Ray Dalio: “Principles: Life and Work” | Talks at Google


[MUSIC PLAYING] JORDAN THIBODEAU: So thank
you all for joining us. I’d like to introduce
you to Ray Dalio. He’s the founder of
Bridgewater Associates. He founded that 1975. And it is one of the
most successful hedge funds in history. So let’s give Ray a
nice Google welcome. [APPLAUSE] RAY DALIO: I’m in
a stage in my life where I’m entering what I call
the third stage of my life. I think of life as existing
in three big stages. The first is that you’re
learning from others. You’re dependent on others. You’re a kid. The second stage of your
life is then you’re working. Others are dependent on you. And you’re trying
to be successful. Then after, you get to
the later stage in life. Third stage of
your life is others are successful without you. And that you’re free– according to Joseph
Campbell free to live and free to die, OK? So that you have that
element of freedom. And so I’m at a stage
in my life where– I started Bridgewater out of a
two-bedroom apartment in 1975, and I’ve brought it
to where it is now. According to “Fortune,” it’s
the fifth most important private company in
the United States. It’s been successful. It’s been good. And that my objective
at this particular stage is to help others be
successful without me. I learned along the
way certain principles. Every time I would
make a decision, I would write down the reasons
I would make that decision. And I put them out. I debated them. And I developed
these principles. So think about
principles as just being these reasons for
making a decision if you’re in this situation, how
do you deal with it? It was also very
important to me to operate in a very unusual way that
seemed very sensible to me. And it’s an idea
meritocratic way. So I want to
describe Bridgewater as being an idea
meritocracy– in other words, a real idea meritocracy, which
I’ll explain and show to you, so a real idea meritocracy
in which the goals are meaningful work and
meaningful relationships. Meaningful work– I mean
you’re on a mission, that you feel you’re
on a mission together to do those great things. And meaningful
relationships, meaning that you care about each other. It’s part of a community. And to be on that
mission together. And that was really great
in terms of our success. But it was meaningful work
and meaningful relationships through radical truthfulness
and radical transparency. That means, literally,
people saying anything that they feel that they want
to say in terms of being polite, of course, but sharing what
they really believe is true and working themselves through
to have an idea meritocratic way and to literally record
everything for everybody to hear. So I mean, literally, there
are a combination of videos and tapes of all meetings
that happen so that nothing is hidden, because you
can’t have a real idea meritocracy if you can’t
see things yourself. And so it’s a very
unusual place, and it was really the
basis of our success. And I want to explain
that way of operating to you because this idea
meritocratic way, in which there’s meaningful work and
meaningful relationships through radical truthfulness
and radical transparency so that you could have
thoughtful disagreement and have ways of getting past
that disagreement to then move on, like a legal system. That has been the
key to our success. So that’s what I want
to try to convey to you. And I’m just going
to take a few minutes to try to go
through a few slides to give you a sense of this. I wanted big, audacious goals. I wish big, audacious
goals for you. Go after your goals And on your way to
your goals, you’re going to encounter your problems
and your failures, right? That’s going to happen. Otherwise you just go
straight to your goals. No. That’s the learning process. You account in your failures. Failures is part of
the learning process. From the failures,
what I found was great. I started to think of
failures as lessons. I started to think
of them as puzzles rather than develop emotional
reactions to those failures. I started think, pain
plus quality reflection would give me progress. So I started to think of almost
the failures like puzzles that if I could study the
puzzles, the puzzles was, what would I do
differently in the future that wouldn’t produce that
problem again when it happened? And then I would reflect– well, what was that? That would be my principles. What would I do
differently in the future? If I solved that puzzle,
I would get a gem. And the gem was
principle, a principle to handle it better
in the future, because failure is
a learning process. It’s an essential part
of the learning process. If you can realize
that and you write down those principles–
write them down. It’s been fantastic. So we’d learn those principles. And then it would
help me improve. And then I would go on
to more audacious goals. And I look at evolution–
personal evolution or almost every
evolution– evolution of a company, evolution
of everything, as being this constant looping
process that I sort of think of as this five-step process. In other words, to be
successful, you have to out you have to do five things. First, you have to know
what your goals are and go after those goals. Be clear on your goals. And you will encounter problems
on the way to those goals. Those will be your barriers, OK? There are tests now. Don’t just emotionally complain. Think about them
as your problems. You have to diagnose those
problems to the root cause to get at the root cause. And that root cause
might be yourself, what you’re doing wrong or what
somebody else is doing wrong. So you can’t depersonalize it. You have to really look at it
so that you make those changes. And when you get
at that root cause, only by knowing that
root cause can then you design a way to get
around that root cause. Like, if you’re not good
at something yourself, it’s OK if you find somebody
else who’s good at the things that you’re not good at
because nobody can be good at everything, right? But you have to do that. You just can’t keep banging
yourself on the wall. So you have to design something
that’s practical to get around with it. And then you have to
follow through and do it. A lot of people come
up with designs, but you have to do the
thing that’s necessary. And by trying that thing
that’s necessary, again , you will find out, are you
getting to your goals or are you encountering your next
set of problems and so on? And that, I believe, is the
personal evolutionary process that has helped me. Those rules that I
was able to write down and that you can get in this
book, “Principles,” which is why I’m passing them along. Those rules– we were
actually able to then put into the algorithms and
build decision-making processes that replicate the brain. We’ll get into that in a minute. OK, so in order to be
successful in the markets, one has to be an
independent thinker. In order to be an
entrepreneur, one has to be an independent thinker
and bet against the consensus and be right, because the
consensus in the markets is built into the price. Whatever anybody thinks,
it’s built into the price. So you have to bet
against the consensus. And you’re going to be
wrong a fair amount of times about betting against
the consensus. But in any case, you need to
be an independent thinker. And for an
entrepreneur, you need to be an independent
thinker, because you’re inventing new stuff. You’re doing something. And you don’t know
if you’re right. So in order for me
to be successful, I needed to have a bunch
of independent thinkers in order to have
them be effective. OK, well, now, how
are you going to get this bunch of
independent thinkers to agree on anything, OK? I had to have an
idea meritocracy. In other words, I had to
have a system that literally, systematically allows for
thoughtful disagreement so that this idea
meritocratic people could then get at the right answer,
because that’s fantastic if you can have that
thoughtful disagreement to get at the right answer. It’s very powerful. By having that and
then systematizing it– principled systems– a system for having thoughtful
disagreement for an idea meritocracy– we could produce greater
amounts of successes. We also produced failures. But we would look at that
way, produce our learnings. And that produced, as a result,
happy employees who really believe in this idea
meritocratic thing and owned the company,
intellectually and otherwise, own the company. And we had happy employees. And then it became easier to
attract those types of people, those types of people who
believe that everybody has the right to make
sense of things and that there’s a power
in thoughtful disagreement. And that allowed us to
attract more people, and that was the basis of going
from the two-bedroom apartment to Bridgewater now. So now we have
about 1,500 people, and that’s how it works
as an idea meritocracy. And I want to pass
that along to you, and I want to say, OK, so
what is an idea meritocracy? You could have your
own versions of this. You pick what is fine to you. But three different things
are necessary for an idea meritocracy. First, everybody has to
put their honest thoughts on the table to see. Now, I watch this, and I think
it’s so many organizations, so many people– they all keep it bottled
up in their heads, right? And they’re critical
behind the scenes. And that’s bad. So can you put your
honest thoughts on the table with other
people’s honest thoughts so that you understand what
people are thinking, OK? It makes everything,
first of all, a lot more efficient, right? It’s terribly inefficient when
everybody doesn’t know what the other person’s thinking. And then also, it
doesn’t allow ownership. It can’t be an idea
meritocracy if you just don’t work it through. Everybody’s talking
behind the scenes. We don’t allow talking
behind the scenes, but anybody can challenge
anything at any time. OK, then you have to
understand the art of thoughtful disagreement,
thoughtful disagreement. So many people react
badly to disagreement. You have to change
the modus operandi and start your thinking. It should be curiosity how
do you know who’s right? How do you know who is wrong? It should prompt
curiosity not anger. It tends to produce
to some extent anger because it’s like a
barbaric animal behavior that what happens is
the amygdala part of us has this flight or flight thing. And then that it’s
viewed as an attack. And that’s not good. So there are
protocols that we have that I won’t go into now
that I don’t have time, but they’re are laid
