Principles: Life and Work

by Ray Dalio

experience painful moments in a radically different way. Instead of feeling frustrated or overwhelmed, I saw pain as nature’s reminder that there is something important for me to learn. Encountering pains and figuring out the lessons they were trying to give me became sort of a game to me. The more I played it, the better I got at it, the less painful those situations became, and the more rewarding the process of reflecting, developing principles, and then getting rewards for using those principles became. I learned to love my struggles, which I suppose is a healthy perspective to have, like learning to love exercising (which I haven’t managed to do yet). In my early

In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well.

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.

My nature being what it is, I would not have changed my life, but I can’t tell you what is best for you. That is for you to choose. What I have seen is that the happiest people discover their own nature and match their life to it.

Learning how reality works, visualizing the things I want to create, and then building them out is incredibly exciting to me. Stretching for big goals puts me in the position of failing and needing to learn and come up with new inventions in order to move forward. I find it exhilarating being caught up in the feedback loop of rapid learning—just as a surfer loves riding a wave, even though it sometimes leads to crashes. Don’t get me wrong, I’m still scared of the crashes and I still find them painful. But I keep that pain in perspective, knowing that I will get through these setbacks and that most of my learning will come from reflecting on them.14

In other words, I have experienced the positive effects of radical transparency for so long that it’s now uncomfortable for me not to be that way.

I’m not talking about everyone’s very personal inner secrets; I’m talking about people’s opinions of each other and of how the world 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. For example, the male/female sexual reproduction process, using two eyes to provide depth perception, and many other systems are shared by many species in the animal kingdom. Similarly, our brains have some “animal” parts that are much older in evolutionary terms than humanity is. These laws that we have in common are the most overarching ones. They wouldn’t be apparent to us if we just looked at ourselves.

To try to figure out the universal laws of reality and principles for dealing with it, I’ve found it helpful to try to look at things from nature’s perspective. While mankind is very intelligent in relation to other species, we have the intelligence of moss growing on a rock compared to nature as a whole. We are incapable of designing and building a mosquito, let alone all the species and most of the other things in the universe. So I start from the premise that nature is smarter than I am and try to let nature teach me how reality works.

That perspective drove me to consider the second- and third-order consequences so that I could see that the world would be worse. 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.

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. Understanding that is especially helpful in an era when computers can run large numbers of simulations replicating the evolutionary process to help us see what works and what doesn’t.

Though most people think that they are striving to get the things (toys, bigger houses, money, status, etc.) that will make them happy, for most people those things don’t supply anywhere near the long-term satisfaction that getting better at something does.20 Once we get the things we are striving for, we rarely remain satisfied with them. The things are just the bait. Chasing after them forces us to evolve, and it is the evolution and not the rewards themselves that matters to us and to those around us. This means that for most people success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment, and then changing to improve.

Of course most people would prefer not to have weaknesses. Our upbringings and our experiences in the world have conditioned us to be embarrassed by our weaknesses and hide them. But people are happiest when they can be themselves. If you can be open with your weaknesses it will make you freer and will help you deal with them better. I urge you to not be embarrassed about your problems, recognizing that everyone has them. Bringing them to the surface will help you break your bad habits and develop good ones, and you will acquire real strengths and justifiable optimism.

g. Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence. I know that my own life has been full of mistakes and lots of great feedback. It was only by looking down on this body of evidence from a higher level that I was able to get around my mistakes and go after what I wanted. For as long as I have been practicing this, I still know I can’t see myself objectively, which is why I continue to rely so much on the input of others.

But most people lack the courage to confront their own weaknesses and make the hard choices that this process requires. Ultimately, it comes down to the following five decisions: 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.

It seems to me that the personal evolutionary process—the looping I described in the last chapter—takes place in five distinct steps. If you can do those five things well, you will almost certainly be successful. Here they are in a nutshell: 1. Have clear goals. 2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals. 3. Accurately diagnose the problems to get at their root causes. 4. Design plans that will get you around them. 5. Do what’s necessary to push these designs through to results.

