#23 Ray Dalio: Life Lessons from a Self-Made Billionaire

Are you in love with your own ideas regardless of how good they are Would you like to make better decisions and fewer mistakes? Would you like to improve the most important relationships in your life? These are just some of the topics I discuss with my guest, Ray Dalio. Ray Dalio is the founder of the world’s largest hedge fund, Bridgewater Associates, and is the author of the new book Principles: Life and Work. He is also a leading figure in the world of philanthropy, is an avid supporter of transcendental meditation, and has appeared on Time magazine’s list of the 100 most influential people in the world. Ray gave me over an hour and a half of his time, and I didn’t waste a minute of it. Go Premium: Members get early access, ad-free episodes, hand-edited transcripts, searchable transcripts, member-only episodes, and more. Sign up at: https://fs.blog/membership/ Every Sunday our newsletter shares timeless insights and ideas that you can use at work and home. Add it to your inbox: https://fs.blog/newsletter/ Follow Shane on Twitter at: https://twitter.com/ShaneAParrish Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:08Shane Parrish?

  Welcome to The Knowledge Project. I'm your host Shane Parrish, the curator behind the Farnham Street blog, which is an online community focused on mastering the best of what other people have already figured out. The Knowledge Project is a place where we look at interesting people, ideas, and uncover frameworks to make better decisions, live life, and understand reality. On this episode, I have Ray Dalio. Ray is the founder, chair, and co-chief investment officer of Bridgewater Associates. Bridgewater started out of a two-bedroom apartment in New York in 1975 and has grown into the largest hedge fund in the world and one of the most important private companies in the United States. As you'll hear from this conversation, this was no fluke. We talk about why Ray punched his boss in the face,

• 0:53Shane Parrish?

  his principles for living and work, the nuances of Bridgewater's culture, technology, why so few people deal with reality, mental models, how to build an idea meritocracy, and how to make better decisions. And there's so much more. Intellectually, Ray's answers will cause you to question why things aren't more like this. They might just change the way you live. I hope you enjoy this conversation as much as I did.

• 1:26Shane Parrish?

  I want to start with the story of you punching your boss in the face. Can you tell me a little bit about that?

• 1:32Speaker 01

  Well, I was... He and I were drunk on New Year's Eve and, you know, and we had this playful, fun, challenging relationships. And I decked him and he then crashed the car when he went home and his wife chewed him out. And I figured that I was going to lose my job. And then he came in the next day or the day after with a black eye. And he had no problem with me. And he said, "Hey, listen, that was what it was like. You know, we just, you know, it was a moment and it was fun. And I had a lousy New Year's Eve, but no hard feelings." And we got past that.

• 2:18Speaker 01

  Why are you interested?

• 2:19Shane Parrish?

  Oh, I'm interested in that story because it's the story that everybody kind of talks about, but nobody really knows a lot of the details behind. I mean, it's something you've released before, but.

• 2:29Speaker 01

  I was at a certain age and I had a certain kind of, um, you know, spirit, I would say, right? I don't know what you call it, but I was a little bit, uh, you know, uh, wild at the time and, you know, anyway, it was, it was, it's interesting to evolve, you know?

• 2:48Shane Parrish?

  Tell me what a day looks like for a typical day, if there is one, for the world's largest hedge fund manager?

• 2:56Speaker 01

  Well, I, I wake up and immediately check, uh, what the markets and the news are doing. And then I, um, I was in a stage where I used to run the company and then deal with the markets simultaneously. So I was juggling both things. Um, now I'm at a stage where I'm just following the markets and, you know, the economics. Um, it's not a fast-paced type of existence. It's more of a thoughtful type of existence. So I've got a group of brilliant people. I come in, uh, we usually hit a, a big meeting. It'll usually be a research meeting. We're examining something, uh, that, uh, is, uh, happening.

• 3:37Speaker 01

  Every, everything happens over and over again. All right. Everything, um, I, we think of this as everything's another one of those. So, uh, by being able to look at history and make the connections and examine how the mechanics of the cause-effect relationships are, that's what we spend a lot of time doing. And then we convert those rules, those principles into algorithms. So through the day, I'm doing that, uh, mostly and reflecting, uh, on, on, mostly on the markets, uh, with interesting people. And we debate a lot.

• 4:12Speaker 01

  So, and that'll carry through the day.

• 4:16Shane Parrish?

  I imagine everybody's throwing information at you. How do you filter what's valuable and what's noise?

• 4:22Speaker 01

  Well, I don't let them randomly throw the information at, you know, I, I'm very stepping back. I'm much more like to go to kind of a, what I might describe as a higher level. There's, there's the blizzard that everybody's normally in. And that's where they're caught with all these things coming at them. And I prefer to go above the blizzard and just organize. So I'm, it's, it's organized that way. I, I'm, I also should say that I meditate. So I, I started my day when you gave me the question, as I started my business day. I should say, I also find that meditation has been fantastic and I do that regularly.

• 5:05Speaker 01

  So I want to always maintain an equanimity. Not get caught in the blizzard to try to be more strategic. And so I don't, I manage that.

• 5:17Shane Parrish?

  Tell me the story about how you came to transcendental meditation.

• 5:22Speaker 01

  Well, I was, it was 1969 and the Beatles had meditated and went to India. And I read about it and it became popular. And I was curious about it. So I took my, I don't remember it was, it was very $50 fee and my flowers. And I went to this place and I learned how to meditate. And, and it, it, one of the most important, greatest things in my life. Because it allowed me to have an equanimity. You want me to describe a little bit?

• 6:00Shane Parrish?

  Yeah, please do.

• 6:01Speaker 01

  What, what it's like?

• 6:04Speaker 01

  Okay, it's a simple exercise, really, in which one has a mantra, which is a sound or a made-up word. And when you repeat it over and over again with your breath, it takes your mind away from your thoughts, and it directs those attentions to your mantra. And then, when you keep doing that, the mantra disappears, and you go into your subconscious. And when you're in your subconscious mind, that's extremely powerful, because so much comes from our subconscious mind. That's where our creativity comes from, you know? That's what intuitions and all of that happens. And so, it opens a passageway

• 6:48Speaker 01

  between one's subconscious and one's conscious. So, you're not in an unconscious state like sleeping, and you're not in a conscious state. And so, that exercise, it allows you to completely eliminate stress, and it fosters creativity. Because when you think of creativity, it's not that you go muscle it. It's more like, you know, you take a hot shower and these great ideas come to you? Well, that's what happens. So, meditation creates that equanimity. It creates that vehicle for the connection between the subconscious and the conscious, and it allows creativity. And I really think that, then, the reconciliation of what is subconscious

• 7:31Speaker 01

  and what is logical is very powerful. Because your instincts, your intuitions and so things, those sort of things, may be invaluable insights, and they may be wrong. And when one can reconcile their subconscious thoughts, those instincts, those intuitions, with their logic and the consciousness, it's very, very powerful. So, that gives me an equanimity that helps keep me out of the blizzard.

• 7:59Shane Parrish?

  Was this something that took off right away for you? Or was it something that you had to work at to establish this?

• 8:05Speaker 01

  You mean the ability to get to that spot?

• 8:07Shane Parrish?

  Yeah.

• 8:08Speaker 01

  It's a practice. It's a simple exercise. And the more you do it, the more you get better at it. And, you know, the deeper you go, the easier it is. It's like, I suppose, if you were doing yoga or you were doing almost anything, you get better with time.

• 8:22Shane Parrish?

  I assume the Beatles were a pretty big influence on you if you've kind of followed this.

• 8:27Speaker 01

  Well, I like the Beatles, but it wasn't as much that as, you know, the practice. The practice of meditation was way more than the Beatles. Beatles were interesting and a good rock group, and I love music. My dad was a jazz musician and I love music. So, but it wasn't the Beatles. It was this, this thing I tripped along on, the meditation.

• 8:52Shane Parrish?

  Who were your biggest influences over maybe the seventies and eighties kind of?

• 8:58Speaker 01

  Well, I think, I think if you take the sixties and the seventies and then you get into the eighties. What affected me was it was an era of aspirational ideological, ideological is probably ideals. So you have to understand, let's say, John Kennedy, if you start off, was a man who believed that we were going to conquer outer space, eliminate poverty and produce equal rights. And so he was a very charismatic figure. And all through my life, there were people who were inspirational. I would call them shapers, they will visualize the future.

