Ray Dalio founded the Hedge Fund Bridgewater Associates out of his apartment in 1975. He opened an office in Westport, Connecticut by 1981, and grew it into becoming the world’s largest hedge fund by 2005. As of 2019 it has over $124.7 billion in assets under management. In 2007 Bridgewater starting seeing warning signs there might be a global financial crisis. Bridgewater Associates serve institutional clients like pension funds, endowments, foundations, foreign governments, and even central banks. Ray Dalio has a net worth of around $18.7 billion. What might would be his advice to traders and investors trying to get to his level? Here are some of the best quotes I have found from Mr. Dalio on the principles we can take away from his lessons.
“Pain + Reflection = Progress” – Ray Dalio
There is no better teacher in the markets than the mental and emotional pain of mistakes if we will be open to listen to what it is trying to teach us.
“He who lives by the crystal ball will eat shattered glass.” – Ray Dalio
Sticking with your own market predictions is a dangerous plan as every day new information is available that can change the whole path of market price action.
“There are two main drivers of asset class returns — inflation and growth.” – Ray Dalio
Always consider the impact of inflation and growth on market trends. Capital is always in search of returns and these are the two primary drivers that cause money to move in and out of markets.
“When I’m looking at it I think these things that kind of keep happening over and over again … and then I have this template … and these rules, if this happens then that’s going to happen because it has all happened before.” – Ray Dalio
The cycles of accumulation and distribution repeat. You need a trading or investing model to learn from the past so you can create rules for decisions to profit from these repeating patterns in the present moment.
“The average man tends to be much more reactive if you look at the purchases and sales that they make. When something goes up, they’re more likely to buy it. They think, ah, that’s a good investment. They don’t know how to measure that in terms of, oh, is that a much more expensive investment that’s more likely to go down? That’s what they’re attracted to. They tend to buy high and sell low, and so an average man should not be playing this game in that way …” – Ray Dalio
Understanding where an asset price is in terms of the probability of the risk/reward ratio is crucial in making good buying and selling decisions.
“”In order to be successful, you’re betting against the consensus, and you have to be right. The consensus is built into the price. So because the consensus is built into the price, and assets price themselves in a way that they’re all competing, and they’re all of equal value in a certain sense. There’s risk premium of equities over cash and bonds will have that over whatever, but basically, they’re all priced that way. So like think of it as going to betting on a sports team or in other words, or horse racing.” – Ray Dalio
Look at markets for the risk that is priced into each asset. When you are entering into a trade or investment you are betting on what you think will be the winning asset going forward from the current price.
“Listening to uninformed people is worse than having no answers at all.” – Ray Dalio
Be careful to only listen and learn from successful traders and investors not the opinion of the ignorant people.
“Don’t be a perfectionist, because perfectionists often spend too much time on little differences at the margins at the expense of other big, important things. Be an effective imperfectionist.” – Ray Dalio
The goal is not to be perfect, the goal is to make money. Look for a profitable system not a perfect system, because perfection is impossible but success is a high probability.
“Not being controlled by an emotion helps to see things at a higher level.” – Ray Dalio
Emotions lead people to make terrible decisions in the markets while being analytical, rational, and using a quantified process is an edge.
“People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices.” – Ray Dalio
Investors and traders have to stay aware of what is really happening in the markets and not be lost in their own opinions about what should be happening or be married to their prediction of what will happen.
