Life Lessons from the BIGGEST Hedge Fund in the WORLD

[Music] everybody in order to be successful there are five steps that you go through essentially that everybody has their goals they what is their goal in the passion so you have goals and then what happens is you're going after your goals and you encounter your problems okay so encountering problems and then the big difference between people is how they approach those problems people who get bummed out by the problems don't learn from them who learns from them so those who recognize that problems are exciting that they get into those you know problems or mistakes mistakes are learning experience the pain that comes from that mistake every time you have pain it's an indication that something's at odds and so the people who have the pain are the people then who will go into that realize that if they solve that pain solve that problem understand what that is represented above not just the one problem but that problem is a certain type of problem that will happen over and over and over again in your life and if you can solve how do I deal with that kind of problem and so diagnose the third thing that everybody needs to do is if they have problems on the way to their goals that they diagnose those problems and they get to the root cause the real root cause the real root cause is often is typically what people are like can you go to what you're like can you go to your mistakes can you go to your weaknesses right can you go to other people's mistakes and weaknesses some people because of an ego barrier can't do that and so if they don't recognize their own mistakes their own weaknesses now or others mistakes and weaknesses what the root cause me being what they're like because of ego barriers if they can't go there they're gonna repeat those mistakes they're going to have them over and over again so it's the process essentially of saying at that stage what am I like everybody has strengths and everybody has weaknesses the weaknesses are the other side of the strengths so let's say if you're you know a right brained creative person you may not be reliable because just the way you think necessitates you to think a certain way that means you can't think in another way that means you're gonna keep bumping into that thing that's standing in your way but unless you can embrace I'm not reliable all right and deal with it you won't get around it it's still going to continue to be a barrier right so the diagnosis to the root cause is is important so then if you diagnose it then you have to design what are you going to do about it that works so let's say you are very creative but not reliable okay you have to find the means of it first of all embracing that and then saying if I'm not reliable what do I do it do I work with a reliable person do I learn reliability do I have some compensating mechanism because I can't let that lack of reliability stand in the way my goal as long as I keep doing that I'm gonna keep running into problems so you have to design what you do about the problems and then when you're designing what you do about the problems then you have to follow it through so you have to follow through or or do the thing you designed and and and the doing the thing you designed requires self-discipline and so on so people have to do those things in order to be successful right they have to know what their goals are they they have their will encounter their problems they have to diagnose those problems down to the root cause the real root cause they have to design ways to get around them and then they have to have the self-discipline to follow that and it's a continuous iterative process so that that's what we keep doing right so you're going in that direction I would say that all of the shapers are doing that they're doing that they doing that well right so they don't mind the problems they don't mind that that's their adventures wonderful book is Einsteins Thanks right how he and you hear his struggles right he wouldn't have been able to be cutting-edge he wouldn't have been able to be inventive if you didn't go through that so when you're looking at the personality characteristics the personality characteristics lend themselves to doing that five-step process well it's the mixture of the elements that matter right yeah if you have a tremendous tenacity but you're you're studying you're learning you're trying to memorize and remember everything that you're being taught and you're really trying hard you could have great tenacity you need the making sense of them something you need to embrace reality you need these other dimensions right so that I think the things that we started to talk about just before the you know the things that these people have a need for is first they need to most fundamentally make sense of things which is a very different kind of learning process it's a very internalized learning process it's not a memory based process so none of these people unlike the population a home none of these people have a desire to follow instructions for most people you you you go to school they tell you what class to go to they what classes to take this goes all the way through University they do this do this to this and then you go into the class and they say learn this and this is the information and it's largely a memory based instructional based process this is not what these people do right this is not so the path what they what they have in is a strong strong desire to understand and make sense of reality how does reality work okay and then so they're all very independent thinking and and and rebellious okay they don't mind you know saying screw you I am this is met what makes sense and I've got to go down that path they're comfortable with ambiguity they love ambiguity some people don't like the ambiguity most people they say I'm nervous about ambiguity they love to go within the space of what's ambiguous because that's where the discovery is right they love making mistakes the process they understand that making mistakes you know loosen up it's like you know going to ski or something you can't learn how to ski unless you're falling so they don't mind the falling they're not embarrassed about making mistakes they're not worried also about the approval of others right so many people are constantly saying oh well ah they risk the whole different definition of risk what's risky they're not worried about what people think of them right is that risk or failure later the term of failures a totally different thing the failure is a part of the learning process right what's the risk of failure what you'll be embarrassed or risk of failure how do you distinguish failure from learning uh in your whole life you know failure implies that it stopped that the game stops right if it's part of a you're failing and then you learn then that learning is part of the moving forward right so that is what the process is like fail learn move forward and constantly do that because you're cutting edge you're going where people haven't been before an inventiveness that's exciting to those people so that's a different kind of approach to life right it's a different way of being people are so attached to being right and yet the tragedy is it could be so easily to find out how you're wrong if you just said to yourself I don't I'm not sure that I'm right and let me go find people who have alternative point of views and let me have quality conversations not to pay attention even to their conclusions but to the thought process so forth full discussion worrying about being wrong but not to the sense of being paralyzed or moving forward but in the sense of trying to create discovery to have an exchange to go after the person who has the most different point of view who is the most thoughtful and then have a conversation to see their point of view whether a person could be both open-minded and assertive at the same time that that creates a discovery process that creates a fabulous learning and that process itself reduces the probability of being wrong wrong and produces a great deal of learning people are so hung up on being right starting their discussion and being deriving some sort of satisfaction if at the end of the discussion they were where they began the discussion so that doesn't make any sense because there's not going to be any learning so ego plays an important role in that right that's that all the people who feel like they're I'm good I've got it won't learn if you've got it you won't learn right so so you have to get rid of this ego barrier I've got it thing then the issue of weaknesses like every human being has weaknesses and and it as I say it's the opposite side of thinking it's the in other words if you were one if you have a brain that works one way and you're doing certain things that allow you to do things that way that you're excelling it means that your brain is working in a manner that has its pluses that'll cause it's minuses so the creative person who's not reliable or the reliable person who's not creative but if they don't embrace that they're going to continue to encounter that ego barrier is the worst thing and if we were raised differently just imagine in the schools that all along the people will always say everybody makes mistakes everybody has weaknesses the key is really to understand what your mistakes and weaknesses are so that you can learn from them right I think punishment is it's a terrible concept punishment means that you made a mistake and you're being punished I think instead of punishment every time somebody makes a mistake you should say the only thing that you need to do to get out of your punishment his first think what kind of mistake was that so if I'm in this situation that's like that again how would I do deal with it differently not to make that mistake so that learning should come from the mistake not punishment because you're teaching people not to make mistakes where's where the learning comes from not the appreciation that if you keep doing this over and over again you're gonna keep encountering the same outcomes in my particular case I started trading markets when I was a kid when I was 12 and the markets there are certain things about being in the markets in terms of decision making that are unique that encourage this kind of thinking so first it because all of the consensus is already baked into the price in order to be correct in the markets in order to make money in the markets you have to see something that the can that the consensus doesn't see so you have to have an independent point of view very different than most other professions most other professions you can build on existing knowledge you you don't have to have a point of view if you can if you're a doctor and somebody breaks a leg or whatever you can repair that leg it's not zero-sum in the sense that you have to be smarter than the next person or different from the consensus now in order to be different from the consensus it's there's a high risk you going to be wrong so if you form for me if I form that point of view and I'm wrong the probability of being wrong I'm trying to reduce and and so by having other people stress test my thinking it's very practical right so I say I work really hard to have this independent point of view and then I bring that independent point of view out there and I say shoot at it how am I going to be wrong and let's have that quality back and forth and and so that was just a practical approach find people who have alternative points of view and have quality conversations back and forth not to let them think for me not for me to follow their point of view but for me to understand the different perspectives right very very practical because it increases my probability of being right and it reduces my probability of being wrong and what I discovered in that process is that I was learning so much so just imagine what a path it is fantastic path to think let me go out after the person who is got the opposite point of view who's really smart and let me have quality conversations quality disagreement so in my case it was it was very much motivated by that and then I have clear measures of whether I'm right or wrong so there's a clear accountability in other words I could do whatever I want want it's my responsibility if I'd made it purchase or sale I can measure on a day-to-day basis how good that process is so I get clear feedback just the goal is you know don't be too wrong and be more right than wrong and so in that process it's not I can take personal accountability I mean if I don't learn personal accountability if I don't learn then I'm gonna pay a terrible price so that process itself lent itself to this kind of very open minded decision they also the the making mistakes and and and the loving the mistakes and then because I believe of that we have a culture that's of radical transparency right so every meeting is tape and made available for everybody in the company to look at and what we have our conversations of what makes sense like everybody has the right to make sense of things okay now in that environment I get to see how differently people think I realize how radically different people think and so that was a curiosity to me I really because it's masked you have no idea what's going on behind other people's eyeballs you know they're in their heads they're well it's they all look a lot alike but their brains work so differently so that led me to brain science in other words so I'm just very very interested in understanding literally how the brain works and the physiology of the brain and that's what and and we have different physiologies so what we think is is just our interpretations are things like love love is physiological you know there's a there's a chemical in your brain I forgot the name begins with an O that is where love comes from so this physiology our brains are structured differently and then when you start to realize that the brain is very much like the body the in other words there are parts of that that your your body you can exercise and change certain parts of that you have a certain body and maybe you can get more muscular to a certain degree and maybe you can't and then there are parts of your brain parts of your body that you can't change you can't change your bone structure right that's just the reality of the of the brains and that is what people are like so the recognition of that the embracing of that reality is great yet we don't talk about that and that's a tragedy reality is reality okay which is more what she's gonna produce more discomfort the denying reality I call the you know harsh truths there are arts truths things you wish were not the case okay but their truths do you want to know about them or do you not want to know about them it's practical to know about them right if you want to make success it's practical to know about all those harsh realities right little bath Aurora and then deal with the harsh realities the person who doesn't want to go there is not going to know the harsh realities and they're not gonna make progress the person who loves to know all what reality is whatever it is is going to know how to deal with reality in the best possible way right so what's the fear who you're learning you you can reject right I'm in other words forget their opinion the opinion doesn't matter right you will bring these ivory all information together and then form your own opinion but let me see that perspective what is it brings in from knowledgeable people from thoughtful people those things and then you can assess that does that make sense and and and also test yours in other words you ask them the question but gee it doesn't seem that way so have that dialogue they should do it open-mindedly if you can say can we really have an open mind and dialogue so that you can consider what i'm saying and i can consider what you're saying so what we're in a path were in a path to trying to find out what's true that's that's or or even the the presumptions the cause-effect relationships right because everything works like a machine everything has everything every outcome has causes so when you think of it as what let's state what our machine is how does the world work how does reality work and have a conversation how does reality work and if we can agree it works this way then you can say okay now let's put in the circumstances and that will mean that these things will happen if that's the cause-effect relationship if you can work through conversations and you say actually reality works that way so that's what the conversation can provide I think it had an effect on in terms of always liking improvisation I was respected that ability you know too well and but also he was out late at nights and so he you know I then slept later in the days and so it affected how our relationship was right so anyway so watching him play jazz and and how we had that communication I think played some effect but you know for me I was also an only