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Ray Dalio on Failure, Meaningful Work and Relationships · Masters in Business

• 0:02
  Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
• 0:09
  Speaker 1: What can I say about this week's podcast? I sit
• 0:11
  Speaker 1: down with Ray Dahio of Bridgewater Associates and you have
• 0:16
  Speaker 1: to hear the whole thing there. I can't even preface
• 0:19
  Speaker 1: it by describing it. He's Ray Dahio. It's awesome. I
• 0:24
  Speaker 1: will share a quick story about the first time I
• 0:27
  Speaker 1: met Ray. I had been reading various things. He had
• 0:30
  Speaker 1: been posted an early version of of Principles, and I
• 0:33
  Speaker 1: loved his idea of radical transparency and failure learning from
• 0:39
  Speaker 1: failure era mistakes. Failures, they are an opportunity to learn,
• 0:43
  Speaker 1: and we should not ignore our mistakes, but we should
• 0:46
  Speaker 1: own them and learn from them. And because of that,
• 0:49
  Speaker 1: I started doing my annual Mia culpus. I've been doing
• 0:52
  Speaker 1: it for about a decade. So I wanted when there
• 0:55
  Speaker 1: was an event, I wanted the opportunity to, uh say
• 0:58
  Speaker 1: thank you to him. I couldn't get you were near
• 1:00
  Speaker 1: the guy after he spoke, where a million institutional salespeople
• 1:03
  Speaker 1: all over him. I step outside and I'm just standing there,
• 1:06
  Speaker 1: kind of fuming, and I see the scrum coming towards me.
• 1:10
  Speaker 1: It's Ray and his assistant and all these salespeople and
• 1:14
  Speaker 1: it was sort of like an Andy Cap cartoon with
• 1:16
  Speaker 1: these guys all trying to get in there. Eventually he
• 1:19
  Speaker 1: is the scrum works its way, so he's like two
• 1:22
  Speaker 1: ft from me, and I just looked up and said, hey, Ray,
• 1:26
  Speaker 1: I don't have a business card for you. I just
• 1:28
  Speaker 1: wanted to say thank you. And he kind of swiveled
• 1:30
  Speaker 1: around and looked at me. Who are you. I introduced
• 1:32
  Speaker 1: myself and I tell him hey, because of your uh
• 1:36
  Speaker 1: concept of of owning mistakes and the value of failure,
• 1:40
  Speaker 1: I started posting my Mia Culpaz publicly. Here's where I
• 1:44
  Speaker 1: screwed up. Here is what I learned. And we just
• 1:46
  Speaker 1: chatted for two or three minutes, and you could feel
• 1:49
  Speaker 1: the white hot hate of all these salespeople who were
• 1:52
  Speaker 1: looking for uh entree for a commission business with Bridgewater
• 1:57
  Speaker 1: and I'm just chit chatting and saying thank you. So
• 2:00
  Speaker 1: he and his assistant get in the car with a
• 2:03
  Speaker 1: giant stack of papers and folders and stuff you know
• 2:07
  Speaker 1: they're throwing out immediately um and I basically said, gee,
• 2:10
  Speaker 1: I have to sit down and have a longer conversation
• 2:13
  Speaker 1: with that guy. He's pretty fascinating Well here it is
• 2:16
  Speaker 1: almost a decade later, with no further ado. My conversation
• 2:21
  Speaker 1: with Ray Dalio, my guests this week requires little in
• 2:28
  Speaker 1: the way of introduction from me. His name is Ray
• 2:31
  Speaker 1: Dalio and he is the founder, chairman, and outgoing CEO
• 2:36
  Speaker 1: of Bridgewater Associates, the world's largest hedge fund, managing over
• 2:40
  Speaker 1: a hundred and sixty billion dollars in assets for institutional clients.
• 2:45
  Speaker 1: Ray continues to work as Chief Investment officer there. According
• 2:49
  Speaker 1: to Fortune, Bridgewater is the fifth most important private company
• 2:54
  Speaker 1: in the United States. They have made more money for
• 2:57
  Speaker 1: their clients than any other fund in his stree. His
• 3:01
  Speaker 1: new book, Principles, is a New York Times bestseller. Ray Dalio,
• 3:05
  Speaker 1: Welcome to Bloomberg. Thanks nice to be here. I have
• 3:08
  Speaker 1: been looking forward to this conversation for so long. Let's
• 3:12
  Speaker 1: jump right in with Bridgewater just celebrated its forty anniversary.
• 3:18
  Speaker 1: How has the company's evolution surprised you since you first
• 3:23
  Speaker 1: launched the firm in the nineteen seventies. Well, it surprises me,
• 3:26
  Speaker 1: an every day, every different which way I mean. I
• 3:28
  Speaker 1: don't know how to summarize it. Uh, you know, I
• 3:31
  Speaker 1: started it out of a two bedroom apartment with a
• 3:33
  Speaker 1: guy played rugby with and I was just playing my game,
• 3:37
  Speaker 1: and I just never imagined that it would be anything
• 3:39
  Speaker 1: like this. So you go through to these different phases.
• 3:42
  Speaker 1: You know, first phases you have to take care of everything.
• 3:45
  Speaker 1: You have to hire people, you hire your pals. Then
• 3:48
  Speaker 1: you realize that you have to manage people, and then
• 3:50
  Speaker 1: you have to you know, I had to get the
• 3:52
  Speaker 1: file cabinets myself and all that. Then you get people
• 3:55
  Speaker 1: who get the file cabinets, and then you have to
• 3:57
  Speaker 1: manage them that. You know, it goes through all of
• 3:59
  Speaker 1: its phases, and now, um, I'm at the wonderful phase
• 4:03
  Speaker 1: of being able to transition out of the management and
• 4:06
  Speaker 1: make other people successful. So I'm now a phase in
• 4:09
  Speaker 1: my life which I'm describing as entering the third phase
• 4:13
  Speaker 1: of my life of transitioning so that I'm making other
• 4:16
  Speaker 1: people successful. So every phase is different, you know, lots
• 4:19
  Speaker 1: of surprises. So let me tell you what surprised me.
• 4:22
  Speaker 1: In principles, in the first part of the book that
• 4:25
  Speaker 1: describes your history, you had roles in the creation of
• 4:30
  Speaker 1: each of the following products tips, the inflation protected treasury bonds,
• 4:35
  Speaker 1: US dollar futures, index, risk parity China's stock market, and
• 4:41
  Speaker 1: chicken McNuggets. Let's discuss each of those, but I have
• 4:44
  Speaker 1: to start with the outlier, chicken McNuggets. What was your
• 4:47
  Speaker 1: role when chicken McNuggets, Well, you know, I was trading commodities.
• 4:51
  Speaker 1: And when I say trading commodities down at a very
• 4:55
  Speaker 1: basic level of understanding. You know, how many pounds of
• 4:59
  Speaker 1: feed went in to a chicken or beef, uh, and
• 5:02
  Speaker 1: how that would grow. I liked it because it was
• 5:05
  Speaker 1: very mechanical and there was not no greater fool theory.
• 5:08
  Speaker 1: You know. The value of the meat was whatever it
• 5:10
  Speaker 1: sold for at the counter. And at the time that time,
• 5:13
  Speaker 1: I had institutional clients who were uh, you know, hedging,
• 5:18
  Speaker 1: and McDonald's was a client of mine, and some chicken
• 5:21
  Speaker 1: producers were clients of money main processing. Yeah, and um
• 5:25
  Speaker 1: McDonald's wanted to They came up with the idea of
• 5:28
  Speaker 1: the chicken McNugget. But the big problem that they had
• 5:31
  Speaker 1: at the time is there was a lot of volatility
• 5:34
  Speaker 1: in prices, in chicken prices, mostly because there was grain prices.
• 5:38
  Speaker 1: A chick is a tiny thing, it doesn't cost much,
• 5:41
  Speaker 1: but it's all the grain, and so they were worried
• 5:44
  Speaker 1: about you put out these at a fixed price on
• 5:48
  Speaker 1: the menu, and then the price volatility could kill them.
• 5:51
  Speaker 1: So they wanted to buy chicken at a fixed price.
• 5:54
  Speaker 1: But nobody produced chicken at a fixed price because there
• 5:57
  Speaker 1: was no chicken futures market. So I went to the
• 6:00
  Speaker 1: Lane processing and I said, would you like to do this?
• 6:03
  Speaker 1: And I calculated how they could essentially hedge their cost
• 6:08
  Speaker 1: by buying corn and soy meal futures, and then they
• 6:11
  Speaker 1: locked in the price for chicken McNuggets. And I loved
• 6:14
  Speaker 1: really commodities then I love that story. It's so fascinating
• 6:18
  Speaker 1: how a little bit of financial engineering and lo and
• 6:21
  Speaker 1: behold you have a consistent price for chicken. It was cool. Yeah,
• 6:25
  Speaker 1: and you did um dollar futures index. Was that with
• 6:28
  Speaker 1: Paul Tutor Jones volatility and the dollar and then he figured,
• 6:33
  Speaker 1: let's put together a basket and uh so we put
• 6:37
  Speaker 1: together a basket. We designed it, how it would it work.
• 6:39
  Speaker 1: We did the same thing with the CRB futures. It's engineering.
• 6:42
  Speaker 1: You've got to understand engineering. You have to understand the mechanics.
• 6:47
  Speaker 1: It's a fair basic fundamental thing whatever you do. And
• 6:50
  Speaker 1: so we understood a lot about engineering. I put together
• 6:53
  Speaker 1: those products. What about your role in the development of
• 6:56
  Speaker 1: China's equity markets, Well, yeah, I into there. I started
• 7:01
  Speaker 1: going nineteen eighty four to China, and uh because not
• 7:05
  Speaker 1: not for business or anything, because it was an interesting place.
• 7:08
  Speaker 1: Um and a matter of fact, the company that invited me, Siddek,
• 7:13
  Speaker 1: was the only company in China that was allowed to
• 7:15
  Speaker 1: deal with the outside world. They called it a window company. Anyway,
• 7:20
  Speaker 1: as they started to in night nine, start to think
• 7:24
  Speaker 1: about we need financial markets. There were seven people who
• 7:27
  Speaker 1: were in a room and that it was sort of
• 7:29
  Speaker 1: a dingy hotel room, and they had to start to
• 7:32
  Speaker 1: think about the markets. And I got to know them
• 7:34
  Speaker 1: and we started to think about how they would develop
• 7:37
  Speaker 1: a stock market, a bond market, and so on. So
• 7:40
  Speaker 1: I got to be a participant in that, and that
• 7:43
  Speaker 1: was a blast. These people have become, you know, lifelong friends,
• 7:47
  Speaker 1: so you know, since that time until now, we've been friends.
• 7:52
  Speaker 1: And then they've gone on to develop the fabulous financial
• 7:55
  Speaker 1: markets that are there and I'm still there. So it's great.
• 7:58
  Speaker 1: You know what I like is I like meaningful work
• 8:00
  Speaker 1: and meaningful relationships. I like work that I can get
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  Speaker 1: my head into and I'm having an impact that's great,
• 8:07
  Speaker 1: and I love the meaningful relationships. If you could do
• 8:09
  Speaker 1: this with people you like over a period of time,
• 8:12
  Speaker 1: that's even the greatest reward. That phrase meaningful work and
• 8:16
  Speaker 1: meaningful relationships comes up in Principles over and over, not
• 8:21
  Speaker 1: just in the history but in the Life Principles part,
• 8:24
  Speaker 1: and it seems to be applied in the Work Principles part.
