• Bob Prince, the co-chief investment officer at Bridgewater Associates — the world's biggest hedge fund — gave an exclusive interview to Business Insider last week at the World Economic Forum's Annual Meeting in Davos, Switzerland.
• Prince explained why the economy is headed for "20 years of ugliness," rather than an acute recession to rival the 2008 financial crisis.
• He also outlined his views on what's next for the US market and economy now that the Federal Reserve is scaling back monetary tightening.

DAVOS, Switzerland — Not all economic recessions are created equal.

While that may seem like an obvious statement, the nuances that have separated meltdowns throughout history often go overlooked when negative headlines abound.

That's why it can be so easy to see a recession warning and immediately think of the 2008 financial crisis, which was the worst since the Great Depression.

But Bob Prince, the co-chief investment officer at Bridgewater Associates — the world's biggest hedge fund — was more measured in his outlook during a recent interview with Business Insider. While he does think an economic slowdown is in the cards, he expects it to unspool over a prolonged period.

"You're not really likely to have a sharp, depression-type environment," Prince told Business Insider CEO Henry Blodget during a Davos panel discussion. "20 years of ugliness is kind of what it looks like to us."

Read more: Legendary billionaire Ray Dalio told a crowd at Davos that the next economic meltdown scares him more than anything — here's what he said, and why he's so worried

At the center of Prince's slow-burn view is what he perceives as a toxic combination of populism and income inequality. He argued that it's a deep-rooted issue that could stretch for decades — one with no quick fix. Not even the 70% marginal income tax on the super wealthy recently floated by Rep. Alexandria Ocasio-Cortez can save the day, Prince said.

Followers of recent commentary from Ray Dalio— Prince's co-CIO — should already be well familiar with Bridgewater's view that divisive politics will make the next downturn that much more painful.

Of course, no measured view of an economic slowdown can be truly complete without an acknowledgement of the elephant in the room: the crippling debt load being held by both US companies and consumers.

With respect to that, Prince said the US finds itself at a "key juncture" best characterized by a broad, market-wide deleveraging. Now that the Federal Reserve is tasked with unwinding roughly 10 years of unprecedented monetary stimulus, any credit pullback could be bad news for investors.

Fortunately for debt-holders, the recent economic slowdown may keep the Fed from raising rates further, at least for a while. That should allow them some wiggle room when it comes to paying down obligations or refinancing.

But that doesn't mean the market as a whole is in the clear. According to Prince, the fact that so much of the US Treasury's debt is owned by foreigners leaves those holdings exposed to foreign-exchange risk.

While the dollar has shown great strength versus its developed-market peers over the past several months, Prince said a reversal of that trend could prompt unpredictable behavior from overseas investors.

And then there's the stock market, which Prince identified as the most likely short-term pain point for the US. Amid all the talk swirling about the economy and a possible recession, it's equities that have his attention.

"You've got a whole series of forces that are turning against corporations and profit margins," Prince said. "So your bigger risk is actually probably in the financial markets, rather than in the real economy. The real economy is more likely to kind of get stuck dealing with chronic, sub-par growth with low interest rates, as opposed to a sharp dip."

SEE ALSO: Legendary billionaire Ray Dalio told a crowd at Davos that the next economic meltdown scares him more than anything — here's what he said, and why he's so worried

Join the conversation about this story »

NOW WATCH: We compared Apple's $159 AirPods to Xiaomi's $30 AirDots and the winner was clear

• The world's largest hedge fund, Bridgewater Associates, is known for its culture of radical transparency.
• Bridgewater employees are required to rate each other on roughly 90 different capabilities and skills to determine each team member's strengths and weaknesses, the firm's co-CEO Eileen Murray told attendees of Context Summits' Miami conference.
• Bridgewater, which manages $160 billion, was one of the few in the industry to provide positive returns to investors in 2018, posting a 14.6% return in its flagship fund.

A strong work ethic and high IQ are required to work at just about every hedge fund, but to work at Bridgewater Associates — the world's biggest fund, which manages $160 billion — employees need to not just be open-minded, but vulnerable.

Eileen Murray, Bridgewater's co-CEO, told attendees at the Context Summits conference in Miami on Wednesday that Bridgewater's success can be attributed directly to the culture of "radical truth and radical transparency" that founder Ray Dalio has preached.

In practice, this culture includes "probing sessions" in which 30 people will question an employee about a mistake, asking if it was a lapse in common sense, Murray said.

All conversations are taped and can be listened to by any employee, and, in meetings, executives and junior team members rate each other during meetings on different skills and values "to determine strengths and weaknesses." In 2018 alone, Murray said she was rated more than 40,000 times.

"It's not for everyone," Murray said, as 30% of employees leave within the first two years. Murray herself was not convinced she would be able to handle it when she first joined in 2008.

Read more: Bridgewater, the biggest hedge fund in the world, crushed it in 2018 as most funds struggled

"Having a junior person question what I am doing after I've been doing it for so long? That was not initially for me," she said.

Bridgewater was recently ranked as the most profitable hedge fund of all time, according to LCH Investments. The fund posted double-digit returns in 2018, a year when the average fund declined more than 4%.

The strongest people are "vulnerable, and willing to admit their weaknesses," Murray said, and will have the most success at Bridgewater.

"It's kind of family atmosphere," said Murray, who has five brothers and three sisters. "Sometimes, family tells you stuff that you don't want to hear, but you know it's coming from a loving place."

Murray said that she can tell if a person is taking to the culture by the end of their first 18 months at Bridgewater. Some senior hires, she said, are excited about "working in a place with radical truth and radical transparency, until they were the ones that radical truth and radical transparency was applied to."

Read more: Legendary billionaire Ray Dalio told a crowd at Davos that the next economic meltdown scares him more than anything — here's what he said, and why he's so worried

Still, Murray believes the system keeps the firm efficient despite the time spent evaluating each other. And "while taping every conversation is not a lawyer's dream," Murray said it frees employees from worrying about office politics.

"At other places I have worked, people will be fired and be totally surprised having not seen it coming. That doesn't happen here."

Thanks to the ratings system, "people begin taking themselves out of certain situations that aren't their strengths." This "data-collection process" is, according to Murray, what Dalio does on the investment side, but now applied to the manager's "human capital."

"We have people burn out, but I don't think it is because of the culture," she said. "There are just people that are uncomfortable with facing their weaknesses."

Sign up here for our weekly newsletter Wall Street Insider, a behind-the-scenes look at the stories dominating banking, business, and big deals.

Join the conversation about this story »

NOW WATCH: The founder of the World Economic Forum shares what he sees as the biggest threat to the global economy

• Greenwich is a town on Connecticut's coast, an hour outside of New York City.
• In its 2019 ranking, Bloomberg ranked Old Greenwich as one of the wealthiest towns in the US.
• The town is home to several hedge funds and is known for drawing wealthy Wall Street buyers who snap up summer homes or permanent residences.
• I spent a day in Greenwich, and I could immediately see why the quiet, clean, and charming town is a haven for finance types.

On an unseasonably cold March morning, I got on the Metro North from Grand Central Station in New York City. My destination: Greenwich, a town on Connecticut's coast about an hour from the city.

Greenwich is consistently ranked as one of the richest towns in America. In 2018, the average household income in its Old Greenwich neighborhood was $336,692, the 12th-highest in the nation, according to Bloomberg.

The year before, two Greenwich zip codes — 06878 in Riverside and 06831 in Greenwich — ranked among the wealthiest in the US.

It's been known as a wealthy enclave for years.

"For more than a century, Greenwich, Connecticut, has attracted some of the biggest, newest, shiniest fortunes in America," Nina Munk wrote in Vanity Fair in 2006. "Today that money comes from the trillion-dollar hedge-fund business, which occupies a third of the town’s office space, and whose managers are behind a decade of over-the-top real-estate deals, teardowns, and mega-mansions."

Greenwich's "hedge fund capital" nickname is well-earned: The city is also home to hedge funds including AQR Capital Management, Viking Global Investors, K7 Investments, and Axiom Investors

Robin Kencel, a real estate broker at Compass and one of the founding agent of the Greenwich office, said about half of her buyers work in finance.

"The others are entrepreneurs, they work for corporations, they're in the entertainment business," Kencel told me. "Finance is still very important to Greenwich, but I think you'll find it's much more diversified in terms of occupations than when people were first coming out in the turn of the century and the trains came out and it was the summer homes for finance folks."

Kencel said she gets about 45% of her sales from Manhattan. Buyers from the city are "always surprised how quick it is to get here," she said. 

I took the train out to Greenwich for a day to get a feel for the affluent community. Here's what it was like. 

SEE ALSO: Inside the most expensive town in America, where tech moguls live in multimillion-dollar mansions and the average household income is over $450,000

DON'T MISS: See inside the secretive Seattle suburb that's home to Jeff Bezos and Bill Gates, where streets are lined with opulent waterfront mansions behind tall gates and security cameras

My day began at Grand Central Station in New York City.

I got on a Metro North train toward Stamford, Connecticut, which would stop in Greenwich in under an hour. The train was fairly empty, but I imagined the train from Greenwich to New York City at the same time of day would be full of people commuting into the city.

My peaceful train ride lasted a little less than an hour before I got off the train at the Greenwich station.

• Ray Dalio is the founder of Bridgewater Associates, the largest hedge fund.
• In a new essay, Dalio wrote that capitalism is failing the majority of Americans and has to be reformed because concentrated and restrained wealth does not benefit the overall economy and destabilizes society.
• Dalio called for leadership that declares inequality a national emergency and addresses it with steps such as increased taxes on the wealthy.
• This article is part of Business Insider's ongoing series on Better Capitalism.

Bridgewater Associates founder Ray Dalio is afraid that capitalism has become so broken that it's going to either be abandoned or left to continue as it is.

Either scenario would be to the long-term detriment of the country, in his view.

In a new LinkedIn post, Dalio analyzes the ways America's economy has been failing the majority of its citizens and places the current environment in a global perspective. He wrote that he's seen "capitalism evolve in a way that it is not working well for the majority of Americans because it's producing self-reinforcing spirals up for the haves and down for the have-not."

