There has been a shake-up in the trading department at Bridgewater Associates, the world's largest hedge fund.

Jose Marques, head of trading at the firm, is in the process of leaving the firm, according to people familiar with the matter. 

Meanwhile, Jeff Wecker, head of front office transformation, has left, according to people familiar with the matter. 

Bridgewater has identified replacements for Marques and Wecker, according to one person. The people asked not to be identified because they did not want to be named publicly.

Before moving to Bridgewater in 2015, Marques was the head of electronic trading at Deutsche Bank. Wecker was previously CEO of Lime Brokerage, according to a LinkedIn page.

Osman Nalbantoglu continues to oversee the firm's portfolio implementation and trading and execution, the company said in a statement last month.

The hedge fund firm also recently announced big changes in management. Bridgewater is known to have a challenging culture in which many people do not fit in. Bridgewater said last month, for instance, that Jon Rubenstein, a former Apple executive, was leaving after 10 months on the job.

Westport, Conn.-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 largest hedge fund. The company manages about $150 billion total firmwide.

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Ray Dalio is with Jamie Dimon.

Dimon, the JPMorgan CEO, said this week that while the US is "probably stronger than ever before," it is "clear that something is wrong."

And 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, Dalio, the founder of Bridgewater Associates, agreed. 

"He's right," he told Blodget. 

Dalio launched Bridgewater from his kitchen, and the firm is now the world's biggest hedge fund. He made $1.4 billion in 2016, according to Forbes. 

Like Dimon, Dalio is focused on the education system. Dalio cited a study his wife funded in Connecticut that found 22% of students in the state are disengaged or disconnected. In his annual letter to shareholders, Dimon said "we are creating generations of citizens who will never have a chance." 

"Now you think not only is that a human tragedy in terms of those kids, but that's also going to be a terrible social tragedy," Dalio told Henry Blodget. "When you look at some of the educational things that can be done that make such a world of difference to people, it's a terrible waste of resources and inefficiency. We have a problem with our human infrastructure."

Here's the full transcript:

Henry Blodget: Jamie Dimon earlier this week said, 'Look, there's a problem in this country, it's a great country, but there's a problem.'

Ray Dalio: He's right.

Henry Blodget: You agree with that?

Ray Dalio: Oh totally. I think it's very inefficient. In many parts of this country, we don't create a bottom. There's no bottom. In other words, there is no minimum level of acceptable education, there's no minimum level of acceptable circumstances in some places. There's a tragedy that we're losing, in many ways, our human infrastructure in lots of those places.

That's also a bad investment. My wife is very much involved in education in the worst parts of Connecticut. This is something that's particularly important to her. She funded a study that looked at the number of disengaged and disconnected youths. A disengaged youth in a high school is a student who comes in and doesn't participate. They go to class, they don't do their homework, they don't do anything. A disconnected youth is one that doesn't even know where they are, they don't come to school. She had this study done: 22% of the students in Connecticut are either disengaged or disconnected.

Now you think not only is that a human tragedy in terms of those kids, but that's also going to be a terrible social tragedy. What will they end up doing? How will it be? How does it make sense? When you look at some of the educational things that can be done that make such a world of difference to people, it's a terrible waste of resources and ineffiency. We have a problem with our human infrastructure that is a major problem.

Henry Blodget: Do you think that that is a different infrastructure to the one that allowed or helped you to do what you do?

Ray Dalio: Yes, I was lucky in the sense that I had parents who cared about me, I went to school, I was able to have that kind of infrastructure in this wonderful country that allowed me to have those kinds of opportunities and inspirations, you know, when you look at people, and they could do those things, so there was a dream that can happen.

There is a wonderful documentary movie called 'Waiting for Superman.' I don't know if you know the movie, OK, 'Waiting for Superman.' It tells the story of being in the inner city and having this aspiration of Superman, and then waiting for Superman, and there is no Superman, he doesn't come, there's no hope. You need hope. You need family. You need infrastructure. You need certain basic things that I had the benefit of having and a lot of the population doesn't have the benefit of having. 

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This week, Henry Blodget sat down with Ray Dalio, founder and C0-CIO of Bridgewater, the world's largest hedge fund.

Here is part 1 of their extended interview, which appears in the premiere episode of Henry's new weekly markets and economics show, The Bottom Line.

Watch the full episode here.

Join the conversation about this story »

There has been a shake-up in the trading department at Bridgewater Associates, the world's largest hedge fund.

Jose Marques, head of trading at the firm, is in the process of leaving the firm, according to people familiar with the matter. 

Meanwhile, Jeff Wecker, head of front office transformation, has left, according to people familiar with the matter. 

Bridgewater has identified replacements for Marques and Wecker, according to one person. The people asked not to be identified because they did not want to be named publicly.

