#264: Ray Dalio, The Steve Jobs of Investing

Ray Dalio (@raydalio https://twitter.com/RayDalio) grew up a middle-class kid from Long Island. He started his investment company Bridgewater Associates https://www.bridgewater.com/ out of a two-bedroom apartment at age 26, and it now has roughly $160 billion in assets under management. Over 42 years, he has built Bridgewater into what Fortune considers the fifth most important private company in the U. S. Along the way, Dalio became one the 100 most influential people in the world (according to Time http://content.time.com/time/specials/packages/article/0,28804,2111975_2111976_2112006,00.html) and one of the 100 wealthiest people in the world (according to Forbes https://www.forbes.com/profile/ray-dalio/). Because of his unique investment principles that have changed industries, aiCIO Magazine https://www.ai-cio.com/news/is-ray-dalio-the-steve-jobs-of-investing/ called him "the Steve Jobs of investing." Ray believes his success is the result of principles he's learned, codified, and applied to his life and business. Those principles are detailed in his new book Principles: Life and Work http://www.amazon.com/exec/obidos/ASIN/1501124021/offsitoftimfe-20. In this interview, we cover a lot, including: How Ray thinks about investment decisions, how he thinks about correlation, etc. The three books he would give to every graduating high school or college senior How he might assess cryptocurrency And much, much more... Enjoy! This podcast is brought to you by Four Sigmatic http://foursigmatic.com/tim. I reached out to these Finnish entrepreneurs after a very talented acrobat introduced me to one of their products, which blew my mind (in the best way possible). It is mushroom coffee featuring chaga http://foursigmatic.com/tim. It tastes like coffee, but there are only 40 milligrams of caffeine, so it has less than half of what you would find in a regular cup of coffee. I do not get any jitters, acid reflux, or any type of stomach burn. It put me on fire for an entire day, and I only had half of the packet. People are always asking me what I use for cognitive enhancement right now -- this is the answer. You can try it right now by going to foursigmatic.com/tim http://foursigmatic.com/timand using the code Tim to get 20 percent off your first order. If you are in the experimental mindset, I do not think you'll be disappointed. This podcast is brought to you by Athletic Greens https://www.athleticgreens.com/tim. I get asked all the time, "If you could only use one supplement, what would it be?" My answer is, inevitably, Athletic Greens https://www.athleticgreens.com/tim. It is my all-in-one nutritional insurance. I recommended it in The 4-Hour Body and did not get paid to do so. As a listener of The Tim Ferriss Show, you'll get 30 percent off your first order at AthleticGreens.com/Tim https://www.athleticgreens.com/tim. Show notes and links for this episode can be found at tim.blog/podcast https://tim.blog/podcast.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  At this altitude, I can run flat out for a half mile before my hands start shaking.

• 0:06Speaker 01

  Can I ask you a personal question?

• 0:08Speaker 00

  No, what is the appropriate time?

• 0:12Speaker 01

  I'm a cybernetic organism, living tissue over metal endoskeleton.

• 0:23Tim Ferriss?

  This episode is brought to you by Four Sigmatic, founded by the genius Finns who lit the internet on fire. And you may have heard of their mushroom coffee, which features chaga and lion's mane, which has taken Silicon Valley by storm. I use it pretty much every day, either that or the chaga, which is decaf, so it's a separate version. And I use both of these primarily for focus and productivity. They just get you going, light you up like a Christmas tree. So you should definitely check it out. People are always asking me what I use for cognitive enhancement and for right now, this is the answer. I try to force this on all of my house guests. It is a hell of a thing.

• 1:06Tim Ferriss?

  If I have employees or people come over who are working on projects with me, I always try to feed it to them because I'm going to get the limitless effect and get a lot more out of them. The first time I mentioned this product and Four Sigmatic on the podcast, their product sold out in less than a week. So you may want to check them out soon if you're listening to this. And the coffee tastes like coffee. It takes just seconds to prepare with hot water. And oddly enough, only includes 40mg of caffeine. So it has less than half of what you'd get in a regular cup of coffee. I don't get any jitters, acid reflux, or any stomach burn, any of that. It's very unusual and very, very cool. So if you don't like caffeine, they also offer very strong but caffeine-free mushroom elixirs,

• 1:52Tim Ferriss?

  which I will sometimes have in the evening. I find chaga specifically to be very, very grounding and earthy. So that is another option. And I have a cupboard full of their products at the moment, which is right around the corner in my kitchen. You can try something, you can try a sample pack, which is great also, right now by going to foursigmatic.com/tim. That's F-O-U-R-S-I-G-M-A-T-I-C.com/tim. And use the code TIM, T-I-M, to get 20% off of your first order. And they're not that expensive, anyway. If you are in the experimental mindset, I do not think you'll be disappointed. So try them out.

• 2:31Tim Ferriss?

  This episode is brought to you by Athletic Greens. I get asked all the time, if you could only use one supplement, what would it be? And my answer is inevitably Athletic Greens. It is your all-in-one nutritional insurance. I recommended it in The 4-Hour Body, did not get paid for that. And I travel with it to avoid getting sick. I take it in the mornings to ensure optimal performance. It just covers all my bases if I can't get what I need through whole-food meals throughout the rest of the day. As listeners of The Tim Ferriss Show, you can receive 30% off of your first order by visiting athleticgreens.com/tim. That is a great deal on one of my favorite products. And it covers my bases each day. It is part of my routine, and it leaves me with less to worry about if, for instance,

• 3:15Tim Ferriss?

  I have to skip a meal or just can't get a high-quality meal. So check it out. Go to athleticgreens.com/tim and learn all about it.

• 3:26Tim Ferriss?

  Hello, my little munchkins, boys and girls. This is Tim Ferriss, and welcome to another episode of The Tim Ferriss Show, where it is always my job to deconstruct world-class performers, to share the thinking, the habits, the tips and tricks that you can apply in your own life, whether those people come from the worlds of sports, from chess, from entertainment, and in this case, from investing. I'm very, very excited about this conversation that you are about to hear. I had a blast. It is with Ray Dalio, who has been called the Steve Jobs of investing, and we'll get to why that is the case. This is Ray's first long-form podcast ever, which I'm extremely happy to debut here.

• 4:12Tim Ferriss?

  On Twitter, @RayDalio, you can say hello. Grew up a middle-class kid from Long Island. He started his investment company, Bridgewater Associates, out of a two-bedroom apartment at age 26. Now has roughly $160 billion in assets under management. Over 42 years, he built Bridgewater into what Fortune considers the fifth-most-important private company in the United States. Now, along the way... He also became one of the 100 most influential people in the world, according to Time, and one of the 100 wealthiest people in the world, according to Forbes. And because his unique investment principles have changed industries, CIO Magazine is the one who dubbed him the Steve Jobs of investing.

• 4:57Tim Ferriss?

  Very important, Ray believes that his success is the result of principles he's learned, codified, and applied to his life and business, and certainly at Bridgewater. Those principles are detailed in his new book, Principles, subtitle, Life and Business. I highly, highly recommend this book. It has already changed how I think about making decisions in my life and in my business, how I think about managing, how I think about communications between teams. I could go on and on and on. And it features, just check out the blurb from Bill Gates on the cover. It'll give you an idea of the type of people who listen to Ray very, very closely. In this interview, we cover all sorts of ground, including how Ray thinks about investment decisions,

• 5:42Tim Ferriss?

  how he thinks about correlation, for instance, and so on. The books he would give to every graduating high school or college senior, how he might assess something like cryptocurrencies, walking through the thought process, and much, much more. We do get into his backstory and how he became an investor and so on. If you want to just jump right into a bunch of nitty gritty investing detail, which does get into the weeds, then you can jump about 90 minutes in. But we do cover a lot of really good stuff and many principles that apply in the first 90. So I suggest that you listen to the whole thing. But if you're super impatient and you want to jump around, you can jump about 90 minutes ahead and check that out. So I hope you enjoy this as much as I did.

• 6:27Tim Ferriss?

  And without further ado, here is Ray Dalio.

• 6:33Tim Ferriss?

  Ray, thanks for coming on the show.

• 6:35Speaker 03

  Looking forward to it. Thank you for having me.

• 6:38Tim Ferriss?

  I have been such a follower and fan of your work and your writing and my audience has been asking when I would reach out to you to have you on the show. So this is, this is a very exciting moment for me and I would love to start at the beginning because it seems like we have some at least shared geographic beginnings. Where did you grow up and how would you describe your childhood?

• 7:06Speaker 03

  I grew up in New Hyde Park, Long Island, and I would describe my childhood as being middle-class or maybe a little bit lower-middle-class family. My dad was a jazz musician. My mother was a stay-at-home mom. I was an only child.

• 7:26Tim Ferriss?

  Were there any formative experiences you had, say, up until the end of college that ended up informing your decision to become involved with investing?

• 7:37Speaker 03

  Yeah, when I was a kid, I used to caddy and at the time, the stock market was hot. And when I was 12, I got hooked on the markets. I bought a company that, you know, everybody was talking about the markets and I decided I would take my caddying money and put it in the stock market. And so I picked a stock, the only stock I knew that was selling for less than $5 a share. And it was kind of a stupid idea, but I thought if I bought more shares and it went up, I'd make more money. The company was about to go bankrupt and somebody came along and acquired it and I tripled my money. I was lucky and I was hooked on the stock market. So that had

• 8:19Speaker 03

  a big effect, you know? So from then on, it drove my whole addiction to the game and everything I've been doing since related to my career.

• 8:29Tim Ferriss?

  So I think that many people who are listening to this, who know your name and your bio, have the impression perhaps that every time you've stepped up a bat, you've hit home runs. It's just been an unending streak of home runs. And I'd like to...

• 8:46Tim Ferriss?

  Maybe humanize the experiences you've had a little bit by talking about 1982. And I'll back into it by reading just a short excerpt from your book, which I think paints a good picture. It begins with, "So there I was after eight years in business with nothing to show for it. Though I had been right much more than I'd been wrong, I was all the way back to square one. At one point, I'd lost so much money, I couldn't afford to pay the people who worked with me. One by one, I had to let them go. We went down to two employees, Coleman and me. Then Coleman had to go. With tears from all, his family packed up and returned to Oklahoma." And at that point, you were down to one employee, that's you.

• 9:31Tim Ferriss?

  And to make ends meet, you had to borrow $4,000 from your dad until you could sell your second car. How did that happen? Could you describe what happened that brought you to that point?

• 9:41Speaker 03

  Let me first say that, by the way, I'm a professional mistake maker. You know, being in the markets or being an entrepreneur requires one to bet against the consensus. And when one does that a fair amount of times, you're going to be wrong a fair amount of times. And I've learned a lot more from my mistakes. So I just want to let you know that any perception that being right is part of it. No, the main thing is knowing what you don't know and how to deal with it. But anyway, what happened at the time is I analyzed the payments that countries owed banks. And I calculated that those countries were not going to be able to pay the US back.

• 10:25Speaker 03

  And it was a very controversial view at the time. And as a result of that, I took positions in the markets. And I got a lot of attention because Mexico defaulted on its debt. And not many people had expected that, and I did. And I had these positions on. And I thought the stock, I thought we were going to go into a depression. I thought the stock market was going to go through the floor. I just didn't understand really. And the stock market rose. And this was after I had testified to Congress and I was on Wall Street Week. And then I lost the money that you referred to. And, you know, that, that's how it happened.

