Ray Dalio is one of the most influential figures in the world of finance. He started Bridgewater Associates out of his apartment in 1975, and grew it into the world’s largest hedge fund. It now has $150 billion in assets under management.
Over his career, the billionaire investor has become well known for his unusual management style. This is rooted in what he calls “radical transparency.” At Bridgewater’s Connecticut office, employees use iPads to rate each other’s performance in real time. Nearly every meeting is recorded, and sometimes those recordings get used in company-wide emails. The culture there can be intense.
And since the ’80s, Dalio’s been collecting “principles” — life lessons that can be used in and out of the office. In 2017, Dalio published his principles as a book, and it quickly became a New York Times bestseller. This spring, he released an app that contains the full text of the book, along with internal videos from Bridgewater.
Dalio stepped back from management in 2017. He’s still Bridgewater’s co-chief investment officer — and plans on investing for the rest of his life. But now, more than 40 years into his career, he’s focused on passing on what he’s learned. And he views success much differently than he used to.
Listen to the full episode, which was produced by Sarah Wyman and Jennifer Sigl, here:
A lightly edited transcript is below. Narration is in italics.
Learning through experience
Richard Feloni:Ray Dalio was born in Queens, New York, in 1949.
Ray Dalio: I was an only child. I had a mother who really loved me a lot, and I had a dad who was a jazz musician, and he loved me a lot, too, but he was out a lot, and I was, I guess, a pretty classic kid. I loved to play with the kids in the neighborhood. I would say I didn’t have a lot of active guidance. I was more kind of on my own, and I loved life, and I played with kids and that was it. Didn’t like school.
Feloni: Didn’t like school? Were you analytical at that point?
Dalio: No, no, no — I wasn’t analytical. I think people would always say that I had common sense. I was curious. I was always curious. Curiosity is a different thing than analytical. I was curious, and I liked to think about a lot of different things and have interesting conversations with adults about interesting things — politics, the world.
I did a lot of odd jobs as a kid: paper route, shoveled driveways, and all that. But I earned some money from that and I caddied, and when I was caddying and I was 12, the stock market was hot and I bought my first stock. It was the only company that I ever heard of that was selling for less than $5 a share. That was my criteria. I figured I could buy more shares; therefore, when it goes up, I’ll make more money. That was really naive.
But I got lucky, because the company was about to go broke, but some other company acquired it and it tripled, and I thought the game was easy, and so that’s what I got hooked on. So at about 12, I got hooked on the markets like one might get hooked on a video game.
Feloni: What appealed to you? Was it the risk taking?
Dalio: Well, the game, and the fact that I’d make money if I could do it well, right? So I think it was probably, it might be like, imagine if you had a video game that you made money at if it paid off. The game itself is fun. And then you like the rewards and then the roller coaster begins, right? So OK, can you make money? Can you lose money?
So that had a big effect on my life, how I viewed things.
Feloni: So this approach that you would start to develop in adulthood, of learning things, forming principles around that, there was really no indication of that as a kid?
Dalio: The word learning can mean different things to different people, right? There’s kind of this experiential learning, and then there is going into a classroom and remembering, and there’s that kind of learning, right? So, for me, it was always this experiential learning. So that I always had as a kid.
The “go into a classroom and do the remembering” kind of learning, I wasn’t good at it; I didn’t like it. The experiential learning I loved. So it would be almost like saying, “Did you like playing a video game?” Playing the markets was great. Playing with my friends was great. But going in and reading a book and remembering it and getting tested on it just had no appeal to me.
How a disastrous mistake in 1982 shaped his life philosophy
Feloni:Dalio went to college on Long Island and studied finance. He then went on to graduate from Harvard Business School. Two years after getting his MBA, Dalio founded Bridgewater and started to make a name for himself. But then, he made a bad bet. It took hitting rock bottom to change how he approached everything, from investing to personal relationships.
