In 1975, Ray Dalio founded an investment firm, Bridgewater Associates, out of his two-bedroom apartment in New York City. Forty years later, Bridgewater has made more money for its clients than any other hedge fund in history, and grown into the fifth most important private company in the United States, according to Fortune magazine. 

In his new book "Principles", Dalio shares what he’s learned over the course of his remarkable career, arguing that life, management, economics, and investing can all be systemized into rules, and understood like machines. The book’s hundreds of practical lessons, which are built around his cornerstones of “radical truth” and “radical transparency,” offers a clear, straightforward approach to decision-making that Dalio believes anyone can apply, no matter what they’re seeking to achieve.

Moderated by Jordan Thibodeau.

He's the founder of Bridgewater Associates.

He founded it in 1975 and is 1 of the most successful hedge funds in history.

I'm at a stage in my life where I'm entering what I call the third stage of my life.

I think of life as existing in 3 big stages.

The first is that you're learning from others.

Second stage of your life is then you're working, others are dependent on you, and you're trying to be successful.

Then after you get to the later stage of life, third stage of your life, is others are successful without you.

And that you're free, according to Joseph Campbell, free to live and free to die.

So that you have that element of freedom.

And so I'm at a stage in my life where I started Bridgewater out of a two-bedroom apartment

According to Fortune, it's the fifth most important private company in the United States.

And that my objective at this particular stage is to help others be successful without me.

I learned along the way certain principles.

Every time I would make a decision, I would write down the reasons I would make that decision.

And I put them out, I debated them, and I developed these principles.

So think about principles as just being these reasons for making a decision.

If you're in this situation, how do you deal with it?

It was also very important to me to operate in a very unusual way that seemed very sensible to me, and it's an idea meritocratic way.

So I want to describe Bridgewater as being an idea meritocracy.

In other words, a real idea meritocracy, which I'll explain and show to you.

So a real idea meritocracy in which the goals are meaningful work and meaningful relationships.

Meaningful work, I mean, you're on a mission, that you feel you're on a mission together to do those great things.

And meaningful relationships, meaning that you care about each other, it's part of a community, and to be on that mission together.

And that was really great in terms of our success.

But it was meaningful work and meaningful relationships through radical truthfulness and radical transparency.

That means literally people saying anything that they feel that they want to say, in terms of being polite, of course, but sharing what they really believe is true and working themselves through to have an idea in a meritocratic way, and to literally record everything for everybody to hear.

So I mean, literally, there are a combination of videos and tapes of all meetings that happen so that nothing is hidden.

Because you can't have a real idea meritocracy if you can't see things yourself.

And it was really the basis of our success.

And I want to explain that way of operating to you, because this idea meritocratic way in which there's meaningful work and meaningful relationships through radical truthfulness and radical transparency so that you could have thoughtful disagreement and have ways of getting past that disagreement to then move on, like a legal system, that has been the key to our success.

So that's what I want to try to convey to you.

And I'm just going to take a few minutes to try to go through a few slides to give you a sense of this.

And on your way to your goals, you're going to encounter your problems and your failures.

Otherwise, you just go straight to your goals.

Failures is part of the learning process.

From the failures, what I found was great is I started to think of failures as lessons.

I started to think of them as puzzles rather than develop emotional reactions to those failures.

I sort of think pain plus quality reflection would give me progress.

So I started to think of almost the failures like puzzles, that if I could study the puzzles, the puzzles was what would I do differently in the future that wouldn't produce that problem again when it happened?

And then I would reflect, well, what was that?

What would I do differently in the future?

If I solved that puzzle, I would get a gem.

And the gem was a principle, a principle to handle it better in the future.

It's an essential part of the learning process.

If you can realize that and you write down those principles, write them down, it's been fantastic.

And then I would go on to more audacious goals.

And I look at evolution, personal evolution, or almost every evolution, evolution of a company, evolution of everything, as being this constant looping process that I sort of think of as this five-step process.

In other words, to be successful, you have to do 5 things.

First, you have to know what your goals are and go after those goals.

