Principles by Ray Dalio

December 25, 2018

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.

Introduction

  • #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

Chapter 1

  • Great is better than terrible, and terrible is better than mediocre, because at least terrible gives life flavor.

Chapter 2

  • 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.

Chapter 3

  • 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.

Chapter 4

  • 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 :
    1. Put our honest thoughts out on the table.
    2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn.
    3. Have agreed-upon ways to deciding if disagreements remain so we can continue beyond them without resentments.

Chapter 5

  • 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.

Chapter 6

  • 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.

Chapter 7

  • 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.

Chapter 8

  • 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

  1. 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 :
      1. Deny them.
      2. Accept them and work on them.
      3. Accept them and find ways around them.
      4. 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.
  2. Personal evolutionary process takes place in 5 steps :
    1. 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.
    2. Identify and don’t tolerate problems that stand in the way of achieving these goals.
    3. Accurately diagnose the problems to get to their root causes.
    4. 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.
    5. 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.
  3. 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.
  4. 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.
  5. 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 meaninful 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.