Principles by Ray Dalio
Lately, I’ve felt that I’m spending a lot of time on computer science and software development and not enough time on self-development. This is not aligned with my personal goal of becoming a more well-rounded person. Hence, I decided to take a step back and learn more about goal setting and people management by picking up a copy of the book “Priciples” by Ray Dalio (one of my good friends recommended this book to me).
The parts I enjoyed revolved around goal setting, planning, execution, self-reflection, overcoming failures, being bold and ambitious, being open-minded, data-driven, frank and truthful, understanding that people are wired differently, etc. I like that these were distilled succintly, logical and well exemplified given the context (even if the book repeats a lot).
However, I felt that some of the principles were Darwinian, punitive, unfeeling, unrealistic and possibly pseudo-science. Using baseball cards to rank employees oversimplifies complex human behavior and pigeonholes people. This also assumes that the evaluations to create the cards are accurate. A better solution might be to document real results that were delivered by employees and using that to create profiles instead of relying on things like Myers-Briggs personality tests to build baseball cards (Myers-Briggs strikes me as pseudo-science). I pity the poor souls who encounter extenuating personal problems in Bridgewater- I get the impression that they’ll be forced to jump off a plank.
Ideas like ignoring personal loyalty in favor of the organizational well-being and being radically truthful are admirable. However, in an organization that is not aligned with these principles, following such mantras is difficult as an individual. The truth is that nobody likes jerks, even they are completely unbiased and data driven. Even with the proper directives, I’m not sure how “radical” an employee can possibly be without coming across as cold-blooded. Nobody likes politicans either but I feel that navigating relationships is an art and involves tradeoffs. It’s better being frank than a phony but being “radical” seems unrealistic.
In defense of Ray, a lot of the principles are within the context of Ray’s own life learnings and his own organizational setting. Obviously being “radically transparent” in a military or political setting would be ill-advised but it could likely make-or-break an investment firm where billions of dollars are at stake. I imagine that the software equivalent of Ray’s organizational environment would be an innovative startup solving big problems.
Overall, I enjoyed Ray’s life story. I will apply many of Ray’s principles to my life, especially those concerning strategy and goal-setting. However, I believe that emotion and intuition can engender creativity (e.g., Steve Jobs’ intuition around the development of the ipod), so we shouldn’t completely discount these factors when making creative decisions, especially in the software industry (which is a creative field) and as an entrepreneur.
- #1 What do you want. #2 What is true. #3 What are you going to do about it?
- Key to success lies in striving for a lot and learning from failures.
- To be a successful entrepreneur, one has to be an independent thinker who correctly bets against the consensus, which means being painfully wrong a fair amount.
- Write down your system for decision making.
Part 1 : Where I’m Coming From
- Great is better than terrible, and terrible is better than mediocre, because at least terrible gives life flavor.
- When everybody thinks the same thing, it is almost certainly reflected in the price, and betting on it is probably going to be a mistake.
- There are always risks out there that can hurt you badly, so it’s best to assume you’re missing something.
- Making money should not be your goal because money has no intrinsic value- its 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 were are still are my primary goals and everything I did was for them.
- I had to change my mindset from “I’m right” to “How do I know I’m right”. This was done by finding other independent thinkerswho are on the same mission as me and who see things differently from me.
- Acknowledge 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 that won’t be true unless you give up.
- Maturity is the ability to reject good alternatives in order to pursue even better ones.
- All organizations basically have 2 types of people : those who work to be part of a mission and those who work for a paycheck.
- Having a few good uncorrlated return streams is better than having just one, and knowing how to combine return streams is even more effective than being able to choose good ones (though of course you have to do both).
- Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.
- There is almost always a good path that you just haven’t figured out yet, so look for it until you find it rather than settle for the choice that is then apparent to you.
- Work principles :
- Put our honest thoughts out on the table.
- Have thoughtful disagreements in which people are willing to shift their opinions as they learn.
- Have agreed-upon ways to deciding if disagreements remain so we can continue beyond them without resentments.
- Hire, train, test and then fire or promote quickly, so that we could rapidly identify the excellent hires and get rid of the ordinary ones.
- Joining Bridgewater is like joining an intellectual Navy SEALS. The people who thrive say that while the period of adjustment is difficult, it is also joyous because of the excellence they achieve and the extraordinary relationships they make. And the ones who can’t or won’t adapt must be cut; this is essential to keeping Bridgewater excellent.
- A shaper is someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts and opposition of others.
