Principles for Success from Ray Dalio: Founder of the World’s Largest Hedge Fund


[applause] [00:00:07] Peter Seligmann:
That’s beautiful. Now, give each other a hug. We’re opposed to do that, right? Just to get started,
we’re going to talk to a good friend who wrote a
great book, Principles. This is Ray Dalio. [applause] Ray thinks of himself, and we all think of ourselves,
as just ordinary. He says, “I’m an ordinary guy.” When I talk to him about being ordinary, I ask, and this is what
we want to learn today, “How does an ordinary guy go
from being ordinary to being acknowledged by Time magazine as one of the 100 most
influential people on the Earth? How does an ordinary
guy build a company that Fortune magazine says is one of the top five most
influential private companies in the United States? How does a person who
starts from a Long Island background, works hard, has a challenge time in
school, end up being one of the 100 wealthiest
people on Earth?” We have a good fortune of spending a little time with a
good friend of mine. We’ve traveled. We’ve been diving. We’ve been in remote places. I’ve watched him in action
as he listens, and learns, and talks to everyone,
with the same honesty and integrity, whether
they are a village leader, or a village member, or the
head of a Fortune 500 company. I’d like to ask good
friend, Ray Dalio, to come out and share
some times with us. Thank you, Ray. [applause] [00:01:46] Ray Dalio: Thank you. [00:01:46] Peter: Thanks, man. Thank you. [applause] [00:01:49] Ray Dalio: Thank you. It’s a special treat
to be able to speak to you because I’m at the
end of my second phase of my life and you’re
at the pretty much the beginning of your
second phase in life. I think that, basically,
life exists in three phases. You start off, phase one is you’re dependent on others
and you’re learning. Phase two is that you’re
working and that others become dependent on you, and you’re
trying to be successful. Then you get later in stage
two and the number one goal that you want more than
anything else is to help people be successful without you,
then you can go to stage three, which is you’re free
of obligations and so on. What I did over a period of time, whenever I would
encounter a situation and make decisions,
I would write down the criteria for making decisions. My number one objective
is to tell you that you need to have
your own principles. I’ll explain some things. I’m going to share
some of my principles. I hope they’re helpful to you. They are things that have worked for
me that I have written down over a period of time, but
number one, I want to describe this experience to you. Whenever you’re in a
situation, and if you take the time after that situation
and you write down your criteria for making
decisions, then you will have that, for the next time,
that thing comes along. What happens is, the
same things happen over and over again for the
same reasons, but you don’t see that,
you’re operating in a way where you take
them one at a time. I would recommend to you that you
write those principles down. When you do that, you think
about them in a deeper way, and then the people
that are in your lives then start to understand how
you’re behaving and they can be partners in that idea
meritocratic decision-making, so they can also say, “Is
that the best way to operate and deal with that
situation?” and so you start to think in a more
principled way rather than all these bits and pieces
of different things. That would be my recommendation,
but what I’m going to do is take you through a
little bit of my journey. It is totally correct,
as Peter says, I’m really a very ordinary
guy, who through trial and error discovered
some things that worked that helped me do what
Peter was describing. What I want to explain
is, we look at the world and there are just so many
things to have principles for. Principles are, essentially,
recipes for dealing with situations that happen
over and over again. There’s just a million things. You could study, you
could be a doctor, you could be a physicist,
you could be so on, and the things that I
understand and spend time with was economic
investments, and then work. My approach was largely captured in
this slide, which is to say, like I would go after audacious goals,
and then I would succeed and fail. Most importantly, I
benefitted from failure. In other words, you go
after your goals and you then encounter your
problems or your failures. How you’re dealing
with those problems is one of the most important things. I started to realize, for
reasons you’ll probably see as we go along, that pain plus
reflection equals progress. In other words, that
painful situation, if you can diagnose what
produced that failure, and then develop
principles for dealing with it different at
a different time, in a different way, and
then you take those principles and you
improve, you learn, you change things, then
you improve and you make better, go on to
more audacious goals. The way I look at life is
pretty much like it’s this looping process, this
evolutionary looping process. That means you go
after your audacious goals, you fail, you learn. Failure is an important
part of that process. You learn principles. You keep improving. I think that I learned
that there are only five things that you need to
do to be successful. If you do these five ways, five
things, you will be successful. The first is, to be clear
on what your goals are; you have to know
what you’re going after. You can’t have everything in the
world, but you could have almost anything you want, but you can’t
have everything you want. If you go after your
goals and they’re clear, you have to know your goals. Along the way, so
number two, is you have to identify and not
tolerate your problems. A lot of people tolerate problems. Then you have to diagnose
those problems to get at the root cause
of those problems. Often, the root cause is you,
maybe you have weaknesses, maybe you make mistakes, or maybe
somebody else is making mistakes. We all have strengths
and weaknesses. The power of being able
to know our strengths and weaknesses, and know how to
deal with them, is enormous. Only when you know what your
problems are and you diagnose that specifically, can you create a
design to get around those problems. That design, very
specific design, you go get around the problems, and then you have to, if you
have a design, you have to be reliable in doing that. Everybody is bad at
some of these steps. The key is to work with other people
who are good where you’re weak. I just want to give you
a sense of failure. I think probably the greatest
problem of mankind — that’s a big statement —
biggest problem of mankind, the greatest tragedy of mankind,
is individuals who have in their minds wrong opinions
that they’re attached to. They could so easily
stress-test those, to put them out there and find
out if they’re strong or weak in terms of
those opinions, and to move beyond that to
make better decisions. It’s a tragedy because it could
be so easily dealt with. You can reduce the chances of being wrong by properly
stress-testing them. I want to take you through an
experience, just briefly, of what happened to me that changed my
