A Conversation with Ray Dalio and Michael Milken

good morning and we have a lot of topics to cover, here you have the book on principles and my book, which seems like everyone could listen to it, since it has some little marks and I encourage each of you to use little post-its. While you read the book from that point of view, I thought we'd start with a little bit. Why did you go into finance? I wore it in the 1960s, when I was 12 years old. I wore it on a golf course and everyone was talking about it. The stock market then was the stock market that went up for a long time and if you ever get a haircut or something you're always going to be talking about stocks so I took my money when I learned six dollars a bag and I and so we got Twelve dollars and added money and put it in the stock market.

I mean, I was curious and the first thing I remember is that the first stock I bought was a company called Northeast Airlines and the only reason. I bought it because it was selling for less than five dollars this year and I thought I could buy more shares to make more money if it went up, that was my brilliant theory, of course it was nonsense, but it was a company. that was about to go bankrupt, someone acquired it, it tripled and I got hooked, so I got hooked on the markets at that time. I was trading Northeast Airlines debt at the time and really, how cool, and we were debating shorting the stock.

Like our long position, the debt was selling at a substantial discount and I think at the time Ray is talking about, if you ever want to look in the archives, there was a book published on happiness like stocks doubling in a year and this It was a period of time. where if you couldn't make 50 or 100 percent of your money you really weren't doing a good job and I looked at the American Stock Market and all the stocks that doubled over this period of time in one year and basically concluded that You should focus on very low-priced stocks, so that book symbolizes that theme.

Let's talk a little about your family and how your life growing up potentially influenced you later on. Well, my dad was a jazz musician and my mom was a housewife. Dad played late at night and you know he's a good man, but I didn't have much contact with him until he was up later and I was just a normal kid, we played, you know, he plays soccer in the streets and my mom loved me. . I was very lucky to have a really good family with a lot of love. You know, a lot of work was done on education in the 60s and 70s and one of the conclusions was that the most important thing in education was having two parents. that I loved you enough and expressed confidence and good teachers, yes, there were my circumstances and you were absolutely right and when I compare it to some of the circumstances of others, like I was ultra rich to be able to have two parents who loved me and be I was able to go to a school where I received a good education and have an environment that was also inspiring because it was an aspirational environment.

It was the moment when you knew that John Kennedy was going to the moon and we were going to eliminate poverty and the United States was the richest country in the world and represented 40% of the world's GDP and all that aspirational opportunity, you know the idea of ​​equality of opportunity and great abundance, and distant parents, well, you'd do better. It was a different environment than your parents then, so what Ray is talking about a little bit is the baby boomers. Now Ray is much younger than me, but he is still in that group of baby boomers today and this group that was born between 1946 and 1964. very different generation than our parents, our parents' success really depended heavily on the government , whether it was World War II, whether it was the depression and our parents told those baby boomers that they could be anything, one person can change the world and in 1964 the first year. baby boomers went to college from that point of view, if we step back and think about that time period, I was at Berkeley and taking these courses and quantum economics, etc., I was the only person who enjoyed it in a class and I think all of us I was excited because it was like a chapter of a story in each class we had new algebraic formulas about how the world worked that we could write and our computers our 360 was as big as this room at the time and I'm when I think about the book and a lot of the principles you lay out, I think about the advances in technology of today's computing power versus us writing those little algorithms in every class to try to define what was happening in the world and, in many ways, your effort to create a meritocracy is I based someone on those little formulas that we had written in that class at Berkeley, take us through that kind of, well, I mean, yeah, you remember that right, as you say, and we had those little punch cards right. and you left them and then I learned. which regression analysis was right and that was the key to figuring out everything you know, you just plugged in the data and you got the two independent variables and then you explained them and then you understood it, but at that point yeah, I mean, literally, I would. .

I had colored pens and rulers to draw my graphs and I literally operated that way, but then I remember when I started my business, you know, in 1975. I had an HP 67 calculator, so you put the little thing in, you wrote and you got. the regressions and that's where it started well, but yeah, for you and me, I guess you can speak for yourself. Then I began to understand that we could put things into equations and that we could put our thinking into equations and algorithms, so they were called equations. Now there are algorithms, they're basically the same things and then you can make the computer start thinking in parallel with you and that's when it started so well that I would say it the opposite way, although that wasn't the thinking that led me to it. to have an idea of ​​meritocracy was that I wanted to have an idea of ​​meritocracy for other reasons, I will explain to you that then they made me use the algorithms to help me do that particular thing, look to be successful in the markets, you have to be an independent thinker who It opposes consensus because consensus is in price, so no one is good enough to know themselves and can have all the answers, so you know, I learned by getting thrown out a good amount of time. a certain amount of humility and then I knew I didn't have enough right answers, so I wanted a group of independent thinkers and when you understand that and think about independent thinkers, how do you overcome that?

We'll want to get an idea about the meritocratic process and then what I discovered is that the algorithms allowed me to do that because instead of thinking about what decision we were going to make at any given moment, we thought about what the criteria would be for making the decision. The decisions would be, you know, and then if you write down those criteria, clarify them and then put them into algorithm form, then you could test how they would have worked throughout history and that allowed for a sense of meritocratic thinking and we also had some shapes.

If we get through that, I'm sure we'll get into those. I don't want to hijack that by explaining it that way, but that led us to use algorithms to have an idea of ​​meritocracy to make better decisions than any individual and that has really been the key to success, it is one of the principles that are at work here and it's one of those things that I really want to emphasize because I think we're now in an era where when we talk about open source and these kinds of things we're now in an area, an era where meritocratic thinking can be systematized to produce better results than any individual can produce, so let's talk about a better and specific topic that will go back in time.

I'm at home watching the elections. In November the results come out and as the results come out things are changing and it seems that at this moment President Trump is about to be elected and the stock market in Asia futures are down 1,700 points. I called one of the people in this room and I called several others and told them that we should buy everything, okay, not anything based on the fundamental analysis that I had spent my life on, but basically, when people woke up in the morning Tomorrow, the election would be over and no one would sue the next day. day and it would just end and after a year and a half or two years every day these issues would have a sense of relief and in my opinion the most important element is that we, the government, would believe in the private enterprise system and in regulation.

He wouldn't back down, nothing more, so that was my opinion of what was about to happen, it was a macro view, not a micro one, of what happened in his company after the electoral agreement. Well, what we did was we wanted to go to the elections neutral to the event. because honestly we don't want to make big bets, particularly political debts, and so we try to balance the position with respect to that, which would be a concentrated bet as to the reaction of at that time the real question like What we were addressing was the question of how it would be received in terms of capital flows and it was very clear that it was good for capitalism it was good for capital flows and lower taxation would be good now the question of protectionism and those other issues There were also known problems, so We tried not to get into politics, but we should probably get into the discussion of the markets and what the particular policies are in terms of their implications, but basically we wanted to be largely neutral and then there was the question of certainly it's great that we're getting into a capitalist environment it's certainly great that we're going to make money it's a good thing it's certainly great for taxes stocks will be worth more for the fact that your taxes are lower it's great in those respects and then there were the questions of what does that mean for fragmentation.

