Ray Dalio doesn't think Bridgewater is responsible for the stock market chaos that broke out last month.

On Wednesday, the Financial Times' Robin Wigglesworth reported that according to a new paper out from Bridgewater — the world's largest hedge fund — Dalio doesn't think the so-called risk parity strategies popularized by the firm were responsible for the increased volatility seen last month.

Risk parity strategies allocate assets based on volatility, and so what Leon Cooperman, among others, argued is that as volatility increased in late August, these funds began selling with increased intensity.

This effect then cascaded through markets, and as asset correlations increased — meaning things like stocks and bonds, which often trade in opposite directions, began to fall at the same time — these strategies underperformed.

In other words, the selling created more selling, and all of this happened faster than would have otherwise happened. And, considering that about a month on from the most intense selling there is still no clear explanation for why the Dow fell 1,000 in minutes and the benchmark S&P 500 fell 10% in just a few trading days, to many this idea seems as good as any.

In August, Bridgewater's "All Weather" fund lost 4.6% while the firm's flagship fund lost 6.9%, according to Reuters.

But in Bridgewater's latest paper, Dalio argued that the size of funds employing something like a "risk parity" strategy is much smaller than people think. Dalio also wrote that allocations are not adjusted due to swings in volatility, and therefore could not have created the market impact others contended these strategies did.

Basically, Dalio doesn't think Bridgewater's funds, or the strategies they and others employ, are at fault.

"Relative to the size of global asset markets, the amount of money being managed and moved around through risk parity is a drop in the bucket," the report said.

Dalio is set to speak with Bloomberg's Tom Keene this evening for a one-hour interview, and we'd expect him to discuss this at further length.

As an example of increasing correlations, this chart from Morgan Stanley showed how global stock correlations spiked last month, meaning things like emerging-market and US stocks — which, again, most investors expect to move in different directions as they are exposed to different risks — both fell.

SEE ALSO: The bond market is ready

Join the conversation about this story »

NOW WATCH: This could be the storm system California's been waiting for

It's no secret that investing magnate Ray Dalio is a big proponent of meditation — after all, he once said it made him feel like a "ninja in a fight."

But you've probably never seen him chatting about it with critically acclaimed film director Martin Scorcese, who has been practicing Transcendental Meditation since 2008. 

The two legends spoke with the executive director of the David Lynch Foundation, Bob Roth, during a private fundraising event back in January, about how transcendental meditation keeps them grounded in their respective fast-paced industries.

"I meditate 20 minutes a day unless I've got a busy day," said the founder of $169 billion Bridewater Associates, Dalio. "Then I meditate 40 minutes."

"I started in 1968 or 69', and it changed my life. I was a very ordinary — sub-ordinary student," Dalio said. At the time, he was studying at Long Island University. "It brought me a clarity, it made me independent, it made me free flowing, it just gave me lots of gifts."

Now Dalio, worth about $15 billion, runs the largest hedge fund in the world.

Scorcese, who is known for many films including the 2013 black comedy "The Wolf of Wall Street," said he practiced transcendental meditation daily — twice a day if possible.

It helped him through the harrowing production of his first 3-D picture, the 2011 children's film, "Hugo." 

"In the morning I would get up 45 minutes earlier to do meditiation before I was able to face that set, with children actors that can only work for like for a minute, a dog that wasn't listening, and Sacha Baron Cohen was improvising everything, and everything in 3-D — and over schedule and over budget!" Scorcese said. "So, God, there's only one thing you can do, is calm it down. Get into it, and deal with the realities."

When he had an unsolvable problem, Scorcese would sit down and meditate.

"And somehow something came out," Scorcese said. "And I was like goddamnit."

"That's it," said Dalio. "That's exactly what it's like."

Check out a clip of the interview here.

Join the conversation about this story »

NOW WATCH: JAMES ALTUCHER: This is why owning a home is financial suicide

For awhile there, I started to doubt one of the basic tenets of capitalism and investing: Money flows to where it is treated best.

While the hedge fund industry as a whole (though not all individual hedge funds) has been a disastrous asset management category for nearly 8 years now, its collective AUM continued to rise, to about $3 trillion at last count.

The flows continued to pour in despite the lackluster, market-trailing performance that’s become something of an annual rite for the industry.

There’s some nuance, of course – it’s really the bigger funds that have been getting even bigger, as “wealth managers” at the wirehouse brokerages steadily allocate between 10 and 20% of their clients’ assets to the “alternative” sleeve.

Family offices also tend to invest via platforms, and platforms can’t really function without multi-billion dollar funds to give money to. Think of it like a retailer stocking predominantly big, well-known (and thus, safe) brands on their shelves.

The irony of this relentless shoveling of cash to the top 30 funds is that the funds themselves are frequently living off historical outperformance that was generated in the 90’s and the early 2000’s. This was a time before Reg FD made it impossible to get the “first call” when a CFO was calling a favorite analyst to have him raise or lower earnings guidance.

This was a time when there were probably less than a 1000 funds competing (vs 12,000 today) and alpha was plentiful everywhere one looked. This was a time of guaranteed profits from tech IPO giveaways that kept top funds loyal to the bankers’ firms’ trading desk. This was a time when a hundred-million dollar fund was considered large, and could still be nimble enough to pick off smaller opportunities. This was a time before robots and software squeezed arbitrage opportunities into decimals of decimals.

If you have a fund that thrived in those times, you can still eat off that track record, despite a lack of alpha in recent years. Many do.

There are plenty of smaller institutions, family offices and eager-to-play ultra-high net worth’s that don’t ask themselves whether any of those edges exist anymore. And the “private bankers” who cover these accounts don’t think to put those questions in play either. Their business cards may no longer read “financial advisor” or “stockbroker”, but they all have quotas and production grids just the same.

But maybe this year marks a turning point of sorts – or at least a moment where harder questions are being asked. Some of the industry’s best-loved brand-name managers are struggling mightily in what is essentially a flat market. It wasn’t supposed to be that way. When people think “alternative”, they’re not hoping to seean alternative to gains.

For every David Tepper, who seems to smash it out of the park with uncanny consistency, there are three Tiger Cubs that have wrecked investor confidence. For every John Burbank, who nailed the macro this year, there are ten funds that were blown up in oil, Brazil, the short dollar trade or all three at once.

Losing 20% of your investors’ capital in a year like 2008 is somewhat understandable (or explainable in trustees’ meetings where the intermediaries go to sing for their supper). Losing 20% of your investors’ capital in a flat year and you better have had some incredible up-years in the recent past to offset it with.

The real challenge and hurdle for investing in hedge funds, in my experience, is that:

a) You can’t get into the great ones, they don’t want your money
b) Even if you get in, after a few good years, they can’t wait to give you your capital back
c) You can’t predict which emerging funds will grow to be great in the future (no one has demonstrated this ability, at any level)
d) Access fees and other administrative costs, when added to the actual costs of the funds, make outperformance even tougher
e) In today’s environment, there are a million ways to be non-correlated to the S&P 500 without them. And it’s much cheaper.