Dalio: I had calculated that American banks had lent a lot more money to emerging countries than they can pay back, and I said there’d be a debt crisis. That was a very controversial point of view and got me a lot of attention and it turned out to be right and that Mexico defaulted. And so, I thought, I’m right. I thought that, you know, I’m arrogant, I think, in having confidence, and I was right on the default and I was wrong on what happened because that was the exact bottom in the stock market. As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go, and I was so broke I had to borrow $4,000 from my dad to help pay for family bills.
Feloni: How many people were you employing at that point?
Dalio: Oh, eight maybe.
Feloni: Still, you had to take them out of a job.
Dalio: It was my everything, right? It was my everything. It was my mission. And I loved those eight people. I didn’t want to lose them. And so a very, very, very painful experience, but it changed my approach to decision-making because, look, pain is a great teacher. You go forward toward your goals. You succeed and fail but you really learn from your failures because they’re the painful experiences and if you can reflect on them, you change.
My son gave me, in 2014, a book, Joseph Campbell’s hero’s journey, “ The Hero With a Thousand Faces,” and he says that what happens is that you will crash in your life at some point, and at that point you will either have a metamorphosis or you won’t. That metamorphosis, really, it teaches you humility. Pain teaches you humility.
And so, my experience changed my whole approach to decision-making, like, it gave me the fear that I might be wrong that allowed me to incorporate that with my audacity. In other words, I didn’t want to just get off the field and not play. I still wanted to be great and make the best things happen and win, but I didn’t want to have less risk in the sense that I didn’t want to have less opportunity. I wanted to keep the opportunity the same, but I wanted to then be able to manage my risk better and it changed my whole approach to decision-making because it then made me think, how do I know I’m not wrong?
It made me be much more open-minded, to diversify better, to deal with my not knowing. Whatever success I’ve had in my life has been due more to my knowing how to deal with what I don’t know than because of anything I know.
Feloni: So it was a really profound experience. In that moment, how could you even find the lesson in it?
Dalio: Painful experiences of this sort — when you’re in the moment, you may not be able to reflect very well because the emotion is taking control of you. When the emotion passes, you have a choice. You can either move on and just do the next thing and not reflect, or you can reflect. Reflect. I urge you to reflect.
Now, to some extent, maybe meditation helped me. I had learned Transcendental Meditation, so it gave me a certain equanimity to reflect. I think that maybe my habit of trying to figure out, well, what was my mistake in trades and trying to then reflect on the trades so I would learn. But in any case, when the pain passes, don’t just go forward, reflect, because that’s where your progress is.
Feloni: With Transcendental Meditation, you’ve said how important that is to you and even how that can help you reflect.
Dalio: There are the two yous in you, basically. There’s the emotional you that comes from the subconscious, and, under certain circumstances, it can produce stress, and that stress or that emotion can take you over. And then, there’s the thoughtful part of you. Both have advantages, because the subliminal is bringing forward these intuitions and those types of things and then the intellectual, and if you can be calm and resolve those things together, not only does it give you the calmness, it gives you better thinking.
Taking the path to radical transparency
Feloni:In the early ’90s, there was a Bridgewater employee named Ross Waller. He was the head of trading at the time, and he didn’t make a trade he should have. It cost the company hundreds of thousands of dollars. But Dalio decided not to fire him.
Dalio: It’s OK to make mistakes. It’s not OK not to learn from them. So perfectly good people, I mean, all human beings make mistakes, right? The key is the learning from them. So, he was a good person who made a mistake and then the question was, how are we going to learn from them? I put into place an error log, which we now call an issue log, in which everybody in the company has to write down whenever anything goes wrong so that they bring it to the surface and we learn from it.
Feloni: Is that for you as well?
Dalio: Of course, anybody.
Feloni: I mean, if you start to incorporate more and more transparency, there’s probably going to be some tension that arises, and in 1993 there was a conversation you had with some of your leadership team, where they basically confronted you.
