We Study Billionaires - The Investor’s Podcast Network - TIP164: Billionaire Ray Dalio's new book: Principles (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, hey, so how's everyone doing out there? Ray Dalio is one of the biggest names in finance, and his personal net worth is approximately $17 billion. He has grown his company, Bridgewater Associates, into one of the biggest hedge funds on the planet managing over $150 billion under management. Not only is the fund huge, but it also has huge returns. For example, in 2008 during the financial crisis, Dallio's Pure Alpha Fund, fund was up 9.4% when the rest of the market was down negative 50%. Although we often talk about

Starting point is 00:00:37 Ray Dalio's take on credit cycles and his ideas from the economic machine video that he created, we rarely talk about the principles that have made Bridgewater and Dalio the person he is today. So in today's show, we explore the brand new book that Ray wrote called Principles. In his new book, Radalio outlines his very own principles for business and work. He's teaching you how you can improve your decision-making process, and why he found that 15 uncorrelated bets is the holy grail of investing. All right, guys, so we'll cover these ideas among many other things that are laid out in this tremendous book.

Starting point is 00:01:13 So if you're ready, let's roll. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, how's everybody doing out there? So Stig and I, like we said in the introduction, are going to be covering Ray Dalio's new book, principles. And this is a fantastic book.

Starting point is 00:01:51 I'm sure everyone that listens to the show on a regular basis knows that I'm extremely biased, in my opinion, about anything that Ray Dalio writes because I'm a very big fan. But this book was phenomenal. I'm curious what Stig's initial thoughts are, though. I mean, where to begin? I'm looking here at my notes and I literally have eight pages of notes that I wrote down from the book.

Starting point is 00:02:15 There's just so many things that you can take away and not just as a business person. I think probably what Redalia was getting more at than anything is how to live a successful life. And not just a successful life in terms of financial means, but how do you live a good life? How do you find what you really want? What's the goal in lives and how to achieve them and live well with them? Yeah. This book is, I'd like to think that we read a lot of books. This book is definitely in my top five of all time because I think that there's things in here

Starting point is 00:02:50 that are definitely life-changing for people if they really dig in and try to understand what he's doing here. So without further delay, let's go ahead and just start plowing through this. The book is broken down into three parts. part one is titled where I'm coming from. Part two is titled Life Principles, and then part three is titled Work Principles. So let's just start with the first part of the book. And there's a lot of different chapters, so we're not going to go chapter by chapter,

Starting point is 00:03:17 but we are going to go by the three different parts. So the thing I really liked about this book was really the start of it, this first part, because you really get a sense of where everything has matured from. because you get Ray's entire life story from the time when he started Bridgewater. And even before that, which were some fun little stories about him growing up and, you know, going to school and how he wasn't a great student. Lo and behold, a few years later, he finds himself at Harvard Business School because he fell in love with the markets. He fell in love with trading in general and commodities and specifically commodities when he first started out.

Starting point is 00:03:58 I think one of the things that Ray was just naturally gifted with, and he doesn't say this in the book, but reading through the book, reading about him whenever he was younger, Ray is a guy who likes to dissect things. He likes to take things apart and figure out what the inner workings of things are. And I think that that's just his personality. I'd imagine that was what he was like when he was a kid, because whenever he talks about his process for trying to understand how the commodities market works, he goes into. He goes into, to just great detail describing every little nuance and mapping out how each one of these little phases would happen from the very start, the most fundamental piece of a commodity, clear to the point where it's sold on some type of futures market or what have you. And so that process of him mapping those things out has given him just an intense edge over others when trying to understand how to put a trade on which side of the position. and the B on, and then using those models to know whether you've got a high probability of success or not. So I think that's something that he was really gifted with. And I think after he had a lot

Starting point is 00:05:09 of this internal drive to succeed in the commodities market at a young age, right out of college, his performance and his passion for this just drove him to become really good at it at a young age and then obviously went off to Harvard and then started Bridgewater. Stig, did you have any other highlights for that initial kind of story of his life, and we'll get into more of how it shaped them profoundly later on. But did you have any other highlights from the initial? No, it was more from his first business failure that I really think was a really interesting story. And I think, at least looking back, it sounds like that's something that Redalue is grateful of experience. And so I don't know if we should transition into that part. Let me start it off with this.

Starting point is 00:05:55 So he has some success with his company. He starts at Upridgewater. It's pretty successful. He's becoming an expert in derivatives and things like that, specifically in commodities and currencies, eight years of success. And after eight years, he put on a position that Mexico was going to default on its debt. He successfully called this.

Starting point is 00:06:16 And in 1982, that happened. Mexico defaulted on its debt. And what happened was is because he was right about this, he started getting a lot of attention and Congress was holding hearings on the crisis and they invited Ray to come and testify. And so in 1982 in November, Ray went there and testified and he basically said to Congress and he also said on all these news programs, these financial news programs that he was confident that we were heading for a depression, next depression. And he explained why.

Starting point is 00:06:52 And so he wrote in the book, and this is straight out of the book. He says, as I saw it, there was a 75% chance the Fed's efforts would fall short and the economy would move into failure. A 20% chance that it would initially succeed at stimulating the economy, but it would still ultimately fail. And a 5% chance that it would provide enough stimulus to save the economy but trigger hyperinflation, which I guess is another form of failure. So he had 100% confidence. And it's great that this is what I love about Ray. It's great that he puts us in the writing. And he's so, you know, transparent about this mistake.

