchased all remaining shares in Dalio.Bridgewater immediately issued new shares to Brunei Sovereign Wealth Fund.In the multi-billion dollar deal, Brunei Sovereign Wealth Fund acquired nearly 20% of Bridgewater’s equity.
In his investment career over the past 50 years, Dalio has successfully predicted major trends many times, including the 2008 financial crisis and the subsequent European debt crisis. He was listed as one of the “100 Most Influential People in the World” by Time magazine.
Looking to the future, Dalio once again warns: in the next five years, the probability of a global debt crisis is as high as 65%, and the hegemony of the US dollar may be severely damaged.If companies, countries and individuals cannot recognize their position in the cycle, they will be swallowed up by this powerful “tidal force”.
Will Dalio’s words come true again this time?
Results
In 1975, Dalio, who was only 26 years old, decided to set up his own investment institution. In his own two-bedroom apartment, Dalio established Bridgewater Fund and began to implement his investment strategy.Since its establishment in 1991, under the leadership of Dalio, Bridgewater Fund has achieved brilliant results after brilliant results and has become the world’s largest hedge fund.
In 2008, Dalio successfully predicted the US financial crisis, and Bridgewater flagship fund’s performance increased by more than 14%.He then foresaw the European debt crisis again. In 2010, the highest yield of Bridgewater funds exceeded 40%.
Behind the outstanding record, Dalio’s investment journey has not been smooth.In 1982, he suffered heavy losses due to his misconception that “the US economy will fall into the Great Depression” and was even forced to borrow money from his father to maintain the company’s operations. This painful lesson became a watershed in his investment philosophy.
Before 1982, Dalio pursued scientific and rigorous “right cognition”; after 1982, Dalio was determined to know “how to prove that his cognition is not wrong”, trying to establish a systematic principle to deal with uncertainty.
In Dalio’s view,The operation of the world is driven by five major forces, including debt/monetary/economic cycles, internal order and chaos cycles, external order and chaos cycles, natural forces and human creativity.When these five forces work together, they form a large cycle of alternate emergence of peace, prosperity and conflict and depression in the evolution from the “old order” to the “new order”.
He stressed that understanding the causal relationship that drives change is necessary because reasons precede the results, and this understanding will help investors predict what is going to happen.Clarify decision-making standards, backtest, systematic and computerized, so that investors can execute a well-thought-out and fully tested plan.“In my more than 50 years of professional investment career, I have made a lot of money by betting on this causal relationship… While a lot of the key unknowns and uncertainties still exist, I am sure these are the biggest and most important forces.”
In recent years, Bridgewater’s asset management scale has shrunk significantly, from US$168 billion at the end of 2019 to US$92.1 billion at the end of 2024.In the five years ending December 2024, the cumulative yield of Bridgewater flagship fund Pure Alpha was only 5.9%, far behind the US stock market, which hit new highs in the same period.However, after limiting the scale, Pure Alpha’s performance improved, achieving a return of 11.3% in 2024 and a yield of 17% in the first half of 2025.
dispute
In recent years, the widely circulated Dalio debt theory has encountered some doubts.
Dalio believes that an economy, whether it is a company or a country, will encounter troubles of a debt crisis as long as it accumulates excessively.In order to reduce the risk of a debt crisis, it is necessary to reduce the scale of debt through “deleveraging” measures.
In the view of Xu Gao, chief economist of Bank of China Securities, Dalio made two mistakes in analyzing macroeconomic issues.He mistakenly used microscopic thinking to analyze macro problems and mistakenly imagined the macro economy as a machine, so he failed to see the differences in operating logic under different macroeconomic conditions..
On the one hand, Dalio’s core logic in analyzing national debt is that if the country accumulates too much debt, a debt crisis will break out.His criterion for judging whether there are too many debts is whether the benefits created by the debt can cover the cost of the debt.This is the micro-thinking of debt analysis, which is applicable to micro-economic entities such as individuals and enterprises.Xu Gao told reporters that although this logic is in line with people’s intuition, it cannot be blindly applied to the analysis of state debt.The operation of the macro economy is sometimes counterintuitive and unconscientious.
The United States is the issuer of the US dollar, the most important international reserve currency currently, and therefore can use its local currency to borrow foreign debt.The debt constraints of the United States are not even in the supply capacity of the United States, but in the “dollar hegemony.”Xu Gao analyzed that as long as the US dollar is still accepted as an international reserve currency by countries around the world and countries around the world are still willing to hold the US dollar, the US debt will be sustainable.Correspondingly, only things that threaten the “dollar hegemony” will bring debt risks to the United States.The hollowing out of the United States in the industry and the so-called “reciprocal tariff” policy introduced by the United States this year pose a threat to the “dollar hegemony”, respectively, are the long-term and short-term factors that bring debt risks to the United States.
