♪ david: this is my kitchen table and also my filing system. over much of the past three decades, i've been an investor. the highest calling of mankind, i've often thought, was private equity. and then i started interviewing. i watched your interviews, so i know how to do some interviewing. i've learned from doing my interviews how leaders make it to the top. >> i asked him how much he wanted. he said $250,000. i said fine. i did not negotiate with him. i did no due diligence. david: i have something i would like to sell. and how they stay there. you don't feel inadequate now because being only the second

wealthiest man in the world, is that right? over the past several decades, one of the most successful hedge fund investors in the world has been ray dalio. ray dalio has built bridgewater, the largest single hedge fund in the world, managing more than $100 billion. he is also an accomplished author and his most recent book, "the changing world order," talks about the rising china and sinking united states. i had a chance to talk to him recently about that book and many other things relating to the investment world. ray, thank you very much for coming and for writing this book. we will talk about this this evening. i wanted to start by asking you this. you are running the largest hedge fund in the world. more than $150 billion. how do you have time to write books when you are running that hedge fund? ray: i didn't write either of those books, really. what i did was, this book was -- in order to understand what was going on today, i needed to do a

study. and what i experienced in life many times before is the surprises that happened to me were things that never happened in my lifetime but happened many times in history. david: when you read the book, as i have, and i enjoyed it, it took me a couple sittings to get through because there is a lot of detail in here, you have a lot of historians who help you. there is a lot of history in here i did not know. you had a lot of historians help you? ray: i'm so lucky because i get to speak to so many people who are historians, who are practitioners. people in different countries. henry kissinger, graham allison. scientists and so on and then historians. then i have a fabulous research team. i go into this learning immersion and i iterate with it. i show them what i got, they come back, and that is the process. david: so we have in here people

who have said good things about the book including a number of treasury secretaries. hard to get three treasury secretaries to agree on anything but you did. you have very favorable comments from the book from henry kissinger and bill gates. you know both of them? ray: yeah. david: who is smarter? [laughter] ray: well, i think that they each would say the other guy. and i think i would say each in their own ways. david: you should go into politics. your view is there are three big cycles in history, is that fair? ray: i came with the three things happening today and then i found there are really five. but three big ones. yeah. david: let's go to the first cycle. the first cycle is when an economy comes together and gets wealthy, people are building up the economy and eventually they build it up so much they borrow more money than they should and they dilute their currency.

is that fair? ray: yes it i could do it in a quicker way. excuse me, better than that. [laughter] there is a new order. there is usually some fight between the left and the right, or it could be foreign countries. when that begins, it is a great equalizer. capitalism is a fantastic enabler because what it does is it gives people who may not have anything, who have good ideas, capital so they have the resources to pursue that and that is a fabulous thing. then as it rises over a period of time, you'll see debt to income ratios rise because everybody gets more funded because everyone wants more buying power. and also you see it naturally distributes wealth unequally and it distributes opportunity unequally. so as wealth gaps rise and

widen, then also people who have wealthy parents can educate their children in an unequal way relative to others. but it gets overly indebted. and then because of all this buying power which comes in the form of debt is somebody else's assets, then what happens is you lower interest rates and try to stimulate it. so, for example, since 1980, every cyclical peak and every cyclical trough in interest rates was lower than the one before it so that they can stimulate more debt. then when you get to zero interest rates that does not work so they have to print money and they buy money to keep that pile going up. and that creates the cycle. so there is part of that cycle which is a capital markets -- by the way, this exists almost everywhere. then with that you see the monetization of debt and so on. and with that there are also

conflicts. conflicts that are the wealth conflict and related to that the political left and the political right. and that creates the dynamic we are talking about. david: you cite in your book two examples where this has happened before. one is in the netherlands where the dutch economy, they had the only reserve currency in western europe and they did some of what you now say we are doing. is that right? ray: yeah. the same patterns over and over again. in the beginning, they had big education. they won a war. then they became very competitive. they went out in the world taking their goods and built ships that were the best around the world so they could go anywhere in the world. they brought their farms with them. they made a fortune. and with that they brought the currency. and as they bring their currency, because it is a world currency, that reserve currency, others want to own it. and because others want to own it because that is buying power, it is the common wampum. and then because of that, then they lend it to the dutch. in other words, americans get

