Nikhil KamathWTF Is Wealth? Ray Dalio Breaks It Down w/ Nikhil Kamath | WTF is Finance Ep 2
EVERY SPOKEN WORD
60 min read · 11,754 words- 0:00 – 4:55
Ray Dalio’s early life & first exposure to markets
- SPSpeaker
[upbeat music] [laughing]
- RDRay Dalio
... Hello, everyone!
- NKNikhil Kamath
Hello. [laughing]
- RDRay Dalio
Amazing. I've created a leading indicators of what countries have their ingredients project the next ten years' growth rate. India is best. I think India, over the next ten years, has all the ingredients to really be the strongest growth rate and, and an improvement.
- NKNikhil Kamath
[upbeat music] A youngster in India who's twenty-five years old, how does he make money?
- RDRay Dalio
Uh, two things I'd suggest. First, play the game. Find a game that you love, and then be around people who are pros at playing the game so you can chat about it. That's a good path.
- NKNikhil Kamath
[upbeat music] How do you view crypto and the world of Bitcoin? Or even, like, stablecoin. Tell me this, if you were to back-
- RDRay Dalio
You've gotta give me one question at a time. [laughing]
- NKNikhil Kamath
[laughing] Okay, let's do Bitcoin, and then we'll do stablecoin. [upbeat music] Hi, Ray. Uh, thank you for doing this. As a trader myself, I've been trading now a long time, about twenty-one years. I think there will be a lot I can learn from you, and many others back home in India, like me, can also learn from you. If I can contextualize the audience we are talking to today, they are young Indian wannabe entrepreneurs, uh, investors, wannabe traders, people who want to make a living in the stock markets, I would say between the ages of eighteen and thirty.
- RDRay Dalio
Wonderful.
- NKNikhil Kamath
[chuckles]
- RDRay Dalio
That's, that's exactly, um, the group that I would like to speak to at this stage in my life, because I've learned a lot, and I w- just wanna pass what I've learned along to those people. So thank you for allowing me to do that.
- NKNikhil Kamath
No, thank you for doing this. Everybody knows you, but if we could go through, like, the big events of your life and, very briefly, just to set context again, could you tell us how you look at your life from the very beginning, from when you were younger up until today?
- RDRay Dalio
Okay. Um, my dad was a jazz musician. My mom, uh, was a sort of stay-at-home mom. Uh, I was raised, and, uh, I didn't have any brothers or sisters. Um, it was a loving family. Um, it was, um, not poor, not... It was lower middle class. Um, I did jobs when I was young. Uh, I- one of those jobs was caddying for at a, at a golf course, and because I caddied at a golf course at the time when there was a stock market boom, the people I caddied with, I would have conversations with. And I took the money I earned, six dollars a bag, I carried two bags, twelve dollars for a round. When I got fifty dollars, I would put it in the stock market. And so I started, um, playing around in the stock market, much like you're describing our audience does. And, um, the first stock I bought, I bought only because it was the only company I ever heard of that was selling for less than five dollars a share, and I thought, "Well, then I can buy more shares, so if it goes up, I'll make more money," which of course, made no sense. But it was a company that, uh, was about to go bankrupt, but another company acquired it, and it tripled in value, and I thought, "This is easy." It's not easy, but I got hooked on the markets at twelve.
- NKNikhil Kamath
Do you think it's like that...
- 4:55 – 7:20
Why early wins hook people into trading
- NKNikhil Kamath
I, I often think about this: there was a really tiny... When I was seventeen, I bought this company called Marsoft, a defunct software company in India, and the share price again doubled or tripled. The first experience of the stock market, the people who tend to continue are the ones who get lucky. Do you think so?
- RDRay Dalio
I think positive reinforcement works. [chuckles] Negative reinforcement-
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Sure.
- NKNikhil Kamath
If you lost money on your first trade, you would never have done it, maybe?
- RDRay Dalio
Probably, y- you know, you put your hand on a hot stove and it takes- how many times do you do that, and then-
- NKNikhil Kamath
Right
- RDRay Dalio
... you react to it. So I, I can't say for sure, but probably. But I got into the game.
- NKNikhil Kamath
Right.
- RDRay Dalio
It was a game, and it was... It's a great game.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
If you play it, you think of it as a game, and, uh, if you play it well, it pays you money.
- NKNikhil Kamath
Do you think the stock market has emotion? Does it treat you a certain way at the big-
- RDRay Dalio
I, I think it's unemotional. We are emotional.
- NKNikhil Kamath
[chuckles]
- RDRay Dalio
And we certainly have emotions.
- NKNikhil Kamath
Right.
- RDRay Dalio
And that's one of the reasons, the way I learned to invest-... was to write down my criteria when I was making a decision. Every time I'd make a decision, I would then think, "Why am I making that decision?" And then I write down the criteria and see how it would have worked in the past. It took me a while to do this-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... because of, of my experiences. And also, you know, when you're wrestling with positions, particularly a position that goes against you-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... you know, you're wondering, "Am I missing something? And then how hold do- how long do I hold that position, and what do I do?" So emotions and intellect and lack of perspective is a problem. So when you have a decision rule that then you know how it would have worked all through time, now you're just playing that decision rule, and it helps, you know.
- NKNikhil Kamath
Did you trade on leverage at the very beginning?
- RDRay Dalio
Um, I didn't trade on leverage in the beginning, but I bought... In the beginning, very early in my age, I bought futures 'cause it would give me leverage.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Okay, I decided very- nobody traded futures.
- NKNikhil Kamath
Right.
- RDRay Dalio
Okay. There were no commodities-
- NKNikhil Kamath
Right
- RDRay Dalio
... uh, it just very little. Okay, but, um, I realized
- 7:20 – 8:45
Leverage, futures & learning risk the hard way
- RDRay Dalio
that it would give me leverage.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And so I figured if I was gonna be good in the markets, I would wanna do- have that leverage, 'cause I'd make more money, so that's what drew me to-
- NKNikhil Kamath
Was it about four or five times leverage?
- RDRay Dalio
Well, it was the futures contracts.
- NKNikhil Kamath
Yeah. The margin requirement would be about 15, 20%?
- RDRay Dalio
Yeah, and that would be a good general-
- NKNikhil Kamath
Right
- RDRay Dalio
... uh, idea.
- NKNikhil Kamath
And what kind of contracts were you trading in the very beginning?
- RDRay Dalio
Well, then it was commodities.
- NKNikhil Kamath
Right.
- RDRay Dalio
Okay, so then it was, um, um, everything from precious metals to cattle. I, I got really into grain and, uh, livestock and, um, uh, you know, those types of commodities. So when I, uh... So my background- Okay, you wanted a couple-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... of stories, so I'll give you the stories.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
So I did this, and I went to college, and then, um, what was a defining moment-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... my learning experience was, um, I a- the year I graduated from college, 1971, I clerked on the floor of the New York Stock Exchange.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And this is before I went to graduate school, so it was in the summer.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And on August 15th, 1971,
- 8:45 – 11:25
Nixon ending the gold standard & why it mattered
- RDRay Dalio
President Nixon defaulted on his obligation, the US's obligation, to give gold paper market.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
You know, back then, gold was money.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
The paper money-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... was like checks in a checkbook.
- NKNikhil Kamath
Did he default or did he say that he will no longer back the dollar with gold?
