Ray Dalio: Principles for a Life Well Lived | Knowledge Project Podcast Archive

0:00 I want to start with the story of you punching your boss in the face can you tell me a little bit about that well I was he and I were drunk on New Year's Eve and yeah you know and we had we had this playful fun challenging relationships and I decked him and he then crashed the car when he went home and his wife chewed him out and I figured that I was going to lose my

0:31 job and then he came in the next day and or the day after and with a black eye and he had no problem with me and he said Hey listen that was what it was but you know we just you know it was a moment and it was fun and I had a lousy New Year's Eve but no hard feelings and we got past that and it was why are you interested oh I'm interested in that story because

0:55 it's the story that everybody kind of talks about but nobody really knows a lot of the details behind I mean it's something you've released before but I was at a certain age and I had a certain kind of you know spirit that I would say or I don't know what you'd call it but I was a little bit you know wild at the time and you know anyway it was it was it's interesting to evolve you know

1:22 tell me what a day looks like for a typical day if there is one for the world's largest hedge fund manager well I I wake up and immediately check what the markets and the News are doing and then I I was in a stage where I used to run the company and then deal with the market simultaneously so I was juggling both things now I'm in a stage where I'm just following the markets and you know the

1:51 economics it's not a fast-paced type of existence it's more of a thoughtful type of existence so I've got a group of brilliant people I come in we usually hit a big meeting it'll usually be a research meeting we're examining something that is happening everything happens over and over again all right everything I we think of this as everything's another one of those so by being able to

2:23 look at history and make the connections and examine how the mechanics of the cause effect relationships are that's what we spend a lot out of time doing and then we convert those rules those principles into algorithms so through the day I'm doing that mostly and reflecting on mostly on the markets with interesting people and we debate a lot so and that'll carry through the day I imagine everybody's throwing information at you how do you filter

2:54 what's valuable and what's nice well I don't let them randomly throw the information on you know I I'm very stepping back I'm much more like to go to kind of a what I might describe as a higher level there's there's the blizzard that everybody's normally in and that's where they're caught with all these things coming at them and I prefer to go above the blizzard and just organize so I'm it's it's organized that way I I also

3:26 should say that I meditate so but I started my day when you gave me the question as I started my business day I should say I also find that meditation has been fantastic and I do that regularly so I want to always maintain an Equanimity not get caught in the blizzard to try to be more strategic and so I don't I manage that tell me the story about how you came to Transcendental Meditation

3:56 well I was it was 1969 and the Beatles had meditated and went to India and I read about it and it became popular and I was curious about it so I took my I don't remember it was it was very fifty dollar fee and my flowers and I went to this place and I learned how to meditate and and it one of the most important greatest

4:26 things in my life because it allowed me to have an Equanimity on you want me to describe a little bit what yeah what it's like okay it's a simple exercise really in which one has a mantra which is a sound or a made-up word and when you repeat it over and over again with your breath it takes your mind away from your thoughts and it directs those attentions

4:56 to your Mantra and then when you keep doing that the Mantra disappears and you go into your subconscious and when you're in your subconscious mind that's extremely powerful because so much comes from our subconscious mind that's where our creativity comes from you know that's what in intuitions and all of that happens and so it opens a passageway between one subconscious and one's conscious so you're not in a unconscious State like sleeping and

5:29 you're not in a conscious State and so that exercise allows you to completely eliminate stress and it Fosters creativity because when you think of creativity it's not that you go muscle it it's more like you know you take a hot shower and these great ideas come to you well that's what happens so meditation creates that that Equanimity it creates that vehicle for the create connection between the subconscious and the conscious and it allows creativity and I

6:01 really think that then the reconciliation of what is subconscious and what is logical is very powerful because your instincts your intuitions and so things those sort of things may be invaluable insights and they may be wrong and when one can reconcile their subconscious thoughts those instincts those intuitions with their logic and the Consciousness it's very very powerful so that gives me an Equanimity that helps keep me out of the blizzard

6:33 was this something that took off right away for you or was it something that you had to work at to establish this you mean the ability to get to that yeah it's a practice it's a simple exercise and the more you do it the more you get better at it and you know the deeper you go the easier it is it's like I suppose if you're doing yoga or you were doing almost anything you get better with

6:55 thought I assume the Beatles were a pretty big influence on you if you've kind of followed this because well I like the Beatles but it wasn't as much that as you know the practice the practice of meditation was way more than the Beatles were interesting and a good rock group and I loved music my dad was a jazz musician and I love music so but it wasn't the Beatles it was this this thing I tripped along on the

7:26 meditation who were your biggest influences over the maybe the 70s and 80s kind of well I think I think if you take the 60s and the 70s and then you get into the 80s What affected me was it was an era of aspirational ideological ideological spelling I ideals so you have to understand let's say John Kennedy if you start off was a

7:57 man who believed that we were going to conquer out of space eliminate poverty and produce equal rights and so he was a very charismatic figure and all through my life there were people who were inspirational I almost called them Shapers they will visualize the future it was an ERA when the United States was the most powerful country in the world still is of course but in a way different we counted for 40 percent of the world's

8:27 economy we have we were dominant in in almost any respect and the reaching for the Stars literally was all part of that aspirational that greater thing and so when you take that and then we went into an era of that creative rebelliousness and I would say that I admired Steve Jobs Martin Luther King those people who were Rising above

8:57 and and having that people who I would consider to be highly principled people and also so then you know they were just so many of those types of people at the at the time were you a big reader I wouldn't say I was a big reader I was and of course it depends on my my age when I'm asking that question no I wasn't a big reader I was a big experiencer more you know I

9:31 I like experiences tell me the story about how Bridgewater almost went bankrupt so I started Bridgewater in in 1975 so pick up where we last left off punch my boss didn't get fired that time not long after that did another it had another incident and got fired and that was 1975. and

10:01 and but the clients of at the time sherson was a firm that I was working with were which were big hedgers at the time were wanted to continue to work with me and so they paid me fees and I started out so from 1975 until 1982 82 was the period can you imagine this was seven years of building a business making a lot of good and bad decisions but many more good ones and bad ones and built up

10:28 my little business and then in 1982 I had calculated that a number of countries would not be able to pay back their debts to American Banks and the American Banks had 250 percent of their Capital out to them in loan so they were going to go bankrupt and this was a very controversial point of view I mean people I thought we're going to have an economic collapse and because the banks wouldn't collapse and then what happened is

