Principles: Life and Work | Ray Dalio | Talks at Google

Introduction

In this section, Jordan Thibodeau introduces Ray Dalio, the founder of Bridgewater Associates, one of the most successful hedge funds in history.

• Jordan Thibodeau introduces Ray Dalio as the founder of Bridgewater Associates.

• Bridgewater Associates is one of the most successful hedge funds in history.

Life Stages

In this section, Ray Dalio discusses his view on life stages and how he has entered into the third stage where others are successful without him.

• Life exists in three big stages: learning from others, working while others are dependent on you, and being free while others are successful without you.

• Ray Dalio is at a stage in his life where he is entering what he calls the third stage.

• His objective at this particular stage is to help others be successful without him.

Principles for Decision Making

In this section, Ray Dalio talks about how he developed principles for decision making by writing down reasons for every decision he made and debating them.

• Every time Ray Dalio would make a decision, he would write down the reasons why he made that decision.

• He debated those reasons and developed principles for decision making.

• Principles can be thought of as reasons for making a decision. If you're in a certain situation, principles can guide you on how to deal with it.

Idea Meritocracy

In this section, Ray Dalio describes Bridgewater Associates as an idea meritocracy where meaningful work and relationships are achieved through radical truthfulness and transparency.

• Bridgewater Associates operates under an idea meritocratic way which values meaningful work and relationships achieved through radical truthfulness and transparency.

• Radical truthfulness means people say anything they feel that they want to say in terms of being polite, but sharing what they really believe is true.

• Radical transparency means recording everything for everybody to hear so that nothing is hidden.

• Bridgewater Associates' success is based on this way of operating.

Failures as Lessons

In this section, Ray Dalio talks about how he started thinking of failures as lessons and puzzles rather than developing emotional reactions to them.

• On the way to achieving goals, one will encounter problems and failures. This is part of the learning process.

• Ray Dalio started thinking of failures as lessons and puzzles rather than developing emotional reactions to them.

• He would study the puzzles and reflect on his principles to figure out what he could do differently in the future.

• If he solved a puzzle, he would get a gem which was a principle.

The Five-Step Process for Personal Evolution

In this section, Ray Dalio discusses his five-step process for personal evolution and success.

The Five Steps

• To be successful, you have to do five things:

• Know what your goals are

• Go after those goals

• Diagnose problems to the root cause

• Design a way to get around the root cause

• Follow through and do it

Idea Meritocracy

In this section, Ray Dalio explains how he created an idea meritocracy at Bridgewater Associates.

Independent Thinking

• To be successful in the markets or as an entrepreneur, one has to be an independent thinker.

• Bet against the consensus and be right because the consensus is built into the price.

• You need a bunch of independent thinkers to be effective.

Idea Meritocracy

• An idea meritocracy is necessary for getting independent thinkers to agree on anything.

• A system that allows for thoughtful disagreement systematically so that people can get at the right answer.

• Systematizing principled systems produces greater amounts of successes and failures.

Three Necessary Things for Idea Meritocracy

• Everybody has to put their honest thoughts on the table to see.

• Everybody has to look at themselves objectively and find out what they're like.

• There has to be a protocol for getting past disagreement.

The Art of Thoughtful Disagreement

In this section, the speaker discusses the importance of thoughtful disagreement in an idea meritocracy. He explains how disagreement can be viewed as an attack and how it tends to produce anger. He also talks about the protocols that are laid out in his book on how to have the art of thoughtful disagreement.

The Importance of Thoughtful Disagreement

• Disagreement should prompt curiosity, not anger.

• Disagreement can be viewed as an attack and tends to produce anger.

• An idea meritocracy requires the art of thoughtful disagreement to raise probabilities and make better decisions collectively.

• One of the greatest tragedies is people being stuck with wrong opinions in their heads that they don't put out there and stress test.

Collective Decision-Making

• Collective decision-making is very powerful if done well.

• Agreed-upon ways of getting past disagreements are necessary for collective decision-making to work effectively.

