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

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

Ray Dalio is the founder, chair and co-chief investment officer of Bridgewater Associates, a global leader in institutional portfolio management and the largest hedge fund in the world. In this talk, Dalio shares the unconventional principles that helped him create unique results in life and business — and which any person or organization can adopt to better achieve their goals.

We caught up with Ray Dalio after the talk for a brief Q+A. Read the interview here.

About the Presenter

Ray Dalio, Founder, Bridgewater Associates

Ray Dalio is the founder, chair and co-chief investment officer of Bridgewater Associates, a global leader in institutional portfolio management and the largest hedge fund in the world.

Dalio started Bridgewater out of his two-bedroom apartment in New York City in 1975 and has grown it into the fifth most important private company in the U.S. (according to Fortune magazine). Because of the firm’s many industry-changing innovations over its 40-year history, he has been called the “Steve Jobs of investing” by aiCIO magazine and named one of TIME magazine’s "100 Most Influential People."

Dalio attributes Bridgewater’s success to its unique culture. He describes it as “a believability-weighted idea meritocracy” in which the people strive for “meaningful work and meaningful relationships through radical truth and radical transparency.” He has explained this approach in his book Principles, which has been downloaded more than three million times and has produced considerable curiosity and controversy.

[00:01:49] Ray Dalio: Thank you. It’s a special treat to be able to speak to you because I’m at the end of my second phase of my life and you’re at the pretty much the beginning of your second phase in life. I think that, basically, life exists in three phases. You start off, phase one is you’re dependent on others and you’re learning. Phase two is that you’re working and that others become dependent on you, and you’re trying to be successful. Then you get later in stage two and the number one goal that you want more than anything else is to help people be successful without you, then you can go to stage three, which is you’re free of obligations and so on.

What I did over a period of time, whenever I would encounter a situation and make decisions, I would write down the criteria for making decisions. My number one objective is to tell you that you need to have your own principles. I’ll explain some things. I’m going to share some of my principles. I hope they’re helpful to you. They are things that have worked for me that I have written down over a period of time, but number one, I want to describe this experience to you.

Whenever you’re in a situation, and if you take the time after that situation and you write down your criteria for making decisions, then you will have that, for the next time, that thing comes along. What happens is, the same things happen over and over again for the same reasons, but you don’t see that, you’re operating in a way where you take them one at a time. I would recommend to you that you write those principles down. When you do that, you think about them in a deeper way, and then the people that are in your lives then start to understand how you’re behaving and they can be partners in that idea meritocratic decision-making, so they can also say, “Is that the best way to operate and deal with that situation?” and so you start to think in a more principled way rather than all these bits and pieces of different things.

That would be my recommendation, but what I’m going to do is take you through a little bit of my journey. It is totally correct, as Peter says, I’m really a very ordinary guy, who through trial and error discovered some things that worked that helped me do what Peter was describing.

What I want to explain is, we look at the world and there are just so many things to have principles for. Principles are, essentially, recipes for dealing with situations that happen over and over again. There’s just a million things. You could study, you could be a doctor, you could be a physicist, you could be so on, and the things that I understand and spend time with was economic investments, and then work.

My approach was largely captured in this slide, which is to say, like I would go after audacious goals, and then I would succeed and fail. Most importantly, I benefitted from failure. In other words, you go after your goals and you then encounter your problems or your failures. How you’re dealing with those problems is one of the most important things. I started to realize, for reasons you’ll probably see as we go along, that pain plus reflection equals progress.

In other words, that painful situation, if you can diagnose what produced that failure, and then develop principles for dealing with it different at a different time, in a different way, and then you take those principles and you improve, you learn, you change things, then you improve and you make better, go on to more audacious goals. The way I look at life is pretty much like it’s this looping process, this evolutionary looping process. That means you go after your audacious goals, you fail, you learn. Failure is an important part of that process. You learn principles. You keep improving.

I think that I learned that there are only five things that you need to do to be successful. If you do these five ways, five things, you will be successful. The first is, to be clear on what your goals are; you have to know what you’re going after. You can’t have everything in the world, but you could have almost anything you want, but you can’t have everything you want. If you go after your goals and they’re clear, you have to know your goals.

Along the way, so number two, is you have to identify and not tolerate your problems. A lot of people tolerate problems. Then you have to diagnose those problems to get at the root cause of those problems. Often, the root cause is you, maybe you have weaknesses, maybe you make mistakes, or maybe somebody else is making mistakes. We all have strengths and weaknesses.

The power of being able to know our strengths and weaknesses, and know how to deal with them, is enormous. Only when you know what your problems are and you diagnose that specifically, can you create a design to get around those problems. That design, very specific design, you go get around the problems, and then you have to, if you have a design, you have to be reliable in doing that.

