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

Feb 27, 2020
Peter Seligmann: That's beautiful. Now give each other a hug. We're opposed to doing that, right? To start, let's talk to a good friend who wrote a great book, Principles. This is Ray Dalio. Ray considers himself, and we all consider ourselves, to be ordinary people. He says, "I'm a normal guy." When I talk to him about being normal, I ask him, and this is what we want to learn today: “How does a normal guy go from being normal to being recognized by Time magazine as one of the 100 most influential people on Earth? How does a regular guy build a company that, according to Fortune magazine, is one of the five most influential private companies in America?
principles for success from ray dalio founder of the world s largest hedge fund
How does a person who comes from Long Island, works hard, struggles in school and end up being one of the 100 richest people on Earth? We have the good fortune to spend some time with a good friend of mine. We have traveled. We have been diving. We have been to remote places. I have seen it in action as he listens, learns and talks to everyone, with the same honesty and integrity, whether a village leader, a village member or the head of a Fortune 500 company. I would like to ask a good friend , Ray Dalio, come and share some moments with us.
principles for success from ray dalio founder of the world s largest hedge fund

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principles for success from ray dalio founder of the world s largest hedge fund...

Thanks Ray. Ray Dalio: Thank you. Peter: Thanks, man. Thank you. Ray Dalio: Thank you. It is a special pleasure to be able to talk to you because I am at the end of the second phase of my life and you are practically at the beginning of your second phase of life. I believe that life basically exists in three phases. You start, phase one is you depend on others and you're learning. The second phase is that you are working and others become dependent on you, and you are trying to succeed. Then you get to stage two and the number one goal that you want more than anything else is to help people succeed without you, then you can move on to stage three, which is to be free of obligations, etc.
principles for success from ray dalio founder of the world s largest hedge fund
What I did over a period of time, every time I encountered a situation and made decisions, I wrote down the decision making criteria. My number one goal is to tell you that you need to have your own

principles

. I'll explain some things to you. I'm going to share some of my

principles

. I hope they are useful to you. These are things that have worked for me and that I have been writing down for a while, but number one, I want to describe this experience to you. Whenever you are in a situation, and if you take the time after that situation and write down your decision making criteria, then you will have it for the next time that happens.
principles for success from ray dalio founder of the world s largest hedge fund
What happens is that the same things happen over and over again for the same reasons, but you don't see it, you are operating in a way where you take them one at a time. I would recommend that you write down those principles. When you do that, you think about them in a deeper way, and then the people who are in your lives start to understand how you're behaving and can be partners in that idea of ​​meritocratic decision making, so they can also say, " Is that the best way to operate and deal with that situation?” and then you start thinking in a more principled way instead of all these fragments of different things.
That would be my recommendation, but what I am going to do is explain a little about my trip. That's totally right, as Peter says, I'm actually a very average guy, who through trial and error discovered some things that worked and helped me do what Peter was describing. What I want to explain is that we look at the

world

and there are so many things to have principles for. Principles are essentially recipes for dealing with situations that happen over and over again. There are only a million things. You could study, you could be a doctor, you could be a physicist, you could be like that, and the things that I understand and dedicate time to are financial investments, and then work.
My approach was largely captured on this slide, which is to say, as if I pursued audacious goals and then succeeded and failed. The most important thing is that I benefited from failure. In other words, you pursue your goals and then you encounter your problems or your failures. How you approach those problems is one of the most important things. I began to realize, for reasons you'll probably see as we go, that pain plus reflection equals progress. In other words, that painful situation, if you can diagnose what produced that failure, and then develop principles to approach it differently at a different time, in a different way, and then take those principles and improve, you learn, you change things, then you improve and become better, you move on to more audacious goals.
The way I look at life is more or less like it's this circular process, this evolutionary circular process. That means you pursue your bold goals, fail, and learn. Failure is an important part of that process. You learn principles. You keep improving. I think I learned that there are only five things you need to do to be

success

ful. If you do these five ways, five things, you will be

success

ful. The first is to be clear about what your objectives are; you have to know what you are looking for. You can't have everything in the

