Here are a collection of interesting ideas from Principles that don’t fit clearly into any particular chapter. We’ve gathered them in our appendix here.
Misc Principles
- It’s important not to get knocked out of the game permanently. So don’t fail too big, and minimize your losses.
- Dalio has seen a few people bet so big they ruined themselves—Bunker Hunt who tried to corner the world silver market; Alan Bond who bet that the US dollar wouldn’t rise against Australian dollars and didn’t hedge. Both made fortunes but quickly lost it all.
- Diversify your success by compiling uncorrelated bets.
- Having a few good uncorrelated return streams is better than just having one.
- Having uncorrelated bets increases return-to-risk ratio and protects you from unacceptable downside.
- Traders and entrepreneurs need to correctly bet against the consensus. This also means being wrong more often than usual.
- The principles build a virtuous cycle: Make audacious goals → fail → learn principles → improve chances of success → meet goals → make audacious goals
- People expect the future to be merely a slightly modified version of the present, but it is usually very different.
- Remarks on typical people’s market trading behavior:
- Most people are more emotional than logical, thus overreacting to short-term results based on how they feel (like selling low and buying high).
- Herd behavior: When everyone thinks the same thing (that something is a sure bet) it’s already reflected on the price, and betting on it is probably going to be a mistake.
- When people are very pessimistic, they sell out, and prices get very cheap
- Meditation creates an equanimity that allows clearer and more creative thinking.
- When what you expect isn’t matching up with what’s happening, it’s unclear if you have a great opportunity or a huge mistake.
Warning Signs to Watch For
Here is a collection of warning signs mentioned by Dalio:
- Use sympathetic responses (tightening of chest, higher blood pressure, faster heart rate) as a trigger to understand that your emotional you is taking over
- People who issue low-confidence statements and insist they’re implicit questions, but are actually passive-aggressive and closed-minded.
- Example: “I could be wrong, but here’s my opinion”
- “I feel like X is true” or “I think that”—a sign that the person may not be thinking in terms of facts. Ask them what facts they are using to build their logic.
- When someone objects to ideas by only pointing out minor exceptions and edge cases, rather than weighing all the pros and cons and focusing on whether something is by and large true. This signals people who can’t weigh expected values and probabilities, and instead fixate on anything that’s wrong with a plan. They tend to be poor decision makers.
- Ask “how is goal X going?” If they reply by listing tasks instead of offering a synthesis of how it’s going, then they tend to confuse goals and tasks, and they can’t be trusted with responsibilities.
- Assertive fast talkers—they assertively say things faster than they can be comprehended to push back objections. This is especially effective against people worried about looking dumb.
- To counter this, slow them down, and apologize for being dumb if you have to.
- Someone who says “we” to depersonalize a mistake is not taking responsibility for it.
- Someone who says “we should do X” is proposing a fuzzy solution that won’t get done. Assign specific people and deadlines to solve it.