Book notes: Principles by Ray Dalio

Principles: Life and Work by Ray Dalio

Synopsis: “Ray Dalio, one of the world’s most successful investors and entrepreneurs, shares the unconventional principles that he’s developed, refined, and used over the past 40 years to create unique results in both life and business – and which any person or organization can adopt to help achieve their goals.

In Principles, Dalio shares what he’s learned over the course of his remarkable career. He argues that life, management, economics, and investing can all be systemized into rules and understood like machines. While the book brims with novel ideas for organizations and institutions, Principles also offers a clear, straightforward approach to decision making that Dalio believes anyone can apply, no matter what they’re seeking to achieve.

Here, from a man who has been called both “the Steve Jobs of investing” and “the philosopher king of the financial universe” (CIO magazine), is a rare opportunity to gain proven advice unlike anything you’ll find in the conventional business press.” -Audible

Opening thoughts:

I’ve heard of Ray Dalio when reading the books MONEY Master the Game and Unshakeable by Tony Robbins. Apparently, this guy is some big-shot in the financial and investment world, and is highly regarded by many for his success. When I saw this book in my recommended reads, I immediately recognized his name and put it into my wish list. I think what sold it for me was not only Tony’s review on the front cover of the book, but also the great reviews on Audible.

Key notes:

• Part One: where I’m coming from
• Chapter 1: My Call to Adventure (1949 – 1967)
• In trading, you have to be aggressive and defensive. Or else you are not going to make money, or keep the money you make”
• Lesson: You can never be sure about anything
  • There are always risks out there that can hurt you badly, even the seemingly safest bet. So it’s always best to assume you are missing something
• While making money was good, having meaningful work and meaningful relationships was much better
  • Meaningful work is being on a mission he becomes in grossed in
  • Meaningful relationships are with those he cares deeply about and who care deeply about him
• It’s senseless to make money your goal as money has no intrinsic value
  • It’s value comes from what it can buy, and it can’t buy everything
  • It’s smarter to start with what you really want, which are your real goals, and then work back to what you need to attain them
• Meaningful work and meaningful relationships are still his primary goal, not money, and everything he does is towards that
  • Making money was an incidental consequence of that
• Chapter 3: My Abyss (1979 – 1982)
  • His failure humbled him and he realized he wanted to be right, but he didn’t care if the answers came from him
  • He learned to be radically open minded to allow others to point out what he maybe missing
  • The way he could succeed was to:
    1. Seek out the smartest people who disagreed with him so he could try to understand their reasoning
    2. Know when to not have an opinion
    3. Develop, test, and systemize timeless and universal principles
    4. Balance risks in ways that keep the big upsides while reducing the downside
• People’s greatest weaknesses are the flip-side of their greatest strengths
• What happens after we crash is most important
  • Successful people change in ways that allow them to continue to take advantage of their strengths while compensating for their weaknesses
  • Beneficial change comes from when you connect knowledge and embrace your weaknesses
• To do exceptionally well, you have to push your limits. And that if you push your limits, you will crash and it will hurt A lot
  • You will think you have failed, but it won’t be true unless you give up. The most important thing you can do is gather the lessons these failures provide and gain humility and radical open-mindedness in order to increase your chances of success
• Go slowly when faced with the choice between two things that you need and are seemingly at odds
  • That way you can figure out how you can have as much of both as possible
  • There’s almost always a good path that you haven’t discovered yet, so you have to be diligent in looking for it instead of settling with the choices given
• What was most important wasn’t knowing the future, it was knowing how to react appropriately to the information available at each point in time
  • One of the most valuable things you can do to improve your decision making is to think through your principles for making decisions. Write them down
• One of the keys to being a successful investor is to only take bets you are highly confident in and then to diversify them
• If you work hard and creatively, you can have just about anything you want, but not everything you want
  • Maturity is the ability to reject good alternatives in order to pursue better ones
• Be curious enough to want to understand how the people who see things differently than you came to see them that way
  • You’ll find that interesting and invaluable and the richer perspective you will gain will help you decide what to do
• Strong and productive relationships come when both parties are honest and frank with each other 100% of the time
• Wise people stick with sound fundamentals through the ups and downs, while flighty people react emotionally to how things feel, jumping into things when they’re hot and abandoning them when they’re not
• Bad times coupled with good reflections provide some of the best lessons, in business and relationships
  • True friends are the opposite of fair-weather friends
  • Bad times will help you find out who your real friends are, friends who would be with you through thick or thin
