• Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, with about $150 billion in assets under management.
• Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success."
• He explained how his collection of "principles" for life, work, and investing began when he went broke after a bad market call in 1982, which he blames on hubris.
• He also shares what led to his embrace of "radical transparency," what he learned from a succession plan that hasn't always gone smoothly, and what it means to be in the "third stage" of his life.
• Visit Business Insider's homepage for more stories.

Ray Dalio is one of the most influential figures in the world of finance. He started Bridgewater Associates out of his apartment in 1975, and grew it into the world's largest hedge fund. It now has $150 billion in assets under management.

Over his career, the billionaire investor has become well known for his unusual management style, rooted in what he calls "radical transparency." At Bridgewater's Connecticut office, employees use iPads to rate each other's performance in real time. Nearly every meeting is recorded, and sometimes those recordings get used in company-wide emails. The culture there can be intense.

And since the 1980s, Dalio's been collecting "principles"— life lessons that can be used in and out of the office. In 2017, Dalio published his principles as a book, and it quickly became a New York Times bestseller. This spring, he released an app that contains the full text of the book, along with internal videos from Bridgewater.

Dalio stepped back from management in 2017. He's still Bridgewater's cochief investment officer and plans on investing for the rest of his life. But now, more than 40 years into his career, he's focused on passing on what he's learned. And he views success much differently than he used to.

Listen to the full episode, produced by Sarah Wyman and Jennifer Sigl, here:

Subscribe to "This is Success" on Apple Podcasts, Stitcher, or your favorite podcast app. Check out previous episodes with:

• Philanthropist Melinda Gates
• Oracle CEO Mark Hurd
• Former race-car driver Danica Patrick
• Grammy-winning DJ Afrojack

Following is a lightly edited transcript. Narration is in italics.

Learning through experience

Rich Feloni: Ray Dalio was born in Queens, New York, in 1949.

Ray Dalio: I was an only child. I had a mother who really loved me a lot, and I had a dad who was a jazz musician, and he loved me a lot, too, but he was out a lot, and I was, I guess, a pretty classic kid. I loved to play with the kids in the neighborhood. I would say I didn't have a lot of active guidance. I was more kind of on my own, and I loved life, and I played with kids and that was it. Didn't like school.

Feloni: Didn't like school? Were you analytical at that point?

Dalio: No, no, no — I wasn't analytical. People would always say I had common sense. I was curious. I was always curious. Curiosity is a different thing than analytical. I was curious, and I liked to think about a lot of different things and have interesting conversations with adults about interesting things — politics, the world.

I did a lot of odd jobs as a kid: paper route, shoveled driveways, all that. But I earned some money from that, and I caddied, and when I was caddying and I was 12, the stock market was hot and I bought my first stock. It was the only company I ever heard of that was selling for less than $5 a share. That was my criteria. I figured I could buy more shares. Therefore, when it goes up, I'll make more money. That was really naive.

But I got lucky, because the company was about to go broke, but some other company acquired it and it tripled, and I thought the game was easy, and so that's what I got hooked on. So at about 12, I got hooked on the markets, like one might get hooked on a video game.

Feloni: What appealed to you? Was it the risk taking?

Dalio: Well, the game, and the fact that I'd make money if I could do it well, right? So I think it was probably, it might be like, imagine if you had a video game that you made money at if it paid off. The game itself is fun. And then you like the rewards and then the roller coaster begins, right? So OK, can you make money? Can you lose money?

So that had a big effect on my life, how I viewed things.

Feloni: So this approach that you would start to develop in adulthood, of learning things, forming principles around that, there was really no indication of that as a kid?

Dalio: The word learning can mean different things to different people, right? There's kind of this experiential learning, and then there is going into a classroom and remembering, and there's that kind of learning, right? So, for me, it was always this experiential learning. So that I always had as a kid.

The "go into a classroom and do the remembering" kind of learning, I wasn't good at it; I didn't like it. The experiential learning I loved. So it would be almost like saying, "Did you like playing a video game?" Playing the markets was great. Playing with my friends was great. But going in and reading a book and remembering it and getting tested on it just had no appeal to me.

How a disastrous mistake in '82 shaped Dalio's life philosophy

Feloni: Dalio went to college on Long Island and studied finance. He then went on to graduate from Harvard Business School. Two years after getting his MBA, Dalio founded Bridgewater and started to make a name for himself. But then he made a bad bet. It took hitting rock bottom to change how he approached everything, from investing to personal relationships.

Dalio: I had calculated that American banks had lent a lot more money to emerging countries than they can pay back, and I said there'd be a debt crisis. That was a very controversial point of view and got me a lot of attention, and it turned out to be right and that Mexico defaulted. And so, I thought, I'm right. I thought that, you know, I'm arrogant in having confidence, and I was right on the default and I was wrong on what happened because that was the exact bottom in the stock market. As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go, and I was so broke I had to borrow $4,000 from my dad to help pay for family bills.

Feloni: How many people were you employing at that point?

Dalio: Oh, eight maybe.

Feloni: Still, you had to take them out of a job.

Dalio: It was my everything, right? It was my everything. It was my mission. And I loved those eight people. I didn't want to lose them. And so a very, very, very painful experience, but it changed my approach to decision-making because, look, pain is a great teacher. You go forward toward your goals. You succeed and fail, but you really learn from your failures because they're the painful experiences and if you can reflect on them, you change.

My son gave me, in 2014, a book, Joseph Campbell's hero's journey, "The Hero With a Thousand Faces," and he says that what happens is that you will crash in your life at some point, and at that point you will either have a metamorphosis or you won't. That metamorphosis, really, it teaches you humility. Pain teaches you humility.

And so, my experience changed my whole approach to decision-making, like, it gave me the fear that I might be wrong that allowed me to incorporate that with my audacity. In other words, I didn't want to just get off the field and not play. I still wanted to be great and make the best things happen and win, but I didn't want to have less risk in the sense that I didn't want to have less opportunity. I wanted to keep the opportunity the same, but I wanted to then be able to manage my risk better and it changed my whole approach to decision-making because it then made me think, how do I know I'm not wrong?

It made me be much more open-minded, to diversify better, to deal with my not knowing. Whatever success I've had in my life has been due more to my knowing how to deal with what I don't know than because of anything I know.

Feloni: So it was a really profound experience. In that moment, how could you even find the lesson in it?

Dalio: Painful experiences of this sort — when you're in the moment, you may not be able to reflect very well because the emotion is taking control of you. When the emotion passes, you have a choice. You can either move on and just do the next thing and not reflect, or you can reflect. Reflect. I urge you to reflect.

Now, to some extent, maybe meditation helped me. I had learned Transcendental Meditation, so it gave me a certain equanimity to reflect. I think that maybe my habit of trying to figure out, well, what was my mistake in trades and trying to then reflect on the trades so I would learn. But in any case, when the pain passes, don't just go forward, reflect, because that's where your progress is.

Feloni: With Transcendental Meditation, you've said how important that is to you and even how that can help you reflect.

Dalio: There are the two yous in you, basically. There's the emotional you that comes from the subconscious, and, under certain circumstances, it can produce stress, and that stress or that emotion can take you over. And then, there's the thoughtful part of you. Both have advantages, because the subliminal is bringing forward these intuitions and those types of things and then the intellectual, and if you can be calm and resolve those things together, not only does it give you the calmness, it gives you better thinking.

Taking the path to radical transparency

Feloni: In the early '90s, there was a Bridgewater employee named Ross Waller. He was the head of trading at the time, and he didn't make a trade he should have. It cost the company hundreds of thousands of dollars. But Dalio decided not to fire him.

Dalio: It's OK to make mistakes. It's not OK not to learn from them. So perfectly good people, I mean, all human beings make mistakes, right? The key is the learning from them. So he was a good person who made a mistake, and then the question was, how are we going to learn from them? I put into place an error log, which we now call an "issue log," in which everybody in the company has to write down whenever anything goes wrong so that they bring it to the surface and we learn from it.

Feloni: Is that for you as well?

Dalio: Of course, anybody.

Feloni: I mean, if you start to incorporate more and more transparency, there's probably going to be some tension that arises, and in 1993 there was a conversation you had with some of your leadership team, where they basically confronted you.

Dalio: To be effective, I think people have to be very truthful with each other. First, that's because they have to try to agree on what is. They've got to get out of their heads, and if they think something's not right, they've got to deal with it. Otherwise, it's not productive, and there's so much misunderstanding unless you lay your honest thoughts on the table. So improvement like that is sometimes difficult but it is also really effective.

So that total amount of transparency and truthfulness was, a couple of people I work with, they said, well, that's demoralizing to people, that you're demoralizing people by putting them in that kind of a position.

Feloni: They used some choice words. They said your approach was making people feel incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, and otherwise bad. I mean, how did you feel reading that? That must have been pretty rough?

Dalio: I didn't want to do those things. I didn't want to make them feel demoralized, so what I thought about was, well, the real question is, how do we deal with it together? So we need to have a conversation. What should I do? What should you do? How should I do it?

So I have a general principle. When you're not getting along with somebody or you're having a disagreement, stop, put that aside for a moment, go to a higher level, and then say, "How should we be with each other? What are our ground rules for operating, and why?" Then go back into your disagreement, and follow those protocols about how you should be with each other.

And so that's what I did, because, again, I was faced with, it seemed, a trade-off that was a choice between being totally truthful with each other or making people feel better. And I wanted them to feel better and be able to be totally truthful. So, we face these junctures in our lives, like I said in the earlier juncture; I wanted to have all the upside with none of the downside. And so, in that particular case, I figure, well, if I'm taking risks, how do I have all the upside without those unbearable pains, and you think that that's a choice that exists, but if you pause and you're clever, you can engineer that, if you do that together.

So what I did was to sit there and say, OK, so how should we be with each other? And we had conversations about how we should be together, and that helped to flesh out the rules and the ways that we should be together so that we could deal with that more effectively.

Feloni: It's interesting that your initial thought there was that we're either going to be honest or we're going to be happy, and that the in-between wasn't really there. How come radical transparency is so important where feelings can be hurt? Why not be honest but maybe a little bit more graceful with it, where someone maybe, it could be a little bit more pleasant than harsh?

Dalio: Well, first, I think it's a continuum, right? And then there's better and worse ways of communicating. Continuum like you're saying, you know, there's honest and then there's happy. The way that I look at happy is that you're short-term happy but you're not long-term happy, OK? In other words, I would say, OK, if we don't deal with those circumstances that we need to deal with in a forthright way, we could all be happy, but it's going to have adverse consequences in a lot of different ways. If you start to realize, intellectually, that being really truthful with each other is something that is to be treasured, not only because it'll help you deal with the situations, but also it'll build trust. There's a lot of trust that's going on. There's a lot of trust that everybody knows we'll be talking about it and there won't be hidden agendas and all those things.

