01 January 2022

On today’s show, our new co-host, William Green, interviews Ray Dalio, the legendary founder of the world’s largest hedge fund, Bridgewater Associates. Dalio explains how to position ourselves to survive and thrive in changing world order.

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  • Why Dalio believes the U.S. is in danger of a dramatic and turbulent decline.
  • How China is rapidly rising to become the world’s dominant power.
  • Why Dalio warns that cash and bonds are terrible bets in today’s environment.
  • Is Bitcoin a speculative craze or a smart hedge against inflation?
  • Why Dalio views diversification as “the most important thing”.
  • How to succeed by being “radically truthful”.
  • How a disastrous mistake turned into one of the best experiences of Dalio’s life.
  • How meditation has strengthened Dalio’s creativity, equanimity, and resilience.
  • What Dalio has learned from the devastating loss of his son.
  • Why Dalio’s faith in the power of evolution makes him hopeful for the future.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Stig Brodersen (00:00:02):
Welcome to The Investor’s Podcast. I’m your host, Stig Brodersen, and today I’m here with our new cohost, William Green. William, how are you today?

William Green (00:00:12):
I’m great, Stig. It’s lovely to be here with you.

Stig Brodersen (00:00:14):
William, many of our listeners already know you. We had the privilege of having you on our show quite a few times back in 2015. That was the first time. We talked about your wonderful book, The Great Minds of Investing, and here recently we talked about Richer, Wiser, Happier. I’ve said it before, I will happily say it again, it’s the best investment book I’ve read in 2021. William, it’s just an honor to welcome you as our new host here on the We Study Billionaires feed.

William Green (00:00:41):
Thanks some. I’ve been a great admirer of The Investor’s Podcast ever since I first came on the show as a guest about seven years ago, I think, and saw just what a superb job you and Preston do of conducting these really thoughtful, in-depth interviews so I’m thrilled to be joining you as a cohost. It’s an exciting new adventure for me.

Stig Brodersen (00:01:00):
And it’s an exciting new adventure for us, William, because aside from today’s episode with Ray Dalio, starting in March I’m happy to announce that you will once a quarter host a six-episode miniseries here in the We Study Billionaires feed. The miniseries which you will host will be branded as Richer, Wiser, Happier. William, who have you invited to your show for the first miniseries?

William Green (00:01:24):
I’ve got some wonderful investors lined up for my first interviews, including Howard Marks, Joel Greenblatt, Bill Miller, Mohnish Pabrai, all of whom are key figures in Richer, Wiser, Happier. Usually, I would interview great investors like these in private and then I’d write about it and you’d get to read the results of the interview years later, so this time for the first time ever in my career our audience is going to get to listen in on the conversation itself. I really hope you enjoy it.

Stig Brodersen (00:01:54):
I’m sure they will. What a lineup. It doesn’t get any better than that. Speaking of things that almost can’t get no better, we are here today to talk about Ray Dalio’s new book, Principles for Dealing with the Changing World Order. It was a marvelous interview and it’s a fantastic book. I just wanted to preface the interview by saying that Ray Dalio has had such a profound impact on everything we do here in the company. Everyone on TIP read his book, Principles, now we’re reading his newest book. After Warren Buffett and Charlie Munger, I would say that Ray Dalio has had the most profound impact on how we think about business, how we think about the macroeconomic environment. It’s absolutely wonderful to be able to welcome Ray on the show. Before we jump to your interview with Ray Dalio, William, is there anything that the listeners should know?

William Green (00:02:42):
Ray Dalio is one of the great legends of the investment world. He runs Bridgewater Associates, which is the biggest hedge fund in the world, and Dalio’s personal fortune is about $20 billion according to Forbes. He’s one of the most successful investors of all time, but he’s also an extraordinary thinker who’s written books like Principles, which was a number one bestseller, and now, as you mentioned, this fascinating new book, The Changing World Order. I think you’ll see in the podcast interview and also in this new book he’s warning us, pretty frighteningly in some ways, that we need to prepare as investors for a period that could be extremely challenging.

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William Green (00:03:21):
There’s a real urgency to his message, but the thing I think I like most about this interview is that Ray is also incredibly candid about some of the personal challenges he’s been going through. He talks at length also about other really important issues like how we can learn to think better, how to be more resilient and also about how to invest better in a period that’s likely to be fairly tumultuous and not likely to be as smooth sailing if you’re in America as we’re used to. I hope you enjoy this very wide ranging interview with Ray, who really is one of the undisputed giants of investing.

Stig Brodersen (00:03:57):
All right, William. It sounds like we’re in for quite an episode here. Without further delay, here is William Green’s interview with Ray Dalio.

Intro (00:04:08):
You are listening to The Investor’s Podcast where we study the financial market and read the books that influenced self made billionaires the most. We keep you informed and prepared for the unexpected.

William Green (00:04:29):
Ray Dalio, it’s wonderful to have you here. Many thanks for speaking with us today, and congratulations on your new book, The Changing World Order, which I have here and which I’ve spent the last week reading through with much fascination. It’s an extraordinary book. It’s hugely ambitious and, I have to, pretty scary. It’s based on your study of the rise and fall of about, I’d say, 11 leading empires over the last 500 years so you’re taking this, as you put it, a mega macro perspective to see what history can tell us about the future. I wondered if you could start by telling us why you undertook this gargantuan study.

Ray Dalio (00:05:06):
There were three things that have happened in my life that are happening now that are transformative and that are different than happened any time in my lifetime before. I thought that I needed to study what went on prior to my lifetime in order to understand those. Those three things are the creation of a lot of debt which is monetized, in other words the central bank prints a lot of money and buys that debt. That has not happened in the degree that we are seeing since the 1930 to 45 period. Second, internal conflict. The size of the wealth gaps, the size of the political polarity, that relates to the wealth gap. The size of the left and the right and the extremity of the left and the right is something that never happened in my lifetime before, but all those things happened before.

Ray Dalio (00:06:08):
Also, the rise of a great power to challenge the existing leading power and the existing world order, the rise of China in other words. We began our world order in 1945 at the end of World War II, and that is the challenge. Those three things individually never happened before in my lifetime, and let alone collectively. That pattern led me to want to understand the lessons from history. I’ll explain really how I came by that perspective. I learned that many of the things that surprised me in my lifetime just never happened to me before in my lifetime, but they had happened many times before. The first time that happened was when I was clerking on the floor of the New York Stock Exchange in 1971. At that time, gold was the world’s currency.

Ray Dalio (00:07:05):
The dollar was tied to gold, and so it was like checks in a checkbook. Paper money had no intrinsic value and gold is what mattered. We were losing gold, and on August 15th, 1971 President Nixon got on the television and announced that you couldn’t get the money as we… The gold to countries. That was a shocking event to me. I was very interested in market so I went down to the floor of the New York Stock Exchange and I expected pandemonium, and there was pandemonium but it was on the upside not the downside. I didn’t know why that was, why did the stock market rally so much, and then I studied history and found out that the exact same thing happened on March 5th 1933 when Roosevelt got on the radio and told the public essentially that they were not delivering the gold so that they could print more money.

Ray Dalio (00:08:10):
It’s just that that was the first evaluation that ever happened to me and I needed to go back in history. What I learned was that I needed to study all important things in history like I needed to study the Great Depression. Because I studied the Great Depression, my company, Bridgewater, were able to anticipate the 2008 financial crisis, which we couldn’t have done without that study. So when these three things started to come along and I didn’t see them, I needed to go back and see many cases. It’s like a doctor seeing many cases. When you see more and more cases of a disease, you understand it better. I wanted to study the rise and decline of reserve currencies, and since these cycles are quite long, like the Dutch had the reserve currency and then the British had the reserve currency, the then the Americans and so on, I needed to go back about 500 years. I studied them and then I studied the rise and decline of dynasties, starting with the Tang dynasty a little after 600, to see what causes those rises and declines to understand what’s happening now.

William Green (00:09:24):
What did you conclude in terms of the major forces that actually drive the success or decline of an empire? Because it struck me… I’ve long thought that one of the keys to your success has been this extraordinary ability that you have to systematize things, that you don’t just look at the future and say, “Well, China is rising and the US is in decline.” You systematize it. I think you separated it into something like 18 different forces, but there are three that you’ve referenced so I’d like to talk in more depth. If you could give us a sense of this range of things that you’ve studied in the sense in past I think without the kind of computing power and without the enormous staff that you have at Bridgewater… I sense that that wouldn’t actually have been possible to do the kind of enormous study that you’ve done.

Ray Dalio (00:10:10):
That’s correct. Wouldn’t have possible. Also, I wouldn’t have shared it before. I’m now 72 years old and I think it’s very important so I’m passing it along, but that’s exactly right. As you saw in the book, there are measures of each one of those so they’re objective. By seeing numerically changes in each one of those indices so you can compare equality across countries and you can see it evolve, one can see these transpire in a very clear way. Also, one can see the cause effect relationships, certain things happen. Yes, there’s a typical cycle that I could describe if you’d like me to, but those measures and that objectivity is very important and can be used because it creates first of all a template. It’s like if you have a disease. Here’s an example, if you have a deterioration and you have a cancer, is it at stage one, two, three or four? What are the measures? What is the next step? How does that progress, what are the treatments? Those kinds of things are the same in terms of looking at these issues.