Everybody is bad at some of these steps. The key is to work with other people who are good where you’re weak. I just want to give you a sense of failure. I think probably the greatest problem of mankind -- that’s a big statement -- biggest problem of mankind, the greatest tragedy of mankind, is individuals who have in their minds wrong opinions that they’re attached to. They could so easily stress-test those, to put them out there and find out if they’re strong or weak in terms of those opinions, and to move beyond that to make better decisions. It’s a tragedy because it could be so easily dealt with. You can reduce the chances of being wrong by properly stress-testing them.

I want to take you through an experience, just briefly, of what happened to me that changed my whole approach to decision making. This was in 1980, ‘81. I had analyzed that American banks had lent a lot more money to emerging countries than those countries were going to be able to pay back, and that we were going to have a debt crisis, a big debt crisis. I thought that that would have a very bad effect on the economy.

That was a very controversial opinion at the time, got attention, and it turned out in August 1982, Mexico defaulted on its debts, and a number of other countries followed. That very controversial point of view was right about the debt crisis. As a result, I got a lot of attention. I was asked to testify to Congress, and I was asked to be on Wall Street Week at the time. I want to just give you a clip from there. Video Playing

[Ray]: Mr. Chairman, Mr. Mitchell, it’s a great pleasure and a great honor to be able to appear before you in examination with what is going wrong with our economy. The economy is now flat, teetering on the brink of failure.

[00:09:41] [Martin Zweig]: You were recently quoted in an article. You said, “I can say this with absolutely certainty because I know how markets work.”

[00:09:47] [Ray]: I could say with absolute certainty, that if you looked at the liquidity base in the corporations and the world as a whole, that there’s such reduced level of liquidity that you can’t return to an era of stagflation.

[00:10:00] Ray: Arrogant? I was incredibly arrogant. I couldn’t have been more wrong. That was the exact bottom in the stock market, and we had this decade of success. It was extremely painful. I lost money for clients. I lost so much money that I had to borrow $4,000 from my dad to pay for my family bills. I had to let people go. It was really terrible, but it turned out to be probably one of the best things that happen in my life because it changed my approach to decision-making. In other words, it gave me a humility, a fear of being wrong that was to go with my audacity, and it let me stress-test, “Am I thinking?”

What I wanted gave me this notion, “How do I know that I’m right?” The thing that I learned is, being successful has more to do with knowing how to deal with your not knowing than anything you know. If you can then think, “How do I know I’m right?” and stress-test yourself, and find people who disagree with you, the smartest people you can find who disagree with you and you have thoughtful disagreements so you can take in and stress-test, not only does it provide a lot of learning, but it stress-tests your decision, raises your probabilities of being right.

I have this company, this little company that I’m building, and it changed the way we are operating. This is what I want to pass along to others who have companies or are operating companies, about this way of operating. What I needed was independent thinkers who also had audacious goals, who would go after those together and would challenge my thinking, and we would challenge each other’s thinking, and try to give to the best answer, and I realized it didn’t have to come from me.

I needed an idea meritocracy. I’m going to try to explain how that works. Through that idea meritocracy, we have then these principles. By writing down our principles and those shared principles of how we were going to deal with things together, we would have better communications, we would deal with them better. That produced successes, and failures, and learnings, and the learnings produced happier employees, this idea meritocratic way of operating, and it produced more independent thinkers and more audacious goals, and it produced the success.

It was from that learning, from that very painful experience that I went through, that it changed my approach to decision making to create an idea meritocracy. What do I mean by an idea meritocracy? I want to be very tangible for you. In order to have an idea meritocracy, in other words, the best ideas winning out, wherever those ideas come from, you have to do three things.

The first is that you have to put your honest thoughts on the table, honest thoughts on the table, for everybody to see and then look at. One of the problems of most groups of people, most organizations, most individuals, is that they don’t want to be honest, and they don’t like disagreement. You can go out to a restaurant and somebody says, “I like the food,” somebody is going to be reluctant to say, “I don’t like the food.” Thoughtful disagreement is the second thing. You have to understand the art of disagreement, because if there’s disagreement, that means somebody is going to be wrong, and how do you know the wrong person isn’t you? You have to understand the art of thoughtful disagreement.

Then once you have that disagreement to raise your probabilities of making better decisions, and that certainly happens if you do it well, then you have to have ways that are going to, idea meritocratic ways, of getting past your disagreement. In other words, you have to have protocols, and we do something which we call believability weighting decision-making based on different people’s credibilities. That’s what I mean by an idea meritocracy.

Do you want an idea meritocracy? Do you want to operate that way? Do you want to have thoughtful disagreement, not emotional problems; curiosity to make yourself more likely to be right? Do you want to abide by protocols that will help you get past that disagreement?

The other thing is, you have to know what people are really like in order to have a meritocracy, and everybody has strengths and weaknesses. The real question is; do you want to know your weaknesses? Do you want to know each other’s weaknesses? Because if you know each other’s weaknesses, and you’re all going to be better off if you’re dealing with that in a forthright way knowing your strengths and weaknesses, because that’s what makes up a great team. When you know what someone is like, you know what you can expect for them. That’s a power. An idea meritocracy is that kind of organization.