10:58 lo and behold on August 1982 Mexico defaults on its debts and people started to see this and that led me to getting a lot of attention so it was a put on Wall Street week I was asked to testify to Congress to help them understand this debt crisis and so on and so forth and I thought we were going into a depression and this was the worst economy ever and it turns out if you look at the exact bottom in the

11:29 stock market August 1982 when Mexico defaulted that was the exact bottom in the stock market that's because then the Federal Reserve printed money and these interest rates and so on and so forth but that was totally wrong so I lost clients and it cost me money and I had to let everybody I who worked with me go and we were a very tight group of people so it was like losing extended family I was so broke that I had to

11:59 borrow four thousand dollars from my dad and I had to make a choice am I going to go to work for somebody else or am I going to work through this and this so it was a you know terrible experience but it turned out to be maybe the most valuable experiences or one of the most valuable experiences of my life because it changed my approach to decision making I went from thinking you know I'm right to asking myself how do I

12:25 know I'm right in other words how do I triangulate it gave me the humility I needed to balance with my audacity and so then it gave me an open-mindedness and from that point forward everything was better we can get into but what what changed that raised my probabilities of being right and managed and allowed me to manage risk but for that point forward you know everything became better really and until today and that's what I'm trying to convey in the book If I can

12:54 convey that to people at this stage in my life my goal is to pass along the most valuable things I've learned and and and really that is the most valuable thing I learned would you say that was the seed of when the principles started yeah it was what I learned was the value of thoughtful disagreement I I learned a few things I learned radical open-mindedness I think the greatest tragedy of mankind

13:25 and the greatest tragedy of most people is to hold opinions in their head that are wrong that they're attached to and that they don't stress test it's so easy to take those ideas and properly put them out there in an idea meritocratic way and have them stress tests which raises the probabilities of being right so I learned radical open-mindedness and I'll explain what an idea meritocracy is like because I'd like to do that I learned how to balance risks better

13:56 right so I learned that if how I could reduce my risks without reducing my returns by being able to literally structure my bets in a more Diversified way so and I learned also to look at history that of things that never happened in my lifetime whenever I was surprised and I think whenever most people it's surprised it's because of something that never happened in their lifetime before but it happened before

14:28 so it doesn't happen in their context but it happens so you don't see it so you don't think about it that's right like the 2008 financial crisis in the 2000 financial crisis almost everybody thought that was implausible the only reason we were able to anticipate it and benefit from it is because it we felt that it was necessary to understand what had happened in the 30s and what happened before because the same things happen over and over again

14:55 and once you get the idea that they just may not have happened in your lifetime it could be a hurricane hurricane it could be a plague it could be whatever it is some things happen once every 75 years particularly debt crisis and those kinds of things so that so those were the three things the three things were first to know how to have an idea meritocratic decision making knowing that I might be wrong having that fear the second was really knowing

15:24 how to balance my bets and the third was really how to gain a perspective in which I see the same things happening over and over and again beyond my lifetime and can write down principles for them so answer your question in terms of the principles yeah I got into an exercise that I'd recommend for everybody out there whenever you're making a decision that's an important decision you're used to just making that decision and moving on I developed an exercise

15:55 that I would write down my criteria for making those decisions so that would be my principles you had a decision Journal almost a decision one a journal about how you said decision Journal right which are these those written principles which are really what is in the book mostly so one by one how do I make that decision what are the cause effect relationships so when another one of those comes along I remember it and I you know communicate it and this has

16:24 been invaluable to me also in dealing with people because we could deal with each other better I can have those stress tested it's reasonable you look at that and you say if this thing came along would you do this it the way I'm describing would you operate by that principle and you can have back and forth and refine the principles then that leads one to think and a principled way rather than in the snowstorm that you're talking this

16:50 blizzard of everything that comes at people instead it's like you look at everything and you see everything is another one of those so like a duck or a species right you think okay what species is it how do I deal with that species in the most effective way and then I found out that I could put those into algorithms in other words that you know on starting 30 years ago I was able to say if I had that criteria you know

17:19 we call them formulas then now they're algorithms but we I would write down if if this happened then do this and I would write them down and then I learned how the computer could be a partner and so it changed everything by writing that those principles down and then also putting them to algorithm and change my relationships with with people a change it allowed us to have an idea of meritocracy how instant was that from the the kernel

17:45 of kind of almost going bankrupt to knowing that you had to start stress testing your ideas against other other people and other ideas and developing principles for making decisions was that like an overnight thing well no it's one thing leads to another and it's an evolutionary thing over I guess the biggest reaction to that probably happened over the next let's say two years or something first there's the pay and then and

18:16 then there's the Dilemma The Dilemma is how do I not let this happen again or avoid it yet but also not lose the upside yeah in other words there's this upside and I want to grab the outside I want to have the greatest life I could possibly have and be right but also the greatest upside produces downside so it started me to go into the calculation of how I could

18:47 do that but it also just naturally gave me a humility you know and then I was at that juncture do I do I go to work for somebody else or do I do this so over that period of time then you do something and then you find out how that turns out and then you modify it and modify it but it told me idea meritocratic decision making is the best decision making in other words that if you do this well

19:18 you will radically improve what your decisions are the only two things you need to do to be successful first you have to know what the best decisions are and second you have to have the courage to do them but you might think in your head that you have those right decisions when you start to realize that there's a world out there and that you know how to sort through those things to find out what the best

19:42 decisions are you radically raise your probability so it was The evolutionary process of seeing that and not giving up on that you know thoughtful disagreement is not an easy thing for a lot of people people are instinctually reluctant to disagree that's a great barrier right to learning so it you know that was a journey of how we could you know disagree well and have an idea of meritocracy so what is an idea of meritocracy well an idea of

20:14 meritocracy is when the best ideas win out and the way that you have to have it there are three steps that you have to do first you have to put your honest thoughts out there a lot of people have problems doing that but you have to you have to welcome others doing it and you have to do it so you have to put them on the table to look at them second you have to have thoughtful

20:39 disagreement in other words the ability to take in and have a back and forth in a quality way so that you can make better decisions than you could make individually and we have protocols for doing that that are described in the book and then third you have to have ways that if disagreements remain that you think are fair appropriate agreed upon ways of getting past that disagreement because not everybody's going to get what they want and the problem that most people have at