Before moving to Bridgewater in 2015, Marques was the head of electronic trading at Deutsche Bank. Wecker was previously CEO of Lime Brokerage, according to a LinkedIn page.

Osman Nalbantoglu continues to oversee the firm's portfolio implementation and trading and execution, the company said in a statement last month.

The hedge fund firm also recently announced big changes in management. Bridgewater is known to have a challenging culture in which many people do not fit in. Bridgewater said last month, for instance, that Jon Rubenstein, a former Apple executive, was leaving after 10 months on the job.

Westport, Conn.-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 largest hedge fund. The company manages about $150 billion total firmwide.

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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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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" here.

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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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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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The world's largest hedge fund manager is losing faith in the Trump bump.

Bridgewater Associates' co-CIO Greg Jensen and senior investment associate Atul Narayan laid out their reasoning in a client note out Wednesday morning.

The client note is titled "US growth has slowed and the likelihood of a significant Trump fiscal boost has diminished."A copy of the report was reviewed by Business Insider.

In short, the note says that investors are losing faith in all the things that spurred a market rally in the wake of Donald Trump's election expectations — expectations that spending and reforms would boost economic growth and inflation. It's a view that's now creeping across Wall Street, pushing stocks lower.

"The remaining outperformance, which represents a combination of rising expectations of future growth, improving sentiments, and expectations for deregulation, etc., is small," the authors wrote about the financial markets.

Deregulation "may still be somewhat of a trigger for economic growth, but the pushes on infrastructure and tax reform appear more and more modest, and more and more stuck," the authors added. In turn, "there is less pressure on the Fed to tighten, and we expect they will adjust."

Jensen and Narayan go on to say that they think comprehensive tax reform is "ambitious." 

"Our expectations are for less impactful tax reform and modest tax cuts given the ongoing concern of many congressional Republicans about the deficit," the authors wrote.

Spokespeople for Bridgewater didn't immediately respond to a request for comment.

Here are other highlights from the note:

• Corporations. "The corporate statutory tax rate is likely to land somewhere around 25% (from 35% currently), with some combination of immediate depreciation of capex for equipment (but not IPO or structures) and curtailment of net interest expensing... we expect the odds of a BAT as currently proposed to be low."
• Infrastructure. "Infrastructure spending will be slow and difficult to implement."
• Corporate taxes over personal taxes. "The administration seems to be favoring meaningful middle income tax relief, but less net tax reductions for higher tax payers... the Trump administration's desire to give tax cuts for high-income households beyond the potential cuts from repealing the Obamacare tax increases is limited."
• Trade policy. "Recent Trump statements suggest a policy shift toward a more modest protectionist agenda."

Ray Dalio, Bridgewater's founder, raised similar concerns regarding changes to fiscal policy and deregulation in an interview with Business Insider's Henry Blodget earlier this month. 

Westport, Conn.-based Bridgewater manages about $150 billion companywide, according to its website. 

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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 Associates, the world's largest hedge fund, told clients that US stocks may drop more than 10% if President Trump is impeached.

In a note sent out May 18, Bridgewater's Greg Jensen and Jason Rotenberg set out their thoughts on "navigating markets during times of extreme political uncertainty." Jensen is co-chief investment officer. 

A day earlier on May 17,  US stocks fell by the most in eight months after a report that President Donald Trump in February asked James Comey, the FBI director whom he fired last week, to drop an investigation into former National Security Adviser Michael Flynn.

Jensen and Rotenberg made clear in the note that they're not political experts, and that they're not predicting an impeachment, or in fact making any political predictions. The duo instead cited political prediction markets that put the odds of Trump leaving office before finishing his term at nearly 50%, and focused on the potential impact of such a move on markets. 

"Wednesday's market action was a big one-day move, but not a material repricing of likely outcomes," the note said. "While the change in pricing was not big, it was consistent with higher odds of the administration getting bogged down and higher risks of it being unable to deal with any potential shocks effectively."

The note then showed the betas of global asset markets to the increased odds of that Trump leaves offices in 2017 over the past few weeks. "This is necessarily a rough exercise, but it suggests that most major global asset markets are at least moderately sensitive to the possibility," the note said. 

"If impeachment materializes," Jensen and Rotenberg estimate:

• An 11% drop in US equities
• A 12% drop in European equities
• A 16% drop in Japanese equities
• A 0.8% drop in US 10-year yields
• A 14% increase in the price of gold
• A 16% move in JPY/USD

The notes Bridgewater sends out to clients are intended to give them a sense of how senior figures at firm — which manages about $150 billion — see the world and are thinking about the markets on any given day. Prior to the election, for example, Bridgewater predicted a sharp sell-off in markets should Trump win. In the end, the reaction was the reverse.

Still, the note highlights the extent to which the biggest investors in the world are trying to get a handle on the potential impact of a Trump impeachment. 