• 11:10Speaker 03

  And in retrospect, it really was the best thing that ever happened to me. Because it gave me the humility that I needed to become more successful. And that was because, you know, I shifted my attitude from thinking I'm right to asking myself, how do I know I'm right? And that opened my mind a lot. It made me look for people who disagreed with the smartest. And it also made me manage my risks better and so on. So that's the story.

• 11:42Tim Ferriss?

  I'd love to dig into mistakes. I think this will be a common thread throughout the conversation. I have read, and correct me if I'm wrong, but that you're a fan of, for instance, the book Einstein's Mistakes, subtitle, The Human Failings of Genius. He was one of the greatest minds of the 20th century, made a lot of mistakes. You have a, an expression, just pain plus reflection equals progress. And my understanding is that at Bridgewater, you have, for instance, lengthy assessment sessions in which employees discuss their mistakes. What type of postmortem did you do after all that happened in 1982? Or did that come later?

• 12:26Tim Ferriss?

  The type of sort of post-game analysis that you would do on what led to that mistake?

• 12:30Speaker 03

  I think for everyone, and for me at the time, when you encounter the mistake, you experience in that pain and there's an emotional pain. And that was true for me at the time. And then the pain passes and it requires thought. And making the connection of what did I do wrong? And being analytical about it. And that was that experience. And, and that led me. To do that as a habit, it became an increased habit. I would literally, every time I would make a mistake, I would develop an instinct. So it changed my attitude about mistakes.

• 13:11Speaker 03

  I think basically, they became like puzzles. And if I solve the puzzle, the puzzle being, what would I do differently in the future, I would get a gem. And that gem would be a principle that would let me do a better job the next time that sort of thing came about. And I wrote those principles down and refined them over a period of time, which is what makes up my book. But it was that process of making enough mistakes and having painful mistakes that led to an instinctual reaction to have reflections on what I could have done differently,

• 13:53Speaker 03

  that led to the progress that I'm referring to when I say pain plus reflection equals progress. And I think we all learn, I don't, I don't think it's particularly just true of me. I mean, I think anybody who's open minded and, and smart knows you're going to learn more from mistakes. There's so much more that you can learn from mistakes because, I mean, mistakes, look, I mean, first of all, they're giving you a loud signal. And rewards keep you doing the same things. And so you don't grow from successes. Successes keep you doing the same thing. So you don't grow from successes. But mistakes, if you can deal with them the right way, is where the growth, plus the reflection is where the growth comes from. So anyway,

• 14:38Speaker 03

  that's what happened.

• 14:39Tim Ferriss?

  Could you give an example from your life of a particular mistake and how you did that analysis or reflection after the fact and what you learned from it?

• 14:53Speaker 03

  Well, I mean, there are just so many mistakes. When I was just getting out of college, I clerked on the floor of the New York Stock Exchange. And this is when the dollar was attached to gold. And there was a financial crisis. And Richard Nixon gets on the television and says there's no more attachment to gold. And back then,

• 15:20Speaker 03

  Money was like checks in a checkbook that didn't have much value. What really mattered was the fact that you could get something tangible in the form of gold that you can make the conversion. So it was a crisis. Our money wouldn't be taken in other countries and so on. And I walked on the floor of the New York Stock Exchange expecting a collapse and the stock market went through the roof. It never happened to me before. So that was the case and I went and researched currency declines in the past and I learned that it happened before, but just not in my lifetime. And one of the things that I've learned over the years is that many surprises come because

• 16:00Speaker 03

  they know things that happened as surprises never happened in one's lifetime before. So that it's advantageous to look at beyond one's lifetime or beyond one's own experiences to understand how the world works so that one can anticipate all of those things and learn all the rules of how the world works. And that's the beauty of it, right? And that's the excitement to learn, you know, how does reality work? What are the cause-effect relationships and then how do I deal with my realities? So that's a case, but I mean, there are, you know, there are so many mistakes.

• 16:41Tim Ferriss?

  I would like to dig into the research of of history, things that have happened outside of your lifetime. Because I read that, for instance, while on one hand you have, say Soros, who might credit the influence of Karl Popper, who is one of his teachers at one point, you've talked about diving very deeply into past periods of of economic upheaval, right? The Great Depression or reading daily newspapers from those eras. Are there other practices or approaches that you've taken to examine history? Are there any particular types of books or resources that you go into like that to try to get a better picture of reality?

• 17:25Speaker 03

  Before I deal with the particular economic history, I'll I'll start off by saying, I believe that basically everything is another one of those. In other words, almost everything happens over and over and over again through history.

• 17:41Speaker 03

  And that the key to success is to identify what one of those it is. And to look how it's worked in the past many, many, many times. And then to understand the cause-effect relationships to develop one's principles for dealing with it. So it could be applied to anything. Um, we were talking about economics to talk about politics. Nowadays, uh, we're hearing the term populist. And populism is something that is a bigger phenomenon. That, uh, than we're used to in our lifetimes. The time that populism was flourished the most was in the nineteen thirties. Pretty much leading up to World War Two.

• 18:23Speaker 03

  And so, um, I use that as an example. I think, okay, where were the populists in history? Where were those cases? Um, how does this thing happen? What are the, how does it grow? How does it develop? What are the usual linkages and why? And so, um, that's been, I think, very helpful more recently in my understanding, um, quite a bit about what's going on. It's affected my perspective. So it doesn't have to be just reading history books. You know, it's in anything. Um, people have a, a new child. And they treat it as though that's the first time anybody's had a child. But to gain perspective, you can apply it, you know, gain that perspective of what's happened over and over.

• 19:08Speaker 03

  Uh, and it could be applied to anything. If you start thinking that way.

• 19:14Speaker 03

  It's radically beneficial. So that way, when I'm referring to that is, in other words. What is this? What, what one of these is it? And how do those things work? And what are my principles for dealing with it? Then life is a whole lot easier. If you're not dealing with it that way. Everything is a one-off and you'll be in the middle of a blizzard of things. And you won't step above those and, and deal with those instinctual, uh, principles. For example, you have your principles. I really admire your stoicism.

• 19:53Speaker 03

  And I think you could rattle those principles off and you make the connection and it's connected to your realities. So we each have our own. I don't want to keep it in the realm of just economics because it applies to everything.

• 20:05Tim Ferriss?

  Definitely. Well, I would love to talk about problem solving and I'm sure principles will tie in here, but let's just say hypothetically, and I'm sure this is maybe a real case at Bridgewater over many, many years, but if you have someone who's working at Bridgewater, very, very smart, very ambitious, and they've made a mistake and they are in the, they enter an assessment session. What does the format look like and how do you help them separate symptoms of problems from the root causes and the actual problems?

• 20:42Speaker 03

  I think the first thing that I have to convey is that we have an idea of meritocracy. So it's not like somebody is called into a room and the people like me or the bosses think that they know the answer.

• 20:55Tim Ferriss?

  Right.

• 20:56Speaker 03

  And that they're making an assessment of how that person is and then they write down those notes. No, no, no. It's everybody's equal in having an opinion and by and large, if the person that's receiving, they receive great and bad feedback and I receive great and bad feedback in a non-hierarchical way, we approach it with the idea of how do we find out if it's true? So it's got to be evidence-based. And then we will set up tests. Let's say if you're, if you get bad feedback, we're now talking about bad feedback, it could be for good feedback, but if you have, if somebody's thinking somebody's not very

• 21:41Speaker 03

  good at something, they're speaking honestly.

• 21:46Speaker 03

  Most importantly, it's that people can be radically honest with each other. And they'll say, um, I don't think you're very good at that. And they said, I am very good at that. And then you go through a series of tests to think it's evidence-based to try to find out if somebody's good or bad at that. And then you move beyond it to think, okay, well, what can I do to get better? Or how can I guardrail myself? So that if I'm weak at something and somebody else is strong at that thing, we can work together. The main thing here is to get at what people are like. You know, this is, to me, it's a weird world. That there's a phobia about making mistakes.

• 22:30Speaker 03

  And there's a phobia about knowing one's weaknesses. Mistakes are part of the process and everybody has weaknesses. The greatest people I know have weaknesses and have become successful because they know how to compensate for the weaknesses. They're aware. The stupidest people I know, least successful people I know, are people who don't own up to those weaknesses and grow. So the exercises that we're going through are by people who choose to want to be in a radically truthful or radically transparent environment and be evidence-based. But it's difficult. It's difficult because we're not brought up that way.

• 23:16Speaker 03

  It takes about 18 months to get used to because there's these subliminal reactions.

• 23:21Tim Ferriss?

  Now, maybe this is related to the pain button app. Uh, maybe not, but could you describe the function of the pain button app? And, and why that was created?

• 23:34Speaker 03

  Yeah, it's, it's like I said, pain plus reflection equals progress. Whatever your form of pain.

• 23:42Speaker 03

  The best thing to do is to record it. So this app, the way it works is as you experience psychological pain, you just quickly log it. You don't analyze it at the time, but you capture it. What was it about, or who was it with, and what happened exactly? The nature of psychological pain is that it passes fairly quickly. The amygdala, this part of the brain, is the part that's the fight or flight part that gets adrenaline and it reacts quickly. And then over a period of time, whatever the form of psychological pain, it diminishes. And that's an opportunity to reflect. And because it's been captured

• 24:21Speaker 03

  in the app, it then can allow somebody to go back and reflect on that, and reflect on what you should do about it when the next one comes along. And is it speak to the person who caused you the pain, is whatever it might be. And you write that down, and you record it. And because it keeps, in a graphic way, a presentation, it graphs your pains, the different types of pains and the causes, it gives you sort of a biofeedback that allows you to see if your actions are reducing that pain, and whether, and that might prompt

• 25:03Speaker 03

  you to change your actions. Or it also shows whether you're following through on your actions. Let's say you're having a problem with the same person doing the same thing causing your pain, but you're just bottling it up. That then, if you choose to keep bottling it up, you're not going to resolve it. It's just going to happen over and over again. That'll show up in the graph. But if you do something about it, and you write it down, and you can analyze it. And so it sort of provides that kind of biofeedback that allows people to make that progress. And a lot of people have told me, you know, that it's better than a psychologist because it's there, you know, every day of the week, and you

• 25:42Speaker 03

  can see yourself, how you're, what's causing your pain, what sorts of pains you have. And it makes it an intellectual exercise to come up with strategies to do those things that stop causing you those pains and get you what you want.

• 25:59Tim Ferriss?

  For developing, in addition to using this type of logging tool, whether it's the app, or if someone's carrying around a small journal with them. So that they don't have, misremember the details of when they're triggered, for instance. Are there any tools that you have found helpful for people in general, employees, yourself? And one that comes to mind, maybe you could, you could chat about, and I'd love to hear about any others, but is transcendental meditation. And I've read, for instance, that you've said creativity comes from open mindedness and centeredness, seeing things in a non emotionally charged way.

• 26:41Tim Ferriss?

  Could you talk about TM and any other tools that you have found to complement the pain button?

• 26:48Speaker 03

  Yeah, so let me say in tools in general, we have developed a whole bunch of tools that it'd be fun to explain to you in all different ways that are constantly being used. And they're just invaluable, they're, they're great. And I, but I want to turn my attention to transcendental meditation, which unlike, let's say, an ADAPT type tool or some other kind of tool, is a practice that I've been doing for, I don't know, since 1969, whatever that is. Anyway, a long time.