William Green (00:11:23):
You make some slightly chilling predictions about the US without being definitive because, obviously, these are probabilistic bets. For example, I think at one point you say, “I think that the odds of the US devolving into a civil war type dynamic within the next 10 years are around 30%.” You say that’s related to the high risk of internal conflict, the kind of politic polarization and anger that we’re seeing in the country. You also talk about the rivalry with China and say that the probability of a big war in the next 10 years is 35%. I was both struck by the way that you think the importance of thinking probabilistically, which is something that’s always struck me when I interview great investors, whether it’s Joel Greenblatt or Howard Marks, this sense that nothing is black and white. It’s always betting on probabilities, which clearly is something that you’ve been a master of over the decades.

William Green (00:12:17):
But also I was very struck by actually the seriousness of those claims. I wondered if you could talk about that gravity because you say, for example, that the US really is in danger of tipping over one way or the other. It’s that you say it’s, “The world’s leading power is on the brink and could tip one way or the other.” Can you give us a sense, digging into firstly the debt issue and the printing of money, why this is such a precarious position to be in? Because I’m no economist and I sort of need the idiot’s guide to why this is such a treacherous financial situation to be in.

Ray Dalio (00:12:53):
Maybe I can describe the typical cycle and then pull it out. I won’t go through all of the 18 measures, if that’s okay. I think it’ll create the template. There are internal orders and there are external orders, and what I mean by an order is a system of operating. Usually, internal orders are written by constitutions and external orders are written by treaties and so on, and they follow a war typically. Let’s say World War II. There’s a war. After the war, there are winners and losers. The winners get together and they determine the order, the system. For example, the system in 1944 they determined the Bretton Woods monetary system with the dollar at the center and gold at the center. It was an American world order because the United States had 80% of the world’s gold, it accounted for half the world’s economy and it had the monopoly on nuclear weapons, which was dominant.

Ray Dalio (00:14:06):
So the United States was dominant in all ways and the center of it, the reason United Nations is in New York and the IMF and the World Bank are in Washington because we began the American world order dominated that way. That’s an example. But if you go back to other cases, the Treaty of Versailles was the prior world order. In order words, a war and then a resolution of that war and then new rules as to who did what. If you keep going back, you will see that there are those world orders that just go back, the Peace of Westphalia in something like 1668 or something. Each system then creates a new system and a new world order, and then that happens also internal orders like, let’s say, revolution.

Ray Dalio (00:14:57):
The Chinese domestic order began in 1949. They had a civil war and then they started their domestic order in 1949. There’s a cycle, and the way the cycle works typically is after the war there’s a peace. The peace comes because there’s a dominant power that no one wants to fight, and also everybody’s so sick of war and then so you usually have a period of peace, often quite an extended period of peace. And there’s the consolidation of power by the new leader and then the development of a system that allows development because you wiped out a lot of the old. You wiped out the old debts, you wiped out many of the old things, but you’re in the process of wiping them out and new start. Then that begins the arc of the period of peace and prosperity and productivity.

Ray Dalio (00:15:53):
For example, the Second Industrial Revolution was that kind of period, the post World War II period was that kind of a period in which there’s competition, things working hard and there’s a rise in living standards. Those rise in living standard, particularly work well in a capitalist economy. Capitalism was really, that I mean markets, stock market and so on, was invented by the Dutch. It’s a way of creating buying power to enable, let’s say, entrepreneurs to be able to do well but it distributes wealth indifferently so that it creates a larger wealth gap. Over a period of time, it creates a larger opportunity gap because there’s a tendency of those who gained well to be in a favored position.

Ray Dalio (00:16:47):
For example, their children can get education that poor children can’t get or they might have more influence and so on, and so you get larger gaps and those gaps also can represent opportunity gaps and so on. There’s a tendency also toward debt and capital market valuations to keep rising, so debt rises in relation to income because debt is buying power but there’s… If you pay it back in hard dollars or hard whatever the currency is, then that’s a problem. So you see it rise. All of these cycles, you see debt rise relative to income and that’s because it’s better to have spending power like we had this last cycle, send out the checks and send out the money. You’re sending out buying power. That is so much easier to do and favorable to do than to restrict it and to contain it. That’s what raises debt relative to income and raises that so that you produce a debt cycle.

Ray Dalio (00:17:55):
Go back to Old Testament and they’ll about the 50 year cycle and the Year of Jubilee and so on. But these cycles have gone on for a long time, and so these wealth gaps grow, level sort of indebtedness grow. Also what happens is the competitiveness as they get richer, the competitiveness declines because… It declines first because people, as they get richer they become more expensive in the world, they want to work less hard and also they gather more competition. Let’s say, for example, the Dutch built ships that were the best to go around the world and collect riches, but the British learned from that and hired Dutch ship builders to build ships or inexpensively and better ships by learning from them. So others become more competitive.

Ray Dalio (00:18:52):
Also, when they do very well at the top they typically become dominant in world trade. The Dutch accounted for 25% of world trade. As a result, they bring their currency and the currency that’s then commonly used around the world becomes a world currency, which we call a reserve currency. When they have that currency, then that becomes also something that people want to save it so those in other countries will want to buy that currency, which means lend and so that they will lend to countries, which tends to make them get more into debt. It’s a great privilege, they call it the exorbitant privilege, to be able to borrow money because you the reserve currency, but it does get you deeper into debt in your own currency. That sows the seeds again for problems.

Ray Dalio (00:19:48):
There’s a political system that also operates with this kind of cycle, which is the political system rewards spending and it doesn’t penalize debt. Nobody pays attention to how much debt you get into, they pay attention to what they receive. When they get more stimulation, that produces it so there’s a tendency to have that which raises the living standard over the short run but also produces the indebtedness for the long run. So that when you get, let’s say, in the top of that cycle you can see living standards are really at their highest, they’re very high. You start to see the complexion of the finances deteriorate, you see the competitiveness deteriorate and so on. People also behave differently.

Ray Dalio (00:20:38):
There is an age cycle. Those who went through the war and went through the Depression have a different psychology than those who are now the next generation, so as this passes on so then you have newer generation operating that, they know really to enjoy life more, devote attention to other things and so on. So competitiveness starts to decrease while the indebtedness… But it’s a very good feeling position to be in, but that sows the seeds. Then when you have excessive levels of indebtedness… When you have the gaps and the excessive level of indebtedness and you have the bad finances… Because when you have that borrowing, the debt, then it’s bad for the owners of the debt. Right now you have very negative real interest rates, in other words inflation adjusted interest rates so it doesn’t make any sense to hold the debt, those assets. Then you see the movement to other things and so on.

Ray Dalio (00:21:42):
Then when you have the large wealth gaps that enters into it at the same time as you have internal conflict and external conflict. When that gets… The cycle’s described in detail in the book, but you start to see political polarity and the rise of populism of the left and populism of the right becomes extreme and progressively more extreme. As a result, you no longer can be in the middle. In other words they say, “Pick a side and fight.” And the media and the politics work together to enrage people and to make them more inclined to fight. Of course, that generation didn’t go through war. Because they didn’t go through war, they’re more inclined to fight and everybody is cheering the fighter who will fight for their side.

Ray Dalio (00:22:33):
In history, it shows that when the causes that people are behind are more important to them than the system, the system is in jeopardy, which is the case now. That progresses and you have either an internal conflict, you have a financial problem [inaudible 00:22:50]. Now other things matter. You asked about the cycle because there are other things like education and civility. A long leading economic indicator is the quality of education, but education is not just understanding history and memorizing or knowing how to do math and such things, it’s also education in civility, how people behave with each other, the idea of all of those. As there’s better education, there’s better productivity that follows.

Ray Dalio (00:23:21):
There are a number of measures that I include in there. For example, infrastructure investing, how you’re improving your infrastructure, there’s measures of the military strength. When they go internationally, they need a stronger military to protect their supply lines and all of that. All of those… There’s 18 different measures that you can see, and you can see what the numbers were and are of those types of things to make up the arc, but the arc is basically along those lines until you get to the irreconcilable differences, whether they’re internal or external, and you get to the financial problems. That’s why I’m saying… I think just by the measures that’s where we are. If we take the very simple financial, is the amount of money that somebody’s earning greater than the amount that they’re spending? Are their assets better than their liabilities?

Ray Dalio (00:24:19):
That’s true for individuals, companies and countries because that country’s an aggregate of those. You can look at the financial condition. When you get to the printing of money stage, you are very late in the cycle. That’s a concerning thing. You have that financial piece together with the internal conflict or, let’s say, internal order and disorder piece. There’s a chapter on internal order and disorder, explains the cycle. Then there’s the external order and disorder, but it’s made up of a number of those other things like education, quality of leadership and so on.

William Green (00:24:56):
I was very struck by some of the statistics that you gave, how strong the US still is. We’re saying it’s in decline but it’s still number one and so you point out, for example, that… I think you said that 55% of the world’s total market cap is in US equity markets, you said that 26% of global research and development spending is in the US, I think something like 20% of the world’s bachelor’s degrees in the US. So you’re not saying the US is vulnerable on every front. It seems like there are still some extraordinary strengths that the economy has, but it’s becoming harder and harder to turn around this enormous ship.

