Are Ray Dalio's Principles the Secret to His Success?
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delighted to have Rob Copeland on the channel today to discuss his new book the fund about Ray Dalo the founder of Bridgewater Associates the biggest hedge fund in the world this is the first time I've been sent a book from a publisher that required me to sign an NDA and that's because the book is somewhat controversial Ray doio has written a number of books and made numerous media appearances describing how his principles led to his phenomenal business success rob a finance reporter for the New York Times who was the hedge fund reporter for the Wall Street Journal tells a very different story I wouldn't describe this as a negative book I feel it simply gives a different perspective on Ray Dalo the book calls into doubt whether Dio's well-known principles were at the root of his success or if other attributes led to his rise to the top of the hedge fund industry the book draws on hundreds of interviews with those inside and around Bridgewater and questions if Dio's much promoted principles were truly the secret to his success or if they were the foundation for a toxic culture of paranoia and backstabbing within the firm as some people say the book just came out today so let's talk to Rob and see what he has to say welcome to the podcast I very much enjoyed reading your book I got it maybe about a week ago and read it once again kind of like zek's book I read it in a day or two just because it's quite a compelling read and it's it's a topic I'm quite interested in um can you tell me about how you first like what made you decide to write a book about Ray doio and Bridgewater sure and first of all thank you for having me on Ray alio and Bridgewater have sort of been a part of my life now for probably close to a decade and a half I actually got my my teeth started in financial journalism at a hedge fund trade publication and they were writing a cover story about Bridgewater and when I joined in 2012 so really since then it's been it's been a topic for me I've been sort of Gob smacked by Ray's entire publicity tour over the past six or so years you know he wrote his own book principles life and work and I think you can you if you know nothing else about my book you should know that I believe I've written the first non-fiction book about Ray Delio and and the principles this is the first book I've received for a review that came with an NDA so obviously there's a certain amount of controversy around this book um I and I see also it's filled with footnotes from uh Bridgewater lawyers kind of clarifying their side of the story has Ry read the entire book are just parts of it and kind of how does he feel about it well what I think we'll probably hear pretty soon how how he feels about it uh we're recording this right before the book comes out you're right you did sign an NDA this has been such an an incredibly exciting nerve-wracking Journey for me I told Ry about this book personally in mid 2020 and he responded very poorly I told him in an email and almost uninterrupted since then before a word was written of this book he's been hiring law firms and PR firms to yell at me to pressure my publisher they threatened us with a multi-billion dollar lawsuit this is all literally before the book was written while I'm still talking to people about it and just because he doesn't trust you to tell a story that he'll like it's fair to say that Ray doesn't really like any independent journalism about him that is less than 100% la it's not just me I currently write for the New York Times but I was a Wall Street Journal reporter for most of the time I was writing this book there are New York Times reporters that he has attacked you know Business Insider pretty pretty much anyone um of course other colleagues at the Wall Street Journal now he doesn't have a copy of the book but I did hire a fact Checker and the fact Checker sent Ry every single fact to my knowledge that's in this book there were lawyers instead of responding to the fact Checker he hired a bunch of liable attorneys to threaten lot of lawsuits they sent us hundreds of pages of letters and I Incorporated their feedback look I listened he he didn't want to be interviewed in a way I didn't need him to be interviewed he's done a lot of interviews I think I could probably cosplay an interview as Ray doio at at this point and and you have interviewed him multiple times in the past right like for the Wall Street Journal and so on oh oh yes it the wonderful thing about Bridgewater for many years was that it was sort of like the easiest hedge fund ever to write about because Ry would just get on the phone and just couldn't stop talking so uh I I've always heard his perspective I'm open to hearing more of it now but um look I think it's time for other people's voices to be heard that's what this book is about when I read this book there's you know there there's plenty of skepticism in there but I also felt that there were a lot of insights as to what made Ry successful and maybe even stories he wouldn't want to tell himself but just even about his skill at uh you know getting along with people he uh you know kind of made good and influential friends he was well read to the extent that a a rather wealthy family took him under their wing and uh you know uh he was even sort of asked by this very wealthy family to sort of put some polish on their grandchild you know they they saw that much in race so to me there's maybe a different perspective on what brought about race success but a different perspective doesn't you know it doesn't mean that either is necessarily right or wrong what what do you think about that I think it's really interesting what you just brought up because I do go into race origin story Rey has told his own origin story many many times including in his own autobiography but what he I think he may have mentioned them off hand maybe once but definitely not in principles he's never talked about this wealthy family the Lives who really took him in as a surrogate son and what I found so interesting was it was a huge part of his life and how he was able to go from being you know the son of a jazz musician to this world famous multi-billionaire but he leaves that out of his story because I and I I can't answer for him why but I can say that with the lives in the story you realize that it's not all smarts it's also connections that he also sort of weeded his way into this into this family by the way not illegally either he was quite he was quite Charming what I love about this is after I started asking people about this family and this whole background about Ry magically it showed up on his Wikipedia page I didn't put it there but all of a sudden it was like okay this is going to be out there and we you know I'll let him answer uh whether he had