Principles: Life and Work

by Ray Dalio

Make believability-weighted decisions.

Experience taught me how invaluable it is to reflect on and write down my decision-making criteria whenever I made a decision,

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.

So, for me, meaningful work and meaningful relationships were and still are my primary goals and everything I did was for them. Making money was an incidental consequence of that.

The most volatile cost that the chicken producer needed to worry about was feed prices. I showed Lane how to use a mix of corn and soymeal futures to lock in costs so they could quote a fixed price to McDonald’s.

I had studied debt and depressions back to 1800,

“If you are ready to give up everything else and study the whole history and background of the market and all principal companies whose stocks are on the board as carefully as a medical student studies anatomy—if you can do all that and in addition you have the cool nerves of a gambler, the sixth sense of a clairvoyant and the courage of a lion, you have a ghost of a chance.”

I learned a great fear of being wrong that shifted my mind-set from thinking “I’m right” to asking myself “How do I know I’m right?” And I saw clearly that the best way to answer this question is by finding other independent thinkers who are on the same mission as me and who see things differently from me.

whenever I took a position in the markets, I wrote down the criteria I used to make my decision.

It occurred to me that if I wrote those criteria into formulas (now more fashionably called algorithms) and then ran historical data through them, I could test how well my rules would have worked in the past.

My rule was simple: If something went badly, you had to put it in the log, characterize its severity, and make clear who was responsible for it.

Dreams + Reality + Determination = A Successful Life.

1.3 Be radically open-minded and radically transparent.

Yet if you don’t put yourself out there with your radical transparency, you won’t learn.

It’s important not to let our biases stand in the way of our objectivity. To get good results, we need to be analytical rather than emotional.

To be “good” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded.

As I thought about evolution, I realized that it exists in other forms than life and is carried out through other transmission mechanisms than DNA. Technologies, languages, and everything else evolves. Knowledge, for example, is like DNA in that it is passed from generation to generation and evolves; its impact on people over many generations can be as great or greater than that of the genetic code.

The key is to fail, learn, and improve quickly.

There are at least three kinds of learning that foster evolution: memory-based learning (storing the information that comes in through one’s conscious mind so that we can recall it later); subconscious learning (the knowledge we take away from our experiences that never enters our conscious minds, though it affects our decision making); and “learning” that occurs without thinking at all, such as the changes in DNA that encode a species’ adaptations.

This can be difficult for people emotionally, even if they understand intellectually that having difficulties is the exercise they need to grow strong and that just giving them what they want will weaken them and ultimately lead to them needing more help.23

For the most part, life gives you so many decisions to make and so many opportunities to recover from your mistakes that, if you handle them well, you can have a terrific life.

Watching people struggle and having others watch you struggle can elicit all kinds of ego-driven emotions such as sympathy, pity, embarrassment, anger, or defensiveness. You need to get over all that and stop seeing struggling as something negative. Most of life’s greatest opportunities come out of moments of struggle; it’s up to you to make the most of these tests of creativity and character.

Shaper = Visionary + Practical Thinker + Determined.

In fact, I believe that it won’t be long before this kind of computerized decision making guides us nearly as much as our brains do now.

They allow us to make more informed and less emotional decisions much faster than we could on our own.

Knowing how to deal well with your setbacks is as important as knowing how to move forward.

Establish clear metrics to make certain that you are following your plan.

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.

Remember That the WHO Is More Important than the WHAT. Anyone who runs a successful organization will tell you the same.

These shiny objects may be traps that will distract you from thinking in a machinelike way, so be on your guard for them and don’t let yourself be seduced.

an idea meritocracy is the best.40 It’s almost too obvious to warrant saying, but I will anyway: Knowing what you can and cannot expect from each person and knowing what to do to make sure the best ideas win out are the best way to make decisions. Idea-meritocratic decision making is better than traditional autocratic or democratic decision making in almost all cases.