Getting My Ass Handed to Me by the World’s Largest Hedge Fund
and learning to reason from first principles
I decided that I didn’t want to work on Wall Street when I was in Junior year. Ironic that I had uprooted my life in South Africa and transferred to Wharton 12 months prior. In an attempt to escape my self-imposed fate, I manifested an interest in technology. It began with a regular read of the popular start-up blog Techcrunch but quickly snowballed into a self-fulfilling prophecy, becoming the bastion of my job recruitment effort and resulting in an internship at a tech-focused venture capital firm. It was an interesting journey with lessons about seeing roses amongst thorns and constraint inspired creativity. But perhaps the most poignant lesson was from an unlikely encounter at a likely place: having my ass handed to me by the world’s largest hedge fund at Techcrunch Disrupt.
The Techcrunch Disrupt conference is a Mecca for the tech rookie, a micro-zeitgeist of the start-up world and a venue for aspiring entrepreneurs to rub shoulders with titans of tech (or at least hear them speak in a packed warehouse hall). It attracts pilgrims from around the world and in the Fall of 2011, after 6 months of drinking startup Kool-Aid, I was one such aspiring pilgrim. The speaker rolodex included Elon Musk, Reid Hoffman, Paul Graham, Peter Thiel, Doug Leone, and Eric Ries. This is the tech world equivalent of a stacked Coachella lineup. I co-opted my roommate, applied to volunteer at the conference (to circumvent the $3k attendee fee), and hopped on a plane to California.
We arrived in San Francisco on Sunday evening and drove to an apartment we had rented on Airbnb (we wanted the full experience) in the Tenderloin District. Super misleading name. As Dave Chappelle sums up: “I went to that Tenderloin. There’s nothing tender about that motherfucker at all, that shit was rough, the opposite of tender. I have never seen crack smoked so casually before.” We relocated closer to the conference venue and got an early start on our volunteer duties the next morning (mainly badge checking and some logistics work, nothing too demanding).
The conference has 3 parts to it: demos, exhibitions, and guest speakers. I sat in on talks by tech legends. The highlight was an interview with Elon Musk and one of his lines stuck with me: “Being an entrepreneur is like chewing glass AND staring into the abyss of death” (only Elon can deliver that line in so thoughtful and mild a manner). Elon is a genius so this is probably good advice.
I wandered the exhibition hall between speaker sessions and stumbled upon a sponsor booth for Bridgewater, the hedge fund juggernaut shepherded by enigmatic CEO Ray Dalio. Bridgewater is equally famed for its sheer size (around $150 billion of assets under management), consistent returns, and its culture that some have described as a “human behavioral experiment that doubles as a Connecticut-based hedge fund.” The culture is summed up in Bridgewater’s manifesto as “radical openness” and expanded upon in Dalio’s 120 page opus called Principles (an excellent cognitive toolkit worth reading). Unlike most hedge funds, Bridgewater eschews hiring straight finance graduates and prefers “independent thinking and innovation”, which explains their presence at the Disrupt conference.
My friend and I struck up a conversation with the Bridgewater recruiters and grilled them on the firm’s interesting culture. After 30 minutes of banter they asked if we would like to interview for a full-time position. I already had another job offer in the bag and thought this would be a low-risk opportunity to experience the legendary Bridgewater culture/interview process so I agreed. I did not expect this opportunity to arise at the conference and had done zero preparation for this interview. So, naturally, I volunteered to be interviewed first.
I am not sure what I expected but it certainly wasn’t a single-question interview that went like this: “Should higher education in the United States be free?”
Long a fan of the traditional school of thought called “Wing It”, I pride myself on being able to talk my way through most situations. You would be amazed how often you can get away with this if you talk confidently and authoritatively and intertwine non-standard fragmented topics into a complex narrative. Seeming “deep” is easy. Being deep is a whole different story.
My interviewer gave me a few minutes to jot down points and my mind immediately went into overdrive. I started by answering the question based on my intuitive feel of what would be easy to justify — “No it should not be free” — and reasoned backwards from there. “If higher education was free, where would the money come from to provide the resources required by top schools? How would the government even find the money to subsidize such a program? It would be more realistic to improve financial aid programs or further subsidize state schools. We wouldn’t be able to get a drastic motion through congress. Etc., etc., etc.” And then a bunch of rambling about the signal effect of “brand name” schools. I call this type of reasoning “Tombstone Rationalization”: your gut directs you to an answer, which you etch at the bottom of a mental stone tablet, and then you go to the top of the tablet and craft arguments to support your preconceived conclusion. The tombstone etching connotes permanence and that we change our minds less often than we think. Commitment and consistency.
