Ray Dalio

You want to be successful. Here's the mantra for investing.

Sam Parr

I got my pen.

Ray Dalio

Most fundamental question is, how do I have the upside without having the downside? That approach was the basis of Bridgewater going from having to borrow $4,000 from my dad to the largest hedge fund, most successful hedge fund in the world. I created personality tests. I gave it to Elon Musk, I gave it to Bill Gates. I gave it to Rick Hastings. Maybe I should probably not tell stories. But no, no, no.

Sam Parr

That's what we do here.

Shaun

You don't have to make it to the top to be happy.

Ray Dalio

What'? There's no correlation between the level of happiness in your life and the amount of money that you make. So you have to have a purpose. What do you want to do with the money that is so important? You better answer that question. I feel like I can rule the world. I know I could be what I want to. I put my all in it. Like, no days off on the road. Let's travel.

Shaun

You're in some regard, a little bit of a late bloomer in terms of, like, traditional metrics of success. Oh, yeah, I think you were 34 or 35. You had, like, two kids. I think you had just laid off the five employees that you had had. And you're like, look, dad, I've lost it all. Can you, like, close your eyes and, like, remember that conversation?

Ray Dalio

So I started Bridgewater in 1975, and in 1981 and 82, interest rates went up. The emerging countries had a lot of debt. And I calculated that those countries were not going to be able to pay their debts, and they were going to have big debt crisis. And that was a very controversial point of view. And then Mexico defaulted in August of 1982. So I was asked to testify to Congress about what this is all about and what might happen to the economy. I thought the economy was going to be a disaster. I couldn't have been more wrong. Okay, So I lost money for me. I lost money for my clients, and I had to lay off everybody. I was so broke, I had to borrow $4,000 from my dad. So then my choice was, am I going to, you know, put on a suit and tie, go in commute and work for somebody in that capacity? And I knew that I wasn't very good at working for people. Now, that was painful. That changed everything in my life. That created the bottom at Bridgewater, and then it just kept going up because of what I learned. I learned two things. First of all, I learned humility to balance my audacity Okay. I didn't have much humility. I'd say, I'm right, I'm going to be right, and all that. And then I learned how to diversify my bets and substantially reduce my risk without reducing my returns. Because I didn't want to have reduce the upside. I knew that I had to reduce the downside. And so I really learned and taught myself, really, my mantra. Okay, here's the mantra for investing. You want to be successful? This will. This is the holy grail of investing. Find 15 good uncorrelated return streams.

Shaun

How did you come up with 15?

Ray Dalio

Well, I just looked at the math of it. Okay, so in other words, what are the marginal benefits of diversification given the different levels of correlation? And I have that on a chart that keeps reminding me, okay, if you can get up to 15, you can get down to about. Reduce about 80% of your risk without reducing your return. So that means that you increase your return to risk ratio by something like a factor of five. Okay. In other words, wow. So that means you can get the upside without having the downside. Okay. And then humility. You know, I wanted people to kick the shit out of whatever I thought, you know, to try to do that and then have that. And that change in that approach was the basis of Bridgewater going from, you know, having to borrow $4,000 from my dad to the largest edge for the most successful hedge fund in the world.

Sam Parr

If we wanted to be better investors, what do you think the most common mistake smart guys can make when it comes to investing?

Ray Dalio

They don't have a game plan.

Sam Parr

So what's a good game plan look like? How do you know if you have a good game plan?

Ray Dalio

Well, the way that I did it was every time I would make a decision, this is the building of all principles I did, but particularly in the markets. Every time I would make a decision, I would go back and study. If I made that decision under these circumstances, how would it have worked in the past? And I would know the track record of that decision, and that would give me also greater understanding of how things work. And so then I would have a decision rule, and then I would program it into the market, into the computer. And when this thing come along, then I started to realize, okay, now I've got criteria. So rather than just the one that I would see, I would say in the computer, dubbed in all of them. And where do they exist? Anywhere in the world. And what will. So give. Give me one good decision rule that wherever it happens in the world, that I have a track record of knowing how those work. And wherever it is in the world, you bring me that and then make a collection of those kinds of things and make them uncorrelated so it provides your diversification. And so now you're executing a game plan. So, like, I have rules that it should be timeless and universal, because if it didn't work in a long period of time, I would need to understand why it didn't work then and would work now. So that's how I would build. You know, that's how I did build game plans and execute the game plans.

Shaun

Did Bridgewater have any revenue coming in?

Ray Dalio

Nothing.

Shaun

And so you're waking up in the morning and you're like, I got to figure this out.

Ray Dalio

It was like, I'm on the edge of a jungle. I could go, stay out of the jungle, and I can go to safety and have a safe life. Employed, regular job. Great, okay. Or I could go into the jungle and try to work across, get through the jungle, have all the things that can kill me. And I made a choice of what I wanted in life. I mean, like, I have to have this great upside. I can't not do that. And also, part of it was, if I'm going in the jungle, I want to go with people who want to go in the jungle with me who see things differently than I do. So it's like going through this jungle with these animals or something that can kill you. But if you're in it together, then you are. You can sort of see the animals that'll kill you. And then I loved being in the jungle so much. I didn't want to get out of the jungle even after I've achieved success.

Sam Parr

You didn't want to go to the zoo? You'd rather be in the jungle than the zoo?

Ray Dalio

Yeah, almost. Yeah.

Shaun

To play off that analogy, I think that, like, I think a lot of successful people, and I think you've even said this where you're like, as long as I could, like, do what I want during the day and what I love, then I'll be happy. But I have to imagine that when you're like, 33 or 34 or something like that, and you have young kids, and you are like, you got a little bit of a tiger in you. You're like, I want to provide. I want to win. I want to be the best.

Ray Dalio

No, it wasn't like that at all. For me, it was like two levels, just very simple. Like, I don't need a big house. I don't need a big anything. My Kids can go to a good public school. They have great.

Shaun

Did you have like a number where you're like, man, if I can make

Ray Dalio

a hundred grand a year, I counted. What I started to do was. Started to count how many months then and then years of living that way could I afford if it shut down.

