Bridgewater’s Original Philosophy

The philosophy statement is our constitution, first written down over two decades ago by Ray Dalio, Bridgewater’s Founder and CIO Mentor. Its essence remains a key anchor point for us today.

My overriding objective at Bridgewater is excellence, or more precisely, constant improvement. First and foremost, l want to have a culture of excellence that results in a superb and constantly improving company in all respects. To achieve excellence I believe that truth, or more precisely, one's accuracy in understanding reality, is essential. I also believe that radical openness, though it can be uncomfortable, is essential in getting at truth. Truth serves as the foundation for excellence, and openness helps to assure truth.

I'll do whatever it takes to make the company great, including the difficult and uncomfortable things. I need to have people around me who are similarly motivated, both because I cannot achieve the company's goals alone and because I would not want to (l want to work hard and celebrate the success with others). I have been very lucky in this regard as several people who share the same philosophy have been with me for many years, and there are many more who have been here less time that I am optimistic about. The greatest compliment someone could pay me is to tell me what a great team of people I have assembled. But I won't compromise excellence for the team.

This brings me to the subject of conflict. Conflict in the pursuit of excellence is a terrific thing and is strongly encouraged at Bridgewaterin fact demanded. I want people to explore disagreements because this allows us to identify truth and overcome possible impediments to excellence. There should be no (or as little as possible) hierarchy. Certainly, there are organizational "superior/subordinate" relationships; however, every "subordinate" is encouraged to debate with his or her "superior" if he or she thinks they know the better way, and every "superior" is required to encourage this. These discussions should take place openly and, if disagreement remains, appropriately knowledgeable parties should be consulted. The "superior" is encouraged to only rarely use the authority of his or her position in determining the outcome. I want power to lie in the reasoning, not in the position, of the individual. While there are drawbacks to this approach (a lot of time can be spent in discussions, disagreements can produce tensions, etc.), the advantages (the decisions are likely to be better, evolution occurs faster, people who don't have seniority know that they can drive the decisions, relationships are often strengthened, etc.) outweigh them. Clearly this approach isn't perfect, but it is the best I know of because I believe it is most likely to foster excellence.

Like conflict, identifying problems and mistakes is an essential ingredient in the improvement process. The biggest impediment to improvement in most companies is that people tend to tie their egos to problems and mistakes and, as a result, are reluctant to identify and talk openly about them. They inevitably view identifying problems and mistakes as personal attacks and shy away from dealing with them. lnstead, problems and mistakes should be expected and criticism (i.e., the identification of problems and mistakes) should be viewed as constructive, not destructive. Problems and mistakes are good thingsif we learn from them and improve. What matters most is how people deal with them. lf they objectively diagnose mistakes and establish ways of not repeating them, that's great. lf they avoid facing up to them and don't alter what they are doing, this is unacceptable. As with conflict, there should be no hierarchy in the giving or receiving of criticism and it should be done openly. I have learned a lot from people pointing out my problems and mistakes, and I genuinely want criticism; I assume the same to be true for all others here.

I believe that another ingredient for success is having a group of people that want to be on a shared mission of excellence. By shared mission, I am referring to 1) one's recognition of the responsibilities one has to help the team achieve its common goals, and 2) the willingness to help others (i.e., work within a group) toward these common goals. This involves the realization that Bridgewater is a community in which our fates are intertwined. For the company to be successful, every area of the company must work very well; if one area fails, the system breaks down. As the saying goes, we are as strong as our weakest link, and this is why the individual must recognize his or her importance and obligations to the whole organization. When this behavior exists, people also know that others can be relied on to go to extraordinary lengths to help. As a corollary, substandard performance cannot be tolerated anywhere in the company because it would hurt everyone. Poor performance and/or uncooperative attitudes undermine the team. One of the most difficult responsibilities a team leader has is to cut poor performers, particularly those who are trying but don't have the ability. This is often perceived as harsh or unkind, but it is ultimately best for everyone, including the person who is being cut. Think of Bridgewater as being a team like the Green Bay Packers under Vince Lombardi—if you like being challenged and performing up to your potential, Bridgewater is the right place for you. If you are thin-skinned and don't like conflict or criticism, you should be somewhere else.

