Principles: Life and Work

by Ray Dalio

I’ve found that the most common reasons to limit broad transparency are: 1. Where the information is of a private, personal, or confidential nature and doesn’t meaningfully impact the community at large. 2. Where sharing and managing such information puts the long-term interests of the Bridgewater community, its clients, and our ability to uphold our principles at risk (for instance, our proprietary investment logic or a legal dispute). 3. Where the value of sharing the information broadly with the community is very low and the distraction it would cause would be significant (compensation, for instance).

People know that my intent is to always push the limits of trying to be transparent and that the only things that would prevent me from doing that will be the interests of the company and that I will tell them if I can’t be transparent and why.

Provide transparency to people who handle it well and either deny it to people who don’t handle it well or remove those people from the organization.

Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency.

To me, a meaningful relationship is one in which people care enough about each other to be there whenever someone needs support and they enjoy each other’s company so much that they can have great times together both inside and outside of work.

I have often been asked whether relationships at Bridgewater are more like those of a family or those of a team, the implication being that in a family there is unconditional love and a permanent relationship, while in a team the attachment is only as strong as the person’s contribution. Before answering this question, I want to emphasize that either is good by me, because both families and teams provide meaningful relationships and that neither is anything like a typical job at a typical company, where the relationships are primarily utilitarian. But to answer the question directly, I wanted Bridgewater to be like a family business in which family members have to perform excellently or be cut. 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.

No matter how much one tries to create a culture of meaningful relationships, the organization is bound to have some bad (intentionally harmful) people in it. Being there isn’t good for them or the company so it’s best to find out who they are and remove them. We have found that 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 the overarching guideline: It is more inconsiderate to prevent people from exercising their rights because you are offended by them than it is for them to do whatever it is that offends you.

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

Fairness and generosity are different things. If you bought two birthday gifts for two of your closest friends, and one cost more than the other, what would you say if the friend who got the cheaper gift accused you of being unfair? Probably something like, “I didn’t have to get you any gift, so stop complaining.” At Bridgewater, we are generous with people (and I am personally generous), but we feel no obligation to be measured and equal in our generosity.

Know where the line is and be on the far side of fair.

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. Each should operate on the far side of fair, by which I mean giving more consideration to others than you demand for yourself. This is different from how people in most commercial relationships generally behave, as they tend to focus more on their own interests than on the interests of others or of the community as a whole.

Treasure honorable people who are capable and will treat you well even when you’re not looking.

Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them

Mistakes will cause you pain, but you shouldn’t try to shield yourself or others from it. Pain is a message that something is wrong and it’s an effective teacher that one shouldn’t do that wrong thing again. To deal with your own and others’ weaknesses well you must acknowledge them frankly and openly and work to find ways of preventing them from hurting you in the future.

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.

Recognize that mistakes are a natural part of the evolutionary process.

You must not let your need to be right be more important than your need to find out what’s true. Jeff Bezos described it well when he said, “You have to have a willingness to repeatedly fail. If you don’t have a willingness to fail, you’re going to have to be very careful not to invent.”

The people I respect most are those who fail well. I respect them even more than those who succeed. That is because failing is a painful experience while succeeding is a joyous one, so it requires much more character to fail, change, and then succeed than to just succeed.

People typically feel bad about their mistakes because they think in a shortsighted way about the bad outcome and not about the evolutionary process of which mistakes are an integral part. I once had a ski instructor who had also given lessons to Michael Jordan, the greatest basketball player of all time. Jordan, he told me, reveled in his mistakes, seeing each of them as an opportunity to improve. He understood that mistakes are like those little puzzles that, when you solve them, give you a gem. Every mistake that you make and learn from will save you from thousands of similar mistakes in the future.

Remember to reflect when you experience pain.

Remember this: The pain is all in your head. If you want to evolve, you need to go where the problems and the pain are. By confronting the pain, you will see more clearly the paradoxes and problems you face. Reflecting on them and resolving them will give you wisdom. The harder the pain and the challenge, the better.

Teach and reinforce the merits of mistake-based learning. 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. We do this by making it clear that one of the worst mistakes anyone can make is not facing up to their mistakes. This is why the use of the Issue Log is mandatory at Bridgewater.

PAIN + REFLECTION = PROGRESS

We call this process of finding alignment “getting in sync,” and there are two primary ways it can go wrong: cases resulting from simple misunderstandings and those stemming from fundamental disagreements. Getting in sync is the process of open-mindedly and assertively rectifying both types.

Many people mistakenly believe that papering over differences is the easiest way to keep the peace. They couldn’t be more wrong. By avoiding conflicts one avoids resolving differences. People who suppress minor conflicts tend to have much bigger conflicts later on, which can lead to separation, while people who address their mini-conflicts head on tend to have the best and the longest-lasting relationships.

Thoughtful disagreement is not a battle; its goal is not to convince the other party that he or she is wrong and you are right, but to find out what is true and what to do about it.

Recognize that conflicts are essential for great relationships . . . . . . because they are how people determine whether their principles are aligned and resolve their differences.

Surface areas of possible out-of-syncness. If you and others don’t raise your perspectives, there’s no way you will resolve your disputes. You can surface the areas of disagreement informally or put them on a list to go over.

Being effective at thoughtful disagreement requires one to be open-minded (seeing things through the other’s eyes) and assertive (communicating clearly how things look through your eyes) and to flexibly process this information to create learning and adaptation.

It also helps to remind people that those who change their minds are the biggest winners because they learned something, whereas those who stubbornly refuse to see the truth are losers.

Open-minded people seek to learn by asking questions; they realize how little they know in relation to what there is to know and recognize that they might be wrong; they are thrilled to be around people who know more than they do because it represents an opportunity to learn something. Closed-minded people always tell you what they know, even if they know hardly anything. They are typically uncomfortable being around those who know a lot more than they do.

Don’t have anything to do with closed-minded people. Being open-minded is much more important than being bright or smart. No matter how much they know, closed-minded people will waste your time.

Watch out for people who think it’s embarrassing not to know. They’re likely to be more concerned with appearances than actually achieving the goal; this can lead to ruin over time.

Very simple tricks—like repeating what you’re hearing someone say to make sure you’re actually getting it—can be invaluable.

Make it clear who is directing the meeting and whom it is meant to serve. Every meeting should be aimed at achieving someone’s goals; that person is the one responsible for the meeting and decides what they want to get out of it and how they will do so. Meetings without someone clearly responsible run a high risk of being directionless and unproductive.

Make clear what type of communication you are going to have in light of the objectives and priorities. If your goal is to have people with different opinions work through their differences to try to get closer to what is true and what to do about it (open-minded debate), you will run your meeting differently than if its goal is to educate.

emotions can shade how people see reality. For example, people will sometimes say, “I feel like (something is true)” and proceed as though it’s a fact, when other people may interpret the same situation differently. Ask them, “Is it true?” to ground the conversation in reality.

Utilize the “two-minute rule” to avoid persistent interruptions. The two-minute rule specifies that you have to give someone an uninterrupted two minutes to explain their thinking before jumping in with your own.