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Principles: Life and Work by Ray Dalio.
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Ray Dalio, born in 1949, is the billionaire founder of Bridgewater Associates, one of the world’s largest hedge funds. He wrote Principles to pass on his principles for living life and reaching goals.

What Are Principles?

What are principles? Principles are the fundamental truths that determine how you behave. They reflect your inner character and values.

Principles help you deal with the complexity of life. Every day, you face new situations that require our response. If you had to decide what to do at each point in time, you’d react impulsively and be exhausted. Instead, your fundamental principles help you figure out what situation you’re facing and how to deal with the situation.

We all have principles. Successful people adopt principles that help them be successful. Ray Dalio’s goal is to share the principles that have worked for him throughout his life and contributed to his success.

The 5-Step Process for Getting What You Want

There is a 5-step process for getting anything that you want out of life. It goes:

  1. Set clear goals.
  2. Identify problems and don’t tolerate them.
  3. Diagnose your problems to find root causes.
  4. Design solutions to get around problems.
  5. Do the tasks required to completion.

To achieve success, you need to follow each of these steps in order, one at a time. When setting goals, you shouldn’t think about barriers—just set the goals. When diagnosing your problems, don’t worry about how you’ll solve them—just find the root causes.

These 5 steps also form a loop. Once you complete one turn of the loop, then you’ll look at your results and go through the process again, setting new, higher goals.

People are usually weak at one or more of these steps. Identify what your weakest steps are. Then get better at them, or find someone who can help you compensate for them.

Embrace Reality and Relentlessly Find the Truth

Finding the truth is the most important thing possible to make the best possible decisions you can. Making the best decisions gets you closer to your goals.

Two things get in the way of finding truth: 1) your ego and emotions, 2) your blind spots.

Your Ego

What holds a lot of people back from the truth is their ego. Many people’s egos center around being right and looking smart. But everyone is wrong a good portion of the time, and ignoring this is blinding yourself to your mistakes and ways to improve yourself.

To deal with the emotional pain of finding truth, see life as a game, where the object is to get around a challenge and reach a goal.

Instead of declaring “I’m right,” ask, “How do I know I’m right?” You can’t be sure of anything—there are always risks that can hurt you badly, even in the safest-looking bets. Always assume you’re missing something.

Embrace Your Mistakes

An important truth people commonly ignore is their own weaknesses and mistakes. Thinking about their mistakes causes them pain.

By ignoring your weaknesses and mistakes, you are handicapping yourself in achieving your goals.

Mistakes happen all the time. It’s more important to recognize mistakes and learn from them, than to cover them up and make your problems worse.

Mistakes and pain are nature’s reminder to learn. You must reflect on your mistakes and design solutions to your problems to evolve. Dalio sums it up in his equation, “Pain + Reflection = Progress.”

Treat each mistake like a puzzle that, after you solve it, reveals a gem. Each gem continuously makes you stronger, and more gems help you ascend to higher levels of play where the challenges get greater.

Radical Open-Mindedness

To recognize the truth, you must accept that you are wrong and relentlessly find ways to increase the chances that you are right. Dalio calls this radical open-mindedness. Taking in more information, especially from other highly credible people, can only allow you to make better decisions, which will bring you closer to your goal.

Would you willingly blind yourself into doing something wrong? Most people do this.

Recognize that the chance that you independently always have the best answer is extremely low. Accept the possibility that others might see something better than you and point out threats and opportunities you don’t see.

Always be fearful that you’re wrong and you’re missing information. Don’t say “I’m right,” ask, “How do I know I’m right?”

Disagree Thoughtfully

Being open-minded will make you seek other smart people and explore their viewpoints, especially when you disagree with each other. This may create emotional conflict.

The key is to have “thoughtful disagreement” with the other person....

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Principles: Life and Work Summary Introduction

Ray Dalio, born in 1949, is the billionaire founder of Bridgewater Associates, one of the world’s largest hedge funds. He wrote Principles to pass on his principles for living life and reaching goals.

What Are Principles?

What are principles? Principles are the fundamental truths that determine how you behave. They reflect your inner character and values.

