Ray Dalio is the founder, co-chairman, and co-chief investment officer of Bridgewater Associates, the largest hedge fund in the world. He grew up in a middle-class neighborhood in Long Island and began playing the stock market at age 12. He started Bridgewater out of his apartment in New York in 1975 and enjoyed some success before some erroneous market predictions caused him to lose everything in 1982.
The experience taught him not to be overconfident, to gain a more complete view of economic history, and to find ways to balance low risk with high returns. This ultimately led him to develop a set of principles for living life and reaching goals, which he credits for his success. He wrote Principles so that others could benefit from what he’s learned.
(Shortform note: Like Dalio, other successful people first experienced failure, which has led to the myth that successful people need to fail before finding success. While this makes for a good story, research says that these types of comebacks play a role in just a small percentage of success stories, and most entrepreneurs who fail once will most probably fail again. That’s because they don’t properly identify the real cause of their failure and may blame outside factors instead of their own actions. Dalio’s principles can help you examine the truth of your failure and guide you in building the knowledge and experience you need to find success on your next attempt.)
Every day, you face new situations that require your response. If you had to decide what to do at each point in time, you’d react impulsively or spend so much time and energy weighing your options that you’d be exhausted. However, Dalio believes that every situation has happened before, so you can systematize decision-making and make it more objective and efficient. This is why you need principles–what Dalio describes as fundamental truths that determine how you behave. They help you figure out how to automatically and appropriately respond to any situation you’re facing.
(Shortform note: Dalio contradicts his ideas surrounding principles throughout the book. On the one hand, he says that you should choose the principles that work best for you; on the other, he says that you must use all of his principles in order to be successful. Given that other people—like PayPal co-founder Peter Thiel and former Intel CEO Andrew Grove—have found success using their own formulas, it’s safe to assume that Dalio’s wholesale principles aren’t the only key to success.)
As a result of his early mistakes, Dalio learned that he made the best decisions when he put his ego aside and relentlessly sought the truth. Many of his principles are about understanding the importance of finding the truth and how to achieve it over common obstacles. Here, we’ll explore his eight main principles and how you can put them into practice. Then, we’ll explore how Dalio synthesizes these principles into a powerful process for working toward and achieving goals.
When you’re struggling, Dalio says you shouldn’t fall into the trap of wishing things were different. This will bias your objectivity and get you nowhere. Instead, embrace your reality and be completely open to the possibility that you’re wrong. Dalio notes that there are two hurdles that will likely get in the way of recognizing reality:
Your ego is your underlying desire to be capable, to be seen by other people as capable, to be loved, to feel important, and to be praised by others. Experiences that threaten that ego—those that make you feel irrelevant or that point out your weaknesses—are painful. To avoid this pain, you might shut yourself off from self-reflection or deny reality. This leads to spontaneous, emotionally driven reactions, rather than well-thought-out decisions.
(Shortform note: Allowing your ego to take over can harm you in more ways than the one Dalio describes. In Ego Is the Enemy, author Ryan Holiday mentions three ways that ego can keep you from being successful: First, it can lead you to brag and self-promote instead of taking action. Second, it can make you feel like you know everything, which prevents you from growing. And third, it can make it especially difficult for you to recover from failure.)
Dalio suggests a formula that helps him prevent his ego from taking over: Pain + Reflection = Progress. He uses this equation to illustrate that you should take full responsibility for your mistakes and relish the chance to get better, rather than being ashamed.
(Shortform note: Jack Canfield’s formula for improving outcomes in The Success Principles—Event + Response = Outcome—is a slightly different take on this thought process that centers on an event itself and your response to it rather than a reflection on the pain of an event. However, like Dalio, his formula centers on accepting your role in your situation.)
Your blind spots materialize when you see the world through your own biased lenses. You can’t appreciate what you can’t see, thus two people who see the world differently often end up arguing over who’s right.
(Shortform note: Leaders are...
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In his book Principles: Life and Work, billionaire Ray Dalio discusses the experiences, lessons, and practices that shaped the guiding principles powering his success.
His book is a guide to rational thinking. The main theme is that finding truth is the best way to make decisions, and that ego and emotion prevent you from discovering the truth. Dalio shares his major strategies to circumvent these weaknesses.
