Prof G Markets - The Changing World Order & the Power of Diversification — ft. Ray Dalio

Episode Date: June 20, 2024

Ray Dalio, founder of the largest hedge fund in the world, Bridgewater Associates, joins the show to break down America’s place in a shifting world order. He discusses the mechanics of the U.S. deficit, and identifies an asset he’d go long on to hedge against economically uncertain times. He also shares personal tips on how he developed a saving mentality long before he became one of the most successful investors of all time.  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca Today's number, 38 inches. That's the height of the world's tallest dog, a great Dane named Kevin. Okay, let's be honest. The team doesn't want me to talk about dogs.

38 inches, that means they want Dick Jokes, Ed. Well, I'm here to give the people what they want. So I'm praying on the side of the bed at night. I'm being very contemplating. I'm asking for guidance. And my wife says, just get hard. I'll guide the sucker in. And I say, that pisses me off. I bet you couldn't tell me something that makes me both happy and sad at the same time. And you said, FYI, you have a bigger penis than your brother. Ed, what do you call,

what do you call someone who doesn't masturbate? A liar. Welcome to Prop G Markets. Today, we're speaking with Ray Dalio. Oh my God, he's going to freak out when he hears this. Founder, co-chief investment officer, and board member of Bridgewater Associates, arguably the best investor in the history of the West or the planet, I guess. I'm sure someone will come back and go, actually, technically, Napoleon was the best. Anyway, but from a pure ROI standpoint, Ray is arguably the best investor in history. Also, a nice, thoughtful man. But first, here with the news is PropG Media analyst Ed Elson. Before we get to the news, how was St. Bart's? It was absolutely incredible.

But, you know, as with every good trip, I'm now feeling depressed. And I think I've maybe lost around, I don't know, 5% to 10% of my brain cells. So if I'm bad on this podcast from now on, just don't blame me. Well, you're setting a good role model for other young men. I think that's nice that you're telling young people to let substances get in the way of their career. Anyways, get to the headlines. That was very inspiring. Get to the headlines. All right. Now is the time to buy. I hope you have plenty of the wherewithal.

Virgin Galactic stock dropped 17% after it announced a 1 for 20 reverse stock split. The company's goal was to boost the stock price in order to meet minimum listing requirements for the New York Stock Exchange. Sam Altman is reportedly considering shifting OpenAI to a for-profit business. He has discussed changing the governance structure to relinquish control from the non-profit board, which could lead to a potential IPO. And finally, the U.S. Surgeon General is calling for warning labels on social media to alert parents about the negative effects platforms can have on children's mental health. The labels would be similar to those on cigarette packages and would remind parents that social media has, quote, not been proven safe. Scott, any thoughts? There's so many technologies I've

hated. There's so many companies I've hated. And I think Virgin Galactic, maybe the exception of WeWork, I think Virgin Galactic actually makes less sense than WeWork. WeWork will survive. There are some WeWorks that make money. It's actually, shared office space kind of makes sense in a post-COVID economy. Virgin Galactic never made any sense. Companies are one of two things. They're either supply constrained. So if you're Boeing, no matter how fast you need an aircraft carrier or a Boeing 777, nine women can't have a baby in a month. There's supply constraint. And then there's demand constraints. And the majority of companies are demand constrained. And that is almost as many Nike shoes as people need, they can produce. It's just not a complicated product. With Virgin

Galactic, what you had was a company that was both exceptionally supply constrained. Sending people into space is exceptionally expensive and dangerous, right? They never launched on time. It's really hard. It makes no sense. It's fraught with risk and also demand constrained. The number of people who want to spend $400,000 to go seven minutes in the air, feel nauseous, and then float back down, there just aren't that many people that are that fucking stupid and rich. I don't even know what it's trading at right now. I just know it's overvalued. This thing around 70, 80 cents. And that's why they're doing this reverse stock split, because they're in danger of being delisted from the New York Stock Exchange, because you're literally not allowed to be trading shares for below a dollar on the New York Stock Exchange or the NASDAQ. So instead, you know, they can do this reverse stock split, because