Dalio: To be effective, I think people have to be very truthful with each other. First, that’s because they have to try to agree on what is. They’ve got to get out of their heads, and if they think something’s not right, they’ve got to deal with it. Otherwise, it’s not productive, and there’s so much misunderstanding unless you lay your honest thoughts on the table. So improvement like that is sometimes difficult but it is also really effective.
So that total amount of transparency and truthfulness was, a couple of people I work with, they said, well, that’s demoralizing to people, that you’re demoralizing people by putting them in that kind of a position.
Feloni: They used some choice words. They said your approach was making people feel incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, and otherwise bad. I mean, how did you feel reading that? That must have been pretty rough?
Dalio: I didn’t want to do those things. I didn’t want to make them feel demoralized, so what I thought about was, well, the real question is, how do we deal with it together? So we need to have a conversation. What should I do? What should you do? How should I do it?
So I have a general principle. When you’re not getting along with somebody or you’re having a disagreement, stop, put that aside for a moment, go to a higher level, and then say, “How should we be with each other? What are our ground rules for operating, and why?” Then go back into your disagreement, and follow those protocols about how you should be with each other.
And so that’s what I did, because, again, I was faced with, it seemed, a trade-off that was a choice between being totally truthful with each other or making people feel better. And I wanted them to feel better and be able to be totally truthful. So, we face these junctures in our lives, like I said in the earlier juncture; I wanted to have all the upside with none of the downside. And so, in that particular case, I figure, well, if I’m taking risks, how do I have all the upside without those unbearable pains, and you think that that’s a choice that exists, but if you pause and you’re clever, you can engineer that, if you do that together.
So what I did was to sit there and say, OK, so how should we be with each other? And we had conversations about how we should be together, and that helped to flesh out the rules and the ways that we should be together so that we could deal with that more effectively.
Feloni: It’s interesting that your initial thought there was that we’re either going to be honest or we’re going to be happy, and that the in-between wasn’t really there. How come radical transparency is so important where feelings can be hurt? Why not be honest but maybe a little bit more graceful with it, where someone maybe, it could be a little bit more pleasant than harsh?
Dalio: Well, first, I think it’s a continuum, right? And then there’s better and worse ways of communicating. Continuum like you’re saying, you know, there’s honest and then there’s happy. The way that I look at happy is that you’re short-term happy but you’re not long-term happy, OK? In other words, I would say, OK, if we don’t deal with those circumstances that we need to deal with in a forthright way, we could all be happy, but it’s going to have adverse consequences in a lot of different ways. If you start to realize, intellectually, that being really truthful with each other is something that is to be treasured, not only because it’ll help you deal with the situations, but also it’ll build trust. There’s a lot of trust that’s going on. There’s a lot of trust that everybody knows we’ll be talking about it and there won’t be hidden agendas and all those things.
And once you start to rethink it and reprogram yourself, that you start to realize, I don’t want to be in this highly political environment, with all this stuff going on behind the scenes, and that I really appreciate it, and then you get in the habit of being able to do it well, so that there’s really good clear communication and there’s trust that’s built. That is tremendously beneficial.
So, you have to understand that Bridgewater’s success is that, right? In other words, it’s knowing what you don’t know and knowing I may be wrong. That’s the key to success, right?
Feloni: So for radical transparency to work, though, it has to be done at an organizational level, a team level? Otherwise, wouldn’t it just be, when you sat down, you’re just acting like a jerk, if you’re just doing this on your own?
Dalio: Well, yes. You have to agree. Any group of people, it may be your department, it may be your whole company, may be the whole country. Whoever it is, they have to agree on how they are going to behave with each other. Why? Everybody has to do that.
I think that notion of, can we be radically truthful with each other, can we know how to disagree well and then get past that disagreement to the best answers? These are questions that everybody has to face but certainly they’re interactive questions, so whether it’s in your department, or you can’t unilaterally behave that way and you need to talk about it; otherwise you’ll have misunderstandings.
