Ray Dalio, Founder of Bridgewater Associates delivers special presentation on corporate culture at Greenwich Economic Forum (Greenwich, CT)
- 67% of job seekers say a diverse workforce is important when considering job offers
- In 2018, Bloomberg and Dalio made a $185 million pledge to work on research and conservation of the oceans
- Ray Dalio has given more than $760 million to philanthropic causes
INTERVIEW TRANSCRIPTS: Ray Dalio, Founder of Bridgewater Associates
Julia La Roche – Correspondent, Yahoo Finance: 00:00
Ray is the most successful hedge fund manager of our time, but probably most integral to your success is the way you build the culture at Bridgewater. Centered around this idea of radical transparency. You shared a lot of these principles in your book, principles, life and work the bestselling book. I know many of you in this room probably have read it, so we’re going to learn some of these tools from Ray and if you would like to ask him a question, you can use your smartphone, your tablet, or your laptop. Go to slido.com that’s S L I D O.com. Type in the code G E F and you can submit your questions and we’re looking forward to a great presentation by Ray. We will have a networking break afterward, but please be back by 4:00 PM and Ray, without further ado, I’ll hand it over to you.
Thank you. Thank you. What we’re going to do is talk about decision making. Just by way of background, I’m at a stage in my life where I’m trying to pass along some of the principles that have helped me. I think basically life exists in three phases. In the first phase you’re dependent on others and you’re learning. In the second phase, others are dependent on you. You’re working and you’re trying to be successful. And then as I moved to the third phase, my goal is to help other people be successful without me. So I’m trying to pass along certain principles. I wrote a book on principles which was life and investment, principle life and work principles. And I’m now in the midst of writing a book, which will be economic and investment principles. And then basically everything I have to say is out and then I’ll go quiet.
But anyway when we talk about, what things are likely to happen and what stocks to buy or anything else we’re really talking about knowing how things work. In other words, there’s a machine, everything works like a machine and the machine happens over and over again. And so principals are ways of dealing with reality to be successful. Every successful person has principles. I got in the habit of writing down my principles. It began when I first had the notion of when I did a trade, I wrote down the criteria that I would use to make that trade. And then with a period of time I learned that if I could write those criteria down in a very specific way, in a very clear way, I could see how those decisions would have worked in the past. And that gave me perspective.
And then I learned that if I could write those down clearly enough, I could create and form formulas today, they call them algorithms that would then take in that. And I found that that data when it came in could be processed a lot better by the computer than by me because I couldn’t process a lot of information. I couldn’t process a lot of information, not nearly as much. I couldn’t process information nearly as quickly. Nearly as accurately, nearly as emotionally easy as I could with that machine. So my basic dynamic became to write down my criteria for making decisions and then putting them into algorithms and then building essentially the equivalent of a computer chess game. If you think of playing computer, you could build that computer chess game that would use your criteria for making decisions and have it operate in parallel with my own decision making so that when we’re at odds, I would reconcile them.
Ray Dalio – Founder, Bridgewater Associates: 04:11
More often than not, the computer was doing a better job than me because it would calculate things that are sometimes very complex. Correlations between different asset classes and the like and so on. Okay. Also what I learned was the best thing to way to run a culture was to have a real idea meritocracy. In other words let the best ideas win. So rather than just me making ideas, I learned through the difficulty of it that if I could have people stress test my ideas and we can stress test the each other’s ideas so that we could argue, we could have thoughtful disagreement, we would raise the probability of coming up with the best ideas, we would draw out the best ideas. And by using also algorithms and rules, we could think through the criteria for making decisions rather than just make decisions.
Ray Dalio – Founder, Bridgewater Associates: 05:07
We could think through the criteria of making decisions and can have perspective on that. And then if you just make your criteria for making decisions, then you can accumulate that and you can compound your knowledge. So we created an idea meritocracy. And so just to give you, so, so, so what I’m going to describe here, I’ve explained more about principles, but I’m going to describe from principles to algorithms to computerize decision making. And this is just literally a yellow pad that sort of gives you an idea of like how I would scribble out these rules and I would write them and when they’re going to get programmed in. And that’s back in the old days. And we would put them back into computers. And then what I knew, what I learned from that is that my outfits, my return streams from the decision rules, not the return streams from the markets, the return streams from the decision rules.
