Ray Dalio on Failure, Meaningful Work and Relationships

failure era mistakes. Failures, they are an opportunity to learn, and we should not ignore our mistakes, but we should own them and learn from them. And because of that, I started doing my annual Mia culpus. I've been doing it for about a decade. So I wanted when there was an event, I wanted the opportunity to, uh say thank you to him. I couldn't get you were near the guy after he spoke, where a million institutional salespeople

all over him. I step outside and I'm just standing there, kind of fuming, and I see the scrum coming towards me. It's Ray and his assistant and all these salespeople and it was sort of like an Andy Cap cartoon with these guys all trying to get in there. Eventually he is the scrum works its way, so he's like two ft from me, and I just looked up and said, hey, Ray, I don't have a business card for you. I just wanted to say thank you. And he kind of swiveled

around and looked at me. Who are you. I introduced myself and I tell him hey, because of your uh concept of of owning mistakes and the value of failure, I started posting my Mia Culpaz publicly. Here's where I screwed up. Here is what I learned. And we just chatted for two or three minutes, and you could feel the white hot hate of all these salespeople who were looking for uh entree for a commission business with Bridgewater

and I'm just chit chatting and saying thank you. So he and his assistant get in the car with a giant stack of papers and folders and stuff you know they're throwing out immediately um and I basically said, gee, I have to sit down and have a longer conversation with that guy. He's pretty fascinating Well here it is almost a decade later, with no further ado. My conversation with Ray Dalio, my guests this week requires little in

the way of introduction from me. His name is Ray Dalio and he is the founder, chairman, and outgoing CEO of Bridgewater Associates, the world's largest hedge fund, managing over a hundred and sixty billion dollars in assets for institutional clients. Ray continues to work as Chief Investment officer there. According to Fortune, Bridgewater is the fifth most important private company in the United States. They have made more money for their clients than any other fund in his stree. His

new book, Principles, is a New York Times bestseller. Ray Dalio, Welcome to Bloomberg. Thanks nice to be here. I have been looking forward to this conversation for so long. Let's jump right in with Bridgewater just celebrated its forty anniversary. How has the company's evolution surprised you since you first launched the firm in the nineteen seventies. Well, it surprises me, an every day, every different which way I mean. I

don't know how to summarize it. Uh, you know, I started it out of a two bedroom apartment with a guy played rugby with and I was just playing my game, and I just never imagined that it would be anything like this. So you go through to these different phases. You know, first phases you have to take care of everything. You have to hire people, you hire your pals. Then you realize that you have to manage people, and then you have to you know, I had to get the

file cabinets myself and all that. Then you get people who get the file cabinets, and then you have to manage them that. You know, it goes through all of its phases, and now, um, I'm at the wonderful phase of being able to transition out of the management and make other people successful. So I'm now a phase in my life which I'm describing as entering the third phase of my life of transitioning so that I'm making other people successful. So every phase is different, you know, lots

of surprises. So let me tell you what surprised me. In principles, in the first part of the book that describes your history, you had roles in the creation of each of the following products tips, the inflation protected treasury bonds, US dollar futures, index, risk parity China's stock market, and chicken McNuggets. Let's discuss each of those, but I have to start with the outlier, chicken McNuggets. What was your role when chicken McNuggets, Well, you know, I was trading commodities.

And when I say trading commodities down at a very basic level of understanding. You know, how many pounds of feed went in to a chicken or beef, uh, and how that would grow. I liked it because it was very mechanical and there was not no greater fool theory. You know. The value of the meat was whatever it sold for at the counter. And at the time that time, I had institutional clients who were uh, you know, hedging, and McDonald's was a client of mine, and some chicken

producers were clients of money main processing. Yeah, and um McDonald's wanted to They came up with the idea of the chicken McNugget. But the big problem that they had at the time is there was a lot of volatility in prices, in chicken prices, mostly because there was grain prices. A chick is a tiny thing, it doesn't cost much, but it's all the grain, and so they were worried about you put out these at a fixed price on the menu, and then the price volatility could kill them.

So they wanted to buy chicken at a fixed price. But nobody produced chicken at a fixed price because there was no chicken futures market. So I went to the Lane processing and I said, would you like to do this? And I calculated how they could essentially hedge their cost by buying corn and soy meal futures, and then they locked in the price for chicken McNuggets. And I loved really commodities then I love that story. It's so fascinating how a little bit of financial engineering and lo and

behold you have a consistent price for chicken. It was cool. Yeah, and you did um dollar futures index. Was that with Paul Tutor Jones volatility and the dollar and then he figured, let's put together a basket and uh so we put together a basket. We designed it, how it would it work. We did the same thing with the CRB futures. It's engineering. You've got to understand engineering. You have to understand the mechanics. It's a fair basic fundamental thing whatever you do. And

so we understood a lot about engineering. I put together those products. What about your role in the development of China's equity markets, Well, yeah, I into there. I started going nineteen eighty four to China, and uh because not not for business or anything, because it was an interesting place. Um and a matter of fact, the company that invited me, Siddek, was the only company in China that was allowed to

deal with the outside world. They called it a window company. Anyway, as they started to in night nine, start to think about we need financial markets. There were seven people who were in a room and that it was sort of a dingy hotel room, and they had to start to think about the markets. And I got to know them and we started to think about how they would develop a stock market, a bond market, and so on. So I got to be a participant in that, and that

was a blast. These people have become, you know, lifelong friends, so you know, since that time until now, we've been friends. And then they've gone on to develop the fabulous financial markets that are there and I'm still there. So it's great. You know what I like is I like meaningful work and meaningful relationships. I like work that I can get my head into and I'm having an impact that's great,

and I love the meaningful relationships. If you could do this with people you like over a period of time, that's even the greatest reward. That phrase meaningful work and meaningful relationships comes up in Principles over and over, not just in the history but in the Life Principles part, and it seems to be applied in the Work Principles part. Tell us what led you to those two elements? Well, look,

