Ray Dalio, born in 1949, is the billionaire founder of Bridgewater Associates, one of the world’s largest hedge funds. He wrote Principles to pass on his principles for living life and reaching goals.
What are principles? Principles are the fundamental truths that determine how you behave. They reflect your inner character and values.
Principles help you deal with the complexity of life. Every day, you face new situations that require our response. If you had to decide what to do at each point in time, you’d react impulsively and be exhausted. Instead, your fundamental principles help you figure out what situation you’re facing and how to deal with the situation.
We all have principles. Successful people adopt principles that help them be successful. Ray Dalio’s goal is to share the principles that have worked for him throughout his life and contributed to his success.
There is a 5-step process for getting anything that you want out of life. It goes:
To achieve success, you need to follow each of these steps in order, one at a time. When setting goals, you shouldn’t think about barriers—just set the goals. When diagnosing your problems, don’t worry about how you’ll solve them—just find the root causes.
These 5 steps also form a loop. Once you complete one turn of the loop, then you’ll look at your results and go through the process again, setting new, higher goals.
People are usually weak at one or more of these steps. Identify what your weakest steps are. Then get better at them, or find someone who can help you compensate for them.
Finding the truth is the most important thing possible to make the best possible decisions you can. Making the best decisions gets you closer to your goals.
Two things get in the way of finding truth: 1) your ego and emotions, 2) your blind spots.
What holds a lot of people back from the truth is their ego. Many people’s egos center around being right and looking smart. But everyone is wrong a good portion of the time, and ignoring this is blinding yourself to your mistakes and ways to improve yourself.
To deal with the emotional pain of finding truth, see life as a game, where the object is to get around a challenge and reach a goal.
Instead of declaring “I’m right,” ask, “How do I know I’m right?” You can’t be sure of anything—there are always risks that can hurt you badly, even in the safest-looking bets. Always assume you’re missing something.
An important truth people commonly ignore is their own weaknesses and mistakes. Thinking about their mistakes causes them pain.
By ignoring your weaknesses and mistakes, you are handicapping yourself in achieving your goals.
Mistakes happen all the time. It’s more important to recognize mistakes and learn from them, than to cover them up and make your problems worse.
Mistakes and pain are nature’s reminder to learn. You must reflect on your mistakes and design solutions to your problems to evolve. Dalio sums it up in his equation, “Pain + Reflection = Progress.”
Treat each mistake like a puzzle that, after you solve it, reveals a gem. Each gem continuously makes you stronger, and more gems help you ascend to higher levels of play where the challenges get greater.
To recognize the truth, you must accept that you are wrong and relentlessly find ways to increase the chances that you are right. Dalio calls this radical open-mindedness. Taking in more information, especially from other highly credible people, can only allow you to make better decisions, which will bring you closer to your goal.
Would you willingly blind yourself into doing something wrong? Most people do this.
Recognize that the chance that you independently always have the best answer is extremely low. Accept the possibility that others might see something better than you and point out threats and opportunities you don’t see.
Always be fearful that you’re wrong and you’re missing information. Don’t say “I’m right,” ask, “How do I know I’m right?”
Being open-minded will make you seek other smart people and explore their viewpoints, especially when you disagree with each other. This may create emotional conflict.
The key is to have “thoughtful disagreement” with the other person. This means your goal is not to prove that you’re right, but rather to find out which view is true and decide what to do about it.
Your ego may get in the way of getting new perspectives from other people. But if you care about your goals, you should be more afraid of missing important ideas than being proven wrong. What stings more—being wrong about something, or ultimately failing your goal?
People are wired very differently. They think in different ways and have different blind spots. This promotes conflict and misunderstandings with poor communication. Practice thoughtful disagreement to see their viewpoint, and arrive at the truth together rationally.
Think of yourself as a machine. You take in inputs, and you produce an output. For example, you take in the inputs of your goals, resources, and current skills, and you produce the output of progress toward your goals.
Your aim is to design your machine to produce better outcomes.
If you view yourself top-down like a machine, it becomes easier to see your weaknesses objectively. If your air conditioner broke, you wouldn’t tolerate it. You’d find what was wrong, fix it, and try to prevent it from breaking again. Why should you view yourself any differently? Your personal weaknesses are problems in the machine that cannot be tolerated and must be fixed.
In this way, think of yourself as a machine operating within a machine. You are both a worker in the machine, as well as a designer. You can alter your machines to produce better outcomes.
This means figuring out whether you yourself are in the right role. Can you really be trusted to work in your position, or do you need to be fired?
The Work Principles are really just his Life Principles applied at organizational scale.
Like with personal life, the ultimate goal in work is to find the truth by leveraging the strengths of the group. The trick is to do this with thoughtful disagreement while bypassing the inevitable emotional conflicts that arise.
An idea meritocracy is an environment in which the best ideas win, regardless of where or whom they came from. Dalio believes the idea meritocracy is the best system for making decisions.
The way to build an effective idea meritocracy is to:
Together, this will yield the best ideas and collective thinking. Idea meritocracy works better than just one person coming up with the ideas and issuing orders. It also works better than a group of smart people who can’t thoughtfully disagree with each other.
An idea meritocracy is built on a few foundational principles:
Radical truth and transparency are critical to building the best idea meritocracy. If you have access to more truthful information, you can make better decisions. When everyone is able to hear what everyone else is thinking, learning compounds and the organization gets better.
In contrast, hiding the truth from people is like letting your kids grow up while still believing in the Tooth Fairy.
Radical truth means not putting a filter on your thoughts. You reveal your thoughts and questions relentlessly. You surface issues immediately instead of hiding them.
When the entire organization does this, it creates opportunities to have thoughtful disagreement and see things through each other’s eyes. It surfaces disagreements when they first appear, rather than letting them fester under the surface.
In contrast, at many workplaces, people tend to hide their real thoughts, and they bury problems and disagreements. This aggravates misunderstandings or disagreements, and it leads to larger conflicts and distance between team members.
Radical transparency lets everyone see everything. Everyone gets access to the full truthful information, rather than having it filtered through other people first. In turn, people with better information can make better decisions, and the organization draws on the full power of its people. At Bridgewater, radical transparency means all meetings and interviews are recorded and made available to the entire team, and people’s assessments of each other are all public.
Once facts and viewpoints are put out there through radical truth and thoughtful disagreement, how do you reconcile them to make the best decisions?
To maintain order and allow the best decisions to surface, people must agree on procedures to resolve disagreements, and abide by the conclusions of the procedures. At Bridgewater, the procedure they use is believability-weighted decision making.
“Believability-weighted” means to weigh the opinions of people who are more believable more heavily than less believable people. This is distinctly different from weighing everyone’s votes equally, as in a democracy.
Who are believable people? They are people who 1) have repeatedly succeeded at the thing in question, and 2) can logically explain their conclusions. It makes sense to value the opinions of successful people more than those with little experience.
A great manager is essentially an organizational engineer in charge of building the machine.
The ideal is to create a machine that works so well you can sit back, barely do anything, and watch beauty happen.
Just like individuals, organizations employ the 5-Step Process to evolve and continuously improve.