Ray Dalio (00:25:35):
I have many, many measures and when one looks at them, they paint a very rich picture not only of the United States but of all those other countries that I showed there. I think I showed 11 or 12. You can see the picture, and that’s right. If something as simple as education… If you were to take public education and you use measures like PISA scores, the United States is very poor in the industrialized world and it…

Ray Dalio (00:26:03):
… Is very poor in the industrialized world, and it used to be very good. It’s something like 38th in the world or something. But if you were to take universities that are in the top 100 universities, so the education is a very skewed education. You look at the stats and you see a picture. If you go to a great American university, there are very few places that compete with that and there are more of those great American universities. But if you look at the average level of education, it’s deteriorated and it’s not very good. But the main thing I’m trying to point out is that if you take those pictures, it paints a very clear and objective picture of what each country is like.

William Green (00:26:46):
There are a couple of things that I don’t really understand that maybe you could put in context, one of which, I was talking to a well known mutual fund manager the other day who runs an international fund, he had just read your book and was saying, “Yeah, this is all great and I agree with pretty much everything, but why is the US dollar so strong in relative terms compared to the last 20 years, despite the fact that we have all of these things you’re mentioning?” Like huge trade deficits, faster money supply growth than appears, negative real interest rates, huge fiscal deficits relative to GBP, plus increasing political turmoil. What’s going on there that the dollar hasn’t rolled over and collapsed?

Ray Dalio (00:27:27):
The value of the money should always be looked at in relationship to goods, services, financial assets and other currencies. So what we’re doing is referring to also other currencies in describing that. The major reserve currencies, the major other reserve currencies are the euro and the Japanese yen, there’s the emergence, but still small, is China’s yuan or renminbi. So the circumstances in the euro and Japan are quite like those in the United States because of the same element of the cycle.

Ray Dalio (00:28:07):
In other words, it’s like looking at the G7. The G7 are the old countries, the anachronism of, in other words, you think, “Well, what is the G7?” You run down the list of the countries and it’s almost laughable that they would be the great powers. So they are also the reserve currencies, they’re older. So Europe has its issues and is pursuing policies that are the same, Japan has its issues and doing that, the renminbi has appreciated against the dollar, but it is not yet an effective alternative currency because it has not developed the evolution of being commonly used. By the way, that was intentional because the Chinese did not want to threaten the dollar as a reserve currency, but it is internationalizing and because it has relative appeal, its interest rates are better and also its balance of payments is better, it is appreciating.

Ray Dalio (00:29:05):
The depreciation of the dollar should be measured against goods, services and financial assets, because the loss of buying power. Everybody should judge their wealth not in nominal terms, don’t say how many dollars I have, but judge it in real terms and also judge it through the lens of those other things. So you’ve seen the classic mechanical depreciation of the dollar, you’ve also seen it though in other currencies too because Europe had to pursue the same type of policy, Japan had to pursue the same type of policy of creating a lot of money and debt and monetizing it, so that reaction in the markets has been the same throughout those countries.

William Green (00:29:52):
So in a sense, I was quite upset to read that part of the book that was suggesting that a lot of our wealth seems to be illusory at the moment, though if we invest in the stock market for example, we feel much richer than we probably are in real terms. It seemed to be that was one of the things that you were waking up readers to understand, to say, “Look, you may feel rich and you may be inclined to take late cycle risks and overspend and get too much in debt and speculate too much, be careful because this wealth, in a sense, may be a little illusory and the next period may be very dissimilar to the current period.” Is that a fair characterization?

Ray Dalio (00:30:30):
Yes, and I’ll add cash to that. Investors make the mistake of judging their wealth in the number of dollars or pounds or whatever currency they’re looking at it, and they should judge it in relationship to buying power. When a government produces a lot of money in credit and they’ve handed out all of these checks and you use the measure of wealth as having risen a lot, everybody appears to have been richer, you can not get richer by producing more money in credit, okay? You can only get richer by producing more goods and services. So what happens is by judging it that way, they make serious mistakes, particularly on judging the riskiness of cash.

Ray Dalio (00:31:18):
So for example, this year, investors let’s say who are holding cash probably lost about 5% to inflation, and they’ll continue to lose inflation. If you look at what’s priced in the markets, they’re negative real returns. In other words, the bond markets are negative real returns, so if you buy a bond, you’re locking in a negative real return and cash is worse than that. So I want to highlight, please do not look at your returns and think that’s safe, when that’s not safe. It’s better to build a far better diversified portfolio. Yes, this is also, we’re at the part of the cycle where everybody has a check and they have the counts and they feel rich, and also interest rates are low so that they could borrow money, so the monthly payments are not much and even you can get interest only loans, so that means you have no interest practically to pay because they’re so low and you have no principle to pay for a while and so you could just go get money and that’s why money is free, you can go get money and you can spend and you feel very, very rich.

Ray Dalio (00:32:28):
The other side of that is that now you are seeing that the inflation is picking up because everybody buys more. So you have to look at what is the total quantity of money and credit created relative to the total change in the amounts of goods and services created? If you’re not creating much more goods and services or you’re not creating much more even financial assets, but you are creating much more spending for them, you’re going to raise their prices and then that becomes the illusion, as you’re calling it, because people say, “I’m richer.” But then they go to the gas station and then they go to the supermarket and they go on vacation and they do all of those things and they say, “Wait a second, I’m losing it.”

William Green (00:33:15):
I feel like there’s a bit of a conundrum here, and we’ll come back in greater detail of how to invest in this kind of environment later, but while you mention this issue of debt and cash, I just wanted to ask how a regular person like me or like the listeners to this podcast should deal with the fact that bonds seem to offer no protection, no return? Cash seems to be, we seem to be punished for saving cash. So the time of recklessness where a lot of people are throwing caution to the wind and seem to be unaware of the kind of risks that you’re describing, the usual conservatism, the contrarian, value oriented, prudent types might be inclined to resort to, that behavior or saving money, sticking more money in cash instead of making aggressive bets, maybe making sure, as someone like Jack Bogle, the founder of Vanguard, told me many years ago, he would always say, “Well, make sure you own a balanced fund. Make sure you always have some bonds.”

William Green (00:34:09):
So these classic ways of protecting ourself suddenly actually don’t seem to apply and I’m struggling to figure out how to respond to that.

Ray Dalio (00:34:16):
There’s the broadest sense and then there’s the bond question. The broadest sense is, be out of cash and have little or no participation in interest rates, particularly if they’re close to zero interest rates, because if the economy goes down, they will offer very little protection to your portfolio because they won’t go up much, because they’re close to zero interest rates. But you can get a diversified portfolio of assets, and that diversified portfolio of assets can include things like inflation index bonds and stocks and some gold and some other assets in different location.

Ray Dalio (00:34:59):
Because if you know how to diversify well, you’ll find that asset classes, it’s not so much that wealth is destroyed as much as it shifts where it is. So by being able to see how it shifts and it moves around, and looking at the correlations of those and achieving balance, you can achieve that kind of balance. I created what I call my all-weather fund when I first earned enough money that I knew that I would pass some along and I wouldn’t be here. I believe that active management would be a problem, because active management is a zero sum game, you’ve got to pick the winners and the losers, and most people are not able to do it themselves and those who are winners get filled up pretty quickly, and so it’s not easy to operate that way.

Ray Dalio (00:35:48):
So I created this all-weather portfolio which is a balance, balance is the key. Diversification of achieving that is the best path with staying out of the way of cash and looking at one’s returns. The most common mistake of investors is to think that the markets that went up are good investments, rather than more expensive. So stay out of cash, achieve the balance, and then don’t make that mistake. I remember when the Magellan Fund was the best performing stock, mutual funds, when stocks were the best asset class and a very popular investment fund, but the average investor in it lost money. The way the average investor lost money is because every time it was up a lot they bought it, and every time it was down they sold it. So their bad market timing, because they were reactive thinking it’s a great investment when it’s up a lot and when it’s down a lot, and also you see ads that companies will put out ads, “Our last five years’ return or this and that, or this is what the year is,” to attract people in.

Ray Dalio (00:36:54):
Those are the common mistakes of investors, so don’t try to time it yourself because you’ll probably lose. Competing in the markets is more difficult than competing in the Olympics, there are more people trying to do it and putting more resources behind it. I know we put in hundreds of millions of dollars a year and so on to try to do that, and it’s competitive for us, it’s competitive for others. So to not try to do that yourself, but to achieve balance like I described in this all-weather portfolio type of approach. But anyway, what I mean is balance, and time and then you rebalance. So if something goes up a lot and then something goes down a lot, you rebalance to that diversified and that will make you sell more, as things get expensive and buy more, as they go down. Be humble.

William Green (00:37:52):
There’s obviously been a great deal of euphoria about bitcoin and other cryptocurrencies, and in some ways it makes sense, given what you’re saying about the devaluation of the dollar and other currencies, and in some ways it makes me feel a little bit like I felt when I first was a financial reporter back in 1999, 2000, that there was this wild speculative excess. There’s something almost religious about the zealotry surrounding cryptocurrencies, and so I sense from your writing, both in the book and the statements that you’ve made on LinkedIn and elsewhere, you’re trying to be somewhat nuanced and polite about this.

Ray Dalio (00:38:28):
I’m not every trying to be polite.

William Green (00:38:30):
You’ve said that you have a small, somewhat negligible stake, you’ve said that gold you still regard as a safe storehold of wealth, a timeless and universal alternative currency. At a time when so many other people are saying that actually bitcoin has become digital gold and gold is useless, could you put a little nuance on that? Just also, give us a sense of whether the speculators on cryptocurrencies are lambs to the slaughter, or whether it’s a sensible hedge world where currencies are being devalued.

