“Truth – more precisely, an accurate understanding of reality – is the essential foundation for producing good outcomes.” ― Ray Dalio
Ray Dalio and his new book, Principles, need little introduction. He has a net worth of over $18.9 billion+, made through the hedge fund he started. The book is a memoir of his life and breaks down his principles for success in clear-cut detail. Plus, Bill Gates endorses the book on the cover with this quote, “Ray has provided me with invaluable guidance and insights that are now available to you in Principles.”
Here are the biggest takeaways I got through reading the entire book.
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Having met some of the richest and poorest people in the world, he can confidently say that happiness is not correlated with material success. You can be just as happy and fulfilled as a carpenter versus being the President of the United States.
Meaningful relationships and work are most important to him. That’s what he works for because all the money in the world can’t buy these items. Money can’t buy everything and doesn’t hold intrinsic value. Its value is in what it can purchase you.
Traveling and meeting poor, disabled, or local people helped Ray discover that greatness isn’t correlated with conventional forms of success. These interactions are as valuable as what he has learned from meeting the top entrepreneurs, scientists, and leaders of the world.
Judging someone before really seeing things through his or her eyes blocks you from understanding his or her circumstances.
Seeing how someone came to see things in a different perspective than you is invaluable.
You have more friends during good times. Bad times reveal who your true friends are.
Humans are shortsighted and more emotional than logical. They will sell too much when times are bad and buy too much when times are good. This is true for relationships just like it is for investing.
One of Ray’s employees made a costly mistake of forgetting to make a trade. This cost hundreds of thousands of dollars. Rather than firing him, which would have only promoted a culture for other employees of hiding their mistakes, re-created a mistake a log. This log tracked mistakes, which helped the company improve over time and not make the same mistakes.
You can have almost anything you want but you can’t have everything you want.
Timing is everything. He watched the richest man in the world go broke from the wrong timing while cornering the silver market.
Nothing is certain or a sure bet. He lost most of his net worth early on because of a supposed sure bet. He made the wrong investment decision from arrogance because he was always right, which put his firm out of business. This loss was the best thing to happen to him because it lead to always questioning if he is right rather than assuming it.
He used computer algorithms to help his investing. When the conclusion of the machines was different than his conclusion, he usually discovered he overlooked a factor the machine didn’t. But sometimes, he considered a new factor the machine didn’t, which he added to the algorithm. In this way, they taught each other. It was a great partnership. The machine could predict much better and faster than humans. But humans can use imagination and logic better than machines.
Always look for other possibilities even if it doesn’t look like anything else is possible in the near future. Ray needed high returns and low risk but it seemed the only options were high risk and high return or low risk and low return. He kept searching and eventually discovered the “Holy Grail” of investing.
Ray’s Holy Grail to investing can be applied to any business. Here’s how the concept works: invest or own 15 to 20 different asset classes that don’t correlate in performance and return a good amount. The mistake he sees others make is that they diversify all within one asset class. That means that if an equity manager owns 1,000 different equities, the overall portfolio still behaves and moves as if it only had five different equities in it.
Equity managers only invest in equity. Real estate managers only invest in real estate. Not a good move. By having different asset classes that don’t correlate with each other in performance much, you can reduce risk and maximize gain.
Rather than believing you can have one or another, slowly keep searching for another possibility where you can have both. Sometimes, it exists and you just haven’t found it yet.
The big battle is always between the logical part of your brain, who knows the right move, and the emotional part, who doesn’t feel like making this move. Ray found that most people logically agreed with his principles but couldn’t execute because their habits and emotional barriers were stronger than reasoning.
All things being equal, not being famous is better than being famous.
Embrace reality and deal with it. Life is a game and gems are principles you get when you learn from an obstacle to avoid the same obstacle in the future.
Ray credits all his success to living by certain principles and credits nothing to innate talent. You can achieve similar success if you follow these principles, but not blindly. Question what is given and test to find the principles that work for you.
Dreams + reality + determination = life success.
