All right. David i dont consider myself a journalist. Nobody else would consider me a journalist. I began to take on the life of being an interviewer even though job of running a private equity firm. How do you define leadership . What is it that makes somebody tick . You are seen as somebody who has said there might be a chance of a recession at some do you see point. Any a chance for recession in 2019 or 2020 . Ray i am big on principles. I think it is port and to understand how the economic Machine Works and so i want to take a few minutes and get into the important things that pertain to a recession. A recession, whether there are two negative quarters of gdp, we will be hovering fairly close to that level, but the bigger things are a combination of the absence of effectiveness of central bank policies. I hope we can talk about those, together with the wealth gap so when the next downturn comes, what that will look like socially, politically and so on. The elections, which is an issue between capitalists and socialists and then the emergence of china in relationship to the united states. Those four factors are factors that have not existed since the 1930s. I think they are unique and so when we get into the question of the recession, i think it is how they will affect those other things and those things affect it. David in the investment world, your firm was well known for some time before the last recession, a very successful business before, but in the last recession, your firm performed extremely well. Better than any other major hedge fun. You are up 28 or Something Like that during the worst year. Our you anticipating a recession now . Are you changing our investment approaches or are you not quite where you were in 2007 . Ray in 2007, it was pretty easy to calculate what we were going to come to and so that sort of crisis was something we anticipated and positioned well for. When i go through those calculations, it is not the same. In other words, the amount of maturing debt in that doesnt look the same. It looks more like a gradual squeeze having to do with quite a lot of debt of a certain type. But with that, also pension liabilities and health care, particularly as that produces a greater squeeze. We have large deficits. So the amount of promises we have are large, but they are going to be coming at us at a more gradual basis and i think that will produce a squeeze. I think related to that is when you dont have Monetary Policy, being able to be effective, what kind of Monetary Policy we will have. We will likely have a lot of debt monetization. David on fiscal policy, theres no room for additional tax cuts. Do you agree . You couldnt really cut taxes anymore. Or do you not agree with that . Ray i believe in terms of spending, there will probably be an increase in spending that will probably not be wellfunded. You ask about that, i think we have a political question which is relative to the markets. Between now and the elections, we are probably going to have very different policies, policies more on the left, more extreme policies and greater polarity and the choices will be greater and how those are made will not only be important to the size of the deficits, but the nature of taxation. When im looking president ial candidates, what i do is i look at what their policies are in terms of any of their various policies. I think when we have to answer might getant, you taxes raised by the wealthy or you have corporations and you can reverse those tax policies and you will probably get an increase in spending. David lets talk about how you came to be lets say one of the most respected commentators on on economic policy, which is starting your firm. You grew up in long island. Where you from a wealthy family . No. My dad was a jazz musician. Lower middle class. David when you were a young boy were you interested in the financial world . Ray i got hooked on the markets when i was 12. I used to caddy and i would take my money and put it in the markets. Everyone was chatting about the markets. David how did you do . Ray the first stock i bought was the only company i ever heard of for less than five dollars a share. I figured i could buy a share i wouldt went up increase my money. That was my strategy. David did it work . Ray it worked because the company was about to go broke and someone came along and acquired it and luckily it when up and i said this game is easy and i decided i would be involved in the markets. This game is anything but easy. David in high school, were you interested in academics . Were you a good student . Ray no, i hated high school. Go to school . Did you cut classes or what . Ray i cut classes a fair amount. To go surfing. David did you have a hard time getting into a good college . Ray i got into college on probation. David but you did well there . College. Ved besides all the fun that college gives you, what i like is that i could take the subjects i was interested in and so i loved college. David you mustve done well because you got into Harvard Business school. Ray i got great grades. David lets suppose i am a Young College graduate and i want to make money and learn. What is it that you look for . Ray when i look at people, i look at them in three dimensions of a person. David when you graduated, what did you do . Ray it is a twoyear school. In my summer, i liked to trade commodities. This was the summer of 1972. Nobody from Harvard Business school ever went into the Commodity Division. I went into the Commodity Division of merrill lynch. The director of commodities that summer gave me a job. In 1973, we have the oil shock , bear market in stocks, commodity is the hottest thing. I was hired as the director of commodities