Ray Dalio: Uncertainty and the Abyss
00:00:00.000 | That's an incredible process that you describe in several places to arrive at the truth.
00:00:06.440 | I apologize if I'm romanticizing the notion, but let me linger on it.
00:00:12.080 | Just having enough self-belief, you don't think there's a self-delusion there that's
00:00:18.640 | necessary?
00:00:19.640 | Especially in the beginning you talk about in the journey, maybe the trials or the abyss.
00:00:25.560 | Do you think there is value to deluding yourself?
00:00:32.400 | I think what you're calling delusion is a bad word for uncertainty.
00:00:39.840 | So in other words, because we keep going back to the question, how would you know and all
00:00:45.080 | of those things.
00:00:46.080 | No, I think that delusion is not going to help you, that you have to find out truth
00:00:52.360 | to deal with uncertainty, not saying, "Listen, I have this dream and I don't know how I'm
00:00:57.240 | going to get that dream."
00:00:58.840 | I mentioned in my book principles and described the process in a more complete way than we're
00:01:03.960 | going to be able to go here.
00:01:05.960 | But what happens is I say, "You form your dreams first and you can't judge whether you're
00:01:12.880 | going to achieve those dreams because you haven't learned the things that you're going
00:01:18.940 | to learn on the way toward those dreams."
00:01:21.440 | Okay?
00:01:22.440 | So that isn't delusion.
00:01:24.680 | I wouldn't use delusion.
00:01:26.480 | I think you're overemphasizing the importance of knowing whether you're going to succeed
00:01:31.840 | or not.
00:01:32.840 | Get rid of that.
00:01:33.840 | Okay?
00:01:34.840 | If you can get rid of that and say, "Okay, no, I can have that dream, but I'm so realistic
00:01:41.880 | in the notion of finding out.
00:01:43.520 | I'm curious.
00:01:44.520 | I'm a great learner.
00:01:45.520 | I'm a great experimenter."
00:01:47.280 | Along the way, you'll do those experiments which will teach you more truths and more
00:01:52.360 | learning about the reality so that you can get your dreams.
00:01:56.040 | Because if you still live in that world of delusion, okay, and you think delusion's helpful,
00:02:01.320 | know that delusion isn't - don't confuse delusion with not knowing.
00:02:05.440 | Yes.
00:02:06.440 | But nevertheless, so if we look at the abyss, we can look at your own that you described.
00:02:13.040 | It's difficult psychologically for people.
00:02:15.160 | So many people quit.
00:02:17.120 | Many people choose a path that is more comfortable.
00:02:23.080 | The heartbreak of that breaks people.
00:02:25.600 | So if you have the dream and there's this cycle of learning, setting a goal, and so
00:02:29.640 | on, what's your value for the psychology of just being broken by these difficult moments?
00:02:36.320 | Well, that's classically the defining moment.
00:02:39.320 | It's almost like evolution taking care of, "Okay, now you crash.
00:02:45.000 | You're in the abyss.
00:02:46.000 | Oh my God, that's bad."
00:02:48.000 | And then the question is, "What do you do?"
00:02:50.320 | And it sorts people, okay?
00:02:52.280 | And that's what - some people get off the field and they say, "Oh, I don't like this,"
00:02:57.320 | and so on.
00:02:58.320 | Yeah.
00:02:59.320 | And some people learn and they have a metamorphosis and it changes their approach to learning.
00:03:07.080 | The number one thing it should give them is uncertainty.
00:03:10.460 | You should take an audacious, dreamer guy who wants to change the world, crash, okay,
00:03:19.760 | and then come out of that crashing and saying, "Okay, I can be audacious and scared that
00:03:27.520 | I'm going to be wrong at the same time."
00:03:30.640 | And then how do I do that?
00:03:32.060 | Because that's the key.
00:03:33.380 | When you don't lose your audaciousness and you keep going after your big goal and at
00:03:38.100 | the same time you say, "Hey, I'm worried that I'm going to be wrong," you gain your radical
00:03:42.940 | open-mindedness that allows you to take in the things that allows you to go to the next
00:03:48.420 | level of being successful.