And once you start to rethink it and reprogram yourself, that you start to realize, I don't want to be in this highly political environment, with all this stuff going on behind the scenes, and that I really appreciate it, and then you get in the habit of being able to do it well, so that there's really good clear communication and there's trust that's built. That is tremendously beneficial.

So, you have to understand that Bridgewater's success is that, right? In other words, it's knowing what you don't know and knowing I may be wrong. That's the key to success, right?

Feloni: So for radical transparency to work, though, it has to be done at an organizational level, a team level? Otherwise, wouldn't it just be, when you sat down, you're just acting like a jerk, if you're just doing this on your own?

Dalio: Well, yes. You have to agree. Any group of people, it may be your department, it may be your whole company, may be the whole country. Whoever it is, they have to agree on how they are going to behave with each other. Why? Everybody has to do that.

I think that notion of, can we be radically truthful with each other, can we know how to disagree well and then get past that disagreement to the best answers? These are questions that everybody has to face but certainly they're interactive questions, so whether it's in your department, or you can't unilaterally behave that way and you need to talk about it; otherwise you'll have misunderstandings.

Forming the 'principles' Bridgewater is known for

Feloni: And so, the next evolution, really, of this radical transparency kind of happened in the early 2000s, and that was when Bridgewater was really going from, I guess you could say, like a boutique firm to a large-scale organization, correct? And as it was happening, you wanted to retain the culture that you built, to pass on the lessons you learned, the principles you learned. This is when you really started to codify them.

So if you get a packet of your principles that you've acquired over the years, and then you give them to your employees, if Henry Blodget, the founder of Business Insider and the CEO of Business Insider, if he came to us with a packet of his life lessons, I feel like that would be something that we'd be like, "Whoa, where's this coming from? What is this?"

Dalio: Yeah, it didn't happen that way.

Feloni: It didn't happen that way. How did it happen?

Dalio: Well, again, in order to have this radical truthfulness and radical transparency, everything that I did pretty much was recording everything that everybody did was pretty much recorded.

Anything that was not personal, like, if you have a family problem or something, we're not going to talk about it. Anything that's proprietary, we wouldn't talk about. But pretty much anything that anybody could see, because that builds the trust. If you want to have truthfulness, transparency helps a lot because people get to see things for themselves.

And then what I would do is, as I would make decisions, I would write down my criteria for making the decisions. So things were happening on a day-to-day basis. Imagine if Henry, let's say, oh, you're seeing what Henry is doing and he's made a decision, and then he's written down the principle behind why he made the decision, and then he's willing to talk about it with you and he said, "Listen, how should we make those decisions? Do you think those criteria are good or not?"

So it's not like, OK, here's a book. The book is just the accumulation of those kinds of things, and it's easy to go through. And that brings harmony, and that brings consistency, and that reinforces the culture. Part of that is to write that down and understand each other, and part of it is to also develop tools that help to facilitate that. So I developed a number of tools that facilitate that transparency and the understanding.

Feloni: To get back to an earlier point, I understand in terms of writing down what's working and sharing that with the company, that, to me, makes sense. It seems to be a much bigger leap to being that we have to start recording everything so that we're all honest with each other, in the sense that if I go meet with my manager and have a discussion, that all of my colleagues need to be able to see this. Or if we had a discussion that maybe a conflict arose and it was resolved, that that would be shared with colleagues on here's what we can learn from this. I feel like that would be really difficult to adopt for people, especially feeling uncomfortable around that.

Dalio: Yeah, first of all, I want to be clear that anybody can do whatever they want with it and it's all a matter of degrees of what you want to do, but all those degrees have choices, so I chose that particular path for various reasons I can describe. But the question is, how truthful, how transparent do you want to be? And there are real benefits. I chose that radical truthfulness and that radical transparency because I figure there's nothing to be embarrassed about, and you produce understanding, and if people are just going through their evolutionary processes, their successes and their failures, and we made a compact among ourselves, do we want to be this way with each other?

You start to see everybody in their humanity, including the making of mistakes and then the learning from mistakes. And then, also, you avoid all the bad stuff that goes on in the dark. Deception happens behind the scenes, so you avoid all that deception. That's what worked great for us. I'm not saying others necessarily have to do it. They've got to figure out what's good for them.

Emerging from the financial crisis stronger than ever

Feloni: After the financial crisis, this is kind of when more of the public eye was on Bridgewater just because you came out of that strong, because of your analysis of where the economy was headed, and 2010 was the best year that Bridgewater had up to that point. That's when you start having the media looking at you, people not even in finance looking at you, discussing principles. At this point, people were saying, "Whoa, what is this?" Was this hedge fund in the shadows, like some secret cult or something? What did it feel like when you were challenged? Your whole way of approaching things was challenged from a bunch of outsiders at this point.

Dalio: In 2007, we anticipated the world financial crisis because we looked for these timeless and universal principles. We knew that the situation was very similar to the 1929-32 situation because when interest rates hit zero, the Central Bank can't ease anymore, and you have a debt crisis and certain things need to be done.

It was that approach to principles and this way of operating that allowed us to anticipate the financial crisis of 2008, and we did very well in that crisis where most everybody lost money in that crisis. As a result we started to receive attention, and then people started to think, well, what is this, a cult? And I didn't want attention. I didn't want public attention. I didn't want to do this kind of media. I just wanted to be quiet. And so, what I did is I put our principles in a PDF file, and I put it out on our website for anybody who wanted, they could download it. And it was downloaded 3 1/2 million times, and people started to get the understanding and started to say, "Whoa, this is a different way of operating." And so, that's what happened.

Feloni: When you're saying that you have your investing principles, and that's what allowed Bridgewater to be successful, the accumulation of these principles for investing. You've applied that to, kind of, just the human experience as well.

Dalio: All decision-making.

Feloni: Are your principles for life and work — is that almost kind of like the same way that you would write an algorithm for trading, but for a person?

Dalio: Yeah, it's exactly the same. One of the great things I'd like to pass along is the power of having people write down their decision rules when they're making that decision.

Feloni: How do you mean?

Dalio: I think most people just make decisions and instead of just doing that, if you make your decision and shortly after or shortly before, take the time and say, in this particular type of situation, here are my criteria for making that decision, that's the reason why, and you write it down in a very, very clear way, it makes you think about your criteria better. It allows you to communicate with people better.

That idea of writing that down applies to all decision-making. You could do that in all decision-making, and you can even go beyond that. This is the power that we're now in, in the world, with converting thoughts to algorithms. You can go beyond that, and you can take those criteria and then have data input and have that operate in parallel with your decision making and I think that, that's more and more where we're headed and that's what we've done. That's the process.

Feloni: Was there ever a moment throughout your life really, where one of your principles turned out to be incorrect, as something was unfolding you realized maybe this isn't working for me?

Dalio: Oh, yeah. I think the development of the principles is it's an evolutionary process of change just like we personally experience an evolutionary process of change. Our thinking changes as we learn over a period of time. It's just more explicitly progressed. And that's what this compendium of principles is, that's the book, that's the hot book, it's because it just evolves over that period of time and here it is and it's still evolving. I'm still learning.

A succession plan that didn't always go smoothly but was a learning experience

Feloni: After hitting a new level of success coming out of the financial crisis, Dalio began considering what would happen to Bridgewater after he was gone. It was his life's work. And continuing its success would be no easy feat. So he set into motion a succession plan. It started with appointing a new co-CEO in 2010, Greg Jensen.

Jensen was his protégé and Bridgewater's head of investing. But Jensen ran into some of the same problems Dalio did back in 2008, when there was too much overlap between the investment and management sides of the business. And in 2016, Dalio decided that Jensen should return to his former role.

The change meant Dalio's succession plan had to change too. He couldn't back off just yet. In his book, Dalio took responsibility for the botched plan. He also called it his biggest regret during his time at Bridgewater.

Dalio: First of all, I would say, a lot of learning comes from having the same mistake over and over again until you learn it. In my particular case, the company grew up under me, and there I was, and I was handling too many things and I was getting by, and I was figuring out how to get those things by but not adequately. And then I figured, OK, now that's my situation, my dilemma and I should pass along both my dilemma and my circumstances to him and we should try to figure out how to deal with that together but, in other words, I can't not pass it along and yet we don't have a solution yet, and so we will try to deal with that together. And that's the path that we went down and we found out that we couldn't do that together because it was just too much for him, too much for me.

So, I guess I would say, you form a theory and the theory doesn't work, and then you try again and you form another theory and that's part of the learning process.

Feloni: What has been your experience with succession? What has that taught you as a leader?

Dalio: Oh, it taught me so many, many different things. It was. .. first of all I should say when I began my succession process, I thought it was going to take me probably about two years. But when I say I thought that, I also knew not to believe that.

Simultaneously, one can say, I think this is going to happen but I shouldn't bet on it, because if you haven't done something three times before successfully, don't assume you know how to do it.

Feloni: Yeah.

Dalio: And I knew what the arc of my life would be. In other words, as I go from 60 to 70, that I have to transition well and I want to really make the people successful without me, and so I'm going to have that particular experience. I allowed up to 10 years for that to happen. I figured two, but I said, "OK, I better plan for 10 because I'm not sure if I'm going to be able to do that."

And then I learned. I learned how people see things differently. I learned not to assume that somebody can do something until they're doing it already.

I learned that others had to be involved, that the best thing for me to do was to bring in other people to do that. I originally didn't think I needed a board, for example. I figured I'd run the company in this way for all that particular time and so I don't want some board to come in and operate where they're outside telling me what to do or the leaders what to do. I then realized that I need to have a board that would operate well. So I get the best advice I can from the smartest people. I went to Jim Collins, very smart guy, who's ... that's his expertise.

Feloni: Yeah, management consultant.

Dalio: And I asked him, he said, well, you only have to do two things: You have to pick the CEO who's going to be successful, a great CEO, and you have to have a board that will monitor whether the CEO is successful, and get rid of them and change it if he doesn't. It takes me out of it, it takes those out of it. And so, I learned —

Feloni:That helped you step back?

Dalio: Yeah, I learned about governance systems. How does the governance system work? How do you select the people differently? How do you try those people? So I learned all of those things. You know, I'm still learning, but it was the learning of that, and that made us successful in the transition.

Redefining success in the 3rd stage of life

Feloni: I mean, when you read "Principles," it kind of seems like, here's a very cohesive worldview. I'm now ready to pass it on. But since then, has there been anything surprising that you've learned about yourself, about how to just approach life in general?

Dalio: Well, I learned ... I'm beginning to experience for the first time in my life, the total freedom from obligation, the total freedom. OK, what do I want to do? Of course, I'm in this transition phase, which means that I'm passing things along. But what is it like to be free of obligation and do all the things that you're excited about? I'm doing a lot of things that I'm excited about, and I love the markets. I'm still spending 80% of my time on markets, which is more than I used to, because I had the CEO job. Now I'm in a position where the economy, the markets, that's my game. I'll always play that game.