I want it. I mean personally, I want the meaningful work that I get excited about to be on a mission, and then I love the meaningful relationships. It's as much important to me as whatever business with success. And if you put those two things together, being on a mission with people who you love and that great mission mission,

it's um double rewards. And then it also reinforces each other because if you're if you're doing in the meaningful work and you have the meaningful relationships, you can be tough with each other and you um, you know, you get the devotion. The people who work at Bridgewater, a lot of them who work there for a long time, they would never think of working anywhere else because it's

like an extended family. You have to understand that money as a reward, UH, is not a very satisfying reward really in comparison to the meaningful relationships if you do. Studies have been done on happiness right, and they said, there's very little correlation between the amount of money that you have passed a certain basic point. Once the basis have covered, there's a diminishing returns, not much correlation. The number one thing in source of happiness across countries everywhere

is a sense of community. So if you have both of those things great or So I wanted those meaningful work and reading for relationships, and then in order to have those, I wanted to be radically truthful and radically transparent with each other. Because if I'm going to have a relationship with you or the people around me, I need to have an idea meritocracy in which we are radically truthful and radically transparent. And that's how the culture began,

and that's how what the culture is. You know, in a nutshell, the culture is an idea meritocracy in the words, the best ideas win out, UH, in which we're going for meaningful work and meaningful relationships through being radically truthful and radically transparent and that's been the key to the success. Let's talk a little bit about mistakes. You describe mistakes as opportunities to learn and improve, saying, the key to success in life is learning how to fail well. Discuss well.

I think in order to be successful you have to do five things. Basically, First, you have to know what your goals your dreams are, and on the way to going after those goals and dreams, you're going to encounter your failures and your mistakes. A lot people think that that's painful. Uh, those are your learning opportunity. So I was saying pain plus reflection equals progress. In other words, reflect what would you have done differently. So first step goals.

Second step problems on the way to goals, not tolering them. Third step, you have to diagnose those problems to get at the root causes. Many of those times, the root causes is you how you're handling it. So you've got to learn a lesson. Most people learn lessons through painful mistakes, So I associate painful mistakes with learning. Okay, so first goals problems. Then diagnose those problems to the root cause, make a design of what you're going to do differently

In the future when the next one comes along. Those are the principles I wrote down those principles. That's what the book is mostly about, this collection of principles. So number four, design ways of getting around them. Number five, do those things pushed through the results. You keep doing this over and over and over again, you're going to

be successful. I have another um little formula that basically means that if you have your dreams, plus you embrace reality, and you learn from reality, your painful realities, and you have enough determination so you keep learning, you will inevitably have a successful life. So those are the That's what I mean. The value in learning is from mistakes, because mistakes cues the fact that you learned something that that

something is wrong. But you need quality reflection. And when I started, when I did this over a period of time, my whole attitude started to change. I began to view mistakes, problems, failures. I began to view them as puzzles that they were curious to me. And if I could solve the puzzle, I would get a gem. And the gem I would get would be a lesson or a principle of what I would do differently in the future. And I wrote

that down. So a big thing for me, well for I don't know, twenty five years, is to write down the my principles every time I'm making a decision, writing down those principles. And then I found out I can convert those principles to decision rules, and I could have the computer help me make those decisions because it would reflect.

And that changed my life. So one of the things you wrote that really stood out to me about a related topic, you you said you fear boredom and mediocrity more than failure, and the line was great is better than terrible, but terrible is better than mediocre. Is that related to this idea well making mistakes or is it really just I don't want to be bored I want meaningful work. Well, i'd say it's probably half and half.

I mean, in other words, I want flavor in my life, right, you know, And I don't mind getting banged up a little bit on the way to learning. And I love learning. I love the evolution. So boredom is the thing that is the worst for me. So pain, I can, you know, I can deal with some pain. I find even the benefit of the pain. It's become almost like failure equals success. That's that sounds like a weird thing, fail little process

in the middle, right, failure equal success. But because I've gotten re cued programmed, essentially, what that failure means is failure means learning, and that's exciting to me. And then it produces success, and that's exciting to me. And that changing my instinctual reaction, my need jerk reaction to failure gives me a more exciting life and gives me a more successful life. So let's talk a little bit about

that pain and that radical transparency. You write about a memo that your staff gave you about quote, raise intractable people problem, and I'll spare the details, it's in the book, but they really call you out. They really take you to task for the way you're interacting with staff. How did this peer review affect you? What did this dude

to impact that philosophy that you've developed. Well, I always, I always really wanted that that kind of feedback because I wanted to work with independent thinkers who would speak up just like I could, radically straightforward. But as the company got to get a little bit bigger, and I think it was probably like maybe we had eighty five people or so then and that straightforwardness was making people

feel comfortable uncomfortable and I didn't know that. So they called me out to dinner and they and they give me this memo and they explained to me that I'm having this effect of, I don't know, demoralizing people, upsetting people. And I didn't want to have that effect, like these are the meaningful relationships I wanted to have it. So it paused me um to make me think, well, what do I do? That's an intractable problem. Am I gonna

not be as straightforward with them? Can't they be straightforward with me? And how am I going to change that? Let me interrupt your sect? You're the boss. How these people who are feeling wow? Ray really ripped me a new one today. Did you really feel they can come up to you and say, hey, Ray, even though you're the founder and boss, here, here's what you're doing wrong and you better cut it out well. In the markets, and as an entrepreneur, you've got a bet against the

consensus and be right. Otherwise you're not any value in the markets. The consensus is built into the price, and you've got a bet against it and be right. You have to be an independent thinker, and you're not sure that you're going to be right. So for always, Uh, you know, I've gotten my head handed to me enough times that I'm scared about being wrong, and as a result of that, I want to work with independent thinkers.

