We Study Billionaires - The Investor’s Podcast Network - TIP410: The Changing World Order W/ Ray Dalio

Starting point is 00:00:00 You're listening to TIP. Welcome to The Investors Podcast. I'm your host, Dick Broterson, and today I'm here with our new co-host, William, how are you today? I'm great, Stig. It's lovely to be here with you. William, many of our listeners already know you. We had the privilege of having you on our show quite a few times. Back in 2015, there was the first time.

Starting point is 00:00:23 We talked about your wonderful book, The Great Minds of Investing. And here recently, we talked about Richard Wise, a happy. here. And I've said it before, I will happily say it again. It's the best investment book I've read in 2021. So William, it's just honored to welcome you as our new host here on We Study Billioness Feed. Thanks so much. I've been a great admirer of the investors podcast ever since I first came on the show as a guest about seven years ago, I think, and saw just what a superb job you and Preston do of conducting these really thoughtful in-depth interviews. So I'm thrilled to be joining you as a co-host. It's an exciting new adventure for me.

Starting point is 00:01:00 And it's a exciting new venture for us, William. Because aside from today's episode with Redalue, starting in March, I'm happy to announce that you will once a quarter host a six-episode miniseries here on the We Study Billioners' feed. And the miniseries which you will host will be branded as richer, wiser, happier. William, who have you invited to your show for the first miniseries? I've got some wonderful investors lined up for my first interviews, including Howard Marks, Joe Greenblatt, Bill Miller, Monish Pabry, all of whom are key figures in richer, wiser, happier.

Starting point is 00:01:36 Usually I would interview great investors like these in private, and then I'd write about it, and you'd get to read the results of the interview years later. So this time, for the first time ever in my career, our audience is going to get to listen in on the conversation itself. So I really hope they enjoy it. I'm sure they're well in other lineup. It doesn't get any better than that. Speaking of things almost can't get no better, we are here today to talk about Redalia's new book

Starting point is 00:02:03 Principles for Dealing with the Changing World Order. It was a marvelous interview, and it's a fantastic book. And I just wanted to preface the interview by saying that Redalia has had such a profound impact on everything we do here in the company. Everyone on TIP read his book principles. Now we're reading his newest book. And after Warren Buffett and Charlemonger, I would say that Redallio has had the most profound impact on how we think about business, how we think about the macroeconomic environment. So it's absolutely wonderful to be able to welcome Ray on the show. Before we jump to your interview with Redallio, William, is there anything that the listener should know? Ray Dalio is one of the great legends of the investment world.

Starting point is 00:02:46 He runs Bridgewater Associates, which is the biggest hedge fund in the world. And Dalio's personal fortune is about $20 billion, according to Forbes. So he's, he's, He's one of the most successful investors of all time, but he's also an extraordinary thinker who's written books like Principles, which was a number one bestseller, and now as you mentioned this fascinating new book, The Changing World Order. I think you'll see in the podcast interview and also in this new book, he's warning us pretty frighteningly in some ways that we need to prepare as investors for a period that could be extremely challenging.

Starting point is 00:03:21 So there's a real urgency to his message. The thing I think I like most about this interview is that Ray is also incredibly candid about some of the personal challenges he's been going through. And he talks at length also about other really important issues, like how we can learn to think better, how to be more resilient, and also about how to invest better in a period that's likely to be fairly tumultuous and not likely to be as smooth sailing if you're in America as we're used to. I hope you enjoy this very wide-ranging interview with Ray, who really is very very much.

Starting point is 00:03:53 one of the undisputed giants of investing. All right, William, it sounds like we're in for quite an episode here. So without further delay, here is William Green's interview with Ray Dalio. 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. Ray Dalio, it's wonderful to have you here. Many thanks for speaking with us.

Starting point is 00:04:32 us today. And congratulations on your new book, The Changing World Order, which I have here and which I spent the last week reading through with much fascination. It's an extraordinary book. It's hugely ambitious. And I have to say, pretty scary. It's based on your study of the rise and fall of about, I'd say, 11 leading empires over the last 500 years. So you're taking this, as you put it, a mega macro perspective to see what history can tell us about the future. I wondered if you could Start by telling us why you undertook this gargantuan study. There were three things that have happened in my life that are happening now, that are transformative and that are different than happened anytime in my lifetime before.

Starting point is 00:05:17 And so I thought that I needed to study what went on prior to my lifetime in order to understand those. Those three things are the creation of a lot of debt, which is monetized. In other words, the central bank prints a lot of money and buys that debt. That happened, has not happened in the degree that we are seeing since the 1930 to 45 period. Second internal conflict, the size of the wealth gaps, the size of the political polarity that relates to the wealth gap, the size of the left and the right and the extremity of the left and the right, is something that never happened in my lifetime before, but all those things happened before.

Starting point is 00:06:08 And also the rise of a great power to challenge the existing leading power and the existing world order, the rise of China, in other words. We began our world order in 1945 at the end of World War II, and that is the challenge. And those three things individually never happened before in my lifetime, let alone collectively. So that pattern led me to want to understand the lessons from history. I'll explain really how I came by that perspective. I learned that many of the things that surprised me in my lifetime just never happened to me before in my lifetime, but they had happened many times before. The first time that happened was when I was clerking on the floor of the New York Stock Exchange in 1971. And at that time, gold was the world's currency. The dollar

Starting point is 00:07:06 was tied to gold. And so it was like checks in a checkbook, paper money had no intrinsic value, and gold is what mattered. And we were losing gold. And on August 15th, 1971, President Nixon got on the television and announced that you couldn't get the money as we, the gold, two countries. And that was a shocking event to me. And I was very interested in markets. So I went down to the floor of the New York Stock Exchange. And I expected pandemonium. And it was pandemonium, but it was on the upside, not the downside. And I didn't know why that was. why did the stock market rally so much? And then I studied history and found out that the exact same thing happened on March 5, 1933, when Roosevelt got on the radio and told the public,

Starting point is 00:08:05 essentially, that they were not delivering the gold so that they could print more money. It's just that that was the first evaluation that ever happened to me. And I needed to go back in history. And so what I learned was that I needed to study. important things in history like I needed to study the Great Depression. And because I studied the Great Depression, I and my company Bridgewater were able to anticipate the 2008 financial crisis, which we couldn't have done without that study. And so when these three things started to come along, and I didn't see them, I needed to go back and see many cases. It's like a doctor seeing many cases. When you see more and more cases of a disease, you understand it better.

Starting point is 00:08:52 And so I wanted to study the rise and decline of reserve currencies. And since these cycles are quite long, like the Dutch had the reserve currency and then the British had the reserve currency and the Americans and so on, I needed to go back about 500 years. So I studied them and then I I studied the rise and decline of dynasties, starting with the Tang Dynasty a little after 600, to see that what causes those rises and declines to understand what's happening now. And what did you conclude in terms of the major forces that actually drive the success or decline of an empire? Because it struck me, I've long thought that one of the keys to your success has been this

Starting point is 00:09:37 extraordinary ability that you have to systematize things, that you don't just look at the future and say, well, China is rising and the U.S. is in decline, you systematize it. I think you separated into something like 18 different forces, but there are three that you've referenced that I'd like to talk in more depth. But if you could give us a sense of this range of things that you studied, in a sense in the past, I think without the kind of computing power and without the enormous staff that you have at Bridgewater, I sense that that wouldn't actually have been possible to do the kind of enormous study that you've done. That's correct. Wouldn't have been possible. Also, I wouldn't have shared it before. I'm now 72 years old, and I think it's very important,

Starting point is 00:10:18 so I'm passing it along. But that's exactly right. As you saw in the book, there are measures of each one of those. So they're objective. And by seeing numerically changes in each one of those indices. So you can compare the quality across countries and you can see it evolve. One can see these transpire in a very clear way. And also one can see the cause-effect relationships. You know, certain things happen. And yes, there's a typical cycle that I could describe if you'd like me to, but those measures and that objectivity is very important and can be used because it creates, first of all, a template. It's like if you have a disease, use an example, if you have a deterioration and you have a cancer? Is it at stage one, two, three, or four? What are the

Starting point is 00:11:11 measures? What is the next step? How does that progress? What are the treatments? Those kinds of things are the same in terms of looking at these issues. You make some slightly chilling predictions about the U.S. without being definitive, because obviously these are probabilistic bets. For example, I think at one point you say, I think that the odds of the U.S. devolving into a civil war type dynamic within the next 10 years or around 30%. You say that's related to the high risk of internal conflict, the kind of political polarization and anger that we're seeing in the country. You also talk about the rivalry with China and say that the probability of a big war in the next 10 years is 35%. I was both struck by the way that you think, the importance

Starting point is 00:12:00 of thinking probabilistically, which is something that's always struck me when I interview great investors, whether it's Joe Greenblad or Howard Marx, this sense that nothing is black and white. It's always betting on probabilities, which clearly is something that you've been a master of over the decades. But also, I was very struck by actually the seriousness of those claims. And I wondered if you could talk about that gravity, because you say, for example, that the US really is in danger of tipping over one way or the other. You say the world's leading power is on the brink. could tip one way or the other. Can you give us a sense digging into, first say, the debt issue and the printing of money, why this is such a precarious position to be in? Because I'm no economist