the alternative is that they're going to have to go to the pink sheets, where they will be trading alongside all of the penny stocks. And I think it's actually a really bad call by them, because I don't think there's basically any worse signal that you can send to the market than, oh, we're going to need to reverse because the stock is so cheap. And now what they've done by doing this, though, is they've brought more attention to it. So now they have to deal with people like us talking about how bad the situation is. People are going to hate what they're seeing, which I think will increase the selling pressure on this stock. So I would not be surprised if six, seven, eight months from now, they're in the same position as they are today, which is the stock

has fallen so far again that they have to contend with another reverse stock split. So it is fascinating how far this company has fallen. I do also want to give you credit because you called this basically earlier than anyone. From the very beginning, you said this was a shitty company. And then we have the recording as well from last year where you predicted it would go to zero. Do you have any predictions for us? Well, the obvious one for me is I think Virgin Galactic is going to zero. I think this company will go through a restructuring.

It'll be sold to somebody for its IP. It probably has some IP in there. Maybe they sell it. I don't know who they sell it to. I just think this thing is just, you know. Anyways, enough said. And no Virgin Galactic space flights in 2023? Yeah, that's just not, let's bring in Claire. Claire seems more adventurous than either of us.

Claire, would you go on Virgin Galactic? No. Why not? I would, no, I would go to space if I had that opportunity, but I don't think I would pay any huge sum of money for it, especially not to this company. So you're like every girl I met in New York in the 30s. I'd love to go to St. Bart's, but I'm not going to pay. Exactly. As long as someone else is paying. I heard that a lot. I heard that a lot. So you actually got two predictions right there. So first and foremost,

the real question is, did Claire meet anyone in St. Barts that took her over the moon? Hello! Hello, Exhibit 17 in the lawsuit, the harassment lawsuit against Guy Galloway. Look, the other stat that you guys pulled up here, since Chamath sold his personal stake, by the way, I don't even know if he went on this thing, and I know he didn't go on this thing. I know he didn't do it. But since he sold his personal stake, he just wanted to go on CNBC and talk about how it was a software company. I remember him saying this about this company that was actually a software company.

Since he sold his personal stake, the stock is down 98%. I mean, I wonder if him and Keith Rabois just get together and let them eat cake parties. Yeah, I think they do in San Francisco with Trump. Yeah, that's right. It's called a Trump fundraiser. Exactly. Anyways, buyer beware. But in space, no one can hear you scream and no one can hear you lose everything. Sam Altman considering shifting OpenAI to for-profit.

Well, that's a shocker. I mean, Ed, I'm shocked. I'm shocked. I'm shocked. He shifted it. It's always been a for-profit. So at least they're coming out of the closet and saying, hi, my name is Sam Altman, and I am a for-profit person. It's got a valuation of $86 billion. And to your point, actually, at that valuation, it's undervalued. They're running away with it. By the way, Sam, if you give me allocation in the IPO, all is forgiven. All is forgiven. I think it's a great company, and I think the move to for-profit makes a ton of sense.

The scholar and the gentleman, yeah. Yeah, and I think your concerns around AI are really thoughtful, and I love the hushed tones and the cool t-shirt. Yeah, I mean, I think you sort of nailed it. This has always been a for-profit company, which is why it's funny that we're even talking about it, because, you know, they just did such a good job of pretending they were a non-profit. And I think the biggest, the most revealing thing about this whole situation is the fact that they were calling themselves not a non-profit organization, but a capped profit organization, which I've talked about before, but I just, I'm so obsessed with this. It was such, it was such BS by them because one, you know, they said investors were limited on the amount of returns that they could, they could make from this company. But one, the limit on your return was a hundred X and any investor will tell you that's pretty much as close as you can get to a limitless return

and two the cap only applied to the first round of investors and in all subsequent rounds you know the cap disappeared and it was just a regular negotiation so the whole thing was a smokescreen for this company to pretend it was a charity to pretend it was like a non-profit, and then just run business as usual. The most irritating part for me, though, is how we all fell for it. And actually, not you and I didn't really fall for it, but the traditional media for sure fell for it. Every news outlet, even the most credible ones, I remember this, they were all saying things like, you know, OpenAI is different from other companies because OpenAI is what's known as a capped profit organization. And what they forgot to mention is that capped profit is a made up term. It was invented by, you guessed it, OpenAI. It's totally fake. It's meaningless. It has

no legal basis. And yet it was reported on as if this is something that other companies do. No, the answer is we have NGOs and we have companies. This was a company. There's a reckoning coming around the quote-unquote non-profit industrial complex. And that is private companies use this public benefit corporation bullshit into a certain extent. Which, by the way, sorry, OpenAI is going to, they want to be that. They want to be a B Corp versus a regular corporation. Oh, Jesus Christ. Really? At least there's a legal framework for that.

