Ray Dalio, Founder and Chairman, Bridgewater Associates

1. 0:00 – 0:06

   Intro

   1. SPSpeaker0:00

      [upbeat music]

2. 0:06 – 2:24

   Early hustle on Long Island and a first stock-market win

   1. SPSpeaker0:06

      Ray, we are so excited to have you here tonight at Stanford. Thank you for joining us.

   2. RDRay Dalio0:11

      I'm so excited to be here.

   3. SPSpeaker0:13

      Well, Ray, as a tribute, as our little tribute to Bridgewater, we are going to videotape this conversation.

   4. RDRay Dalio0:18

      Okay. [laughs]

   5. SPSpeaker0:19

      [laughs]

   6. SPSpeaker0:20

      Um, but I had to veto any of this live scoring stuff. I'm just not at your level in handling feedback yet.

   7. SPSpeaker0:25

      [laughs]

   8. SPSpeaker0:27

      We've got a lot to cover: your life, your principles, and how you think about the future. But before we start, I wanna get a feel for our audience here tonight. So please raise your hand if you have read or are reading Ray's book, Principles. Wow.

   9. RDRay Dalio0:44

      Wow.

   10. SPSpeaker0:45

       Pretty good. Okay, and f- for the rest of you, how many of you are planning to read Principles?

   11. SPSpeaker0:51

       [laughs]

   12. RDRay Dalio0:51

       [laughs]

   13. SPSpeaker0:53

       Yeah, they're an ambitious group.

   14. RDRay Dalio0:54

       Yeah.

   15. SPSpeaker0:54

       And for anyone else out there, do you at least have your own moral principles?

   16. SPSpeaker0:57

       [laughs]

   17. RDRay Dalio0:58

       [laughs]

   18. SPSpeaker0:59

       There you are. Okay, good, good.

   19. SPSpeaker1:00

       [laughs]

   20. SPSpeaker1:02

       Let's start back in the early days on Long Island. Now, you were quite the capitalist growing up. You were a paper boy, a lawnmower, a snow shoveler, and a golf caddy, and at the ripe old age of 12, you made your first investment in the stock market. Talk to us about how that even happens.

   21. RDRay Dalio1:24

       Well, it, it... You know, everybody was talking about the stock market then. It was no big deal, really. [clears throat] Um, at, at the time, in the '60s, the stock market was the hottest it has ever been. Um, literally, if you got a haircut or anything, everybody would talk to you about the stock market. And so when I was caddying, they were talking to me about the stock market, and I'd take my $6 a bag, I would, uh, take my $12 and, and when I got $50, I'd put it in the stock market. It was just a natural thing to do.

   22. SPSpeaker1:54

       And it did pretty well, the first investment?

   23. RDRay Dalio1:57

       Yeah, the... I w- It was the only company that I ever heard of that was selling for less than $5 a share. So I figured I could buy more shares, which meant if it went up, I'd make more money. That was my rationale.

   24. SPSpeaker2:08

       [laughs]

   25. RDRay Dalio2:09

       That was a stupid rationale, right? Um, and it was a company that was about to go broke, but another company acquired it. It tripled in value, and I thought, "This game's easy. I can make a lot of money."

   26. SPSpeaker2:20

       [laughs]

   27. RDRay Dalio2:21

       Game's not easy, but that's what got me hooked.

3. 2:24 – 4:27

   Choosing commodities over Wall Street glamour—and getting lucky on timing

   1. SPSpeaker2:24

      So you got a bit of a rolling start, but you continued to invest through high school and university, and you later enrolled at a business school, one we like to call the Stanford of the East-

   2. RDRay Dalio2:34

      [laughs]

   3. SPSpeaker2:35

      [laughs]

   4. SPSpeaker2:36

      ... where you met, of course, Joel Peterson.

   5. RDRay Dalio2:39

      And Joel was in my head group, and we have good memories.

   6. SPSpeaker2:42

      [laughs]

   7. SPSpeaker2:43

      Now... Yeah, we'll, we'll, we'll talk about those later.

   8. SPSpeaker2:45

      [laughs]

   9. SPSpeaker2:46

      Now, Ray, for your summer internship, many of your classmates were going to Wall Street, and they were seeking these glamorous equity trading positions. You, on the other hand, sought out a role in commodities trading, which at the time wasn't just less prestigious, it was pretty obscure for an MBA to seek out that kind of a role. So talk to us about what that experience of going against the grain taught you.

   10. RDRay Dalio3:12

       Well, it, it was, uh... I figured mar- they had low margin requirements, right? You only had to ba- basically put up about 10% of the money. So I figured if you're gonna be right, you'll make more money 'cause of the low margin requirements. So I got hooked on commodity trading. And then there wasn't anybody who would go from Harvard Business School. And so this was 1972, the summer of 1972, when I went to the director of commodities and I begged for a job, and, uh, he gave me a job, and that was just before the 1973 oil crisis and the oil shock. And then Wall Street went to hell, and commodities became hot, and I was lucky, and so I went into commodities.

   11. SPSpeaker3:58

       So you were hot property by second year, and-

   12. RDRay Dalio4:02

       I, I never da- I never really knew anything about commodities other than the summer job, but I was then a hot property 'cause there was no Harvard Business School-type person in commodities.

   13. SPSpeaker4:12

       I see.

   14. RDRay Dalio4:13

       So I got a job, which was stupid to hire me, but they did, and, um, then that company then, um, got into trouble. Then I went to another company, and I did that for about a year and then, uh, started Bridgewater.

4. 4:27 – 5:58

   Getting fired after a drunken fight—and why it became a turning point

   1. SPSpeaker4:27

      So als- uh, I just wanna... You, you skipped over something there. Now, many of us here in the room, Ray, we know you as a master, a master of thoughtful disagreement, okay? But you didn't have that concept fully nailed back in those early days. So talk to us about that disagreement you had with your boss on New Year's Eve.

   2. RDRay Dalio4:47

      Um, well, I mean, uh, um, we got drunk, and, um, then we, um, you know, uh, we, uh, uh, I s- I slugged him and, uh [laughs]

   3. SPSpeaker4:59

      [laughs]

   4. RDRay Dalio4:59

      Um, and he, and, and he, it, it... He was a good guy. A- and, uh, well, what he did-

   5. SPSpeaker5:04

      [laughs]

   6. RDRay Dalio5:05

      ... he, um, but he drove home. He, he, uh, he totaled his car. His wife chewed him out because he, they missed their party, and he came in with a black eye, and he didn't fire me then.