world

, but you can have almost everything you want, but you can't have everything you want.
If you pursue your goals and they are clear, you must know them. Along the way, number two is that you must identify and not tolerate your problems. Many people tolerate problems. Then you have to diagnose those problems to get to the root cause of those problems. Often the root cause is you, maybe you have weaknesses, maybe you make mistakes, or maybe someone else is making mistakes. We all have strengths and weaknesses. The power of being able to know our strengths and weaknesses, and knowing how to deal with them, is enormous. Only when you know what your problems are and specifically diagnose them can you create a design to solve them.
That design, a very specific design, solves the problems and then if you have a design, you have to be reliable in doing it. Everyone is bad at some of these steps. The key is to work with other people who are good where you are weak. I just want to give you a feeling of failure. I think probably the biggest problem with humanity, that's a big statement, the biggest problem with humanity, the biggest tragedy with humanity, is individuals who have erroneous opinions in their minds that they are attached to. They could easily stress test them, expose them and find out if they are strong or weak in terms of those opinions, and go further to make better decisions.
It is a tragedy because it could be solved very easily. You can reduce the chances of getting it wrong by putting them through proper stress testing. I want to tell you an experience, briefly, of what happened to me and that changed my entire approach to decision making. This was in 1980, 1981. I had analyzed that American banks had lent much more money to emerging countries than those countries were going to be able to pay back, and that we were going to have a debt crisis, a big debt crisis. I thought that would have a very negative effect on the economy.
That was a very controversial opinion at the time, it attracted attention and it turned out that in August 1982, Mexico defaulted on its debts and several other countries followed in its footsteps. That controversial point of view was right about the debt crisis. As a result, I received a lot of attention. I was asked to testify before Congress and to be on Wall Street Week at the time. I just want to give you a clip from there. Video Playback: Mr. President, Mr. Mitchell, it is a great pleasure and a great honor to be able to stand before you to examine what is going wrong with our economy.
The economy is now stagnant and 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 could say with absolute certainty that if you look at the liquidity base of companies and the world as a whole, there is such a reduced level of liquidity that you cannot return to an era of stagflation. Ray: Arrogant? I was incredibly arrogant. I couldn't have been more wrong. That was exactly the bottom of the stock market and we had this decade of success. It was extremely painful.
I lost money for clients. I lost so much money that I had to borrow $4,000 from my father to pay family bills. I had to let people go. It was really terrible, but it turned out to be probably one of the best things that happened to me in my life because it changed the way I made decisions. In other words, it gave me a humility, a fear of being wrong that matched my boldness, and allowed me to do a stress test: "Am I thinking?" What I wanted gave me this notion: "How do I know I'm right?" What I learned is that being successful has more to do with knowing how to deal with not knowing than with anything you know.
If you can then think: "How do I know I'm right?" and do a stress test yourself, and find people who disagree with you, the smartest people you can find who disagree with you, and have well thought out disagreements so you can digest them and do a stress test. Stress not only provides a lot of learning, but it tests your decision and increases your chances of being right. I have this company, this small business that I'm building, and it changed the way we operate. This is what I want to convey to others who have businesses or are operating businesses, about this way of operating.
What I needed were independent thinkers who also had bold goals, to pursue them together and challenge my thinking, and challenge each other's thinking and try to come up with the best answer, and I realized it didn't have to be that way. come from me. I needed an idea of ​​meritocracy. I'll try to explain how it works. Through that idea of ​​meritocracy, we then have these principles. By writing down our principles and those shared principles about how we were going to approach things together, we would have better communications and approach things better. That produced successes, failures and learnings, and the learnings produced happier employees, this idea of ​​a meritocratic way of operating, produced more independent thinkers and bolder goals, and it produced success.
It was from that learning, from that very painful experience that I went through, that my approach to decision-making changed to create an idea of ​​meritocracy. What do I mean by an idea of ​​meritocracy? I want to be very tangible for you. To have an idea of ​​meritocracy, in other words, that the best ideas win, wherever they come from, you have to do three things. The first is that you have to put your honest thoughts on the table, honest thoughts on the table, for everyone to see and then look at. One of the problems with most groups of people, with most organizations, with most individuals, is that they don't want to be honest and they don't like disagreement.
You can go to a restaurant and someone says, "I like the food," someone will be reluctant to say, "I don't like the food." Reflective disagreement is the second thing. You have to understand the art of disagreement, because if there is disagreement, that means someone is going to be wrong, and how do you know that the wrong person is not you? You have to understand the art of thoughtful disagreement. Then once you have that disagreement to increase your chances of making better decisions, and that certainly happens if you do it right, then you have to have ways, come up with meritocratic ways, to overcome your disagreement.
