Bridgewater Associates founder and co-CIO Ray Dalio is as well known for his remarkable investing career as he is for his unusual approach to management. To him, both are intertwined.

In an interview with Business Insider's global editor in chief Henry Blodget on "The Bottom Line," BI's new weekly business show, Dalio laid out the fundamental investment philosophy that led to Bridgewater's becoming the world's largest hedge fund in 2005.

It's maintained that position ever since, and as of mid-year 2016 managed $103 billion in hedge find assets with $150 billion in total assets under management, according to HFI.

Not long after founding Bridgewater Associates out of his apartment in 1975 (a proper office in Westport, Connecticut didn't come until 1981), Dalio realized that he could continue improving his returns by solidifying recurring lessons into "principles,"an approach he would later apply to employee management, as well.

"What I did every time I made a mistake — they became painful mistakes — but with time I realized that reflecting on those mistakes would give me gems," Dalio told Blodget. "And I'd write down a rule."

Those rules accumulated into investing principles, which Dalio then translated mathematically into computer algorithms so he could test their accuracy by applying them to past market movements.

"And by putting all those rules together, and then having these algorithms, the computer could replicate my thinking," he said. "But it could actually think better than I could because what it would do is ... it could process more information, it could process it faster, it could process it less emotionally."

Dalio likened building Bridgewater's portfolio in the early days to driving with a GPS. He was in charge of the car, but he had an automated system guiding him along. "And to have that next to me was invaluable. It would learn; I would learn."

He said that the major benefit of this approach was being able to gain more insight into optimal asset diversification.

"People think that the way that you do best is to have the best possible bets," Dalio said. "The way that you do best is to have the best possible diversification."

"I learned that if I could have 10 or 15 uncorrelated bets, and they're all about the same return, that I could cut my risk by 75% or 85%," he added. "That would mean that I would increase my return to risk ratio by a factor of five through diversification."

Dalio developed Bridgewater's core investment principles through the 1980s, and then in the 90s applied that approach to people management. He eventually collected these in an employee handbook, simply titled "Principles," which is available online and will be published in book format by Simon & Schuster in the fall. In recent years, these management principles are increasingly becoming automated, as well, through applications like proprietary in-house iPad apps.

A primary lesson of these management principles are essentially what triggered those from the investment side: "Pain + Reflection = Progress."

"Because you know the same things happen over and over again," Dalio told Blodget. "The same things happen over and over again in the markets — everything that we've been through, every cycle. Everything has happened in the past. The same thing happened over and over again in politics. Same things happen over and over again in our lives."

If you can recognize this and have a way of anticipating recurring behavior — whether it's in markets or in people — Dalio said, "that's an effective way of approaching the game that you're playing."

You can watch the first episode of "The Bottom Line"through this link, and watch Dalio explain how he learned to invest below.

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Since the UK voted to leave the European Union and Donald Trump was elected US president, markets have been trying to gauge what the potential risk of growing populist movements might mean for the world.

But before deciphering what these developments might lead to in the future, markets could benefit from understanding what populism actually is and how previous examples of populist movements have played out.

In an interview with Business Insider Global Editor-in-Chief Henry Blodget on the "The Bottom Line," Business Insider's new weekly business news show, Bridgewater Associates founder Ray Dalio discussed his study of the populist phenomenon throughout history and the similarities he found across different iterations. You can watch the full interview here.

"First of all, there's a part of the population that the system isn't working for. That is, 'the common man,'" he said, adding that it was a problem because of factors such as technology, the wealth gap, and people's feelings that Washington was not working for them. "Around the world, that's always been the case, the common-man feeling: Not only does the economics not work for them, the government isn't working for them, and that their culture is being threatened.

"So populists tend to be nationalistic, protectionistic. And what they'll usually do is hire a strong leader who will then fight on their behalf, so that there is more of a confrontation within a country," he continued. "That strong leader will be much more confrontational with others within the country, and quite often that leads to conflict. That type of conflict sometimes becomes more severe than normal."

Notably, he added that populist leaders tended to not be the types who bring people together, as they are not dealing with the aggregate. Rather, he said, they tend to represent "one side in a battle against the other side."

Taking it a step forward, Dalio also touched on what he believed was something to watch going forward as populist movements sweep the globe:

"The important thing to watch is how those conflicts evolve. They are, as I said, they are nationalistic, they are protectionistic, they tend to be more militaristic — they're more confrontational type of people. And so there's more conflict internally, more conflict externally, and that is interesting to evolve.

"In history, it's been one of those situations that sometimes has led to democracies choosing to give up democracy in favor of dictatorships ... I'm not saying that about here — I just want to be clear. I'm not saying it about anywhere else. I'm not making any forecast of where it's going or any sort of parallels.

"I would say Donald Trump, by and large, has been a populist, but the only reason I'm looking at it is to see how he evolves, or how in Europe [Front National leader Marine] Le Pen or the Five Star party in Italy or other places — how they evolve."

In sum, Dalio explicitly says he is not making any calls on how today's populist movements might turn out (either in the US or in Europe), but rather he details a way of thinking — a model, essentially — of how to think about the movements by looking to historical examples.

