Principles: Life and Work

by Ray Dalio

was kicking myself for missing the ride to $50. But at least, by being out, I didn’t lose money. There are anxious times in every investor’s career when your expectations of what should be happening aren’t aligned with what is happening and you don’t know if you’re looking at great opportunities or catastrophic mistakes.

All of this pounded an indelible lesson into my head: Timing is everything.

Colman and I worked by challenging each other’s ideas and trying to find the best answers; it was a constant back-and-forth, which we both enjoyed, especially at a time when there was so much to figure out.

But my experience with silver and other trades had taught me that I had a chronic problem with timing,

In both appearances, I confidently declared that we were headed for depression and explained why.

While that surprised me, I interpreted it as a knee-jerk reaction to the Fed’s move. After all, in 1929 a 15 percent rally was followed by the greatest crash of all time.

experience over this period was like a series of blows to the head with a baseball bat. Being so wrong—and especially so publicly wrong—was incredibly humbling and cost me just about everything I had built at Bridgewater. I saw that I had been an arrogant jerk who was totally confident in a totally incorrect view.

Making money in the markets is tough. The

First, I had been wildly overconfident and had let my emotions get the better of me.

should have realized that debts denominated in one’s own currency can be successfully restructured with the government’s help, and that when central banks simultaneously provide stimulus

As in 1971, I had failed to recognize the lessons of history.

starting by learning a better way of handling the natural aggressiveness I’ve always shown in going after what I wanted.

best things that ever happened to me because it gave me the humility I needed to balance my aggressiveness.

“How do I know I’m right?”

That way, we can all raise our probability of being right.

Typically, by doing what comes naturally to us, we fail to account for our weaknesses, which leads us to crash.

beneficial change begins when you can acknowledge and even embrace your weaknesses.

Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did.”

that, if you push your limits, you will crash and it will hurt a lot. You will think you have failed—but that won’t be true unless you give up.

gather the lessons these failures provide and gain humility and radical open-mindedness in order to increase your chances of success. Then you press on.

learned to go slowly when faced with the choice between two things that you need that are seemingly at odds.

There is almost always a good path that you just haven’t discovered yet, so look for it until you find it rather than settle for the choice that is then apparent to you.

helped me develop robust trading strategies; they just showed me that a particular bet would eventually pay off.

Then, when I closed out a trade, I could reflect on how well these criteria had worked.

By studying the relationships between economic statistics and market movements, we’ve developed precise rules for identifying important shifts in the economic/market environment and in turn our positions. In other words, rather than forecasting changes in the economic environment and shifting positions in anticipation of them, we pick up these changes as they’re occurring and move our money around to keep in those markets which perform best in that environment.

write them out in both words and computer algorithms, back-test them if possible, and use them on a real-time basis to run in parallel with your brain’s decision making.

So I hired a seventh employee, a former door-to-door Bible salesman named Rob Fried, and we hit the road, lugging around a projector and a huge stack of slides, hawking a $3,000-per-month research package with my daily

including General Electric, Keystone Custodian Funds, the World Bank, Brandywine, Loomis Sayles, Provident Capital Management, the Singer Company, Loews Corporation, GTE Corporation, and Wellington Management.

most important components to separate were the profits coming from the core business and those that were speculative profits and losses coming from price changes. We would do this to show them what a “risk-neutral” position would look like, which is to say, the properly hedged position one would take if one didn’t have a view of the markets.

This approach to establishing a “risk-neutral” benchmark position and deviating from it with measured bets was the genesis of the style of investment management we would later call “alpha overlay,”

is to

only take bets you are highly confident in and to diversify them well.

Seeing one of the richest and most accomplished men on

planet lose everything made a huge impression on me.

All I wanted was to trade the markets and build relationships, doing for our clients exactly what I would do if I were in their shoes.

The more unusual a place, the more interesting I found it. This curiosity drew me to Beijing in 1984.

I got the invitation because I had a small office in Hong Kong whose director was an advisor to CITIC, the “window company” that was the only business in China allowed to deal with the outside world.

From nothing, these people built China’s markets and the government’s securities regulatory arm.

Essentially, I was setting up the first U.S.-based private equity firm in China.

I soon realized I had sorely underestimated the complexity of the task we had set for ourselves and the amount of time it would take.

I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want.

Maturity is the ability to reject good alternatives in order to pursue even better ones.

Matt’s difficult but life-changing journey profoundly affected his values and goals. Because he fell in love with China (he says that he became part Chinese that year) and because he learned the value of empathy relative to the value of material wealth, he started a charity called China Care to help Chinese special-needs orphans when he was just sixteen.

My contact with Singapore’s people and institutions also thrilled me. There was and still is no leader I admire more than Lee Kuan Yew, who transformed Singapore from a mosquito-infested backwater to a model economy.

Charlie Rose (one of the most curious and insightful people I know).

I love getting to know interesting people from interesting places and seeing the world through their eyes.

I’ve also learned that judging people before really seeing things through their eyes stands in the way of understanding their circumstances—and that isn’t smart.

I

urge you to be curious enough to want to understand how the people who see things differently from y...

I never valued more traditional, antiseptic relationships where people put on a façade of politeness and don’t say what they really think.