someone up that yeah I mean to me it's sort of like it's I I'm not sure that there's an obvious reason to hide this story either it's sort of a great story that he's a young guy from a you know kind of middle workingclass background who's a golf Cy who manages to you know through cuz actually my takeaway was that he was very well read and he was able to have the kind of conversations that maybe these people didn't expect of a golf caddy and they saw something in him and you know he attended every Thanksgiving dinner and things like that like you know there's that that says something about him it doesn't it doesn't actually say anything negative like there's not much to hide I would think with a story like that for for most people for for most people right but not not for Ray and not for a lot of successful business Titans now now Ry also has almost never talked about how his wife is a Vanderbilt WI um you know she's part of this colossal famous uh Legacy with with an amazing amount of wealth what Ry and what you know Elon Musk likes to talk about this a lot of other people they they love to tell the rags to Rich's story about how they pulled themselves up through their smarts and I I want to be clear though I believe that Ry has caused a lot of pain and I do believe that the principles are nothing like what he said I don't believe he's a dumb man I don't believe that he didn't put in the work he that but I do believe that there there's a more complicated more human story that for some reason he honestly has not been interested in telling yeah no CU it's even interesting like the some of the notes I've got down here about how he you know takes brief cases full of research reports home with him every weekend like he you know he's a very wealthy very successful man who it would appear works very hard like it's you know there's no uh you know there's no sort of cruising along um I think the other the kind of one of the the big issues that I think many people have puzzled over with Bridgewater is that that there's a huge staff at Bridgewater and and it would appear I think Matt LaVine has kind of joked about this in the past that almost 90% of Bridgewater is kind of uh you know people dealing with the dot program and you know F uh the the extra 10 % is kind of actual investment work and that that's kind of a feeling I get from your book as well like I I I I feel I was three quarters through the book and I was like who does any investing at this firm because um well I'll I'll let you uh take over there well first of all I'm a great fan of Matt LaVine and he's he's he's right but he's wrong there he's actually overestimated the amount of the firm which is devoted to actual investing uh what I found out was that inside Bridgewater which had at Peak had more than 2,000 employees all these temporary contractors paler all of these consulting firms there was something called the circle of trust inside there were about 10 people who signed lifetime contracts and they were the only people who purportedly really knew uh what was going on with the investing so I I would actually take another step further I would say all this apparatus really boiled down to to to 10 people well it's it's even interesting because one one of the big uh people who feature in the book is Katina stepanova I hope I'm pronouncing that correctly and that that's a story that I happen to know because it was a a big uh there was a lot of press around sort of the rise and fall of of mar Capital unless I get this wrong it would appear that she was almost a human resources person who then went out and launched a hedge fund and to a certain extent then it came out that she hadn't really done anything to do with investing at Bridgewater well I would say I would say this I think Human Resources is is maybe underplaying it a tiny bit but it's definitely true that she was not part of the circle of trust what I thought was so interesting was that she was very close with Ray Delio and he did treat her frankly any reasonable Observer who reads the book will see that he treats her fairly monstrously but she keeps going back to him again and again and again and he does sort of have this siren Call with with people and then look she did not have a a positive depart uh separation with with them and I don't carry her water in in the book I don't claim she's a she's one of the world's great gifted investors but it is interesting to me that there was so much attention paid to her and so uh relatively little attention paid to the world's biggest hedge fund and what it's really like there under under the principles in Ray in a way I would argue that there's no real heroes in the book you know you go through it and well Patrick the last chapter the last chapter is called No Heroes spoiler so one of the things that that interested me in the book is that there's so many people who are quite wealthy like you know one way or another like even if uh Rey is withholding a few bonuses for various reasons people are getting wealthy working there and one of the people I forget his name off top of my head but the guy from Apple the inventor of the iPod who worked there there's he comes off reasonably well in that he sort of sees the shark circling in the water and announces that he's out but there's even still a period of humiliation for him and I guess the thing that surprises me is that these people get so wealthy and they're in a position where they don't have to be mistreated but they I I think they're so uh drawn to the light or something that people tolerate you know there's a level of like if if you're kind of been called into an inquisition and you've seen this happen a dozen times already you you know what's happening you know you see the hangman standing there it would appear to me that that I I'm surprised that so many people put up with this Behavior especially when they don't have to well this really gets into the 20 billion question right first of all you're thinking of John Rubenstein and I actually remember Ray doio telling uh the editor-in-chief of the wal Street Journal that John Rubenstein was coming in and he was going to save the day so me finally finding out years later uh through reporting what really happened with John Rubenstein is is just like it's watching the behind the scenes to a movie you know uh that that you saw many years ago now why do people stay at Bridgewater a lot of people ask that the probably two main questions I get why do people stay is it a cult I will tell you John Rubenstein John Rubenstein knows better for sure he knows he also got paid $50 million to do he I should probably say he got paid about $50 million to do close to nothing of worth and as part of his separation agreement he got to keep the money and he wasn't allowed to say anything about Bridgewater he's a wealthy man and he took the extra money so this is Ray alio