   7. SPSpeaker5:18

      He didn't fire you?

   8. RDRay Dalio5:19

      He did not fire me then.

   9. SPSpeaker5:20

      Okay.

   10. RDRay Dalio5:21

       And then it was another incident that caused him to fire me.

   11. SPSpeaker5:24

       [laughs]

   12. SPSpeaker5:26

       But I-

   13. RDRay Dalio5:26

       I'm sure I wanna know what got you fired.

   14. SPSpeaker5:28

       [laughs] Can you tell us what got you fired?

   15. RDRay Dalio5:31

       But anyway, the-

   16. SPSpeaker5:31

       [laughs]

   17. RDRay Dalio5:32

       [laughs] Uh, uh, anyway, we, um... That, that was the best thing that actually happened to me because then I was on my own.

   18. SPSpeaker5:40

       Now, some of our career advisors around here, we might frame that one as passion, Ray, and, uh-

   19. RDRay Dalio5:46

       It was, uh, it's, it's, it w-... You know, kind of in retrospect, it was a stupid thing to do, right? But, um, it was, um... It was just what I was like at the time, I guess.

5. 5:58 – 9:35

   Starting Bridgewater and learning from being spectacularly wrong in 1982

   1. SPSpeaker5:58

      And so you go ahead and start Bridgewater Associates from your two-bedroom apartment in New York. So you're 26 years old, you're a first time entrepreneur and a professional investor. Now, something those roles would seem to have in common is you've a high risk of being wrong and making mistakes. Talk to us about your relationship with mistakes and how those led to your principles.

   2. RDRay Dalio6:24

      Yeah. Uh, I think, um, just generally as an entrepreneur or, um, in the markets, you have to think differently in order to be successful. Uh, in the markets, whatever the view is is built into the price 'cause it reflects the consensus. And as an entrepreneur starting out a business, you have to think differently, and there's a high risk of being wrong. Um, and so what I learned over that period, you have to be audacious, you have to think differently, you have to be confident, and then you also experience a high risk of being wrong. And I think we're gonna go to, uh, a clip of, of, of, of one of the s- really, um, big mistakes that I made that changed my whole approach to decision-making. So, uh, I, in, um, 1980, '81, I had calculated that American banks had left- lent a lot more money to foreign countries, and those countries are gonna be able to pay back, and that we were gonna have a debt crisis, and I thought that that would cause an economic collapse. And in August 1982, Mexico defaulted on its debt, and I received a lot of attention for that. And I was asked to speak, uh, to Congress at that time, and I was also on Wall- Wall Street Week, and we brought a clip of that so you'll, you'll get a sense of, um, that. So, uh, Zach, can you hit the button and show the clip? Mr. Chairman, Mr. Mitchell, it's a great pleasure and a great honor to be able to appear before you in examination with what is going wrong with our economy. The economy is now flat, teetering on the brink of failure. You were recently quoted in an article. You said, "I can say this with absolute certainty because I know how markets work." I can say with absolute certainty that if you look at the liquidity base in the corporations and the world as a whole, that there's such a reduced level of liquidity that you can't return to an era of stagflation. Wasn't I arrogant?

   3. SPSpeaker8:33

      [laughs]

   4. RDRay Dalio8:33

      Incredibly arrogant. I couldn't have been more wrong. I, I was so wrong. Uh, that was the exact bottom in the stock market. August 1982, Mexico defaulted on its debt, and it was the bottom in the stock market. We had a big bull market. And I had, uh, then, I think like eight people at Bridgewater, and I had to let them go. And I was so, um, broke that I had to borrow $4,000 from my dad in order to pay for my family bills. Um, and that was very painful, and it changed my whole approach to decision-making because it made me think, in the future, how do I know I'm not wrong? How do I know I'm right? It gave me the humility that I needed to balance with my, uh, audacity, and it, it made me bring in people that would, um, disagree with me. So I wanted to find the smartest people that would disagree with me, and I really, you know, uh, uh, started

6. 9:35 – 12:03

   Turning failures into principles: writing criteria down and treating mistakes as puzzles

   1. RDRay Dalio9:35

      to think about, uh, how would I deal with disagreement. And I would say that this is a, this is a big thing. Um, it's such a pleasure to be here, by the way, because you're beginning this phase of your career. You're just about to. This, what I would call the second phase of your life. First phase of your life is when you're dependent on others and, um, you're learning. Second phase of your life is that y- when you're working, and then eventually others become dependent on you. And in that second phase, it's totally different. And I'm going into my third phase, and so to be able to sort of pass along some things that were helpful to me f- were i- is, uh, is a treat. And along those lines, I would say you're gonna keep having failures, um, as well as successes, and it's in the failures that you learn the most. And so my attitude began to change in terms of making decisions. Um, most importantly, um, I would vi- view every, uh, failure as a puzzle that would give me a gem if I could solve the puzzle. And the puzzle was what would I do differently in the future so that I wouldn't have that bad outcome? So... And if I could solve that, that would give me the gem, and the gem was a principle. And the other thing that I did was, uh, write down, um, all my decision-making principles. When, um, I would make a decision, I would take the time and say, what are my criteria for making that decision? And that was so invaluable. I'd want to pass that along to you. You're gonna encounter so many things in your life, and you're just gonna make decisions like that. If instead you pause and you think, what are my criteria for making that decision, you write it down, and then you reflect on it, you'll start to realize that the same thing happens over and over again. And when the next one comes along, you'll reflect on that principle, and you will refine it. And it serves the purpose also of letting you communicate very effectively with others. So when I started my business, um, it was great because we would all know what we could expect and why w- uh, that whole process. So that, uh, I mean, I think it's really that whole notion of the best comes from learning from mistakes and doing that in a systematic way. Failure is just part of the journey.

7. 12:03 – 14:23

   Building an idea meritocracy through structured disagreement

   1. SPSpeaker12:03

      And to get to those mistakes, Ray, and to bring them out into the open, you needed an idea meritocracy. And for that, you needed radical truth and radical transparency. Talk to us a little bit about those two concepts.