You will need to do all five steps well to be successful and you must do them one at a time and in order. For example, when setting goals, just set goals. Don’t think about how you will achieve them or what you will do if something goes wrong. When you are diagnosing problems, don’t think about how you will solve them—just diagnose them. Blurring the steps leads to suboptimal outcomes because it interferes with uncovering the true problems. The process is iterative: Doing each step thoroughly will provide you with the information you need to move on to the next step and do it well.

a. Focus on the “what is” before deciding “what to do about it.” It is a common mistake to move in a nanosecond from identifying a tough problem to proposing a solution for it. Strategic thinking requires both diagnosis and design. A good diagnosis typically takes between fifteen minutes and an hour, depending on how well it’s done and how complex the issue is. It involves speaking with the relevant people and looking at the evidence together to determine the root causes. Like principles, root causes manifest themselves over and over again in seemingly different situations. Finding them and dealing with them pays dividends again and again.

c. Remember that there are typically many paths to achieving your goals. You only need to find one that works.

f. Recognize that it doesn’t take a lot of time to design a good plan. A plan can be sketched out and refined in just hours or spread out over days or weeks. But the process is essential because it determines what you will have to do to be effective. Too many people make the mistake of spending virtually no time on designing because they are preoccupied with execution. Remember: Designing precedes doing!

a. Great planners who don’t execute their plans go nowhere. You need to push through and that requires self-discipline to follow your script. It’s important to remember the connections between your tasks and the goals that they are meant to achieve. When you feel yourself losing sight of that, stop and ask yourself “why?” Lose sight of the why and you will surely lose sight of your goals. b. Good work habits are vastly underrated. People who push through successfully have to-do lists that are reasonably prioritized, and they make certain each item is ticked off in order.

There are many successful, creative people who aren’t good at execution. They succeed because they forge symbiotic relationships with highly reliable task-doers.

You can either fix it or you can get the help of others to deal with it well. There are two paths to success: 1) to have what you need yourself or 2) to get it from others. The second path requires you to have humility. Humility is as important, or even more important, as having the strengths yourself. Having both is best. On the following page is a template that some people find helpful.

3.1 Recognize your two barriers. The two biggest barriers to good decision making are your ego and your blind spots.

Once you understand how your a) logical/conscious you and b) emotional/subconscious you fight with each other, you can imagine what it’s like when your two yous deal with other people and their own two “thems.” It’s a mess. Those lower-level selves are like attack

Even the most intelligent people generally behave this way, and it’s tragic. To be effective you must not let your need to be right be more important than your need to find out what’s true. If you are too proud of what you know or of how good you are at something you will learn less, make inferior decisions, and fall short of your potential.

If you’re like most people, you have no clue how other people see things and aren’t good at seeking to understand what they are thinking, because you’re too preoccupied with telling them what you yourself think is correct. In other words, you are closed-minded; you presume too much. This closed-mindedness is terribly costly; it causes you to miss out on all sorts of wonderful possibilities and dangerous threats that other people might be showing you—and it blocks criticism that could be constructive and even lifesaving.

Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way. It requires you to replace your attachment to always being right with the joy of learning what’s true.

a. Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing” is more important than whatever it is you do know. Most people make bad decisions because they are so certain that they’re right that they don’t allow themselves to see the better alternatives that exist.

Don’t worry about looking good; worry about achieving your goal. People typically try to prove that they have the answer even when they don’t. Why do they behave in this unproductive way? It’s generally because they believe the senseless but common view that great people have all the answers and don’t have any weaknesses. Not only does this view not square with reality, it stands in the way of their progress. People interested in making the best possible decisions are rarely confident that they have the best answers. They recognize that they have weaknesses and blind spots, and they always seek to learn more so that they can get around them.

When two people believe opposite things, chances are that one of them is wrong. It pays to find out if that someone is you.