We are in a populist environment, what does that mean for the conflict, what will that also mean in terms of protectionism. As we got down to the nitty-gritty, it was very much a company-by-company situation. You know, if you were a multinational company operating in certain types of environments, it was a bad thing in one respect, so we tried to act fairly neutral anyway. So back to me, the Watts riots happened. He returned to Berkeley. I write this formula, it's 1965 and I basically concluded that if we are going to have prosperous jobs, whatever they may be, we needed to create financial technology. serve as a multiplier of the world's largest asset, human capital, the world's second largest asset, social capital and then real assets, so I'm thinking about these things and Gary Becker wrote an article in 1966 called why the irrational behavior could be rational, so I was thinking about The people who were participating in these insurrections in the United States and who woke up in the morning didn't have jobs in cetera, but I was very focused on this element of bringing financial leverage financial technology to people who had the capacity and were thinking about how to implement them, so in 1972 I went to Singapore and my goal was to sit down with Lee Kuan Yew and talk about a country that was about to build itself on the basis of human capital and attract the best and brightest in the world. one and number two to provide stability, he had to educate his own population so that they were not second class citizens.

For me, in many ways, his ideas for a country were reflected in some ways by his ideas for a company. Am I right? I'm wrong, there are many similarities in that the man was a very strong man and was in a position like the one he describes, if you don't know, Lee Kuan Yew is a notable man because he basically took from Miskito invested water in which he is in middle of the heroin drug trafficking triangle and created a vision and built that vision that it would be the place in Asia where companies wanted to be that they could raise families and people from all over the world and in order.

To do that, he had to have a vision in which there was a firmness in the type of behavior that was necessary so that there was a rigor in terms of a definition of what a good citizen was and he built that good citizenship. and at the same time he did it in a way that respected all the different cultures here and there and the divergent differences between people so that people all over Asia could educate themselves and continue to speak the language of his and also be educated in the language of he. as an Englishman, I respect your diversity, I respect your idea of ​​a meritocratic manner among decision makers and I respect the notion of good citizenship at the same time that there is that kind of discipline at the same time that there is this The egalitarian way of operating to educate people , so yeah, I mean, he should be compared to Lee Kuan Yew it's a tremendous honor because to me he's been a hero since I think he's probably the greatest leader of the last fifty or a hundred years.

He's certainly one of them, so I guess the fact that I admire him and I met him, I invited him to have dinner at my house and talk about those things, which was a great honor. I am not talking, but gathering information from him in terms of hisperspective and I would say that we have many values ​​in common. Yeah, there's a lot of common values ​​and how to run an organization that way, so when I look. Singapore and Lee Kuan Yew, as we have discussed with a number of you over the years, reflected what I was focused on in finance: we would finance and focus on whether we can provide capacity to capital people and enable them to create jobs etc so if you go back and look like we saw many times Singapore versus Jamaica both were separating from the UK at the same time both had the same GDP in 1960 there was no difference LeeIn fact, Kuan Yew went to Jamaica to talk to the leader and discuss what their strategy was.

Jamaica's strategy was tourism and natural resources. Singapore's strategy was human capital. And this was essentially our concept and idea. Gary Becker eventually won the Nobel Prize for this in 1992, and if you look at them today, no one would compare Jamaica and Singapore today, so this is an example of how it worked for one country, but give us a little more insight into how it worked. for a company called Bridgewater and this meritocracy that was created but was based on the ability of individuals, which was the largest in the world. I want to go back to the mid-1970s and several of you over the years have heard me talk about the period of 1974, by far the most important in my opinion, post the depression, if you're going to get into finance. , analyze what happened, but it was definitely the most important period since World War II, so the stock market fell 50%, interest rates doubled, you had credit controls banks weren't even allowed lending money to new customers unemployment rate doubled all financial markets closed Businessweek brand stories no one will buy stocks again, but one of the key things I want you to talk about was the nifty 50, so everyone who is responsible for managing money for their pension fund endowments, etc.

Nowadays, this was a period of time when you could simply buy shares and hold them forever. These 50 stocks were sold at an average P/E multiple in 1972 at a high of 66 times that was the average P/E multiple at the time and if you gave your money to a trust bank, JP Morgan or whoever, this is what they bought him, well this was difficult, there were some great companies, Eli Lilly, Walmart, etc., Disney, but there were a few. tougher companies, obviously, Polaroid and others in this group and adjusted for inflation, you lost 46 percent of your money, so this was the end if putting your money somewhere safe results in you only losing 46 percent of your money during explosion and growth.

From the money management business you eventually started the hedge fund business. How did the year 1974 enter your thinking at that time? Well, you still know there was the nifty 15 and then there's the and then the bubble 74, so I'm on the fence. 74 so let me comment on them separately the ingenious 50 is a phenomenon, it was a phenomenon that has been repeated over and over again because it is the nature of the markets, so that would be the dotcom bubble of 1999-2000 and in to some extent may be the lesson that could be relevant today and that is the notion that there is a group of great stocks and everyone agrees that these are wonderful companies and, like today, several companies If you look at the makeup of the bull market leadership and the companies that are leading that bull market, they are wonderful, innovative companies, like in the year 2000, but what the nature of the markets is, of course, is that the prices reflect the demand, and when you find yourself in a situation where people say it's a great company and they're doing well and then there's the self-reinforcing notion that they're doing well because people seem bought into it, a lot of them They are buying a lot of them, which makes the shares expensive because the nature of our business, the nature of the beast is something that if there is a lot of demand it makes it expensive and when you get to the demand that people no longer think about, it is too expensive even though they are big companies, you have that phenomenon and that was the ingenious 50. and there are lessons and you know the reason I wrote these principles in print is that the same things happen over and over again, the same things happen over and over again and you have to know them, so this is what that phenomenon looks like and you know you know that something that made you a lot of money can be more expensive and you know that's when the naive money comes and they buy it because it's good without thinking about how expensive a nifty 1974 50 was was also a good example of a time when you know, it was a good example of taking my time as a caddy and I'm marking, 1966 was the real dollar, the peak of the market of securities and 1974 was the bottom, and in nineteen and you were describing it, quote 1966 at that time. of catting, everyone believed that the stock market was going to go up, you know, it was just dollar cost averaging, etc., and then of course it went down in 1974, as you point out, it was exactly the opposite, everyone believed that I was going to go down.

The last thing you can do in the world is buy a stock and that was exactly the bottom line, so the lesson is that the future is probably going to be a very different version of the present and don't think that the past is going to be representative of the future and that It is a kind of eternal lesson. I think this gets to the regression analysis concept that the future is like the past and this period 74, an example would have been that the Singer sewing machine paid dividends for more. More than a hundred years, obviously, is a sure thing: it obtained investment grade rating in January and the bonds were issued.

Goldman Sachs sold bonds in January and the big argument: should I buy it at 8 18? Should I buy it for 8 22? what is the right? the yield to buy the debt the interest rates were higher than the current ones, at the end of the year we sold this security between 30 and 40 cents per dollar, they were not asking for around four basis points more or less a thousand, what is the bit , etc. Something happened and perhaps it was the discovery that perhaps women in the emancipation of the 1970s would not all be at home sewing, so this conventional wisdom we will carry forward to today and before we go back in history.

Rea conventional wisdom, let's see if you knew that the president of Brazil was going to be impeached if you knew that the previous president was going to be prosecuted if you knew that the largest company in Brazil, Petrobras, was going to have all these problems and you knew that there was an epidemic of Zika inflation is incredibly high, unemployment is doubling and rising, and you could tell yourself it's getting weaker. These things are happening in Brazil in 2016, would you be short the market if you knew the future? Would you buy it or not invest in Brazil and obviously in Brazil?