00:03:50.460 | So your own process, I mean, you've talked about it before, but it would be great if
00:03:54.160 | you can describe it because our darkest moments are perhaps the most interesting.
00:03:58.900 | So your own and with the prediction of another depression.
00:04:04.380 | Economic depression.
00:04:05.380 | Yes, I apologize.
00:04:06.380 | Economic depression.
00:04:07.380 | But can you talk to what you were feeling, thinking, planning, strategizing at those
00:04:14.780 | moments?
00:04:15.780 | Yeah, that was my biggest moment, okay?
00:04:19.980 | Building my little company.
00:04:21.880 | This is in 1981, '82.
00:04:24.940 | I had calculated that American banks had given a lot more money to, lent a lot more money
00:04:31.700 | to Latin American countries than those countries were going to pay back and that they would
00:04:36.100 | have a debt crisis and that this had sent the economy tumbling.
00:04:41.020 | And that was an extremely controversial point of view.
00:04:44.580 | Then it started to happen and it happened in Mexico defaulted in August 1982.
00:04:49.580 | I thought that there was going to be an economic collapse that was going to follow because
00:04:54.820 | there was a series of the other countries.
00:04:56.540 | It was just playing out as I had imagined.
00:04:59.420 | And that couldn't have been more wrong.
00:05:01.980 | That was the exact bottom in the stock market because central banks, these monetary policy,
00:05:07.380 | blah, blah, blah.
00:05:08.500 | And I couldn't have been more wrong.
00:05:09.860 | And I was very publicly wrong and all of that.
00:05:12.880 | And I lost money for me and I lost money for my clients.
00:05:15.980 | And I only had a small company then, but these were close people.
00:05:21.780 | I had to let them go.
00:05:22.940 | I was down to me as the last person.
00:05:26.500 | I was so broke I had to borrow $4,000 from my dad to help to pay for my family bills.
00:05:32.940 | Very painful.
00:05:34.180 | And at the same time, I would say it definitely was one of the best things that ever happened
00:05:41.020 | to me.
00:05:42.020 | Maybe the best thing for him happened to me because it changed my approach to decision
00:05:45.380 | making.
00:05:46.380 | It's what I'm saying.
00:05:47.380 | In other words, I kept saying, "Okay, how do I know whether I'm right?
00:05:51.940 | How do I know I'm not wrong?"
00:05:53.780 | It gave me that.
00:05:55.940 | And it didn't give up my audaciousness because I was in a position, "What am I going to do?
00:06:01.540 | Am I going to go back, put on a tie, go to Wall Street and just do those things?
00:06:07.340 | No, I can't bring myself to do that, so I'm at a juncture.
00:06:10.580 | How do I deal with my risk and how do I deal with that?"
00:06:13.180 | And it told me how to deal with my uncertainties.
00:06:16.340 | And that taught me, for example, a number of techniques.
00:06:19.500 | First, to find the smartest people I could find who disagreed with me and to have quality
00:06:25.180 | disagreement.
00:06:26.180 | I learned the art of thoughtful disagreement.
00:06:28.220 | I learned how to produce diversification.
00:06:30.540 | I learned how to do a number of things.
00:06:32.980 | That is what led me to create an idea meritocracy.
00:06:36.220 | In other words, person by person, I hired them and I wanted the smartest people who
00:06:41.260 | would be independent thinkers who would disagree with each other and me well so that we could
00:06:46.460 | be independent thinkers to go off to produce those audacious dreams because you have to
00:06:51.580 | be an independent thinker to do that.
00:06:53.660 | And to do that independently of the consensus, independently of each other, and then work
00:06:58.500 | ourselves through that because who know whether you're going to have the right answer.
00:07:02.420 | And by doing that, then that was the key to our success.
00:07:06.740 | And the things that I want to pass along to people, the reason I'm doing this podcast
00:07:11.040 | with you is I'm 70 years old and that is a magical way of achieving success.
00:07:18.960 | If you can create an idea meritocracy, it's so much better in terms of achieving success
00:07:24.820 | and also quality relationships with people.
00:07:27.640 | But that's what that experience gave me.
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