out in the book of how do you have the art of
thoughtful disagreement to raise the probabilities? Because collectively, if
you have an idea meritocracy and you know how to do
this well collectively, you’re going to make much better
decisions than individually. If you just are stuck with
the information that’s in your head and your
opinions, that’s terrible. I believe that one of the
greatest tragedies of mankind– such an easy thing to fix– is the people who are stuck with
wrong opinions in their heads that they don’t put out
there and stress test and raise their
probabilities of being right. So you have to understand the
art of thoughtful disagreement that brings in better
thinking than you individually has and has a probability of
moving you to a better answer than you would
have individually. That requires a skill. And so then you have
the disagreement. That collective
decision-making’s very powerful. It’s done well. But you might still have a
disagreement after those things Then you have to have
agreed upon ways of getting past your disagreement. If you have your disagreements
that are gnawing at you and so on, it’s like a
law case, a legal case. OK, you go in. You have a trial. You do it. But you believe that the
decision-making system is fair. And because you
believe it’s fair and you’ve had that
opportunity, that you say, now we can get past
the disagreement and move on, rather than
being stuck with it. So those are the three things
that an idea meritocracy has to have and so
if you think, do you want an idea meritocracy, you
have to think about those three things. So this is the thing. Meaningful relationships
and meaningful work, together, have produced
this success, and then this radical truthfulness
and radical transparency you know produces
an idea meritocracy. That’s it. The other thing is, in order
to have an idea meritocracy and in order to have great
personal development– here. When you know what
someone is like, you know what you
can expect from them. Can you talk about
what people are like? Can you deal with really
getting at what people are like? Do you know what
you’re are like? Or are you going to
hide those things and not talk about those things? People who want to come
into this environment would like to honestly know what
their strengths and weaknesses are and work on those so that
they can produce better teams, that people who
have some weaknesses can work with people who
have corresponding strengths and also know about
themselves and also be very straightforward,
that I can hand you that responsibility,
but I can’t hand you this responsibility
because you appear to have these weaknesses. How do you get objectively
at the question of whether you have those
weaknesses or those strengths? Can we have do that objectively? That is really great. So this is an important element
that has been fantastic for us. And I’ll give you a sense. So this is just making
the point that in a job, quality is needed, then
what somebody’s like, and the goal is
to eliminate that. So now I use technology
and algorithms. I started 25 years ago– and we do have done it to
a great, enormous degree– use algorithms to take
principles and put them into making
decision-making systems. All of our investment
decision-making is made by replicating
our thinking and actually putting them in
algorithms and taking in data. And we do the same
thing for about half of our management processes. And I do believe that
we’re on the path that we will have
algorithmic, idea meritocratic decision-making done
by algorithms that can see everything and
that can make better decisions than individuals
stuck in their heads and because you can
specify the algorithm, so everybody can
see the algorithm, so everybody can
see the criteria. And they can evaluate the
merit of the criteria. But to just give
you a little sense of that, what I
want to do is just show you a little clip
of one of the tools that we use and it’ll give you
a flavor of what we’re doing. So who can hit the clip? [VIDEO PLAYBACK] – In order to give you a glimmer
into what this looks like, I’d like to take you into a
meeting and introduce you to a tool of ours,
called the dot collector, that helps us do this. 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. So whenever somebody
thinks something about another person’s
thinking, it’s easy for them to convey their assessment. They simply note the
attribute and provide a rating from 1 to 10. For example, as
the meeting began, a researcher named
Jen rated me a 3– in other words, badly– for not showing a good
balance of open-mindedness and assertiveness. As the meeting transpired,
Jen’s assessments of people added up like this. Others in the room have
different opinions. That’s normal. Different people
are always going to have different opinions. And who knows who’s right? Let’s look at just 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 right out of college, can tell me, the CEO, that I’m
approaching things terribly. This tool helps people
both express their opinions and then separate themselves
from their opinions to see things from
a higher level. When Jen and others
shift their attentions from inputting their own
opinions to looking down on the whole screen,
their perspective changes. They see their own opinions
as just one of many and naturally start
asking themselves, how do I know my opinion is right? That shift in
perspective is like going from seeing in one dimension to
seeing in multiple dimensions, and it shifts the conversation
from arguing over our opinions to figuring out objective
criteria for determining which opinions are best. Behind the dot collector is
a computer that is watching. It watches what all these
people are thinking, and it correlates that
with how they think. And it communicates advice back
to each of them based on that. Then it draws the data
from all the meetings to create a pointillist
painting of what people are like and how they think. And it does that
guided by algorithms. Knowing what people are like
helps to match them better with their jobs. For example, a creative
thinker who is unreliable might be matched up
with someone who’s 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 the views
based on people’s merits, the answer was
completely different. This process allows
us to make decisions not based on democracy,
not based on autocracy, but based on algorithms that
take people’s believability into consideration. Yeah, we really do this. [LAUGHTER] [END PLAYBACK] RAY DALIO: And so that you
can see believability waiting. So let’s imagine that you
have data on everybody so that you just don’t
go walking in a room and everybody’s got an opinion
without actually thinking, with some element
of score, who is more likely to have a better
opinion, because there’s a certain dynamic. You put 10 people in
a room, and you’re going to get one of two things. You’re going to either have
autocratic decision making. In other words, everybody
feeds their opinions, and then the guy who
is responsible for that then says, OK, here’s my
decision based on that. That’s more normal. Sometimes you’ll
go around the room, and, what does everybody think? And then there’s a
notion to a consensus. And that’s not so good either. What I did– because
I really don’t know that I have the right answer. I really don’t. Running the company, the reason
I did this was out of need. I want to triangulate
about people who I believe might have better thinking. And if three believable
people believe one thing and I believe something
else, there’s a good chance that I might be wrong. And also, what am I going to do? What about for them? So I like to have these
believability scores that is accumulated by data
and other people’s thinking of who is better and
worse or different things. And then people can
change those scores or take those into
consideration. And that’s what
believability-weighted decision making is because it helps
the idea meritocracy. OK, so that’s what we do. We’ll go to the
question and answer. The important thing here
is to talk about idea meritocratic decision making. However we choose to do
it and whatever tools we use to get at
that is, really, of subordinate importance
to the idea of, how do you have that idea
meritocratic decision making? I believe that what
you’re going to see is, if you start to get to this
principle decision-making idea meritocratic
decision-making, what you’re going to see is the learning
of principles for dealing with situations that themselves
will be idea meritocratic. So if you have a
situation, and you’re going to Google to find
out what the facts are now, you will increasingly
be able to go to Google and find out how
you should handle certain things,
principles and the like, in that idea meritocratic way
with believability-weighted decision-making and the like. So I want to throw
that out there, and then we’ll have
our conversation. JORDAN THIBODEAU:
I’d like to start with– you had a concept
called the “two yous” and how that affects
our thinking process and also taking feedback. Can you talk about that? RAY DALIO: Well,
the brain actually has a lot of parts
in it that are the things that compete with
each other to make decisions. But the two big yous
are the thoughtful you, that is in our
conscious mind, and then the emotional you, which is
in our subconscious mind. There are a lot of motivations
that you probably don’t even know, that are subliminal, that
came from maybe early childhood or your circumstances that
are below the surface. And they’re at odds. They struggle with each other. So the issue of, would you
like to know your weaknesses? Would you like to know
what other people really think about you? JORDAN THIBODEAU: Yeah. RAY DALIO: OK,
intellectually, you would like to know those things. Emotionally, you might not
like to know those things. And so when you’re dealing with
our environment, and you say, would you like to
have this environment of radical truthfulness
and radical transparency, almost everybody
intellectually says it, and when they’re going
through it they say it. And you see them also struggle
with their emotional selves as they’re going through
it until they re-adapt. And when they start to
re-adapt, and they say, knowing what’s true is good. And yeah, now I
know my weaknesses, and I know what other people
are thinking about me. And I could approach
what to do about it. Then they sort of make a
transition to the other side. So we have our
two yous that lead to struggles like disagreement,
disagreement and finding it emotionally difficult.