Knowing What People Are Like

In this section, the speaker talks about meaningful relationships and meaningful work producing success. He emphasizes the importance of radical truthfulness and transparency in producing an idea meritocracy. He also discusses how knowing what people are like is important for personal development.

Personal Development

• Dealing with really getting at what people are like is important for personal development.

• People who want to come into this environment would like to honestly know what their strengths and weaknesses are so that they can produce better teams.

• Objectively assessing one's strengths and weaknesses is crucial for personal development.

Algorithmic Decision-Making

In this section, the speaker talks about how technology and algorithms can be used to make better decisions. He explains how his company uses algorithms to replicate their thinking and make investment decision-making systems.

Algorithmic Decision-Making

• Quality is needed in a job, then what somebody's like, and the goal is to eliminate that.

• Algorithms can be used for decision-making systems to make better decisions.

Introduction to the Dot Collector

In this section, Ray Dalio introduces the dot collector tool and explains how it helps his team collect and analyze different opinions during meetings.

The Dot Collector Tool

• The dot collector is a tool that collects different views from people in a meeting.

• It has a list of attributes that people can use to convey their assessment of someone's thinking by providing a rating from 1 to 10.

• This tool helps people express their opinions and then separate themselves from their opinions to see things from a higher level.

• Knowing what people are like allows us to match them better with their jobs and decide what responsibilities to give them based on algorithms that take people's believability into consideration.

Shifting Perspectives

• When people shift their attention from inputting their own opinions to looking down on the whole screen, their perspective changes.

• They see their own opinions as just one of many and naturally start asking themselves, how do I know my opinion is right?

• That shift in perspective shifts the conversation from arguing over our opinions to figuring out objective criteria for determining which opinions are best.

Believability Weighting

• Behind the dot collector is a computer that watches what all these people are thinking, correlates that with how they think, and communicates advice back to each of them based on that.

• We call it believability weighting. It allows us to make decisions not based on democracy or autocracy but based on algorithms that take people's believability into consideration.

Idea Meritocratic Decision Making

Ray Dalio discusses the importance of idea meritocratic decision making and how it can be achieved.

Two Yous

• The brain has two parts that compete with each other to make decisions: the thoughtful you (conscious mind) and the emotional you (subconscious mind).

• There are subliminal motivations that are at odds with each other, leading to struggles like disagreement and finding it emotionally difficult.

• To become more resilient to feedback, go one level up when there's conflict or disagreement. Form a contract of how you should be with each other.

Decision-Making Process

• Decision-making is a 2-step process: taking in and deciding.

• Capacity to take in the other person's point of view, noticing how your body is reacting, noticing how you are reacting.

• Having protocols in place that you practice are fair.

Resolving Disputes and Choosing Communication Mediums

In this section, Ray Dalio discusses how to resolve disputes and choose communication mediums effectively.

Choosing a Mediator

• When there is a dispute, agreeing on a mediator is one of the simplest things to do.

• Mutual agreement on a mediator can help move forward with resolving the dispute.

Choosing Effective Communication Mediums

• Different people have different preferences for communication mediums.

• Some people prefer email because they feel more comfortable expressing their thoughts in writing.

• Others may prefer face-to-face discussions because they feel more spontaneous in the moment.

• It's important to agree on what's most effective for each person involved in the communication.

Rebuilding Trust After Calamity

In this section, Ray Dalio explains how radical truthfulness and transparency can help rebuild trust within an organization after a calamity.

Radical Truthfulness and Transparency

• Radical truthfulness and transparency are essential means of rebuilding trust within an organization after a calamity.

• Having radical transparency means that every crisis or situation should be discussed openly with everyone present so that there is no spin or hidden agenda.

• Writing principles as to why decisions were made during crises can help others understand the thinking behind them.

• This approach helps avoid alienation, factions, and tension within an organization.

Why Organizations Don't Embrace Radical Transparency

• Organizations will inevitably embrace radical transparency because it's easy to collect data on everyone nowadays.