Starting point is 00:07:29 And that's what I love about Ray is he's so transparent. So he's writing here. I had 100% confidence that this thing was going to fail. And then in the next paragraph, he starts off the paragraph. He says, I was dead wrong. So he eventually found out why he was wrong. And he said that as the money poured out of these borrower countries and into the U.S., it changed everything.

Starting point is 00:07:49 it drove the dollar up, which produced deflationary pressures, and goes into all this stuff, which actually ended up fueling a boom for the next decade and a half. So he was dead wrong. And so what he got out of all this, he said that I learned a great fear of being wrong that shifted my mindset from thinking, I'm right to asking myself, how do I know I'm right? And so by asking that question, he started to really question everything of what he thought and what his biases were on what he thought the probabilities of things. So he came up with four bullet points. This is really what he learned from this painful experience because he lost every single employee in his company from this.

Starting point is 00:08:33 The trade was so bad that he lost every single employee in his company. He was the only one left and he couldn't make payroll to the people that were employed within the company. And so these were his four learning points. Number one, seek out the smartest people who disagree with me so I could try to understand their reasoning. Number two, know when not to have an opinion. Number three, develop, test, and systematize timeless and universal principles. Number four, balance risks in ways to keep the big upside while reducing the downside. And it's just reading that, like, I just want to go back and reread it to myself again.

Starting point is 00:09:13 So I can only imagine how you feel kind of hearing it because this is such profound information. This four-step process is so profound as far as I'm concerned that it's something that, you know, you want to print off and paste right on your computer so you can look at it on a daily basis. This is really important stuff. So, Stig, I'm sorry. I'm pretty sure I probably stole your point with all that. But go ahead. I want to throw it over to you.

Starting point is 00:09:35 You kind of did, Preston. And I don't know if this is a good thing or bad thing that we're reading the same book and we have the same notes. I don't know if we've thoughtful disagree enough with each other when it comes to that. One thing I really want to highlight is here's another billionaire who is saying the worst thing it can happen for you as an investor is if you're right. I mean, he hit the silver boom just oh, 120%. And he made a ton of money in that. And like, I guess, all new investors, they feel invincible. I mean, they feel like they really know the market and they feel like they can just do this forever.

Starting point is 00:10:14 Perhaps they expose themselves to more risk than they're supposed to. You know, it's interesting to hear him and people like Jim Rogers saying the same thing. It's just so bad to be right to begin with. And people out there might be thinking, well, Redalor's net worth is call it $18 billion. It's probably not that bad. But it was really bad. I mean, at this point in time, eight years into his business, he was publicly wrong. And even though he's been more often right than wrong, he really had nothing to show for at this part of the time.

Starting point is 00:10:45 And as Preston said before, like, he couldn't make payroll. He even borrowed $4,000 from his dad because he couldn't find a buyer for his car. I mean, he definitely didn't want to go back. And this was the time when he had two small cats and a wife. So he was struggling. And the next section is really interesting because then he would face this decision like on the brink of bankruptcy. Do you want to stay safe and have an order in your life? Or as he puts it, do I want to cross the dangerous jungle and have a terrific life?

Starting point is 00:11:20 I love that. I love this. I mean, for me, I'm just thinking about how depressive this could have been. You know, think about it. You had been so right about so many things. For eight years, you're this young warrior of finance. You're so good that you have Congress actually bringing you in to testify to explain to them why things are happening. And then within like a year, you're so broke that you're borrowing $4,000 from your parents.

Starting point is 00:11:48 And you got a family and a spouse and all this. I mean, I couldn't imagine how painful this could have possibly been. And so his learning points there, those four things that we read off, like guys, I mean, my gosh. for a person to go through everything that he's done and then have the biggest hedge fund on the planet, you know, billions upon billions of dollars that he's turned it into and to have a comeback like that. I mean, it might go down in the books as one of the biggest comebacks ever. So I'd tell you that's some pretty freaking important information. I want to jump to another section in this intro part where we're,

Starting point is 00:12:22 and we're still here in the first part of the book. We're raised talking about basically how he arrived at his end solution here at Bridgewater. And something that I really like, this is something that we've covered in other episodes, but I think it's really good to bring up again. And Ray talks about what he calls the Holy Grail of Investing. And I know that this was something that we covered whenever we did the Jack Swagger book, because this is something that Ray told Jack Swagger whenever he was interviewing him for the Market Wizard series.

Starting point is 00:12:49 And this is also something that Joel Greenblatt talks a lot about. What Ray says the Holy Grail of investing is, and I like how he said, for me, this was, I felt like Einstein when he discovered E equals MC squared. whenever I understood this. And what he discovered is that if he can make 15 to 20 uncorrelated positions, let's say you buy one stock and you buy another stock and they're inversely correlated. If you can look for positions that are not correlated, then you find 15 to 20 of them, you can still get the return, but you mitigate almost all the risk out of the return.

Starting point is 00:13:25 And for him, that was the holy grill of investing. And what he says is, I could get the return, but not the return. a risk. And so that was a huge turning point for him. And so when you have your portfolio and you only have five positions in your portfolio, there's a lot of risk there. And it might be completely uncorrelated. But because you only have five positions, you haven't reached this threshold. He has a nice little chart in the book that's, I mean, worth the money of the book itself, as far as I'm concerned, just looking at this chart because it shows you mathematically why that is. This is on page 57 of the book. If you've got the book, you can flip the page 57 and you'll

Starting point is 00:13:58 see exactly what I'm talking about. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year,

Starting point is 00:14:26 bringing together activists, technologists, journalists, investors and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech,

Starting point is 00:15:09 and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com, with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference, it's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can

Starting point is 00:15:55 put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect your directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures,

Starting point is 00:16:40 get their free business guide, demystifying AI at Netsuite.com slash study. The guide is free to you at Netsuite.com slash study. NetSuite.com slash study. When I started my own side business, It suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names.