loves to say over and over again that there are just a small number of disaffected employees who whisper about him and I don't think I've ever heard him address why he makes employees sign these strict ndas why he goes after employees who say anything anod about him publicly and why he has to pay people so much when they're leaving just to make sure they don't say anything about him you know there is always I guess in Wall Street are on uh you know hedge funds this the importance of keeping secrets in particular investment secrets and even you know you can understand having very high quality it to prevent we'll say at a Quant firm you can't have someone hack in and steal all your trading alos and that kind of thing but it would appear that security was maybe surprisingly high at Bridgewater with uh you know people like Comey working there and even there's a a piece in your book uh you know I I don't think you you confirmed it I think you said that there were rumors that there were microphones hidden in the woods outside of the office building when Comey worked out that sometimes people went out in the woods to have a private chat well first of all there's plenty that isn't a rumor about Jim comey's time at Bridgewater that's that's just as uh as wacky frankly but it's absolutely true that there is a I mean an employee a former employee sued Bridgewater he called it a quote cauldron of fear and intimidation and rather than have that lawsuit go forward Bridgewater paid a settlement so it requires a reporter to go in and and try to figure out the to get to the bottom of it so far as the surveillance goes look almost everything at Bridgewater is and was recorded you're constantly being watched people would come back to their computer screen if they didn't put a screen saver up and they' already be a posted note from security saying why didn't you put a screen saver up there's an incredible amount to this day of fear inside Bridgewater that B that essentially anything you say or do can be used against you it's absolutely true that people suspected that even the woods were being monitored that even if they took a personal phone call out there it would be listened to Ry and Bridgewater like to say that every trading firm protects its Secrets my findings and the book would suggest that there really weren't too many actual trading secrets to protect that that this whole security apparatus uh really just intimidated and squelched any true dissent inside the firm well it's interesting because even just as we've just said like the level of Staffing close to 2,000 people you know you look at some of the other huge hedge funds I I doubt Millennium hires anything like that many people and it's because most of the staff at Millennium would be focused on investing and and as I said that was one of my takeaways reading it like you're three quarters of the way through the book and you're like everyone's you know watching videotapes of you know who didn't wash their hands at the bathroom or something like that and no real work is getting done and that that I I guess you know Ry is a wealthy man if he wants to SP spend his money on a huge sort of security apparatus and uh you know building an app that That Never Comes to much fruition I mean you know it's his money he can spend it how he wants but it it does come off as quite bizar and it also comes off maybe as a a very challenging place to work well that's the understatement of the century a very challenging place place to work I I agree with everything you said the you're right the book is is does focus a lot on these internal trials and tribulations I would also say that if you read rais books not just principles but the sequels they say very little substantive things about investing and what he's become famous for what he talks about in TED Talks what he talks about in interviews with you know gwenneth paltro Charlie Rose on all these TV programs it's almost never about investing and part of the reason for that is that he has really pinned his legacy on the idea of these quote unquote principles and on the fact that he has the answer to what you should do to live a more meaningful and meritocratic life so I think if you read this book and you and you finished that and you believe that Bridgewater is a is a meritocratic place then uh then you've come to a different conclusion than I have well there there was a very comical part in the the book about what Christmas is like at the Dalo household do you want to tell that story so this was this was very amusing to hear here and by the way one of Ray's Sons worked at Bridgewater so it it wasn't I I made a very clear point in the reporting of this book I didn't go around asking people about his wife I didn't go around asking people about his kids who didn't work at Bridgewater unless they showed up at a Bridgewater event I didn't want this to be um you know to go to go there because I think there's plenty that R does there's no mck raking just to be clear in the book like the book is about a a large business and how it runs and you know I think in truth as I said it shows a lot of um the positives as well like even you know like in terms of Rey's pitching of the principles you could make a very good argument that Ry is a genius at getting PR and and how do you run the biggest hedge fund in the world well he went on Oprah while everyone else was going on CNBC you know like he he learned how to get his name out in the world and that obviously has value I'm going to come back to your question about the about the Christmas morning but I want to talk about the the I I would agree with you he is brilliant at PR I would also say to my knowledge he's never spoken publicly about that Oprah interview and it's because it was a bit embarrassing for him for me to get that Oprah interview I I actually had to figure out who at Harbo Productions Oprah I had to find the right person I had to ask for the archives I had to sign a release it's not that episode of Oprah that he was is he's never talked about it um and I believe it's because in retrospect if you look back on what he said on Oprah uh he he really comes across uh I would say it's not appropriate for 2023 I put it that way but but let me answer with Christmas morning because it's one of my favorites which is that it was relayed inside to many people at Bridgewater including by his son who worked at Bridgewater that on Christmas morning if his own kids gave him a gift that he didn't like or that he didn't think was appropriate he would ask them right then why did you buy this gift what thought process did you go through that made you think this was a good gift like can you imagine I've never by the way given my dad a gift that he actually liked I'm fairly sure true I my dad has never done well out of gift from me either yeah exactly so it's my dad is a big fan of the New York