• 27:24Speaker 03

  And I think it's worth noting that everything in our brain, every emotion we feel is physiological. There are chemicals that go through our brains, electronics that go through our brain, and they produce these impacts. And transcendental meditation is a practice that takes one from one's conscious mind to a, into almost a subconscious state and allows one to relax and, and it's almost a blissful experience.

• 28:05Speaker 03

  It relieves all stress and it brings one into the subconscious mind. And through brain scans, they see that the amygdala, which is that fight or flight part of the brain, calms down. Actually, in some cases, they conjecture that it physically changes. And the prefrontal cortex part of the brain, which is kind of that more thoughtful part, lights up and is enhanced. And so that practice not only creates an equanimity, but by bringing one into the subconscious part of the brain, it significantly enhances the creativity.

• 28:48Speaker 03

  It essentially opens a passage from the subconscious to the conscious. So there can be a reconciliation of those. And it's really from the subconscious where creativity comes from. I mean, if you think about it, one doesn't go muscle creativity, like doing a mathematical calculation or something. It's really like if you're ultra relaxed, maybe you take a hot shower and these great ideas come to you. Or you're sleeping and these things pop up. They come from your subconscious part of your brain, where the intuition and that comes from. And so by opening that passage essentially, between the subconscious part of the brain and the conscious part of the brain, it's wonderful.

• 29:31Speaker 03

  It makes one more creative. It makes one calmer. It makes one almost a little bit like a ninja in a sense that everything with that equanimity seems to be coming at you in a more controlled, centered way so that you can react to it well. And so I've found transcendental meditation to be invaluable.

• 29:54Tim Ferriss?

  The specifics here are of great interest to me for a number of reasons. The first is that I practice a few different types of meditation. But I did a TM session this morning, for instance, for 21 minutes because I find it takes about a minute for me just to stop fidgeting and get settled. But when do you typically? Do you do two sessions a day? When do you typically do your TM? Do you have a particular location? Any specifics of that practice would be very great to hear because the TM has come up a number of times and I find it very secular, which appeals to me, from people like Rick Rubin, legendary music producer,

• 30:36Tim Ferriss?

  Chase Jarvis, extremely accomplished photographer and CEO. What are some of the details of your practice?

• 30:45Speaker 03

  Well, I think one of the things is, don't over worry about the details too much. Just do it. But the best way to do it is, you do it before breakfast and you do it before dinner, having not eaten much, or not eaten, and you do it for the twenty minutes, as you point out. And that you do it twice a day. That's the, you know, established practice. I basically do it, let's say, sort of two thirds of the days. And I would say I probably, maybe some days, will do it once and not twice. But I also always do it, in addition.

• 31:25Speaker 03

  Whenever I have that feeling of doing it, as a meditator, you probably know that you can feel the difference. So as you're going through the day, you carry through almost an ability to shift yourself from a state of mind where there might be a twinge of anxiety. And then you can bring yourself into that equanimity type of state. But you also, I also find that there's a time where I say, I need to go meditate. And then I'll just meditate. And I'll meditate where I can, when I can. I mean, I prefer, you know, a quiet place, comfortable spot. I'm not rigid about the location.

• 32:09Speaker 03

  But if it was standing in my way, my circumstances were standing in my way, I would meditate on a plane, I would meditate, you know, wherever I could. If it was noisy, then I was on a train, I would still meditate. The meditation may not be as deep, it won't be as deep, but it is so good. It could be noisy outside, and I can still go from one state to another, not the deep. Subconscious state, but the state of, let's say, tension to relaxation. So that's how I do it.

• 32:50Tim Ferriss?

  For those people who aren't familiar with transcendental meditation, it's thought of as mantra-based meditation. So it's the repetition typically characterized by the repetition of a mantra or a one or two syllable sound that you do not say out loud. Do you sit down and immediately go into the repetition of the mantra? Or do you take time to focus on your breath or your bodily sensations before you go into the mantra repetition?

• 33:16Speaker 03

  I take a few minutes to settle myself down, just as you're describing.

• 33:21Tim Ferriss?

  Got it.

• 33:21Speaker 03

  You know, just, yeah, just as you're describing. And it feels good at that moment. And then you go into it.

• 33:28Tim Ferriss?

  Got it. And you mentioned before we delved into the TM, other tools that you and the people at Bridgewater have developed. I'd love to hear you describe any of those.

• 33:41Speaker 03

  Those tools are like, people carry around an iPad with them. And whenever we go into meetings, there's a tool we call a dot collector. And it's a very easy tool to allow people to express what they think is going on and how people are doing. And so in all meetings, there's this data that's collected that shows what everybody's thinking while the meeting is going on. Now, it's invaluable in many cases because you're seeing what everybody's

• 34:23Speaker 03

  thinking. So it's so different. And in an ordinary meeting, it's silent largely. I mean, there's one person speaking at a time, and you don't know what the other people are thinking. In this particular case, what you do is all the time, you see how people are seeing things differently. And so what we do is we take that data as it's happening.

• 34:47Speaker 03

  And the computer does. We have it programmed with algorithms that will look at that data. And will then communicate back to them advice, because they, this, this computer behind, will then use that to know how they think differently. And by the way, it's enlightening. You would have no idea how differently people's brains are working in a meeting or work in general. The things they pay attention to, the ways they interpret it are startlingly different. And they have the same kind of patterns to them. And so that discovery allows people to know how they see things different

• 35:32Speaker 03

  and appreciate how other people things, see things different. And then when they take that, then that allows them to know how to interact better. So the computer through this iPad is doing processing in the background. And it will then also coach them. In other words, when they're dealing with somebody else, or they, it will provide guidance. It will provide feedback that's continuous. So it's a tremendous tool, but because you know what everybody's thinking. It's analyzing how everybody's thinking, provides that feedback and gathers information across all of those people

• 36:14Speaker 03

  and processes it by being able to see relationships that no one person sees. So it's invaluable in an idea meritocracy. We also use it for making decisions. We do something that we call believability weighted decision making.

• 36:29Tim Ferriss?

  Yeah, if you could, if you could elaborate on that, I'd love to, to hear more about it.

• 36:33Speaker 03

  Well, you want to have an idea meritocracy. If, if you and I were partners and we had a group of people and we were partners. How are we going to decide on the best things to do? We're, I think we're gonna wanna, idea meritocracy is when the best ideas win out. You have to have rules for doing that. You have to have procedures. So, there are three things you need to do. The first is that you have to put your honest thoughts on the table. A lot of people are hesitant to do that. They keep their honest thoughts back. But if you have a culture in which you can put your honest thoughts on the table and everybody does, and that's the way it operates, now you see what people are really thinking.

• 37:18Speaker 03

  Great, that's a good first step. Second step is you have to have thoughtful disagreements. You have to know the art of thoughtful disagreements. So there are processes that we go through in which people are really hearing each other. And as you go through that process, to make better decisions than they could individually. And then the third thing is, if disagreements remain, you have to have idea meritocratic ways of getting past that disagreement. So how are you gonna do that? In, at most places, it's either autocratic or democratic. Autocratic means the one with the power makes the decision. The boss makes the decision.

• 38:03Speaker 03

  Democratic is one man, one vote, and it treats everybody as though they're equally valuable. So, we do what we call believability weighted decision making. We have ways, well, let's just imagine what it is before we get to how we get to it. Imagine you knew each person's believability. Who's a better decision maker at what? So I'll use an example. If you had a medical condition and you went to doctors and you had a friend, well, you would know your doctor's better than your friend, and some doctors are better than other doctors. And so consciously, you're probably weighing those decisions

• 38:47Speaker 03

  with consideration given to their believabilities.

• 38:51Speaker 03

  In our place, we have ways of determining people's believabilities in many different dimensions. Maybe if it's a an accountant, they would have greater believability in accounting. Or maybe if it's somebody who is more creative, we give them, there are more points that they actually get, and they know that that person's more creative. And somebody else might be more reliable and would work well with the person who's creative. And so what we, because of we have this believabilities according to all those dimensions, when we make a decision, we make a believability weighted decision. We literally on the iPad say, would you do this?

• 39:34Speaker 03

  And then everybody votes and it calculates what the vote is on a believability weighted basis, as well as on an absolute basis. And that idea meritocracy not only produces better decision making, but it also produces a fairness, that everybody believes that the system is fair. And that is invaluable, because when you have disagreements, or you even have assessments, which people are sensitive to, and you do that in a way that everybody agrees is fair,

• 40:13Speaker 03

  that means that they will go along with it more, that they, the game is fair, and it's, you know, works much better in getting past disagreements. So as I said, the third step is how do you get past the disagreements if they remain? And we try to do that in an idea meritocratic way through believability weighted decision making.

• 40:34Tim Ferriss?

  What are some of the rules or guidelines that you have for preventing disagreement from devolving into highly emotionally charged fighting? In other words, is it similar to, say, nonviolent communication? Are there specific rules that you think perhaps listeners could also borrow that you've found to be very helpful for thoughtful disagreement?

• 41:02Speaker 03

  You know, there's a whole series of protocols. For example, there's what we call the two-minute rule. Two-minute rule means that if I say the two-minute rule... I'm allowed to speak for two minutes without an interruption.

• 41:16Tim Ferriss?

  Right.

• 41:17Speaker 03

  And you said the two-minute rule, you're allowed to speak for two minutes without an interruption. There are protocols like you repeat what the person is saying. You must repeat what the person is saying and the points they're making. So that it demonstrates that you've taken in and understand what they're, what they're saying. And then you repeat it. We allow disagreement to take place in different formats. It might, rather than being in person, if, if somebody maybe is too emotional in the moment, or maybe they're not good at thinking on their feet.

• 42:02Speaker 03

  Uh, we allow that disagreement to take place on, in a, uh, in a format that's essentially the equivalent of email exchanges. In other words, it written format. Anyway, there are a bunch of those kinds of procedures. Uh, we have, we agree, they mutually agree on who an arbiter is. In other words, whenever there's a disagreement, um, that you can't seem to get by as a standard practice, uh, the protocol is to say, uh, uh, let's find the person we can agree who will be a moderator. And help us through that. And because they mutually agree on that person, that then the rules are fair and it's an easy thing to do.

• 42:46Speaker 03

  So there are many of those types, types of protocols that we use. Um, it's also, um, culturally like a big faux pas or a big thing to lose your cool. I mean, in that way, you know, I mean culturally, okay, you know, it's maybe you need a, uh, you know, a timeout. So all those things enter into it.

• 43:10Tim Ferriss?

  No, those are, those are very helpful and actionable. And I, I'd like to look at the dynamics of making decisions as a, as a solo operator or close to solo operator, just as a compliment or a contrast. So if we flashback to when you first began.

• 43:33Tim Ferriss?

  Bridgewater Associates, so out of your two-bedroom apartment at 26 years old. Do you recall any of your first big wins or things that you considered big wins at the time? And I'd love to just hear you describe what went into, what made those a big win? In other words, the thinking behind it.

• 43:57Speaker 03

  You know, the funny thing is, I can hardly ever remember my big wins. I do remember my big losses or my big mistakes.

• 44:08Tim Ferriss?

  We could talk about those too, yeah.