Starting point is 00:12:46 and I sort of need the idiot's guide to why this is such a treacherous financial situation to be in. Maybe I can describe the typical cycle and then pull it out. And I won't go through all of the 18 measures. If that's okay, I think it'll create the template. There are internal orders and they're external orders. And what I mean is by an order is a system of operating. Usually internal orders are written by constitutions and external orders are written by treaties and so And they follow a war, typically. So let's say World War II, there's a war. After the war, there were winners and losers. And the winners get together and they determine the order, the system. For example, the system, in 1944, they determined the Bretton Woods monetary system

Starting point is 00:13:47 with the dollar at the center and gold at the center. And it was an American world order. because the United States had 80% of the world's gold. It accounted for half the world's economy, and it had the monopoly on nuclear weapons, which was dominant. So the United States was dominant in all ways. And the center of it, the reason the United Nations is in New York and the IMF and the World Banker in Washington, because we began the American World Order dominated that way. That's an example. But if you go back to other cases, the Treaty of Versailles was the prior world order. In other words, a war, and then a resolution of that war, and then new rules as to who did what. And if you keep going back, you will see that there are those world orders that just go back the peace of Westphalia in something like 1668 or something.

Starting point is 00:14:46 and each system then creates a new system and a new world order. And then that happens also in turtle orders like, let's say, a revolution. So the Chinese world order, domestic order began in 1949. They had a civil war, and then they start their domestic order in 1949. And there's a cycle. And the way the cycle works, typically, is after the war, there's a peace. The peace comes because there's a dominant power that no one wants to fight, and also everybody's so sick of war. And then you usually have a period of peace, often quite an extended period of peace.

Starting point is 00:15:29 And there's the consolidation of power by the new leader, and then the development of a system that allows development, because you wiped out a lot of the old. You wiped out the old debts. You wiped out many of the old things, but you're in the process of wiping them out at a new start. And then that begins the arc of the period of peace and prosperity and productivity. So, for example, the second industrial revolution was that kind of period. The post-war War II period was that kind of a period in which there's competition, things work at heart, and there's a rise in living standards. And those rise in living standards particularly work well in a capital.

Starting point is 00:16:12 capitalist economy. And capitalism was really, that I mean markets, stock market and so was invented by the Dutch. And it's a way of creating buying power to enable, let's say, entrepreneurs to be able to do well. But it distributes wealth differently so that it creates a larger wealth gap. And over a period of time, it creates a larger opportunity gap because there's a tendency of those who gain wealth to be in a favored position. For example, their children can get education that poor children can't get, or they might have more influence and so on. And so you get larger gaps and those gaps also can represent opportunity gaps and so on. And the same, there's a tendency also for debt and capital markets valuations to keep rising.

Starting point is 00:17:10 So debt rises in relation to income because debt is buying power. But there's like if you pay it back in hard dollars or hard whatever the currency is, then that's a problem. So you see it rise all of these cycles. You see debt rise relative to income. And that's because it's better to have spending power like we had this last cycle, send out the checks and send out the money and you're sending out buying power. And that is so much easier to do and favorable to do than to restrict it and to contain it.

Starting point is 00:17:47 And so that's what raises debt relative to income and raises that so that you produce a debt cycle, you know, and it goes back to Old Testament. And they'll talk about the 50-year cycle and the year of Jubilee and so on. But these cycles have gone on for a long time. And so these wealth gaps grow, at levels of indebtedness grow. And also what happens is the competitiveness as they get richer, the competitiveness declines because it declines first because people, as they get richer, they become more expensive in the world. They want to work less hard. And also they gather more competition. So let's say, for example,

Starting point is 00:18:33 the Dutch built chips that were the best to go around the world and collect riches. But the British, learn from that and hire Dutch ship builders to build ships more inexpensively and better ships by learning from them. And so others become more competitive. Also, when they do very well at the top, they typically become dominant in world trade. The Dutch counted for 25% of world trade. As a result, they bring their currency. And the currency that's then commonly used around the world becomes a world currency, which we call a reserve currency. And when they have that currency, then that becomes also something that people want to save it. So those in other countries will want to buy that currency, which means lend. And so that they will lend to countries,

Starting point is 00:19:29 which tends to make them get more into debt. It's a great privilege. They call it the exorbitant privilege to be able to borrow money because you have the reserve currency, but it does get you deeper into debt in your own currency. And that so's the seeds again for problems. There's the political system that also operate with this kind of cycle, which is the political system rewards spending and it doesn't penalize debt. Nobody pays attention to how much debt you get into. They pay attention to what they receive. And when they get more stimulation, that produces it. So there's a tendency to have that, which raises the living standards over the short run, but also produces the indebtedness for the long run. So that when you get, let's say,

Starting point is 00:20:20 in the top of that cycle, you can see living standards are really, at their highest, they're very high, you start to see the complexion of the finances deteriorate, you see the competitiveness deteriorate, and so on. People also behave differently. There's an age cycle. Those who went through the war and went through the depression have a different psychology than those who are now the next generation. So as this passes on, so they have the newer generation operating that they know really to enjoy life more, devote attention to other things and so on. And so competitiveness starts to decrease while the indebtedness. But it's a very good feeling position to be in at that point. But that so's the seeds. Then when you have

Starting point is 00:21:12 excessive levels of indebtedness, when you have the gaps and the excessive level of indebtedness and you have the bad finances. because when you have that borrowing in the debt, then it's bad for the owners of the debt. Like now, you have very negative, real interest rates, in other words, inflation adjusted interest rates. So it doesn't make any sense to hold the debt, those assets. Then you see the movement to other things and so on. And then when you have the large wealth gaps, that enters into it at the same time as you

Starting point is 00:21:47 have conflict, internal conflict and external conflict. When that gets the cycles described in detail in the book, but you start to see political polarity and the rise of populism of the left and populism of the right becomes extreme and progressively more extreme. And as a result, the middle, you no longer can be in the middle. In other words, they say pick aside and fight. And the media and the politics work together to enrage people and to make them more inclined to fight. And of course, that generation didn't go through war because they didn't go through war. They're more inclined to fight.

Starting point is 00:22:28 And everybody is cheering the fighter who will fight for their side. In history, it shows that when the causes that people are behind are more important to them than the system, the system is in jeopardy, which is the case now. And so that progresses. and you have either an internal conflict, you have a financial problem, you bet. Now, other things matter, you asked about the cycle because there are other things like education and civility. A long leading economic indicator is the quality of education. But education is not just understanding history or memorizing or knowing how to do math and such and such

Starting point is 00:23:10 things. It's also education and civility, how people behave with each other, the idea of all of those. As there's better education, there's better productivity that follows. So there are a number of measures that I include in there. For example, infrastructure investing, how you've been improving your infrastructure. There's measures of the military strength. You know, when they go internationally, they need a stronger military to protect their supply lines and all of that. All of those. So there's 18 different measures that you can see and you can see what the numbers were and are of those types of things to make up the arc. But the arc is basically along those lines until you get to the irreconcilable differences, whether they're internal

Starting point is 00:23:56 or external, and you get to the financial problems. So that's why I'm saying, I think that's just by the measures. That's where we are. If we take the financial, very simple financial, is the amount of money that somebody's earning greater than the amount that they're spending. And do they, are their assets better than their liabilities? And that's true for individuals, companies, and countries, because that country's an aggregate of those. So you can look at the financial condition. When you get to the printing of money stage, you are late in the cycle, very late in the cycle. That's a concerning thing.

Starting point is 00:24:35 So you have that financial piece together with the internal, conflict or, you know, let's say internal order or disorder piece. There's a chapter on internal order and disorder, explains the cycle. And then there's the external order and disorder, but it's made up of a number of those other things like education, quality of leadership, and so on. I was very struck by some of the statistics that you gave how strong the US still is. We're saying it's in decline, but it's still number one. And so you point out, for example, that I think you said that 55% of the world's total market cap is in U.S. equity markets. You said that 26% of global research and development spending is in the U.S.

Starting point is 00:25:17 I think something like 20% of the world's bachelor's degrees in the U.S. So you're not saying the U.S. is vulnerable on every front. It seems like there are still some extraordinary strengths that the economy has, but it's becoming harder and harder to turn around this enormous ship. many, many measures, and when one looks at them, they paint a very rich picture, not only of the United States, but of all those other countries that I show there. I think I showed 11 or 12. So you can see the picture, and that's right, if something as simple as education, if you were to take public education and you use measures like PISA scores, the United States is very

Starting point is 00:26:01 poor in the industrialized world, and it used to be very good. It's something like 38th in the world or something. But if you were to take universities that are in the top 100 universities. So the education is a very skewed education. You look at the stats and you see a picture. If you go to a great American university, there are very few places that compete with that and there are more of those great American universities. But if you look at the average level of education, it's deteriorated and it's not very good. But the main thing I'm trying to point out is that if you take those pictures, it paints a very clear and objective picture of what each country is like.

