Ray Dalio: Principles, Failure, and the Formula for a Successful Life [From the Archive]

[00:00:01] This isn't your average business podcast, and he's not your average host. This is The James Altucher Show. Presenting the Archive. Classic episodes that remain timeless. The raw, unfiltered conversations from the early days in which people shared their failures and showed us exactly how they rebuilt everything from the ground up.

[00:00:36] Are you ready? Ready!

[00:00:39] Ray Dalio in the house at The James Altucher Show. Ray Dalio is known probably best for running the largest hedge fund in the world with $150 billion in assets. Forbes has you listed at net worth of $17 billion. But I really want to talk about your book, Principles, which is the life and work principles plus a little bit of memoir by which you guide your life and build your business and so on.

[00:01:06] So welcome to the show, Ray. Ray Dalio. Ray Dalio. Thanks. Appreciate you having me. Ray Dalio. Ray, it's a great book. I highly recommend anyone reads this. Actually, you know what? I have just a side question to start out with. How accurate do you think Forbes is about people? Not about you specifically, but just in general? Ray Dalio. Probably not very. Ray Dalio. Because how do they come up with that number? They add up fees or something? Ray Dalio. No, no, no, no. And I guarantee it's not that number. But you're exactly right. I think they do the best and nobody wants to get into it. And so it's a little bit awkward.

[00:01:36] Right. But anyway, enough of that. We're going to focus on Principles. You started Bridgewater in the 70s. I really want to fast forward to the critical point right in the beginning when you made a mistake on your financial predictions of what was going to happen in the case of defaults in Mexico and so on.

[00:01:58] And you basically went, I mean, obviously your business is hugely successful, but initially that after several years, you went broke. Like your business was done at the age of 34. And I can tell you from my own experience, when that happened to me, I kind of just psychologically couldn't handle it. And what I'm really interested in is how you then said, okay, you were in a very similar position.

[00:02:25] You had two kids, you had a mortgage and you said, okay, I'm just going to keep on going forward and rebuilding. And you don't really address as much in here the psychology it takes to do that. Because I think that's immensely difficult. I think most people don't survive those moments. No, I think you're faced with choices, right? I mean, okay, you still have to decide what you're going to do. Am I going to put on the tie and get on the train and commute to Wall Street and do that thing?

[00:02:54] Or what am I going to do, right? So you face the choices and you just have to calm down and then you have to think carefully and you have to make a choice. And those are the times where it tests your values, what matters most to you, right? So for me, doing my own thing and whatever it meant, I had to do that and I had to figure out how to do it, right?

[00:03:21] So like in the book, I sort of explain, I can't do this crashing anymore. It's not good for my family. It's not good. So how do I change? What did I do? And it made profound changes in my life. It gave me the humility I need to bounce with my audacity. It made me really, really worry about being wrong and the consequences of being wrong.

[00:03:48] And it made me find ways of dealing with it so that I wouldn't have those experiences again without giving up my upside. In other words, I wanted all the upside, but the upside came with the downside. In other words, you take more risk, you may have more upside, you may have a downside. So how do you do that? So for me, I had to calm myself down and think, how do I do that? And one of the things, like I say, that fear of being wrong was a blessing.

[00:04:17] One of the greatest blessings that ever happened to me because it taught me an open-mindedness. Made me think, how do I know I'm right? And then that gave me the open-mindedness to try to find the most intelligent, capable people who disagreed with me to understand their perspectives. So I learned how to triangulate well, and that radical open-mindedness made me learn a lot, and it made me triangulate.

[00:04:45] Because if I go through the back and forth with people and do that triangulation, I raise my probabilities of being right. It made me think about diversification better, okay? I learned a lot, and I explain in the book, about how you can reduce risks without reducing expected returns. Okay, that was key. It made me think about how the same things happen over and over again in history that I miss.

[00:05:13] You know, the big surprises are things that never happened in our lifetime before, but they happen. But they've happened in other people's lifetime before. They happen or in other countries. And it gave me a broader perspective of history because the thing I missed was something that happened before, but just not in my lifetime before. It brought about those changes.

[00:05:35] I mean, you already had a deep appreciation of history, and that's how you were able to model the markets, even to make the amazing prediction you made, which was in 1982 that Mexico would default. It was only afterwards that the U.S. stock market kind of went against what you thought was going to happen that that was the surprise to you. Yeah, but I'm saying, but that happened, right? And so there's mechanics about how that happened.

[00:06:00] In other words, okay, there's a certain level of interest rates, and more importantly, there was a transfer of wealth. So the debtors were squeezed a lot, and they were other countries that didn't have the backing of the U.S. Federal Reserve. And as they got squeezed, then they had to dump goods on the markets, and they drove up the value of the dollar. And that produced deflationary forces that allowed interest rates to be cut. Deflationary forces.

[00:06:28] Yeah, because, you know, let's say you're a country, Argentina, Brazil, or any of those countries that couldn't pay, and nobody would lend to them anymore. What that meant is that every time, and they had dollar-denominated debt, so what that meant is every time they would sell something, whatever it was in their own currency, they would have to take that money and convert it into dollars.

[00:06:50] They'd have to sell their currency and buy dollars, and that buying of dollars then drove up the value of the dollar, which was disinflationary. And also they had to dump all that they had, these commodities. So them being squeezed had a mechanical effect of being able to lower our interest rates, lower our inflation rates, and allow the Federal Reserve to ease monetary policy, put more money in, and we could have a disinflationary boom.

[00:07:20] That is mechanical. That was a reality that I didn't fully understand there. Whenever realities happen, whatever the realities are, there's mechanics behind those realities, right? So if you can calm yourself down and learn, okay, how did that happen? Just embrace the reality and figure out how it happens. Don't just sit there feeling sorry for yourself. You've got to move on. So that taught me about that mechanics.

[00:07:46] But the most important thing it taught me was this radical open-mindedness, this humility. And that's what led me to have an idea meritocracy. In other words, what I wanted most was the smartest people, independent thinkers who would disagree with me. Because in order to be right to add value in the markets, or as an entrepreneur, I was both, one has to deviate from the consensus. Because the consensus is built into the price.

[00:08:13] And the consensus is right a lot to think you're going to be smarter than everybody who's betting on it, particularly in the markets. You know, a lot of money faces it. You've got to be smarter than those people. So you're going to be wrong a fair amount. But that's the game you have to play. So in order to play that game well, or the same with an entrepreneur, what I wanted to do was to get independent thinkers around me, smartest independent thinkers.

[00:08:37] And I wanted to have thoughtful disagreement and work ourselves through that to raise the probabilities of being right, that we could respect each other and disagree. That disagreement became a joy. And then you would go through that disagreement. You go into the mechanics. So how has history worked? What happened so that you can make those decisions in the best possible way and learn? Particularly if you're doing it across many different investment asset classes.

[00:09:02] So if you're making a decision, you know, 10 different decisions that are mutually exclusive of each other, all with smart people, you increase your odds for success without reducing, without increasing the risk is your point. Right. And I want to say that that's true for all decision making. In other words, this book is not written for investors. Right. Although there's something there for investors. Because I'm an investor. This is true about decision making. Because we all have to understand how things work mechanically and whatever.