   2. RDRay Dalio12:14

      Yeah, I don't know, Zach, do you have that s- uh, diagram? Okay.

   3. SPSpeaker12:18

      Zach's busy today.

   4. RDRay Dalio12:19

      Yeah, so this is, this is, this is, this is the way it worked for me. So in order to be suc- in order to be successful, I needed independent thinkers who would disagree with me, and that we would disagree with each other, because otherwise it's that false confidence. How do you stress test each other to get to the best ideas? So I needed independent thinkers who were also wanting to go for the audacious goals. So if you have independent thinkers, how are you gonna get past the disagreement? You actually have to have a system for disagreeing well and getting past the disagreement, so I needed an idea meritocracy, in other words, an actual process that organizes disagreement to get past it. And in order to do that, then I needed to have that principle, that I needed to write it down, and we all needed to know what that rules are, and then we need to make these systems, and then when we did that, um, that changed everything, right? That thoughtful disagreement. Because it's collective decision-making in which you significantly increase the probabilities of making a right decision. I think the greatest tragedy of people, probably and one of the greatest tragedies of mankind, is people who ho- hold opinions in their mind that they're attached to that are wrong, that they could so easily stress test and significantly raise the probability of being right. So we needed to do that, and when we did that, we had our successes and our failures, but we... but the people b- believed in that idea meritocracy and, and it was fair. Because the system, um, if, if you have a system in which, uh, you can fight for your arguments and you know that the system's gonna be fair, you can care more, and so that's the type of organization I needed to... And that was the key, right? Whatever success I've had in my life has had more to do with my knowing how to deal with what I don't know than because of anything I know, and that idea meritocracy, that triangulation with smart people.

8. 14:23 – 16:44

   Why radical truth and radical transparency are emotionally hard—but a competitive edge

   1. SPSpeaker14:23

      So Ray, I wanna go a layer deeper on this radical truth and radical transparency. I think for many of us hearing it here, it's very hard to argue with the logic of what you're saying, and yet the culture at Bridgewater feels quite foreign to what most of us have experienced in our personal or professional lives. What is it about this concept that is so difficult for us to embrace?

   2. RDRay Dalio14:46

      By the way, that's the competitive edge, right? Because if it, if it was, uh, you know, if you were to say, "What's the edge?" That's the, that's the edge. Um, I think, um, we have ego and blind spots barriers that stand in our way, and so that notion of attached to what you know is such a big thing for your ego or your blind spot. And, um, and so there's this subliminal reaction when you're... somebody disagrees. Rather than producing curiosity, they're, it produces antagonism, like it's an amygdala reaction. And, um, I think a lot has to do with the education system, too. You know? You're rewarded for knowing or you're rewarded for not making mistakes rather than knowing what your weaknesses are. So in order to go through that, um, it, one has to intellectually go through it to say, "Does it make sense?" So let's say we're gonna have a relationship, and you're now, you're working there, and you're my partner.

   3. SPSpeaker15:47

      Great.

   4. RDRay Dalio15:48

      And I, uh, uh [laughs] oh, yeah? You wanna see what it's like. [laughs]

   5. SPSpeaker15:53

      [laughs]

   6. RDRay Dalio15:54

      But, uh, y- you would say, y- you would, uh, I would say, "Do you, do you want me to know... Do you wanna know what I really think? Do you wanna tell me what you really think? Do you wanna know your weaknesses?"

   7. SPSpeaker16:09

      Hmm.

   8. RDRay Dalio16:10

      Do you want me to know my weaknesses?

   9. SPSpeaker16:12

      [laughs]

   10. RDRay Dalio16:14

       Intellectually, you, you would say you would wanna know your weaknesses. Why wouldn't you wanna know your weaknesses? Emotionally, that can be difficult. So it takes adapting to. So what we, we describe it as, um, there's two yous. There's the... And this is, um, correct n- um, in terms of literally, there is a conscious, thoughtful you that might say, "I would like me to do those things. I'd like to know my weaknesses so I can know

9. 16:44 – 20:28

   What transparency looks like in practice—and how it reshapes workplace ethics

   1. RDRay Dalio16:44

      how to deal with them." And then there's an emotional you that's subliminal, and it's really the battle with your two yous that you have with yourself. And once people start to realize that, and they come in that environment, then they see that they're really more struggling with themselves than each other. So that radical truthfulness, so the ra- way it is is, um, uh, uh, in order to have the radical truthfulness, you have to put what you honestly think on the table. Can you do that? And then transparency means that you can get to see everything. So what I did was put, um, uh, uh, everybody could see everything, so that was the main thing. So when I would make decisions, I would, um, I'd be doing, I'd be very, very radically open about what I was doing and the most difficult decisions that we would make, and then I would refer to the principles, and then I'd have everybody challenge me on whether that made sense. And so our intellectual approach overcame our emotional barriers. But I think it's like that f- uh, for physical... You know, I was, um, uh, H.R. McMaster's here, and he was, uh, a great host to me down, and I got to see Ranger School, and I think about those p- those people pushing themselves and how they were pushing themselves, um, and they were doing the physical equivalent, although the mental was equally important. And that produces that particular strain. They wanted that, and that's what, uh, B- Bridgewater's about, but it's not for everybody, just like some people would wash out of, uh, uh, the, um, Army Rangers. Um, it's not for everybody. But it's powerful Because you build these, uh, you bui- build meaningful work and meaningful relationships. In other words, I think that that's the power. Um, if you are committed to your mission, like you're excited, you ... We're gonna do this thing together. Maybe a startup or maybe whatever it is, you're on that mission together, and then at the same time you're on that mission, you have these meaningful relationships, which means total honesty. And with that total honesty and that meaningful relationship, you get a joy out of the relationship as well as you get a joy about being successful. And it doesn't have that two-faced nature. It doesn't have pol- politics behind it. It's just straightforward. So yeah, that's what it's like.

   2. SPSpeaker19:09

      So that's really what you're avoiding. It's the kind of politics and the gossiping that you might get in the normal world, albeit it's not for everyone, not everyone can kind of take this.