In retrospect, the currency and market was one of the best performing markets in the world. Can you tell us how to look at something like yeah, sure, you know, if you had taken two years earlier, three years earlier, it would have been all of them. to love Brazil, you know, and it was very, very expensive, right, if it's loved, it's probably expensive, right, if it's hated, it's a good chance, it's cheap, right, there's a saying that the time to buy is when there is blood in the streets, so knowing that something good can be very expensive and something bad can be very cheap you have to know how to calculate the value and also expect changes let's see even something a little more current it is 19 it is 2015 and you were reading the newspaper in 2017 President Trump has been elected, have you been able to look two years from now, now he is in a war of words with the leader of North Korea, okay, every day they are doing things, now North Korea is creating video games showing how they are bombing.

US aircraft carrier, etc., and have students work on how to do this in school, there is a lot of volatility in the world, people worried, if I were investing in South Korea in this time period, since I knew well the future, in general, I would be thinking well. I'm not going to invest who knows, they are quite close and half of the country's population lives in Seoul, so they have difficulties. If we look at how South Korea's financial markets are doing this year, you'll see that their currency has gone up against the US currency, their stock markets have gone up substantially, bringing us to 2017 and South Korea, well, politics too.

It is something that is fading, wars are something that is fading. I mean a high step, if you look at history, you can take the Kennedy assassination, you can take. most of the wars we've been involved in and so on, including the bombing of Pearl Harbor and various wars, and I think people exaggerate the implications of wars; In other words, there is a tendency to think that politics or global affairs can destroy something and then we are talking about the same phenomenon when it is perceived as something that does not take into account the economy, so if we take Korea, if there is no catastrophic event, we have an economic situation and that is happening in that region economically, which is fantastic for businesses and very strong for the currency, so I think at this point it is known that politics is not something that is a general topic unless the catastrophic event is known, but there tend not to be catastrophic events, so it's interesting that the North Korea issue becomes more US press in South Korea today if you want to compare just the number of headlines which is one and two, I want to make sure that you understand that Ray is not saying that war is good, so what he was commenting on here was really the realism of What happened, I think I think what we're doing now is the exercise which I would encourage everyone to do, everything is another one of those, so if you look at the war, go back in time and look at the times when you had war, look at the breakup, look at Pearl Hammer Harbor and what happened in terms of That, look at the European wars, in other words, the worst ones and then say how they happened, how they happened in the past to get perspective because what you're bringing to the table right now is the notion that the same things happen over and over again. time and the lessons of history and that's the exercise, the whole thing is another one of those that happen over and over again, so when you're thinking about one of those, if you just go back and say what happened, it helps to give some kind of methacrylate.

Oh, I just want a paraphrase. They could say it. The lesson Ray is giving us on this topic is to study history. Look. what happened and I try to figure out how it reflects today and what I found if I go back to 65, so I go through this book that they had to send me called experience in long-term corporate bonds and I discovered something incredible that Heckman The head of the Reserve of Cleveland had tracked the history of every bond issued between 1900 and 1944 and what happened to it so that this data was available to everyone and what do you learn?

He learned that everything people say about credit is wrong. All the worst credit is sovereign debt, but everyone said it was the best and all countries had a triple A rating, even Venezuela. Secondly, you learn that the second weakest credit was individuals who defaulted and then the best credit was small and medium-sized businesses and large companies. that spreads were too wide even during the Depression, now this fact was available to everyone, there were no computers, it was an incredible job to have to keep track of everything for 44 years, then someone else updates it from 44 to the 1960s and I think one of the things that you What you're seeing in Rey and his signature is this understanding at least that you understand the history and what happened and why others reflect the future.

I think then you're wondering what the most analogous period in history is and I would say 1937 is the most analogous period in history to what we're in today, just take a moment if you want to take a moment to talk about that, so analogous in the Next sense, between 1929 and 1932 we had a debt crisis that was similar to the debt crisis we had. in 2008-2009 zero interest rates are reached, and when zero interest rates are reached, the Federal Reserve can no longer ease monetary policy by lowering interest rates, so it had to expand its balance sheet, i.e. essentially print money. and buying financial assets to increase those financial assets and put more liquidity into the system, so the period from 1932 to 1937 was very similar to 2009 to the current period and during that period there was also a large increase in wealth. gap right now the top tenth of one percent of the net worth of the population is equal to the bottom 90% combined and if you look at that income gap we would have to go back to 1935 to 1940, so we had a situation that was a bit Analogously, both in 1937 and now, the Federal Reserve began to tighten monetary policy.

I'm not saying, by the way, that the same thing will happen. I hope there is a lesson not to learn from that, but there was a symmetrical risk. So what we have is that some audience members don't vividly remember what happened with the financial markets and period 37. Why don't they just review it for a moment? Well, the marketStocks fell 50 percent and we had what was then the first time we called a recession that was like a depression and that's what in a sense had happened and we had the beginning of populism around the world, so that was Populism was not a term that we are used to using here, it is a relatively modern term, but it was popular, it was a term that existed back then and because if we had strong leaders who were also nationalist leaders who were more confrontational by nature, so we also had that wealth gap, so one could imagine that if we had a recession now, well, we don't want a recession, but if we had a recession and I don't think we will, but if we had a recession, I think that would cause a lot of social and political conflicts; in other words, like wealth conflict, there is that type of environment, so we had that type of environment or a higher conflict environment, so I think it's interesting that it's analogous.

I would say if you look at populism, when we start to see populism, populism, I don't mean just, I mean referring to the phenomenon, not just the people, the phenomenon grows in a certain way and to study it. There's something I put on LinkedIn if people are interested. It is a case study of 14 different populisms. What is populism? As it grows? How it behaves? 14 cases and then what is its archetypal, but if you look at it, it is below the surface in Europe and it is below the surface in other places and it is one of those things that we have to be careful of and therefore , from an economic point of view, I think that as we talk about the problems of our time we have the wealth and opportunity gap, which is a phenomenon that is analogous to that we have to make some of them pay attention to that, I just mention this because you were referring to the The same things happen over and over again and then we look at a particular period and I think that begs the question.

Well, then, what is the period analogous to the current one? So I think the Institute in many ways was created with the idea. Well, we have a problem. How are we? let's figure it out and if you look back to the late 1970s and I know Shree is here today, we saw that sovereign debt, that people were willing to buy sovereign debt at 25 basis points more than IBM, is dead, so we tried to discourage anyone from investing in that and I ran in the 1970s, you got 25 basis points more than the US Treasury bills that were here, alternatively, they had a change of administration and Iran and the The new administration did not recognize the liabilities of the old administration from that point of view, but this accumulation that we saw there was no way for it to continue, but it was essentially financed by the banks and a consequence of these petrodollars of the mid-1970s that were deposited and if you look at the history of sovereign debt and he had a A couple of different elements that occurred at this time.