Obviously, I’m not the only person to have reached these conclusions in recent years.The Wall Street Journal notes that hedge fund asset-raising in the 3rd quarter of this year was at the worst pace since the 3rd quarter of 2009. Given the high profile blowups that have become daily fodder for the press, the fourth quarter could wind up being flat or even negative. This is the first time we’ve seen the industry not grow in forever.

Apparently, there is a limit. Maybe the basic tenets of capitalism and investing still apply after all, even if on a lag.

SEE ALSO: The thing that has investors most terrified has a few people saying bring it on

Join the conversation about this story »

NOW WATCH: Jaguar revealed its first SUV ever — and it's the most beautiful SUV on the planet

Ray Dalio, the leader of the world's largest hedge fund, Bridgewater Associates, is worried about growth in the global economy.

As he sees it, there is no "locomotive" to drive growth.

For the past few years, China has driven a third of all the growth in the world, but it's slowing down, which will act as a drag on global growth.

He's also worried about the effectiveness of monetary policy right now. He wonders whether it can do anything to spur growth.

We interviewed Dalio in Davos, Switzerland, at the World Economic Forum. Here's what he said:

Traditionally, the United States was a world locomotive. In other words when it began its growth, that would help to create exports to other countries. Since 2008, China represented a third of world growth, not only the growth in China, but their imports — countries were benefiting from that growth — that's what I mean by a locomotive. And right now, the world doesn't have a locomotive — they don't have a country that is driving world economic growth.

[We interrupted to say, "So, that's pretty scary ..."]

I think the monetary policy is the issue. Decreased effectiveness of monetary policy. I think that's an important issue. Are we at the end of central banks' abilities to squeeze out more debt or money growth? Are we approaching the pushing-on-a-string phenomenon? I believe we are. I think that warrants a lot of discussion and attention about how to deal with that issue.

When we're look at markets I'm describing, there's this asymmetric risk. Because, when they push to zero, and they go to quantitative easing, that's the buying of assets. It pushes the asset prices up, pushes their future returns down. They don't have much in the way of premium. That premium, or that spread lacking, diminishes the effectiveness of the transmission mechanism.

Like, if you buy a bond, a bond is very much like cash nowadays. That becomes the big question. When we have a weaker asset market and weaker economy and we have risk that monetary policy might be affected, that should be at least on our minds when we're setting monetary policy.

I don't think that was of paramount consideration to the Fed. I think should be looked at, because that's the bigger risk.

Join the conversation about this story »

NOW WATCH: How to know if you're a psychopath

We recently learned a bit of history about hedge fund billionaire Ray Dalio, the founder of the world's largest hedge fund, Bridgewater Associates.

It turns out he helped McDonalds launch Chicken McNuggets. 

In the early years of Bridgewater, which today manages $160 billion in assets, Dalio did some consulting work.

At that time, Dalio helped his client, McDonalds, come out with its low-priced Chicken McNuggets.

McDonalds was worried about the price of chicken rising, which would either squeeze margins or force the fast-food giant into raising prices. 

Dalio then had the idea to create a special kind of derivative to hedge the fast-food giant's chicken farmers' exposure to price fluctuations. 

Here's how Bridgewater tells the story:

Ray founded Bridgewater in 1975 in his New York City brownstone apartment. At the time, he actively traded commodities, currencies and credit markets. His initial business was providing risk consulting to corporate clients as well as offering a daily written market commentary titled Bridgewater Daily Observations that is still produced. The competitive edge was creative, quality analysis.

Among his clients were McDonalds and one of the country’s largest chicken producers. McDonalds was about to come out with Chicken McNuggets and was concerned that chicken prices might rise, forcing them to choose between raising their menu prices or having their profit margins squeezed. They wanted to hedge but there was no viable chicken futures market. Chicken producers wouldn’t agree to sell at a fixed price because they were worried that their costs would go up and they would then take a loss on their supply contracts. After some thought, Ray went to the largest producer with an idea. A chicken is nothing more than the price of the chick (which is cheap), corn, and soymeal. The corn and soymeal prices were the volatile costs the chicken producer needed to worry about. Ray suggested combining the two into a synthetic future that would effectively hedge the producer’s exposure to price fluctuations, allowing them to quote a fixed price to McDonalds. The poultry producer closed the deal and McDonald’s introduced the McNugget in 1983.

Who knew that that's the story behind $0.99 McNuggets?! 

Join the conversation about this story »

NOW WATCH: We tried the new value menus at McDonald's, Burger King, and Wendy's — and the winner is clear

Ray Dalio, the founder of hedge fund behemoth $160 billion Bridgewater Associates, has dethroned George Soros as the most successful hedge fund manager, according to a new ranking.

London-based fund of funds LCH Investments, a subsidiary of Edmond de Rothschild Capital Holdings Limited, just released its annual top 20 "most successful money managers" list for 2015.

The list measures net gains (after fees) of hedge fund manager's since their respective fund's inception.

In 2015, Dalio's $82 billion Bridgewater Pure Alpha fund generated $3.3 billion in net gains for investors, according to the report.

Meanwhile, Soros' $29 billion Quantum Endowment Fund, a family office hedge fund, dropped from the No. 1 spot on last year's list to No. 2.

Quauntum, which had been led in recent years by Soros' protege Scott Bessent, made $900,000,000 in net gains for 2015, the report said. Bessent just started his own hedge fund, Key Square Group, this month and will be managing nearly $4.5 billion in assets, making it one of the largest launches of all time.

Another standout on the list is billionaire Steve Cohen, who now runs family-office Point72 Asset Management (formerly SAC Capital). He generated $1.7 billion in net gains in 2015 for himself and his employees.

Collectively, the top 20 fund managers made their investors $15 billion in net gains in what was an incredibly underwhelming year for hedge funds.

"The returns from hedge funds in 2015 overall was unsatisfactory, because they lost money for investors. However, once again, the top managers significantly outperformed the average hedge fund manager," said Rick Sopher, chairman of LCH Investments. 

However, not everyone on the list had winning years. Some, in fact, lost money. 

John Paulson, the founder of $18 billion Paulson & Co., fell in the ranks from No. 3 in 2014 to No. 7 in 2015. LCH estimated that his fund lost investors $2.1 billion in 2015.

Meanwhile, The Baupost Group, the Boston-based hedge fund led by Seth Klarman, held its No. 4 spot despite losing about $800,000,000 million, according to the LCH report. 

Baupost's public-investments portfolio fell 6.7% in 2015, while the fund's private investments gained 2.4%, according to an investor update seen by Business Insider.