If you consistently operate by a set of principles, then you are a principled person. People know what you stand for and how you behave. In contrast, if you don’t have clear principles and have inconsistent behavior, then you’ll be seen as a “phony.” Phonies lose people’s trust and respect.

Principles help you deal with the complexity of life. Every day, you face new situations that require our response. If you had to decide what to do at each point in time, you’d react impulsively and be exhausted. Instead, your fundamental principles help you figure out what situation you’re facing and how to deal with the situation.

We all have principles....

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Principles: Life and Work Summary Part 1: History of Ray Dalio and Bridgewater

To help us understand how he got to his principles, Ray Dalio shares a history of his founding of his hedge fund Bridgewater Associates. He cautions that his particular story can distract from the merit of his principles, which are timeless and universal. So he advises you to skip his biography if you’d rather judge his principles on their own merit.

Key Themes

Independent Thinking

To be a successful financial trader, you need to be an independent thinker. You need to 1) bet against the consensus view, and 2) be right. Aiming for this means that you’ll be wrong a lot. By making a lot of mistakes, Dalio developed a fear of being wrong, and he tried to figure out how to approach decision making to maximize his chance of being right.

This shifted his perspective from stating, “I know I’m right” to asking the questions, “How do I know I’m right? What am I missing?” Asking these questions prompted him to be relentlessly curious about why other smart people disagreed with him. He learned to get a broad range of inputs from other people, then weigh them according to how credible they were. This increased his chances of being right.

Importantly, Dalio had gone...

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Principles: Life and Work Summary Part 1-2: Revitalization to Today

Starting once again by himself, broke as when he started nearly ten years earlier, Dalio rebuilt Bridgewater. Drawing from his painful lessons, he changed his management and investing approach, leading Bridgewater to become the top-performing hedge fund in the world.

Building Up Bridgewater Again: 1983-1994

Computers and Automating Decision-Making

The development of microcomputers in the early 1980s gave Dalio even greater ability to turn his investment principles into automated rules. Working alongside a computer gave the team a few critical advantages:

  • Computers could collect much more data and crunch the numbers much faster. The team fed in financial datasets for every country possible, going back by more than a century. Computers could then back-test the investment rules against this historical data, showing how the strategies would have done in the past.
  • In real time, computers could produce trading decisions, more precisely and less emotionally than humans could.

But the computer didn’t work in isolation—the human and the computer worked alongside each other and improved each other. The human had imagination and logic that the computer didn’t, and...

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Principles: Life and Work Summary Part 2: Life Principles | 2-1: The 5-Step Process

There is a 5-step process for getting anything that you want out of life. It goes:

  1. Set clear goals.
  2. Identify problems and don’t tolerate them.
  3. Diagnose your problems to find root causes.
  4. Design solutions to get around problems.
  5. Do the tasks required to completion.

To achieve success, you need to follow each of these steps in order, one at a time. When setting goals, you shouldn’t think about barriers—just set the goals. When diagnosing your problems, don’t worry about how you’ll solve them—just find the root causes.

These 5 steps also form a loop. Once you complete one turn of the loop, then you’ll look at your results and go through the process again, setting new, higher goals.

It’s simple. But simple doesn’t mean easy. This sounds like common sense, but executing it day in and day out is the hard part.

We’ll break down each of the steps further.

1. Set Clear Goals

To know where you’re aiming, you need to set clear goals. Here are pointers on how to do this.

Be audacious. If you think something’s unattainable, that’s only because your current knowledge is limited. Once you start trying to achieve your lofty goals, you’ll learn a lot. Paths...

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Shortform Exercise: The 5-Step Process

Try stepping through the 5-step process to get what you want.


What goals are you aiming for? Be ambitious and don’t worry about whether you believe you can achieve them right now.

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Principles: Life and Work Summary Part 2-2: Embrace Reality and Relentlessly Find the Truth

As a result of his mistakes, financial and otherwise, Dalio learned that he made the best decisions when he put his ego aside and relentlessly sought the truth. This meant adopting a number of mindsets: acknowledging his own weaknesses, being open to others’ opinions, constantly asking what he was missing, and stress-testing his ideas.

This is probably the strongest theme of the book, and the biggest barrier people have to making better life decisions. Most of Dalio’s principles can be seen as springing from this root. Much of the book is about understanding the importance of finding the truth, and how to achieve it over common obstacles.