Ray Dalio is the founder, co-chairman, and co-chief investment officer of Bridgewater Associates, the largest hedge fund in the world. He grew up in a middle-class neighborhood in Long Island and began playing the stock market at age 12. He started Bridgewater out of his apartment in New York in 1975 and enjoyed some success before he made some erroneous market predictions that caused him to lose everything in 1982.
This experience of failure taught Dailo not to be overconfident, to gain a more complete view of economic history, and to find ways to balance low risk with high returns. The experience also ultimately led him to develop some unconventional investment and management strategies that led to...
Ray Dalio 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, and help other people become successful.
According to Dalio, principles are the fundamental truths that determine how you behave. They reflect your inner character and individual values. People who align in principles get along with each other, while people who don’t have constant conflicts and misunderstandings.
Dalio outlines three reasons why having principles is important:
1) They let people know what you stand for. When you operate by clear principles, people know what behaviors to expect from you. In contrast, not having clear principles will lead you to behave inconsistently, causing you to lose people’s trust.
(Shortform note: You don’t need grand gestures to convey your principles and build trust. In Dare to Lead, Brené Brown writes that your small, consistent, everyday acts send a strong message about what you stand for and build a sense of trust naturally over time.)
**2) They help you deal...
To help readers understand how he developed his principles, Dalio shares the story of founding his hedge fund Bridgewater Associates, including his mistakes and realizations. In Part 1 of this guide, we expand on the foundations and key themes of his principles and include relevant references to his biography.
Dalio was born in 1949, the only son of a jazz musician father and a stay-at-home mom. He demonstrated an independent streak early on—he didn’t like school because he disliked rote memorization and following instructions. However, he was single-minded when it came to his interests. He started investing in stocks at age 12, got lucky and tripled his money during a bull market, and from then on, he was hooked on the stock market. He read annual reports from public companies and kept buying more stocks.
(Shortform note: There are some similarities between Dalio’s childhood and that of Microsoft founder Bill Gates. Gates was also bored in school at times, but he was highly engaged when it came to his interests. While Dalio studied and invested in the stock market beginning at age 12, Gates was fascinated by computers...
Starting from just Dalio, Bridgewater grew to 738 employees by 2008. Dalio says that this growth presented a dilemma: On one hand, it gave them a greater advantage with more talent. On the other hand, the influx of large numbers of new team members threatened their culture—there was reduced openness and engagement because it wasn’t possible for everyone to attend every meeting. Having to oversee more people also distracted the managers from the firm’s actual work.
(Shortform note: As Bridgewater’s example shows, growth has its pros and cons. Small businesses can manage the possible drawbacks of this growth in three ways: first, by hiring people who reflect the company’s vision and values; second, by re-evaluating your finances and budget plan; third, by using data to determine your strengths and leverage them; and fourth, by adjusting practices and processes to meet new demands.)
To preserve the Bridgewater culture as the firm grew, Dalio introduced five management tools:
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As we’ve already noted, Dalio’s early failures led to the belief that the best way to be right was for smart people to disagree with each other and explore each other’s reasoning. He never failed to point out when other people were mistaken, and he expected others to do the same to him. Unfortunately, some people found his candor abrasive and oppressive.
Dalio had never intended to humiliate people, and the pushback from those he treated with candor prompted a realization that people didn’t understand his logic and process of decision-making. This friction kicked off his process of clarifying his principles in writing, so that everyone across the company could understand his intentions and behavior, and so everyone had a common set of rules to treat each other respectfully.
How People Management Has Evolved
Dalio is an advocate of automation and emotionless candor, and many companies have followed suit. But the Covid-19 pandemic has seen the rise of new trends in people management, highlighting the need for empathetic managers and for relationships with employees to become more emotional....
In Part 2, we’ll cover Dalio’s main principles and how you can use them to better deal with struggle and make better decisions in both life and work. We’ll start with one of the strongest themes of the book: understanding the importance of finding the truth.
After his emotions and overconfidence led to disastrous mistakes, Dalio learned that he made the best decisions when he put his ego aside and relentlessly sought the truth. In this chapter, we’ll explore how to overcome the barriers to recognizing the truth.
When you’re struggling, Dalio says you shouldn’t fall into the trap of wishing that reality were different or how things “should” be. This will bias your objectivity and get you nowhere. Instead, embrace your reality and deal with it. You must be totally receptive to the possibility that you are wrong.
