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Key insights from
Principles: Life and Work
By
Ray Dalio
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What you’ll learn
Ray Dalio built Bridgewater Associates out of his small New
York City apartment in 1975. Bridgewater is now considered one of the most
successful investing firms in the world, and Times and Forbes
have deemed him one of the world’s wealthiest, most influential people
alive. In this book, Dalio distills decades of knowledge and experience
into guiding principles for getting all that we can out of life. According
to Dalio, it all begins with fundamental truths that equip us to achieve
our personal and professional goals.
Read on for key insights from Principles.
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1. Principles help
us confront challenges and give meaning to life and work.
Principles are the essential foundations for a life full of
meaning and growth. They drive our actions and define what we hope to
achieve. With principles, we have the tools to make sense of our
experiences and act accordingly. Without them, we would approach each situation
as if it were the first of its kind, resulting in paralysis or anxiety.
People tend to be successful when they can operate
comfortably in the unknown. Learn to embrace the fact that there are many
things you do not know. More important than what you know is how you handle
uncertainty. As you create principles, it is essential that they are
authentic to who you are. Figure out what you want, what is true, and what
you should do in light of those wants and truths.
Phoniness is the worst. It betrays trust with others and
shows a lack of self-respect. As you develop your principles, write them
down. You can then return to them later for reorientation and refinement.
Principles will become clearer and life more fulfilling through the process
of setting audacious goals, failing, learning from those failures,
improving, and then going after even more audacious goals.
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2. Life is more
meaningful when we align ourselves with reality.
There is nothing more unfortunate than an impractical
idealism that daydreams without any clue as to how those ideas interface
(or don’t) with reality. The untethered idealist will end up with problems
instead of progress. It is better to operate as a hyper-realist: one who
has fierce dreams, but takes concrete, determined strides toward their
realization. Some like to savor life; others want to make an impact. Both
are fine goals, and they don’t have to be mutually exclusive. What is
important to remember is that truth must be part of the pursuit of either
end.
But what is truth? Truth refers to an accurate grasp of
reality. Some people fight the truth because it can be bitter stuff and
they can’t cope with it, but truth isn’t going anywhere. It is better to
accept reality and confront difficult truths than to cry about them. What
is more, even the harsher truths can become more palatable if you commit to
radical open-mindedness and transparency. This carries risks because it
means exposing yourself to the possibility of being wrong and being
critiqued. However, it becomes easier the more you do it, and it expedites
the process of learning and growing because you expose yourself to more
opportunities for feedback.
This is a daunting prospect for some because it means
letting go of the fear of other people’s opinions. But you will be glad
when you do, because meaningful work and meaningful relationships are the
fruit of open-mindedness and transparency.
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3. The natural
order can help put us in better touch with reality.
Nature gives us some key clues about how reality operates.
Nature’s enormity alone has a chastening effect on human hubris, showing us
that we are a small part of a larger, complex whole. Perhaps we would be
wise to consider taking our cues from nature before presuming a monopoly on
truth and how the universe operates.
Take evolution, for instance, probably the strongest force
in the nature. The one constant in life is flux and change. We evolve or we
die. We learn to adapt and improve ourselves. It is true for species, for
individuals, organizations, and businesses. It doesn’t matter is we fail,
so long as we learn from our failure. To learn from our mistakes and evolve
is a great achievement and a source of immense satisfaction.
Principles from nature are ours to harness and harvest. As a
practical application, consider how understanding evolution in nature can
help us fast track our personal evolution by getting better at things and
solving problems. (As an aside, this is far more satisfying than simply
acquiring new things. The law of diminishing returns is another term
derived from the natural order.) By pressing into new frontiers, we will
inevitably encounter pain, but we will also begin to grow. Accept the pain.
Learn from it. Adapt and let it make you stronger.
If you’re experiencing pain in your life, this does not
necessarily mean you’ve made a mistake. In fact, it could mean that you’re
doing something right, discovering new problems to which you can find
solutions. Confront the pain along the way. Another part of this is taking
ownership of your decisions and accepting the things that are beyond your
control to change. Knowing the difference is critical. You will be far
happier if you take responsibility for what you can change and refrain from
blaming others or circumstances for your unhappiness and failures.
Psychologists refer to people with this ability as possessing an “internal
locus of control.” Such people are not rattled by externals, but maintain
an inner sense of stability by acting on what they can control: their own
thoughts, attitudes, and actions.