[00:09:32] That's our realities. We all got to deal with our- Whatever career we're in. Whatever career we're in, right? And we have to understand those realities. And we have to have principles for dealing with it. So what I learned was every time I would make a decision, I would write down my criteria for making that decision. And I urge your listeners to do that. That's one of the big things I want to pass along. It's very helpful. You know, in other words, here's something that happens. And write down your principles for dealing with it.

[00:10:01] And that's what I mean principles. They could be high-level principles. But they could also mean just practical principles. If you're skiing, put your weight on the downhill ski. Or if you're parenting, you do this thing or that. Know what the principles are. And get them from wherever the best place is to get them. Because you don't have to have everything in your head. The worst, one of the greatest tragedies of mankind, in my opinion, is individuals being stupidly attached to their own opinions that are wrong.

[00:10:28] And that they don't put out there and stress test and try to get the best opinions, the best decisions from wherever they come from. I want to, I mean, you have some great phrases, which I think are important in your principles. I really love radical open-mindedness, radical transparency. But I want to reel back just a second, which is because when you started describing how you got out of the failure, and I'll call it a failure, but you were the only employee left in your business. You borrowed money to kind of kickstart things again.

[00:10:58] And then from there, you were able to build up. And prior to that, as you mentioned, you didn't have as much humility as you should have. I mean, I've seen the video of you testifying in front of Congress, the video of you at Lewis Ruckheiser. You're a pretty confident young man. Arrogant. It's hard to say arrogant, but you're super confident. Right. And by the way, I borrowed $4,000 from my dad to help pay my bills.

[00:11:25] I couldn't borrow money to get my business going. So I never borrowed money to get my business going. But you're absolutely right. Like I look at that and I say, wow, was I stupid. But you see, that's good. Because like I say to people, if you look back on yourself a year or two or more ago, and you don't think you were pretty stupid then, then you haven't learned much recently. Right? That's a good point.

[00:11:51] But what I also hear you say when you were kind of coming out of this into the next phase of your business, which went on to enormous success, you started to list the things you valued in your life more than money. So for instance, humility became something that you valued. Analyzing, you know, being around people smarter than you in different areas was something you valued. I'm assuming your wife, Barbara, someone you valued more than money. I mean, it seems to me, and you don't address it as much, but it seems to me a big key to

[00:12:21] success is the stability of your home life over these 30 years. Like it wasn't something that was this raging drama for you. You were able to focus on the business. You valued your independence. You didn't want to put on a suit and drive into Wall Street where there kind of was a guarantee of money there for you. You were a well-known entity. You could have been a big banker somewhere or investment advisor. So some notion of freedom and independence was valuable to you.

[00:12:46] What else did you value then at that moment, 1982, that helped you kind of psychologically claw your way out of this failure? Well, before I go on to the, you know, the what else, because I think I want to echo and reinforce your point because you listed a bunch of things that were really the most important. But even beyond that, look, money only buys you things. So it has no intrinsic value.

[00:13:13] So you have to decide what you are going for because money is only to get you some things. Right? Right. And all things can't be measured in terms of money. Okay. But a lot of young people do equate their self-worth with their net worth. We're kind of like brought up on this, we're kind of put on this moving train as kids. We're college, grad school, money, family. And it's hard to, for many people, it's hard to jump off that train.

[00:13:40] Well, that's because I don't think people look, go above the train, go above the blizzard, go above the track that they're on and then say, what do I like? What do I want? I mean, you're describing a situation where people are on a track. And I'll say the track is in many ways a wrong track. I agree. So what we need to do, and we need to start with our kids, even like the education system.

[00:14:09] I mean, the education system does not reward having failures and learning from failures. It doesn't reward learning from failures. Okay? It rewards, you know, you get the right grade and you are smart and Johnny gets a pat on the head and that's what we get. And if you fail, you are stupid and so on. Well, the real world doesn't work that way. The real world is anybody who's going to do something audacious and whatever, great stuff,

[00:14:39] is going to fail. And that they have to know how to fail well. They don't have to know how to struggle well and fail well. These things are not taught to us. So you go on a track and you follow instructions. And at the end of the life, you look back on that and that's what you did. And I don't get that. So to me, you know, you have to step back and look back and say, I think life is a different thing. I think life is, you know, like what's the pull to the thing that you're excited about and then have your adventure.

[00:15:09] You know, go experience that. Knowing that you're going to have, you know, grade up things and but they will not be your real rewards. The real rewards will come from the discoveries, the failures and being able to look at those failures differently. And then be able to learn, maximize your evolution, maximize your learning, maximize your experiences. That's the real, I think that's the better life to live. So you have to know yourself.

[00:15:37] So at those moments that you're describing and you rattled off the ones that I'm, that are, you know, sort of the main ones. And I could add probably one or two. I don't, but it's not important. The important thing is what we're talking about now, which when you come for those moments, what do you really want? What is it about? I believe life is about mostly personal evolution. In other words, to evolve as fast as you can in the best way.

[00:16:03] I think that rewards you instinctively and it contributes to others. So reward, evolve and contribute to evolution. That's what I think largely it's about. But each person has to decide for themselves. Do you think you would have been able to learn these things and come up with these principles without that failure? Or do you think that triggered in a massive way, you understanding what you valued over kind of the standard track?

[00:16:30] Well, that was, you know, that was one of my really big learning failures. So on. But, you know, I have a lot of failures as you go. Every day you have successes and failures in different ways. And the cue to that is the pain that they produce. So I, you know, I say pain plus reflection equals progress. Okay. I was going to quote that before you did, but you beat me to it. Right. Because pain is a signal that, I don't know, something's wrong. Something may not be right.

[00:16:58] And we sometimes get carried away with that pain. We can't think clearly while we're in the pain. But the pain will pass within a relatively short period of time. And then reflection is the thing. Like mechanically, what did I do wrong? What would I do differently? And to take those reflections and write them down. Okay. What should I lessen? Because the same things happen over and over again. Whatever that happened, probably the same sort of thing is going to happen. How do you deal with it better the next time and the next time?

[00:17:27] That was my amazing discovery also. Because by writing down those principles, I also could communicate effectively with others. I can communicate clearly with the people I worked with. How are we going to be with each other? These independent thinkers. I could communicate with whoever, my relationship. Because they were clear. And then I discovered that I could actually write what I wrote in words down in algorithms

[00:17:53] and have a computerized decision making that replicated my thinking, operate in parallel with me, which was a whole different thing and a whole different level. You know, the reason I bring this up about the failure is because anyone could look at this book now and say, oh, this is easy for him to say now because he's running the biggest hedge fund in the world and he has all the success and wealth. But it's interesting to point out the roots of you writing down these principles happened well before that,

[00:18:22] happened at a down point. And as you mentioned, you know, pain plus reflection equals progress. So, I mean, you have a lot of these kind of equations that are really great. But part of it is, and you start the book off this way, is kind of defining and understanding what your goals are. And so some people have goals that are very, what you would not call goals, you would call desires. But how does someone listening to this kind of say to themselves, hey, I'm on that track that Ray's talking about. I want to get off.

[00:18:50] How do I figure out now or is it too late for me to determine what my real goals are in life? Oh, it's never too late. And I think we evolve our goals. So where is the pull? Okay. Where's that pull? And you follow the pull. And then, like, describe it. Success is a five-step process. First, what are your goals? Okay. You want to have a great life. Come up with great, audacious goals. What do you mean by audacious there?