These are the people I respect who can then argue back and forth and to try to raise our probabilities of being right. So that's part of the process, right, and so um that that type of straightforwardness, um is not uh easy for people, but that's the way I've always operated, That's the way we've operated, and we've institutionalized operating that way. But at the time, some people found

really that uncomfortable. Um, So then we go back. Um, I was, you know, in a position where I didn't want to do that and I and I didn't also not want I didn't want to stop doing it, So what should I do? So I thought, I reflected on that, and I came up with the idea of let me just sit down with the people and decide how are we going to be with each other. For example, if I have critical thoughts about you, should I tell you

or should I hold them to myself? If you've got critical thoughts about me, should you tell me or should you hold them to yourself? If everybody intellectually really says no, no, you want to know about those things, right, But emotionally then they don't. Uh, they don't like it right. And what we discovered really is the two use in everybody,

there are two use. There's this intellectual, thoughtful you that would like to make decisions a certain way, and then there's an emotional, subliminal you that you don't even understand very well, and it's having a conflict. And so by making it very clear with each other, we could establish ways of being with each other. That really led me to write down a lot of my work principles. In other words, Okay, how are we going to be with each other? I wrote those down in words, we put

those together, and then we moved forward. So we had that. With that, we established what our unusual way of our operating, our unusual culture was with this thoughtful disagreement, this idea meritocracy. And it was like a contract. And people realized that the struggling wasn't between me and them really as much as it was between them and them. There their emotional

and their intellectual and that changed everything. So the writing down the principles changed everything and the realization that everybody has those struggles between their thoughtfulness and what they want and their emotional self and then you work on getting through that. And we found that typically it takes about eighteen months to get to a place of, you know, practicing this and getting comfortable with it. In order to

have an idea meritocracy, you have to do three things. First, you have to put your honest thoughts on the table for everybody to see, holding back, no holding back everybody and everybody puts them on the table. Great, Okay, a lot of people won't do that, but when you get practiced, you don't want to do it any other way. So

you put your honest thoughts on the table. Second thing is you have to know the art of thoughtful disagreement, the art of thoughtful distance and challenge right in other words, to view that as a curiosity that you also might be wrong if there's disagreement, How do you know the wrong party isn't you? So to separate oneself from one's opinions and to be able to have a quality back and forth motivated by curi city and the fear of being wrong, so that you can take in and learn

that understanding the art of thoughtful disagreement is invaluable. So you so that's the second thing, put your honest thoughts on the tables. The first, UM have understand the art of their thoughtful disagreement. We have protocols about how to do that. And then at the end of the day, when there's um you have to make a decision and you still have disagreements, to have protocols to get around those disagreements that you consider to be fair. I'd say

this is essential for me in all my relationships. So it would be relationships with family, with friends, UM, you know I need them to be straightforward with me. I gotta be straightforward with them. We have to know how to have thoughtful disagreement. And then everybody in any relationship has to have protocols for getting around their disagreements if they still remain. If you and your wife are having a disagreement on something, you still have to have a

protocol for getting around out it. So by organizing that and making it clear, we were able to have this idea meritocracy, and everybody believes the idea meritocracy is then fair. Imagine how it is different at every other place, you know, the boss tells you what it is. People bottle people bottle it up. Okay, they think, oh, he's making a mistake. He would benefit from having that feedback. But they have

to bottle it up with which frustrates them. Therefore they can't have a real ownership mentality and the organization that they're with, and it undermines their relationship. That straightforwardness has been fantastic in creating better work and better relationship. So that's been the secret source. So let me do a little radical transparency with you. In the book, you discussed two things. We discussed the people problem and the social issues.

You talk about bipolar running in the family. And as I read those two in sequence, I immediately said, Hey, I wonder if Ray is a little bit on the spectrum himself. So let me ask you. Have you ever considered you're an independent thinker. Your perspectives are unique. You're very different from the way the average person in finance operates. Have you ever thought, hey, maybe I'm a little a little different. Well no, but look, I'm sure i'm a

little different than you know. Who knows, I'm probably crazy in a bunch of different ways. I've never been Uh, nobody said that, but you know, like who knows. We all have different spectrums. The thing I learned about it is there's always a range of thinking. So think of it as a thinking spectrum. And I don't know where I am on that thinking spectrum. But some people, for example, we'll see big pictures, some people will see detail. Some

people are creative, some people are reliable. One of the things we've learned here is that everybody sees things differently, like seeing on a spectrum of of seeing, and that knowing how one thinks. UM, I tend to be more of a big picture thinker, to to be more of a you know, original thinker, that kind of thing. But in terms of my reliability, like I'm have low reliability whatever to know those things and then to have the individuals um recognize them and then put together your team's

well because you need to do it all. Is this what led you guys to doing the Briggs Myers personality uh tests on everybody and making sure the teams all had each of those boxes checked off. Yeah, and a lot of tests and a lot of collecting data. Like people come in there and they really do want to know what their strengths and weaknesses are, because like, you know, knowing a weakness, do you want to know a weakness? You know, that's one of those emotional intellectual questions. Emotionally

a lot of people don't. Intellectually, if you know your weakness, you can either convert it to a strength somehow, or you can compensate for it by put working with somebody who's got who's strong. We are you're weak. So knowing your weakness is the key to success. And also from an employer's point of view, what you want to do is you want to know what their weaknesses are and what their strange sources. You put them in the right role. People tippy toe around this stuff and you know, you

know where we are. People want to get into it and work it out, and so yeah, tests personality tests give you a real sense of what your preferences are and how you approach your thinking. They've been very helpful. But all the data we collect, you know, like every meeting of every day. We have a tool called the

dot Collector. If anybody wants to see it. If you really don't want to understand all this in sixteen minutes, it's on a ted talk go on a TED talk I gave it, uh, and and it gives you something. You're going to see a device in which people are putting in what they think, uh, during a meeting where all meetings are like this, and you'll see how they think differently. It lights up in different colors and then it explores why is that thinking different? Which creates a

self discovery and creates idea Merita Crown decision making. So it's been evolved to that and it's you know, it's been invaluable. Let's talk a little bit about the idea of being a hyper realist. You wrote, understand how reality works, then learn how to deal with it. Isn't that what everybody's supposed to do? Most people? I don't think, do I think people? A lot of people, UM feel bad about reality, feel sorry that, uh, some realities are happening

to them, feel things are unfair. Um, they don't react to harsh realities. Well they don't. Instead, you can instead say reality is the thing I have to deal with and I have to be clever and understand how does reality work and how do I deal with it effectively? And those two different mindsets are UM are enormous because if you own that reality is reality. You know that's what you have to deal with, and that you have

to find the way of dealing with it successfully. Then it changes your whole attitude and your whole path really to being successful. So let's talk a little bit about a change in path that reality seems to have le led you towards. You transitioned at work from I'm right to to what I would describe as next level thinking.

