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Question of Principles

Worth speaks with hedge fund titan Ray Dalio about his new book, titled simply Principles, and the rules that he—and his Bridgewater Associates—lives by.

BY Richard Bradley | Current Issue | Oct 27, 2017
Ray Dalio, September 2017 Ray Dalio, September 2017. Photo by Richard Frank

Interviewing Ray Dalio, who founded the hedge fund Bridgewater Associates in 1975, can feel more like a debate than an interview. Dalio likes to dissect questions, to turn them back on the questioner, to point out any flaws in their logic or implicit assumptions they contain. It’s a fascinating back-and-forth, but is it really a fair one? After all, the interview takes place in a conference room at Bridgewater’s expansive Westport, Conn., headquarters, a building where all significant interactions can be filmed and evaluated, with two public relations people present. this conversation is taking place on Dalio’s turf.

Why does this matter? Because the 68-year-old Dalio is known for two things: First is being one of the world’s most successful investors, in part because in 2007 and 2008 Bridgewater successfully predicted (and invested against) the financial crisis. Second is the famed—infamous, some past employees would say—culture that Dalio has created at Bridgewater. A longtime practitioner of Transcendental Meditation, Dalio has fashioned a set of rules—he calls them Principles—in which the ideas and actions of oneself and one’s coworkers are constantly evaluated by each other in order to achieve “an idea meritocracy.” Bridgewater, the New York Times has reported, “videotapes nearly everything that goes on there,” and executives are occasionally subject to “public hangings” if they violate the rules. Employees are constantly tested on their knowledge of Dalio’s Principles, and each employee has a permanent record known as a baseball card, which is exactly what it sounds like, with evaluation ratings. Dalio argues that such “radical transparency” or “radical truth” allows the best ideas to flourish, which is why Bridgewater makes so much money. Whether this is as Orwellian as it sounds or intellectually empowering depends on whom you talk to.

This fall, Simon & Schuster published Principles, a 592-page book by Dalio that is part memoir and a record of his guidelines for life and work. “Don’t hide your observations about people,” Dalio says, then explains why. Or: “Train, guardrail or remove people; don’t rehabilitate them.” Whether it’s a fair debate or not, Ray Dalio gives you a lot to think about.

Q: Several years ago, you posted a short version of your Principles on the Bridgewater website, and it was downloaded several million times. Why turn them into a book now?

A. I preferred originally to totally stay under the radar. Then Bridgewater got some attention, and I put the Principles out, just so everybody would understand what they really were. I got a lot of great reactions to that. Now, this is my year of transition; 2017 represents a shift from the second phase of my life to the third phase of my life.

You’ve said that in this third phase, you’re becoming independent.

Yeah. I’ll always want to be involved in the markets, and I’ll always do that here. The difference is in terms of obligation or people being dependent on you.

How so?

Let me state the phases. The first is, you’re dependent on others and you’re learning. The second is, others are dependent on you, and you’re working. The third is when they grow to the point where they can be self-sufficient and you can move from obligation to being free.

So how does the book facilitate that freedom?

Anything that I have to say that’s of value, about life or work, is in this book. I’m not needed anymore.

But it sounds like you’re making yourself obsolete.

Who wants to be needed?

Lots of people.

Maybe it’s a phase-of-life question. You get to a point where you can just savor life. You feel that the absence of attachment is a source of joy. When I’m dead and gone, you can read this book. It’s really a great feeling.

What did you learn about yourself in writing the book?

It was great, because it was reflective. I’m telling stories. It forced me to bring back those particular memories.

You relate a couple of surprising incidents. One was when as a younger man you hired a stripper to perform at a meeting, and the other was when you punched a coworker…

My boss.

Right. Here’s a guy who at the time is already starting to get into meditation and now has built a firm with probably the most idea-driven culture of any company in the world. How does the guy who hires a stripper become the guy who’s implemented this unique culture?

It’s almost like you’re asking the question, Can you be fun-loving and play practical jokes and also do the business? I think that they go together. I love to have a blast. I’ll play practical jokes. I wouldn’t do the “put the stripper in front of the convention” thing again, but I’d do my contemporary version.

Are there things that you’ve integrated into the culture here that came from elsewhere?

Not that I know of.

So this culture is you.

I want an idea meritocracy. Why? Because I want independent thinkers who will disagree. We have to have the art of thoughtful disagreement to try to raise our probabilities of being right, and also we’re going to have better relationships. “Can I speak frankly with you?” You speak frankly. And then, how do we get past our disagreements to have meaningful work and meaningful relationships? That’s radical truth, radical transparency. That’s it.

By my count, there are well over 150 principles in the book. That feels like a lot to remember and integrate into one’s life.

One doesn’t start with what number there should be. Each one of them came from encountering something and thinking, How should I best handle that thing? Then the question is, what is the number of things? It’s like a language. How many words in a language are you going to need? It’s not going to be 10.

“Whether it’s the White House or a business, I think that [being] idea-meritocratic, the art of thoughtful disagreement, would be tremendously beneficial.”

Let’s talk about the role of the financier in public life. Many observers look at the White House and see a dysfunctional work environment—lack of productivity, high turnover, internal fighting. What could the president take from this book that would improve that situation?

Whether it’s the White House or a business, I think that [being] idea-meritocratic, the art of thoughtful disagreement, would be tremendously beneficial. How do people disagree and get beyond their opinions in their heads to try to find out what’s best? Because if you have a system for doing that, that everybody agrees is fair, holy shit, you’re going to make much better decisions. That’s very powerful.

But it also requires a certain thick-skinned-ness.

The “but” does not in any way equivocate the answer. Your question was, how would it be helpful? Thoughtful disagreement would be helpful for everybody. Because one of the greatest tragedies of mankind is people needlessly being wrong because they’re attached to their opinions.

In your radical meritocracy, what is the difference between disagreement and criticism?

The real issue is intent…whether the intent is to help or to harm.

From what I’ve read, you’ve never lacked for confidence. You can handle this process. Many can’t.

Our experience has been, when you create a [meritocratic] environment, something like two-thirds of the people can do it, but it takes something like 18 months to get used to. Then, when you get used to it, you don’t want to go back.
When you’re hiring someone, can you talk to that person for 45 minutes and say, “I think this person’s going to succeed in our culture”?

The way we [interview] is more like a combination of personality tests and showing them videos of what it’s like, so that they select out themselves. Then we have conversations.

I’d like to ask you about Gary Cohn, the White House chief economic advisor who broke with the president over Trump’s reaction to the Charlottesville, Va., protests. There’s been a lot of debate about whether he should resign out of principle. Would you have any advice for him?

It seems to me that there are conflicting principles. What is good for the country, staying or leaving? How should he behave to a president? Against, what is that need to protest? Is remaining inconsistent with his principles?

And?

I would think that the benefiting of the country as a whole would be of paramount importance.

Let’s say President Trump picks up the phone and says, “Mr. Dalio, I’ve read your book. I’m impressed by your work. The country needs you. Please come to Washington.” What would your answer be?

I would say that it probably ain’t going to work out well for either of us. It’s also not something that I particularly want to do. Where’s the meritocratic idea? I don’t know that I’d be effective. I could be more detrimental than effective.

You’ve spoken about being a mentor as an aspect of all phases of your life. Define what being a mentor means to you.

A mentor never tells anybody what they should do. They give advice. They help.

Is a mentor needed?

It’s up to the mentee to decide.

Then are you still needed?

I guess you would decide whether they’re on their own or not. If you’re a mentor and you’re teaching somebody to ski and think, “I can’t help you anymore, it’s time for you to go”—then you go.

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