• The question is who has radical transparency?

Decision Making and Transparency

In this section, Ray Dalio discusses the challenges of decision-making in a meritocratic environment and how transparency can help build meaningful relationships.

Challenges of Decision-Making

• Decision-making can be challenging in a meritocratic environment where everyone has different points of view.

• The old world mindset is that decision-making is all in the head, rather than out of the head through algorithmic decision-making.

• Emotional barriers such as wanting to do what one wants to do and knowing better can hinder effective decision-making.

Importance of Transparency

• Meaningful relationships are important for the mission of Bridgewater.

• Transparency helps build trust and ownership among team members.

• Being radically truthful and transparent on the same mission brings people closer together than just a paycheck or job.

Principles for Effective Decision-Making

In this section, Ray Dalio talks about how he creates principles for effective decision-making and why it's important to constantly re-evaluate them.

Creating Principles

• Everything happens over and over again, so it's important to identify species of encounters and create principles for them.

• Refinement of principles occurs through differences in encounters.

• No principle is perfect, but they evolve from encounters into refined principles.

Re-Evaluating Principles

• Painful situations signal that you don't want another one. Record your pain and think about principles on how to handle that situation.

• Accumulating and sharing principles is powerful.

• An app called Coach provides relevant principles for a given situation, including successful people's principles.

Conclusion

In this section, Ray Dalio concludes the interview by emphasizing the importance of radical transparency and meaningful relationships in decision-making.

• Radical transparency and meaningful relationships are key to effective decision-making.

• Principles help guide decision-making and should be constantly re-evaluated.

• Encounters can be categorized into species, which can lead to refined principles.

• Painful situations can signal the need for new principles.

Understanding the Steps to Success

Ray Dalio discusses how understanding the steps to success can help individuals identify their weaknesses and seek help from others.

Importance of Identifying Weaknesses

• Identifying which step an individual has a problem with helps them understand how their brain works.

• Working collectively can help individuals be effective at steps they struggle with.

• Knowing what you're not good at and who can help you be good at those things is key to success in life.

Joseph Campbell's "Hero's Journey"

Ray Dalio talks about Joseph Campbell's "Hero's Journey" and its impact on his philosophy.

The Hero's Journey

• Returning the boon is the stage where one passes along what they have learned to others.

• The abyss represents a terrible situation that leads to personal change.

• The journey involves having a taste for adventure, battles, wins and losses, and a mission that becomes more important than oneself.

Learning from Mistakes

Ray Dalio shares his experience of being publicly wrong in the markets and how it changed his approach.

Being Wrong as a Learning Opportunity

• Predicting an economic collapse led to losing money for himself and clients.

• Reflecting on this mistake gave him humility needed to balance with audacity.

Principles and Wealth Inequality

Ray Dalio discusses his upbringing and the principles he learned from his parents. He then talks about wealth inequality and populism, and how it is a practical issue that needs to be addressed.

Principles Taught by Parents

• Ray's father was a jazz musician who worked late at night.

• His mother loved him very much.

• Ray had the luxury of having a family that cared for him.

• Many people today do not have this benefit.

Wealth Inequality and Populism

• The economy is leading to two economies, one for the top 40% and another for the bottom 60%.

• The majority of people have a terrible economy with rising death rates, bad incomes, etc.

• Populism is an extension of this disparity between rich and poor living together in the same community.

• This dynamic will become particularly important when there is an economic downturn, which Ray believes will happen before the next presidential election.

• It is both an issue of equity and practicality that needs to be dealt with through national initiatives led by the president or someone else.

The Economic Impact of Disengaged Students

In this section, Ray Dalio discusses the economic impact of disengaged students and the need for metrics and processes to address this issue.

Addressing Disengagement in Schools

• 22% of students in Connecticut are either disengaged or disconnected from school.

• Programs exist to help keep kids in school, but they are not being utilized effectively.

• Metrics and processes need to be put in place to address this issue.

