The Farewell and Warning of Investment Master Ray Dalio

Recently, Ray Dalio, the founder of Bridgewater Associates, ended his last position at the company and officially exited the hedge fund giant he founded and managed for nearly 50 years. Before leaving, the 75-year-old investment legend shared his "farewell letter," reflecting on his tumultuous investment journey.

Last week, Bridgewater Associates informed clients that it had repurchased all remaining shares held by Ray Dalio. Subsequently, the company issued new shares to the Brunei Sovereign Wealth Fund, granting it nearly 20% ownership of Bridgewater. This transaction, worth billions of dollars, marks Dalio's complete exit from the company he founded.

Reflecting on his investment career spanning over 50 years, Ray Dalio has successfully predicted major trends multiple times, including the 2008 financial crisis and the subsequent European debt crisis. His insights and influence have placed him among the most influential figures in the world.

However, Dalio did not stop there. He issued another warning: the likelihood of a global debt crisis erupting within the next five years is as high as 65%, which could severely impact the dominance of the US dollar. He emphasized that if businesses, countries, and individuals cannot accurately grasp their position in the economic cycle, they risk being engulfed by the "tide of economic forces."

Glorious Achievements and Painful Lessons

In 1975, at the age of 26, Ray Dalio founded Bridgewater Associates in his two-bedroom apartment. Since the flagship fund was established in 1991, under his leadership, Bridgewater has achieved remarkable performance after another, ultimately growing into the largest hedge fund in the world.

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

However, Ray Dalio's investment journey has not been smooth sailing. In 1982, he suffered a major setback 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.

After that, Dalio began to focus on establishing a set of systematic principles to cope with uncertainty. He believes that the functioning of 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 of evolution from the "old order" to the "new order."

Dalio emphasizes that understanding the causal relationships that drive change is crucial, as causes precede results. This understanding helps investors predict future events. He advocates for clear decision-making criteria, which should be backtested, systematized, and computerized to ensure the execution of well-considered and thoroughly tested investment plans.

In recent years, Bridgewater's assets under management have significantly shrunk, dropping from $168 billion at the end of 2019 to $92.1 billion by the end of 2024. Over the five years ending in December 2024, Bridgewater's flagship fund Pure Alpha has achieved a cumulative return of only 5.9%, far below the record highs of the US stock market during the same period. However, after limiting its size, Pure Alpha's performance has improved, achieving an 11.3% return in 2024 and a 17% return in the first half of 2025.

Theoretical Controversies and Methodological Criticism

In recent years, Ray Dalio's widely known debt theory has faced some scrutiny. He believes that whether it is a corporation or a country, excessive accumulation of debt will lead to the risk of a debt crisis. To reduce this risk, it is necessary to compress the debt scale through "deleveraging" measures.

However, some economists point out that Dalio has methodological flaws in analyzing macroeconomic issues. They believe that Dalio mistakenly analyzes macro problems using micro thinking and simplifies macroeconomics to a machine, ignoring the differences in operational logic under different macroeconomic conditions.

Critics point out that Dalio's core logic in analyzing national debt is based on microeconomic thinking, which applies to individuals and businesses but cannot be blindly applied at the national level. For example, as the issuer of the dollar, the sustainability of the U.S. debt depends more on "dollar hegemony" than on mere supply capacity.

Additionally, Dalio's view of the macroeconomy as a machine has also been questioned. Critics argue that the macroeconomy is made up of living beings who have expectations for the future and adjust their behavior based on those expectations, and its structure changes with shifts in expectations, which cannot be simply explained by mechanical causal relationships.

Farewell and Heritage

In 2011, Dalio first announced the succession plan. On October 4, 2022, he handed over control to the company's board of directors and officially stepped back. Since then, Dalio has continued to serve Bridgewater as a mentor to the Chief Investment Officer and a member of the operating board. Now, with the sale of his remaining shares, he can finally be considered truly "retired."

Dalio reflected on the journey of Bridgewater from a two-bedroom apartment to becoming the largest hedge fund in the world, feeling proud of the company's growth. He looks forward to the next generation of talented individuals creating brilliance over the next 50 years and expressed his pleasure in seeing Bridgewater thrive even in his absence.

Reflecting on Bridgewater's success over the past 50 years, Dalio summarized four key "principles of work": selecting excellent talent and culture; establishing a culture of "thought elite system"; creating an atmosphere that allows for mistakes but requires learning from them; and the idea of "pain + reflection = progress."

Investment Principles and Future Outlook

Ray Dalio's investment career is well known for seven investment principles:

1. Understanding reality is like the operation of a machine.
2. Grasp the causal relationship driving the change
3. Define decision criteria and conduct systematic testing
4. Recognize that the unknown far exceeds the known
5. Diversify your portfolio to reduce risk
6. Seek critical opinions from the wise
7. Ensure to avoid unacceptable losses

Facing the future, Dalio emphasizes the importance of balancing investment portfolios and advises investors to hold 10 to 15 low-correlation assets to significantly reduce risk without lowering expected returns. He also warns investors not to blindly chase after rising prices, reminding them that the best companies are not necessarily the best investment choices.

Ray Dalio predicts that the world will undergo significant changes in the next three to five years. He believes that evolution is the only constant, and the world exists in tidal-like cyclical patterns. In the face of this irresistible force, investors need to be prepared to either ride the waves or be swallowed up.