   3. RDRay Dalio19:18

      It change, it changes the, it changes the ethic. Like, there's no talking behind somebody's back. And, and the reason it is is it's almost like, um ... First of all, it's unproductive. If you're talking about s- behind somebody's back, then you're not dealing with the particular issue. In a place like, uh, uh, where we value everybody speaking up with their point of view, then you can raise it and you can then deal with it. But also, um, it then becomes sort of a- an ethic thing, that, uh, like, don't you have the guts to talk about what you're saying? And so if you have the guts, so it's almost humiliating to talk behind somebody's back. And so that standard then carries forward and it's, uh, it, you know, it, uh, leads to that kind of radical truthfulness, that radical transparency. So you have some people who, you know, it's, it's not at all for, and then you have people who couldn't work anywhere else because they, they wouldn't wanna work ... They go in the, the company and everybody's smiling, and they're giving high fives and whatever, and they're all talking behind each other's backs. There's a lot of politics going on, and that they can't deal with. So, uh, a lot of people wouldn't wanna work anywhere else, and some people it's not the right place for.

10. 20:28 – 22:08

    Measuring people: using data and feedback without denying growth

    1. SPSpeaker20:28

       So Ray, you've built a machine really that supports this culture, and you also have a belief that humans are machines. Um, I think few companies have done more than Bridgewater to try and use data to understand their employees, uh, to put their attributes and their talents into numbers. So I'm curious if you see a tension between this explicit labeling of a person's abilities with what Carol Dweck at Stanford might call this growth mindset, the idea that a person's abilities, talents, even intelligence, is more fluid and can change.

    2. RDRay Dalio21:06

       Well, I think the, uh, uh, I'm just trying to be as accurate as possible, and change, if a change occurs, then is reflected in the numbers and everybody sees the change.

    3. SPSpeaker21:15

       So it's a live snapshot really.

    4. RDRay Dalio21:17

       So, uh, but, uh, but I think that at any point in time you have to be realistic of where, where you are, and you have to recognize that people have different strengths and weaknesses. And if you're not dealing with that, that, that's a particular problem. It stands in the way of the growth of the particular people, and then also people making choices about other people there, right? So if I'm your boss or, uh, uh, or making that decision, if I'm not open, if I don't give you that constant feedback, and also if I'm not collecting data from others because I'm s- not sure that I'm right. So the data kind of helps to speak for itself in terms of understanding what it's, what a person is like. So I think it's, uh, you know, it's, um, a, a, a, a good thing. Do- it doesn't mean that you do- stand in the way of evolution. It means that to whatever extent evolution occurs, you get to see it.

11. 22:08 – 25:29

    Career choices after graduation: experiment, triangulate, and optimize for culture

    1. SPSpeaker22:08

       So I think that the bigger context here is many of us will be graduating in a few months, and some of us will be making a choice. Do we return to a job and a function we know how to do that suits us well, or do we branch out down a new untested path? From what you've seen at Bridgewater, what might you advise us in how we think about that?

    2. RDRay Dalio22:28

       Uh, this is the, this is the time for your adventure, your experimenting, your learning, right? For, for, for that e- experimentation. And I'll, I'll guarantee you that, uh, wherever you're gonna be in five years is going to change. You know, it, it ... Go for the experience. But I think the most important thing I would say, um, when you're going on that adventure is to understand how to triangulate well. Uh, what I mean is find the three or four smartest people who are dealing with the, uh, the most important questions that you're facing, particularly if they're willing to disagree with each other and disagree with you on that. And then, um, with that triangulation, where there are areas of the disagreement, that'll bubble to the surface and you'll find out, uh, what, you know, what might be ... You'll learn a lot. And then through that, um, th- that humility, you go through experiences and l- make the most out of your failures. Be adventurous, do ... Make the discovery, go for it.

    3. SPSpeaker23:32

       All right.

    4. RDRay Dalio23:33

       Right?

    5. SPSpeaker23:34

       All right. Well, we're done. Thank you very much.

    6. RDRay Dalio23:36

       [laughs]

    7. SPSpeaker23:36

       [laughs] Joking. But the other, the other question we face, Ray, is what type of organization do we join? So-

    8. RDRay Dalio23:42

       I think culture's the most important thing. I think who you're with-

    9. SPSpeaker23:46

       Okay

    10. RDRay Dalio23:46

        ... and where you are is much more important than what you do.

    11. SPSpeaker23:53

        So Ray, let, let, let me take you up on that. So let's assume you're in our shoes. Uh, you're about to go into the working world, and you wanna work in an idea meritocracy. Many in this room are going to join large organizations that have embedded hierarchies, cultures, and norms. So talk to us in a practical sense about how we can bring some of these ideas to the workplace.

    12. RDRay Dalio24:14

        Well, you've got to ... You, you have the choice to g- work in wherever culture you want. The most important thing is, do you work in the culture? Now, you were raised here in your education and before to try to have the opportunity to make sense of things. Okay, so I would go into your job and say, "If something doesn't make sense to me, do I have the right to say it doesn't make sense to me and ask you and, um, why it makes sense, and to be able to probe you, or do I not have that right?" And I think you should think hard about whether you wanna be in the organization that doesn't give you that right. So I think the most infun- [clears throat] most fundamental thing [clears throat] is, is to be in that kind of organization, um, with humility, in other words, recognizing that you might not ... But you always have the right to make sense of things, and if something doesn't make sense, to say it doesn't make sense. Um, so I would say that that would be the most important thing for me if you're gonna learn. Because otherwise you're gonna be somebody's schlep. You know, th- they're going to say d- do these things, and you're just gonna, um, run and follow their instructions and so on, and you're not gonna learn if you're following their instructions, 'cause you have to think for yourself, I think.

12. 25:29 – 27:46

    Third phase and legacy: shifting from personal success to helping others succeed

    1. SPSpeaker25:29

       And you've given us plenty of tools to do that, Ray. I wanna talk a little bit about your legacy. You've accumulated these principles over 40 years. You've decided to share them as part of what you're calling this third phase in your life. A question Joel often asks the class is, what does winning look like to you? You've invested huge amounts of your time and energy in this public-facing role. What does winning look like in this third phase?

