Principles: Life and Work

by Ray Dalio

It’s now clear to me that my purpose, your purpose, and the purpose of everything else is to evolve and to contribute to evolution in some small way.

There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to this process makes all the difference.

All sorts of emotions come to me while I am playing and those emotions can either help me or hurt me. If I can reconcile my emotions with my logic and only act when they are aligned, I make better decisions.

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.

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.

Understanding, accepting, and working with reality is both practical and beautiful. I have become so much of a hyperrealist that I’ve learned to appreciate the beauty of all realities, even harsh ones, and have come to despise impractical idealism.

people who create great things aren’t idle dreamers: They are totally grounded in reality. Being hyperrealistic will help you choose your dreams wisely and then achieve them.

Dreams + Reality + Determination = A Successful Life. People who achieve success and drive progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want. The converse is also true: Idealists who are not well grounded in reality create problems, not progress.

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.

Over time I learned that getting more out of life wasn’t just a matter of working harder at it. It was much more a matter of working effectively, because working effectively could increase my capacity by hundreds of times.

Most people fight seeing what’s true when it’s not what they want it to be. That’s bad, because it is more important to understand and deal with the bad stuff since the good stuff will take care of itself.

None of us is born knowing what is true; we either have to discover what’s true for ourselves or believe and follow others. The key is to know which path will yield better results.

Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Learning is the product of a continuous real-time feedback loop in which we make decisions, see their outcomes, and improve our understanding of reality as a result. Being radically open-minded enhances the efficiency of those feedback loops, because it makes what you are doing, and why, so clear to yourself and others that there can’t be any misunderstandings. 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. If they are “believable” people (and it’s very important to know who is “believable”16), you will learn a lot from them.

It can also be difficult because being radically transparent rather than more guarded exposes one to criticism. It’s natural to fear that. Yet if you don’t put yourself out there with your radical transparency, you won’t learn.

Don’t let fears of what others think of you stand in your way. You must be willing to do things in the unique ways you think are best—and to open-mindedly reflect on the feedback that comes inevitably as a result of being that way.

Learning to be radically transparent is like learning to speak in public: While it’s initially awkward, the more you do it, the m...

Besides giving me the freedom to be me, it has allowed me to understand others and for them to understand me, which is much more efficient and much more enjoyable than not having this understanding.

Imagine how many fewer misunderstandings we would have and how much more efficient the world would be—and how much closer we all would be to knowing what’s true—if instead of hiding what they think, people shared it openly.

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

All the laws of reality were given to us by nature. Man didn’t create these laws, but by understanding them we can use them to foster our own evolution and achieve our goals.

our ability to fly or to send cell phone signals around the world came from understanding and applying the existing rules of reality—the physical laws or principles that govern the natural world.

First of all, I see how cool it is that the brain’s evolution gave us the ability to reflect on how reality works in this way. Man’s most distinctive quality is our singular ability to look down on reality from a higher perspective and synthesize an understanding of it. While other species operate by following their instincts, man alone can go above himself and look at himself within his circumstances and within time (including before and after his existence).

While our higher-level thinking makes us unique among species, it can also make us uniquely confused. Other species have much simpler and more straightforward lives, without any of man’s wrestling with what’s good and what’s bad. In contrast with animals, most people struggle to reconcile their emotions and their instincts (which come from the animal parts of their brains) with their reasoning (which comes from parts of the brain more developed in humans). This struggle causes people to confuse what they want to be true with what actually is true.

By looking at nature from the top down, we can see that much of what we call human nature is really animal nature.

Yet most people are like ants focused only on themselves and their own anthill; they believe the universe revolves around people and don’t pay attention to the universal laws that are true for all species.

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.

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.

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.

Most people call something bad if it is bad for them or bad for those they empathize with, ignoring the greater good. This tendency extends to groups: One religion will consider its beliefs good and another religion’s beliefs bad to such an extent that their members might kill each other in the mutual conviction that each is doing what’s right. Typically, people’s conflicting beliefs or conflicting interests make them unable to see things through another’s eyes. That’s not good and it doesn’t make sense. While I could understand people liking something that helps them and disliking things that hurt them, it doesn’t make sense to call something good or bad in an absolute sense based only on how it affects individuals.

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 consists of adaptations/inventions that provide spurts of benefits that decline in value. That painful decline leads either to new adaptations and new inventions that bring new products, organizations, and human capabilities to new and higher levels of development (as shown in the top diagram on the facing page); or decline and death, which looks like the diagram at bottom left.

The world is littered with once-great things that deteriorated and failed; only a rare few have kept reinventing themselves to go on to new heights of greatness.

From this perspective, we can see that 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.

an economy turns bad enough, those responsible for running it will make the political and policy changes that are needed—or they will not survive, making room for their replacements to come along. These cycles are continuous and play out in logical ways—and they tend to be self-reinforcing.

The key is to fail, learn, and improve quickly. If you’re constantly learning and improving, your evolutionary process will look like the one that’s ascending.

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

evolution has produced a) incentives and interactions that lead to individuals pursuing their own interests and resulting in the advancement of the whole, b) the natural selection process, and c) rapid experimentation and adaptation.

Reality is optimizing for the whole—not for you. Contribute to the whole and you will likely be rewarded.

Adaptation through rapid trial and error is invaluable.

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.

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

In other words, we are unbelievably tiny and short-lived and no matter what we accomplish, our impact will be insignificant. At the same time, we instinctually want to matter and to evolve, and we can matter a tiny bit—and it’s all those tiny bits that add up to drive the evolution of the universe.

What you will be will depend on the perspective you have. Where you go in life will depend on how you see things and who and what you feel connected to (your family, your community, your country, mankind, the whole ecosystem, everything). You will have to decide to what extent you will put the interests of others above your own, and which others you will choose to do so for. That’s because you will regularly encounter situations that will force you to make such choices.

For me personally, I now find it thrilling to embrace reality, to look down on myself through nature’s perspective, and to be an infinitesimally small part of the whole. My instinctual and intellectual goal is simply to evolve and contribute to evolution in some tiny way while I’m here and while I am what I am. At

When I began to look at reality through the perspective of figuring out how it really works, instead of thinking things should be different, I realized that most everything that at first seemed “bad” to me—like rainy days, weaknesses, and even death—was because I held preconceived notions of what I personally wanted. With time, I learned that my initial reaction was because I hadn’t put whatever I was reacting to in the context of the fact that reality is built to optimize for the whole rather than for me.

This constant drive toward learning and improvement makes getting better innately enjoyable and getting better fast exhilarating.

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.

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.”

There is no avoiding pain, especially if you’re going after ambitious goals. Believe it or not, you are lucky to feel that kind of pain if you approach it correctly, because it is a signal that you need to find solutions so you can progress.

There are a whole host of ways that something will get you. At such times, you will be in pain and might think that you don’t have the strength to go on. You almost always do, however; your ultimate success will depend on you realizing that fact, even though it might not seem that way at the moment.