Ray Dalio – Founder, Bridgewater Associates: 06:14
In other words, my alphas of how I would try to beat the market could be produced in looking back how that would work. So these are just different decision, rule return streams and it shows what their accumulated result is. And it’s different from the market. I mean, for example, think about it, if you were to be short the market, it would be the opposite of what of the stock market did or whatever the market did. Right? And so then if you’re active, I buy, sell, then you’ll have those return streams. And having that perspective of how I would’ve made decisions in the past and doing that with other people. So we could examine the criteria for saying what are the best ways to make decisions, gave us a perspective and gave us an ability to operate in that way. And then I realized that I could have the computer talk to me.
Ray Dalio – Founder, Bridgewater Associates: 07:06
I could have program it in such a way where what we call it is auto text, but just like my own brain would describe what it would see, we could make the computer speak to us in terms of that. And so literally write reports. This is just a piece of I did a study on debt. It was principles for understanding big debt crisis is, by the way, it’s, it’s free online if anybody wants to download it, principles for understanding big debt crisis. And the back part of that is all written by the computer because of the criteria put in the computer and it can communicate with me and I can communicate with the computer that way. And I found that to be, you know, tremendously helpful. So then I wanted this idea meritocracy and then I realized that what I was doing in the investment business I could do in the management of the company.
Ray Dalio – Founder, Bridgewater Associates: 08:11
In other words, when I started Bridgewater, it was me, two bedroom apartment and so on. And the investment, that part of it and the managing the company part of it both grew up from under me. So I was responsible, I had two responsibilities to make good investment decisions and then also to run a company. And so as I was dealing with the running the company part of it, and I wanted to, to do the algorithms, I realized that I could do the same thing for making management decisions and we could collectively do the same thing for making management decisions, which would make for a better culture. In other words, if together collectively you can agree on how you’re going to be with each other and you’re right, that in rules and what the rules are first of all, you have principles that everybody will understand.
Ray Dalio – Founder, Bridgewater Associates: 09:01
You could say, am I going to live by those principles? You could see those work principles written in my book principles, life and work. But that also required me to think about how I was going to do that. So I, I realized that I could anything pretty much that my brain could do or see or think I could with the help of lot of people convert into computers doing the same thing if I thought about it. And that produced this sort of compounding. So this is just a wheel that we think of or these are various apps that I’ve created a, we’ve created over a period of time that describes the things that we do. So I’m going to shift my attention from investment decision making and this, and draw your attention to a management decision making and try to convey how to have an idea meritocracy.
Ray Dalio – Founder, Bridgewater Associates: 10:03
Because the most important thing is how you make decisions. So when you start to think about the power of an idea meritocracy and the power of using various apps to collect data and to help you through that, that’s very powerful. So I want to quickly take you through what those apps look like. So you know, there, there are a number of apps, but starting at the bottom of that and thinking of it, it’s somewhat of a sequence before hiring. You want to think about what we think of as a role spec. What is the type of person that we want to fit into a job? Everybody has strengths and weaknesses. Everybody thinks differently. And so when you think in each job, what is the type of person that will be best for that job? Sometimes a very creative person might not be organized or very organized.
Ray Dalio – Founder, Bridgewater Associates: 11:02
My person may not be creative and somebody has different skills. And so you need to write a job spec. What type of person do I want in that in a very specified, specified way because we use a lot of data to describe people, what they’re like. We have these components. It’s almost like think of a person as being like a Lego set of attributes. Okay. They have all those attributes like a Lego set. And then you say, what are the attributes and what colors do I want those to be? And that’s a job spec. And related to that, there’s a tool called the Combinator that looks at people who work at a Bridgewater and it looks at those and it says, what are their attributes? So if I’m thinking, okay, I don’t know, there’s Russell and here’s Russell and what’s he like?