21:10 that point is that either there is an autocratic decision maker or a Democratic decision maker neither those work well the autocratic decision maker is just the guy who's the boss who says okay well now I'm going to do this that's a problem because there others don't own it and how do you know that you're right you can't be arrogant and then there's Democratic decision making and that means everybody has the same votes the same opinion that's not

21:35 sensible because they have different merits to that so if you have an idea meritocracy you have to know also the Merit of people's thinking and so we go through the process of being able to identify in Fair ways in ways that we all agreed to of ways of knowing what's the Merit of each things and we literally have scores of these tests and whatever they are that become the scores so we have believability weighted voting so I mean literally if if I'm running

22:05 something and we're at a group and three people who have higher levels of believability than I do I think that it should be one thing and I think it should be something there's going to be a questioning back and forth I put myself in the mode of a learner so that I can take in and then make the best decision you have to know that the best decision that you can make isn't necessarily the one that you're

22:30 attached to that's in your head right that's ideal meritocratic decision making I like that a lot I want to talk about like how did people adjust to an environment like that where they have a believability score what is believability believability means that some people have a greater probability of having a better Insight or a better opinion than something else I'll use an example you have a medical problem okay

23:01 your own believability on the subject is low right you go to a doctor okay that doctor has a certain level of bully another doctor has another level of believability you want to handle it well go to three highly believable people who are willing to disagree with each other and hear that disagreement and interact and bring out that disagreement and see where there's agreement so that you get to the other side so when you either have agreement or you understand the

23:31 disagreements you're then in a position to make a better decision that's an example of believability weighted decision making then there's just the mechanics of how you get to assign each person the believability but if I use that example with your doctor that's how you're making that decision that's what believability weighted decision making is so regarding your question of what it's like and and and so on I have this belief that everybody goes in going of course I want to be a part of this

24:00 environment and then they get in and there's this dose of reality that comes with it exactly that's that's what it is okay so before anyone joins Bridgewater we explain to them all of this and what their challenges are going to be and so on because they're not used to operating this way our educational system doesn't allow it'll our work environment doesn't allow it there's so much that stands in the way of doing that so the first X

24:26 thing is do you intellectually want it because there are two U's in you really in your brain there's the thoughtful intellectual part of the brain the prefrontal cortex that is thoughtful and you said I would like to know I would like to know what people think I would like to be able to fully convey what I think I would like to work myself through this idea meritocratic I would like to know my weaknesses do you want

24:54 to know your weaknesses or do you not want to know your weaknesses I'd like to get to know my weaknesses so those people intellectually come and they say I'm going I buy into that yeah okay then there's an emotional part of the brain that emotional part of the brain come comes it's genetically programmed from literally millions of years ago in which there's a part of our brain the amygdala which has this fight or flight thing and

25:19 when there's that kind of frankness and that kind of exploration of one's weaknesses people can think that they're being attacked instinctually so that why wouldn't you want to know those things out of curiosity to have equality back and forth so there's an emotional so when people come in they understand very well that they have their two U's we call it their two U's that are going to struggle with each other so they're prepared for the struggle and then they

25:49 go through it and that's largely what happens as they go through it they regularly encounter it and because they're mindful of it they know it's there to use struggling with it and then also struggling with others who see things differently to pass through that and so that exercise is what they go through and most we we call it getting to the other side because when you go through that you know you're you're recognized you're faced with the choice do you want

26:16 to go back to an environment in which people are hiding things and the office is a political environment and you don't really know what's going on and you can't speak up and nobody else can speak up so that when they intellectualize they work themselves through it and we say when they get to the other side it's great like they love it they don't want to operate any other way because they they know even their weaknesses they can

26:40 be more themselves a big part of this is that we have meaningful work and meaningful relationships okay they're equal priorities and they reinforce each other so to know that people are helping them through that that this is not a an environment in which there's somebody trying to hurt you but to explore what's True by going through that exploration of what is true and doing it an idea meritocratic way where there's that that

27:10 meaningful relationships it helps people get to the other side then those who who make it to the other side really don't ever want to work anywhere else in in the sense that they start to think you know first of all the relationships are important and that that that's healthy so it's a transition it's it's probably like a transition of trying to eat healthy and exercise and do those types of things typically takes about 18 months who thrives in that like

27:39 what are the markers for someone that's less likely to succeed and what are the indicators that somebody is more likely or more probable to succeed it is that what I guess I would describe as the capacity to rise above oneself to look down on oneself to in other words that that combination of need to understand as well as open-mindedness we we

28:09 describe it as the balance of assertiveness and open-mindedness to know that you're not blindly following then you have an opinion you have an independent thing and to know that that opinion simultaneously could be wrong and to then be curious so to find out how do I know whether I'm wrong and do that in an idea meritocratic way people who can juggle those two things can make it would you say that's

28:41 almost a Continuum that you're constantly sliding on depending on the type of decision you're making and the people that are in the room maybe based on the believability of their opinions you should shift more towards an open mind versus if not or am I thinking about that in the wrong way I think what you're what you're saying is absolutely true I think the big question is do you have a whole lot of both open-mindedness and curiosity

29:10 when you're entering that I could say whatever meeting I'm in with whoever I'm on and and whether they're the least experienced I know that's a valuable Exchange and the reason I know that that's a valuable exchange whether I'm at the highest level of expertise with a person in other words they're up here at the highest or maybe knows a lot more than I it's still going to be a valuable exchange and knowing that is is valuable and

29:39 the reason I'm saying it's a valuable exchange is first of all in a community respecting the fact that that person has the right to understand is important at the same time I think it's important for the parties to try to think am I a teacher student or peer because if I'm speaking with somebody who really knows a lot more about them something I want to be asking more questions than I want to be sharing

30:12 opinions right and vice versa it should be generally vice versa or if it's a peer so by knowing something keeping in mind what that situation is it helps to help us in the navigation you know like I'm very curious when a very smart respected person disagrees with me right right because then you want to know why what is the essence am I missing something right and if somebody who's much less experienced

30:43 or less capable disagrees with me I'm still curious but the first exercise we probably should go through maybe is that they're asking questions and and but the more I know that they have the answers you know the quicker I want to switch to a open-minded you know more peer type of exchange so you're correct in that knowing that is helpful but it's never the case that the open that the