[00:19:19] Big things that are going to give you a great life, right? Audacious. I mean, meaning go for it. And if you want a great life, you want great goals, I suppose. Whatever they mean. It may be a relationship. It may be in any kind of thing. So when I mean great, I don't mean necessarily make the most amount of money or whatever it is. Right. Whatever is going to be super great for you to get your great life. And as you go to those goals, you're going to have successes and failures.

[00:19:47] Your successes are not going to teach you anything because you did it and fine and that's great. Maybe they teach you a little bit. Your best lessons will come from your failures, identifying your problems. What is standing in the way of your goals? You're going to find the barriers. It's like a video game. You know, okay, now you hit your barriers. And now when you hit the barriers, you have to diagnose those problems, those failures or those problems to get at their root causes. So first step, have big goals.

[00:20:16] Second step, identify your problems and not tolerate your problems. Third step, diagnose those problems to get at the root cause. What is the real root cause behind that problem? It may be your own weaknesses. It may be, in other words, that you're standing in the way of solving it. It probably is that you don't have it all in your own head and that you can get other things from others. But get at that root cause.

[00:20:41] Once you know the root cause, step three, you can go on to step four, which is design a way of getting around that. How will you deal with those problems in the future so that you can get around those problems? Diagnose that. So, and then once you have that diagnosis to the root cause and you're designing, so step four is really designing a path around it, then you have to push through and do that design.

[00:21:10] You have to execute that design. And if you do those five things, you will have great success. Okay? Because that's all it's about. It's this looping I describe in the book. Okay? I'm just going to say it one more time. Five things. Goals. Problems. So, identify your goals. Identify your problems. Diagnose your problems to get at the root causes of those problems.

[00:21:36] Design paths around those problems, things that you'll do differently and get around those problems. And then once you have those designs, push through those designs to produce results, have new experiences, and do that over and over again. And that's what the process of success is. So, I want to ask you where I think people have problems on that five-step path. One thing is, you identified a problem, for instance, in 1982. You thought you, this is your word, you said you were arrogant.

[00:22:04] But what was a root cause? And then you designed a way around it, but I didn't hear you say what a root cause of the arrogance was. Well, I describe it. Root cause is that I was arrogant. Okay. So, that's the root cause. I sort of describe, if you use a verb to describe it, I mean, a little bit, in other words, okay. I have to make personal change. Okay? So, that's, I have to be different. That's a root. So, my problem is how I was.

[00:22:35] That was the biggest. And then there was the also, how do I solve the problem of how do I change the risk reward? In other words, by engineering a certain amount of diversification in a certain way that I explain in the book, I could improve the return to risk ratio. And again, not just in investing, this could apply to any career, any goal pursuit. Right. And so, how do you diversify your bets or do whatever it is?

[00:23:04] So, what is your design? What are you going to do differently? So, what is your problem? And what is your design? I designed a number of things that I would do differently. And I made a very deep personal choice. And I made a sense of my dream. And I made a sense of my dream. And I made a sense of my dream. And I made a sense of my dream. And to walk, you know, to get off the field. And I think that that's the lesson.

[00:23:30] My son gave me a book in 2014, Joseph Campbell's Hero of a Thousand Faces. And it came at a particular interesting point in my life. And what the book was, he goes through all these heroes through history. And what a hero is, I'm not calling myself a hero. I mean that what happens is that they go through a process. They have a call to adventure, he describes it. You have a call to adventure. And then you go out there. And lots of things happen. I won't get into it all.

[00:23:58] But one of the things happen is you have your successes and your failures. And then when you have your failures, you don't get off the field. You continue on. And you learn from your failures. He has a metamorphosis that he calls it. Like this stuff rang to me because I related to that. But I was at a juncture in my life. And he describes later in your life that a phase which he says, return the boon. In other words, what he means is you're at a phase in your life where you learn a bunch of things. And you want to pass those things along to others.

[00:24:28] Now at the time, I had acquired all these principles. But I don't like public attention. It's not good for me. It's not good for people just generally speaking. I don't like it. But I also would acquire these things. And so I was faced again with one of those junctures. What should I do? Should I pass this along? And so on. By reflecting on that. So my point, and I realize I'm in a certain phase of my life. So the notion of we find ourselves in those positions.

[00:24:56] I'm making those big choices. What do we value more? And then we have to learn our lessons and reflect. So I would say reflection is the most important thing. Quality reflection. And you don't have to do it yourself. So on these five steps, I don't think I know anybody who can do all those five steps well. That's interesting.

[00:25:18] And I also don't think I know anybody who could think in the different ways that are required to think in order to be really successful to do them all well. Like to be a big picture thinker and to pay attention to detail to, you know, I don't know, be left-brained and right-brained and all of these things. The most powerful people, the most successful people, I learned by meeting the most successful people.

[00:25:48] They all had failures. Okay? They all have mistakes. They all have weaknesses as well as strengths. It's just that they know that and they know how to deal with those things well. In other words, what you can get from others. They guard themselves against the mistakes. They solve things. And that allows them to move on to be successful. It works that way. And it was interesting to read the book.

[00:26:10] Well, it seems like a lot of people also, they're not used to overcoming obstacles in the sense that when they get an obstacle, the pain is too great for them to either reflect or to do. So the fifth part of your five steps is the doing. And I think people don't know. There's nuances and there's subtleties to doing. There's dividing a problem up into its micro steps and to figure out which ones you can do, which ones you can ask for help on. I think a lot of people don't know how to do.

[00:26:37] I think the biggest issue is that people have not made the connection between failure equals success. That sounds like a weird statement. Failure equals success. But my linkages, my habits changed. Because as I start to make those particular failures, I started to view failures as puzzles. That if I could solve the puzzles would give me gems.

[00:27:04] The puzzle was, what should I do differently in the future? And the gems were principles that I would write down to know how to do a better job in the future to be more successful. And so my reaction was different. That almost pain became pleasure, if you can understand that, the psychological pain. Because I began to associate this process with producing then success. So failure would be a learning experience.

[00:27:32] So whenever I go into something, you know, I think I could either have a success or I can have a failure. But the failure is equally good or maybe even more valuable than the success. One way or another, it's going to be a successful experience because the failure then teaches me a lot. If I make the most teaching out of it, right? If you want learning and you want improvement, it's going to be that. And it's the opposite of what we're taught in school.

[00:27:59] Because in school, we're basically, you know, taught that it's not, that that's not, that's a bad thing. Right, you have to have an A plus on everything. Yeah. And, you know, if you value what you know and you feel bad about not knowing, that'll stand in the way of your learning. When does that happen to you? Excuse me? Give me an example. Well, I think, you know, as you're all growing up and everybody there and everybody has a pride about,

[00:28:28] it's a common thing that people have a pride in what they know. And if they have a pride and they feel bad that they don't know something, then it stands in the way of learning. You know, like I wrote in the beginning of the book, the first thing, you know, let me establish the fact that I'm a dumb shit who doesn't know nearly as much as what I need to know in order to be successful. Right. And I'm realizing that because what you don't know is much greater than what you do know.

[00:28:58] Right? It's all out there. And if you're so attached to what you do know, it's going to stand in the way of you knowing. And that's where the power lies. Take a quick break. If you like this episode, I'd really, really appreciate it. It means so much to me. Please share it with your friends and subscribe to the podcast. Email me at Alcantara at gmail.com and tell me why you subscribed. Thanks.