whole approach to decision making. This was in 1980, ‘81. I had analyzed that American
banks had lent a lot more money to emerging
countries than those countries were going to be able to
pay back, and that we were going to have a debt
crisis, a big debt crisis. I thought that that would have a
very bad effect on the economy. That was a very
controversial opinion at the time, got attention,
and it turned out in August 1982, Mexico
defaulted on its debts, and a number of other
countries followed. That very controversial
point of view was right about the debt crisis. As a result, I got a
lot of attention. I was asked to testify
to Congress, and I was asked to be on Wall
Street Week at the time. I want to just give you
a clip from there. Video Playing [Ray]: Mr. Chairman,
Mr. Mitchell, it’s a great pleasure and a great honor
to be able to appear before you in examination with what
is going wrong with our economy. The economy is now flat, teetering
on the brink of failure. [00:09:41] [Martin Zweig]: You were
recently quoted in an article. You said, “I can say
this with absolutely certainty because I
know how markets work.” [00:09:47] [Ray]: I could say
with absolute certainty, that if you looked at the liquidity
base in the corporations and the world as a whole, that
there’s such reduced level of liquidity that you can’t return
to an era of stagflation. [00:10:00] Ray: Arrogant? I was incredibly arrogant. I couldn’t have been more wrong. That was the exact
bottom in the stock market, and we had this
decade of success. It was extremely painful. I lost money for clients. I lost so much money
that I had to borrow $4,000 from my dad to pay
for my family bills. I had to let people go. It was really terrible,
but it turned out to be probably one
of the best things that happen in my life because it changed my approach
to decision-making. In other words, it
gave me a humility, a fear of being wrong that was to go with my audacity, and it let
me stress-test, “Am I thinking?” What I wanted gave me this notion,
“How do I know that I’m right?” The thing that I learned is, being successful has more to do
with knowing how to deal with your not knowing
than anything you know. If you can then think,
“How do I know I’m right?” and stress-test yourself,
and find people who disagree with you,
the smartest people you can find who disagree
with you and you have thoughtful disagreements
so you can take in and stress-test, not only
does it provide a lot of learning, but it
stress-tests your decision, raises your probabilities
of being right. I have this company, this
little company that I’m building, and it changed
the way we are operating. This is what I want to pass along
to others who have companies or are operating companies,
about this way of operating. What I needed was
independent thinkers who also had audacious goals, who would go after those together
and would challenge my thinking, and we would challenge each other’s
thinking, and try to give to the best answer, and I realized
it didn’t have to come from me. I needed an idea meritocracy. I’m going to try to
explain how that works. Through that idea meritocracy,
we have then these principles. By writing down our
principles and those shared principles of how
we were going to deal with things together,
we would have better communications, we would
deal with them better. That produced successes, and
failures, and learnings, and the learnings produced happier
employees, this idea meritocratic way of operating, and it produced
more independent thinkers and more audacious goals, and
it produced the success. It was from that
learning, from that very painful experience
that I went through, that it changed my
approach to decision making to create an
idea meritocracy. What do I mean by an
idea meritocracy? I want to be very tangible for you. In order to have an
idea meritocracy, in other words, the best ideas winning out, wherever
those ideas come from, you have to do three things. The first is that you have to put
your honest thoughts on the table, honest thoughts on the table, for
everybody to see and then look at. One of the problems of
most groups of people, most organizations,
most individuals, is that they don’t
want to be honest, and they don’t like disagreement. You can go out to a restaurant and
somebody says, “I like the food,” somebody is going to be reluctant
to say, “I don’t like the food.” Thoughtful disagreement
is the second thing. You have to understand
the art of disagreement, because if there’s
disagreement, that means somebody is going
to be wrong, and how do you know the wrong
person isn’t you? You have to understand the art
of thoughtful disagreement. Then once you have that disagreement
to raise your probabilities of making better decisions,
and that certainly happens if you do it well, then you have
to have ways that are going to, idea meritocratic ways, of
getting past your disagreement. In other words, you
have to have protocols, and we do something which we call believability weighting
decision-making based on different
people’s credibilities. That’s what I mean by
an idea meritocracy. Do you want an idea meritocracy? Do you want to operate that way? Do you want to have thoughtful
disagreement, not emotional problems; curiosity to make
yourself more likely to be right? Do you want to abide
by protocols that will help you get past
that disagreement? The other thing is, you have to know
what people are really like in order to have a meritocracy, and everybody
has strengths and weaknesses. The real question is; do you
want to know your weaknesses? Do you want to know each
other’s weaknesses? Because if you know each
other’s weaknesses, and you’re all going to be better off
if you’re dealing with that in a forthright way
knowing your strengths and weaknesses, because that’s
what makes up a great team. When you know what
someone is like, you know what you can expect for them. That’s a power. An idea meritocracy is
that kind of organization. I want to give you just a
quick clip of what how that works, how we try
to bring up information. There are many different
tools but what I found is that, in order
to be effective, I needed to have tools,
apps, and things, that were operating by that
would facilitate that. I’m going to take you into a meeting
and give you a flavor for one of the tools and one of
our methodologies for now operating that way. Video Playing [00:15:33] [Speaker]: A week after the US election, our
research team held a meeting to discuss what a Trump presidency would mean
for the US economy. Naturally, people had
different opinions on the matter and how we were
approaching the discussion. The Dot Collector
collects these views. It has a list of a few
dozen attributes, and so whenever someone
thinks something about another person’s
thinking, it’s easy for them to convey
that assessment. They simply note the attribute and
provide a rating from one to 10. For example, as the meeting
began, a researcher named Jen rated me a three, in other words badly, for not
showing a good balance of assertiveness and
open-mindedness. As the meeting transpired, Jen’s assessments of people
added up like this. Others in the room had