It’s curiosity. Why shouldn’t that be a joy? But we have that emotional
thing that we have to struggle. So that’s the two yous. JORDAN THIBODEAU: And
what are some tips that people can help themselves
get through the two yous issue to make them more
resilient to feedback? RAY DALIO: Well,
there are a number of there are a number of
things that are in the book. Let me answer it before I
go to that particular one. Whenever there’s whenever
there’s conflict, I recommend that you go to a
higher level, one level up. Whenever you have
a disagreement, just go to one level
up with the person that you’re in the conflict
with or even yourselves when you have a dilemma. And look and come up
with an agreement of how you should be with each other. In other words, let’s say you
and I have a disagreement. OK, rather than being caught in
the anger of that disagreement, to go above and you should
say, how do we disagree? How should we disagree? Form a contract of how you
should be with each other, and make that a
practical modus operandi. That’s what we do,
and then there’s also then the ways we do it. So the ways we do it
are certain things. First, to know that
decision-making is a 2-step process. There is first taking in,
and then there’s deciding. The capacity to take in the
other person’s point of view, the noticing how your
body is reacting, noticing how you are reacting. Am I having my heart rate rise? Can I pause? We have something like
the two-minute rule. You say, can I have two minutes? Then that person has the two
minutes to say what they want. Having those kinds
of protocols– there are a number
explained in the book. Where there’s curiosity,
where there’s not blocking. Somebody in a
discussion will do a lot to block the taking it in. So these protocols– I won’t go through them all. But having those protocols
in place that you practice are fair. I have created an app called
a Dispute Resolver, OK? So when anybody has a
dispute, you push the button, and there’s a path, and
the dispute’s resolved. It’s explained in the
appendix of the book. All the tools are there. And it describes
procedurally what one does, depending on the
level of the dispute. A very common thing is if
you and I have a dispute, one of the simplest
things to do is for you and I mutually
agree on a mediator. So we agree on a mediator
and move forward. Some others might be
matters of principle and almost progress
like legal cases. What’s your evidence? What’s this? And who is the judge? JORDAN THIBODEAU: Now,
when you have this dialogue and discussion about
feedback, and it might turn into
a tense situation like with disagreement, are
there mediums of exchange that you prioritize? Because I see some people
who will go towards email, but when you use email, you miss
tone and content and context. RAY DALIO: As a
generalization, we want the person to find
the medium of exchange that they’re most comfortable
with because there are pros and cons to each. Like, some people,
in the moment, feel that they’re not as
spontaneous in the moment, or they may be more introverted. And they think that they won’t
present themselves the best in a person,
one-on-one discussion so that they would prefer
by email to say, listen, I’d like to lay out my thoughts,
hear your thoughts by email, and then have that opportunity
to have the back-and-forth. Some people would like
to do it other ways. The important thing
is that they just agree on what’s most
effective for them. JORDAN THIBODEAU: Excellent. Now, let’s say an organization
goes through a calamity and there’s a trust issue
in the organization, how does the company
go about rebuilding the trust within employees? RAY DALIO: Well, again, I
think radical truthfulness and radical transparency
is the means of doing it. What I did and what my
experience would be– if you have radical
transparency– so literally, every crisis I was
in, every situation I was in, I would have a camera
in that discussion as we looked at the pros
and cons of the issue so everybody could see the pros
and cons of that discussion so you know there’s no spin. You have a trust issue if
it’s hidden behind the scenes, I think. With radical transparency,
so everybody could see. Just imagine what it would be
like here, OK, for whatever issue, that you could see
how people making decisions, literally, weighing
the pros and cons and seeing how they are real. And it could be anything from
the top of the organization to just even somebody
firing somebody else. Was it done well? That radical transparency
and then coming out of it and writing principles as to,
why did you handle it that way, and then putting
those principles out so that everybody could
debate that principle or look at that principle, not
in an enormous, time-consuming way but in an effective
way and then having an idea meritocratic way
where you look at that and you say, OK, that
decision was made that way. Maybe that’s not the
way I would do it. But I now understand
the thinking behind it. Because if you don’t
have that kind of thing, then there’s alienation. If you don’t have trust and
you don’t have an appreciation, then increasingly, you build
an organization in which there’s a “we” and “them.” There’s those people who
are making the decisions, and you don’t really
understand it. And you just have
to go along with it. And then that becomes
a source of tension. And then there are
factions and all that. And there’s no resolution. You have to have
resolution and get past it. So the radical truthfulness
and the radical transparency brings trust. And it means that bad stuff– it’s tough stuff bad stuff
to happen because bad stuff happens in the dark. JORDAN THIBODEAU: That’s true. RAY DALIO: If you make
it radically transparent and anybody can bring it
up, then everybody owns it. Radical transparency is
a very effective tool in terms of building trust and
putting things to the light. Believe me, none
of this is perfect, but it’s certainly
been miraculous for us. JORDAN THIBODEAU: Excellent. Why do you think
organizations aren’t going towards radical transparency? RAY DALIO: First of all, I
think that they inevitably will. You must know that it’s so easy
to collect data on everybody. [LAUGHTER] So everybody’s going to
know what everybody’s like, and then the question is, who’s
got the radical transparency? And then what are
you going to do with the radical transparency? You’re going to make what you do
with it radically transparent? OK, so I think
evolutionarily, we’re going to go to this
radical truthfulness and this radical
transparency because it’s going to be tough to hide. I think it’s a control
thing and time thing. So it’s a control thing means
you’re a decision maker, and all these people have all
these different points of view. And how meritocratic
is it to hear all this? And we’ll never
resolve those things. Somebody just wants
to sort of get on with their decision-making. And I think that that’s
because they’re still in this, what I believe,
will be an old world mindset, that it is all in the head,
rather than out of the head and in that notion of
how do you make the best algorithmic decision-making
so it’s not in the head. But we still have
the, it’s in my head, and I want to do what I want
to do, and I know better. And how do I do that? That’s a big part of. It And then thinking, of
course, about the time of, how do you resolve
it with all these people so that you have a real
time-efficient, effective way of having an idea meritocracy. Those are the barriers. And then there’s this
two you thing, OK? That emotional you thing. Those are the, I would
say, the main barriers. JORDAN THIBODEAU: Now,
you said what’s important for the mission of
Bridgewater is having meaningful relationships. Have you found that
with this transparency you’ve been able to
supercharge the relationships that you’ve had in the company? RAY DALIO: Yeah, yes. But we don’t even have to
go to the company level. I’m just saying any
group of individuals can decide whether
they’re going to be radically truthful
and transparent and on the same mission. If you get five people
together and they say we’re going to be on that– And that’s largely
where it started to because I start the
company, and I say, how am I going to be with each other? Because that honesty and
being on that mission is going to bring
people closer together. It almost brings
everybody closer together. The hiding stuff and the
absence of trust is bad. And not only the
absence of trust, but you can’t have
real ownership if you don’t understand and
don’t have a say. Everybody– and like
I’m saying– everybody has the right and obligation
to make sense of things. It’s powerful. And when you were
in it together, something much more
magical happens than a paycheck and a job. JORDAN THIBODEAU: Now, when
you’ve created your principles, has there been processes
where you said, maybe this principle
worked at this point, but now we need
to re-evaluate it? RAY DALIO: Constantly. Because so I guess I
want to to describe it. I just about everything
happens over and over again. We instead look at things
as individual things that are coming up so it’s
like we’re in a snowstorm. But if you just sort of
say, what species of thing, what species of
encounter am I having? And you write a
principle for it, and you write that, then when
the next one comes along again, you see, ah, it’s that species. And you go to that principle,
and you look at it, and everyone’s
slightly different. And that leads to then the
refinement of the principles and those differences, right? And then to do that
transparently is very powerful. So yeah, always. And you realize, of course,
that no principle is perfect. No principle works. So those different gradations
get more fleshed out and become clear. And that’s what the book
of “Principles” is about. It’s a bunch of these things. But you’ll see how
they’ve sort of evolved from this encounter
or that encounter or in you get refinement. And I would urge you
individually to do this. It’s one of the most wonderful
things that’s happened to me. When something comes
along, some situation, particularly a painful
situation– therefore, it might signal, you don’t
want another one of those– after you get past your
pain or at the end of it, record your pain and then