- Shapers can see both the big picture and the granular details. They are very resilient.
- Heroes inevitably experience at least one very big failure that tests whether they have the resilience to come back and fight smarter and with more determination.
- Wrong to assume either that a person in one role will be successful in another role or that the ways one person operates will work well for another.
- I cannot say that having an intense life filled with accomplishments is better than having a relaxed life filled with savoring.
- The happiest people discover their own nature and match their life to it.
Part 2 : Life Principles
- Embrace reality and deal with it.
- Dreams + Reality + Determination = A Successful Life
- Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change.
- Don’t let fears of what others think of you stand in your way.
- Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are.
- Evolve or die.
- Adaptation through rapid trial and error is invaluable.
- In order to gain strength, one has to push one’s limits, which is painful. If you’re not pushing your limits, you’re not maximizing your potential.
- There are a whole host of ways that something will get you. At such times, you will be in pain and might think that you don’t have the strength to go on. You almost always do, however; your ultimate success will depend on you realizing that fact, even though it might not seem that way at the moment.
- 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.
- Distinguish between you as the designer of your machine (an algorithm to reach your goal) and you as a worker with your machine. This way, when you compare your outcome with your goal, you can tweak the design of your machine. If you’re just a worker in your machine, you’re only living in the moment and not reflecting.
- When encountering your weaknesses, you have 4 choices :
- Deny them.
- Accept them and work on them.
- Accept them and find ways around them.
- Change what you are going after.
- 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, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing.
- If you are open-minded enough and determined, you can get virtually anything you want.
- Don’t blame bad outcomes on anyone but yourself.
- Face the harsh realities.
- Personal evolutionary process takes place in 5 steps :
- Have clear goals.
- Never rule out a goal because you think it’s unattainable. Be audacious. There is always a best possible path.
- If you limit your goals to what you know you can achieve, you are seting the bar too low.
- Identify and don’t tolerate problems that stand in the way of achieving these goals.
- Accurately diagnose the problems to get to their root causes.
- Design plans that will get you around them.
- Be granular with your plans and make sure progress is measurable.
- It doesn’t take a lot of time to design a good plan.
- Do what’s necessary to push these designs through to results.
- Everyone has at least one big thing that stands in their way of success. Find yours and deal with it.
- Have clear goals.
- Be Radically Open-Minded.
- The two biggest barriers to good decision making are your ego and your blind spots.
- Radical open-mindedness allows you to escape from the control of your lower-level (emotional) you and ensures that your upper-level (logical) you sees and considers all the good choices and makes the best possible decisions.
- Don’t worry about looking good; worry about achieving your goal.
- If one person is clearly more knowledgeable than the other, it is preferable for the less knowledgeable person to approach the more knowledgeable one as a student. Believable people are those who have repeatedly and successfully accomplished the think in question and have great explanations of their approach when probed.
- Triangulate your view with believable people who are willing to disagree.
- Be evidence-based and encourage others to be the same.
- Understand that people are wired very differently.
- The human brain comes pre-programmed with the need for and enjoyment of social cooperation.
- If you stick with a behavior for eighteen months, you will build a strong tendency to stick to it nearly forever.
- Habits control people’s behavior.
- If you really want to change, the best thing you can do is choose which habits to acquire and which to get rid of.
- Shaper = Visionary + Practical Thinker + Determined.
- Shapers love to knock things around with other really smart people and can easily navigate back and forth between the big picture and the granular details, counting both as equally important.
- Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.
- Manage yourself and orchestrate others to get what you want.
- One of the conductor’s hardest and most thankless jobs is getting rid of people who consistently don’t play well individually or with others.
- Learn How to Make Decisions Effectively.
- Recognize that the biggest thread to good decision making is harmful emotions. And that decision making is a 2 step process : first learning and then deciding.
- Learning requires being radically open-minded and seek out believable others. Deciding involves playing different scenarios through time to visualize how to get an outcome consistent with what you want.
- One of the most important things is to ask believable people. Listening to uninformed people is worse than having no answers at all.
- Be an imperfectionist. Perfectionists spend too much time on little differences at the margins at the expense of the important things. The marginal gains of studying even the important things past a certain point are limited.
- Use the terms “above the line” and “below the line” to establish which level a conversation is on. A “above the line” conversation addresses the main points and a “below the line” conversation focuses on the sub-points.
- Don’t jumble and tangle “above the line” and “below the line” conversations. Be organized and ensure some level of separation/organization.
