Ray Dalio on the Principles of Success

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1:37My guest today is Ray Dalio. Ray is the founder of Bridgewater Associates, which is one of the world's largest hedge funds. He's also an incredible investor and a philanthropist. I learned so much from Ray's brilliant book, Principles, and even more from talking to him. Although Ray and I talked a lot about business, the conversation leaned more towards the emotional than you'd expect. There's a very spiritual aspect to everything Ray does. His approach to business is very different. For one, he has made a commitment to radical transparency, both personally and throughout his company, which means that everyone is encouraged, empowered, and expected to speak straight, which can be very difficult and also very rewarding, as you'll hear from Ray.

2:27Obviously, your book is called Principles. You clearly articulate what your principles are and how they have shaped your philosophy and have led to your incredible success. If you had to design sort of the overarching principles for the country right now in terms of the direction you would want it to go in, what would those principles be? The most fundamental principles are the ability to think for yourself to get what you want out of life and at the same time work with others to understand the art of thoughtful disagreement and how to get past thoughtful disagreement to pursue the things that you collectively want.

3:10Because we're so at an impasse right now, and it seems so binary. And this is what one of the aspects about you that I find so fascinating, is that you've developed a system of communication. It's well documented at Bridgewater around this kind of collaborative communication, which sometimes seems like it can be quite painful. and astonishing to me that somebody so successful would embody something and practice something which would constantly be inherently so diminishing to the ego. Like you told the story about, you know, someone just graduating school around your table, a very young woman who had given you a very low score on whatever it was the topic that you were discussing.

4:01And as a boss who has spent years doing this, how does that culturally work? How do you take feedback like that? How is it not triggering? I think there's a big lesson in that for everybody to understand. Well, first of all, I'd like to explain why it's sensible to do that. And then once you see that it's sensible to do that, then the question is what stands in the way of doing this sensible thing. Okay, good. I need to learn this. Well, it's sensible to do that because, first of all, I don't know ever that I'm right. So getting that feedback is important. But even as important is that she believes something that's not right, that I'm doing something badly.

4:51And what do I want her to do? What kind of relationship do I want her to have? Do I want her to just walk off there and just be obedient and just be a follower and not wrestle with those things? I want to bring it out so that she gets empowered and that we get in sync about what's true. And if I create a culture that way, where you always have the right to speak out, the right to make sense of things, and to work yourself through disagreement well, I'm going to have thinking people who will think that the system is fair and we can move forward in a better way to have an idea of meritocracy. So it's certainly a sensible thing to do it.

5:35But it's extremely rare. And do you realize how few rich, white, powerful men are capable of having that capacity of maturity and able to hold something like that? Yeah, I know it's extremely rare. And I know all those things are true. And I think it's true about a lot of groups. Of course, I'm just being reductive. No, that's okay. But that's why I say now I want to get into the why. Well, before you get into the why, I want to understand how. Only because it is very rare for somebody, especially in a leadership position like that, to be able to hold that kind of criticism. So how do you do that?

6:19Well, first of all, I realize it's just so stupid not to do it. The second thing is that I think that there are two yous, the way I think about it. There is the upper level you, which is the logical you. And then there's the subliminal emotional you. The animal, the mammal part. It's subliminal. And it's really what Freud's great breakthrough was discovering that there is a subliminal you. Right. Okay. And the subliminal you is really controlling you. But because it's not conscious, you're not even aware of it. And so the issue is to reconcile those. to that most people have an emotional challenge of hearing criticism.

7:05The brain interprets that like an amygdala. It's this fight or flight thing that I'm being attacked. And it's reinforced so much in our education system and the way we're operating. Where did you have the right answer? Are you smart? All of those things. rather than might you be missing something important? Why should you believe that just because you have an opinion that that's a right opinion? That happens to be the one in your head. And so if somebody disagrees with you, how do you know that you're not the one who's wrong? So when you start to realize that you raise your probabilities by testing whether you're wrong, you raise your probabilities of making better decisions, right?