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  Speaker 1: Tell us what led you to those two elements? Well, look,
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  Speaker 1: I want it. I mean personally, I want the meaningful
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  Speaker 1: work that I get excited about to be on a mission,
• 8:40
  Speaker 1: and then I love the meaningful relationships. It's as much
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  Speaker 1: important to me as whatever business with success. And if
• 8:45
  Speaker 1: you put those two things together, being on a mission
• 8:48
  Speaker 1: with people who you love and that great mission mission,
• 8:52
  Speaker 1: it's um double rewards. And then it also reinforces each
• 8:56
  Speaker 1: other because if you're if you're doing in the meaningful
• 9:00
  Speaker 1: work and you have the meaningful relationships, you can be
• 9:02
  Speaker 1: tough with each other and you um, you know, you
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  Speaker 1: get the devotion. The people who work at Bridgewater, a
• 9:09
  Speaker 1: lot of them who work there for a long time,
• 9:11
  Speaker 1: they would never think of working anywhere else because it's
• 9:13
  Speaker 1: like an extended family. You have to understand that money
• 9:16
  Speaker 1: as a reward, UH, is not a very satisfying reward
• 9:20
  Speaker 1: really in comparison to the meaningful relationships if you do.
• 9:23
  Speaker 1: Studies have been done on happiness right, and they said,
• 9:26
  Speaker 1: there's very little correlation between the amount of money that
• 9:30
  Speaker 1: you have passed a certain basic point. Once the basis
• 9:32
  Speaker 1: have covered, there's a diminishing returns, not much correlation. The
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  Speaker 1: number one thing in source of happiness across countries everywhere
• 9:41
  Speaker 1: is a sense of community. So if you have both
• 9:44
  Speaker 1: of those things great or So I wanted those meaningful
• 9:46
  Speaker 1: work and reading for relationships, and then in order to
• 9:50
  Speaker 1: have those, I wanted to be radically truthful and radically
• 9:53
  Speaker 1: transparent with each other. Because if I'm going to have
• 9:57
  Speaker 1: a relationship with you or the people around me, I
• 10:00
  Speaker 1: need to have an idea meritocracy in which we are
• 10:03
  Speaker 1: radically truthful and radically transparent. And that's how the culture began,
• 10:09
  Speaker 1: and that's how what the culture is. You know, in
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  Speaker 1: a nutshell, the culture is an idea meritocracy in the words,
• 10:15
  Speaker 1: the best ideas win out, UH, in which we're going
• 10:18
  Speaker 1: for meaningful work and meaningful relationships through being radically truthful
• 10:24
  Speaker 1: and radically transparent and that's been the key to the success.
• 10:28
  Speaker 1: Let's talk a little bit about mistakes. You describe mistakes
• 10:33
  Speaker 1: as opportunities to learn and improve, saying, the key to
• 10:38
  Speaker 1: success in life is learning how to fail well. Discuss well.
• 10:44
  Speaker 1: I think in order to be successful you have to
• 10:47
  Speaker 1: do five things. Basically, First, you have to know what
• 10:50
  Speaker 1: your goals your dreams are, and on the way to
• 10:53
  Speaker 1: going after those goals and dreams, you're going to encounter
• 10:56
  Speaker 1: your failures and your mistakes. A lot people think that
• 11:00
  Speaker 1: that's painful. Uh, those are your learning opportunity. So I
• 11:04
  Speaker 1: was saying pain plus reflection equals progress. In other words,
• 11:10
  Speaker 1: reflect what would you have done differently. So first step goals.
• 11:14
  Speaker 1: Second step problems on the way to goals, not tolering them.
• 11:19
  Speaker 1: Third step, you have to diagnose those problems to get
• 11:22
  Speaker 1: at the root causes. Many of those times, the root
• 11:25
  Speaker 1: causes is you how you're handling it. So you've got
• 11:28
  Speaker 1: to learn a lesson. Most people learn lessons through painful mistakes,
• 11:32
  Speaker 1: So I associate painful mistakes with learning. Okay, so first
• 11:37
  Speaker 1: goals problems. Then diagnose those problems to the root cause,
• 11:42
  Speaker 1: make a design of what you're going to do differently
• 11:44
  Speaker 1: In the future when the next one comes along. Those
• 11:47
  Speaker 1: are the principles I wrote down those principles. That's what
• 11:50
  Speaker 1: the book is mostly about, this collection of principles. So
• 11:54
  Speaker 1: number four, design ways of getting around them. Number five,
• 11:59
  Speaker 1: do those things pushed through the results. You keep doing
• 12:02
  Speaker 1: this over and over and over again, you're going to
• 12:04
  Speaker 1: be successful. I have another um little formula that basically
• 12:08
  Speaker 1: means that if you have your dreams, plus you embrace reality,
• 12:14
  Speaker 1: and you learn from reality, your painful realities, and you
• 12:17
  Speaker 1: have enough determination so you keep learning, you will inevitably
• 12:21
  Speaker 1: have a successful life. So those are the That's what
• 12:23
  Speaker 1: I mean. The value in learning is from mistakes, because
• 12:27
  Speaker 1: mistakes cues the fact that you learned something that that
• 12:31
  Speaker 1: something is wrong. But you need quality reflection. And when
• 12:36
  Speaker 1: I started, when I did this over a period of time,
• 12:38
  Speaker 1: my whole attitude started to change. I began to view mistakes, problems, failures.
• 12:45
  Speaker 1: I began to view them as puzzles that they were
• 12:49
  Speaker 1: curious to me. And if I could solve the puzzle,
• 12:52
  Speaker 1: I would get a gem. And the gem I would
• 12:55
  Speaker 1: get would be a lesson or a principle of what
• 12:58
  Speaker 1: I would do differently in the future. And I wrote
• 13:01
  Speaker 1: that down. So a big thing for me, well for
• 13:04
  Speaker 1: I don't know, twenty five years, is to write down
• 13:08
  Speaker 1: the my principles every time I'm making a decision, writing
• 13:11
  Speaker 1: down those principles. And then I found out I can
• 13:15
  Speaker 1: convert those principles to decision rules, and I could have
• 13:18
  Speaker 1: the computer help me make those decisions because it would reflect.
• 13:21
  Speaker 1: And that changed my life. So one of the things
• 13:25
  Speaker 1: you wrote that really stood out to me about a
• 13:28
  Speaker 1: related topic, you you said you fear boredom and mediocrity
• 13:33
  Speaker 1: more than failure, and the line was great is better
• 13:36
  Speaker 1: than terrible, but terrible is better than mediocre. Is that
• 13:41
  Speaker 1: related to this idea well making mistakes or is it
• 13:44
  Speaker 1: really just I don't want to be bored I want
• 13:46
  Speaker 1: meaningful work. Well, i'd say it's probably half and half.
• 13:49
  Speaker 1: I mean, in other words, I want flavor in my life, right,
• 13:53
  Speaker 1: you know, And I don't mind getting banged up a
• 13:57
  Speaker 1: little bit on the way to learning. And I love learning.
• 13:59
  Speaker 1: I love the evolution. So boredom is the thing that
• 14:03
  Speaker 1: is the worst for me. So pain, I can, you know,
• 14:07
  Speaker 1: I can deal with some pain. I find even the
• 14:09
  Speaker 1: benefit of the pain. It's become almost like failure equals success.
• 14:15
  Speaker 1: That's that sounds like a weird thing, fail little process
• 14:18
  Speaker 1: in the middle, right, failure equal success. But because I've
• 14:21
  Speaker 1: gotten re cued programmed, essentially, what that failure means is
• 14:26
  Speaker 1: failure means learning, and that's exciting to me. And then
• 14:30
  Speaker 1: it produces success, and that's exciting to me. And that
• 14:34
  Speaker 1: changing my instinctual reaction, my need jerk reaction to failure
• 14:39
  Speaker 1: gives me a more exciting life and gives me a
• 14:41
  Speaker 1: more successful life. So let's talk a little bit about
• 14:44
  Speaker 1: that pain and that radical transparency. You write about a
• 14:49
  Speaker 1: memo that your staff gave you about quote, raise intractable
• 14:54
  Speaker 1: people problem, and I'll spare the details, it's in the book,
• 14:58
  Speaker 1: but they really call you out. They really take you
• 15:01
  Speaker 1: to task for the way you're interacting with staff. How
• 15:05
  Speaker 1: did this peer review affect you? What did this dude
• 15:08
  Speaker 1: to impact that philosophy that you've developed. Well, I always,
• 15:12
  Speaker 1: I always really wanted that that kind of feedback because
• 15:15
  Speaker 1: I wanted to work with independent thinkers who would speak
• 15:18
  Speaker 1: up just like I could, radically straightforward. But as the
• 15:21
  Speaker 1: company got to get a little bit bigger, and I
• 15:23
  Speaker 1: think it was probably like maybe we had eighty five
• 15:25
  Speaker 1: people or so then and that straightforwardness was making people
• 15:31
  Speaker 1: feel comfortable uncomfortable and I didn't know that. So they
• 15:35
  Speaker 1: called me out to dinner and they and they give
• 15:38
  Speaker 1: me this memo and they explained to me that I'm
• 15:40
  Speaker 1: having this effect of, I don't know, demoralizing people, upsetting people.
• 15:45
  Speaker 1: And I didn't want to have that effect, like these
• 15:47
  Speaker 1: are the meaningful relationships I wanted to have it. So
• 15:50
  Speaker 1: it paused me um to make me think, well, what
• 15:53
  Speaker 1: do I do? That's an intractable problem. Am I gonna
• 15:56
  Speaker 1: not be as straightforward with them? Can't they be straightforward
• 16:00
  Speaker 1: with me? And how am I going to change that?
• 16:02
  Speaker 1: Let me interrupt your sect? You're the boss. How these
• 16:05
  Speaker 1: people who are feeling wow? Ray really ripped me a
• 16:09
  Speaker 1: new one today. Did you really feel they can come
• 16:12
  Speaker 1: up to you and say, hey, Ray, even though you're
• 16:14
  Speaker 1: the founder and boss, here, here's what you're doing wrong
• 16:16
  Speaker 1: and you better cut it out well. In the markets,
• 16:19
  Speaker 1: and as an entrepreneur, you've got a bet against the
• 16:22
  Speaker 1: consensus and be right. Otherwise you're not any value in
• 16:26
  Speaker 1: the markets. The consensus is built into the price, and
• 16:29
  Speaker 1: you've got a bet against it and be right. You
• 16:32
  Speaker 1: have to be an independent thinker, and you're not sure
• 16:35
  Speaker 1: that you're going to be right. So for always, Uh,
• 16:39
  Speaker 1: you know, I've gotten my head handed to me enough
• 16:41
  Speaker 1: times that I'm scared about being wrong, and as a
• 16:45
  Speaker 1: result of that, I want to work with independent thinkers.