Yankees and I think I've bought him every book that's ever been written about the New York Yankees and but you can just see it's fairy Ray delot even with his own family even on Christmas morning you can imagine them giving him a tie that he thinks is ugly and him saying I want to probe your thought process here with this tie it's like it would it's if it weren't true it would it would seem too strange to be true you know no the there's an interesting thing in the book because I feel even I've got a a copy of one of his principal books here uh that that I can't claim to have read in its entirety but I have looked through it and I think there is a thing of sort of Wall Street guys investors in particular kind of short-term investors are always fascinated with decision making right because that's what you do for a living and getting good at making good decisions and and analyzing your bad decisions might improve your your work so so I do understand that but it would appear that uh for a long time Rey didn't really do this so much right like at what point did the principle sort of take over from the investing process at Bridgewater so the the really crazy thing about researching this book is I thought that I would find the moment you know that moment when the principles are metastized and weaponized and I could say Okay From This Moment onward it really you know jumped the sh shark and the truth is that the the principles he doesn't even begin to talk about such things as principles until about 2005 he's he's already a billionaire by then by the way he's already he's he's got more money than you could ever spend and Bridgewater is a very successful firm and he starts to look for like a higher meaning in life that he's about something more than more than money and when the principles begin when he starts talking about them inside Bridgewater even his longtime partner Bob prince who still there tells people look these are just raay things these just raay principles like we don't we can respect them but like this isn't this isn't tablets handed from from the mount um and then as time goes on as he becomes more famous after so-called predicting the 2008 financial crisis he's he starts to sort of weaponize them against people he keeps making up more and more principles and it's probably for the last 10 years I think it's fair to say that his close to full-time job has been deleting principles creating principles finding new ways to put people on trial according to the principles and promoting himself publicly as the world's Premier most principled man it um it it would appear there's something slightly uh Nostradamus like about some of these principles in that even the greatest devotees struggle to um uh to to analyze them in the same way and I guess one of the parts of the book is about how he hired in teams of people to to sort of code them up um do you want to explain that and kind of how that went so so this is core to Ray Delio's public argument which is that he uses the principles to create these this whole ratings apparatus where he where employees rate one another and so that through this quantitative system system you know it separates the wheat from the chaff that we find we sus out the best talent inside Bridgewater at certain things and I am I'm going to spoil something in the book but it's in the introduction so you'll you know it's in the first 10 pages which is that this whole system was rigged from second number one to make Ray doio the top or close to top ranked person in almost all important categories and once you know that once you realize that to be true and it is is true the whole thing looks different then you realize that he's creating all of these tools to talk about essentially to reprove that he's the greatest over and over and over again well there there's even a a a number of sort of entertaining points in the book where he'll have a disagreement with someone I I think there was even um I forget there was a professor from Harvard who was in town they had a disagreement and said to them well I think you'll find you're wrong let's run a quick poll on the iPads to see who's right here and all of his employees are voting and then he goes well you know I won that poll you're wrong and it's like well everyone in the room is economically incentivized to say that one of these two people is correct but does he do you think he doesn't realize that or he realizes it but he just kind of wants to win the argument so that first of all that's n Ferguson The Fairly famous Harvard professor and yes that did happen it's actually a favorite thing of Ry and others at Bridgewater to do is you stop a meeting at his tracks and you hold a poll but remember your your votes are sort of weighted based on how how believable how credible you are so rais vote counts more than yours now but but even if it was equally weighted if we have the CEO and the cleaning person in an argument and you you ask the staff who's the winner of the argument it's like um who whose name is on my paycheck again I know isn't it a fun read honestly it's it's and by the way Patrick you're not even exaggerating that poll does exist it in the book of him and a facilities person so that's that's you're not even making that up the does he know that it's all horeshit is is a big question you know if he knows that it's all you know bunk to me that would to believe in such such a profound level of of evil really given the pain that he has caused so you know I'm not a psychologist I can't tell you what he knows and doesn't know but I choose to believe that he doesn't know because if I if he did if he did really know the effect of his actions on others and as the book makes clear people told him over and over again in writing in emails you know in absolutely there you know if he I think he's for some reason he stopped himself from really realizing what he is and what the principles are um because if I think about it another way then I I just find it too upsetting there there is like one defense that he puts forth I forget it might have been his lawyers who sent it to you sort of said um that interviewing ex employees to to write a book like this is a bit like interviewing someone's ex-wife to uh to write a book about them in in that of course all you'll get is the complaints and I I do think there is some validity to that argument but the the other side of that is that that polling your employees uh you know is is not going to to bring you to a great answer either but how do you feel about that like were there employees that you spoke to because of course it's easy to discuss maybe the the sort of more scandalous outcomes but were there employees you spoke to who seemed maybe more devoted to the firm who who felt that the principles had helped them like that that uh you know following this approach lifted them up and made them think