How can I know if I'm right? Explain that transition. Oh, yeah, it was in one UM I had calculated that foreign countries borrowed enough money that they couldn't pay back American banks, and that there was going to be a big banking crisis. I did the numbers and um that at that time that was extremely controversial view. I said, We're gonna have a big debt crisis and h Then in August Mexico defaulted on its debt and and so I, We're gonna have a big economic crisis, and so I was asked

to appear on Wall Street Week and explain it. I was asked to testify to Congress and so on. Uh, this big economic crisis, bear market in stocks and everything. August two, Mexico devaults and here I am, and I'm getting all that attention. I was so wrong. That was that was the exact bottom in the stock market August, and you were on ru Kaiser basically forecasting a depression. I couldn't have been more wrong right, and I lost money in the markets. I uh, I was. I had

to let everybody in my company go. It was down to me. I was so broke. I had to borrow four thousand dollars to my dad to help take care of my family. Okay, that was one of the most painful experiences of my life, but it was one of the most valuable experiences of my life because it changed my approach to decision making. In other words, like you say, it shifted my perspective from thinking I'm right to asking myself,

how do I know I'm right? And it gave me the humility that I needed to balance with my audacity. And that change in approach resulted in, you know, some big decision making where did I go back to another job, would I stay out there? And and how would I do things differently in the future. And the first thing, most important thing was to find the smartest people I know who would disagree with me to understand their thinking, to have that thoughtful disagreement. That's part of your fourth

step process. Right, Yeah, find smart people know when not to have an opinion. That's a fascinating statement. When should you not have an opinion? Well? A lot of times? Right, Well, I mean opinions, particularly in in any is a zero sum game. But so many people have opinions that they're attached to and and they don't know whether they're they're right,

and and that bias is killing them. I think one of the greatest tragedies of mankind is people stupidly holding onto opinions that could be wrong, that they could so easily put out there and stress test. And that emotional attachment to these opinions is one of those things where instead you could just say, let me get the best thinking I can have. It doesn't even have to come from me. Why does it have to come from you? But that's a huge ego fail. If oh my god,

I'm wrong, I have to go to someone else. Isn't that how people often operate? Right? And that's screwed up? Right, you have two basic barriers. You have your ego barrier and your blind spot barrier. Like do you want to be right or do you want to be you want to take your lousy opinion and and be attached to it being right, Like I want to be right. I don't care where it comes from. Just as long as I'm right. That works better. And then and so that

ego barrier is terrible. And then there's the blind spot barrier. Even people who don't um have you know, uh, the ego of being attachment to be right see things differently, the unknown unknowns so to speak. Yeah, well, right, um,

this range the spectrum that you're talking about. Somebody sees something creatively, somebody sees detail, somebody We all see things differently and to be and so you can't see at all the big picture person may not be able to see the details, or the detailed person can't see the big picture. If you can light up all those different ways of thinking and and you can bring that to bear,

you're going to make much better decisions. So that's one of the reasons that great collective decision making is much more powerful than just individual opinionated thinking. Sure, of course, you're you're you're bringing in all the advantages of the group and you're limiting the problems of the individual, and

that raises your probabilities of being right. So now you mentioned four steps, so I want to get to the step three and four, which are the principles and up so I risk versus downside risk, right, So okay, So some of the other things that I learned about is how you know, risk goes with rewards, but how am I going to change the ratio of risk to rewards? Right? And I spent a lot more time with financial engineering of understanding how to use correlations and certain ways of

really radically improving the ratio of returned to risk. So it's explained in there. And what I called the holy Grail of investing, it's um, you know, that was there. And then I also learned, um that everything that happened that happens practically has happened before for the most part, and that the things that surprised me were the things that just happened happened in my lifetime before, but they

but they happened before. Like one first time I had a breakdown of the currency system, okay, and it was first time in my lifetime then had happened. But I

looked in history, happened many times before. So so I learned that I needed to make my rules timeless and universal, in other words, that I would run them back through the Great Depression, through the Weimar Republic see how those rules would work, and if they wouldn't have worked well in certain periods, then I had to explain why they would work in those periods, because there were reasons for that.

So these are the things that came out of my reflections as a result of you know, that two painful experience. It's such a great example that if you pain plus reflection equals progress. If you really reflect the most and you look at how reality works and you think what should you do differently, that's where the power of growth comes from. So there's one other thing in the Principles at Work section I have to talk to you about

because I just was so tickled by it. You spend almost five pages on how to run a meeting effectively? So what if that raises two issues you Obviously we think meetings are important and a significant part of getting work done as a group. But it made me wonder what were the meanings like in the early days of Bridgewater. Was it was it anarchy that led you to this sort of insight or or what motivated a lot of thought about making meetings more productive? Well, um, the meetings

are an important thing. And meetings means that there's a collection of people who are in the room and they're ideally leading to some sort of decision. Okay, you have to say, how are you going to be with each other in order to make decisions? Right? In other words, you can go around the table. I was I'd go around the table and then there was not much attention paid to you know, who knows exactly what? Right? You know? What do you think, Harry? What do you think, Sally?

And maybe they're not good at it and maybe they're good at it at so um that's a problem. Or you can have autocratic tocision making. You know, the autocratic decision making means the boss kind of makes the decision and then then you sort of decide and everybody walks out. I wanted to have believability weighted decision making. Okay, believability weighted decision making is, um, let's see you trying to explain it quickly or not? Um, believability weighted decision making.

Imagine if you knew, um, the probability of each person making a high quality decision and then you decided, UM, that would be taken into consideration, and when you're making the decision, you can actually have believability weighted voting to make a decision, so that you put the weight more heavily on those who have greater abilities to make those types of decisions and at the same time, while you're having this open minded discussion and at the same time

knowing what people know and knowing what they don't know and being clear about that in terms of that decision making.