In other words, you need to have protocols, and we do something we call credibility, weighing decision-making based on the credibility of different people. That's what I mean by an idea of ​​meritocracy. Do you want an idea of ​​meritocracy? Do you want to operate that way? Do you want to have thoughtful disagreements, not emotional problems? Curiosity to be more likely to be right? Do you want to comply with the protocols that will help you overcome that disagreement? The other thing is that you have to know what people are really like to have a meritocracy, and everyone has strengths and weaknesses.
The real question is; Do you want to know your weaknesses? Do you want to know the weaknesses of each one? Because if you know each other's weaknesses, everyone will be better off addressing that head-on, knowing each other's strengths and weaknesses, because that's what makes a great team. When you know what someone is like, you know what to expect from them. That's a power. An idea of ​​meritocracy is that type of organization. I want to give you just a quick summary of how it works and how we try to generate information. There are a lot of different tools, but what I discovered is that to be effective, I needed to have tools, apps, and things that worked and made it easy.
I'll take you into a meeting and give you an idea of ​​one of the tools and one of our methodologies that now works that way. Video Playback: A week after the US election, our research team held a meeting to discuss what a Trump presidency would mean for the US economy. Naturally, people had different opinions on the topic and how we approached the discussion. The Dot Collector collects these views. It has a list of a few dozen attributes, so whenever someone thinks something about someone else's thinking, it's easy for them to convey that evaluation. They simply write down the attribute and give a rating from one to 10.For example, when the meeting began, a researcher named Jen rated me a three—in other words, bad—for not showing a good balance between assertiveness and open-mindedness.
As the meeting went on, Jen's evaluations of the people added up like this. Others in the room had very different opinions. That is normal. Different people are always going to have different opinions, and who knows who is right? Let's see what people thought about how I was doing. Some people thought I did it right, others thought I did it wrong. With each of these opinions, we can explore the thinking behind the numbers. This is what Jen and Larry said. Keep in mind that everyone can express their thinking, including their critical thinking, regardless of their position in the company.
Jen, who is 24 years old and fresh out of college, can tell me, the CEO of the company, that I'm approaching things terribly. This tool helps people express their opinions and separate themselves from them to see things from a higher level. When Jen and others shift their attention from entering their opinions to looking down at the full screen, their perspective changes; They see their own opinions as just one among many and naturally begin to ask themselves, "How do I know my opinion is right?" That shift in perspective, going beyond and seeing the full range of points of view, moves the conversation from discussing individual opinions to discovering objective criteria for determining which opinions are the best.
Behind the Dot Collector is a computer that watches what all these people think, correlates it with how they think and communicates with each of them based on that, then extracts the data from the meetings to create a pointillist painting of what how. It's people and how they think, and they do all of that guided by algorithms. Knowing what people are like helps them adapt better to their jobs. For example, a creative thinker who is untrustworthy may be paired with someone who is trustworthy but not creative. Knowing what people are like also allows us to decide what responsibilities to give them and weigh our decisions based on the people's merits;
We call it your credibility. Below is an example of a vote we ran where most people thought one way, but when we weighed people's opinions on their merits, the response was completely different. This process allows us to make decisions, not based on democracy or autocracy, but on algorithms that take into account the credibility of people. Ray: We actually operate that. I just want to give you... highlight a few things. First of all, anyone can criticize anyone based on a non-hierarchical approach, which is why we file all complaints. We capture that information. In that way, we are building a meritocracy, a meritocracy of ideas that people believe is a fair system, so it is weighted based on capabilities.
We do this weighted by credibility based on the data. Nobody is going to be able to be hierarchical in that sense; you can make decisions based on the quality of thinking, and that can evolve over a period of time. People learn their strengths and weaknesses. Then we have behind that data a lot of data, because every day everyone gets a 360-degree review of it, but we also see how they themselves make decisions, and we process that data in a way that everyone considers fair. People are together in this mission. My goal has been to have an idea of ​​meritocracy where we want to have meaningful work and meaningful relationships.
Meaningful work means you are on a mission together, and meaningful relationships are those deep relationships, but through radical truthfulness and radical transparency. Then we use those algorithms to help us. What is the problem with doing this? I think it's an ongoing problem. Why is that difficult? I believe so, and it is what I call the “Two You”. I've asked neuroscientists and psychologists, and they all agree that basically there is a logical conscious you and then there is a subconscious emotional you, and they have a fight with each other. If I asked you, "Would you like to know your weaknesses?" or "Would you like to know what I think, even if it is critical?", the logical response would be: "Yes, I would like to know those weaknesses." things, because then I can deal with them better,” but emotionally, that becomes a challenge.
As people start to fight each other coming into the organization, they come in wanting to know those kinds of things and have that radical truthfulness. That radical truthfulness generates stronger relationships, because everyone knows that you will get that truthfulness. Thanks to this transparency, this radical transparency, almost everyone could see everything. We record everything so that everyone can see it, almost everything, so that there is no turning back, that reality exists. That has been the basis for being able to have that idea of ​​meritocracy, and that has been the challenge. It's not for everyone. I would say probably a third of people just can't get over it, a lot of people struggle.