Starting point is 00:26:46 There are a couple of things that I don't really understand that maybe you could put in context, one of which I was talking to a well-known mutual fund manager the other day who runs an international fund. He had just read your book and we're saying, yeah, this is all great and I agree with pretty much everything. But why is the US dollar so strong in relative terms compared to the last 20 years, despite the fact that we have all of these things you're mentioning like huge trade deficits, faster money supply growth than our peers, negative real interest rates, huge fiscal deficits relative to GDP, plus increasing political turmoil. What's going on there? the dollar hasn't rolled over and collapsed?

Starting point is 00:27:26 The value of the money should always be looked at in relationship to good services, financial assets, and other currencies. And so what we're doing is referring to also other currencies in describing that. The major reserve currencies, the major other reserve currencies are the euro and the Japanese yen. There's the emergence of, but still small, is the China's yuan or MNB. So the circumstances in the Euro and Japan are quite like those in the United States because of the same element of the cycle. In other words, it's like looking at

Starting point is 00:28:08 the G7. The G7 are the old countries, the anachronism of, you know, in other words, you think, well, what is the G7? And you run down the list of the countries, and it's almost laughable that they would be the great powers. And so they are also the reserve currencies. They're older. And so Europe has its issues and is pursuing policies that are the same. Japan has its issues and are doing that. The REMB has appreciated against the dollar, but it is not yet an effective alternative currency because it has not developed the evolution of being commonly used. By the way, that was intentionally because the Chinese did not want to threaten the dollar as a reserve currency. But it is internationalizing, and because it has relative appeal, its interest rates are

Starting point is 00:28:59 better, and also its balance of payments is better. It is appreciating. The depreciation of the dollar should be measured against good services and financial assets, because the loss of buying power. Everybody should judge their wealth, not in nominal terms. Don't say how many dollars I have, but judge it in real terms and also judge it through the lens of those other things. So you've seen the classic mechanical depreciation of the dollar. You've also seen it, though, in other currencies too, because Europe had to pursue the same type of policy, Japan had to pursue the same type of policy of creating a lot of money and debt and monetizing it. So that reaction in the markets has been the same throughout those countries.

Starting point is 00:29:51 So in a sense, I was quite upset to read that part of the book that was suggesting that a lot of our wealth seems to be illusory at the moment. If we invest in the stock market, for example, we feel much richer than we probably are in real terms. And it seemed to me that that was one of the things that you were waking up readers to understand to say, look, you may feel rich and you may be inclined to take late cycle risks and overspanned and get too much in debt and speculate too much. Be careful because this wealth in a sense may be a little illusory and the next period may be very dissimilar to the current period.

Starting point is 00:30:28 Is that a fair characterization? Yes, and I'll add cash to that. Investors make the mistake of judging their wealth in the number of dollars or pounds or whatever currency they're looking at it. And they should judge it in relationship to buying power. When a government produces a lot of money and credit and they've handed out all of these checks and you use the measure of wealth as having risen a lot, everybody appears to have been richer. You cannot get richer by producing more money and credit. Okay, you can only get richer by producing more goods and services. And so what happens is by judging it that way, they make serious mistakes, particularly on judging the riskiness of cash. So for example,

Starting point is 00:31:20 this year, investors, let's say who are holding cash, probably lost about 5% to inflation. And they'll continue to lose inflation. And if you look at what's priced in the markets, they're negative real returns. In other words, the bond market. are negative real return. So if you buy a bond, you're locking in a negative real return. And cash is worse than that. So I want to highlight, please do not look at your returns and think that that's safe when that's not safe. It's better to build a far better diversified portfolio. And yes, this is also we're at the part of the cycle where, you know, everybody got as the check and they have the counts and they feel rich. And also interest rates are low so that they could borrow money. So the monthly

Starting point is 00:32:09 payments are not much. And even you can get interest-only loans. So that means you have no interest practically to pay because they're so low and you have no principal to pay for a while. And so you could just go get money. And that's why money is free. You can go get money and you can spend and you feel very, very rich. The other side of that is that now you are seeing that the inflation is picking up because everybody buys more. And so you have to look at what is the total quantity of money and credit created relative to the total change in the amounts of goods and services created. If you're not creating much more goods and services, or you're not creating much more even financial assets, but you are creating much more spending for them. You're going to raise their

Starting point is 00:32:57 prices. And then that becomes the illusion, as you're calling it, because people say, I'm richer, but then they go to the gas station, and then they go to the supermarket, and they go to on vacation, and they do all of those things, and they say, wait a second, I'm losing it. 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 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 bringing together activists, technologists, journalists, investors, and builders

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Starting point is 00:37:18 That's Shopify. dot com slash WSB. All right. Back to the show. I feel like there's a bit of a conundrum here, and we'll come back in greater detail to how to invest in this kind of environment later. But while you mentioned this issue of debt and cash,

Starting point is 00:37:34 I just wanted to ask how a regular person like me or like the listeners to this podcast should deal with the fact that bonds seem to offer no protection, no return. Cash seems to be, we seem to be punished for saving cash. So at a time of recklessness where a lot of people are throwing caution to the wind and seem to be unaware of the kind of risks that you're describing, the usual conservatism that contrary and value-oriented prudent types might be inclined to resort to, that kind of behavior of saving money, sticking more money in cash instead of making aggressive bets, maybe making sure as someone like Jack Bogle,

Starting point is 00:38:12 the founder of Vanguard told me many years ago, he would always say, well, make sure you own a balanced fund, make sure you always have sun bonds. So these classic ways of protecting ourselves suddenly actually don't seem to apply, and I'm struggling to figure out how to respond to that. There's the broadest sense, and then there's the bond question. The broadest sense is be out of cash and have little or no participation in interest rates, particularly if they're close to zero interest rates because if the economy goes down, they will offer very little protection to your portfolio because they won't go up much because they're close to zero interest rates. But you can get a diversified portfolio of assets. And that diversified portfolio of assets can include things

Starting point is 00:39:02 like inflation index bonds and stocks and some own gold and some other assets in different location. Because if you know how to diversify well, you'll find that asset classes, it's not so much that wealth is destroyed as much as it shifts where it is. So by being able to see how it shifts and it moves around and looking at the correlations of those and achieving balance, you can achieve that kind of balance. I created what I called my all-weather fund when I first earned enough money that I knew that I would pass some along, and I wouldn't be here. And I believe that active management would be a problem because active management is a zero-sum game. You've got to pick the winners and the losers, and most people are not able to do it themselves. And those who are winners

Starting point is 00:39:53 get filled up pretty quickly. And so it's not easy to operate that way. So I created this all-weather portfolio, which is a balance. Balance is the key. Diversification of achieving that is the best path with staying out of the way of cash and looking at one's returns. The most common mistake of investors is to think that the markets that went up are good investments rather than more expensive. And so stay at the cash, achieve the balance, and then don't make that mistake. I remember when the Magellan Fund was the best performing stock mutual funds, when stocks were the best asset class and a very popular investment fund, but the average investor in it lost money. And the way the average investor lost money is because every time it was up a lot,

Starting point is 00:40:43 they bought it. And every time it was down, they sold it. And so their bad market timing, because they were reactive thinking it's a great investment when it's up a lot and when it's down a lot. And, you know, and also you see ads that companies will put out ads, our last five years return or this and that, or this is what the year is to attract people in. And those are the common mistakes of investors. So don't try to time it yourself because you'll probably lose. Competing in the markets is more difficult than competing in the Olympics. There are more people trying to do it and putting more resources behind it.

Starting point is 00:41:21 I know what we put in hundreds of millions of dollars a year and so on to try to do that. And it's competitive for us. It's competitive for others. And so to not try to do that yourself, but to achieve balance, like I described them, you know, this all-weather portfolio type of approach. But anyway, what I mean is balance and not time and then you rebalance. So if something goes up a lot and then something goes down a lot, you rebalance to that diversified and that'll make you sell more as things get expensive and buy more as they go down and, you know,

Starting point is 00:42:00 be humble. There's obviously been a great deal of euphoria about Bitcoin and other cryptocurrencies. And in some ways, it makes sense, given what you're saying about the devaluation of the dollar and other currencies. And in some ways, it makes me feel a little bit like I felt when I first was a financial reporter back in 1999, 2000, that there was this kind of wild speculative excess. And there's something almost religious about the zealotry surrounding cryptocurrencies. And so I sense from your writing, both in the book and the statements that you've made on LinkedIn and elsewhere, you're trying to be somewhat nuanced and polite about this. I'm not ever trying to be polite.

