Principles by Ray Dalio

The hardest thing of all to see is what is really there.

— J.A. Baker, The Peregrine

For me, there is really only one big choice to make in life: Are you willing to fight to find out what’s true?

— Ray Dalio

Ray Dalio is the founder of Bridgewater Associates (“Bridgewater”), one of the largest & most successful hedge funds of all-time (it manages $160 billion). 

Bridgewater has a famously unique cult(ure) of radical honesty & transparency with the goal of promoting “open-minded, idea-meritocratic, collective decision making.”

If you don’t like someone, you get it out in the open, then together you figure out a way to move forward. Essentially every conversation is recorded (and every employee has access to them) so that nothing is said behind someone’s back. 40% of new hires either leave or get fired.

Intense right?

Now that we know what the organization is, let’s knock out the first question.

What is a Principle? 

Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life.

In having read Principles: Life and Work now for a third time, I realize how influential it has been and will be in my life. It’s the only book of any meaningful length I’ve read multiple times, so naturally I thought it would be appropriate for my first book review/summary. I say summary because I find his lessons so effectively communicated, it’s tough to reduce them any further.

If I had to pick one book to read this year, this would be fighting for the top spot. Your life will be more painful and better because of it. I have 143 books in my Amazon cart right now, plus some unread ones on my shelves, so in order to have a life, I have to be selective. That often means I come away from each book saying it’s one of the best I’ve ever read.

With that in mind, this is one of the best I’ve ever read.

Why is this better or different than the other 25,000 business/self-help books?

I have (regrettably) read a lot of them over the years and no other book has led to more real-world change in my life than this one. I feel like most books pass through your consciousness like advertisements; they affect you, but subtly and over time.

If I had to make a blanket statement about the books in the genre, they are mostly a collection of bromides that provide no deep new understanding, and here is the real commonality: they are all positive (and life is not). Almost none encourage real pain or acknowledge how truly difficult improvement is (because that doesn’t sell books!).

Think of it this way, you can read every business book and self-help book, and never manage a business, or help yourself. Said differently, there is place for them, but one can last you a long time.

If you tackle this book with an open mind, pen and paper, it will nearly force you to think and thus act differently, like the next time you hear yourself rationalizing: This is a cheat day. No, it’s Tuesday morning and eating leftover pizza at 10:00am from the night before is not going to get you to #goals.

Dalio opens the book with: Before I begin telling you what I think, I want to establish that I’m a “dumb shit” who doesn’t know much relative to what I need to know.

He probably spent a long time tailoring that sentence because of the levels to it.

First level: it’s funny.

Second & third levels: He is acknowledging that you should assign a “believability” weighting to him (we’ll talk about it later) and not simply take him at his word.

He is relatively humble (he’s calling himself a dumb shit, which he believes, but he also implicitly believes he’s less of a dumb shit than other people because of how much work he’s put in to testing his ideas in the real world), and despite all his success, knowledge & wisdom, he is still acutely aware of how much he does not know.

His sentence-by-sentence delivery is succinct (remember he’s a billionaire, not a writer), but the book is ironically 552 pages (mainly due to repetition). Any one of those pages has the potential to casually shake some readers’ intellectual foundations even between his main points.

I tend to be cerebral, but this guy turns the volume knobs to an 11.

This isn’t a book you read 30 minutes before you go to the bars or if you need a participation trophy.

This is more for when you’ve just polished off your second 16 oz. cold brew coffee and you’re ready to be CEO of Mother Earth, or your life is going off the rails, nothing is going the way you want it to, and you need the schematics for fixing it.

The book has three parts. We’ll spend most of our time on the first half because Work Principles are simply Life Principles applied to groups.

• Part 1: Where I’m Coming From (memoir)
• Part 2: Life Principles (for individuals)
• Part 3: Work Principles (for groups)

“When I ran into situations I hadn’t seen before, I would be painfully surprised. Studying all those painful first-time encounters, I learned that even if they hadn’t happened to me, most of them had happened to other people in other times and places, which gave me a healthy respect for history, a hunger to have a universal understanding of how reality really works, and the desire to build timeless and universal principles for dealing with it.”

Echoing Dalio’s sentiment, it seems like our attitude toward learning should be influenced by the idea that we would prefer to learn the implications of driving off a cliff by watching someone else do it than having to learn the lesson first-hand.