• 16:48
  Speaker 1: These are the people I respect who can then argue
• 16:51
  Speaker 1: back and forth and to try to raise our probabilities
• 16:54
  Speaker 1: of being right. So that's part of the process, right,
• 16:56
  Speaker 1: and so um that that type of straightforwardness, um is
• 17:01
  Speaker 1: not uh easy for people, but that's the way I've
• 17:04
  Speaker 1: always operated, That's the way we've operated, and we've institutionalized
• 17:08
  Speaker 1: operating that way. But at the time, some people found
• 17:11
  Speaker 1: really that uncomfortable. Um, So then we go back. Um,
• 17:16
  Speaker 1: I was, you know, in a position where I didn't
• 17:19
  Speaker 1: want to do that and I and I didn't also
• 17:21
  Speaker 1: not want I didn't want to stop doing it, So
• 17:23
  Speaker 1: what should I do? So I thought, I reflected on that,
• 17:27
  Speaker 1: and I came up with the idea of let me
• 17:29
  Speaker 1: just sit down with the people and decide how are
• 17:32
  Speaker 1: we going to be with each other. For example, if
• 17:35
  Speaker 1: I have critical thoughts about you, should I tell you
• 17:39
  Speaker 1: or should I hold them to myself? If you've got
• 17:41
  Speaker 1: critical thoughts about me, should you tell me or should
• 17:45
  Speaker 1: you hold them to yourself? If everybody intellectually really says no, no,
• 17:50
  Speaker 1: you want to know about those things, right, But emotionally
• 17:54
  Speaker 1: then they don't. Uh, they don't like it right. And
• 17:57
  Speaker 1: what we discovered really is the two use in everybody,
• 18:02
  Speaker 1: there are two use. There's this intellectual, thoughtful you that
• 18:06
  Speaker 1: would like to make decisions a certain way, and then
• 18:09
  Speaker 1: there's an emotional, subliminal you that you don't even understand
• 18:12
  Speaker 1: very well, and it's having a conflict. And so by
• 18:16
  Speaker 1: making it very clear with each other, we could establish
• 18:19
  Speaker 1: ways of being with each other. That really led me
• 18:22
  Speaker 1: to write down a lot of my work principles. In
• 18:25
  Speaker 1: other words, Okay, how are we going to be with
• 18:27
  Speaker 1: each other? I wrote those down in words, we put
• 18:29
  Speaker 1: those together, and then we moved forward. So we had that.
• 18:33
  Speaker 1: With that, we established what our unusual way of our operating,
• 18:38
  Speaker 1: our unusual culture was with this thoughtful disagreement, this idea meritocracy.
• 18:43
  Speaker 1: And it was like a contract. And people realized that
• 18:46
  Speaker 1: the struggling wasn't between me and them really as much
• 18:49
  Speaker 1: as it was between them and them. There their emotional
• 18:53
  Speaker 1: and their intellectual and that changed everything. So the writing
• 18:55
  Speaker 1: down the principles changed everything and the realization that everybody
• 19:00
  Speaker 1: has those struggles between their thoughtfulness and what they want
• 19:04
  Speaker 1: and their emotional self and then you work on getting
• 19:07
  Speaker 1: through that. And we found that typically it takes about
• 19:09
  Speaker 1: eighteen months to get to a place of, you know,
• 19:12
  Speaker 1: practicing this and getting comfortable with it. In order to
• 19:15
  Speaker 1: have an idea meritocracy, you have to do three things. First,
• 19:19
  Speaker 1: you have to put your honest thoughts on the table
• 19:22
  Speaker 1: for everybody to see, holding back, no holding back everybody
• 19:25
  Speaker 1: and everybody puts them on the table. Great, Okay, a
• 19:28
  Speaker 1: lot of people won't do that, but when you get practiced,
• 19:31
  Speaker 1: you don't want to do it any other way. So
• 19:32
  Speaker 1: you put your honest thoughts on the table. Second thing
• 19:36
  Speaker 1: is you have to know the art of thoughtful disagreement,
• 19:39
  Speaker 1: the art of thoughtful distance and challenge right in other words,
• 19:43
  Speaker 1: to view that as a curiosity that you also might
• 19:48
  Speaker 1: be wrong if there's disagreement, How do you know the
• 19:50
  Speaker 1: wrong party isn't you? So to separate oneself from one's
• 19:54
  Speaker 1: opinions and to be able to have a quality back
• 19:57
  Speaker 1: and forth motivated by curi city and the fear of
• 20:01
  Speaker 1: being wrong, so that you can take in and learn
• 20:03
  Speaker 1: that understanding the art of thoughtful disagreement is invaluable. So
• 20:08
  Speaker 1: you so that's the second thing, put your honest thoughts
• 20:11
  Speaker 1: on the tables. The first, UM have understand the art
• 20:15
  Speaker 1: of their thoughtful disagreement. We have protocols about how to
• 20:18
  Speaker 1: do that. And then at the end of the day,
• 20:20
  Speaker 1: when there's um you have to make a decision and
• 20:23
  Speaker 1: you still have disagreements, to have protocols to get around
• 20:27
  Speaker 1: those disagreements that you consider to be fair. I'd say
• 20:31
  Speaker 1: this is essential for me in all my relationships. So
• 20:35
  Speaker 1: it would be relationships with family, with friends, UM, you
• 20:38
  Speaker 1: know I need them to be straightforward with me. I
• 20:42
  Speaker 1: gotta be straightforward with them. We have to know how
• 20:45
  Speaker 1: to have thoughtful disagreement. And then everybody in any relationship
• 20:50
  Speaker 1: has to have protocols for getting around their disagreements if
• 20:54
  Speaker 1: they still remain. If you and your wife are having
• 20:56
  Speaker 1: a disagreement on something, you still have to have a
• 20:58
  Speaker 1: protocol for getting around out it. So by organizing that
• 21:02
  Speaker 1: and making it clear, we were able to have this
• 21:05
  Speaker 1: idea meritocracy, and everybody believes the idea meritocracy is then fair.
• 21:11
  Speaker 1: Imagine how it is different at every other place, you know,
• 21:14
  Speaker 1: the boss tells you what it is. People bottle people
• 21:17
  Speaker 1: bottle it up. Okay, they think, oh, he's making a mistake.
• 21:22
  Speaker 1: He would benefit from having that feedback. But they have
• 21:25
  Speaker 1: to bottle it up with which frustrates them. Therefore they
• 21:28
  Speaker 1: can't have a real ownership mentality and the organization that
• 21:31
  Speaker 1: they're with, and it undermines their relationship. That straightforwardness has
• 21:35
  Speaker 1: been fantastic in creating better work and better relationship. So
• 21:39
  Speaker 1: that's been the secret source. So let me do a
• 21:42
  Speaker 1: little radical transparency with you. In the book, you discussed
• 21:46
  Speaker 1: two things. We discussed the people problem and the social issues.
• 21:51
  Speaker 1: You talk about bipolar running in the family. And as
• 21:54
  Speaker 1: I read those two in sequence, I immediately said, Hey,
• 21:58
  Speaker 1: I wonder if Ray is a little bit on the
• 22:00
  Speaker 1: spectrum himself. So let me ask you. Have you ever
• 22:03
  Speaker 1: considered you're an independent thinker. Your perspectives are unique. You're
• 22:08
  Speaker 1: very different from the way the average person in finance operates.
• 22:11
  Speaker 1: Have you ever thought, hey, maybe I'm a little a
• 22:14
  Speaker 1: little different. Well no, but look, I'm sure i'm a
• 22:17
  Speaker 1: little different than you know. Who knows, I'm probably crazy
• 22:20
  Speaker 1: in a bunch of different ways. I've never been Uh,
• 22:22
  Speaker 1: nobody said that, but you know, like who knows. We
• 22:25
  Speaker 1: all have different spectrums. The thing I learned about it
• 22:28
  Speaker 1: is there's always a range of thinking. So think of
• 22:31
  Speaker 1: it as a thinking spectrum. And I don't know where
• 22:35
  Speaker 1: I am on that thinking spectrum. But some people, for example,
• 22:38
  Speaker 1: we'll see big pictures, some people will see detail. Some
• 22:42
  Speaker 1: people are creative, some people are reliable. One of the
• 22:46
  Speaker 1: things we've learned here is that everybody sees things differently,
• 22:50
  Speaker 1: like seeing on a spectrum of of seeing, and that
• 22:54
  Speaker 1: knowing how one thinks. UM, I tend to be more
• 22:58
  Speaker 1: of a big picture thinker, to to be more of
• 23:00
  Speaker 1: a you know, original thinker, that kind of thing. But
• 23:03
  Speaker 1: in terms of my reliability, like I'm have low reliability
• 23:07
  Speaker 1: whatever to know those things and then to have the
• 23:10
  Speaker 1: individuals um recognize them and then put together your team's
• 23:14
  Speaker 1: well because you need to do it all. Is this
• 23:17
  Speaker 1: what led you guys to doing the Briggs Myers personality
• 23:21
  Speaker 1: uh tests on everybody and making sure the teams all
• 23:23
  Speaker 1: had each of those boxes checked off. Yeah, and a
• 23:27
  Speaker 1: lot of tests and a lot of collecting data. Like
• 23:30
  Speaker 1: people come in there and they really do want to
• 23:34
  Speaker 1: know what their strengths and weaknesses are, because like, you know,
• 23:38
  Speaker 1: knowing a weakness, do you want to know a weakness?
• 23:41
  Speaker 1: You know, that's one of those emotional intellectual questions. Emotionally
• 23:45
  Speaker 1: a lot of people don't. Intellectually, if you know your weakness,
• 23:49
  Speaker 1: you can either convert it to a strength somehow, or
• 23:51
  Speaker 1: you can compensate for it by put working with somebody
• 23:54
  Speaker 1: who's got who's strong. We are you're weak. So knowing
• 23:57
  Speaker 1: your weakness is the key to success. And also from
• 24:00
  Speaker 1: an employer's point of view, what you want to do
• 24:02
  Speaker 1: is you want to know what their weaknesses are and
• 24:04
  Speaker 1: what their strange sources. You put them in the right role.
• 24:07
  Speaker 1: People tippy toe around this stuff and you know, you
• 24:10
  Speaker 1: know where we are. People want to get into it
• 24:12
  Speaker 1: and work it out, and so yeah, tests personality tests
• 24:16
  Speaker 1: give you a real sense of what your preferences are
• 24:19
  Speaker 1: and how you approach your thinking. They've been very helpful.
• 24:22
  Speaker 1: But all the data we collect, you know, like every
• 24:25
  Speaker 1: meeting of every day. We have a tool called the
• 24:28
  Speaker 1: dot Collector. If anybody wants to see it. If you
• 24:31
  Speaker 1: really don't want to understand all this in sixteen minutes,
• 24:34
  Speaker 1: it's on a ted talk go on a TED talk
• 24:36
  Speaker 1: I gave it, uh, and and it gives you something.
• 24:40
  Speaker 1: You're going to see a device in which people are
• 24:43
  Speaker 1: putting in what they think, uh, during a meeting where
• 24:47
  Speaker 1: all meetings are like this, and you'll see how they
• 24:49
  Speaker 1: think differently. It lights up in different colors and then
• 24:53
  Speaker 1: it explores why is that thinking different? Which creates a
• 24:57
  Speaker 1: self discovery and creates idea Merita Crown decision making. So
• 25:02
  Speaker 1: it's been evolved to that and it's you know, it's
• 25:04
  Speaker 1: been invaluable. Let's talk a little bit about the idea
• 25:07
  Speaker 1: of being a hyper realist. You wrote, understand how reality works,
• 25:14
  Speaker 1: then learn how to deal with it. Isn't that what
• 25:16
  Speaker 1: everybody's supposed to do? Most people? I don't think, do
• 25:20
  Speaker 1: I think people? A lot of people, UM feel bad
• 25:24
  Speaker 1: about reality, feel sorry that, uh, some realities are happening
• 25:30
  Speaker 1: to them, feel things are unfair. Um, they don't react
• 25:35
  Speaker 1: to harsh realities. Well they don't. Instead, you can instead
• 25:40
  Speaker 1: say reality is the thing I have to deal with
• 25:45
  Speaker 1: and I have to be clever and understand how does
• 25:49
  Speaker 1: reality work and how do I deal with it effectively?
• 25:53
  Speaker 1: And those two different mindsets are UM are enormous because
• 25:58
  Speaker 1: if you own that reality is reality. You know that's
• 26:02
  Speaker 1: what you have to deal with, and that you have
• 26:04
  Speaker 1: to find the way of dealing with it successfully. Then
• 26:07
  Speaker 1: it changes your whole attitude and your whole path really
• 26:11
  Speaker 1: to being successful. So let's talk a little bit about
• 26:13
  Speaker 1: a change in path that reality seems to have le
• 26:18
  Speaker 1: led you towards. You transitioned at work from I'm right
• 26:23
  Speaker 1: to to what I would describe as next level thinking.