Sam Parr

But you said two levels. That was level one.

Ray Dalio

It's freedom, money, basically. You money.

Shaun

What was that number for you?

Ray Dalio

I don't remember what the number was, but, you know, it wasn't. It wasn't. It was an easy to achieve number,

Shaun

like a million dollars.

Ray Dalio

But oh, no, less. Oh, much less. At that time, was there ever a

Shaun

grand vision or was it always like, well, what's the next level? Let's see if we can do that?

Ray Dalio

No, no, no, no, no. It was. I could imagine great things. I'll tell you a personality test. When I decided that I wanted to pass Leadership of Bridgewater along to others, I want to be investor, let them run the business, and I want to do that because I'm hooked on the markets. I created personality tests. I started with Myers Briggs, and then I went to various kinds of personality tests. And I then gave the personality tests to people like Elon Musk. I gave it to Bill Gates, I gave it to Reed Hastings, I gave it to Muhammad Yunus. I gave it to other people to see the elements of what they are like. I put it online for free. I created it.

Sam Parr

We took it.

Ray Dalio

Oh, you took it. Okay. Well, there's a type that. There's a type of person that represents a very small percentage of the population. And Elon Musk is it, and Bill Gates and Reed. Number of these people. This. That I would call a shaper. And they are people who love to go from visualization to actualization and to be on that mission and so on. And that's my personality type. I have a certain personality type, and they have to do certain things. And I remember Elon, and he's that personality type. Okay. Making money is not a big deal for him. Should probably not tell stories, but. No, no, no.

Sam Parr

That's what we do here. We tell stories. We can all take it out later.

Ray Dalio

The excitement, you know, the compulsive thrill of climbing that and aspiring to. That was my personality type. And he doesn't need to. He doesn't need a house. He doesn't need security. He doesn't need anything. I mean, he didn't even need my level of needing.

Shaun

It sounded like you had a story of him where that's an example of.

Ray Dalio

Well, yeah, hey, everyone.

Shaun

Pausing really quick because I know that you are probably scrambling to write down all the stuff that Ray's talking about. Well, the good news is, is that we did it for you. So we made a guide. The link is in the description on YouTube. And this guide breaks down the five frameworks behind one of the greatest investing track records of all time. So you can actually use them and also spend time listening versus taking all the notes that you're probably taking right now. So you can get it for free right now. You can click the link below in the description or you can scan the QR code right here. All right, back to the episode when

Ray Dalio

he first started Tesla. He had made something like $180 million from PayPal. And he decided that he was going to take half of that money and he was going to go to Mars. And he had no experience in terms of going to Mars. And so he had this vision and I said to him, I suggest that you put aside a little bit of money, take a piece of that and just so that way things don't work out. You've got that. No need to do that. And he had that strong compulsive need. But there is, I think everybody has a certain nature. Okay. Whether you're born in your environment, you have a nature. And that's why I created these personality tests for any of your listeners principles. You is what it is. It's. It's free, it's online. Take it. You'll understand more about your nature. And there's a feature in there where you can have somebody else that you have relationship with, take it or. And then they'll tell you about the relationship.

Sam Parr

So we took it last night based on. On your. After we talked the other day. So Sam tells me, he's like, I'm a shaper. And you had told me you're a shaper, Elon. And so I was like. I was like, wow, okay, I hope I get shaper. I think I want to be in that club. So I'm taking it. I'm answering as honestly as I can.

Shaun

Is degenerate an option?

Sam Parr

Happy but sort of foolish new. New type you have, moron.

Shaun

Is that what.

Sam Parr

So I got Explorer. And I was like, that was not what I expected at all.

Ray Dalio

Did it characterize you?

Sam Parr

Yeah, I mean it called it very much called like I'm driven very much by curiosity seeking, seeking new. New knowledge, new experiences, learning, getting, being very like objective and truthful about what I'm experiencing and almost taking pleasure. Even when you have a bad result because it means you got to learn. And so there was. Which is so true for me. I get the most fun doing that. So I guess it really was true. And I think why I may not have been a shaper. A lot of the questions would ask about part of the visualization to actualization, and I think I do a lot of that. But I'm not very detail oriented. I don't care about the details. I overlook details. I'm. I'm not a perfectionist. I don't care. Like I'm. I'm much less than Sam. Sam really wants everything to be great.

Ray Dalio

Okay. One of the elements of a shaper is. And by the way, that's where you're seeing your nature and you know what your satisfaction is and what you're likely to be most successful. It is that, yes, what the issue of a shaper is. They want to go from visualization to actualization, and then they go from like this very big picture down to. What are those details? So I remember Elon gave me the key to his car and had a little button and he showed the screen and he got into the details a lot. And we're talking about how he wants to put a. A watering can with a plant on a rocket to send it to Mars to say, first life on Mars, to inspire things and so on.

Sam Parr

It's a 10,000 foot level and like 10 centimeter level, right?

Ray Dalio

That. That liking and then taking that and going, okay, so yeah, we all have our pers. And so the success in life, the joy really is knowing your nature and, and finding the right path for your nature because you can't fight against your nature, right?

Shaun

So look, Ray, we've only known each other for 30 minutes, but I'm gonna. I'm gonna show you something that might. Might gross you out. But when I was young and drunk, I gave myself a tattoo. The tattoo that I gave myself is on my feet, and it says, act now.

Ray Dalio

Oh, good. So tell me, you were at the tattoo parlor.

Shaun

Have you ever heard of the phrase stick and Pokemon?

Ray Dalio

No.

Shaun

Okay, so basically, if you're in jail, this is kind of like where it comes out of. But like, a lot of, like punk rock people do it. You get a sewing needle and you dip it in ink, and then you just make lots of little dots on your skin. And that's a tattoo. And so when I was like, I was actually maybe I sometimes I say 19. In reality, I probably 22. I just don't want to be that mature when I say I did it. I was like, Angry that I wasn't moving fast enough in life. And I was like, I'm sorry. I'm sort of, you know, angsty. And at the time, I was. I partied a lot, and so I was drunk, and I was like, I'm going to tattoo act now on my feet. So when I wake up, that's the first thing that I see is I got to take action.