• 9:43Speaker 01

  It was an era when the United States was the most powerful country in the world, still is of course, but in a way different. We count for forty percent of the world's economy. We had, we were dominant in, in almost any respect. And the reaching for the stars, literally, was all part of that aspirational, that greater thing. And so when you take that and then we went into an era of that creative rebelliousness. And I would say that I admired.

• 10:16Speaker 01

  Steve Jobs, Martin Luther King, those people who were rising above and having that up, people who I would consider to be highly principled people. And also, so then, you know, there were just so many of those types of people at the at the time.

• 10:38Speaker 02

  It's me, the

• 10:41Speaker 02

  We don't need the jingle twice.

• 10:44Speaker 02

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• 10:52Speaker 02

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• 11:02Speaker 02

  Please stop. Touche. Priceline.

• 11:07Speaker 03

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• 11:30Shane Parrish?

  Were you a big reader?

• 11:35Speaker 01

  I wouldn't say I was a big reader. I was, and of course, it depends on my my age when I'm answering that question. No, I wasn't a big reader. I was a big experiencer more, you know. I I like experiences.

• 11:54Shane Parrish?

  Tell me the story about how Bridgewater almost went bankrupt.

• 11:58Speaker 01

  So I started Bridgewater in 1975, so pick up where we last left off. Punch my boss, didn't get fired that time.

• 12:10Speaker 01

  Not long after that, did another, had another incident and got fired. And that was 1975. And and but the clients of, at the time, Shearson was the firm that I was working with, which were big hedgers at the time, were, wanted to continue to work with me, and so they paid me fees, and I started out. So from nineteen seventy five until nineteen eighty two, eighty two is the period. Can you imagine this? It was seven years of building a business, making a lot of good and bad decisions, but many more good ones than bad ones, and built up my little business.

• 12:49Speaker 01

  And then in nineteen eighty two, I had calculated that a number of countries would not be able to pay back their debts to American banks, and the American banks had two hundred and fifty percent of their capital out to them in loans, so they were going to go bankrupt. And this was a very controversial point of view. I mean, people, I thought we were going to have an economic collapse, and because the banks wouldn't collapse. And then what happened is, lo and behold, on August nineteen eighty two, Mexico defaults on its debts. And people started to see this, and that led me to getting a lot of attention. So I was

• 13:31Speaker 01

  put on Wall Street Week. I was asked to testify to Congress to help them understand this debt crisis and so on and so forth. And I thought we were going into a depression, and this was the worst economy ever. And it turned out, if you look at the exact bottom in the stock market, August nineteen eighty two, when Mexico defaulted, that was the exact bottom in the stock market. And that's because then Federal Reserve printed money and did need interest rates and so on and so forth. But that was totally wrong. So I lost clients, and it cost me money. And I had to let everybody I worked with me go. And we were a very tight

• 14:14Speaker 01

  group of people, so it was like losing extended family. I was so broke that I had to borrow four thousand dollars from my dad. And I had to make a choice. Am I going to go to work for somebody else, or am I going to work through this? And this, so it was a, you know, terrible experience, but it turned out to be maybe the most valuable experiences, or one of the most valuable experiences in my life, because it changed my approach to decision making. I went from thinking, you know, I'm right. To asking myself, how do I know I'm right? In other words, how do I triangulate? It gave me the humility I needed to balance with my audacity. And so then it gave me an open mindedness. And from that point forward, everything was better.

• 14:59Speaker 01

  We can get into what changed. That raised my probabilities of being right and managed and allowed me to manage risk. But for that point forward, you know, everything became better really until today. And that's what I'm trying to convey in the book. If I can convey that to people at this stage in my life, my goal is to pass along the most valuable things I've learned. And really, that is the most valuable thing I learned.

• 15:23Shane Parrish?

  Would you say that was the seed of when the principles started?

• 15:27Speaker 01

  Yeah, it was. What I learned was the value of thoughtful disagreement. I learned a few things. I learned radical open mindedness. I think the greatest tragedy of mankind and the greatest tragedy of most people is to hold opinions in their head that are wrong, that they're attached to, and that they don't stress test. It's so easy to take those ideas and properly put them out there in an idea meritocratic way and have them stress test, which raises the probabilities of being right. So I learned radical open mindedness.

• 16:09Speaker 01

  And I'll explain what an idea meritocracy is like, because I'd like to do that. I learned how to balance risks better, right? So I learned that if how I could reduce my risk was without reducing my returns by being able to literally structure my bets in a more diversified way. So and I learned also to look at history that of things that never happened in my lifetime. Whenever I was surprised, and I think whenever most people it's surprised, it's because of something that never happened in their lifetime before. But it happened before.

• 16:48Shane Parrish?

  So it doesn't happen in their context, but it happened. So you don't see it. So you don't think about it.

• 16:52Speaker 01

  That's right. Like the 2008 financial crisis. Um, in the 2000 financial crisis, almost everybody thought that was implausible. The only reason we were able to anticipate it and benefit from it is because we felt that it was necessary to understand what had happened in the 30s and what happened before, because the same things happen over and over again. And once you get the idea that they just may not have happened in your lifetime, it could be a hurricane, it could be a plague, it could be whatever it is. Some things happen once every 75 years, particularly debt crises and those kinds of things. So that, so those were the three things.

• 17:32Speaker 01

  The three things were first to know how to have um, an idea meritocratic decision making, knowing that I might be wrong, having that fear. The second was really knowing how to balance my bets. And the third was really how to gain a perspective in which I see the same things happening over and over again beyond my lifetime and can write down principles for them. So to answer your question in terms of the principles, yeah, I got into an exercise that I'd recommend for everybody out there. Um, whenever you're making a decision, that's an important decision. Um, you're used to just making that decision and moving on.

• 18:13Speaker 01

  I developed an exercise that I would write down my criteria for making those decisions. So that would be my principles.

• 18:20Shane Parrish?

  You had a decision journal almost.

• 18:22Speaker 01

  A decision what?

• 18:23Shane Parrish?

  A journal about how you're.

• 18:24Speaker 01

  Yes, a decision journal, right. And which are these, those written principles, which are really what is in the book mostly. So one by one, how do I make that decision? What are the cause effect relationships? So when another one of those comes along, I remember it and I, you know, communicate it. And this has been invaluable to me also in dealing with people because we could deal with each other better. I can have those stress tested. It's reasonable. You look at that and you say, if this thing came along, would you do this? It the way I'm describing, would you operate by that principle? And you can have back and forth and refine the principles.

• 19:04Speaker 01

  Then that leads one to think in a principled way, rather than in the snowstorm that you're talking, this blizzard of everything that comes at people. Instead, it's like you look at everything and you see everything as another one of those. So like a duck or a species, right? You think, okay, what species is it? How do I deal with that species in the most effective way? And then I found out that I could put those into algorithms. In other words, that, you know, starting 30 years ago, I was able to say if I had that criteria, you know, we called them formulas then, now they're algorithms. But we, I would write down, if, if this happened, then do this. And I would write that down.

• 19:47Speaker 01

  And then I learned how the computer could be a partner. And so it changed everything by writing that, those principles down. And then also putting them to algorithm. It changed my relationships with people. It changed, it allowed us to have an idea of meritocracy.

• 20:02Shane Parrish?

  How instant was that from the, the kernel of kind of almost going bankrupt to knowing that you had to start stress testing your ideas against other, other people and other ideas and developing principles for making decisions? Was that like an overnight thing or?

• 20:21Speaker 01

  Well, no, it's, one thing leads to another and it's an evolutionary thing over, um, I guess the biggest reaction to that probably happened over the next, let's say two years or something. Um, first there's the pain and then, and then there's the dilemma. The dilemma is, um, how do I not let this happen again?

• 20:45Shane Parrish?

  Or avoid it, yeah.

• 20:46Speaker 01

  But also, um, not lose the upside.

• 20:50Shane Parrish?

  Yeah.

• 20:50Speaker 01

  In other words, there's this upside. And I want to grab the outside. I want to have the greatest life I could possibly have and be right. But also, the greatest upside produces downside. So it started me to go into the calculation of how I could do that. But it also just naturally gave me a humility, you know? And then I was at that juncture. Do I, do I go to work for somebody else, or do I do this? So, over that period of time, then you do something, and then you find out how that turns out. And then you modify it and modify it. But it told me, idea meritocratic decision making is the best decision making.