But with that open canvas, I can do things like pass along these principles. I'm interested in ocean exploration. I love being around my family, my grandkids. I learn all of these different things, so I'm experiencing that element of the freedom of this new phase in my life, and I'm thinking about it. I'm writing down principles about it and that's it.

Feloni: Do you think you're going to miss that engagement with the day-to-day of Bridgewater?

Dalio: I'm going to be the chief investment officer as long as they want me to be. I'm playing that game. They want me to do it, I want to do it, and I'll do it as long as I'm welcome to do it and I love to do it.

Feloni: And I also wanted to know as we're thinking about these different stages of your life, what is your concept of success in this stage right now, as opposed to the Ray who was building up Bridgewater, scaling it, as opposed to the concept of success that Ray had when you were a young man as well?

Dalio: My concept of success is having others successful without me. My concept of success before was being successful myself.

Feloni: And what did that mean, "success"? How did you define that?

Dalio: Well, success was whatever mission I was on. It could be play the game in the markets and be successful. It could be build a company and be successful. It could be, be a successful parent. OK, now it's none of those things, right? It's I've evolved to the stage where to have others successful without me being successful is the most beautiful thing I can do.

Feloni: So that's … you're at the final stage of that hero's journey that you were talking about?

Dalio: Yeah. I'm in that transition to phase three.

Feloni: Well, thank you so much, Ray.

Dalio: It's a pleasure.

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Join the conversation about this story »

• Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, with $150 billion in assets under management.
• In an interview for Business Insider's podcast, "This Is Success," Dalio said that the succession plan he began in 2010 taught him to be a better leader.
• There were multiple people who had to be moved in and out of roles, and Dalio had to learn how to step back and prepare a co-CEO successor who was already familiar with the requirements.
• He's learned that a leader cannot be stretched too thin, and that trying an approach is more effective than over-planning.
• Visit Business Insider's homepage for more stories.

The following is a transcript of the video.

Ray Dalio: A lot of learning comes from having the same mistake over and over again until you learn it.

Richard Feloni: I notice that you had said that in 2016, when you had to move your chosen successor, Greg Jensen, out of a co-CEO role to be just co-CIO, that that was the biggest regret that you had had at Bridgewater.

And what I found interesting about that is that essentially the problem there, and correct me if I'm wrong, was that he had two jobs, running both the management and the investment side of things. But what I found interesting is that a decade prior to that you said that you had found that same problem for yourself in 2008. That you had two full-time jobs and that you couldn't do both. How did you not see that you were kind of passing on the same thing that you had gone through?

Dalio: First of all, I would say a lot of learning comes from having the same mistake over and over again, and until you learn it. So, in my particular case, you know, the company grew up under me, and there I was, and I was handling too many things, and I was getting by, and I was figuring out how to get those things by, but not adequately. And then I figured, OK, now that's my situation, my dilemma, and I should pass along both my dilemma and my circumstances to him, and we should try to figure out how to deal with that together.

But, in other words, I can't not pass it along, and yet we don't have a solution yet, and so we will try to deal with that together.

And that's the path that we went down, and we found out that we couldn't do that together because it was just too much for him, too much for me.

So I guess I would say, you know, you form a theory, and the theory doesn't work, and then you try again, and you form another theory, and that's part of the learning process.

SEE ALSO: 'Pain is a great teacher': How Ray Dalio, the world's most successful (and mysterious) hedge-fund founder, came back from financial ruin

Join the conversation about this story »

• Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, with about $150 billion in assets under management.
• Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success."
• Fundamental to his lessons are transparency and a willingness to codify lessons learned from making mistakes.
• Visit Business Insider's homepage for more stories.

For the past couple years, Ray Dalio's life has been in transition.

He still spends most of his time as the co-CIO of Bridgewater Associates, the hedge fund he founded and built into the largest in the world, but he's also focused on passing on what he's learned.

Dalio stepped back from office management in 2017 and published his first book, "Principles: Life and Work," later that year. He'll be publishing his core investment principles in the next year or so, but his unique life philosophy is core to everything he's done at Bridgewater.

In a recent episode of Business Insider's podcast "This Is Success," Dalio took us through key career moments since founding Bridgewater in 1975, and what universal lesson he pulled from each. You can find that episode and those lessons below.

SEE ALSO: 'Pain is a great teacher’: How Ray Dalio, the world's most successful (and mysterious) hedge-fund founder, came back from financial ruin

Hitting rock bottom in 1982 resulted in a change from focusing on what he knows to focusing on what he doesn't know.

Dalio built a name for himself shortly after founding Bridgewater out of his apartment in 1975.

In 1982, he attracted attention for a call he made two years earlier. He had the unpopular opinion that American banks were lending too much to emerging Latin American countries, but was proven right when Mexico's president announced the country could not pay back its $80 billion in debt, $20 million to $30 million of which was owed to the US's largest banks.

Now that he looked like he knew what he was talking about, analysts — and even the US Congress — turned to him for insights as to what would happen next. He was unequivocal: The US economy was headed for a massive downturn.

Except that the Federal Reserve cut the discount rate, and the stock market went up — and kept going up for years, marking one of the great bull markets in American history. Not only was Dalio wrong, but the exact opposite of what he staked everything on happened.

"As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go, and I was so broke I had to borrow $4,000 from my dad to help pay for family bills," Dalio said.

As he recovered, he realized that he didn't want to stop taking risks, but needed to do so with more humility, and with a new focus. "It made me be much more open-minded, to diversify better, to deal with my not knowing," he said. "Whatever success I've had in my life has been due more to my knowing how to deal with what I don't know than because of anything I know."

An employee's mistake taught Dalio to track what does and doesn't work.

One time in the early '90s, Dalio's head of trading at the time, Ross Waller, forgot to put in a trade — and the mistake cost what Dalio remembers as "several hundred thousand dollars."

He didn't fire Waller (Waller didn't leave until 2004 and has had a long and successful career). Instead, Dalio used the occasion to implement a new approach at Bridgewater.

"I put into place an error log, which we now call an 'issue log,' in which everybody in the company has to write down whenever anything goes wrong so that they bring it to the surface and we learn from it," he said.

It was the first time Dalio created a management tool, and that one would grow into many. Today at Bridgewater, employees have "baseball cards" that track their skills and performance and make it visible to all, and they use the "Dots" iPad app as a real-time forum for commentary during a meeting.

The experience with Waller proved to Dalio that not only should people be given second chances after making mistakes, but that these mistakes can be capitalized on for determining new ways to reinforce desired performance.

A tough conversation with his leadership team taught him about how "radical transparency" can improve relationships when used correctly.

By 1993, Dalio was convinced that unfiltered truth would keep Bridgewater running smoothly. Except not everyone was in full agreement.

One day that winter, three senior executives, including co-CIO Bob Prince, asked Dalio for a meeting and sent him a memo ahead of it. The letter said that while Dalio was great at his job and cared about his team, he was, essentially, acting like a jerk. They said his words and behavior made employees feel "incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, or otherwise bad."

Dalio was upset, and he searched for a compromise between the poles he had set for himself: either we're honest with each other or happy. He decided that "radical transparency," as he called it, was crucial for Bridgewater, but that boundaries and expectations had to be set.

"When you're not getting along with somebody or you're having a disagreement, stop, put that aside for a moment, go to a higher level, and then say, 'How should we be with each other? What are our ground rules for operating, and why?'" Dalio told us. "Then go back into your disagreement, and follow those protocols about how you should be with each other."

Bridgewater's rapid growth encouraged Dalio to start writing down his "principles."

Early in his career, Dalio learned that he could program certain investment behaviors, according to what was happening in the markets, into software that made a computer an invaluable tool for trading. This led to an accumulation of investment principles that gave Bridgewater an edge.

As he developed as a leader, Dalio became convinced that the same approach could be used with people. In 2006, Bridgewater had moved past its boutique stage and was on a path of rapid growth. To maintain his firm's culture, Dalio decided to collect a list of its tenets.

In the podcast episode, Dalio said it wasn't as if he suddenly appeared before his company with a book of rules they had to follow. Instead, he said, he had codified what had already existed.

He noted that it's no secret Bridgewater has an intense culture and isn't for everyone, but he believes this practice of logging personal or corporate principles is valuable for and adaptable to any situation.

"One of the great things I'd like to pass along is the power of having people write down their decision rules," Dalio said, because creating processes out of best practices results in better risk management and better communication.

Difficulties with his succession plan taught him about focus and delegation.

Dalio and his team were confident the financial crisis was on its way and planned accordingly. Bridgewater, then, performed relatively well when it did hit, and this brought an influx of attention and new clients. In 2010, Bridgewater had its best year ever.

During this period, Dalio decided he needed to build a succession plan, and was ready to have it last anywhere from a couple years to a decade. He stepped back as CEO in 2011, splitting office leadership between David McCormick and Greg Jensen. In his book, Dalio wrote that he considers Jensen family, and so when it turned out that Jensen was unable to balance both of his roles as co-CEO and co-CIO (a problem Dalio had run into himself in 2008), Dalio considered the ensuing shakeup in 2016 to be his biggest regret at Bridgewater.

He had appointed another CEO, Jon Rubinstein, in 2016, but the role lasted only 10 months. After a year back in the CEO seat, Dalio finally felt he got the succession plan right in 2017 and stepped back.

In the podcast interview, Dalio said the experience taught him several lessons.

"One can say, I think this is going to happen but I shouldn't bet on it, because if you haven't done something three times before successfully, don't assume you know how to do it," he said.

He sought advice from the management expert Jim Collins and learned that he not only needed a governance board for this transition, but that a leader's perspective and talents are not suddenly transferable to a role they have never had.

"I learned how people see things differently," Dalio said. "I learned not to assume that somebody can do something until they're doing it already."

• Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, with about $150 billion in assets under management.
• Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success." In a bonus segment, he explained why he considers Paul Kennedy's book "The Rise and Fall of the Great Powers" the best book he's read in the past year.
• He considers it important reading for today, especially in assessing the emerging power shift he sees between the United States and China.
• Click here for more BI Prime content.

For the past two years, billionaire Ray Dalio has been sounding the alarm on the rise of populism throughout the world, and earlier this year declared that capitalism is facing an "existential threat" in the United States. As the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, Dalio is one of the most influential voices in finance.

And in a recent interview for Business Insider's podcast "This Is Success," the investor gave a book recommendation in line with his assessment of the world today, calling it the best thing he's read in the past year: Yale historian Paul Kennedy's award-winning 1987 history, "The Rise and Fall of the Great Powers."

"I think we're going to enter a period that's very similar to the 1930s — and I held that view before reading this— but it's definitely the case that there is an arc for countries, just like there's a life arc," Dalio said. He sees the
US on a decline and China on a rise, marking the early stages of a change in global order.

