Speaker 1: Ray Dalio is the founder of the world's biggest hedge
Speaker 1: fund firm, Bridgewater Associates, which manages one hundred sixty billion dollars.
Speaker 1: Dalio has joined Warren Buffett and Bill Gates Pledge, promising
Speaker 1: to give more than half of his fortune to charitable
Speaker 1: foundations within his lifetime. Through his Daio Foundation, he's directed
Speaker 1: millions of dollars in donations to the David Lynch Foundation,
Speaker 1: and organization that sponsors and promotes research on transcendental meditation.
Speaker 1: Also working to make sure Bridgewater survives him. Dhaio moved
Speaker 1: in twenty eighteen to turn Bridgewater into a partnership and
Speaker 1: give employees more of a stake in the firm. Daio
Speaker 1: sat down with David Rubinstein, co founder of the Carlisle
Speaker 1: Group and host of the Bloomberg television show Peer to
Speaker 1: Peer Conversations. They discussed what he looks for in an employee,
Speaker 1: how he's preparing for a possible recession, and whether or
Speaker 1: not he'd ever take a job in government. You are
Speaker 1: seen as somebody who has said it might be a
Speaker 1: chance of a recession at some point. Do you see
Speaker 1: any chance of a recession in two thousand nine or
Speaker 1: two I'm big on principles, right, so I think that
Speaker 1: it's important to understand how the economic machine works. And
Speaker 1: so when I'm looking at that, I want to maybe
Speaker 1: take a few minutes and get into the important things
Speaker 1: that are pertained to a recession. Because a recession, you know,
Speaker 1: whether you it's two negative quarters of GDP and we're
Speaker 1: going to be hovering I think fairly close to that level,
Speaker 1: and there's a certain variation around it. But the bigger
Speaker 1: things are a combination of the absence of effectiveness of
Speaker 1: central bank policies. So I hope we can talk about
Speaker 1: those together with the wealth gap, the large wealth gap.
Speaker 1: So when the next downturn comes, what that will look
Speaker 1: like socially, politically and so on. UM the elections, which
Speaker 1: is a issue between um let's say capitalists and socialists
Speaker 1: or the rich and the poor. And then the emergence
Speaker 1: of China UM and in relationship to the United States.
Speaker 1: Those four factors are factors that have not existed since
Speaker 1: the thirties. I think they're unique, and so when we
Speaker 1: get into the question of the recession, I think it's
Speaker 1: how that will affect those other things, and those things
Speaker 1: affected in the investment world, your firm was quite known,
Speaker 1: well known for quite some time before the last recession.
Speaker 1: It was a very successful firm before. But in the
Speaker 1: last recession, your firm performed extremely well, maybe better than
Speaker 1: any of any other major hedge fund. So as I
Speaker 1: recall your up or something like that during the worst year, So, um,
Speaker 1: are you anticipating a recession now and are you changing
Speaker 1: your investment approaches or your not quite where you were
Speaker 1: in two thousand seven. In two thousand seven, it was
Speaker 1: pretty easy, I think, to calculate that these debts that
Speaker 1: we're going to come do and that the there was
Speaker 1: not an adequate amount of funding, and so that sort
Speaker 1: of debt crisis was something we anticipated and we were
Speaker 1: positioned well for. When I go through those calculations, it's
Speaker 1: not the same. In other words, the amount of maturing
Speaker 1: debt and that whole problem doesn't look the same. It
Speaker 1: looks more like a gradual squeeze having to do with
Speaker 1: quite a lot of debt of a certain type. But
Speaker 1: with that um also pension liabilities and healthcare particularly as
Speaker 1: that produces a greater squeeze. We have large deficits and
Speaker 1: so on. So so the amount of promises that we
Speaker 1: have are large, but they're going to be coming at
Speaker 1: us at a more gradual pace, and I that's going
Speaker 1: to produce a squeeze. I think related to that, what's
Speaker 1: important is that when you don't have monetary policy being
Speaker 1: able to be effective, um what kind of monetary policy
Speaker 1: we will have, we will have more than likely a
Speaker 1: lot of debt monetization. On fiscal policy, there's no room
Speaker 1: for additional tax cuts, you agree, because we already have
Speaker 1: such a big deficit, so you couldn't really cut taxes
Speaker 1: any anymore. Or do you not agree with that? I
Speaker 1: believe that in terms of spending that probably there will
Speaker 1: be increases in spending that probably will not be well funded.
