Introduction:

In a special follow-up episode of the Tony Robbins Podcast, Tony Robbins and Ray Dalio discuss principles and advice concerning market investments and psychology. The episode is intended to provide practical and personal advice based on core principles of investing.

Struggles and Opportunities:

Ray Dalio begins by pointing out the importance of challenges in life, stating that crisis often serves as a catalyst for breakthroughs. He suggests that most of life’s greatest opportunities come from moments of struggle. This ties into the market discussion, as market crises often create investment opportunities.

Market Conditions and the Fed:

Tony Robbins addresses the concern that the current market is highly influenced by the Federal Reserve and asks Ray Dalio for advice on how individual investors should think about dealing with inevitable market crashes. This question reflects broader investor concerns about market valuations.

Psychology and Markets:

Ray Dalio indicates that market behavior is closely tied to psychology. He notes that the average investor tends to buy at market highs and sell at lows, due to emotional reactions. Dalio highlights the necessity of understanding one’s psychological inclinations in order to make effective investment choices.

Two Approaches to Investing:

Dalio outlines two main approaches for investing: seeking balance and market timing. The balance approach involves maintaining a diversified portfolio to weather market fluctuations. Market timing, on the other hand, involves actively buying and selling based on market conditions. Dalio warns against trying to time the market, describing it as playing poker against professionals.

Importance of Balance:

Dalio emphasizes that the individual investor should focus on maintaining a balanced portfolio. A balanced portfolio mitigates losses because when one part of the portfolio goes down, another part goes up. This balance allows investors to buy at lows and sell at highs, rebalancing their portfolios to maintain equilibrium.

Risks of Market Timing:

Dalio also cautions against attempting to time the market, stating that competing in markets is more difficult than competing in the Olympics. He mentions that his firm spends hundreds of millions on information and analysis to compete, making it a tough game for the average investor.

Statistical Reality:

Tony Robbins points out that missing even the top 10 trading days in a 20-year period can significantly reduce average returns. This supports Dalio’s argument against attempting to time the market, emphasizing that even slight missteps can be costly.

Buyers and Sellers:

Both Robbins and Dalio agree that in the aftermath of market plunges, the best days often follow the worst. Dalio notes that the sellers during these times are often reactive and panicked, while the buyers are those who understand value. This underscores the importance of keeping a balanced approach to investing.

Conclusion:

The conversation stresses the importance of understanding both market psychology and practical investing approaches. Dalio recommends focusing on balance rather than attempting to time the market, while Robbins underscores these points with statistics and real-world observations. Both speakers aim to equip investors with the knowledge and strategy to navigate volatile markets wisely.

Clarifying Terms:

Ray Dalio initiates the conversation by making a clear distinction among Bitcoin, blockchain, and digital currency. He emphasizes that these terms are often confused, and lays the groundwork for discussing each aspect separately.

Roles of Currency:

Ray Dalio describes two primary purposes of currency: as a medium of exchange and a storehold of wealth. He explains that when someone invests in bonds or keeps money in a deposit, the expected currency value is a significant factor.

Shortcomings of Digital Currencies:

He points out that digital currencies currently fail in serving as either an effective medium of exchange or a reliable store of wealth. The underdeveloped infrastructure makes them impractical for everyday transactions. Their extreme volatility also makes them a risky store of value.

Blockchain Technology:

Ray Dalio identifies blockchain as a transformative technology that underpins digital currencies. He compares blockchain’s potential influence to that of the internet but cautions that betting on any specific digital currency like Bitcoin is speculative.

Speculative Nature and Future:

Ray Dalio states that the market for digital currencies is largely speculative. He raises the question of whether Bitcoin will become obsolete like Blackberry, given the rapid evolution of blockchain technologies. Ray Dalio also suggests that central banks may adopt blockchain for digital versions of their currencies, which would operate differently from existing digital currencies.

Investment Caution:

He concludes by posing a question to potential investors: are you speculating on the future of a specific digital currency, or do you believe in the underlying blockchain technology? Ray Dalio emphasizes that investing in the idea of blockchain technology is different from investing in specific digital currencies, which poses challenges for investors.

Technology and Long-term Investment:

The primary speaker, Ray Dalio, explores the complexity of investing in technology, specifically mentioning Bitcoin. He observes that most current investments in this space are speculative in nature, implying short-term buying and reselling rather than long-term strategy. Ray Dalio raises concerns about the bubble-like nature of such investments, owing to the lack of a stable grounding.

Balanced Portfolio:

Ray Dalio also talks about the importance of a balanced investment portfolio, emphasizing that this approach helps in buying low and selling high. He mentions that his own investments, including those for his family and foundation, follow this balanced strategy.

Common Traits of Successful People:

Ray Dalio delves into the common qualities that successful individuals such as Jeff Bezos, Elon Musk, and Bill Gates share. Key traits include a compelling need to close the gap between present reality and envisioned future, an open-minded yet determined approach, and a keen understanding of risk and reward. They are also capable of seeing both the big picture and the minute details, whether by themselves or through effective partnership with others.

The Power of Partnership:

He explains that effective partnerships stem from a willingness to work with people who complement your skills, making up for areas where you may lack. Successful people know how to combine vision with execution, often by forming teams with the right expertise. They are also versatile, being both creative and structured, qualities usually thought to be mutually exclusive.

Intellectual Humility:

Lastly, Ray Dalio notes that many successful people are voraciously curious and have high levels of humility. They often seek out smart people who disagree with them to challenge their ideas and ensure they’re on the right path. This intellectual humility enables them to continuously learn and adapt.