Ray Dalio

And does that work for you?

Shaun

Yeah, I tend to need to tone it down where I'm like, I need to think and plan because, you know, I've had a little bit of success in my career, and I think occasionally you need to, like, be a little more strategic. But, yeah, I'm usually like a bowl in a china.

Ray Dalio

And the thing about it is that you have to find the people who are different from you, who compliment you.

Sam Parr

Well, like, on my. On the leadership test, you don't just say the personality that you are. It's also where you're very weak. So it was like, on mine, it was, like, connecting, supporting, kind of the. A lot of the, like, social side. So my business partner, Ben, who's the guy who emailed 77 times to you and your team to get you to be on this podcast, he's for, I think for four years, has been emailing, trying to make this happen, because he's an amazing connector, he's an amazing supporter. He wanted this moment to happen even though he's not at the table. And to him, that's a win. To him, connecting is the win. And so he's been my business partner. We've had this unbelievable success as a partnership, even though we couldn't be more different if we tried.

Ray Dalio

So let's pause and reflect on that very important point for success, that people who think differently from you, who you ordinarily can get annoyed at, are your paths to success. That, if you can understand that. It was very interesting when I did this in Bridgewater. I did the personality tests, and then they start saying, oh, you're a ESTP and I'm a whatever it is. And then they started to understand. And they understood how they would work together rather than get annoyed by the other person. Yeah, that was big deal, you know? And so success comes from that. Success comes from failure. Right. And learning from it. Okay. And success comes from working together. I would say meaningful work and meaningful relationships. If you're on a mission to do something great, okay, go to Mars or whatever it is that you're gonna go do together, and you have meaningful relationships, and you have radical transparency and you know your nature and you know how to work with others. That's the formula for success, right?

Shaun

Yeah. Another example is Dr. Dalio is when. When Sean came in, the notes were already printed off. There you go.

Sam Parr

I. I'm late. I don't have it printed.

Ray Dalio

But, you know, so we have a

Sam Parr

very different dynamic, but for six years, we've built one of the biggest business podcasts in the world, despite being completely

Ray Dalio

different in our hope your audience hears this, right?

Shaun

Yeah.

Ray Dalio

It's pause and reflect, like, because. Okay, what are we here for? We're here for pretty much the same reason, just a little bit different settings. I'm 76. I want to pass along whatever I had to help people in that way. Right. That's my goal. Okay, your goal also is to. You're obviously not only your goal, but your effectiveness in being able to help people. Otherwise I wouldn't be listening. Okay. So I just wanted to pause on that formula. Okay. That if once you get that formula, pain plus reflection equals progress. And how do you work together and all that? We wow. And follow your nature.

Sam Parr

Can you. Can you guide us on the reflection part? Because I think everybody understands the word, but I bet we don't really talk a lot about how each individual person does it. And so are you. Is writing your reflection? Do you talk to. Do you have two or three people you call who tend to give you high signal, like feedback or advice, like, what is your process to actually do? The reflection pain part comes involuntarily.

Ray Dalio

That. That hits you when the pain comes, eventually the pain will go away, but you can skip. The people can skip the reflection, and they can be hung up in their pain. So you first have to make this transition. Now, meditation has helped me a lot. I've done meditation, transcendental meditations, since 1969.

Sam Parr

Explain what that even is. I've only heard you and Jerry Seinfeld swear by Transcendental Meditation. What is it?

Ray Dalio

Transcendental Meditation is a very simple exercise of. You sit there calmly and you repeat a sound that is a word that is called a mantra that doesn't have any meaning. And so let me. An example might be om. Okay? So you're sitting there and you repeat om in your head. And when you do that, you can't have thoughts, because when your thoughts are in om, your thoughts are in om, and the other thoughts can't come in. And then eventually when you get this habit down, then the ohm goes away and you go into pretty much a subconscious state. You know, very relaxing, very calm, and so it's a real calming exercise and it brings you into your subconscious mind. Okay? Your subconscious mind is really controlling you a lot almost, right? There's a conscious mind, a logical conscious mind that you hope is logical and you're aware of. And then subconscious means below your awareness. There are all the things in your mind that influence you. Your emotions, your subliminal stuff, and it goes into that subliminal stuff and it calms you down. And it's also where creativity comes from. It's like if you take a hot shower and these ideas come to you, but you try to muscle ideas you can't make, you can't make them come. But that hot shower, that relaxation and so on, I found that very helpful. You know, I know I've. I've developed an instinct. Habit is a very important tool, like if you know how to develop the right habit. So the habit means that you have an instinctual positive reaction to something. So I have a reaction which is, okay, that is that, that's a lesson in reality. In other words, pain. Okay, so it sounds like a puzzle for me, okay? The puzzle is how does reality work? It'll tell me something about how reality works. And I have to deal with reality to make it successful. And so what is my principle for dealing with that reality? To deal with it in the best possible way. Okay, that's my now instinct. So now when you've got that instinct, it's a whole different thing, right? Because you start to say, okay, there's pain and you have your curiosity, okay? Now you take your curiosity and you say, what does that tell me about how reality works and how I should deal with reality, okay? And if you solve that puzzle, then you will get a gem. And that gem is a principle that you can carry with you to be better, right? And so if you start to recognize it as that. And then I do write. Do you.

Shaun

So what's that? What does that mean? Do you journal every morning, every night?

Ray Dalio

No, no, no, no, no. It's just when thoughts come to me or circumstances come to me and. Or I'm also making decisions, I'm reflecting. And then what has happened to me is I found that all those reflections are cause, effect, relationships. Because principles are if this happens, what do you do? And that kind of thing. And then I put those in computer code, okay? That's how I built Bridgewater. I built. Okay, if this happens, you do that, okay? And you put it in computer code. And I made, then this all computerized decision making systems for markets and almost everything and because I've done this, you know, for 35 years or something on almost everything, I've got thousands of these principles that I've written down, and they are, you know, the ways of achieving success in whatever kind of decision. If, you know, if the Fed does this or if somebody you love dies or whatever it is, okay, how do you reflect on them? What does that mean? I would recommend I put out a journal that people can do so that they can journal their own principles and they have the reflections and so on. If they. If they start to think that way, pain plus reflection equals that and you reflect well, then what happens in the meditation is it connects your subliminal self to your conscious.