• 44:10Speaker 03

  It's so funny because, you know, I look at it and I said, "Well, I guess I must have had a bunch of wins or successes because of, you know, how things have went. You know, the business is good and done well and all of that." But like, I think of my history and I really think of those mistakes. And I think that's so great because it shows that that's a much better learning tool. But, okay, so my big wins. You know, no, I think about that at that time. I think, no, the things I remember were the fun things.

• 44:53Speaker 03

  A guy, you know, guys I played rugby with and parties and those kinds of things. I don't remember a particularly big winning. Well, I do remember some things. You know, I remember one time when we got the Kodak account. Again, I was in a position, it's, "Okay, here's a guy and he's analyzing the markets and then he has a small team of people and he's analyzing the markets." And so, I didn't have a long track record and I didn't have an institution and, you know, sort of competing with the big institutions of the world, the JP Morgans and everybody. And by the way, we beat them. But anyway.

• 45:41Speaker 03

  Which shows that the individuals, the powers are within the individual. But anyway, I remember when we got the Kodak account. Um, because at the time Kodak was, um, you know, a big, important client. And them giving us that account uh was a big deal for us because it was kind of a stamp of institutional um approval. And it was, oh, I remember, you know, the money mattered too, because we would know that we were a bit more financially secure. So I remember that as a big win and I remember it so terrifically because we were asked to submit um research information.

• 46:23Speaker 03

  And we were just a small team of people and, you know, we stayed up all night and with, you know, pizza and beer and all of that. And um I remember it so sweetly because it was the dream of making our miracle happen. And we, and pulling together, that's the meaningful relationships part. I believe that I want meaningful work and meaningful relationships. And so that was what that was about and we got the account and we won and that was, uh, you know, that was a big deal.

• 46:59Tim Ferriss?

  Why did you guys win?

• 47:00Speaker 03

  I think it's a combination of, of being, you know, totally unconventional and having better processes and then there's a hell of a lot of determination. I think three things make up a successful life by and large. First, you have to have audacious goals, big dreams.

• 47:22Speaker 03

  Then, when you are headed toward those goals, you're gonna have problems, you're gonna deal with reality. You have to deal with those problems and that reality realistically, learning from mistakes. Writing down those principles and the like. So that's the second part. Dealing with reality in a practical way where you learn about mistakes. And then the third is determination. Because if you're going for your goals and you're encountering your mistakes and you're learning and you do that with determination, you're going to get better all the time. You can't help but get better.

• 48:06Speaker 03

  And you do that a long enough amount of time and you're going to far exceed your dreams. My success has far succeeded what I ever imagined, you know, one bit at a time. And it's just that process.

• 48:22Tim Ferriss?

  If you were to conversely look at intelligent people who are unhappy, what do you think the primary causes of that unhappiness are?

• 48:33Speaker 03

  I think it goes back to this notion of meaningful work and meaningful relationships. Intelligence and happiness probably have no correlation with each other. In studies, it's repeatedly been shown and money is very little correlated with happiness. The highest correlation with happiness is community. Am I part of a community? Do I feel connections with other people? That's been, you know, literally genetically programmed into us from, it's estimated between a million and two million years ago before it was, we were even mankind.

• 49:14Speaker 03

  So that sense of meaningful relationships, I think, is very, very important. And if you have meaningful work, like you're on a mission and you have meaningful relationships. I think it's almost impossible not to be happy. I mean, there'll be unhappy moments in your life that you encounter this thing or that. But the people who are unhappy seem to be missing those things.

• 49:41Tim Ferriss?

  I think this, you know, this might be a good place to give listeners a little bit of background that they probably don't have, which is a conversation you and I had that I really appreciated when I was very nervous at TED not too long ago. Doing a rehearsal of my talk, which explored some of my experiences with manic depression and even a close call with a near suicide in college. And you're very kind. You came up and spoke to me after I came offstage. And I was, I was hoping perhaps you could talk about some of what you shared with me and perhaps your son's experience

• 50:25Tim Ferriss?

  and what he's found helpful in mitigating some of these darker or harder moments that he's also had.

• 50:34Speaker 03

  Sure, I'd be happy to. I should say that when I described unhappiness in answer to your prior question before, I was not dealing with what also was clinical depression, which is also a different thing. That's, that's, it is a, it is a chemical reaction having to do with serotonin, dopamine, coming in spurts and sputters and so on. There's a physiological element that is driving it and it's, so that's, that's a big thing. So my son, when he was, I think about 27, filmmaker, very creative, was in his new

• 51:17Speaker 03

  job in Los Angeles, very excited, stayed up all night, smoked marijuana, partied all night, very energetic and, and basically went crazy. He, at the hotel, he took the computer that was at the reception and smashed it. He was, he went into the, the police came. He was rebellious. They beat him up and so on and so forth. And we then began

• 51:52Speaker 03

  our journey through three years of his bipolar episodes. And that was, you know, incredibly difficult and eye opening. And in retrospect,

• 52:14Speaker 03

  Wonderful experience. Some of the most painful experiences in retrospect give you the appreciations that you wouldn't otherwise have. And that was, that was that experience. And so, ask your questions pertaining to it, I'd be happy to tell you. He made, he, it, this, the, the quick answer to this, by the way, is he did all the, he did things right eventually. He did a lot of wrong things in between, but he came out of that three-year period. Um, and he became a successful filmmaker. His movie, that first movie he made was called Touch with Fire, which was a love story with Katie Holmes on bipolar.

• 52:55Speaker 03

  And he has, through that movie and his speeches and so on, we know, saved a number of lives and also helped to really destigmatize that because those with bipolar are often very creative people. I learned that, you, you know, uh, genius, creative genius is at the edge of insanity. Anyway, um, what, what questions do you have about that experience?

• 53:24Tim Ferriss?

  I'd love to hear what, uh, what your son has found to be helpful in terms of tools or resources, approaches, routines, anything that has, that has, that, uh, he has found to, uh, help him better navigate and, and manage uh, everything that is, is part of his makeup, I suppose, much like it is part of my makeup.

• 53:48Speaker 03

  Sure, there's these really four protocols. And, um, I gave him a, a Saint Christopher medal and on the back I put the initials of those four protocols, um, so that he would keep it close to him and, um, so I know them well. First of all, the first one is, we, we have TM, those are the initials. And we, and that represented, take medicine. And by the way, the amount of medicine that he's taken has, uh, because of his improvements and so on, has diminished uh, quite a lot, but take medicine. And it also represented TM, Transcendental Meditation.

• 54:30Speaker 03

  So do the transcendental meditation and take the medicine. No drugs or substance abuse, none, be clean.

• 54:42Speaker 03

  Go to bed never too late. It's not a matter just of eight hours sleep. It's we have our rhythms and that basically go to bed by 11. And maybe once a week, you could be up till one o'clock in the morning. And then what we call monitoring. Now, monitoring is much less important to him now, but at the time, his being open about his bipolar and having people around him know and actually sort of monitoring his behavior so that they could raise a red flag and help him deal with that if he was going in one way or another. That that those were the things that were very helpful.

• 55:27Speaker 03

  In addition, have to be very careful about changing time zones. So if you're flying to Europe or far away, you have to do that in a way that you pace it so that it doesn't get triggered. And as I said, he went through this. You would never, he's one now, one of the most centered people I know. Happily married, given us two grandkids. You know, it's just been a miracle. And I really do believe it's that combination. And and he's learned and shown other people that that combination can work for anybody.

• 56:03Tim Ferriss?

  That's extremely helpful and I think valuable for a lot of people listening. And I want to reiterate something that you mentioned because I only realized it in the last maybe two years. And that is the going to bed earlier. I've always been very, very nocturnal and a night owl. And particularly say on book deadlines and so on, going to bed at four, five, six in the morning, waking up very late. And that is, that has historically absolutely been correlated with a much, much more severe and extended down times.

• 56:42Tim Ferriss?

  So I do just want to reiterate what you said, which is that going to bed by, say, 11 o'clock has for me at least been extremely helpful in in mitigating a lot of what we're talking about.

• 56:57Speaker 03

  By the way, it is so great that he is open and you are open and you can communicate it because I found out.

• 57:08Speaker 04

  Do you know that um twenty-four percent of the population in one form or another has um been diagnosed with some form of mental illness, of some form of challenge? That because it, you know, the brain is like a, an organ, it is an organ, and it has those things. And some of the most creative people, you would know, you know, that um Abraham Lincoln and Winston Churchill and Tchaikovsky and um the list goes on and on of unbelievably great, brilliant, creative people simultaneously um challenged by this.

• 57:50Speaker 04

  And by making people aware, um and um in one dimension or another, either whether they're dealing with somebody who has such a challenge, or to de-stigmatize it and realize, like, I look at you, what a role model you are. And by being open about that particular challenge, people can really appreciate that. Like, uh, we have a number of bipolar people who uh work here and we, and when you know how to deal with it, and uh there are, you know, tremendous advantages to it too, because it's a, it's a way of thinking. Yeah, I mean, there's these mood shifts, but there is also um a, an unbelievably high

• 58:34Speaker 04

  percentage of those people are creative. So any, in certain professions and so on. But anyway, I just wanna compliment you or express my appreciation for you um having this conversation and, and being so open with it. And it's, I'm sure you would say, as my son would, it's very helpful, because when everybody around you understands it, it's helpful to you too.

• 58:58Tim Ferriss?

  It, it is helpful, and I really appreciate the kind words, Ray. And I, I should also mention that for decades, I kept this secret and close to the chest, and I was uh very ashamed of

• 59:14Tim Ferriss?

  Just the nature of how my physiology worked ultimately. And I was so fearful about talking about a lot of this publicly. And even the TED Talk was, I had a very separate, very different TED Talk that I scrapped a few weeks beforehand because I felt morally obligated to talk about this more publicly. And in doing so, I felt quite the opposite of what I feared. It was actually an enormous burden and weight lifted off of my shoulders. And it's really been liberating to talk more freely about it.

• 59:51Speaker 04

  I understand that completely because that's what my son does. I mean, that's my son's reaction. If you want to talk about it in a more serious way, I'm quite an expert on the whole thing. The best doctors and, you know, I really believe that I could probably be of some help if you feel that it's not entirely under control.

• 1:00:13Tim Ferriss?

  Thank you. No, I appreciate it. And it's to segue a bit here. So absolutely appreciate the offer and that's something I'll remember. You seem like a very astute cultivator of talent. And what I'd love to know is if there were any particular mentors of your own who you could describe or share with us. That could be very early on, it could be in your investing career, but any mentors who come to mind and what they taught you or helped to cultivate in you.

• 1:00:52Speaker 04

  I remember nice, kind people, not a mentor. I couldn't go to a mentor. But I remember somebody who, when I was caddying and he was clerking on the floor of the New York Stock Exchange, a very successful Wall Street guy, and I used to caddy for him. And we would talk about markets. And he gave me not only advice, but it was the kindness and the caring.

• 1:01:23Speaker 04

  And the direction that was helpful. I don't know that he was an ongoing mentor, but he was a role model in many ways and did provide guidance. So maybe I think, maybe he was, but not an ongoing mentor. I remember teachers, you know, that, you know, served that role, but not much. Most of my learning has been from mistakes. I have a terrible rote memory, by the way. I mean, terrible. Anything that doesn't have a reason for being what it is, I practically can't remember. I can't remember phone numbers, you know,

• 1:02:01Speaker 04

  names, anything along those lines. So I tend to learn not by being taught or going to my memory. I learn through my experiences and, and my kind of more subliminal learning.