more clearly so the argument that you've just put forward which you're right Delio's put forward and his lawyers put forward is it's nothing short of a straw man argument I didn't simply speak to ex-employees I spoke to many current employees is I spoke to people with great fondness for Ry who feel sad about what he's become and what the principles have become it's not a bunch of I spoke to people with you know just complicated feelings who who said that there were good aspects of this but then they would see it turned against them or turned against others and have just made them sick you know in the book we have his own you know Human Resources people telling him in writing that this is what people are saying people fear being fired constantly and him just dismiss missing it so I I don't buy that it's you know it's just a bunch of EX Ex-Wives I I agree with him if you wrote a book and you just spoke to uh you know people who didn't who had acrimonious departures I agree that would be misleading that's not what happened here another interesting bit in the book it's kind of early on in Rey's career um when he speaks with Paul Tudor Jones and he to a certain extent this is almost a bit of a foundation of Prince Les where he explains to Jones that he wants to put together a bunch of rules for investing that are based on kind of good decision making and to invest that way and to only change a rule once research has been done that shows that the new rule is better than the old Rule and that that that was an interesting story but it didn't at least in the early days work out right well let's give Ray credit here that was a genuinely uh impressive approach in the late ' 80s early 90s and you're right Paul tutor Jones took a look at his system and said that it it wasn't worth employing at at tutor um of course ironically then Ry who also lives in Greenwich Connecticut with with uh Paul becomes much wealthier than Paul from allegedly this very this very system what's what's interesting is that what this approach though Ray claims he's literally said it's quote Timeless and Universal and you know and I know and anyone if any in the financial industry that it is so hard to stay ahead on trades it is you have to invest so much in technology and even then you may not be right I used to work years ago for Victor neidhofer who was one of the early Quant Traders and Vic's core belief is that any system that you can find that works has to St stop working as people employ it because it you know the your trading changes the markets but in a way when I look at that early conversation between Rey and Tudor it's um it's almost like he's come up with an idea for quantitative trading but maybe isn't a Quant himself you know so and I think that was even how it fell down was that he put rules forth but then I believe tutors team back tested those rules and they didn't find that they sort of sounded logical but they didn't work in the real world and did did Ry move towards eventually like is there sort of a a a quantitative basis do you believe for for his trading since then so the word quantitative is interesting there because Bridgewater is very careful and Ray to to describe it as systemized it's a systemized system system so there is an investment system they would say now the degree to which it is quantitative in a Neer Hofer way or Renaissance Technologies way there's no evidence that it that it is and in fact there's a lot of evidence that it isn't because it would Bridgewater simply doesn't invest or employ those types of uh employees they don't have that type of trading system as I say in the book someone as recently as 2018 who joined the investment team couldn't believe his eyes they were still using Microsoft Excel so this isn't a Renaissance Technologies the argument so far as the best that I could tell and I've spent a lot of time talking to current and former investment employees there is that if there is a rule if there is a theory of history that Bridgewater considers that a system that's systematized now and and to be fair in the 1990s and the early 2000s that may literally have been a fair definition of systematized I I don't believe that it is anymore because the world has blown past that and we now we now now two Sigma and Millennium and all these firms when when they say that they have a systematized investment process they mean bang bang bang process to a certain extent even looking at uh Ray's principles book in a way I would argue of course based on my background that the way you come up with trading principles is statistical analysis right like you you find you come up with a rule you see if it worked and then you see if it works um while the principles in Ray's book seem almost to be leaning in that direction but never really uh becoming numerate they seem to to sort of stay in the world of uh uh their descriptive uh ideas that that can have many meanings so you and I know you've read the man who solved the market about Renaissance Technologies my my friend Greg zuckman wrote that it's a great book even in that book you know Jim Simons says essentially that even he doesn't even fully understand every trade that's going on at every moment and that he shouldn't because he is this colossal thing and that you know ideas go stale constantly so to the degree that Bridgewater and Ry have always stuck to rules that only Ry can understand they are falling behind the standard of of the true leading hedge fund that's what I would say another big part of the book was almost the idea that at a certain point Rey kind of was inspired by I guess two big names came up Warren Buffett but maybe more so uh Steve Jobs and maybe uh sort of building a legacy of being remembered as sort of a great business leader or someone whose whose thoughts sort of go down in history as being um of great import do you do you think that's really like kind of the TED talks and whatever is is that his goal is to have sort of a legacy that is greater than just the numeric returns that he achieved at Bridgewater okay so Patrick I know that at point in this interview I have used some hedging language and I've been careful because I'm under a multi-billion dollar lawsuit threat however I'm not going to use hedging language here there is no doubt in my mind that Ray Doo's goal is to be seen as a Steve Jobs like Warren Buffett like figure period full stop I would be shocked if he claimed otherwise he has been obsessed with years for for years with being someone like Steve Jobs he wanted Walter Isaacson to write his own biography he hires Steve Jobs's you know former lieutenant John Rubenstein like like we talked about absolutely could not stop talking about Steve Jobs for years years and that if you really want to know why does he keep talking about the principles why can't he admit what we know to be true if you read this book you know it's