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Ray Dalio, the founder of the world's largest hedge fund firm, Bridgewater Associates, says he's worried about what the economy will be like in two to three years.

"I'm worried about what the next downturn might look like," Dalio said.

He made the comments in an interview with Business Insider's global editor-in-chief, Henry Blodget, on "The Bottom Line," Business Insider's new weekly business news show. You can watch the full interview here.

"All of these tensions will be exacerbated," Dalio added. "The wealth gap and the tensions between the groups will be exacerbated — the effectiveness of monetary policy in stimulating an economy is less than it used to be."

In addition, Dalio said, "the asset prices have benefited and are now high as a result of the liquidity that has been put in." He added: "We're near the best we can be."

"There is nothing immediately that's scary," he said, adding that "to take a two- or three-year perspective, I'm concerned."

The Westport, Connecticut-based Bridgewater managed about $103 billion in hedge fund assets as of midyear 2016, according to the HFI Billion Dollar Club ranking, making it the world's biggest hedge fund. The firm manages about $150 billion firmwide.

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Ray Dalio, founder of hedge fund giant Bridgewater Associates, is cautious about the effects of coming changes to fiscal policy and regulations.

During the campaign and early days of his administration, President Donald Trump has promised sweeping changes to economic policy, from a major tax reform to a huge infrastructure initiative to slashing regulations.

One of the goals of all those far-reaching policies is to dramatically increase the rate of GDP growth to somewhere between 3 and 4%, well above the 1-2% growth seen in recent years.

Dalio thinks that actual policy changes and their effects will benefit the economy "on the margin," but won't have a big impact. 

"I think that we know there will be a degree of stimulation that was greater than existed before, some of which will come from actual fiscal policies like spending, infrastructure, and those things," Dalio said in an interview with Business Insider global editor in chief Henry Blodget on The Bottom Line, Business Insider's new weekly business news show. You can watch the full interview here. 

"Some of those things will come just as a result of deregulation," he added.  

Dalio said that it remains to be seen what those policies will actually look like. He said:

"We're now in a time where we actually have to see what other kind of policy changes take place in the form of, let's say, fiscal policy. So we're looking at how Donald Trump is able to work within the Republican Party, and the Republican Party and its factions are able to work within Congress, and how those various different ideologies work themselves out, whether that will produce meaningful change or won't produce meaningful change."

Dalio still expects, if not a revolutionary shift in the economy, at least some more modest changes. He continued:

"I don't think we're going to have a radical change in the economy, in terms of policies. But with these deregulations and some of these things, and a more business-friendly policy, I would expect on the margin it would be stimulative and beneficial for the economy. Not in a big way, I think."

On the subject of taxes and tax reform, Dalio pointed out that the main effect of lower tax rates on businesses is that they simply will have more money. "Wall Street is focused on very clear, incremental changes. If you change corporate tax rates, then by that change in corporate tax rates, the stocks are worth more," he said.

"I mean, that's just a calculation, right? So, it's not so much that it's net stimulative to the economy per se; it means that, okay, now you pay less taxes, okay, that's worth more after taxes."

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Ray Dalio, head of the world's largest hedge fund, lost a fortune back in 1982. It made him change his entire approach to business.

In an interview with Business Insider's global editor in chief Henry Blodget on "The Bottom Line," Business Insider's new weekly business show, Dalio said that event taught him "fear and humility"— which then allowed him to build Bridgewater into a giant overseeing $103 billion in hedge fund assets, with $150 in total assets under management.

It was 1982 and a year into his time at Bridgewater's first proper office in Westport, Connecticut.

Dalio, who had started Bridgewater out of his apartment seven years before, believed that American banks were lending too much money to emerging Latin American countries. Looking back on this analysis, he told Blodget it was "very controversial" among bullish investors but ended up being correct. At the start of 1982, American bankers were still hopeful their money would kickstart these economies and yield big returns, despite the fact that Latin American countries were $327 billion in debt to the nine biggest money-center banks in the United States.

In August of that year, Mexico's finance minister met with 100 international bankers at the New York Federal Reserve to tell them that Mexico was unable to pay its $80 billion in debt, and between $20-30 billion of that was owed to American banks. Oil prices had fallen unexpectedly, the peso was devalued, and interest rates went up. Mexico's economic dreams were crushed for the moment.

Mexico would go on to reschedule its debt, sparking a domino effect for 15 other Latin American countries that would do the same.

"I thought the economy and the stock market would go down a lot," Dalio told Blodget on "The Bottom Line.""The economy and stock market went up a lot!"

That same month of August, 1982, Fed discount rate cuts caused the market to make big gains, and Dalio lost his big bet.

He had focused so much on the Latin American debt crisis that he did not consider the information he either could not access or was not taking into account, which would have allowed him to prepare for a broad range of turnouts.

"I lost money for me. I lost money for my clients," Dalio told Blodget. "I was so broke that I had to borrow $4,000 from my dad. This was very, very painful."