I want to give you just a quick clip of what how that works, how we try to bring up information. There are many different tools but what I found is that, in order to be effective, I needed to have tools, apps, and things, that were operating by that would facilitate that. I’m going to take you into a meeting and give you a flavor for one of the tools and one of our methodologies for now operating that way. Video Playing

[00:15:33] [Speaker]: A week after the US election, our research team held a meeting to discuss what a Trump presidency would mean for the US economy. Naturally, people had different opinions on the matter and how we were approaching the discussion. The Dot Collector collects these views. It has a list of a few dozen attributes, and so whenever someone thinks something about another person’s thinking, it’s easy for them to convey that assessment. They simply note the attribute and provide a rating from one to 10. For example, as the meeting began, a researcher named Jen rated me a three, in other words badly, for not showing a good balance of assertiveness and open-mindedness. As the meeting transpired, Jen’s assessments of people added up like this. Others in the room had very different opinions. That’s normal. Different people are always going to have different opinions, and who knows who’s right?

Let’s just look at what people thought about how I was doing. Some people thought I did well, others poorly. With each of these views, we can explore the thinking behind the numbers. Here’s what Jen and Larry said. Note that everyone gets to express their thinking including their critical thinking, regardless of their position in the company. Jen who’s 24-years-old and fresh out of college, can tell me the CEO of the company, that I’m approaching things terribly.

This tool helps people both express their opinions and separate themselves from their opinions to see things from a higher level. When Jen and others shift their attentions from inputting their opinions to looking down on the whole screen, their perspective changes; they see their own opinions as just one of many, and naturally start to ask themselves, “How do I know my opinion is right?”

That shift in perspective of going above it and seeing the full range of views, shifts the conversation from arguing over individual opinions to figuring out objective criteria for determining which opinions are best.

Behind the Dot Collector is a computer that is watching what all these people are thinking, correlates it with how they think, and communicates back to each of them based on that, then it draws the data from the meetings to create a pointillist painting of what people are like and how they think, and it does all that guided by algorithms. Knowing what people are like helps to match them up better with their jobs. For example, a creative thinker who is unreliable, might be matched up with someone who was reliable but not creative. Knowing what people are like, also allows us to decide what responsibilities to give them, and to weigh our decisions based on people’s merits; we call it their believability.

Here’s an example of a vote that we took where the majority of people felt one way, but when we weighed people’s views on the basis of their merits, the answer was completely different. This process allows us to make decisions, not based on democracy, and not based on autocracy, but based on algorithms that take people’s believability into consideration.


[00:19:07] Ray: We really operate that. I just want to give you -- just highlight some things. First of all, anybody can criticize anybody on the basis of a non-hierarchical approach, so we’re bringing out all the complaints. We capture that information. That way, we’re building a meritocracy, an idea meritocracy that people believe is a fair system, so that there’s weighting on that on the basis of capabilities. We do this believability-weighted based on data. Nobody is going to be able to be hierarchical in that sense; you can make the decisions based on the quality of the thinking, and that can evolve over a period of time. People learn their strengths and weaknesses.

Then we have behind that data lots of data, because every day everybody’s getting a 360-degree review from that, but also we’re seeing how they themselves make decisions, and we process that data in a way that everybody thinks is fair. People are on this mission together.

My goal has been to have an idea meritocracy in which we want to have meaningful work and meaningful relationships. Meaningful work meaning you’re on a mission together, and meaningful relationships is that deep relationship but through radical truthfulness and radical transparency. Then we use those algorithms to help us. What’s the problem of doing this? I think it’s an ongoing problem. Why is that difficult? I think that, and it’s what I call the “Two Yous”. I’ve asked neuroscientists and psychologists, and everybody agrees that it’s basically that there is a logical conscious you and then there’s a subconscious emotional you, and they have a struggle with each other.

If I would ask you, “Would you like to know your weaknesses,” or, “Would you like to know what I think even if it’s critical,” the logical answer to that would be, “Yes, I would like to know those things, because then I can deal with them better,” but emotionally, that becomes a challenge.

As people start to wrestle with each other as they come in to the organization, they come in there wanting to know those kinds of things and have that radical truthfulness. That radical truthfulness brings about stronger relationships, because everybody knows that truthfulness you’ll get it. By this transparency, this radical transparency, so almost everybody could see everything. We tape everything for everybody to look at, almost everything, so that there’s no spin, there’s that reality.

That has been the basis of being able to have that idea meritocracy, and that’s been the challenge. It’s not for everybody. I would say probably a third of the people just can’t get through it, a lot of people struggle. Then, on the other hand, we call it getting to the other side, when they get to the other side, when they’re used to it, they can’t work any police cells because they can’t go back into a typical organization in which all of that stuff is hidden, and there’s politics, and there’s lack of sincerity, and the associated problems with all of that.

