Over more than four decades, Ray Dalio has built Bridgewater Associates into the largest hedge fund in the world, with $160 billion under management. Now he has written a book — with another one planned for 2019 or 2020 — called “Principles: Life and Work.”
“Whenever I would make a decision, I would take time to write down what my criteria for the decisions are — so when I encounter something, I have my principles written down,” Dalio said on the latest episode of Recode Decode, hosted by Kara Swisher. “That’s what the book is. And then magic happened, wonderful things happened.”
The “magic” was converting Dalio’s written-down thoughts into algorithms that he and others at Bridgewater could apply to their daily work. Since then, he has championed the notion of an “idea meritocracy,” where everyone is encouraged to lay her or his own principles out on the table.
“You have to know the art of thoughtful disagreement,” Dalio explained. “I learned, being beaten around and making mistakes, that one of the smartest things I could do is find the smartest people who disagree with me, and to understand their perspective and engage in that art of thoughtful disagreement.”
“Then you have to have idea-meritocratic ways of getting past your disagreement: A vote or something, that if we all disagree, we can still have a relationship,” he added.
On the new podcast, Dalio explained how he has tested his decision-making process on a large scale at Bridgewater Associates, where almost every conversation is recorded and available for other employees to consult, in the interest of “radical transparency.” Dalio said the firm consults an employee’s track record of successes and failures, as well as their personality as determined by both peers and testing, to find the optimal solution for a problem.
“The problem with a democracy is that it assumes that everyone’s views are equally valuable,” he said. “That’s just not the case. In order to do this properly, the best way is to do believability-weighted decisions.”
“Let’s say you have an illness,” he added. “What do you know about the illness? Okay, you don’t know much about it. Then you can go to three experts, three believable people, who will argue with each other to try to find what the right answer is. Then you hear, is there triangulation, or is there disagreement? When you bring up the disagreement, you get a hell of an education.”
Dalio said this process gets people out of their own heads and doesn’t work for about a third of all the people who come to work at Bridgewater. But the other two-thirds soon find they can’t work any other way, he said.
“You start to understand that you don’t have to be good at everything,” he said. “You have to know what you’re not good at and work well with people who are good at what you are. That’s why collective decision-making is so much more powerful than individual decision-making. If you do that well, it’s not a problem.”
If you like this show, you should also sample our other podcasts:
- Recode Media with Peter Kafka features no-nonsense conversations with the smartest and most interesting people in the media world, with new episodes every Thursday. Use these links to subscribe on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.
- Too Embarrassed to Ask, hosted by Kara Swisher and The Verge’s Lauren Goode, answers the tech questions sent in by our readers and listeners. You can hear new episodes every Friday on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.
- And Recode Replay has all the audio from our live events, including the Code Conference, Code Media and the Code Commerce Series. Subscribe today on Apple Podcasts, Spotify, Pocket Casts, Overcast or wherever you listen to podcasts.