The Tim Ferriss Show Transcripts: Lessons from Richard Branson, Tony Robbins, Ray Dalio, and Other Icons (#325)

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Please enjoy the below transcript of episode #325, “Lessons from Richard Branson, Tony Robbins, Ray Dalio, and Other Icons

This episode features:

  • CDBaby founder Derek Sivers on the importance of challenging your own definitions of success.
  • Performance coach Tony Robbins on best lessons learned from working with legendary investors.
  • Venture capitalist Chris Sacca on missed opportunities and the commonalities of successful people.
  • Legendary investor Ray Dalio on the three things that make up a successful life.
  • Virgin Group founder Sir Richard Branson on the best thing his parents taught him.

Listen to the episode here or by selecting any of the options below.

Lessons from Richard Branson, Tony Robbins, Ray Dalio, and Other Icons
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Tim Ferriss: Hello, Ladies and Gentlemen. Welcome to another episode of The Tim Ferriss Show. This is Tim Ferriss speaking. I should clarify that this episode is an edition of The Tim Ferriss Radio Hour, where I share the patterns and themes of world-class performers that I’ve identified after more than 300 guests on the podcast.

This particular episode is going to explore success. What does that mean? What a slippery, dangerous term. The particular guests I selected for this episode I would say represent not only achievement, but also appreciation and a well-rounded version of what I consider to be a successful human being. By any objective measure, certainly financially or otherwise, I’ve interviewed some of the more successful people on the planet. In the next hour, we will revisit specific conversations that discuss the tips, disciplines, habits, and mindsets, perhaps most importantly, that separate world-class performers who reach their goals, from whose who fall short.

This episode includes wisdom from Derek Sivers.

Derek Sivers: I learned this the hard way at my last company because we had a quarter million customers. So, when I’d send out an email to everyone, if any sentence was at all unclear in any way, I’d get like 50,000 confused replies from people.

Tim Ferriss: We also talk to Tony Robbins.

Tony Robbins: You’ve got to become an investor. You’ve got to be an owner, not a consumer. The way to do that, frankly, we all know, but very few people do, is that you take a percentage, you lock it down, you never see it, it’s automated, and you put it aside for investment and that just occurs.

Tim Ferriss: You’ll hear from my good friend, Chris Sacca.

Chris Sacca: Venture capital is totally unfair. People give me their money. I draw a management fee off it. So, they pay me to take their money and invest it for them.

Tim Ferriss: Legendary investor, Ray Dalio.

Ray Dalio: I think three things make up a successful life by and large. First, you have to have audacious goals – big dreams.

Tim Ferriss: We can’t talk success without including Sir Richard Branson.

Richard Branson: One of the best things my parents taught me – I’m going back a long way – if I ever said anything ill about anybody, they would sit me in front of the mirror for ten minutes in order to let me know how badly it reflected on me.

Tim Ferriss: As a preface before we jump into the conversations with these guests, I thought it might be helpful to set the stage. That is with an observation that I have made, certainly, in interacting personally with many of my podcast guests and many name-brand folks in Silicon Valley and elsewhere. That is the following: the superheroes you might have in your mind, the idols, icons, elite athletes, billionaires, and so on, are nearly always walking flaws you’ve maximized one or two strengths.

Now, I’m not saying that is true of the people in this episode, but in general, this is true. There are some mutants, there are some freaks of nature who are the equivalents of the Usain Bolts of the business world, for instance, but they are rare. In general, humans are very, very imperfect creatives, which would be a generous way to put it. You don’t succeed, and most of the people I’ve interviewed don’t “succeed” because they or you have no weaknesses. Instead, you succeed because you find your unique strengths and focus on developing habits around those strengths.

You can get only a few things right consistently and outperform almost everybody else. I think that, for instance, the investment styles of Warren Buffett and Charlie Munger, who are both brilliant, granted, but who focus on being consistently not stupid, not consistently smarter than everybody else, which perhaps is a form of being smarter. It’s important to keep in mind, rather than putting these people on a pedestal and viewing what they do as unreachable and, in a way then, absolving yourself of the responsibility of trying to improve yourself, that everyone is fighting a battle and has fought battles you know nothing about.

There are many mega successful people who battle with depression, with pasts that might include alcoholism, you name it. That is not necessarily true of the people in this episode, but I think it’s important to underscore that so that you think that through incremental improvement, you can actually put yourself in a position to achieve seemingly impossible things. That is the truth. Everyone is fighting a battle you know nothing about. The icons is this episode are no different. Everyone struggles, so take solace in that. Now, without further ado, let’s jump into some of the things that separate those who achieve what they set out to do from those who don’t.

Let’s start with Derek Sivers. @Sivers on Twitter. S-I-V-E-R-S. He is one of my favorite human beings. Think of him as a philosopher, king, programmer, master teacher, and perhaps merry prankster. Originally a professional musician and circus clown – whole long story behind that, so listen to my long interview with him at tim.blog/derek. Derek created CD Baby in 1998. It became the largest seller of independent music online with $100 million in sales for more than 150,000 musicians. In 2008, Derek sold CD Baby for $22 million, giving the proceeds to a charitable trust for music education. He is a frequent speaker at the TED Conference, with more than 5 million views of his talks. Since 2011, he has published 34 books! What? Including a book titled Anything You Want, which I’ve personally read at least a dozen times.

Tim Ferriss: When you think of the word successful, who is the first person who comes to mind and why?

Derek Sivers: Well, the first answer to any question isn’t much fun, because it’s just automatic, right? Like, “What’s the first painting that comes to mind?” “Mona Lisa.” “Name a genius.” “Einstein.” “Who’s a composer?” “Mozart.” But this is the subject of the book, Thinking Fast and Slow, by Daniel Kahneman. There’s the instant, unconscious, automatic thinking, and then there’s the slower, conscious, rational, deliberate thinking. So, I’m really, really into he slower thinking. Like, breaking my automatic responses to the things in my life and slowly thinking through a more deliberate response instead. Then for the things in life where an automatic response is useful, I can create a new one consciously.

So, like what if you asked, “When you think of the word successful, who’s the third person that comes to mind? And why are they actually more successful than the first person that came to mind?” Well, in that case, the first person would be Richard Branson because he’s like the stereotype, right? He’s like the Mona Lisa of success, to me. Honestly, you might be my second answer, but we could talk about that a different time.

My third and real answer, after thinking it through, is that we can’t know without knowing a person’s aims, right? Like, what if Richard Branson set out to live a quiet life, but like a compulsive gambler, he just can’t stop creating companies? Well, then that changes everything and we can’t really call him successful anymore.

Tim Ferriss: What are the most common misconceptions about you?

Derek Sivers: I feel pretty understood. I don’t think people are thinking about me enough to conjure up any misconceptions. We think the goal of writing and communication is to be understood, but I think a better goal is just making sure that you’re not misunderstood. I learned this the hard way at my last company because we had a quarter million customers. So, when I’d send out an email to everyone, if any sentence was at all unclear in any way, I’d get like 50,000 confused replies from people, which would take my team like 1,000 man hours to go through. So, now anything I put out into the public is rewritten and edited like crazy until I think it’s as clear as can be.

Tim Ferriss: What are you world-class at that people might now realize? Or what do you friends know you’re world-class at that the rest of the world doesn’t know about?

Derek Sivers: I’ve got the world’s longest attention span. I’ll just sit down and do one task for like 12 hours straight. Or all day for 25 days in a row. I love that my kid is getting it from me by the way that we play. Whenever we play, I never say, “Let’s go! Time to go!” We just do something until he’s ready to move on. He’ll lead me to the river and just throw rocks in the way for a couple hours, then we’ll go to the ocean and build a fort out of driftwood for hours, and then draw in the sand with shells until he’s sleepy. We’ve always done it this way, since he was like one year old.

Other families would come play on the playground for 20 or 30 minutes at a time, but we would just be there for hours with him fully immersed in some newly invented game. What’s funny is that nobody else can hang with us, not even his Mom. Everyone else gets so bored. People ask if I meditate or do yoga, but nope, my daily life feels like working meditation. Even being with my kid is like meditation, as you can tell.

Okay, now, we’re doing the format today where we’re going to open up the phone to callers. But since it’s Christmas Day, phones are a little slow – hey, there’s a call.

Dave DiGiovanni: Hi, Derek. This is Dave DiGiovanni from Kalamazoo, Michigan in the U.S.A. Thanks for doing the podcast with Tim. Thanks for taking this question. You’ve helped a lot of people make money. I’m just wondering if success in business has to be more complicated than that? I get overwhelmed reading all the – you know, there’s so much content out there on how to make money, how to grow your business, how to start a business. I’m just wondering if business needs to be more complicated that coming up with ideas on how to help other people succeed? Thank you.

Derek Sivers: Well, let’s talk about two things. Simple versus complicated and easy versus hard. Look at running. If you talk with people who hate running, you’ll hear them say, “Ugh, first you have to get your running clothes, they you get dressed, and then you’ve got to put on your shoes and you’ve got to lace them up just right. Well, then you’ve got to stretch and then you’ve got to warm up. Then afterwards, you need to cool down and you need to shower. It’s such a pain.” But if you talk with people that love running, they’ll say, “Yeah, you just pop out for a quick run.” And if you ask them about the steps involved, they’ll say, “There’s just run. You just run.”

So, knowing that we have this human nature to think of things we like as simple and things we don’t as complicated, you can use this to deliberately simplify how you think of something you’re avoiding, making it more appealing. An ultramarathon is simple. You just 100 miles to the end. But that doesn’t mean it’s easy, right? So, success in business can be simple. You just find a need that people are proving they’re willing to pay for, and then find a profitable way to solve that need for them. But it doesn’t mean it’s easy.

What you have to do is notice, in your mind, when you’re complications are holding you back, and then turn the dial towards simplicity in your mind. You just jump out the door and start running. But then notice in your results where a more simplified approach might be holding you back. Like perhaps you’re using only one tool in your toolbox and you need to learn others. As for all the business advice out there, if information was the answer, then we’d all be billionaires with perfect abs. Really you, and yeah you, listening to this, most of you probably just need to shut that shit off, put your blinders on, and get out the door and start running. Metaphorically speaking, that is.

Tobin: Hi, this is Tobin in Boulder, Colorado. My question is, what should someone ask to determine their own Utopia? Thanks.

Derek Sivers: First, ask yourself is this in theory or in practice? Have you proven from your experience that this is really what works best for you? Whatever idea you have, you have to challenge it. You need to argue against it because there’s so many things that seem great in theory. For example, say you’re living in a little apartment in a noisy city and so you think that you’d be happy if only you had a big place out in the silent country. And so you do it, you splurge, you buy a place or you sign a year-long lease and then you move out to the country and … uh-oh, after two months, you realize that you miss too many things about the big city. You made the wrong prediction. It happens the other way too, right? People moving from the quiet ‘burbs to the big city. Or somebody who’s an employee that thinks they’d just be happy if they could quit their job and start their own business. And oops, it doesn’t always work out like that.

My recommendation is to do little tests. Try a few months of living the life you think you want, but leave yourself an exit plan, being open to the chance, the big chance, that you might not like it after actually trying it. The best book about this subject is Stumbling On Happiness by Daniel Gilbert. His recommendation is to talk to a few people that are currently where you think you want to be, and ask them for the pros and cons, and then trust their operation, since they’re right in it, not just remembering or imagining.

James McGill: This is James McGill from Sligo, Ireland. My question is, how do you define success and what habits or skills are most important to living a successful life? Thanks.

Derek Sivers: Okay, well, first let’s define success. Ask yourself if you think Robin Williams and Philip Seymore Hoffman were successful actors? I think it’s a tough call. My first reaction is yes, but the more I think about it, my answer moves halfway towards no. As a different example, think of someone you know who you’d consider to be the definition of a total loser and then you give that person a million dollars. Are they now a winner? Of course not. That sounds like a contrived example. But a lot of fame and fortune is dropped into the laps of people who were just the right face in the right place at the right time, but are actually miserable, awful people by any definition.

So, the more you think it through, the more you realize that you have to define success first by your inner game, not some outside measure of money or fame. Mastering yourself, your mind, and your actions. But now, if you only master yourself and you don’t help anyone else, then we’d call you happy, but nobody would define you as successful. The very definition of success must include how much you helped others. I bet that if you helped thousands of people, even if you didn’t ultimately profit from it but you were personally miserable? Well, we might still call you successful because you helped others. The point is, if you want to be undeniably successful, you need to both master yourself and help others. Don’t focus on the money or the fame. The real success is mastering your emotions and actions and actually helping lots of people. So, that’s the definition.

But now you asked what habits or skills are most important to living a successful life? Well, by this definition, habits and skills – No. 1, the skill and habit of managing your state and your emotional reactions and actions. No. 2, knowing what people need in general and what you need in particular. No. 3, people skills. How to see things from the other person’s point of view and how to communicate from their point of view. No. 4, the ability to focus, learn, practice, and apply what you learn. If you can do those four things, you can do anything. You can first be happy without depending on anyone or anything in particular, and then you can understand what people need, learn how to provide it, and make sure they know it.

Tim Ferriss: Next up is Tony Robbins. @TonyRobbins on Twitter and elsewhere. The world’s most famous performance coach. He’s advised everyone from Bill Clinton to Mikhail Gorbachev to Serena Williams and Leonardo DiCaprio to Oprah, who calls him superhuman, by the way. That’s Oprah calling someone that. I love Tony’s work and his Personal Power II set, which I listened to in my POS used mini-van while I was commuting during my first job. It helped me start my first company. Recently, I should say over the last several years, I’ve had the chance to work with Tony, get to know him directly, and it’s been an incredible experience.

Tony has worked with many legendary investors, including Paul Tudor Jones, who he’s coached for more than ten years, Ray Dalio, Carl Icahn, David Swenson, Kyle Bass, and many more. These are the hard-to-interview unicorns who consistently beat the market, despite the fact that it’s considered impossible by many folks. Tony has done a great of job of, I would say, condensing the lessons he’s learned from them.

Tony Robbins: Some guys are like Templeton; I got to interview him multiple times before he tied. It’s like wait for the blood-letting.

Tim Ferriss:   No, blood in the streets. That’s when you invest, yeah.

Tony Robbins: Blood in the streets. But it’s like when maximum pessimism hits, that’s when you make all your money. That’s what he did. Then there’s the guys like Bogle, which is it’s the index, baby. These days, even Warren Buffet, it’s the index baby. So they’re all different approaches. But what’s in common, I think is – I’ll tell you four things I saw that stood out. One is overly simplistic and that’s why people don’t pay attention to it, but these guys pay attention to it. They don’t lose. Half the peak awakening is not losing and they are obsessed, every single one of them is obsessed with not losing money. I mean, a level of obsession that’s mind-boggling.