• 26:27
  Speaker 1: How can I know if I'm right? Explain that transition. Oh, yeah,
• 26:32
  Speaker 1: it was in one UM I had calculated that foreign
• 26:38
  Speaker 1: countries borrowed enough money that they couldn't pay back American banks,
• 26:43
  Speaker 1: and that there was going to be a big banking crisis.
• 26:45
  Speaker 1: I did the numbers and um that at that time
• 26:48
  Speaker 1: that was extremely controversial view. I said, We're gonna have
• 26:51
  Speaker 1: a big debt crisis and h Then in August Mexico
• 26:56
  Speaker 1: defaulted on its debt and and so I, We're gonna
• 27:00
  Speaker 1: have a big economic crisis, and so I was asked
• 27:03
  Speaker 1: to appear on Wall Street Week and explain it. I
• 27:06
  Speaker 1: was asked to testify to Congress and so on. Uh,
• 27:09
  Speaker 1: this big economic crisis, bear market in stocks and everything.
• 27:13
  Speaker 1: August two, Mexico devaults and here I am, and I'm
• 27:18
  Speaker 1: getting all that attention. I was so wrong. That was
• 27:23
  Speaker 1: that was the exact bottom in the stock market August,
• 27:28
  Speaker 1: and you were on ru Kaiser basically forecasting a depression.
• 27:32
  Speaker 1: I couldn't have been more wrong right, and I lost
• 27:35
  Speaker 1: money in the markets. I uh, I was. I had
• 27:40
  Speaker 1: to let everybody in my company go. It was down
• 27:42
  Speaker 1: to me. I was so broke. I had to borrow
• 27:45
  Speaker 1: four thousand dollars to my dad to help take care
• 27:47
  Speaker 1: of my family. Okay, that was one of the most
• 27:51
  Speaker 1: painful experiences of my life, but it was one of
• 27:54
  Speaker 1: the most valuable experiences of my life because it changed
• 27:58
  Speaker 1: my approach to decision making. In other words, like you say,
• 28:02
  Speaker 1: it shifted my perspective from thinking I'm right to asking myself,
• 28:06
  Speaker 1: how do I know I'm right? And it gave me
• 28:10
  Speaker 1: the humility that I needed to balance with my audacity.
• 28:15
  Speaker 1: And that change in approach resulted in, you know, some
• 28:18
  Speaker 1: big decision making where did I go back to another job,
• 28:21
  Speaker 1: would I stay out there? And and how would I
• 28:24
  Speaker 1: do things differently in the future. And the first thing,
• 28:27
  Speaker 1: most important thing was to find the smartest people I
• 28:30
  Speaker 1: know who would disagree with me to understand their thinking,
• 28:33
  Speaker 1: to have that thoughtful disagreement. That's part of your fourth
• 28:36
  Speaker 1: step process. Right, Yeah, find smart people know when not
• 28:40
  Speaker 1: to have an opinion. That's a fascinating statement. When should
• 28:43
  Speaker 1: you not have an opinion? Well? A lot of times? Right, Well,
• 28:47
  Speaker 1: I mean opinions, particularly in in any is a zero
• 28:51
  Speaker 1: sum game. But so many people have opinions that they're
• 28:54
  Speaker 1: attached to and and they don't know whether they're they're right,
• 28:58
  Speaker 1: and and that bias is killing them. I think one
• 29:02
  Speaker 1: of the greatest tragedies of mankind is people stupidly holding
• 29:07
  Speaker 1: onto opinions that could be wrong, that they could so
• 29:11
  Speaker 1: easily put out there and stress test. And that emotional
• 29:15
  Speaker 1: attachment to these opinions is one of those things where
• 29:18
  Speaker 1: instead you could just say, let me get the best
• 29:22
  Speaker 1: thinking I can have. It doesn't even have to come
• 29:24
  Speaker 1: from me. Why does it have to come from you?
• 29:26
  Speaker 1: But that's a huge ego fail. If oh my god,
• 29:29
  Speaker 1: I'm wrong, I have to go to someone else. Isn't
• 29:31
  Speaker 1: that how people often operate? Right? And that's screwed up? Right,
• 29:35
  Speaker 1: you have two basic barriers. You have your ego barrier
• 29:38
  Speaker 1: and your blind spot barrier. Like do you want to
• 29:41
  Speaker 1: be right or do you want to be you want
• 29:43
  Speaker 1: to take your lousy opinion and and be attached to
• 29:46
  Speaker 1: it being right, Like I want to be right. I
• 29:48
  Speaker 1: don't care where it comes from. Just as long as
• 29:50
  Speaker 1: I'm right. That works better. And then and so that
• 29:53
  Speaker 1: ego barrier is terrible. And then there's the blind spot barrier.
• 29:57
  Speaker 1: Even people who don't um have you know, uh, the
• 30:00
  Speaker 1: ego of being attachment to be right see things differently,
• 30:05
  Speaker 1: the unknown unknowns so to speak. Yeah, well, right, um,
• 30:08
  Speaker 1: this range the spectrum that you're talking about. Somebody sees
• 30:11
  Speaker 1: something creatively, somebody sees detail, somebody We all see things
• 30:15
  Speaker 1: differently and to be and so you can't see at
• 30:18
  Speaker 1: all the big picture person may not be able to
• 30:20
  Speaker 1: see the details, or the detailed person can't see the
• 30:23
  Speaker 1: big picture. If you can light up all those different
• 30:26
  Speaker 1: ways of thinking and and you can bring that to bear,
• 30:30
  Speaker 1: you're going to make much better decisions. So that's one
• 30:33
  Speaker 1: of the reasons that great collective decision making is much
• 30:37
  Speaker 1: more powerful than just individual opinionated thinking. Sure, of course,
• 30:42
  Speaker 1: you're you're you're bringing in all the advantages of the
• 30:46
  Speaker 1: group and you're limiting the problems of the individual, and
• 30:50
  Speaker 1: that raises your probabilities of being right. So now you
• 30:54
  Speaker 1: mentioned four steps, so I want to get to the
• 30:56
  Speaker 1: step three and four, which are the principles and up
• 30:59
  Speaker 1: so I risk versus downside risk, right, So okay, So
• 31:03
  Speaker 1: some of the other things that I learned about is
• 31:06
  Speaker 1: how you know, risk goes with rewards, but how am
• 31:10
  Speaker 1: I going to change the ratio of risk to rewards? Right?
• 31:14
  Speaker 1: And I spent a lot more time with financial engineering
• 31:17
  Speaker 1: of understanding how to use correlations and certain ways of
• 31:21
  Speaker 1: really radically improving the ratio of returned to risk. So
• 31:25
  Speaker 1: it's explained in there. And what I called the holy
• 31:27
  Speaker 1: Grail of investing, it's um, you know, that was there.
• 31:31
  Speaker 1: And then I also learned, um that everything that happened
• 31:37
  Speaker 1: that happens practically has happened before for the most part,
• 31:41
  Speaker 1: and that the things that surprised me were the things
• 31:44
  Speaker 1: that just happened happened in my lifetime before, but they
• 31:47
  Speaker 1: but they happened before. Like one first time I had
• 31:50
  Speaker 1: a breakdown of the currency system, okay, and it was
• 31:55
  Speaker 1: first time in my lifetime then had happened. But I
• 31:57
  Speaker 1: looked in history, happened many times before. So so I
• 32:00
  Speaker 1: learned that I needed to make my rules timeless and universal,
• 32:05
  Speaker 1: in other words, that I would run them back through
• 32:07
  Speaker 1: the Great Depression, through the Weimar Republic see how those
• 32:11
  Speaker 1: rules would work, and if they wouldn't have worked well
• 32:13
  Speaker 1: in certain periods, then I had to explain why they
• 32:16
  Speaker 1: would work in those periods, because there were reasons for that.
• 32:19
  Speaker 1: So these are the things that came out of my
• 32:21
  Speaker 1: reflections as a result of you know, that two painful experience.
• 32:28
  Speaker 1: It's such a great example that if you pain plus
• 32:32
  Speaker 1: reflection equals progress. If you really reflect the most and
• 32:36
  Speaker 1: you look at how reality works and you think what
• 32:39
  Speaker 1: should you do differently, that's where the power of growth
• 32:42
  Speaker 1: comes from. So there's one other thing in the Principles
• 32:45
  Speaker 1: at Work section I have to talk to you about
• 32:48
  Speaker 1: because I just was so tickled by it. You spend
• 32:51
  Speaker 1: almost five pages on how to run a meeting effectively?
• 32:56
  Speaker 1: So what if that raises two issues you Obviously we
• 33:00
  Speaker 1: think meetings are important and a significant part of getting
• 33:04
  Speaker 1: work done as a group. But it made me wonder
• 33:06
  Speaker 1: what were the meanings like in the early days of Bridgewater.
• 33:10
  Speaker 1: Was it was it anarchy that led you to this
• 33:12
  Speaker 1: sort of insight or or what motivated a lot of
• 33:16
  Speaker 1: thought about making meetings more productive? Well, um, the meetings
• 33:23
  Speaker 1: are an important thing. And meetings means that there's a
• 33:26
  Speaker 1: collection of people who are in the room and they're
• 33:28
  Speaker 1: ideally leading to some sort of decision. Okay, you have
• 33:32
  Speaker 1: to say, how are you going to be with each
• 33:34
  Speaker 1: other in order to make decisions? Right? In other words,
• 33:38
  Speaker 1: you can go around the table. I was I'd go
• 33:41
  Speaker 1: around the table and then there was not much attention
• 33:43
  Speaker 1: paid to you know, who knows exactly what? Right? You know?
• 33:48
  Speaker 1: What do you think, Harry? What do you think, Sally?
• 33:51
  Speaker 1: And maybe they're not good at it and maybe they're
• 33:54
  Speaker 1: good at it at so um that's a problem. Or
• 33:58
  Speaker 1: you can have autocratic tocision making. You know, the autocratic
• 34:02
  Speaker 1: decision making means the boss kind of makes the decision
• 34:05
  Speaker 1: and then then you sort of decide and everybody walks out.
• 34:10
  Speaker 1: I wanted to have believability weighted decision making. Okay, believability
• 34:15
  Speaker 1: weighted decision making is, um, let's see you trying to
• 34:18
  Speaker 1: explain it quickly or not? Um, believability weighted decision making.
• 34:22
  Speaker 1: Imagine if you knew, um, the probability of each person
• 34:26
  Speaker 1: making a high quality decision and then you decided, UM,
• 34:30
  Speaker 1: that would be taken into consideration, and when you're making
• 34:33
  Speaker 1: the decision, you can actually have believability weighted voting to
• 34:37
  Speaker 1: make a decision, so that you put the weight more
• 34:41
  Speaker 1: heavily on those who have greater abilities to make those
• 34:45
  Speaker 1: types of decisions and at the same time, while you're
• 34:48
  Speaker 1: having this open minded discussion and at the same time
• 34:51
  Speaker 1: knowing what people know and knowing what they don't know
• 34:54
  Speaker 1: and being clear about that in terms of that decision making.
• 34:58
  Speaker 1: So that was a very very important concept for me,
• 35:01
  Speaker 1: and then we wanted to build that out, you know, like,
• 35:04
  Speaker 1: how do we have believability weighted decision You use that
• 35:07
  Speaker 1: currently approach every every every meeting, ten people are sitting
• 35:10
  Speaker 1: around a conference table and their expertise and I'm assuming
• 35:14
  Speaker 1: credibility weighted believability rated is a function of their skill set, expertise, etcetera.