7:52Yeah. And that works. So there's an emotional impediment. But it only is temporary. It's habit. We are so driven by habit, right? Absolutely. Once you change your habit, everything changes. So you can change this habit. And when you create a culture in which people believe it's fair, that they demand it, and then you have to create a methodology, a real system that enables it, then you can achieve that. And that is the key to the exceptional results, right? I started out with a two-bedroom apartment. I'm describing, you know, a low-middle-class kid, went to college, public college, and went to school and all that, and then had two-bedroom.

8:39And what we did is we had this idea meritocratic way of operating. And that's what I want to pass. What's that? Well, yeah, it started pretty much from the outset because, first of all, if I'm having a partnership, I start off with how do I want to be with you and how should we be with each other? Everybody's got to decide how do you want to be with each other, and you have to have ground rules. So I wanted an idea meritocracy. So you're going to have disagreements. And when you have disagreements, you have to have a protocol for what do you do? How do you get past that disagreement? You have to have a protocol.

9:14So I start off with that. And also, I'm living in a world where I'm never sure I'm right. And that's the power. But again, very, very incredible degree of maturity. Because you could look at your career and somebody could quantifiably say, like, this guy's always right. I mean, you know. But you don't understand that, like, how I got right. If you were to look at my career, I wouldn't have been where I am or had that track record if I didn't do this thing. So I'm trying to pass that along to other people to say, if you do this thing, you can have the power. When you start to realize that all the answers don't have to be in your head, okay, you can tap anything around you.

10:00Right. If you know how to, for example, triangulate well with people. Find the smartest people who you know, maybe get, I use a triangulate, maybe it's three, smartest people you know, ideally those who disagree with you and understand their reasoning. And if they disagree with each other and you work yourself through that, you significantly raise your probabilities of being right. because you have the right to make decisions, but it's stupid not to make the decisions by taking the best that you can have and having it make sense to you, right? But how do you then determine who's right out of the three people?

10:37Well, I think that the way I would describe it in a simple example would be, supposing you have some disease, what are you going to do? You could decide yourself what you're going to do, or you can go to three different doctors. You can go to one, then you go to the second, and he has a different opinion. okay, this is good. Now you're going to experts and you have a different opinion. Now focus in on why there's a different opinion between them. You hear the back and forth. At the end of those three, that exercise of three, you will make a decision. And the smartest way to make that decision is to believability weigh the decision.

11:16You listen to everybody, but you're going to think about who was the best expert? What did they do to make success? Did it make sense to you? Was it logical? Okay, now what do I do to go ahead? If they're at odds, you focus in on that. So what we do is we have a system which we call believability weighting. Believability weighting. So all we've done is to systemize that process. So by knowing what people are like and their strengths and weaknesses, which we collect from data and other reasons and other ways, and we do that kind of triangulation, we raise our chances of being right. It's tough to describe it in a couple of sentences, but that's basically how we do it.

12:00But the key, most importantly, is that mindset that you come to a discussion with, which views thoughtful disagreement as a curiosity with the notion that if somebody might be wrong and it might be you and curiosity motivates that triangulation. So if you're in a situation where you've heard multiple opinions, differing opinions, and are you the tiebreaker? I want to be clear that I almost don't care about the conclusions as much as I care about the reasoning, right? But you're using, but the, But in answer to your question about who makes the decision, there's the protocol of going through that process.

12:47I'm watching a person make the decision, and then the person has certain decision rights. There are many decisions that I'm not the person because I'm not the best person to make that decision. It might be, I don't know, it might be a legal decision. It might be an accounting question. It might be whatever it is. my knowing what I don't know is more important than anything I know. And so by being able to put into positions those people who are the best at making those decisions, then they have a protocol and I have a protocol, which is that protocol to watch. Everybody watches it. And by the way, it's all on video.

13:26We video and audio record everything so everybody can see things for themselves so that way they know there's no spin. And so by being able to do that, people see, are you operating in that kind of way where you're bringing it out, you're doing the believability? I don't think there's ever been a case that I have outvoted, used my power to overcome a believability-weighted decision. Never. That's amazing.

