Principles: Life and Work

by Ray Dalio

c. 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.

triangulating with highly believable people who are willing to have thoughtful disagreements has never failed to enhance my learning and sharpen the quality of my decision making.

In case of a disagreement with others, start by seeing if you can agree on the principles that should be used to make that decision.

Convert your principles into algorithms and have the computer make decisions alongside you.

By developing a partnership with your computer alter ego in which you teach each other and each do what you do best, you will be much more powerful than if you went about your decision making alone. The computer will also be your link to great collective decision making, which is far more powerful than individual decision making,

in the real world things do change, so a system can easily fall out of sync with reality. The main thrust of machine learning in recent years has gone in the direction of data mining, in which powerful computers ingest massive amounts of data and look for patterns. While this approach is popular, it’s risky in cases when the future might be different from the past.

spell out their principles and values clearly and explicitly and to operate by them consistently.

Great people have both great character and great capabilities. By great character, I mean they are radically truthful, radically transparent, and deeply committed to the mission of the organization. By great capabilities, I mean they have the abilities and skills to do their jobs excellently.

Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before.

A manager’s ability to recognize when outcomes are inconsistent with goals and then modify designs and assemble people to rectify them makes all the difference in the world.

I was looking for meaningful work and meaningful relationships. I quickly learned that the best way to do that was to have great partnerships with great people.

an idea meritocracy built on tough love.

Putting comfort ahead of success produces worse results for everyone.

Idea Meritocracy = Radical Truth + Radical Transparency + Believability-Weighted Decision Making.

At first most people remain stuck in their own heads, stubbornly clinging to the idea that their views are best and that something is wrong with other people who don’t see things their way. But when they repeatedly face the questions “How do you know that you’re not the wrong one?” and “What process would you use to draw upon these different perspectives to make the best decisions?” they are forced to confront their own believability and see things through others’ eyes as well as their own.

it is much harder and much less efficient to work in an organization in which most people don’t know what their colleagues are really thinking. Also, when people can’t be totally open, they can’t be themselves.

The essential difference between a culture of people with shared values (which is a great thing) and a cult (which is a terrible thing) is the extent to which there is independent thinking. Cults demand unquestioning obedience. Thinking for yourself and challenging each other’s ideas is anti-cult behavior,

my most fundamental work principle: • Make your passion and your work one and the same and do it with people you want to be with.

you have nothing to fear from knowing the truth.

Aligning what you say with what you think and what you think with what you feel will make you much happier and much more successful.

Making judgments about people so that they are tried and sentenced in your head, without asking for their perspective, is both unethical and unproductive.

Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces.

Managers should not talk about people who work for them if they are not in the room.

I have regularly seen people kept in jobs that they don’t deserve because of their personal relationship to the boss, and this leads to unscrupulous managers trading on personal loyalties to build fiefdoms for themselves. Judging one person by a different set of rules than another is an insidious form of corruption that undermines the meritocracy.

principles need to be questioned and debated. What you’re not allowed to do is complain and criticize privately—either to others or in your own head.

open-mindedly exploring what’s true with others is not the same thing as stubbornly insisting that only you are right, even after the decision-making machine has settled an issue and moved on.

Radical transparency isn’t the same as total transparency. It just means much more transparency than is typical. We do keep some things confidential, such as private health matters or deeply personal problems, sensitive details about intellectual property or security issues, the timing of a major trade, and at least for the short term, matters that are likely to be distorted, sensationalized, and harmfully misunderstood if leaked to the press.

a. Use transparency to help enforce justice. When everyone can follow the discussion leading up to a decision—either in real time in person or via taped records and email threads—justice is more likely to prevail. Everyone is held accountable for their thinking and anyone can weigh in on who should do what according to shared principles. Absent such a transparent process, decisions would be settled behind closed doors by those who have the power to do whatever they want.

when faced with the decision to share the hardest things, the question should not be whether to share but how.

Make sure those who are given radical transparency recognize their responsibilities to handle it well and to weigh things intelligently. People cannot be given the privilege of receiving information and then use the information to harm the company, so rules and procedures must be in place to ensure that doesn’t happen.

The most meaningful relationships are achieved when you and others can speak openly to each other about everything that’s important, learn together, and understand the need to hold each other accountable to be as excellent as you can be. When you have such relationships with those you work with, you pull each other through challenging times; at the same time, sharing challenging work draws you closer and strengthens your relationships. This self-reinforcing cycle creates the success that allows you to pursue more and more ambitious goals.

If I had a family business and a family member wasn’t performing well, I would want to let them go because I believe that it isn’t good for either the family member (because staying in a job they’re not suited to stands in the way of their personal evolution) or the company (because it holds back the whole community). That’s tough love.

When the company was just me and a small group of people, I didn’t provide employees with health insurance; I assumed that they would buy it on their own. But I did want to help the people I shared my life with during their times of need. If someone I worked with got seriously sick and couldn’t afford proper care, what was I going to do, stand by and not help them? Of course I’d help them financially, to whatever extent I could. So when I did begin providing health insurance to my employees, I felt that I was insuring myself against the money I knew I’d give them if they were injured or fell ill as much as I was insuring them.

we put into place a policy that we would pay for half of practically any activities that people want to do together up to a set cap (we now support more than a hundred clubs and athletic and common-interest groups); we paid for food and drink for those who hosted potluck dinners at their houses; and we bought a house that employees can use for events and celebrations.

the higher the percentage of people who really care about the organization, the fewer the number of bad people there are, because the people who really care protect the community against them. We have also found that our radical transparency helps make it clearer which are which.

Be loyal to the common mission and not to anyone who is not operating consistently with it.

Make sure people give more consideration to others than they demand for themselves. This is a requirement. Being considerate means allowing other people to mostly do what they want, so long as it is consistent with our principles, policies, and the law.

Make sure that people understand the difference between fairness and generosity.

mistakes an act of generosity for some for an entitlement for everyone.

we are generous with people (and I am personally generous), but we feel no obligation to be measured and equal in our generosity.

Generosity is good and entitlement is bad, and they can easily be confused, so be crystal clear on which is which.

If you want to have a community of people who have both high-quality, long-term relationships and a high sense of personal responsibility, you can’t allow a sense of entitlement to creep in.

you should expect people to behave in a manner consistent with how people in high-quality, long-term relationships behave—with a high level of mutual consideration for each other’s interests and a clear understanding of who is responsible for what.

Treasure honorable people who are capable and will treat you well even when you’re not looking. They are rare. Such relationships take time to build and can only be built if you treat such people well.

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.

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.

Don’t worry about looking good—worry about achieving your goals.

a. Be self-reflective and make sure your people are self-reflective. When there is pain, the animal instinct is flight-or-fight. Calm yourself down and reflect instead. The pain you are feeling is due to things being in conflict—maybe

it is everyone’s responsibility to help others learn what is true about themselves by giving them honest feedback, holding them accountable, and working through disagreements in an open-minded way.

To encourage people to bring their mistakes into the open and analyze them objectively, managers need to foster a culture that makes this normal and that penalizes suppressing or covering up mistakes.