• 35:20
  Speaker 1: Everybody has a different right and they all have different waitings.
• 35:23
  Speaker 1: So at the end of the day, you say, I'm
• 35:25
  Speaker 1: going to make a decision, Okay, would you do this
• 35:28
  Speaker 1: after the thoughtful disagreement? Would you do this? And you
• 35:30
  Speaker 1: push a button on this iPad app that we developed
• 35:34
  Speaker 1: and UM and it will show not only what the
• 35:37
  Speaker 1: different people's votes were and how that vote tallied up,
• 35:40
  Speaker 1: but it will show a believability weighted vote. So I'm
• 35:43
  Speaker 1: gonna assume that that a straight yes no vote often
• 35:47
  Speaker 1: leads to a different result than the believability weight to vote. Well,
• 35:50
  Speaker 1: the yes no will get tallied up with the weight
• 35:53
  Speaker 1: of yes is and those and that that and so.
• 35:57
  Speaker 1: So for me, like I'm running a meeting, this really
• 36:00
  Speaker 1: what I wanted to have. I run the company. I
• 36:03
  Speaker 1: could do any kind of decision making I want, And
• 36:05
  Speaker 1: but the reason I want the believability decision is if
• 36:08
  Speaker 1: somebody knows more about a subject than I do, or
• 36:11
  Speaker 1: if I have three believable people disagreeing with me, um
• 36:16
  Speaker 1: and and about something, I don't want to just walk
• 36:20
  Speaker 1: off and do that thing because that would be pretty stupid.
• 36:23
  Speaker 1: So what I think to myself is, Okay, the right
• 36:26
  Speaker 1: way to make that decision is believability weighted. And then
• 36:29
  Speaker 1: when we come down to that, like if I'm thinking, um,
• 36:32
  Speaker 1: these people have that that view and I have another view, Uh,
• 36:36
  Speaker 1: there's a high probability I'm wrong. I need to even
• 36:39
  Speaker 1: delve into it. Why is it that? And so, by
• 36:42
  Speaker 1: operating by this believability weighted decision making. Um, it's fantastic.
• 36:47
  Speaker 1: I will make better decisions. We make better decisions as
• 36:50
  Speaker 1: a result of that. And also people feel empowered in
• 36:54
  Speaker 1: the rules. Rules are fair in other words, Okay, at
• 36:57
  Speaker 1: the end of the day, you know, just in the
• 37:00
  Speaker 1: United States, we might believe that democracy is fair. In
• 37:03
  Speaker 1: other words, that they might believe that, Um, I would
• 37:08
  Speaker 1: believe in a company, everybody doesn't. It doesn't make sense
• 37:11
  Speaker 1: to have one person on vote because it doesn't because
• 37:13
  Speaker 1: there's a difference. But to know that in a sense
• 37:16
  Speaker 1: that you earn believability points in a variety of fair ways,
• 37:19
  Speaker 1: and that it gets carried through so that you're making
• 37:22
  Speaker 1: your decision making is a decision making process that people
• 37:26
  Speaker 1: can believe in. It means they don't have to bottle
• 37:28
  Speaker 1: these things up and it makes for better decisions. That's
• 37:31
  Speaker 1: a pretty ego free approach to managing a company. Well,
• 37:35
  Speaker 1: this ego is a problem, right, I mean you basically,
• 37:39
  Speaker 1: I mean maybe the ego of you know, being excited
• 37:41
  Speaker 1: and doing great things and all of those types of things.
• 37:44
  Speaker 1: So maybe it's not totally bad, but I mean any
• 37:46
  Speaker 1: time that that ego is standing in the way if
• 37:49
  Speaker 1: you're making a good decision. It's it's terrible. It's it's
• 37:52
  Speaker 1: got to be controlled. You've got to do something different,
• 37:54
  Speaker 1: otherwise you're stand in the way of making a good decision.
• 37:57
  Speaker 1: Life is a matter you know of bets. Every you're
• 38:00
  Speaker 1: making a bunch of different bets, and think about it.
• 38:02
  Speaker 1: It's the accumulated stack of chips that you accumulate from
• 38:07
  Speaker 1: making all those life bets. So you don't want to
• 38:10
  Speaker 1: have something that's going to stand anyway. If you're playing poker,
• 38:12
  Speaker 1: if you were playing any game, you don't want to
• 38:15
  Speaker 1: have the ego stand in the way of making smart decisions. Right,
• 38:18
  Speaker 1: makes makes perfect sense to me. Let's talk a little
• 38:21
  Speaker 1: bit about markets and the economy. In the book Principles,
• 38:26
  Speaker 1: you describe back testing your trading intuition in order to
• 38:31
  Speaker 1: develop a system for interest rate, stock, currency, and precious metals.
• 38:36
  Speaker 1: Tell us how the idea of back testing intuition developed
• 38:40
  Speaker 1: and how you implemented that over the early history of Bridgewater. Well,
• 38:44
  Speaker 1: I've every I got in a habit of every time
• 38:48
  Speaker 1: I would put on a trade, I would write down
• 38:50
  Speaker 1: the criteria for putting on that trade, and I when
• 38:54
  Speaker 1: I would close out the trade and I'd read why
• 38:56
  Speaker 1: did I do it? And you know, how did that go?
• 38:59
  Speaker 1: Just as a learning as apparence, and I found that
• 39:01
  Speaker 1: if I wrote those criteria really clearly and I put
• 39:06
  Speaker 1: them into equations or algorithms, I could then see how
• 39:10
  Speaker 1: they would have performed in the past. Let me let
• 39:12
  Speaker 1: me interrupt you a brief second, from the beginning days
• 39:15
  Speaker 1: of Bridgewater, from your earliest days as a trader, you
• 39:19
  Speaker 1: were writing down here in my trade criteria, here's why
• 39:22
  Speaker 1: I expect this to work, and then you would do
• 39:24
  Speaker 1: a postmortem saying here's why this worked or here's why
• 39:28
  Speaker 1: this didn't. Yeah, very very early as long as I
• 39:31
  Speaker 1: can remember, and then that would be eventually reduced to
• 39:33
  Speaker 1: an algorithm. Well, what I discovered. I just did it
• 39:37
  Speaker 1: to reflect on the trade. But I discovered that if
• 39:40
  Speaker 1: I was clear enough, I could see how that decision
• 39:43
  Speaker 1: rule would have worked in the past, throughout history. And
• 39:47
  Speaker 1: that was enlightening, right, because then I could see I
• 39:51
  Speaker 1: could test it in all different countries I contested in
• 39:53
  Speaker 1: all different markets. Wow, that was enlightening. And then I
• 39:57
  Speaker 1: realized that if I could take that rule, that this
• 40:00
  Speaker 1: algorithm um, I could also have a process information on
• 40:04
  Speaker 1: a real time basis, so as information was coming in,
• 40:08
  Speaker 1: it could go through the rule and then tell me
• 40:11
  Speaker 1: essentially buy sell and do that. So I gained a
• 40:14
  Speaker 1: perspective and I gained a tool that was fantastic for
• 40:18
  Speaker 1: my decision making. And it was it was so invaluable
• 40:21
  Speaker 1: because the computer can do things that the mind can.
• 40:24
  Speaker 1: It can process a lot more information, a lot faster,
• 40:28
  Speaker 1: a lot more precisely, and a lot less emotionally. And
• 40:31
  Speaker 1: I so I could build those strategies. So that's how
• 40:34
  Speaker 1: I started to think about those decision rules and then
• 40:37
  Speaker 1: I found um, and that was great. So I built
• 40:42
  Speaker 1: these systems, these decision making systems that would work like
• 40:46
  Speaker 1: a GPS. Like if I'm driving in the car and
• 40:48
  Speaker 1: the GPSS turn right, turn left using those my criteria,
• 40:52
  Speaker 1: UM yeah, I could do that, or I could say no,
• 40:54
  Speaker 1: I think I should turn right. It's like having a
• 40:57
  Speaker 1: computer chess system next to you while you're playing chess
• 41:00
  Speaker 1: us but with your criteria. And then the reconciliation of
• 41:03
  Speaker 1: what the computer saying with what I'm saying, uh than
• 41:07
  Speaker 1: helped because sometimes if I would see it differently from
• 41:10
  Speaker 1: the computer, then I would say, well why would that be?
• 41:13
  Speaker 1: Because those were my rules, so how do what's going on?
• 41:17
  Speaker 1: And it could either be two thirds of the time
• 41:20
  Speaker 1: it was that the computer was seeing things that I
• 41:23
  Speaker 1: just wasn't because my mind is limited in capacity to
• 41:26
  Speaker 1: do it. But it would make sense when I would
• 41:28
  Speaker 1: dig in and then let's say one third of the
• 41:30
  Speaker 1: time I was seeing something that I hadn't properly put
• 41:33
  Speaker 1: into the system. And so by putting it into the
• 41:36
  Speaker 1: system and evolving in that way. Again, I'll emphasize that
• 41:40
  Speaker 1: writing down of principles, putting them in there and then
• 41:45
  Speaker 1: ideally encoding those principles into UH computer to make that
• 41:50
  Speaker 1: decision making UM. You know, has been invaluable. And that's
• 41:54
  Speaker 1: why that works so great with our investment decision making,
• 41:59
  Speaker 1: UM that it became really important for our people decision making,
• 42:03
  Speaker 1: our management decision making, in other words, for all decision making.
• 42:07
  Speaker 1: You can do this. It doesn't have to be just
• 42:09
  Speaker 1: investment decision making. And this is the thing I really
• 42:12
  Speaker 1: really want to pass along. UM. If you think that
• 42:16
  Speaker 1: you're making decisions, UM, and you just sort of slow
• 42:20
  Speaker 1: yourself down and you write those things down, it'll help
• 42:23
  Speaker 1: you clarify them and when the next time one of
• 42:26
  Speaker 1: those comes along, you can refer to it, and you
• 42:29
  Speaker 1: could also share it with other people so that you say, ah, God,
• 42:32
  Speaker 1: we understand each other why we're doing that, and you
• 42:35
  Speaker 1: can refine it, and then you can build on that
• 42:38
  Speaker 1: nowadays with and not just nowadays, we've been doing this
• 42:41
  Speaker 1: for twenty five years. You can build that in terms
• 42:44
  Speaker 1: of that uh, that systemized type of approach, and that's invaluable.
• 42:48
  Speaker 1: Let's stay with the investment thesis for a second, because
• 42:50
  Speaker 1: there's a quote from the book I have to share.
• 42:54
  Speaker 1: There are anxious times in every investor's career when your
• 42:57
  Speaker 1: expectations of what should be happening are in align with
• 43:01
  Speaker 1: what is happening, and you don't know if what you're
• 43:04
  Speaker 1: looking at our great opportunities or catastrophic mistakes. Is this
• 43:09
  Speaker 1: the sort of thing that the system helps you work
• 43:12
  Speaker 1: your way through. Yes, I mean I think you must
• 43:15
  Speaker 1: know the feeling, like every investor right, everybody else's wrong. Well,
• 43:20
  Speaker 1: but you don't know, you say, or am I missing something?