But Dalio looks back at this moment as "the best thing that ever happened to me," he said. "Because it gave me a change of mindset."

He explained that he went from approaching investing — and later, as he would explain in his management manifesto "Principles," his entire approach to business — from "I know xyz" to "How do I know xyz?"

Basically, he went from starting with what he knew to starting with how he knew what he did, and then determining what he still did not know. This allowed him to hedge his bets more carefully through better diversification.

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

"My success in life has come much more from my knowing how to deal with my not-knowing than what I know."

Watch Dalio explain how he learned to invest below, or click here to watch the first episode of "The Bottom Line."

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For the average person, buying and selling individual stocks is like trying to get rich in a poker game at a table with the world's greatest players, Bridgewater Associates founder and co-CIO Ray Dalio explained.

"This is not an easy game," he said.

In an interview with Business Insider CEO Henry Blodget on "The Bottom Line," Business Insider's new weekly business show, Dalio shared his best advice for the common investor.

Dalio oversees the world's largest hedge fund, which has about $150 billion in total assets under management. From this position, he can offer some perspective to professionals saving for their retirement.

"We put hundreds of millions of dollars each year to try to beat the market, to try to understand it," Dalio told Blodget, adding that many other sophisticated investors and institutions are doing the same thing. "Those are the poker players you have to play against. You're not going to be able to do that."

Instead, you should be building a diversified portfolio with assets that are balanced according to their risk rather than their dollar amounts.

He says there are essentially two forces influencing returns: growth and inflation. The task, then, is building a portfolio that can weather any scenario, regardless of what these factors are doing.

When Blodget asked Dalio to further explain how to do this, Dalio said he would have to have a long conversation with a person to explain how they should invest their money, but that a good starting point would be to look at what he told the performance coach Tony Robbins for Robbins' 2014 personal-finance book, "Money: Master the Game."

Here's the portfolio Dalio recommended to Robbins, which he created according to a balancing of risk:

• 30% stocks
• 15% intermediate-term bonds (7- to 10-year Treasurys)
• 40% long-term bonds (20- to 25-year Treasurys)
• 7.5% gold
• 7.5% commodities

That allotment is highly subjective and may not be right for everyone. But Dalio presented it to Robbins as a starting point for people looking to build diversified portfolios. Depending on your age and how much you're investing, you may want to hire a financial adviser.

Dalio also told Robbins that he recommended investors regularly rebalance their portfolios — bring back assets to their original allocations. (Once a year is good.)

To use an example from "Unshakeable," Robbins' second personal-finance book: "Imagine you start with 60% in stocks and 40% in bonds. Then the stock market plunges, so you find yourself with 45% in stocks and 55% in bonds. You'd rebalance by selling bonds and buying stocks."

In his conversation with Blodget for "The Bottom Line," Dalio said all investors should also be highly aware of all transaction costs and fees when they build their portfolios to ensure they're not overpaying.

Average investors need to see investing as a long game to endure, not one where they can make quick wins from time to time.

The latter, Dalio said, is "more difficult than trying to compete in the Olympics."

"If I asked you if you're going to compete in the Olympics, you would say, 'I won't do it,'" he said. "So many people go in that game and then they lose it. I don't recommend it. I do recommend that they understand to have a balanced portfolio and hold that portfolio over time."

Watch the full second episode of "The Bottom Line":

SEE ALSO: Ray Dalio says going broke in 1982 was the 'best thing that ever happened' to him

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This week's episode of The Bottom Line with Henry Blodget includes Part 2 of Henry Blodget's extended interview with Bridgewater's Ray Dalio. Highlights of this second part of the interview include:

• Why investors should expect low stock market returns going forward — in the range of 3% to 4%
• What Dalio tells family friends when they ask him how to invest
• Why market-timing is like 'playing poker' against the world's best financial minds
• Dalio's response to Warren Buffett's criticism of fees charged by the hedge fund industry

Watch Part 1 of their interview here.

Watch all of Episode 1 here.

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Our new episode is out! 

Our topics:

• What happened at United and Henry's proposals for a fix that would work for customers and the industry
• Part two of Henry's extended interview with Bridgewater's Ray Dalio. The head of the biggest hedge fund in the world offers his advice for individual investors
• Dalio says investors should expect market returns of just 3% - 4% in the next few years. We discuss this at length
• Lastly, a look at how Domino's beat out tech darlings in terms of returns since 2009.

Hope you enjoy the show!

You can watch all of our premiere episode here.

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Ask great investors who their biggest influences are and you'll hear names like Warren Buffett and Paul Tudor Jones over and over again. Ask Ray Dalio, head of the world's biggest hedge fund, about the people who shaped his career and he won't name drop anyone. 

Instead, he tips the hat to his own experiences.

He doesn't say it out of pride — it's just how he's wired. "I know those people, they're friends of mine," he told Business Insider CEO Henry Blodget — referring to those titans of finance — in an interview for "The Bottom Line," BI's new weekly business show.

"We talk about markets. Each person plays the game a little bit differently," Dalio said. "How I do it with my economics and systems and all that is a little bit different than each one of us do. And we have interesting conversations."