"How big the market moves turn out to be will likely depend on large part on how messy the process turns out to be," the note said.

A spokesman for Bridgewater declined to comment. 

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A San Francisco software startup founded by alumni of the world's largest hedge fund is expanding into London.

Domino Data Lab, a software company for data science teams, has hired Ben Harknett, who previously worked for Google, to lead the move. 

Harknett previously headed the Europe, Middle East and Asia division for Wildfire, a social media marketing company that Google bought in 2012 for $350 million and later wound down. Harknett later helped build out operations for cybersecurity firm Risk IQ.

At Domino, Harknett will build out operations and customer service for the company's European clients, with offices near London's Liverpool Street, he told Business Insider.

Domino Data Lab is riding the wave of interest from companies – from hedge funds to banks and travel companies – to parse through enormous amounts of data to make decisions.

The company styles itself as a software suite for data science teams, similar to how Adobe is used by creative professionals and Salesforce by marketers.

"Companies need a place to track and hold the research related to their modeling," Nick Elprin, Domino's CEO, said.

For investors parsing through data, tracking that research can help them make better investment decisions, he added.

Domino Data Lab was started by three alumni from Bridgewater Associates, the world's largest hedge fund, including Elprin, who previously worked in technology at the fund.

Matthew Granade, who now oversees big data at Steve Cohen's family office Point72 Asset Management, cofounded Domino and remains on the board. Granade previously co-headed research at Bridgewater, according to a LinkedIn page. Domino's chief technology officer, Chris Yang, previously was a software developer at the fund, according to a LinkedIn profile.

Domino has also garnered the backing of several tech investors.

Hedge fund Coatue Management led a $27 million funding round for Domino, for instance. Other investors have included Sequoia Capital and In-Q-Tel, the Central Intelligence Agency-backed venture capital fund.

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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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• Bridgewater, the world's largest hedge fund, told clients that risks were rising.
• Volatility is low, and geopolitical risks, like those between the US and North Korea, are increasing.
• Everyone should consider a 5% to 10% allocation to gold as a hedge, Bridgewater says.

Geopolitical risks are rising, and everyone needs to consider an allocation to gold.

That's according to a Bridgewater Associates note to clients released on Wednesday, penned by founder Ray Dalio and staffers Bob Elliott, Steven Kryger, and Neil Hannan. A copy of the note was reviewed by Business Insider.

Bridgewater, based in Bridgeport, Connecticut, is the world's largest hedge fund firm, managing about $160 billion firmwide across strategies.

The firm has been losing money of late, and is down -2.8% after fees this year through July in its flagship Pure Alpha II fund, according to a client document reviewed by Business Insider. Bridgewater's Pure Alpha fund fell -1.6% over the same period, meanwhile.

Here's an excerpt from Bridgewater's letter (emphasis added):

"Most immediately, during the calm of the August vacation season, we are seeing 1) two confrontational, nationalistic and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war, and 2) the odds of Congress failing to raise the debt ceiling (leading to a technical default, a temporary government shutdown, and increased loss of faith in the effectiveness of our political system) rising. It's hard to bet on such things one way or another, so the best that one can do is be neutral to such possibilities.

"When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don't have a unique insight that we'd choose to bet on ... We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit, so if you don't have 5-10% of your assets in gold as a hedge, we'd suggest you relook at this. Don't let traditional biases, rather than an excellent analysis, stand in the way of you doing this (and if you do have an excellent analysis of why you shouldn't have such an allocation to gold, we'd appreciate you sharing it with us.)"

Dalio has long been of the view that investors should have at least some allocation to gold, saying as much in an interview with Business Insider's Henry Blodget earlier this year.

External representatives for Bridgewater declined to comment.

SEE ALSO: Maverick Capital, a $10.5 billion hedge fund, is struggling to make money

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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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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."

SEE ALSO: Employees at the world's largest hedge fund use iPads to rate each other's performance in real-time — see how it works

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NOW WATCH: Bridgewater's Ray Dalio explains what he wants his legacy to be

Bridgewater Associates founder Ray Dalio sat down with Business Insider EIC Henry Blodget to discuss his book "Principles: Life and Work," the culture of Bridgewater, and his outlook for the future.

"Principles: Life and Work" is the first of two planned books, and includes a short autobiography along with an expanded version of the "Principles" that all Bridgewater employees read when joining the company. Following is a transcript of the video. 

HENRY BLODGET: Ray Dalio is one of the most successful investment managers in history. He's built a firm, Bridgewater, that is the largest hedge fund by multiples, most successful. He's now written a book called Principles, in which he's kind enough to tell us how he did it and how we can do it. Ray, thank you so much for joining us.

RAY DALIO: Thrilled to be here.

BLODGET: So here's your book, congratulations. I know firsthand how hard it is to write a book, and this is a particularly long and pithy one. So congratulations.