[00:29:21] Look, most of the customer service bots out there are 15 years old. They're horrible. You're constantly trying to like reach a real person. I could tell you from personal experience that Decagon is not like that.

[00:29:43] And look, if your team is dealing with more support tickets, more channels, and higher expectations from customers, you've probably thought about using AI for customer service. But most of the options out there are either too limited or take way too long to set up or are just old school. They don't work that good. And that's why I'm excited to tell you about Decagon. Just check it out. If you have a company and you need customer service, just check this out.

[00:30:08] Decagon helps companies create personalized concierge style customer experiences with AI agents across chat, email, voice, and SMS. They're available 24-7. They feel natural to talk to and can resolve customer requests on their own so businesses can keep up with requests without losing their personal touch. Decagon plugs directly into your existing systems so agents can get live quickly.

[00:30:33] And because workflows can be updated using natural language, teams can make changes themselves without long engineering cycles. This is key. If you notice something in the interaction that's wrong, you just tell it, no, no, no, say it this way. Because it's using the same technology as all these AI coding tools. It's like you're coding the customer service in real time. That means less time spent managing workflows, more time focused on customers, and you'll see the ROI in weeks.

[00:31:01] Also, Decagon gives your team full visibility into why agents make decisions and what's happening across every conversation. So it's easier to spot trends and improve the experience over time. Decagon helps power millions of conversations every day for brands you know and love, including Avis, Affirm, Fanatics, and Aura. Ready to transform your customer service? Go to Decagon.ai.james.

[00:31:28] And Decagon is D-E-C-A-G-O-N.ai.james to get a personalized demo and see what Decagon can do for your team. Just get the personalized demo. Just see. Check Decagon out at Decagon.ai.james. That's Decagon.ai.james.

[00:31:55] So you bring this up a lot in the chapter, which I think is one of the best chapters in the book, on radical open-mindedness, which requires a certain self-awareness on the part of the person being open-minded. You basically suggest, you know, and I agree with it, whenever you feel inside yourself, oh, I'm disagreeing, I'm getting this gut reaction of disagreeing with somebody, almost practice being open-minded, listening, question your internal beliefs no matter how strong.

[00:32:22] And you come up with a whole kind of methodology of how to practice open-mindedness. And it sounds like this was very critical for you as you move forward in your business and success and so on. What I'm curious about is when has your radical open-mindedness and your sense of the positive aspects of failure, when have you failed on these principles? When did you change a principle because you realized it was wrong? Well, my principles, you know, I don't know, there's a few hundred of them,

[00:32:52] and they've been refined over a long time. So, you know, like I've been wrong, you know, a lot in various ways, and I refine them. So when you say when, you know, I can't, it's just, you know, so many times. Well, let's take an example. Like when you had the, you know, you mentored somebody to eventually replace you as CEO of Bridgewater. It didn't, the relationship didn't quite work out. He wasn't quite up for the job. You had to kind of come back.

[00:33:19] How did that, did that force you to look at your principles or in terms of- Absolutely, right? You know, I started Bridgewater and I ran it and so on. And I want to transition well. And so I knew that if I haven't done something three times before successfully, I can't assume that I'm going to know how to do it well. So, and I didn't know how to do it well. To do what while transitioning? Yeah.

[00:33:43] In other words, nobody will know if they're successfully transitioned until they actually do it. Because you have to stop making decisions and watch. And so in that particular case, as we go, I also didn't understand governance. In other words, I just ran the business and with everybody in the way that I describe in the book. And I didn't understand the checks and balance system and who would create governance and how you would make those choices. So we went into those experiences.

[00:34:12] And that led to the chapters here on governance. How an organization, a business, needs governance at various stages. And needs clear lines, needs no job slipping as you call it. Like you have a lot of principles about starting a business with these things in mind. Right. You start a business and you encounter things and what you need changes as you evolve.

[00:34:38] And so you accumulate, I accumulated a lot of different principles for various phases in the business. And since I encountered that transition at my late phase, I didn't know it before. I went through that experience with them. And we went through it together. We view it together. Thank God I had an idea meritocracy. We have an idea meritocracy. I want to talk about that in a minute.

[00:35:03] But that idea meritocracy of how you work it through and have thoughtful disagreement and get past your disagreements so that you can find out what the best ways of handling whatever your realities are, that whole thing we were able to go through and I learned. And so the chapters that are on governance and so on are written there for that phase in the company. And it's a collection of that. But let me ask you this. You were able to have thoughtful disagreement in part. And correct me if I'm wrong.

[00:35:31] You were kind of the emperor of your empire. And so people underneath are going to always thoughtfully or attempt as much as possible to thoughtfully disagree with you because they don't want to upset you. No. You don't think that's true? No, it's exactly the opposite, right? The thing that I learned as a lesson by crashing when I told you is that I wanted to bring the most independent thinkers who would disagree with me. Like the most basic thing in my culture.

[00:35:58] And it's described in the book and it exists. If you haven't watched the TED Talk, I did a TED Talk. In a TED Talk, it's such a, you know, I'm trying to bring that out that everybody has the right to make sense of things and challenge everybody else in terms of the thinking in a non-hierarchical way. Because if I didn't have it that way, first of all, I wouldn't get the feedback I need. And secondly, then I'd have a bunch of kiss asses or people who would bottle up their problems, you know, their resentments that were not doing things because they're not speaking up.

[00:36:27] Like I couldn't be one of them. I couldn't work with somebody or for somebody if I didn't honestly, couldn't honestly ask my questions, probe, say that it doesn't make sense to me because I couldn't be committed to the mission if I wasn't going to be able to speak frankly. So we have a culture which is exactly the opposite of what you're describing in terms of that. It's a thoughtful, and so, you know, let me give you one sentence of what it is.

[00:36:53] It's an idea meritocracy in which the best ideas are going to win out. How do you do that? And our most important goals are to have meaningful work and meaningful relationships. They're equal goals because to be on a mission to do great things and to do that together and where you're in that together and you feel that meaningful relationship is mutually rewarding. Those are great rewards.

[00:37:19] When I look back at my life, the greatest rewards I've had were in the relationships, not in anything else. The most important. I feel good about all the work we did. It's high quality work, but the high quality work in those relationships were magical. And that in order to do that, we have to be radically truthful with each other and radically transparent. Radically truthful and radically transparent. So, and what I mean by that is in order to have an idea meritocracy, you have to do three things.

[00:37:49] First, you have to put your honest thoughts on the table for everybody to see and others have got to do the same. So, you look at what you really think. Second, you have to understand the art of thoughtful disagreement. The disagreements should not be negative things or fights or anything. They should be curiosity motivated ways of understanding what the other's thinking and to try to raise the probabilities of being right.

[00:38:15] Because collectively, with that quality disagreement, you can find the best answers, much better than anyone has in their head. That kind of triangulation. So, first, you have to put your honest thoughts on the table. And second, you have to know the art of thoughtful disagreement. And then third, if disagreements remain, you have to have fair ways of getting past that disagreement. Ways that people believe that's fair, that's appropriate.

[00:38:44] And that's where you have to have, in this idea of meritocracy, what I call believability-weighted decision-making. In other words, it's not the boss who then walks away and then they say, Ah, I made that decision. Well, how would that be? How could I? It wouldn't be good for either the boss and it wouldn't be good for the organization. If others just are disagreeing with them and they say, Ah, I'm the boss. We generally have two types of systems. You have the autocratic system. Boss walks away, makes his decision.