Starting point is 00:17:21 It gives you everything you need in one place, from inventory, to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB.

Starting point is 00:18:03 That's Shopify. com slash WSB. All right. Back to the show. So what I really like about this section in the first part of the book is that he has this quote. And this is probably not going to be the first time we are quoting something from the book because it's a very, insightful. I literally had to write it down and reread it over and over again after he said that.

Starting point is 00:18:29 He said, you can have anything you want, but not everything you want. And that was his big realization after his crash. So I'm just going to say that again because it's so profound. You can have anything you want, but not everything you want. Not even if you're red value, not even today. He talks about how he can not even have that today with $18 billion. That was something that you could really take away. Yeah, so I love this quote as well, Stig. I'm glad that you pulled this out because what he's really getting at is you can do anything you want in your life.

Starting point is 00:19:03 And in fact, we're going to get into some of the recipes that he has in this book for getting anything that you want in life. But it all comes at a cost. So let's say you're listening to this podcast and you want to be a billionaire. That comes with an enormous cost. And the cost is your time and your focus and your, energy that you're pouring into that goal that you want. And so you have to ask yourself, is the cost of me spending less time with my family? Is the cost of me not being able to go out

Starting point is 00:19:34 on Friday nights because I'm working on my business? Is the cost of, you name it, insert there, worth it. Let's say your goal is, I want to be the fastest, you know, speed skater at the Olympics. So I want to win the gold medal. You can have that if you work your tail off for it. You can go after that, but it's going to come at a cost of everything else that you're passing up. And that's what Stigs getting out with this quote. And that's such a profound quote. I love that quote. Yeah. And he continues, and he's saying that he has this equation that he's been using throughout his life. He's saying that dreams plus embracing reality plus determination, that's equal to a successful life. And I think that's so true. He really wants you to dream big and then prioritize

Starting point is 00:20:19 because if you follow the right principles, and we don't all have to have the same principles, and he's outlining his in the book, according to Redalue, and I think he's right, you can follow some core principles to get that. All you need to be aware of is you need to be very realistic about it, and you need to be willing to pay that price. That involves a lot of painful mistakes

Starting point is 00:20:42 and learning from them and changing, but the recipe is still holds. Then he has like a final point. point about this, he says, even if you do follow this recipe and even if you end up with this quote unquote successful life, all you can hope for is to struggle well. Because at the end of the day, you don't live a good life by achieving your goals. You need to set new goals. And you will struggle and you will feel pain. And you will feel progress, which is your reward for doing so. But you can only hope for life where you struggle well. That's all that we can hope for. And I think

Starting point is 00:21:19 that's, I don't want to sound bitter when I say that, but I think he's right about that. I think that is what we can hope for. It's funny at the end of the Ed Catmel book that we read about creativity, Inc. He talked about this sense of emptiness after he had achieved his goal. And I think that that's what you were just kind of hitting at as far as evolving and the journey being the reward here. And we've heard that in other books as well. Just a critique of mine for Ray's formula. I don't like the word dreams. I don't know. For me, I saw that on his Twitter page. You know, dreams plus reality plus determination equals a successful life.

Starting point is 00:21:54 I agree with all the words there except for dreams. I think I like the word objective or like dreams seem like they're like wishful thinking, I guess for me. Like whenever I hear dreams, it just seems like something that you want to come true but might not. I guess I like the word objective better. Like you're setting your course and your destination for this one thing. That's just a critique of mine. So Ray, if you're listening, there you go.

Starting point is 00:22:18 There's a critique. All right. So let's jump into the second part of the book. So I love the first part. For me, it was just fun to hear these stories because they were stories that I've never seen written before anywhere in the press. And that's what I really liked because a lot of it was so fresh to read for the first time. And you get a lot of his economic thinking with a lot of the different stories that he was talking about too, which was really awesome. All right. So then when we go into the second part of the book, this is called life principles. And the reason he starts off with life principles instead of work, principles is because I think in his mind work principles are definitely subordinate to the life principles. He's starting with the big picture. He's describing what that big picture is and how he feels that it's articulated the way that he's defining it from a very broad paintbrush. And then after that, then he gets into the more specific. So after you've set your goals, after you've figured out what it is that you want to go after, once you've set your objective, how do you build a business, how do you build an organization of people around that to achieve that objective. So that's the third part is when he

Starting point is 00:23:23 gets into all the work principles. So let's talk about the second part, which is the life principles. I learned a lot in this section. And the thing that just stands out in my mind about this entire book is something that I learned in this second section. And it's this idea that the individual's incentives must be aligned with the group's goals. and reality is optimizing for the whole and not for you as an individual. And I think that that's a super insanely profound idea that I didn't necessarily have before reading this book and not something that I had read anywhere else. And what Ray is really getting at here is he believes that the universe rewards those that add value to the whole and not to the individual. And I think intuitively that makes sense to people.

Starting point is 00:24:15 But I think so often very few people practice this whenever they're trying to think about how they can add value to the world or how they can create a product or service that isn't just good for a few people, but is actually beneficial to mankind as a whole. And I think when you think through that context, what you're actually doing is you're swimming with the current. You're actually moving in the direction of the current, which is a whole lot easier to get moving. in the right direction when you're going with the current, opposed to against the current. And so beyond that idea, which I think is really important, there's another life principle in here that I think is equally as important. And this is principle 1.3, and it's really simple. Be radically open-minded and radically transparent. And anybody who knows anything about Ray Dalio knows that this is such a fundamental piece to who he is. Everything there at Bridgewater is recorded.