lent money because others want to hold dollars and that is the exorbitant privilege to get more and more in debt. and then what happens is they lose their competitiveness. the british came along and copied from the dutch and found, oh, they can build ships better and cheaper. then they became the competitors, and then as the competitors are operating, they take market share away, quite similar to lots of technology companies and what is going on now. then what happens is then they get more in debt, and then they have the other cycle that is operating and you have the challenges of that. david: they had the dutch, typified by the dutch tool but raise where people were spending a lot of guilders buying tulip bulbs. right? so, that imploded. and the british came in and they built a big economy and then they kind of went south a bit. ray: same exact pattern. david: then we came along, the united states became the biggest economy in the world since around 1870 and since world war ii we have the been dominant

economy. so now we have a lot of debt, you would say? ray: yeah. david: $29 trillion of debt. how are we going to pay off that debt, by the way? inflation is the only way? ray: in the end, it is always print the money. it is always print the money. because, you see, one man's debts are another man's assets. and so if you are holding a bond and you receive a -- you do not get compensated for inflation. people think cash is a low risk investment. well, they are earning no interest, and when you have a 7% or 5% inflation, you lose 5% of your buying power. or if you are owning a bond, you have the same thing. and so what happens is not only is there the debt that is coming from the new debt created to run the deficit, but they become sellers of that debt because as an asset it is not a good asset. and then there is so much selling.

what that means is either interest rates have got to go up, and then that grinds things down to a close. or what they do is they have to print money. and so the history of all of these cycles is that the coffers are empty because you cannot continue to spend more than you earn and give it to someone and expect them to like it. then you devalue it and that becomes the cycle. and so you see the classic cycle of the ingredient is the cycle i am talking about in terms of supply and demand. david: what you wanted to do is presumably let people know this is occurring so maybe they can take action by letting their congressmen or governors know something about this or not? ray: two things. what you can do to make a better society and your contribution, but also how you can individually take care of yourself in a situation that might be difficult. david: ok. let's finish on the third part of the cycle. the third part of the cycle is somebody is rising up, and right

now you would say china is rising up. is that correct? ray: if they are just numbers and you look at it. david: so if i want to do something about it and i want to live in a time where china is not rising up so much, and we are better off in the u.s. economy, what should i do? should i lobby my members of congress to not print so much money? what should i do about it, if anything? ray: well, again -- david: if cycles are cycles, you cannot do much. ray: if we go back and look at history, there are three big things that you can do. ok? first, as a society individually and then collectively, how do you earn more money than you spend, and how do you build a balance sheet that has more assets than liabilities? that is healthy. so, keep that in mind. the second is internal conflict or cooperation. can you have internal cooperation? because you realize what the consequences are.

so, i think that in the 2024 elections, there is a reasonable chance that neither party will accept losing the elections. and that is something that means that democracy, or a type of civil war of sorts, could develop in a way. this is realistic. i am not being exaggerated by that. and when one looks at those types of things, there is a worry that one should have about the divisiveness and what it means for each other, and the same is true internationally. so basically, anybody who has gone into wars through history, the people who are the most convinced that that is the thing to do all regretted going into wars because of what wars are like. the things i would hope to convey are, first of all, what are the arcs, is that right or wrong, measured, not

opinionated, just look at those measurements as you think about it. i have a principle. if you worry, you don't have to worry. and if you don't worry, you need to worry. what i mean by that is if you worry and you start to think what this direction could be and what it is like, then maybe you deal with the things that prevent those worries. where if you do not worry, maybe you get into trouble without worrying. there are things we can do. the world now has more resources than it has ever had and there are things that can be done. ♪

