Principles: Life and Work

by Ray Dalio

I believe that the key to success lies in knowing how to both strive for a lot and fail well. By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game.

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?” They gave me the humility I needed to balance my audacity.

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

1. Put our honest thoughts out on the table, 2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and 3. Have agreed-upon ways of deciding (e.g., voting, having clear authorities) if disagreements remain so that we can move beyond them without resentments.

That’s how shapers think and act. At times, their extreme determination to achieve their goals can make them appear abrasive or inconsiderate, which was reflected in their test results. Nothing is ever good enough, and they experience the gap between what is and what could be as both a tragedy and a source of unending motivation. No one can stand in the way of their achieving what they’re going after. On one of the personality assessments there is a category they all ranked low on called “Concern for Others.” But that doesn’t mean quite what it sounds like. Consider Muhammad Yunus, for example. A great philanthropist, he has devoted his life to helping others. He received the Nobel Peace Prize for pioneering the ideas of microcredit and microfinance and has won the Congressional Gold Medal, the Presidential Medal of Freedom, the Gandhi Peace Prize, and more. Yet he tested low on “Concern for Others.” Geoffrey Canada, who has devoted most of his adult life to taking care of all the disadvantaged children in a hundred-square-block area of New York’s Harlem, also tested low on “Concern for Others.” Bill Gates, who is devoting most of his wealth and energy to saving and improving lives, tested low as well. Obviously Yunus, Canada, and Gates care deeply about other people, yet the personality tests they took rated them low. Why was that? In speaking with them and reviewing the questions that led to these ratings, it became clear: When faced with a choice between achieving their...

My examination of shapers and my reflections on my own qualities made clear to me that nobody sees the full range of what they need to see in order to be exceptionally successful, though some see a wider range than others. Those that do best both see a wide range themselves while triangulating well with other brilliant people who see things in different, complementary ways.

While I surpassed my wildest dreams decades ago, I am still struggling today. In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well. To understand what I mean, imagine your greatest goal, whatever it is—making a ton of money, winning an Academy Award, running a great organization, being great at a sport. Now imagine instantaneously achieving it. You’d be happy at first, but not for long. You would soon find yourself needing something else to struggle for. Just look at people who attain their dreams early—the child star, the lottery winner, the professional athlete who peaks early. They typically don’t end up happy unless they get excited about something else bigger and better to struggle for. Since life brings both ups and downs, struggling well doesn’t just make your ups better; it makes your downs less bad. I’m still struggling and I will until I die, because even if I try to avoid the struggles, they will find me.

Having the basics—a good bed to sleep in, good relationships, good food, and good sex—is most important, and those things don’t get much better when you have a lot of money or much worse when you have less. And the people one meets at the top aren’t necessarily more special than those one meets at the bottom or in between.

I realized that passing on knowledge is like passing on DNA—it is more important than the individual, because it lives way beyond the individual’s life.

1 Embrace Reality and Deal with It

1.1 Be a hyperrealist.

Dreams + Reality + Determination = A Successful Life.

1.2 Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome. Most people fight seeing what’s true when it’s not what they want it to be. That’s bad, because it is more important to understand and deal with the bad stuff since the good stuff will take care of itself.

1.3 Be radically open-minded and radically transparent.

Don’t let fears of what others think of you stand in your way.

c. Embracing radical truth and radical transparency will bring more meaningful work and more meaningful relationships.

1.4 Look to nature to learn how reality works.

By looking at nature from the top down, we can see that much of what we call human nature is really animal nature. That’s because the human brain is programmed with millions of years of genetic learning that we share with other species. Because we share common roots and common laws, we and other animals have similar attributes and constraints.

a. Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are.

I now realize that nature optimizes for the whole, not for the individual, but most people judge good and bad based only on how it affects them. What I had seen was the process of nature at work, which is much more effective at furthering the improvement of the whole than any process man has ever invented. Most people call something bad if it is bad for them or bad for those they empathize with, ignoring the greater good.

b. 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.

Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.

Evolve or die.

The key is to fail, learn, and improve quickly. If you’re constantly learning and improving, your evolutionary process will look like the one that’s ascending.

Evolving is life’s greatest accomplishment and its greatest reward.

evolution has produced a) incentives and interactions that lead to individuals pursuing their own interests and resulting in the advancement of the whole, b) the natural selection process, and c) rapid experimentation and adaptation.

The individual’s incentives must be aligned with the group’s goals.To

look at sex and natural selection. Nature gave us one hell of an incentive to have sex in the form of the great pleasure it provides, even though the purpose of having sex is to contribute to the advancement of the DNA. That way, we individually get what we want while contributing to the evolution of the whole.