• 43:24
  Speaker 1: You know? Because every day it ticks. You know, It's
• 43:26
  Speaker 1: not like you buy and then you sell. It's that
• 43:29
  Speaker 1: you're sitting with that position and every day it's doing
• 43:33
  Speaker 1: this and somehow it's going the wrong way, and you
• 43:36
  Speaker 1: really don't know am I missing something or is the
• 43:40
  Speaker 1: market just about to catch up? The system helps you, right,
• 43:44
  Speaker 1: because the system consists of that computer betting machine. Right,
• 43:48
  Speaker 1: it's like that that that chess machine and so on,
• 43:52
  Speaker 1: and you also have it down that you know, I
• 43:55
  Speaker 1: structure it so that no one bet is such a
• 43:59
  Speaker 1: big thing, so you're played in large numbers, and so
• 44:03
  Speaker 1: you're executing it and you're looking at the reasons. So
• 44:06
  Speaker 1: it helps you through, helps me through those emotionally challenging
• 44:10
  Speaker 1: periods because you learned to gain perspective. You know how
• 44:13
  Speaker 1: bad it can go. That perspective is invaluable. So let's
• 44:16
  Speaker 1: give a specific example of that fork in the road
• 44:20
  Speaker 1: where it either could have been a catastrophe or an opportunity.
• 44:23
  Speaker 1: I have to bring up in two thousand and eight,
• 44:26
  Speaker 1: when most funds were down thirty, your flagship fund was
• 44:32
  Speaker 1: up four and then fast forward to your returns for
• 44:37
  Speaker 1: pure Alpha one where plus fort pure OFFA two, which
• 44:42
  Speaker 1: is a more modest portfolio, is plus twenty eight, and
• 44:47
  Speaker 1: then the fairly conservative Old Weather portfolio was up eighteen percent.
• 44:52
  Speaker 1: I'm looking at these as an example of that great
• 44:56
  Speaker 1: opportunity versus great catastrophe. Would these returns been possible without
• 45:01
  Speaker 1: that process? No, Again, where they come from. You have
• 45:06
  Speaker 1: to think differently, You have to think independently, you have,
• 45:10
  Speaker 1: and then you also have to know that you could
• 45:13
  Speaker 1: be wrong. Right, Okay, it's two thousand and eight going
• 45:17
  Speaker 1: to be my two all over again? What what did
• 45:21
  Speaker 1: I do differently? So the things that I did differently
• 45:25
  Speaker 1: accounted for why we could do that comfortably? You know
• 45:28
  Speaker 1: that element comfortably comfortable, comfortable, much more comfortably, much more
• 45:34
  Speaker 1: comfortably could have been otherwise done. What sort of self
• 45:38
  Speaker 1: doubts were plaguing you in oh eight? Were you thinking, hey,
• 45:41
  Speaker 1: this is eighty two all over again? Did that enter
• 45:43
  Speaker 1: your head? Yes? Of course, right, is that that experience?
• 45:47
  Speaker 1: Am I going to be terribly wrong? Because here it is,
• 45:49
  Speaker 1: I'm calculating that we can have a meltdown, that we
• 45:52
  Speaker 1: can have that that whole exercise. But you had a
• 45:55
  Speaker 1: very different system assisting you at that time, right, I
• 45:58
  Speaker 1: had something like twenty five years more experience with that
• 46:02
  Speaker 1: other memory in my mind of all of those other
• 46:06
  Speaker 1: you know, lessons I learned in compensating ways and so
• 46:10
  Speaker 1: on and so so it would be like going into
• 46:13
  Speaker 1: the hurricane the next time, where the hurricane kicks the
• 46:16
  Speaker 1: hell out of you the first time, and then you
• 46:18
  Speaker 1: build systems and things and you go through and you
• 46:21
  Speaker 1: still say, oh, is this scary hurricane? And I hope
• 46:24
  Speaker 1: I'm well enough protected. But that's what it was like,
• 46:27
  Speaker 1: not knowing exactly, but having enough cautions and and diversifications
• 46:34
  Speaker 1: and calculations and triangulations and so on, which a girdered. Essentially,
• 46:40
  Speaker 1: um are decision making and going through that. So I
• 46:44
  Speaker 1: referenced the Old Weather portfolio. Let's let's talk about that
• 46:47
  Speaker 1: a little bit. Um. Essentially, you create the idea of
• 46:51
  Speaker 1: risk parity earlier, and then from two thousand and three, Um,
• 46:57
  Speaker 1: you set up the Old Weather portfolio where you were
• 47:00
  Speaker 1: the only clients. How did this scale up? What is
• 47:03
  Speaker 1: it dollars or something like that these days? How did
• 47:06
  Speaker 1: that scale up from raised pocket money to a full
• 47:12
  Speaker 1: institutional product. Well, I, you know, this was now the
• 47:16
  Speaker 1: stage that I had money that I was going to
• 47:18
  Speaker 1: be from my family beyond me. So I put together
• 47:21
  Speaker 1: a trust and I had to think, um, I'm not
• 47:24
  Speaker 1: going to be around to make tactical decisions and you know,
• 47:28
  Speaker 1: making money in the market alpha's zero sum game. You
• 47:31
  Speaker 1: don't know who's going to do it. What is the
• 47:33
  Speaker 1: perpetual excellent portfolio? What should that strategic asset allocation be right?
• 47:39
  Speaker 1: What is the mix of assets? And um I knew
• 47:42
  Speaker 1: how markets behaved in relationship to each other. Every market
• 47:47
  Speaker 1: is the present value of expected future cash flows discount
• 47:51
  Speaker 1: of present value of those cash flows, and those factors
• 47:54
  Speaker 1: are the main drivers are inflation and growth. And so
• 47:59
  Speaker 1: um I I knew how one market would go up
• 48:03
  Speaker 1: in another market would go down depending on the circumstances.
• 48:07
  Speaker 1: Maybe we wouldn't know what those circumstances of the future
• 48:10
  Speaker 1: would be, but we did know that they would move
• 48:12
  Speaker 1: around depending on those circumstances. So I didn't know how
• 48:16
  Speaker 1: to engineer for balance. And I knew that I could
• 48:20
  Speaker 1: um that they have comparable comparable risk assets are approximately
• 48:26
  Speaker 1: comparably good. If you think about let's say stocks, and
• 48:29
  Speaker 1: you compare them with bonds, what a stock is is
• 48:32
  Speaker 1: a leveraged equity, right, because the average company has a
• 48:37
  Speaker 1: debt um ratio debt equity ratio of one to one,
• 48:41
  Speaker 1: So it's leveraging that up. And the one thing I
• 48:44
  Speaker 1: think that you know of investing, and this has been
• 48:47
  Speaker 1: true throughout history is that cash has to have a lower,
• 48:51
  Speaker 1: lower expected return than other asset classes, because if it doesn't,
• 48:55
  Speaker 1: the whole system implodes. Another word, central banks put cash
• 48:58
  Speaker 1: on deposit. People with better idea has come alonger in
• 49:00
  Speaker 1: a higher return. If that doesn't work that way and
• 49:03
  Speaker 1: they are all a learning learning lower returns, the whole
• 49:05
  Speaker 1: thing implodes. So the notion is how to achieve that
• 49:09
  Speaker 1: right balance? And that's what motivated me to for myself put, um,
• 49:14
  Speaker 1: you know, most of my um money that I was
• 49:17
  Speaker 1: passing along structured that way, and I just, um, you know,
• 49:21
  Speaker 1: I told it to other clients. You know, here's how
• 49:23
  Speaker 1: you do it, and um, then they wanted us to
• 49:26
  Speaker 1: do it for them. And that's what we've been you know,
• 49:29
  Speaker 1: doing since we have been speaking with Ray Dalio. He
• 49:32
  Speaker 1: is the founder and chief investment officer of Bridgewater Associates.
• 49:36
  Speaker 1: He is also the author of the New New York
• 49:38
  Speaker 1: Times bestseller Principles. I strongly suggest you go out and
• 49:42
  Speaker 1: read it. If you enjoy this conversation, be sure and
• 49:46
  Speaker 1: check out our podcast extras. Will we keep the tapes
• 49:48
  Speaker 1: rolling and continue to talk about all things investing. Be
• 49:52
  Speaker 1: sure and check out my daily column on Bloomberg view
• 49:55
  Speaker 1: dot com. You could follow me on Twitter at Ridholts.
• 49:59
  Speaker 1: You are now tweeting, aren't you? And your your Twitter
• 50:02
  Speaker 1: handle is at Dahlio at ray Dahlio at ray Dahio. UM.
• 50:08
  Speaker 1: We love your comments, feedback and suggestions right to us
• 50:11
  Speaker 1: at m IB podcast at Bloomberg dot net. I'm Barry Ridholts.
• 50:16
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Welcome
• 50:32
  Speaker 1: to the podcast, Ray, Thank you so much for doing this.
• 50:34
  Speaker 1: I've been looking forward to this for so long, UM,
• 50:37
  Speaker 1: and I'm really excited. I wish we had you for
• 50:39
  Speaker 1: another two hours. Of course, I have a million questions
• 50:43
  Speaker 1: for you that we didn't get to. Um. There's a
• 50:47
  Speaker 1: handful of things that that I have to ask you
• 50:49
  Speaker 1: before you get to our our favorite questions, starting with
• 50:53
  Speaker 1: I'm sure I'm gonna mangle this person's name. Wang o
• 50:57
  Speaker 1: ishans philosophy, Um, when Sean? When is she Sean? Okay?
• 51:04
  Speaker 1: The unwise worry over nothing, the capable worry about the future,
• 51:10
  Speaker 1: and heroes go for unattainable goals. Explain that philosophy because
• 51:16
  Speaker 1: I find that fascinating. Well, won't she Sean? Is very
• 51:22
  Speaker 1: very important? Man? In China? Some would say the number
• 51:26
  Speaker 1: two men in China, and um he was important shaper
• 51:32
  Speaker 1: of the Chinese economy for the last thirty years or so,
• 51:36
  Speaker 1: and then he was put in responsibility of eliminating corruption
• 51:40
  Speaker 1: in China. And UM he's a very anyway, quite a
• 51:47
  Speaker 1: remarkable man, and he always uh see things at the
• 51:51
  Speaker 1: higher level, you know, uh, the timeless and universal laws
• 51:57
  Speaker 1: of human nature and and so on. So when there
• 52:01
  Speaker 1: are ever discussions with him, uh, you know, uh, they
• 52:05
  Speaker 1: immediately rise to those highlight levels and discuss, you know,
• 52:10
  Speaker 1: how does reality work and how's it worked that way
• 52:12
  Speaker 1: through time? So, um, you know that's uh, that's why.
• 52:17
  Speaker 1: So uh, there's a sentence in the book that looks
• 52:21
  Speaker 1: like it's derived from that philosophy, which is, um, a
• 52:27
  Speaker 1: hero I'm gonna paraphrase. I'm gonna give the exact quote.
• 52:30
  Speaker 1: A hero is an ordinary person who has achieved something extraordinary,
• 52:35
  Speaker 1: something beyond the normal range of achievement. And I think
• 52:39
  Speaker 1: the exact quote is extraordinarily successful. People are not successful
• 52:44
  Speaker 1: because they are extraordinary. Is that related to you? My
• 52:49
  Speaker 1: son in two thousand fourteen gave me a book called
• 52:52
  Speaker 1: Hero of a Thousand Faces. Joseph Campbell, Joseph Campbell read
• 52:57
  Speaker 1: the book, very very famous book Assigned in College is
• 53:01
  Speaker 1: now all over like highly highly regarded, and it's so
• 53:05
  Speaker 1: interesting because what it does is it characterizes a particular
• 53:10
  Speaker 1: type of person who evolves to have a particular type
• 53:13
  Speaker 1: of life. And when we say hero um, like they said,
• 53:16
  Speaker 1: it doesn't mean um, you know, some unique particular person.
• 53:20
  Speaker 1: It means that a person goes down a particular path
• 53:23
  Speaker 1: and they achieve some extraordinary things and they get themselves
• 53:27
  Speaker 1: in a position where others are more important to them
• 53:30
  Speaker 1: than themselves. Okay, And there's a journey and he and
• 53:35
  Speaker 1: you go through that journey, and he recounts that journey.