DALIO: Thanks.

BLODGET: So let's start right at the beginning. The first sentence, you say I want to establish that I am a quote “dumb s***” who does not know everything he should know. What do you mean by that? It's a very charming and disarming start, but what are we supposed to take away from that?

DALIO: Well, I think it's important I know that the key to my success has not been so much what I know as much as how I deal with my not knowing. And that's basically a big theme in the book. How do you have an idea meritocracy? Only two things that you need to do in order to be successful. The first is you have to know what the right decisions to make are, and then you have to have the courage to make them. And most people don't have in their head the right decision. And I think one of the greatest tragedies of man is that they hold onto opinions in their heads that are wrong, and they don't go out there and stress test them.

So we have an idea meritocracy. I mean, there's a reason I wrote this book before I wrote Economic and Investment Principles 'cause that's really more sort of my skill set. But in building an organization and/or dealing with the markets, to be able to have independent thinking and go beyond what you all individually know in order to get the best is the key to success.

BLODGET: You share in detail your own development of coming to developing these principles. One of the events that you share would have been wildly traumatic for most people is that you talk about being fired from Shearson for punching your boss in the face. What happened there?

DALIO: Well, that was just a, you know, I was kind of wild then, and it was New Year's Eve. And I got drunk, and he got drunk. And you know, we did that. And I punched him. I didn't get fired for that. He was a good guy. We came in on the following Monday morning, and he said, okay, we'll get it past us. I got fired for doing something else, not for that.

BLODGET: Okay.

DALIO: But I was kind of a rebellious. The thing that affected me the most, I would say, was being so wrong in 1982 when the bottom of the stock market, on other words, I had anticipated that there would be a debt crisis with Mexico. And in August, Mexico defaulted on its debt, and I thought we were gonna have an economic crisis because there would be this worldwide debt crisis, which occurred, and —

BLODGET: Right, and just to set the scene, this was, you had left Shearson. You had started Bridgewater. You'd had many years of being very successful. You had gotten very confident, and you've made this huge controversial bet that we were headed into the next Great Depression and then.

DALIO: Right, the defaults came. Mexico defaulted in August of 1982. I thought, wow, we're gonna go in this crisis, and everything's gonna fall apart. That was the exact bottom of the stock market. I couldn't have been more wrong. And it was painfully wrong because I had built the company until that point.

We were a tight group, small group of people. I had to let everybody go. I was so broke, I had to borrow $4,000 from my dad. I had testified to Congress 'cause they asked me to explain this. I had been on Wall Street Week. All of those mistakes, and it was very painful experience. And it turned out to be probably the best experience of my life because it changed my attitude about thinking.

In other words, rather than thinking I'm right, I went to thinking how do I know I'm right? And it created this open-mindedness, to be able to then go, fine. The smartest people who disagreed with me, and to see how they would think about things, to balance my bets better. It taught me a radical open-mindedness. It taught me what you're referring to in the beginning of the book that I'm trying to convey, that the power of radical open-mindedness and an idea meritocracy is such a powerful thing.

BLODGET: And you talk a lot about how this process of pain, and I can imagine it was just, again, a gut-wrenching experience of having to fire all of your friends. You have to rebuild from zero. You start going forward. You have to look in the mirror and say, hey, I was way too arrogant and confident. I have to effectively relearn. That's not an easy thing to do.

DALIO: Right, I have a saying. Pain plus reflection equals progress, right. And I began to develop this knee-jerk reaction. If pain is a signal that something is wrong, that you did something, if you make those mistakes, and then to take that pain and to calm oneself down and think what would I have done differently in the future? So my instincts changed.

I view those experiences now like solving puzzles that'll give me gems. The puzzle is, what would I do differently in the future so I would get a better result? The gem is the principle that I would write down as I learned it, so literally by writing down the principle, when this one comes along, what do I do with it? Everything is another one of those. Like, we have a million those.

BLODGET: Yes.

DALIO: If you start to say, when one of those comes along, how should I bet steer with it, and you write down that recipe. Those are the principles. So I found that exercise to be great, and I also found that I could turn those principles into algorithms.

So let's say our investment process, those criteria are built into literally algorithms and data can come in. So I found that process of encountering pain to produce reflection to produce better ways of doing it to produce principles and then carrying that forward to the decision-making has been invaluable and to do that with people who are gonna disagree with me and to know how to do that well. That's been the key to success.

BLODGET: And one of the first and most important principles that you outline is embrace the truth whatever it happens to be.

DALIO: Right, a reality.

BLODGET: And one of the very striking moments in the book is when you talk about how your top managers after you rebuilt Bridgewater into a success again. Basically, they came to you and said, look. Here's what Ray does well. He's a genius money manager and thinker and so forth, but here's what Ray doesn't do well, and I have to read this because for anybody leading other people, just a very startling quote. It says, quote, "Ray sometimes says or does things to employees that make them feel incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, or otherwise bad." And you say very candidly, your first reaction was ugh.

