The David Rubenstein Show: Bridgewater's Ray Dalio

[Music] this is uh my kitchen table and also my filing system [Music] over much of the past three decades i've been an investor the highest calling of mankind i've often thought was private equity and then i started interviewing while i watch your interviews i know how to do something i've learned in doing my interviews how leaders make it to the top i asked him how much he wanted he said 250 i said fine i didn't negotiate with him and i did no due diligence do i have something i'd like to sell and how they stay there you don't feel inadequate now because being only the second wealthiest man in the world is that right over the past several decades one of the most successful hedge fund investors in the world has been ray dalio ray dalio has built bridgewater into largest single hedge fund in the world managing more than a hundred billion dollars he's also an accomplished author and his most recent book the changing world order talks about the rising china and the sinking united states had a chance to talk to him recently about that book and many other things relating to the investment world ray thank you very much for coming and for writing this book we're going to talk about this principle this evening um i want to start though by asking you this you're running the largest hedge fund in the world more than 150 billion dollars how do you have time to write books when you are in running that hedge fund well i didn't write either of those books really what i did was this book was in order to understand what was going on today i needed to do a study right and what i experienced in life many times before is that the surprises that happened to me were things that never happened in my lifetime but happened many times in history when you read the book as i have and i enjoyed it it took me a couple of sittings to get through because it's a lot of detail in here you have a lot of historians that help you because a lot of history in here history i didn't know you have historians i'm so lucky because i get to speak to so many people who are historians who are practitioners you know people in different countries henry kissinger graham allison you know just um scientists and so on and then historians so and then i have a fabulous research team so i go into this learning immersion um and then um and i iterate with it i show them what i've got they come back and that's the process okay so you have uh in here people who have said good things about the book including a number of treasury secretaries hank paulson tim geithner larry summers hard to get three treasury secretaries agree on anything but you did you also have very favorable comments about the book from henry kissinger and bill gates you know both of them yeah who's smarter well i think i think that they would say the each would say the other guy and i think i would say that um each in their own ways okay okay so boy you should go into politics or deposit okay your view is there are three big cycles in history is that fair yeah i i came with the three things that are happening today and then i found that there are really five but the three three big ones yeah all right so let's go through the first cycle the first cycle is when an economy comes together gets wealthy people are building up the economy and eventually they build it up so much they borrow more money maybe they should and they dilute their currency is that fair yeah i could do it in a quicker way quicker than that well excuse me better than that okay now um there is um there's a new water there's a there's usually some fight uh between the left and the right or it could be foreign countries and whatever new water and then when that begins it's sort of a great equalizer and capitalism is a fantastic enabler because what it does is it gives people who may not have anything who have good ideas capital so they get the resources to pursue that and that's a fabulous thing and then as it rises over a period of time you'll see debt to income ratios rise and so on because everybody gets more funded because debt is buying power and everybody wants more buying power and then also you see it naturally just distributes wealth unequally and it distributes opportunity unequally so um as that wealth gaps rise and widen and then also because it's opportu parents can who have wealthy parents can educate their children in an unfair let's say an unequal way relative to others and so but it over it gets overly indebted and then because all this buying power which comes in the form of debt is somebody else's assets then what happens is um then you lower interest rates you try to stimulate it so for example since 1980 every cyclical peak and every cyclical trough in interest rates was lower than the one before it so that they can stimulate more debt and then when you get to zero interest rates that doesn't work so they have to print money and they buy money to keep get that pile going up and that creates the cycle okay so there's part of that cycle which is a capital markets or and by the way this exists almost everywhere and then with that and then you see the monetization of debt and so on and with that there are also conflicts conflicts that are the wealth conflicts and related to that the political left and the political right and then that creates the dynamic that we're talking about now you're citing your book uh two examples where this has happened before one is in the netherlands where the dutch economy ultimately they had the only reserve currency at least in western europe the gilder and they did some of what you now say we're doing is that right yeah the same patterns over and over again they had in the beginning big education they won a war then they became very competitive they went out in the world taking their goods and they built ships that were the best ships around the world so they can go anywhere in the world they brought their arms with them and they made a fortune and with that they brought their currency and as they bring their currency because it's a world currency a reserve currency others want to own it and because others want to own it because that's buying power it's the common wampum and then because of that then they lend it to the dutch so in other words americans get lent money because others want to hold dollars and then that allows us that's the exorbitant privilege to get more and more in debt and then what happens is they lose their competitiveness the british built came along and copied from the dutch and found oh they could make ships better and cheaper and then they became the competitors and then as the competitors are operating they take market share away quite similar to lots of technology companies and what's going on now and then what happens is then they get more in debt and then they have the other cycle that's operating and then you have the challenges of that so they had the dutch they typified by the dutch tulip bulb craze where people were spending a lot of guilders buying tulip bulbs right so that imploded and the british came in and they built a big economy and then they kind of went south a bit they had the same exact pattern and then we came along the united states became the biggest economy the world around 1870 