Forming the “principles” Bridgewater is known for
Feloni: And so, the next evolution, really, of this radical transparency kind of happened in the early 2000s, and that was when Bridgewater was really going from, I guess you could say, like a boutique firm to a large-scale organization, correct? And as it was happening, you wanted to retain the culture that you built, to pass on the lessons you learned, the principles you learned. This is when you really started to codify them.
So if you get a packet of your principles that you’ve acquired over the years, and then you give them to your employees, if Henry Blodget, the founder of Business Insider and the CEO of Business Insider, if he came to us with a packet of his life lessons, I feel like that would be something that we’d be like, “Whoa, where’s this coming from? What is this?”
Dalio: Yeah, it didn’t happen that way.
Feloni: It didn’t happen that way. How did it happen?
Dalio: Well, again, in order to have this radical truthfulness and radical transparency, everything that I did pretty much was recording everything that everybody did was pretty much recorded.
Anything that was not personal, like, if you have a family problem or something, we’re not going to talk about it. Anything that’s proprietary, we wouldn’t talk about. But pretty much anything that anybody could see, because that builds the trust. If you want to have truthfulness, transparency helps a lot because people get to see things for themselves.
And then what I would do is, as I would make decisions, I would write down my criteria for making the decisions. So things were happening on a day-to-day basis. Imagine if Henry, let’s say, oh, you’re seeing what Henry is doing and he’s made a decision, and then he’s written down the principle behind why he made the decision, and then he’s willing to talk about it with you and he said, “Listen, how should we make those decisions? Do you think those criteria are good or not?”
So it’s not like, OK, here’s a book. The book is just the accumulation of those kinds of things, and it’s easy to go through. And that brings harmony, and that brings consistency,y and that reinforces the culture. Part of that is to write that down and understand each other, and part of it is to also develop tools that help to facilitate that. So I developed a number of tools that facilitate that transparency and the understanding.
Feloni: To get back to an earlier point, I understand in terms of writing down what’s working and sharing that with the company, that, to me, makes sense. It seems to be a much bigger leap to being that we have to start recording everything so that we’re all honest with each other, in the sense that if I go meet with my manager and have a discussion, that all of my colleagues need to be able to see this. or if we had a discussion. that maybe a conflict arose and it was resolved, that that would be shared with colleagues on here’s what we can learn from this. I feel like that would be really difficult to adopt for people, especially feeling uncomfortable around that.
Dalio: Yeah, first of all, I want to be clear that anybody can do whatever they want with it and it’s all a matter of degrees of what you want to do, but all those degrees have choices, so I chose that particular path for various reasons I can describe. But the question is, how truthful, how transparent do you want to be? And there are real benefits. I chose that radical truthfulness and that radical transparency because I figure there’s nothing to be embarrassed about, and you produce understanding, and if people are just going through their evolutionary processes, their successes and their failures, and we made a compact among ourselves, do we want to be this way with each other? You start to see everybody in their humanity, including the making of mistakes and then the learning from mistakes. And then, also, you avoid all the bad stuff that goes on in the dark. Deception happens behind the scenes, so you avoid all that deception.
That’s what worked great for us. I’m not saying others necessarily have to do it. They’ve got to figure out what’s good for them.
Emerging from the financial crisis stronger than ever
Feloni: After the financial crisis, this is kind of when more of the public eye was on Bridgewater just because you came out of that strong, due to your analysis of where the economy was headed, and 2010 was the best year that Bridgewater had up to that point. That’s when you start having the media looking at you, people not even in finance looking at you, discussing principles. At this point, people were saying, whoa, what is this? Was this hedge fund in the shadows, like some secret cult or something? What did it feel like when you were challenged? Your whole way of approaching things was challenged from a bunch of outsiders at this point.