DALIO: I'm like, I don't want to do that. These are the people I work with. I don't want to have those consequences. And on the other hand, it's this radical straight forwardness, and I want them to speak to me in a straight forward way, so we were at a moment. That's a painful moment. And then it's a moment of reflection. Should I not be as straight forward? Should they not be? What could I do differently? So what we decided to do was deal with it together. Like I thought that I should then ask the questions. Do you not want me to tell you what I think? Do you, I would appreciate you doing the same with me in that straight forward. So how should we be with each other? And by agreeing how we should be with each other and writing those things down so that this is what we're doing, we began to get more of the management principles of how we are with each other because it's the key to our success.

But it can be painful. It can be not understood well. There's things in our brain. Neuroscientists tell me that there's a part of our brain, which we call the prefrontal cortex, the thoughtful part of our brain, in which we sort of want to be radically straight forward. We'd like to know what our weaknesses is 'cause it's logical. And then there's an emotional part of the brain. We understand the amygdala that is the fight or flight. And it takes disagreement and it converts that into a battle, and it's not easy. And so those two parts of our brains are at odds, and if we understand that and we work ourselves through.

At the end of the day, can I be radically truthful with you? Like, what's so bad about us being radically truthful with each other and radically transparent?

I want to say one more thing so you understand Bridgewater. Okay, Bridgewater is an idea meritocracy in which the goal is to have meaningful work and meaningful relationships. They're equally important. But to do those through radical truthfulness and radical transparency. So you're on a mission together: meaningful work. And you have these relationships in which you care. If you have those relationships and you can understand that there's caring at the same time that there's holding each other to high standards, if there's tough love, that that's a very powerful force. And by being radically truthful and not political and being radically transparent, we've been able to do that. So that's the secret sauce. In other words, it's explained more comprehensively there, but the results speak for themselves.

BLODGET: And you talk about the two parts of the brain, the logical part, the emotions, a lot of the book sounds like the process you've created is to take the emotion out of everything. Turn the business into a machine. Make all decisions. Use computers to aid decision-making. Is there any part where emotion helps?

DALIO: Well, emotions —

BLODGET: What about passions?

DALIO: I think emotion is the most important thing, so let me distinguish between two things. There's emotion that's beneficial to you, and there's emotion that's detrimental to you. If your emotion is going to cause you to do something that you're going to regret later, that's a problem. If the emotion helps you do the things that you want, so I think the most important things are emotion, the emotion of inspiration, the emotion of love. These are things, that's what I'm working for.

The emotions that we don't want to have is those that we regret afterwards. So the notion is here is to deal emotion and not just take it out, but to put it in its right place. So for example, if somebody's having an emotional moment in a conflict, then you say, how should we best handle it? Do we put it aside, and we'll deal with it a little bit later? Do we have somebody help us through our conversation? Do we communicate by another vehicle, email, so that it can be logical and seem less emotion?

The important thing is in order to have an idea meritocracy you have to do three things. First, you have to put your honest thoughts on the table for everybody to see. So if everybody can put their honest thoughts on the table for everybody to see, that's a great thing. A lot of people have problems doing that, but that's the beginning.

BLODGET: Difficult, scary.

DALIO: But not if it's the, you gotta do it. Otherwise it's all the scenarios going on in your mind that might be wrong, and it's not honest. So what should be the problem? There should be no problem. You should be feel good. Put it on the table. Let's look at it. Let's do it well. The second step that you need to do is to have thoughtful disagreement. In other words, to know how to disagree well, to take in information and pass it through and to think things through. And so we have protocols for doing that.

So we have a two minute rule and things that I can describe, are described in the book, that allow that protocol to have a quality exchange so that you together can get all of you to a better place than you could individually. That's the power, right, and then you have a process that if you have a disagreement that remains, how do you get past that disagreement? And so you have to have a way.

Ours is what we call believability-weighted decision-making. And I can explain this if you want me to. But in any relationship, you need to have those things. Can you speak honestly with each other? Do you have good ways of working through disagreement in a productive way? And do you have ways of getting past your disagreement? That's true for any relationship, right?

BLODGET: And one of the other principles that you stress is this idea that you should teach your team to fish rather than giving them fish, but you gotta give 'em room to make mistakes. This is something that Jeff Bezos and many other incredibly innovate entrepreneurs have stressed again and again. We have to get over the fear of mistakes. This seems to be a key part.

DALIO: Well, you learn from mistakes and learn from pain. Like I say, you can scratch the car, but you can't total the car. Okay. Mistakes is one of the best sources of learning, right. Successes mean you do the same thing over again, and okay, that's fine, but mistakes that are painful stick. When I look back on my career, I think that the mistakes were the best thing that happened to me.