31:13 discussion shouldn't be along those lines particularly in a community what advice would you have for somebody who works for an organization that doesn't support an idea meritocracy but they want to learn and get better well I think the first thing you have to decide is what is the most important things for yourself right if it's the case that everybody has the right to make sense of things the right and obligation to make sense of things now if you're an environment that

31:45 doesn't allow that it doesn't allow you to ask questions and do those explorations for me you know Frankly Speaking I couldn't do that I just couldn't do that for somebody else that may not be a problem so you have to decide for yourself first you know is what what is the right environment what are you like what's what's important if it's a really high important thing to you then you will find it it may not be

32:14 at that job it may be at the next job it may not be a hundred percent exactly the way you want it it may but you can find a by and large way of of finding it and it's not just the organization you're with it's the relationships you're in because this doesn't end up just with your organization it's like if you're having a partner how do you deal with your partner it could be a spouse it

32:39 could be anybody how are how do you do what's your relationship how are you going to get past the disagreement so it's the same three questions can you put your honest thoughts on the table to look at together yeah can you have thoughtful disagreement on how to get past it and when you disagree do you have an ability to what is your mechanism to getting past that disagreement do the principles that bind you together are they more important

33:05 than the ones that divide you what are your principles these same things apply in personal relationships as well as work relationships are people more successful at Bridgewater coming in at say above 30 or right out of school it really doesn't it doesn't make too much difference although the reasons make differences the people who come directly from school are tend to be a little bit more arrogant no a little bit less and go

33:36 through a transformation that's pretty much easier they're more adaptable so that's why they're prone to like it but it but also depending on whether they can get off over the arrogance part it will be important the person who comes later in career who likes Bridgewater is so sick of the organization that they work for in terms of and and the bureaucracy and all of that so that it's like an oasis so they come with different perspectives you

34:06 know it's equally likely to succeed or fail in any of those groups it depends on their perspective though they have different perspectives your principles are packed with kind of mental models of how you think we should calibrate to the world which of them are the least well understood or misunderstood the most is this issue of Mis of thoughtful disagreement so thoughtful disagreement also what the purpose of these principles

34:36 are like so sometimes people think that the thoughtful disagreement is a being mean with people and sometimes people also think that another misunderstanding is that these principles are like a Dogma okay is this is Bridgewater a cult is it a Dogma or something like that where it's it's the exact opposite in other words it's an idea meritocratic if we don't have ground rules about how we can challenge

35:07 each other and do those things we would not be able to have an idea meritocratic environment so it's you know it's a radically trans so those would be the two things you know are we being mean no we're not being mean it's we have tough love with each other right okay that's what it is no it's not mean this and secondly it's an idea meritocracy that allows radically different points of view to be thrashed through and and gotten past rather

35:38 than something that's asking everybody to behave the same way in the book you talk about tough love as being one of the best gifts you can kind of give somebody do you tell me about that walk me through why you think that's the case well because the most important thing I can give anybody is strength right that feedback that that critical feedback that that toughness to let you strive to let you make mistakes I talk in the

36:10 book about how it's important to make mistakes and how making a mistake is not a problem that not learning from mistakes is a problem so that's difficult skin your knees strive develop that those strengths that's what tough love is if you spoil somebody so to speak if you if you're if you don't do those things that allows them to get better that's not in my opinion you know

36:41 true love that's not that's not helpful so tough love if you could think about that I gave the example of Vince Lombardi and the old you know in the football in in terms of that the image of tough love is a a it's it's a healthy thing and it's a particularly difficult kind of love to give because it's often not appreciated you know at that point because what are you doing or give me what I want as

37:07 human nature but if you really understand that it's good for somebody and it's good for the community it's very important has your implementation of the principles changed over the years yeah well you know and so in so many different ways you know first you know we just live the principles then we had to write them down and agree on them then we put them in algorithms and we develop tools so you saw the tool in the Ted Talk I

37:39 would say to your listeners if you go 16 minute Ted talk you'll get the idea of what what's going on yeah phenomenal Ted Talk oh the thought collector yeah so you'll see a tool right the doc collector it'll give that that perspective so you could see technology evolved all sorts of things evolved over that in that period of time so it evolved over you know 40 years I guess what other technology tools do you have internally

38:06 to Aid in decision making or give people feedback we have a number we have a dispute resolver okay so if there's a dispute you sort of push this button and it's an app and it takes you through the path of resolving that dispute and it breaks down disputes in terms of types of dispute if it's just you and somebody arguing then it will it will say it'll make suggestions and for example you both mutually agree on who a moderator for that

38:37 dispute would be right moderator or judge and so on so there's one level of dispute and there's another level of dispute which is like a case but it is a path it's a created Pathway to resolve a dispute like a legal system so that if you haven't now a dispute with your neighbor because something happened you have a pathway to follow so we've created a tool called a dispute resolver that does does that we have

39:08 oh just we have a thing called people profiles that show profiles of different people we have a thing called a meeting tracker so it's the it's a computerized version of watching what's going on and then synthesizing the whole picture of what everybody's thinking so that anybody can look into that meeting and and see everybody's participating it through other people's eyes there's a tool that we help people go from Pain to progress you know I as I

39:41 mentioned in the book of an expression pain plus reflection equals progress so we have a thing called a pain button and the pain button means that if you have psychological pain at the moment it makes it very easy to capture what type what the facts about it is it with this person while you're in it then you come back to it and and then it cause it prompts you through Reflections like what are you going to do about that how will you

40:11 handle it should you have a conversation with the person should you do this should you do that and then what it does it tracks your progress are you having that same pain over and over again of the same type did you follow what you set out to do in terms of that or did you not follow that and so on so it almost works like a psychologist ever on a daily basis to be able to take a look

40:35 at that it's like a double level of feedback on this well it gives you the bio you're giving yourself bio feedback yeah right yeah and so but you're looking at yourself it encourages the self-reflection because at the end of the day all I want people to do is get what they want out of life right and so it's very much important for them to have that self-reflection and so by reconciling their emotional pain that's coming within their

41:05 reflection is a very very powerful thing we have a tool called a coach so if you're in a situation and you're and you're saying you know what how do I think I should handle it there's a device that says this kind of situation okay here are some principles that might help again this isn't Doctrine this is like it's the opposite of Doctrine yeah it is an intention that presents things easily so that you can make the choice that