Dalio: In 2007, we anticipated the world financial crisis because we looked for these timeless and universal principles. We knew that the situation was very similar to the 1929-32 situation because when interest rates hit zero, the Central Bank can’t ease anymore, and you have a debt crisis and certain things need to be done.
It was that approach to principles and this way of operating that allowed us to anticipate the financial crisis of 2008, and we did very well in that crisis where most everybody lost money in that crisis. As a result we started to receive attention, and then people started to think, well, what is this, a cult? And I didn’t want attention. I didn’t want public attention. I didn’t want to do this kind of media. I just wanted to be quiet. And so, what I did is I put our principles in a PDF file, and I put it out on our website for anybody who wanted, they could download it. And it was downloaded three and a half million times, and people started to get the understanding and started to say, whoa, this is a different way of operating. And so, that’s what happened.
Feloni: When you’re saying that you have your investing principles, and that’s what allowed Bridgewater to be successful, the accumulation of these principles for investing. You’ve applied that to, kind of, just the human experience as well.
Dalio: All decision making.
Feloni: Are your principles for life and work, is that almost kind of like the same way that you would write an algorithm for trading, but for a person?
Dalio: Yeah, it’s exactly the same. One of the great things I’d like to pass along is the power of having people write down their decision rules when they’re making that decision.
Feloni: How do you mean?
Dalio: I think most people just make decisions and instead of just doing that, if you make your decision and shortly after or shortly before, take the time and say, in this particular type of situation, here are my criteria for making that decision, that’s the reason why, and you write it down in a very, very clear way, it makes you think about your criteria better. It allows you to communicate with people better.
That idea of writing that down applies to all decision making. You could do that in all decision making, and you can even go beyond that. This is the power that we’re now in, in the world, with converting thoughts to algorithms. You can go beyond that, and you can take those criteria and then have data input and have that operate in parallel with your decision making and I think that, that’s more and more where we’re headed and that’s what we’ve done. That’s the process.
Feloni: Was there ever a moment throughout your life really, where one of your principles turned out to be incorrect, as something was unfolding you realized maybe this isn’t working for me?
Dalio: Oh, yeah. I think the development of the principles is it’s an evolutionary process of change just like we personally experience an evolutionary process of change. Our thinking changes as we learn over a period of time. It’s just more explicitly progressed. And that’s what this compendium of principles is, that’s the book, that’s the hot book, it’s because it just evolves over that period of time and here it is and it’s still evolving. I’m still learning.
A succession plan that didn’t always go smoothly but was a learning experience
Feloni:After hitting a new level of success coming out of the financial crisis, Dalio began considering what would happen to Bridgewater after he was gone. It was his life’s work. And continuing its success would be no easy feat. So he set into motion a succession plan. It started with appointing a new co-CEO in 2010: Greg Jensen.
Jensen was his protégé and Bridgewater’s head of investing. But Jensen ran into some of the same problems Dalio did back in 2008, when there was too much overlap between the investment and management sides of the business. And in 2016, Dalio decided that Jensen should return to his former role.
The change meant Dalio’s succession plan had to change, too. He couldn’t back off just yet. In his book, Dalio took responsibility for the botched plan. He also called it his biggest regret during his time at Bridgewater.
Dalio: First of all, I would say, a lot of learning comes from having the same mistake over and over again until you learn it. In my particular case, the company grew up under me, and there I was, and I was handling too many things and I was getting by, and I was figuring out how to get those things by but not adequately. And then I figured, OK, now that’s my situation, my dilemma and I should pass along both my dilemma and my circumstances to him and we should try to figure out how to deal with that together but, in other words, I can’t not pass it along and yet we don’t have a solution yet, and so we will try to deal with that together. And that’s the path that we went down and we found out that we couldn’t do that together because it was just too much for him, too much for me.
So, I guess I would say, you form a theory and the theory doesn’t work, and then you try again and you form another theory and that’s part of the learning process.
Feloni: What has been your experience with succession? What has that taught you as a leader?
