Principles: Life and Work

by Ray Dalio

Before I begin telling you what I think, I want to establish that I’m a “dumb shit” who doesn’t know much relative to what I need to know. Whatever success I’ve had in life has had more to do with my knowing how to deal with my not knowing than anything I know. The most important thing I learned is an approach to life based on principles that helps me find out what’s true and what to do about it.

Because we each have our own goals and our own natures, each of us must choose our own principles to match them. While it isn’t necessarily a bad thing to use others’ principles, adopting principles without giving them much thought can expose you to the risk of acting in ways inconsistent with your goals and your nature. At the same time, you, like me, probably don’t know everything you need to know and would be wise to embrace that fact. If you can think for yourself while being open-minded in a clearheaded way to find out what is best for you to do, and if you can summon up the courage to do it, you will make the most of your life. If you can’t do that, you should reflect on why that is, because that’s most likely your greatest impediment to getting more of what you want out of life.

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 . . . . . . and do that with humility and open-mindedness so that you consider the best thinking available to you.

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.

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.

Over the decades since, I’ve repeatedly seen policymakers deliver such assurances immediately before currency devaluations, so I learned not to believe government policymakers when they assure you that they won’t let a currency devaluation happen. The more strongly they make those assurances, the more desperate the situation probably is, so the more likely it is that a devaluation will take place.

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 of money and credit) and market reversals.

Much as I loved the job and the people I worked with, I didn’t fit into the Shearson organization. I was too wild. For example, as a joke that now seems pretty stupid, I hired a stripper to drop her cloak while I was lecturing at a whiteboard at the California Grain & Feed Association’s annual convention. I also punched my boss in the face. Not surprisingly, I was fired.

Pursuing a mission with friends to help clients beat the markets was much more fun than having a real job. As long as my basic living expenses were covered, I knew I’d be happy.

Visualizing complex systems as machines, figuring out the cause-effect relationships within them, writing down the principles for dealing with them, and feeding them into a computer so the computer could “make decisions” for me all became standard practices.

While making money was good, having meaningful work and meaningful relationships was far better. To me, meaningful work is being on a mission I become engrossed in, and meaningful relationships are those I have with people I care deeply about and who care deeply about me.

really want, it pays to think of their relative values so you weigh them properly. In my case, I wanted meaningful work and meaningful relationships equally, and I valued money less—as long as I had enough to take care of my basic needs. In thinking about the relative importance of great relationships and money, it was clear that relationships were more important because there is no amount of money I would take in exchange for a meaningful relationship, because there is nothing I could buy with that money that would be more valuable. 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.

overall. My ability to visualize these complex machines gave us a competitive edge against those who were shooting from the hip, and eventually changed the way these industries operated. And, as always, it was a kick to be working with people I liked. On March 26, 1978, my wife gave

Imagine that in order to have a great life you have to cross a dangerous jungle. You can stay safe where you are and have an ordinary life, or you can risk crossing the jungle to have a terrific life. How would you approach that choice? Take a moment to think about it because it is the sort of choice that, in one form or another, we all have to make.

Even after my crash, I knew I had to go after the terrific life with all its risks, so the question was how to “cross the dangerous jungle” without getting killed. In retrospect, my crash was one of the best things that ever happened to me because it gave me the humility I needed to balance my aggressiveness. 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. By engaging them in thoughtful disagreement, I’d be able to understand their reasoning and have them stress-test mine. That way, we can all raise our probability of being right. In other words, I just want to be right—I don’t care if the right answer comes from me. So I learned to be radically open-minded to allow others to point out what I might be missing. I saw that the only way I could succeed would be to: 1. 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.

My final lesson was perhaps the most important one, because it has applied again and again throughout my life. At first, it seemed to me that I faced an all-or-nothing choice: I could either take on a lot of risk in pursuit of high returns (and occasionally find myself ruined) or I could lower my risk and settle for lower returns. But I needed to have both low risk and high returns, and by setting out on a mission to discover how I could, I learned to go slowly when faced with the choice between two things that you need that are seemingly at odds. That way you can figure out how to have as much of both as possible. There is almost always a good path that you just haven’t discovered yet, so look for it until you find it rather than settle for the choice that is then apparent to you.

