The Farewell and Warning of Investment Legend Ray Dalio

Recently, Ray Dalio, the founder of Bridgewater Associates, officially bid farewell to the company he founded. On social media, the 75-year-old investment master shared his "farewell letter," reflecting on his tumultuous investment career. With Dalio selling all of his remaining shares in Bridgewater and leaving the board, an era seems to have come to an end.

Last week, Bridgewater Associates informed its clients about the repurchase of all remaining shares owned by Dalio. Subsequently, the company issued new shares to a sovereign wealth fund, granting it nearly 20% equity in Bridgewater. The estimated value of this transaction is in the billions of dollars.

Ray Dalio's investment career has spanned over half a century, during which he has successfully predicted major economic trends multiple times, including the 2008 financial crisis and the subsequent European debt crisis. These outstanding achievements have led him to be named one of the "100 Most Influential People in the World."

However, even as he leaves the company, Dalio does not forget to issue a warning: he predicts that the likelihood of a global debt crisis erupting in the next five years is as high as 65%, which could severely impact America's dominance. He emphasizes that if businesses, countries, and individuals cannot accurately grasp their position in the economic cycle, they may be overwhelmed by this powerful "tide force."

Glorious Achievements and Unique Insights

In 1975, at the age of 26, Ray Dalio founded Bridgewater Associates in his apartment. Since the establishment of the flagship fund in 1991, under his leadership, Bridgewater has achieved a series of brilliant performances and grown into the world's largest hedge fund.

In 2008, Ray Dalio accurately predicted the U.S. financial crisis, leading to a more than 14% increase in the performance of Bridgewater's flagship fund that year. Shortly thereafter, he successfully foresaw the European debt crisis, with Bridgewater's funds achieving a maximum return of over 40% in 2010.

However, Dalio's investment journey was not smooth sailing. In 1982, he suffered a severe blow due to his incorrect prediction that the U.S. economy would fall into a Great Depression, and he even had to borrow money from his father to keep the company running. This painful lesson became a turning point in his investment philosophy.

Dalio believes that the operation of this enormous machine called the world is driven by five major forces: debt/money/economic cycles, internal order and chaos cycles, external order and chaos cycles, natural forces, and human creativity. These forces work together to form a large cycle in which peace and prosperity alternate with conflict and depression during the evolution from the "old order" to the "new order."

He emphasized the importance of understanding the causal relationships that drive change, as causes precede effects, and this understanding helps in predicting future events. He advocated for clear decision-making criteria and for backtesting, systematizing, and computerizing them to ensure that well-considered and thoroughly tested plans are executed.

Controversies and Doubts

In recent years, Ray Dalio's widely known debt theory has faced some scrutiny. He believes that both corporations and countries face the risk of a debt crisis as long as they excessively accumulate debt. To reduce this risk, it is necessary to compress the scale of debt through "deleveraging" measures.

However, some economists point out that Dalio has methodological flaws in his analysis of macroeconomic issues. They believe that Dalio incorrectly applies microeconomic thinking to analyze macro problems and simplifies macroeconomics into a machine, thereby neglecting the differences in operational logic under different macroeconomic conditions.

These critics point out that Dalio's core logic in analyzing national debt is based on microeconomic thinking, which is applicable to individuals and businesses, but cannot simply be applied at the national level. They emphasize that the operation of macroeconomics can sometimes be counterintuitive and contrary to common sense.

Critics also point out that Dalio's view of the macroeconomy as a machine has its problems. They believe that the macroeconomy is composed of living, expectation-driven individuals whose behavior changes due to those expectations, and it cannot be simply explained by mechanical cause-and-effect relationships.

Farewell and Outlook

Reflecting on the success of Bridgewater Associates over the past 50 years, Dalio summarized four important "work principles": selecting exceptional talent and establishing the right culture; cultivating a culture of "thought leadership"; creating an environment that allows for mistakes but requires learning from them; and the idea that "pain + reflection = progress."

Looking to the future, Dalio warns that five major forces will reshape the world. He believes that in the next three to five years, due to the influence of these forces, "we will experience changes similar to a time tunnel, entering a completely different world."

Dalio emphasizes that evolution is the only constant in the world. He likens this evolutionary process to a tidal cycle—rising and falling, impossible to resist or reverse. In the face of this irresistible force, investors must either ride the waves or be swallowed.

As he departed from Bridgewater Associates, Dalio left behind seven highly regarded investment principles, including understanding the mechanisms of reality, grasping causal relationships, clarifying decision-making standards, recognizing self-limitations, ensuring proper diversification, seeking pressure tests from differing viewpoints, and ensuring that unacceptable losses are avoided. These principles encapsulate decades of his investment wisdom and are worth considering for every investor.