Speaker 1: And when you ask about that, I think we have
Speaker 1: a political question, and that's which is relevant to also
Speaker 1: the markets. Between now and the elections, we're probably going
Speaker 1: to have very different policies, but policies maybe more of
Speaker 1: the left and policies more of the right, more extreme policies,
Speaker 1: greater polarity, and the choice will be greater. And how
Speaker 1: those choice as are made are is going to be
Speaker 1: very important to not only the size of the deficits,
Speaker 1: but the nature of taxation. So I think that I
Speaker 1: think that UM. When I'm looking at the presidential candidates,
Speaker 1: what I do is I look at what their policies
Speaker 1: are stated policies in terms of UM, any of their
Speaker 1: various policies, and I look at that as a probabilistic basis.
Speaker 1: So I think when we have to answer that, we
Speaker 1: can't um um. You you like, after the election, you
Speaker 1: might get taxes raised by UM on the wealthy or
Speaker 1: you have corporations, you can reverse those tax those tax policies,
Speaker 1: and you're probably going to get an increase in spending.
Speaker 1: All right, let's talk for a moment about how you
Speaker 1: came to be, Let's say, one of the most respected
Speaker 1: commentators on economic and financial policy, which is starting your firm.
Speaker 1: So you grew up in Long Island and where you
Speaker 1: from a wealthy family? No, my dad was a jazz musician,
Speaker 1: very lower middle class fan. When you were a young boy,
Speaker 1: were you interested in the financial world or what were
Speaker 1: you most interested in with growing up on Long Island.
Speaker 1: I got hooked on the markets when I was twelve
Speaker 1: because I used to caddy and I would take my
Speaker 1: money and I put in the markets and everybody was
Speaker 1: chatting about the markets. So, UM, how did you do well.
Speaker 1: The first stock I bought, I bought because it was
Speaker 1: the only company I ever heard of that was selling
Speaker 1: for less than five dollars a year, and I figured
Speaker 1: I could buy more shares, so if what up, I'd
Speaker 1: make more money. That was my strategy work and it worked,
Speaker 1: and it worked because this company was about to go
Speaker 1: broke and somebody came along and acquired it, and it
Speaker 1: by luckily, Um, it went up. And I said, this
Speaker 1: game is easy, and I m then decided that I
Speaker 1: would be involved in the markets. And this game is
Speaker 1: anything but easy. So in high school, were you interested
Speaker 1: in academics or were you a good student? No? I
Speaker 1: hated high school. Did you go to high school you
Speaker 1: cut classes? Or what did you do? I did cut
Speaker 1: classes a fair amount and cut classes to go surfing.
Speaker 1: Did you have a hard time getting into a good
Speaker 1: school in college? Yeah? I got into c W Post
Speaker 1: College on probation, probation on probation, okay, and but you
Speaker 1: did well there. I loved college. Okay. I love college
Speaker 1: because well, uh, besides mixing all the fun that college
Speaker 1: gives you, it also, um, what I liked is that
Speaker 1: I could pick the subjects that I was interested in
Speaker 1: and I so I loved college. Right, you must have
Speaker 1: done recent well because you got into Harvard Business School. Yeah,
Speaker 1: I did. I got great grades when you graduated. What
Speaker 1: did you do? So in my two years? It's a
Speaker 1: two year school. Um and in my summer I like
Speaker 1: to trade commodities. I got into trade and commodities. Now
Speaker 1: this is now, uh, the summer of seventy two and
Speaker 1: um so nobody ever for more of a business school
Speaker 1: went into commodity division. But I went to Merrill Lynches
Speaker 1: hodity division. I said, hey, can you give me a job?