• He didn’t value experience as much as he did character, creativity, and common sense when hiring. He believed that the ability to figure things out with more important then having specific knowledge in how to do something
• Principle he applies to all parts of his life:
  • Making a handful of uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside
• Having a process that ensures problems are brought to the surface, and their root causes are diagnosed, assures that continual improvements occur
  • It is essential for people in relationships to be crystal clear about their principles for dealing with each other
• Chapter 5: The Ultimate Boom (1995 to 2010)
• Using his knowledge, he created the “All Weather Portfolio” that would do well in any economic environment, and he would put all of his trust money in it
• The greatest success you can have is to orchestrate others to do things well without you
  • A step below that is doing things well yourself
  • Worst of all is doing things poorly yourself
• A shaper is someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts and oppositions of others
  • Steve Jobs was probably the biggest and most iconic shaper of our time 
    • Jobs build the worlds largest and most successful company by sequentially revolutionizing computing, music, communication, animation, and photography with beautifully designed products
  • Other great shapers of the business world include:
    • Elon musk of Tesla, Space X, and Solar City
    • Jeff Bezos of Amazon
    • Reed Hastings of Netflix
  • Shapers drive change and build lasting organizations
  • Shapers are all independent thinkers who do not let anything or anyone stand in the way of achieving their audacious goals
    • They have very strong mental maps of how things should be done, and at the same time a willingness to test those mental maps in the world of reality and change the way they do things to make them work better
  • They are extremely resilient because their need to achieve what they envision is stronger than the pain they experience as they struggle to achieve it
    • They have a wider range of vision than most people, either because they have that vision themselves or know how to get it from others who can see what they can’t
  • They are simultaneously creative, systematic, and practical
    • They are assertive and open-minded at the same time
    • Above all, they are passionate about what they’re doing, intolerant of people who are working for them who aren’t excellent at what they do, and want to have a big beneficial impact on the world
  • When faced with a choice of achieving their goal or pleasing and not disappointing others, they would clearly choose achieving their goal every time
  • There are distinctly different types of shapers. The most important difference lies in whether their shaping comes in the form of inventing, managing, or both
• From the book Hero with a Thousand Faces, a hero is someone who found or achieved or did something beyond the normal range of achievement, and who has given his life to something bigger than himself or other than himself
• Governance is the system of checks and balances ensuring that an organization will be stronger no matter whoever happens to be leading it at any one time
• He realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well
  • Struggling well doesn’t just make your ups better, it makes your downs less bad
• What he has seen is that the happiest people discover their own nature and match their life to it
  • He believes everyone’s purpose is to evolve and contribute to evolution in some small way
  • Passing on knowledge is like passing on DNA. It is more important than the individual because it lives beyond the individual’s life
• Good principles are effective ways of dealing with reality
• Part 2: Life principles
• Chapter 1: Embrace Reality and Deal With It
• Principal 1.1: be a hyper realist
  • Dreams + reality + determination = A successful life
• Principle 1.2: Truth, or more precisely an accurate understanding of reality, is the essential foundation for any outcome
• Principal 1.3: be radically open-minded and radically transparent
  • These are invaluable for rapid learning and effective change
  • Don’t let fears of what others think of you stand in your way
• Principal 1.4: look to nature to see how reality works
  • Don’t get hung up on your views of how things should be because you’ll miss out on learning how they really are
  • Nature optimizes for the whole, not for the individual. But most people judge good or bad based on how it affects them
  • To be good, something must operate consistent with the laws of reality and contribute to the evolution of the whole. That is what is most rewarded
  • He believes that evolution is the single greatest force in the universe. It is the only thing that is permanent and it drives everything
  • The truth is that nothing dies and disappears, it just gets re-configured and evolving forms
  • Remember that energy can’t be destroyed, it can only be reconfigured. The same stuff is continuously falling apart and coalescing in different forms. The force behind that is evolution
  • Many things pass on and evolve like DNA, such as technology, language, knowledge, and everything else
  • Evolution is good because it is the process of adaptation that generally moves things towards improvement
    • The key is to fail, learn, and improve quickly
• Principal 1.5: evolving is life’s greatest accomplishment and its greatest reward
  • You are everything and nothing at the same time. Therefore what you do doesn’t really matter from the whole, but it also kind of does
  • Where you go in life will depend on how you see things and who and what you feel connected to:
    • Family, community, country, mankind, the whole ecosystem, everything
    • You will have to decide to what extent you will put others interest above your own and which others you will do that for. You will regularly encounter situations that will force you to make such decisions
