In one sentence: For the 200th episode Phil and Danielle look back at the four Munger filters and then introduce Ray Dalio's five steps to success (set goals, notice mistakes, understand them, fix them, persevere), covering the first two, with Dalio's near-ruin in the early 1980s as the lesson in over-certainty.
Key ideas
- Where it began. Phil restates Munger's four filters: understand the business, a durable advantage, honest and talented management, and a price on sale. He counts about 120 hours of episodes. [01:00–04:00]
- Dalio in brief. Phil says Bridgewater manages about $160 billion and has compounded around 18% for 36 years (his figure). Dalio is a macro investor who sorts the world into four "pots" of inflation or deflation and growth or stagnation. Phil doesn't track him as an investor because his style is different from Rule #1's. [05:00–09:30]
- Where the five steps come from. Phil says it is a podcast interview with Kara Swisher (Recode Decode). The five: set audacious goals, notice mistakes, understand why you make them, fix them, and persevere. Do it over and over. [09:30–11:30, 39:30–40:30]
- Dalio's near-failure. In the early 1980s Dalio expected a recession and was short at the start of a long bull run. Phil says he had to borrow $4,000 from his father and laid off almost everyone. The lesson is that over-certainty nearly ended him. [21:00–24:00]
- Rule #1's version of that lesson. Never be fully certain. Be as certain as you can, and bet only on a few things with a big margin of safety. [23:00–24:30]
- Step 1: goals as promises. Phil prefers "promises" to goals, since a goal not treated aggressively is an intention. He tells Jonas Salk's story about full commitment. Danielle recalls Jack Canfield's point that missing a huge goal still leaves you far ahead. Take the "nature moves" part as Phil's belief. [24:30–29:30]
- Step 2: notice your mistakes. Hard because mistakes are painful and we look away. It needs dwelling on them long enough to learn. [29:30–31:00]
- Coaching. An outside observer sees what you can't, whether in yoga, executive coaching or riding. Phil tells of his polo horse running over the ball because he was shifting his weight. [31:00–37:00]
- Self-blame is hard to do. Danielle notes the first instinct is to blame the horse or the weather or luck. In investing that is easy to do. Her own example: she once added a line to their book's checklist that contradicted it, and Phil caught it. Being overconfident about knowing enough is the danger. [37:00–39:30]
- Value investing as a practice. The closing view is that it is about finding value in life, not just money. [40:00–43:00]
How it maps to RuleOne
- Noticing mistakes is the job of a decision log. The site has no such feature, but you could keep notes beside each position in /holdings/.
- Dalio's four pots are macro. The screen doesn't use them, and Phil says Rule #1 doesn't either.
Buffett, Munger and Graham links
- Munger's four filters come from his 2012 BBC interview, as in 001.
- Munger's "Psychology of Human Misjudgment" talk covers over-confidence, which is the same trap as Dalio's.
- Buffett's Berkshire shareholder letters often include admissions of his own mistakes, which fits "notice your mistakes".
- Dalio's book Principles (2017) is the source for his rules. This episode quotes an interview instead.
Words to know
- Macro investing: trading on views about whole economies, rates and currencies.
- Hubris: excess confidence that leads to bad bets.
Try this
Open Holdings and pick your biggest mistake in any investment or purchase. Write: what happened, why you made the choice, and what rule would have prevented it.
Check yourself
- What are Dalio's five steps?
Answer
Set audacious goals, notice mistakes, understand why you made them, fix them, and persevere. - What did Dalio's early-1980s episode teach?
Answer
Being too certain about direction can nearly wipe you out, so avoid over-commitment. - Why does coaching help with noticing mistakes?
Answer
Someone outside can see errors you can't, and mistakes are painful enough that you tend to look away.
Short quotes
"Nature moves too to provide you with support from places you could have never imagined." (Phil, ~28:50, auto-transcribed)