at dominic and dominic, having never done anything. David you left that to set up your own firm . Ray yes. That was 1973, 1974, big bear market in stocks. Dominic and dominic went broke. To hayden stone at the time. It did all of those mergers. I became in charge of institutional commodities and hedging of all different things. That put me with all different futures markets. Then we got into the environment where 1974, 1975, got into this environment where there were interest rates, tightening of Monetary Policy all of those , things were driving the world market. That got me hooked on those markets. I got fired from there because i was a bit rowdy. David did you punch your boss in the face . Ray yes, i punched my boss in the face. It was new years eve. We got drunk on new years eve. David did you punch somebody other than your boss . Or you did not think of that . Ray anyway. It did not last long. That is how i started the firm. The client still wanted to do business with me. David what year was that . Ray 1975. David it grew from one or two employees to how many . Ray in 1982, i think there were eight employees. And then i had a terrible year. David and then it came down to one employee. Did you have to borrow money from your father . Ray let me tell you. I calculated that american banks had lent more money to merging emerging countries than those countries were going to pay back. I thought there would be a debt crisis and with that in economic crisis. That was my thinking. In august 1982, mexico defaulted on its debt and a number of countries followed. Because i said that, i got a lot of attention and i thought that was going to be producing a bear market in stocks and i could not have been more wrong. August 1982 was the bottom of the stock market. I was wrong. As a result, i took my eight employees and i had to let them go. I lost money for myself. I had to borrow 4000 from my dad. It was one of the most painful experiences, but one of the best experiences that ever happened to me because it changed my perspective about decisionmaking. It gave me the humility i needed and fear of being wrong and my wrong in my decisions, while i was able to maintain my aggressiveness. So it changed my whole approach to decisionmaking. David you paid your father back with equity in bridgewater . Or just interest . Without interest and a big hug. [laughter] david from that time on, you begin to rely a lot more on algorithms and other things. Ray no, the big thing was, and this is the biggest message that i want to get across in try to convey in principles and so on. So many people have opinions in their head that might be wrong and they are too attached to them. If you know how to operate with a certain amount of uncertainty, you get away from your ego, get away from all that and you can learn a lot about raising your probabilities of being right. It may be want to find the smartest people i could who disagreed with me. Then i could have conversations with them and only after i found the smartest people who i could find who disagreed with me would i be able to make a decision. In addition, to know how to improve my return to risk ratio by being able to diversify well. I wanted all of the upside. But i wanted to be able to control the downside. I would say that there are a number of lessons that i would like to sort of pass along. The value of painful mistakes and learning and reflecting on them has been a big thing. Finding the smartest people who can work with you. That is what created the idea of meritocracy at bridgewater. It is that backandforth in terms of the thoughtful disagreement. Also raising your probabilities of being right in those ways. That humility and fear of being wrong combined with the audacity to go for the Great Results and how to do that well is really the most important thing i learned. David you now use a lot of computerrelated algorithms to help you navigate the market . Ray equations is what we used to call them. You would write that down. What i learned is, by being clear, i can tell how that decision would have worked in the past in all different environments. So it gave me a lot of perspective on making that decision. I could test it through the Great Depression and so on. I could take that same algorithm and have data and make computer and have the computer make decisions in parallel with me. This is what i recommend for everybody. Write down your principles. Realize that almost any of those principles can be converted into algorithms. So the computer was making decisions in parallel with me making decisions. That type of partnership between me and the computer and also expressing the algorithms was invaluable, not only in decisionmaking, but also the quality of relationships that i had with the people i worked with. David the greatest pleasure of your life is your family, your Financial Success, giving away money . What do you most enjoy . Ray Financial Success has never been it is an inadvertent thing that came largely because i like to play a game, and if you play it well, you get money. David bridgewater is not an easy place to work. Is that fair . Ray people love it or hate it. David you have a big attrition rate from young people coming in . Ray i would say the first 18 months, about 30 . We have protocols. You have to understand your weaknesses as well as your strengths. People coming to that are almost of two types. There are people who say that i am excited about that. They are excited about that because they said yes, i would like to know my weaknesses as well as my strengths. I would like to be able to talk about anything and have it thrashed out. That is who it works for. But it takes getting used to. You are really talking