Principles: Life and Work

by Ray Dalio

Having a good set of principles is like having a good collection of recipes for success.

Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve #1 in light of #2 . . .

The principles you choose can be anything you want them to be as long as they are authentic—i.e., as long as they reflect your true character and values.

So you must be clear about your principles and then you must “walk the talk.” If inconsistencies seem to exist, you should explain them. It’s best to do that in writing because by doing so, you will refine your written principles.

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.

Knowing that I could be painfully wrong and curiosity about why other smart people saw things differently prompted me to look at things through the eyes of others as well as my own.

We believe that thoughtful, unemotional disagreement by independent thinkers can be converted into believability-weighted decision making that is smarter and more

effective than the sum of its parts. Because the power of a group is so much greater than the power of an individual,

After that, there will be no advice I can give that will not be available in these two books, and I will be done with this phase of my life.

Think for yourself! 1) What do you

want?

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

My most obvious weakness was my bad rote memory. I couldn’t, and still can’t, remember facts that don’t have reasons for being what they are (like phone numbers), and I don’t like following instructions. At the same time, I was very curious and loved to figure things out for myself, though that

In my early years the psychology of the 1960s U.S. was aspirational and inspirational—to achieve great and

noble goals. It was like nothing I have seen since.

I also feared boredom and mediocrity much more than I feared failure. For me, great is better than terrible, and terrible is better than mediocre, because terrible at least gives life flavor.

The high school yearbook quote my friends chose for me was from Thoreau: “If a man does not keep pace

with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, howev...

I gradually learned that prices reflect people’s expectations, so they go up when actual results are better than expected and they go down when they are worse than expected. And most people tend to be biased by their recent experiences.

The times we lived in taught us both to question established ways of doing things—an attitude he demonstrated superbly in Apple’s iconic “1984” and “Here’s to the Crazy Ones,” which were ad campaigns that spoke to me. For the country as a whole,

I learned not to believe government policymakers when they assure you that they won’t let a currency devaluation happen.

Naturally, with all this money printing the dollar plunged in value. That allowed for more easy credit, which led to even more spending. The inflationary surge that followed the breakdown of the currency system sent commodity prices even higher. In response, in 1973, the Fed tightened monetary policy, which is what central banks do when inflation and growth are too strong. This in turn caused the worst decline in stocks and the worst weakening of the economy since the Great

As the economy unraveled, the Watergate scandal dominated the headlines and I saw again how politics and economics intertwine, usually with economics leading.

In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money. I

Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are. 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. For example, if you come up with something the world values, you almost can’t help but be rewarded. Conversely, reality tends to penalize those people, species, and things that don’t work well and detract from evolution.17 In looking at what is true for everything, I have come to believe that: c. Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.

perfection doesn’t exist; it is a goal that fuels a never-ending process of adaptation. If nature, or anything, were perfect it wouldn’t be evolving. Organisms, organizations, and individual people are always highly imperfect but capable of improving. So rather than getting stuck hiding our mistakes and pretending we’re perfect, it makes sense to find our imperfections and deal with them. You will either learn valuable lessons from your mistakes and press on, better equipped to succeed—or you won’t and you will fail. As the saying goes: d. Evolve or die. This

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.

If you can be open with your weaknesses it will make you freer and will help you deal with them better.

evolutionary process of productive adaptation and ascent—the process of seeking, obtaining, and pursuing more and more ambitious goals—does not just pertain to how individuals and society move forward.

The quality of your life will depend on the choices you make at those painful moments. The faster one appropriately adapts, the better.

No matter what you want out of life, your ability to adapt and move quickly and efficiently through the process of personal evolution will determine your success and your happiness. If you do it well, you can change your psychological reaction to it so that what was painful can become something you crave.

for the most part even the worst circumstances can be made better with the right approach.

Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t.

ability to rise above your own and others’ circumstances and objectively look down on them “higher-level thinking.

I call the way you will operate to achieve your goals your machine.

While the right design is essential, it is only half the battle. It is equally important to put the right people in each of those positions.

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.

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.

Gemba?

You shouldn’t be upset if you find out that you’re bad at something—you should be happy that you found out, because knowing that and dealing with it will improve your chances of getting what you want.

Initial idea creation need a lot of extrs time to learn quant in a way that sticks

Would you want to have Einstein on your basketball team?

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.

BW???

When encountering your weaknesses you have four choices: 1. You can deny them (which is what most people do). 2. You can accept them and work at them in order to try to convert them into strengths (which might or might not work depending on your ability to change). 3. You can accept your weaknesses and find ways around them. 4. Or, you can change what you are going after.

The second—accepting your weaknesses while trying to turn them into strengths—is probably the best path if it works.

Weak educational background

The third path—accepting your weaknesses while trying to find ways around them—is the easiest and typically the most viable path, yet it is the one least followed.

The fourth path, changing what you are going after, is also a great path, though it requires flexibility on your part to get past your preconceptions and enjoy the good fit when you find it.

Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing. All successful people are good at this.

1. Don’t confuse what you wish were true with what is really true. 2. Don’t worry about looking good—worry instead about achieving your goals. 3. Don’t overweight first-order consequences relative to second- and third-order ones. 4. Don’t let pain stand in the way of progress. 5. Don’t blame bad outcomes on anyone but yourself.

Knowing when not to make your own decisions is one of the most important skills you can develop.