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15:05When you have listened to all of the reasoning, does your decision tend to be data-driven or intuitive? Both. I think you're touching on a very important subject, which we call, which is intuitive versus logical. And that has to do with what's coming from the subliminal mind and what's coming from the conscious logical mind. Those are the two U's again. And I think it's very important that realize each can be right and each could be wrong. And by reconciling them is the best way to make a decision. So like if we have intuitive, I want to do this intuitively. It could be emotionally or I want to do it intuitively.

15:55That might be a great insight because great insights come from the subliminal mind in an intuitive way. And at the same time, you're at a situation where it's so smart to double check it with the logical mind. So if you can bring them into alignment, you're going to make a better decision. Because a lot of subliminal emotional decisions have caused a lot of pain too. So bringing them in line. I would say meditation has had an enormous effect on my approach to decision making. I started meditating in 1969. TM, right? TM. Yeah. And I think that that's had a big effect on my approach to things that I recommended to a lot of people.

16:43A lot of people, it's helped them even in our company. It's amazing too because I think in my experience, I do TM too when I'm not interrupted by my children or whatever the case may be. But I think that it's an incredible tool for creating that sort of pause, you know, where the ego kind of does diminish a bit. And I think that's what you all have to put into practice when you have your, I mean, because radical transparency in practice and really speaking straight requires a kind of, you know, being able to pause and hold and not be triggered and not react and understand you're doing something for a higher exploration.

17:19Your TM gives you, it gives me sort of almost the ability to go above it. It's a feeling like I'm now above it and I'm looking down on me within my circumstances. And then it allows me to say, how should it operate so that it works well for the whole, rather than to be in it. You know, when you're in it and that is where it's standing away. So I'm sure if you've, how long have you practiced? I learned about nine years ago, I'd say. Do you agree it has that effect? Absolutely. Right. The other effect it has is it brings you into your subconscious mind. Because the meditation itself, as you know, you're no longer conscious and you're not unconscious.

18:07So you go into your subconscious mind. And in your subconscious mind, that's also where creativity comes from. So you're opening up your connection between your subconscious mind and your conscious mind. And that flow helps me and I'm sure helps you. So when we were talking about that, that's what triggered my thought about meditation. Because I was saying that reconciliation of the subliminal and the emotional with the intellectual is so great. And it is something, though, that it can be achieved through meditation. So I know that it allowed me to align those. So if I can align my subliminal emotion with my intellectual, and I can align that with the right triangulation with smart other people, I'm about to make much better decisions than if I'm just stuck within my head.

18:59One of the most fascinating aspects of that to me, when I look at sort of your larger philosophy, right, is that's so internal and so kind of hard to quantify and it's so intimate and human. And then on the other side, you've, I imagine, created technology. Dot collector. You've created technology to do the exact opposite in a way, sort of to take, or not the opposite, but to take that integrated human part and put ones and zeros to it and then create a system, right, where you can read that in a scientific way. Yeah, so the dot collector is a means by which and that everybody expresses themselves continuously through a meeting.

19:47So rather than a normal meeting in which it's all in people's heads and only one person can talk at a time, we have an ability by easily putting the information that we can see what everybody's thinking. In real time? In real time. On a screen? On a screen. Oh my God. Okay. So everybody's knowing what everybody's thinking in real time on a screen about each other and about what's going on. What are the kind of metrics that they're using? Like, in other words, so are they rating people on quality of idea, communication? Anything, anything. Yes, creativity, attention to detail, determination, any of those things.

20:30or you can ask skill in their area, anything that they can fully express themselves in a very easy way. And then also I can communicate. Anybody who's running one of these meetings can then communicate with everybody or anyone who in the meeting wants to ask a question can ask a question to anybody and know what everybody's thinking. So you go from thoughts in the head to then that thinking. And then all that produces also data. In other words, that helps to express how people think. And it's fascinating. The data is fascinating because you see how people see differently. Right. They see differently.

21:12We don't know how people see things. You can't imagine how differently people see things at the same time unless you see it. And through this device, you see it. And then you get to why. And then you learn how you see. and so people do this also as a personal discovery process so that it's very interesting to them to see ah i see things in this way this other person see things in that way and that's had enormous effect on our quality of our communication before that and before we did also some personality tests that helped to express how people see people would get frustrated with each other you know like the big picture thinker would say, what is that person paying so much attention to the detail for?