Then, on the other hand, we call it getting to the other side, when they get to the other side, when they're used to it, they can't work in any police cells because they can't go back to a typical organization where all those things are hidden, and there's politics. , and insincerity, and the problems associated with all that. I want you to answer these four questions and it's up to you to decide what you want. Four questions are: do you want these things and to what degree? Do you want to get a sense of a meritocratic decision-making process, where the best ideas come out instead of individual thinking, where you have the power, a hierarchy?
You know what that means, I had defined it before. Do you want to know what you are really like, your strengths and weaknesses and what others are really like to get the best results? Do you like this truthfulness? To what extent do you want to have truthfulness and to what extent do you want to have transparency? If you don't have transparency, you will be listening to everyone's indirect situations. Do you want to have those things? Then beyond that, there is great power in being able to turn any of your thoughts into algorithms. Do you want to have algorithmic decision making?
A lot of what we're doing is this data, and through the data and the algorithms, we actually have the machine, the decision-making machine, running in parallel, like playing a game of chess through a computer and doing so in association with the computer. I'd like you to think about those things, then you could think about how to get them. That's what I was trying to convey. We created a bunch of tools and apps and things, and we're going to make them available to the public so that people who want to do it, like Dot Collector and those tools, have the opportunity to be able to operate them. shape.
We will make them available. That's all. It may be a bit of a long road, but thank you. We will answer some questions about it. Peter: Thanks, Ray. It is brilliant. I love the generosity of where you are in your life, I mean you've built a great company, you've learned, you've written for 25 years what you learned. Not only did you try to remember what your principles are, but you have been collecting them for two and a half decades. What you're talking about is an operating system that can be applied to basically any company, to ensure that it lasts, because that's really what you're looking for;
It is long-term impact, effectiveness, resilience and success. It seems like it would be obvious: “How do I do that? Give it to me. I’m ready to go,” but he’s been talking to a lot of different companies. As you talk to friends and colleagues who are interested in this transition, can you describe what barriers and obstacles they run into when trying to implement it and how you coach them through it? Ray: First of all, I think any group of people, or any relationship, benefits if the definition is very clear about how they are going to be with each other.
You built an organization, people who are growing their organizations need to be able to be very clear. You can't avoid the idea of ​​writing those principles down, it's very powerful. So the question is, do you want to do it? Can you get into the habit? I think every single person here can do that. We are going to release an application that we call The Coach, in which in addition to having some of our principles, it will be a vehicle for you to write down your principles. So, habit, write down the principles when you face it and be clear, share those principles.
If you want these things, then the big problem is how to implement them. The big barrier here is the emotional barrier, but people start to react to that individually, they see the struggle with themselves and then they overcome it, and it's a matter of getting into the habit. We call the process “Getting to the Other Side.” Someone gets hired and says, "I really want this, this is great," and then they go through the process, and then it's shocking, it takes a little bit of adjustment. Then they get over it, because they start to realize that other people are not: "Do you want the other alternative where there is not that clarity?" and we call it "Getting to the Other Side," so it's a process that people go through, but I think everyone is going to have to face those questions now.
How are they going to be with each other? You can do it however you want, just write it down and be clear. Peter: Really, for me, as you've discussed this with me for years and as you've taught me as we travel together, work together, and learn together, I've seen how I've applied it in other situations. , that people don't really like to talk about failure. It's more like, "Let's go to success and not talk about failure." His quote, “Pain plus reflection equals progress,” is at the heart of that. Could you go a little deeper into that? Ray: I think in much of life second-order consequences are the opposite of first-order consequences.
In other words, the things you like, maybe the food you like to eat, the exercise you don't like to do, all of that is one of life's great tricks; that the second order consequences are very, very beneficial. Life is playing tricks on you and he's like, "Okay, which ones are you going to trade?" Failure, for example: “I don't want to talk about failure, I don't want to talk about weaknesses.” I'm saying, "Go to the pain, go to the pain," and before you know it, the pain turns into pleasure. My whole mentality begins to change. I find that if I have pain, I start to see it as a puzzle.
I see that if I can solve that puzzle, meaning what I would do differently next time, I will get a gem, and that gem is a beginning of what to do next time to learn. I have developed the habit of having a second-order reaction to pain, to failure, which lets me know that it is a learning experience. It's that dynamic in life. Don't be fooled by the first-order consequences and really enjoy the second-order consequences. Go to the pain and look at it like a puzzle, and then you will get gems. Peter: I should just say that the first time Ray did this with me, I think you were in Connecticut and I was driving down a dirt road in Brazil, where you talked to me about radical transparency and what you would learn. from someone who went against what I have been telling you.