child and I think that maybe an only child played a role not maybe I don't know you know I can't psychoanalyze myself but maybe you know the being there alone and having time to think played a role and then also so I would go out and play with my friends I love relationships for me meaningful work and meaningful relationships are what it's all about that's my own that's where I'm coming from in other words the passion for the work and I love you know that shaping or learning how reality works and I like to do that with a group of people and then I and then my relationships very very important my family my my friends all of those so meaningful work and meaningful relationships are very important to me I don't know it's very difficult for me to psychoanalyze myself where that all came from my caddied for Richard Nixon naik a deed for the Duke of Windsor a fact that caddied for very interesting people at that golf course and at the time also there was Wall Street crowd and this was in the 60s and at the time the United States was on top of the world stocks kept going up and there was everybody talked about the stock market so it looks precocious more precocious than it was it was just what people were talking about and I certainly was interested in having those conversations and I was interested in that experience so yes I bought stocks or I bought a stock northeast Airlines and was the first stock I bought me and my whole criteria were it was the only company I ever heard of that was selling for less than $5 a share and I figured if I less than five dollars a share can buy more shares I mean dumb all right but it turned out that that company was about to be acquired it was about to go broke somebody acquired and tripled or went up a lot and I made money and then as a result of that I got interested and it was the thing to talk about so I could talk about people with Wall Street people when we were walking down the course about what stocks were good and bad and that interaction and because I was speaking to them about the stock market and they were really nice people we had those quality conversations and then I began the process I hate it I hated school I really hated school I really all I hated school generally right because it was this instruction following thing now I bet you it's probably also because I wasn't good at it I mean I suspect I wasn't good at it you know maybe to some extent it was that yes I wanted to pursue the understanding I always liked the understanding but I think it was I think I was just built that way right so some people it sticks and some people like I've got a great conceptual memory and a terrible rote memory so if I have a story I could tell you year by year kind of what happened within a story within a context but if I was to go into you know like a memory based learning it's terrible I have a terrible rote memory my my situation was I did terribly in high school I hated high school I just wouldn't study I would remember that you know my mother would send me to my room and say you have to study and I wouldn't study I would do anything I would be alone in the room that would be I'd find something to think about or do and I wouldn't study and I did terrible in high school and I barely got into a college that CW post college which people you know it's just a it was a great college for me at the time and it was only then that I could begin to pick my courses so then I began to pick things that are were interesting to me and then it was exciting I loved it right and then and you had the free time like college you you know other school most of the time you know you go in a certain time the bell rings you go to the next class it's packed in and in in college there was freedom I always loved freedom remember I'm when I got my car or whatever it would be anything that brought me freedom I loved and so college allowed me freedom the freedom to choose the subjects Lorenson that I was interested in the freedom of time and so that and so I did very well in college and and then I went to Harvard Business School in the summer between well between college and going to Harvard Business School I clerked on the floor of the Stock Exchange which was in 1971 when there was the monetary system breakdown and which was an unbelievable experience and and it was well I was wrong many times in the markets up to that but this was one of those really telling times so you're imagine you're I watched it the follow of developments day by day up until the break down and what I was seeing is that the world financial system money as we knew it dollars were not being accepted we had large debts around the world and these dollars were not being accepted and a big crisis and it came to head on August 15 1971 when I was clerking on the floor of the exchange and the President Nixon on Sunday night gets in front of the television and announces the floating of the dollar in other words we're going off the gold standard and at that time money had no value except as a claim against gold because money was like checks in your checkbook right it had no value no intrinsic value so now there was going to be the severing of the relationship you it's like now you can keep the checks but you can't have the money that's in the bank and so that I figured wow what a shock and I walked on to the floor of the New York Stock Exchange where I'm clerking and I come there and the stock market went up the most it ever went up in a long time in many years and that was the first time that happened and I said I wasn't prepared for the fact that this was a currency devaluation people at the time none of us really understood the relationships because it never happened in our lifetimes before so I started to do research I always wanted to understand how it made sense and I realized that there were currency devaluations that happened many times in history so for example in 1933 in March of 1933 in the Great Depression the same thing happened for the same reasons there was too much debt and they had to print money and when you print money you have this kind of effect and these experiences then all through my development I found that there were many things that had never happened in my lifetime before or the lifetime of the people that I was operating with the marketplace the people in the market mostly were very very much responsive to their experiences particularly their more recent experiences so it was a pattern that I would say of surprise we would be surprised because we were stuck in our presumption that our recent experiences were going to continue what I learned is what I learned is to be surprised another I learned by the surprises and then when I when I was surprised it's only because I didn't understand the cause-effect relationship everything happens because there's this core there were causes to make it happen everything right ok now what I looked at each one of those and said that thing did it ever happened before and I went back in history and I saw these things happening before for the same cause effect relationships and then I real is that everything everything that happens is just another one of those right the same thing happens it maybe I don't know if you're skiing and you make a turn yeah that's called skiing and make a turn and there is one of those and they repeat ok so then when how does reality work what's the cause effect relationship so that if you're encountering one of those a learning experience I don't know anything a birth the marriage a an economic downturn if you encounter any of those they have all happened before a deleveraging so that's why we anticipated the de leveraging before their before the 2008 downturn in the economy we it's a very good example of what we're talking about if there's a machine everything works like a machine meaning there's a closed effect relationships so in order to understand the machine and understand it through time you have to see how those cause-effect relationships works particularly big events deleveraging --zz have happened throughout history you can go back thousands of years hundreds of years they always have happened because there's a certain nature to a debt cycle and how that works when when debt Rises faster than income you get to spend more so I'll explain it in and brief let's let's imagine you're earning $100,000 a year and you have no debt then I can go out and borrow because I have no debt I can go to the bank and I could borrow and let's say they lend me ten thousand dollars a year so now I have a hundred and ten thousand dollars a year that I could spend when I spend that hundred and ten thousand somebody else are earns a hundred and ten thousand so that causes their earnings to go up as their earnings go up they also can go to the bank and so you build a cycle in which debt Rises faster than income most importantly the debt Rises faster and the ability to service income so that is a self-reinforcing upward cycle it causes asset prices to rise because if incomes are rising companies are doing better so their earnings do better and so people with debt can buy goods services or financial assets and those things cause them to go up so there's a debt expansion but obviously debt can't rise faster than income forever usually when we had a downturn you'd lower interest rates because lowering interest rates would have stimulative effects on the economy first when you lower interest rates it has the effect of making it easier to service your debt lower interest rates make it easier to service the debt also it makes items that are bought on credit cheaper your monthly payments go down if you buy a car or a house your monthly payments go down if interest rates are lower so it makes it cheaper meaning you could afford more so it stimulates the economy and it also has the effect of raising assets prices because assets if you have an income stream it could be renting a property you're comparing it with the going interest rate and if the interest rate goes down the value of the asset goes up so it has a wealth effect so as the economy works when they were lower interest rates it would have the effect of stimulating an economy and that stimulating economy really stimulated debt growth and therefore purchasing on debt and it raises so the economy always has gone through these cycles in which interest rates go up when they're trying to slow the economy interest rates go down when they're trying to stimulate the economy however when interest rates get close to zero it doesn't work so you have a lot of debt that is rising faster than income can't go on forever can't lower interest rates they hit zero and the world changes so that's the basic cause effect dynamic so in 2007 2006 2007 it was very clear we were in a bubble but like all of these situations people at the time very much get carried away with what's happening at the time like 2005 six everybody says the stock market goes up it's a great investment because it went up they don't realize it's more expensive going up may make it more expensive but no they look back and they say it's a great investment or houses or I can go borrow money and and and buy houses and do this but they don't think about the paying back and how that works this is human nature this has happened through hundreds and thousands of years and so they get to the point where interest rates can't go down there's not a rectifying of the problem and you begin a deleveraging and then the process begins to work in Reverse a deleveraging means no longer can you raise income faster excuse me no longer can you raise your debt faster than your income so if you can't you have to slow your debt you have to slow your spending so as you slow your spending you're slowing somebody else's income and and when I say it's the purchase of goods services and financial assets and as you saw the purchases of goods services and financial assets the economy goes down and the assets go down and as the assets go down and the incomes go down there's more of a need to cut your spending and so it begins to build a self-reinforcing negative cycle there's not enough money in the system there's not enough money in the system because again just just think of it there's spending and spending could be paid for either by money or credit so if you go into a store and you're buying something let's say I'm buying a suit I can pay for it either by credit or I can pay by money if I pay by credit it's a promise to deliver money if I pay by money that transactions complete but since I can pay by credit I can stimulate the demand I can have a strong economy but I own money and so the owing of the money means that when when I can no longer produce credit and I have to go get money I need more money in the system and when you have a zero interest rate then the central bank is stuck because this deleveraging will continue to feed on itself it will continue I don't spend you don't earn it goes down can't service my debts because I don't have enough money to service my debts banks get in trouble because the person who they lent them the money to doesn't pay back what is a bank bank is a very simple thing people gather they put money in a bank that person goes in once at that bank goes and lends it to some other people and they then hope to get paid back and a higher interest rate that's what it is and so when those people can't pay back because they don't have because that credit cycle starts to work in Reverse and they can't pay back then the banks get in trouble they lose money and when they lose money than their bad banks and the whole system works so you see that at the same time as there's a contraction and credit there was a stock market falling because you need to sell assets and because of the contraction and credit ins people are spending less earnings of companies go down so the companies are worth less and because of then the debt problems the banks don't do well so we have a banking crisis so you see that that deleveraging happens and in the ways that we're used to happening the debt private sector debt doesn't increase spending is less banks get in trouble markets and so on is not enough money the central bank lowers interest rates interest rates hit zero they're stuck so that's a deleveraging and that's at that sad oppression part of it to leveraging take the 30s take japan's deleveraging these are iconic deleveraging and our deleveraging at first austerity is the path because you realize oh debt is a problem and what we all have to do is stop getting into more debt that becomes obvious we can't continue to do that so we go through the austerity but as we go through that austerity there's a feedback loop because that most lack of spending that lacking of debt of course is somebody's else's income to go down ok so then there's a there's a problem because of the debts so we go to we encounter a lot of debt defaults and we think about restructuring debts those debt defaults means okay how do we re-enter an agreement in which we can get past that that you can pay what you can afford and so there's a debt restructuring a lot of debt restructurings but the debt restructurings also don't help because well they help to some extent but they they also bring with them problems because one man stats are another man's assets so if I lower your debt let's say I'm don't do restructuring you can pay half your mortgage you come in will readjust your mortgage and you can pay half then I have to write down that mortgage and so my wealth goes down and as my wealth goes down I can borrow less and I can spend less so it feeds on itself so the problem is that there's too much debt relative to income so you can reduce the debt by having austerity and cutting your debt and that's good and that's deflationary and it's negative for growth because austerity means less spending and you can restructure so that is deflationary and it's negative for growth and and so that produces a lot of pain at the same time so like in the in the 30s 1929 stock market crash and you go through that and it keeps feeding on itself and it's not enough it's not good enough because it causes that self reinforcing process and then eventually the central bank's print money so in March 1933 which was the bottom of the Great Depression President Roosevelt severs the link with gold and and prints money because money a debt is a promise to deliver money so if I can slip a little money into the system it eases that pressure the printing of money people think is inflationary and in and of itself it is inflationary but if it's happening at the same time as the other deflationary factors are happening so that there is still austerity there a certain amount a certain amount of restructuring or working out debts and the amount of printing so that they balance all three of those approaches have the effect of lowering debt relative to income so you can lower debt relative to income without having a you know a terrible situation it's still not this takes a long time they call it