As the founder, chairman, and co-CIO of Bridgewater Associates, Dalio oversees $150 billion in total assets under management, and his hedge fund's Westport, Connecticut, office has about 1,500 employees. But even though he may admire and share insights with fellow elite investors, his main teacher has always been failure through a very specific lens.

"I have a principle: Pain + Reflection = Progress."

It's a phrase all Bridgewater employees are intimately familiar with, and it's a highlight of his manifesto, simply titled "Principles." The document is a collection of 210 management lessons that he began compiling in the 1990s, first made public in 2011, and is publishing as a book this fall.

Before that, he had compiled a separate set of principles through the 1980s on the investment side. These principles are automated through algorithms and are the foundation of Bridgewater's investment strategy.

Later, Dalio and his leadership team would go on to automate the management principles as well, through applications like a proprietary iPad app that allows employees to have "believability-weighted decision making," in which employees' peer-to-peer ratings on certain attributes give them more influence in particular areas.

"When we're in the moment of pain, we tend not to reflect, but after that moment of pain when anyone makes a mistake about anything — it's not just the markets, it's about life — there's a message probably there," Dalio told Blodget. "And I believe then if you reflect in a quality way on what would you do differently in the future that would prevent that mistake, you'll come out with a principle. Write down that principle and then operate that in the future."

Dalio's approach to life is hyper logical, and it's why he hasn't been willing to take advice at face value. In his conversation with Blodget, Dalio likened his early years of compiling his investment principles as driving with a GPS system. "And to have that next to me was invaluable," he said. "It would learn; I would learn."

You can watch the full second episode of "The Bottom Line" below.

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Ray Dalio tweeted about former FBI Director James Comey on Wednesday, calling him a "man of integrity and a hero."

"I would not feel good about myself if I did not make clear that I have come to know and admire James Comey as a man of integrity and a hero," Dalio, the founder of Bridgewater Associates, the world's largest hedge fund, said in a tweeted statement on Wednesday. "He is a man of high principles operating in a low principles environment."

"Heroes typically get crucified or martyred in the end," he continued. "Jim knew that when he took the job, but like good soldiers called to battle, felt the responsibility to serve."Dalio's statement comes the morning after President Donald Trump fired Comey.

In a letter sent to Comey, Trump said he accepted the recommendation of Deputy Attorney General Rod Rosenstein and Attorney General Jeff Sessions. Comey's termination was effective immediately.

"While I greatly appreciate you informing me, on three separate occasions, that I am not under investigation, I nevertheless concur with judgment of the Department of Justice that you are not able to effectively lead the Bureau," Trump wrote. "It is essential that we find new leadership for the FBI that restores public trust and confidence in its vital law enforcement mission."

In his letter to Sessions, Rosenstein pointed to Comey's July 2016 public announcement of his recommendation regarding the investigation into the use of a private email server by Hillary Clinton, then the presumptive Democratic presidential nominee, while she served as secretary of state.

Comey was previously an executive at Bridgewater Associates from 2010 to 2013. According to a report from Politico back in July 2016, he once said, "Bridgewater’s a hard place. … It’s a place filled with really smart people who are always going to tell you the truth, and that’s hard."

He also said it took him three months to adjust to the culture at Bridgewater, after which he appreciated the hardline culture. In a video testimonial on Bridgewater's website, Comey said, "I’ve been ‘probed’ in this strange field trip through life that I’ve had a lot of different places. I’ve testified in court, I have briefed the president of the United States repeatedly, I’ve argued in front of the United States Supreme Court, and I’ve been probed at Bridgewater. And Bridgewater is by far the hardest."

Read the full statement from Dalio on Comey via his Twitter:

"I would not feel good about myself if I did not make clear that I have come to know and admire James Comey as a man of integrity and a hero — i.e., he is a man who will sacrifice his own well-being for the greater purpose. He is a man of high principles operating in a low-principles environment. Heroes typically get crucified or martyred in the end. Jim knew that when he took the job, but like good soldiers called to battle, felt the responsibility to serve. He deserves our thanks rather than score."

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Bridgewater's Ray Dalio, founder of the world's largest hedge fund, joins Henry Blodget, CEO and editor-in-chief of Business Insider, to discuss how he learns from his mistakes in the market and in life. Following is a transcript of the video.

HENRY BLODGET: Going back to your early years, did you learn from other investors? Lots of people say, “I’m inspired by Warren Buffett or Paul Tudor Jones, the great trader.” Did you study other investors? It sounds like you figured out a lot yourself.

RAY DALIO: My nature is to learn through experiences. The best teacher for me is experiences. I know those people. They’re my friends and so on and we talk about markets.

But for me, it was really like, “Go, learn.”

The successes were good but they weren’t my main learning experience. My main learning experience came from the mistakes and then pausing and reflecting.

I have a principle: pain plus reflection equals progress.

Pain, when we’re in the moment of pain, we tend not to reflect, but after that moment of pain, whenever anybody makes a mistake, about anything, it’s not just the market, it’s about life. There’s a message probably there.