So that was a very very important concept for me, and then we wanted to build that out, you know, like, how do we have believability weighted decision You use that currently approach every every every meeting, ten people are sitting around a conference table and their expertise and I'm assuming credibility weighted believability rated is a function of their skill set, expertise, etcetera. Everybody has a different right and they all have different waitings.

So at the end of the day, you say, I'm going to make a decision, Okay, would you do this after the thoughtful disagreement? Would you do this? And you push a button on this iPad app that we developed and UM and it will show not only what the different people's votes were and how that vote tallied up, but it will show a believability weighted vote. So I'm gonna assume that that a straight yes no vote often

leads to a different result than the believability weight to vote. Well, the yes no will get tallied up with the weight of yes is and those and that that and so. So for me, like I'm running a meeting, this really

what I wanted to have. I run the company. I could do any kind of decision making I want, And but the reason I want the believability decision is if somebody knows more about a subject than I do, or if I have three believable people disagreeing with me, um and and about something, I don't want to just walk off and do that thing because that would be pretty stupid. So what I think to myself is, Okay, the right

way to make that decision is believability weighted. And then when we come down to that, like if I'm thinking, um, these people have that that view and I have another view, Uh, there's a high probability I'm wrong. I need to even delve into it. Why is it that? And so, by operating by this believability weighted decision making. Um, it's fantastic. I will make better decisions. We make better decisions as a result of that. And also people feel empowered in

the rules. Rules are fair in other words, Okay, at the end of the day, you know, just in the United States, we might believe that democracy is fair. In other words, that they might believe that, Um, I would believe in a company, everybody doesn't. It doesn't make sense to have one person on vote because it doesn't because

there's a difference. But to know that in a sense that you earn believability points in a variety of fair ways, and that it gets carried through so that you're making your decision making is a decision making process that people can believe in. It means they don't have to bottle these things up and it makes for better decisions. That's

a pretty ego free approach to managing a company. Well, this ego is a problem, right, I mean you basically, I mean maybe the ego of you know, being excited and doing great things and all of those types of things. So maybe it's not totally bad, but I mean any time that that ego is standing in the way if you're making a good decision. It's it's terrible. It's it's got to be controlled. You've got to do something different, otherwise you're stand in the way of making a good decision.

Life is a matter you know of bets. Every you're making a bunch of different bets, and think about it. It's the accumulated stack of chips that you accumulate from making all those life bets. So you don't want to have something that's going to stand anyway. If you're playing poker, if you were playing any game, you don't want to have the ego stand in the way of making smart decisions. Right, makes makes perfect sense to me. Let's talk a little

bit about markets and the economy. In the book Principles, you describe back testing your trading intuition in order to develop a system for interest rate, stock, currency, and precious metals. Tell us how the idea of back testing intuition developed

and how you implemented that over the early history of Bridgewater. Well, I've every I got in a habit of every time I would put on a trade, I would write down the criteria for putting on that trade, and I when I would close out the trade and I'd read why did I do it? And you know, how did that go? Just as a learning as apparence, and I found that if I wrote those criteria really clearly and I put them into equations or algorithms, I could then see how

they would have performed in the past. Let me let me interrupt you a brief second, from the beginning days of Bridgewater, from your earliest days as a trader, you were writing down here in my trade criteria, here's why I expect this to work, and then you would do a postmortem saying here's why this worked or here's why this didn't. Yeah, very very early as long as I can remember, and then that would be eventually reduced to an algorithm. Well, what I discovered. I just did it

to reflect on the trade. But I discovered that if I was clear enough, I could see how that decision rule would have worked in the past, throughout history. And that was enlightening, right, because then I could see I could test it in all different countries I contested in

all different markets. Wow, that was enlightening. And then I realized that if I could take that rule, that this algorithm um, I could also have a process information on a real time basis, so as information was coming in, it could go through the rule and then tell me essentially buy sell and do that. So I gained a perspective and I gained a tool that was fantastic for my decision making. And it was it was so invaluable because the computer can do things that the mind can.

It can process a lot more information, a lot faster, a lot more precisely, and a lot less emotionally. And I so I could build those strategies. So that's how I started to think about those decision rules and then I found um, and that was great. So I built these systems, these decision making systems that would work like a GPS. Like if I'm driving in the car and the GPSS turn right, turn left using those my criteria, UM yeah, I could do that, or I could say no,

I think I should turn right. It's like having a computer chess system next to you while you're playing chess us but with your criteria. And then the reconciliation of what the computer saying with what I'm saying, uh than helped because sometimes if I would see it differently from the computer, then I would say, well why would that be? Because those were my rules, so how do what's going on?

And it could either be two thirds of the time it was that the computer was seeing things that I just wasn't because my mind is limited in capacity to do it. But it would make sense when I would dig in and then let's say one third of the time I was seeing something that I hadn't properly put into the system. And so by putting it into the

system and evolving in that way. Again, I'll emphasize that writing down of principles, putting them in there and then ideally encoding those principles into UH computer to make that decision making UM. You know, has been invaluable. And that's why that works so great with our investment decision making, UM that it became really important for our people decision making, our management decision making, in other words, for all decision making. You can do this. It doesn't have to be just

investment decision making. And this is the thing I really

really want to pass along. UM. If you think that you're making decisions, UM, and you just sort of slow yourself down and you write those things down, it'll help you clarify them and when the next time one of those comes along, you can refer to it, and you could also share it with other people so that you say, ah, God, we understand each other why we're doing that, and you can refine it, and then you can build on that nowadays with and not just nowadays, we've been doing this

for twenty five years. You can build that in terms of that uh, that systemized type of approach, and that's invaluable. Let's stay with the investment thesis for a second, because there's a quote from the book I have to share. There are anxious times in every investor's career when your expectations of what should be happening are in align with what is happening, and you don't know if what you're

looking at our great opportunities or catastrophic mistakes. Is this the sort of thing that the system helps you work your way through. Yes, I mean I think you must know the feeling, like every investor right, everybody else's wrong. Well, but you don't know, you say, or am I missing something? You know? Because every day it ticks. You know, It's

not like you buy and then you sell. It's that you're sitting with that position and every day it's doing this and somehow it's going the wrong way, and you really don't know am I missing something or is the market just about to catch up? The system helps you, right,

because the system consists of that computer betting machine. Right, it's like that that that chess machine and so on, and you also have it down that you know, I structure it so that no one bet is such a big thing, so you're played in large numbers, and so you're executing it and you're looking at the reasons. So it helps you through, helps me through those emotionally challenging periods because you learned to gain perspective. You know how

bad it can go. That perspective is invaluable. So let's give a specific example of that fork in the road where it either could have been a catastrophe or an opportunity.