[00:39:12] And you have the democratic system like one man won boats and everybody's trying to be equal. I don't think that works. We have believability-weighted decision-making in which we, through our processes, increasingly over time, know who's good and who's bad at making what kinds of decisions. And we'll take votes and we will have those believability-weighted so that that will carry the day. Because if three... Define believability. Like how do you know who's believable? Okay.

[00:39:41] Let me first... Let me break the explanation in two parts. Let's... Because there's the how do you know it? And then there's the what is it? Okay. What is it? Let's imagine that you're more likely to be good at something than somebody else. Right? And that there's a mix. And let's imagine your quality of your decisions. Let's imagine the scale that goes one to ten. And you say...

[00:40:10] And you go around and you say you're an eight and he's a five and so on. And then you would take a vote based on that believability. And it could be on whatever the subject matter is. It could be also how people think. Some people are more creative than other people. Some people are more reliable. Some creative person may not be reliable. Reliable person may not be creative. We all have different attributes that have to do with what we're good at. And that also has to do with subjects. You know, somebody might be more talented at the legal.

[00:40:40] Somebody might be more talented at the legal. Somebody might be more talented at the legal. So that if you could know each person's believability and put them in a scale of one to ten, and then you would say, okay, now I'm in a room and we have to make a decision. The logical way of making that decision would be to believability weight those decisions. Right? So that's what believability weighting is. Just to give you a very simple concept. Let's say, you know, sometimes we do it instinctively. Let's say you have a bad disease.

[00:41:10] You want to go to a doctor. Probably your best thing is to go to three different doctors who are willing to disagree with each other. And to hear that disagreement and make sense of what they're saying. As you mentioned in your cancer scare in the book. Right. And then when you do that, like if they're all triangulating and saying, okay, this is the right thing to do. And they're the experts. And it all sort of makes sense to you. You probably can go forward and make that decision.

[00:41:38] Through that process, though, if they're willing to disagree, then they'll highlight the things that may be wrong. And then bring those to the surface. And as you're asking, why does that make sense and so on? You're getting an education. And you're also learning about the nubby points to try to figure out what's right. Okay, so say they disagree some and you got those three doctors who then at the end of the day disagree. Now you have to make a decision. Okay, how are you going to make that decision?

[00:42:06] You're probably, if you're smart, you're going to still believability weight that decision. You may not have the exact grades or numbers to do that with. But you're going to say, that one seems like he's a better doctor than the other one. And he sees this and that. And you'll work yourself through it. That's the type of believability weighted decision making that I'm talking about. Just doing it in a much more organized way. And that's fantastic because it means that people have them. You have an idea of meritocracy. That's a fair game.

[00:42:35] In other words, the opinion, the best opinions went out. You have a method for giving those scores and things that people then feel is fair. That allows you to have those disagreements and get past those disagreements well. But let's say like many organizations, you know, your Bridgewater was built almost from the bottom up with these principles. And admittedly, you refine them and so on. Many organizations, people find themselves in the middle of a dysfunctional organization where everybody might have differing opinions about everyone else's believability.

[00:43:05] They might not have measured it as accurately as your organization does. Let's say someone's listening to this and they're in the middle of conflict at their organization. And there's no way to have thoughtful disagreement. Well, let's start with, you know, what they should do from scratch. First, you have to know what environment you want to be in and how you're going to be with each other. And that may be an organization. It may be personal relationships. But how are you going to be with each other? I really do believe that this idea meritocratic way of being,

[00:43:35] put your honest thoughts on the table, have thoughtful disagreement, and get past that in a fair way is kind of almost essential to anybody. And ideal. It might not always occur. No, but it's one of the, well, it, right. It's, there are two things I require from everybody that I deal with, and I will give everybody I deal with. And that is reasonableness and consideration.

[00:44:03] I will give a lot of reasonableness and a lot of consideration, and I expect reasonableness and consideration. And when we have disagreements, we have to operate that way, and then we have to have protocols for getting around the disagreement. So if it could be with you and the spouse, it could be with whatever, whoever you're with, you're going to have a disagreement. And how are you going to get around that? So you have to, in your job or in any relationship, you have to define the terms of the relationship.

[00:44:33] You can't get around that. And if those terms of the relationship are not acceptable to you, you have to move on to another relationship. So for me, it depends how important it is to you. But if I'm in an organization and I can't care about things and speak up and ask and learn and operate in that kind of transform that way, and I just have to sort of sit in my corner, and to me, it's like eating shit. I just can't do it. I need to be able to have quality communication.

[00:45:01] And so you will have to personally decide what is important to you. Now, the thing I would do is I would go to whoever's running the organization and have a conversation and say, how do you think we should be with each other? What are the rules? Should I hold these thoughts back? Should I speak up? Should you hold your thoughts back? How are we going to be with each other? I like that approach of asking the other person for advice on how to resolve the interpersonal problem.

[00:45:31] It kind of puts them back from the problem a little bit to create this meta answer. Right. You're going to the higher level. Just keep going to the higher level. Like, how should we be with each other? Right? And then you establish the ground rules. Now, if he says, listen, no, we shouldn't disagree. Hold those thoughts to yourself. I don't want to know about them. Okay. Then ask yourself, is that the environment you want to be in? You can go to environments.

[00:45:57] I promise you there'll be environments out there that'll be a lot closer to what's going to be important to your self-actualization, to, you know, your well-being than, you know, the environments that are not. So you can make those choices. So you might influence the environment or you might be in a position where you instead need to move on to wherever you're going to be happiest.

[00:46:18] So, you know, a lot of this suggests, again, from the ground up, you built the organization you wanted to build based on these principles. Then you made it almost algorithmic so that, particularly on the economic side, I'm assuming, you could, the computer, the algorithms can help you make investment decisions. And the same on also the people management interaction side. So there are two things here. I want to separate them. They're related, though.

[00:46:47] Do you want to operate idea meritocratically with each other or not? Okay. That's number one. And then you have to decide, you know, a meritocracy, an idea meritocracy is not tangible. It's intangible, right? You can't know you're an eight and I'm a seven. Forget about the numbers thing. It's still the question of how we're going to do with each other. Are we going to put our honest thoughts on the table? Are we going to have the ability to have thoughtful disagreement?

[00:47:15] And do we have fair, clear protocols for getting around our disagreements? We're going to need those things. I got to have those things. So you have to decide if you want that. Put aside the numbers part. I mean, I just evolved the thing so that I found the numbers and algorithms. So let's keep that as a related but different thing because anybody could do this. And right now I can say, well, yes, it's true that I started my company and I did that. And those were the reasons for its success. Okay.

[00:47:44] That was the reason for my success. That's why I want to pass it along. But there are a number. I won't tell you the names of them, but there are a number of companies right now that are finding their way to move toward these things. Because these things are, I think, going to be inevitable. Both of them. And the two things I'm referring to is increasingly the idea of meritocracy and increasing using decision-making to make decisions of all sorts.

[00:48:09] And so the question is, how do you get the version that's right for you? How do you do that? And in the book, I'm sort of explaining. Just sit down. Determine your terms. Okay. Determine your how. Because there's a bunch of principles here that are my experiences. You could use them as reflection. But you can do that. Is it going to be everybody you're working with? Is it going to be a different group if you have a 15,000-person company?