very different opinions. That’s normal. Different people are
always going to have different opinions, and
who knows who’s right? Let’s just look at what people
thought about how I was doing. Some people thought I did
well, others poorly. With each of these
views, we can explore the thinking behind the numbers. Here’s what Jen and Larry said. Note that everyone gets to express
their thinking including their critical thinking, regardless of
their position in the company. Jen who’s 24-years-old and fresh
out of college, can tell me the CEO of the company, that I’m
approaching things terribly. This tool helps people both express
their opinions and separate themselves from their opinions to
see things from a higher level. When Jen and others shift their
attentions from inputting their opinions to looking down on the
whole screen, their perspective changes; they see their own opinions
as just one of many, and naturally start to ask themselves, “How
do I know my opinion is right?” That shift in perspective of
going above it and seeing the full range of views,
shifts the conversation from arguing over individual opinions
to figuring out objective criteria for determining
which opinions are best. Behind the Dot Collector
is a computer that is watching what
all these people are thinking, correlates it
with how they think, and communicates back
to each of them based on that, then it draws the data from the meetings to create a
pointillist painting of what people are like
and how they think, and it does all that
guided by algorithms. Knowing what people
are like helps to match them up better
with their jobs. For example, a creative thinker
who is unreliable, might be matched up with someone who was
reliable but not creative. Knowing what people are
like, also allows us to decide what
responsibilities to give them, and to weigh our decisions
based on people’s merits; we call it
their believability. Here’s an example of a
vote that we took where the majority of people
felt one way, but when we weighed people’s views
on the basis of their merits, the answer was
completely different. This process allows
us to make decisions, not based on democracy,
and not based on autocracy, but based on
algorithms that take people’s believability
into consideration. [applause] [00:19:07] Ray: We
really operate that. I just want to give you —
just highlight some things. First of all, anybody can
criticize anybody on the basis of a non-hierarchical
approach, so we’re bringing out all the complaints. We capture that information. That way, we’re
building a meritocracy, an idea meritocracy
that people believe is a fair system, so
that there’s weighting on that on the basis
of capabilities. We do this believability-weighted
based on data. Nobody is going to be
able to be hierarchical in that sense; you can
make the decisions based on the quality
of the thinking, and that can evolve
over a period of time. People learn their
strengths and weaknesses. Then we have behind that data
lots of data, because every day everybody’s getting a 360-degree
review from that, but also we’re seeing how they themselves
make decisions, and we process that data in a way
that everybody thinks is fair. People are on this mission together. My goal has been to have an
idea meritocracy in which we want to have meaningful work
and meaningful relationships. Meaningful work meaning
you’re on a mission together, and meaningful
relationships is that deep relationship
but through radical truthfulness and
radical transparency. Then we use those
algorithms to help us. What’s the problem of doing this? I think it’s an ongoing problem. Why is that difficult? I think that, and it’s what
I call the “Two Yous”. I’ve asked neuroscientists and
psychologists, and everybody agrees that it’s basically
that there is a logical conscious you and then there’s
a subconscious emotional you, and they have a
struggle with each other. If I would ask you, “Would you like
to know your weaknesses,” or, “Would you like to know
what I think even if it’s critical,” the logical answer to that would be, “Yes, I would like
to know those things, because then I can deal with them better,” but emotionally, that
becomes a challenge. As people start to
wrestle with each other as they come in to the
organization, they come in there wanting
to know those kinds of things and have that
radical truthfulness. That radical truthfulness brings
about stronger relationships, because everybody knows that
truthfulness you’ll get it. By this transparency, this
radical transparency, so almost everybody
could see everything. We tape everything for
everybody to look at, almost everything, so that there’s no
spin, there’s that reality. That has been the basis of
being able to have that idea meritocracy, and
that’s been the challenge. It’s not for everybody. I would say probably a
third of the people just can’t get through it, a
lot of people struggle. Then, on the other hand,
we call it getting to the other side, when
they get to the other side, when they’re
used to it, they can’t work any police cells
because they can’t go back into a typical
organization in which all of that stuff is
hidden, and there’s politics, and there’s
lack of sincerity, and the associated
problems with all of that. I want you to go with
these four questions, and it’s up to you to
decide what you want. Four questions are, do you want
these things and in what degree? Do you want to have
an idea meritocratic decision-making process,
in which the best ideas went out rather
than the individual thinking, you having the
power, a hierarchy? You know what that means,
I’d defined it before. Do you want to know
what you’re really like, your strengths and weaknesses, and what others are really like in
order to get at the best results? Do you like this truthfulness? To what extent do you want
to have truthfulness, and to what extent do you
want to have transparency? If you don’t have
transparency, you’re going to be listening to everybody’s
spin-on situations. Do you want to have those things? Then beyond that, there’s
a great power for being able to turn any of your
thinking into algorithms. Do you want to have
algorithmic decision-making? A lot of what we’re doing is
this data, and through the data and algorithms, we actually have
the machine, the decision-making machine running parallel like
playing a chess game through a computer and doing it in
partnership with the computer. I’d like you to think
about those things, then you could think
about how to get them. That’s what I was trying to convey. We built a bunch of tools, and
apps, and things, and we’re going to make those publicly
available so that people who want to do that, like the Dot
Collector and those tools, will have the opportunity to
be able to operate that way. We’re going to make them available. [applause] That’s it. Maybe a little bit too long a
winded way, but thank you. We’ll take some questions about it. [00:24:33] Peter: Thank you, Ray. It’s brilliant. I love the generosity
of where you are in your life, I mean
that you’ve built a great company, you’ve
learned, written down over 25 years what you learned. You didn’t just try to remember