    2. RDRay Dalio25:56

       I think through life it's all just a matter of, um, personal evolution and contributing to evolution. For me, [clears throat] you evolve, and there's an instinctual reaction that I had, um, that ... What I wanted to do is pass along the things that are valuable to me so I can move beyond that. And, um, uh, my son, uh, at 2014, when I was making this transition, gave me this, uh, book, uh, Joseph Campbell's Hero of a Thousand Faces, and he describes these various phases of our lives, which I, I, I related to. Um, and I won't take you through them all, but, you know, there's a call to adventure. You go on the adventure. You have your ups and downs. You reflect on them and so on. And then when you get to this stage in your life, um, the m- m- the thing that you want more is not to be successful. You've done it. You don't wanna be more successful. You want to help others be successful without you, and that's the ... That's what I feel. And then when I, I feel like if I've done that best job, I will have done my best job and we're good. And so that's my instinctual reaction at this time.

    3. SPSpeaker27:04

       Well, you've given us a lot to start, and I know there's plenty out there who haven't read the book, so you're not quite there yet, but-

    4. RDRay Dalio27:09

       Um, I wanna, I wanna say just for everybody, a- and I'll n- mention it, uh, w- maybe later, uh, what I did was, um, there's the book, and then, um, I converted the book into, um, a- an app that has the actual cases of Bridgewater so you could go into meetings, and you can actually see this in action. We call it Principles in Action. It's a free app, um, on the Apple Store. Um, and it, uh, it'll take you into that so you get a sense of what the thing is like.

    5. SPSpeaker27:43

       Plenty more case studies. We love those, Ray, so-

    6. RDRay Dalio27:46

       [laughs]

13. 27:46 – 32:41

    History as a guide: why today resembles the late 1930s

    1. SPSpeaker27:46

       ... it's all good. Now, Ray, we could spend another hour on these principles, but unfortunately you've got far too many other perspectives we wanna probe you on. Let's start with history. You're a student of history. You've stated that everything that happens is just another one of those. So I'm curious, when you look at today, our stage in the economic cycle, our political tensions, our geopolitical tensions, what's the historical precedent for what you see, and what does that tell us about what happens next?

    2. RDRay Dalio28:16

       Well, I, I think it's ... There are cause-effect relationships, um, and then they repeat through history. Um, I think it's important to not just assume that because they happened in the past that they'll happen again, but also to understand the cause-effect relationship. So in answering your question, I'd like to refer to both. One of the things that I learned, um, was, uh, that I was ... Every, almost every time I was surprised, I was surprised by things that happened, didn't, that hap- did not happen in my lifetime but happened many times before. And as a result of that, I really found that I really needed to understand, um, history and why things happened before. And that in the two thou- 2007, because I studied what happened in the Great Depression, let me ... We, uh, we were able to anticipate the 2008 financial crisis because of what happened in 1929 and '32. So the period that I think that is most analogous is the late 1930s, and I'll explain why. Um, and this is just the mechanics of it. Um, we had, uh, a debt crisis in 1932, 1929 to 1932, and in both of those cases interest rates hit zero. The only two times in the century that that happened. When interest rates hit zero, they had to, the central banks had to print money and buy financial assets. We call that quantitative easing. Those purchases of financial assets push financial asset prices up, and as a result of pushing that up, um, it makes the economy go up. So 1932 to 1937, the economy, the stock market went up. Everything went up in much the same way as it did from 2009, um, till recently. And then, um, but because they b- caused finan- bought financial assets, those with financial a- assets benefited more than those who didn't have financial assets, and there were other factors, like we have technology today replacing people, and as a result, we began b- had a large wealth gap. So if you look today, um, the top 1/10th of 1% of the population's net worth is equal to the bottom 90% combined. And if you take that, or measures like that, the wealth gap is the same as it was in that period of time, that 1930s period of time. And with a large wealth gap and differences in values, then you have populism, the emergence of populism. Populism of the left and populism of the right. And if you go through history, the le- i- if you were to say, when did the last time you had populism in major countries, it was in that period of time for similar reasons. And with that time also, you had the classic rising of, um, a power to challenge as an existing power. In that case, it was, uh, Germany, um, uh, rising to challenge, uh, the British, the British Empire. Uh, and, and then Japan and Asia. And like now we have China rising, and it's, there's a com- uh, a, um, a, a rivalry, a, uh, a conflict. So the only periods of time that you could see that was analogous, um, recently, the most recent period of time, i- is like that. So I would say, what, what are the big issues of the time? The big issues today are that, um, there is a limited ability of central banks to ease monetary policy, 'cause we have interest rates near zero, most cases around the world, and so the capacity of central banks to ease is limited. We have, um, a very large wealth gap, and with that we have, uh, polarity. A lot of political polarity, democracy even being challenged by that polarity, right? And then you have these conflicts around the world. And so that populism of the left and populism of the right has big em- economic implications. Um, how, what it'll mean for tax policy, and what will it mean for, um, even conflicts between countries. And so we have that rising, uh, power situation. So that period of time looks most analogous to today.

14. 32:41 – 40:11

    Conflict risks, capitalism reform, and redistribution of opportunity

    1. SPSpeaker32:41

       You've covered a lot of things there, Ray, and we'll try and dive into a few with the time we have left. On a high level, it's a pretty shocking comparison to make.

    2. RDRay Dalio32:50

       Yeah.

    3. SPSpeaker32:50

       And we know how the 1930s ended. Do you believe that on our current trajectory, we're heading towards some sort of conflict?

    4. RDRay Dalio33:01

       Well, well, we're certainly heading to, uh, different kinds of conflict. The question I think is how we, how we're gonna handle them. Uh, we certainly are headed domestically, uh, to lots of conflict, right? If you were to take, um, the, the polls of, um, uh, the D- the Republican Party that is the most conservative it has been ever, the Democratic Party is the most liberal it is ever. The, um, the voting according to party lines is the most it has been ever. 94% of the votes are according to party lines. And so we cert- we certainly have an internal conflict, and that internal conflict has to do about the combination, I think, of, uh, the economic conditions. The left and the right or the, let's say, socialism and capitalism are, are issues, and then there's also ways, uh, that we are s- uh, to be together. I would say, you know, I don't know that we're clear on what principles bind us together as a country. I m- I think we should go to principles. What principles bind us together as a country? What do we believe in? What are the principles that divide us? But anyway, we are having more domestic conflict, I think. Um, and then, um, international conflict, um, there is this emer- this, there will be a challenge, a competition that is going on between the United States, um, and China and other places, but particularly the United States and China, which is a whole other discussion. That doesn't have to be a military conflict, though it could be. Um, and it depends, I think, on how we handle the conflict. Um, so I think, uh, uh, there's the China-American relation. That's a to- topic we could digress into if, if you wanna cover it. But there's, uh, I think it's all, how are we going to be with each other, right? So let's say this, um, this issue of the wealth gap and the, and the left and the right. My f- big fear is that the conflict, and then just badly engineered, um, r- uh, policies can cause us to have worse conditions than we need to. There's, like, there's, there's enough resources to go around to move us toward more equal opportunities in various ways. We can deal with this together. But, uh, yeah, I think that we're in an environment in which, uh, conflict is going to be more problematic than we have actually experienced.