I have to bring up in two thousand and eight, when most funds were down thirty, your flagship fund was up four and then fast forward to your returns for pure Alpha one where plus fort pure OFFA two, which is a more modest portfolio, is plus twenty eight, and then the fairly conservative Old Weather portfolio was up eighteen percent. I'm looking at these as an example of that great opportunity versus great catastrophe. Would these returns been possible without

that process? No, Again, where they come from. You have to think differently, You have to think independently, you have, and then you also have to know that you could be wrong. Right, Okay, it's two thousand and eight going to be my two all over again? What what did I do differently? So the things that I did differently accounted for why we could do that comfortably? You know that element comfortably comfortable, comfortable, much more comfortably, much more

comfortably could have been otherwise done. What sort of self doubts were plaguing you in oh eight? Were you thinking, hey, this is eighty two all over again? Did that enter your head? Yes? Of course, right, is that that experience? Am I going to be terribly wrong? Because here it is, I'm calculating that we can have a meltdown, that we

can have that that whole exercise. But you had a very different system assisting you at that time, right, I had something like twenty five years more experience with that other memory in my mind of all of those other you know, lessons I learned in compensating ways and so on and so so it would be like going into the hurricane the next time, where the hurricane kicks the hell out of you the first time, and then you build systems and things and you go through and you

still say, oh, is this scary hurricane? And I hope I'm well enough protected. But that's what it was like, not knowing exactly, but having enough cautions and and diversifications and calculations and triangulations and so on, which a girdered. Essentially, um are decision making and going through that. So I referenced the Old Weather portfolio. Let's let's talk about that

a little bit. Um. Essentially, you create the idea of risk parity earlier, and then from two thousand and three, Um, you set up the Old Weather portfolio where you were the only clients. How did this scale up? What is it dollars or something like that these days? How did that scale up from raised pocket money to a full institutional product. Well, I, you know, this was now the stage that I had money that I was going to

be from my family beyond me. So I put together a trust and I had to think, um, I'm not going to be around to make tactical decisions and you know, making money in the market alpha's zero sum game. You don't know who's going to do it. What is the perpetual excellent portfolio? What should that strategic asset allocation be right? What is the mix of assets? And um I knew

how markets behaved in relationship to each other. Every market is the present value of expected future cash flows discount of present value of those cash flows, and those factors are the main drivers are inflation and growth. And so um I I knew how one market would go up in another market would go down depending on the circumstances. Maybe we wouldn't know what those circumstances of the future would be, but we did know that they would move

around depending on those circumstances. So I didn't know how to engineer for balance. And I knew that I could um that they have comparable comparable risk assets are approximately comparably good. If you think about let's say stocks, and you compare them with bonds, what a stock is is a leveraged equity, right, because the average company has a debt um ratio debt equity ratio of one to one,

So it's leveraging that up. And the one thing I think that you know of investing, and this has been true throughout history is that cash has to have a lower, lower expected return than other asset classes, because if it doesn't, the whole system implodes. Another word, central banks put cash on deposit. People with better idea has come alonger in a higher return. If that doesn't work that way and they are all a learning learning lower returns, the whole

thing implodes. So the notion is how to achieve that right balance? And that's what motivated me to for myself put, um, you know, most of my um money that I was passing along structured that way, and I just, um, you know, I told it to other clients. You know, here's how you do it, and um, then they wanted us to do it for them. And that's what we've been you know, doing since we have been speaking with Ray Dalio. He is the founder and chief investment officer of Bridgewater Associates.

He is also the author of the New New York Times bestseller Principles. I strongly suggest you go out and read it. If you enjoy this conversation, be sure and check out our podcast extras. Will we keep the tapes rolling and continue to talk about all things investing. Be sure and check out my daily column on Bloomberg view dot com. You could follow me on Twitter at Ridholts. You are now tweeting, aren't you? And your your Twitter

handle is at Dahlio at ray Dahlio at ray Dahio. UM. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast, Ray, Thank you so much for doing this. I've been looking forward to this for so long, UM, and I'm really excited. I wish we had you for another two hours. Of course, I have a million questions

for you that we didn't get to. Um. There's a handful of things that that I have to ask you before you get to our our favorite questions, starting with I'm sure I'm gonna mangle this person's name. Wang o ishans philosophy, Um, when Sean? When is she Sean? Okay? The unwise worry over nothing, the capable worry about the future, and heroes go for unattainable goals. Explain that philosophy because I find that fascinating. Well, won't she Sean? Is very

very important? Man? In China? Some would say the number two men in China, and um he was important shaper of the Chinese economy for the last thirty years or so, and then he was put in responsibility of eliminating corruption in China. And UM he's a very anyway, quite a remarkable man, and he always uh see things at the higher level, you know, uh, the timeless and universal laws

of human nature and and so on. So when there are ever discussions with him, uh, you know, uh, they immediately rise to those highlight levels and discuss, you know, how does reality work and how's it worked that way through time? So, um, you know that's uh, that's why. So uh, there's a sentence in the book that looks like it's derived from that philosophy, which is, um, a hero I'm gonna paraphrase. I'm gonna give the exact quote.

A hero is an ordinary person who has achieved something extraordinary, something beyond the normal range of achievement. And I think the exact quote is extraordinarily successful. People are not successful because they are extraordinary. Is that related to you? My son in two thousand fourteen gave me a book called

Hero of a Thousand Faces. Joseph Campbell, Joseph Campbell read the book, very very famous book Assigned in College is now all over like highly highly regarded, and it's so interesting because what it does is it characterizes a particular type of person who evolves to have a particular type of life. And when we say hero um, like they said, it doesn't mean um, you know, some unique particular person.

