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