Newcomers to the list include Maverick Capital, led by "Tiger Cub" Lee Ainslie, and Lansdowne Developed Markets, comanaged by Peter Davies and Stuart Roden. Ainslie's fund made its investors $1.1 billion in 2015, while Lansdowne earned $2.1 billion.

"Lansdowne Developed Markets are the second European-based firm to enter the top 20; they have made $11.8 billion of gains for investors after fees since launch in 2001, partly from correctly and consistently anticipating the great changes in the business and financial landscape that have occurred in this period," Sopher said.

Absent from this year's list is activist investor Bill Ackman, the founder of Pershing Square Capital Management.

Last year, Ackman, then 48, was the youngest fund manager ever to make the list, debuting at No. 19. In 2015, Pershing Square had its "worst year" in the fund's history, falling 16.54%, according to data compiled by HSBC. The fund was down 12% for the year through January 19, HSBC's data showed.

Also, ESL Investments, the hedge fund led by Eddie Lampert, fell off the list this year.  

Here's the list: 

Join the conversation about this story »

NOW WATCH: Disgraced pharma CEO Martin Shkreli dissed a Wu-Tang Clan member in a hostile video

When Ray Dalio talks, people tend to listen.

Dalio is one of the most successful hedge fund managers of all time, founder of the $82 billion (£57.1 billion) Bridgewater Pure Alpha fund.

He's worried that one of the fixed constants of economics — the ability of central banks to stimulate economic growth through lowering the cost of debt — is coming to an end.

In an op-ed article for the Financial Times published this week, Dalio said (emphasis ours):

We are seven years into the expansion phase of the business/short-term debt cycle — which typically lasts about eight to 10 years — and near the end of the expansion phase of a long-term debt cycle, which typically lasts about 50 to 75 years.

What I am contending is that there are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed "pushing on a string."

Dalio says risk premia — the return of risky assets such as bonds compared with cash — are at historically low levels.

This makes it harder for central banks to keep pushing up the prices of these assets with loose monetary policy, such as low interest rates and quantitative easing, because there is less incentive, or yield, to compensate investors for taking the risk on debt.

Here's Dalio again:

As a result, it is difficult to push the prices of these assets up and it is easy to have them fall. And when they fall, there is a negative impact on economic growth.

When this configuration exists — and it is also the case that debt and debt service costs are high in relation to income, so that debt levels cannot be increased without reducing spending — stimulating demand is more difficult, and restraining demand is easier, than is normally the case.

This debt fatigue could go some way to explaining why central banks are still locked into near-zero interest rates, seven years after the financial crisis that prompted their fall. 

But, worryingly, central banks would be powerless to stop the next financial crisis or recession with inflationary tactics in Dalio's scenario.

Dalio made the comments in the Financial Times in the week LCH Investments crowned him as the most successful hedge fund manager ever, dethroning George Soros.

Dalio's $82 billion (£57.1 billion) Bridgewater Pure Alpha fund generated $3.3 billion (£2.3 billion) in net gains for investors in 2015, according to the report. The fund, founded in 1975, has made $45 billion (£31.3 billion) in profit over its lifetime. Soros' Quantum Endowment Fund, which began in 1972, has made $42.8 billion (£29.8 billion).

Join the conversation about this story »

NOW WATCH: How to know if you're a psychopath

London-based fund of funds LCH Investments, a subsidiary of Edmond de Rothschild Capital Holdings Limited, recently released its annual top 20 "most successful money managers" list for 2015.

The list measures net gains, after fees, of hedge fund managers since their respective fund's inception. We've included the top seven hedge fund managers below.

Collectively, these titans have made their investors net gains of $199.5 billion since they began their funds. Last year, they raked in $5.1 billion as a group. Two of the top fund managers had a losing year in 2015.

7. John Paulson (Paulson & Co.)

Net gains in 2015: -$2.1 billion

Net gains since inception: $21.4 billion (1994)

Fund's assets under management: $15.6 billion

Paulson's net worth: $11.4 billion

Highlights: In 2015, John Paulson fell from the No. 3 spot on the list to No. 7. He became famous for his 2007 bet against subprime housing; it made him and his investors billions. Since then his returns have been volatile, and his fund's assets have dropped from a peak of $38 billion in 2011 to about $15.6 billion. Just last month Paulson pledged his personal wealth as collateral for a line of credit for his fund from HSBC USA.

6. Stephen Mandel (Lone Pine Capital)

Net gains in 2015: $1.2 billion

Net gains since inception: $22.4 billion (1996)

Fund's assets under management: $29.5 billion

Mandel's net worth: $2.4 billion

Highlights: Lone Pine Capital is led by the billionaire Steve Mandel, who worked at legendary hedge fund Tiger Management early in his career. The fund is now part of a group of funds launched by Tiger alumni known as "Tiger Cubs."

Mandel is betting on companies that dominate the web in 2016, according to an investor letter. 

Lone Pine's Cascade fund, its long-only fund, rose 1.4% in the fourth quarter to end 2015 down 1.2%. Meanwhile, Lone Pine's Cyprus fund rose 4.6% in the fourth quarter, ending the year up 8.7%, while its Kauri fund rose 4.4% in the quarter to end 2015 up 8.9%.

As of the end of 2015, the Cascade fund's 10 largest long-stock positions were Microsoft, Amazon, Tencent Holding, Facebook, Visa, Dollar Tree Stores, Williams Companies, FleetCor Technologies, JD.com, and Charter Communications. The fund trimmed some of its stake in embattled Canadian drug company Valeant Pharmaceuticals.

5. Andreas Halvorsen (Viking)

Net gains in 2015: $1.7 billion

Net gains since inception: $22.5 billion (1999)

Fund's assets under management: $30.2 billion

Halvorsen's net worth: $2.8 billion

Highlights: Viking, which like Lone Pine is a "Tiger cub" hedge fund, had a strong 2015 overall, finishing up 8.3% for the year, according to the fund's fourth-quarter letter. The hedge fund bought more Valeant Pharmaceuticals stock in the fourth quarter, even after it dragged down the fund's performance and was its "biggest loser."

When Ray Dalio talks, people tend to listen.

Dalio is one of the most successful hedge fund managers of all time, founder of the $82 billion (£57.1 billion) Bridgewater Pure Alpha fund.

He's worried that one of the fixed constants of economics — the ability of central banks to stimulate economic growth through lowering the cost of debt — is coming to an end.

In an op-ed article for the Financial Times published this week, Dalio said (emphasis ours):

We are seven years into the expansion phase of the business/short-term debt cycle — which typically lasts about eight to 10 years — and near the end of the expansion phase of a long-term debt cycle, which typically lasts about 50 to 75 years.

What I am contending is that there are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed "pushing on a string."

Dalio says risk premia — the return of risky assets such as bonds compared with cash — are at historically low levels.