To give you an idea about his level of dedication & credibility, during the financial crisis in 2007, using history books and old newspapers, he and his team went day by day through the Great Depression, comparing what happened then with what was happening in the present. Further, he is admittedly terrible at rote memorization (e.g. people’s names), but he can tell you what happened economically & politically in every year since 1960.

Life Principles

Dalio defines success simply as getting what you want.

I have been looking for a better definition for five years.

Think for yourself to decide:

1) what you want
2) what is true, and
3) what you should do to achieve #1 in light of #2, and do that with humility and open-mindedness so that you consider the best thinking available to you.

Embrace Reality and Deal With It 

Referring back to the opening quote, you can pretty much put your pencils down if you aren’t committed to finding out what’s true.

It is a waste of time to talk about individual trees if we can’t agree there is a forest.

Over the past five years, I have asked people how comfortable they are with reality, and initially I expected everyone to say that they were whether they were or not, but what I heard was a wide range of surprising honesty, with a heavier weighting of responses toward “I have a hard time with reality.” That honesty is highly valuable, because that is precisely what you need to deal with it.

The reality is, books with math in them are guaranteed to sell less copies. Dalio is a math guy though so that’s off the table, but he keeps them manageable as long as you’ve learned addition.

Here are his two main formulas:

Dreams + Reality + Determination = A Successful Life

Pain + Reflection = Progress

His way of thinking could be misinterpreted as a buzz-kill, but he’s simply saying our ability to send a cell phone signal around the world or fly planes is the result of people dreaming that we could do that, while applying the existing rules of reality — the physical laws or principles that govern the natural world. When you lose your fantasy football league and have to take the SAT with high schoolers (pain), because you picked Ben Roethlisberger as your quarterback (reflection) next time you’ll pick Dak Prescott (progress).

He is ruthless and efficient in the pursuit of this.

Don’t mistake possibilities for probabilities. Anything is possible. It’s the probabilities that matter. Everything must be weighed in terms of its likelihood and prioritized.

In case you already suppose he’s a dispassionate sociopath, he says having meaningful relationships and meaningful work are the ultimate goals (I assume that is predicated on his computer deciding you are worth keeping around long enough for him to become your friend). 

Despite limiting the discussion of his relationship with his wife to slightly beyond how they met to respect her privacy, there are some surprisingly emotional personal stories. He talks about being publicly wrong about the effects of the 1982 Mexican debt crisis and his son’s battles with bipolar disorder, lightening it up with some entertaining drama — he once punched his boss in the face.

He was fired for a different reason.

How to use Principles

1. Slow down your thinking so you can note the criteria you are using to make your decision.
2. Write the criteria down as a principle.
3. Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along.

An ex-girlfriend of mine hated whenever I referred to something as a principle, and even more so when I stuck to them.

If Ray Dalio were dating my ex he would have said, “While such decisions might seem too erudite for your taste, you will make them either consciously or subliminally, and they will be very important.” I can’t replay history, but if I’d have said that, I think the relationship would have ended at “erudite”.

“People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflicts.”

Here’s the thing, like the guy who realized he was speaking in prose his whole life, we all have a guiding philosophy whether we know it or not.

How much you tip waiters, how you handle disagreements, if you drive slowly in the left lane; these are all reflections of your principles regardless of what you call them.

Although principle as a word and decision-making as a term are both abstract and mean nothing, you eventually realize that everything you do is a decision and it’s guided by a blend of conscious & subconscious thoughts and habits. Ultimately, working to improve decision-making is extremely practical.

Therefore, the most important thing is that you develop your own principles because if you accept prepackaged ones without giving them much thought, you risk living inconsistently with how you really feel, which probably won’t work out well. This is like small children espousing political beliefs, obviously regurgitating something they heard from their parents. When a kid does this, it’s cute. When an adult does, it’s dangerous.

He also emphasizes the importance of writing them down and wishes people like Steve Jobs and Leonardo da Vinci wrote theirs down.

For those who find writing anything down weird, we will dedicate an entire post to the benefits of writing your thoughts down. For those who already write, consider adding a Decision Journal (whenever you make big decisions (new job, to move, making an investment, etc.) write down your thought process during it so you can review it later and see if you got what you wanted from your decision).