Before he even gets into the data, he says that his "American Dream" of rising from a middle-class upbringing in Queens to the head of the world's largest hedge fund was possible due to opportunities that included good public schools and student loans, but that equal education and job opportunities are no longer available.

"While most Americans think of the US as being a country of great economic mobility and opportunity, its economic mobility rate is now one of the worst in the developed world," he wrote. He explained that there is essentially two Americas, one for the top 40% and one for the bottom 60%. The former is faring significantly better, and those at the highest level of wealth are as far removed from everyone else as they ever have been.

Dalio listed reasons why capitalism isn't working as it should in the US:

• There's been no real wage growth, adjusted for inflation, for the majority of Americans since 1980.
• The income gap is virtually as high as it's ever been, and the wealth gap is as high as it was in the late 1930s, ahead of World War II.
• Two-thirds of the bottom 60% have no savings, and economic mobility has been declining for 40 years.
• About 17.5% of children live in poverty, and despite some outliers, America's public-education system is among the worst in the developed world.

Dalio has been saying for the past couple years that we're in danger of repeating the biggest mistakes of the '30s, and he's included rising populism on both sides of the aisle as a threat to stability. "In addition to social and economic bad consequences, the income/wealth/opportunity gap is leading to dangerous social and political divisions that threaten our cohesive fabric and capitalism itself," he wrote in his latest post.

He prescribed five steps for saving America's capitalist system:

1. America needs leaders at the top that proclaim the current state of inequality to be nothing less than a national emergency.
2. A bipartisan committee should work on developing new means of redistribution and community development.
3. Those leaders must be held accountable to statistics that measure the progress of their reforms.
4. Resources need to be redistributed for the purpose of providing equal opportunity to the vast majority of Americans. This can be done through increasing taxes on the wealthy, further taxing societally harmful things like pollution, and develop public-private partnerships that link business goals with societal goals.
5. Coordinate fiscal and monetary policy (i.e. increase cooperation among the Federal Reserve, Congress, and the White House).

"The problem is that capitalists typically don't know how to divide the pie well and socialists typically don't know how to grow it well," Dalio wrote. He wants to avoid both the status quo and socialism, and he's hoping that the elections in both the US and Europe that happen over the next few years result in a reformed capitalism.

You can read the full essay on LinkedIn »

SEE ALSO: 'This is going to end badly for everyone': Wealthy venture capitalist Nick Hanauer is on a mission to fix the American economy before it's too late

Join the conversation about this story »

NOW WATCH: Ray Dalio on the next financial crisis, how he started his own hedge fund, transparency at work, and more

• Ray Dalio is the founder of Bridgewater Associates, the largest hedge fund.
• In a new essay he called for the reform of capitalism, arguing that if the US does not redistribute wealth and opportunity, the country's existence as a stable global power is threatened.
• He said the US needs leadership that will declare inequality a national emergency.
• This article is part of Business Insider's ongoing series on Better Capitalism.
• Visit Business Insider's homepage for more stories.

As the 2020 presidential race heats up in the United States, Democratic candidates like Sen. Bernie Sanders and Sen. Elizabeth Warren are calling for an overhaul of America's economic and financial policies for the sake of the country's future. Also joining the conversation: hedge-fund billionaire Ray Dalio.

Dalio is the founder and co-CIO of Bridgewater Associates, the Connecticut firm with $160 billion in assets under management. In a LinkedIn post published Thursday, he called for a reformation of capitalism.

He wrote that the "income/wealth/opportunity gap and its manifestations pose existential threats to the US because these conditions weaken the US economically, threaten to bring about painful and counterproductive domestic conflict, and undermine the United States' strength relative to that of its global competitors."

Dalio used data to show there are essentially two Americas, where the top 40% is doing significantly better than the lower 60% and the nature of accrued wealth and educational opportunities for the majority of Americans is keeping them trapped in poverty.

The day after publishing his piece, Dalio announced he and his wife, Barbara, were making a $100 million donation to the most underfunded Connecticut public schools, the largest in the state's history. He said it's a way to help level the playing field in a state that is one of the wealthiest in the country yet still has pockets of extreme poverty and 22% of its youth deemed "disengaged" from school.

In his LinkedIn essay, Dalio said that while the inequality in the country is benefiting the wealthiest Americans as much as it ever has, the economy as a whole is losing in the long run. He explained it's resulted in fewer people being able to participate in the economy as both consumers and workers, as well as political tensions he's afraid will tear the country apart.

"I believe that, as a principle, if there is a very big gap in the economic conditions of people who share a budget and there is an economic downturn, there is a high risk of bad conflict," he wrote. He said that as he sees it, the populist uprisings in the US are resulting in a push toward either socialism or the status quo of capitalism as it's practiced, and he thinks that both would weaken the country. Instead, he called for several actions for reform, including increasing taxes on the wealthy and coordinating fiscal and economic policy.

"The most important thing to watch as populism develops is how conflict is handled — whether the opposing forces can coexist to make progress or whether they increasingly 'go to war' to block and hurt each other and cause gridlock," he wrote. "In the worst cases, this conflict causes economic problems (e.g., via paralyzing strikes and demonstrations) and can even lead to moves from democratic leadership to autocratic leadership as happened in a number of countries in the 1930s."

He wrote that there has to be some level of bipartisan support for economic reform going forward, even while recognizing that polarization is intense: "There need to be powerful forces from the top of the country that proclaim the income/wealth/opportunity gap to be a national emergency and take on the responsibility for reengineering the system so that it works better."

For Dalio, America's leadership either takes on inequality as a national emergency and figures out how to reduce it, or the country's days as a superpower are over.

You can read the full essay on LinkedIn »

SEE ALSO: Hedge fund billionaire Ray Dalio says capitalism is failing America, and we need to take 5 specific actions to save it

Join the conversation about this story »

NOW WATCH: Ray Dalio on the next financial crisis, how he started his own hedge fund, transparency at work, and more

• Ray Dalio is the founder of Bridgewater Associates, the largest hedge fund.
• In an interview with "60 Minutes," he called for more deep-ocean exploration while voyaging in his personal submarine.
• Dalio likened the ocean’s dying coral to the American Dream, which he says is “lost.”
• Visit Business Insider's homepage for more stories.

While billionaires like Jeff Bezos, Richard Branson, and Elon Musk are reaching for the stars, Bridgewater Associates founder Ray Dalio is diving deep into the sea.

In a recent segment on “60 Minutes,” Dalio took journalist Bill Whitaker underwater in his personal three-man submarine for some ocean sight-seeing. Dalio also owns a ship full of scientific equipment, and he regularly invites scientists to dive down with him and discover new wildlife.

“I find ocean exploration a lot more exciting, a lot more important than space exploration,” Dalio told Whitaker. “And then you think about [how] it affects our lives so much.”

Dalio has been in the news following the publication of a 7,500-word LinkedIn post in which he says that capitalism has failed to create equal opportunity, and that it needs a serious rethinking.

Dalio, who predicts a long period of slow economic growth and the continuing rise of China as an economic superpower, went on to lament the loss of the American dream. “I think for the most part we don’t even talk about what is the American dream, and it’s very different from when I was growing up," he said.

During his deep-ocean dive, he compared dying coral to the lack of economic opportunity. “If I come down here and I see the coral reefs are dying, and the population is dying, I know that we’re out of balance. It doesn’t take a genius to know that you’re out of balance and you should do something.”

The billionaire sees the mysteries of the ocean as the next great adventure. “I don’t understand the resource allocation of space. Really, in terms of return on investment, the return on investment down here is fabulous.”

SEE ALSO: Looking to billionaires like Ray Dalio to fix inequality is like 'asking a fox to worry about hen protection,' says a prominent critic of the Davos set

Join the conversation about this story »

NOW WATCH: Ray Dalio says the economy looks like 1937 and a downturn is coming in about two years

• Lots of jobs involve tasks that could be taken over by robots.
• Bridgewater Associates, the most successful hedge fund in the world, recently highlighted a 2016 study by McKinsey & Company that analyzed what industries are most susceptible to automation.
• Jobs with lots of manual labor in a predictable environment could see higher automation in the years to come, while jobs involving managing human employees are likely safe for now.
• McKinsey pointed out that even though parts of a job could be automated with existing technology, those jobs may not entirely disappear.
• Visit BusinessInsider.com for more stories. 

The fear of robots coming for your job is one of the many challenges confronting 21st-century workers, but the machines aren't ready to take on every industry just yet.

Bridgewater Associates, the massive hedge fund founded by legendary investor Ray Dalio, just released a report on the changing relationship between labor and capital in the US.

One of the big factors the Bridgewater authors highlighted was the ongoing rise in automation across industries, which they noted could be a support for corporate profits in the years to come as more efficient robots and software potentially replace slower and error-prone human labor.

Bridgewater cited a 2016 report from consulting firm McKinsey & Company that looked at which industries in the US were most susceptible to being automated.

Read more: 30 fast-growing, high-paying jobs that will dominate the digital workplace

The McKinsey report used data from the Department of Labor to estimate how much time workers in various industry sectors spent doing different types of tasks, and which of those tasks could, theoretically, be automated using present technology.

McKinsey noted that tasks like physical labor in a predictable environment, like a fast-food restaurant or a factory assembly line, and basic data processing, like tracking payroll accounting, could easily be automated using the robots and software available to us now.

Meanwhile, other tasks like managing human employees or doing physical work in a more chaotic environment, such as cleaning up a messy kindergarten classroom, could prove harder to automate with current technology.

This chart shows the estimated average share of time spent by workers in each industry sector on tasks that could theoretically be automated using current technology, according to McKinsey's analysis:

Workers in industry sectors like food service and manufacturing spend much of their time doing physical tasks in a predictable environment, and so are susceptible to automation.

Meanwhile, industries like education and health care involve much more interpersonal work and application of deep expertise, competencies which current robots and software lack.

McKinsey pointed out that their analysis focused on what tasks could potentially be automated using current technology, which doesn't necessarily mean that these jobs actually will end up being more heavily done by robots and software.

Other economic and social concerns, like the cost of labor relative to new investment in advanced machines and the public's willingness to have robots do things like serve them food, are likely to be big factors in whether or not various jobs and tasks actually do become automated, according to the report.

The report also noted that increased use of technology doesn't necessarily mean that jobs in these industries could completely vanish.