    5. SPSpeaker35:43

       Now, Ray, there's two issues. There's the external conflict, there's the internal conflict in our own country. You've talked about redistribution, and you've recently published a piece, how and why capitalism needs to be reformed, and a need for greater redistribution. Uh, because it's tax day, April 15th-

    6. RDRay Dalio35:59

       [laughs]

    7. SPSpeaker36:01

       Apologies. Uh, would you agree that a person of your resources and your wealth should be taxed more by the US government to help further this?

    8. RDRay Dalio36:10

       Um, yes. I, uh, I believe that it's inevitable that we should. Yes. I think, um, but I think the real question is, um, the most important, is d- are we striving to have a, a country... What is our American dream? Are we striving to have a country that is something along the lines of equal opportunity? Are we striving along the... How do we feel when there are school districts, uh, uh, that- Um, don't have adequate, anywhere near adequate resources. That there's not enough ... It's g- It goes to nutrition. There's nothing approaching equal education. I broke the economy d- up into two parts so that I could see it, because it gets lost in the averages. So, the, uh, the top 40% and the bottom 60%, 'cause I wanted to see what the majority of people, the bottom 60%, is like. Um, and certain things like, uh, the average, uh, in the top 40%, they will spend five times as much on their children's education than in the bottom 60%. And, uh, and school districts are, you know, starved for resources. Um, and there's a whole different life. I can rattle it off. If you wanna go see it, I'd, I'd really love you to g- go see it. Um, it's a study, um, that's on LinkedIn, and it shows the outcomes. So I guess, uh, when I'm looking at that, uh, I would say, um, that's not, uh, I think a fair system, and beyond that, it's a system that threatens to destroy us if we don't find a way to reform it. Now, I'm a capitalist. I want ... I, I do believe in the idea of, uh, of, of working hard and earning and then saving, and what capitalism is, is you buy a, a, an instrument of capitalism. Uh, you buy stocks. That's capitalism. You own a piece of that business. And I believe that that's fantastic, but what has ... Like anything, everything has gotta be improved with time, with reformation. So are we producing the outcomes that we want? So when you read that, you, you see if, if we're producing the outcomes we want. I don't think so. So I'm saying I think we have to modify that. Now, how we do that, um, is going to, uh, most importantly be a very ... It has to be a good exercise, engineering exercise, that I think has to be, first, it's gotta be done in a bipartisan way because I think this division is a problem. So, and I really believe in thoughtful disagreement. So if you bring together people who are living in these communities, and then, um, and then you have metrics. I, I think it would be great if the leadership, it could be the leadership of the United States, it could be the leadership of a state, says, um, that this is a critical issue that we have to deal with, that they put metrics on it so they own it. In other words, numbers and key, uh, you know, KPIs, and they say, "Here's that condition. Is that living standard the same or is it rising, and what are the, what are we doing in t- terms of education?" And with those measures, then work together in terms of doing sensible engineering. I have my own views of what could be done, but, um, you know, how we get into that, uh, that's a, that's a whole conversation. I'm not sure, so sure my views should be, should matter. That's just one of other views. But if we don't do it together and we don't treat it as a really important critical issue, I think the most critical issue of our time right now, I think we're going to, uh, be in trouble. So yes, of course, the, that there, uh, needs to be ... But there needs to be redistribution of opportunity. Um, it's not just, um, redistribution of money, but, uh, when you pay the, get the school books, get the nutrition, get those basic things, I think that's fundamental.

15. 40:11 – 54:49

    Audience Q&A: politics, intuition, giving, succession, parenting, and leadership character

    1. SPSpeaker40:11

       Well, Ray, we're at least out of time for now. I wanna make sure our audience here have the chance to ask their questions of you. So anyone out there who has a question, please raise your hand. We'll find you with a microphone, and then if you're selected, please stand up and introduce yourself before you ask your question.

    2. SPSpeaker40:37

       Hello. Uh, my name is Max. I'm MBA 1. Um, I'm from Russia. Um, so sorry I don't know the local political landscape that well, but my question is, uh, having such a great reputation, knowledge, and leadership experience in this country, why you are not running for the presidents, for the president of the United States?

    3. RDRay Dalio40:54

       [laughs]

    4. SPSpeaker40:56

       [laughs]

    5. RDRay Dalio40:58

       Because, because I don't think me and the political system would get along. I-

    6. SPSpeaker41:03

       [laughs]

    7. RDRay Dalio41:04

       Um, I, I don't think I'd ... I, I think it's a very difficult system. I don't think it would be effective. I think the, the, the political system, um, even the way it's structured with the two parties and they, the way they go about it and, and, you know, I think it's a, it's a challenge that's almost dif- impossible to win. And I'm, um, and anyway, I'm, uh, I, I, I'm able, um, at this moment in time, this short moment in time, to pass along some thoughts, uh, that others in that position or any position, um, might, could take or leave.

    8. SPSpeaker41:46

       Thanks for being here. I'm Ida Girma. I'm a first-year MBA student. I have two questions. If you wanna be fair, you could just pick one to answer. Um, one is, you know, we understand that you're really quite quantitative and systematic about the way you think about decisions for investments for your, your business and, and personal life as well. I'm wondering what you think about this notion of intuition. Do you believe in it? Do you use it? Um, and my second question is, you know, I'm quite inspired by how you talk about equality of opportunity. I think it's fantastic. I suspect that you have peers and colleagues who may not think the same things, and how do you have conversations with them about, about this thing that you're so passionate about?

    9. RDRay Dalio42:27

       Um, yeah. So, um, what was the first question again?