41:35 when you're in that situation okay calmly what should I do and here are the principles that might help me get through that a lot of these tools I'd like to get out there and make public at some point and figuring out how to do that because this idea meritocratic way of operating and is knowing what you don't know and how to get past that tragic mistake of having those ideas in your head is just so invaluable

42:01 are any of the tools connected to Biometrics like an Apple Watch for heart rate and stuff like that or we haven't done that yet though there are possibilities for doing that that kind of Bio feedback is really valuable because then you can almost hit the subconscious level of you're saying something that's making me angry even if I don't feel it or you're saying something making me feel something because I can tell because my my sweat pores are coming on and my

42:27 heart rate is rising or exactly exactly we haven't made that connection yet but it's something we probably should do and you know will do you have a culture of radical transparency can you define what radical transparency is well except for a few things a few types of things it's allowing people to see everything so what it means is

43:01 all discussions meetings are taped and pretty much unless it's an ultra personal matter we don't do that unless it's something proprietary we don't do that but when we're encountering other things most things we let people see things and the reason is if if you can't see things firsthand you can't be part of the idea meritocracy yeah right if somebody's talking about

43:34 you behind there why are they talking about you right behind there wouldn't you like to know how to can we encourage that straightforwardness so it's one of those things where in order to maximize the idea of meritocracy we want to maximize the transparency now I know let me be clear I know that that's not for everyone and I know it's not for every organization it is it's it's been fantastic for us

44:07 and I would recommend recommend the approach but I wouldn't say that in order to have an idea of meritocracy you need to do that you need to go that far the real question is do you need do you want to have an idea meritocracy once you start there then you will go down a journey that will start to take you into questions of like okay how much how far with whom the idea of meritocracy may be

44:37 a narrower group of people so it's if you say it's going to be 25 people right and I don't know 300 person company or something they're still facing the question of how you are with each other yeah so in one fashion or another you're going to have to deal with do you not know how do you work through the dealing the three questions that I the three things that I mentioned before even in a two-person relationship then these

45:03 techniques you will make choices about but that radical transparency is important I'll say also that radical transparency is coming at you fast anyway because we're now living in a world where the data that you leave about yourself all over the place is meaning that people will you know stranger systems can now examine you and know you better than people who are your close friends or

45:34 your spouse they can look at you because of the the data that you're leaving all over yourself so it could be a bad thing or it can be a good thing and but it's coming at you that radical transparency so I would encourage people even if they're not having radical transparency to start to think about how they deal with this radical transparency I think I found it fantastic because it gives me the not only the meaningful work it

46:01 gives me the meaningful relationships you know if you're with each other on a regular basis and everybody understands what you're like and there's not much to hide I mean there's certainly privacy but there's not that you're generally having that kind of openness it also makes better relationships those have been my experiences for 42 years when it goes wrong How does it go wrong oh the things that can go wrong are if the if you have people who want

46:31 to do your harm and will take information and distort the information to do your harm I mean that that's that's a risk I would say that that would be you know the only risk that I've experienced and and that has to be a you know function of how you deal with it aside from technology tools how does Bridgewater shape people's subconscious through their environment well the environment of course shapes people's subconscious a lot and it is

47:04 that by having aside from the tools by having an environment that is like this that is what I would call intellectually on view and healthy it's like living in an environment like a healthy environment an environment if you were living in a community where people ate Health in a healthy way and did those habits and self-reinforce those kinds of behaviors so it's and and you know encourages that kind of reflection

47:38 it's one of those things where the people you're around will influence you and how you are with each other influences each other I love the idea of tools and kind of the baseball cards that you have because one of the big problems in life that everybody faces whether they know it or not I think is determining whether the person they're sitting across from knows what they're talking about or they're kind of an imposter and they sound like

48:05 they know what they're talking about how would you go about doing that without Tech tools well you're in one fashion another you first have to bring it up I mean so let's just imagine you didn't have Tech tools but you have five people in a in a company a startup right the most basic thing you don't need the tech tools is the question of how you're

48:35 going to be with each other right so if you can I ask you any questions can I probe you can we see how it is after a while you're gonna know what you're like and you're going to discuss it you you typically don't have that understanding because you don't talk about a lot you've got these scenarios going in your head and that other person's got those scenarios but because there's not actually truthful conversation an exploration of evidence

49:04 you you have problems so even when there's disagreement we we have about you know what somebody's like the fact that we can establish and anybody can establish sort of tests okay let's try this and see how that goes and see how well you do why what can we agree our objective criteria and then we don't know what's true until we pretty much reach an agreement ourselves so if somebody's you know there's no

49:35 disagreement about strengths we have very little disagreement about people saying you have a strain where you typically have disagreement is about people having a weakness and if the person then says oh I recognize that I now have that weakness that's the point we have to reach that we agree on it because if we still don't agree on it then we say how do we solve that together so that there are lots of ways that individuals can I'd operate an idea

50:03 meritocratic ways without tools how do you think that people can foster this sort of open-mindedness I mean in your book you kind of lay out what an open-minded person looks like versus a closed-minded person how do we go about getting ourselves to the place where we want to be open-minded if we're close-minded or if we don't even acknowledge it I think that's probably the first step but if we do is it like you dive in the deep end of this pool

50:30 and people are starting to give you feedback all the time now or is there a baby step well I think the first thing the reason I wrote the book you know I'm at a stage in my life and I want to pass it along is to the first stage is to have people actually be able to visualize what is it like what is that alternative what is it like yeah okay and if you can visualize it and you say

50:57 I intellectually want it and that the only thing that's standing in my way of having it is these emotional reactions and now I have to develop the muscles you know and that discipline to just get myself over those moments so that I can have it that's the most important thing our whole environment does not lend itself to knowing what that alternative way of operating is so I hope to paint it in that book so that people can see that

51:27 what that alternative is like if you see the alternative you intellectually you'll probably want it and if you want it you'll do it yeah are people the same outside of Bridgewater as they are in the company like if you have a social Gathering is it a similar it's it's it's almost identical it's almost identical I mean like you you're going to want it now of course

51:58 the the ground rules are different you know and the way you navigate it is different because people around you are different they may misunderstand what you're doing in terms of being straightforward but even there you know it depends on like how you're doing it like if you're phrasing let's say a complaint if I go to a restaurant and I know the food isn't good and I actually or I'd have a problem with that