not what he says it is he can't he can't because he's put all his chips in that basket but saying that I am the most principled man on Earth yeah it's it's interesting because about a year ago I feel I saw a video with like P Diddy and um yeah and Ray like talking about did he claim is the idea that Ry is P Diddy's Mentor literally not even the idea Ry says P Diddy asked him Ray doio to be his mentor I asked P Diddy's representatives to confirm that they would not confirm that I think that speaks for itself now does Rey rap at all like is there any evidence of rap music haven't come from Ry there there is not I would also say there's very little evidence that I found of true animating Joy coming from Ry except when he is you know faying one employee or or another um I'm not saying he doesn't have hobbies or jewes that he doesn't have happiness in his life but for years he has seemed to to be just miserable with those those around him um that that is a Steve Jobs quality too by the way if you read Walter ison's book in a in a funny way many extremely successful people they are extremely successful because they are so focused on their thing and so you know it it wouldn't be as much fun to necessarily hang out with someone like that as someone who uh lives a looser and less uh focused life you know it's you know even you read about people like Warren Buffett you know he comes off as a very uh nicer Old Gentleman on TV but equally I I believe he you know spends 100% of his time trolling through the accounts of companies you know he he's not a he he wouldn't be a guy you'd go out for a drink with on a Friday night so I'll I'll I'll I'll tell you this even though it's not about Ray Delio because I think you're you'll enjoy it which is two or 3 weeks ago I I spent about a half hour 45 minutes talking to Ken Griffin the founder of Citadel uh for a New York Times story that we did about um Harvard's response to um in the Harvard student groups this is not about the book but I've known Ken on and off we not none neither I nor Ken would claim to be personal friends I'm a reporter who occasionally covers him but in the course of the conversation you know we're talking he's asking my opinion I'm sort of saying like well you know I'm here to interview you whatever it's a back and forth he knows he's talking to the New York Times I'm not claiming again that you know that this was the unvarnished Ken Griffin in all of my conversations with Ray doio over the years he never demonstrated that quality that ability to to just have the back and forth he just wanted to tell you why he was right over and over and over again and why you were wrong over and over again and I have to imagine that if that's what he's saying to me who you know a Wall Street Journal and a New York Times journalist you you have to transpose that to what if you worked for him what if you were you know his his child what if uh what if you were a friend because if he can't even put it on just a little bit just for me the Wall Street Journal and the New York Times gosh what do he like behind closed doors yeah I I guess I'm only so surprised that you know one of the wealthiest people in the world is awfully intense just because I think Ken is sort of like they're all intense but they don't all spend their entire conversation with you telling you how you're wrong and they're right they have they have other interests it's a bit of a puzzle it it would appear as well at least in the book there's a feeling that there are certain chosen ones at Bridgewater For Whom the rules don't seem to apply like for example often when uh there's a a a big dispute at work uh that's controversial it sounds like it's all videotaped edited uploaded for everyone to watch and to analyze even maybe years later when they joined the firm but there's one or two staff members who seem to not undergo the same scrutiny and and I'm slightly surprised that that's the case because you would almost think that someone who is so focused on this system would broadly apply it or or not apply it at all like it's it's a bit interesting that there are possibly chosen ones within the firm what what do you think causes that well first of all I would say if if your reveal is that at Bridgewater all animals are equal but some are more equal than others I would I would agree with you on that I know it's like a clich to bring up at this point but look raise number two Greg Jensen for many years was the one that everyone thought would succeed him and as the book gets into Greg really did was held to a different standard for many many years and then when Greg came just that close just about when he was just about to reach that that that golden chalice Ray puts him on trial and Ray pushes him all the way down and he makes Greg go on what he calls a hero's journey you know to the bottom and back so I I do believe it is all planned you know he allowed Greg to get just right there and then wanted to be able to show that even Greg can be broken by me a large criticism of hedge funds in general that they never have a continuity plan like Goldman Sachs Morgans the investment banks have a continuity plan the hedge funds are always sort of one guy and if that guy loses his Edge or if he retires there's not much left um Ry seems to have attempted to have the continuity plan but I think equally never wants to give up any control and and I think there's many sort of um even small businesses family businesses things like that where where you see that sort of thing at play is is it very different at Bridgewater or it's just uh sort of that idea on steroids well it's definitely that idea on steroids I would say what's different about Bridgewater is that you know you can have a family you know the the guy who runs the launder B my by my apartment I I believe he'll be there until he physically cannot be but he's not claiming otherwise Ray for literally two decades claimed that he was just about to retire he was trying to retire he had a system to retire but then he would always find an excuse why those around him were disappointing him and when they were disappointing him it was neverita bling excuse to show why he Ray doio couldn't quite leave them now this continues to the present day you know I reported in the New York Times just a few weeks ago that even now he's allegedly retired he allegedly doesn't have a full-time job there but he's still on the board and he suggested to the board that since their Investments aren't working maybe he Ray Delio should be starting his own fund inside Bridgewater he's you know that's quite different from just not wanting to retire that's want that's always needing and wanting to be right yeah now another thing that was surprising in the book was are maybe not surprising when you realize maybe how uh how uh important control appears to be to Rey is some of the heroes that