Principles: Life and Work

by Ray Dalio

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 . . .

Being clear on your principles is important because they will affect all aspects of your life, many times a day.

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.

This way of learning and improving has been best for me because of what I’m like and because of what I do.

Since I was both an investor and an entrepreneur, I developed a healthy fear of being wrong and figured out an approach to decision making that would maximize my odds of being right.

Make believability-weighted decisions.

“I know I’m right” to having one of “How do I know I’m right?”

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.

The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others.

My roommate was dating a Cuban woman and he set me up on a blind date with one of her friends, an exotic woman from Spain named Barbara who could barely speak English. This wasn’t a problem, because we communicated in different ways. She thrilled me for nearly two years before we moved in together, got married, had four sons, and shared an amazing life together. She still thrills me but is too private a person for me to say more about her.

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.

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 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.

“He who lives by the crystal ball is destined to eat ground glass”

I 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.

By then, I was convinced that China was poised to become the greatest economy in the world in the twenty-first century, but hardly anyone was investing in China yet; good deals could still be struck.

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.

Matt’s difficult but life-changing journey profoundly affected his values and goals.

Because he fell in love with China (he says that he became part Chinese that year) and because he learned the value of empathy relative to the value of material wealth, he started a charity called China Care to help Chinese special-needs orphans when he was just sixteen.

Encounters like these have taught me that human greatness and terribleness are not correlated with wealth or other conventional measures of success.

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.

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.

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 t...

Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur.

The future success of the company is highly dependent on Ray’s ability to manage people as well as money. If he doesn’t manage people well, growth will be stunted and we will all be affected.