Ray Dalio – Founder, Bridgewater Associates: 11:56
It will convert him into his component parts, his Lego bits. And so if I could say I’d like a Russel and I’d like a Sally and a hairy because they’re doing great at that job, what are their attributes? I can reverse engineer that and say, okay, now what are their attributes? Cause I want to get another one of those. So that’s how you go the job spec. That’s what that tool is. Then before a person comes we want to make us, we want to look at them. So we want to look at them and make an assessment. So there are what information do you get? You get a resume and you get and we ask them to take some personality profile tests that sort of give an idea of what their personality profiles are and so on. And we can extract from that information just like you would look at a resume, you might say in a resume, Oh, this person is very linear.
Ray Dalio – Founder, Bridgewater Associates: 12:55
They’ve always stayed on a track. They’ve done very well in school. And so on. Somebody else, they might say, Oh, they’re very creative. They’re interested in operating in this way. Whatever the criteria are in your own head. You could look at that and convert a resume into data and it could read it the way that you want to read your resume to make those, those assessments. And you can do that in conjunction with others so that now you can read a resume or you could have the computer read the resume and discern what you want out of that resume. And that together with a tests, these personality profile tests help us identify those who have the specifications that we’re looking for to narrow down before we do interviews and discussions like that. And so that’s what that first combination of apps, first the spec and then the assessments and the resumes.
Ray Dalio – Founder, Bridgewater Associates: 13:48
Okay. Then through interviews and so on. We, we hire a person and then we have them go through courses in cases now because we get this, we tape almost everything for everybody to see. We have radical transparency and that doesn’t mean that we have personal matters discussed or proprietary matters discussed. But in order for me to run an idea meritocracy, I wanted everybody to be able to see anything so that there would be an understanding that there’s no spin and then they could be able to question me on anything or, and we can have it. That power of being able to have radical truthfulness and radical transparency has the effect of building trust, building understanding. I mean, we can get into hell of an arguments about things, but we’re still as having that radical truthfulness and that radical transfer to work ourselves through.
Ray Dalio – Founder, Bridgewater Associates: 14:47
And because of that, we can take people into experiences that existed before. Because what we’ve done is to create these cases that are virtual experiences. And what I mean by that is they’ll go, you’ll go into realistic case and you’ll be sitting there and it’s happening just like reality TV. And it’ll pause and it’ll ask you questions. What’s your reaction? What would you do in that situation? So it creates a virtual experience in, and it also collects data on people to see what their reactions are and starts to integrate on that. So that’s what the courses in cases are. That’s what they do. That in a boot camp, we call it a three week boot camp. Then we have a tool which we call a coach. And a coach is something in which rather than there being a book of principles and so on, which there is, but it’s more it’s a system in which one says, I’ve got this type of problem or I’ve got this type of situation and what principle would be most helpful?
Ray Dalio – Founder, Bridgewater Associates: 15:52
And it then directs them to the principals and that tool also we let people it’s built so that people could put in their own principles. I think this would be something that is very, very helpful to other people. I would recommend it to you all that rather than to just make decisions. If you, when you’re making decisions, think about your criteria for making decisions and you write those criteria down, those principles down so that when another one comes along, you can think what is that other one and one of my principles for doing it. And you’ll refine those principles over a period of time and you also are able to communicate with other people effectively. So it builds a culture in which we all can agree on what our principles are. So in doing that, well that’s what that coach tool does and gets you easy access to that.
Ray Dalio – Founder, Bridgewater Associates: 16:44
Then there’s another cool tool which you call the dot collector, the dot collector. In meetings or outside of meetings, it tells what people think about each other and it also does a number of things that I’m going to explain to you in a minute. And I’ll show you how the tool works. And all of that data collection is put into what we call a baseball card or it’s about me and others. So now that data is collected on people meeting my meeting and project by project and so on. And then every day there’s a the equivalent of a three 60 review and then you start to learn about yourself and you start to learn about other people. So people usually at the end of the day, they go to this and they say, okay, what’s the dot collecting? Like? And it serves the purpose also of over a period of time making the connection between the day to day behaviors and what the annual review looks like.