- RDRay Dalio
I don't know the difference. [laughing]
- NKNikhil Kamath
[laughing] Right.
- RDRay Dalio
The way you say it, there was a promise that you-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... convert in, take $35, get an ounce of gold.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Then he said, "You can't t- take your $35 and get an ounce of gold," so that, uh, to me is-
- NKNikhil Kamath
And that was because of Vietnam and going to the moon.
- RDRay Dalio
Well, well, because we were spending a lot more. This is the thing through history.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
We always have to look at this. We'll get into this, I'm sure. But through history, back to the Old Testament and everything, the years of Jubilee and so on, is when there is a lot of claims on money, and there's not enough money in the bank.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Okay, and that's happened throughout history. So we have a central bank, uh, was... that started in 1913, and the idea was it had gold, and there were many more claims on the gold than there was gold in the bank.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Because for the same reason, you borrow a lot of money.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And when you borrow a lot of money and a lot more, one man's debts are another man's assets, so they're holding it, expecting that they can get the money, and then they want the money, but there's not enough money, and that was the Federal Reserve Bank's problem in 1971.
- NKNikhil Kamath
What is money, Ray?
- RDRay Dalio
What is money? Money is... Money is a medium of exchange and a storehold of wealth. Very important to r- to recognize it as a storehold of wealth. What is a storehold of wealth, okay? So when you, um... In India, many people realize that gold is a storehold of wealth.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Now, what we, uh... And then we per- it's the perception of money-
- NKNikhil Kamath
Mm
- 11:25 – 15:00
What money really is (store value vs medium of exchange)
- RDRay Dalio
a money.
- NKNikhil Kamath
Mm.
- RDRay Dalio
It's the only money... Well, maybe it's not. We, we could talk about crypto. Is crypto? But yes, gold is the only money that you can have, and nobody has to give you anything to have it.
- NKNikhil Kamath
Good-
- RDRay Dalio
Yeah, other money, all other money is dependent on somebody giving you something, okay? Whether they give you... A- and so what's unique in that, it's w- confiscation risk is less-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... than others. So that's why one of the reasons gold is unique. But it is also, back to your main point, main point, it is a widely recognized storehold of wealth that I could bring around the world, and I could, uh, use it, and it's particularly important in-... um, that it is not deflate-ah, uh, you can't deflate its value, but you can't print it. You create more of it, and then it also, in order to hold its-
- NKNikhil Kamath
I have a personal question here. I hold a lot of gold. I, for a long time, have kept ten percent of my asset base in gold. Uh, the thing I wonder with gold is, while it can't be replicated today, I mean, there are people who are talking it, about it as a by-product of fusion and how they will create it like they did lab-grown diamonds. I, I don't wanna extrapolate that far. But with gold, isn't it based on faith? Isn't it a bit like religion? Because gold inherently, I get that it's a great place to store value, but does gold have enough utility in isolation?
- RDRay Dalio
I, uh, money doesn't have much utility, generally speaking, right? If you're carrying around cash-
- NKNikhil Kamath
Yeah, it's paper
- RDRay Dalio
... it's not utility.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
It's paper, it doesn't have much utility. So I don't think it's utility. I think you gotta get out of the utility perspective of gold. Um, every g- every thing that's money could be a risk. Does it stay money? So for example, in the history of gold, when there were great discoveries of gold, then the value of gold is affected by the quantity of those discoveries.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And if they could replicate gold, or like they've been replicating diamonds, then that becomes a risk of gold. So there are all risks to all monies-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... and that are of a similar nature in terms of, of replicating the, the supply of them, or also, um, the acceptance of them as money. You know, there became, um, gold fell out of fashion-
- NKNikhil Kamath
Hmm
- RDRay Dalio
... as a money, and bonds fell into fashion.
- NKNikhil Kamath
Mm.
- RDRay Dalio
But the historic thing to know is that throughout history, there is always the temptation. W- uh, when, when, w- when you, uh, there's a fiat money, which easily can be produced, and then there's the temptation of the interest rate.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Okay, gold doesn't have an interest rate.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Okay, no interest rate.
- NKNikhil Kamath
In India, it does.
- RDRay Dalio
Oh, gold has an interest rate?
- NKNikhil Kamath
Uh, so India doesn't produce very much gold of our own. We end up importing a lot of the gold. So to be fiscally prudent, the government has this plan where if you buy sovereign gold bonds from the government, digital gold-
- RDRay Dalio
Through gold bonds.
- NKNikhil Kamath
Yeah, you get a, you get an interest.
- 15:00 – 18:00
The interest-rate trap: promises vs real money
- RDRay Dalio
your gold back.
- NKNikhil Kamath
Hmm.
- RDRay Dalio
Right? Then that's what mo- money was-
- NKNikhil Kamath
Hmm
- RDRay Dalio
... and that's why it would have an interest rate. You have an interest rate that on the promise to get your gold back. That's what everybody believed, and that's the great trick through history. The great trick of history, and everybody believed it back then for a long time, is, I, if I hold the promise to get the gold, then I will get an interest rate, and I could always turn my money in for gold, so why won't I hold the promise to get the gold and get an interest rate on it, rather than to hold the actual gold, which wouldn't give me an interest rate? And that was the trap, and that is always the trap. So when you look at it today, let's say, and you, you think, "Okay, I, I think it's just arbitrage." Um, let's say, I can hold gold that gives me no interest rate. I can hold Swiss francs, which don't give me much interest rate. I can hold US dollars, wh- which will give me, depending on the maturity, but let's say will give me a four percent interest rate. My basic question is, if gold goes up by more than four percent, go- gold has to go up by more than four percent, then I'm better holding gold, and if it goes up by less than four percent, then I'm better holding the bond. Uh, that, that'll operate. So I keep thinking about, though, uh, you know, that question, and the world keeps thinking about that question.
- NKNikhil Kamath
Mm-hmm. When I think of store of value, I also think of gold, money, US dollar, whatever currency be it. If I own equity in something very basic, like a farm, for example, which is producing a certain good, that makes it more fungible almost, right?
- RDRay Dalio
All assets-
- NKNikhil Kamath
Hmm
- RDRay Dalio
... are valued as their appreciation and price, and their yield. The yield that you're getting, and the price change, and that's a total return, and so all assets, you compare on that basis. If you're holding a farm-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... same deal.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Okay, uh, in other words, what is the yield on that farm from holding it?
- NKNikhil Kamath
Generally, more than four percent.
- RDRay Dalio
No, I'm, I'm not getting into the specifics. I'm getting into the mechanics. So we're looking at the markets as a whole.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
What I do is I just compare everything.
- NKNikhil Kamath
Right.
- RDRay Dalio
Okay, because all I want to do is I want to essentially borrow or be short-
- NKNikhil Kamath
Mm
- RDRay Dalio
... those that will have the lower returns relative to those that will have the higher returns. So it's constantly calculations in that way, however you get there, and that's true of your farm, as it is on the other.
- NKNikhil Kamath
Mm.
- RDRay Dalio
But I think that the farm or illiquid assets should have to give me a higher return because I'm not going to
- 18:00 – 21:48
How Ray compares assets, liquidity & leverage
- RDRay Dalio
have the choice of easily selling that farm and buying that farm. Whereas that choice, that flexibility, that liquidity-
- NKNikhil Kamath
But I'm talking about the public equity of a farm, farming company.