Economic Costs of Disengagement

• Graduating from high school can lead to lower incarceration rates and crime rates.

• The average cost of incarceration is between $85,000 and $125,000 per year.

• The wealth gap has led to a dangerous polarity that could result in populism.

Dealing with Conflict as a Society

In this section, Ray Dalio discusses the importance of dealing with conflict as a society and finding principles that unite us.

Principles That Unite Us

• Dealing with conflict is our biggest economic issue.

• We need to find principles that unite us as a society.

• Toughness should be collective rather than individualistic.

National Commission on Practical Solutions

• A national commission should be established to address practical ways of dealing with societal issues.

• Clear metrics should be established so that results can be owned by those responsible for change.

The Danger of Populism

In this section, Ray Dalio discusses the danger of populism and how it can lead to conflict and polarization.

Historical Context

• The history of populism is a 1930s phenomenon.

• The wealth gap has led to dangerous polarity in society.

• A common way for leaders to gather support is through conflict with a foreign enemy.

Finding Common Ground

• We need to figure out how to deal with common problems together.

• People are identifying more with their political party or identity rather than as a collective society.

• We need to create rules for having conversations that help us determine what is true.

Meditation and Personal Growth

In this section, Ray Dalio discusses his personal practice of meditation and its role in his personal growth.

Benefits of Meditation

• Meditation helps him stay centered and calm in the face of challenges.

• It allows him to reflect on his own thoughts and emotions.

• It helps him be more open-minded and empathetic towards others.

Importance of Personal Growth

• Personal growth is essential for success in life.

• It requires being honest about one's weaknesses and seeking feedback from others.

• Embracing failure as an opportunity for learning is key.

Benefits of Meditation

Ray Dalio talks about the benefits of meditation and how it has changed his life. He recommends transcendental meditation, which connects the conscious mind with the subconscious mind and gives equanimity and creativity.

Benefits of Meditation

• Ray started meditating in 1960 and it has been a powerful tool for him.

• Meditation connects your conscious mind with your subconscious mind, giving you equanimity and creativity that you wouldn't have otherwise.

• By repeating a mantra like "om" with your breath, you can get rid of thoughts and eventually reach a subconscious state where creativity comes from.

• Reconciling one's emotional self with one's intellectual self leads to better decision-making.

Analyzing Emotions Through Meditation

Jordan Thibodeau asks if meditation helps analyze emotions during an argument. Ray explains that meditation helps go above oneself and look at the situation objectively, leading to better decision-making.

Analyzing Emotions Through Meditation

• Meditation helps go above oneself during an argument or situation to look at it objectively.

• Distinguishing what type of thing is happening at a higher level leads to better decision-making.

Consistency in Meditating

Jordan Thibodeau asks if consistency is important when meditating. Ray explains that he feels good when he meditates, so he always does it consistently.

Consistency in Meditating

• Ray feels good when he meditates, so he always does it consistently.

• Consistency in meditation helps focus on what's important and brings equanimity to life.

Publicity Attention and Social Media

Ray Dalio talks about his experience with unwanted publicity attention and how he put out a PDF file of internal principles that was downloaded 3.5 million times. This prompted him to write the book. He also talks about his decision to go on social media to interact with people.

Publicity Attention and Social Media

• Ray put out a PDF file of internal principles that was downloaded 3.5 million times when he started getting unwanted publicity attention.

• The PDF file prompted him to write the book "Principles".

• Ray decided to go on social media to interact with people and found it wonderful.

English Ray Dalio on Believability-Weighted Decision Making

In this section, Ray Dalio discusses the importance of finding the most reliable and believable people to make decisions. He emphasizes that consensus decision-making is not always effective and that it's important to have capable people who will argue with each other.

Importance of Believability-Weighted Decision Making

• The smartest and most demonstrated believable people should be identified to disagree with each other and you about what the best path is.

• Don't confuse consensus as everybody. A lot of people may not have valuable opinions.

• Believability-weighted decision-making means finding out, in various objective ways, in a particular community, who would be more reliable and not.