• 21:33Speaker 01

  In other words, that if you do this well, you will radically improve what your decisions are. There are only two things you need to do to be successful. First, you have to know what the best decisions are, and second, you have to have the courage to do them. But you might think in your head that you have those right decisions. When you start to realize that there's a world out there, and that you know how to sort through those things to find out what the best decisions are, you radically raise your probability. So it was the evolutionary process of seeing that and not giving up on that, you know? Thoughtful disagreement is not an easy thing for a lot of people.

• 22:15Speaker 01

  People are instinctually reluctant to disagree. That's a great barrier, right, to learning? So it, you know, that was a journey of how we could, you know, disagree well and have an idea meritocracy.

• 22:30Shane Parrish?

  So what is an idea meritocracy?

• 22:32Speaker 01

  Well, an idea meritocracy is when the best ideas win out. And the way that you have to have it, there are three steps that you have to do. First, you have to put your honest thoughts out there. A lot of people have problems doing that, but you have to, you have to welcome others doing it and you have to do it, so you have to put them on the table to look at them. Second, you have to have thoughtful disagreement. In other words, the ability to take in and have a back and forth in a quality way so that you can make better decisions than you could make individually. And we have protocols for doing that that are described in the book.

• 23:15Speaker 01

  And then third, you have to have ways that if disagreements remain, that you think are fair, appropriate, agreed upon ways of getting past that disagreement, because not everybody's going to get what they want. And the problem that most people have at that point is that either there is an autocratic decision maker or a democratic decision maker. Neither of those work well. The autocratic decision maker is just the guy who's the boss, who says, "Okay, well, now I'm going to do this." That's a problem, because others don't own it, and how do you know that you're right? You can't be arrogant. And then there's democratic decision making, and that means everybody has the same votes, the same opinion? That's not sensible, because they have different merits to that.

• 23:58Speaker 01

  So if you have an idea of meritocracy, you have to know also the merit of people's thinking. And so we go through the process of being able to identify in fair ways, in ways that we all agree to, of ways of knowing what's the merit of each things. And we literally have scores of these tests and whatever they are that become the scores. So we have believability weighted voting. So I mean, literally, if I'm running something, and we're in a group, and three people who have higher levels of believability than I do, think that it should be one thing, and I think it should be something, there's going to be a questioning back and forth.

• 24:40Speaker 01

  I put myself in the mode of a learner, so that I can take in and then make the best decision. You have to know that the best decision that you can make isn't necessarily the one that you're attached to that's in your head.

• 24:52Shane Parrish?

  Right.

• 24:53Speaker 01

  That's idea of meritocratic decision making.

• 24:54Shane Parrish?

  I like that a lot. I want to talk about, like, how do people adjust to an environment like that, where they have a believability score? What is believability?

• 25:06Speaker 01

  Believability means that some people have a greater probability of having a better insight or a better opinion than something else. I'll use an example. You have a medical problem. Okay, your own believability on the subject is low.

• 25:24Shane Parrish?

  Right.

• 25:25Speaker 01

  You go to a doctor. Okay, that doctor has a certain level of belief. Another doctor has another level of believability. You want to handle it well? Go to three highly believable people who are willing to disagree with each other and hear that disagreement and interact and bring out that disagreement and see where there's agreement so that you get to the other side. So when you either have agreement or you understand the disagreements, you're then in a position to make a better decision. That's an example of believability weighted decision making. Then there's just the mechanics of how you get to assign each person the believability. But if I use that example with your doctor, that's how you're making that decision. That's

• 26:09Speaker 01

  what believability weighted decision making is. So regarding your question of what it's like and so on.

• 26:16Shane Parrish?

  I have this belief that everybody goes in going, of course, I want to be a part of this environment. And then they get in and there's this dose of reality that comes with it.

• 26:24Speaker 01

  Exactly. That's what it is. Okay. So before anyone joins Bridgewater, we explain to them all of this and what their challenges are going to be and so on, because they're not used to operating this way. Our educational system doesn't allow it, our work environments doesn't allow it. There's so much that stands in the way of doing that. So the first thing is, do you intellectually want it? Because there are two you's in you, really, in your brain. There's the thoughtful, intellectual part of the brain, the prefrontal cortex that is thoughtful. And you said, I would like to know, I would like to know what people think. I would like to be able to fully convey what I think. I would like to work myself

• 27:08Speaker 01

  through this idea of meritocratic. I would like to know my weaknesses. Do you want to know your weaknesses or do you not want to know your weaknesses? I'd like to get to know my weaknesses. So those people intellectually come and they say, I'm going, I buy into that.

• 27:24Speaker 04

  Yeah.

• 27:24Speaker 01

  Okay, then there's an emotional part of the brain. That emotional part of the brain comes, it's genetically programmed from literally millions of years ago, in which there's a part of our brain, the amygdala, which has this fight or flight thing. And when there's that kind of frankness and that kind of exploration of one's weaknesses, people can think that they're being attacked instinctually. So that why wouldn't you want to know those things out of curiosity to have a quality back and forth? So there's an emotional. So when people come in, they understand very well that they have their two U's, we call it their two U's, that are going to struggle with each other. So they're prepared for the struggle.

• 28:09Speaker 01

  And then they go through it. And that's largely what happens. As they go through it, they regularly encounter it. And because they're mindful of it, they know it's their two U's, struggling with it. And then also struggling with others who see things differently to pass through that. And so that exercise is what they go through. And most, we call it getting to the other side. Because when you go through that, you know, you're, you're, you're recognized, you're faced with the choice. Do you want to go back to an environment in which people are hiding things and the office is a political environment and you don't really know what's going on and you can't speak up and nobody else can speak up? So they, when they intellectualize, they, they work themselves through it. And we say, when they get to the other side, it's great. Like they love it.

• 28:54Speaker 01

  They don't want to operate any other way because they, they know even their weaknesses, they can be more themselves. A big part of this is that we have meaningful work and meaningful relationships. Okay, they're equal priorities. And they reinforce each other. So to know that people are helping them through that, that this is not an environment in which there's somebody trying to hurt you, but to explore what's true by going through that exploration of what is true and doing it in an idea meritocratic way where there's that that meaningful relationships, it helps people get to the other side.

• 29:34Speaker 01

  Then those who make it to the other side really don't ever want to work anywhere else in the in the sense that they start to think, you know, first of all, the relationships are important and that that's healthy. So it's a transition. It's probably like a transition of trying to eat healthy and exercise and do those types of things. Typically takes about 18 months.

• 29:57Shane Parrish?

  Who thrives in that? Like, what are the markers for someone that's less likely to succeed? And what are the indicators that somebody is more likely or more probable to succeed?

• 30:07Speaker 01

  It is that what I guess I would describe as the capacity to rise above oneself, to look down on oneself. In other words, that that combination of need to understand as well as open mindedness. We describe it as the balance of assertiveness and open mindedness. To know that you're not blindly following, that you have an opinion, you have an independent thing, and to know that that opinion simultaneously could be wrong and to then be curious. So to find out, how do I know whether I'm wrong?

• 30:52Speaker 01

  And do that in an idea meritocratic way. People who can juggle those two things can make it.

• 31:00Shane Parrish?

  Would you say that's almost a continuum that you're constantly sliding on, depending on the type of decision you're making and the people that are in the room, maybe based on the believability of their opinions? You should shift more towards an open mind versus if not? Or am I thinking about that in the wrong way?

• 31:18Speaker 01

  I think what you're what you're saying is absolutely true. I think the big question is, do you have a whole lot of both open mindedness and curiosity when you're entering that? I could say whatever meeting I'm in with whoever I'm on and whether they're the least experienced.

• 31:39Speaker 01

  I know that's a valuable exchange. And the reason I know that that's a valuable exchange, whether I'm at the highest level of expertise with a person, in other words, they're a peer at the highest, or maybe knows a lot more than I, it's still gonna be a valuable exchange. And knowing that is valuable. And the reason I'm saying it's a valuable exchange is, first of all, in a community, respecting the fact that that person has the right to understand is important. At the same time, I think it's important for the parties to try to think, am I a teacher, student, or peer? Because if I'm speaking with somebody

• 32:23Speaker 01

  who really knows a lot more about something, I wanna be asking more questions than I wanna be sharing opinions.

• 32:32Shane Parrish?

  Right.

• 32:33Speaker 01

  And vice versa. It should be generally vice versa, or if it's a peer. So by knowing something, keeping in mind what that situation is, it helps in the navigation. You know, like, I'm very curious when a very smart, respected person disagrees with me.

• 32:54Shane Parrish?

  Right.

• 32:55Speaker 01

  Right?