This makes it harder for central banks to keep pushing up the prices of these assets with loose monetary policy, such as low interest rates and quantitative easing, because there is less incentive, or yield, to compensate investors for taking the risk on debt.

Here's Dalio again:

As a result, it is difficult to push the prices of these assets up and it is easy to have them fall. And when they fall, there is a negative impact on economic growth.

When this configuration exists — and it is also the case that debt and debt service costs are high in relation to income, so that debt levels cannot be increased without reducing spending — stimulating demand is more difficult, and restraining demand is easier, than is normally the case.

This debt fatigue could go some way to explaining why central banks are still locked into near-zero interest rates, seven years after the financial crisis that prompted their fall. 

But, worryingly, central banks would be powerless to stop the next financial crisis or recession with inflationary tactics in Dalio's scenario.

Dalio made the comments in the Financial Times in the week LCH Investments crowned him as the most successful hedge fund manager ever, dethroning George Soros.

Dalio's $82 billion (£57.1 billion) Bridgewater Pure Alpha fund generated $3.3 billion (£2.3 billion) in net gains for investors in 2015, according to the report. The fund, founded in 1975, has made $45 billion (£31.3 billion) in profit over its lifetime. Soros' Quantum Endowment Fund, which began in 1972, has made $42.8 billion (£29.8 billion).

Join the conversation about this story »

NOW WATCH: Here’s how Shark Tank’s Daymond John beats out the other Sharks to score a deal

In 2010, a company's returns exceeded the combined profits of Google, eBay, Yahoo, and Amazon.

It wasn't a tech giant; it was Bridgewater, a hedge fund that has been recognized for making more money for clients than any hedge fund in the history of the industry. Bridgewater anticipated the financial crisis, warning clients in 2007 about the impending crash.

In the investment world, you can only make money if you think differently from everyone else. Bridgewater has prevented groupthink by inviting dissenting opinions from every employee in the company.

When employees share independent viewpoints instead of conforming to the majority, there's a much higher chance that Bridgewater will make investment decisions no one else has considered and recognize financial trends no one else has discerned.

That makes it possible to be right when the rest of the market is wrong. As Berkeley psychologist Charlan Nemeth shows, minority opinions improve decisions even when they are wrong.

Bridgewater's billionaire founder, Ray Dalio, has been called the Steve Jobs of investing. He believes that "no one has the right to hold a critical opinion without speaking up about it." To make sure that people share those critical opinions, Dalio goes to unusual lengths.

Here's an email that Jim, a client adviser, sent to Dalio after a meeting with an important potential client: 

Ray — you deserve a "D‑" for your performance today . . . you rambled for 50 minutes . . . It was obvious to all of us that you did not prepare at all because there is no way you could have and been that disorganized at the outset if you had prepared. We told you this prospect has been identified as a "must-win". . . today was really bad . . . we can't let this happen again. 

At a typical company, sending an email that critical of a boss would be career suicide. But instead of reacting defensively, Dalio responded by asking others who attended the meeting to give him honest feedback and grade him on a scale from A to F. Then, instead of hiding Dalio's shortcomings or attacking the author of the note, Bridgewater's co‑CEO copied the email trail to the entire company so that everyone could learn from the exchange.

Along with modeling openness to criticism, Dalio has fought groupthink by refusing to make decisions based on hierarchy. Rather than conducting a vote where the majority rules, or deferring to people with the most seniority or status, he strives to create an idea meritocracy where all perspectives are heard and the best argument wins.

To do that, most leaders assign a devil's advocate. The hope is to get someone to challenge the majority's opinion. But according to Nemeth's research and Bridgewater's example, we're doing it wrong.

When people are designated to dissent, they're just playing a role. This causes two problems: They don't argue forcefully or consistently enough for the minority viewpoint, and group members are less likely to take them seriously.

"Dissenting for the sake of dissenting is not useful. It is also not useful if it is 'pretend dissent' — for example, if role-played," Nemeth explains. "It is not useful if motivated by considerations other than searching for the truth or the best solutions. But when it is authentic, it stimulates thought; it clarifies and it emboldens."

The secret to success is sincerity, the old saying goes: Once you can fake that, you've got it made. In fact, it's not easy to fake sincerity. For devil's advocates to be maximally effective, they need to really believe in the position they're representing — and the group needs to believe that they believe it, too.

In one experiment led by Nemeth, groups with an authentic dissenter generated 48% more solutions to problems than those with an assigned devil's advocate, and their solutions tended to be higher in quality. This was true regardless of whether the group knew the devil's advocate held the majority opinion or was unsure of the person's actual opinion.

And even if a devil's advocate did believe in the minority perspective, informing the other members that the role had been assigned was enough to undermine the advocate's persuasiveness. Whereas people doubt assigned dissenters, genuine dissenters challenge people to doubt themselves.

Even though the assigned position is less effective, it's an attractive option because it seems to provide cover. It's precarious to genuinely challenge the status quo when you're in the minority; if you can claim that you're just playing devil's advocate, you feel protected against criticism or hostility from the group.

But this isn't what Nemeth found. Compared to assigned dissenters, authentic dissenters don't make group members substantially angrier, and they're actually liked slightly more (at least they have principles).

Instead of appointing devil's advocates, Bridgewater unearths them. When an important decision needs to be made, Dalio often conducts a survey to find out what everyone thinks. He then picks people with extreme views to hold a debate, and invites the whole company to listen to the opposing perspectives.

"The greatest tragedy of mankind," Dalio says, "comes from the inability of people to have thoughtful disagreement to find out what's true."

Although everyone's opinions are welcome, they're not all valued equally. "Democratic decision-making — one person, one vote — is dumb," Dalio explains, "because not everybody has the same believability."

At Bridgewater, every employee has a believability score on a range of dimensions. When you express an opinion, it's weighted by whether you've established yourself as believable on that dimension. Your believability is a probability of being right in the present, and is based on your judgment, reasoning, and behavior in the past.

The most powerful lesson we can take away from Bridgewater is self-awareness. In presenting your views, you're expected to consider your own believability by telling your audience how confident you are.

If you have doubts, and you're not known as believable in the domain, you shouldn't have an opinion in the first place; you're supposed to ask questions so you can learn. If you're expressing a fierce conviction, you should be forthright about it — but know that your colleagues will probe the quality of your reasoning. Even then, you're expected to be assertive and open-minded at the same time.

As management scholar Karl Weick advises, "Argue like you're right and listen like you're wrong."

Adam Grant is a professor of management and psychology at the Wharton School of the University of Pennsylvania. This essay is adapted from his new book "Originals: How Non-Conformists Move the World".

SEE ALSO: Billionaire investor Ray Dalio: I owe my success to having 'great humility' and 'great fear'

Join the conversation about this story »

NOW WATCH: What this Navy SEAL's '40% rule' can teach you about success

Some of the biggest names on Wall Street have piled into one trade: shorting the Chinese yuan.