think about principles and write them down. How would you handle
that type of situation? Write it down like a diary. And when you accumulate
those and share those, that’s very powerful. We have an app which we call
a Coach, which somebody says, I’m in this situation. What should I do? And then they go to that Coach,
and the relevant principles come up. But rather than
just my principles, I’m going to make it that
each successful person– I’m going to get, I
don’t know, Larry Page’s principles, XYZ’s principles
for that situation, and you have that there. And then you have
your own principles, and you write it down
so that when you’re then in a situation, you could
look at that situation and you say, what should I
do going to those principles? Because if you start to think
of that in the principled way, it’s very helpful,
and they will refine. JORDAN THIBODEAU: Now,
in the five-step process, of the five steps,
what do people have the most trouble with? RAY DALIO: It’s
very interesting. It really depends on
how their brains work. Like, there are some real
big picture thinkers who have no problems with goals. They know where they want to
go, but they have problems pushing through to results. So there are some people, in
terms of diagnosing things to the root cause– it’s a challenge. Everybody has a problem
but one of those steps. And we see that by
observing themselves as to which step they
have a problem with, they begin to understand
how their brain works. It’s not a problem, though,
if they work collectively because whatever
step they’re having a problem with, another person,
if they help them with that, can really help them be
effective at that step. And that’s really the
key to success in life. The key to success
in life, really, is largely knowing
what you’re not good at and who can help you
be good at those things so that you can lean on
each other and be effective. JORDAN THIBODEAU: Excellent. In the book, you mentioned
Joseph Campbell’s “Hero’s Journey.” And what type of
impact did his work have on you with
your philosophy? RAY DALIO: Well, my son
gave it to me in 2014, way late in my journey. But I was at a particular point
in my journey where I was– he gave it to me at the late
stage, the stage are now at. He described returning the boon. And returning the moon is the
stage where you learned a lot. And some people learn a lot,
and then they go to retirement. And he was making the point
that when you learn a lot, you pass along that to others. And he described
it very vividly. Like, I don’t like
public attention. I don’t like all of that. But he described it
as at that stage, how important it is to pass
along what you learned, and he described it as
a difficult process. And then when you do
that so that others are successful without you,
then you get to a stage where you’re free to live
and free to die because you don’t have that obligation. So that’s where he caught me. But if you read the book,
it’s very interesting. Or in my book, I
recounted in a few pages what the “Hero’s Journey” is. And you start to think about,
where am I on this path? “The Hero’s Journey”– you
probably don’t know the book. “Hero of 1,000
Faces” is the book– Joseph Campbell. What he did is he went through
history and myths and so on, and he says there’s a
certain type of person who has a taste for adventure
and goes through that and then has their battles, and
they have the wins and losses. And then the mission
becomes important. And others become more
important than themselves. And they rise. We can call that spirituality,
whatever that is. But it is the basis
of “Star Wars.” His book was. So it’s that notion
of that journey. And it’s a good book. In my case, I happened to read
it at that particular spot. But anybody referring
to it probably would find, oh, that’s me there. One of the biggest
things was the abyss. What is your abyss? There will come a
time that you are going to have a
terrible situation, and you’re going to– miserable. And how you reflect
on that situation and whether you have
a metamorphosis, a change, a personal change– me, in my case,
happened in 1982. I was publicly dead
wrong in the markets. I don’t know if I’d take the
time to tell you the story. [LAUGHTER] JORDAN THIBODEAU:
You have the floor. RAY DALIO: Oh, yeah. So I formed Bridgewater in 1975. And I had a small company. And I analyzed. And I had done calculations
that American banks had lent to emerging countries a lot
more money than those countries are going to be
able to pay back. And as a result, we were
going to have debt defaults and a debt crisis. And that was a very, very, very
controversial point of view. And it turned out,
in that regard, to be right Mexico
defaulted in August, 1982. And I thought we were going
to have an economic collapse. So I received a
lot of attention. I was asked to
testify to Congress to explain the situation. I went on “Wall Street Week,”
which was a show of the time. And I believed
that we were going to have this economic collapse. That was the exact bottom of
the stock market, exact bottom of the stock market. I could not have
been more wrong. Not only was I more
wrong, I lost money. I lost money for me. I lost money for my clients. I was so broke that I had
to borrow $4,000 from my dad to help to take
care of my family. It was a very, very
painful, painful mistake. But with reflection,
I would say it was one of the best things
that happened to me because it shifted my mindset from
thinking, I’m right, to asking myself, how
do I know I’m right? It gave me the
humility that I needed to balance with my audacity. It changed my approach. I had a metamorphosis. And each person is going to have
their own particular challenge that way. And so what I’m saying is
like in Joseph Campbell, that abyss– he describes
that experience as, you’re in the abyss. And then do you have
the metamorphosis? And that metamorphosis
is a humility, and I’m worried that you
might not get it right, and how do you get the
best triangulation. That’s motivated the
idea meritocracy, bringing the best independent
thinkers to work together. So that’s what that’s like. So anyway, it’s a good book. JORDAN THIBODEAU: Excellent. Now, we know a lot
about your principles. But as far as your
father and your mother, what type of principles
did they teach you? RAY DALIO: Well, my dad
was a jazz musician. And he worked late at night. When I think about him, he
was a strong, capable man who I didn’t see much of because
he was playing a lot at night, and he would stay there. But in later years,
we got closer. And my mom loved me to bits. I had memories, lots
of memories, of her. So I was very fortunate in that
I had a mother who loved me and a dad who had strong
character and creativity. I remember him– in his 80s,
he wouldn’t let the snow stand in the way of driving. He’d get out there and shovel. And he went through World War
II and that kind of thing. And he was a good man. So I had those role models. And that’s what it was like. JORDAN THIBODEAU: Excellent. RAY DALIO: And we talked
about this earlier. So many people don’t
have that benefit. So I had all that
wonderful luxury of family, and then I could go to a school. It was an average public
school, but I could get that. A lot of people today
don’t have that. And I think that’s a big issue. JORDAN THIBODEAU: Maybe
we can transition there. Because we were talking about
the psychological wealth of having a good family. But then there’s an
economic component. And you’ve been talking a
lot about wealth inequality and populism, and
I thought maybe you could talk a little
bit more about that here. RAY DALIO: OK. Look this is not
an ideological– I just want to be clear on it. As I look at this, I look at the
practicality of it and so on. And I’m dealing with economics. And there’s a mechanics that
is, as a result of this, leading to two economies. So they’re hidden in the
economic numbers, the averages. If you want to go on
LinkedIn, I wrote two pieces that you might find
interesting on LinkedIn. I divided the top 40% from
the bottom 60%, the majority of people, and I looked
at, what is the economy of the majority of people like? And if you were to
look at that economy, it is a terrible economy. It has not grown. It’s the only population
that has rising death rates, from opiates from
suicides, the greatest change in incomes. It’s a bad economy. And then there’s this
economy on the top. And I divided it 60%. I could have
divided it 20%, 80%, and the picture would be
basically the same, not only in terms of
usefulness and so on, the death rates
rising all of this. So it’s a phenomenon. And it’s coming as a result
of a number of things. Technology’s a big
influence on that. Globalization, in many ways,
is a big influence on that. There are other things. But anyway, that exists. If you have rich and
poor together and living next to each other in
the same community, and they share a budget where
they have to divide the pie, and you have an
economic downturn, you’re going to have a conflict. You’re going to have
some form of conflict. And so populism is
an extension of that. This isn’t the first
time this happened. Like I say, everything’s
another one of those. So in the study on populism,
which is also on LinkedIn, if you’re interested
in reading it, I looked at 14
populist cases and what is a classic, iconic
populist case like, and how do they work? And so you can read about those. And there was an
iconic way of populism. So that dynamic of that
disparity, that problem, which I think will be
particularly important when we have the next economic
downturn, which I think, probably– I’m almost certain it will be
before the next presidential election, which
means that I think there’ll be a lot of polarity,
and I think it’s a big issue. So that’s the issue. It’s both an issue
of equity, and it’s an issue of practicality that
we have to deal with that. I would say it should be a
national initiative, I would say, led by the president
or somebody in which you take the metrics. I give metrics for that
boy part of the population. You could look at the metrics. And if you have metrics,
is it improving? Or is it worsening? And what does it look like? And then you have initiatives of
how to be able to deal with it. I think that