I remember my mistakes better than I remember my successes. Somehow there must be more of the successes to get me where I am, but I remember all the mistakes, and I remember the lessons. So that's what I mean by pain plus reflection equals progress. So yeah, it's okay for you to make mistakes. It's not okay for you to not learn from those mistakes. That's a principle in there, right. And so you have a culture that operates this way.

If you don't have a culture that operates this way, it's not gonna be self-reinforcing. And so the reason I'm talking about these types of principles rather than my economic and investment principles, which'll come out in the next book is because these are the most fundamental principles, which are the basis of success. And they're not just in investment, investment firms principles. It's not just a hedge funds principles. It's like life principles and how we're gonna deal effectively with each other.

BLODGET: Let's talk a little bit about investing. One of the things, as I've learned more about Bridgewater that I hear again and again, is you've, the radical transparency in the culture and among employees, but your actual investment book and decisions are kept to a very small group. Is that for competitive reasons? Why do you do that?

DALIO: Well, proprietary reasons on anything like the particular algorithms, the trades that we're doing. It would be disadvantageous to our clients if we were to make that all public. But the concepts are economic and investment concepts I'm happy to share. I did this 30 minute video basically how the economic machine works, and in 30 minutes I told the most important things that I know about the economy 'cause I want to pass that along. I want to pass along things that are gonna be helpful to people.

I'm at a stage in my life where now my primary goal isn't to be more successful. My primary goal is to help other people be successful. When I first did this, I thought this was presumptuous. In 2008, we anticipated the financial crisis and did well, which received a lot of attention, and there were stories about what this environment is like that were not accurate. And I tried to stay below the radar, no media. And then I was suggested I put the principles online. They were downloaded over three million times, and I received a lot of thank you notes and so on.

Well, at this time, I think that I sort of have a responsibility to pass along the things that I think are valuable along those lines. And I hope it'll encourage other people to do it. When I think about the, if I think about Jeff Bezos, Jeff Bezos is a man who made, who has formulas for successes. He's got recipes, and I think of principles are recipes for success.

So wouldn't it be great if Jess Bezo had a book of recipes and that you say, when you encounter that thing, what do you do when you encounter that thing? And I hope to encourage. In fact, I am encouraging a number of people. I won't mention their names, but they're kind of luminaries, fabulously successful people will be giving me principles and writing principles, and I think if we look at those principles so when we encounter another one of those things we have principles to go to.

I think it would be good for you to write your principles. And each person to write their principles and also to walk the talk so that way others know what you stand for and are you operating that way? I think at this time it's important to be principled. I think our country needs to restate, you know, what are the principles that bind us together? What are the ones that divide us? How should we be with each other? Then we have idea meritocratic decision-making. Can we deal with who knows who's right, and how do you work those through? So this is something that's much more pervasive and I think very important.

BLODGET: Wow, I think on behalf of everybody who reads your book, it's been very valuable. I've learned a lot from you, from Jeff Bezos, Steve Jobs, and others. There's so much to soak up from that, so it's great. On investing, you've recently written that risks are rising because of the political atmosphere. You've talked about how it looks a lot like 1937. That sounds very scary. What do you mean by that?

DALIO: Well, let me clear up this. This is not like 2007-08 when in 2008, we could do the calculations of how much debt had to be paid by whom and we could see that that wasn't gonna happen, and we were gonna have a financial bust and that. By and large, economically we are at the part of the cycle that is not too hot and not too cold, and assets have the right risk premiums and so on, so it's a relatively stable kind of environment. On the other hand, it's very much like the '30s in that in 1929-32, like 2008, we had a debt crisis. Took your interest rates to zero, both of those times, and when interest rates hit zero, you don't have the same kind of monetary policy, so they print money. They buy financial assets. In both cases they did. That caused an economic rebound in both of those cases. And it caused the stock market to rise a lot in those particular cases, and at the same time, it did not resolve the wealth differences.

So that today, the top 1/10 of 1% of the population has a net worth that is equal to the bottom 90% combined. Okay, the wealth is the largest wealth gap that there has been since the 1935-40 period, and so while we have good conditions here, for the bottom 60% of the population, we have bad conditions. So the averages don't convey what the picture is because of this disparity. So what was tapped into and what we see is there's a large percentage of the population who is hurting and that there's a conflict between the haves and the have nots and liberal ideas and conservative ideas and all of that, and we are having a greater polarity.

In the '30s, we had populism. In other words, the selection of leaders who were strong leaders in a battle of one segment against the other segment inclined to fight for certain things. So as we come into this period, it's somewhat similar to that. We will have, as we go forward, obligations. Demographics is going to affect our obligations. We're right now at the point where pension obligations, not only debt obligations, pension obligations, health care obligations, all of those are going to gradually sort of squeeze us, and we have that division. And so it's very similar to that. And we're also at the point where 1937 was when the feds said we could tighten monetary policy. And they put a slight tightness in monetary policy.