Ray Dalio – Founder, Bridgewater Associates: 17:44
Then there’s a tool called an issue log. What I did is I put into this tool because I said, if there’s anything that goes wrong I want you to log it. If there’s anything bad that, that you see that’s bad, you log it. If you don’t log it and I see it’s bad and that happens three times, you’re out of here so that you’re going to bring those things, those problems to the surface. It makes management just so much easier because let’s say if a manager, you’re running a department and you say, listen, I don’t have to go look for all of the hidden problems that people would want, that they have to lock, log them in, they’re issued like one to five in terms of severity and I can go there and I could take a look at those problems. Then I can easily deal with those problems and go beyond those problems to think about how do I deal with it?
Ray Dalio – Founder, Bridgewater Associates: 18:34
How does my machine work to produce those problems in the light? That’s what an issue log is. A daily update tool is a way that I and others keep in contact with each other. I have a number of direct reports and I’m all over the place and I want them to write down what their, what they’re doing, what their issues are and I’ll take a look at those. And then then we’ll have interactions and I can get a picture that way. I also can very easily see data so that in other words, I could see what is the happiness level, what is the stress level because it’s so easy to just click happiness level, level four stress level five, whatever that is. And I could see that all around the company and I could see how it changes so that way I can go to that part of the company or that place and then have a conversation with them.
Ray Dalio – Founder, Bridgewater Associates: 19:29
That’s what the daily update. Another tool I call is a pain button. And what I mean by that is you know, I’m an expression that pain plus reflection equals progress. Because of the pain. If something went wrong, you’re being communicated. Nature gave us pain, psychological pain for a reason to signal us. And so if you reflect well on that, there’s a way of operating in the way that operates is it collects all of those things that are painful. And then it has reflections in terms of is that a chronic pain? Is it always with the same person? And it specifies like, well, what are you going to do about it? What’s your plan? And it monitors, did you execute that plan and is that pain? And then how’s that changing over a period of time? Like biofeedback, if the same pain is happening over and over again and you’re having with the same person and you’re not doing something, you could expect it to continue.
Ray Dalio – Founder, Bridgewater Associates: 20:27
And so it creates that kind of biofeedback. Then of course there are a lot of metrics or KPIs that we’re looking for performance indicators. Then I created a on another tool, which guy called a contract tool. A contract tool is a, is a tool where, you know, if we go into a meeting and we say, okay, you’re going to do that and I’ll this and we’ll do that. And it’ll specify who’s going to do what, when, at what date that that will be completed. And then it makes it easy to know what your obligations are to others cause it’ll maintain an ongoing flow of, Hey, I’m supposed to deliver this, this, and the other thing. And here’s my list. If I do those things, fine, or did somebody make a commitment to me and it, and are they doing it? So allows that to follow through.
Ray Dalio – Founder, Bridgewater Associates: 21:15
And then of course there are there are disputes, arguments, different disagreements. So rather than just have those, I created a tool which I called the dispute resolver. If you have a dispute, okay, what are the protocols that you should go through to resolve that dispute? And I won’t spend a lot of time describing it, but it deals with three different levels of dispute, you know, just you and I have a dispute. How can we deal with it together? And so on, or higher levels of dispute, the equivalent of like, how would you get a Supreme court decision that, of that dispute. So that’s the series of apps that have been created. And my hope is to make those available to everybody makes available to the public. As I’m trying to put that out. What I want to do is just show you how one of the first tools that we’ll put out and which I called the dot collector. I just want to show you how it works and then we’ll talk about it. So that’s, this is the dot collector.