Shaun

I'm on board with all that. I think that if I put myself in your shoes between the ages of, like, 35 to 52, you went from, like, nothing to, like, the largest headphone in the world, which we. I want to hear all that. But when you're like, 34, 35, 36, and the first three years of starting your business anew, I would have to think, like most all small business owners, you're like, I just gotta pay the bills.

Ray Dalio

I could always find the way to pay the bills. The question is, what was it? And I think, by the way, along those lines, that's where your priorities get tested. You know, you think about what do you really want? And how do you weigh one thing against another thing? Okay? I mean, like, I want. I want survival and opportunity, and I want to play the game, and I want. Okay? And I don't really care. I don't care much about convention. I don't care about. Much about how I look to the outside world. I don't care about things that can inhibit maybe that choice. I think people also get stuck. They get stuck because they don't realize there are multiple possibilities. And so some people say to me, you know, but you don't understand. I'm in this job. I don't like the job. I think my boss is a jerk. And this isn't where I want to go, okay? But they feel I have to be there, okay? And the reality is, if you're clever and you figure it out and whatever, and you try. There are many ways to have a really happy life. And by the way, a lot of money is not an important thing. Sometimes we get hung up on this. Like, it's got to be this conventional life, which is, you know, okay, I've got to do this. Okay? Is that really what it is? Even experiment with it.

Shaun

Listen to this. Quote Sean that he had. He said, I cannot say that having an intense life filled with accomplishments is better than having a relaxed life with savoring. Though I can say that being strong is better than being weak and that struggling gives one strength. That was pretty cool.

Ray Dalio

That's true.

Shaun

Yeah, I guess, like, you don't have to make it to the top to be happy. And I think that's been like, what's the top?

Ray Dalio

You work your ass off to get a lot of money. Okay, just think about that. Is that it? What's the money for? Money doesn't have any intrinsic value, right? So you have to have a purpose. Why are you getting the money? What do you want to do with the money that is so important? You better answer that question right. What is that going to get you? Okay. Does that get you better friends? Okay. Does it get you better marriage? A better relationship with your kids?

Sam Parr

What is your definition of success?

Ray Dalio

Success is you knowing your nature and then finding the best path through that nature so that you look back on that and you say, ah, that was the life I wanted to have.

Shaun

Do you think that you could answer that for yourself?

Sam Parr

I tried to do it. I'll read what I wrote. So when I was 27 years old, I tried to write this out because I was like, I think I had actually read your principles PDF around the same time. And it made me start asking these questions because one of your core principles, like, figure out what you want and then understand the rules of nature. Study cause and effect to understand what patterns of behavior and actions might lead to the thing you want. So here's what I wrote. You can judge it. I said what I want out of life. I said, I want to have the ability to shape my own life. I want to be my own biggest fan. I want to make adversity part of the recipe. I want to treat other people well. And I want to reread this every year, every morning, so I never forget what each day is for. I want to rewrite the list every year so I see myself evolving. I want to focus on what matters. Number one, my loved ones, because they love me even if I don't do anything on this list. Number two, my health, because without it, I can't do anything on the list. Number three, my work, because it makes life fun. Number four, being somebody who lights up the room because it feels good to make others feel good. And number five, learning, because it's the master key that unlocks all doors. And I. I keep going a little bit. And then I say some of the things that I'm. I'm weak at, I said I want to be somebody who doesn't just want things, who makes them happen. I need my execution to catch up with my ideas. I want to be the most optimistic person, you know, And I want to win. Not. But not just win. I want to win on my terms because that's the most satisf. Satisfying way to do it.

Ray Dalio

Congratulations. That's fantastic.

Sam Parr

And this is 10 years ago.

Ray Dalio

And then you, you reflect and you modify. Okay. And then. So now you know what you want.

Shaun

Do you change your goals every year or.

Ray Dalio

No, I'm like. It's like my nature, My nature really doesn't change. My phase of life changes. Okay. So I'm in a different phase of life. Like right now, I'm really feel compelled to pass along everything that I have that is a value to other people. Right. And so because I'm late and I'm approaching my end. So that hole is my joy. We have different joys. We have different circumstances in the middle part of our lives, there's work, life, balance, and your kids and your whatever. And so these arcs of life, there's an arc of life, almost like a script. I mean, you know, exactly. You know, at this age, I graduate and at each phase, you know what it's like. And so you have that arc, but your nature doesn't change. I don't think.

Sam Parr

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Shaun

I was listening to a podcast about you and there was this funny story story. I think this was when you were selling research. You said that you hired a guy. I forget his name, but I think he was a door to door Bible salesman.

Ray Dalio

Yeah.

Shaun

And you're. Did he know anything about research or finances?

Ray Dalio

Not much, but he was curious and he was. You know, like I say, there are three things, Their skills, abilities and values. And most people look at skills and they look at the resume to determine what skills they have. In my opinion, it's the opposite. Order is what's the most important. First, values. What are the person's values like? Then what are their abilities? Because if you have abilities, you can change what your skills are. We're in a world now that maybe programmers are no longer going to be the most important people. And maybe all of a sudden you were growing up with, okay, man, you need to program because you're doing this. And then all of a sudden, man, that's a lous because, you know, something comes along, right? So how do you adapt? What are you going after? And then the least. So the least important is the skills. And so in thinking about that, what's our relationship going to be like when, how do we pursue a dream? Is he bright? Is he, what is his abilities? What can we do? How do you discover, I mean, most of, like your curiosity, most of everything is in the discovery, okay? It's not in the, you know, remember these rules and, and so on. The future is in the discovery. So, so that's what I'm, you know, I'm looking for, right? I mean, that's what even talent identification is. Because talent is more important than money. Okay, but the money people are trying to find those people, right? Okay, so if you look at, okay, what did Elon Musk have? He didn't have money. And how did people make money? They invested in Elon Musk. They found him and they invested in Elon Musk.