what your principles are, you actually have been gathering them
over two-and-a-half decades. What you’re talking about is
an operating system that can apply to basically any company,
in order to actually ensure that it endures, because that’s
really what you’re after; it’s long-term impact, effective,
endurance, and success. It seems like it would be an
obvious, “How do I do that? Give it to me. I’m ready to go,” but you’ve been talking to many
different businesses. As you talk to friends and
colleagues that are interested in this transition, can
you describe what are the barriers and the hurdles
that they run into as they try to implement this, and how do
you coach them through it? [00:25:43] Ray: First
of all, I think that any group of people,
or any relationships, benefits from the
definition being very clear of how you’re going to
be with each other. You built an organization,
people who are growing their organizations, need to be
able to be crystal clear. There’s no getting around
the idea of writing down those principles,
it’s just so powerful. Then the question is,
do you want to do it? Can you get in the habit? I think each of the
people here can do that. We’re going to put
out an app which we call The Coach, in
which besides having some of our principles,
will be a vehicle for you writing down
your principles. So habit, write down the
principles when you’re dealing with it, and be clear,
share those principles. If you want these things, then the
big issue is how you implement it. The big barrier here is the
emotional barrier, but people start to react to
that individually, they see the struggle with themselves,
and then they overcome it, and it’s a matter of
getting in the habit. We call the process,
“Getting to the other side”. Somebody gets hired,
they say, “I really want, this is great,”
and then they go through the process, and
then it’s shocking, it takes a little bit
of adapting to it. Then they get past it, because they start to realize that
other people are not, “Do you want the
other alternative where there’s not that clarity?” and we call it “Getting
to the other side”, so it’s a process that people go through, but I think
everybody’s going to be saddled with
those question now. How are you going to
be with each other? You can do it any way you want,
just write it down and be clear. [00:27:34] Peter:
It’s really, for me as you have discussed this with me over years, and as you have taught
me as we have traveled together, and worked together,
and learned together, I’ve seen as I’ve applied it in other situations, that people don’t
really like to talk about failure. It’s more, “Let’s get
onto the success, and let’s not talk
about the failure.” Your phrase, “Pain
plus reflection equals progress,” is at the core of that. Could you just dive into
that a little bit more? [00:28:08] Ray: I think a lot of
life is that the second-order consequences are the opposite of
the first-order consequences. In other words, the things
that you like, maybe the food you like to eat, the exercise
that you don’t like to do, all of that is one of the
great tricks of life; that the second-order consequences
are very, very beneficial. Life is sort of tricking
you, that it says, “Okay, which ones of those are
you going to operate by?” Failure, for example, “I
don’t want to talk about failure, I don’t want to
talk about weaknesses.” I’m saying, “Go to the
pain, go to the pain,” and before you know it, the
pain becomes pleasure. My whole mentality starts to change. I realize that if I have pain, I
start to view it as a puzzle. I view that if I can
solve that puzzle, which means what would I
do differently next time, I will get a
gem, and that gem is a principle of what to
do next time to learn. I’ve developed a habit
that I actually have the second-order
consequence reaction to the pain, to the
failure, that makes me know it’s a learning experience. It’s that dynamic in life. Don’t be tricked by the
first-order consequences and really enjoy those
second-order consequences. Go to the pain and view it as a
puzzle, and then you’ll get gems. [00:29:46] Peter: I should
just say that the first time that Ray did this with
me, I think you were in Connecticut, and I was driving
down a dirt road in Brazil, in which you talked to me
about radical transparency and what you would just
learn from somebody that was counter to what
I’ve been telling you. I didn’t get pleasure out of that. It took me a while to actually
understand that listening with an open mind, not
actually thinking about your response while you’re
being taught, is actually the way you get to the
place where you can learn. [00:30:28] Ray: Both parties,
that’s a thoughtful disagreement. When you’re totally honest, radical forthrightness, and you
know you don’t know the answer, but it becomes
a common question as how you can work through
with good intention. The idea of tough love, “We’re going
to hold each other to high standards and try to get at the right answer together,” but it’s
going to be tough. [00:30:54] Peter: Now
that you have put into your extraordinary
company, which is one of the most influential in the United States, the
concept of radical transparency, and
this is something you developed over decades, I guess the question I have is;
when new people come into the company,
what’s their reaction? Is there reaction,
“This is dangerous,” is their reaction,
“This is different I love this,” or do you weed those people out in the
interviewing process? How do you do that? [00:31:29] Ray: Of course,
we record everything; we could show them
lots of instances. We make them aware, and it’s
like intellectual Navy Seals, “Okay, do you want this thing?” Everybody is going, “Okay, I
want that thing.” They make a choice —
maybe some people don’t — and then they come in, but
like the intellectual Navy Seals, they say, “Yes, I really
want this thing,” then when they get in the icy water and
they don’t get to sleep, it’s the equivalent of them going to
that experience and then they’re wrestling with each other, and
then they come to love it. The thing about it is the meaningful
work and meaningful relationships. In other words, maybe
like the Navy Seals or something, when
you are tight with somebody and you have
that genuine caring that they know that
that’s part of it. I think we have 1,500 people. I think that there are like
104 clubs and organizations. I made a policy that anybody who can come up with anything
that’s fun to do, they can have 20 or
more people up to $500 per person, we’ll pay for half. In other words, just go out and
build those relationships. If you got those great
relationships and you know that they are being tough
on you for those good reasons, to try to get at
the answer, and you know where your goal is, then
they come to love it. Most people, there’s
a period of time, maybe it’s about 18 months, which is associated with behavior and modification, people then
say, “Okay. I got that.” Past that period of time, people don’t want to work elsewhere
because it’s very difficult for them to go
on an organization where it’s all behind that
scenes and just phony. [00:33:05] Peter: If
we have hundreds of entrepreneurs in
front of us that are now starting their