Speaker 1: The director of commodities in that summer gave me a
Speaker 1: job to help him. Around three, we have the oil shock.
Speaker 1: Bear market in stocks. Commodities is the hottest thing. And
Speaker 1: I was hired as director of commodities at Dominic and Dominic,
Speaker 1: having never done anything in the director of commodities, but
Speaker 1: I was hired. And that's so that's what I So
Speaker 1: you left that eventually though, to set up your own firm.
Speaker 1: Yeah so I. Uh that was seventy seventy four, big
Speaker 1: bear market in stocks. Uh, Dominic and Dominic essentially went broke.
Speaker 1: I went to, uh, what was Sandy Walls firm? Cbd
Speaker 1: L E. L. Hayden Stone at the time became Shearson
Speaker 1: Hayden Stone Lean blah blah blah. Because it did all
Speaker 1: those mergers, I became in charge of institutional commodities, in
Speaker 1: other words, hedging of all different things, and that put
Speaker 1: me with all different futures markets. And then we got
Speaker 1: into the environment where um seventy four you got into
Speaker 1: this environment where interest rates, tightness of monetary policy, all
Speaker 1: of those things were driving all the markets. So that
Speaker 1: got me hooked on those markets. Anyway, I got fired
Speaker 1: from there because I was a bit rowdy. Did you
Speaker 1: punch somebody? Did you punch your boss in the face?
Speaker 1: Or yes, I punched my bost in the face. That's
Speaker 1: not a good way to print that was, but that was.
Speaker 1: It was New Year's Eve. We got drunk on New
Speaker 1: Year's Eve and somebody other than your boss. You didn't
Speaker 1: think of that anyway, But it didn't. It didn't last long.
Speaker 1: And that's how I started the firm because I was
Speaker 1: because the clients still wanted to do business. The year
Speaker 1: was that and you started the firm. So it grew
Speaker 1: true from one or two employees to how many. Well,
Speaker 1: in nineteen two it was I think there were eight
Speaker 1: employees and at one point and then I had a
Speaker 1: terrible eighty two so UM, and then it came down
Speaker 1: to one employee. So nineteen eighty three or so, it
Speaker 1: was just me, you have to borrow money from your father. Yeah,
Speaker 1: so let me tell you about the moment um. So
Speaker 1: nineteen eight, nineteen seventy nine, eight eight one. I calculated
Speaker 1: the American banks had lent a lot more money to
Speaker 1: emerging countries than those countries are going to get paid back.
Speaker 1: And I anticipated that there would be a debt crisis
Speaker 1: and with that an economic crisis. So that was my thinking. UM.
Speaker 1: In August nine eighty to Mexico defaulted on its debt
Speaker 1: and a number of countries followed. And so because I
Speaker 1: said that, UM, I got a lot of attention about that,
Speaker 1: and I thought that was going to be producing a
Speaker 1: bear market in stocks. And I could not have been
Speaker 1: wrong more wrong. August nine eighty two was the exact
Speaker 1: bottom of the stock market. And I was wrong. And
Speaker 1: as a result of that, UM, let's take my employees
Speaker 1: or UM, I had to let them go. I lost
Speaker 1: money for myself, I lost money for and I had
Speaker 1: to borrow four thousand dollars for my dad. It was
Speaker 1: the most painful, one of the most painful experiences, but
Speaker 1: it was one of the best experiences that ever happened
Speaker 1: to me in my life because it changed my perspective
Speaker 1: about decision making. It made um. It may gave me
Speaker 1: the humility that I needed and fear of being wrong
Speaker 1: in my decisions, while I was able to maintain my aggressiveness.