I didn't feel pleasure in it. It took me a while to really understand that listening with an open mind, without really thinking about your response while you're being taught, is actually the way to get to the place where you can learn. Ray: Both sides, that's a thoughtful disagreement. When you are totally honest, you have radical candor and you know that you don't know the answer, but it becomes a common question how you can solve it with good intentions. The idea of ​​tough love is, “Let's hold each other to high standards and try to come up with the right answer together,” but it's going to be difficult.
Peter: Now that you've introduced your extraordinary company, which is one of the most influential companies in the United States, to the concept of radical transparency, and this is something that you developed over decades, I guess the question I have is: When new people come in? to the company, what is your reaction? Is there a reaction, “This is dangerous,” is your reaction, “This is different, I love it,” or are those people weeded out in the interview process? How do you do that? Ray: Of course, we recorded everything; We could show you many cases. We make them aware, and it's like the intellectual Navy Seals: "Okay, do you want this?" Everyone says, "Okay, I want that thing." They make a decision (maybe some people don't) and then they go in, but like the intellectual Navy Seals, they say, "Yes, I really want this," and when they get into the ice water and you don't fall asleep, it's the equivalent of them living that experience and then fight each other, and then come to love it.
What happens is meaningful work and meaningful relationships. In other words, maybe like the Navy Seals or something, when you're close to someone and you have that genuine affection that they know that's part of it. I think we have 1,500 people. I think there are like 104 clubs and organizations. I made a policy that anyone who can think of something fun to do, can have 20 or more people up to $500 per person, we'll pay half. In other words, just go out and build those relationships. If you have those great relationships and you know that they are being hard on you for those good reasons, to try toget to the answer, and you know what your goal is, then they will love it.
For most people, there is a period of time, maybe about 18 months, that is associated with behavior and modification, and then people say, “Okay. I got it." After that period of time, people don't want to work somewhere else because it's very difficult for them to get into an organization where everything is behind the scenes and it's just fake. Peter: If we have hundreds of entrepreneurs in front of us who now They are starting their company or have recently launched their business and they love this idea and want to adopt it, do you suggest they go all out or do you suggest they try it with a small leadership team?
How do you really see if this is going to work for you? place? Ray: Yes, try it. You have to define how you are going to be with each other and you will live it. The question is: can we be radically truthful and radically transparent with each other? It is going to emerge. Peter: The answer is that you've been, we've been. Ray: But what I'm saying is that with your association you're going to address that issue. While you're going through that, you should experiment with it. The reason I published it is because the book has a very essential level: you can look at the questions and then experiment with them.
If you know your vision of where you want to go, do you want to have a sense of meritocracy? It is the target level. Once you have the target level, experiment. Is it the upper circle? Like several companies, I won't mention names, but the big companies right now, the interesting and cutting-edge companies, the top 10 people in the company, because they are usually the majority of companies or organizations, maybe there is a group of top 10; Then you will experiment, do you want to be like that with each other? They start experimenting with it. Do you want to expand it?
They have to find what is right for them. Peter: I want to tell you that I actually find him extraordinarily open-minded, clear and wise. To start, again, I just want to thank you for that clarity. What's interesting too is that, as you and I have talked, we have to go through an arc in our lives, right? You're at that point in your life where you think, "How can I share these principles with the rest of the world?" Ray: I just want all of this, to pass it on, and they'll just take it for what they think it's worth.
Peter: But why? Why have you come to this place? Ray: I think it's very natural. I think you experience it. One of the things that many people don't understand is how priorities change at different stages of life. I think when you reach a certain age, it's like a father with his children. What do you want? At an age, you want to help guide them. In another age, when you are a certain age and they were a certain age, you want them to be successful without you. You want to convey that and you feel that kind of responsibility, and then you release yourself from that responsibility by passing it on.
I'm going to pass. I'm going to hand you the tools. I'm going to reveal that and then I'm going to disappear. I mean, you're not going to see me, I don't like this public thing too much. Peter: How long do you have left before you disappear? Ray: Probably a year, but for tools and stuff, something like that. It is a stage of life. Joseph Campbell wrote a book; There is a wonderful book, Hero with a Thousand Faces, and it covers the arc of life. It's very good for all of you to almost think, where are you in the arc of your life, what does that arc look like, and what will you find? because you don't really pay much attention to it.
It's an arc of life thing. Peter: In your place, in your bow, you have one; you're giving this gift to the world, and it's not just, "Here are some principles, read a book," but you're actually on the path talking to people to try to educate them on why radical transparency and relationships are totally essential. for effectiveness. Ray: Which for me is almost like freedom from it. Peter: You have other passions too. What you and I have talked a little about is your passions for the ocean, for exploration, for communication. I know you believe that everyone should pursue their own passion, which I completely respect.
Tell us why this is your passion. Ray: I've been deep in the ocean and explored it. It's exciting and it's also important. The way I see it is that if you look at ocean level, the world above the ocean is about half the size of the world below the ocean. The