To do this well, approach the conversation in a way that conveys that you’re just trying to understand.26 Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, you are not arguing; you are openly exploring what’s true. Be reasonable and expect others to be reasonable. If you’re calm, collegial, and respectful you will do a lot better than if you are not. You’ll get better at this with practice.

To me, it’s pointless when people get angry with each other when they disagree because most disagreements aren’t threats as much as opportunities for learning. People who change their minds because they learned something are the winners, whereas those who stubbornly refuse to learn are the losers.

g. Do everything in your power to help others also be open-minded. Being calm and reasonable in how you present your view will help prevent the “flight-or-fight” animal/amygdala reaction in others. Be reasonable and expect others to be reasonable. Ask them to point to the evidence that supports their point of view. Remember, it is not an argument; it is an open exploration of what’s true.

Shapers get both the big picture and the details right. To me, it seems that Shaper = Visionary + Practical Thinker + Determined. I’ve found that shapers tend to share attributes such as intense curiosity and a compulsive need to make sense of things, independent thinking that verges on rebelliousness, a need to dream big and unconventionally, a practicality and determination to push through all obstacles to achieve their goals, and a knowledge of their own and others’ weaknesses and strengths so they can orchestrate teams to achieve them. Perhaps even more importantly, they can hold conflicting thoughts simultaneously and look at them from different angles. They typically love to knock things around with other really smart people and can easily navigate back and forth between the big picture and the granular details, counting both as equally important.

Comparing the new deputy’s Baseball Card to the original deputy’s, she excelled in independent and systematic thinking, which were essential for having a clear picture of what to do with Bob’s big ideas. This

5.8 Simplify! Get rid of irrelevant details so that the essential things and the relationships between them stand out. As the saying goes, “Any damn fool can make it complex. It takes a genius to make it simple.” Think of Picasso. He could paint beautiful representational paintings from an early age, but he continually pared down and simplified as his career progressed. Not everyone has a mind that works that way, but just because you can’t do something naturally doesn’t mean you can’t do it—you

A manager’s ability to recognize when outcomes are inconsistent with goals and then modify designs and assemble people to rectify them makes all the difference in the world. The more often and more effectively a manager does this, the steeper the upward trajectory.

If you had asked me what my objective was when I started out, I would’ve said it was to have fun working with people I like. Work was a game I played with passion and I wanted to have a blast playing it with people I enjoyed and respected. I started Bridgewater out of my apartment with a pal I played rugby with who had no experience in the markets and a friend we hired as our assistant. I certainly wasn’t thinking about management at the time. Management seemed to me like something people in gray suits with slide presentations did. I never set out to manage, let alone to have principles about work and management.

If you’re like most people, the idea of facing the unvarnished truth makes you anxious. To get over that, you need to understand intellectually why untruths are scarier than truths and then, through practice, get accustomed to living with them. If you’re

It’s also fairer to those around you: Making judgments about people so that they are tried and sentenced in your head, without asking for their perspective, is both unethical and unproductive. Having nothing to hide relieves stress and builds trust.

Share the things that are hardest to share. While it might be tempting to limit transparency to the things that can’t hurt you, it is especially important to share the things that are most difficult to share, because if you don’t share them you will lose the trust and partnership of the people you are not sharing with. So, when faced with the decision to share the hardest things, the question should not be whether to share but how. The following principles will help you do this well. c. Keep exceptions to radical transparency very rare. While I would like virtually total transparency and wish that everyone would handle the information they have access to responsibly to work out what’s true and what to do about it, I realize that’s an ideal to be approached but never fully achieved. There are exceptions to every rule, and in very rare cases, it is better not to be radically transparent. In those unusual cases, you will need to figure out a way that preserves the culture of radical transparency without exposing you and those you care about to undue risks.

I’ve made a lot of money through my work, but I see my job as much more than as a way to make money—it’s how I choose to live out my values around excellence, meaningful work, and meaningful relationships. If the people I worked with were primarily interested in making money, we would have conflicts whenever we had to choose between upholding our values and making an easy buck. Don’t get me wrong—of course I understand that people don’t work for personal satisfaction alone, and that a job must be economically viable. But we all have definite ideas about what we value and what we want our relationships to be like, and employers and employees have to be in sync on such things.