And You will encounter problems on the way to those goals.

You have to diagnose those problems to the root cause, to get at the root cause.

And that root cause might be yourself, what you're doing wrong, or what somebody else is doing wrong.

You have to really look at it so that you make those changes.

And when you get at that root cause, only by knowing that root cause can then you design a way to get around that root cause.

Like if you're not good at something yourself, it's OK if you find somebody else who's good at the things that you're not good at, because nobody can be good at everything, right?

You just can't keep banging yourself in the wall.

So you have to design something that's practical to get around with it.

And then you have to follow through and do it.

A lot of people come up with designs, but you have to do the thing that's necessary.

And by trying that thing that's necessary, again, you will find out, are you getting to your goals or you'll encounter your next set of problems and so on.

And that, I believe, is the personal evolutionary process that has helped me.

Those rules that I was able to write down, and that you can get in this book, principles, which is why I'm passing them along, those rules we were actually able to then to put into algorithms and build decision-making processes that replicate the brain.

OK, so in order to be successful in the markets, 1 has to be an independent thinker.

In order to be an entrepreneur, 1 has to be an independent thinker and bet against the consensus and be right.

Because the consensus in the markets is built into the price.

Whatever anybody thinks, that's built into the price.

And you're going to be wrong a fair amount of times about betting against the consensus.

But in any case, you need to be an independent thinker.

And for an entrepreneur, you need to be an independent thinker.

So in order for me to be successful, I needed to have a bunch of independent thinkers in order to have them be effective.

OK, well, now, how are you going to get this bunch of independent thinkers to agree on anything?

In other words, I had to have a system that literally, systematically, allows for thoughtful disagreement so that these idea meritocratic people could then get at the right answer, because that's fantastic if you can have that thoughtful disagreement to get at the right answer.

By having that and then systemizing it, principled systems, a system for having thoughtful disagreement for an idea meritocracy, we could produce greater amounts of successes.

We also produced failures, but we would look at that way, produce our learnings.

And that produced, as a result, happy employees who really believe in this idea meritocratic thing and own the company, intellectually and otherwise own the company.

And then it became easier to attract those types of people, those types of people who believe that everybody has the right to make sense of things and that there's a power in thoughtful disagreement.

And that allowed us to attract more people.

And that was the basis of going from the two-bedroom apartment to Bridgewater now.

And I want to say, OK, so what is an idea meritocracy?

But 3 different things are necessary for an idea meritocracy.

First, everybody has to put their honest thoughts on the table to see.

Now I watch this and I think so many organizations, so many people, they all keep it bottled up in their heads, right?

So can you put your honest thoughts on the table with other people's honest thoughts So that you understand what people are thinking, okay?

It makes everything first of all a lot more efficient, right?

It's terribly inefficient when everybody doesn't know what the other person is thinking and then also it doesn't allow ownership It can't be an idea meritocracy if you just don't work it through.

We don't allow talking behind the scenes, but anybody can challenge anything at any time.

Then you have to understand the art of thoughtful disagreement.

So many people react badly to disagreement.

You have to change the modus operandi and start your thinking.

It tends to produce some extent anger because it's like a barbaric animal behavior that what happens is the amygdala part of us has this flight or flight thing and then it's viewed as an attack, you know, And you have to, that's not good.

So there are protocols that we have that I won't go into now that I don't have time, but they're laid out in the book of how do you have the art of thoughtful disagreement to raise the probabilities.

Because collectively, if you have an idea of meritocracy and you know how to do this well collectively, you're going to make much better decisions than individually.

If you just are stuck with the information that's in your head and your opinions, that's terrible.

I believe that 1 of the greatest tragedies of mankind, such an easy thing to fix, is the people who are stuck with wrong opinions in their heads that they don't put out there and stress test and say, I'm raised their probabilities of being right.

So the art of thoughtful disagreement, you have to understand the art of thoughtful disagreement that brings in better thinking than you individually has and has a probability of moving you to a better answer than you would have individually.

That collective decision making is very powerful.

But you might still have a disagreement after those things.

