Ray Dalio on The David Rubenstein Show
What this covers
Oct.31 -- Bridgewater Associates Co-Chairman and Co-Chief Investment Officer Ray Dalio talks about what he looks for in an employee, how he's preparing for a possible recession and whether or not he'd ever take a job in government. He appears on "The David Rubenstein Show: Peer-to-Peer Conversations." The show was recorded on Sept. 5 in New York.
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Ray Dalio argues that successful investing and life outcomes depend on embracing radical transparency, learning from painful mistakes through principled decision-making, and building meritocratic organizations where diverse perspectives and algorithms work in partnership rather than ego-driven individual judgment.
- The 1982 loss forced humility and shifted Dalio from ego-attached opinions to stress-testing ideas against smart disagreement
- Converting principles into algorithms enables systematic testing across historical environments and parallel decision-making with computers
- Bridgewater's high attrition stems from requiring employees to understand weaknesses and engage in radical transparency, which selects for character over credentials
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The 1982 failure taught Dalio to combine humility (fear of being wrong) with the audacity to pursue great results, rather than maintaining aggressive overconfidence without checking mechanisms.
“humility that fear of being wrong combined with still the audacity to go for the great results and how to do that well is really the most important thing I learned”
The value of painful mistakes and learning from them through reflection has been central to Dalio's success, making it a lesson worth passing along to others.
“first of all the value of mistakes the value of painful mistakes and learning and reflecting on them has been a big big thing”
Brains are programmed by genetics and environment to interpret disagreement as a fighting/weakness-challenging reaction, making it difficult for people to engage in thoughtful disagreement without discomfort.
“because when you're really talking about the strengths weaknesses and differences in ideas our brains have been programmed in a certain way partially because of genetics and partially because of our environments in which disagreement is thought of as producing a fighting type of reaction or weaknesses or something that becomes a challenge for people to look at”
Bridgewater offers two basic strategies: (1) a strategic asset allocation strategy called 'all-weather' that represents the best diversified portfolio one would hold if one had no idea what was going to happen (the beta piece), and (2) a 'pure alpha' strategy that makes directional bets about specific market moves (the alpha piece), with most investors mistakenly conflating alpha and beta and losing money in a zero-sum game.
“there is a strategic asset allocation next what is your best diversified portfolio if you had no idea what was going to happen what would you hold that's what we call our all-weather surrounded strategy it's a portfolio of assets and then we have what we call our pure alpha strategy because there's a separation between alpha and beta so every most investors make the mistake of separating those two and think that they're going to make money in the market and in this zero-sum game they're probably going to lose money from making those bets so there's the strategic asset allocation mix which is the all-weather beta piece and then there's the Alpha in other words okay now I think it's a good time to move this way or that way and that's the alpha stress”
In 2007, Bridgewater was up 28% (or similar strong positive return) during the worst year of the financial crisis, demonstrating superior performance during a major downturn.
“in the last recession your firm performed extremely well maybe better than any of any other major hedge fund so as I recall you're up 28% or something like that during the the worst year”
There is no room for additional tax cuts given the large existing deficit, so fiscal policy response to a downturn will necessarily involve increased spending that is not fully funded, producing larger deficits regardless of whether the spending is left-wing or right-wing in nature.
“there's no room for additional tax cuts do you agree because we already have such a big deficit so you couldn't really cut taxes and eat many more or do you not agree with that I believe that in terms of spending that probably there will be increases in spending that probably will not be well funded”
The effectiveness of central bank monetary policy is diminishing, so when the next downturn comes, monetary policy will be less effective and fiscal policy through debt monetization will likely dominate the policy response.
“the bigger things are a combination of the absence of effectiveness of central bank policies”
The key to improving decision-making is not to add more analysis or algorithms, but to address the psychological and ego-driven attachments that cause people to cling to wrong opinions; by learning to operate with uncertainty, stress-test opinions against disagreement, get away from ego, and find smart people who disagree with you, one can raise the probability of being right.
“the big chip thing was and I think this is the biggest message that I think that I would get a course that I'm trying to convey in principles and so on is that so many people in there have opinions in their heads that might be wrong and they're too attached to them and if you know how to operate with a certain amount of uncertainty and stress test your opinions in a different way use get away from your ego get away from all that and you can learn a lot about raising your probabilities of being right”
By writing down principles in explicit form and then converting them into algorithms, Dalio was able to test how those decision rules would have performed across all historical environments including the Great Depression, and then use that same algorithm to have the computer make decisions in parallel with human judgment, creating a partnership that improved both decision quality and relationships among people he worked with.