- RDRay Dalio
Okay, then you are dealing with the public liquidity. I didn't know that, but, yeah, I misunderstood in terms of that. So then there's no liquidity premium.
- NKNikhil Kamath
Mm.
- RDRay Dalio
Still that same calculation.... Okay, what is the yield, and then what is the price change relative? What is that? That'll be my return, and what is that relative to the other things I could be in? And basically, you start to think, when you think of leverage, you start to think, "Ah, okay, it doesn't have to be about zero." Zero means, like, no leverage. When you start to think, "Okay, I can be- if, if the lesser-returning asset can become a liability, meaning I can then borrow it and get higher here, then I want to get that spread," and that's how I think of the issue of using leverage. And then the issue is: how do you deal with the risk? The, the ri- the risk is not something that is at, like, zero leverage, and it's a black-and-white thing. It's a continuous thing. Look, I should say the following: There are two important ways to event-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... to invest, okay? The first is, what if you can't beat the market?
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Most people can't beat the market, so when they start off, everything isn't a bet. It's like, "If I don't know what to bet on, what is my portfolio?" And so you should start with: what is that mix of assets if you're not a trader, and so on. Um, what is the right mix? And that's, for example, why a lot of Indians hold gold, or a lot of people hold gold.
- NKNikhil Kamath
Mm.
- RDRay Dalio
They don't want a bet, but they're just-
- NKNikhil Kamath
Mm
- RDRay Dalio
... saying that'll be a storehold of wealth.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Once you have that portfolio, that portfolio should be a well-diversified portfolio that assumes you can't market time. Then there's the question: Can you market time?
- NKNikhil Kamath
[chuckles]
- RDRay Dalio
Okay?
- NKNikhil Kamath
Right.
- RDRay Dalio
So you're asking me a market timing question.
- NKNikhil Kamath
Mm.
- RDRay Dalio
I wanna distinguish it. I don't think most people should play a market timing question, and when you're asking me my tim- market timing, I view that question with a lot of responsibility-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... 'cause maybe I'm right, and maybe I'm wrong.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
I wanted to preface y- answering your question with that explanation, and then I'll go back to answering your question. I th- money is debt-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... and debt is money. What I mean, money... So here's mechanics: You're holding a debt instrument. What you're holding is a promise to deliver some money.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And what that money's worth will determine what the value of what you're holding is, okay? You're really m- you're holding when I hold that debt, you're holding money that if it's devalued, you're gonna be sorry, okay? And money is debt, and what I mean by that, when you're holding your money, you're holding it in a debt instrument, so money is debt, and debt is money. And so now I'm, when I'm answering your question, to me, there's too much debt, and we're producing it too much. And so when I'm looking at that, and I'm looking at around the world, and I'm not just looking at it in the United States, I'm looking at it in the UK and in France and in China, and in most countries, we're producing too much debt. That means I don't want that kind of money.
- NKNikhil Kamath
Mm.
- 21:48 – 24:21
Portfolio construction if you can’t beat the market
- RDRay Dalio
you should start to think, again, if you don't have that m- any, um... What should you be holding? I think individuals or uh, if you look at the quality of money, and like gold, let's call it, you wanna stay- I would say I wanna stay out of fiat m- currencies, and I wanna stay out of those things on a tactical bet, not on the strategic asset allocation bet. When I do that, um, I'm, I think to myself, um, "Okay, what should I have?" And an individual p- and most investors should have between 5 and 15% of their portfolio in a, a gold or an alternative money. Now, it depends what other assets they have in the portfolio-
- NKNikhil Kamath
Even if they're starting today to build a portfolio after the gold appreciation of the last year?
- RDRay Dalio
I, I think that they'd, uh, they have to stop even thinking about the appreciation and market timing as a starting point. You have to say, "What amount am I gonna hold?"
- NKNikhil Kamath
Mm.
- RDRay Dalio
Okay? What is that right amount? And it'll be beat... So the answer to your question is yes. Forget about... And we can get into the pricing of gold or what it might do and what it might not do, but still, you're, "Okay, I need to hold that amount-
- NKNikhil Kamath
Right
- RDRay Dalio
... because that amount is the right amount." If you were to go through a portfolio optimization-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... and you were to say, what, um, through a mechanical portfolio optimization, and you say, "What is my mix of assets to create the right portfolio?" If you're holding stocks, and you're holding other assets, because gold... G- gold is, over a period of time, a low-returning asset class, like cash. It'll produce, it has produced, and for logical reasons, it produces about a 1.2% a year real return.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
What's- that's, that's a low real return.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
But it is highly, um, diversified, because when the other parts of the portfolio do very badly, let's say, be- because of certain things, like we're talking about stagflation, you print money and all debt issues, then the gold does very well, so it also has a diversification benefit in terms of the portfolio. For those reasons, it is the most fundamental money-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... that we know of, and it is, at the same time, of an effective diversifier to other things. That'll get you to that 15- uh, between 5 and 15% of the portfolio.
- 24:21 – 26:40
Bitcoin, stablecoins & why Ray remains cautious
- NKNikhil Kamath
While we are speaking about currency, how do you view crypto and the world of Bitcoin?
- RDRay Dalio
... Bitcoin is limited in supply, and its perception of money, it is a form of money. It, it's perceived as money, as a storehold of wealth, that is unlikely to be significantly held by central banks, uh, and many others because of a number of problems it has. It ca- uh, uh, transactions could all be followed in Bitcoin. One can monitor what the transactions are, governments can monitor what the transactions are, and governments can interfere with those transactions. Just like we talked about earlier when we talked about, you know, gold is the only asset that you can have, that, they, they can't, uh, mess with and control. You've got it, okay? That's not true of Bitcoin. And then there are other issues in Bitcoin, like if we talked about the possibility, would somebody make, uh, go- synthetic gold like they would make, um, uh, synthetic diamonds-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... um, um, as, as a risk? Well, in terms of Bitcoin being cracked, broken, all sorts of things, and controlled, it has those issues.
- NKNikhil Kamath
Mm.
- RDRay Dalio
Okay, so that's how I look at Bitcoin.
- NKNikhil Kamath
So you're not bullish on Bitcoin?
- RDRay Dalio
I have a lit... Uh, no, no. I, I'm, I'm bearish on fiat currencies.
- NKNikhil Kamath
And bearish on-
- RDRay Dalio
Uh, so when I look at the world, I'm, I'm just trying to say... Then I say, "What do I hold?"
- NKNikhil Kamath
Right.
- RDRay Dalio
Okay, so I hold a little bit of Bitcoin.
- NKNikhil Kamath
Mm.
- RDRay Dalio
I have a little bit of Bitcoin-
- NKNikhil Kamath
Mm
- RDRay Dalio
... but for me, it's not as attractive as, um, uh, gold, for the reasons... You asked me my thoughts.
- NKNikhil Kamath
Mm.
- RDRay Dalio
Those are my thoughts about Bitcoin.
- NKNikhil Kamath
Mm.
- RDRay Dalio
A stablecoin, um, is attached to the fiat currency, so it goes down like the fiat currency goes down, and it doesn't give an interest rate. And, and well they're toying around with whe- whether it gives interest rates or not, but there's not a model that I've seen. So, so far, um, it's used largely for immediate, quick transactions and wi- not a storehold of wealth, but immediate, quick transactions, and it may be an efficient way to have that, but it's not my storehold of wealth yet. I don't see the merit of it.