Starting point is 00:42:40 You've said that you have a small, somewhat negligible stake. said that gold you still regard as a safe storehold of wealth, a timeless and universal alternative currency, at a time when so many other people are saying that actually Bitcoin has become digital gold and gold is useless. Could you put a little nuance on that and just also give us a sense of whether the speculators on cryptocurrencies are kind of lambs to the slaughter or whether it's a sensible hedge in a world where currencies are being devalued? I'll answer your question. But I'm not trying to be politically correct or misstep or do anything like that. That's not. Very few people have accused me of being that way. I'm straightforward, but issues are not as black and white

Starting point is 00:43:25 as people want to do. They want me to be either a raging bull or a bear and, you know, that kind of thing. And the circumstances, so here's what I think about them. I think it's it's very impressive that this concept was programmed something like 10 or 11 years ago and has stood the test of time, meaning it hasn't been hacked. The competition has been relatively modest. In other words, some of the risks in the earlier period are, you know, would this thing break down, B-hack, would competitors to Bitcoin come along and how do I know the next one? Because everything in the world gets old. And so it, you know, and there's a better competitive alternative, that's just the nature of evolution. And so those kinds of things,

Starting point is 00:44:12 and then the adoption of it, in other words, and it has pros and cons. And at the same time, as you're right, it has a bit of a zealot type of following to some extent. And then there are thoughtful people who also follow it. And but one wonders, in other words, when does somebody collect, take the money they made in Bitcoin, and then diversify that and, in other words, move to other things. And there are other things that are developing, not only other coins, but NFTs and other things that become popular with that crowd. And does that diversify that? And then there are regulatory issues that have to do with this. Because when you have an alternative currency, that's a threat to every government. Every government wants a monopoly in their

Starting point is 00:45:03 own currency, and particularly if you get a better currency, because it doesn't get devalued. In history, they've outlawed gold and they've outlawed silver and so on, and they could outlaw Bitcoin. And the digital currencies make it more traceable in many ways. If you have a gold coin, it's not like it's traceable. It's not connected to the digital network. And that also has to do with hacking and so on. I think you could easily find you're seeing much more malware. You're seeing much more ransomware. In other words, breaking in and then looking for a payment quite often, that's in Bitcoin. But that digital component is, by the way, a risk for our society and could be a risk for operating that way. And then Mr. Diversification.

Starting point is 00:45:54 You know, one of the great things about a stock index is that every company practically has gone broke. You know, you go the Dow 30 and you see where they were not many years ago and you watch them. And every company dies, but the stock market doesn't die because it rebalances to the new that comes in to replace the old. And I respect that particular process. So when I think about that, I think I'm not a person who likes all of their own. eggs in one basket. So I have some element of diversification that represents a small percentage of my total, let's call it, inflation hedge asset class or reflation hedge asset class, that represents that. And that's the way I think about it. And I can say a few more things.

Starting point is 00:46:45 I would say gold right now, because the supply of Bitcoin is known and limited, we can look at its comparison. And Bitcoin now is worth about $1 trillion, and the total crypto is worth, cryptocurrencies are worth about $2.5 trillion, roughly, but let's take Bitcoin. Whereas gold that is not held by central banks and not used for jewelry is worth about $5 trillion. So that 20% of that is Bitcoin, let's say, versus the other gold. And so when I look at that, I keep that in mind because I think over time, that which will be called, let's say, inflation hedge assets are probably likely to do better. That's why I'm not favorable to cash and those types of things, but it becomes a market share. Now, that what I've just given you is what I think about it,

Starting point is 00:47:42 but it doesn't lend itself to sound bites. People say, what do you think about that? Do you love it or hate it? And it's just more complicated than that. I remember asking Bill Miller, who is somewhat of a zealot about Bitcoin, who's made an enormous fortune on it because he started buying it around $200 a coin. What would be a sensible allocation for a layman like me? And he said, one to two percent of your portfolio.

Starting point is 00:48:08 He said, then if it goes to hell, you'll be okay. and if it does really well, as I believe it will over the next 10 years, then you'll be glad you owned it. Does that seem like a reasonably in the ballpark, or do you think that's excessive? No, I think that's right. Okay, thank you. Let's go back to China a little bit, because when we were talking earlier on about the three great forces that were coming to make life difficult for the U.S., one that we didn't go into in great detail, it's obviously critically important, is the rise of China. And you mentioned in the book that you described China as a strong power in rapid assent,

Starting point is 00:48:45 whereas the US, I think you describe as the number one power, but in gradual decline. Obviously, you've spent an enormous amount of time in China over the years. I think you first started traveling there in 1984 and have been there dozens of times. I remember your son Matt at one point went to live there with a friend of yours who was very high up in the financial world there in the government. So you understand China to an unusual degree. You don't have the sort of the Niger prejudice against China that a lot of outsiders who don't know much about it have. Can you give us a sense of why China is in this extremely formidable position rising so rapidly?

Starting point is 00:49:23 And also a sense of why that's such an extreme threat to the U.S. I mean, there are two dimensions to its rise. It's size and its effectiveness in raising productivity and living. standard. So China's bit over four times the size of the United States. So that means if it had a per capita income that was half the United States, it would be twice the size of the United States. And if you look back throughout history, in the book I show charts going back, you know, 1400 years, China has almost always been number one or number two in terms of its power. Of course, the world was much more separated that. But it was much quicker to invent the

Starting point is 00:50:06 printing press and many technologies and so on, and had more power in many ways. And so it's a culture that is an old culture and they study history and they are effective. And in the classic ways that are measured in the book, you know, the 18 measurements. Education is important. Civility is important. Those kinds of things. And so what I've seen when I started to go there, I started to go in, as you say, in 1984. And when I first started going, there was the closed door policy up until a Deng Xiaoping came to power in 1978, and they were just opening. And so the first company that was the only window company, they called it a window company, because it was the only company that was allowed to look out and deal with the outside world,

Starting point is 00:50:54 was a company by the name of Siddick. And they invited me to teach them about the world financial market. So when I went there, it was all bicycles and it was very poor. And I brought calculators, $10 calculators, and I gave them to leaders, and they thought they were miracle devices. And since then, per capita income, real income, has increased by 26 times, and their technologies, where they are in terms of quantum computing AI, and almost any of them are rivaling the United States. So I saw that development, and I saw that basically, for the most part, they put together a bunch of right ingredients, including tapping entrepreneurship and creating capital markets, using capital markets, capitalism and a market economy, to be able to be successful, because when I looked at

Starting point is 00:51:52 all the other empires, you look at the Dutch, the British, and so on, there was always the combination between ability of entrepreneurs to combine, to get resources to take the new ideas and make them grow to build the wealth and so on. And so anyway, they integrated and changed radically, private companies and so on. And I've had the ability because I've gone there so along and helped in many ways some of the developments of the financial markets understanding over that period of time to know very intimately how the leadership thinks about such things. And the one thing that the Chinese are unique at is understanding the patterns of history themselves. History is basically their religion. And they study history and they learn

Starting point is 00:52:44 the lessons of history. And then they have what they call the dialectic when things are at odds and contradictions and how they then use that as a resolve. So something like capitalism and communism together how they try to make that move. And so I can see they're earning more than their spending. Their education levels are higher. I mean, not higher in the total sense. You'll see the statistics. But they'll put out maybe eight times as many computer engineers. They have free access to the data. They use data very effectively. So they've become quite remarkable in terms of technologies and so on. So they've gone from the evolution of countries, it goes usually from cheap things like you make textiles and so on, and then you and manufacture goods.

Starting point is 00:53:35 You're the cheap place to produce to going into cutting edge inventiveness and technology. They made that evolution very effectively because of the way that they're doing things. So I've seen that up close and I've seen that then they've developed their capital markets and they welcome foreign investment. So that's what the picture looks like to me. What do you think the odds are that China will disappoint and will not actually live up to this promise, this almost inevitable rise that you're predicting? A friend of mine the other day, who's a very experienced professional investor, was saying he looks at things like the governance model and thinks, yeah, there are advantages, but tremendous disadvantages, there are productivity questions. He was saying you look at things like the COVID vaccine in China and he said it was pretty ineffective. They did it quickly, but it was ineffective. And you look at their foray into semiconductors and it didn't work out that well. And he also said something kind of politically incorrect to me where he just said, who wants to move to China? And

Starting point is 00:54:36 I asked this as someone who used to live in Hong Kong very happily. I know that you stress test all of your predictions and forecasts and of these many trends. When you think about the risk of disappointment, what are you factoring in that you're thinking, yeah, maybe China won't live up to this promise? First of all, the ingredients I look at in measuring the health gauge are the ones that I'm focusing in them because they reflect elements of health. Those are the things. So that long list, that just assigns probabilities of it. And the probabilities having to do with things like capital formation and education, the financial position, the debt is in its own currency, the number of patents, inventions, those kinds of health measures are the ones that I look at

Starting point is 00:55:29 across all countries to produce that. And I think that there are different ways of producing that. I think one has to be very careful to be prejudice against, let's say, a more authoritarian regime in terms of that kind of behavior because that certainly existed. And I think it is by and large correct that everything has pros and cons to it and they're at odds. And when you try to balance things, you try to get the most of both. And they're trying to get the most and have demonstrated a very good ability to create freedom and capital resources and capital markets to tap entrepreneurship and have that market economy and so on, that shift at the same time as that's happening in a much more autocratic type of system. And I look at that and I also say that other countries

Starting point is 00:56:25 have the other side of their risks too. So in other words, the great risk of democracy has always been disorder, anarchy. And so when you look at the risk gauges, when I go down the risk gauges, and I look at, I think they're described very, very well in those measures. So democracy and freedom is a terrific attribute. And the United States has really uniqueness in many ways of being able to draw from the rest of the world, should be drawing from the rest of the world, the smartest and the brightest, because one of the great things about United States is it's the only country in the world that you can go to and you can be a citizen, a part of it, and not an outsider. There aren't any countries in the world that's like that.