In my opinion, the risks are asymmetric on the downside. In other words, if you tighten monetary policy certainly by more than is discounted in the market and what's discounted in the market is very minor rise in market that that will reverberate through asset class prices as well as then you can have a situation in terms of the economy.

So it's similar in that interest rates are close to zero, not much room on the downside. Obligations are large. There is a political division. There is more populism. Therefore, there's more conflict. And therefore we need to be very careful at this moment. That's what I'm basically saying.

BLODGET: And you have spent more than 45 years betting on the future. Given that picture you just painted, what is your bet for the future?

DALIO: Well, I think we're in the process of watching how conflict is going to be handled politically, and that's being reflected not only internationally with something like Korea or Iran and so on, but we're also dealing with conflict on taxes and so on. I think that one of the things that Donald Trump did extremely well was to identify a constituency that was not heard, and he did that as a pro-business person. In other words, somebody who is going to be business-like and create that environment.

That group could have been tapped into also by more of a socialist, and what we have is a capitalist who is doing that. But in any case, whether socialists and capitalists working together to focus on that, I think that issue has been raised and now we deal with the issue. We're going to find out. The question is really is Donald Trump, he's gonna be aggressive. Is he aggressive and thoughtful? Or is he aggressive and reckless, and when we work through these situations, we're going to find out more and more. I think the fact that he's working across the lines, personally, I like the negotiations with the Democrat side.

BLODGET: I think a lot of Americans do.

DALIO: And so on and to see, cut that deal in a way if we can to also deal with the whole of the economy is something that I'm all in favor for. So we're in the process of finding this out, right.

BLODGET: You recommend that most portfolios should contain some gold.

DALIO: Yeah, of course.

BLODGET: Why? A lot of people think it's not of course. In fact, it doesn't make sense.

DALIO: Well, first of all, the best way to structure a portfolio is to have the right kind of balance in your portfolio, and some amount of gold. Gold serves a purpose. It is first of all, a diversifier against other assets. You know, we have this risk on, risk off thing. We also have a monetary system. The Bretton Woods monetary system began after World War II, and it had the dollar as the world's reserve currency. There's a risk there. There's a lot of dollar denominated debt and so on. If somebody felt they didn't want to hold that, and so you could have exposures to that.

So it's a diversifying asset that is sensible, and that's the main reason to have gold in the portfolio, five to 10%. People, I don't understand it. People will have more in terms of cash. The key in terms of being able to have a successful portfolio as your core portfolio. In other words, what's your strategic asset allocation mix? What is your, if your, let me —

BLODGET: I got it. Let me ask you about Bitcoin.

DALIO: Okay.

BLODGET: Bitcoin, people say the same thing. It's a store of value. You gotta diversify. The dollar's not safe. It's been going up and up and up. Yet recently it crashed. Jamie Dimon came out and said, it's complete fraud. He'd fire anybody at JP Morgan who invested in it cause he wouldn't want people that stupid working for him. What do you think?

DALIO: There are two purposes of a currency. Is it a medium of exchange? And is it a storehold of wealth? Those are the basic ingredients. Bitcoin is not an effective medium exchange by and large. I have a Bitcoin. I want to go buy things. It's not easy to buy things with the Bitcoin, and in terms of a storehold of wealth, a storehold of wealth more reflects, like gold more reflects the opposite of what money is doing, right?

And so you look at it. It's a storehold of wealth.

Bitcoin is a speculative bubble, right. Its price is like a greater fool theory in terms of its price. If you say, what is its intrinsic value? If Bitcoin was made to a more effective medium of exchange, and also operated in terms of a storehold of wealth, not of the reflection of that volatility, it would be a viable instrument. It is, to me, a vehicle for speculation that's attracting people in, and it has all the classic ingredients of a bubble. People are leveraging themselves up. It doesn't have that same intrinsic value. Even the privacy value, okay, is suspicious.

In other words, it has a purpose to some extent. If you're living in a country, and you don't know your currency, whether it's gonna be good or not, and you might try to hold that. But that thing you're holding is running around like crazy for reasons that you don't understand, so it's not gonna be an effective storehold of wealth, and the privacy will be stress-tested.

In other words, governments are examining who is operating in their own clever ways of what that, and so you can't even assume, so it's gonna be a privacy vehicle. So I don't see the effectiveness of Bitcoin. I could see cyber currencies and so on, crypto-currencies, but this is not what we're having. You know, it's a possibility that I think has been captured as a speculative vehicle that's in the middle of a bubble.