Okay, let's talk about what it really means to be a non-profit and doing actual good. Surgeon General Murtaugh, Vivek Murtaugh, is a really smart, accomplished, credentialed man. He makes good money, not great money, a lot of prestige. Hopefully after he serves as Surgeon General, he'll go on to make a shit ton of money on boards that come out of the closet and say, no, we're just here to make a shit ton of money. And there's nothing wrong with that. But this guy is probably going to be the most consequential Surgeon General in a long time. And let's be honest, it's a pretty low bar. Other than all these guys who walk around in a white outfit and then leave the office and go on Fox to talk about life alert,

endorsed by Surgeon General whoever. These guys, he is really making a difference. He's talking about the loneliness epidemic. He's taking on big topics. And I just think the world of them. Also, Eddie has really good hair, which I think is important in a leader. I think it makes them much more effective. Hashtag why I'm not running for president. I was very cynical about labeling. And then someone, I don't know if it was you guys, showed that there's some research that shows that just putting that label on cigarettes actually does help. It reminds people every day that they're making a bad decision. Having said that, I think all of this is incremental change. We have to age-gate social media. There is no reason anyone under the age of 16 should ever be on social media. And unless you

have collective restrictions where everybody is off of it, it's actually worse for the kid whose parents decide, oh, we're hippies and we don't believe in screens. We're taking their phone away. Guess what? Your kid doesn't know what's going on. Your kid's not invited to anything. Your kid is ostracized because they're not on SNAP. So unless there is collective legislation, and then it just fucking cracks me up in sort of like I'm really pissed off that they're saying there's first, the big tech saying there's First Amendment issues. You should see what happens when my kid decides he has free speech rights in his house, when he decides to assess the situation open and freely. Yeah, okay.

Anyway, I don't know where I was going with that, but until we have age gating, and then they say, well, how could you do that? How could you pull that out? How could they do? They know how could you do that? How could you pull that out? How could they do? They know how much you weigh. They're like, oh, it's a 5'11 girl who's 95 pounds who's having suicidal ideation. They know exactly what content to give her to normalize suicide and get her addicted to extreme

dieting sites, but they don't know her age. It would be so easy to do. Do you really think that Medicare is about a 14-year-old's free speech to do anything, which might be true. But honestly, the takeaway for me on this is that any progress is good progress. Because we've been talking about this for so many years. You've been talking about it for as long as I've been a fan of you, which was since high school, and we've seen literally no changes in policy. And, you know, it's just laughable, the lack of progress we've made. Is this demonstrative, illustrative of the lack of progress we've made? Yes, but it's still progress. And as you mentioned, there are studies that show that these warning labels do have a certain level of impact on cigarette smoking behavior. So it's not going to solve the problem. It's not going to solve the problem.

It's not going to reverse the fact that we have depressed the majority of teens in our nation. But in my view, it's something, it's a start. And honestly, given our track record, anything is good enough for me. I'm just worried that when OpenAI flips to a for-profit that they're not going to solve this problem. I'm worried they're going to stop caring. I'm worried they're going to stop caring. I'm worried they're going to stop caring, Ed. Anyways, enough of this shit. We'll be right back after the break with our conversation with Ray Dalio. Fox Creative. This is advertiser content from Zelle.

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Welcome back. Here's our conversation with Ray Dalio, founder, co-chief investment officer, and board member of Bridgewater Associates, the largest hedge fund in the world. Ray, thank you so much for coming on. Thank you for having me. There's so much to get into, so I'm going to get right to it. I want to start with the premise of your book, which is Principles for Dealing with the Changing World Order. And you've studied how empires rise and how empires fall over the past several hundred years. And you've said that, generally speaking, empires collapse for three main reasons.