This, despite the fact that the Chinese government has threatened to punish anyone trying to pull the currency down.

These aren't empty threats, either. China has used it's reserves to buy yuan and squeeze short sellers out of their positions. The country has $3 trillion in foreign-exchange reserves to do this.

And yet no one is afraid — especially guys with huge funds like Pershing Square's Bill Ackman and Hayman Capital's Kyle Bass, who have admitted to being on the short side.

Brian Kelly, founder of hedge fund Brian Kelly Capital and who is among those shorting the yuan, told Business Insider why that is.

He said:

Nobody cares because the bets have been placed in the derivatives markets and have been locked in for a while — which means any hedging has already taken place and there is not much the PBoC can do. They can threaten capital controls, but they already have them and they are not working and are unlikely to work even if tightened.

"I am short RMB via derivatives and I am in the camp that a 25%+ devaluation is likely in the next 12-ish months," he said.

A devaluation of that magnitude would require China to expend even more of its reserves to stabilize the currency. Barclays thinks that the country will, later this week, announce the largest single-month drop in its reserves in modern history.

China is burning this cash at a delicate time, too. The country is going through the difficult transition of moving its economy from one based on investment to one based on consumption.

China's industrial economy is ridden by overcapacity, and the corporate sector needs to be restructured. A restructuring would likely lead to job cuts, and China will need to provide additional support to the unemployed. That also costs money.

A lot of investors out there think that China will have to stop defending the yuan and prioritize restructuring eventually.

Of course, the hedge funds have their detractors. Janus Capital's Bill Gross is one:

So you've all been warned.

Join the conversation about this story »

NOW WATCH: Dish could face $24 billion in fines for robocalls

Two top executives at the world's largest hedge fund have called for votes on each other's conduct.

Seriously.

The Wall Street Journal's Rob Copeland and Bradley Hope have published a big story about an internal dispute at $160 billion Bridgewater Associates between founder Ray Dalio and co-CEO Greg Jensen.

Dalio, who founded Bridgewater in 1975, is questioning whether or not Jensen has "integrity," the report said.

Meanwhile, Jensen, who joined the Westport, Connecticut-based hedge fund 20 years ago and serves as CIO and co-CEO, is questioning if Dalio has fulfilled his succession plan he set forth in 2011.

According to the report, they're having a dozen top employees and stakeholders vote on the dispute.Bridgewater is renowned for its focus on transparency and honesty.

Upon joining, every employee is required to read Dalio's "Principles," a 123-page manifesto.

One of the principles advises to employees to "have integrity and demand it from others. A) Never say anything about a person you wouldn't say to them directly, and don't try people without accusing them to their face. B) Don't let 'loyalty' stand in the way of truth and openness."

Another principle says to be "radically transparent," meaning that they record everything.

Check out the full story at The WSJ »

Join the conversation about this story »

NOW WATCH: Watch Hillary Clinton threaten to 'go after' one of the most controversial drug companies in America

Ray Dalio is the most successful hedge fund manager of all time, according to a recent ranking by LCH Investments.

He runs Bridgewater Associates according to an intense and unusual management philosophy that values "radical transparency." At the firm's isolated Westport, Connecticut headquarters, all meetings, interviews, and interviews are recorded and logged.

He demands that no employee withhold criticisms from each other, and encourages anyone to call him out, as well. Employees keep track of these criticisms in a proprietary app called "Pain Button" that they have on their company iPads.

According to a new report by The Wall Street Journal's Rob Copeland and Bradley Hope, Dalio and co-CEO Greg Jensen are currently at odds with each other after Dalio accused Jensen of lacking "integrity," which in Bridgewater-speak means a dedication to keeping all criticism public within the company. Dalio is asking management and stakeholder committees if they agree with his assessment that recordings of Jensen at meetings reveal tensions he has with Dalio that he did not say to his face.

Every employee has a copy of Dalio's exhaustive management guide, "Principles," which contains 210 lessons. The 2011 edition has been available on Bridgewater's site for a few years and has been downloaded more than two million times, according to The Journal.

We've highlighted 20 of the most representative principles.

SEE ALSO: Billionaire Ray Dalio had an amazing reaction to an employee calling him out on a mistake

1. Place the utmost importance on truth

"Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up about it," Dalio writes.

He believes that even though the truth can be scary (like when your boss points out one of your flaws), it's necessary for optimum performance. Dalio has actually fired employees for talking behind a coworker's back. "If you talk behind people's backs at Bridgewater you are called a slimy weasel," Dalio says.

2. Teach your team that it's okay to fail if it results in learning something.

Dalio believes that managers need to expect mistakes from both their employees and themselves. And analysis of mistakes should be quick and as painless as possible.

"Create an environment in which people understand that remarks such as 'You handled that badly' are meant to be helpful (for the future) rather than punitive (for the past). While people typically feel unhappy about blame and good about credit, that attitude gets everything backwards and can cause major problems. Worrying about 'blame' and 'credit' or 'positive' and 'negative' feedback impedes the iterative process essential to learning," Dalio writes.

3. Get in sync.

Dalio teaches his employees to work at a level where there is a mutual understanding of what needs to be accomplished. One way to achieve this is by using conversations about a certain project as a means of reaching conclusions rather than just brainstorming.

He also believes that it is a manager's responsibility to weigh the value of coworkers' opinions. In the same way that you'd value golf advice from Tiger Woods over advice from a friend, Dalio writes, you should value the opinion of a worker with a proven track record over someone without one.

Amid persistent anemic global growth and signs that central-bank policy is losing its potency, investors should brace for a period of “lower than normal returns with greater than normal risk”.

That’s the view of Ray Dalio, founder and co-chief investment officer of the world’s largest hedge fund, Bridgewater Associates, who believes that the future of monetary policy will require a significant rethink amid signs that current policies are losing their effectiveness.

In an investor note released overnight, Dalio, the 29th-richest person in the world, suggests that, having lowered interest rate to zero or below and pushing asset prices to elevated levels through the use of quantitative easing, the ability of monetary policy to further stimulate asset prices and the economy “is weaker than what is has ever been”.

In his view, current monetary easing is akin to “pushing on a string”, suggesting that the future of central-bank policy, something he has dubbed “Monetary Policy 3,” will need more “money printing” rather than simply lowering interest rates to ever lower bounds.

Says Dalio:

The future returns of assets will be low, which will be a problem given what the returns need to be to meet our future obligations. From the perspective of an investor, if you look at the level of the returns relative to levels of volatility, the expected reward-risk could make those who are long a lot of assets view that terrible-returning asset called cash as appealing.