It isn’t just these investors. Sir Richard Branson, for example, people see Richard and he’s such an ongoing, playful guy. He’s kind of an introvert about certain areas. But when it comes to athletics and taking out challenges, he’s out in the world. But his first question to every business is, what’s the downside and how do I protect it? When he did his piece with Virgin, that’s a big risk. Starting an airline? He went to Boeing and negotiated a deal they could send the planes back if it didn’t work out and he wasn’t liable. That’s the level these guys think at. So, they first look to see how do I not lose money? Because the average person has no clue. If I lose 50% in 2008, well, guess what? You’ve got to make 100% to get even, not 50%, because your principal has gone down so much. People don’t understand. You lose 60%. It’s 200% to get even. The average person lives in a world where they try not to lose money, but they’re not obsessed. These are obsessed.

The second thing they all have in common: every single one of them is obsessed with asymmetrical risk reward, which is a big word. It simply means they’re looking to use the least amount of risk to get the maximum out of upside, and that’s what they live for. I’ll give you an example. Paul Tudor, when I first went to do the turnaround, Paul was challenging times. He’d broken his leg. Think about this – he did better than anybody in the history of the world during the biggest stock market drop in history, literally, and then he went to the mountain, he went to the moon, and now what? So, he lost a bit of the edge and got involved in other things and so forth. Now, he’s got a broken leg. He’s not going to the office. I’ve got to come in. So, I had to go watch that film. That’s the first thing I did.

Tim Ferriss: The white tennis shoes.

Tony Robbins: I wanted to go see everything about him. Study his physiology, the way he used to move because this guy is not moving at all. What his face was like, how he breathed, the tone of his voice, what were the physical strategies, what were the psychological strategies, what were the financial strategies. I got to go to Druckenmiller and Soros. The world I had access to back then was unbelievable. To see what he was like then, to put the plan together to do this turnaround. When I started making those shifts in him, you could see the shift happen immediately, it got really exciting. I got hooked on what was going to happen.

I did this same process, basically, talking about doing things once. I did the same process during his interviews. I didn’t just look at the trading strategies. I looked at the psychology of what set it up. But here’s what I found with Paul Tudor in the very beginning in getting him back on track. When he’s at his best, he made sure every single trade had what he called a 5 to 1. That means, if he was going to risk $1.00, he wasn’t about to risk it unless he was certain he was going to make $5.00. Now, you’re not always right, so guess what? If I risk $1.00 to make $5.00 and I’m wrong, I can another dollar and still make $4.00. I can be wrong four times out of five and still break even. Their secret is not that they’re not wrong, it’s they set themselves up where they risk small amounts for big rewards, proportionally.

Paul, if he’s right one out of three times, he still makes 20%. So, the average person risks $1.00 trying to make how much?

Tim Ferriss: $1.10.

Tony Robbins: That’s right. About $1.10. If I could get 10%, wow, my dollar, right? 20% would be unbelievable. How often can you be wrong?

Tim Ferriss: Not every often.

Tony Robbins: Not at all, right? You’re in the whole. You’re starting from the whole and you’ve got to build back up. So, there’s asymmetrical reward. I was with Kyle Bass and Kyle Bass risked – check this out – in the middle of the sub-prime crisis, he was $2 billion out of $30 million because he risked for every $0.06 he risked, he had an upside of $1.00. $0.06 for $1.00. Well, you could be wrong 15 times and you’re still looking in that area. I mean, he was brilliant to figure it out. He is a genius for figuring it out. But that risk/reward is why it is.

He showed his kids. I said, “How do I teach this to the average investor?” He said, “Well, you can teach them the way I taught my kids.” I said, “How’d you do that?” He goes, “We bought nickels.” I said, “What do you mean, you bought nickels?” He said, “Well, I did research. I have this question” – that’s another thing that all these guys do, they ask a better question. And we talked about, they get better answers right? Better quality question, better quality answer. What’s wrong with me? You’ll come up with stuff? How do I make this happen no matter want? You’ll come up with different answers.

His question was, “Where in the world is there a riskless trade with total upside?” He started looking around and he said, “I’m worried about inflation,” so he decided, “Well, gosh, of all the currencies in the world, a nickel, what it’s made of today,” it’s not made mostly of nickel by the way, he said, “it’s costing the U.S. government $0.095 to make a nickel. That’s how our government functions. I’m going to spend almost $0.10 to make something half as much, right?

Tim Ferriss: The Pentagon plan.

Tony Robbins: Yeah, that’s right. The perfect plan. So he said, “But you know what? Just the actual material value is $0.068,” or something $0.065 we’ll call it for round numbers. So he said, “If I buy a nickel, it’s never going less than a nickel unless you believe the U.S. government is gone. So I’ve got something that never goes down in value. So, I’ve got a guaranteed return. I’m not going to lose my principal. By day one, it’s worth 36% more than the day I bought it. How many investments can you have 100% guaranty of no less and a 36%?”

I said, “Yeah, but that’s value. They passed a law a few years ago, I think Charlie Rangel or whoever it was pushed it through.” He said, “Yeah, but Tony, that doesn’t matter. Because let me tell you why.” He said, “Look at pennies. When they changed it from pure copper to tin and all the things they changed, what happened to the old pennies? There’s a scarcity of them and now a penny from those days is worth $0.02. It’s 100% more valuable. So, he said, “At some point, the government cannot continue to do something that costs twice at much. At some point, they’ll make a change in the materials and then all these nickels are worth an unbelievable amount.”

He said, “I’m just showing my kids. You need to think different than everybody else. Don’t think on it to take huge risks for huge rewards. Say, how do I take no risk and get huge rewards?” And because you ask that question continuously and you believe in the answer, you get it. He said, “Listen, if I could convert my entire wealth into nickels right now, I’d do it.” I said, “You’re insane.” He goes, “I am insane.” But it’s the best possible fundamental investment. He started telling me how to do it. He bought 40 million nickels

Tim Ferriss: Wow.

Tony Robbins: He had 40 million nickels. It fills up a room bigger than this.

Tim Ferriss: It had better be on the ground floor.

Tony Robbins: He had his kids ragging at me and everybody else laughing and having fun. It’s like their little treasure room.

Tim Ferriss: So he can legitimately do like the Scrooge McDuck backstroke through a pool full of nickels.

Tony Robbins: For real, with nickels. So, there’s asymmetrical reward. I’ll give you one more and I’ll shut the hell up. You told the difference and there are differences. We could spend hours and hours on the differences but what I think’s useful is what’s aligned because then it gives universal that can be applied.

The other one for them is they absolutely, beyond a shadow of a doubt, know they’re going to be wrong. You look at these talking heads on television and people screaming at you and hitting bells and telling you what to buy and they’re right, right, right. The best on earth, the Ray Dalios, right? The Pebbles, I don’t care who you talk about. You want to look at Carl Icahn. They all know they’re going to be wrong, so they set up an asset allocation system that will make them successful. They all agree asset allocation is the single most important investment. There wasn’t one person in terms of your vehicle that it wasn’t the most important thing. No matter how they attacked it, asset allocation was the element there.

The last one is, they’re lifelong learners. These people are machines. Like you, like me, like Peter, like most of the people you and I share as friends, they just are obsessed with knowing more. Because the more they know, the more they realize what they didn’t know and then they apply that and they go to another level. Every time you think you’re the best you can be in anything in life, your body, your emotion, your spirit, your finances, there’s always another level. These guys live by it.

The last one, I thought almost of them were real givers. Not just givers on the surface like money givers, that’s wonderful. But really passionate about giving. It showed up once they saw what I was doing was legitimate and was really real. Then they’re opening up three hours of their time with something none of these guys will ever get.

Tim Ferriss: I think it was Dalio who said something along the lines of “Losers react; winners anticipate.”

Tony Robbins: That was actually me, but that’s okay.

Tim Ferriss: It’s you!

Tony Robbins: Give it to me, Dalio.

Tim Ferriss: Take that as a compliment! No, but the point being that the – and I guess a Mark Twain quote is also in there, which was “History doesn’t repeat itself, but it rhymes.” So, there are going to be crashes. There are going to be Black Swan events. You want to have a plan in place for when that happens.

Tony Robbins: Exactly right. Ray Dalio actually said something in there that stuck with me brutally. He said, “I don’t care what it is that you think you’re great at investing in or you like.” Most people invest in what they like. Real estate or stocks or bonds, or what they think they’re good at, or what they were raised with. He said, “Whatever asset class you invest in, I promise you in your lifetime, it will drop no less than 50% and more likely 70% at some point.” He said, “That is why you absolutely must diversify.” Because you’re saying, “But I could make so much more on this side.”

I’ve had people throughout the years – I teach this bucket theory. This idea that if you want to make asset allocation simple, it sounds like such a big word, it’s just buckets. Some of my money is going to go in a secure bucket. That bucket is like a church steeple. It’s not going away. It’s very secure type investments. Its upside is not gigantic in terms of speed, but the compounding process, if you give it enough time, those low returns are giant returns still, but you’re not going to lose.

Then there’s this bucket what most people call a “growth” bucket, I call a “risk growth,” because it’s really risk first. On that, I’m taking bigger risks for potentially greater rewards. Now the question is, how do I balance these? Am I 60/40, 50/50, 80/20? That’s designed really by three things. No. 1, what’s your real risk tolerance, what you think it is?

Tim Ferriss: Yeah, and they’re never the same.

Tony Robbins: They’re never the same. I do these wealth mastery programs in a few years and invariably I’ll do some crazy thing like I’ll say, “Everybody stand up, make change.” They look at me and I go, “Make change.” Then they start reaching in their pockets and making change. And so somebody will pull out $5.00 and $10.00. Somebody pulled out $100.00 and somebody will come up and will take it and give them $5.00 and they’re like … they don’t know how to react. So, this goes on for three or four minutes and the music is going on. I go okay, stop, all right, sit down. And they go on like I’m talking about something else.

Invariably, somebody’s like, “Hey, wait a second. I want my $100.00 back.” I said, “What are you talking about?” He’s said, “I want my $100.00 back. The game is over.” I said, “When did you think the game was over? When did you think the game had ever gone over and who said it was your $100.00?” It takes a while and then finally get, I’m stressed about $100.00. What do you think is going to happen when you lose $1 million or $500,000, or $10,000 or $10,000? Your risk tolerance is not what you think it is. So when you find out what your risk tolerance is, and we’ve got great ways to do that in the book, and then you figure out really, how much time do you have?

When you’re younger, you’ve got more time to make mistakes and so you can take bigger risks. You’ve got timeline on your side. The next piece is, how much is your cash flow? What’s going to be the bigger role for you? If you look at those three things, how you can decide how much goes in my secure bucket, how much goes in my growth? If you don’t make that decision, it’s the most important investment decision of your life according to everybody I interviewed. Like what percentage secure, what percentage growth and risk? Then when things come up, you’re always going to go for the growth/risk because it looks so sexy and exciting and I can’t tell you how many people over the years have done this. They’re telling me, why would I put money over here when I’ve got this real estate I’m making 120%?

I have a friend that build some of the first big condos in Vegas back in the boom time. He actually went to my programs, sold the business he had made $200 million, invested in these condos, starting building the Panorama Towers and places of that nature. He was up to like three-quarters of a billion. I kept saying to him, “Dude, take some of your growth money and put it in the secure bucket,” right? How many times have I told you this? He goes, “Tone, I love you. I made $200 million because of you. But now, I’m really, whatever I touch goes into gold.” I’m listening to this. I’m going, “I love you brother, but do you know how many times I’ve had this conversation?” And then guess what happens in 2008? How much do you think he lost? He was worth three quarters of a billion dollars. He’d grown that rapidly in those short years. What do you think happened to his net worth?

Tim Ferriss: I’m guessing it went down, according to the Ray Dalio prediction.

Tony Robbins: How about -$400 million. He didn’t just lose what he had, he lost everything he had and beyond. So then he’s trying to negotiate –

Tim Ferriss: So he was leveraged.

Tony Robbins: He was leveraged out. He wiped himself out. Most people don’t put enough in the security bucket is the lesson. A guy like that will provide you a strategy that’s got great sustainability, but there are many approaches in the book. But you do have to decide, how much is secure? How much is growth? I show you how to do that.

Tim Ferriss: Chris Sacca, @sacca, was once the cover story of the Midas issue of Forbes magazine, and I’ve known him for some time. But that’s what happens when you are, for instance, an early-stage investor in companies like Twitter, Uber, Instagram, Kickstarter, and many more. Chris is the name, the face behind what will most certainly be the most successful venture capital time of all time – Lowercase Capital. Here are a few thoughts on success that I’ve found fascinating.

Tim Ferriss: What are the commonalities, or are there commonalities, when you look across these founders for whom success and massive scale just seems predestined? What are the commonalities?

Chris Sacca: We’ll take Evan Travis’ examples, but across the most successful founders, let’s use a Matt Mullenweg, WordPress. That’s a $1 billion company, $1 billion-plus. These guys are all incredible listeners. When they do open their mouths, it can be bombastic and offensive and aggressive and in-your-face, but they’re all incredible listeners. I don’t just mean in casual conversation. These guys go out of their way to interview other people. If you catch Ev, he’s got a notebook always. If you ask him to see the last few pages of the notebook, he’s just meeting with other people who are billionaires and leaders whose jobs might not overlap with his at all, but from whom he’s learning. He’s a voracious reader.

Part of why Medium started is he was really back deep into long-form content when he took a break from Twitter. That guy is just constantly learning, studying, studying. When he speaks, it matters. But he’s listening more than he speaks. You know that about Mullenweg. One of the most thoughtful people. I’ve never seen anyone read as many books as that guys does and retain all the knowledge.

Tim Ferriss: Yeah, he’s prolific. He also listens to anyone that he’s sitting down with. It doesn’t matter if it’s the waitress or a primary school teacher. We’ve done a lot of traveling together. He was on the podcast also. A very good listener.

Chris Sacca: Again, you just look across the board. These guys are learning. They’re modeling. They’re constantly researching. They’re gathering data. Travis would think it a competitive disadvantage for you to know exactly what’s going on in his head sometimes. So, he’ll listen. It’s an amazing talent. I think it’s a commonality across those people.

Tim Ferriss: With the investing game that you’ve obviously been a participant in for quite a while now, you have to say no a lot. I took a close look at poker in the last year with the TV show. There were a couple of quotes that came up quite a bit, along the lines of “I made my money sitting, not playing hands.” But that having been said, what are some of the deals, the whales that got away?

Chris Sacca: First of all, this is a rigged game, right? I’m just looking to make it even more rigged. For those who don’t know, venture capital is totally unfair. People give me their money. I draw a management fee off it. They pay me to take their money and invest it for them. If I make money, then I pay them back the management fee and then after that, we split the profits and I get a really big chunk of the profits. If I lose money, that’s fine. It doesn’t come out of my pocket. I keep my fee and my investors lose money. That’s how this industry works. That’s bananas. At some point, it’s going to break.

Tim Ferriss: You’ve also incepted me with the term “bananas,” which I’ve started using compulsively. Mazio also has done the same thing. He works with Chris.

Chris Sacca: It’s just an unforgivably, unfair, rigged game that’s in favor of the venture capitalists. The reality is the risk of an investor doesn’t begin to compare to the risk of a founder. That’s one thing that kind of draws me crazy about some investors. I love the entrepreneurial spirit that goes into building a firm. I built my firm from scratch and there are certainly founder-type lessons in there. But your cash will positive from day one when you start a venture fund. Your downside is incredibly limited by the structure of the fund.