Then you have to have agreed upon ways of getting past your disagreement.

If you have your disagreements that are gnawing at you and so on, it's like a law case, a legal case.

OK, You go in, you have a trial, you do it, but you believe that the decision-making system is fair.

And because you believe it's fair and you've had that opportunity, that you say, now we can get past the disagreement and move on, rather than being stuck with it.

So those are the 3 things that an idea meritocracy has to have.

And so if you think you want an idea meritocracy, you have to think about those 3 things.

Meaningful relationships and meaningful work together have produced this success.

And then this radical truthfulness and radical transparency produces an idea meritocracy.

The other thing is, in order to have an idea meritocracy, and in order to have great personal development, here.

When you know what someone is like, you know what you can expect from them.

Can you deal with really getting at what people are like?

Or are you going to hide those things and not talk about those things?

People who want to come into this environment would like to honestly know what their strengths and weaknesses are and work on those so that they can produce better teams, that people have some weaknesses, can work with people who have corresponding strengths, okay, and also know about themselves and also be very straightforward that I can hand you that responsibility that, but I can't hand you this responsibility because you appear to have these weaknesses.

How do you get objectively at the question of whether you have those weaknesses or those strengths.

So this is an important element that has been fantastic for us, and I'll give you a sense.

So this is just making the point that, you know, on a job, quality is needed, then what somebody is like, and the goal is to eliminate that.

So I'm just going to give you, so now I use technology and algorithms.

years ago to, and we do have done it to a great, enormous degree, use algorithms to take principles and put them into decision-making systems.

All of our investment decision-making is made by replicating our thinking and actually putting them in algorithms and taking in data.

And we do the same thing for about half of our management processes.

And I do believe that we're on the path that we will have algorithmic idea meritocratic decision making done by algorithms that can see everything and that can make better decisions than individuals stuck in their heads.

And because you can specify the algorithms, so everybody could see the algorithms, everybody could see the criteria, and they can evaluate the merit of the criteria.

But to just give you a little sense of that, what I want to do is just show you a little clip of 1 of the tools that we use, and it will give you a flavor of what we're doing.

In order to give you a glimmer into what this looks like, I'd like to take you into a meeting and introduce you to a tool of ours called

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.

It has a list of a few dozen attributes, so whenever somebody thinks something about another person's thinking, it's easy for them to convey their assessment.

They simply note the attribute and provide a rating from 1 to

For example, as the meeting began, a researcher named Jen rated me a 3, in other words, badly, for not showing a good balance of open-mindedness and assertiveness.

As the meeting transpired, Jen's assessments of people added up like this.

Others in the room have different opinions.

Different people are always going to have different opinions, and who knows who's right?

Let's look at just what people thought about how I was doing.

Some people thought I did well, others, poorly.

With each of these views, we can explore the thinking behind the numbers.

Note that everyone gets to express their thinking, including their critical thinking, regardless of their position in the company.

Jen, who's 24 years old and right out of college, can tell me, the CEO, that I'm approaching things terribly.

This tool helps people both express their opinions and then separate themselves from their opinions to see things from a higher level.

When Jen and others shift their attentions from inputting their own opinions to looking down on the whole screen, their perspective changes.

They see their own opinions as just 1 of many and naturally start asking themselves, how do I know my opinion is right?

That shift in perspective is like going from seeing in 1 dimension to seeing in multiple dimensions.

And it shifts the conversation from arguing over our opinions to figuring out objective criteria for determining which opinions are best.

Behind the dot collector is a computer that is watching.

It watches what all these people are thinking, and it correlates that with how they think.

And it communicates advice back to each of them based on that.

Then it draws the data from all the meetings to create a pointillist painting of what people are like and how they think.

Knowing what people are like helps to match them better with their jobs.

For example, a creative thinker who was unreliable might be matched up with someone who's 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.

Here's an example of a vote that we took where the majority of people felt 1 way, but when we weighed the views based on people's merits, the answer was completely different.

This process allows us to make decisions not based on democracy, not based on autocracy, but based on algorithms that take people's believability into consideration.