Ray Dalio (00:38:59):
I’ll answer your question, but I’m not trying to be politically correct or misstep or do anything like that, very few people have accused me of being that way. I’m straightforward, but issues are not as black and white as people want to do. They want me to be either a raging bull or a bear and that kind of thing in the circumstances. So here’s what I think about them, I think it’s very impressive that this concept was programmed something like 10, 11 years ago, and has stood the test of time, meaning it hasn’t been hacked, the competition has been relatively modest. In other words, some of the risks in the earlier period are, would this thing break down, be hacked? Would competitors to bitcoin come along? How do I know the next one?

Ray Dalio (00:39:52):
Because everything in the world gets old, and there’s a better competitive alternative, that’s just the nature of evolution. So those kinds of things, and then the adoption of it, in other words, and it has pros and cons. At the same time, as you’re right, it has a bit of a zealot type of following to some extent, and then there are thoughtful people who also follow it. But one wonders, in other words, when does somebody collect, take the money they made in bitcoin and then diversify that and in other words, move to other things? There were other things that are developing, not only other coins, but NFTs and other things that become popular with that crowd, and does that diversify that? Then there were regulatory issues that have to do with this, because when you have an alternative currency that’s a threat to every government, every government wants a monopoly in their own currency and particularly if you get a better currency, because it doesn’t get devalued.

Ray Dalio (00:40:59):
In history, they’ve outlawed gold and they’ve outlawed silver and so on, and they could outlaw bitcoin. The digital currencies make it more traceable in many ways. If you have a gold coin, it’s not like it’s traceable, it’s not connected to the digital network. That also has to do with hacking and so on. I think you could easily find, you’re seeing much more malware, you’re seeing much more ransomware. In other words, breaking in and then looking for a payment, quite often that’s in bitcoin, but that digital component is, by the way, a risk for our society and could be a risk for operating that way. Then, I’m mister diversification.

Ray Dalio (00:41:44):
One of the great things about a stock index is that every company practically has gone broke. You go to the Dow 30 and you see where they were not many years ago and you watch them, and every company dies but the stock market doesn’t die, because it re-balances to the new that comes in to replace the old, and I respect that particular process. So when I think about that, I think, “I’m not a person who likes all of their eggs in one basket.” So I have some element of diversification that represents a small percentage of my total, let’s call it inflation hedge asset class or reflation hedge asset class, that represents that and that’s the way I think about it. I can say a few more things, I would say gold right now, because the supply of bitcoin is known and limited, we could look at its comparison.

Ray Dalio (00:42:43):
Bitcoin now is worth about one-trillion dollars and the total crypto is worth, cryptocurrencies are worth about two-and-a-quarter-trillion dollars roughly, but let’s say bitcoin. Whereas gold, that is not held by central banks and not used for jewelry, is worth about five-trillion. So that 20% of that is bitcoin, let’s say, versus the other, gold. So when I look at that, I keep that in mind, because I think over time that which will be called, let’s say inflation hedge assets are probably likely to do better, that’s why I’m not favorable to cash and those types of things, but it becomes a market share.

Ray Dalio (00:43:29):
Now that, what I’ve just given you is what I think about it, but it doesn’t lend itself to soundbites. People say, “What do you think about that? Do you love it or hate it?” It’s just more complicated than that.

William Green (00:43:40):
I remember asking Bill Miller, who is somewhat of a zealot about bitcoin, who’s made an enormous fortune on it because he started buying it around $200 a coin, what would be a sensible allocation for a layman like me, and he said, “1% to 2% of your portfolio, then if it goes to hell, you’ll be okay. If it does really well, as I believe it will over the next 10 years, then you’ll be glad you owned it.” Does that seem like reasonably in the ballpark, or do you think that’s excessive?

Ray Dalio (00:44:11):
No, I think that’s right.

William Green (00:44:13):
Okay, thank you. Let’s go back to China a little bit, because when we were talking earlier on about the three great forces that were coming to make life difficult for the US, one that we didn’t go into in great detail that’s obviously critically important is the rise of China. You mentioned in the book, you described China as a strong power in rapid ascent, whereas the US I think you describe as the number one power, but in gradual decline. Obviously you’ve spent an enormous amount of time in China over the years, I think you first started traveling there in 1984 and have been there dozens of times, I remember your son Matt at one point went to live there with a friend of yours who is very high up in the financial world there, in the government, so you understand China to an unusual degree. You don’t have the knee-jerk prejudice against China that a lot of outsiders who don’t know much about it have. Can you give us a sense of why China is in this extremely formidable position, rising so rapidly? Also, a sense of why that’s such an extreme threat to the US?

Ray Dalio (00:45:18):
There are two dimensions to its rise, its size and its effectiveness in raising productivity and living standard. So China’s a bit over four-times the size of the United States, so that means if it had a per capita income that was half the United States, it would be twice the size of the United States. If you look back throughout history, in the book I show charts going back 1400 years, China has almost always been number one or number two in terms of its power, of course the world was much more separated, but it was much quicker to invent the printing press and many technologies and so on and had more power in many ways. So it’s a culture that is an old culture and they study history and they are effective in the classic ways that are measured in the book, the 18 measurements. Education is important, civility is important, those kinds of things.

Ray Dalio (00:46:17):
So what I’ve seen when I started to go there, I started to go in, as you say, 1984, and when I first started going there was the closed door policy up until Deng Xiaoping came to power in 1978, and they were just opening. So the first company that was the only window company, they called it a window company because it was the only company that was allowed to look out and deal with the outside world, was a company by the name of [Siddiq 00:46:45] and they invited me to teach them about the world financial market. So when I went there, it was all bicycles and it was very poor, and I brought calculators, $10 calculators and I gave them to leaders and they thought they were miracle devices. Since then, per capita income, real income has increased by 26 times and their technologies, where they are in terms of quantum computing, AI and almost any are rivaling the United States.

Ray Dalio (00:47:20):
So I saw that development and I saw that basically for the most part they put together a bunch of right ingredients, including tapping entrepreneurship and creating capital markets using capital markets, capitalism in a market economy to be able to be successful. Because when I looked at all the other empires, you look at the Dutch, the British and so on, there was always the combination between ability of entrepreneurs to combine, to get resources to take the new ideas and make them grow, to build the wealth and so on. So anyway, they integrated and changed radically, private companies and so on, and I’ve had the ability, because I’ve gone there so long and helped in many ways some of the developments of the financial markets understanding over that period of time, to know very intimately how the leadership thinks about such things.

Ray Dalio (00:48:23):
The one thing that the Chinese are unique at is understanding the patterns of history themselves. History is basically their religion and they study history and they learn the lessons of history, and then they have what they call the dialectic when things are at odds and the contradictions and how they then use that as a resolve. So something like capitalism and communism together, how they tried to make that move. So I can see they’re earning more than they’re spending, their education levels are higher, not higher in the total sense, you’ll see the statistics, but they’ll put out maybe eight-times as many computer engineers, they have free access to the data, they use data very effectively, so they become quite remarkable in terms of technologies and so on.

Ray Dalio (00:49:15):
So they’ve gone from the evolution of countries, it goes usually from cheap things, like you make textiles and so on and then you manufacture goods, you the chief place to produce, to going into cutting edge inventiveness and technology. They made that evolution very effectively because of the way that they’re doing things. So I’ve seen that up close and I’ve seen that then they’ve developed their capital markets, and they welcome foreign investment. So that’s what the picture looks like, to me.

William Green (00:49:47):
What do you think the odds are that China will disappoint and will not actually live up to this promise, this almost inevitable rise that you’re predicting? A friend of mine the other day, who is a very experienced professional investor, was saying he looks at things like the governance model and thinks, “Yeah, there are advantages, but tremendous disadvantages, there are productivity questions.” He was saying, “You look at things like the COVID vaccine in China,” and he said, “it was pretty ineffective. They did it quickly, but it was ineffective. You look at their foray into semiconductors, and it didn’t work out that well.” He also said something politically incorrect to me where he just said, “Who wants to move to China?”

William Green (00:50:26):
I asked this of someone who used to live in Hong Kong very happily, I know that you stress test all of your predictions and forecasts of these many trends, when you think about the risk of disappointment, what are you factoring in that you’re thinking, “Yeah, maybe China won’t live up to this promise?”

Ray Dalio (00:50:44):
First of all, the ingredients I look at in measuring the health gauge are the ones that I’m focusing in on, because they reflect elements of health. Those are the things, so that long list. That just assigns probabilities of it and the probabilities having to do with things like capital formation and education, the financial position, the debt is in its own currency, the number of patents, inventions, those kinds of health measures are the ones that I look at across all countries to produce that. I think that there are different ways of producing that, I think one has to be very careful to be prejudice against let’s say a more authoritarian regime in terms of that kind of behavior, because that certainly existed.

Ray Dalio (00:51:38):
I think it is by and large correct that everything has pros and cons to it and they’re at odds, and when you try to balance things, you try to get the most of both. They’re trying to get the most and have demonstrated a very good ability to get to create freedom and capital resources and capital markets to tap entrepreneurship and have that market economy …

Ray Dalio (00:52:03):
To tap entrepreneurship and have that market economy. And so on that shift at the same time as that’s happening in a much more autocratic type of system. And I look at that and I also say that their other countries have the other side of their risks too. So in other words, the great risk of the democracy has always been disorder, anarchy. And so when you look at the risk ages, when I go down the risk ages and I looked at, I think they’re described very, very well in those measures.