Sam Parr

Human capital versus financial capital, right?

Ray Dalio

That's right.

Sam Parr

Let's talk about you when you were younger. What would people have seen in the talent identification at that phase?

Ray Dalio

I think it would have been tough. I was, you know, a C student. I didn't like high school education. I liked markets. I had a passion for markets. I got into C.W. post College, which Liu on probation. But I had a passion.

Sam Parr

So tell the story, if you can, of how you got that passion, how you started. You said, I love markets. I mean, most teenagers don't know they love markets.

Ray Dalio

I used to do odd jobs as a kid, mow lawns, shovel driveways, and then caddy. And so I, I would caddy, I would walk around. I got $6 a bag when I would get up to $50. And I would talk to people about the people I catching with about the markets, because everybody talked about the markets then. This was a time where if you got a haircut, your barber's talking about what stocks to buy. So then naturally I took my cadding money and I put in the markets. And the first stock I bought was the only company I heard of that was selling for less than $5 a share. And I stupidly believed that if I bought more shares, I could make more money if it went up okay. And so I did. The company was about to go bankrupt. Another company acquired it. It tripled in price. And I said, I like this game. And I thought that this game must be probably an easy game, because, like in the newspapers, the Wall Street Journal and the News, they had all these thousands of names of stocks on all of those things. And I just figure I have to pick one or two that go up. I mean, this big selection, I should be able to do that. And then I started in the game, and then I realized the game is not easy. I still know the game isn't easy. But then I got hooked on the game.

Shaun

Did you have any peers at the time, or were you an oddity?

Ray Dalio

No, there were no kids who were doing that.

Sam Parr

So books or. Where were you getting smarter? How did you start?

Ray Dalio

I remember Fortune had the Fortune 500, and they had in. When they had the Fortune 500, they would have little tear sheets, and you could say which annual report you would want. You would check it off and mail it in. And I checked off all of them. And then, you know, log these things to the house. And then I became my little library. And I would talk, and then I'd fiddle around. And, yeah, that's how I did whenever

Shaun

I was reading Snowball, Warren Buffett. And now I'm hearing you talk about it, I think, like, the lucky thing that I don't. Like. I don't know what it is, that you found something that you liked at such a young age.

Ray Dalio

For a lot of people I know that are like that. Bill Gates was like that. A lot of people like that. They found something. And then also, learning is different. Learning prior to puberty is different. At around 12 or 13, it's like, learn a language, learn something, learn a sport and so on. When you learn it, prior to that, it almost goes into your. You know, into you. So, yeah, that was part of it.

Sam Parr

Were you a hustler? Because, you know, now we see you as this guy who's very wise. He's sharing all his knowledge. And when I studied Buffett, it was kind of the same. Buffett is this charming, wise, patient sort of guy. But if you read about him as a kid, he was at the horse tracks. He was studying betting. He was finding slips on the ground and cashing them in that others had overlooked. He was setting up pinball machines and barbershops and fishing golf balls out of the pond. And Reselling them. He was a hustler. Were you a hustler of his?

Ray Dalio

No. In the golf course that I. I was at, they would hit. They would hit them into the pond, and I could walk around in the pond and feel them.

Sam Parr

Yeah.

Ray Dalio

And then I would pick up the golf balls and sell them. That's funny. I didn't know he did that.

Sam Parr

Sam called you a late bloomer, and I find that term interesting. You don't know this about Sam, but he really wanted to be successful. He studied a bunch of successful people. He had a spreadsheet he shared with me. We met when he was. We were 24 years old, maybe. He shared this thing of when did our heroes make it? And he showed that, like, he had a timeline for Bezos, for Jack Dorsey, for all the kind of tech entrepreneurs that we were admiring. When did they start? How many years did it take for them to actually win?

Shaun

And he had mapped it down into their apprenticeship. So, like, to learn. And then starting their first hit.

Sam Parr

And he reverse engineered and almost hit it. Exactly. He's like, by 30, I'm going to have this many millions in the bank because. And I know I'm today I'm here, but I will be here. And that's like almost the median.

Ray Dalio

But. But okay, two things. First of all, I think you should publish that. Okay. And I suspect it has a big range around it. Okay. Like, I was thinking Ray Kroc, McDonald's. He was like, okay, so it's a big range, but they certainly are driven.

Shaun

Yeah, I basically, when I was younger, I met someone who's actually my partner now, and he was successful at a very young age, and he was probably 15 years older than me. And I was like, I didn't grow up with a lot of money. And I was like, I. I want to be free. I want to feel, you know, I want to. I want to. I don't know, I want to feel free. And I was like, what's the number I need? And he said, $20 million. So I said, all right, that's the number I have to make $20 million by the age of 30. And it was definitely. I was money oriented. And it worked. I got. I basically 31, but it was. So I felt it was so easy to, like, have a goal and then, like, reverse engineer and back into it. Because then all I had to think was like, step one, all right, step two, step three, great.

Ray Dalio

And that was smart because 20 million. Right. We'll do it. Okay. And do it. And you also thought being free.

Shaun

Yeah.

Ray Dalio

And then you can go for it. That was what I was trying to tell Elon, and he said, no, I don't need it. Okay.

Sam Parr

Don't need the safety net. Because if I'm. If I'm listening to this, I'm hearing you say, like, I just need a nice bed to sleep in. I want my freedom. I like to. I want my kids to be going to a good public school. All of that. At the same time, you've made like $20 billion. Right. So somebody listening can say, well, at some point, did he. Did he just way overshoot his needs?

Ray Dalio

I wasn't shooting for that.

Sam Parr

Yeah, it's byproduct.

Ray Dalio

I played a game that I love that pays well if you play it well.

Sam Parr

Right.

Shaun

I'm very passionate with personal finances and particularly amongst the average Joe of like, don't buy shit you don't need, which people don't tend to follow, or spend less than you make, which people don't tend to follow. Do you still do anything in your life that is a pretty frugal thing?