"That dynamic has happened many, many times in history and understanding that well, I think, is very important," he said.

Kennedy's book is an investigation of the life spans of the world's great powers since 1500, the start of modern history. Each power was defined by economic hegemony that fell when that country became overstretched by its military presence and spending, which was accompanied by a lack of investment in other aspects of society, contributing to an overall decline. Kennedy noted that the US in 1980 looked to be in a similar position to the United Kingdom ahead of World War I, when it was headed toward falling from its peak.

In short, Dalio is worried about the state of America and believes that inequality should be treated as nothing less than "a national emergency," or else the shifting power dynamics around the world are going to hit the US especially hard.

Dalio said that he has been spending much of his time researching world history of the past 500 years, with a particular focus on reserve currencies (the dominant global currency), to help him make sense of where the world is at right now, and what can be done to mitigate potential damage. Out of everything he's used in his research, Kennedy's book is the one that's enthralled him the most.

You can listen to the full "This Is Success" interview below:

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NOW WATCH: Ray Dalio shares what he's learned from his succession plan at the world's largest hedge fund

Hi!

Welcome back to Success Insider, where we map out how to acquire wealth and status — and what it does to you when you get it. 

We have a special announcement for this week: our very first webinar is on Thursday, where the founder of a unicorn startup will unpack what makes for an excellent pitch deck.

We've also got guides aplenty on making startups come to life. In terms of larger companies, we recently profiled the power brokers of finance — the folks you'll need to know to get hired at Goldman Sachs, BlackRock, or Citi. 

TUNE IN: Carta CEO Henry Ward on perfecting the pitch deck on Thursday, July 11, at 1 pm ET. 

Henry Ward is the founder and CEO of $1.7 billion startup Carta, which is on a mission to modernize how stock options and early-stage investment is done. 

Ward will walk us through both an early pitch deck and his Series E deck, showing how he made a compelling business case and convinced investors from Andreessen Horowitz and Lightspeed Venture Partners to buy in.

Join us on July 11 at 1 p.m. EST for this exclusive opportunity. It's a must-see for new company founders and aspiring entrepreneurs.

BI Prime members, check your inbox for an email invitation with the subject line "You're Invited" for details on joining this member-exclusive event. If you're not yet a member, sign up. 

GET HIRED: How to break into the titans of finance. 

Goldman, Bank of America, Morgan Stanley. These are big names. So how do you get yours at the top of the résumé pile? 

Our reporting team of Shana Lebowitz, Sherin Shibu, and Alex Morrell talked with the HR heads of these heavyweight firms to uncover what they're looking for in candidates, the questions they're likely to ask in interviews, and what it takes to get ahead. 

Take a look here.

GO FREELANCE: And make more money than you did full-time. 

An estimated 50 million Americans hold a freelance job, and it's predicted that by 2027, half of US workers will go freelance. 

But if you're going to do it, you want to do it well.

For our in-depth guide, writer Robin Madell spoke with a wide range of independent workers to identify the best practices for going your own way — like the infrastructure you need to put in place, the resources needed before leaving the full-time job, and the process to follow when making the switch.

There's also the all-important question of how to structure your money and time to avoid feast-or-famine syndrome.

Dig into our guide here. 

And if you're starting a company or joining an early-stage one, you'll want to read our ultimate guide to scaling a startup, with common pitfalls to avoid.

READ UP: Ray Dalio on what to peruse.

To close us out is Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund.

He told our correspondent Rich Feloni about why today's leaders should read a 32-year-old book about empires.

"It's definitely the case that there is an arc for countries," he said, "just like there's a life arc."

Edify yourself here.

Until next time!

SEE ALSO: Ray Dalio says anyone who wants to understand today's world should read a 32-year-old book about empires

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• Big names like David Tepper and Leon Cooperman have opted to close their hedge funds instead of transitioning their business to new management, but investors see more and more founders planning for their funds to live on without them. 
• Fund managers have built teams that invest across asset classes, which reduces reliance on the trading acumen of a single person.
• Succession planning can be harder than it looks. Bridgewater founder Ray Dalio told Business Insider he was stunned by the amount of work it took and shared what he learned about the process. 
• Click here for more BI Prime stories.

Hedge funds have long been nearly synonymous with their founders' strategies and personalities, but investors are now looking closely at firms' plans to carry on without their creators at the helm.

Investors say more and more funds should be able to survive a leadership transition. But Ray Dalio, founder and cochief investment officer of Bridgewater, the world's largest hedge fund, told Business Insider it was hard for him to pinpoint how long his succession planning would take. 

"When I began my succession process, I thought it was going to take me probably about two years. But when I say I thought that, I also knew not to believe that," said Dalio on a recent episode of Business Insider's "This Is Success" podcast.

As founders age and the hedge fund industry matures, succession planning is a critical question for investors and potential fund employees. Many of the biggest funds have evolved beyond simply managing one portfolio and now offer a range of services, which makes it more plausible for a successor to take charge. 

"They're companies, they're small corporations, they're not one PM with an analyst running a single portfolio," said Darren Wolf, global head of alternative investment strategies at Aberdeen Standard Investments. "They're set up to be evergreen structures way beyond a single PM."

See more: Billionaire investor Stanley Druckenmiller says there should be only '200 or 300' hedge funds, not thousands — and he expects a culling of the herd

What remains unclear is exactly which fund managers will want their company to live on after they're done working.

Several big-name managers opted to close shop in the last 18 months instead of turning over to a longtime lieutenant. Billionaires David Tepper of Appaloosa Management and Leon Cooperman of Omega Advisors are converting their funds into family offices. Jason Karp closed Tourbillion and is now helping with his wife's organic chocolate company. John Paulson closed his London office recently, and hinted last year that he was close to transitioning his hedge fund into a family office.

But there have been some succession success stories. Farallon Capital is back at the assets under management it reached before founder Tom Steyer stepped down in 2012. Dallas-based HBK Investments has been successful despite the firm's founder and namesake, Harlan B. Korenvaes, retiring in 2003. Large quant funds like Renaissance Technologies and D.E. Shaw have ceded day-to-day control to lieutenants while founders James Simons and David Shaw focus on research and other passions.

"An increasing number of hedge funds can absolutely handle a succession," said Joseph Burns, head of hedge fund due diligence for iCapital Network, because they are diversified asset managers with venture capital and private investment arms.

Still, giving up a business you started and grew isn't easy, something Dalio found out when he tried to transition out  role at Bridgewater, only to step back in when his replacement, Greg Jensen, was overloaded with top investment and management responsibilities.

Bridgewater is currently run by Co-CEOs David McCormick and Eileen Murray, while the Dalio, Jensen, and Bob Prince all share the CIO role.

'Go out and hire a replacement'

Legendary hedge fund manager Julian Robertson drew investors in because of his personality and strategy. Naming a successor for Tiger Management would have made a lot of existing investors uneasy, according to research from Sandy Gross at executive search and coaching firm Pinetum Partners, but the seeding of his proteges' funds let investors know who he backed without forcing them to make a decision about staying with Tiger under a new leader.

But more recently, Gross found in interviews with senior hedge fund personnel that mega-funds are expected to continue beyond the founder. One unnamed COO told Gross that "there is an expectation we live beyond our founders" today, and not close down just because the founder is ready to retire.

"There are plenty of geniuses on Wall Street, so it shouldn't be hard to go out and hire a replacement," an unnamed hedge fund CFO told Gross.

See more: A bunch of hedge fund managers featured in 'The Big Short' are among the casualties of Citadel's most recent cuts

Wolf said Aberdeen goes into hedge funds "wanting to be invested for a long time."

"We do a lot of due diligence before making an investment, so we want to amortize that time and cost across a long period of time," he said.

Well-known platforms like Point72, Millennium, and Citadel are inherently tied to their billionaire founders, but are made up of hundreds of investment teams and professionals who often operate autonomously. For investors, this structure is viewed as a strength.

"We don't like to see too much of the talent concentrated at the founder level," Wolf said.

Bridgewater's Dalio said that anyone thinking of going down the succession path to should allocate plenty of time. He figured the process would take two years, but gave himself 10, he said on the podcast.

"If you haven't done something three times before successfully, don't bet on your ability to do it," Dalio said. 

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• Ray Dalio, the founder and co-chief investment officer of Bridgewater Associates — the world's largest hedge fund — recently spoke with Business Insider correspondent Richard Feloni on his podcast "This Is Success."
• He revealed to us what's made his overall investment philosophy so successful over the years.
• Dalio also explained how Bridgewater was able to expertly navigate the financial crisis.
• Click here for more BI Prime stories.

When it comes to the world's most elite investors, Ray Dalio's name is near the top of the list.

Starting from scratch, Dalio was able to create the world's largest hedge fund, Bridgewater Associates, through a strict adherence to principles and investment philosophies. With his assets under management having swelled to over $150 billion, Dalio is willing to provide much-needed guidance for investors looking to replicate his process.

In an exclusive interview with Business Insider's podcast "This Is Success," Dalio attributed his investment prowess to how he's historically tackled one simple question: "How do I know I'm not wrong?"

This simple statement completely transformed the way Dalio thought of his prior convictions, and changed his entire approach to decision-making going forward.

"Whatever success I've had in my life has been due more to my knowing how to deal with what I don't know than because of anything I know," he told BI.

Listen to the podcast now: How Ray Dalio, the world's most successful (and mysterious) hedge-fund founder, came back from financial ruin

This straightforward idea helped take Dalio from flat broke in 1982 to the helm of one of the world's most influential hedge funds — a true rags-to-riches story.

When Dalio makes a mistake, he pauses, looks back, and analyzes where he went wrong. "Don't just go forward, reflect" he added. "It's okay to make mistakes, it's not okay not to learn from them."

Strictly adhering to this mantra has attributed immensely to his fortune, while also helping him navigate some of the most turbulent times in market history. When the financial crisis hit, Bridgewater was already positioned to capitalize from the meltdown.

"We did very well in that crisis, where most everybody else lost money in that crisis," he said.

Dalio had been studying big deleveragings of the past — the Great Depression, the Latin American debt crisis, and the Japanese asset bubble — in order to discern how the US economy would react in a similar situation. And when one of his proprietary market gauges started to flash red, Dalio was set to profit.

He focused on what he didn't know — which, in this case, was how the modern US economy would react if a massive delevering took place. In the end, reflecting and learning from history's past mistakes helped Dalio uncover the financial ticking time bomb that was hidden in plain view.

More recently, his wisdom helped Bridgewater post double-digit returns in 2018 — a year when the benchmark S&P 500 was down 6%.

Although Dalio's mantra sounds simple to recreate, investors are notorious for overlooking the risks of what they don't know when financial euphoria starts to set in.

Time will tell when the next market downturn inevitably strikes, but we do know one thing: Dalio will likely be one step ahead.