largest

peak equals the deepest valley; It is almost symmetrical, but represents 72% of the world's surface. That means two-thirds of the world is under the ocean, and no one has explored it at all. If you love exploration, it's better than going to another planet. If you want to see aliens, you'll go under the ocean, you won't see them up there.
First of all, it's exciting and then it's important because the ocean is our greatest asset. I won't go into all the reasons because we'll run out of time, but it's our biggest and greatest asset, and it's underappreciated. It's very important in terms of the whole climate issue. It's so important in so many different ways we could approach it. I think it's very shocking. I'm excited by the impact. My goal in life is to evolve well and quickly and contribute to evolution. That's my way of doing it, I'm excited to do it and I feel like I'm having an impact.
I have a ship that has submarines that go down to 1,000 meters that scientists use and facilities like the Blue Planet II, we shoot in it, we discover giant squid, that kind of thing. We are doing another initiative in which we are going to have a series like that of Jacques Cousteau, I am doing it with James Cameron, we are going to have a series in which people are watching and many social networks, so that there is that participation, so that people can not only explore, but they can be there virtually with other explorers so they love it.
You have to love it first. That's why I'm excited. Peter: Yeah, I love that you're doing that. Thanks for that. Thanks for that. We live in an economy that's pretty hot right now, but we have a growing polarization between the haves and the have-nots. How would you solve that? Ray: Well, let me briefly describe the mechanics, I think it's very similar. There was economics that... Economics and markets are my daily work. I think it's important to understand that we're in a time period analogous to the late '30s and '19, it's all these cycles of debt.
There is a short-term debt cycle, a long-term debt cycle, and between 1929 and 1932 we had a debt crisis and then zero interest rates. The only other time it happened was in 2008, we had a debt crisis and interest rates at zero. Because the interest rate is zero, the way the central bank dealt with that was to print a lot of money and buy a lot of financial assets to drive up the prices of those assets to lower interest rates, and push liquidity into the system, and That caused many assets to increase. With that, that contributed to a wealth gap.
There were other reasons; technology, etc., to produce a wealth gap and also a divergence. Today, the top tenth of 1% of the population's net worth is equivalent to the bottom 90% combined. In other words, a huge wealth gap. That was the same thing... the last time it happened was in the late 30s. We are in a situation where the economy is at its peak and we still have a lot of stress. That's where we are today. We are in the part of the economic cycle, which is the last part of the cycle because when you start to have capacity constraints, unemployment rates are low, etc., central banks start to slow down and start to tighten monetary policy.
We are nine years into this expansion and the ability to deal with it is different. We are in a situation where if there is a recession, and we will have one, I think... I worry that that polarity will become greater. I think our unity and how we address our problems together is something very important. If you look at the situation, capitalism basically doesn't work for most people. That is simply the reality and yet there are opportunities. We have to make it work for the majority of people. You are in a situation where, like today, the Federal Reserve did a study according to which 40% of the population would not be able to raise $400 in the event of an emergency.
It gives you an idea of ​​what the polarity is and many times we don't have contact with that world, but it is a real world. That is a problem. And then I think we're also in an environment where, for the first time since the 1930s, we have a rival power, in the form of China, emerging to find itself in a competitive situation with the United States, which is going to be a problem. I think it needs to be solved. If I were doing it, I think you would have to call that a national emergency, and the President of the United States, if he were to declare that national emergency, that wealth gap and that opportunity gap, and then create metrics that would literally judge the conditions of people, and then we take responsibility for changing those metrics.
I think there is a lot that can be done in public-private partnerships and so on to be able to change it, but I fear that that probably won't be done the next time we have a recession, and I fear what that conflict is going to be like. Peter: Yeah, I think we're all afraid of that, and that number you gave of families who couldn't raise $400 is shocking. Ray: The education system, my wife helps public education in Connecticut and Connecticut is the richest state in the Union, but I'll just give you an idea of ​​the wealth disparity and the impact.
She deals with public schools, with the worst kids in public schools, and she supported the study that looked at so-called disengaged and disengaged students. A disengaged student is a student who attends school but does not study, they are just there. A disengaged student is a student who doesn't even know where she is, she doesn't come to school. 22% of high school students are one of those, they're going to... Those students are going to be on the streets. You go to schools and share books. In some cases, they literally share pencils. They take a pencil and pass it from one side to the other or break it in half and sharpen it at both ends.
The conditions are... it's unfair, it's intolerable. Those things are not being addressed. Anyway, I think that's a real problem, there's a lot of justification. We have to make the system work for the majority of people. If you look at the wealth gap, there's something... if you're interested, I have the studies that I did that are on LinkedIn, you can continue. I broke down the economy from the top 40% to the bottom 60%. I chose 60% because it is the majority. You could have chosen 80%, the conditions are basically the same. If we look at that 80% economy, it is a bad economy.
Opioid death rates are increasing due to suicides, but their usefulness is decreasing. We have to deal with it. Peter: Yes, we have to understand that there is a legitimate fear, a legitimate fear. Ray, I think there are a lot of people who would like to ask some questions. Why don't we start with some questions and start again here on my left? Speaker 3: Thank you. Ray, first of all, your philosophy is completely genius, and the fact that you have, over the last few decades, taken all of these thoughts and shared them with all of us in the world is truly extraordinary.