Few jobs are made up completely of tasks that are susceptible to automation, according to McKinsey, and so if machines start doing the tasks they are good at, humans in those jobs may end up shifting their time to responsibilities that they are uniquely good at.

Check out the full McKinsey report here»

• Read more:
• 20 growing US companies to work for if you want job security
• This map shows that each US state is basically its own country
• The 25 best MBA programs in the world for careers in tech
• The 30 best high-paying jobs of the future

Join the conversation about this story »

NOW WATCH: Early Facebook investor said his first awkward meeting with Mark Zuckerberg was 'unlike any I've ever been in'

• The opening of a major international financial market has created an opportunity "that essentially didn't exist" previously for US investors, according to Karen Karniol-Tambour, the head of investment research at Bridgewater Associates.
• "If you believe in diversification, you're not going to get a lot of opportunities where such a large market opens up," she told Business Insider.
• See the full list of the 100 people transforming business here.

As the head of investment research at Bridgewater Associates, Karen Karniol-Tambour oversees the engine that generates ideas and recommendations for clients of the world's largest hedge fund.

One topic she's been writing about a lot recently is diversification. While most investors think about this concept in terms of owning different asset classes, her work has focused on the question of geographic diversification.

Karniol-Tambour says few investing opportunities are more compelling than Chinese markets right now.

"The thing that makes this opportunity so compelling is that, for many investors, this a market that essentially didn't exist,"Karniol-Tambour told Business Insider in a recent phone interview. "If you believe in diversification, you're not going to get a lot of opportunities where such a large market opens up."

Chinese authorities are striving to attract foreign capital by opening their financial markets amid the global-growth slowdown and the fallout of the trade dispute with the US.

Their efforts have paid off with some landmark developments in the past few months.

In fixed income, the Bloomberg Barclays Global Aggregate Index — a major benchmark of investment-grade debt — started including yuan-denominated government bonds on April 1 and plans to add securities over 20 months.

Additionally, FTSE Russell will review whether to include China in its World Government Bond Index later this year, Reuters reported.

Foreigners owned 2.3% of the Chinese bond market's value at the end of 2018, according to data compiled by JPMorgan. This share is poised to increase as the debt securities are added to the Bloomberg Barclays index and other big benchmarks. JPMorgan estimates that China's inclusion in the major fixed-income and equity indexes would generate $250 billion to $350 billion in inflows, assuming there's up to a 7% weighting in every major index.

The Chinese opportunity is not only opening up in fixed income. In late February, the equity-index behemoth MSCI announced it was quadrupling the weighting of mainland China stocks on its benchmarks.

Read more:The world's largest hedge fund just warned that the 'most pro-corporate environment in history' is in danger — and said the fallout could send stocks plunging

At a media briefing ahead of the inclusion, MSCI CEO Henry Fernandez said the "smart" people in emerging markets were excited about the prospect of a huge whale diving into the scene.

He also had a word of caution for those wishing China opened its markets more quickly: If that happened, there would be disruptive selling of holdings in other emerging countries to fund new purchases in China. In other words, China's slow pace actually benefits investors.

Investors looking to diversify their portfolios could consider Chinese bonds, according to Karniol-Tambour, as they are one of the more untapped assets of the world.

SEE ALSO: A money manager at $2.5 trillion State Street lays out an investing opportunity that just opened up — one that's outlived major political scares throughout history

Join the conversation about this story »

NOW WATCH: The founder and CIO of $12 billion Ariel Investments breaks down how his top-ranked flagship fund has crushed its peers over the past 10 years

• Ray Dalio, the founder of the hedge fund Bridgewater Associates, has launched a free app based on his best-selling 2017 book, "Principles."
• The app is part career adviser, part life guru — with a dash of Bridgewater cheerleading.
• Besides having a copy of the book, the app comes with extra features like self-assessment quizzes, a folder to save your favorite Dalio principles, and animated cartoons.
• Visit Business Insider's homepage for more stories.

Ray Dalio manages the most successful hedge fund on the planet — and he can now be your personal life coach.

Principles in Action is a free app designed around the billionaire's 2017 book, "Principles," which has sold over 2 million copies worldwide. The app not only has a full copy of the book but is peppered with videos, koan-like career advice, and general pearls of wisdom collected from the writings of the Bridgewater Associates chief.

Dalio founded Bridgewater Associates in 1975 out of his Connecticut home. Since then, it's become the world's most successful hedge fund, with $150 billion in total assets under management.

One of Dalio's core principles is "radical transparency," or total openness, within his company. This gave him the idea for his first app, Dots, which let employees rate each other during meetings on a scale of 1 to 10.

There's no live monitoring going on in Principles in Action, but it does offer the chance to step inside the mind of Dalio through his books, meetings, and speeches. We took a look at the app and highlighted some of its more interesting features.

SEE ALSO: Hedge-fund billionaire Ray Dalio says 'the American dream is lost'

Principles in Action opens to a homepage with two books.

In addition to all 898 pages of "Principles," you'll find several other features on the app's homepage.

There's a "Coach" section to guide you through career challenges that's a kind of FAQ for Dalio's principles. A "Case Studies" section helps you assess your personality strengths and weaknesses and how they affect your work life. There's also a "My Principles" section where you can save the best of Dalio's advice while adding a few principles of your own.

The book's pages now include videos of Bridgewater meetings.

Scrolling through "Principles," you'll find short videos peppering the text that give a behind-the-scenes glimpse of life at Bridgewater's secretive headquarters.

On page 171, for example, there's a video of a Bridgewater meeting from January 2011 in which staff members discuss the company's Pure Alpha Major Markets program. Dalio listens while others praise what Bridgewater has accomplished. At the end, he offers his advice: "We could all be here celebrating, but I think we should be here worrying."

This brings up one of Dalio's principles, "ring the bell," a term he uses to celebrate when a team has achieved its goals. However, he adds another core principle: "Don't mistake the trappings of success for success itself."

The app lets users see Dalio's personal side.

In addition to Bridgewater meetings, you'll get to see the annual "family reunion" (page 248) for employees who have been with the company for at least 10 years.

For Dalio, this is an emotional occasion. He says in the video: "I didn't behave any different to the people I work with than with my kids."

• Bridgewater Associates founder Ray Dalio gave a 1-hour personality test to today's biggest innovators: Elon Musk, Bill Gates, Reed Hastings, and others.
• They did well when it came to being assertive, open-minded, and having a big vision for their companies.
• They all scored low in one key category: "Concern for others."
• Visit Business Insider's homepage for more stories.

What does it take to be a titan of industry? Independent thinking, resiliency, and passion — and apparently, not letting someone's upset feelings get in the way of achieving a vision.

This was a lesson hedge-fund billionaire Ray Dalio spotted after giving a one-hour personality test to top tech leaders like Jeff Bezos, Elon Musk, and Bill Gates, who all scored poorly in the "Concern for Others" category.

The anecdote comes from Dalio's best-selling book, "Principles." In 2011, Dalio was beginning a seven-year transition out of his founder-leader role at Bridgewater Associates, currently the world's largest hedge-fund with $150 billion in assets under management. He writes that there was a vacuum left after his departure, which he called the "Ray gap." He was worried that his company would flounder without him. To find out exactly what was missing from Bridgewater in his absence, he sent out a test to other CEOs and company founders to find their defining qualities.

The test closely followed the Bridgewater personality test that Dalio administers to potential new hires, which is in turn based on the Myers-Briggs Type Indicator (MBTI). Dalio has told Business Insider, "We look for people with a wide range of thinking types." It may take all sorts to work in a company, but Dalio found that leaders aren't that different from one another.

Dalio called these business giants "shapers," or people who shape society. According to him, there are two types of shapers: managers and inventors. Managers take a great idea and perfect it without much creative thinking, while inventors push their vision without necessarily turning it into a business. For example, Albert Einstein was an inventor. Jack Welch (GE) is a manager. Bill Gates and Elon Musk are both, as was Steve Jobs.

The test was given to shapers like Elon Musk (Tesla, SpaceX), Bill Gates (Microsoft), Jack Dorsey (Twitter), Jeff Bezos (Amazon), and Reed Hastings (Netflix). When they were faced with the choice between achieving their goals or pleasing others, they chose to achieve their goals every time.

However, Dalio goes on to say that scoring low in this category doesn't mean what most people think. It means that, when given the choice of caring about pursuing a vision or upsetting someone, these leaders will choose to overlook upsetting someone to get whatever needs to be done.

So, they're not really heartless: They just won't let anything stand in their way, including some hurt feelings.

Shapers did have some other qualities in common as well: the ability to pay attention to the big picture and the details at the same time, not letting anyone stand in the way of their goals, and having a flexible vision that changes in order to make things work better.

SEE ALSO: We scrolled through hedge-fund billionaire Ray Dalio's new app, which is filled with personality quizzes, bite-size life advice, and Nickelodeon-like cartoons. Here's what we found.

Join the conversation about this story »

NOW WATCH: Billionaire investor Ray Dalio: 'I remember my mistakes better than I remember my successes'

• The Bridgewater Associates founder Ray Dalio gave a one-hour personality test to today's biggest innovators, including Elon Musk, Bill Gates, Jack Dorsey, and Reed Hastings.
• They had four things in common: mental maps, resiliency, vision, and passion.
• Despite running vastly different companies — Tesla, Microsoft, Twitter, and Netflix — these leaders have similar personality types.
• Visit Business Insider's homepage for more stories.

The billionaire hedge-fund founder Ray Dalio once set out to discover what tech moguls like Bill Gates and Elon Musk had in common — by having them take a one-hour personality test.

Dalio heads Bridgewater Associates, the world's largest hedge fund. In his 2017 bestseller, "Principles," he wrote about a test based on the Myers-Briggs Type Indicator that was used to screen prospective employees at his hedge fund. Originally, the test was crafted for founders like Elon Musk (Tesla, SpaceX), Bill Gates (Microsoft), Jack Dorsey (Twitter), Reed Hastings (Netflix), and many others.

When Dalio read the results for these tech moguls, he found that they had four things in common.

Mental maps kept them all organized, Dalio wrote. "They have very strong mental maps of how things should be done, and at the same time a willingness to test those mental maps in the world of reality."

