David people wouldnt recognize me if my tie was fixed, but ok. Just leave it this way. I dont consider myself a journalist. And nobody else would consider myself a journalist. I began to take on the life of being an interviewer even though i have a day 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 point. Do you see any chance of a recession in 2019 or 2020 . Ray im big on principles, right . So, i think its important 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, you know, whether theres two negative quarters of gdp. We will be hovering fairly close to that level and there are certain variations around it. But the bigger things are a combination of the absence of effectiveness of central bank policies. So, i hope we can talk about those. Together with the wealth gap so , the large wealth gap, so when the next downturn comes, what that will look like socially, and politically and so on. And the elections, which is an issue between, lets say, capitalists and socialists, or the rich and the poor, 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 theyre unique and so when we get into the question of the recession, i think its how that will affect those other things and those things affect it. David in the investment world, your firm was well known for quite some time before the last recession. It was a very successful firm before. But in the last recession, your firm performed extremely well, maybe better than any other major hedge fund. As i recall, you were up 28 or Something Like that during the worst year. Are you anticipating a recession now . Are you changing your investment now . Are you changing your investment approaches or are you not quite where you were in 2007 . Ray in 2007, it was pretty easy , i think, to calculate that there were these debts that were going to come due. And that there was not an adequate amount of funding. And so that sort of debt crisis was something we anticipated and we were positioned well for. When i go through those calculations, it was not the same. In other words, the amount of maturing debt and that problem 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 that we have are large, but theyre going to be coming at us at a more gradual pace and i think that will produce a squeeze. I think related to that, whats important, when you dont have Monetary Policy, being able to be effective, what kind of Monetary Policy we will have. We will have more than likely a lot of debt monetization. David on fiscal policy, theres no room for additional tax cuts. Do you agree . We already have such a big deficit. So you couldnt really cut taxes anymore. Or do you not agree with that . Ray i believe that, in terms of spending, that probably there will probably be increases in spending that will probably not be wellfunded. When you ask about that, i think we have a political question which is relevant to the market. Between now and the elections, we are probably going to have very different policies, policies may be more on the left, more extreme policies and greater polarity and the choice will be greater. And how those are made will be important not only to the size of the deficits, but the nature of taxation. So, i think that, when im looking at the president ial candidates, what i do is i look at what their policies are in , stated policies in terms of any of their various policies. And i look at that as a probabilistic basis. I think when we have to answer that, we cant you might get , after the election, taxes you might get taxes raised on the wealthy or you have corporations. You can reverse those tax policies. And youll probably get an increase in spending. David lets talk about how you came to be, lets say, one of the most respected commentators on economic and financial policy, which is starting your firm. So, you grew up in long island . Ray mmmhmm. David and were you from a wealthy family . Ray no. My dad was a jazz musician. Lower middle class. David when you were a young boy, were you interested in the financial world . What were you most interested in growing up on long island . 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 because it was the only company i ever heard of that was selling for less than five dollars a share. And i figured if i could buy more shares, so if it went up, i would make more 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 went up and i said this game is easy. And i decided i would be involved in the markets. And this game is anything but easy. David so, in high school, were you interested in academics . Were you a good student . Ray no, i hated high school. David did you go to high school . Did you cut classes or what did you do . Ray i cut classes a fair amount. I cut classes to go surfing. David did you have a hard time getting into a good college . Ray i got into c. W. Post college on probation. David on probation . Ray on probation. David ok. But you did well there . Ray i loved college. I loved college because besides all the fun that college gives you, what i liked is that i could pick the subjects i was interested in and so i loved college. David well, you mustve done reasonably 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 go to bridgewater and 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 so in my two years its a twoyear school. In my summer, i liked to trade commodities. I got into trading commodities. This was the summer of 1972. Nobody from Harvard Business school ever went into the Commodity Division. But i went to Merrill LynchsCommodity Division and i said hey, can you give me a job . The director of commodities that summer gave me a job to help him around. 1973, we have the oil shock, bear market in stocks, commodities is the hottest thing. I was hired as the director of commodities at dominic and dominic, having never done anything in the director of commodities. I was hired. You left that to set up your own 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. I went to hayden stone at the time. They did all those mergers. I became in charge of institutional commodities hedging of all different things. That put me with all different futures markets. And then we got in to the environment where 1974, 1975 you got into this environment where interest rates, tightening of Monetary Policy, all of those things were driving the markets. So that got me hooked on those markets. Anyway, i got fired from there because i was a bit rowdy. David did you punch your boss in the face or something . Ray yes, i punched my boss in the face. David thats not a good way to get promoted. Ray but that was it was new years eve. We got drunk on new years eve. David couldnt you punch somebody other than your boss . Or you did not think of that . Ray anyway. [laughter] ray it didnt last long. Thats how i started the firm. The clients 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 well, in 1982, i think there were eight employees. Eight. David and then at one point ray and then i had a terrible 1982. Then it came down to one employee. 1983 or so was just me. David did you have to borrow money from your father . Ray yeah, let me tell you about the moment. 1979, 1980, 1981, i calculated that american banks had lent a lot more money to emerging countries than those countries were going to pay back. And i anticipated that there would be a debt crisis, and with that, an economic crisis. So, that was my thinking. And in august, 1982, mexico defaulted on its debt and a number of countries followed. And because i said that, i got a lot of attention about that. 