So that said, what it allows me to do is place some bets on some stuff that I’d like to think success is inevitable with those things. But I can look at the risk analysis and say is the binary outcome a 1 or a 0? Some of those things just don’t get there. One of my constant recurring nightmares is about the stuff I passed on.

Tim Ferriss: Exactly. That’s what I was trying to ask.

Chris Sacca: I’ve done some deals where I thought it was going to be a lot bigger and it ends up going away. The Dropbox guys, I met those guys very early on, while they were still on Y Combinator. I got an early look. I had an opportunity to do the deal and I pulled those guys aside and I said, “Hey, look. At Google, we’re using a version of this called Platypus,” which became G Drive. “They’re going to crush you guys, man. You should probably find some other product to pivot to.” That probably costs me hundreds of millions of dollars.

Tim Ferriss: Did they give you a pat on the head and walk away?

Chris Sacca: No, I mean, when I see Drew, the CEO of Dropbox, I bring it up before he can.

Tim Ferriss: That’s a good self-defense maneuver.

Chris Sacca: Yeah, I get it out there right away. The Airbnb guys at Y Combinator. Same thing.

Tim Ferriss: Incredible business.

Chris Sacca: An amazing business. And one to be proud of too. I’m really jealous I’m not in that business. Not just for the business, but I love what they do. I really admire them a lot and their culture. But at the time, they were allowing you to rent out a room in somebody’s house while the owner was still there and that just seemed really scary to me. I pulled the guys aside and I was just like, “Guys. Somebody’s going to raped or murdered in one of the houses and the blood is going to be on your hands.” I literally said that out loud to them. What’s that worth? Like $15 or $20 billion now?

Tim Ferriss: Now, in fairness, you’re probably not wrong, right? I mean, at a certain scale.

Chris Sacca: At scale, it has to happen.

Tim Ferriss: Something’s going to happen.

Chris Sacca: Yeah. I like to say sometimes when you think about scale, like someone who works at Walmart murdered someone last night. There’s just no doubt about it. At that scale, with a few millions employees, one of them murdered somebody last night.

Tim Ferriss: You have to look at it like Edward Norton Fight Club. Like an actuarial analysis for insurance. Which is terrifying, but that’s the reality of big numbers.

Chris Sacca: There’s one other famous one. There’s a bunch of these. Actually, I’ll give you two. I wasn’t reminded of this until recently. Nick Woodman from GoPro came to Google. I wasn’t an investor at the time, but I did a lot of Google’s investments and partnerships. Eric Schmidt, CEO of Google, said, “Hey, will you come in here and sit with this pitch. He’s a friend of a friend who said we’ve got to meet this guy.” So, Woodman comes in with GoPro. Eric’s like, “I don’t know. I was like, “We’d be foolish to do this deal. How is this guy from Santa Cruz going to compete with all these Asians in building hardware? You can’t hold a candle to the Taiwanese and the Koreans.” I was like, “No dice, man. Let this guy go.” I think I introduced him to somebody over at YouTube just as a consolation. I saw that dude this winter skiing. He worth like $3 or $4 billion now and he didn’t forget that meeting.

Then the Snapshot guys. I gave a talk in L.A. and they came up to me. I’d never met them before. They came up after the talk and said, “We’re big fans and we’d really like to work with you.” I was like, “Eh, sure. I mean, I know you guys are up to something cool. I admire it.” I took like eight weeks to set up the meeting and by then, the Benchmark guys had done that deal. That’s, again, ohmygod, I can’t imagine how much money we’ve left on the table as a result of that. I like to say when I’m wrong, I’m wrong and when I’m right, I’m really, really right.

Tim Ferriss: Ray Dalio, @raydalio on Twitter, is one of the 100 most influential people in the world, according to time and one of the 100 wealthiest people in the word, according to Forbes. Because of his unique investment principles that have changed industries, CIO magazine dubbed him “the Steve Jobs of investing.” Ray believes his success is the result of principles he’s learned codified and applied to his life and business. Those principles are detailed in his book, aptly titled, Principles. He includes some of his wisdom in our interview.

Tim Ferriss: If we flash back to when you first began Bridgewater Associates. So, out of your 2-bedroom apartment at 26 years old. Do you recall any of your first big wins or things that you considered big wins at the time? I’d love to just hear you describe what made those a big win. In other words, the thinking behind it.

Ray Dalio: The funny thing is, I can hardly ever remember my big wins. I do remember my big losses or my big mistakes.

Tim Ferriss: We can talk about those too, yeah.

Ray Dalio: It’s so funny because I look at it and say, well, I guess I must have had a bunch of wins or successes because of how things have went. The business is good and done well and all of that. But I think of my history and I really think of those mistakes. I think that’s so great because it shows that that’s a much better learning tool. Okay, so my big wins. No, I think about that time. The things I remember were the fun things. Guys I played rugby with, and parties, and those kinds of things. I don’t remember a particularly big winning. Well, I do remember some things.

I remember one time when we got the Kodak account. Again, I was in a position, it’s okay, here’s a guy and he’s analyzing the markets and he has a small team of people. He’s analyzing the markets. I didn’t have a long track record and I didn’t have an institution and I was sort of competing with the big institutions of the word – the JP Morgans and everybody. By the way, we beat them. But anyway, what shows that the individuals, the power is with the individual. But anyway, I remember when we got the Kodak account, because at the time Kodak was a big, important client. Them giving us that account was a big deal for us because it was kind of a stamp of institutional approval and it was – I remembered the money mattered too because we would know that we were a bit more financially secure. I remember that as a big win.

I remember it so terrifically because we were asked to submit research information. We were just a small team of people. We stayed up all night and with pizza and beer and all of that. I remember it so sweetly because it was the dream of making our miracle happen. The pulling together. That’s the meaningful relationships part. I believe that I want meaningful work and meaningful relationships. That was what that was about. We got the account and we won and that was a big deal.

Tim Ferriss: Why did you guys win?

Ray Dalio: I think it’s a combination of being totally unconventional and having better processes and then there’s a hell of a lot of determination. I think three things make up a successful life, by and large. First, you have to have audacious goals, big dreams. Then, when you are headed towards those goals, you’re going to have problems. You’re going to deal with reality. You have to deal with those problems and that reality realistically, learning from mistakes, writing down those principles and the like. So, that’s the second part. Dealing with reality in a practical way where you learn about mistakes.

Then the third is the determination. Because if you’re going for your goals and you’re encountering your mistakes and you’re learning and you do that with determination, you’re going to get better all the time. You can’t help but get better. You do that a long enough amount of time and you’re going to far exceed your dreams. My success has far exceeded what I ever imagined one bit at a time. It’s just that process.

Tim Ferriss: If you were to conversely look at intelligent people who are unhappy, what do you think the primary causes of that unhappiness are?

Ray Dalio: I think it goes back to this notion of meaningful work and meaningful relationships. Intelligence and happiness probably have no correlation with each other. In studies, it’s repeatedly been shown and money is very little correlated with happiness. The highest correlation with happiness is community. Am I part of a community? Do I feel connections with other people? That’s been literally genetically programmed into us from, it’s estimated between a million and two million years ago, before we were even mankind.

So, that sense of meaningful relationships, I think, is very, very important. If you have meaningful work, like you’re on a mission, and you have meaningful relationships, I think it’s almost impossible not to be happy. There will be unhappy moments in your life that you encounter this thing or that, but the people who are unhappy seem to be missing those things.

Tim Ferriss: Last but certainly not least, we have Sir Richard Branson, @richardbranson on Twitter and everywhere else. Founder and Chairman of The Virgin Group, a world-famous entrepreneur, adventurer, activist, and business icon. He has launched a dozen billion-dollar businesses and hundreds of other companies. I loved our conversation and highly recommend you check it out, of course. Listen to the whole thing. But here are a few highlights you might find valuable.

Tim Ferriss: You strike me as a really good negotiator. By necessity, you’d have to be. If you had, say a would-be entrepreneur or a university senior, someone who’s about to graduate and go into the real world and they tell you that they want to become a very good negotiator, a very good deal maker. How would you train them or what would you recommend they do or read to become a better negotiator or deal maker? Because you seem very, very astute and subtle in structuring things in very smart ways. What would you say to someone who wants to develop that skillset?

Richard Branson: I’m sure that there must be ways of being taught it, but in my operation, nothing beats personal experience. My education was being thrown into the jungle, being thrown into the real world at age 15 or 16 and having to survive. It was an incredible education. I learned about everything in life. I’ve [inaudible] [00:49:09] a lot, so I’ve met people all over the world. I had to do a lot of different negotiations.

I think as I’ve got older, I’ve realized that one of the most important things about a negotiation is striking a deal that is fair to both sides. I’ve also realized as I get older that you’ll always come across the same people time and time again in life, and so your reputation is everything. In my new book, Finding My Virginity, I talk about our dealings with Delta and how they felt that they’d legged us over in a clause in a contract and how they came to us to rectify it. That’s something I’ll never forget and most likely will be partners with Delta for the rest of my life because of that kind of approach.

I think if you realize that your reputation is all you have and your personal reputation, the reputation of your brand, then you’ve got to make sure that you’re negotiating a deal that you’re not going to be unhappy with and you think of all the things that could potentially go wrong and how you can get out of it if something goes wrong, but equally important is trying to strike a fair balance with the people you’re negotiating with.

Tim Ferriss: When we’re looking internally, you mentioned how your teammates at the record company thought you were crazy when you brought up the airline. Are there any business ideas that you’re glad your coworkers or team have prevented you from doing?

Richard Branson: As you know, my nickname is Dr. Yes. I have books like, Screw It, Just Do It. To be honest, if I want to do something, one of the advantages of owning the company is I can normally get away with it. I mean, I’ll try, obviously, to carry people with me. I’m sure there have been one or two things where I have bullied the process through or I’ve regretted – well, not regretted. I’ve never regretted anything. But where perhaps I should have listened more to others. But I can’t think of anything where they persuaded me not to do it.

I think most likely, when it comes to a decision about whether to do something or not, I like to think of myself as a benevolent dictator. That’s the one thing I sort of generally get my own way on. Look, we would never have gone into space travel. We’ll come to that I’m sure later on in this talk, unless I was willing to do things against the sensible. What on paper would be sensible advice of my fellow directors.

Tim Ferriss: We will definitely get to space travel. What I’m curious about, because it seems if I look at many of the businesses that you’ve started, the positioning is often against a particular incumbent – in the case of airlines, for instance – that seems to be a common element in a lot of the company or product launches. I want to connect that with some of your well-known adventures. You’ll see where this is going in a second. You’ve driven a tank down Fifth Avenue; crossed the English Channel in an amphibious car; took a 407-jump off the Palms Casino Resort in Las Vegas; gone from Morocco to Hawaii in a hot air balloon. You are very adept at PR stunts, getting attention for the things that you do and the companies that you do. Are there any particular best practices or a playbook that you have found to be very – or principles, for that matter, helpful with the launching of a new company or product?

Richard Branson: I don’t think so. I’m a great believer in trying. If you team worked really hard to launch a new business with you or for you, the least I think I can do is make a fool of myself, make sure that new business ends up on the front page of the newspapers rather than an anecdote on the last pages of the newspapers. So, if that means having to use myself to put the new company on the map, I will do so. I will try to do it in a way that makes people smile and that doesn’t horribly backfire on me. It hasn’t usually backfired.

I suppose it’s like being a host to a party. If you’re the host of the party, if you  stand in the corner of the room and you sip your sherry and stand around with your fellow directors all in suits, everyone’s going to have a thoroughly dull party and nobody will have a good time. If you’re the host of the party and you’re first in the swimming pool and everybody else jumps in too, yeah, they may be a bit cold for the rest of the evening, but they’re going to have a great evening. I think the same applies when you’re launching a business. Make sure that you put it on the map and just occasionally it will backfire.

Tim Ferriss: You mentioned space travel, which I do want to use as a touching off point to ask you – roughly 50 years after starting your first business, why write Finding My Virginity? What was the catalyst for that? Why do it?

Richard Branson: I actually think everybody should write a book about their lives. I’ve persuaded a number of people to write books about their lives. Steve Fossett, for instance. Anyway, a number of people. You don’t have to have led a very public life. I think everyone’s led interesting lives. Your children and your grandchildren will be fascinated by the lives you lead. I wrote a book, Losing My Virginity, when I was a young man, about all the adventures. It became a bestseller and sold millions of copies. But I was quite a young man when I wrote it.

The last 20 years or so have been very full and very rich and extraordinary. I thought I would write in a sense a sequel to Losing My Virginity, which we called Finding my Virginity. If I life another 20 years, Virginity Found I suspect will be my last book. We’ll see how we go. I think it’s important. I love reading and learning and I think others hopefully will enjoy it. When I write books, I try not to make them like “and then we did and then we did that.” Just try to make it a really good, gripping read and an enjoyable read and not try to prime in everything one’s done in 20 years. Hopefully, people will get a few gems form it as well.

Tim Ferriss: What is the book or books you’ve given most as a gift and why? Outside of your own books. Are there any particular books that you’ve given or recommended to others the most?

Richard Branson: Climate Change is something which I’ve spent a lot of time on. I would highly recommend a book by Tim Flannery called The Weather Makers, which was one of the books that opened my eyes to the problem that we have in the world. I’m just reading Homo Deus, and I will carry on to read Sapiens, one of his first books. I just love the style of his writing. I love books where you’re learning something from them, rather than if I want fiction, I’ll get a good film out. If I’m reading books, I like to read books which have got some substance.

Tim Ferriss: In the last, let’s just call it five years or so, what new belief, behavior, or habit has most improved your life or what habit has improved your life? It could be any new belief, behavior, or habit that has markedly improved your life.

Richard Branson: If we go back a bit further than the last five years.

Tim Ferriss: We can go back as far as you like, absolutely.

Richard Branson: One of the best things my parents taught me – I’m going back a long way – if I ever said anything ill about anybody, they would sit me in front of the mirror for ten minutes in order to let me know how badly it reflected on me. I like to think I’ve never generally spoken ill about other people. I think that’s been one of the best bits of advice that I’ve ever received and obviously then given. Archbishop Tutu, who chaired The Elders, which is an organization that we’ve run for ten years now, he was the epitome of forgiveness with the Truth and Reconciliation Commission in South Africa, when Nelson Mandela took over power. I think people, nations, should all try to run based on that philosophy and the world would be a happier place if that happened.

Tim Ferriss: You mentioned Nelson Mandela. This is clearly not one of my stock, rapid-fire questions, but I’ve heard you refer to Nelson as a mentor. Are there any key lessons or takeaways or memorable sentences or anything that come to mind when you think of your interactions with Nelson Mandela?

Richard Branson: Well, I was lucky enough to get to know him very well over the years, even to the extent, that on July the 18th we share a birthday and he would ring me every single birthday to wish me a happy birthday. I remember the sadness when I didn’t get that call not so many years ago. He had an absolute joy for life. He would dance, he would smile, he would embrace everybody.