The second thing they had in common was vision. Dalio said they could all "see both big pictures and granular details (and levels in between) and synthesize the perspectives they gain at those different levels."

They're also incredibly resilient. Dalio said he thinks this was such a common trait because "their need to achieve what they envision is stronger than the pain they experience as they struggle to achieve it."

But most importantly, according to Dalio, they have passion. "They are passionate about what they are doing, intolerant of people who work for them who aren't excellent at what they do, and want to have a big, beneficial impact on the world," he said.

This same passion led them to score poorly in one category: concern for others. Dalio said he thinks it was because "their extreme determination to achieve their goals can make them appear abrasive or inconsiderate, which was reflected in their test results."

Dalio added that these leaders "experience the gap between what is and what could be as both a tragedy and a source of unending motivation."

SEE ALSO: We scrolled through Ray Dalio's new app — and it's a whimsical look inside the mind of the successful, self-made billionaire

Join the conversation about this story »

NOW WATCH: Ray Dalio on the next financial crisis, how he started his own hedge fund, transparency at work, and more

• Representatives from Wells Fargo have reached out to Bridgewater Associates co-CEO Eileen Murray to discuss the possibility of her joining the bank as CEO, The Wall Street Journal reported.
• Murray has indicated she is exploring opportunities outside of the hedge fund.
• Watch Wells Fargo trade live.

Wells Fargo has reached out to Eileen Murray, co-CEO of hedge fund Bridgewater Associates, to discuss the possibility of her taking on the CEO position at the beleagured bank, according to a report from the Wall Street Journal.

Wells Fargo is actively looking for new leadership since the resignation of former CEO Tim Sloan in April. Bridgewater is the world's largest hedge fund, with approximately $160 billion of assets under management.

Murray is co-CEO of Bridgewater, alongside David McCormick, while Ray Dalio, who founded Bridgewater in 1957, is now co-chief investment officer and co-chairman. Murray has focused on accounting and operations at the firm's Westport, Connecticut, headquarters while McCormick often travels to meet clients, the Journal says.

Recently, Dalio has been busy promoting his writing and philosophy. He recently released a free app based on his new book, "Principles," which has sold over 2 million copies.

While Bridgewater's strict non-compete makes it hard to leave for another investment fund, Murray has had discussions with several firms about senior roles, including Uber and MetLife, according to The Wall Street Journal.

Bridgewater is known for its unique culture which emphasizes "radical truth and transparency." All meetings are taped and employees are encouraged to point out each other's faults, minor or major. "It's not for everyone," Murray said in January at the Context Summits conference in Miami, Florida. 

For all its controversy, the strategy appears to be working. Bridgewater was one of the most successful funds in 2018, posting a return of nearly 15% in a year during which most hedge funds lost money. On the back of that performance, Dalio reportedly earned $2 billion in 2018 alone.

Wells Fargo shares are up 5% this year.

Join the conversation about this story »

NOW WATCH: Here's what 'Game of Thrones' stars look like in real life

• Ray Dalio has warned the US-China trade war may be entering a new stage.
• Given the Trump administration's blacklisting of Huawei and China's threats to cut off America's supply of rare-earth metals, the "tariff war" could soon evolve into an "export embargo war,"he wrote in a LinkedIn post.
• The hedge-fund billionaire said President Donald Trump was "pushing the limits" and warned against further escalation.
• "Conflicts can easily slip beyond their control and become terrible wars that all parties, including the leaders who got their countries into them, deeply regretted, so the parties in the negotiations should be careful that that doesn't happen," he said.
• Visit Markets Insider's homepage for more stories.

Ray Dalio has warned the US-China trade war could be entering a new stage. America's blacklisting of Huawei and China's threats to cut off US supplies of rare-earth metals could transform the "tariff war" into an "export embargo war," the billionaire cochairman of Bridgewater Associates wrote in a LinkedIn post.

"The US shutting off supplies to Huawei appears to be a step forward by the United States in weaponizing export controls," Dalio said, referring to the Trump administration's decision to ban trade with Huawei due to espionage concerns. The ban has been temporarily relaxed to enable some US companies to sell the Chinese telecom giant the components it needs to maintain its existing network equipment and devices. 

Coupled with growing signs that China is prepared to cut off America's supply of rare-earth metals— which are needed for numerous devices including smartphones, electric-car batteries, and missile-defense systems — Dalio questioned whether tariff hikes could evolve into export embargoes "intended to shut parts of the other country down."

"I would view an increasing of export controls that are intended to shut down key areas as a major escalation of the 'war,'" he wrote.

A bonus just for you: Click here to claim 30 days of access to Business Insider PRIME

Dalio, known for promoting "radical transparency" at his hedge fund, also accused the Trump administration of "pushing the limits" as it fears China's faster growth and mushrooming population will only make it stronger. "Right now we are seeing brinksmanship negotiations, so it is a risky time," he added.

Rather than a simple trade war, Dalio argued the current showdown between the US and China is an "ideological conflict of comparable powers in a small world." The tensions reflect the two countries' different approaches to life and China challenging US power in more and more areas, he said.

"These conflicts extend to American and Chinese businesses, technologies, capital markets, influences over other countries, militaries, ideologies, and most everything else," Dalio wrote.

"They are made especially difficult because the Chinese, the Americans, and those who deal with them both are now so interdependent, with the interdependencies being both vulnerabilities of each and weapons that each can use to hurt the other."

After drawing the battle lines, Dalio issued a warning to both China and America.

"Conflicts can easily slip beyond their control and become terrible wars that all parties, including the leaders who got their countries into them, deeply regretted, so the parties in the negotiations should be careful that that doesn't happen," he said.

SEE ALSO: Hedge-fund billionaire Ray Dalio says capitalism is failing America, and we need to take 5 specific actions to save it »

READ NOW: One year ago, the founder of the world's biggest hedge fund predicted that people holding cash would 'feel pretty stupid.' He was wrong. »

SEE ALSO: Stocks plunge after China hints it could unleash a 'powerful' trade war weapon by limiting US rare-earth supply

Join the conversation about this story »

NOW WATCH: Warren Buffett, the third-richest person in the world, is also one of the most frugal billionaires. Here's how he makes and spends his fortune.

• Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, with about $150 billion in assets under management.
• Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success."
• He explained how his collection of "principles" for life, work, and investing began when he went broke after a bad market call in 1982, which he blames on hubris.
• He also shares what led to his embrace of "radical transparency," what he learned from a succession plan that hasn't always gone smoothly, and what it means to be in the "third stage" of his life.
• Visit Business Insider's homepage for more stories.

Ray Dalio is one of the most influential figures in the world of finance. He started Bridgewater Associates out of his apartment in 1975, and grew it into the world's largest hedge fund. It now has $150 billion in assets under management.

Over his career, the billionaire investor has become well known for his unusual management style, rooted in what he calls "radical transparency." At Bridgewater's Connecticut office, employees use iPads to rate each other's performance in real time. Nearly every meeting is recorded, and sometimes those recordings get used in company-wide emails. The culture there can be intense.

And since the 1980s, Dalio's been collecting "principles"— life lessons that can be used in and out of the office. In 2017, Dalio published his principles as a book, and it quickly became a New York Times bestseller. This spring, he released an app that contains the full text of the book, along with internal videos from Bridgewater.

Dalio stepped back from management in 2017. He's still Bridgewater's cochief investment officer and plans on investing for the rest of his life. But now, more than 40 years into his career, he's focused on passing on what he's learned. And he views success much differently than he used to.

Listen to the full episode, produced by Sarah Wyman and Jennifer Sigl, here:

Subscribe to "This is Success" on Apple Podcasts, Stitcher, or your favorite podcast app. Check out previous episodes with:

• Philanthropist Melinda Gates
• Oracle CEO Mark Hurd
• Former race-car driver Danica Patrick
• Grammy-winning DJ Afrojack

Following is a lightly edited transcript. Narration is in italics.

Learning through experience

Rich Feloni: Ray Dalio was born in Queens, New York, in 1949.

Ray Dalio: I was an only child. I had a mother who really loved me a lot, and I had a dad who was a jazz musician, and he loved me a lot, too, but he was out a lot, and I was, I guess, a pretty classic kid. I loved to play with the kids in the neighborhood. I would say I didn't have a lot of active guidance. I was more kind of on my own, and I loved life, and I played with kids and that was it. Didn't like school.

Feloni: Didn't like school? Were you analytical at that point?

Dalio: No, no, no — I wasn't analytical. People would always say I had common sense. I was curious. I was always curious. Curiosity is a different thing than analytical. I was curious, and I liked to think about a lot of different things and have interesting conversations with adults about interesting things — politics, the world.

I did a lot of odd jobs as a kid: paper route, shoveled driveways, all that. But I earned some money from that, and I caddied, and when I was caddying and I was 12, the stock market was hot and I bought my first stock. It was the only company I ever heard of that was selling for less than $5 a share. That was my criteria. I figured I could buy more shares. Therefore, when it goes up, I'll make more money. That was really naive.

But I got lucky, because the company was about to go broke, but some other company acquired it and it tripled, and I thought the game was easy, and so that's what I got hooked on. So at about 12, I got hooked on the markets, like one might get hooked on a video game.

Feloni: What appealed to you? Was it the risk taking?

Dalio: Well, the game, and the fact that I'd make money if I could do it well, right? So I think it was probably, it might be like, imagine if you had a video game that you made money at if it paid off. The game itself is fun. And then you like the rewards and then the roller coaster begins, right? So OK, can you make money? Can you lose money?

So that had a big effect on my life, how I viewed things.

Feloni: So this approach that you would start to develop in adulthood, of learning things, forming principles around that, there was really no indication of that as a kid?

Dalio: The word learning can mean different things to different people, right? There's kind of this experiential learning, and then there is going into a classroom and remembering, and there's that kind of learning, right? So, for me, it was always this experiential learning. So that I always had as a kid.

The "go into a classroom and do the remembering" kind of learning, I wasn't good at it; I didn't like it. The experiential learning I loved. So it would be almost like saying, "Did you like playing a video game?" Playing the markets was great. Playing with my friends was great. But going in and reading a book and remembering it and getting tested on it just had no appeal to me.