businesses or recently they’ve launched their business, and they love this
idea, and they want to embrace it, do you
suggest to them that they go all in, or
do you suggest they test it with a small
leadership team? How do you actually see whether this
is going to work in your place? [00:33:29] Ray: Yes, test it. You have to define how
you’re going to be with each other and
you’ll live it out. The question is, can we
be radically truthful and radically transparent
with each other? It’s going to come up. [00:33:40] Peter: The answer is
you have been, we have been. [00:33:42] Ray: But I’m
saying [crosstalk] with their partnership, so they’re going
to deal with that question. As they’re going through that,
they should experiment with it. The reason I put out, the book
is a very nitty-gritty level you can look at the questions
and then experiment with it. If you know your vision
of where you want to go, like do you want to have
an idea meritocracy? It’s the goal level. Once you’ve got the goal
level then experiment. Is it the top circle? Like a number of companies, I won’t
drop names, but big companies right now, interesting,
cutting-edge companies, the top 10 people in the company, because it’s usually most companies or organizations,
maybe there’s a group top 10; then they’ll
experiment, do they want to be that way with each other? They start to experiment with it. Do you want to broaden it? They have to find
what’s right for them. [00:34:41] Peter: I want to
tell you that I find it to be actually extraordinarily
open-minded, clear, and wise. To start with, again, I just want
to thank you for that clarity. What’s interesting also is
that, as you and I have spoken, we got to go through
an arc in our life, right? You are in that spot in your
life where you are thinking, “How do I share these principles
with the rest of the world?” [00:35:12] Ray: I just want
all this, to pass it along, and they’ll just take it for
whatever that they find it worth. [00:35:16] Peter: But why? Why have you reached this place? [00:35:22] Ray: I think
it’s very natural. I think you experience it. One of the things that a lot
of people don’t understand is how the priorities change
in various stages of life. I think that as you
get to be a certain age, it’s like a parent
with their kids. What do you want? At one age, you want
to help guide them. At another age, when you’re
a certain age and they were a certain age, you want them
to be successful without you. You want to pass that along, and you feel that kind of responsibility, and then you relieve
yourself of that responsibility by doing
that passing along. I’m going to pass along. I’m going to pass the tools along. I’m going to give that out, and
then I’m going to disappear. In other words, you’re
not going to see me, this public thing I
don’t like too much. [00:36:13] Peter: How much time do
you have left before you disappear? [00:36:15] Ray:
Probably a year but for the tools and so on,
something like that. It’s a stage of life thing. Joseph Campbell wrote a book;
there’s a wonderful book, Hero with a Thousand Faces, and he
goes through the life arc. It’s so good for you all
to almost think, where are you in your life
arc, and does that arc look like, and what will
you encounter; because you actually don’t pay
much attention to it. It’s a life arc thing. [00:36:46] Peter: In
your place, in your arc, you have one;
you’re giving this gift to the world,
and it’s not just, “Here’s some principles,
read a book,” but you are actually on
the road talking to people to try to
educate them as to why radical transparency
and relationships are totally essential
for effectiveness. [00:37:06] Ray: Which feels for me
like almost relieving myself of it. [00:37:11] Peter: You
also have other passions. What you and I have spoken
about a little bit is your passions for the ocean, for
exploration, for communication. I know that you think
everyone needs to pursue their own passion, which
I respect entirely. Tell us why this is your passion. [00:37:35] Ray: I’ve been deep
in the ocean and I’ve explored. It’s thrilling and
it’s also important. The way I look at it is, if you
look at the ocean level, the world above the ocean is about half the
size as the world below the ocean. The biggest peak is equal to the
deepest trough; it’s almost symmetrical, but it counts for
72% of the world surface. That means two-thirds of the
world is under the ocean, and nobody has really
explored it hardly at all. If you love exploration, it’s better
than going to another planet. If you want to see
aliens, you’ll go under the ocean, you’re not going
to see them up there. First of all, it’s
thrilling, and then it’s important because the ocean
is our greatest asset. I won’t go into all the reasons why
because we’re going to run out of time, but it is our
biggest and greatest asset, and it’s not appreciated. It’s so important in terms
of the whole climate issue. It’s so important in
so many different ways that we could get into. I think it’s very impactful. I’m excited about the impact. My goal in life is
pretty much to evolve well and fast, and
contribute to evolution. That’s my way that I’m
excited about doing it, and I’m feeling that
I’m having an impact. I have a ship that has,
subs that go down to 1,000 meters that
scientists use, and media most the Blue Planet
II, we shot on it, we discovered giant squid,
that kind of thing. We’re doing another one
that we’re going to do an initiative where we’re
going to have like Jacques Cousteau series
— I’m doing that with James Cameron — that we’re
going to have a series that people are watching
and a lot of social media, so that there’s
that engagement, so people could not only explore
but they can be there virtually with other explorers
so that they love it. You got to love it first. That’s why I’m excited about. [00:39:42] Peter: Yes, I
love that you’re doing that. Thank you for that. Thank you for that. [applause] We are living in an economy right
now that is pretty hot, but we have an increasing polarization
between the Haves and the have-nots. How would you fix that? [00:40:05] Ray: Well, let
me I think describe just briefly the mechanics of it,
I think it’s very similar. There were economics is– Economics
and markets is my day job. I think it’s important
to understand that what we’re in as a
period of time that someone analogous to
the late ’30s in that in ’19, they’re all
these debt cycles. There’s a short-term debt cycle,
long-term debt cycle, and in 1929 to ’32 we had a debt crisis
and then interest rates at zero. The only other time that’s
happened is 2008, we had a debt crisis and
interest rates at zero. Because interest rate’s at zero, the
way the central bank’s dealt with that was to print a lot of money
and buy a lot of financial assets to push those asset prices up to
lower interest rates, and to push liquidity into the system, and that
caused a lot of assets to rise. With that, that contributed
to a wealth gap. There were other reasons;
technology, and so on for producing a wealth gap
and also a divergence. Today, the top one 10th
of 1% of the populations’ net worth is equal to the
bottom 90% combined. In other words, a big