I want you to go with these four questions, and it’s up to you to decide what you want. Four questions are, do you want these things and in what degree? Do you want to have an idea meritocratic decision-making process, in which the best ideas went out rather than the individual thinking, you having the power, a hierarchy? You know what that means, I’d defined it before. Do you want to know what you’re really like, your strengths and weaknesses, and what others are really like in order to get at the best results? Do you like this truthfulness? To what extent do you want to have truthfulness, and to what extent do you want to have transparency? If you don’t have transparency, you’re going to be listening to everybody’s spin-on situations. Do you want to have those things? Then beyond that, there’s a great power for being able to turn any of your thinking into algorithms. Do you want to have algorithmic decision-making?

A lot of what we’re doing is this data, and through the data and algorithms, we actually have the machine, the decision-making machine running parallel like playing a chess game through a computer and doing it in partnership with the computer. I’d like you to think about those things, then you could think about how to get them. That’s what I was trying to convey.

We built a bunch of tools, and apps, and things, and we’re going to make those publicly available so that people who want to do that, like the Dot Collector and those tools, will have the opportunity to be able to operate that way. We’re going to make them available.


That’s it. Maybe a little bit too long a winded way, but thank you. We’ll take some questions about it.

[00:24:33] Peter: Thank you, Ray. It’s brilliant. I love the generosity of where you are in your life, I mean that you’ve built a great company, you’ve learned, written down over 25 years what you learned. You didn’t just try to remember what your principles are, you actually have been gathering them over two-and-a-half decades. What you’re talking about is an operating system that can apply to basically any company, in order to actually ensure that it endures, because that’s really what you’re after; it’s long-term impact, effective, endurance, and success.

It seems like it would be an obvious, “How do I do that? Give it to me. I’m ready to go,” but you’ve been talking to many different businesses. As you talk to friends and colleagues that are interested in this transition, can you describe what are the barriers and the hurdles that they run into as they try to implement this, and how do you coach them through it?

[00:25:43] Ray: First of all, I think that any group of people, or any relationships, benefits from the definition being very clear of how you’re going to be with each other. You built an organization, people who are growing their organizations, need to be able to be crystal clear. There’s no getting around the idea of writing down those principles, it’s just so powerful. Then the question is, do you want to do it? Can you get in the habit? I think each of the people here can do that.

We’re going to put out an app which we call The Coach, in which besides having some of our principles, will be a vehicle for you writing down your principles. So habit, write down the principles when you’re dealing with it, and be clear, share those principles. If you want these things, then the big issue is how you implement it. The big barrier here is the emotional barrier, but people start to react to that individually, they see the struggle with themselves, and then they overcome it, and it’s a matter of getting in the habit. We call the process, “Getting to the other side”.

Somebody gets hired, they say, “I really want, this is great,” and then they go through the process, and then it’s shocking, it takes a little bit of adapting to it. Then they get past it, because they start to realize that other people are not, “Do you want the other alternative where there’s not that clarity?” and we call it “Getting to the other side”, so it’s a process that people go through, but I think everybody’s going to be saddled with those question now. How are you going to be with each other? You can do it any way you want, just write it down and be clear.

[00:27:34] Peter: It’s really, for me as you have discussed this with me over years, and as you have taught me as we have traveled together, and worked together, and learned together, I’ve seen as I’ve applied it in other situations, that people don’t really like to talk about failure. It’s more, “Let’s get onto the success, and let’s not talk about the failure.” Your phrase, “Pain plus reflection equals progress,” is at the core of that. Could you just dive into that a little bit more?

[00:28:08] Ray: I think a lot of life is that the second-order consequences are the opposite of the first-order consequences. In other words, the things that you like, maybe the food you like to eat, the exercise that you don’t like to do, all of that is one of the great tricks of life; that the second-order consequences are very, very beneficial. Life is sort of tricking you, that it says, “Okay, which ones of those are you going to operate by?”

Failure, for example, “I don’t want to talk about failure, I don’t want to talk about weaknesses.” I’m saying, “Go to the pain, go to the pain,” and before you know it, the pain becomes pleasure. My whole mentality starts to change. I realize that if I have pain, I start to view it as a puzzle. I view that if I can solve that puzzle, which means what would I do differently next time, I will get a gem, and that gem is a principle of what to do next time to learn.

I’ve developed a habit that I actually have the second-order consequence reaction to the pain, to the failure, that makes me know it’s a learning experience. It’s that dynamic in life. Don’t be tricked by the first-order consequences and really enjoy those second-order consequences. Go to the pain and view it as a puzzle, and then you’ll get gems.

[00:29:46] Peter: I should just say that the first time that Ray did this with me, I think you were in Connecticut, and I was driving down a dirt road in Brazil, in which you talked to me about radical transparency and what you would just learn from somebody that was counter to what I’ve been telling you. I didn’t get pleasure out of that. It took me a while to actually understand that listening with an open mind, not actually thinking about your response while you’re being taught, is actually the way you get to the place where you can learn.