[00:48:37] What is that group and how's it going to work? It'll all vary. But by and large, you will definitely find a way of making a great idea meritocracy and make it work for you. And that's going to make better work, and it's going to make better relationships in the long run. You'll have your disagreements, but you'll have ways of getting past your disagreements, and you'll be bound by common principles. The most important common principle, I believe,

[00:49:07] is this idea meritocracy thing. Other than that, you're going to just be instructed, and you'll ask them to be instructed. Do you think these principles, including the idea of meritocracy, do you think they're... Like if everybody started writing down their principles

[00:49:35] of their success and failure and so on, do you think we'd all kind of eventually get towards the same principles that you've written down? And the reason I ask is, if you look at the tenets of a field like positive psychology, they revolve around well-being as some combination of freedom, personal improvement, and the relationships you have. And what you're suggesting in these principles is kind of revolving around those three ideas, how to build it in your life, more directly how to build those things in your life.

[00:50:03] I think it would crystallize very clearly your choices and each person's choices and their relationships. Because let's say somebody might say, that directness is... I don't want that directness. I don't want to be that forthright. I don't want these things. I can't be that honest. I don't want your honesties or whatever it is. Okay, now you'll have to make a choice, right? The big dividing between people is,

[00:50:32] as I sort of explained in the book, is there's your two yous, okay? There are two yous. There's the upper level you, which is the intellectual, thoughtful, logical you, which is in your prefrontal cortex. And then there's the emotional, subliminal you that kind of is in the amygdala. They each have purposes in the brain and so on, but they're at odds. And we encounter them being at odds all the time. In other words, when we say... Let me give the example. If I say to you,

[00:51:03] I don't think that you're good at this thing. You'd be right. Or whatever that might be. In other words, we have disagreement. That might be uncomfortable because it goes to the amygdala. A lot of people view disagreement as genetically, it's programmed to view that as a fight. And then they react to that and they say, I don't want to have the fight or I'm fighting. So that the amygdala triggers this fight or flight reaction. And then we go to that.

[00:51:33] So I don't know that the people are going to make the choices the same way. Some people want different things. Some people want adventure. Some people want safety. Other people want... But by writing them down and being clear and showing them to each other, you will clarify the important things. I do this all the time and I encounter it all the time. I can so many cases run through my head of people who actually, you know, want different things and there'll be clarity. And that's great

[00:52:02] because with that clarity, then you'll deal with the things that'll bind you together or the things that'll separate you and you can move on. And I think it's a big issue like right now for our country or even, you know, what are our common principles? What are the principles that bind us together? What are we divided on? That kind of clarity is invaluable for the person who is writing it down and for the people that they deal with. And I think on an individual level, let's say you have this kind of declining middle management layer

[00:52:31] in corporatism across America. You have so many people who are 40, 50 years old who are sitting in cubicles or whatever and realize, you know what? My life, I don't like this direction where it's been going. I like what you said earlier, Ray, about how it's never too late, but they're in their patterns, in their head. It's hard for them to all of a sudden be radically open-minded about obstacles, about pursuing new dreams, about starting from scratch. What are some ways

[00:53:01] for people to gain the self-awareness and the courage to start this? Well, first of all, I mean, just think about it. Being successful is hard. Having a life that you want is hard, but it's a lot harder not to have the life you want, right? So, when faced with the choice, you have to go above the blizzard of all the things that are coming at you. You have to realize just that habit is

[00:53:30] the main controller of all of us. Habits can be changed typically in about 18 months by a plan. So, you have to go above and ask yourself, is this the life I want? Is this joyous? And then, how do I deal with it? Taking in the best advice that anybody can give you. And then, you really have to choose your habits well. So, what's an example? What are some of your positive habits? Now, you mention them repeatedly in the principles,

[00:54:00] but what would you recommend? Well, my most positive habit that I was describing before, the cue for me, is that failure equals success. In other words, that I've gotten almost an instinctual reaction to failure or problems that says, ooh, there's some, it's a puzzle I'm going to go solve. You refer to it even as case studies, potential case studies in the book. Yeah. And so, I have an instinctual reaction to problems that is,

[00:54:29] and I'd say, overwhelmingly, that's my most important beneficial habit. Right? I change my programming. A habit is a cue. There's some cue and you associate it with it. There's a good book called Habit. Power of Habit. Charles Duhigg's been on the podcast. Yeah. His book. Yes. It's really valuable. Very valuable because habit is really what drives us. I mean, in his book, he describes the fact, in fact, that people who lost memory,

[00:55:00] they have no memory, can be taught by habit because it is one of those things which is so deeply ingrained. So, you can choose your habits and then you can, if you understand how it works and then you can develop a habit and then you can, and so, developing the right habits. In my case, like I would say, the most valuable habit I learned was, you know, this, that mistakes should treat puzzles and that if I solve them, I will get rewards or the principles

[00:55:29] or things like pain plus reflection equals progress. So, pain equals progress. You know, those kinds of habits were, I would say, my best. And I think it's really valuable even beyond reading them in here. I think it's really valuable for people to write down their principles. I like how the title of the book is so simple, Principles. And everyone can sit down and write their principles even if they're the same as yours. I think it's a useful habit. Absolutely. People have to have the principles

[00:55:59] that are right for them. Okay? Now, they can get them from wherever they want to get them. They can write them down themselves or they can collect them from other people. This is one of the challenges of our society because in the past it was clearer to have principles because also religion, Judeo-Christian religion wasn't a more important thing so you were raised and people would talk, okay, here are the principles and maybe there was a collective principle and so on. With the decline of religion and the emergence of individual choice,

[00:56:29] individuals have got to choose their principles that are the right. So you as an individual can pick your own principles that are right for you. Do it thoughtfully. Whether you come up with them or whether you get them from someplace else or other people, doesn't matter. But just be clear and they can be big picture principles of how to live life or they can be just even basic things like, you know, how to get a job or, you know, how to write a resume or XYZ. Go find the best ways possible.

[00:56:59] Let me ask you, you know, in the book, I feel like a lot of these life principles are so valuable. They're about relationships, about success, about failure, all these things that you mentioned. The work principles are also really mostly about relationships, which is really a large part of work. There's not a lot of discussion about physical health and I'm just curious how you deal with health and how you have over the decades. I would say that for me, that's probably where I have not developed the best habits, right?