Starting point is 00:57:13 So you can attract the best and the brightest to do the most innovative types of things. And when you have rule of law and you have property rights protections and you have all of those things, those are important competitive advantages if fully tapped to make a very, very productive system. I believe in those types of things. And at the same time, I think that we're threatened by some of these other things, which have to do with the level of indebtedness, the way we're at each other's throats, and the actual threat to democracy. I cover that, you know, in the book, and you look at where we are. January 6th incident, it's just a straw in the wind. It is a likelihood. There's a reasonable likelihood that law and the Constitution will not

Starting point is 00:58:02 be the governing way of operating because people are more inclined to fight for their results to get what they want than to even defer to look to the greater good and to have compromises. So each place has pros and cons. And that's why in the book I tried to show each one of those pros and cons and to weigh those types of things. One of my takeaways from the book in practical terms was just thinking, okay, so if Ray is right about these long-term trends, which I'm, I'm pretty confident that you are, even though obviously these are probabilistic. That's not certainties. If you're right, what are the long-term trends that I want to play? How do I position

Starting point is 00:58:42 myself so that I'm making sure that I'm aligned with these big cycles so that I'm playing, for example, the rise of China, but also the less impressive but still very impressive rise of India? And also, I guess, simultaneously, the decline of the US, the dwindling importance of Great Britain, which clearly is the most important country in the world, but sadly seems to be on a downturn, France, Japan. How do regular investors position themselves so that they, obviously we know that this should be part of a diversified portfolio, but is it that you just want to tuck away a low fee emerging markets index fund or ETF that gives you exposure to places like China and India and Taiwan and Korea and the like? Or is there another smarter way that

Starting point is 00:59:27 you would do it as a regular investor who doesn't have the kind of sophistication that your team has. You're asking about investment, and I'll just to point out, it's also broader than investment. It has to do with like, where do you want to live and so on in that kind of an environment. You're seeing within the United States people move from one state to another, and you're seeing that because we are a federal government, we have state rights, that there were different approaches to life, different regulations and so on. And you see that people like to be with themselves, particularly, let's say, rich people like to go to places where they're among rich people and they're not, you know, threatened, not just in terms of money and so on. And people

Starting point is 01:00:11 are moving and you see hollowing out of certain areas. When they leave, then they take the tax base with them and it causes conflict in different areas. In answering your question, I think it's very important to think about, you know, let's say all of the things in terms of those risks. That's why in the book I cover all of those types of things, many others too. But in the development of the portfolio, again, the way I think about it is there's a certain portfolio that I view as kind of like my safe portfolio. Almost it's better to think about two portfolios than sort of one. People tend to think, what is the best portfolio? But there's a portfolio of assets that are better to have almost like if you have a worst case scenario.

Starting point is 01:01:02 And to have enough in those assets that are worst case scenario, you know, that could be, maybe it's gold, maybe it's a Bitcoin, maybe it's some inflation index bonds, maybe it's, I don't know, some other assets overseas and different things. And then you go above that, but still diversification is the most important thing. I think that when I started since the beginning, let's say, when I didn't have any money, I would think how many months can I live to take care of me and my family if no income came in? And I wanted that to be in years. And I wanted that.

Starting point is 01:01:42 And then I figured, well, maybe that goes down in half between taxes and inflation or losing money. So I want to take that number and I want to double it, whatever that is. And then to get that amount of money and to then be secure and to know that that's going to happen in that way is a very, very good thing. And then when you go from that level, then you go beyond that level to be able to build a better diversified portfolio. To me, they always have to be diversified. And the reason I say diversified also is all assets compete with each other. So it's not like one asset is better than the other asset. It's like horses in a horse rate. They get handicapped.

Starting point is 01:02:25 If you bet on the worst companies, you might make more money than on betting on the best companies because it's discounted in the price. And so because of the fact that there's this equalization by this discounting mechanism, it's kind of tough to say which is the best. And that also leads to favor diversification over that. I mean, I think about that well. But those are the thoughts that I think as an individual navigating those. And I would say, you know, like, I've seen many countries of normalcy become abnormal and

Starting point is 01:02:59 difficult places. And you could see that even in perhaps certain states, that it could be difficult. So anyway, I like to have that kind of diversification. This to me was one of the most powerful messages of the book. There was a wonderful point, I think, where you mentioned imagining yourself in 1900 and looking at the 10 most powerful countries of the time and saying, well, Well, actually, if I figure out how we would have done since then, I would have been totally wiped out in seven of those countries at some point.

Starting point is 01:03:29 And so it seems to me there's just a very strong, one of the strongest practical conclusions from your book is actually to go back to a Chinese adage that you quote, a smart rabbit has three burrows, that you should always be assuming, well, yeah, maybe this is a good time, maybe I feel rich. But actually, I need to be aware that it may be a lot more precarious than I think, and that, as you say at one point, the most important thing both in investing and life is not to get knocked out of the game. That's it.

Starting point is 01:03:57 If we could turn a little bit to how you think, we've talked a bit about how you invest, but obviously one of the most interesting things about the intellectual experiment that is Bridgewater is it's really a kind of social engineering experiment in how to think better. And I wondered if you could talk a bit about what we can learn from things like this idea of radical truthfulness or your commitment to radical transparency. Can you explain how an idea meritocracy works and why this concept is something beyond these immediate questions about what to do in this environment, why this is actually a way that we need to learn how to think, because it's very helpful? Well, what I believed in and found the basis of whatever success I've had or we've had

Starting point is 01:04:42 is, in one long sentence, an idea meritocracy in which the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency. So what I mean by that is I want the best ideas to win out. Without a hierarchy standing in that way, how do I find the best ideas to win out? And that's an idea of meritocracy. When I say the goals of meaningful work and meaningful relationships, the best success in life, not just measured in finances, but it measured in the richness of one's life. is in meaningful work and meaningful relationships. If people are devoted to a mission to be

Starting point is 01:05:26 great and at the same time, have those relationships, in order to have those relationships be most effective, they have to be radically truthful with each other and radically transparent, but let's take radically truthful. We have to get at what's true. And if you don't get at what's true, you won't know what to do about it. And the fact that, that if you're not radically truthful with each other, you won't get at that. You won't talk about problems or weaknesses. Everybody has weaknesses. Everybody makes mistakes and the capacity to look at those and understand one's weaknesses. For example, knowing what people will like led me to make a test. It's online. It's free. It's called Principles You. I put it online.

Starting point is 01:06:16 And you could look about what you're like, how you think, and you can look at how other people think, and we think differently. We're programmed differently. Our brains work differently. To know that and make that our strengths and weaknesses and to allow us to play, know what positions we should play, and to know how to deal with each other is a great benefit. And truthfulness over a period of time builds trust. And may be painful at times to talk about that.

Starting point is 01:06:44 but you can get past that pain because you have trust. And these relationships part, I also, you know, referred to it as tough love. Tough love is the best kind of love. Tough love is very difficult to give because people might not like it. But when they get used to it, that you care about people, that you genuinely care about people, I genuinely cared about these people. They were extended part of my life. If they were sick, seriously, I couldn't just have an insurance policy take care of them. I would introduce them to my doctor, and then I made an arrangement with my doctor, so they wouldn't be the doctor, but they'd make sure they're getting good medical attention. Where I had a house in Vermont, I'd love them to stay there. We were at each other's

Starting point is 01:07:30 big events, birthday, weddings, baby showers, and those kinds of things. It was optional, no need to do that things. But when there's also love and tough, they go together and they can know, if it's easier when you care about somebody and you're tough with them, that kind of works. And then they're into the mission and they're not working for a few bucks more. Because when you have people who will trade who they're with and what their mission is on for a few bucks more, they're living a shallow life. You're losing that kind of devotion. And so that's why the radical truthfulness works. And then transparency so that everybody could see everything. I mean, literally almost everything except if it's proprietary or extremely personal would be recorded so anybody could

Starting point is 01:08:18 see. They could see a struggle with difficult questions, and they could understand those things because transparency is a key ingredient to understanding, because everybody gets spin from everybody else, if they, you know, what happened, then you hear somebody's description, which is biased. And so that process really worked great. My sense from people who know you well, and we've talked before, and I sense from other people is you're a good guy, you're someone who cares deeply about your family and friends and colleagues, and yet there's a part of me that wonders about how you deal with this conflict between the desire to be a good friend, a good father, good husband, good grandfather, good colleague,

Starting point is 01:08:56 the downside of hurting people emotionally in a system that emphasizes truthfulness and candor. I'm sure there have been times where that's actually been kind of painful for you, as a sensitive person. And I'm wondering if you could just talk to that because I can see the intellectual benefit of your experiment. I can see the money-making experiment. But I also, if I'm honest about it, I do think there's a risk of a loss of humanity and kindness and compassion. And I just wanted to see what nuance you could add. I think it's just something like people have a bias against their, maybe it's their weakness or their mistake. and if that becomes painful, you're not helping them. It's like if somebody has something going

Starting point is 01:09:45 wrong and you tell them, what is a good friend? When you look at many of things in life, I'd call it the great trick of life, that first order consequences are often the opposite of second order consequences and the second order consequences are more important. For example, tasty food is more likely to be bad for you than less tasty food or exercise which is painful is more likely to be good for you than not exercise and so on. Financial discipline is likely to be good for you rather than lack of financial discipline. It's almost like the second order consequences. And if you can get people to start to realize like I really care about you, That's why I'm trying to deal with these things.