Speaker 1: So it changed my whole approach to decision making. You
Speaker 1: paid your father back with equity in Bridgewater or just
Speaker 1: interest now with without interest and with a big hug. Okay,
Speaker 1: so um. From that time on, you began to rely
Speaker 1: a lot more on arithmetic or algorithms and other kinds
Speaker 1: of things. No, no, no no. The big thing was, and
Speaker 1: this is like the biggest message that I think that
Speaker 1: I would get across that I'm trying to convey in
Speaker 1: printce of and so on, UM, is that so many
Speaker 1: people in there have opinions in their heads that might
Speaker 1: be wrong, and they're too attached to them. And if
Speaker 1: you know how to um operate with a certain amount
Speaker 1: of uncertainty and stress test your opinions in a different way,
Speaker 1: you get away from your ego, get away from all that,
Speaker 1: you can learn a lot about raising your probablies and
Speaker 1: being right. So what it made me want to do
Speaker 1: is find the smartest people I could find who disagreed
Speaker 1: with me, and then I could have conversations with them.
Speaker 1: Um and only after I found the smartest people that
Speaker 1: I could find who disagreed with me, would I be
Speaker 1: able to make a decision. In addition to know how
Speaker 1: to improve my return to risk ratio by being able
Speaker 1: to diversify well to create. And so I wanted all
Speaker 1: the upside, but I wanted be able to control the downside.
Speaker 1: And so I would say a number of lessons that
Speaker 1: I'd like to, you know, sort of pass along. First
Speaker 1: of all, the value of mistakes, the value of painful
Speaker 1: mistakes and learning and reflecting on them has been a big,
Speaker 1: big thing. Finding the smartest people who could work with you.
Speaker 1: That's what created an idea meritocracy at Bridgewater. And it's
Speaker 1: that back and forth in terms of the thoughtful disagreement
Speaker 1: and then also raising your probabilities of being right in
Speaker 1: those ways. So that's humility, that fear of being wrong,
Speaker 1: combined with still the audacity to go for the great
Speaker 1: results and how to do that well is really the
Speaker 1: most important thing I learned. But you now use a
Speaker 1: lot of computer related algorithms to help you navigate the market.
Speaker 1: You know, algorithms, or what we call them today, equations
Speaker 1: is what we used to call and so you would
Speaker 1: write that down. And what I learned is by being
Speaker 1: clear that I could tell how that decision would have
Speaker 1: worked in the past in all different environments. So it
Speaker 1: gave me a lot of perspective on making that decision.
Speaker 1: I could test it through the Great Depression and so on,
Speaker 1: and then I could find that I used that same algorithm,
Speaker 1: I could take data from and have the computer make
Speaker 1: decisions in parallel with me, and so, and that does
Speaker 1: what I recommend for everybody. I recommend they write down
Speaker 1: their principles and then realize that almost any of those
Speaker 1: principles can then be converted into algorithms. And so the
Speaker 1: computer was making decisions in parallel with me making decisions.
Speaker 1: That type of partnership between me and the computer and
Speaker 1: not also expressing the algorithms was invaluable not only in
Speaker 1: the quality of the decision making, but also the quality
Speaker 1: of the relationships that I had with people I worked with.
Speaker 1: Bridgewater would not be said to be an easy place
Speaker 1: to work, or is that fair or not? Because that's
Speaker 1: fair because many people common this is a very intense environment,
Speaker 1: and some of them don't survive. Those that do, presumably
Speaker 1: are are adopting your principles. But are you love it
Speaker 1: or hated? Um, you have a big attrition rate from
Speaker 1: young people coming in or I would say in the
Speaker 1: first eighteen months probably about we have protocols and you
Speaker 1: have to understand your weaknesses as well as your strengths.
Speaker 1: And so people coming to that are almost of two types.