giant wealth gap. That was the same– last time
that happened was the late ’30s. We’re in a situation
when the economy is at a peak, we still have
this very big tension. That’s where we are today. We’re in the part of the economic
cycle, which is the later part of the cycle because as you start to
run into capacity constraints, unemployment rates are low and
so on, Central Banks begin to put on the brake, and they begin
to tighten monetary policy. We’re nine years into this expansion and the capacity to deal
with that is different. We’re in a situation where if you
have a downturn, and we will have a downturn, I believe
that– I worry that that polarity will become greater. I think that the unity of
us and how we approach our problems together is
a very important thing. If you look at the condition,
capitalism basically is not working for the
majority of people. That’s just the reality, and
yet there’s opportunity. We’ve got to make it work
for the majority of people. You’re in a situation where, like
today, the Fed did a study that 40% of the population could not raise
$400 in the event of an emergency. It gives you an idea of what
the polarity is, and we often don’t have contact with that
world, but that’s a real world. That’s an issue. And then I think we’re also
in an environment where for the first time since the ’30s,
we have a rival power, in the form of China, emerging to
be in a competitive situation with the United States, which
is going to be an issue. I think it has to be dealt with. If I was doing it, I
think that you have to call that a national emergency, and the President of the
United States, if they declared that a national
emergency, that wealth gap and that opportunity gap, and then created metrics
that literally judged the conditions of
people, and then took responsibility for
changing those metrics. I think there’s a lot that can
be done in private-public partnerships and so on to be able
to change it, but I fear that that probably will not be done by the
next time we have a downturn, and I fear for what that conflict
is going to be like that. [00:43:54] Peter: Yes, I think that
we all are afraid of that, and that number that you gave of families
could not raise $400 is shocking. [00:44:06] Ray: The education
system, my wife helps public education in
Connecticut and Connecticut is the richest state in the
Union, but just give you an idea of the wealth
disparity and the impact. She deals with public schools, with the worst kids in the
public schools, and she supported the study
that examined what are called disconnected and
disengaged students. A disengaged student is
a student who attends school but doesn’t study,
they just are there. A disconnected student is
a student that they don’t even know where they are,
they don’t come to school. 22% of the high school students
are one of those, they’re going to– Those students are
going to be on the streets. You go to schools, and
they share books. In some cases they
literally share pencils. They’ll take a pencil, and
they’ll either pass it back and forth, or break it in half
and sharpen it from both ends. The conditions are– it’s unfair,
it’s an intolerable thing. Those things are not
being dealt with. Anyway, I think that that’s a real problem, there’s a lot
of justification. We have to make the system work
for the majority of people. If you look at the wealth gap,
there’s some– if you’re interested, I’ve got the studies that I did that
are on LinkedIn, you can go on. I broke the economy down from
the top 40% to the bottom 60%. I picked 60% because
that’s the majority. I could have picked 80%, the
conditions are basically the same. If you look at that 80%
economy, it’s a bad economy. The death rates are
rising from opiates from suicides, the
usefulness is declining. We have to deal with that. [00:45:56] Peter: Yes,
we have to understand that there is legitimate
fear, legitimate fear. Ray, I think that we have
a whole lot of people out there that would like
to ask some questions. Why don’t we just start
out with some questions and we’ll start over
here on my left. [00:46:11] Speaker 3: Thank you. Ray, first off, your philosophy
is completely genius, and the fact that you
have taken, over the last few decades, all these
thoughts and shared them with all of us in the world
is truly remarkable. I just want to acknowledge
you for that. My question is, as
you were beginning to realize how these principles changed your own line of thinking,
and then turn them into ways that you made decisions, how did you
choose to invest in the technology that allowed Bridgewater to make
the best decisions as a team? [00:46:47] Ray: I started
by every time I would make a decision, I would
write down the criteria. I did it basically because
when I would close out a trade, I wanted then to
see how my thinking worked. And then I stumbled across the
idea that if I can make that clear enough, I could test
how that decision would have worked in the past. I could run it through all
countries, all past period of time, and that gave me a
reflection on that decision rule. Then I discovered that
actually if I could take that criteria and put
it into an equation, I could take in data, and
it would say, “Bring it to me,” and I would
make those decisions. I stumbled across the
fact that writing down the principal, making
it an equation, allowed me to be able to test
it and then also allow decision-making to be
happening in that way. That one thing then let me do
that on all of the ones that I was making decisions or making,
and we would do it together. It was great because
ordinarily we were saying, “What would our decision be?” That’s bad. If instead you think what should
our decision-making criteria be? You can test it, and convert it
into algorithms, that’s good. What happened was that the
vast majority of our decision making over a period of time
was able to be made this way. 98% of our decision making
is made by algorithms, with us arguing about our criteria
not our conclusions. That’s how it developed. Then I realized that
I can take it to everything, I could
people decision making. In other words, all that
data that’s collected that you saw, we could
create algorithms. And by looking at those algorithms
for people management, and how we’re going to be with each other,
it became a logical extension. That’s how it evolved. [00:48:43] Peter: Sir. [00:48:45] Speaker 4: Your firm’s
investment performance has been one of the best in the world over
the long run, please share with us two or three, the top two or
three insights, methods, qualities that you think have made you one
of the world’s best investors. [00:49:01] Ray: Okay, quickly. First of all, I learned that
almost all the surprises that happened to me were
things that just haven’t happened in my lifetime
before, but happened repeatedly in other lifetimes
or in other countries. I needed to have a criteria that
I call timeless and universal. By specifying the
criteria and then seeing how they would have worked in other time frames, and other locations, timeless and universal,
that has helped us a lot because then if there’s a difference in another
time frame or another country, I’m forced to explain that