Special Presentation Video: 22:23
A week after the US election, our research team held a meeting to discuss what a Trump presidency would mean for the US economy. Naturally, people had different opinions on the matter and how we were approaching the discussion. The dot collector collects these views. It has a list of a few dozen attributes. And so whenever someone thinks something about another person’s thinking, it’s easy for them to convey that assessment. They simply note the attribute and provide a rating from one to 10. For example, as the meeting began, a researcher named Jen rated me a three. In other words, badly for not showing a good balance of assertiveness and open-mindedness. As the meeting transpired Jen’s assessment to sub people added up like this. Others in the room had very different opinions. That’s normal. Different people are always going to have different opinions. And who knows who’s right. Let’s just look at what people thought about how I was doing.
Special Presentation Video: 23:26
Some people thought I did well, others poorly. With each of these views, we can explore the thinking behind the numbers. Here’s what Jen and Larry said. Note that everyone gets to express their thinking, including their critical thinking regardless of their position in the company. Jan, who’s 24 years old and fresh out of college can tell me the CEO of the company. Then I’m approaching things terribly. This tool helps people both express their opinions and separate themselves from their opinions to see things from a higher level. When Jen and others shift their attentions from inputting their opinions to looking down on the whole screen, their perspective changes. They see their own opinions as just one of many and naturally start to ask themselves, how do I know my opinion is right? That shift in perspective of going above it and seeing the full range of views shifts the conversation from arguing over in the visual opinions to figuring out objective criteria for determining which opinions are best.
Special Presentation Video: 24:43
Behind the Dot Collector is a computer that is watching what all these people are thinking correlates it with how they think and communicates back to each of them. Based on that, then it draws the data from the meetings to create a pointillist painting of what people are like and how they think. And it does all that guided by algorithms knowing what people are like helps to match them up better with their jobs. For example, a creative thinker who was unreliable might be matched up with someone who is reliable but not creative. Knowing what people are like also allows us to decide what responsibilities to give them and to weigh our decisions based on people’s merits. We call it their believability. Here’s an example of a vote that we took where the majority of people felt one way, but when we weighed people’s views on the basis of their merits, the answer was completely different. This process allows us to make decisions not based on democracy and not based on autocracy, but based on algorithms that take people’s believability into consideration.
Ray Dalio – Founder, Bridgewater Associates: 26:04
Yeah, we really do that. So just to give you a little bit of a more of an explanation and carry that through for the dot collector, which will be available to the world in the not too distant future, maybe, maybe three months or so. So it encourages people to freely express what they really think. Independent of hierarchy. That creates ownership. There’s no spin. And that ownership people can’t care if they have to bottle up their thoughts and then they basically, they don’t own it, but when they we have, I have a principles speak up, own it or get out because if they have a problem and they’re not speaking up, that’s their problem. If they have a problem where they can speak up in a non-hierarchical way, that’s what really creates an idea meritocracy. It provides Realtime feedback on strengths and weaknesses like a daily three 60 review.
Ray Dalio – Founder, Bridgewater Associates: 27:05
It helps people see things through other’s eyes instead of just being stuck in their own minds. It offers in the moment computer driven coaching on how to best handle the situation because it knows, you knows, each individual person knows their circumstances, reminds them, it knows what else is going on around them and can provide that coaching. It enables the polling of a group to make everyone’s views pantry transparent and to draw an important disagreement. Like right now the only people we know who they’re thinking of is the speaker. There’s such a bottleneck and all of you are thinking radically different views. Now just imagine if it was all lit up because you’re now communicating this way. And so now everybody right here, I would know what you’re thinking. You would know what each other’s thinking. That’s a power because otherwise it’s stuck in, you know, the vocal chords.
Ray Dalio – Founder, Bridgewater Associates: 28:05
And then it allows believability, weighted decision making. That’s a whole other topic. In other words, I don’t think autocratic decision making is best. When I started the company around it all along I w I worried about being wrong. The markets teach you a lot of humility. I know that if I’m going to be stress tested, I’m going to be better off if I’m stress tested and others are going to be stress better off if they’re stress to. So if we stressed a, wherever the best idea comes from is where I want to get, what’s what I want to get. And so by being able to say it rather than autocratic or democratic, democratic is stupid in terms of decision making. Cause that tree treats everybody’s values abilities as being about the same. And that’s not true. There’s a big difference. So by being able to assign believability and almost do believability weighted decision making, you can make a lot of progress.