Speaker 1: There are the people who say, um, well they I
Speaker 1: suppose almost all come that. I'm excited about that. And
Speaker 1: they're excited about that because they said, yes, I would
Speaker 1: like to know my weaknesses as well as my strengths,
Speaker 1: and I would like to be able to talk about
Speaker 1: anything and have it thrashed out. And uh, that's who
Speaker 1: it works for. But it takes getting used to because
Speaker 1: when you're really talking about the strengths, weaknesses and differences
Speaker 1: and ideas. Our brains have been programmed in a certain way,
Speaker 1: partially because of genetics and partially because of our environments,
Speaker 1: in which disagreement is thought of as producing a fighting
Speaker 1: up a reaction or weaknesses are something that becomes a
Speaker 1: challenge for people to look at. So that's the essence
Speaker 1: of what I suppose. I'm a young college graduate and
Speaker 1: I want to go to Bridgewater and make money and learn.
Speaker 1: What would be the qualities that you would look for
Speaker 1: in me to make it likely that I would succeed?
Speaker 1: Do you want somebody as a first in his class
Speaker 1: or her class? You want somebody that's a student, body, president,
Speaker 1: an athlete? What is it that you look for When
Speaker 1: I look at people, I look at them in uh
Speaker 1: three dimensions of a person, values, abilities, and skills um.
Speaker 1: Most companies higher for skills UM. I believe it should
Speaker 1: be the other way around. I look at their values.
Speaker 1: Values means like, what are the motivations? What are the missions?
Speaker 1: So and it skills is least important. Then you look
Speaker 1: at abilities and abilities is the way of thinking? Is
Speaker 1: somebody a big picture thinker or somebody creative? And I
Speaker 1: want to put together a mix of those right people?
Speaker 1: And then skills? Can you program? Do you know those things?
Speaker 1: That's important, but it's least important. So what I look
Speaker 1: for is really character characters number one um uh and
Speaker 1: UM to be on a mission and then it applies
Speaker 1: to the particular job they have. So when I'm referring
Speaker 1: to values, I'm referring to is this a person of
Speaker 1: good character? Number? One? Now, over your let's say thirty
Speaker 1: years as an investor at Bridgewater, what is your track?
Speaker 1: Every year you've made money virtually for your investors? Well
Speaker 1: at eighteen and the late last eighteen years? Eighteen have
Speaker 1: the last eighteen Yes, that's not too bad. Um about uh,
Speaker 1: is it too late to invest with you? Or who
Speaker 1: can invest with you? Anybody? And any credit investor you're
Speaker 1: not taking are are? We're closed to new investments in
Speaker 1: that pure alpha strategy? And our clients are all institute
Speaker 1: large institutions. And you have two basic strategies that you
Speaker 1: provide investors. That's right, and I think that will be
Speaker 1: helpful for people to understand the nature of that. There
Speaker 1: is a strategic asset allocation. Next, what is your best
Speaker 1: diverse by portfolio? If you had no idea what was
Speaker 1: going to happen, what would you hold. That's what we
Speaker 1: call our all weather strategy strategy. It's a portfolio of assets. Um.
Speaker 1: And then we have what we call our pure alpha strategy.
Speaker 1: Because there's a separation between alpha and beta. So most
Speaker 1: investors make the mistake of separating those two and think
Speaker 1: that they're going to make money in the market, and
Speaker 1: in the zero sum game, they're probably going to lose
Speaker 1: money from making those bets. So there's the strategic asset
Speaker 1: allocation mix, which is the all weather beta piece, and
Speaker 1: then there's the alpha. In other words, Okay, now I
Speaker 1: think it's a good time to move this way that way,
Speaker 1: and that's the alpha stress. Um, it's too too late
Speaker 1: for friends and family to get into your fund right,
Speaker 1: there's no opening, not gonna open any anytime soon. Okay.
Speaker 1: So important part of your life has been transcendental meditation.