How a disastrous mistake in '82 shaped Dalio's life philosophy

Feloni: Dalio went to college on Long Island and studied finance. He then went on to graduate from Harvard Business School. Two years after getting his MBA, Dalio founded Bridgewater and started to make a name for himself. But then he made a bad bet. It took hitting rock bottom to change how he approached everything, from investing to personal relationships.

Dalio: I had calculated that American banks had lent a lot more money to emerging countries than they can pay back, and I said there'd be a debt crisis. That was a very controversial point of view and got me a lot of attention, and it turned out to be right and that Mexico defaulted. And so, I thought, I'm right. I thought that, you know, I'm arrogant in having confidence, and I was right on the default and I was wrong on what happened because that was the exact bottom in the stock market. As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go, and I was so broke I had to borrow $4,000 from my dad to help pay for family bills.

Feloni: How many people were you employing at that point?

Dalio: Oh, eight maybe.

Feloni: Still, you had to take them out of a job.

Dalio: It was my everything, right? It was my everything. It was my mission. And I loved those eight people. I didn't want to lose them. And so a very, very, very painful experience, but it changed my approach to decision-making because, look, pain is a great teacher. You go forward toward your goals. You succeed and fail, but you really learn from your failures because they're the painful experiences and if you can reflect on them, you change.

My son gave me, in 2014, a book, Joseph Campbell's hero's journey, "The Hero With a Thousand Faces," and he says that what happens is that you will crash in your life at some point, and at that point you will either have a metamorphosis or you won't. That metamorphosis, really, it teaches you humility. Pain teaches you humility.

And so, my experience changed my whole approach to decision-making, like, it gave me the fear that I might be wrong that allowed me to incorporate that with my audacity. In other words, I didn't want to just get off the field and not play. I still wanted to be great and make the best things happen and win, but I didn't want to have less risk in the sense that I didn't want to have less opportunity. I wanted to keep the opportunity the same, but I wanted to then be able to manage my risk better and it changed my whole approach to decision-making because it then made me think, how do I know I'm not wrong?

It made me be much more open-minded, to diversify better, to deal with my not knowing. Whatever success I've had in my life has been due more to my knowing how to deal with what I don't know than because of anything I know.

Feloni: So it was a really profound experience. In that moment, how could you even find the lesson in it?

Dalio: Painful experiences of this sort — when you're in the moment, you may not be able to reflect very well because the emotion is taking control of you. When the emotion passes, you have a choice. You can either move on and just do the next thing and not reflect, or you can reflect. Reflect. I urge you to reflect.

Now, to some extent, maybe meditation helped me. I had learned Transcendental Meditation, so it gave me a certain equanimity to reflect. I think that maybe my habit of trying to figure out, well, what was my mistake in trades and trying to then reflect on the trades so I would learn. But in any case, when the pain passes, don't just go forward, reflect, because that's where your progress is.

Feloni: With Transcendental Meditation, you've said how important that is to you and even how that can help you reflect.

Dalio: There are the two yous in you, basically. There's the emotional you that comes from the subconscious, and, under certain circumstances, it can produce stress, and that stress or that emotion can take you over. And then, there's the thoughtful part of you. Both have advantages, because the subliminal is bringing forward these intuitions and those types of things and then the intellectual, and if you can be calm and resolve those things together, not only does it give you the calmness, it gives you better thinking.

Taking the path to radical transparency

Feloni: In the early '90s, there was a Bridgewater employee named Ross Waller. He was the head of trading at the time, and he didn't make a trade he should have. It cost the company hundreds of thousands of dollars. But Dalio decided not to fire him.

Dalio: It's OK to make mistakes. It's not OK not to learn from them. So perfectly good people, I mean, all human beings make mistakes, right? The key is the learning from them. So he was a good person who made a mistake, and then the question was, how are we going to learn from them? I put into place an error log, which we now call an "issue log," in which everybody in the company has to write down whenever anything goes wrong so that they bring it to the surface and we learn from it.

Feloni: Is that for you as well?

Dalio: Of course, anybody.

Feloni: I mean, if you start to incorporate more and more transparency, there's probably going to be some tension that arises, and in 1993 there was a conversation you had with some of your leadership team, where they basically confronted you.

Dalio: To be effective, I think people have to be very truthful with each other. First, that's because they have to try to agree on what is. They've got to get out of their heads, and if they think something's not right, they've got to deal with it. Otherwise, it's not productive, and there's so much misunderstanding unless you lay your honest thoughts on the table. So improvement like that is sometimes difficult but it is also really effective.

So that total amount of transparency and truthfulness was, a couple of people I work with, they said, well, that's demoralizing to people, that you're demoralizing people by putting them in that kind of a position.

Feloni: They used some choice words. They said your approach was making people feel incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, and otherwise bad. I mean, how did you feel reading that? That must have been pretty rough?

Dalio: I didn't want to do those things. I didn't want to make them feel demoralized, so what I thought about was, well, the real question is, how do we deal with it together? So we need to have a conversation. What should I do? What should you do? How should I do it?

So I have a general principle. When you're not getting along with somebody or you're having a disagreement, stop, put that aside for a moment, go to a higher level, and then say, "How should we be with each other? What are our ground rules for operating, and why?" Then go back into your disagreement, and follow those protocols about how you should be with each other.

And so that's what I did, because, again, I was faced with, it seemed, a trade-off that was a choice between being totally truthful with each other or making people feel better. And I wanted them to feel better and be able to be totally truthful. So, we face these junctures in our lives, like I said in the earlier juncture; I wanted to have all the upside with none of the downside. And so, in that particular case, I figure, well, if I'm taking risks, how do I have all the upside without those unbearable pains, and you think that that's a choice that exists, but if you pause and you're clever, you can engineer that, if you do that together.

So what I did was to sit there and say, OK, so how should we be with each other? And we had conversations about how we should be together, and that helped to flesh out the rules and the ways that we should be together so that we could deal with that more effectively.

Feloni: It's interesting that your initial thought there was that we're either going to be honest or we're going to be happy, and that the in-between wasn't really there. How come radical transparency is so important where feelings can be hurt? Why not be honest but maybe a little bit more graceful with it, where someone maybe, it could be a little bit more pleasant than harsh?

Dalio: Well, first, I think it's a continuum, right? And then there's better and worse ways of communicating. Continuum like you're saying, you know, there's honest and then there's happy. The way that I look at happy is that you're short-term happy but you're not long-term happy, OK? In other words, I would say, OK, if we don't deal with those circumstances that we need to deal with in a forthright way, we could all be happy, but it's going to have adverse consequences in a lot of different ways. If you start to realize, intellectually, that being really truthful with each other is something that is to be treasured, not only because it'll help you deal with the situations, but also it'll build trust. There's a lot of trust that's going on. There's a lot of trust that everybody knows we'll be talking about it and there won't be hidden agendas and all those things.

And once you start to rethink it and reprogram yourself, that you start to realize, I don't want to be in this highly political environment, with all this stuff going on behind the scenes, and that I really appreciate it, and then you get in the habit of being able to do it well, so that there's really good clear communication and there's trust that's built. That is tremendously beneficial.

So, you have to understand that Bridgewater's success is that, right? In other words, it's knowing what you don't know and knowing I may be wrong. That's the key to success, right?

Feloni: So for radical transparency to work, though, it has to be done at an organizational level, a team level? Otherwise, wouldn't it just be, when you sat down, you're just acting like a jerk, if you're just doing this on your own?

Dalio: Well, yes. You have to agree. Any group of people, it may be your department, it may be your whole company, may be the whole country. Whoever it is, they have to agree on how they are going to behave with each other. Why? Everybody has to do that.

I think that notion of, can we be radically truthful with each other, can we know how to disagree well and then get past that disagreement to the best answers? These are questions that everybody has to face but certainly they're interactive questions, so whether it's in your department, or you can't unilaterally behave that way and you need to talk about it; otherwise you'll have misunderstandings.

Forming the 'principles' Bridgewater is known for

Feloni: And so, the next evolution, really, of this radical transparency kind of happened in the early 2000s, and that was when Bridgewater was really going from, I guess you could say, like a boutique firm to a large-scale organization, correct? And as it was happening, you wanted to retain the culture that you built, to pass on the lessons you learned, the principles you learned. This is when you really started to codify them.

So if you get a packet of your principles that you've acquired over the years, and then you give them to your employees, if Henry Blodget, the founder of Business Insider and the CEO of Business Insider, if he came to us with a packet of his life lessons, I feel like that would be something that we'd be like, "Whoa, where's this coming from? What is this?"

Dalio: Yeah, it didn't happen that way.

Feloni: It didn't happen that way. How did it happen?

Dalio: Well, again, in order to have this radical truthfulness and radical transparency, everything that I did pretty much was recording everything that everybody did was pretty much recorded.

Anything that was not personal, like, if you have a family problem or something, we're not going to talk about it. Anything that's proprietary, we wouldn't talk about. But pretty much anything that anybody could see, because that builds the trust. If you want to have truthfulness, transparency helps a lot because people get to see things for themselves.

And then what I would do is, as I would make decisions, I would write down my criteria for making the decisions. So things were happening on a day-to-day basis. Imagine if Henry, let's say, oh, you're seeing what Henry is doing and he's made a decision, and then he's written down the principle behind why he made the decision, and then he's willing to talk about it with you and he said, "Listen, how should we make those decisions? Do you think those criteria are good or not?"

So it's not like, OK, here's a book. The book is just the accumulation of those kinds of things, and it's easy to go through. And that brings harmony, and that brings consistency, and that reinforces the culture. Part of that is to write that down and understand each other, and part of it is to also develop tools that help to facilitate that. So I developed a number of tools that facilitate that transparency and the understanding.

Feloni: To get back to an earlier point, I understand in terms of writing down what's working and sharing that with the company, that, to me, makes sense. It seems to be a much bigger leap to being that we have to start recording everything so that we're all honest with each other, in the sense that if I go meet with my manager and have a discussion, that all of my colleagues need to be able to see this. Or if we had a discussion that maybe a conflict arose and it was resolved, that that would be shared with colleagues on here's what we can learn from this. I feel like that would be really difficult to adopt for people, especially feeling uncomfortable around that.