52:29 I think to myself almost an unethical way and if the owner comes by and he asks me it almost is like an ethical question that one wrestles with and I if I was going to make a comment I would have to preface that comment by saying something like I'm trying to be helpful you know here is what I think here's what my thought is take it or leave it you know that kind of thing but even more in their personal

52:58 relationships it it affects friendships you know how you are with each other you know the two things that I I think the only two things I require in a relationship are people to be reasonable in other words able to reason and to be considerate and I will give people an enormous amount of that and I expect an enormous amount of that and that's that's in all relationships and I would say that a lot of Bridgewater

53:29 people carry that with them you know when we have a disagreement are we able to reason it through or are we going to have temper tantrums you know I can't so people become more reasonable and more considerate so these are carried through in a lot of ways well what are some of the other organizations who have cultures that you admire or that are similar that you see to your principles I you know I I'd be

54:00 the wrong person to ask three wonderful psychologists organizational psychologists came in and examined us I particularly recommend the works of Adam Grant he did a book called originals and he examined a bunch of companies and he found those elements and then of another person by the name a Harvard professor and organizational Psychology

54:31 by the name of Bob Keegan and he wrote a book The deeply developmental organization and he looked at all those organizations and and and contrasted them so I would say you know they'd be better experts on it although I think that what came through all of that was the notion of the meaningful work meaning for relationships bringing mistakes to the surface making it okay to make mistakes

55:03 but not okay to learn not to learn from mistakes all of those things were in in mind I can't really comment on a lot of organizations because I don't know them well to what extent do you think is leadership innate versus it can be learned I think it's probably almost entirely can be learned of course in terms of the development of the brain and how synapses develop and so on you the early years has a very

55:37 big influence on a lot of our personal development that's physiologically psychologically you know known but I think that there's always a leadership style that can be learned in other words there's your way of doing it I've given personality tests to well I mentioned that in in the book Bill Gates Elon Musk many many incredible successful

56:08 people and they all have some elements in common and then they also have differences and so there's there's a path to leadership there are some people who are the charismatic extroverted leader and they find One path there's the person who's introverted and thoughtful and they can find another path I think the key is still in both cases this combination of do you know where you're leading to

56:40 and how do you get that and then how do you interact with the people so that you can bring them along and you can make them believe leave or grow so that they can also help leading leading is a lot the development of leaders so that they in in order to lead effectively what you have to make is a group of people who then can be effective themselves because that's what's going

57:10 to produce the leverage and the cohesiveness so there are different styles of being able to do that it's a lot learnable you know again I offer some thoughts and that are in common in the book about that but I think it's a lot learnable do you a Bridgewater have a formal kind of leadership development program that you put people through or is it yes what does that include like what does that look like well when everybody comes in there's a

57:38 what we call a boot camp and that'll go for two to three weeks that gives them an immersion into what the culture is like it might go three weeks if they're in the management boot camp and then they start to get skills and then they go into their job which is an apprentice ship kind of a relationship and then they get typically about three hours of training pertaining to the development of those

58:10 skills and they go through experiences and we collect data on them they look at the data and we then recalibrate how they learn and and then it's an evolutionary process as they grow we learn more about them they learn more about themselves we find out where their Bettors suited we go through a series of experiences that continues that to happen until they continue you know to evolve wherever they live after who is The Mastermind kind of behind the

58:39 development program because I imagine it's always evolving too largely me I had two things to do and then I have this great team of people and it depends what it what it's like we have on the data collection processing type of thing we have a fell by the name of Dave faruchi who was the person who started and created Watson at IBM he's fast fantastic in terms of

59:10 machine thinking and he's a key person but we have the CEOs of the company and involved we got people involved in you know how they write algorithms and you know so there's a we have a team a whole team that deals with training you know what that is like on a daily basis so there's a lot you know there's a there's a lot of different people do different things up in to where we are

59:40 in in this it's been a very particularly important thing for me personally to make sure that the people part of this was developing basically the business grew up under me right so two things Investments you know my we're talking now about the people part the the work part so I had I run a business it was an entrepreneurial Endeavor and it grew into quite a business and then at the same time I'm thinking

60:13 about economics Investments and markets and so I do both of those two things and now I'm passing the Baton that's why 2017 by the way that's why I'm putting the book out right now yeah 2017 is my is my going from the second stage in my life to the third stage in my life it's a transition I am I've stepped out as the CEO and I and I'm let's say the

60:44 transition itself when I mean second to third stage what I mean is in the second stage of your life you're working and other peoples are dependent on you first stage of your life is when you're learning and you're dependent on others when you get into let's say your 20s or when that is and you enter your second stage of your life you're working and increasingly people are dependent on you

61:14 and when you get to your 60s let's say your the greatest beauty that you can have the greatest success is in helping other people be successful right it's instinctual I want others to be successful not me be any more successful because then what happens is I can then go on to my third stage and they can be in their second stage and it's quite normal in families like if you

61:45 think about your parents okay and you think about your kids in terms of your life when you went on to your second stage and you became self-sufficient and you could do it all yourself they could watch Beauty happen and they became free of those obligations and their goal is to have that so that's the transition that I'm in 2017 is my transition year that's why I wrote the book and it's why I'm in that process so that's that's

62:12 what's going on Buffett said one of the things that he kind of worries about is keeping the the culture at Berkshire Hathaway when he he passes is that something that worries you I appreciate it no it's I would I would say it's like a it's like a family in the Next Generation right it's now up to others to make that choice to not be attached so if I have my kids who then become grown adults

62:42 I want them to make the choices that they want to make now I hope that they will make the healthy choices and did we you know do we raise them well did they you know in other words to make those choices but they need to have their own experiences and have that kind of Independence so at that age you you let go and you enjoy them doing it their own way even in them even you you can't

63:06 start at that age you have to start at another at an early age that they can make their decisions so I don't have an attachment to that what I did have most importantly was my sense of do I pass it along clearly and well that's why in other words my writing that book relieved me of what my responsibility is what others do with it is up to them right right so I did my job if you want to read the book and

63:35 it's helpful and you're reject it or take it or and that's true of Big Bill of Bridgewater great okay I did my job and now it's you to live your life how did the principles transfer over to the world of philanthropy you know it's the same thing it's part of this you know Evolution I started I didn't have any money and then you acquire money and you know for money for me