the Lost Decade these countries go through lost decades it's usually more than a decade maybe 15 years but it's an adjustment process if done well in which there's the right mix between austerity not raising debt relative to income and restructuring getting the debt payments in order and putting enough money into the system so you're seeing Europe go through that it's classic and all countries and people companies in one way or another you know through history this has happened and the main lesson to learn but it's not human nature to is not to have debt rise faster than income for an extended period of time because that won't that's a bubble that won't last but but because we're so responsive to what we've experienced we go through these cycles right the cycle is let's say my parents generation they were through two decades of depression and war so they have depression and war and they come out of that with the realization that they don't need luxuries that they were just if they have they want to save to make sure the downside doesn't happen and of course at that point essentially they're over saving and and that's because there's no debt you've wiped out the debt the cycle is beginning to move up again then there is the positive reinforcement of the cycle times become better and you get used to the time becoming better so you go through that cycle the 50s and the 60s and the 70s each one of those it becomes better and you become that more distant from the negative experience and more confident and more confident meaning that what's saving for saving is because you've worried that the future will be worse than the past so you save in order to protect that so saving becomes less important as your living standards you've said I can afford I can enjoy life more and then borrowing who was doing well then it's the person who's borrowing to buy financial investments are but they buy their house the house goes up and you look at your neighbors and you say that that's the thing to do and then we go through that cycle and through that cycle debt Rises faster than income and as debt Rises faster than income reaches its limits then we go through the cycle again right and so because it's open these come along once in a lifetime and so we didn't experience them so it's again it's another one of those right I don't know what a hedge fund is I I really don't know it when I say that it's like a it would be like using a term um a mutual fund so it's a structure within which investors can do all different things like a mutual fund you might say some people are value investors some people invest in bonds some people invest in stocks people do all different things within a structure called a hedge fund so it's a particular structure that allows people to do all different things basically though it allows you to invest without much in the way of restrictions traditional ways I can sell short as well as go long if something's gonna go if I think something will go down I can sell short I can go into any market I can go into stocks or bonds or commodities or gold or anywhere that I want to go within my agreement with my client so I give me the freedom to approach the world to look at whatever's good or whatever is bad and so it's a it's a vehicle that allows me the freedom to invest in the best way that I know how there was nothing to do with vision and it's and I think it was probably very much like Steve Jobs in this we have parallel lives in a sense because we were contemporaries or I didn t want and I watch him and I and so I would for me I guess I was describing so I love to trade markets I worked you know to Wall Street firm to Wall Street firms and about for about two years I got out of school in 73 and I had problems fitting into the organization meaning you know I literally I literally you know got in a fistfight with my boss because on New Year's Eve we were drunk together and you know it's it was that kind of it was a it was not an organized employee and and it was in working within an organization was not the right thing for me and I was always loved being independent and at the time clients of Shearson it was in Shearson at the time had great relationships they loved it they loved working with me and so they were going to pay me and so I could then start my business I didn't view it as starting a business I just viewed it as I get to do what I like to do which is to play the markets and they'll pay me to do that and then I did that and then of course what happens over time is you need things so I I need people to work with and besides I love playing the game with people and so I brought in other people but people would do things and and so you know and I get computers and I get other things over a period of time and it grows and it became a company but I never viewed it as a company I really viewed it more like I'm doing this thing and these are the things that I needed those people in that group and then I just kept doing it and and the things I needed became the company I was in that apartment for a couple of years then I moved to a brownstone which brownstone is a townhouse because I needed more space I lived in the top two floors and worked on the bottom two floors and I did that and had you know my my family I'm two children and then we moved out to Wilton Connecticut because I got tired of the city and I wanted to raise my kids in the outside and so then we rented a house and so on now we have 1500 employees I graduated from Harvard Business School I was trading commodities and this was in 1973 this was when it was the oil shock and there was a need for commodities all around the world and I had a bunch of pals who were in different parts of the world and we decided to put together an association we called it that would bridge the waters at which what it meant was that we were I would we'd find commodities that were located in one place and the sold soybean oil from the United States to Iran in that kind of Association and this was one of those things that we did kind of a part time but it actually didn't end up being I think we did probably two transactions it was more of an idea than a reality and I had the name so in other words I had formed the company incorporated it and I had the structure and so then when I left cheerson there was global macro because I you know it's everywhere in the world and it's trying to understand how all the parts of the world operate I love it because it's it's it's very very practical I like the fact that people are not making subjective evaluations for how good I'm doing that I can measure myself down to the you know two decimal points right what's my performance it's objectively evaluated I like the fact that I can go long or short so that there's no such thing as good times or bad times and most people have an industry or a profession and they have cycles to them you know in my case I don't have any cycles it's I have no excuses just it's all on me I could make bad mistakes and that's my that's that reality I like that so it's those elements notwithstanding we anticipated and profited by it so in two thousand six and seven we could see that it was coming because it's another one of those and it was an interesting it was a very interesting time because I I won't name the policymakers but the leading policy people at makers go to Washington and have conversations with them and and and and it seemed very very likely that that was going to happen and as it was happening there was a lack of understanding of it and the reason that there was a reluctance to embrace this is first of all it was controversial so it seemed improbable because it never happened before in their lifetimes right and then there was a certain amount of conventional wisdom that they and there was not enough discussion there was quality discussion why might something that seemed so improbable be true right and then the willingness I think to think independently just on the basis of that merit and yet it was just another one of those and if you understand the cause-effect linkages it had to occur so we knew you know no anything we it would seem highly likely and we then were positioned so that our clients did well in 2008 when most people did terribly and yet there was no excuses to do terribly really and there was no excuses for letting that happen other than they didn't experience it before now let me say that that always happens it's okay we all make those mistakes but the lesson to be learned from that is that you could be wrong and that you and that you need to understand how the machine works and you need to look at those probabilities and that these things have happened for so for a very very long time even after the 2008 the understanding of deleveraging z' was not even calling it a deleveraging was very controversial and then understanding the mechanics of deleveraging still people were not paying as much attention to how does the machine work how does the economic machine work they were thinking their own opinion about what's going to come next so let's take the issue of of deficits of uh of government debt okay of austerity of printing of money these are still very controversial subjects most of the people who have opinions about those subjects are not actually studying how the machine works going back in history and saying what are those cause-effect relationships but they have opinions now that's we should instead be having a conversation on just like biology or any physiology it you know what is the cause-effect relationship let's agree let's put our that model through time I I've written my views on how the economic machine works and I think it's I think I put created a website I'm not sure of the website I think it's called how they how they economic machine works dog or something but in other words to just put out what do I think the Machine looks like we should be talking about that and then move on to the question of what we should do right but we're but yet there's not enough of that there's not going to the higher level and saying how does that machine work the purse experience the personal evolution you know I think it's that that it's that process of you know would would you would Einstein have said let's say that I don't know whatever he knew receives a Nobel Prize or something and and would he say that was his reward he wouldn't say that was this reward or the equivalent it's the experience of that that's the discovery the you know the excitement and then evolving so you evolved to more and more levels of difficulty it's you know like learning how to ski I guess you know you ski at one level and then all of a sudden it's you you keep you know I've skied for 50 years 15 hours a day or 14 hours a day I got better at skiing and so what's the kick the kick is then to ski where you you know to keep yourself still at the edge and to to do that that's the kick the evolution everybody has a responsibility the right and responsibility to make sense of things in other words it's got to make sense to you and if something doesn't make sense to you you should bring it up you shouldn't talk behind somebody's back or gossip and you know too many people talk about the other people what they're doing wrong except they don't talk to those people about what they're doing wrong so they don't know whether they're actually doing them wrong or not they haven't heard the other side and they're not being productive I so that's terrible and also the organization's for me that in which arbitrary decisions are made or terrible you know a boss two bosses will get together another conversation of what a particular person is like and and then they'll call the person into the room and then they'll say ah Harry and then they'll give them spin spin is terrible it undermines trust and and and so we have a policy of taping everything and letting everybody watch it and look at it and then having thoughtful conversations about that and there's if you're coming into the company you're you go there because you believe that understanding what is true and that route radical transparency to understand what's true and have thoughtful conversation about it including harsh realities is healthy and so it's the embracing of reality what is the reality including what mistakes and and what weaknesses so that I can learn from those mistakes and or learn how to deal with those weaknesses in order to be successful so yes that's him embedded that's that's that was the ground rules you know the ground that's how to have an idea meritocracy in other words if you want to have a real idea meritocracy that's not doesn't have any barriers to it we'll go wherever truth leads us that's what we what's we do and that's very powerful that's that's where the success comes from or we've had radical success and that's where it's come from because it also allows independent thinking right I need independent thinking because if you're going to make a position in the markets it has to be kept you with the consensus and you don't know if you're gonna be right or wrong so you have to test it it's very powerful and it's also it's so silly not to do that because of these ego barriers why wouldn't you have those conversations it's not logical not to unfortunately we have most people and their have not been raised with the notion that knowing what your weaknesses are is pleasurable also the issue of [Music] pain is associated with bad and pleasure is associated with good and that's not true that most all growth you can't get stronger physically or mentally unless you're having pain because you're stretching yourself you're going into a new level so pain is good if you're exercising right let go exercise at the gym it starts off painful but as you start to get going with it and you start to see the benefits of it and you start to change your actually your brain physiology in terms of what actually determines whether it's painful or not it becomes pleasurable so a babe your modification usually takes place over about 18 months of doing something and so you start to get into an environment where it's pleasurable and in our case we call it getting to the other side people come in and they're originally they look at this and they say oh I made a mistake I feel pain about that or I'm identifying some weakness and I feel pain about that and then after doing it enough and seeing the feedback then they begin to realize that it's producing benefits to them and they begin to like it and they begin to worry about B environment that they won't have that that if they go into a normal environment they're gonna have dishonesty they're gonna have people seeing the same things thinking the same things about them but not telling them they won't have an opportunity to have a discussion they won't know whether it's truthful or not that they're operating so it'll all be under the covers and so they're fearful that they won't actually know either what their mistakes are or the people will be making judgments without being able to have a quality conversation so that's the choice which environment would you rather be in you you have to decide for yourself which environment would you rather be in that people that you know that there's going to be conversations about what people think about you and an honest exploration of whether that's true or not you can avoid all that in 1968 the Beatles went to India to learn how to meditate and and then I heard quite a bit about it and was in the media it was interesting and then I tried I learned how to meditate and it was it was definitely life-changing I would say that probably more than anything it had a bigger effect on my life than practically anything because of how it works the way it works is it's it it's it's basically open mindedness that what happens is normally you can't control your brain if you were to sit down and say I'm not going to think it will be filled with stuff and it'll jump all over and you can't control it so what happens is this is an exercise that creates open mindedness because it there's a a word that doesn't make sense which is called a mantra so it's a sound that you repeat and so while your brain is wanting to jump all over the place by repeating this sound mentally it takes your attention away from those thoughts and then by when you continue to repeat it it goes away and so there's nothing and so you go into nothingness ok now when you go into that nothingness first of all you've you've learned the ability to control your brain so that you can go there you can put things away you can approach them in a certain way when you go into that that open-mindedness you're going into your subconscious so you're not a state of conscious so I'm not aware but I'm not asleep asleep is you know well you hear a sound you won't wake up this is if I hear the slightest sound I'm you know what attuned to it so it's a state of sub consciousness and in there are different parts of our brain that have a very big influence on us the amygdala is the part of the