But he had a tough side to him as well. I remember one lunch I had with him early on in our relationship where I’d been warned that he was always trying to extract money for good causes. We had the first course, then we had the second course, then we had the pudding and we were onto the coffee and I thought, my God, I’ve got away with it. Then he turns to me and says, “Ah, Richard, last week I had lunch with Bill Gates and he gave me $50 million for” such-and-such a cause.” Anyway, he did not miss an opportunity. Apart from maybe Archbishop Tutu, I haven’t met anybody as extraordinary in my lifetime as him.

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Lessons from Richard Branson, Tony Robbins, Ray Dalio, and Other Icons (#325)

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“If you only master yourself and you don’t help anyone else, we’d call you happy, but nobody would define you as successful.” – Derek Sivers

This particular episode of The Tim Ferriss Radio Hour explores success, which can be a slippery and dangerous term. The particular guests selected for this episode represent not only achievement, but also appreciation and a well-rounded version of what I consider to be a successful human being.

This episode features:

  • CDBaby founder Derek Sivers on the importance of challenging your own definitions of success.
  • Performance coach Tony Robbins on best lessons learned from working with legendary investors.
  • Venture capitalist Chris Sacca on missed opportunities and the commonalities of successful people.
  • Legendary investor Ray Dalio on the three things that make up a successful life.
  • Virgin Group founder Sir Richard Branson on the best thing his parents taught him.

I hope you enjoy this episode of The Tim Ferriss Radio Hour!

Lessons from Richard Branson, Tony Robbins, Ray Dalio, and Other Icons
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Want to hear another podcast of The Tim Ferriss Radio Hour? — In this episode, we explore meditation and mindfulness with Chase Jarvis, Arnold Schwarzenegger, Sam Harris, and Rainn Wilson.  (Stream below or right-click here to download):

The Tim Ferriss Radio Hour: Meditation, Mindset, and Mastery
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The Tim Ferriss Show Transcripts: Ray Dalio

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Please enjoy this transcript of my interview with Ray Dalio (@raydalio), founder of investment company Bridgewater Associates, which he started out of a two-bedroom apartment at age 26 and which now has roughly $160 billion in assets under management. It was transcribed and therefore might contain a few typos. With some episodes lasting 2+ hours, it’s difficult to catch some minor errors. Enjoy!

Listen to the interview here or by selecting any of the options below.

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Tim Ferriss:  Hello, my little munchkins, boys, and girls. This is Tim Ferriss and welcome to another episode of The Tim Ferriss Show, where it is always  my job to deconstruct world-class performers to share the thinking, the habits, the tips and tricks that you can apply in your own life, whether those people come from the worlds of sports, from chess, from entertainment, and in this case, from investing. I’m very excited about this conversation you are about to hear. I had a blast. It is with Ray Dalio, who has been called the Steve Jobs of investing. We’ll get to why that is the case.

This is Ray’s first long-form podcast ever, which I am extremely happy to debut here. On Twitter @raydalio, you can say hello. He grew up a middle-class kid from Long Island. He started his investment company, Bridgewater Associates, out of a two-bedroom apartment at age 26. He now has roughly $160 billion in assets under management.

Over 42 years, he built Bridgewater into what Fortune considers the fifth most important private company in the United States. Along the way, he also became one of the 100 most influential people in the world, according to Time, and one of the 100 wealthiest people in the world according to Forbes. Because his unique investment principles have changed industries, CIO magazine is the one who dubbed him “the Steve Jobs of investing.” Very importantly, Ray believes that his success is the result of principles he’s learned, codified and applied to his life and business, and certainly at Bridgewater.

Most of these principles are detailed in his new book, Principles, subtitled Life and Business. I highly recommend this book. It has already changed how I think about making decisions in my life and in my business, how I think about managing, how I think about managing, how I think about communications between teams. I could go on and on and on.

Just check out the blurb from Bill Gates on the cover and it’ll give you an idea of the type of the people who listen to Ray very closely. In this interview, we cover all sorts of ground, including how Ray thinks about investment decisions, how he thinks about correlation, for instance, and so on, the books he would give to every graduating high school or college senior, how he might assess something like cryptocurrency, so walking through the thought process, and much more. We do get into his backstory and how he became an investor and so on. If you want to just jump into a bunch of nitty-gritty investing detail, which does get into the weeds, then you can jump about 90 minutes in. But we do cover a lot of really good stuff and many principles that apply in the first 90. I suggest that you listen to the whole thing, but if you’re super impatient and you want to jump around, you can jump about 90 minutes ahead and check that out. I hope you enjoy this as much as I did.

Without further ado, here is Ray Dalio.

Ray, thanks for coming on the show.

Ray Dalio: Looking forward to it. Thank you for having me.

Tim Ferriss: I have been such a follower and fan of your work and your writing. My audience has been asking when I would reach out to you to have you on the show. This is a very exciting moment for me. I would love to start at the beginning because it seems like we have some shared geographic beginnings. Where did you grow up and how would you describe your childhood?

Ray Dalio: I grew up in Hyde Park, Long Island. I would describe my childhood as being middle-class or maybe a little bit lower-middle-class family. My dad was a jazz musician. My mother was a stay-at-home mom. I was an only child.

Tim Ferriss: Were there any formative experiences you had up until the end of college that ended up informing your decision to become involved with investing?

Ray Dalio: Yeah. When I was a kid, I used to caddy. At the time, the stock market was hot. When I was 12, I got hooked on the markets. I bought a company that – everybody was talking about the markets and I decided I would take my caddying money and put it in the stock market. So I picked a stock, the only stock I knew that was selling for less than $5.00 a share. It was kind of a stupid idea, but I thought if I bought more shares and it went up, I’d make more money. The company was about to go bankrupt and somebody came along and acquired it and I tripled my money.

I was lucky and I was hooked on the stock market. That had a big effect. From then on, it drove my whole addiction to the game and everything I’ve been doing since related to my career.

Tim Ferriss: I think that many people who are listening to this who know your name and your bio have the impression perhaps that every time you’ve stepped up at bat, you’ve hit home runs. That it’s just been an unending streak of home runs. I’d like to humanize the experiences you’ve had a little bit by talking about 1982. I’ll back into it by reading just a short excerpt from your book, which I think paints a good picture. It beings with, “So there I was after eight years in business with no to show for it. Though I had been right much more than I had been wrong, I was all the way back to square one.

At one point, I’d lost so much money, I couldn’t afford to pay the people who worked with me. One by one, I had to let them go. We went down to two employees, Coleman and me. Then Coleman had to go. With tears from all, his family packed up and returned to Oklahoma.”

At that point, you were down to one employee, that’s you. To make ends meet, you had to borrow $4,000.00 from your dad until you could sell your second car. How did that happen? Could you describe what happened that brought you to that point?

Ray Dalio: Let me first say that, by the way, I’m a professional mistake maker. Being in the markets or being an entrepreneur requires one to bet against the consensus. When one does that a fair amount of times, you’re going to be wrong a fair amount of times. I’ve learned a lot more from my mistakes. I just want to let you know that any perception that being right is part of it, no. The main thing is knowing what you don’t know and how to deal with it. But anyway, what happened at the time was that I analyzed the payments that countries owed banks and I calculated that those countries were not going to be able to pay the U.S. back. It was a very controversial view at the time.

As a result of that, I took positions in the markets. I got a lot of attention because Mexico defaulted on its debt and not many people had expected that and I did. I had these positions on. I thought we were going to go into a depression. I thought the stock market was going to go through the floor. I just didn’t understand really. The stock market rose. This was after I had testified to Congress and I was on Wall Street Week. Then I’d lost the money that you referred to. That’s how it happened. In retrospect, it really was the best thing that ever happened to me because it gave me the humility that I needed to become more successful. That was because I shifted my attitude from thinking I’m right to ask myself, how do I know I’m right?

That opened my mind a lot. It made me look for people who disagreed with the smartest. It also made me manage my risks better and so on. That’s the story.

Tim Ferriss: I’d like to dig into mistakes. I think this will be a common thread throughout the conversation. I have read, and correct me if I’m wrong, but that you’re a fan of, for instance, the book Einstein’s Mistakes. Subtitled The Human Failings of Genius. He was one of the great minds of the 20th century and made a lot of mistakes. You have an expression – “Pain plus reflection equals progress.” My understanding is that at Bridgewater you have, for instance, lengthy assessment sessions in which employees discuss their mistakes. What type of post-mortem did you do after all that happened in 1982? Or did that come later, the type of post-game analysis you would do on what led to that mistake?

Ray Dalio: I think for everyone, and for me at the time, when you encounter the mistake, you experience that pain, an emotional pain. That was true for me at the time. Then the pain passes and it requires thought and making the connection of what did I do wrong? And being analytical about it. That was that experience. That led me to do that as a habit. It became an increased habit. I would literally, every time I would make a mistake, I would develop an instinct. So it changed my attitude about mistakes.

I think basically they became like puzzles. If I solve the puzzle, the puzzle being what would I do differently in the future, I would get a gem. That gem would be a principle that would let me do a better job the next time that sort of thing came about.

I wrote those principles down and refined them over a period of time, which is what makes up my book. But it was that process of making enough mistakes and having painful mistakes that led to an instinctual reaction to having reflections on what I could’ve done differently that led to the progress that I’m referring to when I say “pain plus reflection equals progress.” I think we all learn. I don’t think it’s particularly just true of me. I think anybody who’s openminded and smart knows you’re going to learn more from mistakes. There’s so much more you can learn from mistakes.

Mistakes, look, first of all, they’re giving you a loud signal. Rewards keep you doing the same things, and so you don’t grow from successes.

Successes keep you doing the same thing, so you don’t grow from successes. But mistakes, if you can deal with them in the right way is where the growth plus the reflection is where the growth comes from. Anyway, that’s what happened

Tim Ferriss: Could you give an example from your life of a particular mistake and how you did that analysis or reflection after the fact and what you learned from it?

Ray Dalio: I mean, there are just so many mistakes. When I was just getting out of college, I clerked on the floor of the New York Stock Exchange. This is when the dollar was attached to gold. It was a financial crisis. Richard Nixon gets on the television and says there’s no more attachment to gold. Back then, money was like checks in a checkbook that didn’t have much value.

What mattered was the fact that you could get something tangible in the form of gold that you can make the conversion. It was a crisis. Our money wouldn’t be taken in other countries and so on. I walked on the floor of the New York Stock Exchange expecting a collapse and the stock market went through the roof. It never happened to me before. That was the case and I went and researched currency declines in the past and I learned that it happened before, but just not in my lifetime.

One of the things that I’ve learned over the years is that many surprises come because things that happen as surprises never happened in one’s lifetime before. It’s advantageous to look beyond one’s lifetime and beyond one’s own experiences to understand how the world works so that one can anticipate all of those things and learn all the rules of how the world works. That’s the beauty of it, right?

That’s the excitement. To learn how does reality work? What are the cause/effect relationships and then how do I deal with my realities? That’s a case. But there are so many mistakes.

Tim Ferriss: I would like to dig into the research of history; things that have happened outside of your lifetime. Because I read that, for instance, while on one hand, you have Soros, who might credit the influence of Karl Popper, who is one of his teachers at one point. You’ve talked about diving very deeply into past periods of economic upheaval, the Great Depression, or reading daily newspapers from those eras. Are there other practices or approaches that you’ve taken to examine history? Are there any particular types of books or resources that you go into like that to try to get a better picture of reality?

Ray Dalio: Before I deal with the particular economic history, I’ll start off by saying I believe that basically everything is another one of those. In other words, almost everything happens over and over and over again through history. The key to success is to identify what one of those it is and to look how it’s worked in the past many times. Then to understand the cause/effect relationships to develop one’s principles for dealing with it. It could be applied to anything. We were talking about economics.

To talk about politics, nowadays we’re hearing the term “populist.” Populism is something that is a bigger phenomenon than we’re used to in our lifetimes. The time that populism was flourished the most was in the 1930s. Pretty much leading up to World War II. I use that as an example.

I think okay, where were the populists in history? Where were those cases? How does this thing happen? How does it grow? How does it develop? What are the usual linkages and why? That’s been, I think, very helpful more recently in my understanding quite a bit about what’s going on. It’s affected my perspective. It doesn’t have to be just reading history books. It’s in anything. People have a new child and they treat it as though that’s the first time that anybody’s had a child. But to gain perspective, you can apply it – gain that perspective of what’s happened over and over.

It could be applied to anything. If you start thinking that way, it’s radically beneficial. So that way, when I’m referring to that, is in other words what is this? What one of these is it? How do those things work?

What are my principles for dealing with it? Then life is a whole lot easier. If you’re not dealing with it that way, everything is a one-off. You’ll be in the middle of a blizzard of things and you won’t step above those and deal with those instinctual principles. For example, you have your principles. I really admire your stoicism. I think you could rattle those principles off and you make the connection. It’s connected to your realities. We each have our own. I don’t want to keep it in the realm of just economics because it applies to everything.

Tim Ferriss: Definitely. I would love to talk about problem-solving and I’m sure principles will tie in here. Let’s just say hypothetically, and I’m sure this is maybe a real case at Bridgewater over many years. If you have someone who’s working at Bridgewater, very smart, very ambitious, and they’ve made a mistake.

They enter an assessment session. What does the format look like? How do you help them separate symptoms of problems from the root causes of the actual problems?

Ray Dalio: I think the first thing I have to convey is that we have an idea of meritocracy. It’s not like somebody is called into a room and the people like me or the bosses think that they know the answer and that they’re making an assessment of how that person is. Then they write down those notes. No. Everybody’s equal in having an opinion. By and large, if the person that’s receiving – they receive great and bad feedback. I receive great and bad feedback in a non-hierarchical way. We approach it with the idea of how do we find out if it’s true?

So it’s got to be evidence-based. Then we will set up tests. Let’s say if you get bad feedback. We’re talking about bad feedback. It could be for good feedback. But if somebody’s thinking somebody’s not very good at something, they’re speaking honestly. Most importantly, it’s that people can be radically honest with each other. They’ll say, “I don’t think you’re very good at that.” They said, “I am very good at that.” Then you go through a series of tests to think it’s evidence-based to try to find out if somebody’s good or bad at that.

Then you move beyond it to think okay, what can I do to get better or how can guardrail myself so that if I’m weak at something and somebody else is strong at that thing, we can work together? The main thing here is to get at what people are like. To me, it’s a weird world that there’s a phobia about making mistakes.

There’s a phobia about knowing one’s weaknesses. Mistakes are part of the process. Everybody has weaknesses. The greatest people I know have weaknesses and have become successful because they know how to compensate for the weaknesses. They’re aware. The stupidest people I know, least successful people I know, are people who don’t own up to those weaknesses and grow. The exercises that we’re going through are by people who choose to want to be in a radically truthful or radically transparent environment and be evidence-based. But it’s difficult.

It’s difficult because we’re not brought up that way. It takes about 18 months to get used to because there are these subliminal reactions.

Tim Ferriss: Now maybe this is related to the pain button app and maybe not. But could you describe the function of the pain button app and why that was created?