• 32:55Shane Parrish?

  Because then you wanna know why. What is the essence? Am I missing something?

• 32:59Speaker 01

  Right. And if somebody who's much less experienced or less capable disagrees with me, I'm still curious. But the first exercise we probably should go through, maybe, is that they're asking questions. But the more I know that they have the answers, you know, the quicker I wanna switch to an open-minded, you know, more peer-type of exchange. So you're correct in that knowing that is helpful, but it's never the case that the discussion shouldn't be along those lines, particularly in a community.

• 33:38Shane Parrish?

  What advice would you have for somebody who works for an organization that doesn't support an idea meritocracy, but they wanna learn and get better?

• 33:47Speaker 01

  Well, I think the first thing you have to decide is what are the most important things for yourself, right? If it's the case that everybody has the right to make sense of things, the right and obligation to make sense of things. Now, if you're in an environment that doesn't allow that, doesn't allow you to ask questions and do those explorations, um, for me, you know, frankly speaking, I couldn't do that. I just couldn't do that. For somebody else, that may not be a problem. So you have to decide for yourself first, you know, is, what, what is the right environment? What do you like? What's, what's important? If it's a really high important thing to you,

• 34:32Speaker 01

  then you will find it. It may not be at that job. It may be at the next job. It may not be a hundred percent exactly the way you want it. It may, but you can find a by and large way of, of, of finding it. And it's not just the organization you're with. It's the relationships you're in. Because this doesn't end up just with your organization. It's like if you're having a partner. How do you deal with your partner? You're, it could be a spouse. It could be anybody. How are, how do you, what's your relationship? How are you going to get past the disagreement? So it's the same three questions. Can you put your honest thoughts on the table to look at together?

• 35:11Shane Parrish?

  Yeah.

• 35:11Speaker 01

  Can you have thoughtful disagreement on how to get past it? And when you disagree, do you have an ability to, what is your mechanism to getting past that disagreement? Do the principles that bind you together, are they more important than the ones that divide you? What are your principles? These same things apply in personal relationships as well as work relationships.

• 35:33Shane Parrish?

  Are people more successful at Bridgewater coming in at, say, above thirty or right out of school?

• 35:40Speaker 01

  Uh, it really doesn't, it, it doesn't make too much difference, although the reasons make differences. The people who come directly from school are, um, tend to be a little bit more arrogant, know a little bit less, and go through a transformation that's pretty much easier. They're more adaptable. So that's why they're prone to like it, but it but also depending on whether they can get off over the arrogance part um will be important. The person who comes later in career who likes Bridgewater is so sick of the organization

• 36:16Shane Parrish?

  that they work for.

• 36:17Speaker 01

  That they work for in terms of and and the bureaucracy and all of that. So that it's like an oasis. So they come with different perspectives, you know, it's equally likely to succeed or fail in any of those groups. It depends on their perspective, though. They have different perspectives.

• 36:33Shane Parrish?

  Um, your principles are packed with kind of mental models of how you think we should calibrate to the world. Which of them are the least well understood or misunderstood?

• 36:45Speaker 01

  Um, the most is this issue of miss of thoughtful disagreement. This yeah, so thoughtful disagreement, also um what the purpose of these principles are like. So sometimes people think that the thoughtful disagreement is a being mean with people. And sometimes people also think that another misunderstanding is that these principles are like a dogma. Okay, is this is Bridgewater a cult? Is it a dogma or something like that where it's it's the exact opposite? In other words, it's an idea meritocratic.

• 37:23Shane Parrish?

  Right.

• 37:24Speaker 01

  If we don't have ground rules about how we can challenge each other and do those things, we would not be able to have an idea meritocratic environment. So it's uh, you know, it's a radically trans. So those would be the two things, you know, are we being mean? No, we're not being mean. It it's we have tough love with each other.

• 37:44Shane Parrish?

  Right.

• 37:45Speaker 01

  Okay, that's what it is. No, it's not meanness. And secondly, it's an idea meritocracy that allows radically different points of view to be thrashed through and and and gotten past uh rather than um something that's asking everybody to behave the same way.

• 38:02Shane Parrish?

  In the book, you talk about tough love as being one of the best gifts you can kind of give somebody. Um, do you tell me about that? Walk me through why you think that's the case.

• 38:12Speaker 01

  Well, because the most important thing I can give anybody is strength. Right, that feedback, that, that critical feedback, that, that toughness to let you strive, to let you make mistakes. I talk in the book about how it's important to make mistakes. And how making a mistake is not a problem, that not learning from mistakes is a problem. So that's difficult. Skin your knees, strive, develop that, those strengths. That's what tough love is. If you spoil somebody, so to speak, if you, if you're, if you don't

• 38:54Speaker 01

  do those things, that allows them to get better, that's not, in my opinion, you know, true love, that's not, that's not helpful. So tough love, if you could think about that, I gave the example of Vince Lombardi and the old, you know, and the football, in, in terms of that. The image of tough love is a, it's, it's a healthy thing, and it's a particularly difficult kind of love to give, because it's often not appreciated, you know, at that point, because what are you doing, or give me what I want, as, it's human nature. But if you really understand that it's good for somebody, and it's good for the community, it's very important. Has your implementation of the principles changed over the years? Yeah. How?

• 39:39Speaker 01

  Well, you know, in, in so, in so many different ways. You know, first, you know, we just live the principles, then we had to write them down and agree on them, then we put them in algorithms, then we developed tools. So you saw the tool in the TED Talk. I would say to your listeners, if you go 16-minute TED Talk, you'll get the idea of what, what's going on. Yeah, phenomenal TED Talk. Oh, thanks. The Doc Collector. Yeah, so you'll see a tool, right? The Doc Collector, it'll give that, that perspective. So you could see how technology evolved, all sorts of things evolved over that, that period of time. So it evolved over, you know, 40 years, I guess.

• 40:30Speaker 02

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• 40:39Speaker 02

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• 40:45Speaker 02

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• 40:53Speaker 03

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• 41:16Shane Parrish?

  What other technology tools do you have internally to aid in decision making or give people feedback?

• 41:23Speaker 01

  We have a number. We have a dispute resolver. Okay, so if there's a dispute, you sort of push this button and it's an app and it takes you through the paths of resolving that dispute. And it breaks down disputes in terms of types of dispute. If it's just you and somebody arguing, then it will, it will say, it'll make suggestions. For example, you both mutually agree on who a moderator for that dispute would be.

• 41:52Shane Parrish?

  Right.

• 41:52Speaker 01

  A moderator or judge and so on. So there's one level of dispute. And there's another level of dispute, which is like a case. But it is a path, it's a created pathway to resolve a dispute, like a legal system. So that if you have now a dispute with your neighbor because something happened, you have a pathway to follow. So we've created a tool called a dispute resolver that does, does that. We have...

• 42:22Speaker 01

  Oh, just, um, we have a thing called people profiles that show profiles of different people. We have a thing called a meeting tracker. So it's the, it's a computerized version of watching what's going on and then synthesizing the whole picture of what everybody's thinking so that anybody can look into that meeting and, and see everybody's participating it through other people's eyes.

• 42:48Speaker 01

  There's a tool that we help people go from pain to progress. You know, I, as I mentioned in the book, um, an expression, pain plus reflection equals progress. So we have a thing called a pain button. And the pain button means that if you have psychological pain at the moment, it makes it very easy to capture what type, what the facts about it. Is it with this person while you're in it? Then you come back to it, um, and, and then it cause, it prompts you through reflections. Like, what are you going to do about that? How will you handle it? Should you have a conversation with the person? Should you do this? Should you do that?

• 43:30Speaker 01

  And then what it does, it tracks your progress. Are you having that same pain over and over again of the same type? Did you follow what you set out to do in terms of that? Or did you not follow that and so on? So it almost works like a psychologist on a daily basis to be able to take a look at that.

• 43:49Shane Parrish?

  It's like a double level of feedback almost.

• 43:51Speaker 01

  Well, it's, it's gives you the bio, you're giving yourself bio feedback, right?

• 43:56Shane Parrish?

  Yeah.

• 43:56Speaker 01

  And so, but you're looking at yourself. It encourages the self-reflection because at the end of the day, all I want people to do is get what they want out of life, right? And so it's very much important for them to have that self-reflection. And so by reconciling their emotional, um, pain that's coming with then their reflection is a very, very powerful thing. We have a tool called a coach. So if you're in a situation, um, and you're, and you're saying, uh, you know, what, how do I think I should handle it? Um, there's a device that says this kind of situation. Okay. Here are some principles that might help.

