He said, "Pain + Reflection = Progress, ensuring the probability of unacceptable loss is zero."

Author: Ray Dalio

Translation: Tencent Finance

Editor's Note:

Recently, renowned hedge fund investor Ray Dalio sold his remaining shares in Bridgewater Associates and stepped down from the board, marking the end of a turbulent power transition for the hedge fund company he founded.

On August 1, Dalio reflected on his 50 years of operating the Bridgewater fund on his social media, revisiting his principles on life, work, and investing. He said, "Pain + Reflection = Progress, ensuring the probability of unacceptable loss is zero."

Here is the full text published by Ray Dalio:

Many people have asked me how I feel about the legacy of founding Bridgewater over the past 50 years.

I am incredibly excited about it! I think it has been a truly wonderful journey, and I remember almost every moment vividly:

From starting Bridgewater with a guy who played football in a two-bedroom apartment, to building Bridgewater into the world's largest hedge fund with an excellent team of about 1,500 people, to the fact that we have made our clients far more money than any other hedge fund—up until now, as of July 1, I have completed the final step of passing the baton of Bridgewater to the next generation, and I firmly believe they are fully capable of continuing the company's brilliant and thriving legacy for another 50 years. What a wonderful journey! How delightful!

Most importantly, I am excited about it because I love seeing Bridgewater thrive without me, even better than when I was at the company. This is because I believe it is a natural lifecycle; I am now a 76-year-old elder, and I love Bridgewater and its employees (many of whom I have worked with for decades). From my perspective, this process feels like watching my children grow up and thrive even without me, which is certainly much better than a 76-year-old parent having to take care of their children.

I have witnessed the process of Bridgewater becoming strong over its 50 years; it was founded and operated by a 26-year-old young man, and now it is run by a group of people who are 25 to 50 years younger than the current founders, along with those who started the company with me and have now become Bridgewater managers—most importantly, Bob Prince, Greg Jensen, Karen Karniol-Tambour, and Nir Bar Dea, who are also experiencing their own lifecycle in the same beautiful way.

I see these key members continuing to modernize Bridgewater, adhering to the efficient principles that allowed Bridgewater to grow from nothing 50 years ago, while also following the new traditions that the next generation has developed. This makes me very happy because I can now freely focus on the exciting and fulfilling things I love to do. I particularly enjoy passing on what I have that is valuable to others, especially those principles that have helped me. I still love playing the investment game, I enjoy having more time with family and friends, and ocean exploration brings me endless joy. I also present all of this to people through media, like Jacques Cousteau, with the show "OceanXplorers" on Disney Plus.

At this stage of my life, one of my main goals is to pass on the principles that have helped me, so I want to share some of the most important principles that have driven Bridgewater's success over the past 50 years. If you are interested, I would like to tell you how to learn and acquire more such principles. These include work principles on how to run an organization and investment principles on how to make money in the market.

I believe the most important "work principles" that have driven Bridgewater's success over the past 50 years are:

1. Choose the right people and culture.

2. Select those with excellent qualities and outstanding abilities, and establish a culture of intellectual elitism. The culture of intellectual elitism achieves important work and relationship goals through extreme honesty and extreme transparency.

3. Create a culture of tolerance for mistakes, but it is unacceptable not to learn from them.

4. Pain + Reflection = Progress

To fully understand my work principles, please refer to my book "Principles: Life and Work."

The most important investment principles behind Bridgewater's investment success are:

1. Reality is like a machine, so it is necessary to understand how the machine works and have reliable good principles to handle these operations.

2. Understand the causal relationships that drive change, as there is a cause before an effect; understanding these causal relationships will help you predict what is going to happen.

3. Establish clear decision-making criteria, backtest these criteria, systematize them, and then computerize them, so that you can execute a well-thought-out and thoroughly tested game plan.

4. Recognize that knowing what you don't know is much more important than knowing everything.

5. Know how to diversify well, as doing so can reduce risk by 80% without lowering expected returns.

6. Seek out the smartest people, even if they disagree with you, as their thoughtful dissent will stress-test your thinking, increasing your chances of being right and teaching you a lot.

7. Ensure the probability of unacceptable loss is zero.

If you are interested in my investment and economic principles, please look out for my next book, and these principles are also included in the online Dalio Market Principles course offered by the Singapore Wealth Management Institute—where you can also hear my latest thoughts on investment principles.

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