SEE ALSO: Billionaire investor Howard Marks sounds the alarm on an area of the market that is 'in vogue' — and explains why it resembles the tech bubble

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• Ray Dalio has made the case for investing in gold as central banks devalue currencies.
• The hedge-fund boss predicts a "paradigm shift" in investing.
• Dalio said too many investors have been pushed into stocks and other equity-like assets and are likely to face diminishing returns. 
• View Markets Insider for more stories. 

Ray Dalio has made the case for investing in gold as central banks cut interest rates and pump money into economies, devaluing currencies.

In a Linkedin post, the founder and co-manager of Bridgewater Associates wrote about "paradigm shifts" in investing. He said investors have been pushed to buy stocks and other equity-like assets that are likely to face diminishing returns.

"The world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns," he said. "I think these are unlikely to be good real-returning investments," he added.

More promising investments are those that "do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold," he said.

The price of gold jumped 0.7% on Thursday morning to around $1,423 an ounce.

The Federal Reserve is expected to cut rates in about two weeks' time. Under the new paradigm, Dalio said, investors should change their mindsets about what will work after Wall Street's record bull run.

"In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt," he wrote. "On the other hand, if you're astute enough to understand these shifts, you can navigate them well or at least protect yourself against them."

Dalio added that the financial crisis was the last major "paradigm shift" and pointed to unsustainable growth rates as a root cause. Bridgewater "navigated the crisis well when most investors struggled," he said, because it studied the 1929 crash, enabling it to recognise problems early. 

SEE ALSO: Here's why the Fed may be nervous about the US economy

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• Ray Dalio, the founder and cochief investment officer of Bridgewater Associates — the world's largest hedge fund — expects a paradigm shift to take place in markets in the near future.
• He blames the shift on the zero- and low-yielding debt that investors have become addicted to amid unprecedented monetary stimulus.
• Dalio breaks down why this could be creating a disastrous situation, and he makes alternative recommendations for investors looking to steer clear of such toxic debt.
• Click here for more BI Prime stories.

In a new LinkedIn post, Ray Dalio, the founder and cochief investment officer of Bridgewater Associates, has shared his thoughts on the late-stage US economy and why, in his view, markets are most likely inching closer to a "paradigm shift."

Dalio discussed the typical causes of these monumental movements — and attributed the one he sees coming in the near future to the same historical forces that have upended the economy in the past: unsustainable debt growth.

The instability around debt arises from a culmination of investor overzealousness and extrapolation. In this case, Dalio thinks the flawed idea that borrowing and buying in markets will continue unimpeded unintentionally creates a recipe for disaster.

Then, when incomes don't rise quickly enough to service the liabilities, debtors pay the price and a vicious shift occurs.

Read more: Ray Dalio revealed to us the one key investing strategy he's used to build his $18 billion fortune

"I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won't be able to be funded with assets," Dalio wrote.

He argues that this phenomenon will hasten currency depreciation and monetized fiscal deficits. Dalio says zero- and negative-yielding debt is ultimately ineffective for funding massive government liabilities.

"The enormous amounts of money in no- and low-returning investments won't be nearly enough to fund the liabilities, even though the pile looks like a lot," Dalio wrote. "That is because they don't provide adequate income. In fact, most of them won't provide any income, so they are worthless for that purpose."

Read more: 'A once in a decade': JPMorgan breaks down how to take advantage of the largest bubble in modern history

The chart below conveys the scale and swelling nature of US liabilities:

In consequence, investors have been pushed into riskier assets as the search for real returns becomes desperate. But these trades are quickly becoming crowded and are likely to experience decreasing returns going forward.

"In such a world, storing one's money in cash and bonds will no longer be safe," Dalio said, starkly warning investors of the looming danger.

For these reasons, he thinks the best spots to park cash are in assets "that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold."

SEE ALSO: 'A once in a decade': JPMorgan breaks down how to take advantage of the largest bubble in modern history

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• Ray Dalio is the world's most successful hedge-fund founder. 
• Dalio and Jeff Bezos both agree that intelligence is found in open-minded people, especially those who are genuinely open to revising their opinions.
• But, as Dalio writes, a conversational mannerism that makes it seem like someone is open-minded may actually be a tip-off that they're not. 
• Closed-minded people may say, "I could be wrong, but ... " because it allows them to hold onto their own position while seeming like they're open to others.
• Visit Business Insider's homepage for more stories.

Most of us wish we were smarter. But the best way to get smarter is to be willing to admit your ignorance and your mistakes and learn from them. In short, if you want to be more intelligent, being more open minded is a good place to start. 

Super successful people know this already. Jeff Bezos has observed that the smartest people are constantly revising their opinions and are open to new points of view, ideas, and information that challenge their beliefs. Science agrees with the Amazon boss. The more willing you are to admit you're wrong, the faster you learn and the better decisions you make. 

Spotting true intelligence, then, is largely a matter of spotting those with a truly open mind. How do you do it? 

"I could be wrong but..." 

On LinkedIn, self-made billionaire and hedge fund manager Ray Dalio offered no less than seven surefire tells that someone is open-minded. Many of them, like humility and responding to disagreement with interest rather than anger, are useful, if not incredibly specific or surprising. But one is both super actionable and super surprising. 

This red flag that someone isn't open-minded is something you likely hear in conversation on a daily basis and may have thought was a positive sign about a person's intellect. 

"Closed-minded people say things like, 'I could be wrong but ... here's my opinion,'" asserts Dalio. "This is a classic cue I hear all the time. It's often a perfunctory gesture that allows people to hold their own opinion while convincing themselves that they are being open-minded." 

"I could be wrong but..." sounds like open-mindedness, but if a person were truly more interested in gaining knowledge than in maintaining their own opinion, they wouldn't bother to say it. Instead, they would launch right into questions about the viewpoint or evidence that disagrees with them.  

"If your statement starts with 'I could be wrong,'" insists Dalio, "you should probably follow it with a question and not an assertion."

"The ability to change your mind is a superpower."

This red flag of a less than open mind is a great way to spot whether a potential hire (or date) isn't as intellectually humble as they think they are. But it's also a great yardstick to measure your own openness to new and challenging ideas. I confess that I sometimes say, "I could be wrong but..." and have given myself credit in the past for signaling I'm willing to consider new information. 

But after reflecting on Dalio's words, I can see that most of the times I use this phrase, I'm actually utterly convinced of my own rightness and just looking to appear polite to my conversation partner. I'd be better served to skip the empty pleasantry and actually dig into the reasoning of a person who disagrees with me (There are lots of great tips on how to have a constructive conversation with those with opposing opinions out there.) 

It's a little painful to admit that I might not always be as open-minded as I hope to be, but the payoff of seeing where I'm falling short and correcting my behavior (like all other forms of intellectual humility) is worth the momentary discomfort. 

As Farnam Street blogger Shane Parrish puts it in his thoughtful deep dive into Dalio's book "Principles,""nobody wants to admit to themselves that they're closed-minded. But the advantages of having that courage are massive. The ability to change your mind is a superpower."

SEE ALSO: 'Pain is a great teacher': How Ray Dalio, the world's most successful (and mysterious) hedge-fund founder, came back from financial ruin

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• Ray Dalio, the billionaire investor who founded Bridgewater Associates, is known for his "principles" for work and life.
• He recently developed a new principle on power, compelling people to think about power dynamics when experiencing or observing conflict.
• His analysis of power relates to both interpersonal relationships and international relations, and it is fundamental to his worldview on both.
• Click here for more BI Prime stories.

For the past few years, Bridgewater Associates' founder and cochief investment officer, Ray Dalio, has been winding down the amount of time he spends at his hedge fund and has increasingly spoken on the state of global politics and economics. Living in this headspace has given him a new perspective on power, on both large and small scales.

He's captured this in a new principle, one of the life adages he's been collecting since the 1980s.

It goes like this: "Have power, respect power, and use power wisely."

On its own, the statement is remarkably simple. But taken within the context of a recent LinkedIn post as well as an interview for Business Insider's podcast "This Is Success," the maxim can be applied to something as personal as making a group decision or as global as international conflict. Because while those two situations may seem disparate, the way Dalio sees it, power is operating in each case.

Power on a global level

"A war is the testing of relative powers," Dalio wrote on LinkedIn. "Wars can be all out or they can be confined; in either case they will be whatever is required to determine who gets what. A war will typically establish one side's supremacy so that it will be followed by a peace because nobody wants to fight the clearly more powerful entity until that entity is no longer clearly the most powerful."

This is a distillation of the idea in Yale historian Paul Kennedy's award-winning 1987 history, "The Rise and Fall of the Great Powers," the book Dalio told us was the favorite one he'd read in the past year. In it, Kennedy argues that every world power since 1500 has been defined by economic hegemony that fell when that nation-state became overstretched by its military presence and spending, which was accompanied by a lack of investment in other aspects of society, contributing to an overall decline.

Dalio said he saw the tension between the United States and China as the natural result of China's rising influence in the world, and he's wary of negative results that can come from this shifting power dynamic. As he said in his post, conflicts, which have the potential to escalate to wars, arise when one side is no longer clearly more powerful than another.

Power at play when making work-related decisions

Dalio's famous "radical transparency" approach emphasizes honesty about work-related issues among colleagues, to a degree that would be uncomfortable at most companies. This technique — in which employees rate one another's performance in real time using iPad apps, and where almost all meetings are recorded either for future reference or for group-lesson material — is intended to keep power in check at Bridgewater.

In his post, Dalio wrote that while he could make decisions at his mutual fund "autocratically," he choose to not use those powers, instead opting for an "idea-meritocracy." With everyone's strengths and weaknesses laid out for all to see, you don't have to appease people for the sake of politics. Instead of just asserting authority from the top, Bridgewater is set up to reward ideas.

For example, Bridgewater employs a "believability-weighted decision making" practice, in which team members' experience and talents expand or shrink the influence of their vote when deciding something in a meeting. Similarly, any level of employee can criticize any of their bosses without fear of retribution.

These systems all help the best ideas — coming from the actual subject-matter experts — sway decisions, rather than simply the most powerful person in the room.

The fundamentals are the same

While Dalio's thoughts on power alternate between the micro and macro levels, with very different implications, both are based upon the same general understanding of how power works.

"Power is usually best handled like a hidden knife that can be brought out in the event of a fight," he wrote. "But there are some times when push comes to shove that showing one's power and threatening to use it is most effective in improving one's negotiating position and preventing a fight."

Whether there are conflicts between colleagues or nations, Dalio believes that the victor will be the side that best understands how its power will shift over time. "It is desirable to use one's power to negotiate an agreement, enforce an agreement, or fight a war when one's power is greatest," he observes. "That means that it pays to fight early if one's relative power is declining and fight later if it's rising."