• 53:38
  Speaker 1: It would take me too long here to recount the book.
• 53:40
  Speaker 1: But you know, first you have a taste for adventure.
• 53:43
  Speaker 1: You like adventure. You go out and with those adventures
• 53:47
  Speaker 1: you have your successes and your failures, and you know
• 53:50
  Speaker 1: your fights and so on, and you learn and inevitably, uh,
• 53:54
  Speaker 1: you have your crash, your big crash, he calls it
• 53:58
  Speaker 1: um the abyss or or the belly of the whale.
• 54:01
  Speaker 1: Experience that big crash and how that big crash, how
• 54:06
  Speaker 1: you handle it is the defining characteristic the um in
• 54:10
  Speaker 1: that big crash um. Some people have a metamorphosis. They
• 54:14
  Speaker 1: change in important ways. Most importantly, they gain the fear
• 54:18
  Speaker 1: of that crash, They gave wisdom and so on, and
• 54:21
  Speaker 1: then they continue on. Some people get off the field,
• 54:25
  Speaker 1: they have the big crash, they said, I don't want
• 54:27
  Speaker 1: to do this anymore, and they don't have a metamorphosis,
• 54:30
  Speaker 1: or if they don't have a metamorphosis, they crash again,
• 54:32
  Speaker 1: and they keep crashing. And so once they start to
• 54:35
  Speaker 1: learn those lessons, they begin to find out that they
• 54:39
  Speaker 1: can be more and more successful. I know that happened
• 54:42
  Speaker 1: to me. I crashed two changed my whole attitude about
• 54:46
  Speaker 1: decision making meta. It was my metamorphosis. And you go
• 54:49
  Speaker 1: on and you play your game and you have your fights.
• 54:52
  Speaker 1: And when you do this, and you do this with others,
• 54:55
  Speaker 1: the others in the mission becomes more important to you
• 54:58
  Speaker 1: than you in and of itself. And you get to
• 55:01
  Speaker 1: a later stage in life, and at that later stage
• 55:04
  Speaker 1: in life, you want them to be successful. You have
• 55:07
  Speaker 1: a bunch of battles that you fought. Oh you could
• 55:10
  Speaker 1: do that again. You can be successful again. The rewards
• 55:13
  Speaker 1: of being successful again is you know, is not the
• 55:16
  Speaker 1: same as the rewards of helping other people be successful.
• 55:20
  Speaker 1: And so when he gave it to me two thousand
• 55:22
  Speaker 1: and fourteen, like, you know, I don't like I don't
• 55:25
  Speaker 1: like public attention. I stayed away from public attention. I
• 55:27
  Speaker 1: don't like it. And then I'm thinking, I've got this
• 55:30
  Speaker 1: particular these principles that have helped me. And then I
• 55:33
  Speaker 1: and I think, okay, should I return the boon because
• 55:36
  Speaker 1: he describes the returning the boon, and returning the boon
• 55:39
  Speaker 1: means sort of returning the think the gifts that you
• 55:42
  Speaker 1: learned along the way to help others, and so like
• 55:45
  Speaker 1: as you're asking, it's not that the success is not
• 55:49
  Speaker 1: because of me. The success is not because of anybody
• 55:52
  Speaker 1: as much as it is the principles that are learned
• 55:56
  Speaker 1: along the way, the recipes that other people can have
• 55:59
  Speaker 1: in order to make them successful. And so that was
• 56:03
  Speaker 1: the you know, that's the lesson. That's the time us.
• 56:05
  Speaker 1: So I gave um Hero of a Thousand Faces to
• 56:08
  Speaker 1: n Sean because he's a hero, he's a classic hero,
• 56:12
  Speaker 1: and he's at a particular stage in his life, and
• 56:15
  Speaker 1: I thought that that would be uh, you know, helpful
• 56:18
  Speaker 1: to him. And I do find it helpful to a
• 56:20
  Speaker 1: lot of people, and a lot of people find it
• 56:22
  Speaker 1: helpful and interesting perspective, which is why you, as you say,
• 56:25
  Speaker 1: it's being read all over right. In fact, the book
• 56:28
  Speaker 1: has been described as the basis for every major piece
• 56:33
  Speaker 1: of literature film. It's just the classic narrative heroes journey
• 56:37
  Speaker 1: and kudos to Campbell star Wars. Exactly right, exactly, So,
• 56:43
  Speaker 1: since let's talk a little bit about returning the boon.
• 56:46
  Speaker 1: You've been exploring philanthropy as well as you have a
• 56:50
  Speaker 1: fascination with ocean exploration. How do you see the next
• 56:55
  Speaker 1: phase of your life? Um, working in those areas, be
• 56:59
  Speaker 1: it film for topic, anything involving um, what you're doing
• 57:03
  Speaker 1: now with os Yeah, the big picture, you know. So
• 57:07
  Speaker 1: three phases in one's life. I think first phase is
• 57:10
  Speaker 1: you're dependent on others and you're learning, you're a kid.
• 57:13
  Speaker 1: Second phase, Uh, you're working, others are dependent on you,
• 57:18
  Speaker 1: You're trying to be successful. The transition from the second
• 57:22
  Speaker 1: phase to the third phase is returning the boon, passing
• 57:25
  Speaker 1: along what you learned so that others can be successful
• 57:28
  Speaker 1: without you and you're free to live and free to die.
• 57:31
  Speaker 1: As they describe it, that's absolutely right. So that's where
• 57:34
  Speaker 1: I am so now is in that the main thing
• 57:37
  Speaker 1: about this other phrases, everybody's good without me, and I'm
• 57:41
  Speaker 1: free of obligation and I can have fun. Now where
• 57:44
  Speaker 1: do I want to go have fun? I love the markets.
• 57:46
  Speaker 1: I love the game. I will play the markets since
• 57:49
  Speaker 1: until I die, because that's a game I played all along.
• 57:52
  Speaker 1: I love it. I'll continue to do that. That will
• 57:55
  Speaker 1: be my main activity that and I'll continue to do
• 57:57
  Speaker 1: that at Bridgewater and as long as they find me useful,
• 58:00
  Speaker 1: I'll continue to do that. Uh. And then but there's
• 58:03
  Speaker 1: all the other joys of life. Life is a giant
• 58:06
  Speaker 1: s Morgensborg of of exciting things. And part of that,
• 58:09
  Speaker 1: as you say, is philanthropy. In other words, Um, you know,
• 58:12
  Speaker 1: I came from nothing. I'll end up with nothing at
• 58:15
  Speaker 1: the end of the day. And yet so to think
• 58:17
  Speaker 1: about who this could be used by for in important
• 58:20
  Speaker 1: ways is fantastic, right. So that that all, you know.
• 58:25
  Speaker 1: Then there's the approach of how do I do that?
• 58:27
  Speaker 1: You know? And well, you know, we do it as
• 58:29
  Speaker 1: a family activity. Different people have to uh find their passions,
• 58:33
  Speaker 1: so different people have different passions. For me, one of
• 58:37
  Speaker 1: the things that's passion uh for me is nature. I
• 58:41
  Speaker 1: love nature. I learned from lent nature. It's a big thing.
• 58:45
  Speaker 1: And I particularly um uh found the ocean to be
• 58:49
  Speaker 1: unbelievable because think about it, Um, there's a there's a
• 58:53
  Speaker 1: sheet that's the ocean UH layer, and that basically UH
• 58:58
  Speaker 1: is about half the world surface above it. The highest
• 59:02
  Speaker 1: point everest is equal to the greatest s depth, So
• 59:06
  Speaker 1: it's symmetrical, right, So there's a world under that sheet, um,
• 59:11
  Speaker 1: except of the world's surface is the ocean. So the
• 59:16
  Speaker 1: ocean space is about twice as large as all the
• 59:20
  Speaker 1: world that we know that's above the ocean, and it
• 59:23
  Speaker 1: hasn't explored, and it's unbelievably fascinating. It's unbelievably valuable in
• 59:29
  Speaker 1: in so many ways. So enabling ocean exploration and exploring
• 59:34
  Speaker 1: to go down there with scientists and all of that
• 59:37
  Speaker 1: I do find particularly enthralling. And I like to contribute
• 59:42
  Speaker 1: to people doing that. So I find my ways of
• 59:45
  Speaker 1: you know, ways of doing that. Blue Planet is going
• 59:48
  Speaker 1: to be coming out. Blue Planet to Okay, it's gonna
• 59:51
  Speaker 1: come out soon. Um. What we did is we put
• 59:54
  Speaker 1: scientists on it and and with we have an exploration
• 59:58
  Speaker 1: I have an exploration ship, put those scientists on it,
• 1:00:00
  Speaker 1: and let them then do things and help to make
• 1:00:03
  Speaker 1: people aware and bring them to that. That's one of
• 1:00:06
  Speaker 1: the things. But we do different things. My wife is
• 1:00:09
  Speaker 1: particularly UM affected by UM what are called UM disconnected
• 1:00:16
  Speaker 1: and disc and disengaged youth high school students in Connecticut
• 1:00:20
  Speaker 1: unbelievable UM disconnected meaning they're either not going to school
• 1:00:25
  Speaker 1: or not taking classes. That's right. So disengaged means they
• 1:00:29
  Speaker 1: go to school, but they're not really participating. They're you know,
• 1:00:32
  Speaker 1: just they don't study the test, they don't try much.
• 1:00:35
  Speaker 1: Disconnected is they don't know where they are. Two of
• 1:00:40
  Speaker 1: the high school students in Connecticut are one of those.
• 1:00:43
  Speaker 1: And that's what kind of futures are are they gonna have?
• 1:00:47
  Speaker 1: Where are they going to be? They're gonna be on
• 1:00:49
  Speaker 1: the streets and so on, And she relates very much
• 1:00:52
  Speaker 1: to those in terms of that tragedy. So that's where
• 1:00:54
  Speaker 1: her focus of activity is for philanthropy and so UM
• 1:00:58
  Speaker 1: and and so we have different focuses, but we share
• 1:01:01
  Speaker 1: those things as activities. I share that four sons, we
• 1:01:04
  Speaker 1: share them as activities. That's been my approach, and that's
• 1:01:07
  Speaker 1: been a thrill. You know, it's the right thing to
• 1:01:11
  Speaker 1: do at my stage of my life. So I know
• 1:01:14
  Speaker 1: I only have you for another seven or eight minutes.
• 1:01:17
  Speaker 1: Let me get to some at least a few of
• 1:01:19
  Speaker 1: some of my favorite questions before we run out of time.
• 1:01:23
  Speaker 1: Tell us the most important thing people don't know about
• 1:01:27
  Speaker 1: your background? Um that I'm that I. Um, you know,
• 1:01:34
  Speaker 1: I have a very modest background, and I have a
• 1:01:36
  Speaker 1: very bad rope memory. UM. So I don't think I
• 1:01:41
  Speaker 1: have much in the way of natural advantages. That bad
• 1:01:48
  Speaker 1: memory led you to writing things down? Is that the
• 1:01:50
  Speaker 1: weakness led to the principles. Um. I think to some
• 1:01:53
  Speaker 1: extent that contributed to me writing them down. Yeah, I
• 1:01:56
  Speaker 1: think it was a factor. Um. And although it was
• 1:02:00
  Speaker 1: of the factors more than the clarity and so on. Um.
• 1:02:03
  Speaker 1: But yeah, and I was a lousy student. I hated school. UM.
• 1:02:09
  Speaker 1: Got into uh, you know CW Post College on probation,
• 1:02:14
  Speaker 1: you know. Um. So there's nothing I think that's an
• 1:02:18
  Speaker 1: important thing to know about a number of people that. UM.