I just want to recognize you for that. My question is: When you were starting to realize how these principles changed your own line of thinking and then turned them into ways you made decisions, how did you decide to invest in the technology that allowed Bridgewater to make the best decisions as a company? equipment? Ray: I started by writing down the criteria every time I made a decision. I did it basically because when I closed a trade, I wanted to see how my thinking worked. And then the idea occurred to me that if I could make that clear enough, I could test how that decision would have worked in the past.
I was able to run it in every country, over the entire past time period, and that gave me a reflection on that decision rule. Then I discovered that actually, if I could take that criteria and put it into an equation, I could take data and I would say, "Bring it to me," and I would make those decisions. I stumbled upon the fact that writing down the principle, turning it into an equation, allowed me to test it and then also allow the decision making to happen that way. That thing then allowed me to do that in everyone that I was making decisions or making, and we would do it together.
It was cool because we usually asked ourselves, "What would our decision be?" That's bad. If you think instead, what should our decision-making criteria be? You can try it and turn it into algorithms, that's good. What happened was that the vast majority of our decisions over a period of time could be made this way. 98% of our decision making is done through algorithms, and we argue about our criteria, not our conclusions. That's how it developed. Then I realized that I can tackle everything, I can make decisions with people. In other words, with all the collected data you saw, we could create algorithms.
And looking at those algorithms for managing people and how we're going to be with each other, it became a logical extension. That's how it evolved. Peter: Sir. Speaker 4: TheHis company's investment performance has been one of the best in the world over the long term. He shares with us two or three, the two or three main ideas, methods and qualities that he believes have made him one of the best in the world. investors. Ray: Okay, quick. First, I learned that almost all the surprises that happened to me were things that simply had not happened in my life before, but happened repeatedly in other lives or in other countries.
I needed to have a criterion that I call timeless and universal. Specifying the criteria and then seeing how they would have worked in other time frames and in other places, timeless and universal, that has helped us a lot because then if there is a difference in another time frame or another country, I am forced to explain that difference and be able to do so. . That's one of them. The idea of ​​separating what I call and the data, what you should... if you didn't have a vision, what a balanced portfolio looks like so you can have asset diversification to achieve balance.
The power of diversification to reduce risk without reducing return allows you to greatly increase your return-to-risk ratio. In the book I show what I call the holy grail of investing. Whether it's done for a mix of strategic asset allocation or taking bets, that's been a key aspect. I call it the holy grail of investing, so you might want to check out the book because there were people after you and I had other questions to answer. I would say that knowing what we don't know and how to deal with it well has been key. Peter: Ray, I just want to switch for a second because you're talking about radical transparency as it is in your work at Bridgewater, in the business that you've created and the logic that got you there, the mistakes that you made, how you learn from them, how you get by, and you wrote principles and how you really look at this for decades.
Have you applied the same in your family? Lightning: Of course. I mean, look, in any relationship you're going to have to define how you're going to be with each other. Sometimes people just don't talk about it, but there is a huge benefit. For me, I can say, these are my principles, you can read them, you can hold me accountable for this, this is what I will do and you will know it, and this is what I value. And when you have that in a family, do I want to be radically honest? I could tell you stories of difficult situations where...
One story, my wife possibly died of cancer in terms of that, and I wanted to guide my children through that when they were young, guide them through that so they could Know that they will always be able to trust what I say bluntly, in that radical truthfulness and in that radical transparency. It's radical, it doesn't have to mean absolutely everything, I just want to be clear. There are certain things where if someone is going to get hurt, you decide, because you have to decide how you are going to be with each other. Peter: The good news is that Barbara was fine.
Ray: The good news is that Barbara was fine. Thank you. Peter: Question? Speaker 5: Good afternoon? I have a question, however, I noticed that there are no women online who may have the opportunity to ask questions, so I want to see if there are any women who would like to take my place. Peter: Thank you for that, thank you. Ray: Hey, that's great. Well done. Speaker 6: Thank you very much, I really appreciate it. Ray, my question for you is: what is your advice on how we can reconcile the comments? I don't want to call them negative, but when we get feedback...
Ray: Looking at the negative is good. Speaker 6: Okay. How can we reconcile that when we receive that feedback about ourselves about our weaknesses to internalize it and improve faster? Ray: I think the only question is whether it's true or not. In other words, if we're working together and you don't believe it's true and you're in that situation, it may not be true. And then how do you know based on the evidence? Do you do a test? Or do you do triangulation? You have to really want to know if it's true or not, and realize the benefits of finding out if it's true.
Because this is the key to success in life, the key to a successful life is that you don't have to do it alone, you find out what you can do well for yourself. There are two paths to discovering that you have a weakness, the most common path is once you discover it. The most common path is: do I turn it into a fortress? And that can be a difficult path, people who think one way may have difficulty thinking another way. The easiest path is to discover who is good at what you are not good at and appreciate those differences.
I think the answer to your question is to try to do it in an evidence-based way, knowing that you will be much more successful and much happier if you do it. Peter: Thank you. Speaker 6: Thank you. Thank you so much. Peter: Yes? Speaker 7: Hello, Ray? Lightning: Hello. Speaker 7: What do you think about universal basic income? Ray: Universal basic income. By the way, I did a study on it and it's on LinkedIn if you're interested in seeing it, I looked at it a lot. The basic problem with universal basic income is that they think it will be reduced... money will be taken and