Starting point is 00:25:10 it's openly transparent. And the reason for all of this is so that there's an environment where truth is what's important. Nothing trumps truth in the culture at Bridgewater. And because of this experience that he had back in 1982 with having just total loss because he was wrong, I think he realized at that point in his life that if I'm wrong again, I don't want to go through that pain. So I got to be radically transparent. and I've got to surround myself with people that tell me what they think the truth is. And he talks about how if I have an opinion that the sky is blue,

Starting point is 00:25:47 I want to find somebody that has a very high level of credibility that is an authority that believes that the sky is green. And then I want to talk to that person who says that the sky is green. And I want to troubleshoot and try to understand why they think that idea is true. And then I'm going to compare it to what I think is true. And then between those two vantage points, the truth will emerge and you'll be able to find exactly what it is. So he's talking about how do I destroy my own biases by going and talking to people and being just this person who wants to absorb and shut up and listen, opposed to a person who just wants to propagate my opinion and try to mindlessly make other people believe what I'm saying. It's not that at all. It's the exact opposite.

Starting point is 00:26:33 How can I try to find out what other people have that have the exact opposite opinion? so that I can understand why I might be wrong. This is not all this big talk. Like he's sharing some of the feedback that he's not only giving to his employees, but it's a two-way street. All right. So to give you guys an idea of this radical transparency that happens at Bridgewater, Ray provided an example in the book, which is just awesome.

Starting point is 00:27:01 We love this. So after this meeting that he was having at his office at Bridgewater, he received this random email from a person who was also attending the meeting, and the email was a gripe that this person had with Ray's performance during the engagement during the meeting. And so Stig's going to read the email that Ray received. So the email said this, Ray, you deserve a D-minus for a performance today in the meeting. You did not prepare at all because there is no way you could have and been that disorganized. In the future, I or we would ask you to take some time and prepare,

Starting point is 00:27:38 and maybe even I should come up and start talking to you just to get you warmed up or something. But we can't let this happen again. If you in any way think my view is wrong, please ask the others or we can talk about it. I love this. Wow. That's honest.

Starting point is 00:27:55 It's awesome. I mean, and where else would you see something like this and the person probably got promoted after they sent it? That's what I love about them. And basically what he said afterwards was that the reason why he really appreciated this is he can't grow as a person or just as important. The organization can grow if you don't have this honest feedback or what Redalia calls radical transparency. And it's not just big talk, as you could tell. He shared it with the world afterwards.

Starting point is 00:28:23 It was that good even though it probably sounded mean to a lot of people. All right. So this is probably one of the most important things you're going to find in the second. part of the book, the Life Principles section. And this is titled, Use the Five Step Process to Get What You Want Out of Life. So as Stig said earlier, you know, whatever that thing is that you want to get out of life. And raise of the opinion, you can accomplish anything you want. It's just a matter of how bad you want it. But whenever you identify, whatever that thing is, whatever your destination, your objective, your dream, whatever that thing is,

Starting point is 00:28:58 this is what you're going to do to achieve it. And it's simple. Really hard to apply, but really simple to describe. Number one, have clear goals. Know exactly what you want out of something. When I go back to my military roots, one of the very first things that I learned at West Point was whenever you identify a mission, it has five things to it.

Starting point is 00:29:23 The who, the what, the where, the why, the when. And so what you actually do when you write out a mission statement, is you identify those five things and you make sure they're explicitly stated in your mission of what it is you're trying to do. And that's what I think he's getting out here with step one is have very clear goals and know what it is that you're going after. The second thing that he has, identify and don't tolerate the problems that stand in the way of achieving those goals.

Starting point is 00:29:50 So not only are you going to say, let's say I want to go from one side of the fours to the other. Then I identify, well, there's this big rock wall in the way. That's obstacle number one. Then there's this big giant valley after that. And then there's this really thick forest that I have to. You know what all those obstacles are. At least you have an idea of what those are when you're first starting out.

Starting point is 00:30:11 You have to identify those. And I think this is a really critical word in this second part. Don't tolerate the problems that stand in your way. So you not only identify them, but you don't tolerate them. No matter what, you have the opinion that there's a way to over- come these obstacles. The third one, accurately diagnose the problems to get at their root causes. This is where he does his best, as far as I'm concerned. He gets in there, he understands every nitty, gritty detail of every one of these obstacles. He defines it. He maps it. He backtested it.

Starting point is 00:30:46 He does all of that stuff, and he understands it better than any other person that can identify that problem. That's where Ray Dalio is the master, as far as I'm concerned. And so that's step three. Step four, design plans that will get you around those obstacles. So now that you know exactly how the obstacles work, what the problems are, how they're going to jump out and get you. Now you've got to design every, not just one way around them, but probably 50 ways around them and backups to the 50 ways to get around them because you're relentless and you don't tolerate the problems. Number five, the last step. do what's necessary to push these designs through to results. Or in other words, be relentless is what he's saying here.

Starting point is 00:31:30 That's the five-step process to get what you want out of life. So another thing that you probably need to write down and hang up on your computer and look at and think about every time that you want to accomplish small goals, big goals, mammoth goals, and goals that scare you when you think about them as we're stealing from other people's quotes. that is really, really important. He gets into the nitty-gritty of all of this stuff in this book, and this book is so freaking organized. Honestly, Stig, have you ever found a book that's more organized than this book?

Starting point is 00:32:03 No, he's definitely a numbers person. The way he puts everything up in bullet points, it's almost like a textbook. He is just so organized. So this is the first part, this is the first chapter. This is the takeaway. These are the bullet points. I mean, it's in the right order. Yeah.