The first is debt, that we're borrowing and printing money in excess, which leads to inflation. And you've said that, generally speaking, empires collapse for three main reasons. The first is debt, that we're, you know, borrowing and printing money in excess, which leads to inflation and defaults. The second is internal conflict, so, you know, polarity within a nation. And the third is external conflict. So, you know, there's a rising power that contends with the position of the leading empire. This all sounds like America. So I'll start with a darker question, which is, is the American empire in decline? The American empire since 1945 was the dominant empire, almost singularly the dominant empire. And the American empire is in relative decline, has been in relative decline by using measures. That's not a subjective interpretation. That is using measures of

share of world GDP, share of the military, the quality of education, and so on, it is in relative decline. And so each of the three factors that you described are very, very relevant. And I should say that I discovered two more, which are acts of nature, droughts, floods, and pandemics have killed more people and wars and changed more orders than any of the first three I mentioned. And then, of course, man's inventiveness and technologies have also created big orderly changes. So all five of those are at work in the United States, and four of those are becoming worse. One of them, uh, the technology one may be a great breakthrough for productivity and is also a risky, uh, one depending on how it's used.

Where do they rank for you in terms of which is of most concern in terms, when you look at America's situation? History has always been that they're interrelationships. They affect each other a lot. So if you have more debt and you have a financial problem, and then you have large gaps in large conflict over wealth and values, as we have, and that causes that conflict and that bad crisis together can work to be a real challenge. And if you have also the third, which is the great power conflict, which is expensive to maintain a world dominant position is very expensive. So that has a money implication and it also has a geopolitical. And then you have the fourth, which is the climate issue, which is a very expensive issue, and then you have these technologies. I would want to emphasize, if I was to say one thing that is most important, that one thing is how we are with each other. In other words, the capacity to deal with all of those things in a way that is

both smart and doesn't produce fighting. If we produce fighting, we'll have a terrible, terrible set of circumstances. If we can rise above that, we can be very effective. So the number one thing is how we deal with each other. There was a survey done of issues for young voters, and it looks as if young voters are going to turn out in greater numbers than they think they are, than they have in the past. And they ranked all of these different things, and bodily autonomy was near the top of the list. But, and what was interesting is that climate was actually further down the list than it has been. The Middle East ranked like 16th out of 17th. So it's clear that the media, I don't want to say has over-dramatized it, but it's not

as big an issue with youth as the media would have you believe. What was shocking was that number three, I believe, was the deficit that young people see the economic situation that they're being left, and they are really concerned about it. That's a backward way of reverse engineering into a question about the deficit. We're spending $7-plus trillion, taking in five. And I hear about modern monetary theory that maybe deficits don't matter anymore and putting points on the board. Give us your view of deficits, and do you buy this notion that our generation isn't paying it forward the way previous generations have? What we have done, my generation, unfortunately, has allowed debt to build up, has allowed

infrastructure to deteriorate, has instead borrowed forward. And so if we think about what this debt restructuring and renovation is going to cost, and we think about that's not measured in money, it really money just produces productivity. So the work and how we're going to have to be in order to be effective has to overcome that deficit for this giant renovation. So we haven't done it. But back to your first part of the question. The first part of the question is it's very simple. There are debtors and there are creditors.

And the system has got to work well for both. One man's lending has got to be rewarded to compensate for making that lend and so you have a process if you accumulate debt you are accumulating the need to pay back in real terms you have to pay back in it the principal and you have to pay back the interest in real terms. Otherwise, nobody's going to want to lend and the system doesn't work. And the two issues that you have a choice of is to pay that back in hard money. In other words, money of value that's of comparable value, or you have to print money and you pay back in deflated money. And so what has happened over a period of time throughout history, these cycles, by the way, go back to the Old Testament,

years of Jubilee, and the same cycle always happens. And there's a tendency for debt to rise relative to incomes that are needed to service that debt. And so you see different societies. In our society, we have high debt service costs, which then will rise as we have large deficits and large amounts of money to pay back. And if that balance is not well achieved so that the creditor does not receive an adequate amount of

compensation, they will sell that debt. They will not hold that debt. And so it's not just the amount of new debt that's created. It is also the amount of debt that is outstanding that could be sold and therefore create a huge imbalance between the amount to be sold and the amount to be bought. And so in history, it's all repeated in the same way. When that time comes where they have to do that, when they do that selling and central banks come in and they think they're saving something because they're printing the money in order to pay back the debt as it's been done, monetization as we call it, that that creates a bad compensation and devalues money. So that's the mechanics.