• 44:38Speaker 01

  Again, this isn't doctrine. This is like, it's the opposite of doctrine.

• 44:42Shane Parrish?

  Yeah.

• 44:43Speaker 01

  It is an intention that presents things easily so that you can make the choice that when you're in that situation, okay, calmly, what should I do? And here are the principles that might help me get through that. A lot of these tools I'd like to get out there and make public at some point in figuring out how to do that. Because this idea of meritocratic way of operating and this knowing what you don't know and how to get past that tragic mistake of having those ideas in your head is just so invaluable.

• 45:15Shane Parrish?

  Are any of the tools connected to biometrics? Like an Apple Watch for heart rate and stuff like that, or?

• 45:21Speaker 01

  We haven't done that yet, though there are possibilities for doing that. That kind of biofeedback is really valuable.

• 45:30Shane Parrish?

  Because then you can almost hit the subconscious level of you're saying something that's making me angry, even if I don't feel it. Or you're saying something making me feel something because I can tell because my sweat pores are coming on and my heart rate is rising, or?

• 45:42Speaker 01

  Exactly, exactly. We haven't made that connection yet, but it's something we probably should do and, you know, will do.

• 45:52Shane Parrish?

  You have a culture of radical transparency. Can you define what radical transparency is?

• 45:59Speaker 01

  Well, except for a few things, a few types of things. It's allowing people to see everything. So what it means is all discussions, meetings are taped and pretty much unless it's an ultra-personal matter, we don't do that. Unless it's something proprietary, we don't do that. But when we're encountering other things, most things, we let people see things. And the reason is, if you can't see things firsthand,

• 46:42Speaker 01

  you can't be part of the idea meritocracy.

• 46:46Shane Parrish?

  Yeah.

• 46:46Speaker 01

  Right? If somebody's talking about you.

• 46:50Speaker 01

  Behind there, why are they talking about you? Right. Behind there, wouldn't you like to know? How do, can we encourage that straightforwardness? So, um, it's one of those things where, um, in order to maximize the idea of meritocracy, we want to maximize the transparency. Now, I know, let me be clear, I know that that's not for everyone, and I know it's not for every organization. It is, it's, it's been fantastic for us. Um, and I would recommend, recommend the approach. But I wouldn't say that in order to have an idea of meritocracy, you need to do that. You need to go that far.

• 47:32Speaker 01

  The real question is, do you need, do you want to have an idea of meritocracy? Once you start there, then you will go down a journey that will start to take you into questions of like, okay, how much, how far, with whom? The idea of meritocracy may be a narrower group of people. So it's, if you say it's going to be 25 people. Right. In a, I don't know, 300 person company or something. They're still facing the question of how you are with each other. Yeah. So in one fashion or another, you're going to have to deal with, do you not know? How do you work through the dealing, the three questions that I, the three things that I mentioned before, even in a two-person relationship?

• 48:16Speaker 01

  Then these techniques, you will make choices about, um, but that radical transparency is important. I'll, I'll say, uh, also that radical transparency is coming at you fast anyway. Because we're now living in a world where the data that you leave about yourself all over the place is meaning that people will, you know, stranger systems can now examine you and know you better than people who are your close friends or your spouse. They can look at you because of the, the data that you're leaving all over yourself. So it, it can be a bad thing, or it can be a good thing.

• 48:58Speaker 01

  And but it's coming at you, that radical transparency. So I would encourage people, even if they're not having radical transparency, to start to think about how they deal with this radical transparency. I think I found it fantastic because it gives me the, not only the meaningful work, it gives me the meaningful relationships. You know, if you're with each other on a regular basis and everybody understands what you're like and there's not much to hide, I mean, there's certainly privacy, but there's not, you're generally having that kind of openness. It also makes for better relationships. Those have been my experiences for forty-two years.

• 49:34Shane Parrish?

  When it goes wrong, how does it go wrong?

• 49:37Speaker 01

  Uh, the things that can go wrong are, um, if the, um, if you have, uh, people who want to do your harm and will take information and distort the information to do your harm. I mean, that, that's, that's a risk. Um, I would say that, that would be, you know, the only risk that I've, uh, experienced and, um, and that has to be a, you know, function of how you deal with it.

• 50:02Shane Parrish?

  Aside from technology tools, how does Bridgewater shape people's subconscious through their environment?

• 50:10Speaker 01

  Well, the environment, of course, shapes people's subconscious a lot and it is, um, that by having, aside from the tools, by having an environment that is like this, that is what I would call intellectually, I view it healthy. It's like living in an environment like, um, a healthy environment, an environment if you were living in a community where people ate health in a healthy way and did those habits and self-reinforced those kinds of behaviors. Um, so it's, um, and, and, you know, encourages that kind of, uh,

• 50:49Speaker 01

  reflection. Um, it's one of those things where, uh, the people you're around will influence you and how you are with each other influences, uh, each other.

• 51:03Shane Parrish?

  I love the idea of tools and kind of the baseball cards that you have because one of the big problems in life that everybody faces, whether they know it or not, I think, is determining whether the person they're sitting across from knows what they're talking about or they're kind of an imposter and they sound like they know what they're talking about. How would you go about doing that without tech tools?

• 51:26Speaker 01

  Um, well, you're in one fashion or another, you first have to bring it up. I mean, so let's just imagine you didn't have tech tools, but you have five people in a in a company, a startup.

• 51:42Shane Parrish?

  Right.

• 51:43Speaker 01

  The most basic thing, you don't need the tech tools, is the question of how you're going to be with each other, right? So if you, can I ask you any questions? Can I probe you? Can we see how it is? After a while, you're going to know what you're like and you're going to discuss it. You, you typically don't have that understanding because you don't talk about a lot. You've got these scenarios going in your head and that other person's got those scenarios. But because there's not actually truthful conversation and exploration of evidence, you, you, you have problems. So even when there's disagreement, we, we have about, you know, what somebody's like,

• 52:25Speaker 01

  the fact that we can establish, and anybody can, establish sort of tests. Okay, let's try this and see how that goes and see how well you do. What, what can we agree are objective criteria? And then, um, we don't know what's true until, uh, we pretty much reach an agreement ourselves. So if somebody's, you know, there's no disagreement about strengths. We have very little disagreement about people saying you have a strength. Where you typically have disagreement is about people having a weakness. And if the person then says, oh, I recognize that I now have that weakness, that's the point we have to reach that we agree on it.

• 53:07Speaker 01

  Because if we still don't agree on it, then we say, how do we solve that together? So that there are lots of ways that individuals can operate in idea meritocratic ways without tools.

• 53:19Shane Parrish?

  How do you think that people can foster this sort of open mindedness? I mean, in your book, you kind of lay out, um, what an open minded person looks like versus a closed minded person. How do we go about getting ourselves to the place where we want to be open minded? If, if we're closed minded or if we don't even acknowledge it, I, I think that's probably the first step. But if we do, is it like you dive in the deep end of this pool and people are starting to give you feedback all the time now? Or is there a baby step?

• 53:47Speaker 01

  Well, I think the first thing, the reason I wrote the book.

• 53:54Speaker 01

  You know, I'm at a stage in my life and I want to pass it along is to, the first stage is to have people actually be able to visualize what is it like, what is that alternative?

• 54:05Shane Parrish?

  What does it look like?

• 54:06Speaker 01

  Like, okay? And if you can visualize it and you say, I intellectually want it. And that the only thing that's standing in my way of having it is these emotional reactions. And now I have to develop the muscles, you know, and that discipline to just get myself over those moments so that I can have it. That's the most important thing. Our whole environment does not lend itself to knowing what that alternative way of operating is. So I hope to paint it in that book so that people can see that what that alternative is like. If you see the alternative, you intellectually, you'll probably want it. And if you want it, you'll do it.

• 54:50Shane Parrish?

  Yeah. Are people the same outside of Bridgewater as they are in the company? Like if you have a social gathering, is it a similar?

• 54:59Speaker 01

  It's, it's, it's almost identical. It's almost identical. I mean, like you, you're going to want it. Now, of course, the, the ground rules are different, you know? And the way you navigate it is different because people around you are different. They may misunderstand what you're doing in terms of being straightforward. But even there, you know, it depends on like how you're doing it. Like if you're phrasing, let's say a complaint. If I go to a restaurant and I don't, the food isn't good. And I actually, or I have a problem with that.