Dalio: Yeah, first of all, I want to be clear that anybody can do whatever they want with it and it's all a matter of degrees of what you want to do, but all those degrees have choices, so I chose that particular path for various reasons I can describe. But the question is, how truthful, how transparent do you want to be? And there are real benefits. I chose that radical truthfulness and that radical transparency because I figure there's nothing to be embarrassed about, and you produce understanding, and if people are just going through their evolutionary processes, their successes and their failures, and we made a compact among ourselves, do we want to be this way with each other?

You start to see everybody in their humanity, including the making of mistakes and then the learning from mistakes. And then, also, you avoid all the bad stuff that goes on in the dark. Deception happens behind the scenes, so you avoid all that deception. That's what worked great for us. I'm not saying others necessarily have to do it. They've got to figure out what's good for them.

Emerging from the financial crisis stronger than ever

Feloni: After the financial crisis, this is kind of when more of the public eye was on Bridgewater just because you came out of that strong, because of your analysis of where the economy was headed, and 2010 was the best year that Bridgewater had up to that point. That's when you start having the media looking at you, people not even in finance looking at you, discussing principles. At this point, people were saying, "Whoa, what is this?" Was this hedge fund in the shadows, like some secret cult or something? What did it feel like when you were challenged? Your whole way of approaching things was challenged from a bunch of outsiders at this point.

Dalio: In 2007, we anticipated the world financial crisis because we looked for these timeless and universal principles. We knew that the situation was very similar to the 1929-32 situation because when interest rates hit zero, the Central Bank can't ease anymore, and you have a debt crisis and certain things need to be done.

It was that approach to principles and this way of operating that allowed us to anticipate the financial crisis of 2008, and we did very well in that crisis where most everybody lost money in that crisis. As a result we started to receive attention, and then people started to think, well, what is this, a cult? And I didn't want attention. I didn't want public attention. I didn't want to do this kind of media. I just wanted to be quiet. And so, what I did is I put our principles in a PDF file, and I put it out on our website for anybody who wanted, they could download it. And it was downloaded 3 1/2 million times, and people started to get the understanding and started to say, "Whoa, this is a different way of operating." And so, that's what happened.

Feloni: When you're saying that you have your investing principles, and that's what allowed Bridgewater to be successful, the accumulation of these principles for investing. You've applied that to, kind of, just the human experience as well.

Dalio: All decision-making.

Feloni: Are your principles for life and work — is that almost kind of like the same way that you would write an algorithm for trading, but for a person?

Dalio: Yeah, it's exactly the same. One of the great things I'd like to pass along is the power of having people write down their decision rules when they're making that decision.

Feloni: How do you mean?

Dalio: I think most people just make decisions and instead of just doing that, if you make your decision and shortly after or shortly before, take the time and say, in this particular type of situation, here are my criteria for making that decision, that's the reason why, and you write it down in a very, very clear way, it makes you think about your criteria better. It allows you to communicate with people better.

That idea of writing that down applies to all decision-making. You could do that in all decision-making, and you can even go beyond that. This is the power that we're now in, in the world, with converting thoughts to algorithms. You can go beyond that, and you can take those criteria and then have data input and have that operate in parallel with your decision making and I think that, that's more and more where we're headed and that's what we've done. That's the process.

Feloni: Was there ever a moment throughout your life really, where one of your principles turned out to be incorrect, as something was unfolding you realized maybe this isn't working for me?

Dalio: Oh, yeah. I think the development of the principles is it's an evolutionary process of change just like we personally experience an evolutionary process of change. Our thinking changes as we learn over a period of time. It's just more explicitly progressed. And that's what this compendium of principles is, that's the book, that's the hot book, it's because it just evolves over that period of time and here it is and it's still evolving. I'm still learning.

A succession plan that didn't always go smoothly but was a learning experience

Feloni: After hitting a new level of success coming out of the financial crisis, Dalio began considering what would happen to Bridgewater after he was gone. It was his life's work. And continuing its success would be no easy feat. So he set into motion a succession plan. It started with appointing a new co-CEO in 2010, Greg Jensen.

Jensen was his protégé and Bridgewater's head of investing. But Jensen ran into some of the same problems Dalio did back in 2008, when there was too much overlap between the investment and management sides of the business. And in 2016, Dalio decided that Jensen should return to his former role.

The change meant Dalio's succession plan had to change too. He couldn't back off just yet. In his book, Dalio took responsibility for the botched plan. He also called it his biggest regret during his time at Bridgewater.

Dalio: First of all, I would say, a lot of learning comes from having the same mistake over and over again until you learn it. In my particular case, the company grew up under me, and there I was, and I was handling too many things and I was getting by, and I was figuring out how to get those things by but not adequately. And then I figured, OK, now that's my situation, my dilemma and I should pass along both my dilemma and my circumstances to him and we should try to figure out how to deal with that together but, in other words, I can't not pass it along and yet we don't have a solution yet, and so we will try to deal with that together. And that's the path that we went down and we found out that we couldn't do that together because it was just too much for him, too much for me.

So, I guess I would say, you form a theory and the theory doesn't work, and then you try again and you form another theory and that's part of the learning process.

Feloni: What has been your experience with succession? What has that taught you as a leader?

Dalio: Oh, it taught me so many, many different things. It was. .. first of all I should say when I began my succession process, I thought it was going to take me probably about two years. But when I say I thought that, I also knew not to believe that.

Simultaneously, one can say, I think this is going to happen but I shouldn't bet on it, because if you haven't done something three times before successfully, don't assume you know how to do it.

Feloni: Yeah.

Dalio: And I knew what the arc of my life would be. In other words, as I go from 60 to 70, that I have to transition well and I want to really make the people successful without me, and so I'm going to have that particular experience. I allowed up to 10 years for that to happen. I figured two, but I said, "OK, I better plan for 10 because I'm not sure if I'm going to be able to do that."

And then I learned. I learned how people see things differently. I learned not to assume that somebody can do something until they're doing it already.

I learned that others had to be involved, that the best thing for me to do was to bring in other people to do that. I originally didn't think I needed a board, for example. I figured I'd run the company in this way for all that particular time and so I don't want some board to come in and operate where they're outside telling me what to do or the leaders what to do. I then realized that I need to have a board that would operate well. So I get the best advice I can from the smartest people. I went to Jim Collins, very smart guy, who's ... that's his expertise.

Feloni: Yeah, management consultant.

Dalio: And I asked him, he said, well, you only have to do two things: You have to pick the CEO who's going to be successful, a great CEO, and you have to have a board that will monitor whether the CEO is successful, and get rid of them and change it if he doesn't. It takes me out of it, it takes those out of it. And so, I learned —

Feloni:That helped you step back?

Dalio: Yeah, I learned about governance systems. How does the governance system work? How do you select the people differently? How do you try those people? So I learned all of those things. You know, I'm still learning, but it was the learning of that, and that made us successful in the transition.

Redefining success in the 3rd stage of life

Feloni: I mean, when you read "Principles," it kind of seems like, here's a very cohesive worldview. I'm now ready to pass it on. But since then, has there been anything surprising that you've learned about yourself, about how to just approach life in general?

Dalio: Well, I learned ... I'm beginning to experience for the first time in my life, the total freedom from obligation, the total freedom. OK, what do I want to do? Of course, I'm in this transition phase, which means that I'm passing things along. But what is it like to be free of obligation and do all the things that you're excited about? I'm doing a lot of things that I'm excited about, and I love the markets. I'm still spending 80% of my time on markets, which is more than I used to, because I had the CEO job. Now I'm in a position where the economy, the markets, that's my game. I'll always play that game.

But with that open canvas, I can do things like pass along these principles. I'm interested in ocean exploration. I love being around my family, my grandkids. I learn all of these different things, so I'm experiencing that element of the freedom of this new phase in my life, and I'm thinking about it. I'm writing down principles about it and that's it.

Feloni: Do you think you're going to miss that engagement with the day-to-day of Bridgewater?

Dalio: I'm going to be the chief investment officer as long as they want me to be. I'm playing that game. They want me to do it, I want to do it, and I'll do it as long as I'm welcome to do it and I love to do it.

Feloni: And I also wanted to know as we're thinking about these different stages of your life, what is your concept of success in this stage right now, as opposed to the Ray who was building up Bridgewater, scaling it, as opposed to the concept of success that Ray had when you were a young man as well?

Dalio: My concept of success is having others successful without me. My concept of success before was being successful myself.

Feloni: And what did that mean, "success"? How did you define that?

Dalio: Well, success was whatever mission I was on. It could be play the game in the markets and be successful. It could be build a company and be successful. It could be, be a successful parent. OK, now it's none of those things, right? It's I've evolved to the stage where to have others successful without me being successful is the most beautiful thing I can do.

Feloni: So that's … you're at the final stage of that hero's journey that you were talking about?

Dalio: Yeah. I'm in that transition to phase three.

Feloni: Well, thank you so much, Ray.

Dalio: It's a pleasure.

SEE ALSO: WeWork's CEO explains why he thinks his $47 billion company is recession-proof and how he keeps his ego in check as a young billionaire

Join the conversation about this story »

• Ray Dalio is the founder and co-CIO of Bridgewater Associates, the world's largest hedge fund, with about $150 billion in assets under management.
• Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success."
• Fundamental to his lessons are transparency and a willingness to codify lessons learned from making mistakes.
• Visit Business Insider's homepage for more stories.

For the past couple years, Ray Dalio's life has been in transition.

He still spends most of his time as the co-CIO of Bridgewater Associates, the hedge fund he founded and built into the largest in the world, but he's also focused on passing on what he's learned.

Dalio stepped back from office management in 2017 and published his first book, "Principles: Life and Work," later that year. He'll be publishing his core investment principles in the next year or so, but his unique life philosophy is core to everything he's done at Bridgewater.

In a recent episode of Business Insider's podcast "This Is Success," Dalio took us through key career moments since founding Bridgewater in 1975, and what universal lesson he pulled from each. You can find that episode and those lessons below.

SEE ALSO: 'Pain is a great teacher’: How Ray Dalio, the world's most successful (and mysterious) hedge-fund founder, came back from financial ruin

Hitting rock bottom in 1982 resulted in a change from focusing on what he knows to focusing on what he doesn't know.