Ray Dalio: Yeah, it’s like I said. Pain plus reflection equals progress. Whatever your form of pain, the best thing to do is to record it. So this app, the way it works is as you experience psychological pain, you just quickly log it. You don’t analyze it at the time, but you capture it. What was it about or who was it with and what happened exactly? The nature of psychological pain is that it passes fairly quickly. The amygdala, this part of the brain, is the part that’s the fight-or-flight part that gets adrenaline and it reacts quickly.

Over a period of time, whatever the form of psychological pain, it diminishes. That’s an opportunity to reflect. Because it’s been captured in the app, it then can allow somebody to go back and reflect on that.

And reflect on what you should do about it when the next one comes along. Is it speak to the person who caused you the pain? Whatever it might be. You write that down and you record it and because it keeps in a graphic way a presentation, it graphs your pains, the different types of pains and the causes, it gives you a biofeedback that allows you to see if your actions are reducing that pain and that might prompt you to change your actions, or it also shows whether you’re following through on your actions.

Let’s say you’re having a problem with the same person, doing the same thing causing you pain, but you’re just bottling it up, then if you choose to keep bottling it up, you’re not going to resolve it. It’s just going to happen over and over again. That’ll show up in the graph. But if you do something about it and you write it down, you can analyze it.

It provides that kind of biofeedback that allows people to make that progress. A lot of people have told me that it’s better than the psychologist because it’s there every day of the week and you can see yourself. What’s causing your pain? What sorts of pain do you have? It makes it an intellectual exercise to come up with strategies to do those things that stop causing you those pains and get you what you want.

Tim Ferriss: For developing, in addition to using this type of logging tool, whether it’s the app or if someone’s carrying around a small journal with them so that they don’t misremember the details of when they’re triggered, for instance, are there any tools that you have found helpful for people in general? Employees, yourself?

One that comes to mind, maybe you could chat about it and I’d love to hear about any others, but is transcendental meditation. I’ve read, for instance, that you’ve said, “Creativity comes from openmindedness and centeredness, seeing things in a non-emotionally charged way.” Could you talk about TM and any other tools that you have found to complement the pain button?

Ray Dalio: Yeah. Let me say the tools, in general, we have developed a whole bunch of tools that would be fun to explain to you in all different ways that are constantly being used. They’re just invaluable. They’re great. But I want to turn my attention to transcendental meditation, which unlike an app-type tool or some other kind of tool, is a practice that I’ve been doing since 1969. A long time.

I think it’s worth noting that everything in our brain, every emotion we feel, is physiological. There are chemicals that go through our brains, electronics that go through our brain. They produce these impacts. Transcendental meditation is a practice that takes one from one’s conscious mind into almost a subconscious state. It allows one to relax and it’s almost a blissful experience. It relieves all stress. It brings one into the subconscious mind. Through brain scans, they see that the amygdala, which is that fight-or-flight part of the brain, calms down. In some cases, they conjecture that it physically changes.

The pre-frontal cortex part of the brain, which is kind of that more thoughtful part, lights up and is enhanced. That practice not only creates an equanimity but by bringing one into the subconscious part of the brain, it significantly enhances the creativity. It essentially opens a passage from the subconscious to the conscious so there can be a reconciliation of those. It’s really from the subconscious where creativity comes from. If you think about it, one doesn’t go muscle creativity like doing a mathematical collection or something. It’s really like if you’re ultra-relaxed, maybe you take a hot shower, and these great ideas come to you.

Or you’re sleeping and these things pop up. They come from your subconscious part of your brain where the intuition comes from. So by opening that passage, essentially, because of the subconscious part of the brain and the conscious part of the brain, it’s wonderful.

It makes one more creative. It makes one calmer. It makes one almost a little bit like a ninja in the sense that everything with that equanimity seems to be coming at you in a more controlled, centered way so that you can react to it well. I’ve found transcendental meditation to be invaluable.

Tim Ferriss: The specifics here are of great interest to me, for a number of reasons. The first is that I practice a few different types of meditation. But I did a TM session this morning, for instance, for 21 minutes because I find it takes about a minute for me just to stop fidgeting and get settled, but when do you typically – do you do two sessions a day? When do you typically do your TM? Do you have a particular location? Any specifics of that practice would be very great to hear.

Because TM has come up a number of times and I find it very secular, which appeals to me, from people like Rick Rubin, legendary music producer, Chase Jarvis, extremely accomplished photographer and CEO. What are some of the details of your practice?

Ray Dalio: Well, I think one of the things is not to worry about the details too much, just do it. But the best way to do it is you do it before breakfast and you do it before dinner, having not eaten much or not eaten. You do it for the 20 minutes as you point out. And that you do it for twice a day. That’s the established practice. I basically do it – let’s say sort of two-thirds of the days and I would say I probably maybe some days will do it once and not twice, but I also always do in, in addition, whenever I have that feeling of doing it.

As a meditation, you probably know that you can feel the difference. So as you’re going through the day, you carry through almost an ability to shift yourself from a state of mind where there might be a twinge of anxiety and then you can bring yourself into that equanimity type of state. But you also, I also find that there’s a time when I say, “I need to go meditate.” Then I’ll just meditate. I’ll meditate where I can and when I can. I prefer a quiet place, comfortable spot. I’m not rigid about the location. But if my circumstances were standing in my way, I would meditate on a plane. I would meditate wherever I could. If it was noisy and I was on a train, I would still meditate.

The meditation may not be as deep. It won’t be as deep. But it is so good. It can be noisy outside and I can still go from one state to another. Not the deep subconscious state, but the state of tension to relaxation. That’s how I do it.

Tim Ferriss: For those people who aren’t familiar with transcendental meditation, it’s thought of as mantra-based meditation. It’s typically characterized by the repetition of a mantra or one or two syllable sound that you do not say out loud. Do you sit down and immediately go into the repetition of the mantra or do you take time to focus on your breath or your bodily sensations before you go into the mantra repetition?

Ray Dalio: I take a few minutes to settle myself down, just as you’re describing. It feels good at that moment and then you go enter it.

Tim Ferriss: Got it. You mentioned before we delved into the TM, other tools that you and the people at Bridgewater have developed. I’d love to hear you describe any of those.

Ray Dalio: Those tools are – people carry around an iPad with them. Whenever we got into meetings, there’s a tool we call a dot collector. It’s a very easy tool to allow people to express what they think is going on and how people are doing. In all meetings, there’s this data that’s collected that shows what everybody is thinking while the meeting is going on. Now, it’s invaluable in many cases because you’re seeing what everybody’s thinking. So it’s so different.

In an ordinary meeting, it’s silent largely. There’s one person speaking at a time. You don’t know what the other people are thinking. In this particular case, what you do is all the time you see how people are seeing things differently. What we do is take that data as it’s happening – the computer does. We have it programmed with algorithms that will look at that data and will then communicate back the advice. This computer mind will then use that to know how they think differently.

By the way, it’s enlightening. You would have no idea how differently people’s brains are working in a meeting or work in general. The things they pay attention to. The way they interpret it is startlingly different. They have the same kind of patterns to them.

That discovery allows people to know how they see things differently and appreciate how other people see things differently. Then when they take that, that allows them to know how to interact better. The computer, through this iPad, is doing processing in the background. It will then also coach them. In other words, when they’re dealing with somebody else, it will provide guidance. It will provide feedback that’s continuous. It’s a tremendous tool because you know what everybody’s thinking.

It’s analyzing how everybody’s thinking, provides that feedback, and gathers information across all of those people and processes it by being able to see relationships that no one person sees. It’s invaluable in an idea meritocracy. We also use it for making decisions. We do something we call believability weighted decision-making.

Tim Ferriss: If you could elaborate could elaborate on that, I’d love to hear more about it.

Ray Dalio: Well, you want to have an idea meritocracy. If you and I were partners and we had a group of people and we were partners, how are we going to decide on the best things to do? Idea meritocracy is when the best ideas win out. You have to have rules for doing that. You have to have procedures. There are three things you need to do. The first is that you have to put your honest thoughts on the table. A lot of people are hesitant to do that. They keep their honest thoughts back.

But if you have a culture in which you can put your honest thoughts on the table and everybody does and that’s the way it operates, now you see what people are really thinking. Great. That’s a good first step. The second step is you have to have thoughtful disagreement. You have to know the art of thoughtful disagreement.

There are processes that we go through in which people are really hearing each other and, as you go through that process, to make better decisions than they could individually. Then the third thing is if disagreements remain, you have to have idea meritocratic ways of getting past that agreement. So how are you going to do that? In most places, it’s either autocratic or democratic. Autocratic means the one with the power makes the decision. The boss makes the decision.

Democratic is one man, one vote, and it treats everybody as though they’re equally valuable. We do what we call believability weighted decision-making. Let’s just imagine what it is before we get to how we get to it. Imagine you knew each person’s believability.

Who’s a better decision maker at what. I’ll use an example. If you had a medical condition and you went to doctors and you had a friend, you would know your doctor’s better than your friend and some doctors are better than other doctors. So consciously, you’re probably weighing those decisions with consideration given to their believabilities. In our place, we have ways of determining people’s believabilites in many different dimensions.

Maybe if it’s an accountant, they would have greater believability in accounting or maybe if it’s somebody who is more creative, there are more points that they actually get and know that person’s more creative. Somebody else might be more reliable and would work well with the person who’s creative. Because we have this believabilities according to all those dimensions, when we make a decision, we make a believability weighted decision.

We literally, on the iPad, say, would you do this? Then everybody votes and it calculates what the vote is on a believability weighted basis, as well as on an absolute basis. That idea meritocracy not only produces better decision making, but it also produces a fairness that everybody believes that the system is fair. That is invaluable because when you have disagreements or you even have assessments, which people are sensitive to, and you do that in a way that everybody agrees is fair, that means that they will go along with it more. The game is fair. It works much better in getting past disagreements. As I said, the third step is how do you get past the disagreements if they remain?

We try to do that in an idea meritocratic way through believeability weighted decision making.

Tim Ferriss: What are some of the rules or guidelines that you have for preventing disagreement from devolving into highly emotionally charged fighting? In other words, is it similar to non-violent communication? Are there specific rules that you think perhaps listeners could also borrow that you’ve found to be very helpful for thoughtful disagreement?

Ray Dalio: There’s a whole series of protocols. For example, there’s what we call the two-minute rule. Two-minute means that if I say the two-minute rule, I’m allowed to speak for two minutes without an interruption. If you say the two-minute rule, you’re allowed to speak for two minutes without an interruption. There are protocols like you repeat what the person is saying.

You must repeat what the person is saying and the points they’re making so that is demonstrates that you’ve taken in and understand what they’re saying. Then you repeat it. We allow disagreement to take place in different formats. It might, rather than being in person, if somebody maybe is too emotional in the moment or maybe they’re not good at thinking on their feet, we allow that disagreement to take place in a format that’s essentially the equivalent of email exchanges. In other words, written format.

Anyway, there are a bunch of those kinds of procedures. They mutually agree on who an arbiter is. In other words, whenever there’s a disagreement that you can’t seem to get by, as a standard practice, the protocol is to say let’s find the person we can agree who will be a moderator and help us through that.

Because they mutually agree on that person, then the rules are fair and it’s an easy thing to do. There are many of those types of protocols that we use. It’s also culturally like a big faux pas or a big thing to lose your cool in that way. Culturally, okay, maybe you need a time out. All those things enter into it.

Tim Ferriss: Those are very helpful and actionable. I’d like to look at the dynamics of making decisions as a solo operator or close to solo operator, just as a complement or a contrast.

If we flash back to when you first began Bridgewater Associates. Out of your two-bedroom apartment at 26 years old. Do you recall any of your first big wins or things that you considered big wins at the time? I’d love to just hear you describe what made those a big win. In other words, the thinking behind it.

Ray Dalio: You know, the funny thing is, I can hardly ever remember my big wins. I do remember my big losses or my big mistakes.

Tim Ferriss: We can talk about those too.

Ray Dalio: It’s so funny because I look at it and I say well, I guess I must have had a bunch of wins or successes because of how things have gone. The business is good.

I’ve done well and all of that. But I think of my history and I really think of those mistakes. I think that’s so great because it shows that’s a much better learning tool. My big wins. The things I remember were the fun things. The guys I played rubgy with, parties, and those kind of things. I don’t remember a particular big winning. Well, I do remember some things. I remember one time when we got the Kodak account. Again, I was in a position, okay, here’s a guy and he’s analyzing the markets and then he has a small team of people who’s analyzing the markets. I didn’t have a long track record.

I didn’t have an institution. I was competing with the big institutions of the world – the J.P. Morgans and everybody. By the way, we beat them. Anyway, what shows is that the power is within the individual. But anyway, I remember when we got the Kodak account because at the time Kodak was a big, important client. Them giving us that account was a big deal for us because it was a stamp of institutional approval. I remember the money mattered too because we would know that we were a bit more financially secure. So I remember that as a big win. I remember it so terrifically because we were asked to submit research information. We were just a small team of people.

We stayed up all night with pizza and beer and all of that. I remember it so sweetly because it was the dream of making our miracle happen and pulling together. That’s the meaningful relationships part. I believe that I want meaningful work and meaningful relationships. That was that was about. We got the account and we won and that was a big deal.

Tim Ferriss: Why did you guys win?

Ray Dalio: I think it’s a combination of being totally unconventional and having better processes and then there’s a hell of a lot of determination. I think three things make up a successful life by and large. First, you have to have audacious goals. Big dreams. Then when you are headed toward those goals, you’re going to have problems.

You’re going to deal with reality. You have to have to deal with those problems and that reality realistically, learning from mistakes, writing down those principles and the like. That’s the second part. Dealing with reality in a practical way where you learn about mistakes. Then the third is determination. Because if you’re going for your goals and you’re encountering your mistakes and you’re learning and you do that with determination, you’re going to get better all the time. You can’t help but get better. You do that a long enough amount of time, and you’re going to far exceed your dreams. My successes far exceeded what I imagined, one bit at a time. It’s just that process.

Tim Ferriss: If you were to conversely look at intelligent people who are unhappy, what do you think the primary causes of that unhappiness are?

Ray Dalio: I think it goes back to this notion of meaningful work and meaningful relationships. Intelligence and happiness probably have no correlation with each other. In studies, it’s repeatedly been shown and money is very little correlated with happiness. The highest correlation with happiness is community. Am I part of a community? Do I feel connections with other people? That’s been literally genetically programmed into us – it’s estimated between a million and two million years ago before we were even mankind.

That sense of meaningful relationships I think is very important. If you have meaningful work, like you’re on a mission, and you have meaningful relationships, I think it’s almost impossible not to be happy. There will be unhappy moments in your life that you encounter thing or that thing, but the people who are unhappy seem to be missing those things.

Tim Ferriss: I think this might be a good place to give listeners a little bit of background that they probably don’t have, which is a conversation that you and I had that I really appreciated when I was very nervous at TED not too long ago, doing a rehearsal of my talk, which explored some of my experiences with manic depression and even a close call with near suicide in college. You were very kind. You came up and spoke to me after I came offstage. I was hoping, perhaps, you could talk about some of what you shared with me and perhaps your son’s experience and what he’s found helpful in mitigating some of these darker or harder moments that he’s also had.