• 55:43Speaker 01

  I think to myself almost in an ethical way. And if the owner comes by and he asks me, it almost is like an ethical question that one wrestles with. And I, if I was going to make a comment, I would have to preface that comment by saying something like, I'm trying to be helpful. You know, here is what a thing, here's what my thought is, take it or leave it, you know, that kind of thing. But even more in their personal relationships. It affects friendships, you know, how you are with each other. The two things that I think, the only two things I require in a relationship are people

• 56:26Speaker 01

  to be reasonable, in other words, able to reason, and to be considerate. And I will give people an enormous amount of that, and I expect an enormous amount of that. And that's in all relationships. And I would say that a lot of Bridgewater people carry that with them, you know, when we have a disagreement. Are we able to reason it through, or we're going to have temper tantrums? You know, I can't, so people become more reasonable and more considerate. So these are carried through in a lot of ways.

• 57:03Shane Parrish?

  What are some of the other organizations who have cultures that you admire or that are similar that you see to your principles?

• 57:11Speaker 01

  I, you know, I'd be the wrong person to ask. Three wonderful psychologists, organizational psychologists, came in and examined us. I particularly recommend the works of Adam Grant. He did a book called Originals, and he examined a bunch of companies, and he found those elements. And then another person by the name, Harvard professor in organizational psychology, by the name of Bob Keegan, and he wrote a book, The Deeply Developmental Organization.

• 57:55Speaker 01

  And he looked at all those organizations and contrasted them. So I would say, you know, they'd be better experts on it. Although I think that what came through all of that was the notion of the meaningful work, meaningful relationships, bringing mistakes to the surface, making it okay to make mistakes, but not okay to learn, not to learn from mistakes. All of those things were in mind. I can't really comment on a lot of organizations because I don't know them well.

• 58:28Shane Parrish?

  To what extent do you think is leadership innate versus it can be learned?

• 58:34Speaker 01

  I think it's probably almost entirely can be learned. Of course, in terms of the development of the brain and how synapses develop and so on, the early years has a very big influence on a lot of our personal development. That's physiologically, psychologically, you know, known. But I think that there's always a leadership style that can be learned. In other words, there's your way of doing it. I've given personality tests to, well, I mentioned it in the book, Bill Gates, Elon

• 59:16Speaker 01

  Musk, many, many incredible, successful people. And they all have some elements in common, and then they also have differences. And so, there's a path to leadership. There are some people who are the charismatic, extroverted leader, and they find one path. There's the person who's introverted and thoughtful, and they can find another path. I think the key is, still, in both cases, this combination of, do you know where you're leading to? And how do you get that? And then, how do you interact with the people so that you can bring them along?

• 1:00:01Speaker 01

  You can make them believe or grow so that they can also help leading. Leading is a lot the development of leaders. So that they, in order to lead effectively, what you have to make is a group of people who can be effective themselves. Because that's what's going to produce the leverage and the cohesiveness. So there are different styles of being able to do that. It's a lot learnable. You know, again, I offer some thoughts that are in common in the book about that, but I think it's a lot learnable.

• 1:00:40Shane Parrish?

  Do you at Bridgewater have a formal kind of leadership development program that you put people through? Or is it?

• 1:00:47Speaker 01

  Yes.

• 1:00:48Shane Parrish?

  What does that include? Like, what does that look like?

• 1:00:50Speaker 01

  Well, when everybody comes in, there's a, we would call a boot camp. And that'll go for two to three weeks. That gives them an immersion into what the culture's like. It might go three weeks if they're in the management boot camp. And then they start to get skills. And then they go into their job, which is an apprenticeship kind of a relationship. And then they get typically about three hours of training pertaining to the development of those skills. And they go through experiences and we collect data on them. They look at the data and we then recalibrate how they learn.

• 1:01:34Speaker 01

  And then it's an evolutionary process as they grow. We learn more about them. They learn more about themselves. We find out where they're better suited. We go through a series of experiences that continues that to happen until they continue, you know, to evolve wherever they evolve to.

• 1:01:51Shane Parrish?

  Who's the mastermind kind of behind the development program? Because I imagine it's always evolving too.

• 1:01:56Speaker 01

  Largely me, I have two things to do. And then I have this great team of people. And it depends what it's like. We have on the data collection, processing type of thing. We have a fellow by the name of Dave Ferrucci, who was the person who started and created Watson at IBM. He's fantastic in terms of machine thinking. And he's a key person, but we have the CEOs of the company involved. We got people involved in, you know, how they write algorithms and, you know.

• 1:02:38Speaker 01

  So there's a, we have a team, a whole team that deals with training. You know, what that is like on a daily basis. So there's a lot, you know, there's a lot of different people do different things up and to where we are in this. It's been a very particularly important thing for me personally to make sure that the people part of this was developing. Basically, the business grew up. Under me, right? So two things, investments, you know, my, we're talking now about

• 1:03:15Speaker 01

  the people part, the, the work part. So I had, I run a business. It was an entrepreneurial endeavor and it grew and to quite a business. And then at the same time, I'm thinking about economics, investments and markets. And so I do both of those two things. And now I'm passing the baton. That's why 2017, by the way, that's why I'm putting the book out, right?

• 1:03:41Shane Parrish?

  No.

• 1:03:42Speaker 01

  Yeah. 2017 is my, is my going from the second stage in my life to the third stage in my life. It's a transition. I am, I've stepped out as the CEO and I, and I'm, um, let's say the transition itself, when I mean second to third stage, what I mean is in the second stage of your life,

• 1:04:05Speaker 01

  you're working and other people are dependent on you. First stage of your life is when you're learning and you're dependent on others. When you get into, let's say, your twenties or when that is, and you enter your second stage of your life, you're working and increasingly people are dependent on you. And when you get to your sixties, let's say, um, your, um, the greatest beauty that you can have, the greatest success is in helping other people be successful.

• 1:04:42Shane Parrish?

  Right.

• 1:04:43Speaker 01

  It's instinctual. I want others to be successful, not me be any more successful. Because then what happens is I can then go on to my third stage and they can be in their second stage. And it's quite, um, uh, normal in families. Like if you think about your parents, okay, and you think about your kids in terms of your life, when you went on to your second stage and you became self-sufficient and you could do it all yourself, they could watch beauty happen and they became free

• 1:05:13Shane Parrish?

  Yeah.

• 1:05:13Speaker 01

  of those obligations.

• 1:05:14Shane Parrish?

  Yeah.

• 1:05:15Speaker 01

  And their goal is to have that. So that's the transition that I'm in. 2017 is my transition year. It's why I wrote the book and it's why, um, I'm in that process. So that's, that's what's going on.

• 1:05:27Shane Parrish?

  Buffett said, uh, one of the things that he kind of worries about is keeping the, the culture at Berkshire Hathaway when he, he passes.

• 1:05:37Shane Parrish?

  Is that something that worries you?

• 1:05:39Speaker 01

  No, no, it's, I would, I would say it's like a, it's like a family in the next generation, right? It's now up to others to make that choice, to not be attached. So if I have my kids who then become grown adults, I want them to make the choices that they want to make. Now, I hope that they will make the healthy choices and did we, you know, did we raise them well? Did they, you know, in other words, to make those choices, but they need to have their own experiences and have that kind of independence. So at that age, you, you let go and you enjoy them doing it their own way.

• 1:06:18Speaker 01

  Even in the, even you, you can't start at that age, you have to start at another, at an early age that they can make their decisions. So I don't have an attachment to that. What I did have, uh, most importantly was my sense of, um, do I pass it along clearly and well? That's why, in other words, my writing that book relieved me of what my responsibility is. What others do with it is up to them.

• 1:06:44Shane Parrish?

  Right.

• 1:06:45Speaker 01

  Right? So I did my job. If, if you want to read the book and it's helpful and you reject it or take it or, and that's true of Pittville or Bridgewater, great. Okay, I did my job. Now it's you to live your life.

• 1:07:00Shane Parrish?

  How did the principles transfer over to the world of philanthropy?

• 1:07:06Speaker 01

  Uh, you know, it's the same thing, it's part of this, uh, you know, evolution. I started, I didn't have any money and, um, then you acquire money. And, you know, for, for money, for me, money was not very much a priority to begin with. Um, it just happened to be the thing that I do produces a lot of money if you do it well. Um, but anyway, uh, you evolve and you make your choices. Um, and I think as you go higher and higher level, uh, uh, of evolution and maybe as you get older or you, um, Also, this meditation has helped me feel connected to other people, feel connected beyond me. I realize I'm part of an ecosystem.

