[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]