Ray Dalio: Sure, I’d be happy to. I should say that when I described unhappiness in answer to your prior question before, I was not dealing with what also is clinical depression, which is also a different thing. It is a chemical reaction having to do with serotonin and dopamine coming in spurts and sputters and so on. There’s a physiological element that is driving it. That’s a big thing. My son, when he was about 27, filmmaker, very creative, was in his new job in Los Angeles, very excited. He stayed up all night, smoked marijuana, partied all night, very energetic.

He basically went crazy. At the hotel, he took the computer that was at the reception and smashed it. The police came. He was rebellious. They beat him up and so on and so forth. We then began our journey through three years of his bipolar episodes. That was incredibly difficult and eye-opening. In retrospect, a wonderful experience. Some of the most painful experiences in retrospect give you an appreciation that you wouldn’t otherwise have. That was that experience. Ask your questions pertaining to it. I’d be happy to tell you.

The quick answer to this, by the way, is he did things right eventually. He did a long of wrong things in between. But he came out of that three-year period and he became a successful filmmaker. That first movie he made was called Touched with Fire, which was a love story with Katie Holmes on bipolar. He has, through that movie and his speeches and so on, we know, saved a number of lives and also really helped to destigmatize that because those with bipolar are often very creative people. I learned that creative genius is at the edge of insanity. Anyway, what questions do you have about that experience?

Tim Ferriss: I’d love to hear what your son has found to be helpful in terms of tools or resources, approaches, routines, anything that he has found to help him better navigate and manage everything that is part of his makeup, I suppose, much like it is part of my makeup.

Ray Dalio: Sure. There are these really four protocols. I gave him a St. Christopher medal. On the back, I put the initials of those four protocols so that he would keep it close to him. So I know them well. First of all, the first one is T.M., those are the initials. That represented “take medicine,” and by the way, the amount of medicine that he’s taken has, because of his improvements and so on, has diminished quite a lot. But “take medicine.”

It also represented T.M., transcendental meditation. Do the transcendental meditation and take the medicine. No drugs or substance use, none. Be clean. Go to bed never too late. It’s not a matter just of eight hours sleep. We have our rhythms that basically go to bed by 11:00 and maybe once a week you can be up to 1:00 in the morning. And then what we call monitoring. Monitoring is much less important to him now. But at the time, his being open about his bipolar and having people around him know and actually monitoring his behavior so that they can raise a red flag and help him deal with that if he was going in one way or another. Those were the things that were very helpful.

In addition, have to be very careful about changing time zones. So if you’re flying to Europe or far away, you have to do that in a way that you pace it so that it doesn’t get triggered. As I said, he went through this. He’s now one of the most centered people I know. Happily married, given us two grandkids. It’s just been a miracle. I really do believe it’s that combination. He’s learned and shown other people that combination can work for anybody.

Tim Ferriss: That’s extremely helpful and valuable for a lot of people listening. I want to reiterate something that you mentioned because I only realized it in the last maybe two years. That is going to bed earlier. I’ve always been very nocturnal, a night owl. Particularly on book deadlines and so on, going to be at 4:00 or 5:00 or 6:00 in the morning and waking up very late.

That has historically absolutely been correlated with a much more severe and extended downtime. I do just want to reiterate what you said, which is that going to bed by 11:00 has, for me at least, been extremely helpful in mitigating a lot of what we’re talking about.

Ray Dalio: By the way, it is so great that he is open and you are open and you can communicate it. I found out – do you know that 24 percent of the population in one form or another has been diagnosed with some form of mental illness? Some form of challenge. The brain is an organ and it has those things.

Some of the most creative people – you wouldn’t know that Abraham Lincoln and Winston Churchill and Tchaikovsky, the list goes on and on of unbelievably great, brilliant, creative people, simultaneously been challenged by this. By making people aware, in one dimension or another, whether they’re dealing with somebody who has such a challenge, or to destigmatize it and realize – like I look at you – what a role model you are. By being open about that particular challenge, people can really appreciate that. We have a number of bipolar people who work here and when you know how to deal with it, there are tremendous advantages to it too. Because it’s a way of thinking.

There are these mood shifts. But also an unbelievably high percentage of those people are creative, certain professions and so on. But anyway, I just want to compliment you or express my appreciation for you having this conversation and being so open with it. I’m sure you would say, as my son would, it’s very helpful because when everybody around you understands it, it’s helpful to you too.

Tim Ferriss: It is helpful and I really appreciate the kind words, Ray. I should also mention that for decades, I kept this secret and close to the vest. I was very ashamed of just the nature of how my physiology worked ultimately. I was so fearful about talking about a lot of this publicly.

Even the TED talk was – I had a very separate, very different TED talk that I scrapped a few weeks beforehand because I felt morally obligated to talk about this more publicly. In doing so, I felt quite the opposite of what I feared. It was actually an enormous burden and weight lifted off of my shoulders. It’s really been liberating to talk more freely about it.

Ray Dalio: I understand that completely because that’s what my son does. That’s my son’s reaction. If you want to talk about it in a more serious way, I’m quite an expert on the whole thing. The best doctors. I really believe that I could probably be of some help if you feel that it’s not entirely under control.

Tim Ferriss: Thank you. No, I appreciate it. To segue a bit here, so I absolutely appreciate the offer and that’s something I’ll remember. You seem like a very astute cultivator of talent.

What I’d love to know if there are any particular mentors of your own who you could describe or share with us. That could be very early on. It could be in your investing career. Any mentors who come to mind and what they taught you or helped to cultivate in you.

Ray Dalio: I remembered nice, kind people. Not a mentor. I couldn’t go to a mentor. But I remember somebody who, when I was caddying and he was clerking on the floor of the New York Stock Exchange, a very successful Wall Street guy and I used to caddy for him. We would talk about markets. He gave me not only advice, but there were the kindness and the caring and the direction that were helpful.

I don’t know that he was an ongoing mentor, but he was a role model in many ways and did provide guidance, so maybe he was. But not an ongoing mentor. I remember teachers that served that role. But not much. Most of my learning has been from mistakes. I have a terrible rote memory, by the way. I mean, terrible. Anything that doesn’t have a reason for being what it is, I practically can’t remember. I can’t remember phone numbers, names, anything along those lines. I tend to learn not by being taught or going to my memory. I learn through my experiences and my more subliminal learning.

Tim Ferriss: It seems also that you’re well-read. I’d love to actually just go back for a second to Einstein’s Mistakes. When you pick up a book like that – two questions. No. 1, how did you choose that book or find it? No. 2 is how do you read? What is your reading process?

Ray Dalio: The book was given to me because people know that I like that stuff. The way I read, it depends on what I’m reading. But I will skim – and it depends on how much time and a lot of things. But generally speaking, I’ll try to go through a book pretty quickly by being able to sort out what the main ideas are from the digression. So there’s a little bit of a strategy. You know they’ll tell you the story and the story might go on for a while? It then gets to the point they’re trying to make. When I’m going through the stories, I might go quicker. I might be scanning for the top of the paragraph to get an idea what they’re doing and then go into the section that I’m most interested in.

I would say I would be typically reading that way unless it is something in which it’s not that sort of a book. That there’s either something where I’m enjoying the flavor of the wording and the sentence structure and the beauty or the thoughtfulness and that I really want to take that in and I don’t want to scan. I like to get the most out of each book as quickly as I can because the number that I’m trying to go through is comparatively large. I’ve got a pile of books here sitting in front of me. They torment me. I’m very curious. I would say curiosity is a big motivator of mine.

The world has got much too much to offer relative to my capacity to digest it.

Tim Ferriss: What are the books that you currently have in front of you or that are sitting there like undone homework assignments? What do you currently have on the roster or potential roster?

Ray Dalio: I have Sapiens. I have The Greek Hero. Michael Lewis’ The Undoing Project. The Upside of Inequality. The Serengeti Rules. From Bacteria to Bach and Back, which is about the evolution of the mind. A Magic Web. There’s a whole pile over there.

Tim Ferriss: This is fantastic.

Ray Dalio: I do mostly original research. In addition to looking through books and going through it, I really like to get into the data. I’m a researcher, basically.

Tim Ferriss: Is there anything that you’re researching right now or that you’ve researched recently?

Ray Dalio: The bottom 60 percent of the population and what the world and life and the economy are like for them. There are two different economies in the world. The averages are very misleading. The top 2/10ths of 1 percent of the population has a net worth which is about equal to the bottom 90 percent combined. I’m researching more about what that’s like. It’s quite a bleak, difficult picture. That’s the thing I’m researching right now.

Tim Ferriss: What drove you to research that? Is it just to understand the implications and secondary and tertiary implications of that? Or was there something driving that?

Ray Dalio: I think right now we’re in the midst of an era that’s very much like the ‘30s, in which this wealth and opportunity gap and the populism that’s coming from it and the divisions which are great, I mean, large, is a defining moment of our time. This exists around the world. If economies were to go down now, I do believe that there would be a great deal of conflict. I think that we’re seeing the conflict play out politically, not only in the United States, but you’re seeing it in different places or interactions.

I think it’s the defining issue of – maybe that’s overreaching – but it is certainly one of the most important issues of our time and I mean this year, next year, the year following. Because that’s the basis of which are we going to have a conflict or where one side is fighting the other side.

This is a matter of principles. We’re talking about principles again. Are the principles that hold us together as Americans greater than those that divide us? How are we going to be with each other? This understanding of all of these perspectives I think is very important at the time.

Tim Ferriss: I’m definitely going to come back to a related thread on that. But before I get there, I wanted to ask you, of the books that you mentioned that you were not gifted, how did you or why did you choose any of them? Like The Greek Hero, The Undoing Project, Sapiens, From Bacteria to Bach and Back. Any of those. Why did you choose them?

Ray Dalio: I would suppose that each one is different because of the themes of interest. I’m fascinated by evolution. I think evolution is the greatest force in the universe. The purpose of everything is to evolve. We, as individuals, are just vessels for our DNA that’s evolving. I’m fascinated with evolution. I’m fascinated with how the brain works. The Greek Hero is very interesting in terms of – one of the great books is Joseph Campbell’s The Hero with a Thousand Faces, which takes the character going through life and what are the attributes that different people have. So differences in values. It’s an eclectic group of interests. I’m interested in nature a lot, so I tend to – I’m also particularly interested in the ocean.

I will read about nature and the ocean. These are just curiosities but they become themes, I guess. I’m not interested in cooking. I’m not interested in a whole bunch of things. So they do come in these categories.

Tim Ferriss: Are there any particular books that you could mention? Don’t worry, I won’t belabor the book stuff forever. Any books – you mentioned Joseph Campbell – that have had a strong impact on your life or your thinking? Maybe a way to frame that would be, if you were – and certainly one of the books in answer to the question I’m about to pose could be your own, certainly – but if you were to give every graduating senior in college or high school a handful of books, what might you give them?

Ray Dalio: The books I’d give them would be The Lessons of History.

This is the Durants. They were maybe the greatest historians of all time. The wrote 5,000 Years of History, and they probably wrote 5,000 pages on it. They took this book, I think it’s 104 pages, they took the themes of history. It could be from religion, natural resources, who knows, each one of these things. They looked at it for themes of history through history. I think that would be great. River Out of Eden, by Richard Dawkins. Another very short book on evolution. It just really puts things in perspective.

Again, I would say Joseph Campbell’s The Hero with a Thousand Faces. Those would be the three books that I would say that would be the combination. The beauty of particularly two of those books is it’s not going to take long to read them.

The Hero with a Thousand Faces is a little bit dense, but it’s so rich, it’s a good one.

Tim Ferriss: I need to get on buying those as soon as we get off the phone. Why is it – and maybe this isn’t true across the board, but whether it’s in early-stage startups or in the realm of hedge funds or [inaudible] structures or asset management, the best investors that I’ve met almost all have a fascination with evolution. Why is that?

Ray Dalio: Don’t have a clue. I didn’t even know that.

Tim Ferriss: Okay.

Ray Dalio: I didn’t know that.

Tim Ferriss: All right. Then we don’t have to dwell on it. For whatever reason, it just seems to be a pattern. There are a few maxims that I’d like to ask you about.

If these are misquoted, please correct me. The first is “Ask yourself whether you’ve earned the right to have an opinion.” Can you elaborate on that?

Ray Dalio: I mean, yeah. All you want is the right answer, right? There’s such a bias to think that just because you have an opinion, that it’s valuable. That’s really stupid. Right? It’s like in everything, you just want the right opinion wherever it’s going to come from. So if you gain humility, I believe that one of the greatest tragedies of mankind, individuals, is to hold wrong opinions in their head that so easily could be stress-tested to find out if they’re right or wrong.

If you can sort of give that up and think, how do I know I’m right? You’re going to significantly raise your probabilities of making better decisions. That’s the big thing. There are only two things you need to do in life in order to be successful. First, you need to know what the best decisions are. Second, you have to have the courage to make them, to do what’s necessary. On the first, the greatest problem is that people just look inside their heads for their opinions where they can really get rid of the bad ones and take the best that they can get elsewhere.

By doing that, by exploring different people’s views, not just their conclusions, but the reasoning behind their conclusions, they can learn such a tremendous amount.

We talk about books, well, the conversations are much better than books. You can have those conversations and learn when people have differences and just pick the best opinions, right? Isn’t that sensible?

Tim Ferriss: It’s definitely sensible. What are some good questions that someone can ask to explore someone’s reasoning behind their conclusions? It’s so easy for people to become charged. Are there any good questions? For those people, the vast majority are not going to operate with a Bridgewater Associates. What are some good ways to explore or investigate someone else’s reasoning behind their conclusions?

Ray Dalio: I think the real driver of it is when there’s a difference of opinions. Do you have a real curiosity to understand why?

It’s really through the fear of being wrong combined with the curiosity of wondering why somebody would have another opinion. That becomes the motivator. You kind of ask why and do you think that makes sense? Then come back with other questions. I think most people too often start with an opinion. There are psychological tests that show that people start with an opinion and filter information that comes to them to be consistent with their opinion.

Tim Ferriss: Then you’re not living in reality, you’re living in an illusion of confirmation bias, right?

Ray Dalio: Right. Besides being so damaging, it’s so much less enriching.

Tim Ferriss: I think this is related in a sense maybe to another maxim that I’d love for you to elaborate on, which is “Don’t pick your battles, fight them all.” What does that mean?

Ray Dalio: That’s one of the most misunderstood so I’m glad you asked me about it so it’s clear. Many things are symptomatic. Little things are symptomatic of bigger things. Under that principle, it explains if somebody’s behaving and you think that’s not a big thing, but you don’t understand why somebody would do that. It may be symptomatic of a bigger thing. It’s almost, I might say, pull every thread. As you start to pull the threads, you start to see the connections.

Because you’re trying to get at what everything is symptomatic of. That’s what you’re really trying to get. What is the person like? What is that situation like? Why would it manifest itself that way? It’s probably a principle that throws people off and I probably haven’t articulated it very well.

Tim Ferriss: What are some of the biggest challenges that you’ve had within Bridgewater at different phases of its development? Were there any particular forks in the road that are memorable to you where you had to improve or fix something?