• 1:07:51Speaker 01

  I'm an infinitesimally small part of an ecosystem. And I really do feel that the ecosystem is much more important than me and I can see it from that higher level kind of thing. So I feel connected to others. And then I think about what my incremental, what are the increments? So, and what it can mean. So on the margin, what is it going to mean to another person that amount of money? And I also view it as a life cycle thing. In other words, you know, I don't know, you start with nothing and then you end with nothing. So it's part of that evolutionary process. So it's like the issue of what I call spirituality.

• 1:08:36Speaker 01

  Spirituality, I don't mean religion. I mean the notion of feeling connected to others and the whole and that if that whole is good, then you're good kind of thing. And so I think that, one, in terms of philanthropy, it becomes a natural extension of that. It doesn't become, for me, it has not become something that I think of even as a peripheral activity or philanthropy or giving away. The question is, what do you want to do? Like it's, you know, like I'm excited about doing some things or I feel needs to do something. So it's that kind of experience.

• 1:09:21Speaker 01

  And by the way, it's interesting because I thought I, you know, have a lot of money and I have a lot of money relative to most people. And then you realize through this that you have a tiny bit of money relative to all that needs to be done. And so then that becomes, you know, this other dimension. So I think probably philanthropy is one of those things that has come to me, or maybe starting 10 years ago, something like that, at that stage because of these various evolutionary considerations.

• 1:10:00Shane Parrish?

  You've said that the future is going to look very different in the book. I'm wondering, what do you think will be the same?

• 1:10:08Speaker 01

  I think that, you know, human nature changes very slowly. So I think the, you know, the conflict between thoughtfulness and emotion individually and between people will probably always be with us, you know, that human nature will be with us. I think what will, what will change there is the role of algorithmic decision making. I mean, I think we're largely entering an environment in which, not to exaggerate it,

• 1:10:49Speaker 01

  but there are going to be people who are writing the algorithms that will replace the people who are doing jobs. Yeah. And, and so there's going to be a bifurcation. And I think that learning how to code is like learning how to read and write for the next generation, and you want to be on that side of it. And I think, I think what will be the same is conflict between people. That, that's what worries me. It worries me because, you know, let's go back to basics.

• 1:11:29Speaker 01

  You know, as a country, do the, do the principles that bind us together, are they greater than the ones that divide us? Right. Can, you know, this is a time to be very clear, for everybody to be very clear what their individual principles are, the President of the United States, each person, the country, and work ourselves through, can we do this well collectively? Or are we in a fight with each other that's going to actually divide us apart? And it's going to be more challenging because the circumstances of the people who are in,

• 1:12:10Speaker 01

  let's call it, the bottom 60% of the population are very different and they're hurting and there's, it's a major problem. Death rates are rising, just wholly different economy than those are in the, let's say, the top 40%, let alone the top 1%. So conflict will be the same, okay? How we approach it. Will be the same, you know, that's, that's why I'm hoping that there can be this idea meritocratic decision-making that pulls us together and allows us to resolve, resolve those things so that we can do those things. We could have thoughtful disagreement and then we can have mechanisms to get past our disagreements.

• 1:12:53Speaker 01

  That, that conflict issue will be the same and it's going to be a bigger issue in the future.

• 1:12:58Shane Parrish?

  Do you think that that relates to kind of first order thinking versus second order thinking? I mean, one of the sections of your book that I loved was kind of talking about people that optimize for the first tranche versus people that optimize for the second or third or kind of fourth layer effects to that. Do you think?

• 1:13:14Speaker 01

  That'll always be, that'll always be the same and it's key, right? It's the, um, quite often it's the great trick of life. You know, in so many things, the first order consequence, the thing that you get first is like a trick that will, the opposite consequence, like, like, you know, why is it that it seems like all food that tastes good is probably bad for you?

• 1:13:42Shane Parrish?

  Yeah.

• 1:13:42Speaker 01

  I mean, I'm not saying that is generally, but I mean, you know, why is it that? Why is it the things that are fun or somehow seem to be harmful and it's the opposite way? Why is it that exercise is painful and it's good for you and, you know, and it's the opposite? It's almost like life is tricking you in terms of putting out first order consequences. And then the second order consequences is the opposite. Okay, now, can you see that? Can you deal with that? Because in order to get what you really want in life, you're going to have to pay attention to that second order consequence. I don't care which you, which you pay attention to.

• 1:14:22Speaker 01

  At, at the end of the day, when I ask you, do you want to be, I don't know, fat? Do you want to be, um, whatever? Do you want to do those? So that notion of can you consider your second order consequences? And then your, even your third order consequences is so important. And the, and you can, even though you can't do it yourself, maybe sometimes, by having the help of others.

• 1:14:51Shane Parrish?

  I want to circle back to this algorithmic decision making for a second. You mentioned that it's coming, it's coming quickly. Who do you think is at risk in a corporate job that might not think that they're at risk right now?

• 1:15:04Speaker 01

  Well, I guess generally, generally, generally speaking, I'd say almost anybody who isn't riding the algorithms is, is at risk. I guess there are some things, you know, it'll be a while before the robots give good massages and it'll be, you know, it'll be, you know, there are, the imagination. It'll be a long time before those intuitions and those imaginations are created by computers. Okay.

• 1:15:49Speaker 01

  But it won't be a long time before computers produce better quality thinking.

• 1:15:55Shane Parrish?

  Would you feel different if you listened to a computer generated song or music and you were told that it was computer generated versus a human who had a story of craftsmanship around it?

• 1:16:07Speaker 01

  What a great question. What a great question. I have an attachment for the humanity, right? So I, but I would probably also have an admiration for the marveling of how that can be created. So I, I guess I would, I would say, ah, there's that transition from, from the one to the other, you know? But I would, yeah, it'd cause reflection that would have a little bit of excitement and a little bit of almost nostalgia, right?

• 1:16:40Shane Parrish?

  You're a fierce observer of human nature. What's the most common mistake that you see successful people make?

• 1:16:49Speaker 01

  Well, again, the most successful, the most common mistake, I suppose, which is made less by successful people, but still is too often made by successful people, is thinking that they know the answers without having the best perspective and adequately stress testing it so that they're taking in so they can make the absolute best decision.

• 1:17:14Shane Parrish?

  Why do you think, or maybe it's a misconception on my part, but why do you think so many successful people are unhappy? Is it that the strategies they've chosen to become successful are making them?

• 1:17:27Speaker 01

  Well, I think the question is a deep psychological question of what are they going after, right? And is success going to provide that? So, for example, if they're going after status, if they're going after the admiration of others and so things, I don't think that that's going to bring them happiness. Probably a lot of people who are successful are compulsive and trying to get those types of things. So I think a lot of people versus, you know,

• 1:18:04Speaker 01

  so the question is, is it a personality disorder that is making people continue to strive to get something that they can, that is within them and that they can have that? So I, yeah, I don't think, why are you doing it? You know, is it the thrill?

• 1:18:25Shane Parrish?

  Right.

• 1:18:26Speaker 01

  You know, for me, like, early on, it was first the adventure.

• 1:18:32Shane Parrish?

  Yeah.

• 1:18:33Speaker 01

  You know, the thrill of the experimentation and the doing that, and then the thrill of getting better. Okay? And then I have my own evolution. And I describe in the book how my perspective had changed.

• 1:18:47Shane Parrish?

  Wow.

• 1:18:48Speaker 01

  How my perspective had changed from the early days to the later days. But anyway, I won't reflect on me. I would say that.

• 1:19:00Speaker 01

  Community, by the way, we're talking about happiness. There is virtually no correlation between the amount of money one has and one's happiness. That's pretty well known, past a certain basic. The factor that's the highest correlation is relationships, sense of community across societies. That's genetically programmed into us. It's estimated that somewhere between a million and two million years ago, before it was even man, before we were the ancestors of man, that that got programmed into us.

• 1:19:42Speaker 01

  But anyway, it's one of the things that's the most important source of happiness. And when I look back on myself, and I think, what was the thing that I most was made happy by? It was relationships, the meaningful relationships. Intellectually, I feel I contributed something, but the greatest source was that relationships and the community. So, a lot of people who are going after status, success, admiration, I think, the question is, are they making the most of their relationships? I think that's important.

• 1:20:24Shane Parrish?