[00:57:29] You're certainly healthy though sitting in front of me. Well, yeah, but I'm saying like my exercising, my, you know, routine, I would not, I'd be on a scale of one to 10. I'd be a three at, you know, in relation to people do that. Meditation has for me been a habit that I've been in and that's had a huge effect on me, but I'm energetic, you know, and I, you know, I do my things and I feel good, but so anyway, that's in a nutshell where I am in terms of the physical, I would say

[00:57:58] the thing I could pass along, so don't follow my principles in terms of the physical. you're a two, but I still want to listen. Okay, but in terms of meditation, you know, I would say I'm a nine, I've been doing that and it's had a very beneficial effect on me in terms of my physical health, but also that giving me the equanimity, the clarity of thought, the ability to calmly deal with those things has been advantageous and the creativity

[00:58:28] because you go into your subconscious mind when you meditate and it's from the subconscious that the creativity emerges, you know, you don't muscle creativity, you don't say, I'm going to work hard and get creativity, it's more like you take a hot shower, the ideas come to you and you get into the flow, that kind of thing. So I would give advice on the things that I feel I know about and let others give advice on the other things. So it's sort of like with creativity is really fascinating to me. So you're sort of basically saying you need to like shut your frontal cortex down for a little while so the amygdala

[00:58:57] can kind of send out messages to it and then maybe like in the shower when you're distracted, that's when it all emerges and the creativity happens. Yeah. Not so much from the amygdala but other parts of the subconscious brain because we're the imagination, the intuition, those things, that kind of, those connections. You know, the conscious brain is really kind of slow and it's like think about the instinct,

[00:59:27] catching a fly ball, you know. Okay, think about the calculations. If you tried to do that through your, it is following this trajectory and you never do it. Skiing fast through something or whatever it is that's in that flow kind of thing, you cannot do it in your conscious mind in terms of that's too slow but there is that ability in the subconscious mind to have fabulous guidance and also what comes from the subconscious mind is also a lot of bad stuff

[00:59:56] that, you know, maybe, so you have to sort it by connecting the stuff that's coming from the subconscious mind with the stuff that's, with the ability of the conscious mind to look at it and see whether it's good but it emerges from the subconscious mind. Meditation will bring you into the subconscious mind and it opens the connection between the subconscious mind and the conscious mind. I feel like meditation often is this pattern disruptor so you have this pattern that's going like maybe you're thinking thoughts about someone at work or something's going on

[01:00:26] in your head that's a little bit off and meditation's a way to kind of take a step back a higher level and notice that that's happening and uncover those causes. Well, I describe it a little bit different but in some ways it is like that but it's not, see, you're describing it almost as like it's all happening in your conscious mind and what I would describe it is your conscious mind is racing and it, you know, just racing and what it is is instead

[01:00:55] going into your void, going into the quietness and that subconscious mind. So it's putting that other stuff away. It's really not approaching it differently. It's really almost putting that away and that's, you know, that's the power of it because it gives that, that calmness, that equanimity. It makes things, it's a little bit like, you know, how the ninjas in the movies to them, everything looks like

[01:01:24] it's nice and slow and in control and so on. It makes it like that. It makes everything that's coming at you which is ordinarily in the real world seems so fast, it kind of seems, ah, it's coming at me and I can handle it and everything is better that way. So it's a different approach because when you, you know, quiet your mind and you, and it, it, it settles the mind. It creates an, that equanimity and it creates that creativity

[01:01:53] so it gets you into that kind of ninja state of mind which is very different than that all racing through thoughts kind of mind. So, so let's say I've been talking a lot about people let's say 40 to 50 who are stuck or have obstacles. Let's talk about someone just out of the school system. They've been on that one track the entire time. They're, let's say they're 25, 26 years old and they want to figure out what you called earlier that pull, what, what they really should be doing in life or at that time

[01:02:22] and on the one hand I feel for you meditation has given you a lot of self-awareness to realize, oh, where is this kind of gut pull bringing me towards? Plus, you've been interested in investing since you were a child. What if someone is 26, wants to follow these principles, wants to start with coming up with goals but just doesn't know where to start? Like, how can I figure out what my first goal is? Well, again, I think you have to, you have to feel yourself. You have to

[01:02:51] feel where the pulls are and then, That's the hard part though for many people. just taste things, experiment, you know, you're attracted to certain type of music or food or, or something else you're attracted into certain kind of environments, you're attracted to doing certain types of things, okay? Notice those things, you know, I mean, that general category, you know, like, you know, so, so notice yourself

[01:03:21] and you've got to start with the self-discovery, right? Take personality tests, find out one way about yourself, what are those pulls and write them down, observe them, what do you like, don't like, but you have to find out what makes you happy, what there's a pull to. Then you will face your impediments like I did when I crashed and I said, I can't do this anymore. Okay, then calmly, you, with the guidance of others who need to say,

[01:03:50] how do I best balance that? You're a certain stage of your life, you might have expenses, you might have the family, you might have those things that, you know, might appear to stand in your way of doing that. Give it time to find the answer. Like there's, there's, you know, between finding out a problem, diagnosing it to the root cause and then designing is going to take a little bit of time. So many people

[01:04:19] think just because they have a problem, they come up with what their immediate answers to the problems are and they don't allow enough time between identifying a problem and identifying what to do about it. So you need a quality exploration of, you know, how do I engineer that in the best possible way and who do I speak with and get the guidance because there's always a best path. You just don't know the best path, but there's always a best path and you have to find out what is the best path using all the

[01:04:49] resources you can to find that best path. So first you have to know what you want, where the pull is, and then you have to work out finding out your best path and then you have to experiment with that path. In other words, you have to go down it, experience it, see how it feels, learn from it and then continue to move on. You do that over and over again. It's kind of that looping process that I described in the book. So we're going to start to wind things up but I would be remiss if I don't ask you about

[01:05:19] the economy. Like where do you think we're heading? How are we doing? How are we doing? I guess I'd describe it. I did a 30-minute video on how the economic machine works. By the way, great video. I highly recommend everyone watch this. And I believe that video was the key to you identifying the 2008 crisis, the 1987 crisis. It's all about understanding debt, credit, and so on. Yeah, because in 30 minutes I could convey the template that any individual

[01:05:49] can pretty much use that template to find out where we are. We are, I say, three main forces. There's productivity, how we invent things and if we raise our living standards it's because we learn how to do things better over a period of time. And around that there are two big cycles. There is a short-term debt cycle which we call the business cycle when there's a lot of slack in the economy, the central bank eases monetary policy, interest rates are down,

[01:06:19] credit, and they pick up credit and you accelerate until you start to run out of capacity and then what they do is they begin to tighten monetary policy, then you go into the later stage of the cycle, that tighter monetary policy that causes a recession and you have those cycles that we have and then they all sort of add up to a big long-term debt cycle because those little cycles add up and then we accumulate a lot of debt where let's say if you don't have any debt then you have a lot of borrowing capacity, people will lend

[01:06:48] each other money, that kind of thing, but when you have more and more debt, more obligations, then there's a problem meeting those obligations and then we go through the longer-term debt cycle. So if I use that template and try to answer your question very quickly, we are now in that transition, middle part of the cycle where you've gone from easing monetary policy to tightening monetary policy from 2008 until 2017 really,

[01:07:18] central banks pushed down interest rates and pushed out our money. They bought $15 trillion worth of financial assets and caused those financial assets to go up in price and they put liquidity into the system and produced the recovery in the economy that we're experiencing here today and we're now, this is a transition to stop doing that and to start tightening monetary policy. So we are

[01:07:47] approaching kind of the beginning of the end of that cycle unlike 2007 when we calculated that we would have a debt crisis. We don't see a systematic risk. I don't see systematic risk in that same sort of way coming now but as you are in that late part of the cycle it will become increasingly difficult for them to get the balance right because that's what happens in the cycle. They never get it right and that's why we have cycles and we have

[01:08:17] quite a bit of debt. In addition though, one of the biggest issues that our economy and the world economy faces is the disparity of wealth and opportunity by people. So when we talk about the economy as a whole, it's misleading. There are really two economies. Think of it as simplify so that we look beyond the averages. what I did is I carved out what the bottom 60% of the U.S. economy looks like to say what does that

