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.

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

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

The message that reality was conveying to me was “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.”

I gave Wang a copy of Joseph Campbell’s great book The Hero with a Thousand Faces, because he is a classic hero and I thought it might help him. I also gave him The Lessons of History, a 104-page distillation of the major forces through history by Will and Ariel Durant, and River Out of Eden by the insightful Richard Dawkins, which explains how evolution works. He gave me Georgi Plekhanov’s classic On the Role of the Individual in History. All these books showed how the same things happened over and over again throughout history.

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.

Be radically open-minded and radically transparent.

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 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.

Though most people think that they are striving to get the things (toys, bigger houses, money, status, etc.) that will make them happy, for most people those things don’t supply anywhere near the long-term satisfaction that getting better at something does.20 Once we get the things we are striving for, we rarely remain satisfied with them. The things are just the bait. Chasing after them forces us to evolve, and it is the evolution and not the rewards themselves that matters to us and to those around us.

My point is simply this: Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t.

When encountering your weaknesses you have four choices: 1. You can deny them (which is what most people do). 2. You can accept them and work at them in order to try to convert them into strengths (which might or might not work depending on your ability to change). 3. You can accept your weaknesses and find ways around them. 4. Or, you can change what you are going after.

h. If you are open-minded enough and determined, you can get virtually anything you want. So I certainly don’t want to dissuade you from going after whatever you want. At the same time, I urge you to reflect on whether what you are going after is consistent with your nature.

But most people lack the courage to confront their own weaknesses and make the hard choices that this process requires. Ultimately, it comes down to the following five decisions: 1. Don’t confuse what you wish were true with what is really true. 2. Don’t worry about looking good—worry instead about achieving your goals. 3. Don’t overweight first-order consequences relative to second- and third-order ones. 4. Don’t let pain stand in the way of progress. 5. Don’t blame bad outcomes on anyone but yourself.

Almost nothing can stop you from succeeding if you have a) flexibility and b) self-accountability.

View painful problems as potential improvements that are screaming at you.

Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at.

Focus on the “what is” before deciding “what to do about it.” It is a common mistake to move in a nanosecond from identifying a tough problem to proposing a solution for it. Strategic thinking requires both diagnosis and design. A good diagnosis typically takes between fifteen minutes and an hour, depending on how well it’s done and how complex the issue is. It involves speaking with the relevant people and looking at the evidence together to determine the root causes.

Recognize that knowing what someone (including you) is like will tell you what you can expect from them. You will have to get over your reluctance to assess what people are like if you want to surround yourself with people who have the qualities you need. That goes for yourself too. People almost always find it difficult to identify and accept their own mistakes and weaknesses. Sometimes it’s because they’re blind to them, but more often it’s because their egos get in the way. Most likely your associates are equally reluctant to point out your mistakes, because they don’t want to hurt you. You all need to get over this. More than anything else, what differentiates people who live up to their potential from those who don’t is their willingness to look at themselves and others objectively and understand the root causes standing in their way.

Recognize that it doesn’t take a lot of time to design a good plan. A plan can be sketched out and refined in just hours or spread out over days or weeks. But the process is essential because it determines what you will have to do to be effective. Too many people make the mistake of spending virtually no time on designing because they are preoccupied with execution. Remember: Designing precedes doing!

Understand your ego barrier. When I refer to your “ego barrier,” I’m referring to your subliminal defense mechanisms that make it hard for you to accept your mistakes and weaknesses. Your deepest-seated needs and fears—such as the need to be loved and the fear of losing love, the need to survive and the fear of not surviving, the need to be important and the fear of not mattering—reside

Aristotle defined tragedy as a terrible outcome arising from a person’s fatal flaw—a flaw that, had it been fixed, instead would have led to a wonderful outcome. In my opinion, these two barriers—ego and blind spots—are the fatal flaws that keep intelligent, hardworking people from living up to their potential.

Most people don’t understand what it means to be radically open-minded. They describe open-mindedness as being “open to being wrong,” but stubbornly cling to whatever opinion is in their head and fail to seek an understanding of the reasoning behind alternative points of view. To be radically open-minded you must: a. Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing” is more important than whatever it is you do know.

Don’t worry about looking good; worry about achieving your goal.

In thoughtful disagreement, your goal is not to convince the other party that you are right—it is to find out which view is true and decide what to do about it. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives.

Holding wrong opinions in one’s head and making bad decisions based on them instead of having thoughtful disagreements is one of the greatest tragedies of mankind.

Do everything in your power to help others also be open-minded. Being calm and reasonable in how you present your view will help prevent the “flight-or-fight” animal/amygdala reaction in others. Be reasonable and expect others to be reasonable. Ask them to point to the evidence that supports their point of view. Remember, it is not an argument; it is an open exploration of what’s true. Demonstrating that you are taking in what they are telling you can be helpful.