Ray Dalio

Oh, yeah. I instinctively can't waste. I'm reluctant to fly a private plane. I don't like expensive watches.

Shaun

I heard someone make a joke that most of your suits are from Banana Republic or something like that.

Ray Dalio

It's something like that.

Sam Parr

Where do you spend? Well, Right. So spending is also a skill.

Ray Dalio

I spend money on the things that I enjoy. I love boats. I have a house on the water. I don't have a yacht, but I have an ocean exploration ship that I'm very excited about, that I give to scientists, and I'll tag along. I cannot do a normal yacht. Okay. But Jacques Cousteau had an effect on me when I was growing up. I watched him dive and do exploration. And then my son. I have a son who I took my son's diving and they learned how to dive. And he then went to work at National Geographic as a filmmaker and so on. And then we have this common passion of ocean exploration, so to create a ship that's a laboratory, that they do research and so on and so forth. That's a great joy. But I couldn't be. Listen, I'm not against anybody doing any of these things. I just want to be clear. It's not like I think whatever brings you joy, it's okay. It's kind of like that, right? And we're uncomfortable. My members, my family, my wife would not be comfortable with much jewelry, you know, or anything that would be fancy jewelry or something that's just happened to me. How we grew up and, you know, I mean, and the kids are the same thing. My kids have grown up. And I would say whatever you enjoy, like if you enjoy the, you know, the threads and the beauty or the, the watch and you really are enjoying it, that's fantastic.

Shaun

I know you're into the ocean. Do you believe in aliens? And have you, do you have access and any cool insight into things like that?

Ray Dalio

I have no knowledge of aliens.

Shaun

Oh, come on.

Sam Parr

What do you believe?

Ray Dalio

What do I believe? I have no beliefs that are just beliefs. So people, I've heard different people saying things. And here's what I believe, which is there's the enormity, you know, of our galaxy. There are something like 100 billion solar systems, okay. And in the universe, there is something like 100 billion galaxies. And so there are a lot of combinations out there. So I would have to believe that the probabilities of there being life in other forms and so on are great. Okay. Out there. However, I've also heard scientists say that there is that that's much smaller than one would think about those things. But I haven't gotten into the subject. All I'm giving you is what I heard about those things, and it's not a subject that I've spent much time with.

Sam Parr

Yeah, I think you had a phrase like probability weighted beliefs or something like that, right? It's like not all beliefs are obviously equal. Some you have high conviction and some you have much lower based on an analysis or an assessment.

Ray Dalio

It's just my way, you know? And also markets teach you this way, right? What is the expected value? How to go half? Humility, okay? If you have an opinion, what's the opinion worth?

Shaun

Hey, how much time. Like we've spent almost all of this time talking about like frameworks for thinking, and very little of it was about business or finances. How much time of your day do you spend thinking about some of this high level stuff versus like actually picking or deciding, making a decision on a trade?

Ray Dalio

They're connected to me, okay? I'm a global macro investor, okay. Which is, by the way, I think it's the best kind of investing because it brings you into, okay, global, that's cool. You deal with the whole world. Macro, that means big stuff, important stuff, okay. And then how do you place your bets? And so it's connected to all of this stuff, you know, it's connected to the politics and the geopolitics and all of that. And it's connected to history. I did a study of the last 500 years of how things are working only because I learned in my life that if I haven't seen something before in my. That didn't happen to me in my lifetime, I should see whether it happened before my lifetime and so on. And then when I did that, because there are these big cycles, like there are orders, right? We'll call. There's a monetary order, there is a political order, okay, Political and social order. There is a geopolitical order. In other words, systems of how they work, they all break down, okay. There's throughout history, you read history, but they happen like, you know, in these big sort of cycles. And they break down kind of for the same reasons all the time. They break down for the same reasons. So as a global macro investor, in a sense, I'm connected to that. So the book that I ended up writing, you know, which is a changing world order, I plot things and so you see them on graphs and you could see these things happening, simple measures of financial health. And how does that all work and what are the consequences when you see that? So, yeah, I'm into that because. So it's connected. When you said, do I see the big stuff? Okay, yeah, the big stuff matters a lot, right? But you see it in these. You realize that a lot of people are looking at the news. The news lasts a minute. Okay. Can you put the news in the context of what's happening? Watch what's happening? I mean, just let's take a look at those things. You want to take a minute on that?

Shaun

Yeah. Yeah.

Ray Dalio

Okay. Okay. So one of the things that I learned about is that there are five big forces that interact over a period of time to determine that. And that is the debt, money, economic force, okay? And there is a big debt cycle. Okay? So it's. And it's a very simple thing if, if you acquire more debt than you and then you're earning over that, your debt service payments will squeeze out your spending, okay? They grow. And that is like in your circulatory system, that's like plaque being built up in your circulatory system. And when that happens and it becomes painful, you have a debt restructuring. And also one man's debts are another man's assets. So if you're producing a lot of debt, let's say government's running a large budget deficit, that means it has to sell bonds. And then who are the buyers of the bonds and how does that work? So it has a mechanical part of it. That's one of the forces. The other forces is wealth and values differences. So there's the political force which has wealth gaps, values gaps, as they become greater, that's a greater threat to democracy. That's a greater threat to. In other words, when you get to do you have irreconcilable differences, so you're not going to compromise and you're not going to even follow the system. That's a risk. Okay, that's a risk. Now, okay, we have the first risk, we have the second risk. Okay, check, check. Okay. Third risk is the geopolitical risk. So there's orders, right? The way the order works is who's in control, what are the rules of the game for the world. And so the way it works is you have a war. The winner of the war sets the rules and that we call that the order. 1945, we ended the war, America sets the rules and so on. And we created what was a multilateral type of system, you know, almost representative, the United nations, the World Health Organization, the World Trade Organization. So all those world organizations are out the picture. We no longer have a multilateral world order. Okay, so how do you resolve differences? You fight. Okay, you're going to have conflict. How do you get past the disagreement? There's no court you go to. You can't do it. That, okay, so now you have those three things. Okay, that's, that's happening. Number four, force always through nature is nature. In particular, droughts, floods and pandemics historically have killed more people than wars. And they are a big force as they come up. And number five, all through history is man's inventiveness, particularly of new technologies. And that raises living standards. And so if you were to see life expectancy always rises, productivity, per capita GDP by all measures, as we learn more, we have that. And so there's the interaction of those five forces. Those five forces, you can measure them and you can measure their interactiveness. And that is what is now happening. So if you know those cause effect relationships, I think they're connected.