Dalio built a name for himself shortly after founding Bridgewater out of his apartment in 1975.

In 1982, he attracted attention for a call he made two years earlier. He had the unpopular opinion that American banks were lending too much to emerging Latin American countries, but was proven right when Mexico's president announced the country could not pay back its $80 billion in debt, $20 million to $30 million of which was owed to the US's largest banks.

Now that he looked like he knew what he was talking about, analysts — and even the US Congress — turned to him for insights as to what would happen next. He was unequivocal: The US economy was headed for a massive downturn.

Except that the Federal Reserve cut the discount rate, and the stock market went up — and kept going up for years, marking one of the great bull markets in American history. Not only was Dalio wrong, but the exact opposite of what he staked everything on happened.

"As a result of being wrong, I lost money for me, I lost money for my clients, I had to let everybody in my company go, and I was so broke I had to borrow $4,000 from my dad to help pay for family bills," Dalio said.

As he recovered, he realized that he didn't want to stop taking risks, but needed to do so with more humility, and with a new focus. "It made me be much more open-minded, to diversify better, to deal with my not knowing," he said. "Whatever success I've had in my life has been due more to my knowing how to deal with what I don't know than because of anything I know."

An employee's mistake taught Dalio to track what does and doesn't work.

One time in the early '90s, Dalio's head of trading at the time, Ross Waller, forgot to put in a trade — and the mistake cost what Dalio remembers as "several hundred thousand dollars."

He didn't fire Waller (Waller didn't leave until 2004 and has had a long and successful career). Instead, Dalio used the occasion to implement a new approach at Bridgewater.

"I put into place an error log, which we now call an 'issue log,' in which everybody in the company has to write down whenever anything goes wrong so that they bring it to the surface and we learn from it," he said.

It was the first time Dalio created a management tool, and that one would grow into many. Today at Bridgewater, employees have "baseball cards" that track their skills and performance and make it visible to all, and they use the "Dots" iPad app as a real-time forum for commentary during a meeting.

The experience with Waller proved to Dalio that not only should people be given second chances after making mistakes, but that these mistakes can be capitalized on for determining new ways to reinforce desired performance.

A tough conversation with his leadership team taught him about how "radical transparency" can improve relationships when used correctly.

By 1993, Dalio was convinced that unfiltered truth would keep Bridgewater running smoothly. Except not everyone was in full agreement.

One day that winter, three senior executives, including co-CIO Bob Prince, asked Dalio for a meeting and sent him a memo ahead of it. The letter said that while Dalio was great at his job and cared about his team, he was, essentially, acting like a jerk. They said his words and behavior made employees feel "incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, or otherwise bad."

Dalio was upset, and he searched for a compromise between the poles he had set for himself: either we're honest with each other or happy. He decided that "radical transparency," as he called it, was crucial for Bridgewater, but that boundaries and expectations had to be set.

"When you're not getting along with somebody or you're having a disagreement, stop, put that aside for a moment, go to a higher level, and then say, 'How should we be with each other? What are our ground rules for operating, and why?'" Dalio told us. "Then go back into your disagreement, and follow those protocols about how you should be with each other."

Bridgewater's rapid growth encouraged Dalio to start writing down his "principles."

Early in his career, Dalio learned that he could program certain investment behaviors, according to what was happening in the markets, into software that made a computer an invaluable tool for trading. This led to an accumulation of investment principles that gave Bridgewater an edge.

As he developed as a leader, Dalio became convinced that the same approach could be used with people. In 2006, Bridgewater had moved past its boutique stage and was on a path of rapid growth. To maintain his firm's culture, Dalio decided to collect a list of its tenets.

In the podcast episode, Dalio said it wasn't as if he suddenly appeared before his company with a book of rules they had to follow. Instead, he said, he had codified what had already existed.

He noted that it's no secret Bridgewater has an intense culture and isn't for everyone, but he believes this practice of logging personal or corporate principles is valuable for and adaptable to any situation.

"One of the great things I'd like to pass along is the power of having people write down their decision rules," Dalio said, because creating processes out of best practices results in better risk management and better communication.

Difficulties with his succession plan taught him about focus and delegation.

Dalio and his team were confident the financial crisis was on its way and planned accordingly. Bridgewater, then, performed relatively well when it did hit, and this brought an influx of attention and new clients. In 2010, Bridgewater had its best year ever.

During this period, Dalio decided he needed to build a succession plan, and was ready to have it last anywhere from a couple years to a decade. He stepped back as CEO in 2011, splitting office leadership between David McCormick and Greg Jensen. In his book, Dalio wrote that he considers Jensen family, and so when it turned out that Jensen was unable to balance both of his roles as co-CEO and co-CIO (a problem Dalio had run into himself in 2008), Dalio considered the ensuing shakeup in 2016 to be his biggest regret at Bridgewater.

He had appointed another CEO, Jon Rubinstein, in 2016, but the role lasted only 10 months. After a year back in the CEO seat, Dalio finally felt he got the succession plan right in 2017 and stepped back.

In the podcast interview, Dalio said the experience taught him several lessons.

"One can say, I think this is going to happen but I shouldn't bet on it, because if you haven't done something three times before successfully, don't assume you know how to do it," he said.

He sought advice from the management expert Jim Collins and learned that he not only needed a governance board for this transition, but that a leader's perspective and talents are not suddenly transferable to a role they have never had.

"I learned how people see things differently," Dalio said. "I learned not to assume that somebody can do something until they're doing it already."

• Ray Dalio is the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund, with about $150 billion in assets under management.
• Dalio discussed key moments from his career in an episode of the Business Insider podcast "This Is Success." In a bonus segment, he explained why he considered Paul Kennedy's book "The Rise and Fall of the Great Powers" the best book he'd read in the past year.
• He considers it important reading for today, especially in assessing the emerging power shift he sees between the United States and China.
• Click here for more BI Prime content.

For the past two years, the billionaire Ray Dalio has been sounding the alarm on the rise of populism throughout the world, and earlier this year he declared that capitalism was facing an "existential threat" in the United States. As the founder and cochief investment officer of Bridgewater Associates, the world's largest hedge fund, which has about $150 billion in assets under management, Dalio is one of the most influential voices in finance.

And in a recent interview for Business Insider's podcast "This Is Success," the investor gave a book recommendation in line with his assessment of the world today, calling it the best thing he'd read in the past year: the Yale historian Paul Kennedy's award-winning 1987 history, "The Rise and Fall of the Great Powers."

"I think we're going to enter a period that's very similar to the 1930s — and I held that view before reading this— but it's definitely the case that there is an arc for countries, just like there's a life arc," Dalio said. He sees the US on a decline and China on a rise, marking the early stages of a change in global order.

"That dynamic has happened many, many times in history and understanding that well, I think, is very important," he said.

Kennedy's book is an investigation of the life spans of the world's great powers since 1500, the start of modern history. Each power was defined by economic hegemony that fell when that country became overstretched by its military presence and spending, which was accompanied by a lack of investment in other aspects of society, contributing to an overall decline. Kennedy noted that the US in 1980 looked to be in a similar position to the United Kingdom ahead of World War I, when it was headed toward falling from its peak.

In short, Dalio is worried about the state of America and believes that inequality should be treated as nothing less than "a national emergency," or else the shifting power dynamics around the world will hit the US especially hard.

Dalio said he had been spending much of his time researching world history of the past 500 years, with a particular focus on reserve currencies (the dominant global currency), to help him make sense of where the world was at the moment and what could be done to mitigate any damage. Of everything he's used in his research, he said, Kennedy's book is the one that's enthralled him the most.

You can listen to the full "This Is Success" interview below:

SEE ALSO: POWER BROKERS OF FINANCE: How to get hired at Goldman Sachs, Citi, BlackRock, and other top companies

Join the conversation about this story »

NOW WATCH: Ray Dalio shares what he's learned from his succession plan at the world's largest hedge fund

• Jon Rubinstein, a former executive at both Apple and Bridgewater Associates, is selling his Mexico beach house for $20 million.
• Rubinstein was one of Apple's earliest employees and left his position as SVP of the company's iPod division in 2006.
• He was later co-CEO of Bridgewater Associates with Ray Dalio for 10 months.
• Rubinstein's seven-bedroom home comes with 206 feet of private beachfront, multiple pools, and a private chef service.
• Visit Business Insider's homepage for more stories.

Jon Rubinstein, one of Apple's earliest employees and briefly co-CEO of the world's largest hedge fund, is selling a 16,000-square-foot beach house in Mexico for $20 million.

Rubinstein left his position as senior vice president of Apple's iPod division in 2006 and later served as co-CEO of Bridgewater Associates with Ray Dalio for 10 months in 2016 and 2017.

Rubinstein's Mexico mansion comes with seven bedrooms,  206 feet of private beachfront, multiple pools, and a private chef service.

Take a look inside the lavish Mexico home.

SEE ALSO: Donald Trump Jr. just bought a $4.5 million house in the Hamptons with his girlfriend. Take a look inside the 7-bedroom home that sits in a waterfront gated community.

DON'T MISS: Steven Spielberg is one of the wealthiest filmmakers in the world. Take a look at what the billionaire's life is really like, from his 27-year marriage to his $184 million yacht

Jon Rubinstein was one of Apple's earliest employees and left his position as senior vice president of the company's iPod division in 2006. He later served as co-CEO of Bridgewater Associates, the world's biggest hedge fund.

Source: Business Insider

Now, Rubenstein is selling his lavish Mexico beach house for $20 million.

Source: Rancho R + R

The home is in Punta Mita, a fishing and luxury resort village in Nayarit, a small state on the Pacific Coast of Mexico.

Source: Rancho R + R

Dubbed Rancho R + R and designed by Alfonso López Baz and Javier Calleja, the home was built in an unconventional X shape.

Source: Rancho R + R

Rancho R + R sits on more than 1.7 acres and comes with 206 feet of private beach.

Source: Rancho R + R

It also has multiple swimming pools, including an infinity-edged lap pool, a shallow, child-friendly pool, and a heated spa.

Source: Rancho R + R

The home has two shaded outdoor dining areas.

Source: Rancho R + R

The buyer of the beach house will be able to enjoy an Italian-inspired chef's kitchen and a private chef service.