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ed by taking programs that exist and eliminating them or reducing them to give people the money to earn them. themselves so that they can take them well.
I think it's really a question of whether... When you change that, that will allow them to make good decisions because they are good decision makers. In other words, when I look at education and I see a number of things, I know that I want... and I'm dealing with certain populations, I want to make sure that they are given the money, the cash is given to them for an effective purpose that they will use. well instead of the program. If I'm going to get money from education or other things, I have to be able to believe that it will be done well, and it's a difficult question.
For some populations, I think this is a real benefit because it eliminates bureaucracy and eliminates the people who make decisions for you. Because if you're a good decision maker and you know how you're going to spend that money and allocate resources effectively, it's a better way to operate, but there's a large percentage of the population that it can do more harm than good. . That's what I think about universal basic income. I think there is also income and profit. I think both are important, but I think you have to make utility an important part. From my point of view, I'm crazy about microfinance, I'm crazy about the ways in which you can actually do something useful, make people...
I think basically if... I had the benefit of parents who cared about me, He loved Me and had a school I could go to and where I could learn. There are basic things you need. If you have basic education,

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amental education that is not being adequately addressed now, and you have a family that is a difficult family environment and there is not that type of attention that you need. I think you need an opportunity like microfinance, a little money with an opportunity allows you to recover it. I'm very supportive of microfinance in terms of being able to provide opportunities.
For every dollar I donate in microfinance over the next 10 years, 12 times that amount of money is lent and returned to people and becomes self-sustaining. Those are the things I'm more passionate about than universal basic income for those reasons. Peter: Thank you. Yes. Speaker 8: Hi, Ray. You mentioned education several times, what solutions would you provide to our educational system at this time to take steps towards meritocracy on a societal level? Ray: I think the biggest problem in education is... Well, besides not recognizing it as a huge national priority, is that the constitution sets it at the state level and within the state, school districts are...
If you're in a rich school district you have taxes that will pay for a better education than if you were in a poor school district, and we don't create a fund, there is no fund for that society. I think there is a structural problem with that. I think it should be treated as a national emergency, you have to say that it is intolerable, that it exists, and then you have to find a way to avoid it. I think public-private partnerships in various ways are important issues to address, but I'm not an education expert. I spent quite a bit of time on this, I think there are a lot of people doing wonderful and innovative things to achieve this.
I put together a group of people, a commission, who also live in those areas, who are dealing with... it's a question of poverty as much as it is a question of education, in other words, when you come home at night, which is your situation? There are many children who do not have adequate nutrition and find themselves in situations where there are shootings, that sounds ridiculous but it happens in many different areas. I can tell you that I know a lot of cities where they return to a traumatic environment, but there are very cost-effective ways to deal with it.
I can recite them, for example, after-school programs. You have an infrastructure there with the school system and the school is there, and that creates a problem when you send the child home at three in the day, because it is a problem for the child and it is a problem for the parents because what is going to happen? make a single father, a single mother? Now she has to take care of the child at three in the afternoon and that could be profitably extended to a full day program, and then the enrichment programs can also be brought back because the enrichment programs, things like art and Fun learning and the kinds of things they can do are being removed from the school system and could be brought back.
This could be done profitably. The difference between a high school student finishing high school and not completing high school is approximately $1 million in her life because if she doesn't finish high school you will be on the street. The cost of crime, the cost of incarceration, the cost of incarceration is between $80,000 and $120,000 a year and the social cost as well as the cost of injustice. Peter: Is that per person? Lightning: Per person. for imprisoning someone, and those people who don't finish high school have no future and that's why it's not fair to them. To have equal opportunities, that is what we want to fight for equal opportunities, the country is the best parent and that is what we must strive for.
You have to have something like equal education. All I'm saying is that I think they could be addressed profitably, but our society needs to be able to invest that money one way or another. Public-private partnerships that could do that. Combine philanthropy and government, and see the return on investment you will get; It's a fabulous return on investment and there are a lot of those things. Peter: Do you think, Ray, that enough people with the means understand the precarious state of our place and the need for this kind of analysis and important investments? Ray: Not even close.
Peter: How do you get there? You focus on scale, you always think about scale. How can the wisdom you just shared be expanded so that we truly have the opportunity to educate people who have the opportunity and the means to make the changes that are essential? Ray: In theory, what you want is leadership at the top. It means that this is intolerable and there is a population that talks about it, but for two reasons we don't see it. We don't live in those neighborhoods, we don't go to those schools just personally. This is a wonderfully intellectually enriched crowd, and we generally don't have it.
I would say if you can have direct contact, I would say, by the way, it's an incredibly enriching experience to see the world through those people's eyes and empathize with them, and it's fantastic. Then you look at the averages. In other words, the average unemployment rate or the average income, averages are misleading, so how would you know? I would say it's an adventure, going to that school, examining it through their eyes and then feeling it, but one way or another you have to deal with it and you have to bring it up. I think it's more likely that we won't do it properly and then we'll face the consequences.
He will eventually defeat us, but he may be too antagonistic. Peter: We've looked back over time and before we conclude, I just want to make one comment and that is that you are an everyday icon. In reality, the way he has lived his life, the way he has considered his family, the way he has considered his passions, the way he has pursued innovative ideas and business approaches is unusual. It's really unusual and it's really very, very hopeful. I've seen what you've touched, I've seen the way you've challenged the people around you. I've seen the way they've risen up and actually responded and what you've created in so many different ways.
Before we get into this disappearing arc, I'd love for you to think about how to take what you've learned about transformation, integrity, and honesty, and how to extend it to the community of people in our country. and around the world they need to understand that they need to go to those places to understand the opportunities? If you do that, we will allow you to retire. Ray: Thank you, but I think the real thing is that you really have to understand that I just got into college on probation, and only some... I'm a very average guy who stumbled upon some of these particular approaches.
What I want to do is transmit them. And when you leave here, if you just think, that has merit because it's all of you. In other words, there are many of you and you could do that and you couldchange it, and then if they do it, they might help other people do it. Peter: Is that the takeaway? Ray: That's it, now it's up to you. Peter: Do you have it? Thank you. Thank you. Well done. Thanks friend, well done.

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