Of course, in managing others who make mistakes, it is important to know the difference between 1) capable people who made mistakes and are self-reflective and open to learning from them, and 2) incapable people, or capable people who aren’t able to embrace their mistakes and learn from them. Over time I’ve found that hiring self-reflective people like Ross is one of the most important things I can do. Finding this kind of person isn’t easy. I’ve often thought that parents and schools overemphasize the value of having the right answers all the time. It seems to me that the best students in school tend to be the worst at learning from their mistakes, because they have been conditioned to associate mistakes with failure instead of opportunity. This is a major impediment to their progress. Intelligent people who embrace their mistakes and weaknesses substantially outperform their peers who have the same abilities but bigger ego barriers.

3.1 Recognize that mistakes are a natural part of the evolutionary process. If you don’t mind being wrong on the way to being right you’ll learn a lot—and increase your effectiveness. But if you can’t tolerate being wrong, you won’t grow, you’ll make yourself and everyone around you miserable, and your work environment will be marked by petty backbiting and malevolent barbs rather than by a healthy, honest search for truth.

b. Don’t feel bad about your mistakes or those of others. Love them! People typically feel bad about their mistakes because they think in a shortsighted way about the bad outcome and not about the evolutionary process of which mistakes are an integral part. I once had a ski instructor who had also given lessons to Michael Jordan, the greatest basketball player of all time. Jordan, he told me, reveled in his mistakes, seeing each of them as an opportunity to improve. He understood that mistakes are like those little puzzles that, when you solve them, give you a gem. Every mistake that you make and learn from will save you from thousands of similar mistakes in the future.

3.2 Don’t worry about looking good—worry about achieving your goals. Put your insecurities away and get on with achieving your goals. Reflect and remind yourself that an accurate criticism is the most valuable feedback you can receive. Imagine how silly and unproductive it would be to respond to your ski instructor as if he were blaming you when he told you that you fell because you didn’t shift your weight properly. It’s no different if a supervisor points out a flaw in your work process. Fix it and move on.

3.3 Observe the patterns of mistakes to see if they are products of weaknesses. Everyone has weaknesses and they are generally revealed in the patterns of mistakes they make. The fastest path to success starts with knowing what your weaknesses are and staring hard at them. Start by writing down your mistakes and connecting the dots between them. Then write down your “one big challenge,” the weakness that stands the most in the way of your getting what you want. Everyone has at least one big challenge. You may in fact have several, but don’t go beyond your “big three.” The first step to tackling these impediments is getting them out into the open.

a. Be self-reflective and make sure your people are self-reflective. When there is pain, the animal instinct is flight-or-fight. Calm yourself down and reflect instead. The pain you are feeling is due to things being in conflict—maybe you’ve come up against a terrible reality, such as the death of a friend, and are unable to accept it; maybe you’ve been forced to acknowledge a weakness that challenges the idea you’d had of yourself. If you can think clearly about what’s behind it, you will learn more about what reality is like and how to better deal with it. Self-reflectiveness is the quality that most differentiates those who evolve quickly from those who don’t. Remember: Pain + Reflection = Progress.

Thoughtful disagreement—the process of having a quality back-and-forth in an open-minded and assertive way so as to see things through each other’s eyes—is powerful, because it helps both parties see things they’ve been blind to. But it’s not easy. While it is straightforward to have a meritocracy in activities in which there is clarity of relative abilities (because the results speak for themselves such as in sports, where the fastest runner wins the race), it is much harder in a creative environment (where different points of view about what’s best have to be resolved). If they’re not, the process of sorting through disagreements and knowing who has the authority to decide quickly becomes chaotic. Sometimes people get angry or stuck; a conversation can easily wind up with two or more people spinning unproductively and unable to reach agreement on what to do.