It means that a person goes down a particular path and they achieve some extraordinary things and they get themselves in a position where others are more important to them than themselves. Okay, And there's a journey and he and you go through that journey, and he recounts that journey. It would take me too long here to recount the book. But you know, first you have a taste for adventure.

You like adventure. You go out and with those adventures you have your successes and your failures, and you know your fights and so on, and you learn and inevitably, uh, you have your crash, your big crash, he calls it um the abyss or or the belly of the whale. Experience that big crash and how that big crash, how you handle it is the defining characteristic the um in that big crash um. Some people have a metamorphosis. They

change in important ways. Most importantly, they gain the fear of that crash, They gave wisdom and so on, and then they continue on. Some people get off the field, they have the big crash, they said, I don't want to do this anymore, and they don't have a metamorphosis, or if they don't have a metamorphosis, they crash again, and they keep crashing. And so once they start to learn those lessons, they begin to find out that they can be more and more successful. I know that happened

to me. I crashed two changed my whole attitude about decision making meta. It was my metamorphosis. And you go on and you play your game and you have your fights. And when you do this, and you do this with others, the others in the mission becomes more important to you than you in and of itself. And you get to a later stage in life, and at that later stage in life, you want them to be successful. You have a bunch of battles that you fought. Oh you could

do that again. You can be successful again. The rewards of being successful again is you know, is not the same as the rewards of helping other people be successful. And so when he gave it to me two thousand and fourteen, like, you know, I don't like I don't like public attention. I stayed away from public attention. I don't like it. And then I'm thinking, I've got this

particular these principles that have helped me. And then I and I think, okay, should I return the boon because he describes the returning the boon, and returning the boon means sort of returning the think the gifts that you learned along the way to help others, and so like as you're asking, it's not that the success is not because of me. The success is not because of anybody as much as it is the principles that are learned along the way, the recipes that other people can have

in order to make them successful. And so that was the you know, that's the lesson. That's the time us. So I gave um Hero of a Thousand Faces to n Sean because he's a hero, he's a classic hero, and he's at a particular stage in his life, and I thought that that would be uh, you know, helpful to him. And I do find it helpful to a lot of people, and a lot of people find it helpful and interesting perspective, which is why you, as you say,

it's being read all over right. In fact, the book has been described as the basis for every major piece of literature film. It's just the classic narrative heroes journey and kudos to Campbell star Wars. Exactly right, exactly, So, since let's talk a little bit about returning the boon. You've been exploring philanthropy as well as you have a fascination with ocean exploration. How do you see the next

phase of your life? Um, working in those areas, be it film for topic, anything involving um, what you're doing now with os Yeah, the big picture, you know. So three phases in one's life. I think first phase is you're dependent on others and you're learning, you're a kid. Second phase, Uh, you're working, others are dependent on you,

You're trying to be successful. The transition from the second phase to the third phase is returning the boon, passing along what you learned so that others can be successful without you and you're free to live and free to die. As they describe it, that's absolutely right. So that's where I am so now is in that the main thing about this other phrases, everybody's good without me, and I'm free of obligation and I can have fun. Now where do I want to go have fun? I love the markets.

I love the game. I will play the markets since until I die, because that's a game I played all along. I love it. I'll continue to do that. That will be my main activity that and I'll continue to do that at Bridgewater and as long as they find me useful, I'll continue to do that. Uh. And then but there's all the other joys of life. Life is a giant s Morgensborg of of exciting things. And part of that, as you say, is philanthropy. In other words, Um, you know,

I came from nothing. I'll end up with nothing at the end of the day. And yet so to think about who this could be used by for in important ways is fantastic, right. So that that all, you know. Then there's the approach of how do I do that? You know? And well, you know, we do it as a family activity. Different people have to uh find their passions, so different people have different passions. For me, one of the things that's passion uh for me is nature. I

love nature. I learned from lent nature. It's a big thing. And I particularly um uh found the ocean to be unbelievable because think about it, Um, there's a there's a sheet that's the ocean UH layer, and that basically UH is about half the world surface above it. The highest point everest is equal to the greatest s depth, So it's symmetrical, right, So there's a world under that sheet, um,

except of the world's surface is the ocean. So the ocean space is about twice as large as all the world that we know that's above the ocean, and it hasn't explored, and it's unbelievably fascinating. It's unbelievably valuable in in so many ways. So enabling ocean exploration and exploring to go down there with scientists and all of that I do find particularly enthralling. And I like to contribute to people doing that. So I find my ways of you know, ways of doing that. Blue Planet is going

to be coming out. Blue Planet to Okay, it's gonna come out soon. Um. What we did is we put scientists on it and and with we have an exploration I have an exploration ship, put those scientists on it, and let them then do things and help to make people aware and bring them to that. That's one of

the things. But we do different things. My wife is particularly UM affected by UM what are called UM disconnected and disc and disengaged youth high school students in Connecticut unbelievable UM disconnected meaning they're either not going to school or not taking classes. That's right. So disengaged means they go to school, but they're not really participating. They're you know, just they don't study the test, they don't try much.