I want to take you back to Ray in 1990, 1982. There was a head of the Federal Reserve, Paul Volcker, who believed that no country had ever defaulted. Well, that might be true on Jupiter, but not in the United States. a disciple Walter Wriston who wrote a book that I would suggest you call risk and other four letter words, but he also believed in it and essentially almost brought down the entire banking system, the world eventually lost a trillion dollars in sovereign debt and so It wasn't until the mid 83's that we started, then we went out and hired everyone who issued all this debt in the early 80's to now refinance it and at that time we were focused on what are we going to do with Max?

How are we? We were going to refinance Mexico and our conclusion, Rey, was that a 99-year lease in Baja to develop Baja was worth more than all of Mexico's debt and the Mexicans and nationals had more money deposits in the United States than in Mexico, so we were preparing to bid to pay off Mexico's debt. You had predicted the same thing would happen in the late '70s, early AIDS, take us back to that moment in time, what are the lessons learned? Well, yes, it was my most important lesson at that time, so yes, I went through the calculations and it was a very controversial view that these countries would not be able to pay their debts and events began to happen and Mexico defaulted. in August of 1982 and as I had anticipated that and received a lot of attention, I was, you know.

A young man and I were asked to speak in Congress and we explained what was happening and I was at Wall Street Week and if you want to see Ray, you can go to a YouTube video of a TED talk where you could see him testify. yeah, go to the TED talk, you'll see that moment and at that moment I'm testifying before Congress on the wall of Wall Street week and I imagine that we're going to have a tremendous debt crisis and the economy is going to collapse and That It was exactly the bottom of the stock market.

I couldn't have been more wrong. I was so wrong that I had to do it. He had a small business. Then I had. I think it was a bomb. Leland. I am 7/8 people more or less. These were close. People, I had to let them go. I was so broke that I had to borrow $4,000 from my father to help me pay my family's bills. This was one of the most painful experiences. How much money were you managing at the time? Oh, I don't want to say anything like that. you know, I can't, I can't remember, but not much, and you know, I threw myself away to that point and it was the most painful and probably the best and most valuable experience I've ever had in my life because it changed my focus. to decision making, you know, I went from thinking I'm right to thinking how I know I'm right, it gave me the humility I needed to balance with my boldness, it made me start thinking, it made me want to discover the smartest people I know. they disagreed with me and to understand their reasoning, you know, having a thoughtful disagreement, that led to me, was the reason we wanted to do this idea of ​​meritocracy, was the main reason, for example, give me the most intelligent people that I can have around me and we have those arguments and how we overcome them and that led to the idea of ​​meritocratic and it was really from that moment that that required knowing how to balance risk like you, we talked about going to the Trump election trying to make sure the risk is unbalanced, but it also taught me to look at history that the surprises I had were things that happened in history but never happened before in my life, like when I worked at the New York Stock Exchange in 1971 when the dollar was floating and So I walked the floor of the stock exchange and people weren't accepting dollars and the money and I thought it was okay, a major crisis occurred and the stock market went up and I thought it was going to go down a lot , you know, this is when I was in college and I realized that when I came back there were two appraisals that didn't happen in my previous life, but happened before, so I knew that everything happens over and over again, these were the lessons, The lessons are the ability to have thoughtful disagreement to increase the odds of being right, find the smartest people who disagree with you and understand their reasoning, know how to balance bets well so that no bet turns into anything. important and you get dominated or anything. more and also to go to history, if things happen in the past or in some other country and you don't understand them, then you will have problems, so you need to have eternal rules and universal rules, so we have a criterion according to which all our Decision rules have to be timeless and universal, so those are the lessons that I talked about that came from those very painful experiences and that's really what has served me and Bridgewater well ever since, so there is a lesson that learn.

I learned that if you're going to make mistakes, make them early in your life. It was interesting. I actually saw Ray on TV. His appearance was broadcast. Oh, you did at that time and what this did was he shaped us and me to feel good. This is a reinforcement. our views and this is going to be a great opportunity because the banks had been lending money to keep it going even though Mexico defaulted. If you wanted to trade sovereign debt in the 1900s and 1980s you had to pretend it was worth a hundred cents on the dollar. because they didn't have to lower it and then, if you wanted, if you thought you wanted to change Honduras for Nicaragua, you made it create like a chef's salad a combination of different values ​​because everyone pretended that they were on par and they really were.

It wasn't until a little bit later in the '80s, but this told us okay, this is an opportunity for us to use our skills not just to refinance or rebuild companies but to rebuild countries and change their capital structure, allow them to exchange their debt for property and your businesses. like Chile and others did at the time and I want to go back and really reinforce something that Ray is saying here that deals with this issue of conventional wisdom in history, so for me, if you look back to the 20th century, one of the fundamental things that changed the 20th century for every person was Sputnik going up and I was in grade school here in California and I know that when I was debating several years ago Putin akan whether Russian capitalism or Western capitalism was better in Russian television, he corrected. to let me know it was Sputnik, not Sputnik, but that was the day the Soviet Union thought it was their finest hour, they surpassed everything, they were scientifically superior, it was in the middle of the air raid shelters of the Cold War, etc. ., but that would mark the day of the end. the end of the Soviet Union because it woke up the United States.

NASA was formed. DARPA was formed. DARPA was formed so that the United States would never again fall behind in science and the relative American economy would be like that of the United States. versus New Jersey, so in the end Russia couldn't compete and we were done with Reagan and Star Wars, we said okay, we're going to spend a trillion dollars, well that wasn't an opportunity for the Soviet Union, so we really did it woke up, so I think one of the points that Rey makes here that I just want to reinforce when you read this book and look at it is learning from things and the conventional wisdom, as he pointed out, makes it very difficult at the beginning of the decade In the 1970s, there was everything on the market. perfect, etc.

In academic circles, Ray, let's talk about one of the challenges I want to address here. We just had our Asian summit in Singapore and for many of the reasons you cited, the Milken Institute decided that we would locate our headquarters in Asia and not Singapore. in China and not in Japan, not in India, etc., but we had outside of our group that today that group of people who have their own money, I have between twenty and thirty billion in assets and about fifteen billion were represented, many of These institutions today are not putting in a million, they're putting in a billion or they're putting in ten billion or twenty and in the case of piff and we're launching the Milken Institute summit in the Middle East in February and we were visiting them, they put in forty-five. five billion in a single fund and twenty billion in yet another fun, you are one of the largest money managers in the world, the largest hedge fund in the world, how much do you believe in your meritocracy, the way you operate, How many assets do you think you could deploy? today let me take a break to answer the alpha questions in this beta, okay, and then we'll address the general question of alpha liquidity as a zero-sum game and I'll take a couple of minutes to explain it to everyone. it has to start with a strategic asset allocation mix and how they come up with that strategic asset allocation mix which they then tactically deviate from so when that asset allocation mix is ​​created we create a balanced portfolio which we call portfolio all-weather and we have some capacity in that area because it is a passive portfolio that simply has an asset allocation mix that is not active in the sense that we have capacity in alpha, you have trades and you don't want to have them, we are closed in alpha , we don't want to take any more money, we have decided that we have been closed for most of the last ten years, so the answer is that we have no capacity because if you manage too much money, your transaction cost will not consume it, so I think that for any manager the amount they have is really a function of almost how much they transact.

I think we have the greatest capacity because we operate in all the liquid markets in the world, I mean not only stocks, bonds, currencies, commodities, everything that is liquid and we tend to move very slowly in those we take positions in those and we are moving and we are at our own I would say it is our maximum and we don't want to take more money so active management is limited in others In words, I know your limits and the limitation for active management is limited. The capacity. The real problem is how to create a strategic allocation mixreally well balanced assets.