- NKNikhil Kamath
So if I were to build you a portfolio, Ray, of storehold
- 26:40 – 28:41
What actually counts as a store of wealth (beyond gold & crypto)
- NKNikhil Kamath
of wealth, just that component, let's say 5 to 15 goes to gold, how much goes to, uh... You said you have a little Bitcoin, what percentage would that be?
- RDRay Dalio
I, I'm not going to give you what I've got.
- NKNikhil Kamath
Right.
- RDRay Dalio
But I'll give you g- uh, just general guidelines. Um, it depends on, um, the type of equities. D- you, you can't talk about equities as equities-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... because they're too divergent.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
As we're seeing, for example, now, it's so contra- uh, the magnificent seven, and, and AI and tech-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... is such a dominant thing. So in order to think about portfolio construction, you have to think what type of equities? Where do you hold those equities?
- NKNikhil Kamath
I'm not talking about equity, I'm talking about the assets that you hold with relatively lower risk, like gold and treasury and Bitcoin, which is not you taking a bet on a particular industry, but some place to park money. What else would you-
- RDRay Dalio
I, I see. In other words, you're a- you're not asking whether there's equities in the portfolio, or bonds, or what country, or anything like that. You're just saying that piece of equities-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... okay? Then you think about, [clears throat] um, that, on that storehold of wealth, you start to think about what that nature of that thing is. There aren't many. Some might say there are gems, some might say there are works of art. I mean, basically, when they say these things-
- NKNikhil Kamath
Mm
- RDRay Dalio
... they're going through criteria, which is, uh, can I move them around?
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Um, are they storeholds of wealth that are recognized in different places? They're not like real estate.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Real estate is something that's nailed down in a location. It's easy to tax. It's not transferable, and so on. So it's the, you know, tho- those kinds of things then.
- NKNikhil Kamath
Right. Do you think real estate
- 28:41 – 30:44
Real estate, taxation & why immovable assets are easy to tax
- NKNikhil Kamath
should be taxed? Like, we have very low property taxes in India.
- RDRay Dalio
I, I, I think, I think what should be taxed... I mean, like, if I was to create a priority list, first tax this, last tax this, a- and so on, and I would say in real estate, um, I think there's the question of, what does it mean for the economy? Or, what does it mean for those who are being taxed? Or, what does it mean for those who are taxing? I think the practical aspect of real estate in terms of taxing is because the individual or owner of real estate can't take it with them.
- NKNikhil Kamath
Mm.
- RDRay Dalio
It is a very practical axet- a- asset to tax for the government-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... because they, they can always tax that, and you can't take it with you, versus the other. So I think, uh, while, uh, you know, what should be taxed is, uh, dependent on who you're asking should. It's a, for the government-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... it's a very [chuckles] effective thing-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... to tax. For an individual, um, it's another. In terms of its economic, um, impact, I think it's fine to tax real estate. There's nothing... Uh, you've gotta tax something. I, I think nobody do you wanna have such a tax burd- burden on any one thing that it's crushing to the economy. Now, just generally taxes, I would say, you know, I wanna spread them out, and then I would tax things that are harmful. You know, like, um, uh, what I... I don't know, uh, they call them sin taxes.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Okay, if, uh, I don't know, maybe cigarettes-
- NKNikhil Kamath
Mm
- RDRay Dalio
... or, you know, um, I don't know, those things. Or and then some things that are harmful to you. The least things you would tax are those things that are helpful.
- NKNikhil Kamath
Yeah. I make a case for taxing real estate because I think a lot of the-... benefits of corruption and the bad money, the black money, in a way, sits in real estate, and that might be a good way to bring it into the tax system.
- RDRay Dalio
Okay.
- NKNikhil Kamath
[chuckles] Personally.
- 30:44 – 34:22
Learning by proximity: the modern version of “being a caddy”
- NKNikhil Kamath
If you go back to your life, you spoke about going to college after you began trading, after you were a caddy, and after ... Do you think there are roles today like the role of a caddy, where you work around influential people, and you can learn by virtue of being in their proximity?
- RDRay Dalio
It's always, it's always, of course, great to be about- around smart people. If they wanna be an entrepreneur, uh, whatever it is, uh, be around a smart entrepreneur and talk. Yeah, that's great, sure.
- NKNikhil Kamath
What was caddy, the job of a caddy back then? What do you think it would be today?
- RDRay Dalio
Well, they do the same. They ca- they carry bags, or um, they put them on golf carts, and but they walk, uh, there-
- NKNikhil Kamath
Right
- RDRay Dalio
... and it, if you're walking with people who are, it's an entrepreneur, or if you were a physicist, and you're walking with a-- wanna be a physicist, and you're talking with a physicist.
- NKNikhil Kamath
Any suggestion of other jobs like the caddy job today? 'Cause I'm thinking-
- RDRay Dalio
Whatever gets, what- whatever gets you, uh... Two things I'd suggest.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
First, play the game. If you have an opportunity to play the game, you can play the game. Well, the one of the beauties of the markets is it doesn't take a big portfolio to play the game.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
I, I t- I had $50, I went into the game, and I... And because the market pieces can be broken up into small s- sizes-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... you can almost play the game the same as a huge investor can play the game. Ease of access, you've got that in terms of those. So the game that you get into at an early age will influence you a lot. If I look at, um, like age 12, I'll give you that example. There's some people who say, the psychologists will say, prior to 12, people learn differently, um, because puberty, at the age of puberty, prior to that, you learn. If you're learning a language or learning a sport or learning things. Anyway, the earlier you start learning, the better it is, the more internal learning that you have. And so play, play the game, whatever it is. Bill Gates, um, and a lot of, uh, the, you know, key tech people like to play gaming. They were in gaming, and they would hack the games, and they would p- play in the computer, and that'll affect them. So play the game. Find a game that you love and ideally one that makes money. Wow, if you can do those two things together, that's a terrific thing. Play the game, and then be around people who are pros at playing the game, so you can chat about it. That's a good path.
- NKNikhil Kamath
Leverage and speculation, especially around equity markets, across the world, many people seem to be coming down on qualify a investor more before you allow him to s- speculate, buy futures or options. Uh, do you think that should happen, or should a young kid who's 18 and has that $50 be allowed to speculate?
- RDRay Dalio
These are questions about... I mean, they're, they're broader questions about, um, being taken advantage financially versus learning experiences. I, I don't mind any kind of risk, something that becomes a tolerable amount of risk. That's different from exploitation.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Okay? And so, um, I think that it's incumbent, it should be incumbent on anybody who's selling any investment product to be, uh, dealing with it at a certain age, to be thinking about, "Am I exploiting that person or not?" Okay?
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
So that's, uh... But that's a balance for regulators to deal with.
- NKNikhil Kamath
Right.
- 34:22 – 36:02
Prediction markets: speculation vs hedging
- NKNikhil Kamath
Uh, do you have a view on, uh, prediction markets? Like, I know Shane, Shane-
- RDRay Dalio
I like them, I like them.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Yeah.
- NKNikhil Kamath
Shane and Tariq are friends of mine. They both live in New York, Kalshi and, uh, Polymarket. Uh, in the future, does a lot of what is happening on stock markets move there, 'cause you can speculate on just about anything?