difference and be able to do that. That’s one of them. The idea of separating
what I call out and data, what should– if you
had no view, what is a balanced portfolio
like to be able to have diversification of assets
to achieve balance. The power of diversification to
reduce risk without reducing return, allows you to increase your
return to risk ratio enormously. In the book, I show this what I
call the holy grail of investing. Whether that’s done for a
strategic asset allocation mix, or whether that’s done for taking
bets, that has been a key thing. I call it the holy
grail of investing, so you might want
to look in the book because there were
people standing behind you and I got to answer
other questions. I would say, that knowing
what we don’t know and how to deal with
it well has been key. [00:50:36] Peter: Ray,
I just want to switch for one second because
you’re talking about radical transparency as
it is in your work in Bridgewater, in the
business you’ve created and the rationale that
brought you there, the mistakes you made, how
you learn from them, how you cop, and you wrote
down principles and how you actually really
scan this over decades. Have you applied the
same in your family? [00:51:03] Ray: Of course. I mean meaning– Look, in any
relationships you are going to have to define how you’re
going to be with each other. People just sometimes don’t talk
about it but there’s a big benefit. For me, I can say, these
are my principles, you can read it, you can
hold me accountable to this, this is what
I will do and you will know it, and
this is what I value. And when you have that in a family,
do I want to be radically truthful? I could tell you stories of
difficult situations in which– One story, my wife
was possible dying of cancer situation
in terms of that, and I wanted to take my kids through it when they were
young, to take them through that so that they know that
they could always trust in what I’m saying without spin, that radical truthfulness and that
radical transparency. It’s radical, it
doesn’t have to mean absolutely everything, I
just want to be clear. There are certain things
where if somebody is going to be hurt by it you make the judgments, because
you have to decide how you’re going to
be with each other. [00:52:18] Peter: The good
news, Barbara was fine. [00:52:20] Ray: The good
news is Barbara was fine. Thank you. [00:52:23] Peter: Question? [00:52:24] Speaker
5: Good afternoon? I have a question,
however I noticed that there’s no women online
who might get a chance to ask questions, so I
want to see if there’s any woman who wanted
to take my slot? [applause] [00:52:41] Peter: Thank
you for that, thank you. [00:52:41] Ray: Hey, that’s great. Well done. [00:52:44] Speaker 6: Thank you so
much, I really appreciate that. [applause] Ray, my question for you is, what’s your advice on how we can reconcile the feedback, I don’t
want to call it negative, but when we’re getting feedback–? [00:53:01] Ray: Looking
at negative is good. [00:53:03] Speaker 6: Okay. How can we reconcile that when we
get that feedback on ourselves about our weaknesses to internalize
it and improve quicker? [00:53:12] Ray: I think
the only question is getting at whether
it’s true or not. In other words, if we’re working
together and you don’t believe that it’s true and you’re in that
situation, it may not be true. And then how do you find out
in an evidence-based way? Do you do a test? Or do you do triangulation? You have to really want to
find out if it’s true or not, and realize the benefits of
finding out if it’s true. Because this is the
key to the success of life, the key to
successful life is you don’t have to do
it alone, you find out what you can do well yourself. There’s two paths of finding
out that you have a weakness, the most common path is once
you get that you find out. The most common path is,
do I make that a strength? And that may be a difficult
path, people who think one way might have a challenge
thinking another way. The easiest path is to find
out who’s good at what you’re not good at and
appreciate those differences. I think the answer to
your question is to try to do it in an
evidence-based way with the realization that you’re
going to be so much more successful and so much
more happy if you do it. [00:54:37] Peter: Thank you. [00:54:38] Speaker 6: Thank you. Thank you so much. [00:54:38] Peter: Yes? [00:54:40] Speaker 7: Hi, Ray? [00:54:41] Ray: Hi. [00:54:43] Speaker 7: What do you
think about universal basic income? [00:54:47] Ray: Universal
basic income– By the way, I did a
study on it and it’s on LinkedIn if you’re interested in looking at it, I looked
at it for a lot. The basic issue on
the universal basic income is that they
believe that you will lessen– You’ll take
money and funding it by taking programs
that are in existence and eliminating or
reducing those programs to give people the money to be able to make those decisions
themselves so that they can make
those decisions well. I think it’s really a
question of whether– When you shift that, whether that will allow them to
make decisions well because they’re good
decision makers. In other words, when
I look at education, and I see a number of things, I know that I want– and I’m dealing
with certain populations, I want to make sure that that is being given the money, the cash
is being given for an effective purpose that they will
use well rather than the program. If I’m going to take
money from education or I’m going to take
money from other things, I have to be able to
believe that it’ll be done well, and it’s a
difficult question. Some populations, I
think there’s a real benefit to it because it eliminates the bureaucracy and it eliminates
people making decisions for you. Because if you’re a good decision
maker and you know how you are going to spend that money and
allocate the resources effectively, it’s a better way of operating
but there are a lot of percentage of the population who
it can do more harm than good. That’s what I think about
universal basic income. I think that there’s also income and usefulness, I think
both are important but I think you have to make
usefulness as important part of it. In my view, I’m crazy about micro-finance, I’m
crazy about ways in which you can effectively make usefulness, make
people– I think that basically if you– I had the benefit of parents
who cared about me, loved me, and I had a school that I
could go to in which I could learn. There’s basic things that you need. If you have basic education,
fundamental education which is not being dealt
with now adequately, and you have a family that is a
difficult family environment that there’s not that type
of care you need that. I think that you need an opportunity
like a micro-finance, a little bit of money with an opportunity
allows that to be paid back. I’m very big on
micro-finance in terms of being able to
provide opportunities. For every dollar that I
donated in micro-finance over the next 10
years, it’s 12 times that amount of money
gets lent and paid back to people and it becomes
self-sustaining. Those are the things
that are more my passion than universal basic
income for those reasons. [00:58:00] Peter: Thank you.