• To have idea meritocratic decision-making, it's important to operate in a way that doesn't compromise it.

Triangulation for Decision Making

• Triangulation involves getting really capable people who will argue with each other to identify the most valuable opinions.

• When there is no triangulation, interesting learning can occur by hearing two sides of an argument and asking your own questions to gain a richer understanding of the subject matter than you ever could have.

Finding Your Blind Spots

• It's important to balance finding your blind spots versus using consensus as a way to measure believability and correctness.

• Subjectivity can make it difficult to know if something is truly comprehensive or correct. However, if you are convinced that you must operate in an idea meritocratic way, you will find solutions.

Transparency and Compensation

In this section, Ray Dalio discusses the concept of transparency in an organization and how it relates to individual compensation. He explains why he chose not to make individual compensation transparent and instead opted for clear metrics and compensation levels by groups of people.

Making Compensation Transparent

• There are different ways to approach making individual compensation transparent.

• The question at hand is whether or not to make everybody's individual compensation transparent.

• Ray Dalio chose not to do that but instead made very clear metrics and compensation levels by groups of people.

• This was done so that everyone knows where the comp levels are for others without having to describe their relationship with other individuals.

Adoption of Organizational Principles

In this section, Ray Dalio talks about how his organizational principles can be adopted more widely in other organizations. He explains that those who have the ability to control their organizations will consider this way of operating, while others will start thinking about the choices they have as to where they work.

Widely Adopting Organizational Principles

• Those who have the ability to control their organizations will consider adopting these principles.

• Entrepreneurs and people who can control their organizations will make their own choices.

• People running organizations find it attractive to be able to attract those who want a more idea meritocratic environment.

• It's a personal choice whether or not someone wants an environment that allows them to make sense of something.

Problem Solving and Decision Making

In this section, Ray Dalio discusses the importance of idea meritocracy in solving problems. He emphasizes that the best way to solve a problem is by gathering everyone's ideas and coming up with the best solution. He also talks about how to evaluate solutions and create metrics for qualitative things.

Idea Meritocracy

• Idea meritocracy is important in solving problems.

• Gather everyone's ideas and come up with the best solution.

• Evaluate solutions and create metrics for qualitative things.

Continuous Feedback

• Feedback should be continuous.

• People have a 360 review continuously by a lot of people all the time.

• It is advantageous to do it continuously because you can connect it to specific instances.

Disagreements

• Ray Dalio wants disagreements to be discussed.

Making Effective Decisions

In this section, Ray Dalio discusses the importance of making effective decisions and how to do so. He emphasizes the need for clear decision-making protocols and tools to avoid inefficiency in organizations.

Decision-Making Protocols

• It is important to explore quickly how to make decisions effectively.

• Clear decision-making protocols are necessary to avoid inefficiency in organizations where people argue endlessly without resolving issues.

• Tools are also needed for effective decision-making.

Estimating Probability of Success

• Estimating probability of success can be challenging since people are generally bad at it.

• Writing out a decision rule depending on its nature can help test how it would have worked in the past and get a sense of its distribution of probabilities.

• Being aware of how to think about probability helps with qualitative things, but triangulating with others may be necessary.

Developing Principles for Decision-Making

• Having principles is helpful for spotting situations that require them.

• There is no set number of principles one should have; they should be developed as big events come along and then organized into subprinciples as needed.

• Collecting thoughts on paper or electronically can help develop principles, but it's not necessary to do so for every event.

Decision-Making in Public Policy Arena

• In public policy, different interest groups may have fundamentally different objectives, making agreement on general goals difficult.

• Modifications may be required when applying decision-making processes in public policy.

Meritocracy and the Dot System

In this section, Ray Dalio discusses his views on meritocracy and how it can differ depending on the individual. He also talks about his dot system for calculating a person's believable score over time and how it is constantly evolving.

Meritocracy

• Ray Dalio believes that each individual has their own ideal way of achieving meritocracy.