Dalio: Oh, it taught me so many, many different things. It was… first of all I should say when I began my succession process, I thought it was going to take me probably about two years. But, when I say, I thought that, I also knew not to believe that.
Simultaneously, one can say, I think this is going to happen but I shouldn’t bet on it, because if you haven’t done something three times before successfully, don’t assume you know how to do it.
Dalio: And I knew what the arc of my life would be. In other words, as I go from 60 to 70, that I have to transition well and I want to really make the people successful without me, and so I’m going to have that particular experience. I allowed up to 10 years for that to happen. I figured two, but I said, “OK, I better plan for 10 because I’m not sure if I’m going to be able to do that.”
And then I learned. I learned how people see things differently. I learned not to assume that somebody can do something until they’re doing it already.
I learned that others had to be involved, that the best thing for me to do was to bring in other people to do that. I originally didn’t think I needed a board, for example. I figured I’d run the company in this way for all that particular time and so I don’t want some board to come in and operate where they’re outside telling me what to do or the leaders what to do. I then realized that I need to have a board that would operate well. So I get the best advice I can from the smartest people. I went to Jim Collins, very smart guy, who’s… that’s his expertise.
Feloni: Yeah, management consultant.
Dalio: And I asked him, he said, well, you only have to do two things: You have to pick the CEO who’s going to be successful, a great CEO, and you have to have a board that will monitor whether the CEO is successful, and get rid of them and change it if he doesn’t. It takes me out of it, it takes those out of it. And so, I learned —
Feloni: That helped you step back?
Dalio: Yeah, I learned about governance systems. How does the governance system work? How do you select the people differently? How do you try those people? So I learned all of those things. You know, I’m still learning, but it was the learning of that, and that made us successful in the transition.
Redefining success in the third stage of life
Feloni: I mean, when you read “Principles,” it kind of seems like, here’s a very cohesive worldview. I’m now ready to pass it on. But since then, has there been anything surprising that you’ve learned about yourself, about how to just approach life in general?
Dalio: Well, I learned… I’m beginning to experience for the first time in my life, the total freedom from obligation, the total freedom. OK, what do I want to do? Of course, I’m in this transition phase, which means that I’m passing things along. But what is it like to be free of obligation and do all the things that you’re excited about? I’m doing a lot of things that I’m excited about, and I love the markets. I’m still spending 80% of my time on markets, which is more than I used to, because I had the CEO job. Now I’m in a position where the economy, the markets, that’s my game. I’ll always play that game.
But with that open canvas, I can do things like pass along these principles. I’m interested in ocean exploration. I love being around my family, my grandkids. I learn all of these different things, so I’m experiencing that element of the freedom of this new phase in my life, and I’m thinking about it. I’m writing down principles about it and that’s it.
Feloni: Do you think you’re going to miss that engagement with the day-to-day of Bridgewater?
Dalio: I’m going to be the chief investment officer as long as they want me to be. I’m playing that game. They want me to do it, I want to do it, and I’ll do it as long as I’m welcome to do it and I love to do it.
Feloni: And I also wanted to know as we’re thinking about these different stages of your life, what is your concept of success in this stage right now, as opposed to the Ray who was building up Bridgewater, scaling it, as opposed to the concept of success that Ray had when you were a young man as well?
Dalio: My concept of success is having others successful without me. My concept of success before was being successful myself.
Feloni: And what did that mean, “success”? How did you define that?
Dalio: Well, success was whatever mission I was on. It could be play the game in the markets and be successful. It could be build a company and be successful. It could be, be a successful parent. OK, now it’s none of those things, right? It’s I’ve evolved to the stage where to have others successful without me being successful is the most beautiful thing I can do.
Feloni: So that’s… you’re at the final stage of that hero’s journey that you were talking about?
Dalio: Yeah. I’m in that transition to phase three.
Feloni: Well, thank you so much, Ray.
Dalio: It’s a pleasure.