Ray Dalio (00:52:33):
So democracy and freedom is a terrific attribute. And the United States has really uniqueness in many ways of being able to draw from the rest of the world, should be drawing from the rest of the world, the smartest and the brightest. Because one of the great things about the United States is it’s the only country in the world that you can go to and you can be a citizen, a part of it and not an outsider. There aren’t any kind in the world that’s like that.

Ray Dalio (00:53:03):
So you can attract the best and the brightest to do the most innovative types of things. And when you have rule of law and you have property rights protections, and you have all of those things, those are important, competitive advantages if fully tapped to make a very, very productive system. I believe in those types of things. And at the same time, I think that we’re threatened by some of these other things which have to do with the level of indebtedness, the way we’re at each other’s throats and the actual threat to democracy.

Ray Dalio (00:53:38):
I cover that in the book and you look at where we are, January’s sixth incident is just a straw in the wind. It is a likelihood. There’s a reasonable likelihood that law and the constitution will not be the governing way of operating because people are more inclined to fight for their results to get what they want than to even defer to look to the greater good and to have come compromises. So each place has pros and cons. And that’s why in the book, I tried to show each one of those pros and cons and to weigh those types of things.

William Green (00:54:14):
One of my takeaways from the book in practical terms was just thinking, okay, so if Ray is right about these long term trends, which I’m pretty confident that you are, even though, obviously these are probabilistic that’s not certainties. If you’re right, what are the long term trends that I want to play? How do I position myself so that I’m making sure that I’m aligned with these big cycles so that I’m playing, for example, the rise of China, but also the less impressive, but still very impressive rise of India.

William Green (00:54:43):
And also, I guess, simultaneously the decline of the US, the dwindling importance of great Britain, which clearly is the most important country in the world. But sadly seems to be on a downturn, France, Japan. How do regular investors position themselves so that they… Obviously we know that this should be part of a diversified portfolio. But is it that you just want to tuck away a low fee emerging markets index fund, or ETF that gives you exposure to places like China and India and Taiwan and Korea and the like, or is there another smarter way that you would do it as a regular investor who doesn’t have the kind of sophistication that your team has?

Ray Dalio (00:55:23):
You’re asking about investment, and I’ll just to point out, it’s also broader than investment. It has to do with, where do you want to live and so on in that kind of an environment. You’re seeing within the United States, people move from one state to another. And you’re seeing that because we are a federal government, we have state rights that there are different approaches to life, different regulations and so on. And you see that people like to be with themselves.

Ray Dalio (00:55:51):
And particularly, let’s say rich people like to go to places where they’re among rich people and they’re not threatened, not just in terms of money and so on. And people are moving and you see hollowing out of certain areas. When they leave, then they take the tax base with them and it causes conflict in different areas. In answering your question, I think it’s very important to think about, let’s say all of the things in terms of those risks.

Ray Dalio (00:56:20):
That’s why in the book I cover all of those types of things, many others too. But in the development of the portfolio, again, the way I think about it is there’s a certain portfolio that I view as kind of like my safe portfolio. Almost it’s better to think about two portfolios than sort of one. People tend to think what is the best portfolio, but there’s a portfolio of assets that are better to have almost like if you have a worst case scenario. And to have enough in those assets that are worst case scenario.

Ray Dalio (00:56:55):
That could be maybe it’s gold, maybe it’s a Bitcoin, maybe it’s some inflation index bonds, maybe it’s… I don’t know, some other assets overseas and different things. And then you go above that. But still diversification is the most important thing. I think that when I started, since the beginning, let’s say, when I didn’t have any money, I would think how many months can I live to take care of me and my family if no income came in. And I wanted that to be in years. And I wanted that. And then I figured, well, maybe that goes down in half between taxes and inflation or losing money.

Ray Dalio (00:57:38):
So I want to take that number and I want to double it, whatever that is. And then to get that amount of money and to then be secure and to know that that’s going to happen in that way is a very, very good thing. And then when you go from that level, then you go beyond that level to be able to build a better diversified portfolio. To me, they always have to be diversified. And the reason I say diversified also is all assets compete with each other. So it’s not like one asset is better than the other asset. It’s like horses in a horse race. They get handicapped.

Ray Dalio (00:58:14):
If you bet on the worst companies, you might make more money than betting on the best companies because it’s discounted in the price. And so because of the fact that there’s this equalization by this discounting mechanism, it’s kind of tough to say which is the best. And that also leads it to have to favor diversification over that. I mean, I think about that well. But those are the thoughts that I think as an individual navigating those. And I would say I’ve seen many countries of normalcy become abnormal and difficult places, or, and you could see that even in perhaps certain states that it could be difficult. So anyway, I like to have that kind of diversification.

William Green (00:58:59):
This to me was one of the most powerful messages of the book. There was a wonderful point, I think, where you mention imagining yourself in 1900 and looking at the 10 most powerful countries of the time and saying, “Well, actually if I figure out how we would’ve done since then, I would’ve been totally wiped out in seven of those countries at some point.”

William Green (00:59:18):
And so it seems to me there’s just a very strong, one of the strongest practical conclusions from your book is actually to go back to a Chinese adage that you quote, “A smart rabbit has three boroughs.” That you should always be assuming, well, yeah, maybe this is a good time. Maybe I feel rich. But actually I need to be aware that it maybe a lot more precarious than I think. And that, as you say, at one point, the most important thing both in investing and life is not to get knocked out of the game.

Ray Dalio (00:59:45):
That’s it.

William Green (00:59:47):
If we could turn a little bit to how you think. We’ve talked a bit about how you invest. But obviously, one of the most interesting things about the intellectual experiment that is Bridgewater is it’s real a kind of social engineering experiment in how to think better.

William Green (01:00:02):
And I wondered if you could talk a bit about what we can learn from things like this idea of radical truthfulness or your commitment to radical transparency. Can you explain how an idea meritocracy works and why this concept is something beyond these immediate at questions about what to do in this environment? Why this is actually a way that we need to learn how to think? Because it’s very helpful.

Ray Dalio (01:00:26):
Well, what I believed in and found the basis of whatever success I’ve had or we’ve had is in one long sentence, an idea meritocracy in which the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency. So what I mean by that is I want the best ideas to win out, without a hierarchy standing in that way, how do I find the best ideas to win out? And that’s an idea meritocracy.

Ray Dalio (01:00:57):
When I say the goals of meaningful work and meaningful relationships, the best success in life, not just measured in finances, but it measured in the richness of one’s life is in meaningful work and meaningful relationships. If people are devoted a mission to be great and at the same time, have those relationships. In order to have those relationships be most effective, they have to be radically truthful with each other and radically transparent. But let’s take radically truthful. We have to get at what’s true. And if you don’t get at what’s true, you won’t know what to do about it.

Ray Dalio (01:01:38):
And the fact that if you’re not radically truthful with each other, you won’t get at that. You won’t talk about problems or weaknesses. Everybody has weaknesses. Everybody makes mistakes. And the capacity to look at those and understand one’s weaknesses. For example, I, knowing what people will like led me to make a test. It’s online, it’s free. It’s called PrinciplesYou. I put it online. And you could look about what you are like, how you think, and you could look at how other people think, and we think differently. We’re programmed differently.

Ray Dalio (01:02:15):
Our brains work differently. To know that and make that our strengths and weaknesses and to allow us to play, know what positions we should play and to know how to deal with each other is a great benefit. And truthfulness over a period of time builds trust. It maybe painful at times to talk about that, but you can get past that pain because you have trust. And these relationships part, I also refer to it as tough love. Tough love is the best kind of love. Tough love is very difficult to give because people might not like it.

Ray Dalio (01:02:48):
But when they get used to it, that you care about people, that you genuinely care about people. I genuinely cared about these people, they were extended part of my life. If they were sick, seriously, I couldn’t just have an insurance policy take care of them. I would introduce them to my doctor. And then I made an arrangement with my doctor. So they wouldn’t be the doctor, but they’d make sure they’re getting good medical attention. Where I had a house in Vermont, I’d love them to there. We were at each other’s big events, birthday, weddings, baby showers, and those kinds of things.

Ray Dalio (01:03:25):
It was optional. No need to do that things. But when there’s also love and tough, they go together and they can [inaudible 01:03:33] it’s easier when you care about somebody and you’re tough with them, that kind of works. And then they’re into the mission and they’re not working for a few bucks more. Because when you have people who will trade who they’re with and what their mission [inaudible 01:03:46] is on for a few bucks more, they’re living a shallow life. You’re losing that kind of devotion.

Ray Dalio (01:03:53):
And so that’s why the radical truthfulness works. And then transparency so that everybody could see everything. I mean, literally almost everything, except if it’s proprietary or extremely personal would be recorded so anybody could see. They could see us struggle with difficult questions and they could understand those things because transparency is a key ingredient to understanding because everybody gets spin from everybody else if they what happened. Then you hear somebody’s description, which is biased. And so that process really worked great.

William Green (01:04:28):
My sense from people who know you well, and we’ve talked before. And my sense from other people who is, you’re a good guy, you’re someone who cares deeply about your family and friends and colleagues. And yet there’s a part of me that wonders about how you deal with this conflict between the desire to be a good friend, a good father, good husband, good grandfather, good colleague, the downside of hurting people emotionally in a system that emphasizes truthfulness and candor.