• Principal 1.6: understand natures practical lessons
  • The need for meeting for work is connected to man’s innate desire to improve
  • Relationships are the natural connections to others that make us a relevant to each other and to society more broadly
  • Remember: no pain, no gain. Pain is meant to alert us and direct us
  • In order to gain strength, one has to push ones limits, which is painful
    • Man needs difficulties, they are necessary for health
• Principal 1.7: pain + reflection = progress
  • Go to the pain rather than avoiding it
  • If you become comfortable with yourself operating on some level of pain, you will evolve at a faster pace
  • No matter what you want out of life, your ability to adapt and move quickly and efficiently through the process of personal evolution will determine your success and happiness
  • If you do it well, you can change your psychological reaction to it so that what was painful can become something you almost crave
• Principal 1.8: weigh second and third order consequences
• Principal 1.9: own your outcomes
  • 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
  • Psychologist call this having an internal locus of control
• Principal 1.10: look at the machine from a higher level
  • Higher level thinking gives you the ability to study and influence the cause effect relationships that play in your life, and use them to get the outcomes you want
  • Accepting your weaknesses while trying to find ways around them is the easiest and typically the most viable path
  • Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what and they will help you develop guard rails that will prevent you from doing what you shouldn’t be doing
    • All successful people are good at this
  • Because we are not good at looking at ourselves objectively, we must rely on the input of others and the whole body of evidence
• Chapter 2: use the five-step process to get what you want out of life
  1. Have clear goals
  2. Identify and don’t tolerate the problems that stand in the way of you achieving your goals
  3. Accurately diagnose the problem is to get at their root causes
  4. Design plans that will get you around those problems
  5. Do what’s necessary to push those designs through to completion
• Keep each step separate and go through them in order. The process is iterative and going through the steps will help you move onto the next one well
• Principal 2.1: have clear goals
  • Don’t confuse goals with desires
    • A proper goal is something you really need to achieve. Desires are the things that you want that can prevent you from reaching your goals
  • Never rule out a goal because you think it’s unattainable. There is always a best possible path. Your job is to find it and have the courage to follow it
  • Remember that great expectations create great capabilities
  • Knowing how to deal well with your setbacks is as important as knowing how to move forward
• Principle 2.2: identify and don’t tolerate problems
• Principal 2.4: design a plan
  • Good work habits are vastly underrated. Such as a reasonable and prioritized task list
• Principal 2.6: remember that weaknesses don’t matter if you find solutions
• Chapter 3: Be Radically Open-minded
  • The two biggest barriers to good decision-making are your ego and your blind spots
  • Being radically open-minded requires you to replace your attachment to always being right with the joy of learning what’s true
  • Open mindedness doesn’t mean going along with what you don’t believe in, it means considering the reasoning of others instead of stubbornly and illogically holding onto your own point of view
  • Be clear about whether you are arguing or seeking to understand. And think about which is more appropriate based on your and others believe abilities
  • You can significantly raise your probabilities of making the right decisions by open-mindedly triangulating with believable people
  •  Truly open minded people always ask a lot of questions
    • Close minded people tend to make more statements, though there are times when this is appropriate if you have a high believability
    • Close minded people focus much more on being understood then understanding others
    • Open minded people always feel compelled to see things from another person’s perspective
• The life you will live is most simply the results of the habits you develop
  • Transcendental meditation for him has enhanced his open-mindedness, higher-level perspective, equanimity and creativity. It helps slow things down so he can act calmly even amid chaos
• Be evidence-based and encourage others to be the same
• Chapter 4: Understand that people are wired very differently
  • It is critical to understand how you and other people are wired
  • Our different ways of thinking lead to our poor communications. Our mental differences are physiological
  • He realize that people weren’t intentionally acting in a way that seem counterproductive. They were just living out things as they saw them based on how their brains work
  • The human brain comes pre-programmed with the need for and enjoyment of social cooperation. Our brains want it and develop better when we have it
  • The meaningful relationships we get from social cooperation make us happier, healthier, and more productive
• The Meaning of Human Existence by Edward O Wilson
  • The brain evolved in ways supporting cooperation
  • As our brain involved in ways to make larger groups more manageable, competition between groups became more important than the competition between individuals
    • Groups that had more cooperative individuals did better than groups with less cooperative ones
  • This evolution led to the development of altruism, morality, and a sense of conscious and honor