BLODGET: You said something else about investing that I think is very profound and simple that I think a lot of people don't understand, which is to be successful as an investor, you have to bet against the consensus and be right. First of all, why? Why can't we just buy stocks we think are gonna go up.

DALIO: Well, the consensus is built into the price. So because the consensus is built into the price. And assets price themselves in a way that they're all compete, and they're all of equal value in a certain sense. There's risk premium of equities over cash and bonds will have that over whatever, but basically, they're all priced that way. So like think of it as going to betting on a sports team or in other words, or horse racing.

Okay, there's handicapping that's going on. So in order to be successful, you're betting against the consensus, and you have to be right. That's the game.

BLODGET: And you describe your first trade when you were a teenager. You bought a stock. It tripled. You thought, hey, this is easy. But you convey very effectively that in fact, it is extremely difficult even though it seemed so simple.

DALIO: Being successful in the markets is more difficult than being successful in competing in the Olympics. Your odds are higher to be successful competing in the Olympics because you have more people trying to do it. You have more resources. We put hundreds of millions of dollars. We have at Bridgewater, 1,500 people. We're now competing against other teams, and that's the kind of resources that are going into playing that particular game. So think about that in terms of handicapping it. It's not an easy thing to do. What you can do is achieve balance. To know how to hold a balanced portfolio, and to receive something that is a return that is much better than cash achieving balance is something that you can do, and I think that that, but figure. If you're going to enter the game, since value added is a zero sum game, you have to ask. Who are you playing against? Who are you going into the poker game with? Do you want to do that?

BLODGET: And as you talk to people in the real world, is your sense that people understand what they're up against when they might buy a stock or try to time the market?

DALIO: Institutional investors who are smart by and large understand that. The average man tends to be much more reactive if you look at the purchases and sales that they make. When something goes up, they're more likely to buy it. They think, ah, that's a good investment. They don't know how to measure that in terms of oh, is that a much more expensive investment that's more likely to go down?

So that's why, you know, you put in ads in newspapers, and they say, ah, that's what had that return. That's what they're attracted to. They tend to buy high and sell low, and so an average man should not be playing this game in that way. They should be playing the game, or humility. If you think that you're good at playing the game, just make sure, it's like going to the poker table or going to the race track. Do it with a little bit of money, and watch it. And get the best advice that you can to know that you're gonna be able to take money out of the system rather than put it in.

BLODGET:  Ray, you've written a terrific book. Thank you so much for sharing your life and wisdom, and best of luck. Congratulations.

DALIO: Thank you.

BLODGET: Thanks.

DALIO: Appreciate it.

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This week:

• Business Insider CEO Henry Blodget speaks with Ray Dalio, the founder of Bridgewater Associates, the world’s biggest hedge fund. Dalio discusses his assertion that most portfolios should have gold allocated at 5-10%, if for no other reason than it’s a great diversifying asset. He also shares his thoughts on bitcoin, which he says is not an effective medium of exchange, because it’s difficult to buy things using it. Dalio calls bitcoin a speculative bubble, and says it lacks intrinsic value.
• Dalio breaks down one of the fundamental tenets of his investment approach: that you have to bet against the consensus and also be right. He argues that the following the consensus isn’t viable, because it’s already reflected in the price of an asset. Dalio thinks that, based strictly on an odds basis, a person has better odds of being successful in the Olympics than in the market. He says that, in general, investors buy high and sell low, and uses that as evidence to show that the average man shouldn’t be playing the proverbial game.
• Business Insider executive editor Sara Silverstein takes a close look at the so-called Trump trade, which has rebounded amid optimism around a Republican tax plan that’s scheduled to be released next week. She specifically cites an index of companies paying high taxes, which would benefit most from the proposed corporate tax cut. After falling over the past few months, the gauge has recovered, and JPMorgan says that the broader S&P 500 stands to benefit greatly from lower taxes.
• Silverstein also discusses comments made by Jim Febeo, senior vice president of government relations at Fidelity Investments, who stresses the importance of budget reconciliation. Jurrien Timmer, Fidelity’s director of global macro, adds the caveat that most long-term investors don’t need to react to short-term events.
• Silverstein talks with University of Chicago Booth School of Business professor Luigi Zingales about whether companies should maximize market value. Zingales discusses a research paper he authored, which makes the point that profit maximization is important to shareholders, but it’s not the only thing they care about. Put simply: shareholder welfare is not equal to market value.
• Building on the debate around profit maximization, Silverstein and Zingales touch upon comments made by imprisoned former pharmaceutical executive Martin Shkreli. Zingales says that while the pursuit of peak profits has become the corporate mantra, that isn’t a hard-and-fast rule. He then talks about how private companies often have considerations beyond profit, and tend to worry more about the well being of employees. Zingales also mentions how the divesting of socially conscious investors is driving the focus on profitability, while not hurting companies.

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