Principles: Life and Work

by Ray Dalio

Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.

To be principled means to consistently operate with principles that can be clearly explained.

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.

To make money in the markets, one needs to be an independent thinker who bets against the consensus and is right. That’s because the consensus view is baked into the price. One is inevitably going to be painfully wrong a lot, so knowing how to do that well is critical to one’s success.

Experience taught me how invaluable it is to reflect on and write down my decision-making criteria whenever I made a decision, so I got in the habit of doing that.

The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others.

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.

“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.”

The lesson? When everybody thinks the same thing—such as what a sure bet the Nifty 50 is—it is almost certainly reflected in the price, and betting on it is probably going to be a mistake. 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

Making money in the markets is tough. The brilliant trader and investor Bernard Baruch put it well when he said, “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.”

Seek out the smartest people who disagreed with me so I could try to understand their reasoning. 2. Know when not to have an opinion. 3. Develop, test, and systemize timeless and universal principles. 4. Balance risks in ways that keep the big upside while reducing the downside.

Over the years that followed, I found that most of the extraordinarily successful people I’ve met had similar big painful failures that taught them the lessons that ultimately helped them succeed. Looking back on getting fired from Apple in 1985, Steve Jobs said, “It was awful-tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did.”

learned to go slowly when faced with the choice between two things that you need that are seemingly at odds.

had eaten enough glass to realize that what was most important wasn’t knowing the future—it was knowing how to react appropriately to the information available at each point in time. In order to do that, I would have to have a vast store of economic and market data to draw on—and as it happened, I did.

other words, rather than forecasting changes in the economic environment and shifting positions in anticipation of them, we pick up these changes as they’re occurring and move our money around to keep in those markets which perform best in that environment.

This approach to establishing a “risk-neutral” benchmark position and deviating from it with measured bets was the genesis of the style of investment management we would later call “alpha overlay,” in which passive (“beta”) and active (“alpha”) exposures are separated.

Maturity is the ability to reject good alternatives in order to pursue even better ones.

He explained that leaders must be judged within the context of the circumstances they encounter and then went on to share his view of how difficult it is to lead Russia and why he thought Putin was doing it well.

I believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck.

There are two parts of each person’s brain: the upper-level logical part and the lower-level emotional part. I call these the “two yous.” They fight for control of each person. How that conflict is managed is the most important driver of our behaviors.

People often make the mistake of focusing on what should be done while neglecting the more important question of who should be given the responsibility for determining what should be done.

When I was younger I didn’t really understand the saying, “Hire someone better than you.” Now, after decades of hiring, managing, and firing people, I understand that to be truly successful I need to be like a conductor of people, many of whom (if not all) can play their instruments better than I can—and that if I was a really great conductor, I would also be able to find a better conductor than me and hire him or her. My ultimate goal is to create a machine that works so well that I can just sit back and watch beauty happen.