Principles: Life and Work

by Ray Dalio

As we move toward these goals, we encounter problems, make mistakes, and run up against our own personal weaknesses. We learn about ourselves and about reality and make new decisions. Over the course of our lives, we make millions and millions of decisions that are essentially bets, some large and some small. It pays to think about how we make them because they are what ultimately determine the quality of our lives.

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.

Maharishi Mahesh Yogi, I was curious to learn it, so I did. I loved it. Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively.

It enhanced my fear of being wrong and taught me to make sure that no single bet, or even multiple bets, could cause me to lose more than an acceptable amount.

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 believe that anyone who has made money in trading has had to experience horrendous pain at some point.

The most painful lesson that was repeatedly hammered home is that you can never be sure of anything: 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.

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.

Think about it: It’s senseless to have making money as your goal as money has no intrinsic value—its value comes from what it can buy, and it can’t buy everything. It’s smarter to start with what you really want, which are your real goals, and then work back to what you need to attain them. Money will be one of the things you need, but it’s not the only one and certainly not the most important one once you get past having the amount you need to get what you really want.

When thinking about the things you really want, it pays to think of their relative values ...

But at least, by being out, I didn’t lose money. There are anxious times in every investor’s career when your expectations of what should be happening aren’t aligned with what is happening and you don’t know if you’re looking at great opportunities or catastrophic mistakes.

Colman and I worked by challenging each other’s ideas and trying to find the best answers; it was a constant back-and-forth, which we both enjoyed, especially at a time when there was so much to figure out.

But my experience with silver and other trades had taught me that I had a chronic problem with timing, so I believed I was just early and what I was expecting would happen soon.

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

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.

I saw that to do exceptionally well you have to push your limits and that, if you push your limits, you will crash and it will hurt a lot. You will think you have failed—but that won’t be true unless you give up. Believe it or not, your pain will fade and you will have many other opportunities ahead of you, though you might not see them at the time. The most important thing you can do is to gather the lessons these failures provide and gain humility and radical open-mindedness in order to increase your chances of success. Then you press on.

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.

I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.

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.

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.

Because most people are more emotional than logical, they tend to overreact to short-term results; they give up and sell low when times are bad and buy too high when times are good. I find this is just as true for relationships as it is for investments—wise people stick with sound fundamentals through the ups and downs, while flighty people react emotionally to how things feel, jumping into things when they’re hot and abandoning them when they’re not.

I have come to realize that bad times coupled with good reflections provide some of the best lessons, and not just about business but also about relationships. One has many more supposed friends when one is up than when one is down, because most people like to be with winners and shun losers. True friends are the opposite.

having an ability to figure things out is more important than having specific knowledge of how to do something.

Having a few good uncorrelated return streams is better than having just one, and knowing how to combine return streams is even more effective than being able to choose good ones (though of course you have to do both).

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.

Of course we continued to make mistakes, though they were all within our range of expectations. What was great is that we made the most of our mistakes because we got in the habit of viewing them as opportunities to learn and improve.

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.

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.

Without transparency, people would spin whatever happened to suit their own interests, sometimes behind closed doors. Problems would be hidden instead of brought to the surface where they could be resolved. To have a real idea meritocracy, there must be transparency so that people can see things for themselves.

recognized that managers who do not understand people’s different thinking styles cannot understand how the people working for them will handle different situations, which is like a foreman not understanding how his equipment will behave.

creative genius and insanity can be quite close to each other, that the same chemistry that creates insights can cause distortions, and that being stuck in one’s own head is terribly dangerous.

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 much as I love and have benefited from artificial intelligence, I believe that only people can discover such things and then program computers to do them. That’s why I believe that the right people, working with each other and with computers, are the key to success.

Since I was a kid, I’ve learned by doing. I’d just dive in after things I wanted and try to survive long enough to learn from my mistakes and improve. If I changed fast enough to become sustainable at whatever I was doing, then I would build on that to flourish. I’ve always had great faith in my ability to figure things out, and over time my need to figure things out made me better at doing so. 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 began to recognize the emotional barriers most people had to looking at their problems and weaknesses forthrightly. Rather than embracing ambiguous situations and difficult challenges, they tended to get uncomfortable when facing them.

But while almost all of us quickly agreed on the principles intellectually, many still struggled to convert what they had agreed to intellectually into effective action. This was because their habits and emotional barriers remained stronger than their reasoning.

It seems to me that life consists of three phases. In the first, we are dependent on others and we learn. In the second, others depend on us and we work. And in the third and last, when others no longer depend on us and we no longer have to work, we are free to savor life.

I do things through trial and error—making mistakes, figuring out what I did wrong, coming up with new principles, and finally succeeding—and I didn’t see why my transition should be any different.

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 ...

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.

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.

Only true shapers consistently move from one success to another and sustain success over decades,

In gaining this perspective, I began to 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 years, I looked up to extraordinarily successful people, thinking that they were successful because they were extraordinary. After I got to know such people personally, I realized that all of them—like me, like everyone—make mistakes, struggle with their weaknesses, and don’t feel that they are particularly special or great. They are no happier than the rest of us, and they struggle just as much or more than average folks. Even after they surpass their wildest dreams, they still experience more struggle than glory.

In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well. To understand what I mean, imagine your greatest goal, whatever it is—making a ton of money, winning an Academy Award, running a great organization, being great at a sport. Now imagine instantaneously achieving it. You’d be happy at first, but not for long. You would soon find yourself needing something else to struggle for. Just look at people who attain their dreams early—the child star, the lottery winner, the professional athlete who peaks early. They typically don’t end up happy unless they get excited about something else bigger and better to struggle for. Since life brings both ups and downs, struggling well doesn’t just make your ups better; it makes your downs less bad. I’m still struggling and I will until I die, because even if I try to avoid the struggles, they will find me.

The marginal benefits of having more fall off pretty quickly. In fact, having a lot more is worse than having a moderate amount more because it comes with heavy burdens. Being on top gives you a wider range of options, but it also requires more of you. Being well-known is probably worse than being anonymous, all things considered. And while the beneficial impact one can have on others is great, when you put it in perspective, it is still infinitesimally small.

What I have seen is that the happiest people discover their own nature and match their life to it.