- RDRay Dalio
Mostly different ac- events to bet on, and I think events affect companies, but they're two different things. So I would say, um, it'll be something to speculate on, um, but, and it'd be something that smart people may use as a hedging device against owning an equity. Like, if this event happens, that event that you can speculate on, and that might have an adverse effect to the stock I'm holding, there'll be all sorts of engineering and so on. I would imagine you'd see something like that happening. Um, but, uh, we'll see, you know?
- NKNikhil Kamath
So you would use it like a leading indicator to make stock decisions?
- RDRay Dalio
Um, not a leading indicator.
- NKNikhil Kamath
Mm.
- RDRay Dalio
I wouldn't view it as a leading indicator. I mean, you might think about it, and it gives you information, but, um, uh, uh, it's a vehicle to speculate, it's a vehicle to use to hedge, um, it gives you some notion of what those who are, uh, speculating on it, um, is. There are certain things that I'd like to try to get across here in our interview that I'd like to-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... You know, what, what is the difference between wealth and money?
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Um, there are certain things that if I can get across to your audience-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... I'd like to get across.
- NKNikhil Kamath
Yeah. Do you wanna go wealth and money
- 36:02 – 41:32
Wealth vs money: how bubbles are created
- NKNikhil Kamath
first?
- RDRay Dalio
Okay.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
Bubbles, and wealth, and money. People are not used to dealing with the difference in them, and it's very important. Wealth can easily be created [clears throat] the way we account for wealth. For example, if you're- you start a company-... and let's say you wanna make a unicorn. You sell $50 million worth of it, you value it at a billion dollars, you're now a billionaire, and it counts in wealth as a billion dollars, and there's- but nobody would pay a billion dollars for that i- issue combined.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Okay? And that's a lot of what's happening now with wealth. And, and, and if you look at the 1920s bubbles or you look at those, what you see in one way or another is that wealth goes up, and people feel wealthy, but their wealth isn't worth anything if you don't sell it, convert it into money to spend, right? So people should know that, okay, that when they have this wealth, they perceive they have the wealth and so on, you- it's not worth anything unless you can, uh, convert it into money and spend it, other than its i- utilitarian value, but it's not worth what it, what it is, and that's how bubbles are created, the mechanics of how that bubbles are created. In one way or another, that happens, okay? Then there comes along the need for money. So what happened, and how does that work? Mm, for one reason or another, somebody's gotta get that money, that m- money, who... A- and they have wealth, so they sell wealth in order to get money, and then the bubble comes down. So if you look at the '20s and, and there, or you look at any of the bubbles, the Japanese bubble, or you look at the 2000 bubble, and so on, you can see this dy- dynamic because it can be created without money. Money is the means that settles transactions. It's very different from credit, okay? When you get credit to buy something, um, you have an obligation to deliver money. But when you get money and you buy something, you have no obligation to deliver anything. You've paid for it. You've settled your transaction. So now when I- when we look at this, we have right now a very high ratio of wealth to money, and this is particularly important now, okay? And there's a- and we have a very large also wealth gaps and values gaps. But when you have such a large wealth gap and, and you have populism of the left and the right and so on, and you have the notion of wealth taxes, you can have wealth tax... A- m- as wealth taxes come in, mm, what... And the, and the wealth is so large relative to the money. Um, if you're not taxing wealth, uh, wealth, then people can get very wealthy w- and no money can be raised for the, for the taxes. So there's a real pressure to tax wealth, and if you tax wealth, then people have to sell in order to get the money to pay the taxes, and that creates a dynamic that can pop a bubble. So in my opinion, we're in a bubble, okay, by various measures of it being in a bubble, uh, and, uh, and people feeling very wealthy, but you have that vulnerability. So that is largely the dynamic of when we see these wealth booms and then the wealth bumps. I wanted to convey that, okay? So that's the first thing I want to convey.
- NKNikhil Kamath
Is there a way to calculate wealth-to-money ratio, which you said-
- RDRay Dalio
Yes, I do.
- NKNikhil Kamath
Right.
- RDRay Dalio
I do, right.
- NKNikhil Kamath
Relative-
- RDRay Dalio
Wealth-to-money ratio right now in the United States is about eight and a half to one and, and so on. And when you look at it, um... And then also, then there's what it's in. The stock market, it, um, is, is right now about three to one, and, uh, and that's very high. If you were to go back to 1929 or 2000, it's at about the same level, uh, as it, uh, was in those times.
- NKNikhil Kamath
Is it higher today than 2008 and 2000?
- RDRay Dalio
Well, two thou- 2000 was the peak.
- NKNikhil Kamath
Mm-hmm. How much was it?
- RDRay Dalio
Uh, same, same as today.
- NKNikhil Kamath
Mm.
- RDRay Dalio
The sa- same wa- uh, same level. Now, if you take 1929, 2000, and now, it's, oh, right now, if you look at that chart, you can, you can see that chart. So, um, we have a lot of wealth and a lot of equity wealth relative to money.
- NKNikhil Kamath
Do you think it could be possible that tomorrow wealth tax is collected in equity and not money?
- RDRay Dalio
No, because they have to spend it, and they have to pay it. O- in other words, the liability that it's gonna fund can't be paid by, "I'm going to give you a piece of my farmland." [chuckles]
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
You know, y- you get a piece of the farmland-
- NKNikhil Kamath
The government gets a piece of the farmland.
- RDRay Dalio
Yeah, that's what you're suggesting.
- NKNikhil Kamath
Yeah.
- RDRay Dalio
I don't think that's realistic.
- NKNikhil Kamath
Uh-
- RDRay Dalio
You get a piece of the farmland. [laughing]
- NKNikhil Kamath
Right. [laughing]
- RDRay Dalio
Okay, you're not gonna-
- 41:32 – 45:39
The 5 big forces that drive economies & markets
- RDRay Dalio
talk about the five big forces that i- that drive things-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... if I can. Um, first, there is a debt money economy markets dynamic. Credit creates buying, but it creates debt, and when it ha- creates debt, there's an obligation to pay back, and then the... And, and so how that dynamic works.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
The second big force happens simultaneously is the internal political force.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
You experience it India, every country does. We experience here. There's an element here of that political force that there's left and right, in other words, the rich and the poor, and the conflict and how to run a country, and so on. So that political force... And there's a cycle of... Just as there's a debt cycle, that means that you cannot increase your debt past a certain point, and that changes. That monetary order cycle lasts something like a lifetime.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
Um, a- a- and that, that's the debt cycle. There is a political cycle that goes with that, that has a left and the right in the politic, and we are in the middle of that. So the nature of our governance system and the nature of democracy, the risk of do you f- uh, we're past the point-... of, um, saying that we'll abide by the rules, okay? It's a, it- it- when you have populism on both sides, it's a win at all cost type of, of approach. Will you accept election results? Can you- can the government compromise? Can it govern in that way? That political cycle is number two, and it mat- matters a lot, that all these cycles relate to each other. Number three is the geopolitical order, the world order. In other words, we came out of 1945, you come out of... You end a war, and then the dominant powers detime- determine how the world order works, how- who has what power, and what the rules are. That was dominated by the United States because of the power it had, and then you have changes in relative power, the emergence of China, the, um, relative decline of the United States, India's role, and other places' role. That world order has changed. That world order has gone from a world order that it was a multilateral world order, sort of with rules, like the United Nations, and the World Trade Organization, and the World He- uh, Health Organization, and the world this is, you know, the World Bank, and the world this, and the world that, in terms of multilateral governance, and that is over, okay? So we no longer have that kind of a world order. We have a world order which is dominated by, uh, power, power struggles, and a- as we deal with that. So those three cycles, that money cycle, that debt money cycle, that internal order and disorder cycle, that international world order cycle, they tend to coincide, uh, throughout history. When you have the, that convergence, you almost have a perfect storm of that. The fourth influence through time has been climate, um, a- acts of nature. Droughts, floods, and pandemics have killed more people than wars and changed more orders. And number five, always through history, is man's inventiveness, particularly of new technologies. So everything that we're- we would ever talk about in the markets, in the economy, will fall under those things, practically everything, and it's the interrelationship of those things and the arc through history that one needs to see in order to understand what's going on. So my basic view is that there are many things that happen over and over through history that haven't happened in, in our lifetimes, that are very educational, very valuable in being... making decisions.
