Principles: Life and Work

by Ray Dalio

Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.

Having a good set of principles is like having a good collection of recipes for success.

I believe that the key to success lies in knowing how to both strive for a lot and fail well.

My painful mistakes shifted me from having a perspective of “I know I’m right” to having one of “How do I know I’m right?”

For me, great is better than terrible, and terrible is better than mediocre, because terrible at least gives life flavor.

Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively.

I believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck.

I have come to realize that bad times coupled with good reflections provide some of the best lessons, and not just about business but also about relationships. One has many more supposed friends when one is up than when one is down, because most people like to be with winners and shun losers. True friends are the opposite.

Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.

Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures

I also gave him The Lessons of History, a 104-page distillation of the major forces through history by Will and Ariel Durant, and River Out of Eden by the insightful Richard Dawkins, which explains how evolution works.

Instead of feeling frustrated or overwhelmed, I saw pain as nature’s reminder that there is something important for me to learn. 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.

Whenever I observe something in nature that I (or mankind) think is wrong, I assume that I’m wrong and try to figure out why what nature is doing makes sense.

This means that for most people success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment, and then changing to improve.

I recommend Richard Dawkins’s and E. O. Wilson’s books on evolution. If I had to pick just one, it would be Dawkins’s River Out of Eden.

More than anything else, what differentiates people who live up to their potential from those who don’t is their willingness to look at themselves and others objectively and understand the root causes standing in their way.

Knowing this, I now understand why creativity comes to me when I relax (like when I’m in the shower) and how meditation helps open this connection. Because it is physiological, I can actually feel the creative thoughts coming from elsewhere and flowing into my conscious mind. It’s a kick to understand how that works.

A good book on this is A Whole New Mind by Daniel H. Pink, and a good article on the science of this is “A Wandering Mind Heads Straight Toward Insight” by Robert Lee Hotz from The Wall Street Journal. While many parts of the brain come in two halves, it’s only the more recently developed cortex, which accounts for three-quarters of the brain, that has been shown to have functional differences between the right and left sides.

Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong.

Raising the probability of being right is valuable no matter what your probability of being right already is. I often observe people making decisions if their odds of being right are greater than 50 percent. What they fail to see is how much better off they’d be if they raised their chances even more (you can almost always improve your odds of being right by doing things that will give you more information). The expected value gain from raising the probability of being right from 51 percent to 85 percent (i.e., by 34 percentage points) is seventeen times more than raising the odds of being right from 49 percent (which is probably wrong) to 51 percent (which is only a little more likely to be right).

At Bridgewater, we use our systems much as a driver uses a GPS in a car: not to substitute for our navigational abilities but to supplement them.

Our overriding objective is excellence, or more precisely, constant improvement, a superb and constantly improving company in all respects.

By radical transparency, I mean giving most everyone the ability to see most everything. To give people anything less than total transparency would make them vulnerable to others’ spin and deny them the ability to figure things out for themselves.

As Harvard developmental psychologist Bob Kegan, who has studied Bridgewater, likes to say, in most companies people are doing two jobs: their actual job and the job of managing others’ impressions of how they’re doing their job.

The point I made by not firing Ross was much more powerful than firing him would have been—I was demonstrating to him and others that it was okay to make mistakes and unacceptable not to learn from them.

Of course, in managing others who make mistakes, it is important to know the difference between 1) capable people who made mistakes and are self-reflective and open to learning from them, and 2) incapable people, or capable people who aren’t able to embrace their mistakes and learn from them. Over time I’ve found that hiring self-reflective people like Ross is one of the most important things I can do.

I’ve often thought that parents and schools overemphasize the value of having the right answers all the time. It seems to me that the best students in school tend to be the worst at learning from their mistakes, because they have been conditioned to associate mistakes with failure instead of opportunity. This is a major impediment to their progress. Intelligent people who embrace their mistakes and weaknesses substantially outperform their peers who have the same abilities but bigger ego barriers.

Now, after decades of hiring, managing, and firing people, I understand that to be truly successful I need to be like a conductor of people, many of whom (if not all) can play their instruments better than I can—and that if I was a really great conductor, I would also be able to find a better conductor than me and hire him or her. My ultimate goal is to create a machine that works so well that I can just sit back and watch beauty happen.