Principles: Life and Work

by Ray Dalio

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

While it isn’t necessarily a bad thing to use others’ principles, adopting principles without giving them much thought can expose you to the risk of acting in ways inconsistent with your goals and your nature.

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 . . .

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 make money in the markets, one needs to be an independent thinker who bets against the consensus and is right.

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.

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.

they gave me the meaningful work and meaningful relationships I value even more than my conventional successes.

we’ve coalesced our principles into an idea meritocracy that strives to deliver meaningful work and meaningful relationships through radical truth and radical transparency.

I gradually learned that prices reflect people’s expectations, so they go up when actual results are better than expected and they go down when they are worse than expected. And most people tend to be biased by their recent experiences.

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

Over the decades since, I’ve repeatedly seen policymakers deliver such assurances immediately before currency devaluations, so I learned not to believe government policymakers when they assure you that they won’t let a currency devaluation happen. The more strongly they make those assurances, the more desperate the situation probably is, so the more likely it is that a devaluation will take place.

“You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.”

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.

To me, 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.

Making money in the markets is tough. The brilliant trader and investor Bernard Baruch put it well when he said, “If you are ready to give up everything else and study the whole history and background of the market and all principal companies whose stocks are on the board as carefully as a medical student studies anatomy—if you can do all that and in addition you have the cool nerves of a gambler, the sixth sense of a clairvoyant and the courage of a lion, you have a ghost of a chance.”

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.

In other words, I just want to be right—I don’t care if the right answer comes from me. So I learned to be radically open-minded to allow others to point out what I might be missing.

I saw that the only way I could succeed would be to: 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.

What happens after we crash is most important. 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.

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.

Rather than argue about our conclusions, my partners and I would argue about our different decision-making criteria.

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.

Juggling work and family has been as much a challenge to me as to anyone else, especially since I wanted both to be great, so I combined them whenever I could. For example, I took my kids on business trips.

I 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.

all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck.

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.

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.

I got a lot out of my bad times, not just because they gave me mistakes to learn from but also because they helped me find out who my real friends were—the friends who would be with me through thick and thin.

At that time, and for quite a while longer, I tended to hire people just out of school who didn’t have much experience but were smart, determined, and committed to the mission of making the company great.

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.

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

If a mistake happened and you logged it, you were okay. If you didn’t log it, you would be in deep trouble.

While those people I had contact with understood me, liked me, and in some cases even loved me, those who had less contact with me were offended by my directness.

radical truth and radical transparency—that led to our unique results is counterintuitive and emotionally challenging for some.

I didn’t want the wealth I had created to protect my family to be wiped out after I was gone. That meant I had to create a mix of assets that could be good in all economic environments.

There were only two big forces to worry about: growth and inflation.

Going from a five-person organization to a sixty-person organization was just as challenging as going from a sixty-person organization to a seven-hundred-person organization—and from a seven-hundred-person organization to a 1,500-person one.

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.

Giselle argued strongly that we should not grow. She believed that introducing a lot of new people would threaten our culture, and that the time and attention that hiring, training, and managing them required would dilute our focus. While I agreed with her points, I didn’t like the alternative of not allowing ourselves to become all we could be.

I required that virtually all our meetings be recorded and made available to everyone, with extremely rare exceptions such as when we were discussing very private matters like personal health or proprietary information about a trade or decision rule.

I built a small team to edit the tapes, focusing on the most important moments, and over time we added questions to create “virtual reality” case studies that could be used for training.

I took the Myers-Briggs Type Indicator (MBTI) assessment for the first time and found its description of my preferences to be remarkably accurate.

people who were known not to be creative were being assigned tasks that required creativity; people who didn’t pay attention to details were being assigned to detail-oriented jobs,