    10. SPSpeaker42:34

        [laughs]

    11. RDRay Dalio42:35

        Intuition. Intuition, yeah. Um, I think, I think decision-making is, uh, is a combi- is subliminal and logical, and fabulous ideas come from subliminal decision-making, but they may ... You don't know if they're gre- great or not, that you have to reconcile them with the logic. So, uh, yes, intuition- Is, can be very, very valuable. We feel it, you see it, it's subliminal, the ability to collect dots, connect dots, and see things in that way. Um, imagination, all of that. The ... Some of the best ideas come in a subliminal way. Like, if you're taking a hot shower and these ideas come to you, it's not like you're sitting there working hard on those ideas. They come up, they're f- they can be fabulous. I think the key is to reconcile them with your logic because they could be misleading, too. So yes, I, I, I would say they're at least as valuable as the logical idea. So, um, uh, and the second question was about what?

    12. SPSpeaker43:44

        How do you have those, how do you have those conversations with your peers-

    13. RDRay Dalio43:48

        Oh, uh, I just-

    14. SPSpeaker43:49

        ... about equal opportunity?

    15. RDRay Dalio43:49

        Uh, uh, I, uh, uh, just the art of thoughtful disagreement. I mean, I love disagreement. I just have to say what I believe, and others say what they believe, and then we have a conversation about it, and I love it, uh, to be, to do that openly. So if you were to sit here, uh, and have a conversation, I would welcome anybody who has a different point of view, have a c- thoughtful conversation. That's easy. That ... I don't see any reason why there shouldn't be good, thoughtful disagreement.

    16. SPSpeaker44:19

        Hi, Ray. I'm, uh, Will. I'm also a first-year MBA student. Um, I know you're a member of the Giving Pledge, so I was wondering what principles you apply to your giving in order to maximize your social return on investment in the same way you did with your financial returns.

    17. RDRay Dalio44:34

        Yeah, i- um, the, the saying that it's tougher to give away money than it is to make it is actually true because, um, when you're pursuing a profit, uh, you will know whether you're succeeding or failing. When you're giving away money, um, it's very difficult to have those kinds of metrics and you ... and weigh one thing or another. It's a lot more confusing. Um, uh, uh, but I tend to take the same approach that I would f- in my investing, meaning I try to think in terms of return on investment, but I don't think in terms of ... I think in terms of double bottom line return on investment. Um, in other words, what is the social impact? It makes ... It has to s- stretch your mind because how do you relate, um, a, a ... What is the value of saving a life? What is the value of an education? How do you weigh ... It doesn't have a common denominator like return on investment has a, a number. It's money, and it's how, how that is, so that becomes a challenge. For me, it's very important to ch- though to try to do that, so we'll establish key performance indicators, um, and do that. But I, uh, also relating to me, um, is the passion. Like, I've decided how am I going to take that approach, and that approach I've, um, I, I make it a family activity. Um, my family members, different in varying degrees, are interested in, uh, their own, uh, f- philanthropic efforts, and each one of them has their own particular passion. I think that's great. So I would say that, uh, when you get past the certain point, what you think about is what do you really wanna do? You don't think about profit as much as you think about, like, what do you wanna do? And I think, uh, maybe as you get older or you feel more connected, yeah, and you also realize the re- the blessings that I've had because I didn't have anything and then I've evolved and you see what other people are, is that m- marginal m- benefit of spending money on yourself into being able to help other people makes a big difference. So those things, return on investment, how do I make it sustainable? How do I measure? Um, how do I judge how good we are doing as a family? How do I establish principles? We've got a whole bunch of principles that people have to abide by in order to do it well. So it's a ... It's similar, but it's, it's more difficult because of the fact that, you know, you can't account for it very well. So, uh, like, if you were to think how ... what should you give money to, um, are you going to be able to measure, uh, whether education here or life or ... Those are difficult questions to answer, but you, you work yourself through it. I, I joined the Giving Pledge mostly because I learn a lot. Um, the, the people in there are in somewhat similar circumstances, and they brainstorm well, and it's, you know, it's a learning process.

    18. SPSpeaker47:28

        Hi. Uh, Reuben Arnold, uh, MBA too. So, uh, I know you've tried to transition, uh, out of the company and transition control of the company several times in the last years as you're moving into this third phase. I was wondering if you could speak a little bit to the dynamics that might have made that transition difficult.

    19. RDRay Dalio47:45

        Well, uh, I, I fortunately had this principle ... Well, here's the background. Um, something like nine years ago, I decided that I wanted to, uh, transition. Uh, it was an important thing, and I didn't know how long it was gonna take me. I thought it would take me about two years because, uh, I was working with the people for a number of years, and I thought it was gonna be great. But then on the other hand, I learned never to believe what I think is a theory. I don't ... If I haven't done something before successfully, then I can't assume that I know how to do it. So I said that I w- uh, you know, it maybe could take up to 10 years. I, I think it took me about eight and a half years in order to do that well. So you go down a journey. Um, I didn't k- know anything about governance. I had just run the company and with this, with this idea of meritocracy that I put myself in a position that I would report to this management committee. They could hire, fire me. They could operate that way so that I had myself, uh, held accountable to this idea of meritocracy, and I thought this thing was gonna work. I made the transition, and then, uh, uh, with the difficulty, realized that it wouldn't work, and we all agreed that it wasn't working, and then we set up a governance system, you know, the proper board. And I realized, um, I learned a lot about governance, and I learned about how to pass those responsibilities along to others and then, uh, you know, we worked that out and, um, it's been about a year and a half since I transitioned out of that. So I think the lesson is, like I was saying, if you haven't done something three times before successfully, don't assume you can do it, and that was really helpful to me. So, uh, through that trial and error, it was part of the learning process. So, um, I think that's the saying. I guess that would be the principle. If you haven't done something thr- successfully three times before, don't assume you know how to do it.

    20. SPSpeaker49:44

        Hi, Alyssa. Um, I'm an MBA one. And when people talk about economic opportunity, a lot of the times we talk about children of the poor becoming rich, but we rarely talk about children of the rich making room for other people. And so I was wondering if your emphasis on equal opportunity affected the way that you parent.