This discussion offers valuable insights into the complexities of technology investments, the importance of a balanced portfolio, and the traits that often lead to significant success.

Character Differentiation:

Ray Dalio emphasizes that a significant trait setting people apart is the ability to go beyond their own opinions and see things from others’ perspectives. Those who are open-minded enough to consider different viewpoints, yet assertive enough to contribute to a dialogue, are more likely to grow.

The Idea Meritocratic Relationship:

Ray Dalio introduces the concept of an “idea meritocratic relationship,” which involves not just one person being in charge and the other following. He identifies this as a better relationship structure that can be applied in various contexts, from partnerships to family relationships.

Three Steps to Idea Meritocracy:

Ray Dalio lists three crucial steps to establish an idea meritocratic relationship. First, both parties should lay their honest thoughts on the table. Second, they should engage in thoughtful disagreement, viewing differing opinions as an avenue for growth rather than a conflict. Finally, if disagreements persist, there should be an agreed-upon mechanism for resolving them.

Protocols for Resolving Disagreements:

Ray Dalio provides some examples of protocols for resolving disagreements in partnerships, including third-party arbitration, flipping a coin, or more complex methods like ‘believability weighted decision making.’ This latter approach assigns scores to individuals based on their ‘believability,’ providing a structured way to resolve conflicts.

Importance of Open Decision-Making:

Ray Dalio reiterates that decision-making is a two-step process: absorbing information and then deciding. Failing to take in alternative viewpoints before making a decision is described as foolish. Openness in this regard does not compromise one’s ability to make a firm decision.

Believability Weighting:

Ray Dalio briefly describes the concept of ‘believability weighting,’ a system where each person’s believability is scored using an agreed-upon system. This is particularly useful in complex decision-making situations, like choosing a treatment for a serious disease, where varying degrees of expertise must be accounted for.

This segment underscores the need for both open-mindedness and assertiveness in decision-making and relationship building, advocating for a more balanced and meritocratic approach.

Consulting Multiple Experts:

Ray Dalio advises that one of the smartest moves someone can make, particularly in complex situations like health issues, is to consult multiple experts who are willing to disagree with each other openly. This not only provides a more comprehensive view but can also offer valuable education.

Green Light Scenario:

If all consulted experts agree on a particular course of action and it makes sense, Ray Dalio suggests that this is a green light to proceed with the recommended plan.

Weighted Decision-Making:

At the end of consultations, a decision has to be made. Ray Dalio emphasizes that smart decision-making involves weighing the assessments based on the believability and expertise of the consulted doctors. This extends to other types of partnerships as well.

Pre-arranged Mechanisms for Disagreement:

Ray Dalio stresses the importance of having an agreed-upon way to resolve disagreements, ideally established in advance. Otherwise, the disagreement can devolve into a counterproductive argument.

Common Resolution Method:

The most common and effective way for many people, according to Ray Dalio, is to mutually agree on a trusted third party who can provide guidance or even make the decision. This method avoids conflict while seeking an objective resolution.

The Value of Curiosity and Respect:

The other speaker acknowledges the wisdom of Ray Dalio’ approach. Looking at disagreements with both curiosity and respect is a powerful combination that can lead to truth, creativity, and connection, maintaining openness while allowing for personal growth.

Transitioning Roles and Future Plans:

Although not fully elaborated, Ray Dalio mentions stepping down from his role as co-CEO and talks about his future involvement in Bridgewater and other projects. This suggests an evolution in Ray Dalio’ career and the potential for new initiatives.

The segment emphasizes the importance of leveraging multiple expert opinions, especially when they disagree, to make more informed decisions. It also advocates for setting up pre-arranged mechanisms for resolving disagreements, highlighting the necessity of balancing curiosity and respect in any decision-making process.

Empowerment Through Self-Reliance:

Ray Dalio discusses his primary mission, which is to empower people to be great without his guidance. He aims to create self-reliant individuals capable of navigating life’s challenges.

Multiple Passions:

Ray Dalio shares that he engages in various interests like market trading, spending time with family, and ocean exploration. Despite his busy life, his passions drive him, and he continues to find joy in them.

Passing Down Wisdom:

Ray Dalio talks about writing a book that encapsulates all the wisdom and advice he wants to pass on, not just to his grandkids but to anyone willing to read it. He believes that by sharing his insights, he creates a lasting impact even when he’s no longer around.

Importance of Individual Principles:

Ray Dalio emphasizes the significance of having one’s own set of principles. He points out that the decline in religious affiliation has led to a loss of shared community principles. Thus, he suggests that everyone should reflect on and clearly define their own principles.

Era of Individualism:

According to Ray Dalio, we are in an era focused more on individualism than communal beliefs. The transition to a new era would require individuals to write down and be clear about their guiding principles.

Principles as Social Glue:

Ray Dalio argues that shared principles can either bind people together or divide them. He sees a gap in current society, as many have lost sight of common principles that could unite them. He encourages everyone to identify or create these foundational beliefs.

Practical Application:

Ray Dalio advises that clarity in principles helps in making rational decisions. Without such guidance, decisions are often emotionally driven, leading to suboptimal outcomes.

Impact and Recommendations:

Ray Dalio closes by urging people to read his book to better understand principles, both as a personal tool and a social asset. He emphasizes that principles guide decision-making, whether in business or personal life.