William Green (01:04:53):
I’m sure there have been times where that’s actually been a kind of painful for you as a sensitive person. And I’m wondering if you could just talk to that because I can see the intellectual benefit of your experiment. I can see the money making experiment, but I also, if I’m honest about it, I do think there’s a risk of a loss of humanity and kindness and compassion. And I just wanted to see what at nuance you could add.

Ray Dalio (01:05:16):
I think it’s just something like people have a bias against their… Maybe it’s their weakness or their mistakes. And if that becomes painful, you’re not helping them. It’s like if somebody has something going wrong and you tell them. What is a good friend? When you look at many of things in life, I’d call it the great trick of life, that first order consequences are often the opposite of second order consequences. And the second order consequences are more important. For example, tasty food is more likely to be bad for you than less tasty food. Or exercise, which is painful, is more likely to be good for you than not exercise, and so on.

Ray Dalio (01:06:07):
Financial discipline is likely to be good for you rather than lack of financial discipline. It’s almost like the second order consequences. And if you can get people to start to realize, I really care about you, that’s why I’m trying to deal with these things. And I don’t know, what’s true. We together have to find out what’s true. So if you’re disagreeing with me about my strengths or your strengths done in a non-hierarchal way, because we all have strengths and weaknesses. If we can do that and then set out as our mission to find out what’s true.

Ray Dalio (01:06:45):
So how do we do a test? Is that your strength or that’s improvement. Because improvement for you, in your own personal development comes really from recognizing that you don’t have all the answers or that you could be biased about your opinions or your even yourself and what your strengths are. And once you can get past that, you can be very, very effective. Because everybody has, there are pros and cons. Nature did not invent away anything that doesn’t have a purpose and there are all these different ways of thinking. They all have purposes.

Ray Dalio (01:07:21):
And so if you have a big picture thinker and you have a detail thinker, they can frustrate each other, but if they can work well together, that’s the magic. And so that knowing those things is produces outcome. So intellectually it’s quite like exercising or eating well. At first, it seems difficult to do this, but then you won’t be able to do it any other way because you start to experience the rewards. So you find that people at Bridgewater would have a problem being anywhere else because almost those other places seem disingenuous and you don’t know what’s really going on. They seem very political where it’s very straightforward and you appreciate the honesty. So, that’s what the cycle is like.

William Green (01:08:05):
It seems to me another very striking aspect of why you’ve succeeded as a thinker and how you have managed to set up an organization that thinks in a superior more rational way is also this habit that you have of, as you put it, failing well, of learning from your mistakes.

William Green (01:08:21):
And I remember you’ve talked in the past about this trial by fire that you had, I think in 1982, where you made a mistake that could have broken you and that set you on a different path to, I think, welcome in a sense, the understanding that maybe you were wrong and maybe you needed to stress test your opinions. Can you talk about the evolution that came about because you made that mistake and how critical a role that’s played in setting you on this path of learning from mistakes, being radically truthful, trying to solicit thoughtful disagreements?

Ray Dalio (01:08:52):
I’ll tell the story. So I formed Bridgewater in 1975 out of my it was two bedroom apartment. I built this little company. And then in the 1979, 80, 81 period, that was extremely high, real interest rates, lots of debt and so on. I calculated that American banks had lent more money to foreign countries than those countries were going to be able to pay back. And I had a very controversial point of view that we were going to have this big debt crisis. And then on August 1982, Mexico defaulted on its debt and a number of other countries followed. And because I anticipated the debt crisis, I got a lot of attention. And then I thought we were going to have this collapse because of the debt crisis. It was one of those experiences that I hadn’t been through before in that way. And I couldn’t have been more wrong. August 1982 when Mexico defaulted was the exact bottom of the stock market, the Dow at 777, the Dow bottom. And I couldn’t have been more wrong and I was wrong for me and I was wrong for my clients.

Ray Dalio (01:09:58):
That was very painful experience. Not only because of the losing of money, but I was so broke I had to borrow $4,000 from my dad and because had a family and I was in that position and I had to let everybody go really. And I was down to me in thinking, okay, am I going to put on a tie and get on the railroad and go into Wall Street? Or how is that going to work? And all of that. That painful experience was one of the best pain, best experiences in my life.

Ray Dalio (01:10:28):
It’s formative, because it gave me the humility that I needed to balance with my audacity. In other words, it gave me a fear of being wrong without me losing my audacity, because I then knew. So I wanted to find the smartest people I could find who disagreed with me to stress test their thinking. And I really wanted to understand how to diversify in a way which didn’t lose my upside, but gave me my downside. So at that point. And I really do think painful experiences of the learning. My son afterwards gave me a book by Joseph Campbell called Hero with a Thousand Faces.

Ray Dalio (01:11:08):
And they described that there’s these in almost all lives a lot, unless you have, you don’t take much risk at anything, but risk equals return. That there’s an abyss that you have the time in your life where something really terrible happens and you go down. And I have an expression, pain plus reflection equals progress, because the painful experiences and that Joseph Campbell example that he had in the book is that you have a metamorphosis. You change and that metamorphosis helps to make you better. And so from that experience, that was the bottom for me and that was the bottom for Bridgewater.

Ray Dalio (01:11:48):
And every year since then we kept getting better and better and it kept going up. That was what my experience was like in a teacher, because also risk goes with opportunity. And so I’ve sort of felt like I can have a safe life by not taking risk. And it was like on one side of the jungle or do I want to go through this dangerous jungle with all sorts of things that can kill me and that to get to the other side and have a great life. And so that’s a lot like life because you can take risk and you can, but, and it provides opportunity.

Ray Dalio (01:12:24):
Then I said, how do I go through that jungle to be effective? How do I get the returns without the same amount of risk? That was the puzzle that I had to solve. And then I realized I didn’t want to have less than a great life so I have to go through the jungle. But I realized that going through the jungle with people who were on the same mission to make it through the jungle, who could also see things differently so that they could pick, they could see what I couldn’t see and so on and that we would help ourselves through that jungle.

Ray Dalio (01:12:56):
And so it struck me, mistakes were like puzzles that I would have to solve in order to get a gem. It was like that. Okay. A mistake. Gee, what does that tell me about how reality works and how I’m going to deal with reality to be effective? Because it’s a reflection of reality and my dealing with reality. And so that was a puzzle. And then if that puzzle would give me a gem, if I could answer that puzzle. And the gem then was a principle that I could carry forward to be better in the future. So that was what the whole experience and the journey was like, and that’s why I believe the things I believe.

William Green (01:13:36):
I’m struck by the fact that multiple times, both in this book and in principles and in other writings of yours, you’ve talked about welcoming being corrected. I remember a recent piece I think you wrote about Bitcoin where you said, “I’m happy to be corrected.” And it strikes me that that’s an extraordinary strength.

Ray Dalio (01:13:52):
Isn’t it so stupid that anybody wouldn’t want to be corrected? I mean, that so exemplifies the problem, right? Everybody’s attached to being right. And so I don’t care where being right comes from. I want to be right and if it comes from other people and I learn, isn’t it an extraordinary thing that in our society that that’s considered unusual? Isn’t it stupid?

William Green (01:14:18):
Yeah. But there’s clearly you mentioned, I think in Principles that being corrected often triggers people’s fight or flight response, that it’s just painful to them. And I was wondering, I’ve spent a lot of time over the last 25 years interviewing legendary investors and they all strike me as having very unusual personalities.

William Green (01:14:36):
And I know you’ve done a lot of psychometric testing. And I’m wondering when you look at the kind of testing you’ve gone through, is there something about your particular personality that you look at and you think, well, yeah, I’m a very independent thinker. I’m happy to. I’m not emotional about these things. Are there aspects of your personality that you think predisposed you to be a successful investor because you were say, more rational or less emotional?

Ray Dalio (01:15:02):
No. I think that it comes down to neuroscience and habit, that there are two parts of our brain, that there’s the thoughtful part of the brain that’s analytical and conscious. And then there’s a subliminal part of the brain. Subliminal, meaning and it’s unconscious. And it’s working there and it’s doing its own set of calculations, some of which are emotional and so on and that they could often be at odds. I’m an emotional person. I think the best things are love, inspiration, excitement and all of those types of things. So it doesn’t mean being unemotional.

Ray Dalio (01:15:44):
But what I think, that a couple of things affected me. So I think, and almost anybody can be affected. One of the things is in order to succeed in the game I play, I have to go through the dynamic that I’m describing. So, that affected me. Accuracy is the thing that I treasure. Accuracy’s truth, I treasure that. It’s a foundation of those good things. Also, meditation. I learned to meditate when I was about 19. And what that does, it’s a process of basically relaxing and then you go into your subconscious mind.

Ray Dalio (01:16:21):
And I think that that’s helped to give me the equanimity that I need. And also, creativity comes from the subconscious mind. If you can align your subconscious mind with your conscious mind so that they’re aligned and they sort of filter each other. Because anything that’s just coming up out of the subconscious, maybe it’s going to do you harm and maybe it’s the intuition and the creativity that’s going to help you a lot. And then there’s the conscious mind and it doesn’t have the same amount of those kinds of things intuition and so on.

Ray Dalio (01:16:50):
But it also could be junk that’s coming up and you’re emotional and you get carried away and you make the bad decisions. When you can align them, I think that that’s advantageous. So I would say meditation played a role. And then what I need to do, which is I need to be right. I don’t care where being right comes from, I need to be right. And if it comes from somebody else or it comes from wherever it comes from, that’s going to be helpful to me. So I think that those experiences, I think that our education system and the reinforcement of this terrible ridiculousness in which people are attached to being right.