- (Probability of being right on a decision * Winnings) - (Probability of being wrong on a decision * Losses) = Expected value. If expected value is positive, its probably a good decision.
- Simplify : get rid of irrelevant details so that essential things stand out.
- Use priciples to make decisions.
- Let believability weight your decision making.
- In order to have the best life possible, you have to (1) know what the best decisions are and (2) have the courage to make them.
- Embrace reality and deal with them well.
- My work principles are basically the life priciples you just read, applied to groups.
Part 3 : Work Principles
- For any group to function well, its work principles must be aligned with its members’ life principles.
- A great organization has both great people and great culture.
- Great people have both great character and great capabilities.
- Great cultures bring problems to the surface and solve them well. And they love imagining and building great things that haven’t been built before.
- I was looking for meaningful work and meaningful relationships. Great partnerships come from sharing common values and interests, having similar approaches to pursuing them and being reasonable with each other.
- Tough love is effective for achieving both great work and great relationships.
- A believability-weighted idea meritocracy is the best system for making effective decisions.
- Idea meritocracy = Radical Truth + Radical Transparency + Believability-Weighted Decision Making
- Independent thinkers with audacious goals -> Idea meritocracy -> Principles decisions -> Successes (Failures and Learnings) -> Happy employees -> More independent thinkers and audacious goals.
- Make your passion and your work one and the same and do it with people you want to be with.
To get the culture right…
Chapter 1 : Trust in Radical Truth and Radical Transparency
- Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces.
- Speak up, own it or get out.
- Push the limits of being transparent while remaining prudent.
- Provide transparence to people who handle it well and either deny or fire the others.
- Don’t share sensitive info with enemies.
- Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency.
Chapter 2 : Cultivate Meaningful Work and Meaningful Relationships
- Be loyal to the common mission and not to anyone who is not operating consistently with it.
- Generosity is good, entitlement is bad.
- Give more consideration to others than you would give yourself.
- Having groups of about hundred (+/- 50) that are bound collectively by our common mission is the best way to scale meaningful relationships.
Chapter 3 : Create a culture in which it is okay to make mistake and unacceptable not to learn from them
- Error logs : Bad outcomes are recorded so we can track and address them systematically.
- Mistakes are an important part of the evolutionary process.
- Observe patterns of mistakes and see if they’re caused by weaknesses.
- Pain + Reflection = Progress.
- Teach the merits of mistake-based learning.
- Some mistakes are acceptable while others are unacceptable.
Chapter 4 : Get and stay in sync
- People who suppress minor conflicts tend to have much bigger conflicts later on. People who address them early have the best and longest-lasting relationships.
- Thoughtful disagreement is about reaching the truth, not about being right.
- Spend lavishly on time and energy you devote to getting is sync, because its the best investment you can make.
- Distinguish between idle complaints and complaints meant to lead to improvement.
- Watch out for people who think it’s embarassing not to know.
- Look out for misinterpretations or misunderstandings.
- If either party to a disagreement is too emotional to be logical, the conversation should be deferred. Pausing a few hours or days where decisions do not have to be made immediately is sometimes the best approach.
- If it is your meeting to run, manage the conversation.
- Be precise what you’re talking about to aviod confusion.
- Topic slip is random drifting from topic to topic without achieving completion on any of them.
- Assign action items after the group has made decisions.
- Great collaboration feels like jazz.
- 3 to 5 smart people seeking the right answers in an open-minded way will generally lead to the best answers compared to a larger group. Of course this depends on the quality of the poeple, differences in perspectives and how well the group is managed.
- If you can’t get in sync with someone on shared values, you should consider whether that person is worth keeping in your life.
Chapter 5 : Believability weight your decision making
- The most believable opinions are those of people who 1) have repeatedly and successfully accomplished the thing in question and 2) have demonstrated that they can logically explain the cause effect relationships behind their conclusions.
- When a decision needs to be made, consider who is more likely to be right.
- Remember that everyone has opinions and they are often bad.
- Don’t pay as much attention to people’s conclusions as to the reasoning that lead them to the conclusions.
- Less experienced, less believeable people may not be necessary to decide an issue but if the issue involves them and you aren’t in sync, this can impact long term efficiency.
Chapter 6 : Recognize How to Get Beyond Disagreements
- Don’t let the little things divide you when your agreement on the big things should bind you.
- Once a decision is made, everyone should get behind it even though individuals may still disagree.