brain that has the fight-or-flight that produces anxiety the prefrontal cortex is the part of the brain which we call for executive functioning or it's the part that's reflective it's the part that we are calm and we say do we want to do that do we not want to do that we put things in perspective those two parts of the brain are fight for with each other in other words the passion I'm going to do that because it's exciting but it may be harmful the other part of the brain says and you don't want to do that and so that whole emotional fight-or-flight part of the brain during meditation through brain imaging they see that that calms down and the prefrontal cortex lights up so that open mindedness creates where creativity comes from because creativity is not coming from the working the brain in the I will work hard and think about it in that I will muscle it through it comes from this relaxation it's just like it's an opening up and you know take a hot shower and don't be thinking of something and some great idea comes through and you grab the great idea so meditation is very much like that it opens it opens the mind creates an openness a freedom it's in which that I don't know whether we would say intuition or those that creativity just kind of comes through and it creates an equanimity that in other words you could step back and you can put things in perspective it doesn't lessen your emotions the motions are the same but you can step back and say I'm not going to be controlled by that emotion let me put things and I think it then helps to see things at a higher level what I do I love being creative I love right I go there and I encounter we it the markets is just a medium it's just my instrument right it's a vehicle so in many ways I've invented many different investment concepts that had never been invented before because they just made sense right so it's not just the making the money in the game as its structured its inventing how the game should be played that's fun that's interesting it's just a natural extension of that so that's my instrument the markets are my instrument somebody else might have medicine might be somebody else's instrument you know computer technology is somebody else's medium it happens the same same way on all of these cases it's the interaction between that happening at and then then the working yourself back to reality so jobs Einstein did the same thing right it's the same process when we're talking about shaper it's the same process because you're going from the one side of your brain you go from the from right brain to left brain you're navigating from concept to you know imagination to actualization brings you from big picture to small down to detail with reality embracing that reality so you have that imagination but then you go back to the data and the and does it make sense and do they - they connect so it's a back and forth exercise right that's how it works they all have a passion a determination so you were hitting on it that they will drag themselves through anything basically because they they just have a need to do that they learn by making mistakes they they they mistakes are part of the process they have a love for ambiguity not a fear of ambiguity right in other words some people love to go into the unknown some people hate the unknown so it's and it's that constant process that they're that they're pursuing that act of they can go from the very conceptual to the very granular right so that they will be very granular and then come back to the conceptual and they operate in that way back and forth what's interesting about your your website is that it's the closest to being able to see these things in other words okay so what do they value you could probably organize it if you say okay so now what did they value most I'll bet you that they valued most the things that we're talking about right the things of in other words reality looking at reality appreciate the view the beauty of reality the understanding of reality a passionate desire to understand how it works right the determination then the shaping the the desire to affect it okay so if you categorized went through the interviews tagged them you probably could say okay what did they value and then how did they go about it right what was necessary for example people are running in a group of people you could distinguish between them people who are running a group of people like Steve Jobs is running a group of people some people can do it in a lab and not run a group of people Einstein did not have to run a group of people okay so he would do it his way but then if you're you can categorize them let's say general pal if you take general pal he had to run a group of people okay now how did he run a group of people the people who ran a group of people would not let people stand in the way of their goals so they were a certain way with people they were they would tough they would cut through people meaning recognize people's strengths and weaknesses and deal with those strengths and weaknesses so unlike a lot of people who would who may be worried about I don't know offending people they wouldn't have they won't stay and let offending people we're cutting through it stand in the way of getting to the goal so Steve Jobs is a great example of that right in other words okay if you want it we're talking about what are the elements that are required to achieve a goal you'd like to have Steve just describe what was required okay if you're running a lot of people and and you have to accomplish something and you have to cut through the people to get to the goal that doesn't mean now that's not cruel so he wouldn't view it probably I can't speak for him but I wouldn't view that as cruel I would view that as helpful but I think that these are the important the things that your website will will do I'm sure is to extract that the interesting thing about it is to D personalize it to some extent while personalizing it is interesting to the extent that you can take themes out of it right extract the themes within that website you have an ability to understand what works and so when I look at these tests that we give this is very interesting if we give the tests you see that the different types of people in the tests have a personality just go it follows certain patterns that are different from everyone else it is it's it's a it's a thrill because I can go anywhere in the world I can in other words anything and I just have to bet on how reality will transpire so I have to know how the machine works it's just my machine right so just like if you're listening to at one of the great things that I was enjoying about the people that I was with yesterday as some of the people I had conversations with two Nobel Prize winners in physics and then I'm dealing with also then brain physiology I had conversations with these people and it's unbelievable right because it's all connected and it's and we just have our mediums but what the interest is is above the medium like uh it's a broader base it's not just narrow so Einstein was a musician and he loved philosophy he loved art cuz beauty it's loving how reality works right it's just a just a different way of plugging into it nature is very big for me because I think so man is just one of 30 million species one of the so that 30 million approaches okay man is preoccupied with man most of the world doesn't have people on it we just you get in a plane we're crowded in a particular location you go up in an air and you fly down and land someplace else where there are people most of the world isn't so it's like man is in ant hills it's like being an ant in an anthill right so if you want to look the laws of the universe apply to everything so if you really want to understand and that broader sense you're attracted to it all right so to speak to physicists who are talking about the universe and to listen to how that works and at the same time evolution like man is a relatively new species only two hundred thousand years old it's just I don't know it's all those laws of the universe or for the same for our for all of us I have mixed feelings of the American dream I'll tell you what I meet what I what I love about the American dream that this is a country of I think it's defined mostly as a country of immigrants of people who've come with all different points of view and all different perspectives and that they had to get along that they had to there had to be an acceptance at least in many cases an appreciation for all of those different points of view and to create it was a land of opportunity it should be an opportunity and that is fantastic a meritocracy to be all you can be and that is the American dream and I and I love that element and at the same time I don't want to stamp it as American it is what is uniquely American I think but it but it can be in various ways anywhere and wherever it is it's good we're giving now we're in a global world and it's very important in that global world that we emphasize most importantly good ways of being not over do the Americanism part relative to the what is the good way of being and then understand also other good ways of being those at dimensions to me are absolutely I love and then we also can bring in elements of let's not be so emphasizing the American part of it that we also say it's got to be have an American stamp on it to be good that we can't then also say what are all the different other ways of being in the world that we also can learn from what is in common with the Chinese dream and the American dream do you know what so then they become the some of the universal rules so Confucian the Confucian notions of certain saving it looks like a Horatio Alger in many ways the confusion values are similar to the Protestant work ethic okay so how do what are you trying to achieve so what is when we say the Chinese dream if you go beneath the surface just like I've said there are elements of the American Dream it's the meritocracy it's all of that when you deal in China in many cases there's common what they want is in many cases what we want they want their families to be well-educated they want to progress they want similar things and then they and then there may be differences too and how do they go about that basically for the most part most people want similar things not identical I mean you could break the world I think into I would say different sort of categories to make a big big difference rather than putting names China we are more similar to China in many ways than we and China and us in that there's a desire to in the Americas in the United States or in China there's a desire to accomplish well or to change the world or to evolve and to raise your living standards and all that in a large part of the world there's a desire also to operate in harmony with life to save her life so if you were to go to a Palestinian let's say and and an Israeli they might have differences in what they think is important it might be very fundamental differences one might think accomplishing something is very important another one might say no it's the relationships of sitting down and having a cup of coffee or cup of tea and the quality of that experience so different people are going after different things some people are going after spiritualism maybe totally different spiritualism I mean I think in the West we generally don't even understand very well what spiritualism is because we associate it with the judo Christian Judeo Christian notion of religion but spiritualism is something very different than that and so but you'll have groups of people who will go after spiritualism and then other groups of people who will go after accomplishment and so in our it's the difference between the cities New York Boston Washington LA San Francisco they're going after different things than they are in other parts of the country where it's the savouring so is are you trying to save her well so when we look at those things to stamp them American what is Spanish it's an oversimplification of certain values I threw everybody in order to be successful there are five steps that you go through essentially that everybody has their goals they what is there go on the passion so you have goals and then what happens is you're going after your goals and you encounter your problems okay so encountering problems and then the big difference between people is how they approach those problems people who get bummed out by the problems don't learn from them who learns from them so those who recognize that problems are exciting that they get into those you know problems or mistakes mistakes are learning experience the pain that comes from that mistake every time you have pain it's an indication that something's at odds and so the people who have the pain are the people then who will go into that real that if they solve that pain solve that problem understand what that is representative of not just the one problem but that problem is a certain type of problem that will happen over and over and over again in your life and if you can solve how do I deal with that kind of problem and so diagnose the third thing that everybody needs to do is if they have problems on the way to their goals that they diagnose those problems and they get to the root cause the real root cause the real root cause is often is typically what people are like can you go to what you're like can you go to your mistakes can you go to your weaknesses right can you go to other people's mistakes and weaknesses some people because of an ego barrier can't do that and so if they don't recognize their own mistakes their own weaknesses or others mistakes and weaknesses what the root cause me being what they're like because of ego barriers if they can't go there they're gonna repeat those mistakes they're going to have them over and over again so it's the process essentially of saying at that stage what am I like everybody has strengths and everybody has weaknesses the weaknesses are the other side of the strengths so let's say if you're you know a right brained creative person you may not be reliable because just the way you think necessitates you to think a certain way that means you can't think in another way that means you're gonna keep bumping into that thing that's standing in your way but unless you can embrace I'm not reliable you know right and deal with it you won't get around it it's still gonna continue to be a barrier right so the diagnosis to the root cause is is important so then if you diagnose it then you have to design what are you going to do about it that works so let's say you are very creative but not reliable okay you have to find the means of it first of all embracing that and then saying if I'm not reliable what do I do it do I work with reliable person do I learn reliability do I have some compensating mechanism because I can't let that lack of reliability stand in the way my goal as long as I keep doing that I'm gonna keep running into problems it's the mixture of the elements that matter right yeah if you have a tremendous tenacity but you're you're studying you're learning you're trying to memorize and remember everything that you're being taught and you're really trying hard you could have great tenacity you need the making sense of them something you need to embrace reality you need these other dimensions right so that I think the things that we started to talk about just before the you know the things that these people have a need for is first they need to most fundamentally make sense of things which is a very different kind of learning process it's a very internalized learning process it's not a memory based process so none of these people unlike the population a home none of these people have a desire to follow instructions for most people you you you go to school they tell you what class to go to they what classes to take this goes all the way through University they do this do this to this and then you go into the class and they say learn this and this is the information and it's largely a memory based instructional based process this is not what these people do right this is not so the path what they what they have in is a strong strong desire to understand and make sense of reality how does reality work okay and then so they're all very independent thinking and and and rebellious okay they don't mind you know saying screw you I am this is meant what makes sense and I've got to go down that path right they're comfortable with ambiguity they love ambiguity some people don't like the ambiguity most people they say are nervous about ambiguity they'd love to go within the space of what's ambiguous because that's where the discovery is right they love making mistakes the process they end stand that making mistakes you know loosen up it's like you know going to ski or something you can't learn how to ski unless you're falling so they don't mind the falling they're not embarrassed about making mistakes they're not worried also about