Source: Rancho R + R

A two-person workspace with ocean views is attached to a fitness studio with bath and shower.

Source: Rancho R + R

The second-floor master suite features a wall made almost entirely of glass that overlooks the ocean.

Source: Rancho R + R

The master bathroom comes with a soaking tub, a spacious dressing room ...

Source: Rancho R + R

... and a glass-walled, walk-in shower.

Source: Rancho R + R

The house has seven bedrooms that sleep at least 14 people.

Source: Rancho R + R

It comes furnished with custom pieces chosen by interior designer Erica Krayer.

The home also comes with a curated collection of original artwork from Mexican artists.

Source: Rancho R + R

The Mexico beach house was designed for "seamless indoor-outdoor living," according to the listing.

Source: Rancho R + R

A cabana with hammocks and day beds sits on the private beach.

Source: Rancho R + R

Luxury facilities in the nearby town of Punta Mita include four beach clubs, a tennis club, and 36 holes of golf.

Source: Rancho R + R

• Big names like David Tepper and Leon Cooperman have opted to close their hedge funds instead of transitioning their business to new management, but investors see more and more founders planning for their funds to live on without them. 
• Fund managers have built teams that invest across asset classes, which reduces reliance on the trading acumen of a single person.
• Succession planning can be harder than it looks. Bridgewater founder Ray Dalio told Business Insider he was stunned by the amount of work it took and shared what he learned about the process. 
• Click here for more BI Prime stories.

Hedge funds have long been nearly synonymous with their founders' strategies and personalities, but investors are now looking closely at firms' plans to carry on without their creators at the helm.

Investors say more and more funds should be able to survive a leadership transition. But Ray Dalio, founder and cochief investment officer of Bridgewater, the world's largest hedge fund, told Business Insider it was hard for him to pinpoint how long his succession planning would take. 

"When I began my succession process, I thought it was going to take me probably about two years. But when I say I thought that, I also knew not to believe that," said Dalio on a recent episode of Business Insider's "This Is Success" podcast.

As founders age and the hedge fund industry matures, succession planning is a critical question for investors and potential fund employees. Many of the biggest funds have evolved beyond simply managing one portfolio and now offer a range of services, which makes it more plausible for a successor to take charge. 

"They're companies, they're small corporations, they're not one PM with an analyst running a single portfolio," said Darren Wolf, global head of alternative investment strategies at Aberdeen Standard Investments. "They're set up to be evergreen structures way beyond a single PM."

See more: Billionaire investor Stanley Druckenmiller says there should be only '200 or 300' hedge funds, not thousands — and he expects a culling of the herd

What remains unclear is exactly which fund managers will want their company to live on after they're done working.

Several big-name managers opted to close shop in the last 18 months instead of turning over to a longtime lieutenant. Billionaires David Tepper of Appaloosa Management and Leon Cooperman of Omega Advisors are converting their funds into family offices. Jason Karp closed Tourbillion and is now helping with his wife's organic chocolate company. John Paulson closed his London office recently, and hinted last year that he was close to transitioning his hedge fund into a family office.

But there have been some succession success stories. Farallon Capital is back at the assets under management it reached before founder Tom Steyer stepped down in 2012. Dallas-based HBK Investments has been successful despite the firm's founder and namesake, Harlan B. Korenvaes, retiring in 2003. Large quant funds like Renaissance Technologies and D.E. Shaw have ceded day-to-day control to lieutenants while founders James Simons and David Shaw focus on research and other passions.

"An increasing number of hedge funds can absolutely handle a succession," said Joseph Burns, head of hedge fund due diligence for iCapital Network, because they are diversified asset managers with venture capital and private investment arms.

Still, giving up a business you started and grew isn't easy, something Dalio found out when he tried to transition out  role at Bridgewater, only to step back in when his replacement, Greg Jensen, was overloaded with top investment and management responsibilities.

Bridgewater is currently run by Co-CEOs David McCormick and Eileen Murray, while the Dalio, Jensen, and Bob Prince all share the CIO role.

'Go out and hire a replacement'

Legendary hedge fund manager Julian Robertson drew investors in because of his personality and strategy. Naming a successor for Tiger Management would have made a lot of existing investors uneasy, according to research from Sandy Gross at executive search and coaching firm Pinetum Partners, but the seeding of his proteges' funds let investors know who he backed without forcing them to make a decision about staying with Tiger under a new leader.

But more recently, Gross found in interviews with senior hedge fund personnel that mega-funds are expected to continue beyond the founder. One unnamed COO told Gross that "there is an expectation we live beyond our founders" today, and not close down just because the founder is ready to retire.

"There are plenty of geniuses on Wall Street, so it shouldn't be hard to go out and hire a replacement," an unnamed hedge fund CFO told Gross.

See more: A bunch of hedge fund managers featured in 'The Big Short' are among the casualties of Citadel's most recent cuts

Wolf said Aberdeen goes into hedge funds "wanting to be invested for a long time."

"We do a lot of due diligence before making an investment, so we want to amortize that time and cost across a long period of time," he said.

Well-known platforms like Point72, Millennium, and Citadel are inherently tied to their billionaire founders, but are made up of hundreds of investment teams and professionals who often operate autonomously. For investors, this structure is viewed as a strength.

"We don't like to see too much of the talent concentrated at the founder level," Wolf said.

Bridgewater's Dalio said that anyone thinking of going down the succession path to should allocate plenty of time. He figured the process would take two years, but gave himself 10, he said on the podcast.

"If you haven't done something three times before successfully, don't bet on your ability to do it," Dalio said. 

Join the conversation about this story »

NOW WATCH: Kylie Jenner is the world's second highest-paid celebrity. Here's how she makes and spends her $1 billion.

• Ray Dalio, the founder and co-chief investment officer of Bridgewater Associates — the world's largest hedge fund — recently spoke with Business Insider correspondent Richard Feloni on his podcast "This Is Success."
• He revealed to us what's made his overall investment philosophy so successful over the years.
• Dalio also explained how Bridgewater was able to expertly navigate the financial crisis.
• Click here for more BI Prime stories.

When it comes to the world's most elite investors, Ray Dalio's name is near the top of the list.

Starting from scratch, Dalio was able to create the world's largest hedge fund, Bridgewater Associates, through a strict adherence to principles and investment philosophies. With his assets under management having swelled to over $150 billion, Dalio is willing to provide much-needed guidance for investors looking to replicate his process.

In an exclusive interview with Business Insider's podcast "This Is Success," Dalio attributed his investment prowess to how he's historically tackled one simple question: "How do I know I'm not wrong?"

This simple statement completely transformed the way Dalio thought of his prior convictions, and changed his entire approach to decision-making going forward.

"Whatever success I've had in my life has been due more to my knowing how to deal with what I don't know than because of anything I know," he told BI.

Listen to the podcast now: How Ray Dalio, the world's most successful (and mysterious) hedge-fund founder, came back from financial ruin

This straightforward idea helped take Dalio from flat broke in 1982 to the helm of one of the world's most influential hedge funds — a true rags-to-riches story.

When Dalio makes a mistake, he pauses, looks back, and analyzes where he went wrong. "Don't just go forward, reflect" he added. "It's okay to make mistakes, it's not okay not to learn from them."

Strictly adhering to this mantra has attributed immensely to his fortune, while also helping him navigate some of the most turbulent times in market history. When the financial crisis hit, Bridgewater was already positioned to capitalize from the meltdown.

"We did very well in that crisis, where most everybody else lost money in that crisis," he said.

Dalio had been studying big deleveragings of the past — the Great Depression, the Latin American debt crisis, and the Japanese asset bubble — in order to discern how the US economy would react in a similar situation. And when one of his proprietary market gauges started to flash red, Dalio was set to profit.

He focused on what he didn't know — which, in this case, was how the modern US economy would react if a massive delevering took place. In the end, reflecting and learning from history's past mistakes helped Dalio uncover the financial ticking time bomb that was hidden in plain view.

More recently, his wisdom helped Bridgewater post double-digit returns in 2018 — a year when the benchmark S&P 500 was down 6%.

Although Dalio's mantra sounds simple to recreate, investors are notorious for overlooking the risks of what they don't know when financial euphoria starts to set in.

Time will tell when the next market downturn inevitably strikes, but we do know one thing: Dalio will likely be one step ahead.

SEE ALSO: Billionaire investor Howard Marks sounds the alarm on an area of the market that is 'in vogue' — and explains why it resembles the tech bubble

Join the conversation about this story »

NOW WATCH: Nxivm leader Keith Raniere has been convicted. Here's what happened inside his sex-slave ring that recruited actresses and two billionaire heiresses.

• Ray Dalio has made the case for investing in gold as central banks devalue currencies.
• The hedge-fund boss predicts a "paradigm shift" in investing.
• Dalio said too many investors have been pushed into stocks and other equity-like assets and are likely to face diminishing returns. 
• View Markets Insider for more stories. 

Ray Dalio has made the case for investing in gold as central banks cut interest rates and pump money into economies, devaluing currencies.

In a Linkedin post, the founder and co-manager of Bridgewater Associates wrote about "paradigm shifts" in investing. He said investors have been pushed to buy stocks and other equity-like assets that are likely to face diminishing returns.

"The world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns," he said. "I think these are unlikely to be good real-returning investments," he added.

More promising investments are those that "do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold," he said.

The price of gold jumped 0.7% on Thursday morning to around $1,423 an ounce.

The Federal Reserve is expected to cut rates in about two weeks' time. Under the new paradigm, Dalio said, investors should change their mindsets about what will work after Wall Street's record bull run.

"In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt," he wrote. "On the other hand, if you're astute enough to understand these shifts, you can navigate them well or at least protect yourself against them."

Dalio added that the financial crisis was the last major "paradigm shift" and pointed to unsustainable growth rates as a root cause. Bridgewater "navigated the crisis well when most investors struggled," he said, because it studied the 1929 crash, enabling it to recognise problems early. 

SEE ALSO: Here's why the Fed may be nervous about the US economy

Join the conversation about this story »

NOW WATCH: Stewart Butterfield, co-founder of Slack and Flickr, says 2 beliefs have brought him the greatest success in life