“you know algorithms are what we call them today equations is what we used to call and so you would write that down and what I learned is by being clear then I could tell how that decision would have worked in the past in all different environments so it gave me a lot of perspective on making that decision I could test it through the Great Depression and so on and then I could find that I thought use that same algorithm I could take data from and have the computer make decisions in parallel with me and so and that is what I recommend for everyone I recommend they write down their principles and then realize that almost any of those principles can then be converted into algorithms and so the computer was making decisions in parallel with me making decisions that type of partnership between me and the computer and not also expressing the algorithms was invaluable not only in the quality of the decision-making but also the quality of the relationships that I had with the people I worked with”
Four structural factors exist now that did not exist together since the 1930s: (1) the absence of effectiveness of central bank monetary policy, (2) a large wealth gap, (3) an extreme political polarity with a choice between more left-wing and more right-wing policies, and (4) the emergence of China as a geopolitical and economic competitor to the United States.
“the bigger things are a combination of the absence of effectiveness of central bank policies so I hope we can talk about those together with the wealth gap a large wealth gap so when the next downturn comes what that will look like socially politically and so on the elections which is a issue between let's say capitalists and socialists or the rich and the poor and then the emergence of China and in relationship to the United States those four factors are factors that have not existed since the 30s I think they're unique”
Most companies make a mistake by prioritizing skills in hiring over values and abilities, when the reverse priority would be more effective.
“most companies hire for skills I believe it should be the other way around I look at their values”
In 2007 it was easy to calculate that there were debts coming due and an inadequate amount of funding, but when Dalio goes through those calculations now, the debt crisis pattern does not look the same—instead it looks like a gradual squeeze from a large amount of debt combined with pension liabilities and healthcare costs producing a prolonged squeeze rather than an acute crisis.
“in 2007 it was pretty easy I think to calculate that there is debts that were going to come due and that the there was not an adequate amount of funding and so that sort of debt crisis was something we anticipated and we were positioned well for when I go through those calculations it's not the same in other words the amount of maturing debt and that whole problem it doesn't look the same it looks more like a gradual squeeze having to do with quite a lot of debt of a certain type but with that also pension liabilities and healthcare particularly as that produces a greater squeeze”
Dalio's love of the game of investing comes from how it forces him to understand macroeconomics, global affairs, and test his knowledge by betting real money on his predictions.
“I love my game because it forces me to understand macro economics the world and to bet on it in relationship to other people so with tests whether I have that knowledge I love that”
At age 70, Dalio treasures quality of relationships and sense of community more than anything, rating these above financial success or professional achievements.
“with 70 years old and is the relationships the quality of the relationships that sense of community that's what I treasure more than anything”
Political choice between left and right policies will affect not only the size of deficits but the nature of taxation, and this choice is relevant to the investment implications between now and elections.
“policies may be more of the left and policies more of the right more extreme policies greater polarity and the choice will be greater and how those choices are made are is going to be very important to not only the size of the deficits but the nature of taxation”
Bridgewater is not described as an easy place to work because it has a high attrition rate of about 30% in the first 18 months, but it attracts and retains people who explicitly want to know their weaknesses as well as their strengths and who are willing to engage in radical transparency where anything can be discussed and disagreed about.
“bridgewater would not be said to be an easy place to work is that fair or not because that's fair because many people come in say it's a very intense environment and some of them don't survive those that do presumably are adopting your principles but are you love it or hate it you have a big attrition rate from young people coming in or I would say in the first 18 months probably about 30% we have protocols and you have to understand your weaknesses as well as your strengths and so people coming to that are almost of two types there are the people who say well they I suppose almost all come that I'm excited about that and they're excited about that because they said yes I would like to know my weaknesses as well as my strengths and I would like to be able to talk about anything and and have it thrashed out and that's who it works for”
When hiring for Bridgewater, Dalio prioritizes three dimensions in this order: (1) values (what are their motivations and missions), (2) abilities (how they think—are they big-picture thinkers, creative, etc.), and (3) skills (technical competencies like coding), with skills being the least important because they can be taught while values and abilities cannot.