    • Man is perpetually suspended between the two forces that created us: individual selection which prompted sin, and group selection which prompted virtue
    • Which of these interests, self-interest or collective-interest, wins out in any organization is a function of that organization’s culture, which is a function of the people who shape it.
  • The rewards of working together to make the pie bigger are greater than the rewards of self-interest, not only in terms of the size of the pie one gets, but in the psychic rewards wired into our brains that make us happier and healthier
• The Dalai Lama agrees that prayer and meditation has similar effects on the brain in producing the feelings of spirituality, rising above oneself to feel a greater connection to the whole
  • But each religion as their own superstitions on top of that feeling of spirituality
  • Beyond Religion by His Holiness the Dalai Lama
• Creativity usually comes when you clear your mind and are in a relaxed state so that your subconscious can push those ideas into your conscious mind
• Know that the most constant struggle is between thinking and feeling
• Habit is essentially inertia, the strong tendency to keep doing what you have been doing or not doing way you have not been doing
  • Research suggests that if you stick with a behavior for approximately 18 months, you will build a strong tendency to stick with it nearly forever
• Left brain versus right brain
  • Left hemisphere: reason sequentially, analyzes details, and excels at linear analysis. Left brain or linear thinkers who are analytically strong are often called “bright”
  • Right hemisphere: thinks across categories, recognizes themes, and synthesizes the big picture. Right brain or lateral thinkers with more street smarts are often called “smart”
• Creators generate new ideas and original concepts, they prefer unstructured and abstract activities, and thrive on innovation and unconventional practices
• Advancers communicate these new ideas and carry them forward. They relish feelings and relationships and manage the human factors. They are excellent in generating enthusiasm for work
• Refiners challenge ideas. They analyze projects for flaws then refine them with a focus on objectivity and analysis. They love facts and theories and working with a systematic approach
• Executors can also be thought of as implementers. They ensure that important activities are carried out and goals accomplished. They are focused on details and the bottom line
• Flexors are a combination of all four types. They can adapt their styles to fit certain needs and are able to look at a problem from a variety of perspectives
• Some people are focused on daily tasks, while others are focused on their goals and how to achieve them. Similar to the differences between people who are intuitive or sensing
• Shapers get both the big picture and details right
  • Shaper = visionary + practical thinker + determined
  • Shapers share attributes such as intense curiosity and an impulsive need to make sense of things
    • Independent thinking that verges on rebelliousness
    • A need it to dream big and unconventionally
    • They use practicality and determination to push through all obstacles to achieve their goals, and the knowledge of their own and others’ weaknesses and strengths so they can orchestrate teams to achieve them
    • They can hold conflicting thoughts simultaneously and look at them from different angles
  • They typically can navigate back-and-forth between the big picture and granular details, counting both as equally important
• There is no correlation between happiness levels and conventional markers of success
• If you learn anything from this audiobook, he hopes that it is everyone has strengths and weaknesses, and everyone has an important role to play in life
  • Nature made everything and everyone for a purpose
• Principal 4.5: getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish
• Chapter 5: How to make decisions effectively
  • Everything important in your life needs to be on a trajectory to be above the bar and headed toward excellent at an appropriate pace
• The 80-20 Rule states that you get 80% of the value out of something from 20% of the information or effort. It’s also likely that you will exert 80% of your effort getting the final 20% of the value
• We are constantly seeing things at different levels, and navigating between them
• There are two broad approaches to decision-making:
  1. Evidence and logic-based, which comes from the higher-level brain
  2. Subconscious, emotion-based, which comes from the lower level animal brain
• Different people with different abilities working together to create the most powerful machine to produce achievements
• Part Three: Work Principles
• An organization is a machine consisting of two major parts: culture and people
  • Each influence the other. A great organization has both great people and great culture
    • Great people have both great character and great capabilities
• The main test of a great partnership is whether they can bring their disagreements to the surface and get through them well
  • Having clear processes for resolving disagreements efficiently and clearly is essential for business partnerships, marriage, and all forms of partnership
• Numerous studies have shown that there is little or no correlation between one’s happiness and the amounts of money one accumulates
  • Yet there is a strong correlation between one’s happiness and the quality of ones relationships
• Idea meritocracy: a system that brings together smart, independent thinkers and has them productively disagree to come up with the best possible collective thinking and resolve their disagreements in a believability-weighted way
  • Principle: A believability-weighted, idea meritocracy is the best system for making effective decisions