the approval of others right so many people are constantly saying oh well ah they risk the whole different definition of risk what's risky they're not worried about what people think of them right is that risk or failure they term of failures a totally different thing the failure is a part of the learning process right what's the risk of failure what you'll be embarrassed or risk of failure how do you distinguish failure from learning uh in your whole life you know failure implies that it stopped that the game stops alright if it's part of a you're failing and then you learn then that learning is part of the moving forward right so that is what the process is like fail learn move forward and constantly do that because you're cutting edge you're going where people haven't been before an inventiveness that's exciting to those people so that's a different kind of approach to life right it's a different way of being people are so attached to being right and yet the tragedy is it could be so easily to find out how you're wrong if you just said to yourself I don't I'm not sure that I'm right and let me go find people who have alternative point of views and let me have quality conversations not to pay attention even to their conclusions but to their thought process so thoughtful discussion worrying about being wrong but not to the sense of being paralyzed or moving forward but in the sense of trying to create discovery to have in an exchange to go after the person who has the most different point of view who is the most thoughtful then have a conversation to see their point of view whether a person could be both open-minded and assertive at the same time that that creates a discovery process that creates a fabulous learning and that process itself reduces the probability of being wrong wrong and produces a great deal of learning people are so hung up on being right starting their discussion and being deriving some sort of satisfaction if at the end of the discussion they were where they began the discussion so that doesn't make any sense because there's not going to be any learning so ego plays an important role in that right that's that all the people who feel like they're I'm good I've got it won't learn if you've got it you won't learn right so so you have to get rid of this ego barrier I've got it thing every human being has weaknesses and and if as I say it's the opposite side of thinking it's the in other words if you were one if you have a brain that works one way and you're doing certain things that allow you to do things that way that you're excelling it means that your brain is working in a manner that has its pluses that'll cause it's minuses so the creative person who's not reliable or the reliable person who's not creative but if they don't embrace that they're going to continue to encounter that ego barrier is the worst thing and if we were raised differently just imagine in the schools that all along the people will always say everybody makes mistakes everybody has weaknesses the key is really to understand what your mistakes and weaknesses are so that you can learn from them right I think in punishment is a terrible concept punishment means that you made a mistake and you're being punished I think instead of punishment every time somebody makes a mistake you should say the only thing that you need to do to get out of your punishment his first think what kind of mistake was that so if I'm in this situation that's like that again how would I do deal with it differently not to make that mistake so that learning should come from the mistake not punishment because you're teaching people not to make mistakes where's where the learning comes from not the appreciation that if you keep doing this over and over again you're gonna keep encountering the same outcomes where creativity comes from because creativity is not coming from the working the brain in the I will work hard and think about it in that I will muscle it through it comes from this relaxation it's just like it's an opening up and you know take a hot shower and don't be thinking of something and some great idea comes through and you grab the great idea so meditation is very much like that it opens it opens the mind creates an openness a freedom it's in which that I don't know whether we would say intuition or those that creativity just kind of comes through and it creates an equanimity that in other words you could step back and you can put things in perspective it doesn't lessen your emotions the motions are the same but you can step back and say I'm not going to be controlled by that emotion let me put things and I think it then helps to see things at a higher level what I do I love being creative I love right I go there and I encounter we it the markets is just a medium it's just my instrument right it's a vehicle so in many ways I've invented many different investment concepts that had never been invented before because they just made sense right so it's not just the making the money in the game as its structured its inventing how the game should be played that's fun that's interesting it's just a natural extension of that so that's my instrument the markets are my instrument somebody else might have medicine might be somebody else's instrument you know computer technology is somebody else's medium it happens the same same way on all of these cases it's the interaction between that happening at and then then the working yourself back to reality so jobs Einstein did the same thing right it's the same process when we're talking about shaper it's the same process because you're going from the one side of your brain you go from the from right brain to left brain you're navigating from concept to you know imagination to actualization brings you from big picture to small down to detail with reality embracing that reality so you have that imagination but then you go back to the data and the and does it make sense and do they - they connect so it's a back and forth exercise right that's how it works they all have a passion a determination so you were hitting on it that they will drag themselves through anything basically because they they just have a need to do that they learn by making mistakes they they they mistakes are part of the process they have a love for ambiguity not a fear of ambiguity right in other words some people love to go into the unknown some people hate the unknown so it's an epic and it's that constant process that they're that they're pursuing that act of they can go from the very conceptual to the very granular right so that they will be very granular and then come back to the conceptual and they operate in that way back and forth what's interesting about your your website is that it's the closest to being able to see these things in other words okay so what do they value you could probably organize it if you say okay so now what did they value most I'll bet you that they valued most the things that we're talking about right the things of in other words reality looking at reality appreciate that view the beauty of reality the understanding of reality a passionate desire to understand how it works right the determination then the shaping the the desired effect it okay so if you categorized went through the interviews tagged them you probably could say okay what did they value and then how did they go about it right what was necessary for example people are running in a group of people you could distinguish between them people who are running a group of people like Steve Jobs is running a group of people some people can do it in a lab and not run a group of people Einstein did not have to run a group of people okay so he would do it his way but then if you're you can categorize them out let's say general pal if you take general pal he had to run a group of people okay now how did he run a group of people the people who ran a group of people would not let people stand in the way of their goals so they were a certain way with people they were they would talk they would cut through people meaning recognize people's strengths and weaknesses and deal with those strengths and weaknesses so unlike a lot of people who would who may be worried about I don't know offending people they wouldn't have they won't stand let offending people we're cutting through it stands in the way of getting to the goal so Steve Jobs is a great example of that right in other words okay if you want it we're talking about what are the elements that are required to achieve a goal you'd like to have Steve just described what was required okay if you're running a lot of people and and you have to accomplish something and you have to cut through the people to get to the goal that doesn't mean now that's not cruel so he wouldn't view it probably I can't speak for him but I wouldn't view that as cruel I would view that as helpful but I think that these are the important the things that your website will will do I'm sure is to extract that the interesting thing about it is to D personalize it to some extent while personalizing it is interesting to the extent that you can take themes out of it right extract the themes within that website you have an ability to understand what works and so when I look at these tests that we give this is very interesting if we give the tests you see that the different types of people in the tests have a personality just go it follows certain patterns that are different from everyone else it is it's it's a it's a thrill because I can go anywhere in the world I can in other words anything and I just have to bet on how reality will transpire so I have to know how the machine works it's just my machine right so just like if you're listening to at one of the great things that I was enjoying about the people that I was with yesterday as some of the people I had conversations with two Nobel Prize winners in physics and then I'm dealing with also membrane physiology I had conversations with these people and it's unbelievable right because it's all connected and it's and we just have our mediums but what the interest is is above the medium like uh it's a broader base it's not just narrow so Einstein was a musician and he loved philosophy he loved art cuz Beauty it's loving how reality works right it's just a just a different way of plugging into it nature is very big for me because I think so man is just one of 30 million species one of the so that 30 million approaches okay man is preoccupied with man most of the world doesn't have people on it we just you get in a plane we're crowded in a particular location you go up in an air and you fly down and land someplace else were there people most of the world isn't so it's like man is in ant hills it's like being an ant in an anthill right so if you want to look the laws of the universe apply to everything so if you really want to understand in that broader sense you're attracted to it all right so to speak to physicists who are talking about the universe and to listen to how that works and at the same time evolution like man is a relatively new species only two hundred thousand years old it's just I don't know it's all those laws of the universe or for the same for our for all of us I have mixed feelings of the American dream I'll tell you what I meet when I what I love about the American dream that this is a country of I think it's defined mostly as a country of immigrants of people who've come with all different points of view and all different perspectives and that they had to get along that they had to there had to be an acceptance at least in many cases in appreciation for all of those different points of view and to create it was a land of opportunity it should be an opportunity and that is fantastic a meritocracy to be all you can be and that is the American dream and I and I love that element and at the same time I don't want to stamp it as American it is what is uniquely American I think but it but it can be in various ways anywhere and wherever it is it's good we're getting now we're in a global world and it's very important in that global world that we emphasize most importantly good ways of being not over do the Americanism part relative to the what is the good way of being and then understand also other good ways of being those at dimensions to me are absolutely I love and then we also can bring in elements of let's not be so emphasizing the American part of it that we also say it's got to be have an American stamp on it to be good that we can't then also say what are all the different other ways of being in the world that we also can learn from what is in common with the Chinese dream and the American dream do you know what I mean so then they become the some of the universal rules so Confucian the Confucian notions of certain saving it looks like a Horatio Alger in many ways the confusion values are similar to the Protestant work ethic okay so how do what are you trying to achieve so what is when we say the Chinese dream if you go beneath the surface just like I've said there are elements of the American Dream it's the meritocracy it's all of that when you deal in China in many cases there's common what they want is in many cases what we want they want their families to be well-educated they want to progress they want similar things and then they and then there may be differences too and how do they go about that basically for the most part most people want similar things not identical I mean you you could break the world I think into I would say different sort of categories to make a big big difference rather than put names China we are more similar to China in many ways than we and China and us in that there's a desire to in the Americas in the United States or in China there's a desire to accomplish well or to change the world or to evolve and to raise your living standards and all that in a large part of the world there's a desire also to operate in harmony with life to save her life so if you were to go to a Palestinian let's say and and an Israeli they might have differences in what they think is important it might be very fundamental differences one might think accomplishing something is very important another one might say no it's the relationships of sitting down and having a cup of coffee or cup of tea and the quality of that experience so different people are going after different things some people are going after spiritualism maybe totally different spiritualism I mean I think in the West we generally don't even understand very well what spiritualism is because we associate it with the judo Christian Judeo Christian notion of religion but spiritualism is something very different than that and so but you'll have groups of people who will go after spiritualism and then other groups of people who will go after accomplishment and so in our it's the difference between the cities New York Boston Washington LA San Francisco they're going after different things than they are in other parts of the country where it's the savouring so is are you trying to save her well so when we look at those things to stamp them American what is Spanish it's an oversimplification of certain values I threw everybody in order to be successful there are five steps that you go through essentially that everybody has their goals they what is there go on the passion so you have goals and then what happens is you're going after your goals and you encounter your problems okay so encountering problems and then the big difference between people is how they approach those problems people who get bummed out by the problems don't learn from them who learns from them so those who recognize that problems are exciting that they get into those you know problems or mistakes mistakes are learning experience the pain that comes from that mistake every time you have pain it's an indication that something's at odds and so the people who have the pain are the people then who will go into that real that if they solve that pain solve that problem understand what that is representative of not just the one problem but that problem is a certain type of problem that will happen over ain't forgot the name begins with an O that is where love comes from so this physiology our brains are structured differently and then when you start to realize that that the brain is very much like the body the in other words there are parts of that that you your your body you can exercise and change certain parts of that you have a certain body and maybe you can get more muscular to a certain degree and maybe you can't and then there are parts of your brain parts of your body that you can't change you can't change your bone structure right that's just the reality of the of the brains and that is what people are like so the recognition of that the embracing of that reality is great yet we don't talk about that and that's a tragedy reality is reality ok which is more what she's gonna produce more discomfort the denying reality I call the you know harsh truths there are