And I believe, then if you reflect, in a quality way of what would you do differently in the future that would prevent that mistake, you’ll come out with a principle. Write down that principle and then operate that in the future.

If you can encode it like I’ve been able to encode it and so on, that helps. And that’s the way that I’ve learned for the most part.

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Bridgewater's Ray Dalio, founder of the world's largest hedge fund, joins Henry Blodget, CEO and editor-in-chief of Business Insider, to discuss what's next for him. Following is a transcript of the video.

HENRY BLODGET: Having had the success you’ve had, coming to a later stage in your life, what do you, as you look back and your next 10 years, what do you want your legacy to be?

RAY DALIO: We go through our stages, right? So I would say, there are three stages in life, the way I look at it. There’s the first stage in life where you’re learning and you’re dependent on others. You’re a student and so on.

When you come out of [being] a student and then you’re working and increasingly, others are dependent on you, you have kids. That’s the second stage.

In your third stage of life, as your next generation goes on to their second [stage], your responsibility and I feel it very naturally, is to help others succeed without you. That is at the stage where I’m at.

The greatest joy that I have is no longer for me to go out there and be successful again and to do this. I enjoy playing the games. It’s great. But the greatest joy that I have is in helping others be successful without me. So that’s my role, that’s my current role. And I think that’s very natural. And that’s why I want to sort of pass along the things that are helpful. 

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Since it was invented over 200 years ago, the wristwatch has been an integral component of men's fashion.

In addition to their practical functionality of telling time, a watch serves as a collectible piece of art that communicates the personality and style of its wearer.

With the help of Crown and Caliber, an Atlanta-based preowned-luxury watch marketplace, we've put together a list and commentary about the wristwatches worn by some of the most powerful men in the financial services industry.

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Bridgewater Associates founder and co-CIO Ray Dalio thinks that democracy is being threatened.

In a LinkedIn post published Monday, Dalio said that democracies are healthy when the principles "that bind people are stronger than those that divide them." In turn, "democracies are threatened when the principles that divide people are more strongly held than those that bind them and when divided people are more inclined to fight than work to resolve their differences."

Critically, we've now hit a point where the latter seems to be true, Dalio said.

"Conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation," he said. 

Dalio wrote that "it seems to me that we are now economically and socially divided and burdened in ways that are broadly analogous to 1937," and that "politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes," but in a way that is similar to that same year.

The note cites inequality and political divisions, and follows the deadly violence in Charlottesville, Virginia, the weekend before last, and protests in Boston over the weekend. In January, the Economist Intelligence Unit deemed the United States a "flawed democracy," stating that the rise of American populism resulted from extremely low levels of trust in government.

Bridgewater is the world's largest hedge fund, with about $160 billion in assets. While three of Bridgewater's four funds have struggled this year, Dalio has increased his public profile ahead of the release of his first book, "Principles: Life and Work."

Dalio was the lead author of a 61-page Bridgewater research paper released publicly in March that explored global populist movements of the 20th century and compared them to current movements, including the ascendency of President Donald Trump.

The language of the post on Monday reflects the thesis of "Principles: Life and Work," the first of two planned books, the second focused on his economic theories. Dalio runs his life and his business according to the principles that he develops based on his experiences so that they may serve him well in the future.

He applies this view to everything in life, including his concern that while he doesn't expect there to be an economic crisis on the horizon, he fears that increased strife could be leading to government inefficiency and other conflicts.

"I believe that this is a time when it is especially important for us a) to be explicit about what our principles are in order to be clear about what we agree and disagree on, b) to practice the art of thoughtful disagreement, and c) to respect our ways of getting past our disagreements so we can start rowing in the same direction," he wrote.

You can read Dalio's full post on LinkedIn.

SEE ALSO: 'Deep divisions across our country': Here's the memo that just went out to JPMorgan staff

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NOW WATCH: Hedge fund legend Ray Dalio to individual investors: Market timing is 'like playing poker' against world's best

• Ray Dalio runs Bridgewater Associates, the world's largest hedge fund, according to the principles of "radical truth" and "radical transparency."
• Employees rate each other across over 100 attributes on a 1-10 scale in an iPad app called "Dots."
• Dalio demoed the app to the TED 2017 audience in April, now publicly available to watch.

At Bridgewater Associates, the world's largest hedge fund, all 1,500 employees are constantly rating each other across more than 100 attributes on a 1-10 scale.

In a newly released presentation from the TED 2017 conference in April, Bridgewater founder, chairman, and co-CIO Ray Dalio explained to the audience how this approach fit into his life philosophy.

"My objective has been to have meaningful work and meaningful relationships with the people I work with, and I've learned that I couldn't have that unless I had that radical transparency and that algorithmic decision-making," he said. "I want to show you why that is. I want to show you how it works."

Dalio founded Bridgewater in 1975 out of his apartment, and today the Westport, Connecticut-based firm has $103 billion in hedge fund assets and $150 billion in total assets under management. Dalio attributes his firm's success to the investing principles he began developing in the '80s and the management principles he began developing in the '90s.