Now all that money has largely returned because the central banks have invested fifteen trillion dollars. of your balance sheet to buy financial assets correctly, which creates a lot of liquidity in the market and because of that liquidity and all that demand, then all the asset classes are bought because they all compete with each other, so there is the competition of you know what you have a zero interest rate, you have a bond yield of two and a quarter percent and then you have an equity and a private equity and everything is in high demand because there is all that money chasing all that amount of investments, as well as As a result Of that, there will be low returns in the future and that will have important implications and, as we are moving, the answer is that there is not enough for active management, so you have to deal with strategic asset allocation risk.

The point is to try to create that balanced portfolio and then when you take it, you're going to have it in an environment where there will generally be low returns because all that money has driven up the prices of those assets to have relatively low returns. and what those institutions really need to do is know how to design for that right now. I cannot emphasize that you know the challenge to our society and its importance today. Ray talked about a really important topic before of income inequality in my own life. In part, we are in this today with a knowledge society that is incorporated from that point of view, but if we look at the real assumptions in Japan today, the largest fund in the world, a Japanese pension fund has about one point eight five, that's your goal. for all of Japan today it's a little over two and a quarter if you wanted to buy an annuity in Japan today you get 25 basis points so you could double your money in two hundred and eighty years if you came to Canada it's in the woods for two four and a half percent and if you come to the United States today it still weighs on average between seven and eight percent of expectations if you look at the exchange in two dollars today it is around 160 180 basis points, so if you add that in and outYan, you are at about four or four and a half, similar to Canada, but what we see from these dramatic unfunded pension funds is the challenge of delivering on the promises that a company like GE made, a dramatic change here with an unfunded pension of sixty billion dollars to a seven. or more than seven percent actuarial assumption that they are trying and imagining what that unfunded pension fund would look like, then how to generate these rates of return correctly, as this is going to affect society in a very significant way, particularly in the United States, Western Europe and elsewhere.

What advice do you have for us on this side? Well, first of all, those returns couldn't be generated, they won't be generated because there is only beta and alpha and if you look at what is quoted in beta, in other words, there are cash returns, bond returns. and then you take that forward in terms of expecting stock returns or if you look at private equity, what their returns are, etc., there's nothing that's going to have that kind of return from a beta and then alpha standpoint. zero. -sum then we are not going to have those returns for all those people those entities then and if so what we know I even if I give my money to Bridgewater all my answers I am not going to achieve that yes certainly, if I acted, if I said no , I will answer your question literally from an engineering point of view, if you have an asset, a balanced portfolio of assets and the return on those assets, let's say, is a five percent return or a three-year four percent return depending, it depends largely on what the cash yield is, thinking about whether that leveraged yield would produce a greater yield than that, it's certainly true that the engineering for that is an exercise that is the only way out and and and there may not be a solution to the problem of most of those statements, although those statements will not be fulfilled and, going back to your question, they will not be fulfilled in terms of health care obligations, so if you take the total amount of our society's obligations, which are in the form of debt, pension obligations and healthcare obligations, it is certainly true that those obligations cannot be met and that does not mean that we are going to have a debt crisis like in 2008 we anticipated the debt crisis that we had gone through the financial form, it was not clear that there was going to be enough money to pay those debts in this case when we do it through the calculations We do not have a debt crisis, but we have an emerging contraction and those are the promises that mean that they will be commitments on pensions, what will be delivered, will be commitments on those things and when that happens in an economy where we have essentially two economies and we look at the bottom 60% of the economy, that is a social pressure that will be a social pressure important and a pressure on our time, so I think that is the combination of those obligations. not being able to meet it is a social pressure and I think then there is the exercise of what is realistic, how do they design it, it becomes a cash flow issue, not just a theoretical issue, when there is enough money available to top up the fund. pensions.

It's okay when you have a situation where you actually have to sell assets in order to get the financing and your asset portfolio shrinks, those actuaries will either return the numbers you need or they will increase, so because of that phenomenon we are about to enter . that period where the cash flow needs are going to have to go out, I mean, it's going to be a huge and too heavy burden or the pension obligations are not going to be met or you're going to have the cash flow problem that I'm talking about the need for actuarial assumptions to increase, so it's an engineering problem that's particularly true because the liabilities are large and because the expected return on asset classes will be low, so yes, it will be a social problem. and A political question as well as a market question for our time and for the next generation.

I think just to comment here we are talking about a very macro basis. If you go to many of the pension funds, for example in Canada, they have net inflows for the next 15 to 20 years, so they do not have to generate any rate of return based on cash flow at this time with more money coming in and money going out and which matrix is ​​common and there are a number of others where the outflows exceed the inflows and if we look back to the mid 1970s and late 1970s when interest rates were very high , people thought they were getting big interest rates through big coupons on the debt, but it was the reinvestment rate that affected them and if that's why Equitable Life Insurance is no longer an independent company because they had written a series of news, but the reinvestment rate in your cash flow changed.

You just touched on something that I think is extremely important and the topic at the Milken Institute this year. it's building meaningful lives and when you talk about populism or other challenges it's whether people feel like they have meaningful lives and many of us, when we're in high school or college, we study Maslow's hierarchy of needs and like a triangle and, When looking at this area, we focus first on basic needs, then you move on to being safe for your family and you can start to think about the people who lost their net worth or are reading about who are going to lose their job because of technology and , as you move up that hierarchy, reach loving, belonging and meaningful relationships, self-esteem and, eventually, self-actualization Rea.

I remember reading and in the book and maybe opening the slide about Bridgewater's radical transparency and his efforts to create this within a company and here was a note that he received. about feedback from a meeting of you and the other leaders at Bridgewater, could you take us back to that and talk about the relationships between people? I remember and could we not allow people on the trading floor generally between 6:00 a.m.? morning and... it was a distraction and one day one of the greatest money managers in the world came into the room for a reason I don't know how he got there and later when I took him to dinner he said no.

I noticed how people disliked each other so much in the department because they yelled at each other. I told them we don't have much time to sit quietly in a room and argue in a nest over pillows why that was terrible. decision, okay, we only have a few seconds and we expressed it quickly and moved on to the next thing and it had nothing to do with personal relationships, just how you express yourself, how could you be so sure? That point had to be it. I did it quickly, so my point is how it works. The company is so unique in this sense and when we talk about things with a lot of the world's leaders and financiers, whether they're money managers, etc., they're not used to certain terms like baseball cards. and other areas, how does it work?

Okay, so I'll give you a prayer. It's a long sentence, but it comes from the fact that I need the smartest independent thinkers to analyze the ideas as well and overcome them correctly so that Bridgewater is an idea of ​​meritocracy that's what I mean idea of ​​meritocracy where the goals are to have a job meaningful work and meaningful relationships are equally important meaningful work and meaningful relationships support each other support each other it's like tough love ok you can care about a person and you could be tougher on them if you care about them and it's like the Navy SEALs who want you to know, so that phrase is an idea of ​​meritocracy where the goals are to have meaningful work and meaningful relationships through radical truthfulness and radical transparency, in other words. that anyone can say anything and challenge anyone, so if you go back up that slide, that was the one you were asking, can I go back up?