Using Myers-Briggs and other assessments, we evolved a much clearer and more data-driven way of understanding our different types of thinking. Our differences weren’t a product of poor communication; it was the other way around. Our different ways of thinking led to our poor communications.

Leonard Mlodinow, in his excellent book Subliminal, writes, “We usually assume that what distinguishes us [from other species] is IQ. But it is our social IQ that ought to be the principal quality that differentiates us.” He points out that humans have a unique ability to understand what other people are like and how they are likely to behave.

Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored. To prevent myself from falling into this trap, I used to literally ask myself questions: Am I learning? Have I learned enough yet that it’s time for deciding?

To synthesize well, you must 1) synthesize the situation at hand, 2) synthesize the situation through time, and 3) navigate levels effectively.

Use the terms “above the line” and “below the line” to establish which level a conversation is on. An above-the-line conversation addresses the main points and a below-the-line conversation focuses on the sub-points.

“Any damn fool can make it complex. It takes a genius to make it simple.”

I believe that people will increasingly do this and that computer coding will become as essential as writing. In time, we will use machine assistants as much for decision making as we do for information gathering today. As these machines help us, they will learn about what we are like—what we value, what our strengths and weaknesses are—and they will be able to tailor the advice they give us by automatically seeking out the help of others who are strong where we are weak. It won’t be long before our machine assistants are speaking to others’ machine assistants and collaborating in this way. In fact, that’s beginning to happen already.

The “science” of decision making that underlies many computer systems remains much less valuable than the “art.” People still make the most important decisions better than computers do. To see this, you need look no further than at the kinds of people who are uniquely successful. Software developers, mathematicians, and game-theory modelers aren’t running away with all the rewards; it is the people who have the most common sense, imagination, and determination.

At Bridgewater, we use our systems much as a driver uses a GPS in a car: not to substitute for our navigational abilities but to supplement them.

The most important antidote for them is radical open-mindedness, which is motivated by the genuine worry that one might not be seeing one’s choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way.

g. Almost nothing can stop you from succeeding if you have a) flexibility and b) self-accountability.

Identify and don’t tolerate problems. a. View painful problems as potential improvements that are screaming at you. b. Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at. c. Be specific in identifying your problems.

a. A great organization has both great people and a great culture. b.

Great people have both great character and great capabilities. By great character, I mean they are radically truthful, radically transparent, and deeply committed to the mission of the organization. By great capabilities, I mean they have the abilities and skills to do their jobs excellently. People who have one without the other are dangerous and should be removed from the organization. People who have both are rare and should be treasured.

Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before.

By radical transparency, I mean giving most everyone the ability to see most everything. To give people anything less than total transparency would make them vulnerable to others’ spin and deny them the ability to figure things out for themselves. Radical transparency reduces harmful office politics and the risks of bad behavior because bad behavior is more likely to take place behind closed doors than out in the open.

Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up.

Many people mistakenly believe that papering over differences is the easiest way to keep the peace. They couldn’t be more wrong. By avoiding conflicts one avoids resolving differences. People who suppress minor conflicts tend to have much bigger conflicts later on, which can lead to separation, while people who address their mini-conflicts head on tend to have the best and the longest-lasting relationships. Thoughtful disagreement—the process of having a quality back-and-forth in an open-minded and assertive way so as to see things through each other’s eyes—is powerful, because it helps both parties see things they’ve been blind to. But it’s not easy. While it is straightforward to have a meritocracy in activities in which there is clarity of relative abilities (because the results speak for themselves such as in sports, where the fastest runner wins the race), it is much harder in a creative environment (where different points of view about what’s best have to be resolved).

Spend lavishly on the time and energy you devote to getting in sync, because it’s the best investment you can make. In the long run, it saves time by increasing efficiency, but it’s important that you do it well.

All parties should remember that the purpose of debate is to get at truth, not to prove that someone is right or wrong, and that each party should be willing to change their mind based on the logic and evidence.

In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important. Yet most people make the mistake of choosing skills and abilities first and overlooking values. We value people most who have what I call the three C’s: character, common sense, and creativity.

f. Make sure your people have character and are capable. The person who is capable but doesn’t have good character is generally destructive, because he or she has the cleverness to do you harm and will certainly erode the culture. In my opinion, most organizations overvalue the abilities piece and undervalue the character piece because of a shortsighted focus on getting the job done.

Every leader must decide between 1) getting rid of liked but incapable people to achieve their goals and 2) keeping the nice but incapable people and not achieving their goals. Whether or not you can make these hard decisions is the strongest determinant of your own success or failure.