“when I look at people I look at them in three dimensions of a person values abilities and skills most companies hire for skills I believe it should be the other way around I look at their values and values means like what are their motivations what are the missions so it and it skills is least important then you look at abilities and abilities is the way of thinking is somebody a big-picture thinkers somebody creative and I want to put together a mix of those right people and then skills can you program do you know those things that's important but it's least important”
Dalio has made money for his investors in 18 of the last 18 years, meaning Bridgewater has not had a down year in at least two decades.
“over your let's say thirty years as an investor at Bridgewater what is your track every year you've made money virtually for your investors well eighty nine the late last eighteen years with a bunch are 18 of the last 18 yes that's not too bad”
Bridgewater started with one employee in 1975, grew to two employees, grew to eight by 1982, then crashed to one employee (just Dalio) after a terrible 1982 when he lost money for himself and his investors and had to borrow $4,000 from his father.
“so it's yours okay so that's how I started the firm because I was because the client still wanted to do business what year was that did you started the firm 1975 so it grew to one or two employees two how many well in 1982 it was I think there were eight employees hey and you're at one point and then I had a terrible 82 so and then it came down to one employee so 1983 or so was just me you can't borrow money from your father yep”
Dalio started practicing Transcendental Meditation around 1969 (partly inspired by the Beatles doing it) and considers it extremely important, describing it as 'the greatest gift' he could give anyone because it provides equanimity and calmness regardless of circumstances, and enhances creativity by accessing the subconscious mind.
“I started in 1969 or so I started because the Beatles did it and then and I learned about it and I thought it was and but I it's it's in him it's a very important thing I would say it's the greatest gift that I think I can give anyone it gives a combination of an equanimity the you know a calmness so no matter what's coming at you you could approach it with that sort of calmness it gives one a creativity because it is a process of going transcending is a process of going into your subconscious mind and relaxing”
Dalio first became interested in the markets at age 12 because he caddied, earned money, and everyone was talking about markets; he bought his first stock (for less than $5 per share) without understanding the company's fundamental business, betting only that buying more shares would generate more money, and this strategy initially worked because the company was about to go broke but was acquired, which led him to incorrectly conclude that investing is easy.
“I got hooked on the markets when I was 12 because I used to caddy and I would take my money and I put in the markets and everybody was chatting about the markets so how did you do well the first stock I bought I bought because it was the only company I ever heard of that was selling for less than $5 a share and I figured I could buy more shares so for what up I make more money that was my strategy and it worked and it worked and it worked because this company was about to go broke and somebody came along and acquired it and I buy luckily it went up and I said this game is easy”
Dalio hated high school, cut classes frequently (though not to go surfing), had difficulty getting into college, and only got into C.W. Post College on probation, but then loved college because he could choose subjects that interested him and performed well enough to get into Harvard Business School.
“in high school were you interested in academics or were you a good student no I hated high school did you go to high school do you cut classes or what did you do i I did cut classes a fair amount I don't cut classes to go surfing did you have a hard time getting into a good school college yeah I got into CW post college on probation and probation on probation okay and what you did well there I loved College okay I love College because well besides mixing that all the fun that College gives you it also what I liked is that I could pick the subjects that interested in and I so I loved college right you must have done recent well because you got into Harvard Business School yeah I did”
Dalio would not accept a role as chairman of the Fed or Secretary of the Treasury if offered, as he does not believe government is the right place for him.
“if a if somebody came to you and said I'd like you to be the chairman of the Fed or the secretary of the Treasury would you ever go into government or that's not for me that's not for me today”
Dalio got fired from his role at Shearson Hayden Stone (after the firm went through various mergers) because he punched his boss in the face on New Year's Eve after getting drunk, and he then started Bridgewater in 1975 because a client still wanted to do business with him.
“I was a bit rowdy did you punch somebody did you punch your boss in the face yes I punched my boss in the face that's not a good way to print Kippur that was but that was it was New Year's Eve we got drunk on New Year's Eve and you plant somebody other than your boss didn't think of that anyway he but it didn't it didn't last long okay so it's yours okay so that's how I started the firm because I was because the client still wanted to do business”
Between 1979 and 1982, Dalio calculated that American banks had lent far more money to emerging countries than those countries would be able to repay, so he anticipated a debt crisis and economic crisis, and when Mexico defaulted in August 1982, he became well-known for that prediction, but he was completely wrong about the market consequence because August 1982 was the exact bottom of the stock market, not the beginning of a bear market.