I think people allow the underlying reasons for their actions to go unexamined because it is either scary/uncomfortable to think about why we do a lot of things, and it could be viewed as unimportant if things are “just fine” the way they are.

Dalio would respond to this by saying the most rewarding life comes from reaching your potential and you aren’t going to get there without reflection and discomfort. Living a comfortable life, as opposed to committing to your own painful goal machine, is neither worse nor better, if it works for you.

If you saw a friend you cared about sitting on a couch, doing nothing else for an entire week, and he said he was so content he couldn’t imagine anything else that could make him happier, you would be a little skeptical. That skepticism is rooted in you having experienced things that are better than sitting on the couch, and you want him to share in that joy.

Without putting words into Dalio’s mouth, that is his underlying belief, and he has simply taken it to the extreme in how he lives his life and operates his company.

“For all those reasons, I cannot say that having an intense life filled with accomplishments is better than having a relaxed life filled with savoring, though I can say that being strong is better than being weak, and that struggling gives one strength.”

“Encountering pains and figuring out the lessons they were trying to give me became sort of a game to me. The more I played it, the better I got at it, the less painful those situations became, and the more rewarding the process of reflecting, developing principles, and then getting rewards for using those principles became.”

Who to Trust?

You should be skeptical when you read anything, and this is no different. It reminded me of famed physicist Richard Feynman’s idea that if it disagrees with experiment, then it’s wrong.

Dalio encourages everyone to poke holes in his thinking. He doesn’t care if the right answer comes from someone other than him, but he wants the right answer. I would like to be a fly on the wall at Bridgewater when he acknowledges someone has a better idea than him and watch how graceful that process is.

He even goes so far as to say knowing when not to make your own decisions is one of the most important skills you can develop. This is a balancing act between independent thinking and seeking wise counsel.

The book proposes the best standardized bullshit detector I have seen, which is applicable in all environments. “Believable parties are those who have repeatedly and successfully accomplished something — and have great explanations for how they did it.” 

It’s impossible to overstate the value of clarity and experience.

If you can’t explain it, you don’t fully understand it. He makes this point several times, but my favorite is when he imagines a group getting a lesson in how to play baseball from Babe Ruth, and someone who’d never played the game kept interrupting him to debate how to swing the bat.

Would it be helpful or harmful to the group’s progress to ignore their different track records?

Treating all people equally is more likely to lead away from truth than toward it. At the same time, all views should be considered in an open-minded way, though placed in the proper context of the experiences of the people expressing them.

In his hypothetical scenario, he suggests having a Q&A after Babe Ruth finished explaining.

How to Argue

1. Put our honest thoughts out on the table,
2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and
3. Have agreed-upon ways of deciding (e.g., voting, having clear authorities) if disagreements remain so that we can move beyond them without resentments.

Basically, go find the smartest people you know, tell them your ideas and what you’re thinking and ask them if they disagree with you. If they do, you have an opportunity to learn. You should at least try to understand their reasoning.

This requires you to detach your ego/identity with your ideas. The way to tell you are doing this is if you remain calm when you are debating and/or wrong. Imagine if all debates (e.g. presidential, media, personal) required each party to stand in separate soundproof booths with microphones and they cut off at a certain volume threshold so nothing could be heard until the person lowered their voice to an appropriate volume.

Peter Thiel’s favorite interview question is: What is something that is true that almost nobody agrees with you on?

We won’t spend much time on Thiel today, but this section of the book reminded me of my answer to his question: Disagreements are good, if you are open-minded. I argue almost exclusively with people I like.

Why? Because I care about their thoughts and want them to challenge mine. Arguing with people in the confrontational sense is a fool’s errand. Arguing with people in the truth-seeking sense is beautiful.

The distinction is adopting an attitude of cooperation towards the topic as opposed to demonstrating superiority. Conversation is plainly the real word, but I use argue to acknowledge the reality that it’s impossible to have the same ideas as someone on everything. Handling that in a real way instead of sweeping it under the rug in superficial agreement is the basis for a genuine relationship. 

Ego detachment opens the door for calmness and the calmness leads to clear thinking and that leads to all sorts of good things.