economically, there are many things that can be done. I live in Connecticut. Connecticut has the highest per
capita income in the country. But it consists of rich people
next to a lot of poor people, and the averages
exist, and she works in the school
system with what are called disengaged and
disconnected youth. A disengaged student is
one who goes to school but really doesn’t study for
tests, doesn’t take the tests, fails, is basically
a failing student. And a disconnected is one
that doesn’t go to school. They don’t even
know where they are. They don’t come to school. 22% of the students
in Connecticut are either disengaged
or disconnected. And you look at the
reasons for that. And you look at the
cost of what that means. There are programs– I won’t get into this a lot. But there are programs that
help to keep the kids in schools and get them engaged that
are needlessly not in there. And yet if they graduate
from high school, the incarceration rates change. The crime rates change. Average cost of incarceration is
between 85 and $125,000 a year. So you think of the cost of the
society that is having that. Anyway, there are
those kinds of issues that I think have to be looked
at, essentially, forthrightly. That’s got to be
viewed as an issue. There’s got to be metrics. And there’s got to be processes
in place for dealing with it. JORDAN THIBODEAU: Yeah. RAY DALIO: And that’s our
biggest economic issue. JORDAN THIBODEAU: Right. If you had a magic
wand and you could just write three pieces
of policy that could be passed by our Congress
and approved by the Senate, what would they be to
solve this issue that’s going on right now? Or do you believe it
more of a private issue? RAY DALIO: Well,
again, I believe in idea meritocratic decision. I think that the
big issue, like I was answering before this other
question, before we started. I think the biggest issue
is how we deal with conflict and what are the
principles that unite us and to bring people together
and that sense of, OK, working it through and
working it out in a bit less selfish way so that
we do healthy things. I would [INAUDIBLE] we
would deal with that. The other particular
issue– like I said, I would say there should
be a national commission to address, what are the
practical ways of dealing with such issues and also
clear metrics so there’s owning the results of those changes. JORDAN THIBODEAU: Yeah,
after the post-war period, we had this situation where
the threat of World War II united all Americans
towards one cause. And after World War II, it led
to a lot of social progress. And I thought after
9/11 happened, we had a period of time
where we came together, but then it just collapsed. RAY DALIO: Let me just be clear. One of the things that scares
me, if you look at history– the history of populism is
really a 1930s phenomenon because you’ll see in this
piece that the wealth gap became just top 1/10 of 1% of
our population’s net worth is equal to the bottom 90% of
the population’s net worth. So that polarity– you
go back to the 1930s, after the depression,
1936, 1937, and that led to the era of populism. There’s left and there’s
right and there’s a conflict. And a lot of countries chose
a strong populist leader. Strong leaders tend to
be more confrontational, tend to be more militaristic,
tend to be more nationalistic. And that was that period. In that period, interestingly,
four democracies became dictatorships, chose to,
to try to bring order to it. And one of the common
ways of gathering support is to have conflict with
an enemy, a foreign enemy. So 9/11 brings people together. A common enemy brings
people together along that. That’s a dangerous dynamic. So when we’re
dealing with this, I would say that it’s
more like we have to start to figure out how to
deal with these common problems and try to deal with
them a more together. That doesn’t mean
not being tough, but it means being tough
collectively, I think. I’m sorry I interrupted
your question, but I just wanted to emphasize
that particular dynamic. JORDAN THIBODEAU: Thanks. Yeah, I see people
more identifying for their political party
or their own identity and not as much as, we’re
all in this together. It seems like we’re splintering
here in the country. RAY DALIO: It’s this whole
idea meritocratic thing. Like, everybody throws
out, I think this. I think that. Who gives a damn what you think? [LAUGHTER] Just because thinking
it doesn’t make it true. Does everybody think because
they think it, it’s true? How do you resolve and
get at what’s true? JORDAN THIBODEAU: So it’s
about creating that contract, where we can actually have the
rules of having a conversation. RAY DALIO: Yeah, how do
we figure out what’s true and what to do about it? JORDAN THIBODEAU: Excellent. So going to you, you
practice meditation. What got you into meditation,
and what has it done for you? RAY DALIO: The Beatles in 1969. [LAUGHTER] JORDAN THIBODEAU: All
right, next question. RAY DALIO: They went to
India, and they meditated. And they came back and
sounded interesting. And I started meditating in
1960 and it has changed my life. I would recommend. I do transcendental meditation. There are sorts
of different types of meditation that [INAUDIBLE]. It has changed my life. It has been so powerful. And it’s probably
the biggest gift that I can give anybody
because it gives you– I’ll described it,
I guess, briefly. It connects your conscious mind
with your subconscious mind and gives you an
equanimity and a creativity that you ordinarily
wouldn’t have. And the reason it does
that, mechanistically, the way it does it is by having
a mantra, which is a word doesn’t have a meaning. It’s a sound. A popular one would be “om.” So you repeat that
with your breath, and that means that you
get rid of your thoughts, because if you
sit there and say, I’m going to try not to
think, you can’t do that. Thoughts just jump around. And so till you get
rid of your thoughts, you go to this mantra. You repeat it over
and over again. And so when you pay
attention to that, you can’t be thinking
about something. And then eventually
the mantra disappears, and you’re in a
subconscious state. And when you’re in that
subconscious state, you’re neither conscious
or unconscious. You’re in your
subconscious state. So it’s relaxing,
and it’s great, and it gives you
that equanimity. But it also is where creativity
comes from, because you don’t muscle creativity. You don’t say, I’m going
to work and get creative. It’s more like relaxation. You take a hot shower, and
this great idea comes to you. So it bubbles up from
your subconscious. And so it enhances creativity. And also, I would say, one of
the best things that one can do is reconcile one’s
subconscious emotional self with one’s intellectual
self, because if you can get those things aligned– like, if they work
in both ways– you’re going to make
better decisions. So meditation has given me
that kind of equanimity. So I look at things, things
I might not want to happen, but I can approach
them calmly and better. So it’s a big deal. It’s been a big deal for me. JORDAN THIBODEAU: Has it helped
you analyze your emotions in the heat of an argument? RAY DALIO: Oh, yeah. It helps you go above
yourself and your situation. And you look at,
oh, there’s Ray, and there’s the
circumstances and there it is and know this
thing happens this way. And OK, so what should be done? Because if you’re
in it, if you’re in that blizzard of
things coming at you and you don’t distinguish
what type of thing is it, what principle
at that higher level, how should I deal with it– you’re either going
to be in it, or you’re going to be above it
more at that principle, looking down at it
and me and that level. And it’s much better to be at
this level and then go in it and do. So it helps to bring
me into that level. JORDAN THIBODEAU: I
find myself in this trap where I’ll start
meditating, and then I’ll start feeling much
better and good. And then I’ll say, oh, I
don’t need meditation anymore, so I’ll stop. RAY DALIO: It’s been so long
for me that what happens is I feel good when I meditate. I can feel the difference. I can say, I need
to go meditate. It’s that refreshing–
so it’s always good. It always feels good. JORDAN THIBODEAU:
Yeah, and that’s been an advantage, too, when
you’re in the investments markets when there’s so
much noise going around you. Does it allow you to just
focus on what’s important? RAY DALIO: Yeah, or life– family, circumstances,
whatever it is. We all have those things. JORDAN THIBODEAU: Now,
since the book has come out, what have your thoughts
been about the reactions to the book? Did you expect the reactions to
go the way they currently are? RAY DALIO: Well, when
in 2010, I started to get unwanted
publicity attention. And so I put out what our
internal principles were. And it was just PDF
file, and it was downloaded 3 and
1/2 million times, and I got a lot of, thank yous. I just put it out so
it would be understood. And that prompted me
to leave the book. I’m, as I say, at
my inclination to be much more of a private person. I put out this book, and I then
decided to go on social media to try to explain and
interact with that. And I’ve found it to
be just wonderful. I’m finding it’s
having a big impact. People are giving me thanks. They’re asking
questions about it. It’s having my desired impact
of passing along when I wanted. And I’m actually really
enjoying the interactions on social media, because it
has a certain personal list, even though it’s impersonal. So it’s good. I feel good about it. JORDAN THIBODEAU: Excellent. Now, the apps you
mentioned in the book. When are you planning
to release those? RAY DALIO: Six or nine months
or something like that. When they’re all ready. I’d like to make them
available for everybody. JORDAN THIBODEAU: So we’re going
to take audience questions now. So if you have a
question, please go ahead and jump on the mic. AUDIENCE: Thank you
so much for coming. I really enjoyed your commentary
about the secret of life and finding your blind spots. And when you talk about that,
it reminds me of our own Project Oxygen, and we talk a lot
about a lot of same principles you have in terms
of making decisions. So how do you address that? I think one way that we address
it is through diversity. RAY DALIO: I’m
sorry, address what? AUDIENCE: Finding
