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.

Without principles we would be forced to react to all the things life throws at us individually, as if we were experiencing each of them for the first time. If instead we classify these situations into types and have good principles for dealing with them, we will make better decisions more quickly and have better lives as a result. Having a good set of principles is like having a good collection of recipes for success.

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

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.

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 . . .

when you enter into relationships with others, your principles and their principles will determine how you interact. People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflicts.

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.

To be a successful entrepreneur, the same is true: One also has to be an independent thinker who correctly bets against the consensus, which means being painfully wrong a fair amount.

Learning how to weigh people’s inputs so that I chose the best ones—in other words, so that I believability weighted my decision making—increased my chances of being right and was thrilling.

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.

Whether or not your own principles are systemized/computerized is of secondary importance. The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others.

Time is like a river that carries us forward into encounters with reality that require us to make decisions. We can’t stop our movement down this river and we can’t avoid those encounters. We can only approach them in the best possible way.

We are all born with different thinking abilities but we aren’t born with decision-making skills. We learn them from our encounters with reality.

Ask yourself what you want, seek out examples of other people who got what they wanted, and try to discern the cause-and-effect patterns behind their achievements so you can apply them to help you achieve your own goals.

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, however measured or far away.”

Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively.

There are always risks out there that can hurt you badly, even in the seemingly safest bets, so it’s always best to assume you’re missing something.

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.

Successful people change in ways that allow them to continue to take advantage of their strengths while compensating for their weaknesses and unsuccessful people don’t. Later in the book I will describe specific strategies for change, but the important thing to note here is that beneficial change begins when you can acknowledge and even embrace your weaknesses.

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

Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.

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.

governance is the system of checks and balances ensuring that an organization will be stronger than whoever happens to be leading it at any one time.

Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively.

Embrace Reality and Deal with It

Be a hyperrealist.

Dreams + Reality + Determination = A Successful Life.

What does a successful life look like? We all have our own deep-seated needs, so we each have to decide for ourselves what success is. I don’t care whether you want to be a master of the universe, a couch potato, or anything else—I really don’t. Some people want to change the world and others want to operate in simple harmony with it and savor life. Neither is better. Each of us needs to decide what we value most and choose the paths we take to achieve it.

Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome.

Be radically open-minded and radically transparent.

Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change.

The more open-minded you are, the less likely you are to deceive yourself—and the more likely it is that others will give you honest feedback.

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

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

Look to nature to learn how reality works.

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

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.

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

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

Adaptation through rapid trial and error is invaluable.

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

What you will be will depend on the perspective you have.

Understand nature’s practical lessons.

Maximize your evolution.

Remember “no pain, no gain.”

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.”

Go to the pain rather than avoid it.