Starting point is 01:10:35 And I don't know what's true. We together have to find out what's true. So if you're disagreeing with me about my strengths or your strengths done in a non-hierarchical way, because we all have strengths and weaknesses, if we can do that and then set out as our mission to find out what's true. So how do we do a test? Is that your strength? That's improvement.

Starting point is 01:11:00 because improvement for you, your own personal development comes really from recognizing that you don't have all the answers or that you could be biased about your opinions or even yourself and what your strengths are. And once you can get past that, you can be very, very effective because everybody has, there are pros and cons. Nature did not invent away anything that doesn't have a purpose. And there are all these different ways of thinking. They all have. have purposes. And so if you have a big picture thinker and you have a detail thinker, they can frustrate each other. But if they can work well together, that's the magic. And so that knowing those things is produces outcome. So intellectually, it's quite like exercising or eating well.

Starting point is 01:11:49 At first, it seems difficult to do this. But then you won't be able to do it any other way because you start to experience the rewards. So you find that people at Bridgewater, would have a problem being anywhere else because almost those other places seem disingenuous. And you don't know what's really going on. They seem very political where it's very straightforward and you appreciate the honesty. So that's what the cycle is like. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 01:15:34 This is a paid advertisement. All right. Back to the show. It seems to me another very striking aspect of why you've succeeded as a thinker and how you've managed to set up an organization that thinks in a superior, a more rational way, is also this habit that you have of, as you put it, failing well, of learning from your mistakes. And I remember you've talked in the past about this trial by far that you had, I think,

Starting point is 01:15:59 in 1982 where you made a mistake that could have broken you and that set you on a different path to, I think, welcome in a sense the understanding that maybe you were wrong and maybe you needed to stress, test your opinions. Can you talk about the evolution that came about because you made that mistake and how critical a role that's played in setting you on this path of learning from mistakes, being radically truthful, trying to solicit thoughtful disagreement? I'll tell the story. So I formed Bridgewater in 1975 out of my, you know, it's two-bedroom apartment. I built this little company. And then in the 1979, 80, 81 period, that was strongly high real interest rates, lots of debt,

Starting point is 01:16:42 and so on. I calculated that American banks had lent more money to foreign countries than those countries were going to be able to pay back. And I had a very controversial point of view that we were going to have this big debt crisis. And then on August, 1982, Mexico defaulted on its debt, and a number of other countries followed. And because I anticipated the debt crisis, I got a lot of attention. And then I thought we were going to have this collapse because of the debt crisis. It was one of those experiences that I hadn't been through before in that way. And I couldn't have been more wrong. August 1982, when Mexico defaulted, was the exact bottom of the stock market, the Dow at 777 at Dow bottom.

Starting point is 01:17:27 And I couldn't have been more wrong. And I was wrong for me and I was wrong for my clients. That was very painful experience, not only because of the losing and money, but I was so broke, I had to borrow $4,000 from my dad. And, you know, because I had a family and I was in that position and I had to let everybody go, really. and I was down to me and thinking, okay, am I going to put on a tie and get on the railroad and go into Wall Street or, you know, how is that going to work and all of that?

Starting point is 01:17:56 That painful experience was one of the best pain, best experiences in my life. It's transformative because it gave me the humility that I needed to balance with my audacity. In other words, it gave me a fear of being wrong without me losing my audacity because I then knew, so I wanted to find the smartest people I could find who disagreed with me to stress this their thinking. And I really wanted to understand how to diversify in a way which didn't lose my upside, but gave me my downside. So at that point, and I really do think painful experiences of the learning, my son afterwards gave me a book. by Joseph Campbell called Hero of a Thousand Faces. And they described that there's these in almost

Starting point is 01:18:44 all lives a lot, unless you have, you don't take much risk or anything, but risk equals return, that there's an abyss, that you have the time in your life where something really terrible happens and you go down. And I have an expression, pain plus reflection equals progress, because the painful experiences, and that Joseph Campbell example that he had in the book is that you have a metamorphosis, you change. And that metamorphosis helps to make you better. And so from that experience, that was the bottom for me, and that was the bottom for Bridgewater. And every year since then, we kept getting better and better and it kept going up. That was what my experience was like and a teacher because also risk goes with opportunity. And so I've sort of felt like I can have a

Starting point is 01:19:36 safe life by not taking risk. And it was like on one side of a jungle, or do I want to go through this dangerous jungle with all sorts of things that can kill me and that to get to the other side and have a great life? And so that's a lot like life because you can take risk and you can, but and it provides opportunity. Then I said, how do I go through that jungle to be effective? How do I get the returns without the same amount of risk? That was the puzzle that I had to solve. And then I realized I didn't want to have less than great life. So I have to go through the jungle. But I realized that going through the jungle with people who are on the same mission to make it through the jungle, who could also see things differently so that they could pick, they could see

Starting point is 01:20:24 what I couldn't see and so on, and that we would help ourselves through that jungle. And so it struck me like mistakes were like puzzles that I would have to solve in order to get a gem. It was like that. Okay, a mistake, gee, what does that tell me about how reality works and how I'm going to deal with reality to be effective because it's a reflection of reality. Am I dealing with reality? And so that was a puzzle. And then if that puzzle would give me a gem, if I could answer that puzzle. And the gem then was a principle that I could carry forward to be better in the future.

Starting point is 01:21:03 So that was what the whole experience and the journey was like. And that's why I believe the things I believe. I'm struck by the fact that multiple times, both in this book and in principles and in other writings of yours, you've talked about welcoming being corrected. I remember a recent piece, I think you wrote about Bitcoin, where you said, I'm happy to be corrected. And it strikes me that that's an extraordinary strength. Isn't it so stupid that anybody wouldn't want to be corrected? I mean, like, that so exemplifies the problem, right? Everybody's attached to being right. And so, like, I don't care where being right comes from. You know, I want to be right. And if it comes from other

Starting point is 01:21:42 people and I learned, isn't it an extraordinary thing that in our society that that's considered unusual? Isn't it stupid? Yeah, but there's clearly, you mentioned, I think, in principles that being corrected often triggers people's fight or flight response, that it's just painful to them. And I was wondering, I've spent a lot of time over the last 25 years interviewing legendary investors, and they all strike me as having very unusual personalities. And I know you've done a lot of psychometric testing. And I'm wondering, when you look at the kind of testing you've gone through, is there something

Starting point is 01:22:16 about your particular personality that you look at and you think, well, yeah, I'm a very independent thinker, I'm not emotional about these things? Are there aspects of your personality that you think predisposed you to be a successful investor because you were saying more rational or less emotional? No. I think that it comes down to neuroscience. and habit, that there are two parts of our brain, that there's the thoughtful part of the brain that's analytical and conscious. And then there's a subliminal part of the brain, subliminal

Starting point is 01:22:55 meaning is, and it's unconscious. And it's working there and it's doing its own set of calculations, some of which are emotional and so on, and that they could often be at odds. I'm an emotional person. I think the best things are love, inspiration, excitement, and all of those types of things. So it doesn't mean being unemotional. But what I think that a couple of things affected me. So I think, and almost anybody can be affected. One of the things is, in order to succeed in the game I play, I have to go through the dynamic that I'm describing. So that affected me. accuracy is the thing that I treasure. Accuracy is truth.

Starting point is 01:23:37 I treasure that. It's a foundation of those good things. Also, meditation. I learned to meditate when I was about 19. And what that does, it's a process of basically relaxing and then you go into your subconscious mind. And I think that that's helped to give me the equanimity that I need. And also creativity comes from the subconscious mind.