- NKNikhil Kamath
I'm gonna ask you a question, Ray. How does a youngster... This is a very candid, pragmatic question.
- 45:39 – 50:00
How young Indians should actually “play the money game”
- NKNikhil Kamath
How does a youngster in India who's 25 years old, say his name is Nikhil, and he's living in India, in Bombay, uh, how does he make money using all this information and framework? 'Cause that's his objective.
- RDRay Dalio
Play the game.
- NKNikhil Kamath
How do I use this information to play the game better?
- RDRay Dalio
Oh, I, I, I, I think, I think there's cerebral learning and there's visceral learning, you know? And, um, uh, so I can tell, we can talk-
- NKNikhil Kamath
Yeah
- RDRay Dalio
... like this, but we are- it's a different thing. Once you start to get into playing the game, whatever the game is, little entrepreneur on, um, street corner selling something, okay, that's- you play the money game.
- NKNikhil Kamath
Right.
- RDRay Dalio
Okay? Whatever way you play the money game, maybe it's in the public markets-
- NKNikhil Kamath
Mm
- RDRay Dalio
... maybe it's in you buy a little piece of real estate or you have a hotdog stand. I don't know what it is-
- NKNikhil Kamath
Mm
- RDRay Dalio
... but you play the game, and as you start to play the game, you'll start to learn the fundamentals of the game. You... And we talked about this. Be around people who also will play the game. So while you're playing it, and you will learn through your experiences, and your reflections, and the help of other people.
- NKNikhil Kamath
I think everybody wants to play the game, and they're attempting to play the game, but what will be really cool is if we can get an insight from you of how to play the game. Like, if I were to be looking to begin today, should I look at, is value in public markets, in private markets? Should I be-
- RDRay Dalio
I, I, I, I think it's more like the opposite. What happens is, you find your thing.
- NKNikhil Kamath
Mm.
- RDRay Dalio
Okay? There are many different games. O- l- if you look around you, there are many different games. You know, it, um... I have my grandchildren, um, sell, um, hot cider in the winter in a park, and then what- and then they understand capital formation. "I have to buy the f- the, the flask. I have to buy the table." Okay, that's capital formation. Then they understand when they go out that, "Okay, if I can, uh, produce it, what's my incremental cost, when unit cost for producing it relative to I ca s- I could sell it at this? I have a margin of this." Then they understand margin, and then they understand that they make money when that overcomes their ca- uh, capital cost, okay? To play in the game, they start to think about that way, then they start speaking with others. "Gee, can I- where can I get the cider cheaper or whatever?" And, and so on. So, i- there are all these games around you, okay? And start to play, then you'll ask the questions, then you'll dig, and so on. Uh, or, yeah, you can find somebody who will help you, and they might say, "Hey, here's this little job that you can do." Whatever it is, it is that little germination that then creates, um, mul- empires. That, that, that's the process of going from wherever you are in India to- or wherever you are, for me, caddying on a golf course in the United States, that's the process that allows that to grow and develop over a period of time. It's very helpful to understand your nature.... Okay? People have different pulls. Some people are more risk-averse. Some people like to pay attention to the big picture. Others w- will handle risk. Others will pay attention to the details. What is your nature? So I created online, um, it's free, online, um, a test called Principles You. I recommend you take it, everybody take it, and it'll look at you, and through answering questions, you'll learn about yourself. And if you also have other people that you know you have relationships, you'll look at them to help to identify their nature, what is their inclinations? And I think that what, uh, what really is the journey in life is to try to know about your nature and find a connection to the right path, right? So there are many right paths. For all your audience, I want you to know your nature and try to match it up with what the right path is for you.
- NKNikhil Kamath
Um,
- 50:00 – 52:43
What makes a successful trader or investor psychologically
- NKNikhil Kamath
for the trader in me, uh, if I were to go back in time and be 18 years old again, if I were to specifically ask you... You, you model people a lot in the sense that you psychoanalyze them, you let- you have them go through different kind of testing to figure out what psychology is suited to what. What works for a trader, Ray? What makes a trader successful?
- RDRay Dalio
There are many w- w- when, when you use the word trader, it has an implication of a certain way of operating that may- that is only a small percentage of the total-
- NKNikhil Kamath
Agreed
- RDRay Dalio
... way of investing, right? So, uh, it's the person who, um, the, the, it, it could be buys this from here and sells it from here. It could be the form of, you know, you buy a bracelet here, and you sell a bracelet here, and you do it, or it could be a stock trader, and so on and so forth. And that implies, like, buy, sell, and so on. There are many other ways. I think you have to-- if you're understanding, let's say, investing, then you have to understand the various ways of converting one thing to another thing and making a profit, and that's why I give the example of the cider cases and so on, uh, for being able to do that. Uh, a trader, b- I'd say, think, biases it too much to the guy who's flipping, so-
- NKNikhil Kamath
But I think for this example, let's say, what is the archetype of a trader/investor that would help him succeed?
- RDRay Dalio
Okay.
- NKNikhil Kamath
Psychological.
- RDRay Dalio
First, you're going to go into it, and you're gonna get hooked on it, like getting hooked on a game, okay? And you're not gonna know anything, and then through those experiences, what you need to do is be curious to understand mechanics, okay? What are the cause-effect relationships? What are the things that make the market go up or down so that you can... And whatever it is, whether you're a day trader or whether you're an investor, you have to get into the mechanics, and you have to learn the mechanics, right? And through that experience, and you- if you think and you're curious, and you can research, then you can do that. I am creating a platform that anybody can use to help them do that. In other words, there's information, and the way you make decisions is your brain brings in information, and it puts it through criteria that determine action, okay? That's how the brain works. That's all the decisions. And so you have to learn, what are, uh, what is the criteria that are... And the criteria is cause-effect
- 52:43 – 55:00
Curiosity, cause–effect thinking & building an edge
- RDRay Dalio
relationships because causes happen before effects, and if you understand cause-effect relationships, and you understand the causes, you can bet on the effects that it will be hap- happening from that. So you have to be curious, and you have to be analytical to understand those cause-effect relationships. You begin a journey, okay? Because if you're just gambling, and you don't understand the cause, you won't have an edge. You need to have an edge, okay? And that is by knowing those cause-effect relationships and playing your bet and how to organize your bets so that there's a diversified group of bets because the power of diversification means that you can greatly reduce risk without reducing returns.