"Dots" is a proprietary iPad app that is a crucial element of radical transparency at Bridgewater, and Dalio gave a demo to the TED audience.

"I warn you that some of the things that I'm going to show you probably are a little bit shocking," he said.

SEE ALSO: The head of the world's largest hedge fund says going broke in 1982 was the 'best thing that ever happened' to him

Dalio pulled up footage of a research team meeting held a week after Donald Trump's presidential victory, where they forecasted economic results of his upcoming presidency.

The footage was available because nearly every meeting is recorded at Bridgewater, primarily so that they may be cited in company-wide emails or weekly teaching assignments.

All employees at the meeting had Dots running on their iPads. There are more than 100 total attributes to choose from, and measure aspects like values and thinking.

Dalio highlighted one of the employees at the meeting, 24-year-old Jen. She felt that Dalio did not hold up to his own standards in the meeting.

Dalio has long said that one of his favorite aspects of his culture is that employees fresh out of college can give him, the founder of the company, harsh critiques without fear of retribution. In fact, they're encouraged to do so, if the situation calls for it.

Bridgewater Associates’ three main hedge funds made money in August — but only one of them is positive for the year. While firm founder Ray Dalio is not saying what has worked and not worked this year for the macro firm, he has nevertheless raised his public profile considerably in recent months and is increasing it even more this month.

Bridgewater, the world’s largest hedge fund firm, posted profits last month in its Pure Alpha strategy. For example, Pure Alpha II, also known as Pure Alpha 18 percent, rose about 0.35 percent in August, trimming its loss for the year to 2.43 percent. Pure Alpha I, also known as Pure Alpha 12 percent, returned about 0.25 percent last month, cutting its loss for the year to 1.34 percent. All Weather, the hedge fund firm’s risk parity strategy, gained about 2.5 percent in August and is now up about 8.5 percent for the year.

Dalio and the company did not comment for this story, and the firm generally likes to keep a very low profile. That said, Dalio these days seems to be discovering his inner Bill Ackman.

On September 19, Dalio, who has received a lot of attention over the past few years for his firm’s philosophy of “radical transparency” and its handbook of principles based on the idea, is releasing his book — appropriately titled Principles — in which he shares the ideals behind his and Bridgewater’s success. On Tuesday, he will be speaking at the Delivering Alpha conference, which is co-sponsored by Institutional Investor and CNBC.

Dalio has also been conducting on-the-record interviews, and on Wednesday his public relations firm circulated his recent Ted Talk , where he talks about his principles, how the firm uses algorithms to make decisions under its idea meritocracy system, and why Dalio believes it has enabled his funds to post profits in 23 of the past 26 years.

The 68-year-old Queens, New York native also talks about discovering his love for trading the markets at 12, when he tripled his money on Northeast Airlines with money he earned caddying. At the time he thought it was easy.

However, Dalio learned otherwise in the late 1970s and early 1980s, when he bet on what he thought was a looming debt crisis: He thought American banks were lending a lot more to emerging countries than they could pay back. He even testified to Congress about it and appeared on the then-legendary television show Wall Street Week with Louis Rukeyser. “While the debt crisis happened, the stock market went up,” Dalio recalled during his Ted Talk. He lost so much money for clients he was forced to borrow $4,000 from his father to pay his family’s bills.

“It was one of the most painful experiences,” Dalio concedes, but it turned out to be one of his best experiences. He says it changed his attitude toward decision making. He said rather than thinking he’s right, he changed his thinking to learn how he is right.

That’s when he set out to create an idea meritocracy, whereby the best ideas win out. And in order to do that, Dalio stressed he needed radical truthfulness and radical transparency. He encouraged people to say what they believed in, taping all conversations and letting everyone see them.

“That’s how we run our investment business,” Dalio adds.

Decisions are based on algorithms that take people’s believability into consideration based on their historical thought and idea patterns.

“We do it because it eliminates what I believe is one of the greatest tragedies of mankind — people arrogantly, naively holding opinions that are wrong and acting on them and not putting them out there to stress-test them,” he elaborates. “This elevates us above our own opinions. Collective decision making is so much better than individual decision making if done well. This is the secret sauce behind our success.”

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Billionaire hedge fund manager Ray Dalio says that Chinese leadership is still trying to figure out US President Donald Trump. 

When asked to characterize Chinese leadership's feelings on Trump thus far, Dalio responded: "Quizzical."

"I found the Chinese leadership to be intelligent, having equanimity," and akin to good chess players, Dalio told an audience of Wall Street money managers at the Delivering Alpha conference on Tuesday, September 12.

"They're in the process of figuring out what the new administration is like," he continued. 

Trump has had a mixed record with China thus far, backing off adamant claims during his campaign that the country manipulates its currency, but more recently threatening trade spats with the world's second-largest economy.

He recently initiated a national security review of America's use of Chinese steel, a thinly veiled first step aimed at increasing protectionism in the sector, according to Pedro da Costa. 

Dalio, the founder of $160 billion firm Bridgewater Associates, has long had a fascination with China, and few US investors have matched the significant inroads into the country that Dalio has made.