So there's no getting it around it. It wouldn't be wonderful if it was like that, that you could just, that debt didn't matter and you could keep borrowing. But think of it as just you're borrowing a proxy for stuff and it has to be paid back. Scott mentioned that, you know, the third issue on young voters list is the deficit. I want to point out that I would not be surprised if you were the single biggest contributor to that being the case, because I know many young people who read your book or watch your videos, and they suddenly become single-issue voters overnight. The thing they are worried about most

is debt servicing and the deficit. But I'd love for you to sort of portray that or paint a picture for us of what could actually happen. Because it feels like we've had all these no-go numbers about what is too much debt. You know, we're now at 123% debt to GDP. But there are other countries that have higher numbers. You know, Singapore has 130. Italy is at 150. Japan's at 260. They've been above 100% for more than two decades.

And it feels like throughout the last, you the last 30, 40 years, there have been many moments where we said, we're on the brink of collapse. This is too much. So I'd love to get your view on what is the timeframe you think for when this is going to get really bad? And when it does get really bad, what would that actually look like? What happens, and Japan is the worst. So what Japan has done is to, by printing a lot of money, they have had their currency go down. And so that currency decline is the way it's depreciated. So if you have a bond older in Japan, they've lost about 80% of their value in their purchasing power. And that becomes the dynamic. That's the same sort of

dynamic. So the next thing I think that you're going to see in the United States is you're going to see a squeezing of consumption. So at the federal government level, as the debt service payments are rising and the debts are rising on those, you're going to see the squeeze. There's very little room between entitlements that are fixed payments and the actual revenues that are coming in. You're going to start to see that squeeze. The real issue will become if you start to see the selling of those bonds. When exactly that happens, you know, I can't tell you. In your lifetime? Oh, I think much quicker than that. I would say the next red flag to go up is when the government, when the Federal Reserve and other central banks

come in and buy again. And then the next time, that is a very risky point, is when we have the next economic downturn. And I think that that probably will be within the next four years. Cycles, the business cycle lasts about seven years on average, give or take three years. So I can't tell you exactly when it will be, but I would say it's probably most likely within the next five years, something along those lines. So in a previous life, I used to advise hedge fund managers and I advised a guy, I don't know

if you know him, I advised a guy named Phil Falcone, he started a fund called Harbinger, and he was famous for calling the subprime debt crisis. He became a billionaire by buying credit default swaps or going short them. I forget what he did. But he, Paulson, there was a whole class of people who became billionaires betting against the housing market. There's always alpha or dislocation in times of disruption, given the things you've outlined, given that you have arguably people think of you as having some of the best perspective on markets and cycles, where do you think there's opportunity or dislocation in this market? We're going to talk in a minute about young people and investing, and I imagine that's more about diversification

and low-cost funds. But if you were going to take some kind of outlier flyer bets that could have the type of extraordinary return that some of these individuals recognize when the subprime market blew up, and everyone was—it's like—and you don't know this. It's all about timing. In 1997, the economists called the dot-bomb implosion perfectly, but they called it two and a half years early, and the market went up another 40%. Where do you think, if you were to say, if someone came to you and said, I'm going to take a little bit of mad money and invest in some sort of black swan scenario be good. I think that gold also has the benefit of being uncorrelated or by and large almost negatively correlated with other assets. So it's an effective diversifier. So in thinking of stocks and bonds and so on, if you bring that in, actually you'll lower the risk of the portfolio. So it's very good from a portfolio construction. It's also as a war option. In history, when we have wars,

nobody wants to lend to anybody. Even allies don't want to lend to each other because everybody gets in much more debt. And they know that that has to be devalued. And the question is, what is the common currency? I think the world is leveraged long assets. That means, generally speaking, most assets are leveraged long. I think when they print money, that equities does poorly relative to, let's say, hard assets. When you think about what is an alternative money, gold is the third largest reserve currency. Central banks are now buying it. I think that also in institutional portfolios and in individual

portfolios, they're underweighted inflation hedge assets are. So I would say, you know, my flyer, even though I want, I believe so much in diversification, So I would say I would diversify more, but if I was to say, what is it? It would be not just gold, but gold in combination, particularly with some of the inflation index bonds, because gold and inflation index bonds are only 16% correlated. And so they balance each other well, and they're both over the longer term relatively good assets to hold in the kind of environment that I think is more probable than is being discounted and that I worry about. So it would be an effective diversifier. Ray, it sounds like you just did a five-minute ad for Bitcoin. Bitcoin is an interesting question.