Starting point is 01:24:01 if you can align your subconscious mind with your conscious mind so that they're aligned and they sort of filter each other. Because anything that's just coming up out of the subconscious, maybe it's going to do your harm and maybe it's the intuition and the creativity that's going to help you a lot. And then there's the conscious mind and it doesn't have the same amount of those kinds of things, intuition and so on. But it also could be junk that's coming up and you're emotional and you get carried away and you make the bad decisions. When you can align them, I think that that's advantageous. So I would say meditation played a role.

Starting point is 01:24:36 And then what I need to do, which is I need to be right. I don't care where being right comes from. I need to be right. And if it comes from somebody else or it comes from wherever it comes from, that's going to be helpful to me. So I think that those experiences, I think that our education system and the reinforcement of this terrible ridiculousness in which people are attached to being right, I came up to it, that ego barrier or that, or there in this blind spot barrier because we think

Starting point is 01:25:08 differently. We can process things. Some people can see the big picture. Some people could see the details. They need each other, but their brains work differently. So that's why I do these personality profile tests, which again, I'll say principles you, everybody goes on it. It's free, 30 minutes.

Starting point is 01:25:25 It'll tell you a lot about yourself. You could put somebody else on it too. and it'll tell you a lot about your relationship. But I think that knowing those things is, you know, a real benefit. It's really developmental because I saw that I could change how people were. Not everybody. It couldn't change how everybody was. But over a period of time, like exercise, it started to be clear that there were rewards

Starting point is 01:25:50 from being this way. And then once people started to experience those rewards, then they started to really want to be that way and so they can change. People can change to be that way. It starts off intellectually realizing how silly it is to be the other way and then saying, you're really in a war with yourself, your conscious mind and your subconscious mind, then thinking, okay, you know, how do I resolve that? Do I want to know the truth? Let's say, for example, if I was thinking that you were doing badly or a week or a week at something or you were thinking badly, I start off with the question, would you like me to tell you or would you not like me to tell you?

Starting point is 01:26:31 And the logical mind will tell you, or yes, I'd like you to tell me. At least I know what you're thinking and maybe, who knows, maybe you're right. The emotional part of your brain would say, I don't want to and I'm not get angry. I think somewhat fearfully, I would definitely want you to point out what I'm screwing up and how to think better and how to operate better. But I would do it with trepidation. And what you'll experience if you do that, if we both did that together, so it's out of caring and that we try to say, we don't know, and how do we find out, okay, maybe you have that strength and weakness is, and maybe you don't. That's why I say both parties got to get to the

Starting point is 01:27:11 point where they agree. But then we might say, how do we do a test? How do we find out? And then by doing those tests and wanting to be on the mission together to find out what your strengths and weaknesses are, then you're realizing it's the love of the tough love. And then it's also one of those things that derives benefit and then you like it. I wanted to go back a bit to this question of meditation, which I think is hugely important. I'm a pretty devout believer in meditation. And I think partly because my mind is all over the place as a writer and I'm, you know, I come for a long line of Jewish refugee immigrants and so I think we probably inherited a bunch of fear and anxiety and that I think it helps me tame in some way.

Starting point is 01:27:54 I was just wondering how it's helped you in terms of resilience, in terms of the ability to sit kind of calmly within the storm, because I don't know if it's a coincidence, but I think you started meditating when you were about 19, which I think was also around the time that your mom had died, and I know that was pretty traumatic and she had died in your arms, having had a heart attack. And I'm wondering how you found meditation helpful in terms of giving you the kind of, not just the clarity of thought, but actually the emotional resilience to deal with the problems and suffering that all of us sooner or later come up against in life. Well, I discovered meditation, transcendental meditation, when the Beatles did it, they came back,

Starting point is 01:28:37 and I figured I'd give it a try. I think almost anybody who tries it and sticks with it past the impatience of it, realize that they don't want to do without it. It's just about of time. And so what happens, I'll describe it to your audience. There's what's called a mantra, which is a sound that you repeat in your head. Maybe an example would be om. And when you're thinking about, when you close your eyes and you're relaxed, and you're thinking in your mind, over and over again, oom, it takes your mind away from your thoughts, which you find old jumping around. And so you find it a little bit difficult because you repeat Ome and then you want to go back to your thoughts and so on. And the thing to know about that is if you can't clear

Starting point is 01:29:23 your mind of those thoughts, you need to meditate. So don't get impatience. Stay there, do the practice. And then when you do that and you stay within that sound Ome, then it disappears. And then you go into a transcendent kind of state, which means you're very quiet. It's not like being conscious or unconscious. It's not like sleeping. Because if you were here like a noise, you know, a ding like that or something, it's startling and so on. But you're going really into your subconscious. And in your subconscious doesn't mean that you're aware of your subconscious. But you start to experience equanimity. And I think you, and you experience equanimity. In other words, that calmness in the storm. You align your intellectual with your emotional. It brings out creativity, because creativity,

Starting point is 01:30:18 a lot comes from the subconscious. It's like if you take a hot shower and these ideas come to you. In fact, when I meditate, it's one of the problems is as I go down to meditate, I get these great ideas and I have to almost put them aside in order to continue the meditation. And so that is what the process is like. It gives you sort of a sense of almost going above things and looking down at things objectively. I think that there's an element of spirituality to it because it like prayer or meditation or whatever, it's that repeating that kind of sound. I don't know different people do it. By spirituality, I don't mean God spirituality. I mean a spirituality. I mean sense of you're connected. You know, you feel a little bit connected. And then I felt essentially

Starting point is 01:31:07 that everything is just reality. And I'm just dealing with reality. And so they may not be the realities I want, but they are the realities. And so to look at how does reality work and how do I deal with it the best possible way. Yes, I've had, you know, a number of things which are devastating, you know, and devastating could be devastating. Those we all do. But to be able to feel those things, I lost a son about a year ago. And that was devastating. Worst thing that ever happened, I'd rather lose everything around my life, rather lose everything that I have everything than to have had that particular experience. And I felt it in many ways. I felt it. And my family felt it. And I love my wife. I love my family. And seeing the

Starting point is 01:31:58 pain that that produced. But the ability, in a sense, to do it in a very natural way and to go through it, I won't get into the twists and turns of what I did exactly or what we did. It's just a reality. And I have to accept that reality because a lot of our unhappiness comes from forming these expectations of what should be and then feeling, you know, it was taken away those types of things. So it has affected the way I kind of look at those things. I see myself within a life arc. You see things differently. I'm 72 years old. I know exactly where I am in my life are. And that's the way reality works. And so all of those things, meditation has helped me gain those things. Thank you for sharing that. In a way, there seems to be a common denominator here

Starting point is 01:32:45 between your commitment to radical truthfulness and radical transparency and the way that you've dealt with these losses, that it's refusing to look away. It's being willing to abide with the pain, to look at reality as it is, not to, I think most of us, whether we're dealing with personal pain or dealing with our own flaws and failings, we try to look away because it's too painful. And it strikes me that one of your great strengths, both as an investor and a thinker and in your personal life, is that the courage actually, Marcus Aurelia said, you have to hold a paper pack and look at the rotting meat inside it, not look away, the horrible image. But in a sense that that willingness to confront reality as it is rather than as we, as we

Starting point is 01:33:27 it to be? Yeah, one of the principles that I learned that's most important is pain plus reflection equals progress. Pain tells you about how reality works and how to deal with it better. And so if you'd have the reflection, a lot of people experience pain and then also then the pain might go away, and they never had the reflection that provided the learning. When you have the reflection that provides the learning, I think pain is the most effective teacher. You put your hand on a hot stove or something. It has a purpose. We don't like it.

Starting point is 01:34:08 Its first order consequences are terrible. But the second order consequences, if used properly, provides learning and provides improvement. Has going through the unspeakable horror of losing your son, I can only imagine as the father of a 23-year-old boy, a 20-year-old, how has that changed you? How has it taught you and made you think differently about your own mortality or what you want to do with the rest of your life or how you want to honor the memory of your son? There are ways in which that experience that we wouldn't wish on anyone has, reflecting on it has changed you? Yes, I'll describe the experience keeping him and wanting him to be part of our lives. And at the same time,

Starting point is 01:34:56 time being in the right experience and dealing with it, not by turning away, as you say, but going to it and going to him. So my wife and I have tea every morning. And so we sit on a couch and we have the tea. And so putting a picture of him in front of us and then going into the experience of journaling. This helped us. We want to journal memories of him. And that brought up the emotions and the memories. We wanted to go into it and we went into it. And then we had a book that was a wonderful book about how to, what it's like and so on. And that we did it in our whatever way was natural to be able to keep him there with us.