You can listen to the full "This Is Success" episode on Apple Podcasts or Stitcher, or find it below:

SEE ALSO: Ray Dalio revealed to us the one key investing strategy he's used to build his $18 billion fortune

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NOW WATCH: Most hurricanes that hit the US come from the same exact spot in the world

• Ray Dalio has advised investors to bet on China or risk missing out on their piece of the next global empire.
• "Would you have not wanted to have invested in the industrial revolution and the British Empire?" the hedge fund manager asked in an interview on YouTube.
• Dalio sees China as a competitor to the US and recommends investors have "bets on both horses in the race."
• However, he warned the US-China trade war could spread to a capital or embargo war or escalate even further, which would make him bearish on both countries.
• View Markets Insider's homepage for more stories.

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Ray Dalio has advised investors to bet on China or risk missing out on their piece of the next global empire, days after the Trump administration officially labeled the world's second-largest economy a "currency manipulator" and announced tariffs on virtually all Chinese goods.

"Would you not have wanted to invest with the Dutch in the Dutch empire?" asked the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund, in an interview on YouTube. "Would you have not wanted to have invested in the industrial revolution and the British Empire? Would you have not wanted to have invested in the United States?" 

'I think [China is] comparable," Dalio said, highlighting the four-fold growth in Chinese equity markets and the seven-fold growth in its bond markets over the past decade. He views China as a competitor to the US and recommends investors play both sides. "You want to be, if you're diversified, having bets on both horses in the race."

However, the recent escalation in the yearlong US-China trade dispute has given him pause. "Unfortunately the war with China is spreading," he wrote in a LinkedIn post.

"Yesterday it spread to a currency war that will affect all currencies. It could spread to a capital war and/or an embargo war. In a worst case, it could go beyond that. We need to watch it closely."

Dalio pointed to the ultimate scale of the two countries' trade squabble as a key determinant of his investing stance.

"If there's no big war, I'm bullish on China, and if there's a big war, I'm bearish on both the US and China," he said.

Dalio also flagged "three big forces" for investors to watch: the point where there's an economic downturn and central banks can't cut interest rates further and their asset purchases cease being effective, when rising inequality sparks "extreme" conflicts between the rich and poor, and the battle for global dominion between the rising power of China and the incumbent world power, the US.

SEE ALSO: Ray Dalio warns the US-China trade war may be evolving as signs mount of a 'major escalation'

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NOW WATCH: Most hurricanes that hit the US come from the same exact spot in the world

• Ray Dalio, the founder and cochief investment officer of Bridgewater Associates — the world's largest hedge fund — recently made his case for an investment in China, despite its strained relationship with the US.
• He cites China's ability to deal with slowdowns through coordinated monetary and fiscal policies and also points to the explosive growth in the country's public and private markets.
• Click here for more BI Prime stories.

The US's relationship with China isn't exactly all rainbows and sunshine right now. In fact, it's the opposite.

In what seems like a never-ending trade war, the world's two largest economies have continually attacked each other with tit-for-tat provocations, leading to escalating tensions and roiled financial markets.

And though there are many investors who wouldn't touch a Chinese investment with a 10-foot pole in today's environment, one prominent hedge-fund billionaire thinks investors are missing a huge opportunity.

That would be Ray Dalio, the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund. And he's all in on China.

"Look at the growth in the markets — over the last 10 years the stock markets in China has increased market capitalization by a factor of four," Dalio said in a recent Bridgewater Associates video cast. "The bond markets — combining both the government and the corporate bond markets — have increased by a factor of seven. And they're each the second-largest markets in the world."

The graph below provides a visualization of the explosive growth in Chinese assets and the ballooning amount of foreign investment piling into the country.

According to Dalio, this rapid pace of growth — combined with coordinated monetary and fiscal policies — sets the stage for a prosperous future in China. He says investors wary of dipping their toes into the Chinese market should instead be fearful of missing out on such a big opportunity.

"The Chinese have more ability to deal with monetary and fiscal policy relative to the US," he said. "They have a lot more room to be managing those things — and they are managing those things."

In short, China can fine-tune economic stimulus packages in a coordinated effort. In doing so, it's able to step in at the first signs of weakness with limited red tape to navigate, which makes for fast and effective problem-solving. As a result, growth is prolonged and economic output remains high.

For context, China's second-quarter gross domestic product grew at 6.2% — almost three times as fast as the US.

"Going where the growth is, and also having the diversification is a smart thing to do," he said.

Dalio's timing could hardly be more controversial. On Monday, US equities plummeted by the most in 2019 after China's central bank allowed the country's currency, the yuan, to fall below a crucial threshold. That stoked fears of another harrowing chapter of the US-China trade war.

But Dalio isn't fazed.

"People say, 'Why are you so bullish on China?' And I know it's very controversial — particularly at this time — to be very bullish on China," he said. "I really admire what is being done, and I want to be a part of it — and I think our investors should be a part of it."

To further his point, Dalio points to China's explosive growth in technology, saying that "they're running fast to be number one in those industries."

The above categories are seen as transformative industries in which investors should be clamoring for positions.

For these reasons, Dalio thinks China will continue to reward those who are willing to put their hard-earned capital to work within its borders.

"Not investing in China is very risky," he concluded.

For investors looking for broad Chinese exposure, there are two large, highly liquid exchange-traded fund that fit the bill:

• iShares MSCI China ETF (MCHI)— $3.7 billion market cap, up 3.0% year-to-date
• iShares China Large-Cap ETF (FXI)— $4.6 billion market cap, down 1.1% YTD

SEE ALSO: Ray Dalio just unloaded on 'worthless' debt investments he sees headed for disaster — and revealed where you should put your money instead

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NOW WATCH: Most hurricanes that hit the US come from the same exact spot in the world

• Ray Dalio is the co-CIO and chairman of Bridgewater Associates, the world's largest hedge fund.
• He's a voracious reader, disclosing book recommendations for everyone from recent college graduates to people trying to understand the world.
• Here's a list of the 15 books Dalio has recommended throughout the years.
• Click here for more BI Prime stories.

The billionaire investor Ray Dalio is known for his "principles" on everything from power dynamics to running an office with radical transparency. He recently published a best-selling book, "Principles: Life and Work," which elaborates on what he's learned in a career that's now spanned more than 40 years.

Dalio draws inspiration from more than just his own ruminations. He's fond of reading and scouring through interviews — and even the pages of "Principles" yield a number of book recommendations from Dalio himself.

Whether you're a college student trying to figure out your next steps or an experienced investor looking for a career boost, you're sure to glean meaning from the following 15 book recommendations from Ray Dalio.

SEE ALSO: How Ray Dalio's unique understanding of power can be used in everything from group decisions to trade wars

“The Rise and Fall of the Great Powers” by Paul Kennedy

In a July 2019 interview with Business Insider, Dalio called this book the best thing he'd read in the past year. The book tracks the arc of world powers since 1500. Dalio is of the opinion that the US is in a position of decline while China is on the rise. He found this book the most interesting out of the many he read to understand where we are in history.

"That dynamic has happened many, many times in history," he said, "and understanding that well, I think is very important."

Find it here »

“The Hero with a Thousand Faces” by Joseph Campbell

Campbell melds psychology with mythology in this book that outlines the phases of a hero's journey. 

Dalio's son Paul gave him this book in 2014, and he immediately identified with it. He used Campbell's roadmap of a hero's journey to understand where he is along that path, and what he should do next. 

Dalio even writes in "Principles" that he gave this book to China's vice president Wang Qishan"because he is a classic hero."

Find it here »

"The Lessons of History” by Will and Ariel Durant

This is another book that Dalio gave Qishan, and he describes it in "Principles" as "a 104-page distillation of the major forces through history." The book was published in 1968 by a Pulitzer Prize-winning husband-and-wife duo that studied thousands of years of Western history.

This work tracks the cycles of history, and Dalio writes that it shows "how the same things happened over and over again throughout history."

Find it here »

“An Unquiet Mind” by Kay Redfield Jamison

Dalio's son Paul struggled to manage his bipolar disorder for three years, and his worried father soon realized it was no fault of Paul's: It was simply the way his brain chemistry worked. Dalio's experience taught him that many mental differences are physiological.

"The experience not only taught me a lot about how brains work but why creative genius often exists at the edge of insanity," Dalio writes in "Principles." He then lists creative, productive people who have bipolar disorder, including Kay Jamison, the author of this book.

Jamison "has written frankly about her own experiences with the disease in her book 'An Unquiet Mind,'" Dalio writes.

Find it here »

“River Out of Eden” by Richard Dawkins

Dalio gave Qishan this book as well. It describes how evolution works, and as Dalio told Tim Ferriss on an episode of Ferriss' podcast, he thinks evolution is "the greatest force in the universe."

"I think the purpose of everything is to evolve,"he said. "I think individuals are just vessels for our DNA evolving."

Find it here »

“Originals: How Non-Conformists Move the World” by Adam Grant

Adam Grant of the Wharton School has written extensively about Bridgewater, and the unique way Dalio runs it. Dalio writes that this was necessary because the way he operated "was so unusual." Grant was one of a number of behavioral psychologists who came to Bridgewater to evaluate their operational style.

Dalio urges people to read their evaluations, which he describes as "overwhelmingly favorable."

Find it here »

“Thinking, Fast and Slow” by Daniel Kahneman

This New York Times best-seller was written by a Nobel Prize winner in economics, and is helpful in understanding the way people think. Kahneman draws upon psychological research to show when we can and can't trust intuition, and how we can make the best choices professionally and personally.

The book won the National Academy of Sciences Best Book Award and the Los Angeles Times Book Prize. 

Find it here »

“Beyond Religion: Ethics for a Whole World” by the Dalai Lama

Dalio had a conversation with the Dalai Lama in which they discussed the overlap between spirituality and religion. 

"His view was that prayer and meditation seemed to have similar effects on the brain in producing feelings of spirituality (the rising above oneself to feel a greater connection to the whole)," Dalio writes, "but that each religion adds its own different superstitions on top of that common feeling of spirituality."

Find it here »

“Welcome to Your Brain: Why You Lose Your Car Keys but Never Forget How to Drive and Other Puzzles of Everyday Life” by Sam Wang and Sandra Aamodt

This is the first book listed in Dalio's bibliography in "Principles" and in it, neurologists Sandra Aamodt and Sam Wang outline the truth about our minds. They address common questions we've probably all thought of, like "Can a head injury make us forget our own names?" and dispel myths, like the idea that we only use 10% of our brains.

Find it here »

“Einstein's Mistakes: The Human Failings of Genius” by Hans C. Ohanian

Dalio read this book in 2011, and it offers an analysis of Albert Einstein's failures. 

The pitfall with genius, according to Ohanian, is that people gifted with it naturally have a more difficult time believing or accepting that they're wrong. They become blind to their mistakes, and if they are stubborn, cling to a mistake forever without correcting it.