And by the way, I would say people get fanatical about Bitcoin and they get fanatical about gold. And I think that they have to think more broadly when we're thinking about what is the form of non-debt money. So the Bitcoin issue is, I believe that you're not going to get privacy in Bitcoin. Governments will follow and so on and can tax and control however that works. And if an alternative money of any form is threatening to the system, they can shut it down. They can operate in that way. And that the behavior of Bitcoin in terms of its determinants, past behavior of Bitcoin, doesn't make it clear to me how it behaves in relationship to some of these determinants.

Bitcoin is also, just to put it in perspective, it's a relatively small market in terms of, you know, it's like a fraction of, you know, I don't know, a fifth of the size of Microsoft or something. One stock and there are many stocks. So for all of those reasons, I wouldn't heap a lot of money into that. I have a very small Bitcoin position, I don't, but I, for those reasons, I would say central banks are not themselves going to take on Bitcoin. Central banks are going to take on, you know, there's a saying, gold is the only asset you can have that isn't dependent on somebody else making you payments. So I would favor gold over Bitcoin for those reasons, but each to their own and

make sure you're diversified because if the type of environment that we're talking about that comes to pass, you better be able to turn it into hard buying power wherever you want and probably have it fairly private. Stay with us. Support for this show comes from Grammarly. 88% of the work week is spent communicating, typing, talking, and going back and forth on topics until everyone is on the same page. It's time for a change. It's time for Grammarly. Grammarly's AI ensures your team gets their points across the first time,

eliminating misunderstandings and streamlining collaboration. It goes beyond basic grammar to help tailor writing to specific audiences, whether that means adding an executive summary, fine-tuning tone, or cutting out jargon in just one click. Plus, it surfaces relevant information as employees type so they don't waste time digging through documents. Four out of five professionals say Grammarly's AI boosts buy-in and moves work forward. It integrates seamlessly with over 500,000 apps and websites. It's implemented in just days and it's IT approved. Join the 70,000 teams and 30 million people who trust Grammarly to elevate their communication. We're back with Profit Markets. As we record this podcast today, we have a new most valuable company in the world, NVIDIA.

Curious to get your take on not only tech, not only the tech sector and AI, but just how concentrated the winners have become. The returns outside of these seven, you know, the magnificent seven have actually been quite meddling. They're barely keeping pace with inflation. What is your sense of the concentration of return in tech and tech in general? If a portfolio manager came in to your office and said, I just think we should be all tech, look at the returns, what are your thoughts? I think that's crazy. I've been in the markets for 60 years, 63 years, and I've been through many, many cycles. And I know that wonderful technologies, large changing of the world technologies throughout history, and I can go back to the steam engine and carry it all the way through,

they all have a cycle, and you also don't know who the winners end up being in that cycle. And there are enormous amounts of risk in that dynamic of operating that way. If you want to keep money as a storeholder. Well, the holy grail of investing is to find 10 to 15 good uncorrelated return streams because if you find a number of return streams, a number of investments that are good and uncorrelated, you will have the average return of those. So you don't lessen your return. Just pick ones that are really, really good that you like, but they're not correlated, but you will eliminate up at 15, you'll eliminate 80% of your risk. So you'll improve your return to risk ratio by a factor of five.

Okay. There is no way you can improve your betting on which one is going to be good by a factor of five. It's a competitive game out there to pick what's going to be a winner. And then also things change in unexpected ways as we know. Let's talk about, given the state of the markets, given your success, given your perspective, having been in the markets for 60 plus years, I just want to paint a scenario. You have a 25-year-old who has his or her act together, is credentialed, has the discipline to develop a savings muscle, is enjoying their 20s, but is credentialed, some domain expertise, willing to work hard, and thinks, I want to be smart about developing financial and economic security. What are your thoughts around an approach to investing and,

more generally, how character or approach to life impacts that investment strategy. But put yourself on everyone's shoulder who's 25 and might finally or 30 starting to save $1,000, $2,000, $5,000 a year and is starting to invest it. So your advice to me, basically. I was that person. And I remember going through that journey. And I'm so glad that you're asking me the question because my purpose in life now to a large degree and my purpose of being on this show is to try to pass along such things. And I remember when I started out, I was that age and I started to have a family and I started to think about how many months could I live if income didn't come in and then would go to years. And I would take that number and I would take my savings and I would

say, okay, let me cut that in half, whatever that number is, because it could go in half between taxes and performance. I would take that number, and I would start to think about what is it that is going to be most important? What's the purpose and use of that money? If I could immunize myself against the type of expenses, if I could prepay my children's education in a sense, or my living or whatever expenses, I think that that's the most important things. How do I build that? I would think about there's liquid savings, and then there's your home, which is your environment.