Yeah, here's Jim Haskell and we have this radical transparency and he said, ray, you deserve a d- The negative thing about your performance today in the meeting, you didn't prepare at all because there was no way you could have been so disorganized without preparing. , isn't that so cool? Isn't that so cool? Right, it's great because if first of all I needed that feedback because he was right, that was good, I got the feedback and secondly, if he couldn't talk that way, then I would repress that, I would have to carry it with me and I wouldn't.

I would do it and it wouldn't be good. for our relationship, so we can talk and be radically honest with each other to get through it, but then you talk about our baseball cars and stuff, you have to know what people are like, people are good and bad at different things, everyone has weaknesses. So the idea is: can you find ways to really know what people like and whether they can accept their weaknesses and do it in a meritocratic way? We're not very good at this, we don't know if you're very good at this, just because I say it, it means that in itself, so how do we get to that and how do we do with that and collectively how do we do that? acquire evidence, so if you go to that TED talk, the TED talk will really convey how we collect that evidence and then everyone will know if they are really good or bad at different things, once you get there, you will know that each person knows. how to improve in a better way or do you know what is even more valuable who to pair with someone else because someone can be, let's say someone is very creative and not trustworthy, someone else is very trustworthy and not creative, if you put those two together, you have a effective team or someone who is big picture and not detailed, someone else is detailed and not big picture, they make a great team, first of all, if you don't know what they are good at, you won't put them in the right jobs. and they're not going to get better, so the idea is how, according to Mary, Lee's meritocratic idea, based on evidence through a lot of points and evidence, gets to the notion of what people are good and bad at to have that . idea of ​​meritocracy and that has been our secret sauce to success, right?

If you can do it, because if you also have a meritocratic idea of ​​Darcy that people believe in, then they think it is fair and helps you overcome disagreements. You know there was a disagreement that I had with the magician, the CEO about different things, but we have a process that helps us overcome those disagreements because everyone believes that the decision-making process is fair, that's how you put together a team of great independent thinkers to be able to reach great meetings. of decision making instead of just individual decision making because no one is good enough, so in the book you can have the opportunity to read about the point collector baseball cards, the paint button, the problem log , dispute resolution and when I think about it and how this has played out today. been capturing a computer with the data to analyze, you know, I was very focused on hiring people whohad a meaningful relationship outside of the office so that someone would love them and therefore they would be better employees, they would not necessarily seek love and acceptance and I would take different opinions and convince myself, then the Commission next lightning I realized this system that them I mentioned, we usually told employees that they couldn't tell me or anyone else to bend for a week, okay, after a week it was a free and open discussion.

I noticed that they have a lot of first-year and second-year employees that come in third, I think that was very important and when I think about this concept that Ray just presented and I want to comment on it, we are very focused on hiring the person who is graduated first in the class that was the brightest, the best in math, etc., but we came to the conclusion after several years that we had a couple of them with a person who had common sense, so maybe they hadn't even gone to college, but that team and I think what Ray said and reflecting on sports very quickly.

I grew up in Los Angeles and seeing the Lakers lose every year to the Celtics was very disappointing even though the Lakers at that time such They may have had better players, but Boston was a better team. Then I went to grad school in Philadelphia watching Philadelphia, which had better players, Wilt Chamberlain, lost to Boston and I think what Ray is telling you, as they found a very successful formula for building a team and in the end the team usually beats an individual. I want to shift to two more areas today like We think about the jobs of the future in technology.

You've operated in a financial industry where when I went to Wall Street in '68, 9 they set commissions, if you bought a million dollars worth of stock, you had to pay a 1 percent commission, so transaction costs. They were high ten thousand dollars if you buy a thousand if you buy a thousand shares they say Amazon if you can't negotiate a better deal fidelity will do it for you for three dollars and fifty cents or Schwab. I have told them both. For them, this was the competition between AT&T and MCI in the 1980s and I went to the MCA board meeting and said why don't you go to zero if everything you offer is worthless and it's the only price when we reach zero, but can we?

Imagine what has happened today with two transaction costs. 60% of assets are now indexed or based on some type of assembled technology. What is the future for people in the financial services industry? Well I think it's not just the financial futures industry, it's all industries because Take blockchain and look at how it exists and takes algorithms, so we're in a world where you're either going to write code and algorithms or you're going to be displaced and lose your job. because of those algorithms, you know? In the next 20 years approximately 40% of all jobs are likely to be lost or threatened and that is the reality and I think the education of speaking and knowing how to write code is like knowing how to read and write so we are in a situation where you know it's great and terrible depending on where you are right.

It's a fantastic advantage, so I would say it for all of you, as it has been for me, if you put someone who knows how to write code next to you and then think, every time you make a decision, what are my criteria for making that decision? decision? you make a decision and you slow down and you write them down, that's why I wrote these principles and then there's the economic one. You could turn those principles that are in words into equations so that the data can come in and operate in parallel with you and that's what you need to do is a phenomenon that to be competitive is necessary, so I think that's what the future looks like.

I think that's where we're headed and it's great in many ways, but behind it, of course, is the disparity that produces income and opportunity and that produces a lot of people who are then left behind and we have to deal with that issue, that issue - yes, I am not berating the way it works, it is our investment processes, which are our thinking expressed in The algorithms work in parallel with my individual decision making, so it is like operating a computer game of chess; In other words, I have a computer chess or maybe I consider it like a GPS, this GPS gives the instructions and I make my decisions in parallel. and then because it's a big partnership, I can say, if there's a difference in our decision, why is there that difference between what the computers tell me to do and what I would say, and then I go back and reconcile it so I can say : the community algorithm is missing something or I'm missing something most of the time I'm missing something because what the computer can do is process a lot more information, it could do it a lot faster and a lot less emotionally, but there may be times where I see something that's not there correctly and I can take that and then turn it into a modification to improve the computer's decision making, so that the parallel and you're in a world where that The parallel is the future and a lot of things don't even exist.

They don't even need to have that parallel thinking if, depending on the nature of the decision, because it could be done, do it mechanically, that's what emerges today and that's what the future is. Right when I went to Wall Street, one of the first surprises I had was that what you would think was the owner's and management's profit curve didn't necessarily overlap, so I was constantly focused on those companies where the manager would think of himself as an owner and many companies, the owner was divorced, let's call him a shareholder, that the manager focused first on the manager's utility curve on what was best for them and then secondly, maybe the company today Today private equity has changed dramatically and our financing of This began in the 70s and that is why we have eliminated almost 50% of the shares that were listed for small and medium-sized companies.

Today there are fewer than 20 years ago. Private capital today has important social responsibilities and controls many more companies than are listed. Today they are deploying leverage and other forms of capital structure to generate higher rates of return from that point of view, but what is the idea of ​​private equity controlling more companies listed on the New York Stock Exchange or the Nasdaq today? in day? How does this affect your thinking and management? of money, so if they are going to raise between five and six hundred billion a year and they are going to leverage at least two to one, if not three to one, we are talking about these new funds that are going to take one and... in between and two trillion a year from potentially public markets and equity returning some of it into the debt markets, but how is this reflected in your thinking today at Bridgewater?