Reality is optimizing for the whole—not for you. Contribute to the whole and you will likely be rewarded.

Adaptation through rapid trial and error is invaluable.

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. I used to think that memory-based, conscious learning was the most powerful, but I’ve since come to understand that it produces less rapid progress than experimentation and adaptation. To give you an example of how nature improves without thinking, just look at the struggle that mankind (with all its thinking) has experienced in trying to outsmart viruses (which don’t even have brains). Viruses are like brilliant chess opponents. By evolving quickly (combining different genetic material across different strains), they keep the smartest minds in the global health community busy thinking up countermoves to hold them off.

Realize that you are simultaneously everything and nothing—and decide what you want to be.

when we look down on ourselves through the eyes of nature we are of absolutely no significance. It is a reality that each one of us is only one of about seven billion of our species alive today and that our species is only one of about ten million species on our planet. Earth is just one of about 100 billion planets in our galaxy, which is just one of about two trillion galaxies in the universe. And our lifetimes are only about 1/3,000 of humanity’s existence, which itself is only 1/20,000 of the Earth’s existence. In other words, we are unbelievably tiny and short-lived and no matter what we accomplish, our impact will be insignificant. At the same time, we instinctually want to matter and to evolve, and we can matter a tiny bit—and it’s all those tiny bits that add up to drive the evolution of the universe. The question is how we matter and evolve. Do we matter to others (who also don’t matter in the grand scope of things) or in some greater sense that we will never actually achieve? Or does it not matter if we matter so we should forget about the question and just enjoy our lives while they last?

What you will be will depend on the perspective you have. Where you go in life will depend on how you see things and who and what you feel connected to (your family, your community, your country, mankind, the whole ecosystem, everything). You will have to decide to what extent you will put the interests of others above your own, and which others you will choose to do so for. That’s because you will regularly encounter situations that will force you to make such choices.

Understand nature’s practical lessons.

a. Maximize your evolution.

b. Remember “no pain, no gain.”

c. It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful. As Carl Jung put it, “Man needs difficulties. They are necessary for health.” Yet most people instinctually avoid pain. This is true whether we are talking about building the body (e.g., weight lifting) or the mind (e.g., frustration, mental struggle, embarrassment, shame)—and especially true when people confront the harsh reality of their own imperfections.

1.7 Pain + Reflection = Progress.

a. Go to the pain rather than avoid it. If you don’t let up on yourself and instead become comfortable always operating with some level of pain, you will evolve at a faster pace. That’s just the way it is. Every time you confront something painful, you are at a potentially important juncture in your life—you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion. The irony is that if you choose the healthy route, the pain will soon turn into pleasure. The pain is the signal!

Embrace tough love.

I will often deny them what they “want” because that will give them the opportunity to struggle so that they can develop the strength to get what they want on their own. 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

The quality of your life will depend on the choices you make at those painful moments.

If you do it well, you can change your psychological reaction to it so that what was painful can become something you crave.

1.8 Weigh second- and third-order consequences. By recognizing the higher-level consequences nature optimizes for, I’ve come to see that people who overweigh the first-order consequences of their decisions and ignore the effects of second- and subsequent-order consequences rarely reach their goals. This is because first-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision making. For example, the first-order consequences of exercise (pain and time spent) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa. Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are the barriers that stand in our way. It’s almost as though nature sorts us by throwing us trick choices that have both types of consequences and penalizing those who make their decisions on the basis of the first-order consequences alone. By contrast, people who choose what they really want, and avoid the temptations and get over the pains that drive them away from what they really want, are much more likely to have successful lives.

1.9 Own your o...

1.10 Look at the machine from the higher level.

a. Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes.

b. By comparing your outcomes with your goals, you can determine how to modify your machine.

Distinguish between you as the designer of your machine and you as a worker with your machine. One of the hardest things for people to do is to objectively look down on themselves within their circumstances (i.e., their machine) so that they can act as the machine’s designer and manager. Most people remain stuck in the perspective of being a worker within the machine. If you can recognize the differences between those roles and that it is much more important that you are a good designer/manager of your life than a good worker in it, you will be on the right path. To be successful, the “designer/manager you” has to be objective about what the “worker you” is really like, not believing in him more than he deserves, or putting him in jobs he shouldn’t be in. Instead of having this strategic perspective, most people operate emotionally and in the moment; their lives are a series of undirected emotional experiences, going from one thing to the next. If you want to look back on your life and feel you’ve achieved what you wanted to, you can’t operate that way. d. The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again.