After I presented what I thought was a decently reasoned argument, my interviewer gave me my first piece of feedback: “You completely failed that interview. We will not be hiring you at Bridgewater.” (In the faint distance, I was sure I heard a whisper: “… and may god have mercy on your soul…”)
BOOM.
No finesse. No softening the blow. Just cold, hard truth like a punch to the gut.
He went on, “You didn’t even pause to ask the fundamental question: what is education?” His feedback session to my 10 minute argument took about 40 minutes. I sat there, mouth slightly ajar, as he picked apart my argument piece by piece, exposing it for the flimsy reasoning it was.
I had never experienced such an extreme dismantling of my opinion. Had never had someone call me on bullshit so cogently before. It was a profound moment and I spent a long while reflecting on it.
Great thinkers from Benjamin Franklin to George Bernard Shaw have argued that we learn most from our mistakes, our rejections. That because these experiences are visceral and hurt we remember them more vividly than when everything goes according to plan. Silicon Valley has embraced failure as part and parcel of the startup culture. But I think this is more accurately expressed as an acceptance of the corollary of failure, namely real experience learned through failing. So profound are these lessons that my Wharton VC professor recently advised a friend to “fail fast, fail quickly”. In other words, learn the hard lessons of failure as quickly as possible because you internalize these lessons on a primal level that far surpass superficial learnings in a classroom. Experience through failure becomes ingrained in that part of your brain that evolved to process fear, and rejection, and uncertainty and helped us survive in the wilderness thousands of years ago. Your brain does not want you to endure that painful lesson again so it deeply internalizes the lesson in your mental framework.
A Bridgewater recruiter taught me in 40 minutes what 18 years of school failed to get across: reason from first principles and ask the right questions. Elon Musk puts it perfectly: “I think it’s important to reason from first principles rather than by analogy… What that really means is that you boil things down to the most fundamental truths and then reason up from there.” There is a difference between Planck knowledge and chauffeur knowledge.
Perhaps my experience is idiosyncratic, but a decade-and-a-half of “world class” schooling did not emphasize reasoning from first principles and it certainly didn’t encourage students to ask “Why?” On the contrary, I was taught to come up with an answer and find a way to justify it. And this horrible habit of intellectual gymnastics was rewarded and reinforced by a steady stream of “As” on my midterms.
I had read Richard Feynman’s autobiography. His first principle is that “you must not fool yourself — and you are the easiest person to fool”, but I only really learned this when rejection hit me with it unexpectedly. I didn’t get the job and it doesn’t matter. Because I finally understood how lacking my mental model for reasoning had been. I was going through life unaware of this massive cognitive deficit, effectively handicapped relative to those with a grasp of this concept. Whereas before I relied heavily on what psychologist Daniel Kahneman calls System 1 thinking — specifically the mode of thinking that “operates automatically and quickly, with little of no effort and no sense of voluntary control” — I now run through a mental check list as a first step in reasoning. It is scenario specific but usually starts with some take on the following 5 questions and expands from there:
- What am I trying to achieve here / what is my goal?
- What information/evidence do I have, how does this affect the probable outcomes, and what information/evidence do I still need to make a good decision?
- What are the potential second order (and higher) impacts of this scenario (both upside and downside)?
- What has to happen for “X” scenario to be true?
- What are the risks and rewards of various scenarios and how likely are they to transpire?
Then, as famous algebraist Jacobi once said, “Invert, always invert”: think the problem through backwards.
I constantly build on this framework by reading about other models for reasoning and incorporating them into this base. But, without the painful lesson from Bridgewater, I am not sure reading alone would have been enough to internalize the method of first principle reasoning. It took an embarrassing failure to help me “unlearn” my bad habits and quickly supplant them with sounder logic. In the book, The Power of Habit, Charles Duhigg argues that moments of adversity are when habits are most malleable and cites Rahm Emmanuel, “You never want a serious crisis to go to waste. [It] provides the opportunity for us to do things that you could not do before.”
It would be a sad state of affairs if our only moments for profound learning where when we stared down failure and adversity. And relying on this kind of zemblanity is a bad strategy.
So I try live by a fusion of the words of Charlie Munger,
and Steve Blank,
all the while reasoning from first principles.