and since world war ii we've been the dominant economy so now we have a lot of debt you'd say yeah uh 29 trillion good about that so how are we going to pay off that debt by the way well inflation is the only way in the end it's always print the money you know it's always print the money because you see the one man's debts are another man's assets and so if you're holding a bond and you receive a you don't get compensated for inflation let's say people think cash is a low investment low risk investment well they're earning no interest and when you have a seven percent or a five percent inflation you lose five percent of your buying power or if you're owning a bond you have the same thing and so what happens is not only is there the debt that is coming from the new debt created to run the deficits but they're become sellers of that debt because the owner as an asset it's not a good asset and then there's so much selling and what that means is that you either have to interest rates have got to go up or and then that grinds things down to a close or what they do is they have to print money and so the history of all of these cycles is that the coffers are empty because you can't continue to spend more than you earn and give it to somebody expect them to like it and then you devalue it and that becomes the cycle and so you see the classic cycle of the ingredient is um the cycle i'm talking about in terms of supply demand and the right so what you want to do is presumably let people know this is occurring so maybe they could take action by letting their congressmen or governors know something about this or not well i think there are two two things what you can do to make a better society in your contribution but also how you can individually take care of yourself in a situation that might be difficult okay so uh let's finish on the third part of the cycle the third part of the cycle is somebody's rising up and right now you would say china's rising up is that correct there's just numbers and you look at it and okay so if i want to do something about it and i want to live in a time when china is not rising up so much and we're better off in the u.s economy what should i do should i lobby my members of congress not to print so much money what should i do about it if anything um well again it's or the cycles are science you can't do it if i think if we go back and we look at history there are three main things that you can do okay uh first uh as a society individually and then collectively how do you earn more money than you spend and how do you build a balance sheet that has more assets than liabilities that's a healthy and so keeping that in mind the second is internal conflict or cooperation can you have internal cooperation because you realize what the consequences are so i think that in the 2024 elections there is a reasonable chance that neither party will accept losing the elections and that is something that means that democracy or a type of civil war of sorts could develop in a way this is realistic i'm not being exaggerated by that and when one looks at those types of things there is a worry that one should have about the divisiveness and what it means for each other and the same is true internationally so basically if you anybody who's gone into wars this through history um the people who are the most convinced that that's the thing to do all regretted going into wars because of what wars are like so the things that i would hope to convey is first of all what are the arcs is that right or wrong and the arcs measured not opinionated just look at those measurements so that you could see that and then as we think about it like i i i have a principle if you worry you don't have to worry and if you don't worry you need to worry and what i mean by that is if you worry and you start to think with what this direction could be and what it's like then um maybe you deal with the things that prevent those worries where if you don't worry maybe you get into trouble without worrying or with the confidence there are things we can do the world has now more resources than it has ever had and there are things that can be done [Music] [Music] now you're managing 150 billion plus yeah about that and why is it explain this to me i really don't know the answer hedge funds seem to come and go sometimes they're hot sometimes they're cold sometimes they go out of business you've been in business for almost uh half a century and you've got 150 billion what did you do that nobody else has been able to do what we were able to do was to be able to structure portfolios in a way that were better in terms of the returns risks and correlations of our investors so to give you that an idea in other words um you could balance things in a way i could take different alphas different bets in different markets and i could carry that and put that in a fund called pure alpha then i could take different asset classes and put that in a fund which was called pure beta and then we could engineer it for the customer's risk levels do you want it at 12 percent vol volatility 18 vol and then they would whatever benchmark they wanted we could put the alpha on top of so they could say i want the s p 500 plus uh a six percent ball operating that way i know it all sounds complicated but we could design and structure things to their liking that would produce an attractive rich risk in return that also was not correlated with their other investment you wrote a book a few years ago called principles that sold millions of copies usually books the business world don't sell millions of copies and millions of them were sold in in china as well what is it that was in that book that was so exciting to people when i would make decisions i would not just make the decisions i would think about what are the criteria that i would use to make the decisions and i'd write them down those are the principles and then in our culture which is this idea of meritocracy we would say are those criteria good or bad and then we would try to put them into algorithms and equations and so i would do that almost like a diary kind of thing and i would see the same things happening over and over again and the next time it happened i would go to the principal and we could together go to our principles and so it accumulated that over a period of time and they were practical they're not theoretical principles and and people seem to find them valuable now it is said that you use these principles in your firm and you operate the firm according to the principles right more or less but it's very constant self-examination employees have to be self-examined by their peers you're self-examined by your peers right or other people in the firm it's hard to get people to want to do this and they will be examined so intently over the years and it's so logical but that doesn't mean everybody wants to do it um it's so in one sentence it's an idea meritocracy you know the best ideas win out from wherever they come from in which the goals are meaningful work and meaningful relationships that we're in it together uh through radical truthfulness and radical transparency so if we disagree that's a good thing that's no reason to have anger and to have the art of thoughtful disagreement and examine how