64:06 money was not very much a priority to begin with it just happened to be the thing that I do produces a lot of money if you do it well but anyway you evolve and you make your choices and I think as you go higher and higher level of evolution and maybe as you get older or you also this meditation has helped me feel connected to other people feel connected Beyond me I realize I'm

64:36 part of an ecosystem I'm an infinitesimally small part of an ecosystem and I really do feel that the ecosystem is much more important than me and I can see it from that higher level kind of thing so I feel connected to others and then I think about what my incremental what were the increments so and and what it can mean so on the margin what is it going to mean to another person that amount of money and

65:04 I also view it as an a life cycle thing in other words you know I don't know you start with nothing and then you end with nothing so I it's part of that evolutionary process so it's like the issue of what I call spirituality spirituality I don't mean religion I mean the notion of feeling connected to others in the whole and and that that if that whole is good then you're good good kind

65:34 of thing and I so I think that one in terms of philanthropy becomes a a natural extension of that it doesn't become for me it has not become something that I think of even as a peripheral activity or philanthropy or giving away the question is what do you want to do like it's it's you know like I'm excited about doing some things or I feel needs to do something so it's that kind of

66:06 experience and by the way it's interesting because I thought I you know have a lot of money and I have a lot of money relative to most people and then you realize through this that you have a tiny bit of money relative to all that needs to be done and so then that becomes you know this other dimension so I think probably philanthropy is one of those things that has come to me well maybe starting 10

66:38 years ago something like that at that stage because of this various evolutionary considerations you've said that the future is going to look very different in the book I'm wondering what do you think will be the same I I think that you know human nature changes very slowly so I think the you know the conflict between thoughtfulness

67:08 an emotion individually and between people will probably always be with us you know that human nature will be with us I think what will what will change there is the role of algorithmic decision making I mean I think we're largely entering an environment in which not to exaggerated but there are going to be people who are writing the algorithms that will replace

67:42 the people who are doing jobs and and and so there's going to be a bifurcation and I think that learning how to code is like learning how to read and write for the next generation and you want to be on that side of it and I think I think what will be the same is conflict between people that that's what worries me it worries me because

68:12 you know let's go back to basics you know as a country do the do the principles that bind us together are they greater than the ones that divide us right can't you know this is a Time to be very clear for everybody to be very clear what their individual principles are the president of the United States each person the country and work ourselves through can we do

68:43 this well collectively or are we in a fight with each other that's going to actually divide us apart and it's going to be more challenging because the circumstances of the people who are in let's call it the bottom 60 of the population are very different and they're hurting and this is a it's a major problem death rates are rising just wholly different economy then those are in the let's say the top 40 percent let alone the top one percent so

69:13 conflict will be the same okay how we approach it will be the same you know that's that's why I'm hoping that there can be this idea meritocratic decision making that pulls us together and allows us to resolve resolve those things so that we can do those things we could have thoughtful disagreement and then we can have mechanisms to get past our disagreements that that conflict issue will be the same and it's going to be a bigger issue in the future do you think

69:45 that that relates to you kind of first order thinking versus second order thinking I mean one of the sections of your book that I loved was kind of talking about people that optimize for the first tranche versus people that optimize for the second or third or kind of fourth layer effects to that do you think that'll always be that'll always be the same and it's key right it's the quite often it's the great trick of life

70:10 and you know and so many things the first order Consequence the thing that you get first is like a trick that will the opposite consequent like like you know why is it that it seems like all food that tastes good is probably bad for you yeah I mean I'm not saying that it is generally but I mean you know why is it that why is it the things that are fun or it somehow seem to be harmful and it's the opposite way

70:39 why is it that exercise is painful and it's good for you and you know and it's the opposite it's almost like life is tricking you in terms of putting out first order consequences and then the second order consequences is the opposite okay now can you see that can you deal with that because in order to get what you really want in life you're going to have to pay attention to that second order consequence I don't care

71:05 which you which you pay attention to if at the end of the day when I ask you do you want to be I don't know fact do you want to be whatever do you want to do those so that notion of can you consider your second order consequences and then your even your third order consequences is so important and the and you can even though you can't do it yourself maybe sometimes by having the help of others

71:37 I want to Circle back to this algorithmic decision making for a second you mentioned that it's coming it's coming quickly who do you think is at risk in a corporate job that might not think that they're at risk right now well I mean we all generally generally generally speaking I'd say almost anybody who isn't writing the algorithms is is at risk

72:08 I guess there were some things you know it'll be a while before the robots give good massages and it'll be you know it'll be you know there are the imagination it'll be a long time before those intuitions and those imaginations are created by computers okay but it won't be a long time before computers produce better quality

72:40 thinking would you feel different if you listened to a computer-generated song or music and you were told that it was computer generated versus a human who had a story of craftsmanship around it what a great question what a great question I have an attachment for the humanity right so I said but I would probably also have an admiration for the marveling of how that can be created so I I guess I would I would say there's

73:13 that transition from from the one to the other you know but I would yeah it could cause reflection that would have a little bit of excitement and a little bit of almost Nostalgia right you're a fierce Observer of human nature what's the most common mistake that you see successful people make well again the most successful the most common mistake I suppose which is made less by successful people but still is too often made by successful people

73:48 is thinking that they know the answers without having the best perspective and adequately stress testing it so that they're taking in so that they can make the absolute best decision why do you think or maybe it's a misconception on my part but why do you think so many successful people are unhappy is it that the strategies they've chosen to become successful or making them well I think the question is as a deep psychological question of why

74:18 what are they going after right and is Success going to provide that so for example if they're going after status if they're going after the admiration of others and so things I don't think that that's going to bring them happiness probably a lot of people who are successful or compulsive and trying to get those types of things so I think a lot of people versus you know so the question is

74:53 is it is it a personality disorder that is making people continue to strive to get something that they can that is within them and that they can have that so I yeah I don't think why are you doing it you know is it the thrill all right you know for me like early on it was first the adventure yeah you know The Thrill of the experimentation and the doing that and then the thrill

75:24 of getting better okay and then I have my own Evolution and and I describe in the book how my perspective had changed Wow might have my perspective had changed from the early days to the later days but anyway I won't reflect on me I I would I would say that Community by the way we're talking about happiness it there's virtually no correlation between amount of one money one has and