♪ david: now you are managing $150 billion-plus. ray: about that. david: explain this to me. i really don't know the answer. hedge funds seem to come and go. sometimes they are hot, sometimes they are cold, sometimes they go out of business. you have been in business for almost half a century and you have $150 billion. what did you do that nobody else has been able to do? ray: what we were able to do was to be able to structure portfolios in a way that were better in terms of the returns, risks, and correlations of our investors. so, to give you an idea, in

other words, you can balance things in a way. i could take different alphas, different bets in different markets, and i could carry that and put that in a fund called pure alpha. then i could take different asset classes and put that in a fund called pure beta. and then we could engineer it for the customer's risk levels. you want it at 12% of volatility, 18% vol? then whatever benchmark they wanted, we could put the alpha on top of so they could say i want the s&p 500 plus a 6% vol operating that way. i know it all sounds complicated but we could design and structure things to their liking that would produce an attractive risk and return that also was not correlated with their other investments. david: you wrote a book a few years ago called "principles" that sold millions of copies. usually books in the business world do not sell millions of copies, and f them

were sold in china as well. what is it that was in that book that was so exciting to people? ray: when i would make decisions, i would not just make the decisions. i would think about, what are the criteria that i would use to make the decisions? and i would write them down. those are the principles. and then in our culture which is this idea of meritocracy, we would say, are those criteria good or bad? and then we would try to put them into algorithms and equations. and so i would do that almost like a diary kind of thing. and i would see the same things happening over and over again and the next time it happened, i would go to the principle and we could together go to our principles. and so it accumulated that over a period of time and they were practical, they are not theoretical principles. people seemed to find them valuable. david: it is said you use these principles in your firm and you operate the firm according to the principles. more or less. it is very constant

self-examination. employees have to be self examined by their peers. you are self examined by your peers, right? other people in the firm. is it hard to get people to want to do this where they are being examined so intently over the years? ray: it is logical but it doesn't mean everyone wants to do it. so in one sentence, it is an idea meritocracy. the best ideas win out from wherever they come from in which the goals are meaningful work and meaningful relationships, that we are in it together. through radical truthfulness and radical transparency. so if we disagree, that is a good thing. it is no reason to have anger. and to have the art of thoughtful disagreement and examine, how do you scientifically find out what is true? how do you test things, and so on? that has been essential to our success. david: you are big into the numbers but also big into transcendental meditation.

right? ray: yeah. that has helped me a lot. probably the biggest, whatever success i have had might be more attributable to that. david: how did you get into transcendental meditation? did the beatles help you or something? ray: yep, it was exactly that. in 1968, the beatles went to india and they meditated. and then i heard about it and in 1969 in new york you can bring some flowers and do that and learn how to meditate. and, wow. i recommend. it's the best thing. david: you do it every day? ray: almost. almost. i try to do every day. i try to do it about twice a day. if i can take a second to describe it, what it is is it frees your mind of thought. and it takes you from a conscious state into your subconscious. and your subconscious is where creativity comes from and

equanimity and all of that. if you are calm, great ideas come to you. and when you have that equanimity, then as you are approaching everything, things are just the way they are and you have to deal with them. it is a little like being in ninja movies, it is a little like being the ninja and everything seems slower and you can handle it better. so you align your subconscious, which is where the emotions and also inspirations come from, with your conscious mind. when they are aligned and you have that equanimity it is a great thing. david: you going to write a book on transcendental meditation? what can the average person do to invest reasonably well? ray: the most important thing you can do is not be in cash and those deposits, particularly now when there is such negative real rates. and to have a well diversified portfolio. ♪