he is supposed to look up to like uh it says Putin and X in China and even to the extent of having uh sort of a a team of uh what would you call it sort of security Personnel that he refers to as the polit bureau sure is that like is that widely spoken about this idea that like his sort of interest in authoritarian leaders or nothing is widely spoken about at at Bridgewater there is there is a a culture of or and there there was a culture of not saying what you knew would you know would get Ry angry so far as the creation of the poot Bureau which is literally he Ry was literally inspired by China's there's almost nothing I can say about that that the name doesn't say you know in itself he literally created a poot Bureau inside Bridgewater which functionally existed to investigate pretty much anyone Ray wanted for any reason and all of these people inside Bridgewater all of these purportedly independent thinkers all of these people who you know have the power and responsibility under the principles to speak the truth they all want they all went along with it they took the paycheck and they kept going now as the book draws to a close there's a bit of a feeling that at least within it as the the principles went out into the world in terms of uh you know Ray um TV appearances and speeches and so on that the co lockdowns might have brought a lot of the systematized principles within Bridgewater to if not an end uh that that they were reduced significantly is that is that what you see that's that's true it it it proved to Ry for Ry tough to be a bullet you know through zoom and Bridgewater and Ray have never acknowledged that he continues to go on and talk about the principles as if you know nothing nothing has changed but at the end of 2021 Bridgewater lays off the majority of the staff which is devoted to these this huge apparatus you know the poet Bureau doesn't exist anymore it it only really exists in the popular imagination and in Rey continuing to to talk about it Rey asked Bridgewater to pay him this this man is worth an estimated $20 billion he wanted Bridgewater to pay him a licensing fee to continue to use the quotequote principl tools after Ray had retired and it was a grave miscalculation because that was a great excuse for the current leadership of Bridgewater to say oh no we can't pay for that and then to dump it but but isn't the firm still majority owned by him like he could if they're managing his money he could just forced them to uh you know follow his rules or no is it is it much more of an independent firm now here's how I'll answer that who who do you think has the power do you think it's the person who has the name chief executive do you think it's the person who is the title Chief investment officer or is it the one man who at any moment could simply decide to write a tweet or a LinkedIn post or go on CNBC and say one sentence all he has to do is say I don't have confidence in the current leadership of Bridgewater Associates that's all he has to do the firm is over so who who really holds the power here yeah I mean it would seem and even just the fact like if if he announced that he was pulling uh he was managing his own money rather than having the firm manage his money to get it once again it's even it's back to that problem of continuity at hedge funds you know it's still very much tied to the founder unless you have uh you know a replacement where who sort of uh almost outshine outshines the founder of the firm right well and this is why Bridgewater for years wanted to talk about its quote unquote investment system that would live on past diio what I found so interesting was the firm was briefly doing quite well uh I think about two years ago um and they credited that in a letter to investors they credited that to an investment committee a new investment committee that did not include Ray Delia wow H so you know there's some tension there and what has the long-term performance of Bridgewater being like has it has it generally cuz you know say what you will about uh you know whether a guy is likable or not you know you don't really put your money at a firm because the founder is likable you put it there to generate returns um I know in the book it implies that returns fell off after the credit crunch but in the you know if you look at the entire history of the firm uh kind of on a what can I say like not just returns but a sharp Ratio or returns for volatility basis like has it been a good place for people to have their money well I would disagree with you on one thing yes it's true that you or I when we're looking at our 401K we want to we want to make the best return risk adjusted but I I would actually disagree and say that you do in in institutional investors in many cases do put their money with firms where they like the founder where they where they buy into the story now so far as and and Ry is one of the world's great storytellers now so far as the returns if you look from inception from the start of Bridgewater of course they're going to look good it includes years where the firm had virtually no money um under management if you look over the past say 13 years since uh since the start of uh 2011 11 it's extremely poor performance relative to the markets relative to other hedge funds um it's muddled around flat many years and Rey has used that unbelievably to his Advantage he says well look we're not losing you money we are stewards of capital it is a it is a wonderful marketing slogan but it doesn't appear to be lasting forever because this firm peaked at around $168 billion now it has last I checked around 125 billion maybe even less if this firm which is still massive oh my gosh I I'll take it by the way but I'll I accept um and the fees I I thought at one point in in the book were the was the management fee over 3% or something like that on on it depends the is a sliding scale and there's a number of funds but the firm was so big that on pure Alpha even just a 2% management fee was just an incredible annuity for everyone and um and remember in hedge funds you're paying a a performance fee on any performance over zero so yeah markets since 2010 have been up up up overall so the the fact that Bridgewater hasn't been close to matching them doesn't even matter too much because they're charging a performance fee just on any raw performance period no it's it's an interesting one because well for one thing fees do appear to have gener generally come down quite a lot like I think most I think most funds nowadays you can probably invest at one and 10 like there's not not many people that get away with 2 and 20 anymore but even the initial idea of 2 and 20 was sort of a a thing where you'd take a great money manager and you'd say look uh you know go wild but with a hundred million and we'll pay you this big fee structure but once it gets into the billions you know the idea