- NKNikhil Kamath
Right. What else do we have? Curiosity, understanding cause-effect relationship, then?
- RDRay Dalio
Um, uh, being addicted to the game and getting the best guidance you can get.
- NKNikhil Kamath
Right. How does one get guidance?
- RDRay Dalio
Oh, guidance is all around you. I'm part of the guidance here today. There are courses you can take, okay? Once you have the curiosity-
- NKNikhil Kamath
Mm-hmm
- RDRay Dalio
... then you will dig, and you will learn, and you will experiment.
- NKNikhil Kamath
Is that what worked for you, Ray? You still-
- RDRay Dalio
Yeah
- NKNikhil Kamath
... You still come across as a very curious person. It almost feels like you're trying to answer the question of life-
- RDRay Dalio
Yep
- NKNikhil Kamath
... that can't be answered in a way.
- RDRay Dalio
I, I'm learning more every day.
- NKNikhil Kamath
Right.
- RDRay Dalio
And I can't answer it all or, or, u- understand it at all, um, but I, I understand a lot more, and I get a kick out of it. You know, um, Albert Einstein, supposedly, on his deathbed, was still trying to figure out problems. Um, I can imagine me doing that because I love the problems and like to learn, you know? Um, so yes, I have, uh, that addiction to learning and, and then, uh, one of the great things about this game is i- you bet on it, and you get a score. So you, uh, it, you can measure my performance down to three decimal places, and so on. So, yeah.
- NKNikhil Kamath
Has this taken a lot of time, changing world order, the research, the amount of effort that has gone in?
- RDRay Dalio
Yes, but it's a passion.
- NKNikhil Kamath
Right. What do you hope to achieve at the other end?
- RDRay Dalio
For me now?
- NKNikhil Kamath
Yeah.
- 55:00 – 59:50
Ray Dalio on legacy, Community & passing knowledge forward
- RDRay Dalio
My main thing is, can I pass it along-... I- I've got a journey, and I learn, and I love it, and, and all of that. But so it's still a passion, but what I'm really also trying to do as I approach this stage in life is to pass it along. I think there are three stages. For me, there are three stages in life. There's the first stage where you're dependent on others, and you're learning. You go to school, you're not really doing it, you're just learning, right? And, and you have that dependency. Second stage is you begin the second phase of life, very different stage, is you're working, and you're trying to be successful, and others become dependent on you.
- NKNikhil Kamath
Mm-hmm.
- RDRay Dalio
And in that phase, you're dealing with the real world in terms of being able to do it. You're... It's no longer academic. And then you- and you have your career, and I started Bridgewater, um, largest hedge fund in the world. I started out of a two-bedroom apartment. I ran it for 50 years, and, um, then I passed it along. Okay, wow, what a great journey, and I learned a lot. Okay? But now I'm at a phase in my life where what I wanna do, I'm in the transition to my third phase, and this- in this transition, I think that there's an instinctual, uh, desire to pass along what you've learned, to mentor. Why am I doing your show? Okay, because I have that desire, so that's what's important to me.
- NKNikhil Kamath
And why do you have that desire? I'm just asking you-
- RDRay Dalio
I think it's-
- NKNikhil Kamath
Uh, huh
- RDRay Dalio
... instinctual, and it's intellectual. It's instinctual, almost, um, we learn, uh... you know, man's subliminal understanding goes back millions of years, even though man only is 250,000 years old, and so on, because of what becomes why do we love our, uh, raise our children? Why do we do many things? It's sub... There's a lot of subliminal things that enter into why we do things, uh, and, and then there's a- and it's intellectual. What do I wanna do? It's the most valuable thing I can do. Um, karma, okay? Karma, what goes around comes around. In other words, that notion. That... So I, I, I believe it, I feel it, and I, I want to do that, so it's both intellectual and emotional.
- NKNikhil Kamath
You've spoken about karma and meditation, and does that play a role in your investor career? It makes you a better investor?
- RDRay Dalio
Oh, it's a, it's a... These are dominant things. Meditation has been the biggest source of success that I, um, have. It's given me an equanimity. It's given me, um, uh, when you transcend... I do transcendental meditation, listen up. When you transcend, you're going into your subconscious, and as you go into your subconscious, it helps align your subconscious with your conscious. It brings back a creativity, uh, bring back a flow because, like creativity, if you go take a hot shower, and you, you're relaxed, and so on, ideas can come to you much, much better perhaps than if you try to muscle them out. So meditation has played an important role, and then karma, I'm, I, I believe in the, the reality i- is, um, is that, um, by people mutually helping each other or-- and not just people, but operating in a way that's also helpful to nature and the world, that there is this greater, um, there's this greater good, and that what happens is it's very functional because, uh, a little things that won't take much for me to help somebody else can make a life difference to them, and then they, um, when they do something, whether it's to me or whether others, you create an environment like that, you create a better environment. So not only is it practical, it also has the effect of creating this wonderful, uh, environment. Um, the... you look at, um, studies of history, and you find in studies of history, uh, what brings about happiness and health. Past a certain amount of money, uh, li-- of basic subsistence life, there's no correlation between the amount of money you have and the amount of health, uh, happiness you have. Um, the greatest source of, uh, health-- happiness, excuse me, across, uh, societies, is community. If you have a good community, and, and that's, that's a source of helping it and well-being. So I think that these are laws of nature, and they're just reality when I look at them that way. So, yes, your, your question was: Does meditation and karma play a role? It plays a role in everything. Yeah.
- NKNikhil Kamath
You spoke about community, Ray. You're spending time in Abu Dhabi,
- 59:50 – 1:05:02
Leadership lessons from China, UAE & global powers
- NKNikhil Kamath
for example. Uh, how do you find that place culturally?
- RDRay Dalio
Oh, I love it. I-
- NKNikhil Kamath
Yeah?
- RDRay Dalio
Uh, I, uh, I, uh, I started going there, uh, 32 years ago, um, because their large wealth fund, uh, hired me and hired Bridgewater as an, an investment. I think that they understand karma, and w- each society has, uh, may call it different things, and so on, but they understand, um, most important things, um, and al- and also, uh, to create a s- a, a successful society. What is, is required to, to create a successful society is basically three things. If you knew this well, then you have a successful society. The first is teach your children, educate your children well, so that they are capable of, uh, succeeding, earning money, and so on, and living a life, and also that, uh, they're civil.
- NKNikhil Kamath
Mm.
- RDRay Dalio
They understand civility. Have them come out to a ci- civil society in which people work well together to make good things happen.... and stay out of wars. Stay out of a domestic war, and stay out of an international war. If you do those three things well, you will have a successful society, okay? So now, if when I look at the, the places, you could almost look at that. Is, is there harmony? Is there- do you educate the children well, and, and do you have broad-based prosperity? In other words, that it works well for most people, right? These are, these are fundamentals. And so, um, in the Gulf countries, um, uh, particularly Abu Dhabi or the UAE and Saudi Arabia, and so on, even there's a Bedouin culture and so on, that has elements, uh- a lot of elements in, in those things. It exists in other places. In a- in various places, success is their version of it. If you go to, um, Asia, and y- and, and you go to Singapore, you go to China, they do it in their Confucian way, okay? In terms of harmony. How do you do harmony, or what is common prosperity? How do I, um, make it that most people are benefiting? And that if you look at the accomplishments within India in terms of the development... And, and so when I say that civility, certain basics, do you earn more than you spend? Do you have a good income statement and a good balance sheet, okay?