[00:30:28] Ray: Both parties, that’s a thoughtful disagreement. When you’re totally honest, radical forthrightness, and you know you don’t know the answer, but it becomes a common question as how you can work through with good intention. The idea of tough love, “We’re going to hold each other to high standards and try to get at the right answer together,” but it’s going to be tough.

[00:30:54] Peter: Now that you have put into your extraordinary company, which is one of the most influential in the United States, the concept of radical transparency, and this is something you developed over decades, I guess the question I have is; when new people come into the company, what’s their reaction? Is there reaction, “This is dangerous,” is their reaction, “This is different I love this,” or do you weed those people out in the interviewing process? How do you do that?

[00:31:29] Ray: Of course, we record everything; we could show them lots of instances. We make them aware, and it’s like intellectual Navy Seals, “Okay, do you want this thing?” Everybody is going, “Okay, I want that thing.” They make a choice -- maybe some people don’t -- and then they come in, but like the intellectual Navy Seals, they say, “Yes, I really want this thing,” then when they get in the icy water and they don’t get to sleep, it’s the equivalent of them going to that experience and then they’re wrestling with each other, and then they come to love it.

The thing about it is the meaningful work and meaningful relationships. In other words, maybe like the Navy Seals or something, when you are tight with somebody and you have that genuine caring that they know that that’s part of it. I think we have 1,500 people. I think that there are like 104 clubs and organizations. I made a policy that anybody who can come up with anything that’s fun to do, they can have 20 or more people up to $500 per person, we’ll pay for half. In other words, just go out and build those relationships.

If you got those great relationships and you know that they are being tough on you for those good reasons, to try to get at the answer, and you know where your goal is, then they come to love it.

Most people, there’s a period of time, maybe it’s about 18 months, which is associated with behavior and modification, people then say, “Okay. I got that.” Past that period of time, people don’t want to work elsewhere because it’s very difficult for them to go on an organization where it’s all behind that scenes and just phony.

[00:33:05] Peter: If we have hundreds of entrepreneurs in front of us that are now starting their businesses or recently they’ve launched their business, and they love this idea, and they want to embrace it, do you suggest to them that they go all in, or do you suggest they test it with a small leadership team? How do you actually see whether this is going to work in your place?

[00:33:29] Ray: Yes, test it. You have to define how you’re going to be with each other and you’ll live it out. The question is, can we be radically truthful and radically transparent with each other? It’s going to come up.

[00:33:40] Peter: The answer is you have been, we have been.

[00:33:42] Ray: But I’m saying [crosstalk] with their partnership, so they’re going to deal with that question. As they’re going through that, they should experiment with it. The reason I put out, the book is a very nitty-gritty level you can look at the questions and then experiment with it.

If you know your vision of where you want to go, like do you want to have an idea meritocracy? It’s the goal level. Once you’ve got the goal level then experiment. Is it the top circle? Like a number of companies, I won’t drop names, but big companies right now, interesting, cutting-edge companies, the top 10 people in the company, because it’s usually most companies or organizations, maybe there’s a group top 10; then they’ll experiment, do they want to be that way with each other? They start to experiment with it. Do you want to broaden it? They have to find what’s right for them.

[00:34:41] Peter: I want to tell you that I find it to be actually extraordinarily open-minded, clear, and wise. To start with, again, I just want to thank you for that clarity. What’s interesting also is that, as you and I have spoken, we got to go through an arc in our life, right? You are in that spot in your life where you are thinking, “How do I share these principles with the rest of the world?”

[00:35:12] Ray: I just want all this, to pass it along, and they’ll just take it for whatever that they find it worth.

[00:35:16] Peter: But why? Why have you reached this place?

[00:35:22] Ray: I think it’s very natural. I think you experience it. One of the things that a lot of people don’t understand is how the priorities change in various stages of life. I think that as you get to be a certain age, it’s like a parent with their kids. What do you want? At one age, you want to help guide them. At another age, when you’re a certain age and they were a certain age, you want them to be successful without you. You want to pass that along, and you feel that kind of responsibility, and then you relieve yourself of that responsibility by doing that passing along.

I’m going to pass along. I’m going to pass the tools along. I’m going to give that out, and then I’m going to disappear. In other words, you’re not going to see me, this public thing I don’t like too much.

[00:36:13] Peter: How much time do you have left before you disappear?

[00:36:15] Ray: Probably a year but for the tools and so on, something like that. It’s a stage of life thing. Joseph Campbell wrote a book; there’s a wonderful book, Hero with a Thousand Faces, and he goes through the life arc. It’s so good for you all to almost think, where are you in your life arc, and does that arc look like, and what will you encounter; because you actually don’t pay much attention to it. It’s a life arc thing.