Work

Dalio’s mindset towards work is: we have the best chance of succeeding if the best idea wins every time.

Everything above applies to this goal. If you can do something, that’s great. If you can’t, learn or find someone who can.

Creating this type of company or culture may be unobtainable or unrealistic for many. The prerequisite ingredients alone are rare, much less the execution & maintenance.

If you have worked at a big corporation, you may be laughing at the prospect of managers even acknowledging reality within their department, much less them actively looking for ideas better than theirs.

It is equally unusual to find employees openly professing their weaknesses in an effort to get the best possible idea out there, especially if that “best idea” means someone else gets promoted over them or that they are unnecessary to the company.

It sounds good on paper, but even if you get past the fact that most people understandably care more about their own well-being than a company’s, you still have big obstacles.

It says a lot about the state of affairs when it’s controversial to be transparent and honest.

But while almost all of us quickly agreed on the principles intellectually, many still struggled to convert what they had agreed to intellectually into effective action. This was because their habits and emotional barriers remained stronger than their reasoning.

It’s all too easy to see how difficult Dalio’s concepts are to implement, which is why I think it’s more practical to factor them in while developing your personal principles. In a work context, you need to be the founder/CEO to have any real chance at comprehensively incorporating them. Or go work for Bridgewater.

Here’s a summary of the work tools/apps Bridgewater uses (complementing the book, Dalio is going to release versions for the public):

• Baseball Cards: Each employee has a card that lists their stats. Spoiler alert, this wasn’t initially well-received.
• Issue Log: Primary tool for recording mistakes and learning from them
• Dot Collector: An app used in meetings that allows people to express their thoughts and see others’ in real time. Participants continuously record their assessments of each other by giving them “dots,” positive or negative, on any number of several dozen attirbuts.
• Pain Button: An app allowing you to record the emotions they’re feeling in real-time, then come back at a later time to reflect on them
• Dispute Resolver: App that asks a series of questions used to guide people through the resolution process
• Daily Update Tool: Brief email of what they did that day, issues pertaining to them, and their reflections
• Contract Tool: App that lets people make and monitor their commitments to each other.

I admire his ability to walk the walk here. Admittedly, I’ve never created, nor particularly desired, this level of accountability for anything. It’s an idea carried to its logical extreme, in the same way that Michael Jordan carried the idea of being good at basketball to a logical extreme.

Oh by the way, he literally takes all of these principles and builds them into algorithms so that computers are making the investment decisions and he’d like to get them making hiring & firing decisions, too. The skeptic in me thinks he is going to use the data from the apps to find top talent and/or use it as a database for Bridgewater.

Final Thoughts

Dalio attributes much of his success to Transcendental Meditation, which he has practiced for 30+ years. Nothing of any substance he advocates for is possible without making time for reflection.

Even though the book is largely about his life and principles, one of my favorite passages is his timely perspective on geopolitics.

Most people who haven’t had direct contact with the leadership of their own and other countries form their views based on what they learn in the media, and become quite naive and inappropriately opinionated as a result. That’s because dramatic stories and gossip draw more readers and viewers than does clinical objectivity…As a result, most people who see the world through the lens of the media tend to look for who is good and who is evil rather than what the vested interests and relative powers are and how they are being played out. 

I feel like that quote is going to hang around for a while.

Throughout his life, he found himself at big moments wanting two seemingly incompatible things.

As someone who loves nothing more than having his cake and eating it too, I was particularly curious how he goes about such situations: slowly and creatively. This could be considered useless advice, but I’ve seen the power of slow progression. “Slowly” is the answer for a lot of things, including the related topic of circularity (chicken & egg) problems which have been on my mind the past year or so.

Since management strategy & circularity is right in Venkatesh Rao’s wheelhouse, I hope he reads the book and provides his own review.

Most visitors to this thought sanctuary already know there is no such thing as a “life secret”. There is the connecting & executing of ideas that are readily available to those seeking them. That is the beauty of his advice, if you figure out what the right decision is and you have the courage to make it, your life will be better.

It is all about the execution.

Know that the most constant struggle is between feeling and thinking.

Ultimately, this is a book about tough love. I hope you struggle well.

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See Also:

• Is Bridgewater a Fraud? (unlikely, but always consider the other side right?)
• Ray Dalio’s Ted Talk