Rather than argue about our conclusions, my partners and I would argue about our different decision-making criteria. Then we resolved our disagreements by testing the criteria objectively.

If I didn’t have these systems, I’d probably be broke or dead from the stress of trying so hard.

believe one of the most valuable things you can do to improve your decision making is to think through your principles for making decisions, write them out in both words and computer algorithms, back-test them if possible, and use them on a real-time basis to run in parallel with your brain’s decision making.

Approaching the market in this way taught me that one of the keys to being a successful investor is to only take bets you are highly confident in and to diversify them well.

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

I love getting to know interesting people from interesting places and seeing the world through their eyes. This is true whether they are rich or poor. Seeing life through the eyes of the indigenous people I got to know in Papua New Guinea was as illuminating for me as gaining the perspectives of the political and economic leaders, world-changing entrepreneurs, and cutting-edge scientists I’ve spent time with. I’ll never forget the blind holy man I met in a mosque in Syria, who explained the Quran and his connection to God to me. Encounters like these have taught me that human greatness and terribleness are not correlated with wealth or other conventional measures of success. I’ve also learned that judging people before really seeing things through their eyes stands in the way of understanding their circumstances—and that isn’t smart. I urge you to be curious enough to want to understand how the people who see things differently from you came to see them that way. You will find that interesting and invaluable, and the richer perspective you gain will help you decide what you should do.

Soon, Bridgewater began to look like a real company. We outgrew the barn and moved into a small office in a strip mall; there were twenty of us by the end of the 1980s. But even as we grew, I never thought of anybody I worked with as an employee. I had always wanted to have—and to be around people who also wanted to have—a life full of meaningful work and meaningful relationships, and to me a meaningful relationship is one that’s open and honest in a way that lets people be straight with each other. I never valued more traditional, antiseptic relationships where people put on a façade of politeness and don’t say what they really think. 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. I wanted to surround myself with people who needed what I needed, which was to make sense of things for myself. I spoke frankly, and I expected those around me to speak frankly. I fought for what I thought was best, and I wanted them to do so as well. When I thought someone did something stupid, I said so and I expected them to tell me when I did something stupid. Each of us would be better for it. To me, that was what strong and productive relationships looked like. Operating any other way would be unproductive and unethical.

I didn’t value experience as much as character, creativity, and common sense, which I suppose was related to my having started Bridgewater two years out of school myself, and my belief that having an ability to figure things out is more important than having specific knowledge of how to do something. It seemed to me, young people were creating sensible innovation that was exciting. Older folks who did things in the old ways held no appeal. I should add, though, that putting responsibility in the hands of inexperienced people doesn’t always work out so well. Some painful lessons that you’ll read about later taught me that it can be a mistake to undervalue experience.

It was a terrible and costly error, and I could’ve done something dramatic like fire Ross to set a tone that mistakes would not be tolerated. But since mistakes happen all the time, that would have only encouraged other people to hide theirs, which would have led to even bigger and more costly errors. I believed strongly that we should bring problems and disagreements to the surface to learn what should be done to make things better. So Ross and I worked to build out an “error log” in the trading department. From then on, anytime there was any kind of bad outcome (a trade wasn’t executed, we paid significantly higher transaction costs than expected, etc.), the traders would make a record of it and we would follow up. As we consistently tracked and addressed those issues, our trade execution machine continually improved. Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur.

This looked to me like another one of those fork-in-the-road cases in which I had to choose between one of two seemingly essential but mutually exclusive options: 1) being radically truthful with each other including probing to bring our problems and weaknesses to the surface so we could deal with them forthrightly and 2) having happy and satisfied employees. And it reminded me that when faced with the choice between two things you need that are seemingly at odds, go slowly to figure out how you can have as much of both as possible. There is almost always a good path that you just haven’t figured out yet, so look for it until you find it rather than settle for the choice that is then apparent to you.