Introduction

Don’t fall in the trap of wishing that reality were different. This gets you nowhere.

Instead, embrace your reality and deal with it. You must be radically open-minded to the possibility that you are wrong.

Don’t get hung up on how things ‘should’ be. This will bias your objectivity.

If you think something is morally wrong, assume that you’re wrong and figure out why what nature is doing makes sense.

  • For example, picture a pack of hyenas killing a young wildebeest. This feels wrong, but on reflection it’s...

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Shortform Exercise: Reflect On Your Mistakes

Endure the pain of reflecting on your mistakes to improve for the future. Remember, Pain + Reflection = Progress.


Write down some of the most salient mistakes you’ve made in the past 12 months.

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Principles: Life and Work Summary Part 2-3: Radical Open-Mindedness

To recognize the truth, you must accept that you are wrong and relentlessly find ways to increase the chances that you are right. Dalio calls this radical open-mindedness. Taking in more information, especially from other highly credible people, can only allow you to make better decisions, which will bring you closer to your goal.

We’ll cover a variety of themes and mindsets stemming from this concept.

You Are Blind

Understand that you are blind, and that you need to figure out a way to see.

Pain from mistakes is how you learn that you are blind. Review bad decisions that you made because you failed to see what others saw. Ask others to help with figuring out your blind spots.

Recognize the importance of this mindset. If you willingly blind yourself and keep doing something wrong, you will never maximize your potential.

Even if you believe your baseline probability of being right is already high, it is always valuable to raise your probability of being right. And being open-minded to other viewpoints is how you raise your probability of being right.

Get Good Ideas from Other People

Accept the possibility that others might see something...

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Principles: Life and Work Summary Part 2-4: Visualizing Complex Systems as Machines

A favorite theme of Ray Dalio’s is to view things top-down as a machine, and to see yourself as a designer of the machine.

This applies to you as a machine in life. You can see yourself as a machine that takes in goals and other inputs, then produces outputs. Your job is to design a machine and tweak it so that it gets you the results you want.

This mindset also applies to organizations. You can see your team or business as a machine that operates to deliver the result you want (more on this in the Work Principles section later).

Top-Down vs. Bottom-Up

What’s the difference between top-down and bottom-up perspectives?

Looking from the bottom-up means looking at each specific case and how they differ from each other. For example, it looks at how the duck animal species is different from a dog and different from a human.

The top-down perspective tries to find what is common to all the specific cases. For animal species, a top-down perspective finds the forces of natural selection acting on DNA, and how that changes animal behavior.

Many people look at the world mostly from the bottom-up. They see all the individual cases and think about how each one is special....

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Shortform Exercise: See Yourself as a Machine

Try to view yourself top-down as a machine to see what needs improving.


As a machine, what are your desired outputs? What are the inputs that the machine uses to create the outputs?

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Principles: Life and Work Summary Part 2-5: Rely on Others

Cooperation is natural in human history. Humans evolved to support cooperation, allowing groups to accomplish more than individuals. Cooperation led to the development of values such as altruism, morality, and honor.

To accomplish your goals, you need to rely on other people. You need to be humble and recognize that you lack both the objectivity and the complete skill set to achieve all of your goals. Instead, other people will 1) help you see your blind spots, and 2) provide complementary skills to cover for your weaknesses.

Other People See Your Blind Spots

You will never be able to view yourself objectively most of the time. As we learned, often your ego will get in the way and bias you. In other cases, you might simply be blind to certain aspects of yourself.

You should get others to be radically truthful with you so you can see the truth about yourself. As founder and CEO of Bridgewater, Dalio had complete authority to do things his way, yet he willingly built himself a management committee to oversee him. He knew that relying on others was the best way to arrive at the truth.

To get the most out of other people’s viewpoints, practice thoughtful...

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Shortform Exercise: Understand People Types

Understand yourself and other people to form your dream team.


Think of someone whom you disagree with often. What are they blind to that you see often?

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Principles: Life and Work Summary Part 2-6: How to Make Decisions Effectively

After you collect information, how do you make the best decisions for yourself? While each decision has unique particularities, Dalio describes general principles to take into any decision.