about the weaknesses, and differences in ideas. Our brains have been programmed in a certain way because of genetics and partially because of environment in which disagreement is thought of as producing a fighting type of reaction or weaknesses are something that become a challenge for people to look at. That is the essence. David lets suppose i am a Young College graduate. I want to go to bridgewater. Make money and learn. What would be the qualities you would look for in me to make it likely that i would succeed . Do you want someone that is the first in the class, student body president , an athlete, what is it that you look for . Ray when i look at people, i look at them at three dimensions of a person values, abilities, and skills. Most Companies Hire for skills. I believe it should be the other way around. I look at their values what are the motivations and missions . Skills is least important. Then, you look at abilities. Abilities is the way of thinking. Is somebody a big picture thinker, creative . I want to put together a mix of those right people. Skills are important, but it is the least important. What i look for is character. Character is number one. To be on a mission. It applies to the particular job they have. When i am referring to values, im referring to, is this person the good character . David over your 30 years as an investor at ridge water, bridgewater, what is your track record . Every year you have made money . Ray the last 18 years. David not too bad. Is it too late to invest with you . [laughter] who can invest with you . Anybody . Any Credit Investor . Ray we are closed to new investments in that strategy. Our clients are all large institutions. David you have two basic strategies that you provide investors . Ray thats right. I think that will be helpful for people to understand the nature. There is a Strategic Asset allocation. What is your best diversified portfolio if you had no idea what was going to happen . What would you hold . That is what we call our all weather strategy. Then we have our pure alpha strategy. There is a separation between alpha and beta. Most investors make the mistake of separating those two and think they will make money in the market. In this zerosum game, they will probably lose money for making those bets. The Strategic Asset allocation mix, just the allwhether beta piece, and then there is the alpha. In other words, now i think it is a good time to move this way or that way. David it is too late for friends and family to get into your fund . There is no opening . You are not going to open anytime soon . Ray no. David an important part of your life has been transcendental meditation. You do this twice a day. When did you start and whys it so important to you . Ray i started in 1969 because the beatles did it. I learned about it. It is a very important thing. I would say it is the greatest gift i think i can give anyone. It gives a combination of equanimity, a calmness no the matter what is coming at you, you can approach it with calmness and it is a process of going into your subconscious and relaxing, so it has been very helpful. David now you are one of the wealthiest people in the united states. One of the most successful investor. You have a fair amount of wealth to give away. You are one of the original signers of the giving pledge. What are the philanthropic answers that are most appealing to you . I would say to big interests. Im really thrilled about ocean exploration. That is something that is really exciting to me, but we donate to many different things. And an important thing for my wife and for me has to do with the education of disengaged and disconnected students those who , would not get through high school. David when you have a platform you have now as an investor, do you find it easier to meet with heads of state, finance ministers, heads of countries and defined that appealing to give your insight on the subjects . Ray we find it mutually appealing. I think from my point of view, im very interested in the subject matter, but im also interested in being able to have an impact and being able to help. Sometimes in policies, it has had a big effect in ecb policy or other policies. David if someone came and said i would like you to be the chairman of the fed or the secretary of the treasury, would you ever go in for government or is that not for you . Ray i would never go into that. David the greatest pleasure of your life is your family, your Financial Success, giving away money . What do you most enjoy. Ray the Financial Success is an inadvertent thing that came largely because i liked to play a game that if you played the game well, you get the money. The Financial Success has never yes, taking care of my family and living adequately has been a nice thing to have. But, no, for me, the most important thing in terms of saving has really been relationships. Meaningful work and meaningful relationships. These are the most important things. Im on a mission to have a passion to work with people i like, understand the subject well. I love my game because it forces me to understand macroeconomics of the world and to bet on it in relationship to other people. It tests whether i had that knowledge. I love that and i am glad that ive taken it to a certain point and then there are the things i savor even more than that above everything else, at 70 years old , is the relationships, the quality of the relationships, that sense of community. That is what i treasure more than anything. David thank you very much for an interesting conversation. It is a terrific read. I highly recommend it. Thank you for writing it. Ray thank you for having me. 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