If you come up with something that the world values, you almost can’t help but be rewarded. The world penalizes what doesn’t work well and detracts from evolution.
Evolution is the only constant. Nature optimizes for the success of the whole, not the individual.
Most situations can be made into something you can be happy with no matter how bad it is. His friend became paralyzed after diving into a pool and still manages to live a happy, fulfilling life.
You can turn some weaknesses into strengths. This is ideal but only works if your nature gives you natural ability to do so. Some things you will never be that good at. Accepting your weaknesses and finding ways around them is the most viable but least followed method. Don’t deny your weaknesses, which is what most people do.
A third option is switching your goal to one that aligns more with your nature but this requires flexibility.
Don’t mistake causes for problems. Lack of sleep could be a cause or result of a problem, not a problem itself. Real issues can be explained with adjectives, while smaller issues can be explained with facts. For example, “I failed to deliver the report fully because I didn’t have time.” is a fact versus because “I wasn’t prepared and don’t plan ahead.” is an adjective.
Make your goals more consistent with your nature and stick to a good fit when you find it. Asking people who are strong where you are weak for help is a skill we all should have and acts as guard rails from straying.
Find people to give you feedback because you can’t see yourself objectively ever.
If you are determined and open-minded enough, you can get virtually anything you want, but not everything you want. But keep reflecting on whether a path is consistent with your nature. Of course, there are impossibilities, like running a four minute mile at age seventy.
Be open to criticism. Treat criticism at work like how you’d treat criticism from a ski instructor when learning to ski. Use it to improve your skills.
Be open-minded but assertive. You can argue for your point. Debate others in a calm, dispassionate way and encourage others to do the same. Show that you are simply trying to understand them. Ask questions rather than make statements. Most people assume disagreement is always conflict because of their lower-level brain, but this isn’t true.
Ray saved his life by triangulating doctors’ opinions. The first doctor said he was guaranteed to die soon from a cancer but another doctor said there were treatments that could save him, while a third said he was fine and only needed 3-month check ins. By triangulating, he discovered he was fine and it was a misdiagnosis. Ray also noticed doctors were afraid of arguing or voicing different opinions when talking to each other directly as a professional courtesy. He didn’t think was the most effective strategy.
What you believe is a function of what you know at the moment.
There is almost always a way. You just don’t see it yet.
Great planners without execution go nowhere. You need to have discipline to push through to your goals (to-do lists help).
You should weight believable, credible people’s opinions higher. These are people with a strong track record of at least three wins who keep delivering in the subject in question. They also must be able to articulately explain their viewpoint when probed.
Although certain managers can override the believability weighted decision system Ray uses (deciding on a decision based on the weighted opinions of believable people), he has never gone against the conclusion because it would be against the spirit of the company, though he still argues like hell for his point.
Asking opinions from non-believable people is worse than not getting advice. The same goes for giving advice yourself.
Dive into disagreement. Most people are unwilling. Have a moderator you both respect to help with disagreements. It isn’t productive to talk to everyone who disagrees. Talk to the list believable people you have access to.
There are stuff beyond our control such as what we are born into. If you take responsibility and stop complaining about what you can’t control, you will be happier and more likely to succeed. Life doesn’t give a damn about what you want. It is up to you to connect what you want with how to get it and have the courage to execute.
Getting better at something gives much more long term satisfaction than the toys or rewards of achieving a goal.
Be happy, not upset, when you find out you are not good at something because knowing will help you deal with it better to get what you want. Einstein wasn’t mad that he was a bad basketball player.
Stop seeing struggle as a negative. Most of life’s greatest opportunities come from struggle.
Don’t confuse the trappings of success for success itself. Pursuit or obsession over status symbols is a huge sign of this and may indicate you don’t know what you really want.
Often, people talk through their subconscious emotional brain rather the logical parts of their brain. Sometimes, this is dangerous and animalistic; other times, like for creativity, it is better because it is smarter than your conscious brain. Usually in moments of relaxation when you aren’t thinking about a problem, inspiration strikes. Train your subconscious brain like a child: with loving-kindness and patience.