If you think something is morally wrong, Dalio says to assume that you’re wrong and figure out why what nature is doing makes sense. Nature optimizes for the whole, but people narrowly judge good and bad based on how it affects the individual. For example, a pack of hyenas killing a young wildebeest feels wrong, but on reflection, it’s...
Endure the pain of reflecting on your mistakes to improve for the future. Remember Dalio’s formula: Pain + Reflection = Progress.
Write down some of the most salient mistakes you’ve made in the past 12 months.
Dalio says that to overcome your ego and blind-spot hurdles and make the best decisions, you must be open-minded. This means accepting that you might be wrong and relentlessly seeking out ways to increase your chances of being right.
One of the methods Dalio suggests to increase your chances of being right is to be totally receptive to information from others, especially highly credible people. Here’s how you can become more receptive to others’ input:
Dalio says you should accept the possibility that others might see something better than you and point out threats and opportunities you don’t see. You’re looking for the best answer that exists, not the best answer that you can come up with yourself. Keep in mind that the probability of always having the best answer is very small.
(Shortform note: Psychologist and author Jordan Peterson has a similar view. In 12 Rules for Life, he writes that you should [go into a conversation genuinely believing that you have something to...
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To Dalio, making the best decision doesn’t just require being open-minded to other people’s ideas. He believes that it also requires honesty and transparency. This works hand in hand with total receptivity—you can’t be truthful about issues, or hear truth about issues, when there’s the possibility of someone feeling defensive or hurt. At Bridgewater, this manifests in a culture of extreme honesty (what Dalio calls “radical truth”) and extreme transparency (what Dalio calls “radical transparency”).
Dalio says that extreme honesty means not putting a filter on your thoughts. Instead, you reveal them, question relentlessly, and surface issues immediately instead of hiding them.
Extreme honesty creates a powerful type of freedom. When you align what you feel and what you say, life gets simpler. You can focus on the most important things, and you’ll be happier.
(Shortform note: Studies show that being authentic—behaving according to your true thoughts, personality, and values—leads to happiness; in particular, it leads to higher levels of life satisfaction and...
Having the foundations of total receptivity, extreme honesty, and extreme transparency sets you up for productive conflict and an environment where you let the best ideas win (what Dalio calls an “idea meritocracy”). These two vital practices ensure that you make the best decisions possible in an environment where opposing ideas are freely shared. Let’s explore each in detail.
Recall that open-mindedness will bring you in contact with smart people with different perspectives, meaning you may disagree with them. As discussed in the section about ego, each person brings two “yous”—the rational and the emotional—to a conversation, so these disagreements often have four yous in conflict with one another. Dalio says that the key to moving the conversation in a useful direction is to have productive conflict (what Dalio calls “thoughtful disagreement”) with the other person: Your goal is not to prove that you’re right, but rather to find out which view is true and decide what to do about it.
Dalio says that productive conflict requires that you be open-minded and assertive at the same time. You must make an effort to see things through the other...
In addition to total receptivity, extreme honesty and transparency, productive conflict, and letting the best ideas win, Dalio says that viewing complex systems as machines can help you make better decisions.
He explains that laws and forces in the universe interacted and evolved to create galaxies, planets, markets, and humans, and that all these complex machines continue to evolve and interact to create our reality. To him, understanding the cause-and-effect relationships within each machine and between machines can help you glean predictable patterns. Seeing the same situations happen again and again over time can then help you determine corresponding repeatable courses of action.
(Shortform note: Dalio believes that everything that happens has already happened before, so it’s possible to predict and manage future events by looking to the past, using a set of principles to weather any kind of storm. In contrast, Nassim Nicholas Taleb argues that the world is random and unpredictable, and the important thing isn’t to withstand difficult situations, but to actually learn how to become stronger under stress. Read more in...
Try to view yourself as a machine in order to unemotionally see what needs improvement.
As a machine, what are your desired outputs? What are the inputs that the machine uses to create the outputs?
As mentioned earlier, Dalio says that people are one of the most important components of your organizational machine. He believes that people shape an organization’s culture, and thus the WHO of your organization is more important than the WHAT driving it. Rather than focusing on what should be done, you should focus on finding the best person to figure out what should be done in the first place.
(Shortform note: One helpful exercise is to change your line of thinking from, “How can I accomplish this goal?” to “Who can help me accomplish this goal?” In Who, Not How, author Dan Sullivan says that getting the right people to help you accomplish something saves you time and effort because it allows you to make use of skill sets and ideas that you may not have. Once you have the right people in place, you should clearly define your desired outcome, and then step back and allow them to figure out how to achieve it.)