Ray Dalio – Founder, Bridgewater Associates: 29:03
And then it collects data from across the organization to create a rich picture of what’s going on in the whole organization and then attracts individual performance through time so people could see how they change or they don’t change and what to do about that. So basically it also converts data to intelligence. So when I say converting data to intelligence, it speaks to you. It communicates in that way. So what we’ve done over the last, Oh, I’d say six months or so a lot of companies were very keen to do this big Silicon Valley companies and so on. I can’t tell you all the names but they w what we did is we put it into their environments so that they could customize it for themselves and make it better. So for example, we used to have it on iPads, but then we put it on, you know, handheld devices and then operating in terms of certain ways.
Ray Dalio – Founder, Bridgewater Associates: 30:01
And what they’ve told me is that it has a big impact because 96% of all employees send that say that they want to hear feedback regularly. Typically 60% want a daily or weekly. And so be able to give them feedback on a daily or weekly or a moment by moment basis and then connect that to their annual reviews is a big deal to people. It also keeps them engaged. And 77% of HR executives believe that performance views are inaccurate because of these generalizations you give up on. You know, once a year you sit down and you’re trying to remember what it is and everybody just has a different picture. Well, if you build them up piece by piece, that more accurate and then there it produces a lot more engagement. So it was pointed out that two and a half that there’s been growth in revenue over the last seven years of companies, which with more engaged employees have had revenue growth of two-and-a-half.
Ray Dalio – Founder, Bridgewater Associates: 31:01
So anyway, people are excited about that. So now you know, I, I would say to you as these things go out or to others the real questions are what do you want? You don’t have to operate in an idea meritocratic way. You don’t have do anything that we that I’m saying it has been the basis of our success. And so I would say there are four things that when you go away and you think about this, you might ask yourself, do you want to have idea meritocratic decision making? And in what degree?
Ray Dalio – Founder, Bridgewater Associates: 31:39
Second, do you want to know what people are really like and what you’re really like? Or do you want to hide that? Most people, you know, it’s a little bit embarrassing. Oh God. It’s like, you know, being naked in front of the mirror or something, it’s mainly not necessarily pretty picture, but if you get past it, it’s good. How truthful do you want to be with each other and how transparent do you want to be with each other? You can do whatever you want.
Ray Dalio – Founder, Bridgewater Associates: 32:13
And then, do you want to have algorithmic decision-making part of your decision-making process or do you want to just keep it in your head? I guarantee you that you will fall behind, I think, unless you do most of these things, including certainly the algorithmic decision making. So that’s it. And what I’d like to do is take your questions. Okay, I got some choices.
Ray Dalio – Founder, Bridgewater Associates: 32:46
“How would you begin a cultural transformation toward an idea meritocracy? One, the firm may not have the benefit of technology and so on.”
The first thing is how I think in any relationship you’re going to stand back and say, you have to say, how are you going to be with each other? And you have to flesh that out because that’s the culture. And it’s true, not just in an organization, it’s true in your family relationships. It’s true in anybody to be clear about those things. So more important than any technology is to write down how you’re going to be with each other. I see that over time.
“So why do you think this type of management can work across all corporate and world cultures?”
That’s a big statement. I would say my across cultures, the book has been translated into 34 languages and in China I was told that it was the largest selling book last year.
Ray Dalio – Founder, Bridgewater Associates: 34:02
But in any case, a lot of books I’ve been sold in different cultures and different languages. And I think that the idea of writing down one’s principles, whatever they may be, and operating together on that basis is good. And if you look at the history through cultures, idea meritocratic behavior, that’s confusion came up with idea meritocratic behavior, those types of things. They work and collective decision making is far better than any individual decision making. So I think that it’s an effective process. Anyway, I’m out of time. I did the 30 minutes and thank you for your attention.