your blind spots versus using consensus as a
way to measure believability and correctness. So how do you balance
those two things, like having everyone
having a consensus about an idea versus
making sure you have a truly comprehensive
range of opinions? RAY DALIO: OK. What you want is the smartest
people most demonstrated believable people who will
then disagree with each other and disagree with you about
what the best path is. Don’t confuse
consensus as everybody. Don’t make the mistake of
thinking that a lot of people have valuable opinions
when they may not. So you want to try to get to
what is the most valuable ones, and you want to try
to identify that. So just like if you
we’re going to– you have a medical problem,
and you think, OK, what should I do about
my medical problem? You don’t want to ask
you’re just your friends. You want to find out who are
the most believable people who will disagree with
you and each other. So I gave the health case
in the book about, OK, you find this doctor. You find that doctor
and then who argue. But one of the
greatest ways of going through this type
of triangulation is if you get really
capable people who will argue with
each other, if you have the triangulation
about what to do, that’ll probably give
you a good indication– OK, well, that might be
the right thing to do. And you’ll learn. And when you don’t
have triangulation, that’s where the
interesting learning really becomes because, if you hear
two sides of an argument and you hear that
debate and then ask your own questions and
so on, you begin to probe, and you’ve gained a richer
understanding of the subject matter than you ever
could have, and then you can come to that
level and get that. So I’m not arguing
consensus decision-making. I’m arguing
believability-weighted decision-making. Believability-weighted
decision-making means finding out, in
various objective ways, in a particular community,
who would be more reliable and not and then go
all into the room and have the
believability-weighted decision-making made. That is a most
effective approach. I don’t know if I’ve
answered your question. AUDIENCE: I guess it’s hard,
because subjectivity is– and I think especially in
this era of social pressures. And I actually think
there’s three yous. There’s our you. And then there’s
the intellectual you and then there’s the pressures
of, who should we be? And I guess it’s hard, when
you have something subjective, how do you know that it’s
something that’s– this is getting abstract. RAY DALIO: Well, the
first thing you have to do here is say, do you
want to find that out? How are you going to create
your idea meritocratic decision-making? Will you not compromise it? Because if you are convinced
that you must operate this way, you will find the solutions. Almost everybody is not
really on that path. You just tell me it’s hard. In the book, I’m giving
you structure of literally the things that we’re doing. There’s a lot that you
can go and just follow that, because you said,
I can’t compromise that. But as long as you’re
going to keep saying, people say it’s going
to be hard to have idea meritocratic decision-making
and have thoughtful disagreement and do these things,
believability-weighted decision-making,
you won’t have it, and you’ll be losing the
competitive advantages. So in your gut, do
you really need it? Do you really want it? That’s the most important
question to answer. AUDIENCE: Yeah, I
think that’s good. I think it sounds like you
base that value of wanting that truth and
that’s how you come to a comfort of this
believability metric as dynamic and rigorous. RAY DALIO: Find it out. Figure it out, and get it. Only goal. Next person? AUDIENCE: Right. Thanks for your book. I listened to it in
the audiobook version. Your voice is very familiar now. [LAUGHTER] One of the things
about transparency that you talk about– you argue that it’s
great to have it, and you give just one
exception that itched me when I read it or listened
to it, which was sharing the compensation information
from the employees, and you gave arguments
why that wouldn’t work. But I could use the arguments
for transparency against that. So I was wondering
how you approach that. RAY DALIO: OK. First of all, everybody to do
their own, and there’s no– you can do it one way. You can do it the other way. And who knows exactly
which way to do it. And some times I say
to myself, if you wrestle about which way to do it
so much and you struggle at it, you probably could
just flip a coin and decide, because they’re
probably about equally good. So the question at hand
that’s being referred is, do I make everybody’s
individual compensation transparent? And the reason I chose
not to do that is I instead make very clear
metrics and compensation levels by groups of people rather than
putting the particular names to that so that
everybody knows if you’re doing this well with
that generalization, you know where the comp
levels are for others. And the reason I did that is
because when I found myself in discussions with,
is an evaluation of how that guy is
doing with other people. And that wasn’t good. In other words, if all
of a sudden you say, Harry’s earning this amount. And now I have to describe
my relationship and how I’m evaluating Harry,
and you’re going to now have to be the judge
of how I’m evaluating Harry and all that type of stuff. And that’s not what you’re
going to be able to be good at. Nor should we do that, just
in terms of compensation. So I’m radically transparent. The message and the
conversation I want to have here is, do you want to
be radically transparent? I want to make sure we
don’t get into one of those, exactly how radically
transparent, because I don’t really
care too much about that. Do it either way is OK, fine. But how are you doing
on the general concepts that I’m talking about? OK, what about the taping? What about the those kinds of
idea meritocratic, those bigger issues? Because just like the
question before, OK, how do we do it,
OK, the big things you can we can
wrestle around here and how you choose
that individual thing. I’m just describing
how I chose it and why. AUDIENCE: Hi, I just wanted
to get your perspective on how you see your
organizational principles being adopted more widely in more
different organizations. In particular, I think you had
the relative luxury, I would say, of being able to being
the head of your organization and being able to
design your organization to operate according to those
principles and effectively say, if you don’t like the
way our principles work in this organization,
you can get lost. Most of us are not
in that position. I was wondering, do you
see these principles being adopted more widely by
people starting organizations that operate according to a
set of principles from day one? Or do you have any
advice on how those of us at more of the bottom
level of the hierarchy can influence things at a
more local work group level? RAY DALIO: Very simply, I
think that those people who have the ability to
control their organizations will consider this
way of operating. And as you say,
the entrepreneurs, the people who can do that,
will make their choices. And I know that I’m
having an effect on that, and that’s helping,
but that’s good. And then people
who don’t then will start to think about
the choices that they have as to where they work. You can come to some
environment that is more idea
meritocratic and one that’s less idea
meritocratic, and you’ve got a lot of choices. And so for the people
running organizations, that’s also something
that’s attractive to being able to attract those people. You have to know what
your personal values are. For me, I could
not work in a place in which I didn’t
have the opportunity to make sense of something. Like those young people
that criticize me– that is the way it should
be in order to do that. And I could not work there. For me, it would be
just like eating shit. I couldn’t do it. [LAUGHTER] So it’s a personal choice. If you feel that’s
important, you will then gravitate
to organizations that are more idea
meritocratic, and evolution will take its course, both
because of the entrepreneur and because the
individual’s doing that. JORDAN THIBODEAU:
I’m going to take an online question real quick. Measurement is a big
theme in your book. How do you approach
measuring teams whose work has only
second order effects– for example, product
aesthetics or who prevent bad things
from happening so you don’t have the counterfactuals? RAY DALIO: OK, I want
to say that in every one of these types of
questions in which there is a particular dilemma
or problem to solve, it starts off with a
mind or a group of minds thinking, how do I
solve that problem? And doing that in an
idea meritocratic way will give you the best answer
to solving that problem. And that is the most
important thing. So when I’m asked
that question, I might give my particular
answer to the question. But if I just gave my particular
answer to the question, I wouldn’t convey the fact that
you have the power individually to do that anyway. So we all face that question. When you have a group and
you take the second order consequences, and how do you
know the decomposition of that? OK, well we can take a
little test here of sorts, and we can take
each person’s ideas and say, OK, now we
have to figure out the best way to do that. And we can then
gather those best ways and come up with that best
way, and that is the path. That’s always the path. If you understand that path,
you’ll get to the best way you can get to, and that’s
better than the ways that you have. And then it becomes clear. So then, in our
particular case, there is a series of evaluations
that are very clear evaluations that people make themselves,
in a believability way, about all dimensions of that. So sometimes you can
measure results directly. In other words, you can measure
somebody’s batting average or something– the equivalent. And sometimes it
needs a critique. If we’re asking does somebody
sing better than somebody else, there’s no quantitative measure
for that type of measure to see that, but we could sort
of say they’re critiquing. So such measures can
happen at all levels. And so we do that. Whatever the measurements
that we come up with jointly, and we think, OK, that’s
