The Tim Ferriss Show: Ray Dalio Interview (#264)

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ABOUT RAY DALIO

Raymond Thomas Dalio (@raydalio) is an American Billionaire Hedgefund Manager and the Founder of Bridgewater Associates, the World’s Largest Hedge Fund with over $160 Billion in assets under management. Ray began Bridgewater Associates out of a two-bedroom apartment at the age of 26 and has been influential in building it into what Fortune considers the fifth most important private company in the United States.

Ray Dalio has condensed his years of thoughtful decision making as principles into a book, Principles: Life and Work which is a #1 New York Times Bestselling Book recommended by the likes of Bill Gates and Tony Robbins.

Ray Dalio was the guest on The Tim Ferriss Show Episode 264 where he discussed his Childhood, Failures, Principles, Transcendental Meditation, and Investing.

Here are our takeaways from the conversation,

RAY DALIO QUOTES FROM THE EPISODE

  • “Pain plus reflection equals progress”
  • “One of the things that I’ve learned over the years is that many surprises come because things that happen as surprises never happened in one’s lifetime before”
  • “I believe that basically everything is another one of those. In other words, almost everything happens over and over and over again in history.”
  • “Mistakes are part of the process and everybody has weaknesses”
  • “The greatest people I know have weaknesses and have become successful because they know how to compensate for the weaknesses. The stupidest/least successful people I know are people who don’t own up to those weaknesses and grow.”
  • “Creative genius is at the end of insanity”
  • “Psychology is a big deal in the markets”
  • “Taking the emotions out of it (investing) is a real, real plus.”

RAY DALIO’S CHILDHOOD AND FIRST INVESTMENT

  • Ray Dalio grew up in Long Island in a middle-class family where his father was a Jazz Musician and his mother a homemaker
  • At the age of 12, while being a caddy, he bought his first stock in Northeast Airlines which was trading for less than $5 a share
  • A lucky merger resulted in Ray Dalio tripling his investment and he got hooked in the game of investing

WHY RAY DALIO PREFERS LOOKING AT HISTORY

  • Ray Dalio thinks that many events happen as surprises because those events hadn’t ever happened in one’s lifetime
  • He believes that everything is another one of those. By this, he means that history is replete with examples of events that happen over and over again and if one can look into the history and learn from it, they can better recognize the patterns and group events into individual types for dealing with them.

IDEA MERITOCRACY IN BRIDGEWATER ASSOCIATES

Ray Dalio believes that the best ideas should always win and has implemented an Idea Meritocracy system in Bridgewater Associates.

Here’s how to implement Idea Meritocracy in any organization.

1. Bring Honest Individual Thoughts to the Table

2. Practice Thoughtful Disagreement

This can be done through the 2-minute rule (a person can speak for 2 minutes without any interruption), Repeating what the other person says or the points they make so that it is understood that the disagreeing member(s) understand the person’s points, disagreement through Email Exchanges, mutually agreeing on a Moderator for resolution, and other ways.

3. If Thought Disagreement Happens, then resolving it through Believability-weighted Decision Making

Believability-weighted decision making gives more points to the opinion of people who are experts in the disagreed matters to arrive at the best possible decision.

3 THINGS FOR A SUCCESSFUL LIFE ACCORDING TO RAY DALIO

  1. Audacious Goals
  2. Learning from Mistakes
  3. Determination

RAY DALIO ON TRANSCENDENTAL MEDITATION

Ray Dalio believes that Transcendental Meditation has made him able to control emotions better and be calm under fire.

According to Ray Dalio, it is best to do Transcendental Meditation twice every day – before breakfast and before dinner with preferably little or no food in the body.

Every session lasts ideally for 20 minutes and Ray has no preference for the location for Transcendental Meditation. He says that he can do it even in a noisy environment like a plane or a train to calm him better.

RAY DALIO’S ADVICE TO HIS SON DURING DARK TIMES OF BIPOLAR DISORDER

The following are Ray Dalio’s advice to his son, Paul Dalio during his dark times with Bipolar Disorder.

  1. TM (Take Medicine / Transcendental Meditation)
  2. No Substance Abuse
  3. Go to Bed Never too Late (Ideally by 11 pm)
  4. Monitoring
  5. Careful while changing Timezones

HOW RAY DALIO READS BOOKS

1. Ray Dalio likes to understand the concept of the book and then skim through it

2. Ray Dalio likes to get into the main arguments soon by going faster on the stories in the books

BOOKS THAT RAY DALIO WILL RECOMMEND TO HIGH SCHOOL GRADUATES

  1. The Lessons of History by Will Durant & Ariel Durant
  2. River Out of Eden by Richard Dawkins
  3. The Hero with a Thousand Faces by Joseph Campbell

TWO RAY DALIO MAXIMS EXPLAINED

1. “Ask yourself whether you’ve earned the right to have an opinion”

Ray Dalio explains that not all opinions are equal. Just because you have an opinion does not mean that it is useful. If you’re an expert in the discussed topic, you have the right to have an opinion.

2. “Don’t pick your battles. Fight them all.”

Ray Dalio explains that the small issues in an individual might be symptoms of a big issue and wants individuals to fight all battles rather than fighting only the big ones.

RISK ACCORDING TO RAY DALIO

According to Ray Dalio, risk is

  1. Not getting knocked out of the game
  2. Taking it to have the experiences (without getting knocked out)

HOW TO RAISE ONE’S PROBABILITY OF MAKING GOOD DECISIONS

According to Ray Dalio, one can raise one’s probability of making good decisions with

1. Humility

2. Triangulation of Great People

If one can get 3 experts disagreeing on the matter being discussed, then one can gain a lot from the discussion that will raise the probability of making good decisions.

HOW RAY DALIO MAKES INVESTMENT DECISIONS

Ray Dalio prefers to make uncorrelated bets rather than correlated ones.

He says that 15 good uncorrelated bets mitigate one’s risk by 80 percent.

While working on an investment decision where Ray Dalio doesn’t have a lot of information, he prefers to go by the following two rules

1. Timeless

Ray Dalio likes to see the correlation of the investment decision with its intrinsic drivers through time and see if the correlation remains or changes with time.

2. Universal

Ray Dalio likes to see the correlation of the investment decision with its intrinsic drivers across different countries and see if the correlation remains or changes with change in the business environment.

RAY DALIO’S THOUGHTS ON BITCOIN

According to Ray Dalio, the purpose of any currency is use as a

  1. Medium of Exchange
  2. Storehold of Wealth

However, with Bitcoin, he feels that the coin is still not easily exchangeable and the wealth of the coin is still a speculative market.

RAY DALIO’S WAY OF DIVERSIFYING TO BALANCE RISKS

Ray Dalio believes in analyzing the following to diversify portfolio and balance risk

  1. Intrinsic Drivers
  2. Timeless and Universal Correlation of the assets

OTHER BOOKS MENTIONED IN THE EPISODE

VIDEOS & MOVIES MENTIONED IN THE EPISODE

PEOPLE MENTIONED IN THE EPISODE

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