22:00And the detail thinker would say, oh, can that person just get... Focused and granular. Right. And so, but then they start to understand. And also, by the way, all those different ways of thinking are valuable. Nature gave us everything for a reason. There's always a reason. And all those different ways of thinking have reasons. And so to be able to put together a team in which there's an appreciation of those differences so that you know in order to be successful that you need all those different ways of thinking. It's extremely powerful and personally beneficial. That's amazing to me. It's almost like, I don't know why I just flashed on this, but I was in Italy last summer and there's this amazing duchess and she has this garden and she doesn't spray it and she doesn't pull weeds.

22:49She says the whole ecosystem of the garden is what makes it function. Oh, that's so beautiful. It was the most beautiful thing I've ever seen. And it was this meandering. She doesn't plant straight because bees don't fly straight. I mean, it was just extraordinary. I'm with you with nature. Because nature creates this gorgeous ecosystem of the way it should be. And then people take their prejudices and they line the flowers up in a row. One bush after another in this way. They can't tolerate other opinions and they can't. Why do you think we're like that? I don't know. I think we're halfway between animal and God in a sense.

23:38Like in our evolution? In our evolution. Uh-huh. What I mean by the animal, I don't think animals have any problems with this. No, I agree. They just go out there and they do it and they're in harmony with nature and it's all the way it should be and they don't ask themselves questions. And we are then thinking about how things should be and so on, but we haven't fully evolved to being totally, you know, if you would imagine God and the all-knowing or fully evolved, then you would say that there would be the harmony of those things. But we wrestle with ourselves and we wrestle with nature, I think.

24:21I think that's right. I think we're, especially right now in time and space, I think we're wrestling so much with each other, with nature. Well, that's why if we could just step back from that, right, and go above it and say, that's our problem, right? So now, how do we have the art of thoughtful disagreement so that we can get past our disagreements and go on from there? So it comes back to basics. can we agree on what our most important principles are? What can we agree on? What separates ourselves? And how do we get past our disagreements to be a better whole? Because if we fragment ourselves and hurt each other, we're in the process of hurting each other, then we're going to be in a problem that we're all going to be worse off.

25:13Maybe you should run for president. No, thank you. There's a whole problem in the political system and everything, isn't there? I mean, I think maybe you should write this book, The Art of Thoughtful Disagreement. Everything I thought about that is pretty much expressed in principles. Yeah, that's true. I did give it away as a free app. So anybody who wants it can go on. It's called Principles in Action. Very interesting. So the book plus videos that take us into actually this happening is free online at the Apple App Store. So it's free. Okay. If people are interested, then... I'm sure people will be interested.

25:53Of course.

26:01Do you license that dot... What's it called? I'm going to make it free for everybody. Dot collector. Open source for the whole world. I remember reading in your book, it struck me that you were so early in creating algorithms. So I think I should probably convey to your listeners this reality, because we're living in a world of algorithms and it's going to increase. And it's very important to understand. It'll be a long time before any computer is going to have the imagination of a human being. Okay. Human beings can imagine and they can understand in unique ways relative to a computer, but they can't process anywhere near the ability of a computer.

26:55so your brain should be used for imagining and understanding but everything related to processing should be put into a computer and the world that we're in is decision making is going to be totally different think about it in the world that we're used to if we're playing chess the way for me to play chess is i make a move and you make a move and we make that in our that decision making in that way. In the future, the right way to play chess is to make a decision-making criteria for those moves and embedding it into a computer. And then in parallel, use that computer in parallel with us to make the decisions.

27:43And when you do that, you create so much empowering and you don't lose understanding. You gain understanding and you gain imagination. So that's what I found very powerful. I described that in the beginning, you asked me about this way of operating in this idea meritocratic way of being. That has been absolutely critical. And meditation, I would say absolutely critical. The other thing I would say is if I could convey a message, it would be to know your principles, principles and systematic decision making. So if you write down what are your principles, what are the best decision rules when faced in situations, it will help you so much because the same things happen over and over again.