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4. To get what you
want out of life, it is important to engage in the 5-step process of
personal evolution.
It all begins with your goals. This will determine the
direction you take. As you pursue your goals, you will run into problems
along the way. When confronted with problems, you have the opportunity to
diagnose them, design a new path forward, and enact the newly designed
plans. These five steps form the basis for a feedback loop of personal
growth. Let’s look at each step in turn.
Goals
What do you value enough to go after? Your goals must be
clear. You can achieve just about anything you want to, but you cannot have
it all. Choose what’s most important and put your hand to the plow. It is
important to distinguish between goals and desires. Goals should be so
central to who you are that you have to go after them. Desire
can—and ideally will—eventually align with goals, but there are plenty of
times when it conflicts with goals. In these instances, don’t let desire
win out over what you know you need to do. It is okay to be audacious with
your goals. There is rarely a straightforward path, but there is a best
path, and it will become clearer as you start taking steps forward.
Problems
It is important to remember that setbacks are inevitable in
this process. Avoidance is tempting because the problems stem from tough
realities; however, it is best to deal with them squarely. To deny or shy
away from problems is to miss out on opportunities for learning and growth.
Figure out what your particular problem is and deal with it
decisively—don’t tolerate its existence. Just keep in mind that time is
limited, so spend it identifying the main problems, as solving them will
have the biggest positive impact on your goals.
Diagnosis
When grappling with problems, we tend to be reactionary. To
deal with them decisively involves truly understanding their nature. Don’t
jump to the how until you are sure you understand the what.
Design
In a similar vein, design comes before doing. People are so
eager to execute that they fail to review past steps and snags or to draft
a revised plan of action in light of those past experiences. Your plans
should resemble a movie script, tentatively anticipating actions and lines
of the characters involved in the project you are attempting to realize.
This provides a guide and a template against which to compare the plan’s
actual unfurling.
Doing
People who attempt to execute ideas without designing solid
plans won’t make it, but neither will the planners who don’t execute at
all. It requires discipline and courage to stick to the script as best you
can. Prioritized to-do lists and good metrics to measure progress are both
underrated and essential to helping you achieve the results you envision.
It is imperative to perform every step in the prescribed
order, one at a time. Don’t look for solutions until you know what the
problem is. Don’t troubleshoot problems that haven’t happened yet. If the
steps are not discrete or in order, you will not be able to discern
problems readily or solve them effectively.
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5. The ego and
blind spots are the most significant obstacles to clear decision-making.
Good decision-making is critical, but your ego and personal
blind spots can cloud your judgment. Both are embedded in the brain’s
inner-workings; so if you have a brain, then you have definitely seen the
consequences of both in your life.
The ego barrier has to do with the defenses we put up so we
don’t have to acknowledge our shortcomings and missteps. Your basic needs
of love, significance, and survival—and the fear of losing any of
those—originate in the amygdala. Even if your conscious brain may tell you
that the constructive criticism you’re receiving is good and helpful, you
might feel a visceral anger and get defensive. Your higher, conscious self
is often at war with the more primal, emotional subconscious. Critique can
feel like attack, leading us to react in anger if we are not careful. Never
let the urge to be right drown out the need to pursue truth in a situation.
The need to be right and justify oneself springs from egoism.
Blind spots are another impediment to clear decision-making.
No one sees everything perfectly clearly. Some people catch the details
that big-picture people miss. On the other hand, big-picture people are
better at keeping overarching goals in mind. Both have their place. The
slew of personality tests all reveal that there are strengths and
weaknesses with every personality, both things we see clearly and things we
often overlook.
Failing to acknowledge these barriers is a recipe for
close-mindedness and gridlock. No one wins. These barriers are tragic flaws
that affect countless smart, industrious individuals. Closed-mindedness is
not, however, insurmountable.
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6. Open-mindedness
sets us free from the pressure of always being right and performing
perfectly.
Are you close-minded? If you are, are you willing to admit
it and face that uncomfortable truth? Consider this an opportunity for
honest self-examination. What follows are some telltale signs of
close-mindedness.
Close-minded people become resentful when their ideas
receive pushback. They tend to make lots of assertions without asking
questions, and are far more concerned with being understood than
understanding the viewpoint of others. Oftentimes they lack the humility to
admit that they are wrong or the capacity to hold two disparate ideas at
the same.