Sam Parr

I've read something that your family office, I don't know if this is right. You can correct the record. Your family Office has like 70% or 75% in gold ETFs, right?

Ray Dalio

No, no, no.

Sam Parr

Is that wrong?

Ray Dalio

Totally wrong. Totally wrong. I believe that from an investor's point of view that they should depends what their portfolio is constructed and they should have between 5 and 15% of a portfolio on getting that 15 uncorrelated difference that they should have something like that. And they should have it overweighted if they're tactically doing it. Tactically means, let's say there's a certain time to own it and a certain time not to own it. Certain time to own it is, particularly when there's a debt crisis and the government is flooding with money. That's, that's an ideal time to own it. So there's a timing question. So I believe that one should create a strategic asset allocation mix, meaning what is my best balanced portfolio? If I have no opinions, what is. It's not going to be cash, because cash always is the worst performing over a period of time. People think it's the safest, it's the surest to do poorly over the longest period of time.

Sam Parr

So high certainty, low performance.

Ray Dalio

So what you want to have the best thing to do is have a well balanced portfolio of assets because you can lower their risk as by, through the diversification. Because if you have one, it goes like this, but if you have another that does the opposite with it, you can have that. So there's a strategic asset allocation mix. And then you make your tactical bets relative to that and so on. But here's what I would describe the mechanics. Let's say there is such a thing as bubbles. Water is a bubble. A bubble is not whether the stock will pay off in the long run, because in bubbles, even the most successful companies go down 80% or something along those lines. So typically when there's borrowing of money or whatever and there's an increase in wealth relative to money. Okay, wealth and money are two different things. Okay, wealth is. You can make up wealth. If you have a $50 million offering on a billion dollar valuation, then all of a sudden you're called a billionaire and it was $50 million. And then the world has a billion dollars in wealth. But what happens is as wealth builds up, you can't spend wealth. You have to sell wealth in order to get money, because you can only spend money. And so when wealth builds up a lot, and then there comes the need for money. Now what creates the need for money? The need for money often is that they borrowed the money to buy the wealth, to invest in the wealth, and then maybe interest rates go up and then all of a sudden they have to pay their debt back. And so where do they get that money from? They sell the wealth in order to get the money. And there's. So there's this dynamic that's taking place and then it has another number of ingredients. Like it's all the rage to buy it, and everybody buys it. Everybody buys maybe more than they should because they don't Diversify. And what happens is it's all the rage. And so is it logical? And there are these elements that create a bubble. Okay, there are. Right now, on that scale, I have a bubble gauge. I measure all these things and I have this bubble gauge going back across countries to about 1900. And so I can see where they are. And these, by the way, typically take place quite often when there's great new

Sam Parr

technologies, a reason to be exuberant, the

Ray Dalio

reason to be exuberant and to bet. And, and people confuse investing and they say, I believe that technology is going to be great and revolutionary, and it is. Okay, but that doesn't mean the stock will be great. There's a lot of reasons that the stock could be too high. And competitors come in and they, you know, there's a Google and there's a Yahoo.

Sam Parr

So, so what's the bubble gauge saying right now?

Ray Dalio

So the bubble gauge is saying it's about 75% toward where it was both in 2000 and 1929. So it's pretty high up there. Okay. In Japan, in its bubble in 1990, it got higher even than, than those cases. So it's high. But people pay too much attention. Let's say if I just did the bubble gauge, I could tell you probably with good probability, that it won't be good to. For the next. I couldn't tell you whether it's going to be three years or 10 years, but it won't be a good investment. But it won't tell you. Timing, timing. You need the prickling, the bubble. Okay, so what causes it to prick the bubble? So if you've got a bubble and then you see, okay, here are the things that prick the bubble, then you've got a good combination of things to do. Your market timing, because the timing is going to be on the pricking of the bubble. The pricking of the bubble typically is the creating the need for the cash, converting that wealth into cash for one reason or another. Quite often the most typical thing is tightening monetary policy. Okay, so what you have typically is that when stocks go up and bonds go down, then what you have is a. The future expected return of equities becomes low relative to interest rates. And when interest rates go up, let's say a tightening of monetary policy, you know, that's, that's a classic dynamic. Other things like wealth taxes could do it. So in other words, for example, if you say you're going to have to pay wealth tax, then whoever has the wealth is going to convert to money, sell some of the wealth to get the money in order to be able to pay. So looking out for those things in terms of the timing is my machine. Take what that for whatever it's worth, I don't want people to trade on this and so on. But I'm just trying to answer the question that there are mechanics, okay? Everything that happens has causes that make it happen. And if so, you understand the mechanics of the cause, effect, relationships. You can see all this and understand it that way.

Shaun

Okay, so you've probably have heard this on the podcast, but if you're running a company, I think that the number one attribute that will determine if you are going to succeed in business is how fast you can learn from others. Specifically how fast you can learn from other entrepreneurs. But there's a problem with that. I have this problem. And in fact, you probably have it too. That's one of the reasons why you listened to my first million in the first place. The problem is that finding other successful entrepreneurs to learn from, it's a pain in the butt. And so that's why a few years ago, I started a company called Hampton. You can check it out@joinhampton.com we have thousands of members and they exist for this exact reason. So here's how it works. If you're a founder that does at least 3 million in revenue and you make it through our incredibly thorough vetting process, we then match you and put you in a group with nine other entrepreneurs you meet in real life in your city once a month, and it becomes your peer group. That will frankly change your entire life. It's changed mine. I'm in a group as well. And so if you're a founder that does at least 10,3 million a year in revenue, check out join hampton.com Again, the URL is join hampton.com

Sam Parr

is Bridgewater the biggest hedge fund because you were the. You had the best performance. Is it the biggest. Because you were the best at marketing, Is it the big. Why did it become the biggest?