• 1:02:18Tim Ferriss?

  Well, it seems also that you're well-read, and I'd love to actually just go back for a second to Einstein's mistakes. When you pick up a book like that, it's two questions. Number one, how did you choose that book or find it? And number two is, how do you read? What is your reading process?

• 1:02:38Speaker 04

  The book was given to me because people know that I like that stuff. And the way I read, it depends on what I'm reading, but I will kind of skim, and it depends on how much time and a lot of things. But generally speaking, I'll try to go through a book pretty quickly by being able to sort out what the main ideas are from the digression. So it's kind of a little bit of a strategy. You know how, like, they'll tell you the story, and the story, and the story might go on for a while, and then it then gets to the point they're trying to make. So I might, when I'm going through the stories, I might

• 1:03:18Speaker 04

  go quicker. I might be scanning for the, you know, top of the paragraph to get an idea what they're doing, and then go into the section that I'm most interested. I mean, I would say I would be typically reading that way, unless it is something in which, you know, there's not that sort of a book, that there's either something where I'm enjoying

• 1:03:45Speaker 04

  The flavor of the wording and the, you know, the sentence structure and the beauty or the, um, the, the thoughtfulness and that I really want to take that in and I don't want to scan. It'll vary. I like to get the most out of each book as quickly as I can because the number that I'm trying to go through, um, you know, is comparatively large. So I, I've got a pile of books here sitting in front of me and, you know, they torment me because they tempt. I'm, I'm very curious. I would say curiosity, um, is a big motivator from, from mine. So, uh, you know, the world has got much too much to offer relative to my capacity to digest it.

• 1:04:30Tim Ferriss?

  What are the books that you currently have in front of you or that are sitting, sitting there like undone homework assignments? What do you, what do, what do you currently have on the, on the roster or potential roster?

• 1:04:43Speaker 04

  I have Sapiens, I have The Greek Hero, Michael Lewis is The Undoing Project, The Upside of Inequality, The Serengeti Rules, uh, From Bacteria to Bach and Back, which is about the evolution of the mind, uh, A Magic Web, uh, I don't know, there's a whole pile over there.

• 1:05:07Tim Ferriss?

  This is fantastic.

• 1:05:09Speaker 04

  I do mostly original research. So in, in addition to, I mean, looking through books and, and going through it, um, like I really like to get into, you know, the, the data. I mean, I'm, I'm a researcher, basically.

• 1:05:25Tim Ferriss?

  What, is there anything that you're researching right now or that you've researched recently?

• 1:05:32Speaker 04

  The bottom 60% of the population and what the world and life and the economy is like for them because there, there are two different economies in the world. The averages are very, very misleading. The top two tenths of one percent of the population as a net worth, which is about equal to the bottom 90% combined. And, um, so I'm. I'm researching more about what that's like and it's it's quite a it's quite a bleak, difficult picture. So that's the thing I'm researching right now.

• 1:06:07Tim Ferriss?

  What drove you to to research that? Is it just to understand the the implications and secondary and tertiary implications of that? Or is was there something driving that?

• 1:06:18Speaker 04

  Well, yeah, I I think I think right now we're in the midst of an era that's very much like the 30s that is um in which this wealth and opportunity gap and the populism that is being um that's coming from it and the divisions which are great, I mean, large, um i- is a um is a defining moment of our our time. And this exists around the world. If economies were to go down now, I do believe that there would be a great deal of conflict.

• 1:06:58Speaker 04

  And I think that we're seeing the conflict play out politically, um not only in the United States, but you're seeing it in different places or interactions. I think it's the it's the defining issue of maybe that's overreaching, but it is certainly one of the most important issues of our time. And I mean, this year, next year, the year following, because that's the basis at which um are we going to um have conflict or where one side is fighting the other side? This is a matter of principles. We're talking about principles again. Are the principles that hold us together as Americans greater than

• 1:07:42Speaker 04

  those that divide us? How are we going to um how are we going to be with each other? So this is this this understanding and and uh all of these perspectives, I think, is is is very important at the time.

• 1:08:00Tim Ferriss?

  So I I'm definitely going to come back to a related thread on that. But before I get there, I wanted to ask you of of the books that you mentioned that you were not gifted, how did you or why did you choose any of them? Like The Greek Hero, The Undoing Project, Sapiens, From Bacteria to Bach and Back, any of those?

• 1:08:24Tim Ferriss?

  Why did you choose them?

• 1:08:25Speaker 04

  I would suppose that each one is different because of their themes of interest. I'm fascinated by evolution. I think evolution is the greatest force in the universe and the purpose of everything is to evolve. We as individuals are just vessels for our DNA is evolving. So I'm fascinated in evolution. I'm fascinated in how the brain works.

• 1:08:52Speaker 04

  The Greek hero is very, very, very interested in terms of, um, one of the greatest books is Joseph Campbell's Hero of a Thousand Faces, which takes the character of, you know, going through life and what are the attributes that different people have. So difference in values.

• 1:09:16Speaker 04

  So there it's an eclectic group of interests. I'm interested in nature a lot. So I tend to, I'm also particularly interested in the ocean. So I will read about nature in the ocean. And these are just curiosities, but they become themes, I guess. I'm not interested in cooking. I'm not interested in like a whole bunch of things. So they are, they do come in these categories.

• 1:09:44Tim Ferriss?

  Are there any particular books that you could mention? And don't worry, I won't belabor the book stuff forever, but any books you mentioned Joseph Campbell that have had a strong impact on your life or your thinking. And maybe a way to frame that would be if you were, uh, and certainly, uh, one of the books in answer to the question that I'm about to pose could be your own, certainly. But if you were to give, say, every graduating senior in college or high school, a handful of books, what might you give them?

• 1:10:22Speaker 04

  Uh, the books I'd give them would be Lessons from History. This is the Durant's. They were the great, maybe the greatest historians of all time anyway.

• 1:10:34Speaker 04

  Five thousand years of history, probably wrote five thousand pages on it and they took this book, I think it's a hundred and four pages and they took the themes of history, it could be from religion, natural resources, who knows, uh, each one of these things and they looked at it for themes of history through history. I think that that would be great. Uh, River from Eden by Dawkins, Richard Dawkins, another very short book on evolution. It just really, you know, puts things in perspective. Um, again, I would say Joseph

• 1:11:14Speaker 04

  Campbell's Hero of a Thousand Faces. Uh, those would be the, you know, three books that I would say that would be the combination. And the beauty of, you know, particularly two of those books is it's not going to take long to, to read them. Hero of a Thousand Faces is a little bit dense, but it's so rich. So it's, uh, it's, it's, it's a good one.

• 1:11:39Tim Ferriss?

  Why is it, those are, I, I need to get on, uh, combine those as soon as we get off the, uh, the phone, but, uh, why is it, and maybe this isn't true across the board, but whether it's in early stage startups or in the realm of say broadly speaking hedge funds or hedge structures or asset management, the best investors that I've met almost all have a fascination with evolution. Why is that?

• 1:12:12Speaker 04

  Don't have a clue. I didn't even know that.

• 1:12:15Tim Ferriss?

  Okay.

• 1:12:16Speaker 04

  I didn't know that.

• 1:12:18Tim Ferriss?

  All right. Well, then we don't have to, we don't have to dwell on it. Uh, for whatever reason, yeah, it seems to be a pattern. Uh, there, there are a few maxims I'd like to ask you about. And if these are misquotes, please correct me. Uh, the, the first is ask yourself whether you have earned the right to have an opinion. Can you elaborate on that?

• 1:12:39Speaker 04

  I mean, yeah. Uh, I mean,

• 1:12:43Speaker 04

  All you want is the right answer, right?

• 1:12:45Tim Ferriss?

  Mm hmm.

• 1:12:46Speaker 04

  And there's such a bias to think that just because you have an opinion that it's valuable or that to be so stuck with it. I mean, that's really stupid.

• 1:12:56Tim Ferriss?

  Mm hmm.

• 1:12:57Speaker 04

  And, right? I mean, it's like if in everything, you just want the right opinion wherever it's going to come from. So if you gain humility, I believe that one of the greatest tragedies of mankind, individuals, is to hold wrong opinions in their head that so easily could be stress tested to find out if they're right or wrong. If you, if you can sort of give that up and think, how do I know I'm right?

• 1:13:34Speaker 04

  You're going to significantly raise the best, raise your probabilities of making better decisions. I mean, that, that's the, that's the big thing. The only two things you need to do in life in order to be successful. You, first, you need to know what the best decisions are. And second, you have to have the courage to make them, to do what's necessary. And on the first, the greatest problem is that people just look inside their heads with, for their opinions where they can really get rid of the bad ones and take the best that they can get elsewhere.

• 1:14:13Speaker 04

  And by doing that, by exploring different people's views, not just their conclusions, but the reasoning behind their conclusions, they can learn such a tremendous amount. We talk about books. Well, conversations are much better than books. So you can have those conversations and learn when people have differences and just pick the best opinions, right? Isn't that sensible?

• 1:14:38Tim Ferriss?

  Yeah, no, it's definitely sensible. How do you, uh, what are some good questions that someone can ask to explore someone's reasoning behind their conclusions? Because I, I think that, um, it's so easy for people to become charged. Uh, are there any good questions for those people who, uh, the vast majority are not going to operate within, say, Bridgewater Associates? Uh, what are, what are some good ways to explore?

• 1:15:10Tim Ferriss?

  Or investigate someone else's reasoning behind their conclusions.

• 1:15:15Speaker 04

  Well, I think the the real driver of it is when there's a difference of opinions to do you have a real curiosity to understand why? I mean, it's it's really through the, you know, the fear of being wrong, combined with the curiosity of wondering why somebody would have another opinion and and that becomes the motivator. And so you, you know, you kind of ask why? And you think, does that make sense? And then come back with other questions. So it's, I would say, I think most people

• 1:16:01Speaker 04

  are, you know, too often, they start with opinion. There's psychological tests that show that people start with an opinion and filter information that comes to them to be consistent with their opinion.

• 1:16:18Tim Ferriss?

  Right. Yeah.

• 1:16:21Tim Ferriss?

  Then you're not living in reality or living in a sort of illusion of confirmation bias. Right?

• 1:16:26Speaker 04

  Right. And it's it's so besides being so damaging, it's so much less enriching.

• 1:16:32Tim Ferriss?

  So this, I think, is related, in a sense, to maybe another maxim that I'd love for you to elaborate on, which is, don't pick your battles, fight them all. What does that mean?

• 1:16:45Speaker 04

  That's one of the most misunderstood. So I'm glad you asked me, because it's clear that many things are symptomatic. Little things are symptomatic of bigger things. So, under that principle, it explains like, if somebody's behaving in a certain way and you think, well, that's not a big thing, but you don't understand why somebody would do that, it may be symptomatic of.

• 1:17:15Speaker 04

  A bigger thing. So when you start to, you know, it's almost I might say pull every thread. As you start to pull the threads, you start to see the connections because you're trying to get at what's everything symptomatic of. So that's what you're really trying to get. I- i- is it, is that, what is the person like? What is that situation like? Why would it manifest itself that way? So, um, uh, it's a, it's a, it's a probably a principle that I, you know, throws people off and I probably haven't articulated very well.

• 1:17:49Tim Ferriss?