Starting point is 00:32:19 I mean, it's just, like, we're doing this book, no justice whatsoever. So, like, if you're listening and it's like, oh, I'm getting everything I need to out of this book, wrong. You're not getting everything out of this discussion from this book. Like, we are hitting on the basics. There's so much more to this, so much more substance to this than you could ever imagine. I think you're absolutely nuts if you don't have this on your shelf and have gone through it at least one time. So the next thing I would like to highlight from this part of the book is he's talking about the cost of a bad decision.

Starting point is 00:32:51 And I think this all raised back to the horrible experience he had whenever he went bankrupt or almost because he was wrong. I mean, he was perhaps only wrong on one thing, but that was enough to completely destroy the life he knew until then. And he talks about how the cost of a bad decision is at least equal, but much more often greater than the reward of a good decision. So you should know what you don't know is. just as valuable as knowing.

Starting point is 00:33:21 And I love how he talks about the risk-reward ratio. And I guess some of the next points I'm going to say, they might seem simple. But I would like to wrap this up and talk about how insightful it really is. Because he's talking about how you should always look at, so first, the risk and reward ratio. So always make sure you have a huge upside and a very little downside, which also ties back to what we talked about before, about having 15 uncorrelated better. Now, this might be more seen in a financial perspective, but this is basically like everything in life. And the example he gives is that a lot of people would focus on going from probably being wrong, called it 45%, to probably being right, say, 51%.

Starting point is 00:34:08 Because we have this tendency as human beings to be, well, if it's more than 50%, that is what I should do. because it's probably right. And he said that based from his experience is, no, not at all. Why don't you go home and study and go from that 51% to, say, 85% and then make an uncorrelated bet, whether that's in life or in business? And it's just profound that if you compare this to, say, a politician, and this is not redelius' word, this is my example. If you compare this to a politician, you'll probably see a ton of interviews with politicians.

Starting point is 00:34:49 And I'm sorry if you're just an easy target here. But you see this politician, he'll be asked a question. And you can see that he really doesn't know what he's talking about. He is saying something that he thinks is right. And it turns out he's wrong. But he really can't be what you would call a footbubber, right? Because that sucks a word in politics. So he's just painting himself more and more into that corner.

Starting point is 00:35:12 Because he said there's one thing that he said. without knowing the facts. So I really think that is what Redelia is getting in here. What is wrong by saying, I understand what you're coming from? I don't know if you're right. Let me go back and think about it. Let me find people who thoughtfully disagree with me. And then hopefully I can go up to 85 plus before I will make a decision of what to do. We need to search for the truth and not for who said what. Who can we give credit? That does matter in redalions world. It's all about how do we find truth? And I think that decision-making process is one of the most important things you can take away, not just from this chapter, but from the book

Starting point is 00:35:57 in general. All right. So let's move into the third section, the third part, and this is called work principles. And this is broken into three different sections. The first section is a section about how to get the culture of the organization right. The next section is how to get the people right. And then the last one is how to build and evolve your machine or your protocol for running the business. And going from the second part into the third part, what I think Ray is expecting a person to do is to be able to identify what that big objective or that big mission or that

Starting point is 00:36:34 big dream is in their life. and then they're slowly growing a business around that objective that they're trying to create, the value that they're trying to create for the world. And when you go through that, if it's something big, which is what I think Ray would expect you to do is pick something big. And if you're trying to accomplish something big, you can't do it by yourself. You have to do it as a team. And so this last part is how do you build that team and how do you do it in a way that has a

Starting point is 00:37:06 sustainable result that's going to get you to where you need to go. And so he, and, you know, the way that he has this broken down, he thinks that that's done in a three-part solution. The first part is you've got to get the culture of the people within that organization right. You have to set that culture because after it gets so big, it takes on this life of its own. And if you don't mature those principles of what the culture is going to be early on, when it gets too big and you don't even know the name of the employee that's working in your organization anymore because it's so big. It's way beyond you at that point. So that's why there's so much emphasis spent on these principles within the section that are oriented towards the culture. The next thing is how do you get

Starting point is 00:37:48 the person, the higher right? And he has three subsections underneath of that area to talk it. And then the last part where he's talking about building the machine and the protocols and working on the things. The thing I think about in this section is going to Jim Collins book, Good to Great, when he's talking about how do you perfect things at the most fundamental level so that no matter what, that thing will always have a good result and have a good protocol, is the word I like to rely on. How can you define that protocol so that it's always functioning in the correct manner?

Starting point is 00:38:25 And that's what this last part is about where you're building and evolving your machine so that you refine this. All right. So in that first section where he's talking about culture, one of the things that I wanted to highlight from this section was this idea that you want to create a culture in which it's okay to make mistakes, but completely unacceptable to not learn from them. And this was really big. And he gave examples in his company where people had made trading mistakes and, I mean, monumental trading mistakes where they lost tons of money. And Ray talks about how it would have been so easy to fire somebody for the size of some of these mistakes. But instead, they were charged with the responsibility. That is, as soon as they made a mistake, they had to go to a book and they had to enter in a ledger, the mistake,

Starting point is 00:39:12 and then what their corrective action or what they felt would be a corrective action to the mistake in order to make sure that it never happens again. and the only way a person could get removed from the organization is if they failed to identify the mistake that they had made and basically identify this so that it didn't happen again in the future. And so that's a very drastic twist compared to what you've seen in a lot of corporations in America where you're just fired for the mistake. You know, they could care less about the learning. In fact, they almost ignore the learning and they do the same mistake over again. But this is what makes Ray Dalio, Ray Dalio, where he is. is obsessive about learning from those mistakes. So that was highlighted in the culture section.

