Principles
By: Ray Dalio
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Let me start off this summary by saying that it has the best opening line in business book history. Ray Dalio, the mega billionaire founder of Bridgewater - the largest hedge fund in the history of the world - has this to say:
"Before I begin telling you what I think, I want to establish that I’m a “dumb s-word” who doesn’t know much relative to what I need to know."
The rise of Bridgewater from his apartment in Manhattan to a world power in the financial world is remarkable. What's even more remarkable is the way he did it, and what he attributes his success to.
"Whatever success I’ve had in life has had more to do with my knowing how to deal with my not knowing than anything I know. The most important thing I learned is an approach to life based on principles that helps me find out what’s true and what to do about it."
This book is divided up into two parts - Life Principles and Work Principles. We don't have time to cover both in this summary, so we are going to focus on his Life Principles, which are ultimately responsible for his work principles, anyways.
I'll go on record now to say that this book will be considered one of the top 10 business books and personal development books ever written.
So, aside from our summary, I'd like to strongly suggest you go out and buy 3 copies. One for your nightstand at home, one for your desk at work, and one to give away to whoever in your life needs it most.
Let's get started.
Start By Thinking For Yourself
Dalio suggests that at the crux of creating the life you want are three simple steps.
Decide what you want.
Decide what is true.
Decide what you should do to achieve #1 in light of #2 with humility and open-mindedness so that you can consider the best thinking available to you.
Keep these 3 simple steps at the heart of your life journey and you will find yourself getting increasingly better at getting what you want out of life.
What Principles Are and How To Create Them
Dalio suggests that we approach our lives like a game where every problem we face is like a puzzle we need to solve. Each time we solve one, we get a golden nugget - a principle - we can use to avoid the same types of problems in the future.
As you collect more and more of them, you'll get better and better at making the right decisions in your business and life.
Principles, Dalio says, are fundamental truths that become the foundation for behavior that helps you gets what you want in business and in life.
Having a good set of principles is like having a a collection of recipes - only these recipes lead to the life you want instead of a chocolate cake.
Most of the things you experience in life are what Dalio calls "another one of those." This means that almost everything that happens to you has happened to you before, and that the results are predictable.
And that's the reason that having clear principles works so well - they can be applied again and again as situations come up in your life.
The trick is to be able to spot "what's happening" and find the right principle(s) to apply in that particular situation.
Because we all have our own goals, we also need to choose our own principles to match them. That means that we shouldn't adopt other people's principles blindly.
If you are going to adopt somebody else's principles, make sure that you think about them deeply and stress test them in your own life before you make them your own.
Finally, to be a principled person means that you consistently operate from principles that can be clearly explained.
The best way to do that, Dalio suggests, is to write them down. If you can't write them down, you either don't know what your principles are, or you can't explain them easily enough to actually use them.
That is the general formula that Dalio used to create the principles that he runs his life and his business by.
Now, to put some meat on those bones, let's take a look at his 5 main principles for living.
Principle #1: Embrace Reality and Deal with It
Understanding how reality works isn't something we were taught how to do in school. However, it's his first principle of living for a reason - it's absolutely critical to your success.
The more accurate your understanding of reality is, the better you can deal with it, and the more likely you are to get what you want out of life.
Dalio gives us a simple formula to remember: Dreams + Reality + Determination = A Successful Life.
If you are dreaming big enough, you are going to fail. It's in those moments where being a realist is most important. Most people don't like looking at the ugly truth when they fail. What they don't realize is that almost all of the learning comes from your failures.
Accepting your failures and digging in to why they happened, and then having the determination to make sure it doesn't happen again, is where the best learning happens.
Remember the formula Pain + Reflection = Progress.
Here are a few things you can do to make sure you grow as quickly as possible on your lifelong learning journey:
Be radically transparent. If you let other people know exactly what you are trying to achieve, they can better help you get there;
Don't let your fear of what other people might think of you stand in your way;
Evolve quickly. The key to getting what you want is to fail, learn, and quickly improve. Rapid trial and error is the quickest path to get there; and
Own your outcomes. Complaining about things beyond your control is a fruitless exercise.
Principle #2: Use the 5-Step Process to Get What You Want Out of Life
Dalio suggests that if we follow the 5-step process he lays out and do it well, we will almost certainly be successful.
1. Have clear goals.
Making goals means making priorities. Dalio points out that while we can have virtually anything we want, we can't have everything we want.
When you are setting your goals, be audacious. Unless what you want to achieve violates the laws of nature (like running a four-minute mile at age seventy, for instance), there is a path to get there.
The higher you set your goals, the more you will learn, and the more you will achieve.
2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals.
If you set your goals high enough, you'll hit a lot of obstacles along the way. Painful ones. Your job is to view these painful obstacles as potential improvements that will make you more capable of finally achieving your goal.
Just make sure that you are specific when you are identifying your problems, and don't confuse the cause of a problem with the problem itself.
Finally, once you identify a problem, don't tolerate it. Do whatever it takes to get rid of it, forever.