Ray Dalio: I’d like to start with the overarching challenge that is a constant challenge. Then we can go back to some of the actual various forks in the road. The overarching challenge is people’s two thems.

In other words, think about it in this way – there are two yous inside you. There is the thoughtful you, prefrontal cortex-type of thoughtful you. Then there’s the subliminal, emotional you. You’re not aware, actually, of the subliminal, emotional you. That’s why it was Freud’s great discovery that there’s this subliminal that’s really controlling you. But you’re not in your consciousness. There are those two yous and they’re often at odds. The classic example would be, of course, something where you did something that you didn’t want to do.

You ate the cake that you didn’t want to eat. Or you punched somebody or something. There are these two yous that are in a battle for each other. What we’ve observed on a constant basis is that in addition to having disagreements between people, we see that the emotional, subliminal them often can be in control of their more thoughtful them.

Those are ongoing battles. That’s basically the battle. That’s the battle that almost everybody all the time is doing. Imagine how confusing it is. You have two yous within you that are battling with each other. Then somebody else you’re dealing with has two within them. It can get difficult.

Tim Ferriss: Every conversation has at least four people involved.

Ray Dalio: Yeah. That’s it. If you can know how to deal with that, that’s a constant struggle. The thing that we find is very few people have a problem intellectually liking what’s going on here.

It’s fair. It’s honest. There’s no politics. Anybody can, in an idea meritocratic way can argue their case. It’s non-hierarchical. It’s fantastic in all of those ways. The challenges that they have are then with their emotional you reconciling with their intellectual you. That’s an ongoing challenge that’s all the time. That’s a theme, I would say, a constant theme. Twists and turns. At every phase in life, you have different challenges. Not having any money, any resources and then having to do things.

For myself, you’re an entrepreneur, no money, no resources, and then having to buy the computer, rent the place, do all of that was one kind of challenge. Then you have the small team and you have those dreams. You work with them and it’s fantastic, but you didn’t have enough resources and then you grow and you have the exact opposite thing happening to you. They produce their own challenges. You have too many people. You don’t get to know each other, as well as you did before, but you have plenty of resources, but you may have the challenge of how to maintain that quality relationship with that large a group of people?

We have 1,500 people at Bridgewater. How does that connectivity, that same kind of excitement and mission and togetherness that happened when we had 5 or 50?

How is that maintained? That’s a new strategy. One always has these different problems and the various inflection points that lead one – the forks in the road are the points that you’re referring to. They’re the junctures you’re referring to. There are just so many of them.

Tim Ferriss: What I’d love to maybe dig into is a word that gets used a lot and I’d love to hear how you define and think about “risk,” specifically. I have a quote here that maybe we could use as a jumping off point. I’m not sure exactly where it’s from. “Risky things are not in themselves risky if you understand them and control them. If you do it randomly and you’re sloppy about it, it can be very risky.”

Then it goes on, their words, not yours, the key to success, their words, is “Figuring out where is the edge and how do I stay the right distance from the edge?” How do you think about risk? That’s a word that a lot of people throw around. I have a feeling that you think about it maybe in more specific terms or more clearly than a lot of folks. How do you think about or define risk?

Ray Dalio: Well, I think the most important thing is there’s the risk of the ruin. The risk of being knocked out of the game. The risk of the unacceptable. Then there’s risk of the painful mistake. They’re a world of difference. I have to know how not to die, know how not to get knocked out of the game. That’s an important risk. Thinking about all the different ways that can happen and making sure all of those ways are covered in No. 1.

Then there’s the other kind of risk, which is to take it. Have the experiences. I guess maybe the example would be if I was skiing come to mind, don’t kill yourself. But if you’re not falling a lot and hurting yourself a lot, you’re probably not learning. So to distinguish between when you say risk-adverse, be very risk-prone in terms of being able to have the experiences that are the learning, risky experiences that even produce some of the pains that allow the learning, but don’t get knocked out of the game. Then I think of risk is how do you do that? How do I improve my return-to-risk ratio?

I know that the most important way that you can do that – there are a few ways – but one of the most important ways is knowing how to diversify one’s bets without reducing one’s returns.

There are a bunch of things that are equally good and you know how to take all those equally good things, but they’re not correlated would mean that I could do a much better job. Just to give you an idea. Think of something as being correlated, like something like a bet. The way we think of that as correlation. But you could almost think of it as a different kind of bet. If it is 60 percent correlated and you start with a particular level of risk, and you add in the second and third and fourth and fifth and a thousand different items to diversify yourself, you will only reduce your risk by about 15 percent, maybe a little bit more than 15 percent if they’re correlated.

If you do that with uncorrelated things, uncorrelated bets, you had 15 uncorrelated bets, you will reduce your risk by over 80 percent. So now the Holy Grail of investing, the thing that I learned, and it’s the most important, is that if I can have 10 or 15, ideally 15, but even if it’s 5, good, uncorrelated bets, that’s the Holy Grail. The Holy Grail is 15 good, uncorrelated bets because if they’re all equally good in expected return, in other words, let’s say they’re all going to have an expected return of 10 percent, by way of example.

Then on average, you won’t lower your expected return because they’re all on average about 10 percent. But in terms of the risk, you will eliminate 80 percent of the risk, so you improve your return-to-risk ratio by a factor of 5. So what I’m saying is that knowing the value of uncorrelated bets is incredibly important. When you’re thinking about it as a business – I think about it basically as a betting strategy in every one of the bets that I make. But if you’re thinking about your businesses, if you can create good but uncorrelated things, that power of diversification is so much more valuable than trying to make any one bet much greater.

I think about diversification. I also think that in terms of bets or raising my probability of being right, one of the most important ways of raising my probability of being right is not being confident that I’m right and being able to go out there and gather the triangulation. So something to me as a technique is quality triangulation, basically. If I can find three people – let’s say it’s a medical decision but it can be any decision – if I can find three people who are excellent experts, who will disagree with each other because they’re committed to the right answer, and I can get triangulation and also listen to their disagreements, I’m significantly raising my probabilities of being right.

There are techniques like that. Humility and triangulation of great people is an excellent way of raising one’s probability of making a good decision.

Tim Ferriss: I’d love to unpeel the layers a little bit on uncorrelated bets. What I’m wondering is – I think about this just in my own life with various types of investing. I’m by no means anyone with a track record like yours. The question that comes to mind for me – or observation rather, and I’d love for you to smash it to pieces if it’s not accurate – but that with a limited dataset you can, if you’re able to crunch some numbers, identify things that go up at the same time or down at the same time, so the correlation. Or that are inversely correlated.

So when A goes up, B tends to go down. At what point do you consider yourself confident something is uncorrelated? It seems like you would need a much larger dataset to conclude confidently that something is uncorrelated.

Ray Dalio: Well, I think there are two ways of determining the correlation that they’re uncorrelated. That is are they – you referred to the first, but I think it’s the worst, but still, has value – which is how did they move together in the past? I think the more important is to understand are they intrinsically different things? If you were going to say I’m going to invest in this Silicon Valley startup and timber in Colorado or something, you know that those are intrinsically different things.

I think you can get a good sense of that by just even knowing what they are. That particular startup will have a particular thing that will make it successful. I don’t know what we could imagine it might be. But it might be having nothing to do with something else. Now I think of what are the fundamental determinants of the price movement? You don’t have to get so precise about it. I like to think it through probably in an overly analytical way. But knowing that they’re intrinsically different is good enough. Now back to your question of the dataset. It then becomes a – I’m going to give you a more complex answer than you probably want.

Tim Ferriss: I love complex. Let’s do it.

Ray Dalio: It has to do with a combination of sample size and environmentally biased differences. In other words, first how much sample size do you have? Is that over many years or did they have something in common that would affect them? If I have many years and a large number of samples in that number of years, I can have a higher level of reliability if I’m just looking at the numbers, than if I had a short-term period. Because correlations will change. Is it a number of years? Is it in a different environment? I have a rule in terms of most of my decision-making.

It has to be timeless and universal. Timeless means if I take a period of time where the correlations or that which I’m discovering true in all those periods of time? I like to go back a long time, but let’s say you have a limited amount of data, that’s a handicap. The more data you have, the better. But still, if I change the periods – in this year was that correlation the same as the correlation in the prior year? Was the correlation the same in the year before that? The correlation, let’s say, of daily returns? Or you could have a correlation of minute returns.

So timeless and as far back as you can go. I like to deal with universal. What I mean by universal is that if I have a decision rule or equities or bonds or an asset class or something, and I see its behavior, did it behave the same, the same drivers, in another country?

Were the correlations, for example, between stocks and bonds in Spain similar to the correlation between stocks and bonds in Brazil? Similar to the correlation between stocks and bonds in the United States? Okay, that’ll give you more of a sense that the correlation between stocks and bonds is X than if you have just it happening in one place. Timeless and universal are just for most decisions rules that I look at. At the end of the day, I get really more comfort by being able to understand the intrinsic determinants.

If I’m talking about investments. Because that’s the subject. We can talk about a lot of other things, but anyway, if I’m talking about correlations of investments, every investment is a lump sum cash payment now for an income stream in the future. If I buy a bond, I give a lump sum payment and they’re going to give me so much per month all the way for whatever the length of the bond is, 20 years or whatever that is. If I’m having a stock, it’s a lump sum payments and then we estimate what are the future cash flows? There is uncertainty about those cash flows. But you will look at those cash flows. They will all be affected by the discount rate, the interest rate, we use to calculate the present value.

There will be an intrinsic reason that they will be correlated and there will be intrinsic reasons that drive their correlation. Let’s say – if I’m getting too technical, please excuse me – all of those investments are going to have the interest rate that we’re using to calculate the present value in common and therefore, that will drive a correlation between that, while the items that affect their cash flows could be different and that would then drive something that one could analyze and see that their correlations would be different from that attribute.

If you break investments down and you look at what the causality is, it’s better than if you’re just looking at past numbers. But you could look at it either of those two ways; ideally both.

Tim Ferriss: For those people who would like to get a better understanding of the underlying factors that affect the economic engine, so to speak, interest rate, etc., what would your recommendation be if they wanted to educate themselves?

Ray Dalio: I did a 30-minute video called How the Economic Machine Works, in which everything that I know that is of most value and describes it in 30 minutes. It’s on YouTube. I’d recommend that they go there. In 30 minutes, they’ll have most of what I think is valuable and understand how it works.

Tim Ferriss: Perfect.

Ray Dalio: It’s a pretty simple machine. It’s like almost anything. If you think about it, most of the important things that are driving almost anything can be described pretty simply, so that’s what I attempted to do in that video on YouTube. It’s been downloaded 5,000,000 times. It’s rated highly. I think it’s helpful.

Tim Ferriss: To everybody listening, I will link to that in the show notes as well so people can easily access that. Just to pose a hypothetical, because I’d love to hear how you approach it. Not necessarily if it’s a long or short decision, although it could be, just to hear how you would even go about assessing a potential opportunity. Because, for instance, I’m very primitive compared to how your operation or how you would approach investing. Living in Silicon Valley, for instance, as long as I have, 17 years now, I have an informational advantage when it comes to choosing and assessing different startup opportunities.

Elsewhere, people might have an analytical or behavioral advantage or fill-in-the-blank. If you were to look at, for instance, cryptocurrency, Bitcoin, all this other stuff, how would you even begin to assess that and whether it poses a good or bad opportunity for investment?

Ray Dalio: Well, everything I look at is I try to look at who are the buyers and sellers and what motivates them and what are they going to do? I break it down. I analyze. I don’t know how I would do that with Bitcoin and I don’t know that it would apply to everything. But as a general theme, if you know who the buyers and sellers are and what their motivations are, how big they are and so on, you can pretty much calculate – you can go a long way to understanding what the price is likely to do in the future. That’s very different from something like value investing.

Which is something that says my lump sum payment today is this and the future cash flows over the next number of years will be this. I’m very much more driven to the buying and selling. In terms of something like a cryptocurrency, first of all, I’m not an expert on the cryptocurrencies. I would think that what I’m describing is super-important to get at because there are two purposes of a currency. Any currency is a medium of exchange or a store-hold of wealth.

When we think of dollars, we use it as a medium of exchange. Or if we’re holding it as a bond, it’s a payment over a period of time and it’s a store-hold of wealth. In the case of cryptocurrencies, right now it’s not a very practical medium of exchange yet.

I have my Bitcoins and I try to go spend them and it’s not easy to go spend them. Then when we think of it as a store-hold of wealth, today it’s primarily a speculative market. It’s not intrinsic value that you’re going to be looking at. It’s really thinking about who are the buyers, who are the sellers, and what they are likely to do in projecting that that’s going to be the driver of investing in a cryptocurrency.

Tim Ferriss: Could you talk a little bit more about assessing the motivations of buyers and sellers? You can do it with any asset class or any kind of hypothetical, but specific example. Because I guess in my mind, as someone who’s very much junior varsity with all of this, the motivations would seem to be, at least if people are speculating, to get rich. Both on the selling side and on the buying side.

How do you dig deeper than that? Any examples would be super-helpful.

Ray Dalio: Every buyer has behavioral characteristics for certain reasons. If you say stocks, to use a very simple example. A typical individual, maybe a mutual fund buyer, will buy after something’s gone up because they think it’s a better investment. They’ll sell, they’ll get scared when it goes down because they’ll get scared and think it’s a worse investment. Whereas, a typical institutional investor or a pension fund will buy when it goes down because they have to rebalance their portfolio to keep an asset allocation mix at a certain level. So if they’re losing money in something and making something in another, then they’ll rebalance in a mechanical way.

There are many different ways of saying who are the biggest ones? Who are the littlest ones? But most importantly, the biggest ones. What are they motivated to do? My understanding in that way, it’s important. You have a lot of different buyers and sellers in different markets for different reasons that when you examine it, it makes sense. Some stock may go public, then the owners have a window that is closed to them to sell it and then the window opens up and then they’re going to sell at that time. I’m just giving you a whole bunch of examples that one can know or attempt to know, that is more than just people wanting to make money.

Somebody’s squeezed. You have a financial squeeze and they need cash so that they’re motivated to sell it because they need cash. There are lots of different reasons.

Tim Ferriss: Right. Meaning a distressed seller, in the last case.

Ray Dalio: Right. And to know on an ongoing basis that the market is made up of that mixture. As much as one can, it is a good way of getting a sense of that.

Tim Ferriss: Very common where I’m sitting right now. I’m in San Francisco. I’ve read – and please correct me if I’m wrong – but from Tony Robbins’ book, which included you, that over a long enough period of time, anyone’s favorite asset class (I’m paraphrasing this) will decrease by 50 to 70 percent or something like that.

Ray Dalio: Yeah, that’s what I said.

Tim Ferriss: Okay, got it.

So what are the implications, the most important implications of that from the behavioral standpoint of investors? How should that change their thinking or behavior?

Ray Dalio: It goes back to the point I was making before that you can come up with a bunch of equally good investments. Generally speaking, all investments are competing. What that means is if one was clearly better than another, more money would go into it, bid up its price, and then it would be comparable, according to the marketplace and the marketplace is pretty smart and out to be successful and being tactical, you have to be better than the marketplace. That isn’t easy. Therefore, the marketplace is pretty smart. All of those assets are going to have, roughly speaking, comparable expected returns other than the surprises that will take place in the future.