Ray Dalio (01:17:28):
Okay. I came up to it, that ego barrier or then there’s blind spot barrier, because we think differently, we can process things. Some people can see the big picture, some people could see the details. They need each other, but their brains work differently. So that’s why I do these personality profile tests, which again, I’ll say PrinciplesYou. Everybody goes on it. It’s free. 30 minutes. It’ll tell you a lot about yourself. You could put somebody else on it too. And it’ll tell you a lot about your relationship. But I think that knowing those things is a real benefit. It’s really.

Ray Dalio (01:18:03):
Those things is a real benefit. It’s really developmental, because I saw that I could change how people were. Not everybody, couldn’t change how everybody was; but over a period of time, like exercise, it started to be clear that there were rewards from being this way. And then once people started to experience those rewards, then they started to really want to be that way, and so they can change. People can change to be that way. It starts off intellectually, realizing how silly it is to be the other way; and then saying you’re really in a war with yourself, your conscious mind and your subconscious mind, then thinking, “Okay. How do I resolve that? Do I want to know the truth?”

Ray Dalio (01:18:44):
Let’s say, for example, if I was thinking that you were doing badly, or are weak at something, or you were thinking badly, start off with the question, “Would you like me to tell you? Or would you not like me to tell you?” And the logical mind will tell you, ” Well, yes, I’d like you to tell me. At least I know what you’re thinking. And maybe, who knows, maybe you’re right.” The emotional part of your brain would say, “I don’t want to, and I might get angry.”

William Green (01:19:10):
I think somewhat fearfully, I would definitely want you to point out what I’m screwing up, and how to think better, and how to operate better. But I would do it with trepidation.

Ray Dalio (01:19:20):
And what you’ll experience if you do that, if we both did that together… So it’s out of caring, and that we try to say, “We don’t know. And how do we find out?” Okay, maybe you have that strength and weaknesses, and maybe you don’t. That’s why I say both parties got to get to the point where they agree. But then we might say, “How do we do a test? How do we find out?” And then by doing those tests, and wanting to be on the mission together to find out what your strengths and weaknesses are, then you’re realizing it’s the love of the tough love. And then it’s also one of those things that derives benefit, and then you like it.

William Green (01:20:00):
I wanted to go back a bit to this question of meditation, which I think is hugely important. I’m a pretty devout believer in meditation. And I think partly because my mind is all over the place, as a writer; and I come from a long line of Jewish refugee immigrants. And so I think we probably inherited a bunch of fear and anxiety and that I think it helps me tame in some way.

William Green (01:20:21):
I was just wondering how it’s helped you in terms of resilience, in terms of the ability to sit kind of calmly within the storm. Because I don’t know if it’s a coincidence, but I think you started meditating when you were about 19, which I think was also around the time that your mom had died. And I know that that was pretty traumatic; and she had died in your arms, having had a heart attack. And I’m wondering how you found meditation helpful, in terms of giving you the kind of not just the clarity of thought, but actually the emotional resilience to deal with the problems and suffering that all of us sooner or later come up against in life.

Ray Dalio (01:20:59):
I discovered meditation, transcendental meditation, when the Beatles did it, they came back and I figured I’d give it a try. I think almost anybody who tries it and sticks with it past the impatience of it, realizes that they don’t want to do without it, it’s just about time. And so, what happens, I’ll describe it to your audience; there’s what’s called a mantra, which is a sound that you repeat in your head. Maybe an example would be om, and when you’re thinking about when you close your eyes and you relax, and you’re thinking in your mind over and over again, om, it takes your mind away from your thoughts, which you find all jumping around. And so, you find it a little bit difficult, because you repeat om, and then you want to go back to your thoughts, and so on.

Ray Dalio (01:21:46):
And the thing to know about that is, if you can’t clear your mind of those thoughts, you need to meditate. So don’t get impatient; stay there, do the practice. And then when you do that, and you stay within that sound om, then it disappears. And then you go into a transcendent kind of state, which means you’re very quiet. It’s not like being conscious or unconscious. It’s not like sleeping; because if you would hear a noise, a ding like that or something, it’s startling and so on.

Ray Dalio (01:22:19):
But you’re going really into your subconscious; and in your subconscious doesn’t mean that you’re aware of your subconscious. But you start to experience equanimity. And you experience equanimity; in other words, that calmness in the storm. You align your intellect with your emotional. It brings out creativity, because creativity a lot comes from the subconscious. It’s like if you take a hot shower, and these ideas come to you. In fact, when I meditate, it’s one of the problems is as I go down to meditate, I get these great ideas, and I have to almost put them aside, in order to continue the meditation.

Ray Dalio (01:23:02):
And so, that is what the process is like. It gives you a sort of a sense of almost going above things, and looking down at things objectively. I think that there’s an element of spirituality to it, because it, like prayer or meditation or whatever, it’s that repeating that kind of sound. I don’t know; different people do it. By spirituality, I don’t mean God spirituality. I mean a sense of you’re connected; you feel a little bit connected.

Ray Dalio (01:23:32):
And then I felt essentially, that everything is just reality, and I’m just dealing with reality. And so, they may not be the realities I want, but they are the realities. And so, to look at how does reality work, and how do I deal with it the best possible way? Yes, I’ve had a number of things which are devastating; and devastating could be devastating. Those we all do, but to be able to feel those things.

Ray Dalio (01:24:04):
I lost a son about a year ago; and that was devastating, the worst thing that ever happened. I’d rather lose everything around my life rather lose, everything that I have, everything, than to have had that particular experience. And I felt it in many ways. I felt it. And my family felt it. And I love my wife. I love my family. And seeing the pain that that produced.

Ray Dalio (01:24:26):
But the ability, in a sense, to do it in a very natural way, and to go through it; I won’t get into the twist and turns of what I did exactly, or what we did. It’s just the reality; and I have to accept that reality. Because a lot of our unhappiness comes from forming these expectations of what should be, and then feeling it was taken away; those types of things. So it has affected the way I kind of look at those things. I see myself within a life arc. You see things differently. I’m 72 years old. I know exactly where I am in my life arc. And that’s the way reality works. And so, all of those things, meditation has helped me gain those things.

William Green (01:25:07):
Thank you for sharing that. In a way, there seems to be a common denominator here between your commitment to radical truthfulness and radical transparency, and the way that you’ve dealt with these losses; that it’s refusing to look away. It’s being willing to abide with the pain, to look at reality as it is; not to…

William Green (01:25:26):
I think most of us, whether we are dealing with personal pain, or dealing with our own flaws and failings, we try to look away, because it’s too painful. And it strikes me that one of your great strengths, both as an investor, and I think in your personal life, is that the courage, actually. Marcus Aurelius said, “You have to hold a paper bag and look at the rotting meat inside it, not look away.” A horrible image, but in a sense, that willingness to confront reality as it is, rather than as we wish it to be.

Ray Dalio (01:25:55):
Yeah. One of the principles that I learned that’s most important, is pain plus reflection equals progress. Pain tells you about how reality works, and how to deal with it better. And so, if you’d have the reflection; a lot of people experience pain, and then also then the pain might go away, and they never had the reflection that provided the learning. When you have the reflection that provides the learning, I think pain is the most effective teacher. You put your hand on a hot stove or something. It has a purpose. We don’t like it; it’s first order consequences are terrible, but the second order consequences, if used properly, provides learning and provides improvement.

William Green (01:26:45):
Going through the unspeakable horror of losing your son, I can only imagine, as the father of a 23-year old boy and a 20-year old. How has that changed you? How has it taught you, and made you think differently about your own mortality, or what you want to do with the rest of your life, or how you want to honor the memory of your son? Are there ways in which that experience that we wouldn’t wish on anyone has, that reflecting on it, has changed you?

Ray Dalio (01:27:13):
Yes. I’ll describe the experience. Keeping him, and wanting him to be part of our lives; and at the same time being in the right experience and dealing with it not by turning away as you say, but going to it and going to him. So, my wife and I have tea every morning. And so, we sit on a couch and we have the tea. And so, putting a picture of him in front of us, and then going into the experience of journaling; this helped us. We want to journal memories of him. And that brought up the emotions and the memories. We wanted to go into it; and we went into it. And then, we had a book that was a wonderful book about what it’s like, and so on; and that we did it in whatever way was natural, to be able to keep him there with us. So how do you have him gone and also not gone? And through that process; what is his role? And start to think about his daughter; he had a three-year old daughter. And how we can do that with her, and so on; what the family means.

Ray Dalio (01:28:22):
And then of course, it reminded me that that was… This happened in COVID. I was not alone in having all those deaths occur; other people were having loved ones… It was a common phenomenon, as each person is going through that, and to look at it, in a sense, in that way. And also then, reminding what’s most important in life, and making sure that that’s taken care of; others that I love and take care of. And cherish that moment, not losing it; because it’s a reminder of the realities.

Ray Dalio (01:28:58):
I’ve had cases where I thought, in one case, my wife or loved ones might die for some things. And then you find out, “Okay, they’re okay.” And then it reminds me that one day that’ll happen. What a gift. And so, it helps to savor life more; make a point of that, and also make the life more purposeful. Those are the things that that experience gave me.