[00:36:46] Peter: In your place, in your arc, you have one; you’re giving this gift to the world, and it’s not just, “Here’s some principles, read a book,” but you are actually on the road talking to people to try to educate them as to why radical transparency and relationships are totally essential for effectiveness.

[00:37:06] Ray: Which feels for me like almost relieving myself of it.

[00:37:11] Peter: You also have other passions. What you and I have spoken about a little bit is your passions for the ocean, for exploration, for communication. I know that you think everyone needs to pursue their own passion, which I respect entirely. Tell us why this is your passion.

[00:37:35] Ray: I’ve been deep in the ocean and I’ve explored. It’s thrilling and it’s also important. The way I look at it is, if you look at the ocean level, the world above the ocean is about half the size as the world below the ocean. The biggest peak is equal to the deepest trough; it’s almost symmetrical, but it counts for 72% of the world surface. That means two-thirds of the world is under the ocean, and nobody has really explored it hardly at all.

If you love exploration, it’s better than going to another planet. If you want to see aliens, you’ll go under the ocean, you’re not going to see them up there. First of all, it’s thrilling, and then it’s important because the ocean is our greatest asset. I won’t go into all the reasons why because we’re going to run out of time, but it is our biggest and greatest asset, and it’s not appreciated. It’s so important in terms of the whole climate issue. It’s so important in so many different ways that we could get into. I think it’s very impactful. I’m excited about the impact. My goal in life is pretty much to evolve well and fast, and contribute to evolution. That’s my way that I’m excited about doing it, and I’m feeling that I’m having an impact.

I have a ship that has, subs that go down to 1,000 meters that scientists use, and media most the Blue Planet II, we shot on it, we discovered giant squid, that kind of thing. We’re doing another one that we’re going to do an initiative where we’re going to have like Jacques Cousteau series -- I’m doing that with James Cameron -- that we’re going to have a series that people are watching and a lot of social media, so that there’s that engagement, so people could not only explore but they can be there virtually with other explorers so that they love it. You got to love it first. That’s why I’m excited about.

[00:39:42] Peter: Yes, I love that you’re doing that. Thank you for that. Thank you for that.

[applause] We are living in an economy right now that is pretty hot, but we have an increasing polarization between the Haves and the have-nots. How would you fix that?

[00:40:05] Ray: Well, let me I think describe just briefly the mechanics of it, I think it's very similar. There were economics is-- Economics and markets is my day job. I think it's important to understand that what we're in as a period of time that someone analogous to the late '30s in that in '19, they're all these debt cycles. There's a short-term debt cycle, long-term debt cycle, and in 1929 to '32 we had a debt crisis and then interest rates at zero. The only other time that's happened is 2008, we had a debt crisis and interest rates at zero.

Because interest rate's at zero, the way the central bank's dealt with that was to print a lot of money and buy a lot of financial assets to push those asset prices up to lower interest rates, and to push liquidity into the system, and that caused a lot of assets to rise. With that, that contributed to a wealth gap. There were other reasons; technology, and so on for producing a wealth gap and also a divergence.

Today, the top one 10th of 1% of the populations' net worth is equal to the bottom 90% combined. In other words, a big giant wealth gap. That was the same-- last time that happened was the late '30s. We're in a situation when the economy is at a peak, we still have this very big tension. That's where we are today. We're in the part of the economic cycle, which is the later part of the cycle because as you start to run into capacity constraints, unemployment rates are low and so on, Central Banks begin to put on the brake, and they begin to tighten monetary policy. We're nine years into this expansion and the capacity to deal with that is different.

We're in a situation where if you have a downturn, and we will have a downturn, I believe that-- I worry that that polarity will become greater. I think that the unity of us and how we approach our problems together is a very important thing. If you look at the condition, capitalism basically is not working for the majority of people. That's just the reality, and yet there's opportunity.

We've got to make it work for the majority of people. You're in a situation where, like today, the Fed did a study that 40% of the population could not raise $400 in the event of an emergency. It gives you an idea of what the polarity is, and we often don't have contact with that world, but that's a real world. That's an issue. And then I think we're also in an environment where for the first time since the '30s, we have a rival power, in the form of China, emerging to be in a competitive situation with the United States, which is going to be an issue. I think it has to be dealt with.

If I was doing it, I think that you have to call that a national emergency, and the President of the United States, if they declared that a national emergency, that wealth gap and that opportunity gap, and then created metrics that literally judged the conditions of people, and then took responsibility for changing those metrics. I think there's a lot that can be done in private-public partnerships and so on to be able to change it, but I fear that that probably will not be done by the next time we have a downturn, and I fear for what that conflict is going to be like that.

[00:43:54] Peter: Yes, I think that we all are afraid of that, and that number that you gave of families could not raise $400 is shocking.

