Principles: Life and Work

by Ray Dalio

If instead we classify these situations into types and have good principles for dealing with them, we will make better decisions more quickly and have better lives as a result.

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.

when you enter into relationships with others, your principles and their principles will determine how you interact.

You will be faced with millions of choices in life, and the way you make them will reflect the principles you have—so it won’t be long before the people around you will be able to tell the principles you are really operating by.

I learned my principles over a lifetime of making a lot of mistakes and spending a lot of time reflecting on them.

I got excited about visualizing things to go after, had some painful failures going after them, learned principles that would prevent me from making the same sort of mistakes again, and changed and improved, which allowed me to imagine and go after even more audacious goals and do that rapidly and repeatedly for a long time.

I believe that the key to success lies in knowing how to both strive fo...

By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enou...

One also has to be an independent thinker who correctly bets against the consensus, which means being painfully wrong a fair amount.

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?”

Operate by principles . . . . . . that are so clearly laid out that their logic can easily be assessed and you and others can see if you walk the talk.

With time, my collection of principles became like a collection of recipes for decision making.

Systemize your decision making.

By running both decision-making systems—i.e., mine in my head and mine in the computer—next to each other, I learned the computer could make better decisions than me because it could process vastly more information than I could, and it could do it faster and unemotionally.

Doing that allowed me and the people I worked with to compound our understanding over time and improve the quality of our collective decision making. I discovered that such decision-making systems—especially when believability weighted—are incredibly powerful and will soon profoundly change how people around the world make all kinds of decisions.

Our principle-driven approach to decision making has not only improved our economic, investment, and management decisions, it has helped us make bett...

As you will see, we are simply a group of people who are striving to be excellent at what we do and who recognize that we don’t know much relative to what we need to know.

We believe that thoughtful, unemotional disagreement by independent thinkers can be converted into believability-weighted decision making that is smarter and more effective than the sum of its parts.

Think for yourself! 1) What do you want? 2) What is true? 3) What are you going to do about it?

Time is like a river that carries us forward into encounters with reality that require us to make decisions. We can’t stop our movement down this river and we can’t avoid those encounters. We can only approach them in the best possible way.

Over the course of our lives, we make millions and millions of decisions that are essentially bets, some large and some small. It pays to think about how we make them because they are what ultimately determine the quality of our lives.

I have memories of him from when he was in his seventies, not hesitating to drive through big snowstorms, shoveling himself out whenever he got stuck like it was no big deal.

psychology of the 1960s U.S. was aspirational and inspirational—to achieve great and noble goals.

One of my earliest memories was of John F. Kennedy, an intelligent, charismatic man who painted vivid pictures of changing the world for the better—exploring outer space, achieving equal rights, and eliminating poverty. He and his ideas had a major effect on my thinking.

As we saw it, the U.S. was rich, progressive, well managed, and on a mission to improve quickly at everything.

I also feared boredom and mediocrity much more than I feared failure.

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

“If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he...

Living through that taught me that while almost everyone expects the future to be a slightly modified version of the present, it is usually very different.

I gradually learned that prices reflect people’s expectations, so they go up when actual results are better than expected and they go down when they are worse than expected. And most people tend to be biased by their recent experiences.

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’ve repeatedly seen policymakers deliver such assurances immediately before currency devaluations, so I learned not to believe government policymakers when they assure you that they won’t let a currency devaluation happen. The more strongly they make those assurances, the more desperate the situation probably is, so the more likely it is that a devaluation will take place.

“You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.”

Instead we were given actual case studies to read and analyze. Then we gathered in groups to thrash out what we would do if we were in the shoes of the people in those situations.

The U.S. economy slowed, commodity prices soared, and in 1973 the stock market took a dive. Once again, I was blindsided—but in retrospect I could see that the dominoes had fallen in a logical sequence.

I also learned that for every action (such as easy money and credit) there is a consequence (in this case, higher inflation) roughly proportionate to that action, which causes an approximately equal and opposite reaction (tightening of money and credit) and market reversals.

Most everything has happened repeatedly before for logical cause-effect reasons.

nothing was nearly as clear in real time.

I saw again how politics and economics intertwine, usually with economics leading.

In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money. I believe that anyone who has made money in trading has had to experience horrendous pain at some point. Trading is like working with electricity; you can get an electric shock.

I was the person helping clients who had price risks in their businesses manage them by using futures. I developed quite an expertise in the grain and livestock markets, which often led me down to West Texas and the agricultural areas of California.

I also punched my boss in the face. Not surprisingly, I was fired.

😂😂

I spent most of my time following the markets and putting myself in the shoes of my corporate clients to show them how I would handle market risks if I were them. And of course I continued to trade my own account.

In 1977, Barbara and I decided to have a child, so we got married.

The Russians were buying lots of grain at the time and wanted my advice, so I took Barbara on a combined honeymoon–business trip to the USSR.

I was really getting my head into the livestock, meat, grain, and oilseed markets. I loved them because they were concrete and less subject than stocks to distorted perceptions of value.

While stocks could stay too high or too low because “greater fools” kept buying or selling them, livestock ended up on the meat counter where it would be priced based on what consumers were willing to pay.

I could visualize the processes that led to those sales and see the relatio...

Data visualizations that point out patterns! Machine learning will help us make leaps and bounds here, playing the role that humans have historically played so that our thinking can take the next step.

This wasn’t academic learning: People with practice in the business showed me how the agricultural processes worked, and I organized what they told me into models I used to map the interactions of those parts through time.

For example, by knowing how many cattle, chickens, and hogs were being fed, how much grain they ate, and how fast they gained weight, I could project both when and how much meat would come to market and when and how much corn and soymeal would be consumed. Likewise, by seeing how much acreage was planted with corn and soybeans in all the growing areas, doing regressions that showed how rainfall affected the yields in each of these areas, and applying weather forecasts and rainfall data, I could project the timing and quantity of corn and soybean production. To me it all looked like a beautiful machine with logical cause-effect relationships. By understanding these relationships, I could come up with decision rules (or principles) I could model. These early models were a far cry from the ones we use now; they were back-of-the-envelope sketches, analyzed and converted into computer programs with the technology I could afford at the time. At the very beginning, I did regressions on my handheld Hewlett-Packard HP-67 calculator, plotted charts by hand with colored pencils, and recorded every trade in composition notebooks. When the personal computer came along, I could input the numbers and watch them be converted into pictures of what would happen on spreadsheets.