Well, first of all from the point of view of raising money today, because you know that there is a lot of money to do what you want in the private market, so you don't have to be public and generally it is much better not to be in a public security than me in a private security because you can operate in a way that is more effective and that is a natural pressure as I was referring to before those institutions are eager to make investments and that becomes nature of the beast and it will change where the liquidity is, of course, it is having that effect. that you're describing in terms of the problems in terms of, let's say, the leverage issue, I think that's equally applicable whether it's in a security or an off-the-shelf security, in other words, if I look across that company and I decide well if I want for them, whether it's a public company or not, a private company, you can decide what amount of leverage you want and design that to be able to take a company and say whether you have the right amount of leverage to be in it at this time. moment, what is happening is As you are pointing out, there is a lot more financial leverage due to the fact that the cost of financing is because it is significantly less than the return on equity, so if you are thinking I can buy, You know if my return on equity is 7% or something like that and I have a financing cost that I can match in terms of the term structure, then I can have a designed return that is an attractive return and therefore the real question is how do you design it to balance if it's balanced so the cash flows are balanced and those returns are maintained it's a good investment and that's why you see a lot of mergers and buybacks and that kind of engineering , which is totally fine, that also changes as the Fed adjusts money and stores to change the calculations of that, if you look at a lot of the stock market support and who was being misled, it's mainly supported by those who buy from the public. that sale of shares, the net sale of public sector shares and therefore financial engineering is an important positive influence for the stock market.

That is also why the Federal Reserve should be very cautious about adjusting too quickly, because it is not only an effect on the economy, its effect on the financial markets in terms of the amount of leverage, the sensitivity of the financial markets is partially affected. by the amount of leverage is also affected by the fact that the duration of assets lengthens as interest rates fall because as you know very well that as interest rates fall the duration lengthens. effective duration and you increase the price sensitivity of that kind of thing, so anyway, you know, you're probably going to see more about leverage and I don't know if I'm answering, I think I think The problem really is that more and more stocks , let's say, are privately owned, which potentially reduces, you know, those that only operate in the public markets, unless you participate in the other parts of the capital structure from that point of view. ask a problem and now there is a vibrant market that is private;

In other words, you can know that practically more private things can be traded, it is becoming more liquid, so once we have private companies buying and selling shares of companies valued at over 50 billion, it is questionable what it is. public and what is private it is raining today and then we are going to answer a couple of questions from the group here. He wanted to ask about his own family, so as he reflected on the past 50 years, there was only one of many. 3000 companies that I funded where the CEO told me they were in it for the money and the wealth was actually a byproduct of what they built and their passion for what they built and we all know that it is very difficult for the second and third generation and for the fourth generation.

You are a first generation that has been very successful, particularly financially like you, you have four children, what are you thinking about for those four children and your three grandchildren? I think right now and if you're thinking, I always think about well, what is your legacy? what's happening with your children, what's happening with your grandchildren and I know many, and I'm sure you do too, successful people who have had nothing but service with their children or grandchildren as a byproduct of their own success and of the way they led their lives. What do you think? Well, I was very lucky and my family, I guess, was lucky and you know that, so we had nothing and then as we accumulated this, they, like me, experienced each of the stages of going from essentially nothing. to more and they, so they know, they really know what the differences are that we didn't get to with this and in experiencing that, their grandchildren may not have had, oh God, I'm saying it's a, it could be a, it certainly could be a problem for the grandchildren, but by experiencing that I mean and also knowing well that you know what you value is somehow passed on to them in terms of what you value.

I remember when we renovated a kitchen and the kitchen was closed and we had to go into this little room with a hot plate and we all remembered how great the dinners were on that hot plate and so on so you can know why you went to Mass, those losses and You can know as you go up what matters. you know what you have if you have a bed and you sleep late, you have good food and good relationships, okay, security, belonging to the community, that's what you've touched. Community is the greatest source of happiness. I'm not the one who says that numerous studies say so. and there's not much correlation, there's no correlation beyond a certain basic level of income, amount of money, and happiness, so we know those things, we experience them, and in some ways I'm lucky that my kids did that and then what I want to do.

Giving my children more than anything and those grandchildren is self-sufficiency, another word, you could have it in any life you want to choose, but you have to be self-sufficient in the end, you are strong and I have provided it for you. I don't know with a lot of tough love and they understand the concept of tough love, so that's how it's been, but it's definitely a problem, yeah, the problem of having too much money. We have talked about this, the problem of having too much money for many. In many cases, it is much more than the problem of having too little money, it depends on where you havereason, community relations and their greatest reward, greater demand.

I think it's a source of happiness and so knowing that, but people can get addicted to these things and you have to be very careful with that, you know, you still know, flying commercially, almost generally speaking, my wife is like that, we get used to these things because and kids are like that, so I think yes, it's a big problem and it's important to experience it. And I like that about grandchildren, but I think I'm lucky that my children have this and, like me, they are, in many cases, more austere than me. I won't go into all that, but it is an important topic, yes. so let's open up a couple of questions yes we were buying it yes no no I don't think so let me be clear.

I think data extraction is one with multiple. I will not allow even a regression analysis to be done. to be clear an algorithm what I'm referring to I'm sorry for the interruption let me then let me clarify this an algorithm as I see it is an expression of yours the question is how do you determine if you go to my data To try to determine your algorithm as a regression analysis, I think you will have problems, especially in the markets, because you will not understand that you can do a regression analysis of two independent variables and you cannot explain why the coefficient.

If it says point two five times whatever and you say why it should be that if that changes by 0.25 you can't explain it, so I'm not talking about algorithms that are, in a sense, the decision rules. that you're expressing however you choose to come that I just wanted to clarify that sorry for the interruption that tail risk there are no standard deviations I don't think again I think you're not a I'm not conveying to you adequately what I'm saying is that I would ask you how you take into consideration the risk of tail, however you do it.

I have my way, you have your way so that the algorithm can capture that it is not something mathematical. I think you're thinking about yourself. Are you approaching that with a certain preconceived idea of ​​what I'm doing that's not right? So I say we all deal with the question of tail risk. So I would if we had a

conversation

and I said what's the best way to approach it. with the cat tail risk, then we would derive that we expressed it in words and then we would turn it into an algorithm to deal with the tail risk.

That's what I'm using as an example, so the question is: does it represent your good thinking? Don't you have a preconceived idea essentially that you think I'm putting a lot of numbers into the machine and then I'm trying to deal with it and we can go down that path? But I just want to explain what it is. No, it's real. I think it has to be a reflection of your way of thinking. I think the biggest problem that we're dealing with, particularly in the markets with respect to algorithms, is that the algorithms are going to explode if these two things are considered, you understand? algorithm and the cause-effect relationship makes sense to you.

A lot of algorithmic and machine learning means that the person cannot explain the logic of the cause-effect relationship and that is the first danger sign. The second sign of danger or risk is that the future is different from the past. If you have both, we are in the markets, the future is likely to be different from the past and, most importantly, everything that is discovered will be included in the correct price, in other words, if you discover something correct and the algorithm discovers it. and other people discover the same algorithm, then what is going to happen is the worst, the other way around, because everyone who finds it, but uses that algorithm, will increase the price, let's say, and they will not understand why and, therefore, It is more logical to go in the opposite direction of the algorithm than to follow the algorithm you have to do it right and history has shown us that this is the case. long-term capital, I mean, many, many cases, mergers, arbitrage, whatever particular style of investing has when you go through that process where the person doesn't know the logic.