good measurements, we can create metrics about it. So qualitative things– I give the example, populism. Well, how do I measure? But populism happens
over and over again. It’s a qualitative thing. But I could start to
create that process. I’ve found that, by and
large, almost anything that I can think of I can
express in an algorithm, in a rule. The real question is, how do
you get to that good rule? JORDAN THIBODEAU: Excellent. AUDIENCE: Thank you for speaking
with us today, Mr. Dalio. My name is Max. And as I’m reading through
this book, which I’m thoroughly enjoying, one question
I keep coming back to is assessing
the right timing. So because we don’t
operate in a vacuum, coming up with the correct
decision is one thing. Knowing to be radically
truthful when giving feedback is one thing. But how do you assess
the timing around giving that type of feedback
or coming to those or executing those decisions? RAY DALIO: You know– well, in the chapter
on decision-making there’s a section
on timing, actually. So you might go to
that section on timing. And you know, by and large– I think you’re also asking
timing for the feedback. AUDIENCE: Right. RAY DALIO: If you’re asking
timing for the feedback, I would say it’s
virtually continuous. So that dot collector
thing that I did that is giving everybody
feedback from everybody and causing people to go above
that is happening continuously in every moment of the day. So people have a 360 review
continuously by a lot of people all the time. And so then they can step
back and see the patterns. They can look at it
daily if they care to. And they can step back and
see the bigger picture. But it really is very
advantageous by doing it continuously because you
can connect it to the specific. In other words, a
lot of times somebody will give you an evaluation,
and there’s a million– an annual review. Think about an annual review
and how silly that is. If I say, OK, now you’re
doing these things, but you can’t connect
it to the specific. By being able to connect it
all the time to the specific, you could look back at
that and have consultation with other people– say,
I handled it this way. What do you think, and what– and you can make
that very tangible. AUDIENCE: Thank you. AUDIENCE: I have a question
regarding the organization group decision. You mentioned that you want
disagreements to be discussed. I’m wondering if we
spend too much time to persuade each other,
[INAUDIBLE] disagreements. This may take some time to reach
the consensus in the group, and miss the opportunity because
it would take too much time on the group consensus. RAY DALIO: Well, in
the book there’s– if left– right. You’re talking about a
risk that could exist. It’s expressed in the
book on how to do that so that it doesn’t do that. And there’s a whole
different way. But the important thing
here is to explore quickly that notion of how you
should make the decision. Because I find since everything
happens over and over again on a particular case, if you get
down to a very clear way of how you make the
decision effectively, you’ll be able to move past it. I find that the inefficiency of
organizations in which people argue endlessly and don’t
resolve it is a terrible thing. But you need the protocols. You need the tools. AUDIENCE: Thank you. I will read the book. JORDAN THIBODEAU:
I’m going to take an online question real quick. In your book you talk
about making decisions as expected value calculations. I find estimating payoff a
lot easier than estimating probability of success. Given that people in general
are bad at estimating probabilities, can you
share some techniques you’ve found to work well? RAY DALIO: Well, one of the
things that I found valuable was if I write my
decision rule out– depending on the nature
of the decision rule– I can test how it would
have worked in the past and get some sense of it. Like in my investment
decision rules, I say they have to be
timeless and universal. So that means I test them
from 1900 to the present. I test them in all
different countries. And being able to
specify them then allows me to get a
sense of distribution of those types of probabilities. Some things are qualitative
and it’s different. But I think that
being aware of what I was describing
in the book of how to think about that
probability helps you. Some things– it’s just
the mind has got to do and by triangulating
with others. I think in my business
I tend to think about that probability
of decision-making because I also have
one of the benefits that I get very clear paybacks. I get graded every
day, essentially, by the performance. JORDAN THIBODEAU: Right. AUDIENCE: Hi. So having read the
book I definitely agree with you that having
principles is a good thing. And they help you
spot another one of those kind of situations. But one thing that I didn’t
quite see covered in the book, and I’m curious
to hear about, is at what point do you
decide that you’ve seen enough of these situations
that they need a principle. Because you could have a
principle for every event that you see. But then you might
be overfitting there. On the other hand,
you could wait for too many of
these, at which point you’re probably
overgeneralizing, so– RAY DALIO: I think what– AUDIENCE: What’s
the meta principle? RAY DALIO: My experience is
it’s just like a big thing comes along, and do you start there? OK. Now do you have that? AUDIENCE: So it’s the size of– RAY DALIO: And then
what– you know, OK. Now, you’re doing it. And now another big
thing comes along, and you have one for that. And if you do that then
you’ll find out whether you’re getting to too small stuff. But you probably
won’t have a problem with the too small stuff
because you will be struggling with the big stuff. So I have– I don’t
know how many principals are in the book, actually–
but anyway, a few hundred. And the reason was
because I needed each one. What you find is when you
encounter something again, then you start to–
is it a subprinciple? Is it another principle? And you get them organized. But the way I did it was I
wrote them first on paper. But then I started dropping
them in the BlackBerry when I was thinking. And I would take that–
bits and pieces– and I would collect them– just your thoughts. So just start collecting them. Make sure you do it
with the big ones. And, yeah, you don’t have
to do it with everything. AUDIENCE: So the size of event. Thank you. AUDIENCE: I think the process
of decision-making and conflict resolution that you’re talking
about makes a lot of sense. But I’m wondering if
a precondition for it is that the group agrees
on the general goal, even if not how to do it. And so that works well in
Bridgewater, here at Google. But in the public policy
arena I’m not sure how that works, because people
represent different interest groups, and they fundamentally
have a different objective. Do you see any modifications
as required for that case? RAY DALIO: I think
in all relationships the beginning is
defining how you’re going to be with each other– clear rules. So Bridgewater’s rules are
different than Google’s rules, which are different from
the government’s rules. Then within any
organization, there are subgroups that
can decide how are we going to behave with
each other in a way that doesn’t conflict with that. So I would suspect that if I was
president of the United States I would have an ideal
meritocratic way that might be different
than Donald Trump has, who might be different
than somebody else has. So you, within your
group, can decide, OK, do we want to be idea do we
[INAUDIBLE] meritocratic? Can we talk about these
things in this way? Do we want to be transparent and
make those types of decisions. AUDIENCE: Thank you. AUDIENCE: Mr. Dalio,
thanks for sharing. My question pertains to the
dot system that you mention. So you seem to have calculated
the believable score for a person over time,
collecting information to help you with
decision-making process. Has there been your dot
system been proven wrong where you calculate, say,
someone’s believable score to be very low, when
over time has been shown, actually, this person is
very believable in his– has that been shown? RAY DALIO: Well,
I think the way– I think of it more like
the way that you’re sort of semi-describing it. If over time it’s
shown to be wrong– quote, “wrong,”– that
must mean that you’ve evolved to the point
where you believe that that verdict is reliable. So the evolutionary system must
have taken you to that spot. The way I look at it is with
sample size and with a lot of consensus, or processes
of coming up with those algorithms, you have an
evolutionary process– more data, more process– to get at the definition
of what is true. And then it’s that
mechanism that’s always constantly
evaluating, so that there are statistical
ways of measuring for a group as a whole
how accurate it is. You might have something that
might be something as simple as, I would have a test. Like, I can test
how you know math. And that could be an
objective measure. In some areas you can’t
have that objectivity. On some notion of
creativity much [INAUDIBLE] you’ll have different measures. So the point that I’m saying
is that you’re constantly never good enough. And you’re constantly
evolving toward better. And that is the best way– by comparison to other ways– which don’t do that. AUDIENCE: And is there
a plan to open source this so that the system
can be shared and used by many organizations? RAY DALIO: Yes. I’m going– as I say– I’m going to put that out
so that it would open source so people can write
their own algorithms and agree on together what
the best algorithms are so we can make that evolution. And, as I say, that probably– I don’t know how many months–
but, maybe a year or something down the line. AUDIENCE: Thank you. JORDAN THIBODEAU:
Question from me– when you’re talking about
the evolving process, sometimes it can feel
like a shot in the gut over and over again. What do you do to make yourself
feel like, OK, you know, this is critical in my work
product but not critical as me as a human– like are
there some practices you use? RAY DALIO: I think it is
critical for you as a human. Meaning, I think what you’re
like and knowing what– and if you can get to
the point where you say, I really know what I’m like,