- NKNikhil Kamath
Mm.
- RDRay Dalio
These are basics. You have these basics, you will have a successful... If not, I'm not saying not challenging, but you'll have a successful life, and you'll have a successful society.
- NKNikhil Kamath
You've had a very eclectic experience in terms of China, Russia, Abu Dhabi, Saudi. Uh, how are they? Like, how are these people to talk to? Uh, uh, can you tell us something about them?
- RDRay Dalio
Well, the best, uh, um... The best leaders are reflective. They go above it, it being how the world evolves, where they are in the cycles, they understand human nature, and they care deeply about, uh, the well-being of their people, and they're practical. That- those are the, you know, the characteristics. So we have conversations that are quite like this, and then you get into this particular, like, what to do, you know? Uh, you know, how do you deal with the conflict, okay? So there's the conflict, and like a, uh, a general rule, um, be neutral, okay? 'Cause if you look at the history of wars and so on, there are, uh, winners of the wars, losers of the wars, and neutral countr- countries. The winners of the wars lose, meaning they still get deeper in debt, and they have the consequences of the wars. The losers of the wars get wiped out. They lose everything. And the neutral countries prosper from the wars. Even that's how they accumulate money, and they don't have that problem, and so it's, it's always better to operate that way. Now, if you look at history and you then say, we apply it today-
- NKNikhil Kamath
Mm.
- RDRay Dalio
Okay, so the conversations are like that.
- NKNikhil Kamath
You've liked China for many years. I think one of your kids went to live in China. How do you s- see the global dynamic playing out between China, America,
- 1:05:02 – 1:12:45
China vs US vs India: understanding the new world order
- NKNikhil Kamath
Russia? Maybe you can opine on India as well.
- RDRay Dalio
Mm-hmm.
- NKNikhil Kamath
What do you think will happen next?
- RDRay Dalio
Now we have the changing world order. The United States and other countries have a, a different mentality about fighting, and so on and so forth. There may be that dynamic. So now you have a gr- the change- wha- power matters. Power in all of this. Not, it's not the rules of the game, it's not etiquette, it is power matters, and that is the dynamic that we have. What's most important is how healthy the country is, each country, more important than the international way. If you're strong, you're strong, [chuckles] and that's the most... So be strong and healthy. And so there, uh, the United States is going through its challenges. We could- we talked about that, we could talk about that more, and then the- and then ch- uh, China is going through its challenges, India is going through its challenges. But how it goes through those challenges to do the things that I just said are effective to make an effective country, is the most important thing. So I don't think we're going to... There is a greater risk that we can have, um, I'll say military war. We are certainly in the classic wars that happened before a military war. We're in a trade war, we're in a technology war, we're in a geopolitical influence war. All of those are in that, and that's the dynamic that's happening. If you're asking me, uh, what it means, I think that it's probably that they're not... It's lower risk of, you know, a big, uh- It can happen. You have to be careful. But, um, I think then it's how each country takes care of their own and becomes he- strong and healthy that matters most.
- NKNikhil Kamath
And how do you think the dynamics between them will change? If I were to get more specific, as a proportion of world trade, who will do better? Will it be- 10 years forward, will it be China or the US?
- RDRay Dalio
I think when we look at-
- NKNikhil Kamath
And, and also, how does India fit into this? What can we do better?
- RDRay Dalio
Um, I think the technology war is the most important war, that almost whoever wins the technology war will win almost everything.... I think that right now you have a situation where they recognize that the- each side can do harm to them, and actually is using techniques. And so they're- we're now in a period of time of inter- eliminate or reduce interdependencies, that there's a list that both countries or all countries are going on, and they say: "How can I squeeze the other? What dependency do they have that I can use to squeeze the other, or what dependency do I have that might be used against me to create squeezes?" And that's in capital as well as trade, and so on. So everybody's now going to kind of this independence a- and, you know, minimizing interdependence, because that's the smart thing to do, whatever... Because I will be squeezed if I can be s- it'll be used against me. So that's where we are on that, and then compete to become most effective, most powerful, most rich, most powerful. They're both doing that, and technology will be important. So I think that over those periods of time, you're going to see, um, that dynamic. Um, I think China, uh, they're ahead and behind in different ways. Um, for example, the inventiveness of new chips, um, and the most advanced chips, um, the United States is a bit ahead, is, is ahead. Um, and then, uh, but the application to use the chips, whatever AI there is, to be able to integrate it into life and making it for the society, most applications and most effect, China's ahead. I think that, um, India is, um, at a wonderful, um, arc in terms of, um, its circumstances, its potential, and, and what, and what it's developing. And I think that, um, uh, President Modi is very much like, uh, Deng Xiaoping for China. Um, a- and what I mean by that is that, um, he's creating changes. And when you are... have a country that, uh, can build its infrastructure and can build on that, so that you-- and you don't have much debt, and you have a large, talented population in many ways, um, that, um, um, for these reasons, I have, um, I've created these, uh, indicators, leading indicators of what countries have their ingredients to b- pro- project the next 10 years' growth rate. India is best. India is going to have probably the... It has the best fundamentals to have the best growth rate in that. Because you're going from not having enough money to having pro- that has infrastructure. You have to build infrastructure. When you're building infrastructure, when you're creating the s- the things that are happening and in the, not only, um, all the different infrastructure, including the ability to get credit and the ability to do transactions, and so on, um, in that, that produces a growth curve, particularly if you don't have very much debt, um, and you have talented people. So I-- for those reasons, I think India, over the next 10 years, has all the ingredients to really be the strongest growth rate and, and an improvement. However, it's- it still has development to do. It is more akin to where China was, um, you know, uh, 30 years ago, maybe, than where, um, uh, China is today. So it has that, that growth. It- the actual power of it is not as great as the, uh, those other two countries.
- NKNikhil Kamath
Ray, I'm going to ask you the last question of today. If you were 25 years old and in India, and you had either $100 to... If you had $100 to invest somewhere, where would you put the money?
- RDRay Dalio
The first thing I would do, um, is ask myself: What do I need most to be most successful? And I would secure that, right? It's not just return on investment. Does that mean that I can take a little bit of that $100 and I could start my little business, or do I secure that $100 to have my education that I'm b- being able to operate? Whatever is going to, as a young person, invest in their own success, to be able to learn. Do I-- How do I learn? Do I listen to your podcast? What is it that is going to allow me, as that young person, to be able to invest in myself and learn and get better? So that's the most important thing. That's the best investment I can make.
- NKNikhil Kamath
Super. Any last words, Ray, for our audience?
- RDRay Dalio
No, just thank you. Um, I would say, if you are interested in staying in touch, um, you can, uh, do that o- o- online, um, through LinkedIn and various, uh, media. Um, and it's my pleasure. Thank you. Thank, um, them, to be able to communicate this way, and I hope it's of some use.
- NKNikhil Kamath
Thank you, Ray. I hope you come visit India someday soon.
- RDRay Dalio
I will look forward to it.
- NKNikhil Kamath
[chuckles] Thank you so much. [upbeat music]
Episode duration: 1:12:45
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