- Encountered people, especially junior people, who mistakenly think that they are entitled to argue about whatever they want with whomever they please. They must abide by the system and not threaten it.
To get the people right…
- Steve Jobs “The secret to my success is that we’ve gone to exceptional lengths to hire the best people in the world.”
- Hire people who understand the distinction between their lower level selves and their higher level selves. Give them tools and information they need to flourish in their jobs and not micromanage them.
Chapter 7 : Remember that the WHO is more important than the WHAT
- What you need to do :
- Remember the goal.
- Give the goal to people who can achieve it or tell them how to achieve it.
- Hold them accountable.
- If they still can’t do the job after training, fire them.
- Make sure everyone has someone they report to, so that they can hold them responsible.
- Most people see the things around them without consider the forces that created them.
Chapter 8 : Hire right because the penalties for hiring wrong are huge
- At high level we look for people who think independently, argue open-mindedly and assertively and above all else value the the intense pursuit of truth and excellence, and through it, the rapid improvement of themselves and the organization.
- For long term relationships, values are most important, abilities come next and skill are the least important. Yet people make the mistake of choosing skills and abilities first and overlooking values.
- Look for people who sparkle, not just any ol one of those.
- Personality assessments are valuable tools for getting a quick picture of what people are like in terms of their abilities, preferences and style.
- Think of your teams the way that sports managers do : no one person possesses everything required to produce success, yet everyone must excel.
- A persons performance in academia doesn’t tell you much about their values.
- Look for people who ask lots of great questions.
- Pay the person, not the job. Never pay based on the job title alone.
Chapter 9 : Constantly train, test, evaluate and sort people
- Radical truth doesn’t require you to be negative all the time. Point out examples of jobs done well and the causes of their success.
- Make your metrics clear and impartial.
- It is much worse to keep someone in a job unsuitable for them than it is to fire or reassign them.
Chapter 10 : Manage as someone operating a machine to achieve a goal.
- Understand that a great manager is an organizational engineer. They create process-flow diagrams to show how the machine works, and evaluate its design. They build metrics to light up how well each of the individual parts of the machine and the machine as a whole are working. And they tinker constantly with its designs and its people to make both better.
- Build great metrics.
- Delegate theh details.
- No manager should delegate responsibilities to people they don’t know well.
- Vary your involvement based on your confidence.
- Use daily updates as a tool for staying on top of what your people are doing and thinking. I usually ask each person who reports to me to take about 10 to 15 mins to write a brief description of what they did that day, the issues pertaining to them and their reflections.
- People’s answers could be erroneous theories or spin so you need to occasionally double-check them, especially when they sound questionable.
- Allowing small problems to go unnoticed and unaddressed creates the perception that it’s acceptable to tolerate such things.
- Going on vacation doesn’t mean one can neglect one’s responsibilities. This needn’t take much time.
- Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do. Just worry about making the best decisions possible, recognizing that what you do, most everyone will think you’re doing something wrong.
- If you’ve agreed with someone that something is supposed to go a certain way make sure it goes that way- unless you get in sync about doing it differently.
- Watch out for pepole who confuse goals and tasks because if they can’t see the distinction, you can’t trust them with responsibilities.
Chapter 11 : Perceive and Don’t Tolerate Problems
- People have a tendency to slowly get used to unacceptable things that would shock them if they saw them with fresh eyes.
- Avoid the anonymous we and they because they mask personal responsibility.
Chapter 12 : Diagnose Problems to Get at their Root Causes
- What are common mistakes in failing to diagnose problems?
- Dealing with problems as one offs without fixing root causes.
- Not connecting problems to the people who failed.
- Not connecting what one is learning to what was learned in the prior ones.
- Ask yourself “who should do what differently?”
- Identifying the fact that someone else doesn’t know what to do doesn’t mean that you know what to do.
- Root causes are not actions but reasons.
- Root cause discovery process might proceed like this :
- The problem was bad programming.
- Why was there bad programming? Because Harry programmed it badly.
- Why did Harry program it badly? Because he wasn’t well trained and was in a rush.
- Why wasn’t he well trained? Did his manager know he wasn’t well trained?
- Use the “drill down” technique to understand the department that is having problems.
- Step 1 : List the problems. Be specific. Don’t try to find solutions yet.
- Step 2 : Identify root causes. Most problems happen due to one of two reasons. 1) It isn’t clear who the RP is or 2) The RP isn’t handling his/her responsibility well. To get to the root cause, keep asking “Why?”