  What are some of the biggest challenges that you've had within Bridgewater at, at different phases of its development? I mean, are there, are there any, were there any particular sort of forks in the road that are memorable to you, where you had to improve or fix something?

• 1:18:08Speaker 04

  I, I'd like to start with the overarching challenge. That is a constant challenge. And then we can go back to some of the actual, you know, various forks in the road. The overarching challenge is people's two thems. In other words, it, it, think about it this, this way. There are two u's inside you. There is the thoughtful you, prefrontal cortex type of, you know, thoughtful you. And then there's the subliminal emotional you. And you're not aware actually of the subliminal emotional you.

• 1:18:50Speaker 04

  That's why it was Freud's great discovery in that there's the subliminal that's really controlling you. But you're not in your consciousness. And there are those two u's and they're often at odds. The example, the classic example would be of course, uh, something where you did something that you didn't want to do. You ate the cake that you didn't want to eat, but anyway, where you punched somebody or something. And so there are these two u's that are in a battle for each other. And so what we've observed on a constant basis is that in addition to having

• 1:19:26Speaker 04

  Uh disagreements between people. We see that that emotional subliminal them often can be in control of their more thoughtful them. And that those are ongoing battles. And that's basically the battle. That's the battle that almost everybody all the time is doing. So imagine how confusing it is. You know, you have two yous within you that are battling with each other. And then you that somebody else you're dealing with has two within them. And so it can get, uh, you know, you get kids difficult.

• 1:20:07Tim Ferriss?

  You know, every, yeah, every conversation has at least four people involved.

• 1:20:11Speaker 04

  Yeah. So that's it. And if you can, if you could know how to deal with that, that's a constant struggle. So the thing that we find is that, uh, very, very, very few people have a problem intellectually liking what's going on here. Um, it's fair, it's honest, there's no politics, it's anybody can, um, in an idea meritocratic way, it can argue their case, there's it's not hierarchical, it's fantastic in all of those ways. The challenges that they have are then with their emotional you reconciling with their

• 1:20:55Speaker 04

  intellectual you, and that's an ongoing, uh, challenge. Um, uh, you know, that's, uh, all, all the time. So that's a, that's a theme, I would say, is a, you know, a constant theme. Okay, well then, you know, twists and turns. At every phase in life, you, you have, you have different, uh, uh, challenges. I mean, you know. Not having any money, any resources, and then having to do things from, from myself. You know, you're an entrepreneur, no, no money, no resources, and then having to do that. Buy the computer, rent the place, do all of that was uh one kind of challenge.

• 1:21:38Speaker 04

  And you know, then you have the small team and you have those dreams and you, you work with them and it's fantastic, but you didn't have enough resources. And then you grow and you have the exact opposite things happening to you and they produce their own challenges and you know, you have too many people and you don't get to know each other as well as you did before, but you have plenty of resources, but you uh you know, might have the uh you know, the challenge of how do you maintain that quality relationship with that larger group of people. Then one has to figure out how you main connect. We have fifteen hundred people who work at Bridgewater.

• 1:22:17Speaker 04

  Um, how does that connectivity, that same kind of excitement and mission and togetherness that happened when we had five or fifty? How is, how is that maintained and what? That's a new strategy. So you always, one always has these different problems and, and the various inflection points that uh lead one, the, the, the forks in the road that are the points that you're referring to, um, and they're the junctures you're referring to, that you're referring to. So, I mean, there are just so, so many of them.

• 1:22:55Tim Ferriss?

  What I'd love to maybe dig into is a, a word that, that uh gets, gets used a lot and I'd love to hear how you define and think about risk uh specifically. And I have a quote here uh that, that maybe we could use as a jumping off point and I'm not sure exactly where it's from, but risky things are not in themselves risky if you understand them and control them. If you do it randomly and you're sloppy about it, it can be very risky. And then it goes on, uh, their words, not yours, the key to success, their words is, quote, uh, figuring out where is the edge and how do I stay the right distance from the edge? How do you think about risk?

• 1:23:39Tim Ferriss?

  Because that's a word that a lot of people throw around. I have a feeling that you think about it maybe in more specific terms or more clearly than a lot of folks. How do you think about or define risk?

• 1:23:52Speaker 04

  Well, I think the most important thing is there's the risk of the ruin, risk of being knocked out of the game, risk of the unacceptable. And then there's risk of the painful mistake and there are a world of difference. Like, I have to know how not to die, not how to get knocked out of the game. That's an important risk. So, thinking about all the different ways that that can happen and making sure all of those ways are covered is number one. And then, there's the other kind of risk, which is, take it, have the experiences.

• 1:24:36Speaker 04

  I guess maybe the example would be if I was saying skiing comes to mind, you know, don't kill yourself, but if you're not falling a lot and hurting yourself a lot, you're probably not learning. So, to distinguish between, when you say risk averse, be very risk prone in terms of being able to have the experiences that are the learning, risky experiences that even produce some of the pains that allow the learning, but, you know, don't get knocked out of the game. And then, I think of risk as, you know, how do you do that? How do I improve my return to risk ratio?

• 1:25:18Speaker 04

  And I know that the most important way that you can do that, there's a few ways, but one of the most important ways is knowing how to diversify one's bets without reducing one's returns. There are a bunch of things that are equally good and you know how to take all those equally good things, but they're not correlated, would mean that I could do a much better job. Just to give you an idea, think of something as being correlated, like something like a bet, something, the way we think of that as correlation, but you could almost think of it as, you know, a different kind of bet. If it is 60% correlated...

• 1:26:06Speaker 04

  And and you start with a particular level of risk. And you add in the second and third and fourth and fifth and a thousand different items to diversify yourself. You will only reduce your risk by about fifteen percent, maybe a little bit more than fifteen percent if they're correlated.

• 1:26:35Speaker 04

  If you do that with uncorrelated things, um, uncorrelated bets, um,

• 1:26:47Speaker 04

  you at fifteen uncorrelated bets, you will reduce your risk by over eighty percent. So now, the the holy grail of investing, the thing that I learned, and it's the most important, is that if I can have ten or fifteen, ideally fifteen, but even if it's five, good uncorrelated bets, that's that's the holy grail. So the holy grail is fifteen good uncorrelated bets because it will, if they're all equally good in expected return, that in other words, let's say they were all going to have an expected

• 1:27:30Speaker 04

  return of ten percent by way of example, then on average, you would do, you won't lower your expected return because they're all on average about ten percent. But in terms of the risk, you will eliminate eighty percent of the risk. So you improve your return to risk ratio by a factor of five. So what I'm saying is that knowing the value of uncorrelated bets.

• 1:28:01Speaker 04

  Is incredibly important. So when you're thinking about it as a business, I think about it as a basically a betting strategy in every one of the bets that I make. But if you're thinking about, let's say, your businesses, if you can create good but uncorrelated things, that power of diversification is so much more valuable than trying to make any one bet much greater. So I think about diversification. And I also think that in terms of, let's say, bets, raising my probability of being right, one of the most important ways of raising my probability of being right is not being confident that I'm right and being able to

• 1:28:46Speaker 04

  go out there and gather the triangulation. So something for me is, you know, technique is quality triangulation, basically. You know, if I can find three people, I don't know, let's say it's a medical condition, but it could be any decision. If I can find three people who are excellent experts, who will disagree with each other because they're committed to the right answer, and I can get triangulation, and also listen to their disagreements, I'm significantly raising my probabilities of being right.

• 1:29:29Speaker 04

  So there are, you know, techniques like that. Humility and triangulation of great people is an excellent way of raising one's probability of making a good decision.

• 1:29:43Tim Ferriss?

  So I'd love to to unpeel the layers a little bit on uncorrelated bets. So what I'm wondering is, I think about this, just say, in my own life with various types of investing, and I'm by no means anyone with a track record like yours, but how the question that comes to mind for me is

• 1:30:08Tim Ferriss?

  Or observation, rather, and I'd love for you to smash it to pieces if it's not accurate, but that with a limited data set, you can, if you're able to crunch some numbers, identify, say, things that go up at the same time or down at the same time, so the correlation, or that are inversely correlated. So when A goes up, B tends to go down. At what point do you consider yourself confident something is uncorrelated? Because it seems like you would need a much larger data set to conclude confidently that something is uncorrelated.

• 1:30:40Speaker 04

  Well, I think there are two ways of determining the correlation that they're uncorrelated. And that is, are they in... You referred to the first, but I think it's the worst, but still has value, which is, how did they move together in the past? I think the more important is to understand, like, are they intrinsically different things? So, you know, if you were going to say, "I'm going to invest in this Silicon Valley startup and timber in Colorado," or something.

• 1:31:23Tim Ferriss?

  Right.

• 1:31:23Speaker 04

  You know that those are intrinsically different things. So, and I think you can get a good sense of that by, you know, just even knowing what they are. So, that particular startup will have a particular thing that will make it successful. I don't know what we can imagine it might be, but it might be having nothing to do with something else. So, now, I think of what are the fundamental determinants of the price movement? And you don't have to get so precise about it. I like to think it through, probably, maybe, an overly analytical way, but knowing that

• 1:32:07Speaker 04

  they're intrinsically different is good enough. And then, and then, now back to the, your question of um, um, the data set. It then becomes a um, I'm gonna give you more complex answer than you probably want, but.

• 1:32:22Tim Ferriss?

  I love, no, I love complex. Let's do it.

• 1:32:24Speaker 04

  Okay, so um, it has to, it, it, it has to do with um, a combination of uh, sample size and environmentally bias, biases, differences. In other words, um, first, how, how much sample size you have, and is that over many years? Or did they have something in common that would affect them? So, if I have many years and a large number of samples in that number of years, I can have a higher level of reliability if I'm just looking at the numbers,

• 1:33:09Speaker 04

  than if I had a short-term period, because correlations will change.

• 1:33:15Tim Ferriss?

  Right.

• 1:33:15Speaker 04

  So, because, it, so, is it a number of years? And is it in a, a different environment? I have a rule, in, in terms of most of my decision-making. Is it, it has to be timeless and universal. So timeless means, if I take a period of time, um, it, where the correlations, or that which I'm discovering, true in all of those periods of time? So I like to go back a long time, but let's say you have a limited amount of data, that's a handicap. If you, the more data you have, the better, but still, if I change the periods,

• 1:33:53Speaker 04

  um, in this year, did that correlation, was it the same as the correlation in the prior year? And was the correlation the same in the year before that? The correlation, let's say, of daily returns? Or you could have correlation of minute returns? So, it, so timeless and as far back as you go. And I like to deal with universal. What I mean by universal.

• 1:34:22Speaker 04

  Is that if if I have a decision rule or equities or bonds or an asset class or something and I see its behavior, did it behave the same in uh with the same drivers in another country and another country? So were the correlations, for example, between stocks and bonds in Spain similar to the correlations between stocks and bonds in Brazil, similar to the correlation between stocks and bonds in the United States?

• 1:34:59Speaker 04

  Okay, that'll give you more of a sense that the correlation between stocks and bonds is X than if you have um just it happening in one place. So timeless and universal are just for most decisions are uh rules that I I look at. But at the end of the day, I I get really more comfort by being able to understand the intrinsic determinants. So if I'm talking about investments, um because that's the subject, we can talk about a lot of other things, but anyway, if I'm talking about correlations of investments.