Even the preface “I could be wrong . . . ” is often a
veneer to mask close-mindedness. This preface is invariably followed by an
assertion rather than a question. It is best to respond to such statements
with a question instead of a counter-argument.
This is what we are trying to avoid, but what are we going
for? The answer is that we need to work toward a radical open-mindedness.
It is the humble acknowledgement of the two barriers and the belief that
you may not be viewing your choices from the ideal vantage point.
The radically open-minded value achievement over simply
appearing competent, so they take in and process information before
worrying about how they’ll perform. The open-minded have the ability to
suspend judgment of a differing opinion long enough to truly understand it,
and are willing to abandon the solution they came up with if presented with
a better one. They are aware that they don’t know everything and focus on
navigating the the open seas of the unknown instead of feeling bound to
their small pool of knowledge. As a result, they welcome respectful
arguments from thoughtful objectors.
These are the traits of a mindset that is as admirable as it
is rare. Open-mindedness, however, can be cultivated. Viewing points of
pain as opportunities for reflection, becoming acquainted with blind spots,
meditating, and giving greater weight to evidence and logic than to your
personal feelings are all ways to develop patterns of open-mindedness.
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7. The ability to
distinguish levels of reality is key to maintaining perspective and
prioritizing tasks.
There is not a “best way” to make decisions; however, there
are some absolute truths that help us choose effectively.
The most significant threat to clear decision-making is
destructive emotions. Failure to learn before making decisions is also
extremely problematic. Perspective is key to dealing with these potential
pitfalls. If we think of our experiences as little “dots” that we accrue
over the course of the day, we end up with many of these dots before the
day’s end. Some people become anxious when they cannot categorize or
prioritize the experiences they have. They end up overwhelmed by the sheer
volume of raw data.
A big-picture perspective is critical, because it allows you
to stratify experiences and lump them into levels of varying importance and
urgency. To help you make sense of your experiences, make sure you are
asking questions of other people, and that you are asking the right people.
The opinions of the uninformed usually do more harm than good. Refuse to
submit to the tyranny of the present. Personalities and situations loom
larger in the moment than they actually are. Hindsight shows this to be
case over and over again. Returning to the dots, bear in mind both the
importance of weighing experiences and that a dot is just a dot. Avoid
becoming inordinately transfixed with single dots; they can only teach you
so much. The larger patterns of dots are more crucial to identify. They
provide a higher perspective and they prevent every single experience from
becoming a saga.
If harmful emotions are an impediment to making good
decisions, then logic, evidence, and common sense will help you. They will
allow you to make sense of your situation at all its levels and clarify
what you need to do. Take action based on evidence—not feelings. Any idiot
can complicate matters, but it takes insight and practice to simplify
things.
The ability to keep things in perspective and prioritize
accordingly is essential. It is easy to amass facts and principles, but
these will leave us paralyzed if we do not learn to differentiate between
reality’s various levels (e.g., there is a vast difference between “I want
to change the world” and “I need to cook dinner for my family”). Track your
conversations and you will observe how fluidly we move between these
various levels of reality. As you cultivate these skills, it is best to be
an imperfectionist. Perfectionists have a hard time keeping the main thing
the main thing and are often the first to get lost in the weeds.
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8. The idea
meritocracy is the best approach to decision making, hands down.
An idea meritocracy is a system of reaching the best
decision through robust discussion among intelligent, freethinking,
credible individuals with a shared goal. When Bridgewater Associates was
still a fledgling company, the approach to decision-making typically
involved informal heated arguments that would eventually lead to a decision
that was better than what anyone could have thought up on his own. This
process became more explicit and systematic as Bridgewater grew and the
range of issues and opinions widened. The company needed a system to fairly
evaluate the differing voices, so that everyone had to chance to state
their opinion and play a role in reaching the best possible decision.
For the idea meritocracy to work, there must be a staunch
commitment to truth and transparency. What is more, decisions must be
believability-weighted. This means that it is not enough that everyone says
his piece: depending on the decision at hand, certain people will be able
to speak to the issue with varying degrees of insight and authority. The
believability of each person involved must also be taken into account. This
triangulation with people who can meaningfully speak to an issue sharpens us
and helps us fine-tune what is at stake and what needs to be done.
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Endnotes
These insights are
just an introduction. If you're ready to dive deeper, pick up a copy of
Principles here. And since we get a commission on
every sale, your purchase will help keep this newsletter free.
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