First off, Principles is available for free on its website here. It’s only 123 pages. To me it just felt like a very long blog post. I read the entire book in one day.
It is a great read. It reminded me a bit of Thinking Fast and Slow by Danny Kahneman. The books are on very different topics, but like Kahneman, Ray Dalio has been working on his craft for decades, and is able to make a plethora of knowledge accessible to a large audience.
Ray Dalio is a legend in the investment world. He is the founder of the largest hedge fund in the world, Bridgewater Associates, which manages $150 billion. The book, Principles, consists of three sections:
3. My management principles
I think that Section 1 and 2 (especially Section 2) are a must read for everyone, and the entire book (Sections 1,2 and 3) should be mandatory for managers.
Ray uses this explanation to describe what principles are…
“Your values are what you consider important, literally what you “value.” Principles are what allow you to live a life consistent with those values. Principles connect your values to your actions; they are beacons that guide your actions, and help you successfully deal with the laws of reality. It is to your principles that you turn when you face hard choices. Principles are concepts that can be applied over and over again in similar circumstances.”
I got the most value out of Section 2 (My most fundamental life principles). Here are a few of my key takeaways:
-“So what is success? I believe that it is nothing more than getting what you want–and that it is up to you to decide what that is for you. I don’t care whether it’s being a master of the universe, a couch potato, or anything else–I really don’t. What is essential is that you are clear about what you want and that you figure out how to get it. However, there are a few common things that most people want. For most people success is evolving as effectively as possible, i.e., learning about oneself and one’s environment and then changing to improve. Personally, I believe that personal evolution is both the greatest accomplishment and the greatest reward.”
-“There are five things that you have to do to get what you want out of life. First, you have to choose your goals , which will determine your direction. You can have virtually anything you want, but you can’t have everything you want. It doesn’t really matter if some things are unavailable to you, because the selection of what IS available is so great. Then you have to design a plan to achieve your goals. On the way to your goals, you will encounter problems . As I mentioned, these problems typically cause pain. The most common source of pain is in exploring your mistakes and weaknesses. You will either react badly to the pain or react like a master problem solver. That is your choice. To figure out how to get around these problems you must be calm and analytical to accurately diagnose your problems . Only after you have an accurate diagnosis of them can you design a plan that will get you around your problems . Then you have to do the tasks specified in the plan. I believe the importance of good work habits is vastly underrated. There are lots of books written about good work habits, so I won’t digress into what I believe is effective. However, it is critical to know each day what you need to do and have the discipline to do it . Through this process of encountering problems and figuring out how to get around them, you will become progressively more capable and achieve your goals more easily. Then you will set bigger, more challenging goals, in the same way that someone who works with weights naturally increases the poundage. This is the process of personal evolution, which I call my 5-Step Process.”
-“What I wanted was to have an interesting, diverse life filled with lots of learning—and especially meaningful work and meaningful relationships. I feel that I have gotten these in abundance and I am happy. And I feel that I got what I wanted by… 1) working for what I wanted, not for what others wanted me to do; 2) coming up with the best independent opinions I could muster to move toward my goals; 3) stress-testing my opinions by having the smartest people I could find challenge them so I could find out where I was wrong; 4) being wary about overconfidence, and good at not knowing; and 5) wrestling with reality, experiencing the results of my decisions, and reflecting on what I did to produce them so that I could improve.”
-Explaining the difference between first and second order consequences… “For example, the first-order consequences of exercise (pain and time-sink) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa, etc. Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are barriers that stand in our way of getting what we want. It’s almost as though the natural selection process sorts us by throwing us trick choices that have both types of consequences and penalizing the dummies who make their decisions just on the basis of the first-order consequences alone. By contrast, people who choose what they really want, and avoid the temptations and get over the pains that drive them away from what they really want, are much more likely to have successful lives.”