do you scientifically find out what's true how do you test things and so on and that's been essential to our success so you know you're very intense you're obviously into the numbers but you're also big into transcendental meditation right yeah that's helped me a lot it's been probably the most uh biggest whatever success i've had maybe more attributable to transcendental how did you get into transcendental meditation the beatles help you or something yeah yep um it was exactly that in in 1968 the beatles went to india and they meditated and then i heard about it and then in 1969 in new york you could you can bring some flowers and you could be that and you could learn how to meditate and and wow i recommend it's the best thing gift i can do it every day or every almost every uh almost yeah i try to do it every day i try to do it about twice a day and if i could take a second to describe it um um what it is um is it frees your mind of thought and it takes you from a conscious state into your subconscious and your subconscious is where creativity comes from and equanimity and and all of that like if you're calm and great ideas come to you and when you have that equanimity then you as you're approaching everything things are just the way they are and you have to deal with them and it's a little like being you know in the ninja movies it's a little bit like being the ninja and everything seems slower and you can handle it better and so and you align your subconscious which is where the motions and also inspirations come from with your conscious mind and when they're aligned and you have that equanimity it's a great thing you're going to write a book on transcendental meditation oh what can the average person do to invest reasonably well the most important thing you could do is not be in cash and and those deposits particularly now when there's such negative real rates and to have a well-diversified portfolio [Music] let me ask you this the average person watching right now probably doesn't have 150 billion dollars to manage the investment of so what can the average person do to invest reasonably well well you know um like i didn't have any money and i remember the cycle and what what it was is i would start to think um how much money do i have to how many weeks months and then years can i take care of myself and my family and i would calculate that i would be at okay 52 years if no income was going to come in and then i would start to think um and then if i'm holding a portfolio in something maybe i could lose half so i better cut that number in half and then i start to think of what are my uses of the money what do i need to do and i would think about how do i immunize that and you start and you build like that and you know how to save and and saving you know things like don't put it into cash deposits that get eroded by inflation and taxes and so on and you start to develop it and the thing that you can do the most important thing you could do is not be in cash and and those deposits particularly now when there's such negative real rates and to have a well-diversified portfolio and that well-diversified portfolio and that's a whole subject of what does that mean and how to do it but it's a well-diversified portfolio of not just asset classes but of countries of um uh you know of different thing currencies diversify but let's let me ask you an average person who isn't you know a billionaire should they expect to get a rate of return overall on their money of five percent a year is that a good target six percent eight percent what do you think is a reasonable target for somebody doesn't want to take undue risks well nowadays the structure of the markets and where everything is priced if and done the normal way we'll give you probably a return in the vicinity of with a lot of risk around it uh maybe in the vicinity of four percent okay three three and three percent three four percent okay something that might not equal inflation probably it'd be very close and then you have to pay taxes on it um because there are so many financial assets but you one thing you can they'll send you more money as we talk today uh the stock market in the last couple weeks has been correcting if that's the right verb and a lot of the error is out of the so-called bubble should people be selling everything and getting out of the market now because the markets are going down or is this the time to buy uh for first of all i'm i'm not here to give a lot of advice but i'll give you the following thoughts um we won't tell anybody just give us a second okay just just on our own um what's happened is the they produced a lot of debt and gave out a lot of money and so everybody's got money and it's also very easy to borrow money to buy things and as a result if you create much more buying power than you create goods and services you've got a lot much more inflation and the federal reserve has been behind the curve slower to tighten monetary policy and as a result we're now starting to see the rise in interest rates to be able to deal with that as that happens all assets compete with each other so now that free money is still going to be cheap money but it's going to be a bit higher so interest rates let's say bond yields have gone up about one percent now you take that and you adjust everything is the present value of future cash flows but it means that that interest rate goes up a percent that means all the other assets have to adjust we're in a process of making that kind of adjustment that means the days that we've had before the easy days where they dump money on you and you don't have much inflation and you don't have much time and this those are passed and now we're in a different kind of part of the cycle how do you foresee crypto impacting the world order i think it's interesting i have a tiny percentage of my portfolio on it to to diversify but it is a very vulnerable incident because they can track who is operating on it it can be tracked it'll be outlawed probably by different governments and in terms of its size it has issues so i think too much attention has been spent on um crypto or somebody might be a gold bug or somebody might be i don't know they hold gems or whatever they do but i think that we're now in an era where we're going to have different types of money we're going to question money is a medium of exchange but it's also a storehold of wealth and we're going to be questioning what are the right storehold of wealth in in the value and you're going to see around the world not only the digital versions of that take place in many forms you're going to see other forms of of that competition i think in the years ahead we are not investing and you're not transcendental meditating and you're not writing books and doing philanthropy what are you doing do you have any outside interest number one is my grandkids okay my kids my my family of course um and uh they're one of the greatest blessings in in life um that one ever can possibly have is one how many grandchildren you have i have four now what do they call you papa not mr dalio or something like that [Music] you

Channel: Bloomberg Markets and Finance

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Length: 24min 6sec (1446 seconds)

Published: Thu Feb 03 2022