and I can now objectively deal with that to
get anything I want. That’s fabulous power. If you’re stuck with
it’s a tragedy that I’m weak at this thing, or I
don’t want to know about it, you won’t get anything you want. So I think it’s a personal
thing as well as a work thing. AUDIENCE: Thanks. RAY DALIO: You think that? I mean, I’ve raised my hand– ask you to raise your hand. Do you think that
that makes sense? Yes, or– yes, if
you raise your hand. OK. AUDIENCE: Thanks
so much for coming. I started reading
the principles– PDF– that was
released, I think, a couple of years ago
and happy to see now that you’ve released the book. These ideas about radical
transparency in the workplace have been, I think, coming
more to the cultural zeitgeist. So that’s really good. Your principles have
made you a lot of money. You’ve had a very successful
career and that’s awesome. And so my question
is when you think about your principle
of how you’ve chosen to spend your time,
since you could have retired many years ago, I’m curious
how you’ve thought about that. And in terms of
like, right now, I think you’re using
your time to promote these ideas of principles in
decision-making and radical transparency. And I think you
know, hopefully, it will have a big effect in
companies in the world. And so I’m curious why
you’ve chosen to do it now instead of earlier. And in general, how
you think about– because you haven’t needed
to work for a long time– and so I’m wondering why you
chose to continue to work, and how you think about
spending your time. RAY DALIO: Yeah. So first of all, I’m not saying
that anything that I’m doing is the right– in answering your question–
is the right way to do things. I’m just saying it
is, for me, the way– I’m answering your question
just how I do that. I played the market since I
was 12 years old and I love it. And I’ll play them till I die. I like the economics. I just– it’s a game. I love it. OK? But I saw a number of
years ago, if you step back and you look at yourself
from a higher level, and you take where are your age,
where are you in this cycle– as I became 60 and
then, and so on, I recognized that it’s my
responsibility to transition well. To make your parents, you– think about your
parents and you. It’s the same dynamic, OK? How did they transition well so
that you’re good without them. It becomes almost an
instinctual type of thing. And these things come
to you at these things. In terms of retirement,
I love my game. I love my mission and so on. But it becomes that
there is actually a great pleasure and a necessity
to have others successful. Me– I’ve gone in. I’ve fought battles. I’ve won battles. I’ve accumulated it. To go in and fight
another battle– I could go do that, but that’s
not the most exciting necessary thing for me to do. So the most exciting
necessary thing for me to do is to pass those things on. And that’s what I have to
recognize as my responsibility. And just like I described it,
when Joseph Campbell and I read this, says it’s totally right. Peace– peace for
your parents will come when you’re good without
them and everything is fine. That’s true. So it becomes an
instinctual type of thing. For me, like, retire– like, I’m just– I never viewed it that
way because I never viewed work that way. I just want to go have fun. I just want to have a blast. I’m curious. I want to do a lot of things. I will be curious and
do a lot of things. There’s a million things to do. I didn’t want to also run
my organization anymore. I want it to have that
culture and pass it on and be successful without me. And I was able to transition
to others who will then run it. I’m chairman and I’ll still
do the investment thing. But whatever it is
that excites you out of free choice and
no longer obligation. I don’t want to be obligated. Obligated is also a
sense of responsibility. So I want to handle my
responsibilities well and then be free of them. Those are the things
that motivated me. AUDIENCE: Cool. Thank you so much. JORDAN THIBODEAU: I want
to take an online question. Ray, how do you address
the tolerance paradox in an organization? While striving for
radical transparency, you may have some people
who will argue views that undermine open discussion. RAY DALIO: Well,
I’d want to know what the views that
undermine open discussion are and what the merit is and
find out why would you not have that open discussion? I don’t understand that. Maybe is it a time constraint? Is it some other thing? I’d have to see
what the impediment to the open discussion would be. AUDIENCE: I’m interested
in reading the book. But I’m just curious, what’s
your believability score at Bridgewater? RAY DALIO: Well, I have
the highest believability score in the company. [LAUGHTER] But it depends on what. We rate different levels
of believability for what? So I’m referring to
the general score, OK? That’s not determined by me. But anyway, it is
determined in other ways that would be objective. But if I take a
whole bunch of areas, I have much worse
believability scores. There are many who have
much higher believability scores in different areas. It has these something like 60
different believability scores. AUDIENCE: Thanks. AUDIENCE: Hi. Thanks for sharing all
the principles that you’ve acquired over your lifetime. So thank you for that. My question is
slightly off-topic. And I don’t know if I’ll
have another opportunity to ask this question
in person, so I’m going to ask you anyways. I’m a big believer
in value investment. And my belief’s been kind of
formed by reading of the books by Ben Graham and Seth Klarman. But only recently I read
the book by David Svenson. And he mentions that
the biggest determinant in portfolio returns
is not stock picking but capital allocation. And I want to– I’m wondering what’s
your views on that? RAY DALIO: Well, because I
think what he’s referring to, that when he distinguishes
stock picking, he’s referring to, within an asset class, the
individual securities chosen, as distinct from the
differences when he says capital allocation,
he’s referring to the different types
of asset classes. I presume that that’s what
he’s referring to in that way, and that’s correct. In other words,
the average stock is 60% correlated with
the average other stock, so there’s a high
correlation of stocks. They will go up
and down together. And because of that,
you’re going to– it almost, past a certain point,
doesn’t matter how many stocks. I cover that, by
the way, in the book in terms of the
math of literally how if I take anything
that’s 60% correlated, and I put more than 10
in, the marginal benefits of diversification are
virtually nil, so that you’re going to have the stock
market or something like that. And then some alpha is the
deviation relative to that. Whereas, if you have
an asset class– different asset classes– they’ll behave very
uncorrelated with that. And so portfolio construction
based on capital allocation, as he calls it,
is very important in terms of saying that’s really
the key most important thing, because of the nature of the
correlations of those pieces to get that balance right. AUDIENCE: Thank you. AUDIENCE: Thanks for the book. It’s great. What is Bridgewater’s mid-term
two-year economic outlook for the US? RAY DALIO: I think we’re going
to have a lot of stimulation into– a lot of profit growth,
a lot of stimulation– into capacity constraints,
and that that’s going to raise interest rates. And then there’s a sensitivity
to those interest rate changes. It’s going to put the Fed
in a particularly difficult position, other central
banks around the world in a particularly
difficult decision. And I think that probably,
as you get later in the year, you’re going to start to see the
question of how does interest rates or Fed policy affect
the markets as a general thing and when that will become
negative when that’s a problem. Because we’re coming into
the end of the cycle, late in the cycle. There’s a cycle and there’s
capacity limitations and stimulation. And as you go late into
the cycle the Fed never– central banks never
get it exactly right. And that’s why we
have recessions. We always have recessions. You can’t get away from
them when that balancing act becomes difficult. That balancing act will
become increasingly difficult at the end of this year and the
beginning part of next year. And it will be manifest
probably in market behavior. And then in terms of then
the downturn and the economic recession– because
we always have them– probably– maybe
later part of that– 2019, or something
along those lines. But I can’t be– it would be something like that. AUDIENCE: Right. Thanks. AUDIENCE: Thank you for coming. I appreciate– RAY DALIO: My pleasure. AUDIENCE: –your talk
and presentation. One question that
I had was I know that Bridgewater has been
producing investment theses for– well, since the
beginning and I think– RAY DALIO: Investment what? AUDIENCE: Theses. RAY DALIO: Theses. Yeah. AUDIENCE: Yeah. RAY DALIO: Principles. Yeah. AUDIENCE: Um-hmm. To what extent are
you willing to– and maybe this is a request
rather than anything else– are you willing
to open those up? Also, possibly past ones
and previous examples? RAY DALIO: I did a 30 minute
video called “How the Economic Machine Works,” which if you
haven’t seen, people think– and so it exemplifies
how I think it’s going to be helpful and
not harmful to Bridgewater for conveying economic
principles and market principles in general. We will not get into our exact
algorithms that are going to– that we would say would
lessen our ability to do what we do well. AUDIENCE: Of course. RAY DALIO: But there’ll be–
you know, I’m writing a book– “Economic Investment
Principles”– which will– I don’t know– it might be
18 months or so out there. AUDIENCE: I’ll
look forward to it. Thank you. JORDAN THIBODEAU: Well, thank
you, Ray, for joining us. RAY DALIO: I think
there are three– you know your timeline. You’re the boss. JORDAN THIBODEAU: We’ll see
if we can do it offline. But thank you very
much for joining us. We really appreciate it. You wrote an excellent book. And I hope everyone
goes and grabs it because it’s phenomenal. Let’s give Ray a
round of applause. RAY DALIO: Thank you. [APPLAUSE]

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