arts truths things you wish were not the case ok but their truths do you want to know about them or do you not want to know about them it's practical to know about them right if you want to make success it's practical to know about all those harsh realities right Lilith Ahura and then deal with the harsh realities the person who doesn't want to go there is not going to know the harsh realities and they're not going to make progress the person who loves to know all what reality is whatever it is is going to know how to deal with reality in the best possible way right so what's the fear who you're learning you you could reject right I'm in other words forget their opinion the opinion doesn't matter right you will bring these ivory all information together and then form your own opinion but let me see that perspective what is it brings in from knowledgeable people from thought people those things and then you can assess that does that make sense and and and also test yours in other words you ask them the question but gee it doesn't seem that way so have that dialogue they should do it open-mindedly if you can say can we really have an open-minded dialogue so that you can consider what i'm saying and i can consider what you're saying so what we're in a path we're in a path to trying to find out what's true that's that's or even the the presumptions the cause-effect relationships right because everything works like a machine everything has everything every outcome has causes so when you think of it as what let's state what our machine is how does the world work how does reality work and have a conversation how does reality work and if we can agree it works this way then you can say okay now let's put in the circumstances and that will mean that these things will happen if that's the cause-effect relationship if you can work through conversations and you say actually reality works that way so that's what the conversation can provide I think it had an effect on in terms of always liking improvisation I was respected that ability you know too well and but also he was out late at nights and so he you know I then slept later in the days and so it affected how our relationship was right so anyway so watching him play jazz and and how we had that communication I think played some effect but you know for me I was also an only child and I think that maybe an only child played a role not maybe I don't know you know I can't psychoanalyze myself but maybe you know the being there alone and having time to think played a role and then also so I would go out and play with my friends I love relationships for me meaningful work and meaningful relationships or what it's all about that's my own that's where I'm coming from in other words the passion for the work and I love you know that shaping or learning how reality works and I like to do that with a group of people and then I and then my relationships very very important my family my my friends all of those so meaningful work and meaningful relationships are very important to me I don't know it's very difficult for me to psychoanalyze myself where that all came from like a deed for Richard Nixon and I caddied for the Duke of Windsor a fact that caddied for very interesting people at that golf course and at the time also there was wall street crowd and this was in the 60s and at the time the United States was on top of the world stocks kept going up and there was everybody talked about the stock market so it looks precocious more precocious than it was it was just what people were talking about and I certainly was interested in having those conversations and I was interested in that experience so yes I bought stocks or I bought a stock northeast Airlines and was the first stock I'd bought me and my whole criteria were it was the only company I ever heard of that was selling for less than $5 a share and I figured if I less than five dollars a share can buy more shares I mean dumb right but it turned out that that company was about to be acquired it was about to go broke somebody acquired and tripled or went up a lot and I made money and then as a result of that I got interested and it was the thing to talk about so I could talk about people walk with Wall Street people when we were walking down the course about what stocks were good and bad and that interaction and because I was speaking to them about the stock market and they were really nice people we had those quality conversations and then I began the process I hate it I hated school I really hated school I really all I hated school generally right because it was this instruction following thing now I bet you it's probably also because I wasn't good at it I mean I suspect I wasn't good at it you know maybe to some extent it was that yes I wanted to pursue the understanding I always liked the understanding but I think it was I think I was just built that way right so some people it sticks and some people like I've got a great conceptual rep memory and a terrible rote memory so if I have a story I could tell you year by year kind of what happened within a story within a context but if I was to go into you know like a memory based learning it's terrible I have a terrible rote memory my my situation was I did terribly in high school I hated high school I just wouldn't study I wouldn't remember that you know my mother would send me to my room and say you have to study and I wouldn't study I would do anything I would be alone in the room that would be I'd find something to think about or do and I wouldn't study and I did terrible in high school and I barely got into a college that CW post college which people you know it's just a it was a great college for me at the time and it was only then that I could begin to pick my courses so then I began to pick things that were interesting to me and then it was exciting I loved it right and then and you had the free time like college you you know other school most of the time you know you go in a certain time the bell rings you go to the next class it's packed in and in in college there was freedom I always loved freedom remember I when I got my car or whatever it would be the anything that brought me freedom I loved and so college allowed me freedom the freedom to choose the subjects Lorenson that I was interested in the freedom of time and so that and so I did very well in college and and then I went to Harvard Business School in the summer between well between college and going to Harvard Business School I clerked on the floor of the stock exchange which was in 1971 when there was the monetary system break down and which was an unbelievable experience and and it was well I was wrong many times in the markets up to that but this was one of those really telling times so you're imagine you're I watched it the follow of developments day by day up until the break down and what I was seeing is that the world financial system money as we knew it dollars were not being accepted we had large debts around the world and these dollars were not being accepted and a big crisis and it came to head on August 15 1971 when I was clerking on the floor of the exchange and the President Nixon on Sunday night gets in front of the television and announces the floating of the dollar in other words we're going off the gold standard and at that time money had no value except as a claim against gold because money was like checks in your checkbook right it had no value no intrinsic value so now there was going to be the severing of the relationship yes it's like now you can keep the checks but you can't have the money that's in the bank and so that I figured wow what a shock and I walked on to the floor of the New York Stock Exchange where I'm clerking and I come there and the stock market went up the most it ever went up in a long time in many years and that was the first time that happened and I said I wasn't prepared for the fact that this was a currency devaluation people at the time none of us really understood the relationships because it never happened in our lifetimes before so I started to do research I always wanted to understand how it made sense and I realized that there were currency devaluations that happened many times in history so for example in 1933 in March of 1933 in the Great Depression the same thing happened for the same reasons there was too much debt and they had to print money and when you print money you have this kind of effect and these experiences then all through my development I found that there were many things that had never happened in my lifetime before or the lifetime of the people that I was operating with the marketplace the people in the market mostly were very very much responsive to their experiences particularly their more recent experiences so it was a pattern that I would say of surprise we would be surprised because we were stuck in our presumption that our recent experiences were going to continue what I learned is what I learned is to be surprised at another I learned by the surprises and then when I when I was surprised it's only because I didn't understand the cause-effect relationship everything happens because there's this core there were causes to make it happen everything right okay now what I looked at each one of those and said that thing did it ever happened before and I went back in history and I saw these things happening before for the same cause effect relationships and then I real is that everything everything that happens is just another one of those right the same thing happens it maybe I don't know if you're skiing and you make a turn yeah that's called skiing and make a turn and there is one of those and they repeat ok so then when how does reality work what's the cause effect relationship so that if you're encountering one of those a learning experience I don't know anything a birth the marriage a an economic downturn if you encounter any of those they have all happened before a deleveraging so that's why we anticipated the de leveraging before their before the 2008 downturn in the economy we it's a very good example of what we're talking about if there's a machine everything works like a machine mean anything there's a closed effect relationships so in order to understand the Machine and understand it through time you have to see how those cause-effect relationships works particularly big events deleveraging --zz have happened throughout history you can go back thousands of years hundreds of years they always have happened because there's a certain nature to a debt cycle and how that works it when when debt Rises faster than income you get to spend more so I'll explain it in and brief let's let's imagine you're earning $100,000 a year and you have no debt then I can go out and borrow because I have no debt I can go to the bank and I could borrow and let's say they lend me ten thousand dollars a year so now I have a hundred and ten thousand dollars a year that I could spend when I spend that hundred and ten thousand somebody else are earns a hundred and ten thousand so that causes their earnings to go up as their earnings go up they also can go to the bank and so you build a cycle in which debt Rises faster than income most importantly the debt Rises faster and the ability to service income so that is a self-reinforcing upward cycle it causes asset prices to rise because if incomes are rising companies are doing better so their earnings do better and so people with debt can buy goods services or financial assets and those things cause them to go up so there's a debt expansion but obviously debt can't rise faster than income forever usually when we had a downturn you'd lower interest rates because lowering interest rates would have stimulative effects on the economy first when you lower interest rates it has the effect of making it easier to service your debt [Music] I think for everybody in order to be successful there are five steps that you go through essentially that everybody has their goals they what is their go on the passion so you have goals and then what happens is you're going after your goals and you encounter your problems okay so encountering problems and then the big difference between people is how they approach those problems people who get bummed out by the problems don't learn from them who learns from them so those who recognize that problems are exciting that they get into those you know problems or mistakes mistakes are learning experience the pain that comes from that mistake every time you have pain it's an indication that something's at odds and so the people who have the pain are the people then who will go into that realize that if they solve that pain solve that problem understand what that is representative of not just the one problem but that problem is a certain type of problem that will happen over and over and over again in your life and if you can solve how do I deal with that kind of problem and so diagnose the third thing that everybody needs to do is if they have problems on the way to their goals that they diagnose those problems and they get to the root cause the real root cause the real root cause is often is typically what people are like can you go to what you're like can you go to your mistakes can you go to your weaknesses right can you go to other people's mistakes and weaknesses some people because of an ego barrier can't do that and so if they don't recognize their own mistakes their own weaknesses or others mistakes and weaknesses what the root cause me being what they're like because of ego barriers if they can't go there they're gonna repeat those mistakes they're going to have them over and over again so it's the process essentially of saying at that stage what am I like everybody has strengths and everybody has weaknesses the weaknesses are the other side of the strengths so let's say if you're you know a right brained creative person you may not be reliable because just the way you think necessitates you to think a certain way that means you can't think in another way that means you're gonna keep bumping into that thing that's standing in your way but unless you can embrace I'm not reliable you know right and deal with it you won't get around it it's still gonna continue to be a barrier right so the diagnosis to the root cause is is important so then if you diagnose it then you have to design what are you going to do about it that works so let's say you are very creative but not reliable okay you have to find the means of it first of all embracing that and then saying if I'm not reliable what do I do if do I work with a reliable person do I learn reliability do I have some compensating mechanism because I can't let that lack of reliability stand in the way my goal as long as I keep doing that I'm gonna keep running into problems so you have to design what you do about the problems and then when you're designing what you do about the problems then you have to follow it through so you have to follow through or or do the thing you designed and and and the doing the thing you designed require self-discipline and so on so people have to do those things in order to be successful right they have to know what their goals are they they have their will encounter their problems they have to diagnose those problems down to the root cause the real root cause they have to design ways to get around them and then they have to have the self-discipline to follow that and it's a continuous iterative process so that that's what we keep doing right so you're going in that direction I would say that all of the shapers are doing that they're doing that they doing that well right so they don't mind the problems they don't mind that that's their adventures wonderful book is Einsteins mistakes right how he and you hear his struggles right he wouldn't have been able to be cutting-edge he wouldn't have been able to be inventive if you didn't go through that so when you're looking at the personality characteristics the personality characteristics lend themselves to doing that five-step process well it's the mixture of the elements that matter right yeah if you could have a tremendous tenacity but you're you're studying you're learning you're trying to memorize and remember everything that you're being taught and you're really trying hard you could have great tenacity you need the making sense of them something you need to embrace reality you need these other dimensions right so that I think the things that we started to talk about just before the you know the things that these people have a need for is first they need to most fundamentally make sense of things which is a very different kind of learning process it's a very internalized learning process it's not a memory based process so none of these people unlike the population a whole none of these people have a desire to follow instructions for most people you you go to school they tell you what class to go to they what classes to take this goes all the way through University they do this do this to