Ray Dalio

Supported by Greenhaven Road Capital, finding value off the beaten path.

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Ray Dalio started his book tour for Principles and first up was a chat with Tim Ferriss. Here were my favorite quotes.

Be Different. Out performing, according to Howard Marks, means being both different and right. Different things are sometimes mistakes.

“I’m a professional mistake maker. Being an entrepreneur or being in the markets requires one to bet against consensus and when one does that a fair amount of times you’re going to be wrong a fair about of time.”

That’s actually good, says Dalio. Just make sure the missteps don’t kill you. Patriots coach Matt Patricia said, “we talk a lot that before you win you have to learn not to lose.” Good decision making is like good skiing; fall down as you try new things to improve but don’t go off a cliff.

Fifteen uncorrelated assets said Dalio is the “Holy Grail of investing.” Finding them takes work.

The best clues come from out of sample data. Look for things that hold over time and space. Cliff Asness said, “If you give me enough data I will find you something that has worked in the past – but it might be total gibberish.” But out of sample data is “very calming because it makes you think there’s a much smaller chance that you’re just lucky.”

Argue well. About his first loss Dalio said:

“In retrospect, it really was the best thing that happened to me because it gave me the humility that I needed to become more successful. It shifted my attitude from thinking ‘I’m right’ to asking myself ‘How do I know I’m right?’ That opened my mind a lot. It led me to look for people who disagreed.”

“Triangulation of great people is an excellent way of raising one’s probability of making a good decision.”

“To me, it’s a weird world that there’s a phobia about making mistakes and knowing one’s weaknesses. Mistakes are part of the process and everybody has weaknesses.”

‘Bridgewater culture’ makes headlines because it’s unusual. But many good organizations have health disagreements. Ken Burns, Ed Thrope, and Phil Jackson all argue well. Good culture means finding facts and eliminating egos.

Curiosity. Dalio is intensely curious. To use the words of Peter Theil in Zero to One, Dalio believes there are secrets to find.

“Many surprises come because things that happened as surprises never happened in one’s lifetime before. So it’s advantageous to look beyond one’s life to understand how the world works so that one can learn all the rules of how the world works. That’s the beauty of it.”

“Basically everything is ‘another one of those’… the key to success is to identify which ‘one of those’ it is.”

“I’m very curious. Curiosity is a big motivator.”

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

Dalio learns by talking to other people (arguing well), making mistakes (but not permanent ones), and reading books. He tries to go through books quickly and separate the main ideas from the digressions Only if a book has good “flavor” will he take time to chew on it. He suggested to Ferriss: Einstein’s Mistakes, Sapiens, The Undoing Project, The Upside of Inequality, The Serengeti Rules,  From Bacteria to Bach and Back, The Lessons of History, River Out of Eden, and  The Hero with a Thousand Faces.

Evolution is a principle Dalio uses for decision making. If you haven’t read On the Origin of Species, said Naval, you should. A modern extension of Darwin’s book that I enjoyed was Matt Ridley’s The Evolution of Everything.

Curiosity explains Dalio’s expression, don’t pick your battles, fight them all. This idea comes from a curiosity as to why things are happening. “Little things are symptomatic of bigger things,” he explained.

Believability weighted decision-making. Rather than use opinions to make decisions, Dalio wants facts. “The idea that everyone is entitled to his or her opinion,” said Danny Kahneman, “was a California thing – that’s not how we did things in Jerusalem.” Dalio agrees.

“There’s such a bias to think that just because you have an opinion that it’s valuable.”

Bridgewater has “believability weighted decision making.” It’s a three step process.

  1. “Put your honest thoughts on the table. A lot of people are hesitant to do that, they keep their honest thoughts back.”
  2. “Thoughtful disagreement.”
  3. “If disagreements remain you have to have meritocratic ways of getting past that disagreement.”

That meritocratic way is everyone votes on an iPad but some votes count more than others. Domain expertise means more sway. This works because everyone buys into doing things this way.

Emotions.

 “Psychology is a big deal in the markets.”

“Taking the emotions out of it is a real plus.”

“It’s not like you buy something and from that point forward it goes up.”

Wes Gray said that he likes to plan in System 1 so not to be overrun by System 2. Choice architecture is Richard Thaler’s term for nudging behavior. Dalio isn’t prohibited from going against his models, but he created a system where that’s harder to do. As Thaler explained, “because we are dealing with humans rather than Econs, they sometimes need help.

 

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