♪ david: let me ask you this. the average person watching right now probably doesn't have $150 billion to manage the investment of. so, what can the average person do to invest reasonably well? ray: you know, like, i didn't have any money and i remember the cycle. and what it was is i would start to think, how much money do i have? how many weeks, months, and

years can i take care of myself and my family? and i would calculate that. i would be at, ok, if no income was going to come in. then i would start to think, and then if i'm holding a portfolio in something, maybe i could lose half, so i better cut that number in half. then i start to think, what are my uses of the money? what do i need to do? and i would think about, how do i immunize that? and you start and you build like that and you know how to save. and saving, you know things like do not put it into cash deposits that get eroded by inflation and taxes and so on. and you start to develop it. and the thing you can do, the most important thing you can do is not be in cash and those deposits, particularly now when there is such negative real rates. and to have a well diversified portfolio. and that well diversified portfolio, that is a whole subject of what does that mean and how to do it, but it is a well diversified portfolio of

not just asset classes, but of countries, you know, of different currencies. david: diversify. let me ask you, the average person who is not a billionaire, could they expect to get a rate of return overall on their money of 5% a year? is that a good target? 6%, 8%? what do you think is a reasonable target for someone who doesn't want to take undue risks? ray: well, nowadays, the structure of the markets and where everything is priced, and done the normal way, will give you probably a return in the vicinity of -- with a lot of risk around it, maybe in the vicinity of 4%. 3%, 4%. ok, something that might not equal inflation, probably would be very close, and then you have to pay taxes on it. because there are so many

financial assets. but they will send you more money. david: as we talk today, the stock market in the last couple of weeks has been correcting, if that is the right verb. a lot of the errors out of the so-called bubble. should people be selling everything and getting out of the market now because markets are going down, or is this the time to buy? ray: first of all, i am not here to give a lot of advice, but i will give you the following. david: we will not tell anybody. [laughter] ray: what's happened is they produced a lot of debt and gave out a lot of money, so everybody has money and it is also very easy to borrow money to buy things. as a result, if you create much more buying power, then you create goods and services, you have a lot more inflation. and the federal reserve has been behind the curve, slower to tighten monetary policy. and as a result, we are now starting to see the rise in interest rates to be able to deal with that.

as that happens, all assets compete with each other. so now that free money is still going to be cheap money, but it's going to be a bit higher. so interest rates, let's say bond yields, have gone up about 1%. now you take that and you adjust. everything is the present value of future cash flows, but it means that interest rate goes up a percent. that means all the other assets have to adjust. we are in a process of making that kind of adjustment. that means the days that we have had before, the easy days where they dumped money on you and you don't have much inflation or tightness, those are past and now we are in a different part of the cycle. david: how do you foresee crypto impacting the world order? ray: none. i think it is interesting. i have a tiny percentage of my portfolio on it to diversify, but it is a very vulnerable incident. because they can track who is operating it. it can be tracked. it will be outlawed probably by different governments.

and in terms of its size, it has issues. so i think too much attention is spent on crypto, or somebody might be a gold bug, or somebody might be, i don't know, they hold gems or whatever they might do. but i think we are now in an era where we are going to have different types of money. we're going to question money as a medium of exchange but also as a store hold of wealth and we are going to be questioning what are the right store hold wealth of value. and you're going to see around the world not only the digital versions of that take place in many forms, you are going to see other forms of that competition i think in the years ahead. david: we are not investing and you are not transcendental meditating and you're not writing books and doing philanthropy. what are you doing? you have any outside interests? ray: number one is my grandkids. ok? my kids, my family of course. they are one of the greatest

blessings in life that one can ever possible have is one's family. david: how many grandchildren do you have? ray: four right now. david: what do they call you? ray: papa. david: not mr. dalio, something like that? [laughter] ♪

♪ david: this is my kitchen table and also my filing system. over much of the past three decades i have been an investor. the highest calling of mankind, i have often thought, was private equity. [laughter] and then i started interviewing. i watch your interviews. [laughter] i have learned in doing my interviews how leaders make it to the top -- >> i asked him how much he wanted. he said 250. i said fine. i never negotiated with him. i did no due diligence. david: i have something i would like to sell you. [laughter] david: -- and how they stay there. you don't feel inadequate now that you ar