• 1:35:43Speaker 04

  Every investment is a lump sum cash payment now for an income stream in the future. Uh if I buy a bond, I give a lump sum payment and they're going to give me so much per month all the way for whatever the uh length of the bond is, the majority of the 20 years or whatever that is. If I'm having a stock, it's a lump sum payment and then we estimate what are the future cash flows. So this is uncertainty about those cash flows, but that but you will look at those cash flows. They will all be affected by the discount rate, the interest rate we use to calculate the present value.

• 1:36:28Speaker 04

  So there will be an intrinsic reason that they will be correlated and there will be intrinsic reasons that they that drive their correlation. Let's say, if I'm getting too technical, please excuse me, but all of those investments are going to have the interest rate that we're using to calculate the present value in common and therefore that will drive a correlation between that while the items that affect their cash flows could be different and that will drive then something that one can analyze and see that their correlations would be different from that attribute. If you break investments

• 1:37:12Speaker 04

  down and you look at what the causality is, it's, you know, it's better than if you're just looking at past numbers, but you could look at it either of those two ways, ideally both.

• 1:37:24Tim Ferriss?

  For those people who who would like to get a better understanding of the sort of the underlying factors that affect the the economic engine, so to speak, interest rate, et cetera, what would your recommendation be if they wanted to educate themselves?

• 1:37:40Speaker 04

  I did a 30-minute video called How the Economic Machine Works, in which everything that I know that it's of most value describes in 30 minutes. It's on YouTube. I'd recommend that they go there. In 30 minutes, they'll have most of what I think is valuable and and understanding how it works.

• 1:38:02Tim Ferriss?

  Perfect.

• 1:38:03Speaker 04

  It's a pretty simple machine. It's like almost anything if you if you think about it. Most of the important things that are driving almost anything can be described pretty simply. So that's what I attempted to do in that video on YouTube.

• 1:38:19Tim Ferriss?

  Great.

• 1:38:19Speaker 04

  It's it's been downloaded 5 million times and I mean, people, it's rated highly. So I think it I think I think it's helpful.

• 1:38:30Tim Ferriss?

  And I will, to everybody listening, I'll link to that in the show notes as well, so people can easily access that. Just to pose a hypothetical, because I'd love to hear how you approach it. Not necessarily if it's a long or short decision, although it could be, but just to hear how you would even go about assessing a potential opportunity. Because for instance, I'm very primitive compared to how your operation, how you would approach investing, but living in Silicon Valley, for instance, as long as I have about 17 years now, I have an informational advantage

• 1:39:10Tim Ferriss?

  when it comes to choosing and assessing different startup opportunities. And elsewhere, people might have a, say, an analytical or behavioral advantage, or fill in the blank. If you were to look at, for instance, cryptocurrency, Bitcoin, all this other stuff, how would you even begin to assess that? And whether it poses a good or bad opportunity for investment?

• 1:39:40Speaker 04

  Well, everything I look at is, I try to look at who are the buyers and sellers? And what are they, what motivates them? And what are they going to do? So I break it down. I analyze. Now, I wouldn't know, I don't know how I would do that in Bitcoin. And I don't know that it would apply to everything. But as a general theme, if you know who the buyers and sellers are, and what their motivations are, how big they are, and so on, you can, you know, you can pretty much calculate. You can go a long way to understanding what the price is likely to do.

• 1:40:23Speaker 04

  In the future, that's very different from something like value investing, which is something that says, you know, my lump sum payment today is this and the future cash flows over the next number of years will be this. So I'm very much, uh, much more driven to the, um, the buying and selling. In terms of something like a cryptocurrency, uh, first of all, I'm not an expert on, on the cryptocurrencies. I would think that what I'm describing is super important to get at. Because there are two purposes of a currency. Any currency is a medium of exchange or a store hold of wealth.

• 1:41:08Speaker 04

  When we think of dollars, you use it as a medium of exchange. Or if we're holding it as a bond, it's a payment over a period of time and that's, it's a store hold of wealth. In the case of cryptocurrencies, right now, it's not a very practical medium of exchange yet. Uh, I mean, it, you know, I have my bitcoins and I try to go spend them and it's not easy to go spend them.

• 1:41:37Tim Ferriss?

  Yeah.

• 1:41:37Speaker 04

  And then when we think of it as, um, a store hold of wealth. No, today it's primarily a speculative market. So it's somebody knowing, it, it's not, it's intrinsic value that you're going to be looking at. It's really thinking about who are the buyers, who are the sellers? And what they are likely to do and projecting that that's going to be the driver of investing in a cryptocurrency.

• 1:42:05Tim Ferriss?

  Could you talk a little bit more about assessing the motivations of buyers and sellers? And you could do it with any asset class or any kind of hypothetical, but specific example? Because I guess in my mind, as, as someone who's very much, uh, junior varsity with all of this, that the motivations would seem to be, at least if people are speculating to get rich, both on the selling side and on the buying side. So how, how do you dig deeper than that? And, uh, any examples would be super helpful.

• 1:42:33Speaker 04

  Every buyer has behavioral characteristics for certain reasons. And so if you, if you say, let's say stocks, to use a very simple example, a typical individual, um, maybe mutual fund buyer will buy after something's gone up.

• 1:42:51Speaker 04

  Because they think it's a better investment. And they'll sell, they'll get scared when it goes down. Because they'll get scared and they think it's a worse investment. Whereas um a typical institutional investor or pension fund will buy when it goes down because they have to rebalance their portfolio to keep an asset allocation mix at a certain level. And so if they're losing money in something and making something another, they will bal- rebalance in a mechanical way. And so there are many different ways of knowing uh uh of of saying, okay, who are the biggest ones?

• 1:43:34Speaker 04

  Who are the littlest ones, you know, but most importantly, the biggest ones? And what are they motivated to do? And uh by by understanding it in that way, um you know, it's important. So you you have a lot of, a lot of different buyers and sellers in different markets for different reasons that when you examine it, you know, kind of makes sense. It somebody might and you you you'd be a query, some uh stock may go public. And then uh the owners um have a window that they are, it's closed for them to sell it.

• 1:44:09Tim Ferriss?

  Right.

• 1:44:09Speaker 04

  And then the window opens up and then they're going to sell at that time. I'm just giving you a whole bunch of examples that um one can know or attempt to know um that are more than just people wanting to uh make money. Somebody squeezed, you have um, you you know, you have a financial squeeze and they need cash. So that they're motivated to sell it because they need cash. There are lots of different reasons.

• 1:44:40Tim Ferriss?

  Right, meaning a like a distress seller in the last case.

• 1:44:44Speaker 04

  Right, and to know. On an ongoing basis that the market is made up of that mixture.

• 1:44:52Tim Ferriss?

  Mm hmm.

• 1:44:53Speaker 04

  And so, you know, as much as, as much as one can is a good way of, of getting a sense of that.

• 1:45:00Tim Ferriss?

  Very common where I'm sitting right now, I'm in San Francisco. And so I've, I've read, and I, please correct me if I'm wrong, but from Tony Robbins book, which included you, that I suppose over a long enough period of time, anyone's favorite asset class, I'm paraphrasing this, will, will decrease by 50 to 70% or something like that.

• 1:45:24Speaker 04

  Yeah, that's what I said.

• 1:45:25Tim Ferriss?

  Okay, got it. So what are the implications, the, the, the most important implications of that from the behavioral standpoint of investors? Like what, how should that change their thinking or behavior?

• 1:45:38Speaker 04

  Well, it goes back to the point I was making before, that you can come up with a bunch of equally good investments. I mean, gen- generally speaking, all investments are competing. And what that means is if one was clearly better than another, more money would go into it, bid up its price, and then it would be comparably, according to the marketplace, and the marketplace is pretty smart. In order to be successful and being tactical, you have to be better than the marketplace, and that isn't easy. Therefore, the marketplace is pretty smart, that all of those assets are going to have,

• 1:46:21Speaker 04

  roughly speaking, comparable expected returns, other than the surprises that will take place in the future. And you have a choice, you're either going to be smart enough that you think you're going to bet against somebody else, that they're going to go up or down, or you're going to diversify. So you can take these assets and achieve a level of balance with those assets that doesn't cost you an expected return, but provides you a much lower level of risk. And if you can reduce your risk. And keep your expected return the same.

• 1:47:03Speaker 04

  You gotta do that. So diversification, as we were talking about before, um, can allow an individual. I explained in that book, I thought, by the way, it's a great book. Uh, cause what Tony did was to, um, take concepts and, and make them very clearly conveyed, uh, for the average reader. Um, I explained, he interviewed me in the book, how to achieve that kind of balance. So that you're not going to have that because if you lose 50 or 75% of your money in a, in a decline, let's say 50%, that means you need a hundred percent return to get back.

• 1:47:42Tim Ferriss?

  Right, to where you started, yeah.

• 1:47:44Speaker 04

  So you, you can't, uh, you can't allow yourself to do that. That's the risk of ruin thing. So diversification, proper diversification can reduce your risk without reducing your return.

• 1:47:59Tim Ferriss?

  There are many different ways to diversify. How would your approach differ most, if it does, from say, a David Swensen?

• 1:48:07Speaker 04

  My approach, as I was describing it, is to balance the risks based on the two factors that we were, the two determinants that we talked about before. How are, what are the intrinsic drivers of those? And then also what are the timeless and universal correlations of those assets? And to, to achieve, uh, balance, I'm always looking for a value-added, risk-reducing trade. The issue is to look at the intrinsic characteristics and, and, and, and achieve, um, and achieve balance.

• 1:48:47Tim Ferriss?

  Where diversification can get very tricky in the world of, say, startup investing. You, you mentioned in brief this lockup period. Is where someone, I'm a perfect example of this, has made investments that are illiquid for a period of god knows how long, seven to 12 years in some cases, and what started off as a plan to have, say, 10% of one's liquid net worth invested into startups suddenly becomes 80% of the pie chart.

• 1:49:18Speaker 04

  I think, are you saying, if you have an 80% of your portfolio, concentrated portfolio in the one particular asset?

• 1:49:27Tim Ferriss?

  That's right.

• 1:49:27Speaker 04

  I would urge you to find out how you're going to hedge that thing.

• 1:49:32Tim Ferriss?

  Yeah.

• 1:49:33Speaker 04

  And, you know, there are different ways that you can make that hedge, you know, to some extent it's buy something, but to some extent you might go into a contract, you know, it could be done almost, I don't know the nature of the particular types of investments, but if it's a particular company with a particular profile that'll be unique to it, the only way that you're going to be able to hedge that is to go into some probably investment bank and actually explain to them their circumstances and find out, you know, a structure that is, that they might be able to come across.

• 1:50:16Speaker 04

  It's going to be a highly impure hedge and, you know, it needs to be engineered. So, you know, it's a very difficult thing and because 80% of your net worth is tied up, you can't go have the cash to go buy something that's going to balance it and you wouldn't want to borrow and then borrow the cash to buy something different because probably its correlation with whatever you're using as a diversifier is not going to be reliable and so you're, you know, you could really get screwed.

• 1:50:54Tim Ferriss?

  Yeah.

• 1:50:56Speaker 04

  I don't know that I have a good answer for that.

• 1:50:59Tim Ferriss?

  Yeah, it's a tough one because like you said, looking because I don't have anywhere close to the cash required to say, take a sort of derivative position to try to hedge. It's very challenging and like you also observe the sort of impure nature of trying to do any kind of secondary with a forward looking promissory note or something like that. In any case, I don't want to bore people to tears, but it's a very common problem in Silicon Valley.