Disconnected is they don't know where they are. Two of the high school students in Connecticut are one of those. And that's what kind of futures are are they gonna have? Where are they going to be? They're gonna be on the streets and so on, And she relates very much to those in terms of that tragedy. So that's where her focus of activity is for philanthropy and so UM and and so we have different focuses, but we share those things as activities. I share that four sons, we

share them as activities. That's been my approach, and that's been a thrill. You know, it's the right thing to do at my stage of my life. So I know I only have you for another seven or eight minutes. Let me get to some at least a few of some of my favorite questions before we run out of time. Tell us the most important thing people don't know about your background? Um that I'm that I. Um, you know, I have a very modest background, and I have a very bad rope memory. UM. So I don't think I

have much in the way of natural advantages. That bad memory led you to writing things down? Is that the weakness led to the principles. Um. I think to some extent that contributed to me writing them down. Yeah, I think it was a factor. Um. And although it was of the factors more than the clarity and so on. Um. But yeah, and I was a lousy student. I hated school. UM. Got into uh, you know CW Post College on probation, you know. Um. So there's nothing I think that's an

important thing to know about a number of people that. UM. A lot of people think that people at the top are just naturally special people, and you know it's easy for them and all. And that's not true. I've come to know the most powerful, most successful people in the world, and I could tell you they all struggle and they all have weaknesses. They just know how to struggle well and they learn along the way. Know how to struggle well and learn along the way. Okay, tell us about

some of your early mentors who guided your career. Um, if anyone, you know, uh, I didn't not very much in terms of like mentors, particular mentors that I would go to. It's because of how I kind of learned, um, which is I have to learn myself through experiences, you know. Uh. So, I mean there are people I admire a lot. Um so I think that they had probably an influence to

watch Paul Volker. Let me let me to watch Paul Voker since through my lifetime, um, since nineteen seventy one when he was the Under Secretary of the Treasury for Monetary Affairs all through the eighties, and to watch him as a highly respected person. I look around me and I see people who I admire. I admire Mike Bloomberg.

I think Mike Bloomberg, for example, in building a business and dealing with government, becoming a government official and a philanthropist, has been extraordinarily effective in all of those different ways. And it might not encourage him write down his principles, his recipes for success, because when we like to know those. And so there are a lot of people you know

in the markets. Paul Tutor Jones a friend of mine, and so I admire him, and UM I Enmirement's character and I admire you know, how he makes decisions, and we talk a lot about that. So and I've had, you know, many people, I don't want to name drop too much, but a lot of people in their own ways. Seeing what they're like and interacting them, I think had an influence on me. I wouldn't say that I've had any classic mentors along the way. So you mentioned Joseph

Campbell's Men of a Thousand Faces. What are some of your other favorite books? Well, UM, two others UH come to mind. UH A River from eden Um which is written by Richard Dawkins, which is about evolution. Okay, evolution is the greatest force in the world, in the universe, and uh Man is a very small part of evolution. And to watch how evolution works, those of the universal laws of life that we then really have to deal with UM is fascinating. It's a brief book. It's great.

Another UH brief book and remarkable books is uh Lessons of History written by um uh Will Durant and his wife. I think it was Ariel Durant who were probably the greatest historians of the United States has had. They've covered five thousand years of history, five thousand years on written in five thousand pages. And then they take and they created a book called Lessons of History, which is a

hundred and four pages. I like these high power short books, um and um, and it takes those themes through history and you know, sort of distills them down through their eyes. Very interesting. But you know, UM, I don't know. There are a lot of interesting too many, too many, too many interesting books to read, and not enough time, not

enough time really for sure. UM. If a millennial or recent college graduate came to you and said they're looking for considering getting into finance, what sort of career advice might you give them? Well, Um, first of all, know your nature, know what your polls are, get go to your polls. Then expect your problems and your failures, approach those well and with equanimity, and then take those problems and that failures and diagnose them and evolve in that

five step process. I would say that you will and recognize that what you're going after will change and evolve as you evolve to higher levels, So you know, follow your passion. I would say, yeah, here's here's maybe the simplest dreams plus embracing reality, knowing how it works well and knowing how to deal with it, plus determination. So you do that over and over and over will give

you a successful life and a lot of evolution. And our final question, what is it that you know about the world of markets and economies and investing today that you wish you knew forty years ago when you were first lunching Bridgewater? Oh? Well, so many things. I guess. Maybe the thing that I think is the most common mistake, UM, is that people think that investments that have done well

are good investments rather than more expensive. In other words, that um, if it did well lately, they like it okay. So that you you have to be you have to know what something is really worth. And uh, I guess another thing, UM that I learned that is that um, every price, every day's price, is a function of buying and selling. And if you know who the buyers and the sellers are, and you know their quantities and you know their motivations, it helps a lot more than the theoretical,

uh notion of what equilibrium values should be. Since we're talking about philanthropy, you set something up with principles um and Amazon dot com. Go to principles dot com slash giving and tell us what that leads to. For a number of years, I've given philanthropic people, charitable people donations to their favorite charities as a holiday gift. Uh. And well that's because there's just so much wasteful giving, you know, and give them a sweater and whatever, and you have

to wrestle with what they're going to give it. And this is really and appreciated gift. And most importantly, it gets converts a lot of waste into getting people who need it the most the most amount of money. So the amount of money that is given for giving candy in the holiday season is greater than the amount of money that goes for the American Heart Association, annual budgets of American Heart Association, American Cancer Society, and Habitat for

Humanity combined. And and so I figure if I can pass that along, it's a great idea. A lot of people like it. So I'm suggesting it and not what I did for for the book to help to explain that, and also, um, you know pass it along. Is that for everybody who buys the book, I'll donate ten dollars to their favorite charity. And I set it up in through this length that you just referrincibles dot com slash giving.

Is that right? Yeah? Okay, And so every purchase of the book through Amazon, ten dollars goes to they designated charity and you donate the money to that change. That's right, And it's so easy, so you know, buy book, go on. I think the website's got like a million, two hundred thousand charities or whatever, so it's easy to click in to get to the charity of your choice and you

and it just gets there, right. And so so I'm doing it not only because I know appreciate this kind of giving and I appreciate the people who are operating that way, but I also would like to get people to see how easy it is and get the idea coming along. So because I think if if we could tilt a little bit of holiday giving so people think it's a good idea, um, then it'll make a lot of difference. So that's what I'm doing that's terrific. Thank

you ready, this has been absolutely fascinating. We have been speaking with Ray Dalio of Bridgewater Associates. If you enjoy this conversation, be sure and look up an intro Down an Inch on Apple iTunes and you can see any of our other hundred and seventy or so such conversations. We love your comments, feedback and suggestion. Write to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank my crack staff

who helped put together these conversations. Mendina Parwana is my producer, slash audio engineer. Taylor Riggs is our producer booker. Mike Patnick is our head of research. I'm Barry Retults. You've been listening to Masters in Business on Bloomberg Radio.