There are really only two steps to making a decision: 1) learning, and 2) deciding.

Learn Well

The foundation of decision-making is gathering the best information possible. To do so, you need to be radically open-minded and have thoughtful disagreements with people (both of these ideas are discussed in previous chapters).

To make sense of all the information you receive, you need to use each piece of information appropriately.

  • Don’t treat all information equally. Some issues or facts are more important than others. Some people are more believable than others in a given topic area.
  • Don’t mistake opinions for facts. Some people state their opinions as though they were facts, even though they have little justification for their confidence.

Understand the Situation

Synthesize a good understanding of the situation that you’re making a decision for. This often means understanding the current performance level, as well as how that level has changed over time.

  • For...

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Principles: Life and Work Summary Part 3: Work Principles

In the final section, Dalio discusses his Work Principles that govern how Bridgewater operates. The Work Principles are really just his Life Principles applied at organizational scale.

Like with personal life, the ultimate goal in work is to find the truth by leveraging the strengths of the group. The trick is to do this with thoughtful disagreement while bypassing the inevitable emotional conflicts that arise.

Introduction to Work Principles

Great Organizations

A great organization has two things: 1) great people and 2) a great culture.

Great people have two things: 1) great character and 2) great capabilities. One without the other is dangerous. People with great capabilities who do not have great character will not be aligned on the mission, and they will work on their own...

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Principles: Life and Work Summary Part 3-1: Radical Truth and Radical Transparency

To be great, you can never compromise the uncompromisable. To Dalio, the uncompromisable is finding out the objective truth and making the best decision.

Many other things are compromisable—people’s emotions, ego, anxiety, and “little deals” that distract from the “big deal” of knowing and acting on the truth. All of these can be sacrificed in the name of making the best decision and finding the objective truth.

Radical truth and transparency are critical to building the best idea meritocracy. If you have access to more truthful information, you can make better decisions. When everyone is able to hear what everyone else is thinking, learning compounds and the organization gets better.

In contrast, hiding the truth from people is like letting your kids grow up while still believing in the Tooth Fairy.

Radical Truth

Radical truth means not putting a filter on your thoughts. You reveal your thoughts and questions relentlessly. You surface issues immediately instead of hiding them.

When the entire organization does this, it creates opportunities to have thoughtful disagreement and see things through each other’s eyes. It surfaces disagreements when they first...

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Principles: Life and Work Summary Part 3-2: Believability-Weighted Decision Making

Once facts and viewpoints are put out there through radical truth and thoughtful disagreement, how do you reconcile them to make the best decisions?

To maintain order and allow the best decisions to surface, people must agree on procedures to resolve disagreements, and abide by the conclusions of the procedures. At Bridgewater, the procedure they use is believability-weighted decision making.

“Believability-weighted” means to weigh the opinions of people who are more believable more heavily than less believable people. This is distinctly different from weighing everyone’s votes equally, as in a democracy.

Who are believable people? They are people who 1) have repeatedly succeeded at the thing in question, and 2) can logically explain their conclusions. It makes sense to value the opinions of successful people more than those with little experience.

Bridgewater’s Dot Collector

At Bridgewater, Baseball Cards and the Dot Collector tool help people see each other’s track records and believable areas. Recall that the Dot Collector is a tool used during meetings where people can award each other dots (positive or negative) on a few dozen attributes, such as...

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Principles: Life and Work Summary Part 3-3: People Management

Dalio believes the WHO is more important than the WHAT. Deciding what is to be worked on is less important than deciding who is responsible for deciding what to work on. Deciding what a job’s responsibilities are is less important than deciding who would be best at serving them.

The people are even more important than the culture, because the people shape the culture.

In several useful tactical chapters, Ray Dalio lays out his principles for people management. The major themes are:

  • People have different values, abilities, and skills. Values and abilities are very hard to change, so don’t hire people lacking either values or abilities, and don’t rehabilitate people who are discovered to lack them.
  • Seek the truth on people’s mistakes and shortcomings. Use good metrics to measure this, and monitor them frequently.
  • Impress to workers that accuracy of feedback and kindness are the same thing. A caring gift you can give someone is the self-awareness to be successful.
  • Make the hard decision to fire people in pursuit of the organization’s goals.