• Most fundamental work principle: make your passion and your work one in the same, and do it with people you want to be with
  • Work is either a job you do to earn the money to pay for the life that you want, or what you do to achieve a mission, or some mix of the two
  • Make it as much to achieve a mission as possible, recognizing of course the value of earning the money to pay for the life you want to have
    • If you do that, most everything will go better than if you don’t
    • He wrote this book primarily for those who want to follow their passions and achieve their mission
• To have an Idea Meritocracy:
  1. Put your honest thoughts on the table
  2. Have thoughtful disagreement
  3. Abide by agreed-upon ways of getting past disagreement
• Chapter 1: Trust in radical truth and radical transparency
  • It is a real asset that people can trust what you say. It is almost always better to shoot straight, even when you don’t have all the answers or when there is bad news to convey
• Principal 1.2: have integrity and demand it from others
  • Aligning what you say with what you think, and what you think with what you feel will make you much happier and much more successful
• A meaningful relationship is one in which people care enough about each other to be there whenever someone needs support and they enjoy each other’s company so much that they can have great times together both inside and outside of work
  • Make sure people give more consideration to others then they demand for themselves
  • Don’t confuse generosity with fairness, as some people will see generosity and turn it into entitlement
• Chapter 3: Create a culture in which is OK to make mistakes and unacceptable not to learn from them
• Principle 3.1: recognize that mistakes are a natural part of the evolutionary process
• Principle 3.2: don’t worry about looking good, worry about achieving your goals
• Know that no one can see themselves objectively. It is everyone’s responsibility to help others learn what is true about themselves by giving them honest feedback, holding them accountable, and working through disagreements in an open minded way
•  Chapter 4: Get and stay in sync
  • By avoiding conflicts, one avoids resolving differences
  • People who suppress minor conflicts tend to have bigger context later on, which can lead to separation
  • People who address conflict head on tend to have the best and longest lasting relationships
• Principal 4.1: recognize that conflicts are essential for great relationships because they are how people determine whether their principles are aligned and resolve their differences
• Principal 4.3: be open-minded and assertive at the same time
  • Having open minded conversations with believable people who disagree with you is the quickest way to get and education and increase your probability of being right
• Principal 6.3: don’t leave important conflicts unresolved
• Chapter 7: Remember that the who is more important then the what
• Principal 7.3: remember the force behind the thing
  • Who are the people behind the results and culture in your organization that make it special? Think about who they are and how they work together to make it what it is
• Chapter 8: Hire right because the penalties for hiring wrong are huge
• Principal 8.1: match the people to the design
• In picking people for long-term relationships, values are the most important, abilities come next, and skills are the least important
  • He values people the most to have the three C’s:
    • character
    • common sense
    • creativity
• Principal 8.2: remember that people are built very differently, and the different ways of seeing and thanking make people suitable for different jobs
• Principle 8.4: pay attention to peoples track records
• Principle 8.5: don’t hire people to fit the first job they will do, hire people you want to share your life with
• Principle 8.6: when considering compensation, provide both stability and opportunity
  • Never pay for the job title alone. Pay for the person, not the job
  • Have performance metrics at least loosely tied to compensation
• Principal 8.7: remember that in great partnerships, consideration and generosity are more important than money
  • Be generous and expect generosity from others
• Principal 9.3: evaluate accurately, not kindly
  • In the end, accuracy and kindness are the same thing
• The greatest gift you can give someone is the power to be successful
  • Giving people the opportunity to struggle rather than giving them the things they’re struggling for will make them stronger
• Principal 9.6: make the process of learning what someone is like open, evolutionary, and iterative
• Principal 9.7: knowing how people operate and being able to judge whether that way of operating will lead to good results is more important than knowing what they did
• Principal 9.9: train, guard rail, or remove people. Don’t rehabilitate them
• No matter what work you do at a high-level, you are simply setting goals and building machines to help you achieve them
  • Like great musicians, all great managers have both creativity and technical skills
  • And no manager at any level can succeed without the skill set of an organizational engineer
• Principal 10.2: remember that for every case you deal with, your approach should have two purposes:
  1. To move you closer to your goal
  2. To train and test your machine that is your people and your design
     • The second is more important because it is how you build a solid organization that works well in most cases
• Principle 10.7: think like an owner and expect the people you work with to do the same
  • When people recognize that their own well being is directly connected to that of the community, they ownership relationship becomes reciprocal
• Force yourself and people who work for you to do difficult things