Knowing how you’re wired is an important and necessary first step.
When making decisions, the rate of change has to be significant enough. It may be getting better but is it getting better fast enough? Don’t focus too much on the results from a single data point when making decisions.
Use the 80/20 rule.
Consider second and third order consequences when making decisions, especially if you are going to make them because of the first order. For example, what tastes good now is usually bad for your health and lifespan in the long run. Be honest by saying what you think is better in the long term. It is harder to keep consistent with your values but better for your happiness in the long term.
Logical reasoning and common sense are your best guides. Be wary of anything else. Most people rely on lower-level thinking without realizing it.
Use expected value for decision-making and over time, you’ll do well.. This is the probability of being right times the reward minus the probability of being wrong times the cost. It is not always the best decision to bet on just what has the highest probability; instead, use expected value.
Raising the probability of being right is always a good thing. Even a slight increase can pay dividends. Checking your phone to confirm your destination even though you’re pretty sure it’s right is an example. You can almost always do increase probability by getting more information. That doesn’t always mean you should delay making a decision by waiting until you get all the information you can.
The best decision has more pros than cons rather than no cons. Look out for people who only look for decisions with no cons.
Have your children learn how to program algorithms because it will soon be as important as any language. Artificial Intelligence can fail at common sense, so don’t rely on it unless you truly understand all the concepts at work in its algorithm.
Accepting harsh truths is tough but better for you in the long run. For example, knowing what cancer you have can help you find the best treatment.
Never say something about someone you wouldn’t say in person.
Avoid dishonest people when you can. Consider the severity and relationship of the dishonest mistake to decide on punishment.
Bridgewater, Ray’s company, has had very few legal problems because of radical transparency. This doesn’t mean they share everything. Private personal matters and proprietary investment knowledge aren’t shared. You still remain prudent.
Find people who will treat you well even when you’re not looking. These relationships are rare and take time to build and must be built by treating them well.
Most people will do what is best for them and say that they have your best interests in mind when they don’t. They will do as little as they can and get as much as they can.
Fail well. The people succeeding are failing at a lot of other things.
Don’t worry about looking good. Worry about achieving your goal. Ray tested tons of the world’s most successful people, including Bill Gates, in his network with a personality quiz. He found that they all scored high at doing what was necessary to achieve their goals even if people disapproved. You can’t let what others think stop you from achieving your goals.
Don’t worry about blame or who gets credit. Watch out for people who are scared of being seen as not knowing something. They can care more about appearance than accomplishing goals.
Be clear in assigning personal responsibility.
Ask if something is true when someone gives an emotion-based opinion to ground it in reason.
Set a rule to give each person two minutes to talk before anyone can jump in so people can express their thoughts. Also, fast talkers push an agenda before people can make sense of what is said. It works well on people scared of looking stupid. Have them slow down and explain it to crystallize what is said.
Beware of statements starting with “I think that…”
Beware of going against the believability-weighted vote. You are probably wrong and will build outrage from others.
Dive into the details on why you disagree to find out what you don’t see.
Don’t let insignificant, small differences in opinion of a decision create large fights when you agree on the big picture. Religion and families often make this mistake.
The best talent is most important. Hire people better than you. Bridgewater looks for people who think independently, have personal accountability, can put ego aside, and have a strong pursuit of the truth for improvement.
Don’t design jobs to fit people. This is usually done for people you don’t want to fire.
They value the three C’s most when hiring: character, common sense, and creativity.
Get as objective of information as you can to decide whether to hire someone. This includes reviews from previous employers. People may not be as good as they claim or they take credit for others’ work. Don’t over-weigh academic performance as it doesn’t translate into real world performance. Ray learned this firsthand when he hired tons of Ivy League graduates.
A person who has the capability but not the character can destroy your company because they have the cleverness to do you harm. That doesn’t mean you should compromise capability for character, both are necessary.