“1979 80 81 I calculated that American banks had lent a lot more money to emerging countries than those countries are going to get paid back and I anticipated that there would be a debt crisis and with that an economic crisis so that was my thinking and August 1982 Mexico defaulted on its debt and a number of countries followed and so because I said that I got a lot of attention about that and I thought that was going to be producing a bear market in stocks and I could not have been more wrong August 1982 was the exact bottom in the stock market”
Financial success was never Dalio's primary motivation; it was an inadvertent byproduct that came about because he liked to 'play the game' well, and the money followed from playing the game well, but the financial success has never exceeded his priorities of taking care of family, living adequately, and pursuing meaningful work and relationships.
“the financial success has never been it's an inadvertent thing that came largely because I like to play a game that if you played the game well you get the money but the financial success has never been past taking care of my family and living adequately it's been a nice thing to have it know for me the most important thing in terms of saving really has been relationships meaningful work and meaningful relationships these are the most important things”
Dalio came from a lower middle-class family; his father was a jazz musician, and he did not come from wealth.
“were you from a wealthy family no my dad was a jazz musician very at lower middle-class family”
Dalio repaid the $4,000 he borrowed from his father by later giving him equity in Bridgewater and a big hug, not with interest—establishing a pattern of family investment in the firm's growth.
“oh you paid your father back with equity in Bridgewater or just interest now with without interest and with a big hug”
During the summer of 1972, while at Harvard Business School, Dalio got a job at Merrill Lynch's commodity division despite having no prior trading experience, and by 1973 (during the oil shock and bear market) he was hired as director of commodities at Dominic and Dominic despite never having done anything in that role.
“in my two years it's a two-year school and in my summer I like to trade commodities I got in trading commodities now this is now the summer of 72 and so nobody ever put more of a business school went into commodity division but I went to Merrill Lynch's commodity division I said hey can you give me a job the director of commodities in that summer gave me a job to help him around 1973 we have the oil shock bear market in stocks commodities is the hottest thing I was hired as director of commodities at Dominic and Dominic having never done anything in the director of commodities but I was hired”
Dalio's philanthropic interests focus on two main areas: (1) ocean exploration, which he finds personally compelling, and (2) the education of disengaged and disconnected students—those who would not otherwise get through high school—which is important to him and his wife.
“my interests are I guess I would say two big interests I'm really thrilled about ocean exploration this is something that's a big deal for me but we we have donate too many different things and then important thing for my wife and for me it has to do with the education of what are called disengaged and disconnected students those who would not get through high school”
Dalio finds it appealing to have access to and meet with heads of state, finance ministers, and heads of countries because of his interest in the subject matter and his desire to have impact and help, and because his policy ideas have sometimes had significant effects on policy (such as ECB policy).
“we find it usually appealing yes I I think that you know from my point of view I'm very interested in the subject matter but I'm also interested in being able to have an impact being able to help and so sometimes in policies it's had a big of big effect and like he's ECB policy or other policies”
Dalio practices Transcendental Meditation twice a day and considers it an essential part of maintaining the emotional and cognitive state necessary for high-performance decision-making.
“important part of your life has been Transcendental Meditation you this twice a day when did you start”
When evaluating presidential candidates, Dalio uses their stated policies as a probabilistic basis for prediction, examining specific policy proposals (on taxation, spending) rather than broader ideology, to calculate the probability of different fiscal outcomes.
“when I'm looking at the presidential candidates what I do is I look at what their policies or our stated policy in terms of any of their various policies and I look at that as a probabilistic basis”
The interviewer positions himself as neither a journalist nor someone in a traditional journalism role, but rather someone who has taken on the life of being an interviewer despite having a day job running a private equity firm.
“I don't consider myself a journalist and nobody else would consider myself a journalist I began to take on the life of being an interviewer even though I have a day job running a private equity firm”
Bridgewater is no longer accepting new investors in its pure alpha strategy and is closed to friends and family; all clients are large institutions.
“about there's a too late to invest with you or who can invest with you anybody and any credit investor you're not taking although are we're close to new investments in that pure alpha strategy and our clients are all instance large institutions”