[00:44:06] Ray: The education system, my wife helps public education in Connecticut and Connecticut is the richest state in the Union, but just give you an idea of the wealth disparity and the impact. She deals with public schools, with the worst kids in the public schools, and she supported the study that examined what are called disconnected and disengaged students.

A disengaged student is a student who attends school but doesn't study, they just are there. A disconnected student is a student that they don't even know where they are, they don't come to school. 22% of the high school students are one of those, they're going to-- Those students are going to be on the streets. You go to schools, and they share books. In some cases they literally share pencils.

They'll take a pencil, and they'll either pass it back and forth, or break it in half and sharpen it from both ends. The conditions are-- it's unfair, it's an intolerable thing. Those things are not being dealt with. Anyway, I think that that's a real problem, there's a lot of justification. We have to make the system work for the majority of people.

If you look at the wealth gap, there's some-- if you're interested, I've got the studies that I did that are on LinkedIn, you can go on. I broke the economy down from the top 40% to the bottom 60%. I picked 60% because that's the majority. I could have picked 80%, the conditions are basically the same. If you look at that 80% economy, it's a bad economy. The death rates are rising from opiates from suicides, the usefulness is declining. We have to deal with that.

[00:45:56] Peter: Yes, we have to understand that there is legitimate fear, legitimate fear. Ray, I think that we have a whole lot of people out there that would like to ask some questions. Why don't we just start out with some questions and we'll start over here on my left.

[00:46:11] Speaker 3: Thank you. Ray, first off, your philosophy is completely genius, and the fact that you have taken, over the last few decades, all these thoughts and shared them with all of us in the world is truly remarkable. I just want to acknowledge you for that. My question is, as you were beginning to realize how these principles changed your own line of thinking, and then turn them into ways that you made decisions, how did you choose to invest in the technology that allowed Bridgewater to make the best decisions as a team?

[00:46:47] Ray: I started by every time I would make a decision, I would write down the criteria. I did it basically because when I would close out a trade, I wanted then to see how my thinking worked. And then I stumbled across the idea that if I can make that clear enough, I could test how that decision would have worked in the past. I could run it through all countries, all past period of time, and that gave me a reflection on that decision rule. Then I discovered that actually if I could take that criteria and put it into an equation, I could take in data, and it would say, "Bring it to me," and I would make those decisions.

I stumbled across the fact that writing down the principal, making it an equation, allowed me to be able to test it and then also allow decision-making to be happening in that way. That one thing then let me do that on all of the ones that I was making decisions or making, and we would do it together. It was great because ordinarily we were saying, "What would our decision be?" That's bad. If instead you think what should our decision-making criteria be? You can test it, and convert it into algorithms, that's good.

What happened was that the vast majority of our decision making over a period of time was able to be made this way. 98% of our decision making is made by algorithms, with us arguing about our criteria not our conclusions. That's how it developed. Then I realized that I can take it to everything, I could people decision making. In other words, all that data that's collected that you saw, we could create algorithms. And by looking at those algorithms for people management, and how we're going to be with each other, it became a logical extension. That's how it evolved.

[00:48:43] Peter: Sir.

[00:48:45] Speaker 4: Your firm's investment performance has been one of the best in the world over the long run, please share with us two or three, the top two or three insights, methods, qualities that you think have made you one of the world's best investors.

[00:49:01] Ray: Okay, quickly. First of all, I learned that almost all the surprises that happened to me were things that just haven't happened in my lifetime before, but happened repeatedly in other lifetimes or in other countries. I needed to have a criteria that I call timeless and universal. By specifying the criteria and then seeing how they would have worked in other time frames, and other locations, timeless and universal, that has helped us a lot because then if there's a difference in another time frame or another country, I'm forced to explain that difference and be able to do that. That's one of them.

The idea of separating what I call out and data, what should-- if you had no view, what is a balanced portfolio like to be able to have diversification of assets to achieve balance. The power of diversification to reduce risk without reducing return, allows you to increase your return to risk ratio enormously. In the book, I show this what I call the holy grail of investing. Whether that's done for a strategic asset allocation mix, or whether that's done for taking bets, that has been a key thing. I call it the holy grail of investing, so you might want to look in the book because there were people standing behind you and I got to answer other questions. I would say, that knowing what we don't know and how to deal with it well has been key.

[00:50:36] Peter: Ray, I just want to switch for one second because you're talking about radical transparency as it is in your work in Bridgewater, in the business you've created and the rationale that brought you there, the mistakes you made, how you learn from them, how you cop, and you wrote down principles and how you actually really scan this over decades. Have you applied the same in your family?

[00:51:03] Ray: Of course. I mean meaning-- Look, in any relationships you are going to have to define how you're going to be with each other. People just sometimes don't talk about it but there's a big benefit. For me, I can say, these are my principles, you can read it, you can hold me accountable to this, this is what I will do and you will know it, and this is what I value. And when you have that in a family, do I want to be radically truthful? I could tell you stories of difficult situations in which-- One story, my wife was possible dying of cancer situation in terms of that, and I wanted to take my kids through it when they were young, to take them through that so that they know that they could always trust in what I'm saying without spin, that radical truthfulness and that radical transparency. It's radical, it doesn't have to mean absolutely everything, I just want to be clear. There are certain things where if somebody is going to be hurt by it you make the judgments, because you have to decide how you're going to be with each other.