• 1:51:26Speaker 04

  It's difficult because it's also illiquid. So much money is illiquid. So people can be real rich on paper, but pretty poor cash wise.

• 1:51:38Tim Ferriss?

  I mentioned tactical and psychological. So in a situation like this where you can't, there is no magic answer. There is no necessarily non-obvious solution to this. It's just a tough position to be in where you stand to potentially lose a lot. What do you say to yourself? What's your self-talk in a situation like that where you may just be stuck in a position where you can't get out of from an investing perspective?

• 1:52:07Speaker 04

  Well, I think of like, how bad am I going to get hurt kind of thing? And I almost think of portfolios sometimes, that it's better to take a portfolio and you have a certain amount of cash and you think, how bad am I going to get? And then you could take your risk and put it in another portfolio and separate the portfolios rather than to blend them together so that you're, you know, you're actually thinking, okay, how bad is it going to get? And, and also like, okay, so it's the nature of the beast. And what's the big deal? I mean,

• 1:52:48Speaker 04

  You're going to, you know, when it comes down to it, you're going to have a, you know, what can they take away from you?

• 1:52:54Tim Ferriss?

  Right.

• 1:52:55Speaker 04

  So that you're going to have a, you're going to have a bed to sleep in, you're going to have food, you're going to have, you know, friends, the most basic good things. You're playing the game and it's the nature of the beast. So I guess that's like for me, you know, it's like I, I keep thinking, what are they going to take away from me and what's it really going to mean?

• 1:53:16Tim Ferriss?

  Have you ever, I've read, for instance, there's a book titled More Money Than God, which I read a few years ago, and there were a number of cases in that book of very, over the long-term, successful investors who had hit a point of overwhelm or such high levels of stress that they, based on my recollection, which could be faulty, but effectively hit the reset button. They liquidated all their positions and kind of started over. Is that something you've ever done? And if so, how did you think about that?

• 1:53:47Speaker 04

  No, I've, I've, I've never done it because of stress. I've, I've liquidated positions to take risk off the table because certain things have happened and I'd say, listen, I just don't know, and I'd rather now take risk off the table. But I do know of one terrific investor who got into a very bad mindset. I mean, he, he just couldn't make anything work for a period of time. And that started to affect his psychology that worsened his decision-making.

• 1:54:25Speaker 04

  And what he did was he brought his positions down to such a small level that he was continuing to play the game, but he, but with amounts that wouldn't have that psychological effect until he could get back into that mindset and get back into the groove.

• 1:54:43Tim Ferriss?

  Did that work for him?

• 1:54:44Speaker 04

  You know, that worked for him. Psychology is a big deal. Psychology is a big deal in the markets. That's why I also find that my rule-based algorithmic type of trading, a rule, meaning I take a rule, a decision rule, so it's not a

• 1:55:04Speaker 04

  It's not, uh, it's, it's just a, uh, the algorithm is just an expression of my criteria. And then I put it into an algorithm, but by knowing how that algorithm works. And having it operate next to me. In other words, I'm doing my decision making in my way. And then my, all my thinking is programmed into the computer. So that there's a parallel decision making going on by the computer. Has been fabulous because that computer ain't got no emotions. And it's just like, you know, I don't know, a computer chess game. Um, and you know, and it's, and it's great.

• 1:55:48Speaker 04

  And it's been a fabulous experience to have me and Ed, uh, playing the game, uh, together. So the taking the emotions out of it, um, is a real, real plus. And I'm a meditator, so I can, you know, I would say, you know, I don't get as emotional as some people do. And but, but when you go through it, because you go through a process in which you're thinking, um, I'd say something's going against you. And of course trades will always go against you. You, it's not like you buy something and from that point forward it goes up. That you then sell it and you know, I mean, there's, it, it's not like that.

• 1:56:32Speaker 04

  And so, um, if you buy something that's good value, it might go down before it goes up. And then when you're, and you're, when you're wrestling with, okay, now do I sell it? It's not like that's the moment either. So all, every moment, you don't know whether you're, are you missing something? Or, uh, are you wrong? Or is it just too early? All of that psychology enters into it and you start to think about multiple possibilities and.

• 1:57:05Speaker 04

  Um, and then, um, you know, okay, there's more opportunity. That's why the strategies I'm describing, the combination of diversification, so no one that bet is going to matter so much. So I have the casino of bets. So yeah, if I'm wrong on, but I'm, uh, on one or here, it's okay, but that casino means all my games on, on balance are going to play pay off. And, and, and then that, um, that notion of, um, systemizing the decision rules. These things have been very helpful to me.

• 1:57:39Tim Ferriss?

  I think this is a great place to, to wrap up. And I think it's, it's, uh, I'm just going to read, uh, a, a small piece from your book, which I highly recommend everybody check out. I mean, just to give everybody an idea, one, one of the testimonials blurbs on the book is from Bill Gates, quote, Ray Dalio has provided me with invaluable guidance and insights that are now available to you and principles. So I think that this is going to do a lot of good in the world and help people to make better decisions. And here's a quick quote, so quote, every day each of us is faced with a blizzard of situations we must respond to without principles, we would be forced to react to all things. Life throws at us individually as if we were experiencing each of them for the first time.

• 1:58:21Tim Ferriss?

  If instead we classify these situations as types and have good principles for dealing with them, we will make better decisions more quickly and have better lives as a result. Uh, and I, I, I'm very excited to see what this book does in the world. And I, I suppose just as, as one of the very last questions, why did you, why, why did you decide to put this book out? Why now?

• 1:58:46Speaker 04

  I'm, I'm at a stage in my life where my objective is no longer to be more successful myself. Uh, I'm in a transition. I'm 68 years old and, um, I felt that my number one goal is to help people be successful without me. And, um, having this collection of recipes that it's been built up over that period of time and passing it along so that basically everything that I know is of value in the book, um, frees me of, uh, that responsibility and is, um, what I, you know, feel is a sense of responsibility. I hope everybody, I wish everybody would do the same.

• 1:59:30Speaker 04

  Like, I'd love to know.

• 1:59:34Speaker 04

  You know, how many people's principles would you love to know? I, I, by the way, I've been speaking to a number of, I won't use the names, but a number of very successful people. And I know now that they are going to be more inclined to put their recipes out. And I think it'll be fabulous. You should write your principles. You, you do cheer your principles in many ways. But as they're, as those recipes and you give these recipe books and people then can compare one to another and debate them. And operating at that principle level, I think, is a responsibility that I have to do.

• 2:00:18Speaker 04

  And it kind of frees me up to go to my next stage of life.

• 2:00:20Tim Ferriss?

  Well, I've been taking notes throughout this entire conversation. I'm going to simulate my own pain button and have a number of, of homework assignments that I'm looking forward to tackling. And for people listening, they can certainly learn a lot about the book and dig in at principles.com. They can find you on Twitter and elsewhere at Ray Dalio. Is there anything else you would like to suggest or ask or encourage people to do before we wrap this up?

• 2:00:56Speaker 04

  No, just have their own principles that they believe in, be open minded, write their principles down, compare them with others, find out, be guided by principles, be a principled person. I would say that those things probably will help them be not only more successful, but you know, comfortable with themselves.

• 2:01:17Tim Ferriss?

  Perfect. Well, Ray, I really appreciate all the time. This has been a lot of fun for me and I've been looking forward to this ever since we, we met and you're so kind after bolstering my confidence after my rehearsal at Ted. So I, I really appreciate all of it and the work that you do.

• 2:01:36Speaker 04

  You nailed it. It was great. We were both like the same thing. We're both nervous that we were going to do a lousy job and we both got through it well. So anyway, thank you also for your. Very interesting questions and a wonderful exchange. Thank you.

• 2:01:54Tim Ferriss?

  My pleasure entirely. And for everyone listening, links to the book, to raise a video explaining the economy, everything that we talked about can be found in the show notes. I will link to everything at tim.blog/podcast where you can find the show notes for this episode and every other. And until next time, thank you for listening. Hey guys, this is Tim again. Just a few more things before you take off. Number one, this is Five Bullet Friday. Do you want to get a short email from me? Would you enjoy getting a short email from me every Friday that provides a little morsel of fun before the weekend? And Five Bullet Friday is a very short email where I share the coolest things I've found

• 2:02:38Tim Ferriss?

  or that I've been pondering over the week. That could include favorite new albums that I've discovered. It could include gizmos and gadgets and all sorts of weird shit that I've somehow dug up in the world of the esoteric as I do. It could include favorite articles that I've read and that I've shared with my close friends, for instance. And it's very short. It's just a little tiny bite of goodness before you head off for the weekend. So if you want to receive that, check it out. Just go to fourhourworkweek.com. That's fourhourworkweek.com all spelled out and just drop in your email and you will get the very next one. And if you sign up, I hope you enjoy it. This episode is brought to you by Athletic Greens. I get asked all the time, if you could

• 2:03:22Tim Ferriss?

  only use one supplement, what would it be? My answer is inevitably Athletic Greens. It is your all-in-one nutritional insurance. I recommended it in The Four Hour Body, did not get paid for that, and I travel with it to avoid getting sick. I take it in the mornings to ensure optimal performance. It just covers all my bases if I can't get what I need through whole food meals throughout the rest of the day. As listeners of The Tim Ferriss Show, you can receive 30% off of your first order by visiting athleticgreens.com/tim. That is a great deal on one of my favorite products and it covers my bases each day. It is part of my routine and it leaves me Less to worry about if, for instance, I have to skip a meal or just can't get a

• 2:04:04Tim Ferriss?

  high-quality meal. So check it out. Go to athleticgreens.com/tim and learn all about it. This episode is brought to you by Four Sigmatic, founded by the genius Finns who lit the internet on fire. And you may have heard of their mushroom coffee, which features chaga and lion's mane, which has taken Silicon Valley by storm. I use it pretty much every day, either that or the chaga, which is decaf, a separate version. And I use both of these primarily for focus and productivity. They just get you going, light you up like a Christmas tree. So definitely check it out. People are always asking me what I use for cognitive enhancement. And for right now,

• 2:04:48Tim Ferriss?

  this is the answer. I try to force this on all of my house guests. It is a hell of a thing. If I have employees or people come over who are working on projects with me, I always try to feed it to them because I'm going to get the limitless effect and get a lot more out of them. The first time I mentioned this product and Four Sigmatic on the podcast, their product sold out in less than a week. So you may want to check them out soon if you're listening to this. And the coffee tastes like coffee. It takes just seconds to prepare with hot water and oddly enough, only includes 40mg of caffeine. So it has less than half of what you'd get in a regular cup of coffee. I don't get any jitters, acid reflux, or any stomach burn, any of that. It's very unusual and very, very cool.

• 2:05:33Tim Ferriss?

  So if you don't like caffeine, they also offer very strong but caffeine-free mushroom elixirs, which I will sometimes have in the evening. I find chaga specifically to be very, very grounding and earthy. So that is another option. And I have a cupboard full of their products at the moment, which is right around the corner of my kitchen. You can try something, you can try a sample pack, which is great also, right now by going to foursigmatic.com/tim. That's F-O-U-R-S-I-G-M-A-T-I-C.com/tim and use the code TIM, T-I-M, to get 20% off of your first order. And they're not that expensive, anyway. If you are in the experimental mindset, I do not think you'll be disappointed. So try them out.