Find it here »

“Leadership the Outward Bound Way: Becoming a Better Leader in the Workplace, in the Wilderness, and in Your Community”

Dalio practiced different leadership strategies before choosing "radical transparency" for Bridgewater. This book communicates the leadership principles at Outward Bound USA to a larger audience through real-life events, case studies, and key principles current or future leaders can take away. 

Find it here »

“My Stroke of Insight: A Brain Scientist's Personal Journey” by Jill Taylor

This New York Times best-seller was within the bibliography of "Principles" and with good reason: It describes how a brain scientist's stroke led to enlightenment. It took the author eight years to fully recover, but she considers the stroke a blessing. 

Find it here »

“The Undoing Project: A Friendship That Changed Our Minds” by Michael Lewis

Lewis delves into the partnership between Daniel Kahneman and Amos Tversky, who were pioneers in the field of behavioral economics.

The friendship between Kahneman and Tversky revolutionized science, and Lewis explores it in this 369-page volume.

Find it here »

“Why We Believe in God(s): A Concise Guide to the Science of Faith” by J. Anderson Thomson

This is another book referred to in Dalio's "Principles," and it aligns with his exploration of belief and its link to physiology. Thomson investigates belief as a natural effect of human physiology and presents the idea that gods were created by man.

Find it here »

“The Upside of Inequality: How Good Intentions Undermine the Middle Class” by Edward Conard

Dalio has voiced his concern about the state of America, and said that inequality is an urgent problem. According to Dalio, inequality should be treated as a "national emergency," and this book explores the nuances of inequality as it relates to the middle class.

Find it here »

• Ray Dalio — the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund — thinks "diversifying well is the most important thing you need to do in order to invest well."
• He develops his thesis around a focus on the unknown and the return-to-risk ratio.
• Dalio provides 10 eye-opening charts that show the power of diversification compared to an array of other assets and sectors.
• Click here for more BI Prime stories.

Chances are you've heard the old "don't put all your eggs in one basket" adage a few hundred times by now.

But when a self-made billionaire investor offers an unsolicited take on the matter, it's best that a market participant leans in with intention.

That billionaire investor is Ray Dalio, founder and cochief investment officer of Bridgewater Associates. And he's touting diversification as "the most important thing" an investor can embrace.

"Diversifying well is the most important thing you need to do in order to invest well," Dalio stated in a recent LinkedIn post, echoing one of his most fundamental investment principles. 

He backs up his thesis with two main arguments: (1) the unknown is much greater than the known, and (2) diversification can boost your return-to-risk ratio more than anything else.

First, let's tackle the unknown.

"Just as it's pretty easy to pick good horses that will likely outperform bad ones at the racetrack, it's pretty easy to pick good companies that will likely do better than poor ones in a market," he stated. "The hard part is converting this knowledge into winning bets because of how the payoffs reflect what is known."

This is an interesting analogy, but one that is definitely apropos. 

The stock market is a discounting mechanism. That means that all available information, both present and future, is incorporated into it's value. It rapidly adjusts to changing circumstances, just like the betting at a racetrack. The market is discounting and pricing in different unknowns perpetually.

Dalio sums up this idea perfectly:

"All investments compete with each other, a lot of smart investors are trying to pick the winners (which changes the pricing that determines what you will win relative to what you will lose in various outcomes) and the uncertainties of what will transpire are large relative to what is 'discounted' or 'priced in," he stated.

Dalio added: "This means that there are no easy good or bad bets in the markets, and that one's starting point should be that all investments are roughly equally good."

In short, the unknowns that are currently "priced in" are most likely going to be much different than what actually transpires.

Next, the return-to-risk ratio.

"Diversification can improve your expected return-risk ratio by more than anything else you can do," he stated. "Diversifying well is a matter of knowing how to reduce your expected risk by more than you reduce your expected return."

The return-to-risk ratio aims to quantify the amount of pain an investor can endure for potential gains. For context, a simple demonstration would be an investor that's willing to lose 10% in order to gain 30%, which equates to a return-to-risk ratio of 3. A result less than 1 means you're willing to risk more than you're forecasted to gain — not a smart idea.

However, it's impossible to accurately predict the future performance of an asset over time. It doesn't matter how many models, regressions, or ratios you run. This notion is not feasible. That's why Dalio wants you to reduce your risk diversifying.

"While you can't know which of the items you are betting on will provide better results, you do know that they will behave differently, and by mixing them appropriately you can reduce risk."

Simply put, Dalio wants you to stack the deck in your favor. Investing is all about probabilities. 

Spreading bets (responsibly) throughout the market helps to smooth out performance, and lessen the impacts of wild swings. Lessened risk translates into an improved ratio, and if you can avoid large losses, you won't consistently be fighting an uphill battle.

Against that backdrop, Dalio provides 10 charts that depict exactly why diversification is the most important thing investors need to do.

SEE ALSO: 'Not investing in China is very risky': Billionaire investor Ray Dalio explains why he's still all in despite recent trade-war fireworks

Diversification across US & global asset classes

These graphs incorporate US equities, US bonds, US credit, US IL bonds, global IL bonds, global bonds, global DM equities, global EM equities, and gold.

In the leftmost graph, the dark black line shows an equal weighted (re-balanced monthly) portfolio's performance versus that of individual asset classes. The black line portfolio trounces the majority of individual asset classes, and participates in less of the pain.

In the graph on the right, it's clear that a well diversified portfolio mitigated drawdowns, and was able to outperform the individual asset classes.

There's no magic here. Just math.

Diversification across countries

These graphs include stocks from the US, Great Britain, Germany, France, Spain, Italy, Japan, Canada, Australia, and China.

In the graph on the left, the same holds true for the rolling 10-year ratio for different countries. Higher ratios, and less pain felt during hard times.

On the right, drawdowns are far less severe. Remember, large losses are not offset by large gains. A 50% loss, requires a 100% gain to get back to even.

Diversification across bonds

These graphs include bonds from the US, Great Britain, Germany, France, Spain, Italy, Japan, Canada, Australia, and China.

We continue to see the same narrative play out in the leftmost graph.

On the right, a well-diversified bond portfolio overtly suppresses drawdowns. This graph depicts just how risky individual bond holdings can be. Idiosyncratic risk can upend returns.

Diversification across US equity sectors

The graphs above encompass 43 US equity sectors. All are relevant to the US stock market.

The story remains the same in the leftmost graph. Across US equity sectors, volatility is mitigated. Think about how much differently different sectors perform. Imagine if you were just in one. You'd be extremely exposed. 

Once again, on the right, the same holds true. Lesser drawdowns thanks to spreading risk across multiple sectors. Not all sectors react the same to developments in the economy.

Diversification across US equity styles

The graphs above incorporate small cap, mid cap, growth, value, quality, momentum, and REITs — common US equity styles.

Again, the leftmost graph once shows similar returns with demonstrably less volatility. 

Look towards the right, diversified equity styles were able to alleviate the pressure from wild market drawdowns. These styles are designed to perform differently. So it's expected that their returns would deviate largely.

• Ray Dalio, the billionaire investor and founder of Bridgewater Associates, has experienced failure, like when he made a prediction about the US economy that didn't come true.
• Joseph Campbell's "The Hero With a Thousand Faces" helped him understand how failures affect a hero's journey, or the common path that Campbell found between myths of different cultures.
• The book, published in 1949, establishes the notion of a hero's journey, a mythological archetype that can be applied to the paths of more modern heroes and the personal development of just about anyone.
• Dalio's son, Paul Dalio, recommended the book to him in 2014, and Dalio found it useful to identify where he is along the journey, and where he's headed.
• Click here for more BI Prime stories.

Ray Dalio says he wants to help people more than he wants his own success.

"I've evolved to the stage where to have others successful without me being successful is the most beautiful thing I can do," Dalio recently said in an interview with Business Insider.

The Bridgewater Associates founder and co-CIO now says he's transitioning to the final stage of his "hero's journey," a concept outlined in "The Hero With a Thousand Faces," a book Dalio's son Paul recommended to him in 2014. The book was written by the comparative mythologist Joseph Campbell in 1949, and it's influenced popular culture ever since.

According to Campbell, the journey begins with accepting a call to action, going through trials and explorations into the unknown, and then bringing back the wisdom gained from those adventures to the community. He uncovered this "monomyth" through studying the folklore and cosmology of religions and cultures the world over. For Dalio, that final stage is marked by sharing the knowledge, or "principles," he's obtained through his journey.

Campbell's work has led to lasting influence: Master storytellers like George Lucas of "Star Wars" and J. K. Rowling of "Harry Potter" follow the path of the hero's journey in their respective epics, leaving different impressions within the common cultural footprints that Campbell illuminated. Lucas deliberately wrote "Star Wars" so that Luke Skywalker followed the steps of a hero's journey, from crossing into the extraordinary world to surviving a culminating ordeal. In "Harry Potter," the hero's journey plays out progressively over seven books, resulting in a final battle, but each book also cycles through the journey on a micro scale. You can see the same structure underlying the voyage of the titular princess of Moana, who has to heed the call to adventure and go out past the reef.

The hero's journey applies along professional and personal paths. If you're at a personal low, whether on an external level in terms of professional or financial success or on an internal level in terms of depression, the journey of other heroes, through myth or modernity, can help you understand what rewards or insights could be on the other side.

"Look, pain is a great teacher," Dalio said. "You go forward toward your goals."

Heroes generally take the same path, but the way they respond to deep failure determines if they stay on that path

In "The Hero With a Thousand Faces," Campbell outlined the following path: A hero, usually the focal point of the story, starts off heeding a call to adventure, eventually crossing the threshold into a path of surmountable failure, and, after those many trials, elevating successes.

Then, one failure comes along that the hero could view as his or her end. That low point is life-altering. At that pivotal moment, the potential hero will either have a metamorphosis — that is, a rebirth after appearing to have been swallowed by the unknown — or they won't.

For Campbell, a hero is someone who goes beyond common knowledge and everyday society (what he calls "interpreted experience") and into the wilds of new things (what he calls "uninterpreted experience"). As he told the journalist Bill Moyers:

[Heroes have] moved out of the society that would have protected them, and into the dark forest, into the world of fire, of original experience. Original experience has not been interpreted for you, and so you've got to work out your life for yourself.

Either you can take it or you can't. You don't have to go far off the interpreted path to find yourself in very difficult situations. The courage to face the trials and to bring a whole new body of possibilities into the field of interpreted experience for other people to experience, that is the hero's deed.

The key here is the journey into the dark forest, the land of fire, the underworld, the belly of the whale — these images from world literature and art that denote delving into the unknown and dangerous. It can be distinctly modern, as it was for Dalio in his moment of profound yet transformative failure.