Ray Dalio

It became the biggest hedge fund because we the most consistently made excellent returns with minimal risk. And we were uncorrelated with the stock market or any other market. That was the main thing. It made, I think 11.8% a year for something like 31 years. When I did it, the worst down in a year was 2000 because of the COVID And we didn't know how to deal with the COVID Well, that was down through about 13. The next two times was down like 2%. Okay. And that was not correlated with anything, you know, the losses you lose 50%, you have to have 100% to make money. And so the compounded effect of that, and it was comfortable. So that's, that's, that's why out of

Sam Parr

the 30 years, how many did you lose?

Ray Dalio

I think it was like three. Three, three.

Sam Parr

Louis was, whatever he said, 13%.

Ray Dalio

Three, four. But not significant.

Shaun

But it does help your, your, your media, your work, your. I mean, you're, you're charming, you're a good leader. Like, and you've been doing it since you were in your 30s of like.

Ray Dalio

But I became the Bridgewater, became the largest hedge fund before anybody knew me. And it was the opposite reaction. Like, I was trying to be below the radar. And then two things happened. We became the largest hedge fund in the world. And at the same time, we have this culture, okay? And the culture was perceived as a cult. And then I put online the principles, just so we have a book of how we're going to be with each other, the principles. And then that got around 3 million copies were. It was downloaded 3 million times. People passed it around, otherwise it was going to be a problem, like hiring people and so on. They wouldn't understand the culture, which is, the culture is an idea meritocracy in which we. Radical truthfulness and radical transparency. But anyway, so in answer to your question, it was not my charm had anything to do with this. I could explain the process. People can, they can understand what was our process. And I could show how it was back tested and it worked through all of those periods of time. And that was logical. And then there were results. And we helped people learn meaningful work and meaningful relationships. So we would have relationships with them and we would teach them and they would learn and they became better investors.

Sam Parr

I was walking around New York because this is my first time here in like 10 years. And I went to the Rockefeller center and there's this like kind of this giant stone and it's John D. Rockefeller Jr. And he's just writing these things. I believe in the sacredness of a promise that a man's word should be as good as his bond. And it just has each. There's like just 10 of these principles

Ray Dalio

etched in stone sitting outside the building.

Sam Parr

You know, it's like, I believe that love is the greatest thing in the world and that love alone can and will overcome hate.

Ray Dalio

Right? And we are missing these now more than ever, right? The idea of what are these principles? What are the principles that bind us together? Okay. What are the principles that we follow really? What is most important people are not, you know, everybody should write down their principles and then be judged on how they're living by those principles and are they together?

Sam Parr

Well, this is the best part of your book. It's you write the principle. You're not saying these are your principles for everybody. You're like, these are my principles. If you take away anything, it should be that you should have figure out what yours are.

Ray Dalio

That's right.

Sam Parr

In the Europe, most people don't know what theirs are. Even fewer will ever write them down. And then the fewest will be those who act in alignment, who walk their talk.

Ray Dalio

But to get there, you have to write it down, you have to look at it, you have to have the shit kicked out of it. You have to, you know, and you say, yes, that's right. Those that are clear, etched in stone, that bring us to a higher level of how we should be. Or so we are short of those, just like we're short of heroes, okay? Role models that you say, ah, that was a great man. Oh, and that's a way to be,

Shaun

who was yours growing up? And maybe do you have a hero now?

Ray Dalio

Like, one of them was Paul Volcker, okay, Lee Kuan Yew started Singapore and ran that. But no, there were many, many people who will sacrifice for the things I believe that we talk about love, karma, okay? Or what I mean is you go across the world and you look at all religions and there's something common. Everybody can have differences in their superstitions, their beliefs and so on, but there's a commonality which is doing to others as if we would have them do unto you or karma, what goes around comes around and it is a reality that the whole is much better than the individual parts. Because a little bit of consideration and help for others can make such a world of difference. And if you do that both ways, you have a much better world, right? And then people who do that are role models. To me, as you look at that, okay, as the sting from selfishness and fight, in other words, and what I mean, that is mutually destructive. And you see that. So I think it's a question for humanity now. Can we rise above ourselves for dealing with what will certainly be better for everybody if we can get along? I don't mean that idealistically. This is practical, right? Because it doesn't cost me a lot to help you, doesn't cost you a lot to help me, but it can make a world of difference when you have that. It's a practical thing. And then what is heroism contributed to that? I think that's literally what it is. And we're now operating a lot the opposite way.

Sam Parr

I think we've been doing this podcast for a little while here, and we've been talking about lots of different angle, some about investing, some about life and principles and entrepreneurship. I'm curious, like, if somebody was listening to this and there's one thing that they were going to remember, what would be the thing that you hope people remember or take away? What's. Like, what's the. What's the one big one?

Ray Dalio

Know what you want and understand that it's a. It's a journey of having your nature and then running into your mistakes and learning from those mistakes to get what you want. And then I would say it's all about meaningful work and meaningful relationships. If you have work that you love and you've got relationships that you love, you're probably going to have a great life.

Shaun

Well, thanks for doing this, man.

Sam Parr

Yeah, we appreciate it. This was fun for us. I hope it was fun for you.

Ray Dalio

It was fun. Yeah. I feel like I could rule the world. I know I could be what I want to. I put my all in it. Like, no days off on the road. Let's travel, never looking back.

Sam Parr

All right, let's take a quick break to talk about a podcast, because if you're listening to this, you like podcasts. And what's better than one podcast? Another podcast. And let me tell you another podcast you should check out. It's called Success Story. If you like hearing about different success stories and hearing Q and A sessions with successful business leaders or hearing keynote presentations or just checking out conversations about sales and business and marketing tactics, this is a great podcast for you. So check it out wherever you get your podcasts.