Cultivate Meaningful Relationships

Treating people like partners or extended family will make relationships...

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Principles: Life and Work Summary Part 3-4: Your Organization Machine | 5 Step Process

Just as in personal life, where you should view yourself top-down as a machine, for your work life, you should view your organization top-down as a machine as well.

Like a foreman on a construction site, you should understand your tools and the components of the machine:

  • Understand how people’s values, abilities, and skills differ, and how they should be matched with goals.
  • Understand the processes and problems around you to make well-informed decisions.

Create great decision-making machines by thinking through the criteria you use to make decisions, before and while you make them.

A great manager is essentially an organizational engineer in charge of building the machine.

  • They work hard to maintain and improve their machines.
  • They study how well the machine is doing with metrics. They compare the current outcomes with the ideal outcomes, and find ways to close the gap.
  • They worry about what can go wrong with the machine. They constantly survey the landscape to find suspicious signs of problems.
  • They study what goes wrong in the machine—either it’s a problem with the machine’s design or with the people.
  • They can anticipate the...

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Principles: Life and Work Summary Part 3-5: Misc. Work Points, Bridgewater Tools

Here are a few miscellaneous principles about work that don’t fit clearly into the previous chapters. We’ll also recap the tools that Bridgewater uses.

Miscellaneous Work Principles

Don’t let yourself get extorted. Ignore threats about harmful actions taken, such as quitting, bringing a lawsuit, or leaking an embarrassing story to press. Once you give in, it changes the rules of the game and opens you up to more of the same bad behavior.

Great leadership is a combination of seeking the best answers, being challenged often, and appealing to reason.

  • It’s not about manipulating emotions. This can cause people to refuse you after they reflect clearly.
  • Many leaders see disagreement as disloyalty and would rather issue people just follow orders. But great leaders prefer to have good challengers to stress-test their ideas. Being the only person thinking is not the optimal way to succeed.
  • It’s not illogical to believe you know better than the average person, as long as you stay open-minded.
    • If you actually don’t have better insights than other people , you shouldn’t be a leader.
  • Don’t worry about whether your people like you. Just worry about...

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Principles: Life and Work Summary Appendix: Miscellaneous Points

Here are a collection of interesting ideas from Principles that don’t fit clearly into any particular chapter. We’ve gathered them in our appendix here.

Misc Principles

  • It’s important not to get knocked out of the game permanently. So don’t fail too big, and minimize your losses.
    • Dalio has seen a few people bet so big they ruined themselves—Bunker Hunt who tried to corner the world silver market; Alan Bond who bet that the US dollar wouldn’t rise against Australian dollars and didn’t hedge. Both made fortunes but quickly lost it all.
  • Diversify your success by compiling uncorrelated bets.
    • Having a few good uncorrelated return streams is better than just having one.
    • Having uncorrelated bets increases return-to-risk ratio and protects you from unacceptable downside.
  • Traders and entrepreneurs need to correctly bet against the consensus. This also means being wrong more often than usual.
  • The principles build a virtuous cycle: Make audacious goals → fail → learn principles → improve chances of success → meet goals → make audacious goals
  • People expect the future to be merely a slightly modified version of the...

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Table of Contents

  • 1-Page Summary
  • Introduction
  • Part 1: History of Ray Dalio and Bridgewater
  • Part 1-2: Revitalization to Today
  • Part 2: Life Principles | 2-1: The 5-Step Process
  • Exercise: The 5-Step Process
  • Part 2-2: Embrace Reality and Relentlessly Find the Truth
  • Exercise: Reflect On Your Mistakes
  • Part 2-3: Radical Open-Mindedness
  • Part 2-4: Visualizing Complex Systems as Machines
  • Exercise: See Yourself as a Machine
  • Part 2-5: Rely on Others
  • Exercise: Understand People Types
  • Part 2-6: How to Make Decisions Effectively
  • Part 3: Work Principles
  • Part 3-1: Radical Truth and Radical Transparency
  • Part 3-2: Believability-Weighted Decision Making
  • Part 3-3: People Management
  • Part 3-4: Your Organization Machine | 5 Step Process
  • Part 3-5: Misc. Work Points, Bridgewater Tools
  • Appendix: Miscellaneous Points