Closing thoughts:

Fantastic book! Definitely started strong, really got intense near the middle, and then had an okay finish.

In the first half of the book, I thought that this was some some high-level s*** he’s talking about. He was talking about evolution, the purpose of life, your purpose, how we fit into nature, why it all matters and also doesn’t matter. I definitely needed to stop and digest everything after those sections

I love how data driven and open-minded Bridgewater seems. I think it’s clear why they were so successful and stood out so much because they were radically transparent with each other and also radically open minded to try new things, but always used evidence-based decision-making and trial and error to make those advancements.

The discussion on how our brains were evolved to enjoy and thrive on cooperation, strongly relates to the theme of the book I’m currently reading Tribe. Not only are we wired to gravitate towards helping each other, but we excel when our relationships are stronger and we cooperate more towards a common goal. We do better psychologically as well as physiologically.

I enjoy personality types categorizations and discussing how they differ. I think this is key when trying to understand your nature so you can maximize your own potential, but also to understand and help maximize other people’s potentials. He also touches upon idea of the “big vision” people vs the “nuts and bolts” people that other books talked about. Gary Vaynerchuk calls it “sky” vs. “dirt” people, meaning people who are all visionaries versus the people who actually put it together, put simply.

My only complaint would be that the last couple hours of the book felt like a bunch of generic principles on work. While they were helpful, especially if you are a CEO or managing a large company, they seemed a bit too much like a “corporate handbook” type thing. I didn’t feel like taking notes on principles that felt generic like, “make sure you hire the right people,” which makes me feel like saying “well, duh!” However, if this was intended to be an A to Z-type principle book, I will give him credit as I do believe it hit all the right points.

So while it didn’t feel super tailored, I guess the value is that most people can read this entire book and get some value out of it. If they don’t get value from the “work” section, they’ll for sure get value from the “life” section.

Nutshell: Being principle-driven is the most effective way to achieve your goals, radial truth and radical transparency is the best way to make decisions, and the key to happiness is doing meaning work, having meaningful relationships, and matching your life to your nature.

Rating: 4.5/5