Starting point is 00:39:54 There's a whole lot more here for people to learn from if you're running a business and you're in upper management, middle management, lower management, and you're not reading this last section on how you can make the organization run more effectively. I think you're losing a huge opportunity. So a lot of other points there in the culture section. In the next section where we're talking about getting the people right, Stig's going to highlight something that he found quite interesting. The way that he explains this is using his three Cs.

Starting point is 00:40:21 So just another great example of how he's using this as a textbook. And it was really clear to see how Edaman he was about this is not him talking about his life. This is more him telling us how we can run our companies differently for the greater good. Which is a long kind of side track here, but I really like that about Redalio. But the three Cs he has about hiring the right people. That is character, common sense, and creativity. I think it's really hard to find a business book, a really insightful business book who's not talking about the character of the person.

Starting point is 00:40:58 I think that's actually the most interesting thing here, because he's basically hitting at you should hire people you will like to share your life with because you will always have a need for being surrounded by great people. And not just today with how much the world is changing and how much the landscape, almost any kind of occupation is today, but just in general, like if you have people with the right character, first of all, they will adapt to that new reality. And then you might say, especially if they have creativity. I really also liked his point about common sense.

Starting point is 00:41:34 So how much common sense do people have? Do they plug things into a computer? Do they think for themselves? How do they work with other people? I really like that. And he's giving some really good advice in terms of how can you identify these trades. So how many questions do they ask when you speak to them? That's one thing.

Starting point is 00:41:51 How interested are they really? And then there's another thing I really took to heart that was show them the bad stuff. So he actually took pride in whenever he was hiring a new candidate for a job, telling him all the bad stuff about that position. because if they still accept the job, it really shows that they endure. So this is just a personal story. We've been looking to grow the organization. And after reading this segment of part three, I was so inspired.

Starting point is 00:42:21 So I told one of the team members that if she can please meet up with her perhaps future coworker and say all the bad stuff about working with us, that's a long list. And I said, you know, I won't ask you what you said. I won't ask the candidate, but if that candidate is still going back to me and saying, I still want to work with you, well, I have Redelius work for that it's shorts and indoor. And I get that. I mean, I know I'm almost laughing when I say this, but it actually makes a lot of sense because you don't have to say the good things more than once.

Starting point is 00:42:55 People will remember that. You don't have to say if you're paying an author of fare, if you're giving paid vacation, if you're having all these benefits. You don't need to say that more than once. But really make sure they know what all the bad stuff are. Because that's the job too. The job is not just collecting that paycheck. The job is not the prestige or whatever else you can offer.

Starting point is 00:43:17 It's the bad stuff. That's also what life is all about. I'll tell you who would have a long list is our audio editor who's listening to all of our mistakes that get edited out at these recordings. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance,

Starting point is 00:43:47 risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try?

Starting point is 00:44:35 The futures market is more active now than ever before, and Plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&B 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right for from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks

Starting point is 00:45:12 once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes, thanks to the

Starting point is 00:45:59 Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise income fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund fund fund's prospectus at fundrise.com slash income. This is a paid advertisement.

Starting point is 00:46:50 All right, back to the show. And the last thing, Preston, about this section, I really came to think of you. He's saying, you want to work with people who say you should have more. And the reason why I think of you is, I don't know if you remember this, this is years back, this is years before the podcast and we were starting to write books together. And I was like, why is this guy offering me such a good deal? I don't know if you remember that call, but it's something I really remember. And honestly, Preston, I'm sorry to say, but the first thing I thought was,

Starting point is 00:47:20 Preston is really a bad businessman. I came from this background as a trader, and as a trader is all about, if I can gain one dollar, you would need to lose the same. I mean, it is a zero-sum game, more or less. But I've studied you, and I've talked with you several times before that, and through chatting on the forum. I knew you were not a bad businessman. So this was a brand new concept for me, meeting people who are saying, you should have more. because what happens is you have this positive feedback loop.

Starting point is 00:47:52 If people are telling you, you should have more, what's typically happening, and you know it might sound kind of intuitive is that he would go and say, no, you should have more, or at the very least, then I should provide more value than what we originally talked about. I really like that about the book. It was so insightful and so much, it's really testament to his point about meaningful relationships.

Starting point is 00:48:13 It is a great financial decision to work with people who say, you should have more, but even more important, it's a good way of living your life. Yeah, I think a lot of people underestimate the power of compounding goodwill. And that's a really powerful force that is something that's hard to learn because you've got to give away a lot in order to see the effects of it. I think a lot of people don't have the ability to let go and actually see it mature and see it compound and work for them. But thank you, Stig. I appreciate that. It was really nice. you. Well, even though I said you were a bad business, man. I took it as a compliment. All right.

Starting point is 00:48:51 People out there rolling their eyes. All right. So that's going to wrap up our summary of the book. Now what I want to do is talk about something that happened to me personally. I was afforded an amazing opportunity by a close friend. And I'm very grateful for this person who gave me this opportunity to attend a book signing with Ray that he had for a very small private group. of people. I'd say there was 80 people there in Washington, D.C. This happened probably about five days before the book got published, the street date of the book, when you could buy it on Amazon. So anyone who knows me from listening to the show knows probably how excited I was to go to this event and to be able to talk with Ray. So we got to the event. I was able to meet Ray one-on-one and

Starting point is 00:49:39 talk to them. Every person that went there got a signed copy of the book before it was released, which I was really excited about because I'd pre-ordered mine on Amazon probably three months before this event happened or even before I knew I was going to this event. And so I went in there. I got my copy of the book. It's signed by Ray. And Ray made an announcement. He said, hey, if you want me to personalize the book by writing something in there, just come up to me at any point tonight and I will personalize the book for you.