The world's largest hedge fund is preparing to launch a large investment fund within China. 

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Ray Dalio is without doubt a member of the master class of the world’s investors. He runs Bridgewater Associates, one of the most successful and the largest hedge funds in the world.

Similarly, like many of the Investment Masters, Ray believes in seeking the truth by testing investment ideas, learning from mistakes and remaining humble. This was never more evident than in his experience in predicting the Debt Crisis in the early 1980’s. Whilst his prediction was uncannily accurate, Ray also predicted that the stock market would fall at the same time. The reality was something different, however, and when the market actually rose instead, Ray lost so much of his own and client’s capital that he was forced to let go all of his staff, and had to borrow $4,000 from his father to simply pay his household bills. It’s fair to say that Ray felt the pain of his mistake deeply. Ray stated that the pain of this error allowed him to change his attitude towards mistakes, and to see them as puzzles that needed to be solved instead. It also allowed him to start asking himself what he would do differently in the future to avoid the pain.

“I believe that anyone who has made money in trading has had to experience horrendous pain at some point. Trading is like working with electricity; you can get an electric shock.  With the pork belly trade and other trades, I felt the electric shock and the fear that comes with it. That led to my attitude: let me show you what I think, and please knock the hell out of it”  — Ray Dalio

“I met a number of great people and learned that none of them were born great. They all made lots of mistakes and had lots of weaknesses – and that great people become great by looking at their mistakes and weaknesses and figuring out how to get around them.” — Ray Dalio

Other Investment Masters have also learnt the same lesson.

“I lost my stakes a couple of times, which taught me risk control and risk management. Losing those stakes in my early 20s gave me a healthy dose of fear and respect for Mr. Market and hardwired me for some great money management tools.”  — Paul Tudor-Jones

“My dad was a retail pharmacist and after I started attending law school he said “well you have to learn how to be an investor”. He and I traded tiny amounts of tech stocks and mining stocks together. So I became very interested in markets and trading. In the period of time from 1967-1974 he and I found just about every possible way conceivable to lose money. So when I started Elliot in 1977 I was determined to engage in a trading strategy that made money all the time. So for the first 10 years of Elliot’s existence the primary strategy was convertible bond hedging”  — Paul Singer

“I went into this tech stock with 100% short position, and all the money I saved up because I thought I had this one locked down. We had fully positioned ourselves, myself and all my customers and clients I was advising, and then a technology writer dubbed the company the ‘Son of Intel’.  The stock went promptly from about $16 to $40. I got margin called all the way up until I was completely wiped out. I lost all of my money. I was apoplectic. I thought the world was going to end. I remember that like it was yesterday. That was the greatest thing that ever happened to me – losing all of my money on something where I knew I was right. From an investing perspective, getting completely wiped out and thinking it was the end of the world, and thinking I was an abject failure, and this investing thing wasn’t for me. Looking back at it, it couldn’t have happened at a better time in my life. You want that to happen as early in your career as it can and you want it to be the most devastating blow that could possibly hit you, to teach you, to bring humility into your investing and teach you that you should never set yourself up for the knockout punch. It teaches you never to put 100% into anything. It teaches you a lot about sizing, it teaches you a lot about life, no matter how much you think you have your arms around a situation, you never do”  — Kyle Bass

It was the recognition of the need to learn from mistakes that led to the development of Ray’s Principles.

“You have to learn from mistakes to keep getting better. And it’s through learning from those mistakes that you learn what reality is and how to deal with it, which is called Principles“

Interestingly, Ray is about to release a new book entitled ‘Principles‘. This will be an absolute must-read and I have already pre-ordered it. Ray released the first document titled ‘Principles‘ on the Bridgewater Associates website back in 2011. The original ‘Principles‘ focuses on Ray’s most fundamental truths about life and in addition, his beliefs and ideals regarding people management. Over the years I’ve often referred back to the original text, and while Ray has updated it in the new book, the original document remains a favourite of mine.

Bridgewater Associates investment style differs from many of the Investment Masters in so much as they invest across a broad spectrum of asset classes and regions, both long and short, and seek approximately 100 different return streams that are roughly uncorrelated to each other. While there isn’t a lot of commentary on investing per se in the original ‘Principles’ document, it does include the psychological insights and approach to learning that parallel with other great investors and give Bridgewater their edge.

This is evident in the company’s employment philosophies. On the Bridgewater Associates website’s career page, they ask potential employees to ask themselves a number of questions before applying to work there. These include:

“Do you want to: Discover your strengths and weaknesses? Work to get better fast? Put aside ego barriers to learning? And, demand others to be truthful and open, and are you prepared to to do the same?”

In conjunction with the release of the new book, Ray has given a very insightful Ted Talk where he discusses the processes he developed to successfully navigate the markets. Ray describes himself as a hyper-realist; he’s a broad thinker who meditates and recognizes there are many lessons to be learnt from nature and history. It was by studying history that provided Ray with the insights to anticipate the Global Financial Crisis.