3. Accurately diagnose the problems to get at their root causes.
Before jumping to conclusions about how to fix a problem, spend some time understanding exactly what it is.
Sometimes the problem will be other people, and often times it will be you. That's why understanding "what you are like" will be a great help in propelling yourself forward. We'll discuss this in the fourth section of this summary.
4. Design plans that will get you around them.
As you are designing your plans to solve your problems, remember that you don't need a perfect plan, you just need one that works. Perfect plans take forever to formulate. Plans that work do not.
Once you land on a plan, make sure to write it down so that everyone - including you - can see it and measure progress against it.
5. Do what’s necessary to push these designs through to results.
As Dalio points out, people who are great planners but don't execute them go nowhere. 2 very important things you can do in order to be a consistent finisher is to create great work habits, and establish clear metrics to make certain that you are following your plan.
Principle #3: Be Radically Open-Minded
Dalio identifies this as the most important chapter in the book, because it explains the two barriers that stand in the way of getting what you want - your ego and your blind spots.
This is all about understanding that human beings are all wired this way - not just you or me. Understanding what the barriers are and how to deal with them is the only way forward.
Your Ego and Blind Spots
Your ego fights against you in two ways - it makes it hard for you to accept your mistakes and your weaknesses. This is a problem because we know that learning from our mistakes is the most powerful form of learning, and we also know that nobody is strong in every area of their life.
Your blind spots come from your way of thinking - the one you've been developing the entire time you've been alive. It prevents you from doing two things - seeing the world as it really is, and seeing the world as other people see it.
The Solution - Radical Open-Mindedness
To be radically open-minded, you have to do a number of things well:
Believe that you might not know the best way to move forward in a situation;
Recognize that dealing well with not knowing is more important than whatever you think you know;
Take in and consider information that is not consistent with what you've already concluded;
Care more about getting the right answer than looking good;
Empathize with others - if you are going to be open to another viewpoint, you need to be able to see things from their point of view;
Find other "believable" people who are willing to disagree with you and appreciate the art of thoughtful disagreement;
Know how to spot closed-minded behaviors in others (they will usually make statements rather than ask questions, or preface their questions with things like "I could be wrong, but...");
Use evidence-based decision making tools when you are making decisions.
With all that being said, you also need to know when it's time to stop debating an issue and make a decision - with the confidence that you've done the best you can.
Principle #4: Understand That People Are Wired Very Differently
As Dalio points out, because of the way our brains are wired, we all experience reality differently, and so any single way of looking at the world is a distorted version of the truth.
Which means that in our quest to understand what is true and what to do about it, we need to understand our own brains, and the brains of the people that we work with.
There are a number of ways our brains are different from one another, and they lead to differences in strengths in areas like common sense, creativity, memory, attention to detail, and so on.
Some of these things can be changed and improved upon, and some of them can't. Knowing the difference in yourself and in the people you work with will determine how effective you'll be in your work.
Here are some things to keep in mind as you work on understanding what you have to work with in both yourself and others:
If you want to change yourself and others, the most powerful thing you can do is carefully choose which habits to acquire and which ones to get rid of. Dalio references the book The Power of Habit, which we've covered previously here on Readitfor.me;
Find out what you and others are like by using one or more of the standardized tests. At Bridgewater they use the Myers-Briggs Type Indicator, The Workplace Personality Inventory, The Team Dimensions Profile, and Stratified Systems Theory; and
We are all born with attributes that help in some situations, and hurt in others. Matching attributes of people to their role in support of whatever goals you are going after is critical.
Principle #5: Learn How to Make Decisions Effectively
Now that we've covered how to better understand reality - it's time to move on to how to use that understanding to make great decisions.
Collecting and Synthesizing Information
First we need to go about collecting the relevant information in making the decision we need to make.
One of the most important "micro-decisions" you'll make is who you ask questions of. Make sure they are fully-informed and believable on the issue you are wrestling with. Keep in mind that not every piece of advice you hear will be believable, even if it comes from a believable person.
If what you are wrestling with requires the use of numbers, get comfortable with being imprecise. Dalio gives the example of being asked to find the answer to 38 x 12. Most people do it the hard way by doing the actual calculation. But you could find the approximate answer by rounding 38 up to 40 and rounding 12 down to 10 and determining that the answer is 400. His point is that in most of the important decisions you make, the level you need to understand things at is "by-and-large."
This is another way of saying that you should use the 80/20 rule in your decision making. You get 80 percent of the value from 20 percent of your decision making effort.
Using Logic, Reason, and Common Sense to Decide
Making your decision based on expected value calculations is a good way to decide. Sometimes the best decision is the one with the lowest probability if (a) the payoff is abnormally high and (b) the cost of failure is negligible relative to the payoff.
Just remember the following when doing so:
Raising the probability of being right is valuable no matter what your probability of being right already is;
Understanding when not to bet is as important as knowing what bets you should probably make; and
The best choices are the ones that have more pros than cons, not the ones that have no cons at all.