this and then you go into the class and they say learn this and this is the information and it's largely a memory based instructional based process this is not what these people do right this is not so the path what they what they have in is a strong strong desire to understand and make sense of reality how does reality work okay and then so they're all very independent thinking and and rebellious okay they don't mind you know saying screw you I am this has meant what makes sense and I've got to go down that path right they're comfortable with ambiguity they love ambiguity some people don't like the ambiguity most people they say are nervous about ambiguity they'd love to go with the space of what's ambiguous because we're the discovery is right they love making mistakes the process they understand that making mistakes you know loosen up it's like you know going to ski or something you can't learn how to ski unless you're falling so they don't mind the falling they're not embarrassed about making mistakes they're not worried also about the approval of others right so many people are constantly saying oh well uh they risk the whole different definition of risk what's risky they're not worried about what people think of them right is that risk or or failure they term of failures totally different think the failure is a part of the learning process right what's the risk of failure what you'll be embarrassed or risk of failure how do you distinguish failure from learning uh in your whole life you know failure implies that it stopped that the game stops alright if it's part of a you're failing and then you learn then that learning is part of the moving forward right so that is what the process is like fail learn move forward and constantly do that because you're cutting edge you're going where people haven't been before an inventiveness that's exciting to those people so that's a different kind of approach to life right it's a different way of being people are so attached to being right and yet the tragedy is it could be so easily to find out how you're wrong if you just said to yourself I don't I'm not sure that I'm right and let me go find people and we'll have alternative point of views and let me have quality conversations not to pay attention even to their conclusions but to their thought process so forth full discussion worrying about being wrong but not to the sense of being paralyzed or moving forward but in the sense of trying to create discovery to have an exchange to go after the person who has the most different you who is the most thoughtful and then have a conversation to see their point of view whether a person could be both open-minded and assertive at the same time that that creates a discovery process that creates a fabulous learning and that process itself reduces the probability of being wrong wrong and produces a great deal of learning people are so hung up on being right starting their discussion and being deriving some sort of satisfaction if at the end of the discussion they were where they began the discussion so that doesn't make any sense because there's not going to be any learning so ego plays an important role in that right that's that all the people who feel like they're I'm good I've got it won't learn if you've got it you won't learn right so so you have to get rid of this ego barrier I've got it thing then the issue of weaknesses like every human being has weaknesses and and it as I say it's the opposite side of thinking it's the in other words if you were one if you have a brain that works one way and you're doing certain things that allow you to do things that way that you're excelling it means that your brain is working in a manner that has its pluses that'll cause it's minuses so the creative person who's not reliable or the reliable person who's not creative but if they don't embrace that they're going to continue to encounter that ego barrier is the worst thing and if we were raised differently just imagine in the schools that all along the people will always say everybody makes mistakes everybody has weaknesses the key is really to understand what your mistakes and weaknesses are so that you can learn from them right I think in punishment is it's a terrible concept punishment means that you made a mistake and you're being punished I think instead of punishment every time somebody makes a mistake you should say the only thing that you need to do to get out of your punishment his first think what kind of mistake was that so if I'm in this situation that's like that again how would I do deal with it differently not to make that mistake so that learning should come from the mistake not punishment because you're teaching people not to make mistakes where's where the learning comes from not the appreciation that if you keep doing this over and over again you're gonna keep encountering the same outcomes in my particular case I started trading markets when I was a kid when I was 12 and the markets there are certain things about being in the markets in terms of decision-making that are unique that encourage this kind of thinking so first it because all of the consensus is already baked into the price in order to be correct in the markets in order to make money in the markets you have to see something that the can that the consensus doesn't see so you have to have an independent point of view very different than most other professions most other professions you can build on existing knowledge you you don't have to have a point of view if you can if you're a doctor and somebody breaks a leg or whatever you can repair that leg it's not zero-sum in the sense that you have to be smarter than the next person or different from the consensus now in order to be different from the consensus it's there's a high risk you're going to be wrong so if you perform for me if I form that point of view and I'm wrong the probability of being wrong I'm trying to reduce and and so by having other people stress test my thinking it's very practical right so I say I work really hard to have this independent point of view and then I bring that independent point of view out there and I say shoot at it how am I going to be wrong and let's have that quality back and forth and and so that was just a practical approach find people who have alternative points of view and have quality conversations back and forth not to let them think for me not for me to follow their point of view but for me to understand the different perspectives right very very practical because it increases my probability of being right and it reduces my probability of being wrong and what I discovered in that process is that I was learning so much so just imagine what a path it is fantastic path to think let me go out after the person who is got the opposite point of view who's really smart and let me have quality conversations quality disagreement so in my case it was it was very much motivated by that and then I have clear measures of whether I'm right or wrong so there's a clear accountability in other words I could do whatever I want want it's my responsibility if I made it purchase or sale I can measure on a day-to-day basis how good that process is so I get clear feedback just the goal is you know don't be too wrong to be more right than wrong and so in that process it's not I can take personal accountability I mean if I don't learn personal accountability if I don't learn then I'm gonna pay a terrible price so that process itself lent itself to this kind of very open minded decision they also the the making mistakes and and and the loving the mistakes and then because I believe of that we have a culture that's of radical transparency right so every meeting is taped and made available for everybody in the company to look at and what we have our conversations of what makes sense like everybody has the right to make sense of things okay now in that environment I get to see how differently people think I realize how radically different people think and so that was a curiosity to me I really because it's masked you have no idea what's going on behind other people's eyeballs you know they're in their heads there well it's they all look a lot alike but their brains work so differently so that led me to brain science in other words so I'm just very very interested in understanding literally how the brain works and the physiology of the brain and that's and we have different physiologies so what we think is is just our interpretations are things like love love is physiological do you know there's a there's a chemical in your lower interest rates make it easier to service the debt also it makes items that are bought on credit cheaper your monthly payments go down if you buy a car or a house your monthly payments go down if interest rates are lower so it makes it cheaper meaning you could afford more so it stimulates the economy and it also has the effect of raising assets prices because assets if you have an income stream it could be renting a property you're comparing it with the going interest rate and if the interest rate goes down the value of the asset goes up so it has a wealth effect so as the economy works when they were lower interest rates it would have the effect of stimulating an economy and that stimulating economy really stimulated debt growth and therefore purchasing on debt and it raises so the economy always has gone through these cycles in which interest rates go up when they're trying to slow the economy interest rates go down when they're trying to stimulate the economy however when interest rates get close to zero it doesn't work so you have a lot of debt that is rising faster than income can't go on forever can't lower interest rates they hit zero and the world Changez so that's the basic cause effect dynamic so in 2007 2006 2007 it was very clear we were in a bubble but like all of these situations people at the time very much get carried away with what's happening at the time like 2005 6 everybody says the stock market goes up it's a great investment because it went up they don't realize it's more expensive going up may make it more expensive but no they look back and they say it's a great investment or houses or I can go borrow money and and and buy houses and do this but they don't think about the paying back and how that works this is human nature this has happened through hundreds and thousands of years and so they get to the point where interest rates can't go down there's not a rectifying of the problem and you begin a deleveraging and then the process begins to work in Reverse a deleveraging means no longer can you raise income faster excuse me no longer can you raise your debt faster than your income so if you can't you have to slow your debt you have to slow your spending so as you slow your spending you're slowing somebody else's income and and when I say it's the purchase of goods services and financial assets and as you saw the purchases of goods services and financial assets the economy goes down and the assets go down and as the assets go down and the incomes go down there's more of a need to cut your spending and so it begins to build a self-reinforcing negative cycle there's not enough money in the system there's not enough money in the system because again just just think of it there's spending and spending could be paid for either by money or credit so if you go into a store and you're buying something let's say I'm buying a suit I can pay for it either by credit or I can pay by money if I pay by credit it's a promise to deliver money if I pay by money that transactions complete but since I can pay by credit I can stimulate the demand I can have a strong economy but I own money and so the owing of the money means that when when I can no longer produce credit and I have to go get money I need more money in the system and when you have a zero interest rate then the central bank is stuck because this deleveraging will continue to feed on itself it will continue I don't spend you don't earn it goes down can't service my debts because I don't have enough money to service my debts banks get in trouble because the person who they lent them the money to doesn't pay back what is a bank bank is a very simple thing people gather they put money in a bank that person goes in once at that bank goes and lends it to some other people and they then hope to get paid back and a higher interest rate that's what it is and so when those people can't pay back because they don't have because that credit cycle starts to work in Reverse and they can't pay back then the banks get in trouble they lose money and when they lose money than their bad banks and the whole system works so you see that at the same time as there's a contraction and credit there was a stock market falling because you need to sell assets and because of the contraction and credit ins people are spending less earnings of companies go down so the companies are worth less and because of then the debt problems the banks don't do well so we have a banking crisis so you see that that deleveraging happens and in the ways that we're used to happening the debt private sector debt doesn't increase spending is less banks get in trouble markets go down and so on is not on money the central bank lowers interest rates interest rates at zero they're stuck so that's a deleveraging and that's a that's a depression part of it to leveraging take the 30s take japan's deleveraging these are iconic deleveraging and our deleveraging at first austerity is the path because you realize oh debt is a problem and what we all have to do is stop getting into more debt that becomes obvious we can't continue to do that so we go through the austerity but as we go through that austerity there's a feedback loop because that was lack of spending that lacking of debt of course is somebody's else's income to go down ok so then there's a there's a problem because of the debts so we go to we encounter a lot of debt defaults and we think about restructuring debts those debt defaults means okay how do we re-enter an agreement in which we can get past that that you can pay what you can afford and so there's a debt restructuring a lot of debt restructurings but the debt restructurings also don't help because well they help to some extent but they they also bring with them problems because one man's debts are another man's assets so if I lower your debt let's say I'm don't you do restructuring you can pay half your mortgage you come in will readjust your mortgage and you can pay half then I have to write down that mortgage and so my wealth goes down and as my wealth goes down I can borrow less and I can spend less so it feeds on itself so the problem is that there's too much debt relative to income so you can reduce the debt by having austerity and cutting your debt and that's good and that's deflationary and it's negative for growth because austerity means less spending and you can restructure so that is deflationary and it's negative for growth and so that produces a lot of pain at the same time so like in the in the 30s 1929 stock market crash and you go through that and it keeps feeding on itself and it's not enough it's not good enough because it causes that self reinforcing process and then eventually the central bank's print money so in March 1933 which was the bottom of the Great Depression President Roosevelt severs the link with gold and and prints money because money a debt is a promise to deliver money so if I can slip a little money into the system it eases that pressure the printing of money people think is inflationary and in and of itself it is inflationary but if it's happening at the same time as the other deflationary factors are happening so that there is still austerity there a certain amount a certain amount of restructuring or working out debts and the amount of printing so that they balance all three of those approaches have the effect of lowering debt relative to income so you can lower debt relative to income without having a you know a terrible situation it's still not this takes a long time they call it the Lost Decade these countries go through lost decades it's usually more than a decade maybe 15 years but it's an adjustment process if done well in which there's the right mix between austerity not raising debt relative to income and restructuring getting the debt payments in order and putting enough money into the system so you're seeing Europe go through that it's classic and all countries and people and companies in one way or another you know through history this has happened and that the the main lesson to learn but it's not human nature to is not to have debt rise faster than income for an extended period of time because that won't that's a bubble that won't last but but because we're so responsive to what we've experienced we go through these cycles right the cycle is let's say my parents generation they were through two decades of depression and war so they have depression and war and they