• Within a group, individuals can decide whether they want to be idea-driven or meritocratic.

• The best way to achieve meritocracy is through an evolutionary process that involves more data and consensus.

The Dot System

• Ray Dalio's dot system calculates a person's believable score over time to aid in decision-making.

• If the dot system is proven wrong over time, it means that the verdict is reliable based on evolution.

• The dot system involves an evolutionary process with sample size and consensus to get at the definition of what is true.

• Ray Dalio plans to open source the dot system so people can write their own algorithms and agree on what the best algorithms are.

Personal Growth and Radical Transparency

In this section, Ray Dalio discusses personal growth and how it relates to radical transparency in decision-making.

Personal Growth

• Personal growth is critical for both work and personal life.

• Knowing oneself objectively allows for fabulous power in achieving anything desired.

Radical Transparency

• Radical transparency in decision-making has become more popular in recent years.

• Ray Dalio chose to promote his principles of decision-making and radical transparency now because he believes it will have a big effect on companies and the world.

Ray Dalio on Retirement and Responsibility

In this section, Ray Dalio talks about his perspective on retirement and responsibility. He shares how he transitioned from being a fighter to a mentor and the importance of passing on knowledge.

Retirement as a Transition

• As Ray became older, he recognized the importance of transitioning well.

• For him, it is instinctual to recognize that there is pleasure in having others be successful.

• Retirement for Ray means having fun and doing things out of free choice rather than obligation.

Responsibility and Passing On Knowledge

• Ray recognizes his responsibility to pass on knowledge just like how his parents did for him.

• He wants to handle his responsibilities well before being free of them.

• The most exciting thing for him now is to pass on what he has learned.

Addressing the Tolerance Paradox in an Organization

In this section, Ray Dalio answers an online question about addressing the tolerance paradox in an organization.

Open Discussion

• To address the tolerance paradox, Ray would want to know what views are undermining open discussion and why they are not being discussed openly.

• He believes that there should be no impediment to open discussion.

Believability Score at Bridgewater

In this section, someone from the audience asks about Ray's believability score at Bridgewater.

Believability Score

• According to Ray, he has the highest general believability score in the company.

• However, there are many who have much higher believability scores in different areas.

• Ray believes that the biggest determinant in portfolio returns is capital allocation.

Views on Value Investment

In this section, someone from the audience asks about Ray's views on value investment.

Stock Picking vs Capital Allocation

• Ray believes that David Svenson's statement about capital allocation being the biggest determinant in portfolio returns refers to different types of asset classes rather than individual securities chosen within an asset class.

English The Importance of Portfolio Construction

In this section, Ray Dalio discusses the importance of diversification and asset allocation in portfolio construction.

Diversification and Asset Allocation

• Diversification is important to reduce risk.

• Different asset classes behave differently and are uncorrelated with each other.

• Capital allocation is key to getting the balance right in portfolio construction.

English Bridgewater's Mid-Term Economic Outlook for the US

In this section, Ray Dalio shares his thoughts on Bridgewater's mid-term economic outlook for the US.

Economic Outlook

• There will be a lot of stimulation into capacity constraints which will raise interest rates.

• Interest rate changes will put the Fed in a difficult position.

• Balancing act becomes increasingly difficult at the end of this year and beginning part of next year.

• A downturn and economic recession may occur later part of 2019 or something along those lines.

English Investment Theses from Bridgewater

In this section, Ray Dalio talks about investment theses from Bridgewater.

Investment Theses

• Bridgewater has been producing investment principles since its inception.

• Economic principles and market principles can be conveyed without giving away exact algorithms that would lessen their ability to do what they do well.

• Ray Dalio is writing a book called "Economic Investment Principles" which will be out in around 18 months.

English Conclusion

In this section, Ray Dalio concludes his talk.

Conclusion

• Ray Dalio thanks the audience for attending and Jordan Thibodeau for hosting.

• Ray Dalio's book "Principles" is available and he receives a round of applause.