As a result of his mistakes, financial and otherwise, Dalio learned that he made the best decisions when he put his ego aside and relentlessly sought the truth. This meant adopting a number of mindsets: acknowledging his own weaknesses, being open to others’ opinions, constantly asking what he was missing, and stress-testing his ideas.
This is probably the strongest theme of the book, and the biggest barrier people have to making better life decisions. Most of Dalio’s principles can be seen as springing from this root. Much of the book is about understanding the importance of finding the truth, and how to achieve it over common obstacles.
Don’t fall in the trap of wishing that reality were different. This gets you nowhere.
Instead, embrace your reality and deal with it. You must be radically open-minded to the possibility that you are wrong.
Don’t get hung up on how things ‘should’ be. This will bias your objectivity.
If you think something is morally wrong, assume that you’re wrong and figure out why what nature is doing makes sense.
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.
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.
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
There are two barriers that get in the way of seeing reality: your ego, and your blind spots.
The ego barrier is your desire to be capable, and to be seen by other people as capable.
We have underlying biological needs to be loved, to feel important, to be praised by others. We also have fears—of losing love, of being irrelevant, of being criticized by others.
Experiences that threaten the ego are painful. Finding out that you had poor judgment and made a huge mistake is painful. Having your weaknesses pointed out to you is painful.
People often find this pain unbearable, and they go out of their way to avoid this pain. They might shut themselves off from self-reflection, or they maintain denial about reality.
Don’t avoid pain—reflect on it and savor it. Pain highlights a learning opportunity that can make you stronger and avoid similar situations in the future.
The blind spot barrier materializes when we see the world through our own biased lenses.
For example, some people only see big pictures and miss small details, while others are the opposite. Some people are linear thinkers, and others are lateral.
You can’t appreciate what you can’t see, any more than a color-blind person can grok what color is.
Thus two people who see the world very differently often end up arguing over who’s right without understanding their own blind spots.
The solution to both the Ego Barrier and the Blind Spot Barrier is radical open-mindedness, discussed in more detail below.
When you think about yourself, you probably only picture the smart, rational, planning self.
In reality, there are two “yous” that fight to control you:
The lower-level you exists as a result of evolution, in a part of the brain called the amygdala. It produces automatic responses to what it receives. For example, an animal doesn’t decide to fly or hunt—it simply follows instructions from that part of the brain. The amygdala drives our motivations and actions through emotions. This is where the ego barrier resides.
The higher-level you is a more recent evolution unique to humans. The rational you must overcome the lower-level ego barrier.
The “two yous” fight to control you. The conflict is between what you desire and what is actually good for you.
The conscious rational you can know that understanding your weaknesses and facing failure is the best, but the subconscious emotional you makes you shy away from it to protect your ego.
If you get angry at yourself for breaking a plan—like failing to keep up with a diet or exercise, or procrastinating on work—this is the rational you fighting with the emotional subconscious you.
Since the two occupy different parts of your brain and don’t cross-talk often, it can be really hard to consciously explain your subconsciously driven emotions and actions.
Often, the subconscious you hijacks your brain and actions, and the conscious mind needs to refuse to obey its instructions. If you react spontaneously and emotionally without thinking, that is your subconscious you in control.
To stop this, you need to recognize the warning signs when this happens—your heart rate increases, your breathing gets more intense. These are sympathetic nervous system reactions. When you recognize this happening, you should trigger an escape plan to get out of this hijacked state, so the rational you can get control again.
Afterward, consciously reflect on what causes the amygdala hijackings. Train the subconscious you the same way you would teach a child to behave—with loving kindness and persistence.
Funnily, when you talk to someone else, your “two yous” are dealing with their “two yous.” So you can be having one of four conversations, without realizing which one you’re having. Your subconscious you might be talking to the other person’s rational you, or vice versa; or both of your subconscious emotional yous are battling with each other. No wonder misunderstandings and arguments are so common.
Yet the best ideas and decisions may come from the cooperation of the two yous, not when the rational you completely subjugates the subconscious you.
For example, sometimes the greatest inspiration “pops up” from our subconscious. These happen most often when you’re relaxed and not consciously forcing yourself to come up with great ideas. The conscious logical mind then examines the ideas for how good they are.
Dalio personally likes transcendental meditation to connect the conscious to the subconscious.
Recognizing your mistakes and feeling the pain is critical to finding the truth. Here are concepts that help you get past the ego barrier.
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.
Pain is OK. It’s nature’s reminder that there’s something to learn. Dalio sums it up in his equation, “Pain + Reflection = Progress”
Don’t blame bad outcomes on anyone but yourself. Take full responsibility for mistakes, so that you don’t gloss over them and ignore the learning opportunity.
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.
As powerful as you think your brain is at designing the right solution from scratch, it’s possible that adaptation through trial and error is even more powerful.
We have evolved to crave self-improvement. Why do we feel this? Like most biological behaviors, this feeling is likely better for the survival of the individual and the species. Organisms that constantly felt the desire to improve themselves and push their limits likely succeeded above organisms who were content being in stasis.
It’s not always clear that you’re striving for self-improvement. When you work each day and set goals for yourself, you may think that you’re striving for material rewards, like more money or a bigger house, and that these rewards will make you happy. But in reality, the real prize that gives you the most satisfaction is getting better.
The prizes you’re chasing after are just the bait. Chasing after them forces you to struggle and evolve, which is the real goal. Dalio notes that, ultimately, achieving more does not improve your life significantly. Beyond the basics like shelter, relationships, and food, the benefit of the marginal improvement drops off quickly. But the struggle makes you stronger, and that delivers satisfaction.
Evolving and getting stronger helps you ascend to higher and higher levels, allowing you to tackle bigger challenges. What once seemed impossibly complex becomes simple.
Because the struggle for self-improvement is so fulfilling, don’t deprive other people of their chance to struggle. Deny them what they want to give them the opportunity to struggle, which will lead to strength. This is why Dalio plans not to leave too much money to his descendants, beyond covering the basics.
Heroes start as ordinary people who are drawn by a call to adventure. This leads them down a road of trials with battles, successes, and failures.
They gain special powers over time, become increasingly successful, and this leads to larger battles.
They experience one very big failure (“abyss”) that tests their resilience; if they make it through, they undergo a metamorphosis.
They ultimately get the largest reward (the ultimate boon) which is special knowledge about how to succeed, earned throughout the journey.
(Shortform note: find more about this in our summary of Joseph Campbell’s The Hero with a Thousand Faces.)
Dalio’s most painful failure came in 1982 during the Latin American debt crisis. He believed Mexico’s default was just the beginning of a depression, and he predicted this was an “absolute certainty.” To his surprise, loan restructurings and the Fed’s actions caused a resurgence in the economy.
Dalio bet incorrectly and lost pretty much everything, including his employees. He felt like he was back in 1975, starting Bridgewater from the beginning.
If you’re an employee at Bridgewater, each time you make a mistake, you’re responsible for adding it to an “error log.” If you log your own mistake, you’re OK; if someone else logs it for you, you’re in big trouble.
Dalio notes that plenty of people at Bridgewater make very costly mistakes. A common corporate reaction is to fire these people, but Dalio thinks this is a huge mistake since it just encourages people to hide their mistakes. Instead, reflecting on mistakes as a team and striving to do better is the best way to handle mistakes.