They knew that I wanted the best for them and Bridgewater, and to get that I needed to be radically truthful with them and I needed them to be radically truthful with me. This wasn’t only because it produced better results, but also because being truthful with each other was fundamental to how I believed we should be with each other. We agreed that being this way was essential, but since it was making some people feel bad, something had to change. While those people I had contact with understood me, liked me, and in some cases even loved me, those who had less contact with me were offended by my directness. It was clear that I needed to be better understood and to understand others better. I realized then how essential it is that people in relationships must be crystal clear about their principles for dealing with each other.

I knew what drove asset returns, but I also knew that no matter what asset class one held, there would come a time when it would lose most of its value. This included cash, which is the worst investment over time because it loses value after adjusting for inflation and taxes. I also knew how difficult it was to anticipate the swings that cause those losses. I’ve devoted my life to it and I’ve made my share of bad calls; anticipating these swings wasn’t something I’d bet on others doing well when I wasn’t around. Finding investors who have done well in all economic environments—when inflation rises and when it falls, when there are booms and when there are busts—is like finding needles in a haystack, and they don’t live forever so that’s not a viable path. I didn’t want the wealth I had created to protect my family to be wiped out after I was gone. That meant I had to create a mix of assets that could be good in all economic environments.

I knew which shifts in the economic environment caused asset classes to move around, and I knew that those relationships had remained essentially the same for hundreds of years. There were only two big forces to worry about: growth and inflation. Each could either be rising or falling, so I saw that by finding four different investment strategies—each one of which would do well in a particular environment (rising growth with rising inflation, rising growth with falling inflation, and so on)—I could construct an asset-allocation mix that was balanced to do well over time while being protected against unacceptable losses. Since that strategy would never change, practically anyone could implement it. And so, with help from Bob and Dan, I created a portfolio mix that I could comfortably put my trust money in for the next hundred or more years. I called it the “All Weather Portfolio” because it could perform well in all environments.

For example, when I had no one to manage, I had the challenge of having to do almost everything myself. When I learned and earned enough to pay others, I had the challenge of managing them. Similarly, the challenges of wrestling with market and economic swings were constantly changing. I didn’t think about it then, but it’s obvious to me now that while one gets better at things over time, it doesn’t become any easier if one is also progressing to higher levels—the Olympic athlete finds his sport to be every bit as challenging as the novice does.

I conducted a time-and-motion study of all of my investment and management responsibilities; it showed it would take me about 165 hours a week to achieve the level of excellence that I would be satisfied with in overseeing both our investments and management. That was obviously impossible. Since I wanted to delegate as much as possible, I asked whether the things I was doing could be done excellently by others, and if so, who those others were. Everyone agreed that most of those areas couldn’t adequately be delegated. I clearly hadn’t done a good enough job of finding and training others to whom I could delegate my responsibilities. To me, the greatest success you can have as the person in charge is to orchestrate others to do things well without you. A step below that is doing things well yourself, and worst of all is doing things poorly yourself. As I reflected on my position, I could

As a result, I tended to hire people who were the same way—who would dive right into challenges, figure out what to do about them, and then do it. I figured that if they had great character, common sense, and creativity, and were driven to achieve our shared mission, they would discover what it took to be successful if I gave them the freedom to figure out how to make the right decisions.

A shaper is someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts and opposition of others.

Isaacson’s book and the article pointed to other parallels in our backgrounds, goals, and approaches to shaping—for example, we were both rebellious, independent thinkers who worked relentlessly for innovation and excellence; we were both meditators who wanted to “put a dent in the universe”; and we were both notoriously tough on people. Of course, there were important differences too. I wished Jobs had shared the principles he had used to achieve his goals.

Jobs and other shapers with Isaacson, at first in a private conversation in his office, and later at a public forum at Bridgewater. Since Isaacson had also written biographies of Albert Einstein and Ben Franklin—two other great shapers—I read them and probed him about them to try to glean what characteristics they had in common. Then

It turns out they have a lot in common. They are all independent thinkers who do not let anything or anyone stand in the way of achieving their audacious goals. They have very strong mental maps of how things should be done, and at the same time a willingness to test those mental maps in the world of reality and change the ways they do things to make them work better. They are extremely resilient, because their need to achieve what they envision is stronger than the pain they experience as they struggle to achieve it. Perhaps most interesting, they have a wider range of vision than most people, either because they have that vision themselves or because they know how to get it from others who can see what they can’t. All are able to see both big pictures and granular details (and levels in between) and synthesize the perspectives they gain at those different levels, whereas most people see just one or the other. They are simultaneously creative, systematic, and practical. They are assertive and open-minded at the same time. Above all, they are passionate about what they are doing, intolerant of people who work for them who aren’t excellent at what they do, and want to have a big, beneficial impact on the world.

