Dan Schawbel spoke to Ray Dalio, author of Principles: Life and Work and founder and co-chairman of Bridgewater Associates, about how he broke into the financial industry, how he overcame some early life challenges, some of his key principles that led to the success of his firm, how he builds strong teams through radical transparency, why he created baseball cards for employees and his best advice.
Over the past forty years, Bridgewater Associates has become the largest and best performing hedge fund in the world, with about $150 billion in global investments for approximately 350 of the largest and most sophisticated institutional clients. Dalio has appeared on the Time 100 list of the most influential people in the world as well as the Bloomberg Markets list of the 50 most influential people. Through the Dalio Foundation, he has directed millions in donations to the David Lynch Foundation, which promotes and sponsors research on Transcendental Meditation. He recently spoke at the TED Annual Conference.
Dan Schawbel: How did you originally get into the finance world and eventually start your investment firm? What were some of your biggest challenges when starting it?
Ray Dalio: When I was 12 years old, I was a caddy at a local golf course called Links. At that time, everyone was talking about the stock market, because it was doing great and people were making money. So I took the money I made caddying and bought stocks. The first stock I bought was in a company called Northeast Airlines; it was about to go broke but then another company bought it and it tripled. I got lucky but from then on I was hooked.
Of course, it didn’t take long to figure out that making money in the markets is anything but easy. To be a successful investor, you have to be an independent thinker who bets against the consensus and is right. So the biggest challenge was figuring out how to do that well. Over time and through a lot of painful mistakes, I learned that the best way for me to do that would be to surround myself with the smartest independent thinkers I could find who would push my thinking and point out where I might be wrong. Eventually, I created Bridgewater’s whole culture around this idea, building it as an “idea meritocracy.”
Schawbel: Can you tell us some of your unique principles that have led to your successful company culture? What makes people want to work at Bridgewater over other firms?
Dalio: The key to our success has been to have a real idea meritocracy. To have a successful idea meritocracy, you have to do three things: 1. Put your honest thoughts out on the table, 2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and 3. Have agreed-upon ways of deciding if disagreements remain so that you can move beyond them without resentments. And to do this well, you need to be radically truthful and radically transparent, by which I mean you need to allow people to see and say almost anything. If you’re not transparent, people won’t know enough about what’s going on to have good, independent opinions, and if you don’t expect the truth of people, you’ll never know whether or not they’re telling you want they really think.
Many of my principles are about how to do these things well, which isn’t easy because most people haven’t learned to operate this way naturally. It’s uncomfortable at first, especially when it comes to being radically truthful and transparent about people’s weaknesses. While it’s not for everyone, we’ve found that after about 18 months, most people adjust to the culture and many eventually find it difficult being any other way. That’s because when they move from hiding failures and gossiping to bringing their thinking to the surface, they understand each other better and make better decisions-and they come to love it.
Schawbel: How have you been able to build strong teams that are able to deliver the best performance and results for clients?
Dalio: Having an idea meritocracy and really knowing what people are like allows you to have great collective decision making, which is way more powerful than individual decision making. Most organizations aren’t clear about people’s strengths and weaknesses, so they can’t put together teams as effectively as we can. We’ve developed a series of tools to help us know how people think and what they are like and to sort through these things to put the best mixes of attributes to make up the teams based on what needs to be accomplished. You can get a quick picture of this in my TED talk.
Schawbel: Why did you create baseball cards for employees and how has it helped them be more successful?
Dalio: We created them to make it crystal clear what people are like. I learned this the hard way, through years of frustrating conversations and the pain of expecting things from people who were incapable of delivering them. So I realized that I needed a systematic approach to capturing and recording what people are like so that we could actively take them into consideration when putting them into different roles at Bridgewater. That’s the idea behind the Baseball Card. Over the years, countless projects have benefited from our frank and open approach to understanding what people are like-it allows us to create better teams, but even more importantly it creates a culture where strengths and weaknesses are discussed openly and people learn to get over the ego-associated discomfort with being straightforward about such things.
Schawbel: What are your top three pieces of career advice?
Dalio: I have a formula for success that has three parts so it fits your question well. It is:
Dreams + Embracing Reality + Determination = a Successful Life.
You first have to dream big and prioritize. If you follow the right principles you can have virtually anything you want, but you can’t have everything you want. Rejecting some things you want in order to focus on achieving other things more is key.
On the way to your goal you will encounter your realities. You will need to know how to deal with them well. If you’re open-minded and flexible enough, you will learn how to do that, typically by making painful mistakes, learning from them and changing. In the process you will develop your principles. I urge you to write them down. They’re your recipes for success. If you’re interested, my own are in my book.
Third, you need to do these things with a lot of determination. Through a lot of trial and error and learning you will improve and make achievements that far exceed what you ever imagined possible.