  So, I have a question on that, because if we move to, I mean, one of the economic ideas that countries are tossing around, or even experimenting with in some cases, are universal basic income for people that are displaced, perhaps by technology. How do you think that interacts with this high correlation to sense of purpose and connectedness with our peers? How do you think that?

• 1:20:51Speaker 01

  The universal basic income is a complex issue, but I'd say the following. There is income, and then there's usefulness.

• 1:21:03Speaker 01

  And I think the most important, past this basic income, taking care of some of the basics. The most important thing is usefulness. By the way, I don't believe that the basic things are being well taken care of. I could digress into that a little bit. But

• 1:21:23Speaker 01

  we have to get purpose and usefulness. So when we talk about giving money, the real question is, what is that money best used for? And so that concept is that the individual could decide best for himself what it's best used for. That may be right and it may be wrong. I can't tell you whether it's right or wrong. My wife works in the most distressed school districts around. And at a very early age, there were major problems. And we come from Connecticut, I'm from Connecticut, and she works alongside Connecticut. She

• 1:22:07Speaker 01

  supported the doing of a study of what percentage of the students, what are disconnected or disengaged. A disengaged student is a student who attends school but actually doesn't participate. They don't study.

• 1:22:21Shane Parrish?

  Presenteeism. I mean, they're sitting there, but they're not doing anything, kind of.

• 1:22:25Speaker 01

  Exactly. And then disconnected is they don't know where they are. And 22% of the students, high school students in Connecticut, are one of those two things. That's one in five. Okay? So the real question, I think, is at a very early age, nutrition, basic education, creating, making sure that the bottom is not,

• 1:22:53Speaker 01

  and it's not just an education thing.

• 1:22:55Shane Parrish?

  Yeah.

• 1:22:55Speaker 01

  It's the family that they go home to, or what the circumstances are. It's the traumas that they're having in their environment. So these things, the question is, are those best provided in some manner by somebody else? Or would you, if you gave that person the money, would they do the right things for the money? And some, these are difficult questions, right? I mean, my, I know that on, if we take educational opportunity,

• 1:23:27Speaker 01

  like I didn't have anything and I, when I grew up, the idea of equal opportunity was like a basic right and an American dream and reality.

• 1:23:40Shane Parrish?

  Not equal outcome, but equal opportunity.

• 1:23:42Speaker 01

  Equal opportunity, right? And that's also the beauty of immigrants who would come here and work hard and all of that, that equal opportunity, okay? So when I'm looking at it, I would want to try to find out what are the mechanisms of creating that equal opportunity, you know, not equal income, but equal opportunity. So because that usefulness, that disengaged that we're talking about, that will be replaced more by technology and that, that split that's happening is the most fundamentally important issue that we have to deal with.

• 1:24:14Shane Parrish?

  I want to talk a little bit about decision making at Bridgewater. I mean, what is the, by and large, what is the overarching process you use for decision making? Is it, we have a decision to make, we're going to get in a room and we're going to talk about it, or is there something, something that we're not seeing to this?

• 1:24:34Speaker 01

  Well, it's, it's, it's pretty much, we have a decision making, we get in the room to do it, but what starts to be different from that is that rather than thinking about what our decision is, we spent more time thinking about what our criteria for making the decision is.

• 1:24:53Shane Parrish?

  So walk me through that a little, give me, like, can you give me an example of how you would, how you would go about doing that?

• 1:25:02Speaker 01

  Yeah. You have currency crisis, you have balance of payments problem. Rather than decide, should we sell the currency or not sell the currency? We say, what are our criteria? And then we go back into all the times in history that that thing happened. Remember I said, like, everything happens over and over again?

• 1:25:27Shane Parrish?

  Yeah.

• 1:25:28Speaker 01

  And if you could decide what species it is?

• 1:25:30Shane Parrish?

  Right.

• 1:25:31Speaker 01

  And have principles for dealing with that species, then you know how to deal with it best. So that's the exercise of, of saying, okay, what are our criteria for making decisions? Cause if we can agree on those criteria, and then when there's disagreement, rather than making disagreement about the action, you say, what is the disagreement about the criteria? You can test the criteria?

• 1:25:56Shane Parrish?

  Because if you disagree on the criteria, the decision, or if you agree on the criteria, the decision basically makes itself.

• 1:26:01Speaker 01

  Right.

• 1:26:02Shane Parrish?

  How do you go back and correct if you're wrong?

• 1:26:04Speaker 01

  Well, same thing, you know, you experience, okay, I'm wrong. So this is pain plus reflection equals progress. So you look at, I'm experiencing the pain, okay. Now calm yourself down and say, okay, what would I have done differently? And again, I, what I do like to do is look at all the cases in which that thing happened before. What happened differently to gain the perspective of the cause effect relationships? And you do that. You love your mistakes. I mean, love, you don't love the outcomes of your mistakes, of course, but you realize that the connection is it's a feedback loop, you know, so that you get that mistake, meaning that you have to then learn. As I say, you know, there are five steps to success.

• 1:26:49Speaker 01

  Okay, first, your goals. You want to have audacious goals, you have to know what the goals are. Second, on your way to your goals, you're going to have your problems, your mistakes. Okay. Okay, so you have to identify and not tolerate your problems. Then, third, you have to diagnose your problems to get at the root cause. Okay, root cause may be your weaknesses or somebody else's weaknesses, or maybe the mistakes, you got to diagnose them deeply. So once you have the diagnosis, then you have a fourth step, which is design what you're going to do differently in the future. And then, once you have that design, then the fifth step is you got to do it.

• 1:27:34Speaker 01

  You have to follow through with those results. And you keep doing that, and it produces this looping, as I'm calling, this evolutionary process. So it's that process that, we call it this five step process, that we're always living by. So mistakes instinctually, which causes to change. My whole attitude, our whole attitude about mistakes has changed dramatically. It's like mistakes trigger puzzles.

• 1:28:04Speaker 01

  And the, and the puzzle, if I solve the puzzle, I get a gem.

• 1:28:08Shane Parrish?

  Yeah.

• 1:28:08Speaker 01

  So the puzzle is, what would I have done differently? What would, should I do differently that would have produced a different result? That's a principle. You write down the principle. Okay, the gem is the principle that lets you do better in the future. So it's that kind of accumulation of learning and making the connection between the mistakes and the learning. That's, that's the process.

• 1:28:30Shane Parrish?

  The, the reflection process for you is, is that maybe the most important part of that? Or if you had to, or they're all interconnected, obviously.

• 1:28:39Speaker 01

  You, you need all of them. You need all of them. Yeah, I think the reflection's probably the most important. But if you're not designing your alternative to change, you're not getting anywhere. If you're not following through with that design, you're not getting anywhere. If you don't have your audacious goals so that you know where you're going, you're not going to get to the right place.

• 1:29:03Shane Parrish?

  Cause you're not really on a trajectory anywhere.

• 1:29:05Speaker 01

  Right. So you need your audacious goals to know where you're going. You need to recognize your problems. You need to diagnose them to the root cause. You need to do the design of what you do differently and you need to follow through with it.

• 1:29:19Shane Parrish?

  Um, what, what advice would you give to a high school class of students? If you had to pass along a couple of sentences of wisdom?

• 1:29:30Speaker 01

  Yeah.

• 1:29:33Speaker 01

  You know, love your mistakes. Learn from them.

• 1:29:39Speaker 01

  Realize that, that personal evolution

• 1:29:44Speaker 01

  and mistakes and imperfection is a part of our lives. And know how to deal with it well. Value what you don't know even more than what you value what you do know.

• 1:29:59Speaker 01

  Be radically open minded. Go for the adventure. Have the adventure. Don't mind falling and, you know, banging yourself up or scraping your knee. It, it'll pass and make the most out of your life by learning and evolving. Those would be the general themes, I suppose.

• 1:30:20Shane Parrish?

  This has been an amazing conversation, Ray. I want to thank you so much for your time today.

• 1:30:25Speaker 01

  Thank you.

• 1:30:29Shane Parrish?

  Hey guys, this is Shane again. Just a few more things before we wrap up. You can find show notes at farnamstreetblog.com/podcast. That's F-A-R-N-A-M-S-T-R-E-E-T-B-L-O-G.com/podcast. You can also find information there on how to get a transcript. And if you'd like to receive a weekly email from me filled with all sorts of brain food, go to farnamstreetblog.com/newsletter. This is all the good stuff I've found on the web that week that I've read and shared with close friends, books I'm reading, and so much more. Thank you for listening.

• 1:31:15Shane Parrish?

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