On the other hand, Dalio understands the macroeconomics as a machine, so he mistakenly believes that a specific behavior will definitely have specific consequences.Xu Gao reminds that you must not imagine the macro economy as a machine – all kinds of causal connections and reaction behaviors in the macro economy may change due to changes in the macroeconomic environment.The macroeconomic is composed of living people who have expectations for the future and will change their behavior due to expectations.Once expectations change, people’s behavior changes accordingly, which leads to changes in the macroeconomic structure.
In Xu Gao’s view, Dalio’s mechanical understanding of the macro economy has brought some wrong perceptions.For example, in Chapter 18 of the book “Why the Country Gos Bankrupt”, Dalio proposed his “3% solution” – he believes that the proportion of the US fiscal deficit to GDP should be reduced to 3%.
What should a country’s fiscal deficit and debt scale be appropriate?Xu Gao said that this depends on the country’s macroeconomic situation.Under different circumstances, a reasonable fiscal deficit and debt scale are different.Trying to find deficits and debt scale standards that do not change with time and even allow them to be universally applicable is not only futile, but also extremely harmful.Asking such a question assumes the existence of the answer to the question, which will make people ignore the truly important macroeconomic operation state and the necessity of specific analysis of specific problems.
bid farewell
Right and wrong, success and failure turn empty.In 2011, Dalio announced his successor plan for the first time.On October 4, 2022, Dalio handed over control to the company’s board of directors, officially retreating to the second line and no longer has the final decision.Since then, Dalio continues to serve Bridgewater Fund as chief investment officer mentor and member of the operation board.
With Dalio selling all his remaining shares in Bridgewater, he is now considered truly “retired”.
Many people asked him how it felt like to hand over Bridgewater fund after 50 years of founding and operating it?Dalio’s memories came to his mind: “I was so excited! It was a wonderful journey, and every moment I remembered it freshly – from co-founding Bridgewater with a rugby teammate in a two-bedroom apartment, to building it into the world’s largest hedge fund with a great team (at one time a total of about 1,500 employees), to earning more money for clients than any other hedge fund.”
With Dalio’s baton handover completed, he looks forward to the next generation of outstanding talents to allow Bridgewater to create new glory in the next 50 years.”I love to see Bridgewater still vibrant without me, even better than having me. In my opinion, it’s a better life cycle. As a 76-year-old who loves Bridgewater and its employees (actually a few days away from 76), it’s like seeing your children still strong and healthy without me, which is much better than if I had to take care of them at 76.”
Looking back on Bridgewater’s success over the past 50 years, Dalio believes that there are four important “working principles”: “The people and culture you choose determine everything; choose those with excellent character and outstanding abilities to establish a culture of “the system of thought” in which meaningful work and meaningful interpersonal relationships achieve goals through extreme truth-seeking and extreme transparency; create a culture that allows mistakes but does not allow them to learn from them; pain + reflection = progress.”
tidal
Looking at Dalio’s decades of investment journey, seven investment principles have attracted much attention:
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Reality is like a machine, and investors need to understand how this machine works and master proven good principles that can handle it properly;
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Understanding the causal relationship that drives change, because causes precede the results, this understanding will help investors predict what is going to happen;
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Clarify decision-making standards, backtest, systematic and computerized, so that investors execute a well-thought-out and well-tested plan;
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Recognize that there are far more things you don’t know than you know;
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Know how to make diversified allocations, because by doing this, investors can reduce the risk by about 80% without reducing expected returns;
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Find the smartest people who have different opinions from you and let them stress test your ideas by having deep objections, which will increase the probability of right and will also allow you to learn a lot;
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Ensure that the probability of unacceptable losses is zero.
Facing the right and wrong success or failure of the past, Dalio’s words are full of awe of investment.”Balanced portfolios is the most important thing, the right thing to do is to build a reasonable portfolio and make appropriate diversified allocations. It is best to always hold 10 to 15 low-related assets in the portfolio. With this done, investors can reduce the risk by about 80% without reducing expected returns.”
He also reminded investors that they should not blindly increase their investment when market sentiment is overheated and be vigilant about chasing the rise.”The biggest problem with most people in investment is that they tend to think that the best-performing investment in the past is the best investment in the future. The fact is that the best companies are not necessarily the best investment, just like in horse racing, the best horses are not necessarily the most worthy horses, because the odds already reflect everything. When an asset becomes too expensive, it is more likely to fall rather than continue to rise.”
Starting from 2024, Dalio repeatedly emphasized that the five major forces will reshape the world in the future, and in the next three to five years, due to the role of these forces,, “We will experience changes similar to the time tunnel and enter a completely different world.”
Apart from “evolution”, nothing in the world is eternal.In Dalio’s view, there is a tidal cycle in the evolution process – the ebb and flow of tides, which are difficult to resist or reverse.
The power of the tide is irresistible, either riding the wind and waves or being swallowed up. Are investors ready?