When I asked him about his background in rocketry, he told me he didn’t have one. “I just started reading books,” he said. 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.

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 goal or pleasing (or not disappointing) others, they would choose achieving their goal every time.

This exercise reminded me that there are far fewer types of people in the world than there are people and far fewer different types of situations than there are situations, so matching the right types of people to the right types of situations is key.

All these tools reinforce good habits and good thinking. The good habits come from thinking repeatedly in a principled way, like learning to speak a language. The good thinking comes from exploring the reasoning behind the principles.

video, How the Economic Machine Works, which I released in 2013. Besides explaining how the economy

Campbell’s great book The Hero with a Thousand Faces, because he is a classic hero and I thought it might help him. I also gave him The Lessons of History, a 104-page distillation of the major forces through history by Will and Ariel Durant, and River Out of Eden by the insightful Richard Dawkins, which explains how evolution works. He gave me Georgi Plekhanov’s classic On the Role of the Individual in History. All these books showed how the same things happened over and over again throughout history.

For Campbell, a “hero” isn’t a perfect person who always gets things right. Far from it. A hero is someone who “found or achieved or [did] something beyond the normal range of achievement,” and who “has given his life to something bigger than himself or other than himself.” I had met a number of such people throughout my life. What was most interesting about Campbell’s work was his description of how they got that way. Heroes don’t begin as heroes; they just become them because of the way one thing leads to another. The diagram on the following page shows the archetypal hero’s journey.

They typically start out leading ordinary lives in an ordinary world and are drawn by a “call to adventure.” This leads them down a “road of trials” filled with battles, temptations, successes, and failures. Along the way, they are helped by others, often by those who are further along the journey and serve as mentors, though those who are less far along also help in various ways. They also gain allies and enemies and learn how to fight, often against convention. Along the way, they encounter temptations and have clashes and reconciliations with their fathers and their sons. They overcome their fear of fighting because of their great determination to achieve what they want, and they gain their “special powers” (i.e., skills) from both “battles” that test and teach them, and from gifts (such as advice) that they receive from others. Over time, they both succeed and fail, but they increasingly succeed more than they fail as they grow stronger and keep striving for more, which leads to ever-bigger and more challenging battles.

Heroes inevitably experience at least one very big failure (which Campbell calls an “abyss” or the “belly of the whale” experience) that tests whether they have the resilience to come back and fight smarter and with more determination. If they do, they undergo a change (have a “metamorphosis”) in which they experience the fear that protects them, without losing the aggressiveness that propels them forward. With triumphs come rewards. Though they don’t realize it when they are in their battles, the hero’s biggest rewa...

As the saying goes, “You can’t take it with you.” My need to start thinking about who should get what wasn’t just because of my age and the time it would take to do it well; it was also instinctive. Over time, the circle of people and things I cared about had broadened from just me when I was young, to me and my family when I became a parent, to my community when I was a bit more mature, to people beyond my community and the whole environment now.

eyes—how some things had changed over the years while others had stayed the same, most importantly, our culture of striving for excellence in work and excellence in relationships by being radically truthful and radically transparent with each other. They recounted how we uniquely and repeatedly tried new things, failed, learned from our failures, improved, and tried again, doing that over and over in an upward spiral.

As I look back on my experiences, it’s interesting to reflect on how my perspectives have changed. When I started out, each and every twist and turn I encountered, whether in the markets or in my life in general, looked really big and dramatic up close, like unique life-or-death experiences that were coming at me fast. With time and experience, I came to see each encounter as “another one of those” that I could approach more calmly and analytically, like a biologist might approach an encounter with a threatening creature in the jungle: first identifying its species and then, drawing on his prior knowledge about its expected behaviors, reacting appropriately.