Speaker 1: You do this twice a day. When did you start
Speaker 1: and why is it so important to you? Um? I
Speaker 1: started in nineteen sixty nine or so. I've started because
Speaker 1: the Beatles, uh did it and then and I learned
Speaker 1: about it and I thought it was but I it's Uh,
Speaker 1: it's a it's a very important thing. I would say. Um,
Speaker 1: it's the greatest gift that I think I can give anyone.
Speaker 1: It gives a combination of an equanimity, uh, the you know,
Speaker 1: a calmness, so no matter what's coming at you. You
Speaker 1: can approach it with that sort of calmness. It gives
Speaker 1: one a creativity because it is a process of going
Speaker 1: transcending is a process of going into your subconscious mind
Speaker 1: and relaxing. So it's UM, it's been very helpful. So
Speaker 1: now you are one of the wealthiest up in the
Speaker 1: United States, one of the most successful investors. So you
Speaker 1: now have a fair amount of wealth to give away,
Speaker 1: and you were one of the original signers of the
Speaker 1: Giving Pledge. What are the philanthropic interests that are most
Speaker 1: appealing to you. My interests are I guess I would
Speaker 1: say two big interests. I'm really thrilled about ocean exploration.
Speaker 1: This is something that's a big deal for me. But
Speaker 1: we we have donate to many different things. UM. And
Speaker 1: then important things for my wife and for me has
Speaker 1: to do with the education of what are called disengaged
Speaker 1: and disconnected UH students, those who would not get through
Speaker 1: high school. So when you have the kind of platform,
Speaker 1: you now have a virtue of your success as an investor. UM.
Speaker 1: Do you find it easier to meet with heads of
Speaker 1: state finance ministers, heads of countries and do you find
Speaker 1: that to be appealing to do that? And give them
Speaker 1: your views on these subjects. We find it mutually appealing. Yes,
Speaker 1: I um, uh I that you know, from my point
Speaker 1: of view, I'm very interested in the subject matter. But
Speaker 1: I'm also interested in being able to UM have an impact,
Speaker 1: being able to help and so sometimes in policies, UM
Speaker 1: it's had a big, big effect. And like EACB policy
Speaker 1: or other policies. So if a if somebody came to
Speaker 1: you and said I'd like you to be the chairman
Speaker 1: of the Fed or the secretary of the treasury, would
Speaker 1: you ever go into government? Or that's not for you,
Speaker 1: that's not for me. Today, the greatest pleasure of your
Speaker 1: life is your family or financial success giving away money?
Speaker 1: What do you most enjoy? No, the financial success has
Speaker 1: never been It's an inadvertent thing that came largely because
Speaker 1: I like to play a game that if you played
Speaker 1: the game, well, you get the money. But the financial
Speaker 1: success has never been uh. Pass taking care of my
Speaker 1: family and living adequately. Uh, it's been a nice thing
Speaker 1: to have it. No, UM, for me, the most important
Speaker 1: thing in terms of saving really has been relationships. UM.
Speaker 1: Meaningful work and meaningful relationships. These are the most important thing. Well,
Speaker 1: I on a mission, to have a passion to work
Speaker 1: with people that I liked to understand the subject. Well.
Speaker 1: I love my game because it forces me to understand
Speaker 1: macro economics the world and to bet on it in
Speaker 1: relationship to other people. So it tests whether I have
Speaker 1: that knowledge. I love that, and I'm glad that we've
Speaker 1: taken it to a certain point. And then there's the
Speaker 1: things that I've savor even more than that above all
Speaker 1: else with seventy years old, and is the relationships, the
Speaker 1: quality of the relationships, that sense of community. That's what
Speaker 1: I treasure more than anything. Thank you very much for
Speaker 1: an interesting conversation and it's a terrific read and I
Speaker 1: highly recommend it. Thanks for writing it, Thank you for
Speaker 1: having me. That was Bridgewater Associates co Chairman and co
Speaker 1: chief investment Officer Ray Dalio.