Yes. [applause] [00:58:06] Speaker 8: Hi, Ray. You mentioned education a few times, what solutions would
you provide to our education system right
now to take steps towards meritocracy
at a societal level? [00:58:17] Ray: I think the
biggest problem in education is– Well, besides not
recognizing it as a great national priority, is that
the constitution makes it statewide and within the
state, the school districts are– If you’re in a rich
school district you have taxation that will pay for
a better education than if you’re in a poor school
district, and that we don’t create a bottom, there’s
no bottom to that society. I think there’s a
structural problem on that. I think it should be
treated as a national emergency, you have
to say that that’s intolerable, that that
exists, and then you have to find the ways
of getting around that. I do think that private-public
partnerships in various ways are big issues in terms of dealing with it,
but I’m not an expert on education. I spent a fair amount of time with
it, I think that there are a lot of people who are doing wonderful
cutting-edge things to do that. I put together a group of
people, a commission, who also lives in those areas, that are
dealing with– it’s a poverty question as much as it is a
education question, in other words, when you go home at
night what is your situation? There are a lot of kids
who don’t have adequate food and they go into
situations in which there are shootings,
that sounds ridiculous but it happens in so
many different areas. I can tell you many
towns that I know of in which they go back
into a traumatic environment, yet there are very cost
effective ways of dealing with that. I can rattle them off, for
example, after-school programs. You have an
infrastructure there with the school system and the school is there, and it creates a problem when you send the kid home
at three o’clock in the day, because
it’s a problem for the kid and it’s a problem for the parent because
what’s a single parent, a single mother, going to do? Now she’s got to take
care of the kid at three o’clock in the afternoon
and you could cost effectively extend that
to a full day program, and you can also then
bring back the enrichment programs because the
enrichment programs, things like art and the fun
learning types of things that they can do, are
being carved out of the school system and they
could be brought back. That could be done cost-effectively. The difference of a high
school student completing high school and not completing high
school is approximately $ 1 million in their lifetime because
of the issue if you don’t complete high school you’re
going to be on the street. The cost of crime, the
cost of incarceration, it costs incarceration is between $80,000 and $120,000 a
year and the social cost as well as the injustice cost. [01:01:02] Peter: That’s per person? [01:01:04] Ray: Per
person. for incarcerating somebody, and those people who don’t complete high
school, don’t have a future and so it’s
not fair for them. In order to have equal
opportunity, that’s the thing that we want
to strive for equal opportunity, the country
is the greatest dad and that’s what we
should be striving for. You have to have something
like equal education. All I’m saying is I think that those could be cost-effectively
dealt with, but our society needs
to be able to put that money in in one way or another. Public-private partnerships
that could do that. Combination of philanthropy
and government, and look at the return
on the investment that you’re going to get; it’s
a fabulous return on investment and there’s
a lot of that stuff. [01:01:47] Peter: Do you
think, Ray, that enough people that have means
understand the precariousness of the state of our place
and the need for making these kind of important
analysis and investments? [01:02:02] Ray: Nowhere near. [01:02:04] Peter: How
do you get there? You focus on scale, you
always think about scale. How do you scale up the
wisdom you’ve just shared so that actually we
have an opportunity to educate the people
that have the chance and the means to make the
changes that are essential? [01:02:25] Ray: Theoretically
you want leadership at the top. You want to say, that’s intolerable
and there’s a population that speaks to it but for two
reasons we don’t see it. We’re not living in
those neighborhoods, we don’t go into those
schools just personally. This is a wonderfully,
intellectually, enriched crowd, and by and large
we don’t have that. I would say if you can have
direct contact, I would say, by the way, it’s
an incredibly enriching experience to see the world
through those people’s eyes and to empathize with
them and it’s fantastic. Then you look at averages. In other words, the average
unemployment rate or the average income, the averages are
misleading so how would you know? I would say it’s an
adventure, go into that school, sieve it through
their eyes and then feel it, but some way
or another you got to deal with it and you’ve
got to raise it. I think more likely that we
won’t adequately do that and then we’re going to
encounter the consequences. Eventually it’ll beat us over a head
but it may be too antagonistic. [01:03:37] Peter: We have now gone over time, and before
we wrap it up I just want to make one
comment and that is that you are an ordinary icon. You have actually,
in the way that you have lived your life, the way you’ve looked at your family,
the way you’ve looked at your passions, the way you’ve searched for innovative
breakthrough ideas and approaches to business is unusual, really unusual and it actually is
very, very hopeful. I have seen what you
have touched, I’ve seen the way that you have
challenged people around you. I’ve seen the way they have
risen and they have actually responded and what you have
created in many different ways. Before you go into this
arc of disappearing, I would love you to think
about how do you take what you have learned
about transformation, and about integrity, and
about honesty, and how do you scale that up into
the community of people in our country and around
the world that need to understand that they
need to go to those places in order to understand
the opportunities? If you do that, then we
will allow you to retire. [applause] [01:05:05] Ray: Thanks, but I
think the real thing is that you really have to understand
that I barely got into college on probation, and just a number
of– I’m a very ordinary guy who stumbled on some of
these particular approaches. The thing that I want to
do is to pass those along. And when you leave here
if you just think, does that have merit
because it’s you all. In other words, there
are so many of you and you could do that and you could change that, and then
if you do it then you could help other people do it. [01:05:48] Peter: Is
that the take away? [01:05:49] Ray: That’s the
take away, it’s up to you now. [01:05:51] Peter: You got that? Thank you. [applause] Thank you. Well done. Thank you, my friend, well done. [applause]

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