Starting point is 01:35:42 So how do you have him gone and also not gone? And through that process, what is his role? Start to think about his daughter. He had a three-year-old daughter and how we can do that with her. what the family means. And then, of course, it reminded me that this happened in COVID. I was not alone in having all those deaths occur to other people, were having loved ones. It was a common phenomenon as each person is going through that and to look at it in a sense in that way. And also then then putting, reminding what's most important in life and making sure that that's

Starting point is 01:36:21 taken care of, others that I love and take care of, and cherish that moment, not losing it, because it's a reminder of the realities. I've had cases where I thought, in one case, my wife or loved ones might die for some things. And then you find out, okay, they're okay. And then it reminds me that one day that'll happen. What a gift. And so it helps to savor life more, make a point of that, and also make, you know, the life more purposeful. Those are the things that that experience gave me. There are any philosophical or spiritual books or traditions, whether it's Buddhism or Stoicism or Christianity, that have helped you that you would recommend for other people, not in a proselytizing way, obviously, but I remember hearing you got

Starting point is 01:37:11 tremendous comfort from the serenity prayer, for example. I don't have a particular religion or teaching that I follow. I'm curious and I love to speak to people of all different beliefs and see what their thoughts are and there's a lot of wisdom. And so once I had a conversation with the Dalai Lama and he described as religion as basically the combinations often of the mixture of spirituality and superstition, I tend to say, I think what I know. And then there's a lot that I don't know, but I know that the universe works as the way the universe works, and I get some sense of how that all works. And so there's sort of wisdom. And so I don't look at the serenity prayer as a prayer in a religious sense. I look at it as what is a very good, appropriate approach to

Starting point is 01:38:07 life. God give me the serenity to accept the things I can't control and give me the power to control those that I can and give me the wisdom to tell the difference. And I've said, that to many people who are not religious, that maybe the word prayer is misleading. But I think that that's right. You know, in other words, there are things you can't control. And that means that you have to have, you have acceptance of those types of things. And that's just reality interacting with you and that's just the way it is. And you have to accept it. You may not like it, but you have to accept it because you can't change it. And then you move beyond. And how do you learn those lessons? So that's the control, the things you can control, learn the lessons. That's the best way to do it. So I believe

Starting point is 01:38:54 in that, but not as a prayer, but more as a good piece of advice. When you look at the future and you think about how you want to be remembered, what you want your legacy to be, obviously, you've had an extraordinary amount of success. I mean, you, in purely financial terms, I mean, you have said by Forbes to have $20 billion and, you know, you have a couple of thousand people, I think, working for you. You have an incredible ability, actually. to shift the dial in the world, actually make a difference. And I know that you've been very philanthropic over the years. I wonder if you could give a sense of when you think about what you want to do with the rest of your life, which I hope will be long and fruitful. How do you think

Starting point is 01:39:36 about that question? I think that there's this life arc, and we each have our purposes in life and our preferences. For me, I think everything's around evolution, involving personally, and then also contributing to evolution. But I have my preferences and I know where I am in my arc. And so I love my family. I love my friends. And that experience is very important. I view it as life is just like, you know, a footprint of sand on the beach. It's not a matter of permanence and whatever I do will be modest in comparison to the things. The best thing I can do is pass along those things that I'm leaving of value and have the enjoyment of that. Passing along those things of value, I think most importantly, are my principles that have

Starting point is 01:40:30 served me well, because better to teach a man how to fish than to give them a fish. And so that's why I put out these books, pass them along for people to take or leave. I don't know if they're right or wrong, but people could look at them and decide, you know, what they are, because I think that's most valuable. And then, of course, I've been blessed by this wonderful land of opportunity and so on. I didn't make a lot of money really because I intended to it. Just the game that I played is very rewarding that if you play it well, it's rewarding. And then I realized that making money is no goal. It's sort of a stupid goal because money has no intrinsic value. Only what can you do? with money. And that's the only thing that matters. And so when I think about that, I think,

Starting point is 01:41:17 okay, what do I want to do with that and what makes what's contributory contributing and also what makes me feel good and what the others do. So we do our philanthropic activities like a family that we try to find each our own passions and we do that because that really is oriented to what is the goal in life. Some people think the goal in life, as I say, is to make money, but instead if, no, no, if you have money, what do you want to do with money? But money is one thing, really the interaction. So for me, meaningful work and meaningful relationships, savoring life while I contribute in those ways is what I want to do. I view myself, as I say 72, I'll probably put out one more book, which will be economic and investment principles, and then

Starting point is 01:42:06 I'm going to go quiet. There's no reason I will have passed along anything that in terms of ideas that I have. So that's kind of what I think about the future and what I'm trying to do pass along things. If I could ask you one final question as I'm aware, where that I've exhausted your generosity and giving us so much time here. You write a lot actually about evolution. There's a point, I think, in the dedication, actually, where I think you say, may the force of evolution be with you in dedicating the book to your grandchildren. You talk at one point about how evolution is the biggest and only permanent force in the universe, yet we struggle to notice it. In some ways, this book is kind of a scary book. It's talking about the ways in which the U.S.

Starting point is 01:42:46 can be on the brink of a really difficult period, the ways in which there can be lots of turmoil is the greatest global power at the moment is unseated. So there's reason to read the book with some degree of fear, but there's also a great degree of trust that you seem to have in the power of evolution, in this sort of general upward trajectory. of the world. And I wondered if you could square that for me, that kind of conflict between the somewhat pessimistic sense that there are going to be these really tough times that are likely to come in the next 10 years, and your general sense of trust in human innovativeness and the power of evolution. You could see it in the charts in the book. You could see these cycles,

Starting point is 01:43:31 kind of the ups and the downs and they work, and I sort of track that cycle. And then you you could see that that cycle for everything is coming around an evolutionary uptrend. And when you look at the charts, you can see the one in relationship to the other. And the greatest force of mankind, well, even beyond mankind, but the greatest force of mankind is the power to adapt and evolve to higher living standards. So when you look at things like per capita income over time, or you look at life expect and other things that you measure, and you look at that over the time, those periods which are the worst periods, the depressions, the wars, and so on, they barely show up in that

Starting point is 01:44:17 bigger chart. They have in these cycles. And so because I can plot all of those things and we could see them, we can decompose them and you could see actually how reality is working. And reality works that like that learning and that adapting has raised our living standards by almost any measure. And if you look at even how we deal with our problems, that's our greatest force, because if you look at, let's say, the development of vaccines being so quick and the technologies and all of that, that is the most powerful force. That's not a ideological belief. That's not a philosophical or religious belief. That is just you can see it in the charts and the movement up. So that's what it looks like to me. I draw a circle. I draw this

Starting point is 01:45:05 looping process in the beginning of the book. And that's how evolution looks to me, that evolution is really advances, and then the advances start to taper off, and then problems start to occur. And then as the problems start to occur, then you have to identify the problems, and then you have to diagnose them to get at the root causes. And then you have to design a solution. And if you design a solution, then you have to implement that design. And if you do that, then you go on to better circumstances, just like we went through over the last couple of years. And so it's that, that just the way it works. It's just mechanical that it works that way. And so when I say optimism or potential, we have that capacity. And we have the capacity to invent. The main thing is

Starting point is 01:45:57 we have to stop doing financially combination of financially responsible things and then also be well with each other. If I look around at countries, I mean, it's basically I look at three things. Are they earning more than their savings? Are the people internally civil with each other, good with each other to be productive rather than self-destructive? And externally, are they likely to have a war or are they likely to have a peace? You can grow across countries and you can see it. It surfaced in the, it surfaced in the, you know, how people are reacting to masks and things and so on. So you see these patterns.

Starting point is 01:46:36 So there are these cycles, but the greatest force is that evolutionary force, man's inventiveness. And I think there's tremendous potential for that now, particularly because of thinking. Thinking means we're computerizing a lot of thinking. So our ability to work with a computer to help us thinking can produce. better thoughts, and we have enough resources. So that's where the great potential lies, I think. It seems like also if we harness this in our own personal lives, this sense of evolution as a kind of master principle where you're saying, well, let me learn from my mistakes, let me learn from people who are smarter than me, who disagree with me, let me learn from pain, from

Starting point is 01:47:14 adversity. There are all of these ways in which you could actually apply this fundamental belief in evolution as a core principle or force in life, actually to harm. honest that very consciously in our own lives. Is that fair to say? Absolutely. In the book, the book I wrote first, Principles, Life of Work, I show this five-step process in which there's advancement and then there's mistakes and then there's learning from mistakes and diagnosing them in that process. And that is the process of evolution. And even ourselves, we look at ourselves as individuals, but we're largely vessels for our DNA. made us as vessels for our DNA. Most species die at a point where they're not able to produce

Starting point is 01:47:59 and so on. And so you see that evolutionary process as a major force. And we can evolve faster and better if we embrace that and deal with it, including learning from our mistakes and learning how reality works. Great. Thank you so much. You've been incredibly generous in explaining your thoughts, how you view the world. And I do think your books have been a tremendous contribution. They've had a great impact on my own life and have helped me see much more clearly various things in the world. So thank you so much for your generosity and talking to this. Is there one final thought you'd like to leave us with before I let you go? Just to say thank you for allowing me to help pass this stuff along. I hope it's of interest

Starting point is 01:48:42 of people. And if it's of any good use, I'm happy that we did it. It's usually helpful. Thank you. Thank you for listening to TIP. Make sure to subscribe to Malenai. millennial investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional, this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

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