People who work at Bridgewater have been selected because they have been high achievers (i.e., exceeded the standards of the general population). Obviously, everyone here has high standards for their own achievement, but it is not likely that individuals hold themselves to standards that they might not be able to achieve. The philosophy of Bridgewater is such that individuals are held to the highest possible standards, and the goal is to get people to achieve far beyond their previous standards and expectations. You have to understand that Bridgewater is not about plodding along at some kind of moderate standard; it is about working like hell to reach a standard that is extraordinarily high, and then getting the satisfaction that comes with that kind of super-achievement.

As mentioned, my overriding objective is excellence and constant improvement at Bridgewater. To be clear, it is not to make lots of money. lf faced with the choice between pursuing excellence and making lots of money, l'd choose the excellence, though they are integrally tied (not only does this mode of operating often produce financial success, but financial success provides the resources to pursue excellence). Because they are so integrally related, they can easily get confused. I don't think one can achieve real excellence in order to make money because making money would then be the goal, not excellence. They are two different goals. When faced with the choice, excellence will be cheated. Money doesn't bring happiness; the pursuit of excellence does. Pursuit of excellence can take many forms—in one's job, raising one's kids, being a great lover, etc. I have known several really rich people, none who has been happy because of it. I've also known plenty of people who have hardly any money and are into their challenges and are happy. There is a clear correlation between pursuing excellence and achieving happiness and a poor correlation between having money and having happiness. For me "success" measured in financial terms is a consequence, not a goal in itself. Also, as the saying goes, it is a means of keeping score. I like putting points on the board, but excellence is the goal (i.e., the kick).

lf we operate consistent with this philosophy, we all will be very productive, and the company will do well financially. The company is like an ecosystem in that for us to flourish, people have to be both productive and nourished (well paid). There has to be a healthy balance. lf there's lots of productivity and not commensurate pay, we will experience turnover and ruin the system; similarly, if there isn't productivity, there can't be good pay. So, I want to pay people in proportion to their contributions and above the market. I believe that while money is a relatively poor motivation for people (because good people will work well regardless and poor people won't improve because of it), we will certainly lose the right type of people (i.e., motivated and capable) if they are not well paid. Besides, it would undermine the esprit de corps that comes from sharing the benefits and treating people well.

As an extension of the 'pay-and-promote based on productivity' philosophy, there is comparatively little age and seniority-based hierarchy in terms of compensation and responsibility. Over time people will develop track records. Based on these track records, their responsibilities and compensation can change quickly. For this reason, quite young people who have what it takes can advance at a fast pace. Seniority and experience only matter if they contribute to superior performance. I started Bridgewater at age 25, and l'm an entrepreneur, so I believe in young people who want to make great things happen. Additionally, because I want performance (both the individual's and the company's) and compensation to be linked, a significant portion of compensation comes through bonuses and/or other performance-based schemes. This has the added benefit of tying the individual's financial well-being to the company's, which a) helps foster the common pursuit of excellence, b) allows the company's revenues and expenses to vary together, and c) should provide greater total compensation than would be available otherwise. On average, incentive related compensation makes up 25% of total compensation with the percentages rising as total compensation increases.

I am hoping that we build long-term relationships with people at Bridgewater because these relationships are a) gratifying (during good times it's fun to share success with the people who have been fighting along side with you, and during difficult times it is gratifying to know that they are with you), and b) efficient (turnover requires retraining and therefore creates setbacks). Because the relationships will be long-term and people by nature are skeptical, I believe that my credibility (and the credibility of other Bridgewater people) will be earned over time. People who have been here a long time know whether or not I am operating consistently with the philosophy stated here and elaborated on in the Principles document. Hopefully, what I get in return is their trust and confidence (both that it will work and that they will get a fair deal). The only reason to work at Bridgewater is because you believe that this philosophy works and that it is being followed here. lf you think that this is either the wrong philosophy or the right philosophy and not being pursued here, you should be pessimistic about Bridgewater's future. More than anything else (existing people, products or clients), Bridgewater is this philosophy. While everything else will change, this philosophy will remain the same (hopefully) and describes how we will approach change. Bridgewater today is, except for the philosophy, very different than it was a few years ago and will be like a few years from now. The course of our evolution is a function of this philosophy.

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