William Green (01:29:23):
Is there any philosophical or spiritual books or traditions, whether it’s Buddhism or Stoicism or Christianity, that have helped you, that you would recommend for other people? Not in a proselytizing way, obviously, but I remember hearing you got tremendous comfort from the Serenity Prayer, for example.

Ray Dalio (01:29:42):
I don’t have a particular religion or teaching that I follow. I’m curious, and I love to speak to people of all different beliefs, and see what their thoughts are. And there’s a lot of wisdom. And so, once I had a conversation with the Dalai Lama, and he described religion as basically the combinations often of the mixture of spirituality and superstition. I tend to say I think what I know, and then there’s a lot that I don’t know; but I know that the universe works as the way the universe works, and I get some sense of how that all works. And so, there’s sort of wisdom; and so I don’t look at the Serenity Prayer as a prayer, in a religious sense. I look at it as what is a very good, appropriate approach to life. “God, give me the serenity to accept the things I can’t control, and give me the power to control those that I can. And give me the wisdom to tell the difference.”

Ray Dalio (01:30:44):
And I’ve said that to many people who are not religious, that maybe the word prayer is misleading, but I think that that’s right. In other words, there are things you can’t control. And that means that you have to have acceptance of those types of things. And that’s just reality interacting with you, and that’s just the way it is. And you have to accept it. You may not like it, but you have to accept it, because you can’t change it. And then you move beyond. And how do you learn those lessons? So that’s the control, the things you can control; learn the lessons, that’s the best way to do it. So I believe in that, but not as a prayer, but more as a good piece of advice.

William Green (01:31:26):
When you look at the future, and you think about how you want to be remembered, what you want your legacy to be; obviously, you’ve had an extraordinary amount of success. In purely financial terms, you have, said by Forbes, to have $20 billion, and you have a couple of thousand people, I think, working for you. You have an incredible ability actually, to shift the dial in the world, actually make a difference. And I know that you’ve been very philanthropic over the years. I wonder if you could give a sense of when you think about what you want to do with the rest of your life, which I hope will be long and fruitful, how do you think about that question?

Ray Dalio (01:32:04):
I think that there’s this life arc, and we each have our purposes in life, and our preferences. For me, I think everything’s around evolution, evolving personally, and then also contributing to evolution. But I have my preferences, and I know where I am in my arc. And so I love my family. I love my friends. And that experience is very important. I view it as life is just like a footprint on sand on the beach. It’s not a matter of permanence; and whatever I do will be modest in comparison to the things.

Ray Dalio (01:32:44):
The best thing I can do, is pass along those things that I’m leaving of value, and have the enjoyment of that. Passing along those things of value, I think most importantly, are my principles that have served me well. Because better to teach a man how to fish than to give him a fish. And so that’s why I put out these books, pass them along, for people to take or leave. I don’t know if they’re right or wrong, but people could look at them and decide what they are; because I think that’s most valuable.

Ray Dalio (01:33:14):
And then, of course, I’ve been blessed by this wonderful land of opportunity, and so on. I didn’t make a lot of money really, because I intended to; it’s just the game that I played is very rewarding; that if you play it well, it’s rewarding. And then I realized that making money is no goal. It’s sort of a stupid goal, because money has no intrinsic value, only what can you do with money? And that’s the only thing that matters. And so, when I think about that, I think, “Oh, okay. What do I want to do with that? And what’s contributing? And also, what makes me feel good? And what the others do.”

Ray Dalio (01:33:52):
So we do our philanthropic activities like a family, that we try to find each our own passions. And we do that because that really is oriented to, “What is the goal in life?” Some people think the goal in life, as I say, is to make money. But instead, if… No, no, if you have money, what do you want to do with money? But money is one thing, really the interaction. So for me, meaningful work and meaningful relationships, savoring life while I contribute in those ways, is what I want to do.

Ray Dalio (01:34:24):
I view myself, as I say, 72. I’ll probably put out one more book, which will be economic and investment principles. And then I’m going to go quiet. There’s no reason; I will have passed along anything that, in terms of ideas that I have. So that’s kind of what I think about the future, and what I’m trying to do, pass along things.

William Green (01:34:45):
If I could ask you one final question, as I’m aware that I’ve exhausted your generosity in giving us so much time here. You write a lot, actually, about evolution. There’s a point I think in the dedication actually, where I think you say, “May the force of evolution be with you,” in dedicating the book to your grandchildren. You talk at one point about how evolution is the biggest and only permanent force in the universe, yet we struggle to notice it.

William Green (01:35:08):
In some ways, this book is kind of a scary book. It’s talking about the ways in which the US can be on the brink of a really difficult period, the ways in which there can be lots of turmoil, as the greatest global power at the moment is unseated. So there’s reason to read the book with some degree of fear; but there’s also a great degree of trust that you seem to have in the power of evolution, in this sort of general upward trajectory of the world. And I wondered if you could square that for me, that kind of conflict between the somewhat pessimistic sense that there are going to be these really tough times that are likely to come in the next 10 years, and your general sense of trust in human innovativeness, and the power of evolution.

Ray Dalio (01:35:53):
You could see it in the charts in the book; you could see these cycles, kind of the ups and the downs and they work, and sort of track that cycle. And then you could see that that cycle for everything, as coming around an evolutionary uptrend. And when you look at the charts, you can see the one in relationship to the other; and the greatest force of mankind, and well even beyond mankind; but the greatest force of mankind is the power to adapt and evolve to higher living standards. So when you look at things like per capita income over time, or you look at life expectancies and other things that you measure, and you look at that over the time; those periods, which are the boorish periods, the depressions, the wars, and so on, they barely show up in that bigger chart. They have in these cycles.

Ray Dalio (01:36:46):
And so, because I can plot all of those things, and we could see them, we can decompose them; and you could see actually how reality is working. And reality works like that learning and that adapting has raised our living standards by almost any measure. And if you look at even how we deal with our problems, that’s our greatest force. Because if you look at, let’s say, the development of vaccines being so quick and the technologies and all of that; that is the most powerful force. That’s not a ideological belief. That’s not a philosophical or religious belief. That is just, you can see it in the charts, and the movement up. So that’s what it looks like to me.

Ray Dalio (01:37:30):
I draw a circle. I draw this looping process in the beginning of the book, and that’s how evolution looks to me; that evolution is really advances. And then the advances start to taper off, and then problems start to occur. And then as the problems start to occur, then you have to identify the problems, and then you have to diagnose them to get at the root causes. And then you have to design a solution. And if you design a solution, then you have to implement that design. And if you do that, then you go on to better circumstances, just like we went through over the last couple of years.

Ray Dalio (01:38:10):
And so it’s that… Just the way it works. It’s just mechanical that it works that way. And so, when I say optimism or potential, we have that capacity. And we have the capacity to invent. The main thing is we have to stop doing financially, a combination of financially responsible things, and then also be well with each other.

Ray Dalio (01:38:31):
If I look around at countries, it’s basically, I look at three things: are they earning more than their savings? Are the people internally civil with each other, good with each other, to be productive rather than self-destructive? And externally, are they likely to have a war, or are they likely to have a peace? You can go across countries, and you can see it. It surfaced in how people are reacting to masks and things, and so on.

Ray Dalio (01:39:01):
So you see these patterns. So there are these cycles; but the greatest force is that evolutionary force, man’s inventiveness. And I think there’s tremendous potential for that now, particularly because of thinking. Thinking means we’re computerizing a lot of thinking. So our ability to work with a computer to help us thinking can produce better thoughts. And we have enough resources, so that’s where the great potential lies, I think.

William Green (01:39:27):
It seems like also, if we harness this in our own personal lives, this sense of evolution as a kind of master principle, where you’re saying, “Well, let me learn from my mistakes. Let me learn from people who are smarter than me, who disagree with me. Let me learn from pain, from adversity.” There are all of these ways in which you could actually apply this fundamental belief in evolution as a core principle or force in life, actually to harness that very consciously in our own lives. Is that fair to say?

Ray Dalio (01:39:56):
Absolutely. In the book, the book I wrote first, Principles: Life & Work, I show this five step process, in which there’s advancement, and then there’s mistakes, and then there’s the learning from mistakes and diagnosing them, and that process. And that is the process of evolution. And even ourselves; we look at ourselves as individuals, but we’re largely vessels for our DNA. Nature made as vessels for our DNA. Most species die at point where they’re not able to produce, and so on. And so you see that evolutionary process as a major force. And we can evolve faster and better if we embrace that and deal with it, including learning from our mistakes, and learning how reality works.

William Green (01:40:42):
Ray, thank you so much. You’ve been incredibly generous in explaining your thoughts, how you view the world. And I do think your books have been a tremendous contribution. They’ve had a great impact on my own life, and have helped me see much more clearly various things in the world. So thank you so much for your generosity and talking with us. Is there one final thought you’d like to leave us with before I let you go?

Ray Dalio (01:41:03):
Just to say thank you for allowing me to help pass this stuff along. I hope it’s of interest to people, and if it’s of any good use, I’m happy that we did it.

William Green (01:41:12):
That’s hugely helpful. Thank you.

Outro (01:41:14):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing, by the Investor’s Podcast Network, and learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorpodcast. com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.


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  • Ray Dalio’s book Principles for Dealing with The Changing World Order.
  • Ray Dalio’s How the Economic Machine Works.
  • William Green’s book, Richer, Wiser, Happier – read reviews of this book.
  • Stig’s conversation with William Green about Richer, Wiser, Happier.
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  • Browse through all our episodes (complete with transcripts) here.
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