-“People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future. These people typically try to prove that they have the answers, even when they really don’t. Why do they behave in this unproductive way? They typically believe the senseless but common view that great people are those who have the answers in their heads and don’t have weaknesses. Not only does this view not square with reality, but it also stands in the way of progress. This explains why people who are interested in making the best possible decisions rarely are confident that they have the best possible answers. So they seek to learn more (often by exploring the thinking of other believable people, especially those who disagree with them) and they are eager to identify their weaknesses so that they don’t let these weaknesses stand in the way of them achieving their goals.”
-“I believe that you can probably get what you want out of life if you can suspend your ego and take a no-excuses approach to achieving your goals with open-mindedness, determination, and courage, especially if you rely on the help of people who are strong in areas that you are weak.”
On nature and evolution…
-“I also love to study nature to try to figure out how it works because, to me, nature is both beautiful and practical. Its perfection and brilliance staggers me. When I think about all the flying machines, swimming machines, and billions of other systems that nature created, from the microscopic level to the cosmic level, and how they interact with one another to make a workable whole that evolves through time and through multi-dimensions, my breath is taken away. For example, when a pack of hyenas takes down a young wildebeest, is this good or bad? At face value, this seems terrible; the poor wildebeest suffers and dies. Some people might even say that the hyenas are evil. Yet this type of apparently evil behavior exists throughout nature through all species and was created by nature, which is much smarter than I am, so before I jump to pronouncing it evil, I need to try to see if it might be good. When I think about it, like death itself, this behavior is integral to the enormously complex and efficient system that has worked for as long as there has been life. And when I think of the second- and third-order consequences, it becomes obvious that this behavior is good for both the hyenas, who are operating in their self-interest, and in the interests of the greater system, which includes the wildebeest, because killing and eating the wildebeest fosters evolution, i.e., the natural process of improvement. In fact, if I changed anything about the way that dynamic works, the overall outcome would be worse.”
-“I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe… I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force. Enjoying your job, a craft, or your favorite sport comes from the innate satisfaction of getting better. Though most people typically think that they are striving to get things (e.g., toys, better houses, money, status, etc.) that will make them happy, that is not usually the case. Instead, when we get the things we are striving for, we rarely remain satisfied. It is natural for us to seek other things or to seek to make the things we have better. In the process of this seeking, we continue to evolve and we contribute to the evolution of all that we have contact with. The things we are striving for are just the bait to get us to chase after them in order to make us evolve, and it is the evolution and not the reward itself that matters to us and those around us. It is natural that it should be this way—i.e., that our lives are not satisfied by obtaining our goals, but rather by striving for them—because of the law of diminishing returns. For example, suppose making a lot of money is your goal and suppose you make enough so that making more has no marginal utility. Then it would be foolish to continue to have making money be your goal. People who acquire things beyond their usefulness not only will derive little or no marginal gains from these acquisitions, but they also will experience negative consequences, as with any form of gluttony. So, because of the law of diminishing returns, it is only natural that seeking something new, or seeking new depths of something old, is required to bring us satisfaction. In other words, the sequence of 1) seeking new things (goals); 2) working and learning in the process of pursuing these goals; 3) obtaining these goals; and 4) then doing this over and over again is the personal evolutionary process that fulfills most of us and moves society forward.”
-“The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt… Unlike any other species, man is capable of reflecting on himself and the things around him to learn and adapt in order to improve. He has this capability because, in the evolution of the species, man’s brain developed a part that no other species has—the pre-frontal cortex. However, typically defensive, emotional reactions—i.e., ego barriers—stand way of this progress. These reactions take place in the part of the brain called the amygdala. As a result of these reactions, most people don’t like reflecting on their weaknesses even though recognizing them is an essential step toward preventing the problems they cause. Most people don’t like helping others explore their weaknesses, even though they are willing to talk about them behind their backs. For these reasons most people don’t do a good job of understanding themselves and adapting in order to get what they want most out of life. In my opinion, that is the biggest single problem of mankind because it, more than anything else, impedes people’s abilities to address all other problems and it is probably the greatest source of pain for most people. Some people get over the ego barrier and others don’t. Which path they choose, more than anything else, determines how good their outcomes are.”