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. And i was wrong. And as a result of that, i took my eight employees and i had to let them go. I lost money for myself. And i had to borrow 4000 from my dad. It was one of the most painful experiences, but it was one of the best experiences that ever happened to me in my life because it changed my perspective about decisionmaking. It gave me the humility that i needed and fear of being wrong in my decisions while i was able to maintain my aggressiveness. So, it changed my whole approach to decisionmaking. David so, you paid your father back with equity in bridgewater . Or just interest . Ray without interest and with a big hug. [laughter] david ok, so from that time on, you began to rely a lot more on arithmetic or algorithms and that kind of things . Ray no, so the big thing was, and this is the biggest message that i want to get across and try to convey in principles and so on, is that so many people have opinions in their heads that might be wrong and theyre too attached to them. And if you know how to operate with a certain amount of uncertainty and stress test your opinions in a different way, you get away from your ego, get away from all that, and you can learn a lot about raising your probabilities of being right. And so, what it made me want to do is find the smartest people i could find who disagreed with me. And 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. So, i wanted all the upside. But i wanted to be able to control the downside. So i would say the number of lessons that i would like to sort of pass along. First of all, the value of painful mistakes and learning and reflecting on them has been a big, big thing. Finding the smartest people who can work with you. Thats what created an idea of meritocracy at bridgewater. Its that backandforth in terms of the thoughtful disagreement. And then also raising your probabilities of being right in those ways. So, thats humility, that 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 but you now use a lot of computerrelated algorithms to help you navigate the market . Ray algorithms are what we call them today. 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. And then i could find if i used that same algorithm, i could take data and have the computer make decisions in parallel with me. And this is what i recommend for everybody. I recommend they write down their principles and realize that almost any of those principles can be converted into algorithms. And 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 the quality of the decisionmaking, but also the quality of the 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 well, the Financial Success has never been its an inadvertent thing that came largely because i like to play a game, that if you play the game well, you get the money. David bridgewater would not an be said to be an easy place to work. Is that fair . Ray thats fair. David thats fair. Many people say it is an intense environment and some dont survive. Those who do are adopting your principles. 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. And you have to understand your weaknesses as well as your strengths. And so people coming to that are almost of two types. There are the people who say that im excited about that. And theyre excited about that because they said yes, i would like to know my weaknesses as well as my strengths. And i would like to be able to talk about anything and have it thrashed out. And thats who it works for. But it takes getting used to. Because when youre really talking about the strengths, weaknesses, and differences in ideas, our brains have been programmed in a certain way, partially because of genetics and partially because of our environments, in which disagreements is thought of as producing a fighting type of reaction, or weaknesses are something that become a challenge for people to look at. Thats the essence. David so lets suppose im 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, a 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 values means, like, what are the motivations and missions . Skills is least important. Then you look at abilities. And abilities is the way of thinking. Is somebody a big picture thinker . Is somebody creative . And then i want to put together a mix of those right people. Skills, can you program, do you know those things are important, but its the least important. What i look for is character. Character is number one. And to be on a mission. It applies to the particular job they have. When im referring to values, im referring to, is this a person of good character . David over your 30 years as an investor at bridgewater, what is your track record . Every year, you have made money for your investors . Ray 18 out of the last 18 years. David 18 out of the last 18. Ray yes. David thats not too bad. Is it too late to invest with you . [laughter] who can invest with you . Anybody . Any Credit Investor . Ray were closed to new investments in that pure alpha strategy. Our clients are all large institutions. David you have two basic strategies that you provide investors . Ray thats right. And i think that will be helpful for people to understand the nature of that. There is a Strategic Asset allocation mix. What is your best diversified portfolio . If you had no idea what was going to happen, what would you hold . Thats what we call our allweather strategy. Its a portfolio of assets. And then we have what we call our pure alpha strategy. Theres a separation between alpha and beta. Most investors make the mistake of separating those two and thing they are going to make money in the market. In this zerosum game, theyre probably going to lose money from making those bets. The Strategic Asset allocation mix, 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. Thats the alpha strategy. David so, its too late for friends and family to get into your fund . Theres no opening . Youre not going to open anytime soon . Ray no. David ok. 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. Its a very important thing. I would say its the greatest gift that i think i can give anyone. It gives a combination of equanimity, you know, a calmness, so no the matter what is coming at you, you can approach it with calmness. It gives someone creativity because its a process of going into your subconscious mind and relaxing, so its been very helpful. David now, youre one of the wealthiest people in the united states, one of the most successful investors. You have a fair amount of wealth to give away. You were one of the original signers of the giving pledge. What are the philanthropic interests that are most appealing to you . Ray my interests are, i guess i would say two big interests. Im really thrilled about ocean exploration. Thats something thats big deal to me. We donate to many different things. 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 so, when you have the platform you have now as an investor, do you find it easier to meet with heads of state, finance ministers, heads of countries, and do you find that to be appealing to do that and give them your views on these subjects . Ray we find it mutually appealing, yes. I think that, from my point of view, im very interested in the subject matter, but im also interested in being able to have an impact, being able to help. And so sometimes in policies, it has had a big effect in ecb policy or other policies. David so, if somebody came to you 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 thats not for me. 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 been 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, to 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. So, it tests whether i have that knowledge. I love that and im glad that ive taken it to a certain point. And then there are the things i savor even more than that above all else, at 70 years old, is the relationships, the quality of the relationships, that sense of community. Thats what i treasure more than anything. David thank you very much for an interesting conversation. And its a terrific read and i highly recommend it. Thanks for writing it. Ray thank you for having me. [applause] tom he is known as the ambassador of silicon valley, speaking to congress and the white house on issues that matter to the tech community, issues such as privacy, regulation, or the 10 million pentagon contract that microsoft just won. Having spent 26 years of his career working at microsoft alongside bill gates, Steve Ballmer and now satya nadella, brad smith had a front row seat to some of the companys biggest milestones. He is now focused on spreading the message beyond microsofts campus with a new book, tools and weapons, the promise and the peril of the dil