In this section, Dalio details the principles for hiring, training, and evaluating the who.
Dalio says that a key part of working with others and being totally...
Having a better understanding of yourself and others helps you form a dream team of people with complementary strengths. In this chapter, Dalio shares his principles for hiring the right people, and how to train and evaluate them.
According to Dalio, the penalties for hiring the wrong person are huge. You can waste years on entertaining a bad hire, and may spend a lot of money on training and retraining. The graver hidden costs are a loss of morale among competent team members and a sense of diminishing standards that will progressively cripple the company. The importance of hiring is even greater when you choose people who operate at the highest levels, who are responsible for designing the machine and goals of the organization.
Dalio stresses that it’s important to hire people who have both great character and 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’ll work on their own goals, which may conflict with the organization’s. People with great character without great capabilities are pleasant to be around, but they don’t contribute...
Once you’ve hired the right people, you can focus your attention on training them, evaluating how they’re doing, and deciding what to do with them based on their performance. Dalio gives specific tips for each part of the process.
The training process can tell you if the person you hired is a good fit for the job. Dalio says it generally takes six to 12 months to get to know an employee’s strengths and weaknesses and their preferences for work. Here are his guidelines for making the most out of this period:
That way, you can hold people accountable and gauge whether they performed poorly due to unclear or unmet expectations.
(Shortform note: If you’re chronically unhappy with your team’s performance and believe that they don’t meet your expectations, evaluate whether your expectations are unreasonable. While you should hold people to a high standard, you shouldn’t hold out for perfection.)
As you learn more about the trainee, they should get new assignments tailored to their strengths, weaknesses,...
Carefully selecting team members who complement each other doesn’t mean there won’t be any challenges. Everyone has different personalities, perspectives, and styles of working, so it’s only natural to have misunderstandings and disagreements. In this chapter, we condense Dalio’s principles for managing teams so that team members stay aligned (or, as Dalio says, “stay in sync”) and make decisions more efficiently.
How to Stay Aligned in a Hybrid Work Environment
With the rise of hybrid work setups, it may be more challenging for teams to stay in sync. Keep the following alignment tips in mind when some team members work at home and others work at the office:
Check your biases. You may have unintentional proximity bias, thinking those in the office are more productive than those working from home. Being aware of this tendency can help you safeguard against it.
Keep interactions on even footing. While the workplace may be hybrid, your meetings shouldn’t be. Have meetings with everyone in one place or with everyone on video...
Understand yourself and other people to form a dream team that can effectively work through disagreements and blind spots.
Think of someone whom you disagree with often. What are they blind to that you see often?
This chapter brings together the previous principles of total receptivity, honesty, transparency, productive conflict, letting the best ideas win regardless of source, a systematic approach, and the right people into a process that helps you arrive at the best decisions.
While each situation has unique particularities, Dalio describes general principles for any decision. He writes that there are only two main steps to making a decision: learning and deciding. We’ll explore each of these in detail in this chapter.
Dalio says that the foundation of decision-making is gathering information from credible sources. To do this, you need to be receptive and open to productive conflict (both of which were discussed in previous chapters).
To make sense of all the information you receive, you should use each piece of information appropriately. Dalio says you shouldn’t treat all information equally, because some information is more important than others, and some people are more credible than others in a given topic area. You also shouldn’t mistake opinions for facts.
(Shortform note: When you receive an overwhelming amount of information, it can be hard to tell which...
Many of the ideas Dalio discussed in previous chapters form the foundation for his process for achieving success in any context. This involves five steps:
Dalio says that these five steps form a loop. Once you complete one turn of the loop, you’ll then look at your results and use what you learned to go through the process again, setting new, higher goals.
(Shortform note: The downside of setting goals is that you spend a lot of time in a “failure state,” and you feel joy only fleetingly after achieving your goal. Thus, some experts recommend focusing more on the process and small wins rather than the ultimate goal. This is why Dalio’s process is so useful—it focuses on all the steps toward success and what you can gain at each stage.)
In this chapter, we’ll examine each of these five steps in depth and include how to apply them in the context of organizations.
Try working through Dalio’s tried-and-true process to create a smoother path to achieving your goals.
What goals are you aiming for? Be ambitious and don’t worry about whether you believe you can achieve them right now.