- Step 3 : Create a plan. Step away from the group and develop a plan that addresses the root causes. They should have specific tasks, outcomes, RPs, tracking metrics and timelines.
- Step 4 : Execute on the plan.
Chapter 13 : Design Improvements to your machine to get around your problems
- Consider second and third-order consequences not just first order ones.
- Build around goals rather than tasks.
- Make sure you hire managers before you hire their reports.
- Everyone must be overseen by a believable person who has high standards.
- Make departments as self-sufficient as possible so that they have control over the resources they need to achieve their goals.
- Generally the raio of managers to reports should not be more than 1:10 and preferably closer to 1:5. Of course this depends on the managers ability and complexity of jobs they’re doing.
- Don’t just pay attention to your job, pay attention to how your job will be done if you are no longer around.
- Hiring a consultant can get you specialized expertise to tackle a problem, but beware at the same time because this will cost you in the long run and erode your culture.
- When evaluating whether to use a consultant, consider :
- Quality control. The company you hire from must have high standards.
- If a full-time consultant is required, the annual cost will be more than creating a new internal role.
- Institutionalization of knowledge. An internal employee will gain knowledge and an appreciation of your culture over time which no consultant can.
- Security risks.
- Don’t do work for people in another dept or grab people from another dept unless you speak to the person responsible for overseeing the other dept.
- Effective managers pay attention both to imminent problems and to problems that haven’t hit them yet.
- When you catch someone violating your rules and contorls, make sure everyone sees the consequences. (?)
- Constantly think about how to produce leverage. At Bridgewater, I typically work at a 50:1 leverage, meaning that for every hour I spend with each person who works for me, they spend around 50 hours working to move the project along.
Chapter 14 : Do what you set out to do.
- While there might be more glamour in coming up with new brilliant ideas, most of the success comes from doing mundane and often distasteful stuff, like identifying and dealing with probblems and pushing hard over a long time.
- Work for goals that you are excited about. If you’re excited aobut achieving it and recognize that doing some undesirable tasks to achieve the goal is required, you will have the right perspective and will be appropriately motivated.
- Don’t act before thinking. Take time to come up with a game plan.
- Recognize thhat everyone has too much to do. Other than working harder for longer hours, there are 3 ways to fix the problem. 1) Having fewer things to do by prioritizing and saying no, 2) Finding the right people to delegate to and 3) Improving your productivity.
- Cross items off a checklist.
- Celebrate when your team achieves a goal.
Chapter 15 : Use tools and protocols to shape how work is done.
- Put your learnings and principles into practice; no point just reading about them.
Chapter 16 : And for heavens sake, don’t overlook governance.
- All organizations must have checks and balances.
- Make sure no one is more powerful than the system or so important that they’re irreplaceable.
- Make sure reporting lines are clear.
- My wishes for you are 1) You can make your work and passion one and the same. 2) You can struggle well with others on your common mission to produce previously mentioned rewards. 3) You can savor your struggles and rewards. 4) You will evolve quickly and contribute to evolution in significant ways.
- Coach : Library of common situations which are linked to relevant principles to help people handle them.
- Dot collector : Used in meetings to assess each other using “dots”, positive or negative, on any number of several dozen attributes.
- Baseball cards : Collect data on people (reviews, tests, past results, etc) and create baseball cards, a simple way of presenting a person’s strengths and weaknesses and the evidence behind them.
- Issue log : Record mistakes and learn from them.
- Pain button : pain + reflection = progress. It’s an app to record people’s emotions as they feel them and then come back later to reflect on them using guided reflection questions.
- Dispute resolver : Asks a series of questions to guide people towards resolution. One feature is that it locates believable people who can help determine wheteher a disagreement is worth taking up at a higher mgmt level. You must have a clear and fair system to resolve disputes in order to ensure an idea meritocracy.
- Daily update tool : Each person who reports to me take about 10-15 mins to write a brief email of what they did that day, issues and reflections. I can use this to gauge how they are working together and which threads I should pull. It’s invaluable for staying in sync.
- Contract tool : App that lets people make and monitor their commitments to each other.
- Process flow diagram.
- Policy and procedures manual.
- Metrics : Four helpful steps in creating good metrics: 1) Know what goal your business is achieving. 2) Understand the process for reaching that goal. 3) Identify key parts in the process to measure. 4) Explore how to create levers tied to metrics that allow you to adjust your process. The test of effective metrics lies in whether they can tell you what and who is doing well and poorly, all the way down to specific people.