[00:52:18] Peter: The good news, Barbara was fine.

[00:52:20] Ray: The good news is Barbara was fine. Thank you.

[00:52:23] Peter: Question?

[00:52:24] Speaker 5: Good afternoon? I have a question, however I noticed that there's no women online who might get a chance to ask questions, so I want to see if there's any woman who wanted to take my slot?


[00:52:41] Peter: Thank you for that, thank you.

[00:52:41] Ray: Hey, that's great. Well done.

[00:52:44] Speaker 6: Thank you so much, I really appreciate that.


Ray, my question for you is, what's your advice on how we can reconcile the feedback, I don't want to call it negative, but when we're getting feedback--?

[00:53:01] Ray: Looking at negative is good.

[00:53:03] Speaker 6: Okay. How can we reconcile that when we get that feedback on ourselves about our weaknesses to internalize it and improve quicker?

[00:53:12] Ray: I think the only question is getting at whether it's true or not. In other words, if we're working together and you don't believe that it's true and you're in that situation, it may not be true. And then how do you find out in an evidence-based way? Do you do a test? Or do you do triangulation? You have to really want to find out if it's true or not, and realize the benefits of finding out if it's true. Because this is the key to the success of life, the key to successful life is you don't have to do it alone, you find out what you can do well yourself.

There's two paths of finding out that you have a weakness, the most common path is once you get that you find out. The most common path is, do I make that a strength? And that may be a difficult path, people who think one way might have a challenge thinking another way. The easiest path is to find out who's good at what you're not good at and appreciate those differences. I think the answer to your question is to try to do it in an evidence-based way with the realization that you're going to be so much more successful and so much more happy if you do it.

[00:54:37] Peter: Thank you.

[00:54:38] Speaker 6: Thank you. Thank you so much.

[00:54:40] Speaker 7: Hi, Ray?

[00:54:41] Ray: Hi.

[00:54:43] Speaker 7: What do you think about universal basic income?

[00:54:47] Ray: Universal basic income-- By the way, I did a study on it and it's on LinkedIn if you're interested in looking at it, I looked at it for a lot. The basic issue on the universal basic income is that they believe that you will lessen-- You'll take money and funding it by taking programs that are in existence and eliminating or reducing those programs to give people the money to be able to make those decisions themselves so that they can make those decisions well.

I think it's really a question of whether-- When you shift that, whether that will allow them to make decisions well because they're good decision makers. In other words, when I look at education, and I see a number of things, I know that I want-- and I'm dealing with certain populations, I want to make sure that that is being given the money, the cash is being given for an effective purpose that they will use well rather than the program. If I'm going to take money from education or I'm going to take money from other things, I have to be able to believe that it'll be done well, and it's a difficult question.

Some populations, I think there's a real benefit to it because it eliminates the bureaucracy and it eliminates people making decisions for you. Because if you're a good decision maker and you know how you are going to spend that money and allocate the resources effectively, it's a better way of operating but there are a lot of percentage of the population who it can do more harm than good. That's what I think about universal basic income. I think that there's also income and usefulness, I think both are important but I think you have to make usefulness as important part of it.

In my view, I'm crazy about micro-finance, I'm crazy about ways in which you can effectively make usefulness, make people-- I think that basically if you-- I had the benefit of parents who cared about me, loved me, and I had a school that I could go to in which I could learn. There's basic things that you need. If you have basic education, fundamental education which is not being dealt with now adequately, and you have a family that is a difficult family environment that there's not that type of care you need that. I think that you need an opportunity like a micro-finance, a little bit of money with an opportunity allows that to be paid back.

I'm very big on micro-finance in terms of being able to provide opportunities. For every dollar that I donated in micro-finance over the next 10 years, it's 12 times that amount of money gets lent and paid back to people and it becomes self-sustaining. Those are the things that are more my passion than universal basic income for those reasons. [00:58:00] Peter: Thank you. Yes.

[00:58:06] Speaker 8: Hi, Ray. You mentioned education a few times, what solutions would you provide to our education system right now to take steps towards meritocracy at a societal level?

[00:58:17] Ray: I think the biggest problem in education is-- Well, besides not recognizing it as a great national priority, is that the constitution makes it statewide and within the state, the school districts are-- If you're in a rich school district you have taxation that will pay for a better education than if you're in a poor school district, and that we don't create a bottom, there's no bottom to that society. I think there's a structural problem on that. I think it should be treated as a national emergency, you have to say that that's intolerable, that that exists, and then you have to find the ways of getting around that.

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