Dalio uses an example to explain the conundrum facing not only investors, but central banks in this low return-investment environment:

Take current bond yields (less than 2%) and cash (0%) and compare that to something like a 4% expected return on equities. Because of volatility, the 4% expected annual return pick up of equities over cash, or 2% over bonds, can be lost in a day or two. (For example, stocks fell by nearly 5% in a week earlier this month.) And then there is the feedback loop where a sell-off in the stock market in turn has a negative pass-through effect on the rate of economic activity. All that makes for asymmetric risks on the downside in the US—and the pictures in other countries are even more asymmetrical on the downside, as their interest rates are even lower and their risk premiums are nearly gone.

With the risk of volatility in financial markets spilling over into the real economy, and interest-rate policy all but exhausted, Dalio suggests that investors should expect currency volatility to become “greater than normal”.

When interest rates can’t be lowered and relative interest rates can’t be changed, currency movements must be larger,” says Dalio. “To avoid economic volatility, currency movements must be larger. That reality creates currency wars, pegged exchange rate break-ups, and increased currency risk for investors.

“If the world’s largest economies all face the difficulty of pushing on a string, exchange rate shifts won’t create a needed global easing”.

While Dalio believes that central banks will continue to ease through further interest-rate cuts and quantitative easing, he suggests that it will be less effective, as there is now less “gas in the tank” than what was the case during earlier easing.

With current policy becoming increasingly ineffectual, Dalio suggests that monetary policy in the future will need to be targeted at spenders, not savers and investors.

Says Dalio:

While negative interest rates will make cash a bit less attractive (but not much), it won’t drive investors/savers to buy the sort of assets that will finance spending. And while QE will push asset prices somewhat higher, investors/savers will still want to save, lenders will still be cautious lenders, and cautious borrowers will remain cautious.

Dalio suggests that “Monetary Policy 3” will need to provide “money to spenders and incentives for them to spend it”.

With many governments running large fiscal deficits already, he believes that this mechanism could range from monetary and fiscal policy coordination — essentially the monetization of government debt — to sending people cash directly, something that he dubs “helicopter money” after the famous statement made by former US Federal Reserve Chair Ben Bernanke earlier in his career.

It all sounds like science-fiction, and to many alarming, but as we’ve seen from the likes of the Bank of Japan and others, the limits of monetary policy nowadays seem only to be governed by the level of one's imagination.

Join the conversation about this story »

NOW WATCH: Pluto and its moon Charon have something that doesn't exist anywhere else in the solar system

Everyone is trying to make sense of what's happening in China's economy right now. The billionaire founder of Bridgewater Associates, Ray Dalio, is no different.

Here's how he put it in an interview with Bloomberg TV's Erik Schatzker on Thursday morning.

"China is having a heart transplant," Dalio said. "You're probably going to be fine in the long run, but it's going to weaken you, and it's got to be well executed ... You will get through it, and you will be better than before. I think that's what the situation is."

So what does that mean? It means that Dalio thinks that China is about to go through a rough patch, but things will eventually be fine.

China is going through a really crucial economic transition from an investment-based economy to one based on consumption. The problem is during that investment phase, the country racked up a lot of debt and overcapacity in sectors that used to drive the economy, like industrials and property. 

That debt has to be handled. "You can't have debt rise," said Dalio.

For the economy to flourish, those massive sectors have to be restructured, and that means pain. These are huge state-owned enterprises (SOE), and the Chinese government's philosophy about them has generally been the bigger the better. 

That's changing. Officials told Reuters that 5 million to 6 million people may be laid off over the next few years. 

Dalio, however, thinks this can be managed and that the Chinese government has leadership competent enough to do it. Yes, its handling of the stock market was a fiasco, he said on Bloomberg, but "people [who] have looked at it as a total disaster are misunderstanding" the situation.

"There are good ways to manage these things, and there are bad ways to manage these things," he told Schatzker; "the leadership is very important."

The problem, and Dalio's something of a solution

Dalio does think China has one major problem right now: its balance-of-payments issue. Money is leaving the country faster than it's coming in. That's dragging down the yuan and affecting the country's foreign-exchange reserves. They're at their lowest level in years, at around $3 trillion.

"The balance-of-payments issue is going to be a problem," Dalio said. "These cycles happen every place ... In terms of that money [leaving] the country, they have a lot of control over that money because a lot of those are SOEs."

He also pointed to the fact that China's bond market just opened up to foreigners as a way to bring money back into the country.  

"'While there's a balance-of-payments challenge ... [China's] tools ... and capabilities to manage it are equal to the best that exist in the world," Dalio said.

The thing is, there are ways for big SOEs to get money out of the country, and we're already seeing it come up in the data. For example, we're seeing exports to Hong Kong surge.

"All of these features match those in the late 2012-early 2013 period when there were allegations that some of the trade data were affected by falsified trade activity," Credit Suisse wrote in a January note. "Based on this circumstantial evidence, we are inclined to believe that a large portion of the recent external trade improvement came from trade fabrication instead of strengthened demand."

On the other hand, Dalio is right. There are advantages to the Chinese government having pretty much total control of the economy. President Xi Jinping's control over the country in general has only tightened. He's preparing the country to rally under him during hard times, and everyone knows the consequences of not falling in line. 

Join the conversation about this story »

NOW WATCH: This incredible 580-ton monster machine is building bridges across China

Bridgewater Associates, the $169 billion hedge fund behemoth led by Ray Dalio, just announced a big shake-up in its executive ranks.

The Westport, Connecticut-based hedge fund has hired former Apple executive Jon Rubinstein as co-CEO. He will replace Greg Jensen in that role.

Jensen, who joined the Westport, Connecticut-based hedge fund 20 years ago, will remain co-CIO.

Here's the note sent to clients:

As you know, we are always in the process of figuring out the best way to handle things. For a number of years, we have been transitioning from an entrepreneurial firm run by its founder to an institution run by many capable people. We refer to this as our "management transition" because Ray is continuing in his responsibilities on the investment side of the business.

For the most part, though not exclusively, this management transition has been gradual and undertaken by the same group of people who have been at Bridgewater since the process began in 2010. These changes include transfers of both management responsibilities and equity ownership from Ray to the next generation of Bridgewater leaders. Our plan is to complete these shifts in four or five years.

How Bridgewater is Run and How the Transition is Being Managed

We have a partnership management model comprised of a Management Committee led by co-CEOs (currently Eileen Murray and Greg Jensen) and a Stakeholders Committee overseen by co-executive chairmen (currently Ray and Craig Mundie). Craig joined us about two years ago after being Chief Research and Strategy Officer at Microsoft, where he was for 22 years.

The Management Committee is comprised of our three co-CIOs (Ray, Bob Prince, and Greg) as well as Eileen, David McCormick, and Osman Nalbantoglu. Eileen, who oversees a significant portion of our operations, had a distinguished career on Wall Street prior to joining Bridgewater in 2009. David, who joined Bridgewater at about the same time as Eileen after serving as Under Secretary of Treasury with Hank Paulson during the financial crisis, leads our client organization and engagement with key clients and policymakers around the world. Osman, who joined Bridgewater in 2008 as a partner from McKinsey, oversees our account management and trading departments. This team is the group responsible for managing Bridgewater.