It’s no surprise Ray features prominently throughout the tutorials included in the Investment Masters Class. Here’s a taste of some of the Principles which are behind Ray’s success..

“I learned that failure is by and large due to not accepting and successfully dealing with the
realities of life, and that achieving success is simply a matter of accepting and successfully
dealing with all my realities.”

“I learned that finding out what is true, regardless of what that is, including all the stuff most people think is bad—like mistakes and personal weaknesses—is good, because I can then deal with these things so that they don’t stand in my way.”

“I learned that there is nothing to fear from truth. While some truths can be scary—for example, finding out that you have a deadly disease—knowing them allows us to deal with them better. Being truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to the feedback that is essential for our learning.”

SEE ALSO: 6 life lessons from Warren Buffett

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Bridgewater Associates founder Ray Dalio is on tour for his first book, "Principles: Life and Work" and it's one of the last times you'll see him embrace the spotlight, he told Business Insider.

As the head of the world's largest hedge fund, with $150 billion in total assets under management, Dalio generally avoided the media for the majority of his career.

But when his firm gained increased interest in the mainstream media after it emerged strong from the 2007-08 financial crisis, which then led to further interest in Bridgewater's highly unusual culture of "radical truth" and "radical transparency," he became a regular topic of Wall Street coverage.

Dalio, 68, completed his seven-year transition from leading Bridgewater's management this year but remains as chairman and co-CIO. To him, he said, it marked the beginning of the third phase of his life, where he will share with the world the management lessons he's learned — hence the book and its accompanying tour, as well as his complementary TED Talk from April.

But that doesn't mean he's enjoyed putting himself out there. In the introduction to the autobiographical aspect of his book, he notes that he still has "mixed feelings about telling my personal story," and adds "I wouldn't mind if you decided to skip this part of the book."

He told us that while he knew that making himself more public and going on a book tour would be difficult for him, he was faced with a choice to either work through his fear and share his message, or let his principles be analyzed without his input.

"When you have discomfort, do you let discomfort stand in the way of doing what you think is the right thing?" he said, about this final choice he faced as head of management. "And I couldn't make my last decision that way. I didn't make my other decisions that way. So while it's uncomfortable, it's tolerable, and I feel that I've handled this the way that I needed to handle it."

Dalio will be publishing a second volume of "Principles," on the economy and investing, at an undetermined date likely in the next year or two. Once he's done explaining what he has to, he's going to go dark. "I know that I'm personally going to take a low profile," he said, noting he plans on no longer commenting about his personal life or philosophy.

That said, he thinks he may still publish essays about the economy similar to the approach he's taken on LinkedIn. "I'll wait till it comes and I'll see how it all is," he said. If an unexpected financial crisis happens, for example, he may have to weigh in. "At such times, I feel it might be helpful for me to offer thoughts."

Dalio believes his life philosophy and management approach, in which radically transparent processes are put into place for an "idea meritocracy," could benefit anyone who reads them, regardless of how much or how little they implement into their own lives and companies.

"What people then do with these principles is up to them," he said. "Them being clearly understood rather than distorted was important to me."

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Ray Dalio, the founder of the world's largest hedge fund, has joined the ranks of JPMorgan CEO Jamie Dimon and other top Wall Streeters who think bitcoin, the red-hot cryptocurrency, is in a bubble. 

While speaking on CNBC's Squawk Box Tuesday, the billionaire co-CIO of Bridgewater Associates said "bitcoin is a highly speculative market."

"Bitcoin is a bubble," he added. 

Bitcoin is not alone, according to Dalio, he summed up the cryptocurrency market as "pretty much speculative people thinking 'can I sell it at a higher price,' so it's a bubble."

Dalio's beef with bitcoin, specifically, is that it isn't a good store of value and it's hard to make transactions with, the two criteria Dalio sees as essential for a currency. 

"Bitcoin today you can't make much transactions in it," Dalio said."You can't spend it very easily."

Bitcoin has been dealing with a scaling issue as more people crowd into its network, which was built to process a set amount of information. This has bumped up transaction time and cost and led to a split of the network and an upgrade of its software in August.

Since January 2016, the number of bitcoin transactions per day has mostly hovered around 200,000 to 300,000 according to Blockchain.info, despite an ever-increasing number of users. 

Dalio also doesn't think the cryptocurrency is a good store of value because it is so volatile. The price of bitcoin has swung drastically over the past few weeks amid news of a regulatory crackdown by Chinese authorities. It dropped 16% on Thursday, only to recoup most of its losses on Friday. 

Dalio didn't go as far as Dimon. Last week Dimon called bitcoin a "fraud" while speaking at a Barclays financial conference on September 12. The banker added that he views bitcoin as "worse than tulip bulbs," referring to the arrival and boom of the tulip plant in 17th-century Europe.

Robert Shiller, the Nobel-winning economist and author who predicted the housing and tech bubbles, recently doubled down on his view that bitcoin is a bubble, telling Quartz it was the "best example right now" of one.

Still, the cryptocurrency has proven resilient. Despite pressure from negative headlines and global regulators, bitcoin is trading up 50% since mid-June.

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