was that the two would sort of cover the hiring of a few staff members and paying the rent on the office and the 20 was the was the incentives like that that's where the wealth was being generated while obviously when you get into the billions uh the two becomes uh frankly uh if not really more significant than the 20 right uh AB it's the oldest Story Ever Told in in hedge funds that um about these these incentives um but what I I will say is in order to keep that that management fee in order to keep those assets you've got to be able to convince people that you over and over even in bad years that you have a repeatable investment system to stick with you and I can't criticize Rey for being anything other than the world's greatest hedge fund marketer and in in that sense now if there were because people do want to learn you know the reason even people read biographies autobiographies whatever it might be is that they want to walk away with a few lessons as to like are there things that I could change about myself to uh you know sort of optimize The Way I Live to um you know to be more successful whatever successful means are there takeaways like have you learned something from Rey um about sort of how to uh you know that has improved your life absolutely i' I've even sent talked to Ray about this and and his he has a principle called trust in truth which is essentially means uh to you know try not try not to find excuses to to lie they trust in truth now he doesn't follow this really very often but it's a great it's a great principle and the what I honestly have taken out out of him is from him rather is this IDE idea that if if you're in a disagreement with someone it's okay just to stop the stop in his tracks and say hey I think this is what we're disagreeing about I think it's this thing what can we have it out just right here on this so that we can move past it as opposed to you know looping back two hours later to say like finding the core of the problem and saying this if if we can solve this we can solve the whole thing right I think it involves much more empathy and and that humans are endlessly more complicated than than Ry might believe but I have honestly learned that even in my my day job you know at the New York Times if I'm having a disagreement with an editor instead of trying to convince her of my perspective I say okay let's find a third option here you know it's like we're not eye to eye here there must be something that like that we both uh agree with so I've honestly taken taken a lot from that um I would say that the other thing that anyone reading this book uh hopefully should should take away is that there there isn't always a reason for things you know there not everything in your life has to be because of a grand system or a grand dominoes it's okay for there to be disappointments sometimes there's luck sometimes you're unlucky and you can move past that it's it's there are there you right that there are no Heroes so to speak in this this book but there are many people even though they're they're totally they're not powerful at Bridgewater who make the smallest of stands and then they remove themselves from it and I find them honestly quite inspiring because they do what they can but then instead of staying there and taking the money or instead of staying there continuing to argue they say okay I've lost they pick up their chips and and they go home and I've learned a lot from that sometimes you're not going to convince the other person and yeah no there there's interesting things because you know you you could look at Bridgewater and say gosh there's an awful lot of Staff attrition but equally I look around Wall Street in general you know I remember in my 20s when I started working at an investment bank and in my head I thought it would be a whole bunch of you know grayhair old men and you turn up and there's really no one on the trading floor much above the age of about 35 you know and the investment industry is kind of like that where there's a lot of you know I guess if you look at the size of the uh analyst classes at an investment bank and then the number of MDS you know a lot of people fall along the path do do significantly more fall along the path at Bridgewater or is is this just the nature of the financial industry that that people get sort of either pushed out or weeded out however you want to view it look there's a there's a tremendous amount of attrition at Bridgewater and I personally don't have the numbers and I don't believe that he's ever given them out so I couldn't compare it to a Morgan Stanley but what I what I would say is is this that the asset management industry RIT large is a is a great business for the asset manager so the I don't quite buy any of the high-minded patina of if I work for black rock or Blackstone I'm helping retirees um you know Teachers Retirement Systems you know ETA Etc I I I don't need to hear that it's okay the asset management industry is a great place to be when you're the asset manager collecting collecting the fee um I am in journalism you know I'm a I'm a reporter even in journalism I would say they becomes a point in your 30s early 40s where a lot of people do do leave and um I I think it's okay to have multiple interests in your life this is actually a ray Delia thing for me but I what I what saddens me most about him is that he never had another interest he just kept talking about the principles he never I don't I have joy in my life I have disappointment I have you know you I have no doubt that you do too you know we have we have ups and downs and he just he just kept flogging this one this one thing and couldn't accept that the time had passed and I think to go back to your earlier question that that probably is the greatest lesson that I've learned well that's probably a great point to wrap up the uh the conversation here I would tell my viewers uh you know that this book it by the time this video comes out the book is probably available on Amazon um it's a great read uh it's very interesting and actually I would argue you know I've got both of the books here principles and the fund and it's reasonable to read both of them and sort of see both sides of the story and even uh you know I'll I'll be interested I as you've said you you expect Rey to uh you know come out and respond to to uh what's said in the book and it I'm sure both you and I will find it interesting to see what he has to say look I people ask me all the time what I think about principles about his book and I say it's it's an autobiography it's one man's opinion it's fascinating to get inside one person's head what what I've written is what it's like for the rest of the people around R alion Bridgewater and I think that's perfectly valid too so on that note we'll wrap up the interview I'll leave a link to Rob's book in the descr
2023-11-14 01:06