There's certain things like your environment is very important. And so there's how I think about the home and how that works and through improvements and forced savings, and also there's taxes. So I would want to take care of the benefits first in that quantity. And then I would try to have that element of diversification. I would view investing as being two types of investing, that investing for the safe money that's going to immunize the expenses that I need to pay, and then the I'm going to speculate kind of money because, okay, when you try to beat the markets, okay, don't be naive.

You know, at Bridgewater, we put hundreds of millions of dollars, billions of dollars to do research to try to beat the markets. So get the basics down well, including the understanding of diversification and take care of your needs most. I think those are the most important things. Maybe above it all is having a saving mentality. The impact of that saving mentality is enormous.

What are you most optimistic about in America right now? Well, I still treasure the fact that there's only anything that everybody needs is, and a successful society needs, is simple. You need parents who raise you, take good care of you, and give you a good education. And that good education isn't just formal education, but an education in good character and how to work well with others, so that you can come out and be productive and operate in a country that has relatively equal opportunity, and that if you have good ideas that you can receive because of the capital markets, others who will invest in you to make you have the opportunities and contribute to the society.

And so I think we have that better than any other country. I love the fact that the country of immigrants who comes from different places run by rule of law so that we can have a diverse population, all different ways of thinking that can compete with each other and work with each other. These are the things that I think are very much deeply in our bones or our DNA and embedded in laws and so on. That's what I'm excited at an opportunity that we have those things better than any place in the world. So really, that's why when you asked me big picture, what is the most important thing? The most important thing is how we deal with each other. If we can rise to that occasion, I'd be very, very optimistic. I think life expectancies, quality of life will improve immensely through the technologies and the things that we're doing. I think education

can be so much more effective and broadly based for many people. So I think that there's an enormous room for optimism if we behave well with ourselves, with a good character and self-discipline and work well with others, follow rule of law, all of that. I think that we can be very optimistic. Ray Dalio is the founder, co-chief investment officer and board member of Bridgewater Associates, the largest hedge fund in the world. Ray has been a global macroeconomic investor for

more than 50 years. He's also the author of several New York Times bestselling books, including Principles for Dealing with the Changing World Order, Why Nations Succeed and Fail. Always enjoy speaking to you, Ray. I really do think that you're having an impact. My sense is you've checked pretty much every box professionally, and you are genuine about trying to help the next generation. I think you're doing that. Appreciate your time. Really appreciate it, Ray. Thank you. Thank you very much. Algebra of Wealth. Scott, Ray's advice to younger investors was largely about the power of saving.

You wrote in your book, quote, money is fungible and you are saving it so you can use it, not to make the green numbers go ever upward. Can you tell us more about your approach to saving? I got lucky because as an entrepreneur, there's a certain amount of forced savings in that you're building a company and the majority of the wealth you're trying to create through that effort is deferred tax-free, but it's forced savings because you're building equity, hopefully, in a company that ultimately you'll sell someday. I believe that 99% of people will spend everything that's within their grasp, but the key is, as a young person, is to find a business, compensation, things like options, things like automated savings that hopefully an employee matches, that effectively get money out of your hands before it's even in your hands. So my approach

to saving was essentially to start companies where the majority of the payoff down the road would be forced savings. And also, I always bought real estate, which to a certain extent is forced savings because you got to make that mortgage payment and you get very focused on a goal, which is the down payment. So in sum, I didn't trust myself enough to not have forced savings mechanisms. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead, and Drew Burrows is our technical director.

Thank you for listening to Profiteer Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday. As the world turns And the dove flies In love, love, love, love Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand really gets you. Deliver that feeling to your customers every time. Klaviyo turns your customer data into real-time connections across AI-powered email, SMS, and more, making every moment count.

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