The Stakeholders Committee is essentially Bridgewater's board of directors in that it represents Bridgewater stakeholders and is responsible for ensuring that management is operating excellently. In addition to Ray and Craig Mundie, it includes, Bob Prince (who has been at Bridgewater for 30 years), Greg Jensen (who has been at Bridgewater for 20 years) Giselle Wagner (who has worked with Bridgewater for almost 30 years), Randal Sandler (over 20 years), and Dan Bernstein (almost 30 years).

Consistent with how Bridgewater has operated for many years, this partnership relies on merit-based decision making to govern the firm. The primary responsibility for management lies with the CEOs (and the Management Committee) and the primary responsibility for assessing the CEOs and management resides with the Chairmen (and the Stakeholders Committee). All senior management issues and disputes are resolved by these people.

That is our governance structure which has evolved since we started the management transition six years ago. And, of course, which people are in what roles also continues to change as we learn about the management team and about our changing requirements.

One of the things that we have learned over the last six years is that it is probably too much for the CIOs to also serve as CEOs. The company had grown up with Ray leading both investment management (as CIO) and company management (as CEO)-and Greg had a similar set of responsibilities. However, as Bridgewater has evolved from a boutique to an institution, the company has become too large for anyone to oversee with such split attentions. While currently Greg is a co-CEO (with Eileen) and a co-CIO (with Ray and Bob), we have concluded that in order to have pervasive excellent management, we need CEOs who can give their full attention to the company's management, and we want Greg to shift his full attentions to investment responsibilities. Also, because technology is so important to us, we wanted one of our co-CEOs to be very strong in that area.

Jon Rubinstein Background

Recently we finalized an agreement with Jon Rubinstein to join Bridgewater as co-CEO later this year. Jon has helped launch some of the most influential computing products of our time. He worked closely with Steve Jobs for almost 16 years, first running hardware engineering at NeXT and then at Apple, where he was SVP of hardware engineering and later SVP of a new division for the iPod, a device he was instrumental in creating. He then became the driving force behind Palm's smartphone devices, serving as Executive Chairman of the Board of Palm, Inc. from June 2007 and Chief Executive Officer and President from June 2009 until its acquisition by the Hewlett-Packard Company in 2010. More recently, Jon was SVP and General Manager, Palm Global Business Unit, and then SVP, Product Innovation, for the Personal Systems Group at HP. He currently sits on the board of directors at Amazon.com, Inc. and Qualcomm Incorporated and is a member of the National Academy of Engineering.

Technology is pervasively important at Bridgewater, especially since one of our major strategic initiatives in the coming years is to continue building out the systemized decision-making that has been so successful in our investment area and to extend it to our management as well. Jon's track-record of building world class products will be a tremendous boost to the efforts we already have underway. We are thrilled to have him join us and bring his unique management and technology talents to our team.

Jon is expected to join us in May. Until then and perhaps for some time thereafter, Greg, Eileen, Ray and the other members of the Management Committee will continue to oversee the management of Bridgewater, though the exact timing and responsibilities have yet to be worked out.

SEE ALSO: Bridgewater just went off on the media - here’s why

SEE ALSO: Here's why the world's most successful hedge fund just hired a tech titan as co-CEO

Join the conversation about this story »

NOW WATCH: The days of restaurant tipping are dying

Bridgewater Associates, the $169 billion hedge fund led by Ray Dalio, just sent out a client note announcing a big shakeup at the management level.

Accompanying the announcement, the hedge fund included another note criticizing the media for its "mischaracterization" of the firm when it  comes to its succession process, culture, and views on China.

Here's the full note:  

Our Challenges with the Media

We are now in the awkward position of having some in the media mischaracterize what we are doing and what we are thinking. Rather than let these mischaracterizations stand, we want to clarify our thinking. But first, we would like to explain our challenges in dealing with the media.

While we have always tried to stay below the radar, as we've grown, the media has given us increased attention. Because we originally refused to deal with them and because of their tendency to sensationalize, their pictures of Bridgewater were distorted. We sought professional advice and were told that we could no longer stay below the radar and it was best for us to clarify inaccurate pictures and to try to be understood. While we found that approach to be better than having no contact, we also found that some distortions continued, though there were fewer of them than otherwise would have been.

Recently there have been three big areas of distortion:

1) The first is about our succession process.

We have been progressing as we've conveyed to you. As explained in our last quarterly letter to clients: "we're in the midst of a planful transition from a founder-led boutique to a professionally managed institution. We expected that this journey would be challenging, and that is why we planned for a ten-year process . . . We're learning a lot through this process and continue to struggle with our gaps." In other words, as a management team, we have been and still are working through who is best suited to do what.

As you know, we have a radically transparent culture so that everyone in the company can see our deliberations. This led to our deliberations being leaked to the media, which resulted in an inaccurate picture being painted and us getting unwanted attention. It also made it appear that something unique was happening. While it was correct that we were deliberating our next steps, how these deliberations were going was distorted in a way that failed to convey key dimensions of what was going on. At the same time, we were in the process of determining next steps and negotiating the employment arrangement with Jon Rubinstein (see accompanying announcement) and we're not yet in a position to share our next steps.

We now can share these steps, and the announcement that accompanies this message conveys them and how they were determined. In a nutshell, we concluded that it made the most sense to have Greg spend less time on management and more time on investments and that we needed to bring in an exceptional co-CEO with a strong tech focus to supplement the existing leadership. We assure you that, as always, we will be as prompt as is practical in conveying such key developments to you.

2) The second is about our culture.

Those who know us know that we strive to have meaningful work and meaningful relationships through radical truth (especially about our mistakes and weaknesses) and radical transparency (so there is no spin). They also know that this approach is the reason for our success. Some people in the media who don't know us mischaracterize that culture, either because of lack of knowledge of it or because of the intent to sensationalize it. While we have not let people from the media in to study our culture, we have let preeminent organizational psychologists and researchers examine us. You can read the analysis of Robert Kegan (William and Miriam Meehan Professor in Adult Learning and Professional Development at Harvard Graduate School of Education) in the Harvard Business Review; that of Edward D. Hess (Professor of Business Administration at the Darden Graduate School of Business) in his book "Learn or Die" (Columbia Business School Publishing, 2014); and that of Wharton School professor Adam Grant in "Originals: How Non-Conformists Move the World" (Viking, 2016).

3) The third concerns our thinking about China.

To reiterate, we believe that China is going through the same sort of debt and economic adjustment processes that all countries have gone through at one time or another. These adjustments are healthy and China will come out of them stronger, though it will be weaker while it is going through them. We believe that to characterize China either as not having significant challenges or as facing a terrible situation would be inaccurate. Yet, because many in the media prefer to use more dramatic characterizations, they distort and take our comments out of context.