Hire people who you want to share your life with.
Compliments don’t get people to stretch. Accurate criticism is more helpful but not appreciated as much.
Most employees think they contribute more to the company than they do. If you asked everyone, you’d end up with over 300% contribution. Be as realistic as possible with each department’s actual contribution.
Managers should learn to identify whether an employee’s issue is due to lack of training or lack of innate abilities.
Most people live in a blizzard of issues. Successful people look above this blizzard objectively to see how you can best operate their “machine.”
Managers are like engineers. They try to find the best system. Don’t micromanage. A real sign of a master manager is that he doesn’t have to do anything. This is different from being too distant.
Be careful of when people handle things outside their responsibilities. Even experienced people let this happen without realizing it.
The most effective leaders open-mindedly seek the truth and bring others along the discovery process. The leader who looks and acts like a skilled ninja always beats the one who looks and acts like a muscular action hero. As a leader, don’t worry about if people like you. It is human nature to get mad if people don’t agree with you. It is fine to believe you know better than the average person if you are open-minded.
There is no bigger failure than to not escalate a responsibility you can’t handle. Encourage people to speak up if they can’t make deadlines or deliverables.
If you’re not worried, you need to. If you’re worried, you don’t need to. Worrying protects you from something going wrong.
Managers can slowly start accepting unacceptable behavior gradually over time. It would horrify them if they saw it with fresh eyes. Just because no one else is saying anything or expresses concern doesn’t mean it is acceptable.
Be specific when defining a problem.
People who work closest to the job have the best understanding of it. They have different perspectives you should try to see.
A good problem solver can logically explain how to solve a problem and has done so in the past.
Build organizations around goals, not tasks.
The organizational hierarchy should look like descending pyramids with straight lines that don’t cross. The person at the point of the pyramid should do interdepartmental tasks. Keep the rows of the pyramid as low as possible to prevent too much hierarchy.
It is best not to guardrail people. Supplement people when necessary to help people. Fire them if they’re not a good fit. A good guard rail is a person who supports someone’s weaknesses. A great employee doesn’t need guard rails.
Most people will cheat and take more for themselves rather than being far when given the chance. Your happiness and success depends on your controls.
Use “public hangings” when you’re punishing rule breaking so people know the consequences.
Look for people who can do your tasks better than you to improve his output per hour.
Document common answers in text or video for training manuals.
Projects usually take at least 1.5 times as long and as expensive as predicted.
Other than working harder, there are three ways to get more done: prioritize and do less, delegate to the right people, and improving productivity.
Creativity, character, and wisdom can improve your productivity. With creativity, you can find innovative ways of doing tasks. Character helps you wrestle with challenges and demands. And wisdom helps look at things from a higher level and decide what’s most important.
If nothing is going bad, it will eventually. That is just life. There’s nothing you can’t accomplish if you think creatively and have the character to do the difficult things.
Build downtime into your schedule because if you just keep doing, you will burnout.
Words alone aren’t enough. Wanting and doing are different even if people know something’s beneficial. They need to build in habits. Tools and protocol help build habits in an organization.
Experiential learning is so much better than book learning.
My Book Review of Principles by Ray Dalio
Principles was a fantastic book. Ray put out a decent amount of new concepts I had rarely or never heard of before despite studying thousands of successful people. He truly crystallized some ideas beautifully so that they were easy to digest. I also love how he neatly organized the book into a memoir section, life principles section, and career principles section. The table of contents made it easy to find any topic or subtopic. I’m excited for his sequel on economic principles.
Grab the book Principles by Ray Dalio here to see all the tips he mentioned. Or grab a free audiobook of your choice by going to audibletrial.com/WillsGift. If you purchase through my link, I will get a commission at no extra cost to you.
Which principle did you find the most value in?
Ray Dalio showed me how a life should be lived successfully and many thanks for his works.
Thank you for the insightful summary.
You’re very welcome. I hope you found value in it.