Starting point is 00:50:10 And so I went up and asked Ray if you could personalize it. and in my copy of the book, Ray wrote, Preston, keep evolving well. And it didn't dawn on me the meaning of this whenever he wrote it because I hadn't read the book yet. And so, you know, I got back and I plowed through this thing at a rapid pace because I was just so excited to read, you know, his thoughts. And Stig hit on this during the review that we did about this idea of evolving well. And what Ray talks about in the book is that a person who's evolving, a person who's progressing is a person who's living life well and a person who's happy. I think at the end of the day, happiness is so closely tied to a person who's evolving

Starting point is 00:50:57 and feels like a person's growing. How many people do you see that are 80 years old and are miserable? and when you think about why is that person miserable or why does that person just feel like they're a robot going through life is because for a lot of those people, they've stopped evolving. They're not learning every day. They're not trying new things. They've just settled for every day looking to see. And I think the world becomes very gray at that point and very dark. And you're not really, that's not life anymore.

Starting point is 00:51:30 That's somebody who's just mechanically going through things and they're not exploring. and they're not learning. And so that quote was so meaningful. One other thing I want to share about the encounter that I had with Ray is, you know, Ray said to me, he said, these are my principles. And I'm sure there's a lot of them that you can use. But Preston, you need to develop your own principles. You need to start writing down which you think is the truth.

Starting point is 00:51:57 And you need to start dissecting the granularity behind what you think those principles are. And come up with your own. challenge mine, come up with your reasons on why you think mine are wrong. And so just that mindset, not even what he's saying, just the mindset of what he told me is so profound. Because what he's saying is, I don't have the answers to everything. My answers might even be 100% wrong. I don't know. That's for you to figure out. And that's a person that's sharing true knowledge as far as I'm concerned. And if people out there listening to this can gain anything from all of this, I know for me that that encounter with him was so, it's almost surreal because it was such,

Starting point is 00:52:41 it was such a truth bomb for me to hear this. And to have Ray tell me that one on one was just, you know, I was very honored to have met him and to have this experience. And what a book, you know, just what a book. I can't recommend this book highly enough. And it's, definitely sits on my shelf with a lot of pride. All right, guys, so that's all we have for raised book, principles, life and work, fantastic book. We'll have a link to the book on Amazon and our show notes. I highly recommend you guys pick this one up. It's also an audible. I got a hard copy. I also did audibles. Both are stellar. The one thing that I will say about the hard copy, it's so well organized, like we said earlier, and it has all these things that are really

Starting point is 00:53:26 systematized inside the hard copy that, to be honest with you, I think the hard copy is probably the best choice if you're trying to pick between the two. I would definitely go with the hard copy so you can reference things. But that's, you know, that's my two cents. So, all right, that wraps up the book. At this point in the show, what we're going to do is we're going to cover a question from the audience. And this question comes from Ton. Hi, Stig. Hi, Preston. This is Tom calling in from Cincinnati, Ohio. I'm a huge fan and so happy to see the tremendous growth of your brand. I can't thank you guys enough for all that you do, since the most effective teachers are the ones who make difficult concepts understandable to their students, and you

Starting point is 00:54:04 guys do just that. My question today revolves around the current economy and how it relates to the market. Data showed that recent inflation rates in the U.S. were lower than expected while the economic growth is accelerating. Subsequently, bond yields or interest rates recently just hit their highest levels. In this scenario, one would think that if the economy is growing in a positive manner, then prices should be rising relatively along with it. But instead, inflation rates are low, so I'm curious to hear what your thoughts are on why this is the case. I'm also curious to hear your thoughts on what it means for the market as billionaires like Ray Dalio are shifting portfolios to a more defensive position. As always, I look forward to your next show and your

Starting point is 00:54:50 replies. Thank you. Wow. Thank you so much, Tan, for this amazing question. And it really makes me think of whenever I was teaching classes in macroeconomics and for me to starting to doubt the current models we have about inflation. You are right. What we're typically taught is that when the economy is heating up, inflation should go up too and that's not what we see. And the reason for that, just so anyone is on the same page is that whenever you have economic upswing, it would lead to higher wages, it would push up price levels, and then often the federal reserve would then high rates to stop the economy from overheating, and to stop that inflation that will come from as a result of that. And it's kind of like it would go in cycles, and that's kind of like what we were taught and what we used to think.

Starting point is 00:55:40 So you're really hitting at something good here. So what's happening now? why haven't we seen this in this cycle and perhaps not too much in the last cycle? And the reason why is that the feedback loop I talked about before with the economic upswing, higher wages, high price levels. It's not what we have today. And the core reason for that is the productivity growth abetted by the new technology because now you have more production that can be generated from capital labor. And you can grow the economy faster without not causing the supply bottlenecks that particularly give higher prices.

Starting point is 00:56:16 And this is also hitting at what President mentioned before, that the middle class is really getting crushed. It might sound like the average GDP for the U.S. is increasing, and it is, but it's not distributed equally. And technology is a huge reason for that. If we continue the discussion about technology, it was really key here. If you think about the prices of something like education, healthcare, food, I mean, that's all getting more expensive and you're like, it has been so for a long time and you're looking at the inflation rate of 1% or 2% and you're thinking, this doesn't make any sense. And this is really a math thing.