You have a choice. You’re either going to be smart enough that you think you’re going to bet against somebody else that they’re going to go up or down, or you’re going to diversify. You can take these assets and achieve a level of balance with those assets, that doesn’t cost you in expected return but provides you a much lower level of risk. If you can reduce your risk and keep your expected return the same, you’ve got to do that.

So diversification, as we were talking about before, can allow an individual – I explained in that book – I thought, by the way, it was a great book because what Tony did was to take concepts and make them very clearly conveyed for the average reader. I explained – he interviewed me in the book – how to achieve that kind of balance so that you’re not going to have that.

Because if you lose 50 or 75 percent of your money in a decline, let’s say 50 percent, that means you need 100 percent return to get back.

Tim Ferriss: Right, to where you started. Yeah.

Ray Dalio: You can’t allow yourself to do that. That’s the risk of ruin thing. Diversification, proper diversification, can reduce your risk without reducing your return.

Tim Ferriss: There are many different ways to diversify. How would your approach differ most, if it does, from David Swenson?

Ray Dalio: My approach is as I was describing it, is to balance the risks based on the two factors, the two determinants that we talked about before. What are the intrinsic drivers of those? Then also what are the timeless and universal correlations of those assets?

To achieve balance. I’m always looking for a value-added, risk-reducing trade. The issue is to look at the intrinsic characteristics and achieve balance.

Tim Ferriss: Where diversification can get very tricky in the world of startup investing, you mentioned, in brief, this lockup period, is where someone – I’m a perfect example of this – has made investments that are illiquid for a period of God knows how long, 7 to 12 years in some cases. What started off as a plan to have 10 percent of one’s liquid net worth invested into startups suddenly becomes 80 percent of the pie chart.

Ray Dalio: Are you saying if you have an 80 percent of your concentrated portfolio in the one particular asset?

Tim Ferriss: That’s right.

Ray Dalio: I would urge you to find out how you’re going to hedge that thing. There are different ways that you can make that hedge. To some extent, it’s buy something. But to some extent, you might go into a contract. It could be done almost – I don’t know the nature of the particular types of investments, but if it’s a particular company with a particular profile that’ll be unique to it, the only way that you’re going to be able to hedge that is to go into some investment bank and actually explain to them the circumstances and find out a structure that they might be able to come across. It’s going to be a highly impure hedge. It needs to be engineered. It’s a very difficult thing.

Because 80 percent of your net worth is tied up, you can’t have the cash to go buy something that’s going to balance it. You wouldn’t want to borrow the cash to buy something different because probably it’s correlation with whatever you’re using as a diversifier is not going to be reliable. You could really get screwed. I don’t know that I have a good answer for that.

Tim Ferriss: It’s a tough one. Because like you said, because I don’t have anywhere close to the cash to take a derivative position to try to hedge, it’s very challenging. Like you also observed, the impure nature of trying to do any kind of secondary with a forward-looking promissory note or something like that. In any case, I don’t want to bore people to tears, but it’s a very common problem in Silicon Valley.

Ray Dalio: It’s difficult because it’s also illiquid. So much money is illiquid. People can be real rich on paper and pretty poor cash wise.

Tim Ferriss: I mentioned tactical and psychological. In a situation like this, where there is no magic answer, there is no necessarily non-obvious solution to this, it’s just a tough position to be in, where you stand to potentially lose a lot. What do you say to yourself? What’s your self-talk in a situation like that where you may just be stuck in a position that you can’t get out of from an investing perspective?

Ray Dalio: Well, I think of how bad am I going to get hurt kind of thing. I’m almost think in portfolio sometimes that it’s better to take a portfolio when you have a certain amount of cash and you think, how bad am I going to get?

And then you could take your risk and put it in another portfolio and separate the portfolios, rather than to blend them together so that you’re actually thinking, okay, how bad is it going to get? Also, it’s the nature of the beast and what’s the big deal? You’re going to – when it comes down to it, you’re going to have a – what can they take away from you? You’re going to have a bed to sleep in. You’re going to have food. You’re going to have friends. The most basic, good things. You’re playing the game and it’s the nature of the beast. For me, I keep thinking, what are they going to take away from me and what’s it really going to mean?

Tim Ferriss: I have read there’s a book titled More Money than God, which I read a few years ago.

There were a number of cases in that book of, over the long term, very successful investors who had hit a point of overwhelm or such high levels of stress that they, based on my recollection, which could be faulty, but effectively hit the reset button. They liquidated all their positions and started over. Is that something you’ve ever done? If so, how did you think about that?

Ray Dalio: No, I’ve never done it because of stress. I’ve liquidated positions to take risk off the table because certain things have happened and I’d say, listen, I just don’t know and I’d rather now take risk off the table. But I do know of one terrific investor who got into a very bad mindset. He just couldn’t make anything work for a period of time. That started to affect his psychology that worsened his decision-making.

What he did was he brought his positions down to such a small level that he was continuing to play the game, but with amounts that wouldn’t have that psychological effect until he could get back into that mindset and get back into the groove.

Tim Ferriss: Did that work for him?

Ray Dalio: That worked for him. Psychology is a big deal. Psychology is a big deal in the markets. That’s why I also find that my rule-based algorithmic type of trading – rule meaning I take a rule, a decision rule, so it’s just the algorithm – is just an expression of my criteria and then I put it into an algorithm. But by knowing how that algorithm works and having it operate next to me – in other words, I’m doing my decision-making in my way and then all my thinking is programmed into the computer so that there’s a parallel decision-making going on by the computer.

It’s been fabulous because that computer ain’t got no emotions. It’s just like – I don’t know a computer chess game – and it’s great. It’s been a fabulous experience to have me and it playing the game together. Taking the emotions out of it is a real plus. I’m a meditator so I would say, I don’t get as emotional as some people do, but when you go through it – because you go through a process in which you’re thinking – let’s say something is going against you. Of course, trades will also go against you. It’s not like you buy something and from that point forward it goes up.

That you then sell it. It’s not like that. If you buy something that’s good value, it might go down before it goes up. Then when you’re wrestling with okay, now do I sell it? It’s not like that’s the moment either. Every moment you don’t know whether you’re missing something or are you wrong or is it just too early? All of that psychology enters into it. You start to think about multiple possibilities. Okay, there’s more opportunity. That’s why the strategies I’m describing, the combination of diversification so no one bet is going to matter so much. So I have a casino of bets. So yeah, if I’m wrong on one or here, it’s okay.

But that casino means all my games are on balance going to pay off. Then that notion of systemizing the decision rules, these things have been very helpful to me.

Tim Ferriss: I think this is a great place to wrap up. I’m just going to read a small piece from your book, which I highly recommend everybody check out. Just to give everybody an idea, one of the testimonial blurbs on the book is from Bill Gates. “Ray Dalio has provided me with invaluable guidance and insights that are now available to you in principle.” I think that this is going to do a lot of good in the world and help people to make better decisions.

Here’s a quick quote. “Every day, each of us is faced with a blizzard of situations we must respond to. Without principles, we would be forced to react to all things life throws at us individually as if we were experiencing each of them for the first time. If instead, we classify these situations into types and have good principles for dealing with them, we will make better decisions more quickly and have better lives as a result.”

I’m very excited to see what this book does in the world. I suppose just as one of the very last questions, why did you decide to put this book out? Why now?

Ray Dalio: I’m at a stage in my life where my objective is no longer to be more successful myself. I’m in a transition. I’m 68 years old and I felt that my No. 1 goal is to help people be successful without me. Having this collection of recipes that’s been built up over that period of time and passing it along so that basically everything that I know of value is in the book, frees me of that responsibility. It is what I feel as a sense of responsibility. I wish everybody would do the same.

Like I’d love to know – how many people’s principles would you love to know? By the way, I’ve been speaking to a number of – I won’t use the names – but a number of very successful people. I know now that they are going to be more inclined to put their recipes out. I think it’ll be fabulous. You should write your principles. You do share your principles in many ways. But as those recipes, and you give these recipe books, and people then can compare one to another and debate them. Operating at that principle level I think is a responsibility that I have to do. It kind of frees me up to go to my next stage of life.

Tim Ferriss: Well, I’ve been taking notes throughout this entire conversation. I’m going to simulate my own pain button.

I have a number of homework assignments that I’m looking forward to tackling. For people listening, they can certainly learn a lot about the book and dig in at principles.com. They can find you on Twitter and elsewhere @raydalio. Is there anything else you would like to suggest or ask or encourage people to do before we wrap this up?

Ray Dalio: No, just have their own principles that they believe in and be open-minded. Write their principles down. Compare them with others. Be guided by principles. Be a principled person. I would say that those things probably will help them be not only more successful, but comfortable with themselves.

Tim Ferriss: Perfect. Well, Ray, I really appreciate all the time. This has been a lot of fun for me and I’ve been looking forward to this ever since we met. You’re so kind after bolstering my confidence after my rehearsal at TED. I really appreciate all of it and the work that you do.

Ray Dalio: You nailed it! It was great. We were both like the same thing – nervous that we were going to do a lousy job and we both got through it well. Anyway, thank you also for your very interesting questions and the wonderful exchange. Thank you.

Tim Ferriss: My pleasure entirely. For everyone listening, links to the book, to Ray’s video explaining the economy, everything that we talked about can be found in the show notes. I will link to everything at tim.blog/podcast, where you can find the show notes for this episode and every other. Until next time, thank you for listening.

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Ray Dalio, The Steve Jobs of Investing (#264)

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“Pain plus reflection equals progress.”
– Ray Dalio

Ray Dalio (@raydalio) grew up a middle-class kid from Long Island. He started his investment company Bridgewater Associates out of a two-bedroom apartment at age 26, and it now has roughly $160 billion in assets under management. Over 42 years, he has built Bridgewater into what Fortune considers the fifth most important private company in the U.S.

Along the way, Dalio became one the 100 most influential people in the world (according to Time) and one of the 100 wealthiest people in the world (according to Forbes). Because of his unique investment principles that have changed industries, CIO Magazine dubbed him “the Steve Jobs of investing.”

Ray believes his success is the result of principles he’s learned, codified, and applied to his life and business. Those principles are detailed in his new book Principles: Life and Work.

In this interview, we cover a lot, including:

  • How Ray thinks about investment decisions, how he thinks about correlation, etc.
  • The three books he would give to every graduating high school or college senior
  • How he might assess cryptocurrency
  • And much, much more…

Enjoy!

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Want to hear a podcast featuring another great investor?  — Listen to this conversation with Naval Ravikant. In this episode, we discuss the habits and behaviors of both highly successful and happy people (stream below or right-click here to download):


This podcast is brought to you by Four SigmaticI reached out to these Finnish entrepreneurs after a very talented acrobat introduced me to one of their products, which blew my mind (in the best way possible). It is mushroom coffee featuring chaga. It tastes like coffee, but there are only 40 milligrams of caffeine, so it has less than half of what you would find in a regular cup of coffee. I do not get any jitters, acid reflux, or any type of stomach burn. It put me on fire for an entire day, and I only had half of the packet.

People are always asking me what I use for cognitive enhancement right now — this is the answer. You can try it right now by going to foursigmatic.com/tim and using the code Tim to get 20 percent off your first order. If you are in the experimental mindset, I do not think you’ll be disappointed.

This podcast is also brought to you by Athletic GreensI get asked all the time, “If you could only use one supplement, what would it be?” My answer is, inevitably, Athletic GreensIt is my all-in-one nutritional insurance. I recommended it in The 4-Hour Body and did not get paid to do so. As a listener of The Tim Ferriss Show, you’ll get 30 percent off your first order at AthleticGreens.com/Tim.

QUESTION(S) OF THE DAY: What was your favorite quote or lesson from this episode? Please let me know in the comments.

Scroll below for links and show notes…

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Tony Robbins on Morning Routines, Peak Performance, and Mastering Money

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“Our revenues are now over $5 billion annually. Without access to Tony and his teachings, Salesforce.com wouldn’t exist today.”
– Marc Benioff, Founder of Salesforce.com

“[Tony] distills the concepts of the best investors in the world into practical lessons that will benefit both naïve investors and skilled professionals.”
– Ray Dalio, Founder of Bridgewater Associates, the world’s largest hedge fund

Tony Robbins is the world’s most famous performance coach. He’s advised everyone from Bill Clinton to Serena Williams, and from Leonardo DiCaprio to Oprah (who calls him “superhuman”).

For years, you’ve also asked me to interview him in-depth — so here it is! I flew to Florida to spend time with Tony in his home, and what ensued was an epic two-part conversation.  It covers just about everything imaginable. Special thanks to Joe Polish and Peter Diamandis for re-introducing us.

Ep 37: Tony Robbins on Morning Routines, Peak Performance, and Mastering Money
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Ep 38: Tony Robbins (Part 2) on Morning Routines, Peak Performance, and Mastering Money
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My visit coincided with his first new book in 20 years: Money–Master the Game.

I love Tony’s work and it helped me start my first company, but when I got an early draft of the book, I thought to myself–really? Another book on money? Ugh. I prepared to be bored, especially since I think of myself as an experienced investor [pats self on back]. Instead, and very surprisingly, I was blown away. Before I knew it, I was pushing off other work, letting my dinner get cold, and staying up hours past bedtime each night, all because I couldn’t stop reading.

Why?

First off, he saved me years of my life! Over the last 10 years, I’ve been approached by several top hedge fund managers, who’ve suggested I write The 4-Hour Investor by collaborating with them and their friends. Tony has written that book perfectly, so it saves me the trouble. I can just point people to this book. Which leads me to…

Reason number two, he goes DEEP with many of the investing icons I’ve always wanted to meet, including Paul Tudor Jones (who he’s coached for 10+ years), Ray Dalio, Carl Icahn, David Swensen, Kyle Bass, and many more. These are the hard-to-interview “unicorns” who consistently beat the market, despite the fact that it’s called impossible. In this book, they disclose details and examples I’ve never seen anywhere else, and I’ve read A LOT of books on investing.  For me, the interviews alone were worth the entire book.

In the following interview, we dig into everything: Tony’s morning routines, his diet, how we works with the world’s highest-performing athletes and traders, common misconceptions about him, the most typical money mistakes he’s uncovered, and on and on.  I even ask him to palm my entire face (Here’s the pic!).

Enjoy!

Tons of links and goodies in show notes below…

If you can’t see the above embedded players, here are other ways to listen:

This podcast is brought to you by 99Designs, the world’s largest marketplace of graphic designers. Did you know I used 99Designs to rapid prototype the cover for The 4-Hour Body? Here are some of the impressive results.

Also, how would you like to join me and Sir Richard Branson on his private island for mentoring? It’s coming up soon, and it’s all-expenses-paid. Click here to learn more. It’s worth checking out.

QUESTION(S) OF THE DAY: What is the best piece of investment advice you ever received or read? Please let me know in the comments.

Scroll below for all show notes, and thank you for listening!… Read More

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