I think it's very dangerous, so I want to be clear that, by the way, I don't think it's just an investment problem. I think it's a question of our time because as we move into more algorithmic decision making, I think it's totally fine if the future is the same as the past and you don't understand it by playing chess for example or even doctors doing surgeries. if you make the same moves over and over again cutting and making those decisions and so on so that there is no reason to believe that the future is different from the past, you can get algorithms to imitate and that will be effective and we will see a lot of that, but We're going to push the limits of this because some people in terms of competition levels won't be able to tell the difference and as a result I think algorithms in our social zone can be quite dangerous because there is no understanding and the future is different from the past and that's a formula for danger, so I." Sorry, I'm a very brief and enthusiastic interruption.

I said in that period of time you were buying securities at 1 cent on the dollar to 50 60 cents in an hour, today the spreads have narrowed, you sold it non-investment grade. two and three quarters and three and three quarter euros in the US, so I think one of the areas that Ray addressed in this environment, the definition of a listed junk security that represents 99 percent of all companies or high yield, was that the security traded more in the company's underlying credit than in the governments where the interest rates were, which contracts so much that the risk is that these securities will trade more in the level of the rates of interest than in the underlying. the company, so it has brought this element of risk to the market today that is not reflected and that is because it does not have this cushion, it does not have 800 basis points, 7,000 basis points when the 20 naira has these spreads narrowing. so much and so much, therefore the real risk of the 1970s was interest rate risk and in the early 1980s, US government bonds were trading at 50 cents on the dollar not due to credit but to interest rates.

Well, the next question, yes, sir, I want to distinguish. Bitcoin from technology like blockchain and that kind of thing because when we talk about Bitcoin one could be referring to any of those things and I just want to create the distinction between those things, why not? Why not? I think why. Don't you talk about bokor? Okay, a cryptocurrency coin. There are two purposes of a currency: a medium of exchange and a store of wealth. I can have a bonus, etc., and then there is the question of which one is Bitcoin. aetherium is going to be another technological thing, okay, so all those things are on the table right now, it's not an effective medium of exchange, you know, it's definitely someone I don't want to spend, it's gone, you can't. use it as an effective medium of exchange except in a very limited number of cases that may also be threatened in terms of the secrecy of those transactions and the things that governments are doing to go beyond that sequence, so it is not an effective medium . exchange from now on and it is not an effective deposit of wealth and that is because the speculation about it is such and the participant in it is something that I would say is a classic bubble type situation, that is, if we We look at the nature of the participant. in it and you say what the level of sophistication in your understanding of the capability is: do we have a sophisticated investor who is then thinking in terms of expected value in terms of where it's going to be and so on or do we have an investor?

Who was inclined to change it and trade in and out and what is that component? By the way, you can have a wonderful investment that is a long-term investment and still have a bubble in that investment, so I'm not saying this is forever. But the nature of the participants in that investment and what they're doing has turned it into a bubble where you know when I don't mean it's a worthless investment, it just means that when you look at the characteristics of what constitutes a bubble, purchase for resale by a naive group of people who are attractive because it is going up and has those bubble characteristics, okay and then, and then, and then there is the question of what is the version, so if I take Bitcoin and then There is an M theory and then there is the I don't know each one that could come and how they will operate.

I would say that unlike the notion of blockchain and the whole concept of cryptocurrency, which has a lot of merit, but like a currency, you can't have the volatility driven by speculation on it, turn it into a store of wealth, so those are its features right now, we are hindering its potential, it can be designed differently to some extent. I know that maybe if you built it with a different engineer, if I was trying to make it effective as currency, I would design how I do it differently. I won't go into how I would design it to do it differently, so I think there's a lot to it. of potential as a concept and blockchain, but at the same time it has these problems that I refer to, so we all remember when in the US and other currencies we talked about what percentage was backed by gold, so when you talked about what is the store of value and then the separation of currency from gold and I think we see that just look at social media, a number of people who have the most views on Twitter are now thinking about creating their own security, okay ? their own currencies, so if you're coming, if I have a hundred million people following me on the web, maybe I should have my own currency too so they can put money behind me from that point of view, the next question is already solved Yes, sir, will you?

Take it first now, okay, I'll separate the philanthropy part from the China question. I am very optimistic about China. John, China has four big economic challenges, but if you really look at the nature of these fundamentals and how to overcome those challenges, here are the four challenges: then it has to do a debt restructuring, it has to do an economic restructuring, it has to develop your capital markets and you have to manage your balance of payments, those are the four main challenges that all countries in the world have had, like in the United States, we had three major debt crises, we have had balance of payments challenges and everything that kind of thing, the real question is whether debt denominated primarily in their own currencies is denominated in their own currencies. own currency and do you know how to manage these things well?

So what we are seeing in China is that we are seeing an effective move towards debt restructuring. The debt restructurings that you are seeing and will see after we approve the 19th Popular Congress and so on. We are going to see more of that type of movement, there is a very impressive economic restructuring underway, there are the old industries, the state-owned enterprises in those old industries and there is the development, the rapid development of wonderful new cutting-edge industries that are period that is fantastic, you know, when I originally went to China in early 1984, I brought them a ten dollar calculator and they thought it was like a miracle and now I'm watching in terms of where they are in artificial intelligence and everything. of those things and it is comparable to where we are and for very good reasons, we are having an economic restructuring that is very effective in terms of the development of the capital markets.

Wow, I mean, and you know, flashes Hong Kong and the development of values. in recent years the ability to really develop the liquidity the depth of those markets the opening of those markets is extremely effective and in terms of dealing with their balance of payments they are managing this balance of payments effectively and the reason is because they have leaders able. I know the economic leaders, the people who are there. I know you know how well their abilities are and how they are handling them, and they have an advantage in some aspects in terms of the ability to control some.

Of those things, I'm very, very impressed if you take a look at them, they are their underlying foundations, the education of their children, this movement to reform, in other words, reform means, in other words, becoming a much more profit-oriented economy. market. be and also rule of law eliminate corruption or reduce corruption look at the incredibly impressive achievements there. I'm sure I feel good about China's leadership, capabilities not only at the highest level but also particularly in the economy and So, and I'm looking at that, those are problems that create little obstacles in the way. I think people misunderstand China because a lot of the existing problems they thought were problems that would be terrible for China, but they essentially don't understand the engineering and you have to look back and say it's been an impressive and consistent track record since Deng Xiaoping. came to power, and it was very similar.

Deng Xiaoping was quite similar to, say, a capitalist. say who has the quote it's glorious to be rich that deng xiaoping was when they brought him to china and that continues in terms of creating that kind of and then the political risks are not riskspoliticians too high, so they have to build a rule of law anyway, I am answering the question too long, but I am optimistic about China and its capabilities, they will have to change the economy it will no longer be cheap things produced cheaply, but that's okay because they'll have the ability to do that anyway, most people are too busy doing that to sit down and write a book and I think all of us, Rhea, are envious that you took the time to write a book to capture not only your personal experience but also the principles that I have laid down and we look forward to potentially this third chapter of your life as a member of The Giving Pledge with you and your family in terms of what you are going to achieve and how you could change that world.

Thank you for joining us. Today, thank you for inviting me, we have a society in that third phase of our life, well, thank you.