Starting point is 00:56:56 Because of technology, technology has made certain products that takes up a huge part of a disposal income much cheaper. So, for instance, this calculation, the price of cell phones dropped 62% between 2004 and 2014. Now, you'll be like that doesn't make any sense. Phones are expensive today. But what you do whenever you're looking at the inflation index is that you're saying, I need to have a comparable product. Now, that makes a lot of sense if you have 10 gallons of gas.

Starting point is 00:57:26 If you put that into the index, that makes a lot of sense because it has the same utility more or less. But it doesn't make any sense because that phone wouldn't have the same utility 10 years from now. So also keep in mind that the inflation number is skewed. thing I would like to highlight is the sharing economy, which is a new thing that we haven't seen before. If you look at something like Airbnb, they had more than 160 million guests last year, and on New Year's Eve, they had 2 million guests spending a night in the Airbnb listing.

Starting point is 00:58:01 So in the old world, just that alone would be 20,000 mid-sized hotels that was built to accommodate the guests, and that would create a lot more demand. labor, cement, materials, and land. And that's not the same effect you see now because of the sharing economy. And then the last point is that we have globalization now. And to an extent that we haven't seen before. So in the old feedback loop that I talked about before with the economic growth, and then you will have worker demanding high wages, as you said before,

Starting point is 00:58:33 that's not the way it is today, partly because technology, but also even if you can replace that technology, very often you, can replace that with workers abroad. So by definition, since they will work for a cheaper wage, you can't pressure up the prices. And so the wages will increase and in turn inflation. So I guess that was kind of like my own reflection of how macro has changed, how inflation has changed and how we probably need to rethink inflation and what to do about it in this new, globalized and technological world.

Starting point is 00:59:08 But I really like your question, 10. and thank you for allowing us the chance to talk about this in death. So this is a very appropriate question for this episode, Ton, and I'm going to hand you off to an article in our show notes. Ray literally just wrote this article last week. He published it on LinkedIn, and it addresses this exact issue that you're highlighting. And a lot of it comes down to the effects of quantitative easing and what it actually ends up doing to the economy. me. So everything that you described, 100% accurate. And what you're seeing is this obliteration of the middle class. And so where you are seeing growth, you're seeing growth in the hands of the elite.

Starting point is 00:59:51 You're seeing the asset accumulation and the asset appreciation in the hands of the elite. He goes in and he quantifies everything with stats and statistical proof to back up every one of the claims that he has to substantiate his position. All right. For the second, The second part of the question where you're asking about where do you think things are going to go. For me, I took a lot of my queuing from people like Ray, from Warren Buffett, some of these other guys. And what these guys are all talking about is the central banks starting to take a different approach moving forward here at the end of 2017 and into 2018, where they feel that a lot of the central bankers are going to start to turn off a lot of the quantitative easing that's been so prevalent in the previous decade. You're already seeing that with the Fed here in the U.S. You're still seeing the ECB and the Bank of Japan doing quantitative easing at humongous rates.

Starting point is 01:00:46 So for me, I'm having a hard time buying it. I recently heard an interview with Ray on Bloomberg, where Ray was saying that, you know, 2018 is going to be the year where the central banks start to reverse. What you're going to see is that bonds are going to start to sell off, and you're going to start to see rates on bonds going up. That's what his expectation is moving into 2018. Ray also said that it's not that he's a bull on stocks, but I think he's cautiously holding. And I think he still has a fairly sizable position in stocks. But I think that he's not looking to call a huge upside there.

Starting point is 01:01:21 I think that it's more of a sustainment kind of thing. So my expectation is very similar to all of that. I think that the bond market is going to have a fairly substantial sell-off. I think most of the sell-off in the bond market is going to happen on the short end of the yield curve on the duration side. It's like the shorter duration bonds are the things that are going to be moving a lot. If you get out near to the 30-year side of the bond yield curve, I think it's going to probably be pretty flat, maybe go up a little bit, which means that it would sell off a little bit.

Starting point is 01:01:51 But, you know, I would agree with that expectation. One concern that I'm going to say is that I think the ECB and I think the Bank of Japan are much more of a wild card to pull in their quantitative easing efforts than I think. people are giving them credit for. I guess my opinion is I think they're going to continue to print. I think they're going to continue to, you know, swap cash for these bonds on their market. And I think they're going to continue to do that until we start to see some things fundamentally start to break. I don't have any other reason to believe otherwise because even when the Fed was saying that they were going to pull things back and that they're going to raise rates and they're going

Starting point is 01:02:26 to do, you know, for every time they said they were going to raise rates, they would do it one for every three times they'd say it or once every four times they'd say it. So their believability in Ray talks about that in the book. What's the believability that you're indexing them at? And for me, the believability part of it is extremely low. So although I think the market is extremely high with a Schiller PE at 31, I don't necessarily see things. I don't see credit contracting at a rapid pace because I don't see central bankers really changing much of their policies anytime soon. All right. So, Ton, thank you so much for submitting your question for getting this on the show. we're going to give you a free subscription to our online intrinsic value course that Stig and I have built.

Starting point is 01:03:08 Probably about 10 hours of content there where we go through how to do discount cash flow models. And we've got an online intrinsic value calculator that you can download on Excel that helps you do these models. For anybody else out there that wants to get a question played on the show and potentially receive this course for free, just go to AsktheInvesters.com. You can record your question there. And if it gets played on the show, then you get a free course. All right, guys, that was all then Preston and I had for this week's episode of The Investors Podcast. We see each other again next week. Thanks for listening to TIP.

Starting point is 01:03:43 To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP164: Billionaire Ray Dalio's new book: Principles (Business Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.