[01:08:46] economy look like and what does the top 40% look like so we can see it at a more granular level. Because these two economies, I'm saying, use that as a simple example, these two economies are very different. The polarity is very different. Top one-tenth of one percent of the population's net worth is equal to the bottom 90% combined. And so when you look at that, averages are misleading. You got to look at that up. And that's what's behind our political and social

[01:09:16] issues that are here today. In other words, that economy that it's not working for is a problem. And there's a technology is great in making some things, productivity better or helping businesses make, but the technology is also replacing people. In other words, that's one of the great things about the technology. It's one of the terrible things about the technology in a sense. So it's creating a polarity and it's creating a hollowing out. So as time progresses, I don't think it's this year or now,

[01:09:46] but if you would extrapolate this year, next year, three years from now, there's an increasing risk of a downturn. And with that increasing risk and a lot of obligations, a lot of not only debt, but pension obligations, healthcare obligations out there, a lot of obligations, and you have a downturn, not all those obligations I don't think are going to be met. And I think that if you have a downturn, it exacerbates the conflict, it exacerbates the tension between the rich and the poor and the social and even

[01:10:16] geographic conflicts. So that's the picture. It's a world phenomenon. I'm describing the US. Europe is going through a certain version of that. China's going to be dealing with its debt issues in the future. Well, now. It's approaching the dealing with that now. So the world is a big place and they have different things, but if I was to take the world as a whole, that would characterize, broadly speaking, the world as a whole, although they're slightly different. So if you take the US,

[01:10:46] since much of our debt is dollar denominated, and you kind of, even in the book, mention the differences between dollar denominated debt and debt that's denominated in the currency of another country, most of our debt and obligations is dollar denominated. If we had a slack in demand, but we're able to print money to meet those obligations, would that kind of buffer the potential downturn? It helps, that's why we're able to do it. But there are two things that determine the effectiveness of that. The proximity

[01:11:16] of interest rates to zero, because when you hit that floor, then you can't use interest rates anymore. And then the second is the sensitivity, the marginal effectiveness of that buying financial assets and having it pass through the economy. And we've really squeezed out most of that, right? Because those purchases of the financial assets have caused them to go up and has brought about

[01:11:46] where we are kind of today. And if you were going to say now from here we're going to print a lot more money, its marginal effects would be much less than it did when we took it from 2008. But still, it's the way that we would go and sort of have some sort of an effect. So, you know, that's what it looks like. And, you know, sort of related to this, what do you think of this? You know, there's been so much talk and interest in cryptocurrencies as a way to

[01:12:15] kind of look at some of these issues. What's your view and take on this new asset class? Well, there's cryptocurrencies as a general thing, and I think the cryptocurrencies, I think of it as a technology, a blockchain technology, and how that will work, and central banks will use cryptocurrencies, will have their cryptocurrencies, their currencies in crypto versions in terms of using that blockchain. Then there is Bitcoins, Ethereum, and other types of

[01:12:44] vehicles, and so on. So, it's a big subject. I'll say the first things are, first, the purposes of a currency, two purposes of a currency, are to have a medium of exchange, and to have a storehold of wealth. In other words, when you buy a bond, when one person's lending, they're lending that, and so you buy a bond, that's in a currency, you get paid back currency. Okay, so those are the two purposes. So far, the cryptocurrencies are not doing a

[01:13:13] great job of meeting those particular needs. Maybe as a store of wealth. Well, the volatility of it as a store of wealth is so great that it's not, you know, a store of wealth means like, okay, I'm going to hold it and I know what it's going to do. Right now, so much of it is a function of speculation of what will happen in the future, right? So its volatility is great. If you look at who's buying it and how they're buying it, they're buying it now for a sale in the future. So if you were to say, okay, how much of your

[01:13:43] savings are you going to put into a cryptocurrency, you'll be limited by its volatility and the buyer is not looking for that, is not achieving that. It has possibilities, right? But it's not right now in both of those two cases. It's not as effective. I would frankly love to see something that was more effective in both of those two cases. Currency, you know, a medium of exchange, you're paying it, great, and I think, and that notion of not having such a volatility to it, but that's a whole

[01:14:13] other conversation. And that can be a function of time as well, just like the internet. Yes, exactly. Well, just like the internet, I think it's a lot like the internet. In other words, if we look at the underlying technology, we could say blockchain technology, like internet technology, I think we could say it's highly likely this is going to be highly impactful in the future. If we say, but it's like the internet, you could say, well, there was Blackberry. Is one cryptocurrency going to replace another cryptocurrency because it comes along in a different version? So will Ethereum

[01:14:43] replace Bitcoin? And will something else happen? And all of that means which dot-com is going to succeed and which dot-com won't succeed. There are still those types of questions to be asked, and they have to be worked out. So a lot of people could speculate on what it is. I think, of course, there's a lot of pros and cons, but it can be the dot-com experience, right? You can have a dot-com bubble, and yet, on the other hand, you can have that wonderful revolution,

[01:15:13] in a sense, that is that internet dot-com revolution. So now you can see how Amazon is replacing retailers in a very real way. Those two things can exist, and you can be in a bubble, too. So, I mean, I think that's my thoughts in a nutshell. I want to close with one other of your formulas. You have the one that's dreams. Okay, yep, dreams plus reality plus determination equals a successful life.

[01:15:43] What I mean by that is, you have your dreams. What do you want? You have to have that. Number two is you have to understand and deal with reality well to get your dreams. So, you'll interact, you'll figure out how to do it, you'll write your principles down on how to deal with reality, but you got to deal with reality well. And radical open-mindedness is related to this as well. Right. So, you have your dreams, you have to deal with reality,

[01:16:14] and if you have enough determination so that you keep learning how to deal with reality better, you keep going around and around, you keep doing that over a period of time, you will have a successful life, I guarantee it. Well, Ray Dalio, this book Principles is a must read, and it's funny, when I was preparing for this podcast and carrying the book around, so many people I would just bump into in the street, would point to the book and like, oh, I just read a great book. So, that's never

[01:16:43] happened to me before with a book. So, thanks for writing this, I know it's been helping a lot of people, and I also recommend your TED talk plus your video on how the economic machine works, this 30-minute video, which really, I think, explains an enormous amount, but Principles by Ray Dalio, quotes by Bill Gates and Tony Robbins on the front, and Arianna Huffington on the back. Thanks once again for coming on the podcast, I really enjoyed this conversation. Well, thank you, I did too, and thank you

[01:17:13] because it's a thrill for me to pass along those things that were helpful, you know, in order for me to go to my next phase of my life, I've got to do this thing, and I appreciate you allowing me to do that, thank you. Oh, I appreciate you doing this, so, again, thanks. All right, thanks so much, Ray, that was good. Was that good? Did you enjoy it? I loved it.

[01:17:46] Hello, and welcome to Pluto Phone. If you know the name of the movie you'd like to see, just stream it for free on Pluto TV. Where all your blockbuster favorites are landing all summer long. Catch Anchorman, The Legend of Ron Burgundy. Fantastic. The Matrix Trilogy. Welcome to the real world. Mean Girls. Shut up. Titanic. I'm the key in the world. And so much more. For showtimes, press nothing. They're free, 24-7. That is so fetch. On Pluto TV. Stream now, pay never.