75:55 one's happiness that's pretty well known past a certain basic the factor that's the highest correlation is whether it is relationships sense of community all across societies that's genetically programmed into us it's estimated that somewhere between a million and two million years ago but before it was even mad before we the the ancestors a man that that got programmed

76:27 into us but anyway it's one of the things that's the most important source of happiness and when I look back on myself and I and I think what was the what was the thing that I most was made Happy by it was relationships it's meaningful relationships intellectually I feel I contributed something but the greatest source was that relationships in the

76:58 community so a lot of people who are going after status success admiration I think the question is are they making the most of the relationships I think that's important so I have a question on that because if we move to I mean one of the economic ideas that countries are tossing around or even experimenting with in some cases are a universal basic income for people that are displaced perhaps by technology how do you think that interacts with

77:28 this High correlation to sense of purpose and connectedness with our peers how do you think that the universal basic income is a complex issue but I'd say the following there is income and then there's usefulness and I think the most important past this basic income taking care of some of the basics the most important thing is usefulness by the way I don't believe

77:58 that the basic things are being well taken care of I can digress into that a little bit but we have to get purpose and usefulness so when we talk about giving money the real question is what is that money best used for right and so that concept is that the individual could decide best for himself what it's best used for that may be right and it may be wrong I

78:30 can't tell you whether it's right or wrong my wife Works in the most distressed school districts around and at a very early age there are major problems and we come from Connecticut from Connecticut and she works largely in Connecticut she supported the doing of the study of what percentage of the students what are disconnected or disengaged

79:00 a disengaged student is a student who attends school but actually doesn't participate they they don't study the presenteeism I mean they're sitting there but they're not doing anything kind of exactly and then disconnected is they don't know where they are and 22 of the students in high school students in Connecticut are one of those two things that's one in five okay so the real question I think is at a very early age nutrition

79:32 basic education creating making sure that the bottom is not and it's not just an education thing yeah it's the family that they go home to or what the circumstances are it's the traumas that they're having in their environment so these things the question is are those best provided in some manner by somebody else or would you if you gave that person the money would they do the right things for

80:02 the money and some these are difficult questions right I mean my I I know that on if we take Educational Opportunity like I didn't have anything and I when I grew up the idea of equal opportunity was like a basic right and an American dream and reality not equal outcome but equal opportunity equal opportunity right and that's also the beauty of immigrants who would come here and work

80:32 hard and all of that that equal opportunity okay so when I'm looking at it I would want to try to find out what are the mechanisms of creating that equal opportunity you know not equal income but equal opportunity so because that usefulness that disengaged that we're talking about that will be replaced more by technology and that that split that's happening is the most fundamentally important issue that we have to deal with I want to talk a little bit about

81:03 decision making at Bridgewater I mean what is the by and large what is the overarching process you use for decision making is it we have a decision to make we're going to get in a room and we're going to talk about it or is there something something that we're not seeing to this well it's it's it it's pretty much we have a decision making we get in the room to do it but what starts to be

81:28 different from that is that rather than thinking about what our decision is we spent more time thinking about what our criteria for making the decision is walk me through that a little give me like can you give me an example of how you would how you would go about doing that yeah you have currency because you have balance of payments problem rather than decide should we sell the

82:00 currency or not sell the currency we say what are our criteria and then we go back into all the times in history that that thing happened remember I said like everything happens over and over again yeah and if you could decide what species it is right and have principles for dealing with that species then you know how to deal with it best so that's the exercise of of saying okay what are our criteria for making decisions because if we can agree

82:29 on those criteria and then when there's disagreement rather than making disagreement about the action you say what is the disagreement about the criteria you can test the criteria because if you disagree on the criteria that is it or if you agree on the criteria the decision basically makes it so right how do you go back and correct if you're wrong well same thing you know you experience okay I'm wrong so this is pain plus reflection equals progress so

82:58 you look at experiencing the pain okay now calm yourself down and say okay what would I have done differently and again I what I do like to do is look at all the cases in which that thing happened before what happened differently to gain the perspective of the cause effect relationships and you do that you love your mistakes I mean love you don't love the outcomes in the United States of course but you realize that the connection is it's a feedback

83:26 loop you know so that you get that mistake meaning that you have to then learn as I say you know there are five steps to success okay first your goals you want to have audacious goals you have to know what the goals are second on your way to your goals you're going to have your problems your mistakes okay okay so you have to identify and not tolerate your problems then third you have to diagnose your problems to get at the root cause

83:59 okay root cause may be your weaknesses or somebody else's weaknesses or maybe the mistakes you got to diagnose them deeply so once you have the diagnosis then you have a fourth step which is design what you're going to do differently in the future and then once you have that design then the fifth step is you got to do it you have to follow through with those results and you keep doing that and it produces this looping as I'm calling

84:26 this evolutionary process so it's that process that we call it this five-step process that we're always living by so mistakes instinctually which causes the change my whole attitude our whole attitude about mistakes has changed dramatically it's like mistakes trigger puzzles and the and the puzzle if I solve the puzzle I get a gem yeah so the puzzle is what would I have done differently what

84:58 what should I do differently that would have produced a different result that's a principle you write down the principle okay the gem is the principle that lets you do better in the future so it's that kind of accumulation of learning and making the connection between the mistakes and the learning that's that's the process the the reflection process for you is is that maybe the most important part of that or or if you had or they're all

85:24 interconnected obviously you need all of them you need all of them yeah I think the reflection's probably the most important but if you're not designing your alternative to change you're not getting anywhere if you're not following through with that design you're not getting anywhere if you don't have your audacious goals so that you know where you're going you're not going to get to the right place because you're not really on a trajectory anymore right so you need

85:52 your audacious goals to know where you're going you need to recognize your problems you need to diagnose them to the root cause you need to do the design of what you do differently and you need to follow through with it what advice would you give to a high school class of students if you had to pass along a couple sentences of wisdom you know you know love your mistakes learn from them

86:25 realize it that personal evolution and mistakes and imperfection is a part of our lives and know how to deal with it well value what you don't know even more than what you value what you do know be radically open-minded go for the adventure have the adventure don't mind falling and you know banging yourself up or scraping

86:56 your knee it'll pass and make the most out of your life by learning and evolving those would be the general themes I suppose this has been an amazing conversation right I want to thank you so much for your time today thank you