• 1:02:22
  Speaker 1: A lot of people think that people at the top
• 1:02:25
  Speaker 1: are just naturally special people, and you know it's easy
• 1:02:29
  Speaker 1: for them and all. And that's not true. I've come
• 1:02:32
  Speaker 1: to know the most powerful, most successful people in the world,
• 1:02:38
  Speaker 1: and I could tell you they all struggle and they
• 1:02:40
  Speaker 1: all have weaknesses. They just know how to struggle well
• 1:02:43
  Speaker 1: and they learn along the way. Know how to struggle
• 1:02:45
  Speaker 1: well and learn along the way. Okay, tell us about
• 1:02:48
  Speaker 1: some of your early mentors who guided your career. Um,
• 1:02:52
  Speaker 1: if anyone, you know, uh, I didn't not very much
• 1:02:57
  Speaker 1: in terms of like mentors, particular mentors that I would
• 1:03:00
  Speaker 1: go to. It's because of how I kind of learned, um,
• 1:03:04
  Speaker 1: which is I have to learn myself through experiences, you know. Uh. So,
• 1:03:09
  Speaker 1: I mean there are people I admire a lot. Um
• 1:03:14
  Speaker 1: so I think that they had probably an influence to
• 1:03:16
  Speaker 1: watch Paul Volker. Let me let me to watch Paul
• 1:03:20
  Speaker 1: Voker since through my lifetime, um, since nineteen seventy one
• 1:03:26
  Speaker 1: when he was the Under Secretary of the Treasury for
• 1:03:28
  Speaker 1: Monetary Affairs all through the eighties, and to watch him
• 1:03:32
  Speaker 1: as a highly respected person. I look around me and
• 1:03:36
  Speaker 1: I see people who I admire. I admire Mike Bloomberg.
• 1:03:41
  Speaker 1: I think Mike Bloomberg, for example, in building a business
• 1:03:44
  Speaker 1: and dealing with government, becoming a government official and a philanthropist,
• 1:03:48
  Speaker 1: has been extraordinarily effective in all of those different ways.
• 1:03:52
  Speaker 1: And it might not encourage him write down his principles,
• 1:03:55
  Speaker 1: his recipes for success, because when we like to know those.
• 1:03:58
  Speaker 1: And so there are a lot of people you know
• 1:04:00
  Speaker 1: in the markets. Paul Tutor Jones a friend of mine,
• 1:04:04
  Speaker 1: and so I admire him, and UM I Enmirement's character
• 1:04:08
  Speaker 1: and I admire you know, how he makes decisions, and
• 1:04:11
  Speaker 1: we talk a lot about that. So and I've had,
• 1:04:13
  Speaker 1: you know, many people, I don't want to name drop
• 1:04:16
  Speaker 1: too much, but a lot of people in their own ways.
• 1:04:19
  Speaker 1: Seeing what they're like and interacting them, I think had
• 1:04:22
  Speaker 1: an influence on me. I wouldn't say that I've had
• 1:04:25
  Speaker 1: any classic mentors along the way. So you mentioned Joseph
• 1:04:29
  Speaker 1: Campbell's Men of a Thousand Faces. What are some of
• 1:04:32
  Speaker 1: your other favorite books? Well, UM, two others UH come
• 1:04:37
  Speaker 1: to mind. UH A River from eden Um which is
• 1:04:43
  Speaker 1: written by Richard Dawkins, which is about evolution. Okay, evolution
• 1:04:50
  Speaker 1: is the greatest force in the world, in the universe,
• 1:04:54
  Speaker 1: and uh Man is a very small part of evolution.
• 1:05:00
  Speaker 1: And to watch how evolution works, those of the universal
• 1:05:04
  Speaker 1: laws of life that we then really have to deal
• 1:05:08
  Speaker 1: with UM is fascinating. It's a brief book. It's great.
• 1:05:12
  Speaker 1: Another UH brief book and remarkable books is uh Lessons
• 1:05:18
  Speaker 1: of History written by um uh Will Durant and his wife.
• 1:05:23
  Speaker 1: I think it was Ariel Durant who were probably the
• 1:05:26
  Speaker 1: greatest historians of the United States has had. They've covered
• 1:05:29
  Speaker 1: five thousand years of history, five thousand years on written
• 1:05:33
  Speaker 1: in five thousand pages. And then they take and they
• 1:05:36
  Speaker 1: created a book called Lessons of History, which is a
• 1:05:39
  Speaker 1: hundred and four pages. I like these high power short books,
• 1:05:44
  Speaker 1: um and um, and it takes those themes through history
• 1:05:49
  Speaker 1: and you know, sort of distills them down through their eyes.
• 1:05:52
  Speaker 1: Very interesting. But you know, UM, I don't know. There
• 1:05:55
  Speaker 1: are a lot of interesting too many, too many, too
• 1:05:58
  Speaker 1: many interesting books to read, and not enough time, not
• 1:06:02
  Speaker 1: enough time really for sure. UM. If a millennial or
• 1:06:06
  Speaker 1: recent college graduate came to you and said they're looking
• 1:06:09
  Speaker 1: for considering getting into finance, what sort of career advice
• 1:06:13
  Speaker 1: might you give them? Well, Um, first of all, know
• 1:06:17
  Speaker 1: your nature, know what your polls are, get go to
• 1:06:22
  Speaker 1: your polls. Then expect your problems and your failures, approach
• 1:06:29
  Speaker 1: those well and with equanimity, and then take those problems
• 1:06:34
  Speaker 1: and that failures and diagnose them and evolve in that
• 1:06:37
  Speaker 1: five step process. I would say that you will and
• 1:06:41
  Speaker 1: recognize that what you're going after will change and evolve
• 1:06:46
  Speaker 1: as you evolve to higher levels, So you know, follow
• 1:06:50
  Speaker 1: your passion. I would say, yeah, here's here's maybe the
• 1:06:53
  Speaker 1: simplest dreams plus embracing reality, knowing how it works well
• 1:07:02
  Speaker 1: and knowing how to deal with it, plus determination. So
• 1:07:07
  Speaker 1: you do that over and over and over will give
• 1:07:10
  Speaker 1: you a successful life and a lot of evolution. And
• 1:07:14
  Speaker 1: our final question, what is it that you know about
• 1:07:17
  Speaker 1: the world of markets and economies and investing today that
• 1:07:22
  Speaker 1: you wish you knew forty years ago when you were
• 1:07:24
  Speaker 1: first lunching Bridgewater? Oh? Well, so many things. I guess.
• 1:07:30
  Speaker 1: Maybe the thing that I think is the most common mistake, UM,
• 1:07:35
  Speaker 1: is that people think that investments that have done well
• 1:07:40
  Speaker 1: are good investments rather than more expensive. In other words,
• 1:07:47
  Speaker 1: that um, if it did well lately, they like it okay.
• 1:07:52
  Speaker 1: So that you you have to be you have to
• 1:07:55
  Speaker 1: know what something is really worth. And uh, I guess
• 1:07:59
  Speaker 1: another thing, UM that I learned that is that um,
• 1:08:05
  Speaker 1: every price, every day's price, is a function of buying
• 1:08:09
  Speaker 1: and selling. And if you know who the buyers and
• 1:08:13
  Speaker 1: the sellers are, and you know their quantities and you
• 1:08:16
  Speaker 1: know their motivations, it helps a lot more than the theoretical,
• 1:08:23
  Speaker 1: uh notion of what equilibrium values should be. Since we're
• 1:08:27
  Speaker 1: talking about philanthropy, you set something up with principles um
• 1:08:33
  Speaker 1: and Amazon dot com. Go to principles dot com slash
• 1:08:37
  Speaker 1: giving and tell us what that leads to. For a
• 1:08:41
  Speaker 1: number of years, I've given philanthropic people, charitable people donations
• 1:08:47
  Speaker 1: to their favorite charities as a holiday gift. Uh. And
• 1:08:52
  Speaker 1: well that's because there's just so much wasteful giving, you know,
• 1:08:55
  Speaker 1: and give them a sweater and whatever, and you have
• 1:08:56
  Speaker 1: to wrestle with what they're going to give it. And
• 1:08:58
  Speaker 1: this is really and appreciated gift. And most importantly, it
• 1:09:02
  Speaker 1: gets converts a lot of waste into getting people who
• 1:09:06
  Speaker 1: need it the most the most amount of money. So
• 1:09:09
  Speaker 1: the amount of money that is given for giving candy
• 1:09:13
  Speaker 1: in the holiday season is greater than the amount of
• 1:09:16
  Speaker 1: money that goes for the American Heart Association, annual budgets
• 1:09:20
  Speaker 1: of American Heart Association, American Cancer Society, and Habitat for
• 1:09:25
  Speaker 1: Humanity combined. And and so I figure if I can
• 1:09:28
  Speaker 1: pass that along, it's a great idea. A lot of
• 1:09:30
  Speaker 1: people like it. So I'm suggesting it and not what
• 1:09:34
  Speaker 1: I did for for the book to help to explain that,
• 1:09:36
  Speaker 1: and also, um, you know pass it along. Is that
• 1:09:39
  Speaker 1: for everybody who buys the book, I'll donate ten dollars
• 1:09:42
  Speaker 1: to their favorite charity. And I set it up in
• 1:09:45
  Speaker 1: through this length that you just referrincibles dot com slash giving.
• 1:09:49
  Speaker 1: Is that right? Yeah? Okay, And so every purchase of
• 1:09:52
  Speaker 1: the book through Amazon, ten dollars goes to they designated
• 1:09:57
  Speaker 1: charity and you donate the money to that change. That's right,
• 1:09:59
  Speaker 1: And it's so easy, so you know, buy book, go on.
• 1:10:04
  Speaker 1: I think the website's got like a million, two hundred
• 1:10:06
  Speaker 1: thousand charities or whatever, so it's easy to click in
• 1:10:09
  Speaker 1: to get to the charity of your choice and you
• 1:10:12
  Speaker 1: and it just gets there, right. And so so I'm
• 1:10:16
  Speaker 1: doing it not only because I know appreciate this kind
• 1:10:19
  Speaker 1: of giving and I appreciate the people who are operating
• 1:10:21
  Speaker 1: that way, but I also would like to get people
• 1:10:25
  Speaker 1: to see how easy it is and get the idea
• 1:10:28
  Speaker 1: coming along. So because I think if if we could
• 1:10:30
  Speaker 1: tilt a little bit of holiday giving so people think
• 1:10:33
  Speaker 1: it's a good idea, um, then it'll make a lot
• 1:10:37
  Speaker 1: of difference. So that's what I'm doing that's terrific. Thank
• 1:10:39
  Speaker 1: you ready, this has been absolutely fascinating. We have been
• 1:10:43
  Speaker 1: speaking with Ray Dalio of Bridgewater Associates. If you enjoy
• 1:10:47
  Speaker 1: this conversation, be sure and look up an intro Down
• 1:10:50
  Speaker 1: an Inch on Apple iTunes and you can see any
• 1:10:53
  Speaker 1: of our other hundred and seventy or so such conversations.
• 1:10:57
  Speaker 1: We love your comments, feedback and suggestion. Write to us
• 1:11:01
  Speaker 1: at m IB podcast at Bloomberg dot net. I would
• 1:11:04
  Speaker 1: be remiss if I did not thank my crack staff
• 1:11:07
  Speaker 1: who helped put together these conversations. Mendina Parwana is my producer,
• 1:11:13
  Speaker 1: slash audio engineer. Taylor Riggs is our producer booker. Mike
• 1:11:17
  Speaker 1: Patnick is our head of research. I'm Barry Retults. You've
• 1:11:21
  Speaker 1: been listening to Masters in Business on Bloomberg Radio.