And so that you could see believability waiting.

So let's imagine that you have data on everybody.

So that you just don't go walking in a room and everybody's got an opinion without actually thinking with some element of score who is more likely to have the better opinion.

You put, I don't know, 10 people in a room, and you're going to get 1 of 2 things.

You're either going to have idea merit, you're going to either have autocratic decision making.

In other words, everybody feeds their opinions, and then the guy who is responsible for that then says, OK, here's my decision based on that.

Sometimes you'll go around the room, and what does everybody think?

And then there's a notion to a consensus.

What's best, what I did, because I really don't know that I have the right answer.

Running the company, the reason I did this was out of need.

I want to triangulate about people who I believe might have better thinking.

And if 3 believable people believe 1 thing and I believe something else, there's a good chance that I might be wrong.

So I like to have these believability scores that is accumulated by data and other people's thinking of who is better and worse at different things.

And then people can change those scores or take those into consideration.

And that's what believability-weighted decision-making is, because it helps the idea of meritocracy.

The important thing here is to talk about idea meritocratic decision making.

However we choose to do it and whatever tools we use to get at that is really of subordinate importance to the idea of how do you have that idea of meritocratic decision making.

I believe that what you're going to see is if you start to get to this principle decision making and idea meritocratic decision making, What you're going to see is paths, the learning of principles for dealing with situations that themselves will be idea meritocratic.

So if you have a situation and you're going to, OK, Google to find out what the facts are now, you will increasingly be able to go to Google and find out how you should handle certain things, principles and the like, in that idea meritocratic way, with believability-weighted decision-making and the alike.

So I want to throw that out there, and then we'll have our conversation.

I'd like to start with, you had a concept called the 2 yous, and how that affects our thinking process and also taking feedback.

Well, the brain actually has a lot of parts in it that are the things that compete with each other to make decisions.

But the 2 big yous are the thoughtful you that is in our conscious mind, and then the emotional you, which is in our subconscious mind.

There are a lot of motivations that you probably don't even know that are subliminal, that came from maybe your early childhood or your circumstances that are below the surface.

So when you're like the issue of would you like to know your weaknesses?

Would you like to know what other people really think about you?

Intellectually, you would like to know those things.

Emotionally, you might not like to know those things.

And so when you're dealing with our environment, and you say, would you like to have this environment of radical truthfulness and radical transparency?

And when they're going through it, they say it.

And you see them also struggle with their emotional selves as they're going through it until they readapt.

And when they start to readapt and they say, knowing what's true is good, and yeah, now I know my weaknesses and I know what other people are thinking about me and I can approach what to do about it, then they sort of make a transition to the other side.

So we have that, our 2 yous that lead to struggles like disagreement, disagreement and finding it emotionally difficult.

But we have that emotional thing that we have to struggle.

And what are some tips that people can help themselves get through the to-yous issue to make them more resilient to feedback?

Well, there are a number of things that are in the book.

First, I think, let me answer it before I go to that particular 1.

Whenever there's conflict, I recommend that you go to a higher level, 1 level up.

Whenever you have a disagreement, just go to 1 level up with the person that you're in the conflict with, or even yourselves when you have a dilemma, and look and come up with an agreement of how you should be with each other.

In other words, let's say you and I have a disagreement.

Rather than being caught in the anger of that disagreement, to go above and you should say, how do we disagree?

Form a contract of how you should be with each other and make that a practical modus operandi.

And then there's also then the ways we do it.

First, to know that decision making is a two-step process.

There's first taking in, and then there's deciding.

The capacity to take in the other person's point of view.

The noticing how your body is reacting, noticing how you are reacting.

We have something like the two-minute rule.

Then that person has the 2 minutes to say what they want.

Having those kinds of protocols, there are a number in the rule explained in the book, where there's curiosity, where there's not blocking.

You know, somebody in a discussion will do a lot to block the taking it in.

So these protocols, I won't go through them all, but those protocols, having those protocols in place that you practice are fair.

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Principles: Life and Work | Ray Dalio | Talks at Google