come out of that with the realization that they don't need luxuries that they were just if they have they want to save to make sure the downside doesn't happen and of course at that point essentially they're over saving and and that's because there's no debt you've wiped out the debt the cycle is beginning to move up again then there is the positive reinforcement of the cycle times become better and you get used to the time becoming better so you go through that cycle the 50s and the 60s and the 70s each one of those it becomes better and you become that more distant from the negative experience and more confident and more confident meaning that what's saving for saving is because you've worried that the future will be worse than the past so you save in order to protect that so saving becomes less important as your living standards you've said I can afford I can enjoy life more and then borrowing who is doing well then it's the person who's borrowing to buy financial investments or but they buy their house the house goes up and you look at your neighbors and you say that that's the thing to do and then we go through that cycle and through that cycle debt Rises faster than income and as debt Rises faster than income and reaches it slim then we go through the cycle again right and so because it so please come along once in a lifetime and so we didn't experience them so it's again it's another one of those right I don't know what a hedge fund is III really don't know it when I say that it's like a it would be like using a term um a mutual fund so it's a structure within which investors can do all different things like a mutual fund you might say some people are value investors some people invest in bonds some people invest in stocks people do all different things within a structure called a hedge fund so it's a particular structure that allows people to do all different things basically though it allows you to invest without much in the way of restrictions traditional ways I can sell short as well as go long if something's gonna go if I think something will go down I can sell short I can go into any market I can go into stocks or bonds or commodities or gold or anywhere that I want to go within my agreement with my client so I give me the freedom to approach the world to look at whatever is good or whatever is bad and so it's a it's a vehicle that allows me the freedom to invest in the best way that I know how there was nothing to do with vision and it's and I think it was probably very much like Steve Jobs in this we have parallel lives in a sense because we were contemporaries or I didn t want and I watch him and I and so I would for me I guess I was describing so I love to trade markets I worked you know to Wall Street firm to Wall Street firms and about for about two years I got out of school in 73 and I had problems fitting into the organization meaning you know I literally I literally you know got in a fistfight with my boss because on New Year's Eve we were drunk together and you know it's it was that kind of it was a it was not an organized employee and and it wasn't working within an organization was not the right thing for me and I was always loved being independent and at the time clients of Shearson it was in Shearson at the time had great relationships they loved it they loved working with me and so they were gonna pay me and so I could then start my business I didn't view it as starting a business I just viewed it as I get to do what I like to do which is to play the markets and they'll pay me to do that and then I did that and then of course what happens over time is you need things so I I need people to work with and besides I love playing the game with people and so I brought in other people but people would do things and and so you know and I get computers and I get other things over a period of time and it grows and it became a company but I never viewed it as a company I really viewed it more like I'm doing this thing and these are the things that I needed those people in that group and then I just kept doing it and and the things I needed became the company I was in that apartment for a couple of years then I moved to a brownstone which brownstone is a townhouse cuz I needed more space I lived on the top two floors and worked on the bottom two floors and I did that and had you know my my family I'm two children and then we moved out in to Wilton Connecticut because I got tired of the city and I wanted to raise my kids in the outside and so then we rented a house and so on now we have 1500 employees I graduated from Harvard Business School I was trading commodities and this was in 1973 this was when there was the oil shock and there was a need for commodities all around the world and I had a bunch of pals who were in different parts of the world and we decided to put together an association we called it that would bridge the waters at which what it meant was that we were I would we'd find commodities that were located in one place and the sold soybean oil from the United States to Iran in that kind of Association and this was one of those things that we did kind of a part time but it actually didn't end up being I think we did probably two transactions it was more of an idea than a reality and I had the name so in other words I had formed the company incorporated it and I had the structure and so then when I left Shearson there was of global macro because I you know it's everywhere in the world and it's trying to understand how all the parts of the world operate I love it because it's it's it's very very practical I like the fact that people are not making subjective evaluations for how good I'm doing that I can measure myself down to the you know two decimal points right what's my performance it's objectively evaluated I like the fact that I can go long or short so that there's no such thing as good times or bad times and most people have an industry or a profession then they have cycles to them you know in my case I don't have any cycles it's I have no excuses just it's all on me I could make bad mistakes and that's my that's that reality I like that so it's those elements notwithstanding we anticipated ISM profited by it so in two thousand six and seven we could see that it was coming because it's another one of those and it was an interesting it was very interesting time because I'm I won't name the policymakers but the leading policy beat makers go to Washington and have conversations with them and and and and it seemed very very likely that that was going to happen and as it was happening there was a lack of understanding of it and the reason that there was a reluctance to embrace this is first of all it was controversial so it seemed improbable because it never happened before in their lifetimes right and then there was a certain amount of conventional wisdom that they and there was not enough discussion there was quality discussion why might something that seemed so improbable be true right and then the willingness I think to think independently just on the basis of that merit and yet it was just another one of those and if you understand the cause-effect linkages it had to occur so we knew you know no anything we it would seem highly likely and we then were positioned so that our clients did well in 2008 when most people did terribly and yet there was no excuses to do terribly really and there was no excuses for letting that happen other than they didn't experience it before now let me say that that always happens it's okay we all make those mistakes but the lesson to be learned from that is that you could be wrong and that you and that you need to understand how the machine works and you need to look at those probabilities and that these things have happened for so for a very very long time even after the 2008 the understanding of deleveraging z' was not even calling it a deleveraging was very controversial and then understanding the mechanics of deleveraging still people were not paying as much attention to how does the machine work how does the economic machine work they were thinking their own opinion about what's going to come next so let's take the issue of of deficits of government debt okay of austerity of printing of money these are still very controversial subjects most of the people who have opinions about those subjects are not actually studying how the machine works going back in history and saying what are those cause-effect relationships but they have opinions now that's we should instead be having a conversation on just like biology or any physiology it you know what is the cause-effect relationship let's agree let's put our that model through time I I've written my views on how the economic machine works and I I think it's I think I put created a website I'm not sure of the website I think it's called how they how they need economic machine works dog or something but in other words to just put out what do I think the machine looks like we should be talking about that and then move on to the question of what we should do right but we're but yet there's not enough of that there's not going to the higher level and saying how does that machine work the purse experience the personal evolution you know I think it's that that it's that process of you know would would you would Einstein have said let's say that I don't know whatever he knew receives a Nobel Prize or something and and would he say that was this reward he wouldn't say that was this reward or the equivalent it's the experience of that that's the discovery the you know the excitement and then evolving so you evolved to more and more levels of difficulty if it's you know like learning how to ski I guess you know you ski at one level and then all of a sudden it's you you keep you know I've skied for 50 years 15 hours a day or 14 hours a day I got better at skiing and so what's the kick the kick is then to ski where you you know to keep yourself still at the edge and to to do that that's the kick the evolution everybody has a responsibility the right and responsibility to make sense of things in other words it's got to make sense to you and if something doesn't make sense to you you should bring it up you shouldn't talk behind somebody's back or gossip and you know too many people talk about the other people what they're doing wrong except they don't talk to those people about what they're doing wrong so they don't know whether they're actually doing them wrong or not they haven't heard the other side and they're not being productive I so that's terrible and also the organization's for me that in which arbitrary decisions are made or terrible you know a boss two bosses will get together another conversation of what a particular person is like and and then they'll call the person into the room and then they'll say ah Harry and then they'll give them spin spin is terrible it undermines trust and and and so we have a policy of taping everything and letting everybody watch it and look at it and then having thoughtful conversations about that and there's if you're coming into the company you're you go there because you believe that understanding what is true and that route radical transparency to understand what's true and have thoughtful conversation about it including harsh realities is healthy and so it's the embracing of reality what is the reality including what mistakes and and what weaknesses so that I can learn from those mistakes and or learn how to deal with those weaknesses in order to be successful so yes that's embedded that's that's those are the ground rules you know the ground rules that's how to have an idea meritocracy in other words if you want to have a real idea meritocracy that's not doesn't have any barriers to it we'll go wherever truth leads us that's what we what's we do and that's very powerful that's that's where the success comes from or we've had radical success and that's where it's come from because it also allows independent thinking right I need independent thinking because if you're going to make a position in the markets it has to be kept you with the consensus and you don't know if you're going to be right or wrong so you have to test it it's very powerful and it's also it's so silly not to do that because of these ego barriers why wouldn't you have those conversations it's not logical not to unfortunately we have most people and there have not been raised with the notion that knowing what your weaknesses are is pleasurable also the issue of [Music] pain is associated with bad and pleasure is associated with good and that's not true that most all growth you can't get stronger physically or mentally unless you're having pain because you're stretching yourself you're going into a new level so pain is good if you're exercising right let go exercise at the gym it starts off painful but as you start to get going with it and you start to see the benefits of it and you start to change your actual your brain physiology in terms of what actually determines whether it's painful or not it becomes pleasurable so a baby modification usually takes place over about 18 months of doing something and so you start to get into an environment where it's pleasurable and in our case we call it getting to the other side people come in and they're originally they look at this and they say oh I made a mistake I feel pain about that or I'm identifying some weakness and I feel pain about that and then after doing it enough and seeing the feedback then they begin to realize that it's producing benefits to them and they begin to like it and they begin to worry about B environment that they won't have that that if they go into a normal environment they're gonna have dishonesty they're gonna have people seeing the same things thinking the same things about them but not telling them they won't have an opportunity to have a discussion they won't know whether it's truthful or not that they're operating so it'll all be under the covers and so they're fearful that they won't actually know either what their mistakes are or the people will be making judgments without being able to have a quality conversation so that's the choice which environment would you rather be in you you have to decide for yourself Minh vironment would you rather be in the people that you know that there's going to be conversations about what people think about you and an honest exploration of whether that's true or not you can avoid all that 1968 The Beatles went to India to learn how to meditate and and then I heard quite a bit about it and was in the media it was interesting and then I tried I learned how to meditate and it was it was definitely life-changing I would say that probably more than anything it had a bigger effect on my life than practically anything because of how it works the way it works is it's it's it's basically open mindedness that what happens is normally you can't control your brain if you were to sit down and say I'm not going to think it will be filled with stuff and it'll jump all over and you can't control it so what happens is this is an exercise that creates open mindedness because the it there's a word that doesn't make sense which is called a mantra so it's a sound that you repeat and so while your brain is on wanting to jump all over the place by repeating this sound mentally it takes your attention away from those thoughts and then by when you continue to repeat it it goes away and so there's nothing and so you go into nothingness okay now when you go into that nothingness first of all you've you've learned the ability to control your brain so that you can go there you can put things away you can approach them in a certain way when you go into that that open-mindedness you're going into your subconscious so you're not a state of conscious so I'm not aware but I'm not asleep asleep is you know well you hear a sound you won't wake up this is if I hear the slightest sound I'm you know what tuned to it so it's a state of sub consciousness and in there are different parts of our brain that have a very big influence on us the amygdala is the part of the brain that has the fight-or-flight that produces anxiety the prefrontal cortex is the part of the brain which we call for executive functioning or it's the part that's reflective it's the part that we are calm and we say do we want to do that do we not want to do that we put things in perspective those two parts of the brain are fight for with each other in other words the passion I'm going to do that because it's exciting but it may be harmful the other part of the brain says and you don't want to do that and so that whole emotional fight-or-flight part of the brain during meditation through brain imaging they see that that calms down and the prefrontal cortex lights up so that open mindedness creates

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Keywords: mentors, raydalio, business, hedge fund, success

Id: R9unEphwPA8

Length: 174min 16sec (10456 seconds)

Published: Mon Sep 25 2017