    21. RDRay Dalio50:06

        Well, yes. See, but I think I had an experience because... And I think my kids were lucky because I didn't have-- I had the most important things. I shouldn't say I didn't have anything. I had, um, parents who loved me. I was, I had adequate nutrition. I was well taken care of. I went to a public high school. But I didn't have much more than that. And, and then when I was, for most of my life, um, my kids didn't have much more than that. So they got to the-- they know the difference. They know like on the mar- what the marginal utility of having a lot is relative to that. It's not very much. And then you start to create that, that sense of value. So my own experience affected my reaction to it. I don't know what it would be like to be born rich and then find out what that's like. I don't know what that would be like. It mu- must be much more difficult in terms of that. But, uh, so my experience l- naturally told me the differences. And, and I think that's, uh, it's important to understand there, uh, been a number of studies on happiness around the world. Um, probably Stanford's got their professors who are on study happiness. And the one thing is that, uh, they found that there's, uh, no correlation past the basic level of, uh, money and happiness. But the one thing that is, um, the most important thing that seems across communities is a sense of community, um, what- your relationships, your personal relationships. And, um, so I think that that's, uh, you know, affected my approach. But I wouldn't know how to do it if I wasn't, if I didn't experience it, I don't think.

    22. SPSpeaker51:50

        Maybe time for one more question.

    23. SPSpeaker52:05

        Hi, I'm David, and I'm a third-year undergrad. In your interviews and your book, you talk about some great leaders like Steve Jobs and Lee Kuan Yew. Could you talk about, uh, some of your favorite stories of great character from people like that?

    24. RDRay Dalio52:16

        Great character?

    25. SPSpeaker52:17

        Stories of great character.

    26. RDRay Dalio52:18

        Stories of great character. Well, um, um, a dif- different qualities in those two people. But, um, I th- I think, um, Lee Kuan Yew was, um, a person who was wise and balanced and self-sacrificing, um, a great leader who, um, um, had the vision and the common sense and the wisdom, um, to also suffer the slings and arrows of, um, his position to, um, make Singapore a very special place. And I, you know, had the opportunity to know him a little bit, and, uh, he was a remarkable people. But, uh, I think that there were, um-- If you read, uh, Joseph Campbell's book, Hero of a Thousand Faces, you can almost say what are the archetypical characteristics of, uh, of great leaders. And there's this evolution in-- that's described in that book, um, in which, um, people with a sense of adventure and caring, they go out on their adventure, and then they, um, are on a mission, and they succeed and they fail, um, and they do it with other people. And that the mission, um, and the other people eventually becomes more important to them than their themselves. And then they start to rise in terms of seeing things different, which I think is the essence of what spirituality is. Spirituality, I don't mean religion, I mean the sense of connectedness to others and the whole. And when that becomes more important to them than, um, themselves, uh, they become-- that's what constitutes being a hero. And so s- people like Lee Kuan Yew and such people, um, had those particular qualities and, um, made, you know, and, and did what they did. So there are many, many, many cases. Um, I mean, uh, I'm saying this man over here, uh, H.R. McMaster, is, is for me, a hero for me. Um, and, and so I see it all around me, and I, I think it is those qualities that make a person a hero.

16. 54:49 – 58:39

    Closing gifts and a rapid-fire ‘true/false’ rumor check

    1. SPSpeaker54:49

       Well, Ray, we've got a few minutes left. You talked about connectedness. In touchy feely language, I might say I feel more connected to you now.

    2. RDRay Dalio54:56

       [laughs]

    3. SPSpeaker54:56

       And, uh, you've been very generous. You've shared your principles with us. And so as a token of our gratitude, we thought we might share some of our principles with you. So this is-- I thought it would be a thin book. It's actually nearly as thick as yours. So this is some of our GSB principles from a lot of students here in the audience today.

    4. RDRay Dalio55:16

       Oh, cool.

    5. SPSpeaker55:16

       Yeah.

    6. RDRay Dalio55:17

       It re-

    7. SPSpeaker55:17

       [laughs]

    8. RDRay Dalio55:18

       This is for real.

    9. SPSpeaker55:19

       This is real.

    10. RDRay Dalio55:20

        This is great.

    11. SPSpeaker55:21

        [laughs]

    12. RDRay Dalio55:22

        Great. These are your principles.

    13. SPSpeaker55:24

        These are our principles.

    14. RDRay Dalio55:25

        On this app, I, I, I do wanna take-

    15. SPSpeaker55:28

        [laughs]

    16. RDRay Dalio55:29

        One of the things on the app is part of the app, uh, is a coach, and one of the things on it is, um, the coach, um, allows you to describe, I'm in this situation, what principle is best for that situation. So because you just don't want to pile up principles, you wanna go to find the ones that are most appropriate. And one of the imp- most important things about it is it allows you to put your principles in. And so you could take your principles and drop it into that coach. I'm gonna be really interested. I think that's the most important thing. I think we're, um, in an era where we're confused about principles. That I, I, I don't think we spend enough time thinking about principles. We think about doing so much. And maybe as, uh, religions have become less important and other things, we don't think about that. So I think it's so valuable that you've done it, and I think it's a real treat, a great gift. Thank you very much. I really appreciate it.

    17. SPSpeaker56:27

        Thank you. You're very welcome.

    18. SPSpeaker56:28

        [clapping]

    19. SPSpeaker56:28

        Uh, Ray, Ray, Ray, one sec, one sec. You- we're actually not quite done yet. You're not right off the hook. Uh-

    20. SPSpeaker56:38

        [laughing]

    21. SPSpeaker56:39

        ... there's one more thing. In the interest of radical truth and radical transparency, we need to clear a few rumors up about you, okay? So I'm gonna give you a series of statements, and I want you to tell us if these are true or false, okay? You played a pivotal role in the creation of the Chicken McNugget.

    22. RDRay Dalio57:01

        I thought so. [laughing]

    23. SPSpeaker57:03

        [laughing]

    24. SPSpeaker57:04

        Your devotion to meat commodities led you to name your first son after a cow.

    25. RDRay Dalio57:10

        True.

    26. SPSpeaker57:11

        [laughing]

    27. SPSpeaker57:13

        You caddied as a child for Richard Nixon and the former King of England.

    28. RDRay Dalio57:19

        True.

    29. SPSpeaker57:20

        Who was the better golfer?

    30. RDRay Dalio57:23

        Richard Nixon, actually.

Episode duration: 58:39