In 1982, he made a prediction for the US economy that didn't pan out, that the US economy was headed for a massive downturn, when in fact it would roar through much of the decade. This cost him credibility and capital for his then seven-year-old firm. "As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go," Dalio told Business Insider, "and I was so broke I had to borrow $4,000 from my dad to help pay for family bills."

Dalio completely changed his approach to life after his failure. His mindset changed from "I know xyz" to "How do I know xyz?"

"It gave me an open-mindedness," he said. "It gave me a fear that balanced with my aggressiveness."

He started collecting principles on work, investing, and life that he later shared with the world. Dalio's arrogance initially cost him a fortune, but the way his mindset changed enabled him to build Bridgewater to what it is today, the largest hedge fund.

"You succeed and fail, but you really learn from your failures because they're the painful experiences," Dalio said, "and if you can reflect on them, you change."

A metamorphosis after failure means a hero's mindset changes

Campbell wrote that a hero is tasked with returning from the abyss to ordinary life, "there to serve as a human transformer." After the metamorphosis, the hero is irreversibly changed. He had to be audacious at the start of his journey as he faced obstacles he could overcome, but the "belly of the whale" failure tempers his ambition with the remembered pain of failure that wasn't easily conquered.

The abyss is the midpoint of this personal cycle. Strangely enough, Campbell wrote that the deeper the hero falls, the higher he'll rise in the second part of the cycle: "The deeds of the hero in the second part of his personal cycle will be proportionate to the depth of his descent during the first."

Dalio's groundbreaking knowledge lies in the success he's built with Bridgewater that others seek to replicate, whether it be culturally or financially. The last stage, which Dalio says he's entering, involves returning the boon of his knowledge.

At this final stage, heroes derive more fulfillment from teaching others what they've learned than they do from winning more prizes for themselves. Indeed, watching others achieve success from the stands is now Dalio's "greatest joy."

"My concept of success is having others successful without me," Dalio said. "My concept of success before was being successful myself."

SEE ALSO: 15 books billionaire Ray Dalio says you should read to understand today's world — and have a fulfilling life

Join the conversation about this story »

NOW WATCH: Serena Williams and Alexis Ohanian have a combined net worth of $189 million. Here's how they make and spend their money.

• Ray Dalio, the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund, says central banks' ability to reverse an economic debacle is "coming to an end."
• He outlines the possible routes the Federal Reserve could take to combat a recession, and then explains how these options will most likely be ineffective. 
• Click here for more BI Prime stories. 

Few things can conjure up a panic among investors quite like a recession.

Stocks plummet, jobs disappear, spending dries up, and the subsequent anxiety that permeates through markets is powerful enough to cripple even the most optimistic of forecasts.

When the unwinding takes place, investors look towards the Federal Reserve — their knight in shining armor — in order to stop the panic. After all, in the past, central banks have been able to quell the markets' nerves through conventional means.

But Ray Dalio, the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund, thinks that central banks' ability to reverse an economic downturn "is coming to an end."

Dalio details how the effectiveness of monetary policy in today's economic environment will likely be null in a new LinkedIn post.

He labels the different approaches Monetary Policy 1-3. Here are his words:

• "Monetary Policy 1 (i.e., the ability to lower interest rates) doesn't work effectively because interest rates get so low that lowering them enough to stimulate growth doesn't work well,
• Monetary Policy 2 (i.e., printing money and buying financial assets) doesn't work well because that doesn't produce adequate credit in the real economy (as distinct from credit growth to leverage up investment assets), so there is "pushing on a string." That creates the need for…
• Monetary Policy 3 (large budget deficits and monetizing of them) which is problematic especially in this highly politicized and undisciplined environment."

Put briefly, an already low interest rate environment, coupled with lackluster real credit growth and a gridlocked political environment, essentially ties the Fed's hands — an important lifeline in a time of crisis.

We're seeing a similar scenario play out in real time over in Europe. The European Central Bank has continuously slashed rates and provided stimulus, but to no avail — and its effectiveness is lessened by the day. GDP growth in the Eurozone has been paltry at best, and some countries are even experiencing contractions.

In addition to non-effective monetary policy, Dalio thinks the implementation of fiscal policy will most likely fall prey to political intervention.

"Fiscal policy, which changes taxes and spending in politically motivated ways, can also be changed to be more stimulative or less stimulative in response to what is needed but that happens in lagging and highly inefficient ways," he added.

With an ever-burgeoning budget deficit, it seems increasingly unlikely that the US government will continue to approve increased spending. And even if they do, it's unlikely that it will be executed in a timely, effective manner.

Against that backdrop, Dalio fears that the US' current situation starkly resembles one of the past: a 10-year period which saw an end of a debt cycle (both long and short-term), growing wealth inequality, political conflict, and eventually the rise of a new world power.

"To understand the current period, I recommend that you understand the workings of the 1935-45 period closely, which is the last time similar forces were at work to produce a similar dynamic," he concluded. "Please understand that I'm not saying that the past is prologue in an identical way. What I am saying that the basic cause/effect relationships are analogous."

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• Ray Dalio's primary hedge fund shed 6% of its value this year as of August 23, according to a new report from Bloomberg. 
• Dalio's Pure Alpha fund, which invests in macroeconomic trends, took significant losses from bearish bets on global interest rates. 
• While Dalio's funds are struggling, other macro managers are capitalizing on investment opportunities sprouting from geopolitical uncertainties.
• Visit the Markets Insider homepage for more stories. 

One of Ray Dalio's main hedge funds is struggling this year. 

The Bridgewater Associates founder's Pure Alpha fund lost 6% of its value through August 23, according to a new report from Bloomberg. 

The fund invests based on macroeconomic trends and has experienced losses from bearish bets on global interest rates, Bloomberg reported, citing a person familiar with the matter. An offshoot of the flagship fund, dubbed Pure Alpha II, invests with higher leverage and had lost about 9% of its value as of August 23. 

While Dalio's macro funds appear to be struggling, competing firms are capitalizing on opportunities stemming from geopolitical uncertainties. According to data from Bloomberg, macro funds have risen 4.7% this year through July. 

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Bridgewater's Pure Alpha Major Markets fund has seen even bigger losses this year, falling about 18% through August 23. The All Weather Fund, which invests about half of the firm's capital in wide range of stocks, bonds, and currencies to buffer against volatile markets, is up about 12.5% this year, according to Bloomberg. 

Dalio said in a recent LinkedIn post that he's concerned monetary policy might be ineffective in preventing the next recession because interest rates are already so low. 

Bridgewater Associates is the world's largest hedge fund with around $160 billion in assets. 

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The hedge-fund billionaire Ray Dalio seems to be enjoying semi-retirement — and living it up at the famous Burning Man festival, which recently wrapped up.

While some billionaires don't mind the occasional outlandish outfit — think Richard Branson cross-dressing or Jeff Bezos doing his best Dwayne Johnson impression — Dalio usually sticks to a blue or gray suit, sometimes without a tie. But the Bridgewater Associates founder decided to go all out for his trip to Burning Man, the annual nine-day music and arts festival in Nevada's Black Rock Desert.

On Monday, Dalio tweeted a photo of himself at Burning Man sporting tie-dye from head to toe: bell-bottoms, a shirt, and a coat with blue fur fringe.

In the tweet, Dalio, 70, said Burning Man was like Woodstock but "with better art (installations) and less good music." Dalio also noted that the best time to enjoy the festivities was between 1 and 5 a.m.

Dalio is pictured with Jeff Taylor, a senior executive at Bridgewater Associates who founded the job site Monster.

Burning Man was a small gathering when it was founded in 1986 and now attracts about 70,000 people each year. But ultra-wealthy people like Dalio have been criticized for attending the counterculture festival. Dalio's tweet, for example, was met with criticism and trolling from Twitter users. One tweet said that because of the rich and famous attending, Burning Man's "allure has been completely fabricated."

Dalio may not be known for his fashion sense, but he is known for his unusual management style. Since founding his hedge fund, Bridgewater Associates, in 1975, Dalio has used what he calls "radical transparency" to run his company. At Bridgewater, almost all meetings are recorded, and employees can rate one another during meetings using iPads.

He's credited those management techniques with helping transform Bridgewater from a one-man operation to a hedge fund with $150 billion in assets under management.

In recent years, however, Dalio has taken a step back from management, now serving as the hedge fund's co-chief investment officer. And as Dalio's tweet shows, he's enjoying his free time.

Dalio's fur coat may look garish in the real world, but at Burning Man he would have fit in perfectly. Part of the reason the festival is so popular is that attendees can wear anything they want. Burners, as they're known, wear everything from feathers and wigs to bikinis. In many cases, clothing is optional.

Burning Man isn't the only time Dalio has dressed up (or down) for a party. In 1976, he wore short shorts to Rio de Janeiro's Carnival.

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• The billionaire Ray Dalio — the founder of Bridgewater Associates, the world's largest hedge fund — told Bloomberg he sees a 25% chance of recession in 2019 and through 2020.
• He cited the effectiveness of central-bank policies, the wealth gap, the 2020 US elections, and the economic emergence of China as key factors in deciding the intensity of the next economic downturn.
• The Bridgewater founder also warned the Fed should slowly cut rates by small increments.
• Visit the Markets Insider homepage for more stories.

Ray Dalio told Bloomberg he sees a 25% chance of economic recession in the rest of the year and through 2020, and that central banks can only do so much to avert it.

Dalio — who founded Bridgewater Associates, the world's largest hedge fund — listed four separate factors that he believes will affect the severity of the next economic downturn. The combined variables are "unique" and haven't existed since the 1930s, Dalio said on "The David Rubenstein Show."

The factors are:

• Effectiveness of central-bank policies
• The wealth gap, which will affect how the next recession will look "socially, politically, and so on"
• The 2020 elections, which he called "an issue between capitalists and socialists, or the rich and the poor"
• The emergence of China in relation to the US

The billionaire added that central banks around the world "have to face the fact that when the next downturn comes there will not be the power to reverse it in the same way" they recovered from the 2008 financial crisis. He recommended the Fed cut interest rates slowly and by small increments instead of rushing to invigorate the US economy.

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The Fed cut interest rates for the first time since the financial crisis on July 31, with Fed Chairman Jerome Powell calling the move a "mid-cycle adjustment."

Though President Trump has repeatedly pushed for large rate cuts, he's likely to be disappointed by the Federal Open Market Committee's September 18 meeting. The national economy is "relatively strong," and rapidly cutting the interest rate could be costly in the future, Boston Fed President Eric Rosengren told The Washington Post on Tuesday.

"You don't want to apply accommodation at a time when you don't need it, in part because you won't have it when you do need it and in part because there are side effects from pushing interest rates very low. It encourages people to take more risk," Rosengren said. 

Bridgewater's main hedge fund — Pure Alpha — is reportedly down about 6% as of August 23, despite other macro-focused funds rising through 2019. Bridgewater has about $160 billion in managed assets.

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