Hopefully you know us well enough to assess us directly rather than through media.

SEE ALSO: Bridgewater is peeved with the media for mischaracterizing the firm—here's why

Join the conversation about this story »

NOW WATCH: Paul Krugman gave us his top 3 investment tips

Bridgewater Associates, the world's largest hedge fund with $169 billion in assets, just hired a former Apple executive to join as co-CEO, and it says a lot about the future of the firm.

In a note to clients, Bridgewater said it has hired computer scientist Jon Rubinstein as co-CEO, replacing longtime Bridgewater executive Greg Jensen in that role. Jensen, who's been at Bridgewater for 20 years, will stay on as co-CIO.

Rubenstein spent nearly 16 years working alongside Steve Jobs, first at NeXT and then at Apple. While at Apple, he was the SVP of hardware engineering for the iPod. He then went on to lead smartphone company Palm, which was acquired by Hewlett-Packard. He is expected to join the Westport, Connecticut-based hedge fund in May.

"[We] need CEOs who can give their full attention to the company's management, and we want Greg to shift his full attentions to investment responsibilities. Also, because technology is so important to us, we wanted one of our co-CEOs to be very strong in that area," the Bridgewater note said. 

The note also hinted that it's going to extend technology beyond just its investment process and into its management process.

Technology is pervasively important at Bridgewater, especially since one of our major strategic initiatives in the coming years is to continue building out the systemized decision-making that has been so successful in our investment area and to extend it to our management as well. Jon's track-record of building world class products will be a tremendous boost to the efforts we already have underway. We are thrilled to have him join us and bring his unique management and technology talents to our team.

It will be interesting to see how that plays out. Bridgewater already has what it calls a "radically transparent culture." All conversations are taped and everyone can hear them.

SEE ALSO: Bridgewater just went off at the media for getting the hedge fund all wrong

SEE ALSO: The biggest hedge fund in the world just announced a big shake-up

Join the conversation about this story »

NOW WATCH: Paul Krugman gave us his top 3 investment tips

Bridgewater Associates, the world's largest hedge fund with $169 billion in assets, just had a big shake-up in leadership.

It hired former Apple executive Jon Rubinstein as co-CEO to replace Greg Jensen, who will now function as co-CIO.

The move is part of a plan unfolding over the next several years to transfer management responsibilities away from the fund's founder, Ray Dalio, according to a new client note.

Nothing about the way Dalio has run Bridgewater is conventional.

He operates Bridgewater according to an intense and unusual management philosophy that values "radical transparency." At the firm's isolated Westport, Connecticut, headquarters, all meetings and interviews are recorded and logged.

He demands that no employee withhold criticisms from each other, and encourages anyone to call him out, as well.

Every employee has a copy of Dalio's exhaustive management guide, "Principles," which contains 210 lessons. The 2011 edition has been available on Bridgewater's site for a few years and has been downloaded more than 2 million times, according to The Wall Street Journal.

We've highlighted 20 of the most representative principles.

SEE ALSO: Billionaire Ray Dalio had an amazing reaction to an employee calling him out on a mistake

1. Place the utmost importance on truth.

"Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up about it," Dalio writes.

He believes that even though the truth can be scary (like when your boss points out one of your flaws), it's necessary for optimum performance. Dalio has actually fired employees for talking behind a coworker's back. "If you talk behind people's backs at Bridgewater you are called a slimy weasel," Dalio says.

2. Teach your team that it's okay to fail if it results in learning something.

Dalio believes that managers need to expect mistakes from both their employees and themselves. And analysis of mistakes should be as quick and as painless as possible.

"Create an environment in which people understand that remarks such as 'You handled that badly' are meant to be helpful (for the future) rather than punitive (for the past). While people typically feel unhappy about blame and good about credit, that attitude gets everything backwards and can cause major problems. Worrying about 'blame' and 'credit' or 'positive' and 'negative' feedback impedes the iterative process essential to learning," Dalio writes.

3. Get in sync.

Dalio teaches his employees to work at a level where there is a mutual understanding of what needs to be accomplished. One way to achieve this is by using conversations about a certain project as a means of reaching conclusions rather than just brainstorming.

He also believes that it is a manager's responsibility to weigh the value of coworkers' opinions. In the same way that you'd value golf advice from Tiger Woods over advice from a friend, Dalio writes, you should value the opinion of a worker with a proven track record over someone without one.

If you take a job at Bridgewater Associates — the world's largest hedge fund, with $169 billion in assets — you're agreeing to abide by founder Ray Dalio's "Principles," a manual of 210 musings on management and character.

It serves as an introduction to the hedge fund's culture of "radical transparency." At Bridgewater's Westport, Connecticut, headquarters, all meetings and interviews are recorded and logged.

Employees are also required to refrain from keeping criticisms of their colleagues or managers, including Dalio, to themselves

To ensure that the right people are recruited, Dalio lays out his hiring philosophy in "Principles": "Hire right, because the penalties of hiring wrong are huge," he writes.

Dalio values a person's character and way of thinking over their skill set, and he has managers express this in Bridgewater's job postings.

For example, a current posting for a compliance associate states that the team is looking for someone who is "Logical with strong common sense,""Not afraid to speak up and make suggestions for areas of improvement," and "Self-aware, reflective, and able to learn from mistakes."

Dalio writes that instead of trying to overcome the fact that managers have a tendency to look for their own traits in applicants, it is up to the manager to use different team members as specialized interviewers to root out a candidate's character.

"For example, if you're looking for a visionary, pick a visionary to do the interview where you test for vision," he writes. "If there is a mix of qualities you're looking for, put together a group of interviewers who embody all of these qualities collectively." It's of utmost importance that you deeply trust these interviewers, he says.

It's necessary to pay careful attention to someone's track record, Dalio explains, but to also use references, research, and interviews to understand why candidates made the career decisions they did.

He and his managers look for someone who is just as inquisitive about the company and interviewers as they are about the candidate. "Look for people who have lots of great questions," he writes. "These are even more important than great answers."

It's up to a manager to find "sparkle" in a candidate. "If you're less than excited to hire someone for a particular job, don't do it," he writes. "The two of you will probably make each other miserable."

And then if you feel this "click," make your salary offer a premium on what that candidate was paid before, and what you think their attributes justify. Don't worry about the market value of a job title.

After you finally make your hire, Dalio writes, ensure that you keep an eye on this person's progress during the onboarding process to validate whether you made the right decision.

It's about finding someone you respect and identify with. "Don't hire people just to fit the first job they will do at Bridgewater; hire people you want to share your life with," Dalio writes.

SEE ALSO: The world's most successful hedge fund just made a big change — here's a look inside its unique culture

Join the conversation about this story »

NOW WATCH: Canadian Prime Minister Justin Trudeau is becoming a cult hero in the US — here's why