Principles by Ray Dalio is an interesting book. It’s full of very smart ideas on managing your life and work — by probably one of the smartest people out there. Ray Dalio is a self-made billionaire who founded Bridgewater Associates and grew it into one of the largest hedge funds in the world.
Over the years, he developed a system of hundreds of principles and used them to give structure to his decision making. As you might’ve guessed, this book brings them all together in one place. It’s a three part book: the first is autobiographical (this is the part I liked the best, mainly because I’m a sucker for biographies), the second is Life Principles and the third is Work Principles.
A fair warning: the book is overall very dry and not easy to read. At times, it feels like the principles are repetitive, and even the writing may feel stretched out. I was lucky that I chose to get this one on Audible where it’s much easier to tolerate these flaws. Having said that, if you’re a startup founder, or an operator/manager of any sort, this book would teach you a lot, so muster your willpower and go through it!
- Embrace Reality and Deal with it: As Ray Dalio puts it, “Pain + Reflection = Progress”. This part borrows ideas form Stoicism. You have to own your outcomes and weigh second- and third-order consequences of your actions.
- Use the 5-Step Process to Get What You Want Out of Life: Have clear goals, identify the problems, get to their root causes, design a plan and finally push through to completion. I know, it’s easier said than done.
- Be Radically Open-Minded: Recognizing your ego barrier and your blind spots is the key to progress. Radical open-mindedness can be intentionally practiced, and so can thoughtful disagreement.
- Understand That People are Wired Very Differently: This section talks about different personality types, in particular, the Myer-Briggs Type Indicator, that Ray Dalio rigorously worked into Bridgewater’s hiring process. Get the right people in the right roles in support of the goals you’re collectively trying to establish.
- Learn How to Make Decisions Effectively: In this section, I rencountered the idea of thinking of your decision making as expected value calculations. Ray takes it a step further and advises you to convert your principles into algorithms and have a computer make decisions alongside you. The biggest threat to good decision making is harmful emotions, so don’t override the computer too much.
- Trust in Radical Truth and Radical Transparency: Have integrity and demand it from others. Have a culture where everyone has the right to understand what makes sense, and no one has the right to hold a critical opinion without speaking up. There’s nothing to fear from knowing the truth.
- Cultivate Meaningful Work and Meaningful Relationships: This goes hand in hand with the last point, since meaningful work and meaningful relationships are mutually reinforcing, especially when supported by radical truth and radical transparency. Treasure honorable people who are capable and will treat you well even when you’re not looking.
- Create a Culture in Which it is Okay to Make Mistakes, but Unacceptable Not to Learn From Them: Mistakes are a natural part of the evolutionary process, so worry about achieving the collective goals, and not about looking good. Be self-reflective when you experience pain, and observe the patterns of mistakes to see if they are products of weaknesses in the system.
- Get and Stay in Sync: Conflicts are essential for great relationships because they ultimately lead to alignment in principles and resolution of differences. Always stay open-minded but assertive at the same time. Know how to get in sync and disagree well.
- Believability Weight Your Decision Making: This is similar to Life Principle #5, but with the modification that you should have a higher weight for the opinions of more believable people in your decision tree. Having an effective idea meritocracy requires you to understand the merit of each person’s ideas.
- Recognize How to Get Beyond Disagreements: Principles can’t be ignored by mutual agreement. “Disagree and commit” idea: once a decision is made, everyone should get behind it even though individuals may still disagree.
- Remember that the WHO is More Important than the WHAT: The most important decision for you to make is who you choose as your “Responsible Parties”: those responsible for goals, outcomes, and organizational machines at the highest levels.
- Hire Right, Because the Penalties for Hiring Wrong Are Huge: When hiring, you have to match the person to your organization’s design. This borrows ideas from Life Principle #4, in that people are built are differently and are suitable for different jobs¹. Broadly speaking, hire well by paying attention to people’s track records, and hire those you want to share your life with. When it comes to compensation, provide both stability and opportunity and remember that consideration and generosity are more important than money. Cherish the great people you hire — think hard about how to keep them.
- Constantly Train, Test, Evaluate, and Sort People: Everybody goes through a personal evolution over time. Your job is to provide constant feedback and evaluate accurately, not kindly. After all, tough love² is the hardest and the most important type of love to give (but is never welcomed). Make the process open, evolutionary, and iterative. When judging someone, see how they operate and whether that way of operating sets them up for success in your organization. Finally, train, guardrail, or remove people; don’t rehabilitate them, don’t lower the bar.
- Manage as Someone Operating a Machine to Achieve a Goal: For every case you deal with, your approach should have a twofold purpose: get closer to your goal, and train and test your machine (i.e., your people and your organizational design). Communicate the plan clearly, have clear metrics, clearly assign responsibilities, hold yourself and your people accountable, and treat everyone appropriately.
- Perceive and Don’t Tolerate Problems: Be very specific about problems and don’t be afraid to fix the difficult things. Avoid the anonymous “we” and “they”, because they mask personal responsibility.
- Diagnose Problems to Get at Their Root Causes: Diagnose continously and maintain an emerging synthesis. To diagnose well, ask the following questions: 1. Is the outcome good or bad? 2. Who is responsible for the outcome? 3. If the outcome is bad, is the Responsible Party incapable, and/or is the design bad?
- Design Improvements to Your Machine to Get Around Your Problems: Recognize that design is an iterative process. Almost everything will take more time and cost more money than you expect.
- Do What You Set Out to Do: Work for goals that you and your organization are excited about, and thing about how your tasks connect to those goals. Use checklists, allow time for rest and renovation, and don’t get frustrated.
- Use Tools and Protocols to Shape How Work is Done: Having systemized principles embedded in tools you use is especially valuable for an idea meritocracy to function well. Use tools to collect data and process it into conclusions and actions.
- Don’t Overlook (Corporate) Governance: All organizations should have checks and balances. Remember, no governance system can substitute for a great partnership.
- ¹This broadly goes against my firm belief in Carol Dweck’s Growth Mindset, and I’m not sure how much I agree with this.
- ²This New York Times article talks at length about Dalio’s principle of tough love.
- You may have noticed that the tone of this book (and hence this post) is very cut-throat. I speculate it’s just Dalio’s decades being part of the New York finance culture rubbing off.
- Dalio did a great job with the social media promotion and general web presence around the launch of this book in the later half of 2017. The book website is also worth checking out, especially the Principles for Success section: it’s an 8-part mini animated series that summarizes some of the principles in a more engaging way.
- This is the first book I saw an Instagram “Story” ad for. I guess why not, after all, it’s 2018.
- If you want the whole list of Principles, check out the Audible accompaniment that comes with the book and scroll right down to the last few pages. I’m not sure if it’s meant to be shared publicly, but the link is public. 🤷♂️
- (Update 6/1/18): Ray Dalio did an AMA on Reddit, which was pretty interesting too.
This is #20 in a series of book reviews published weekly on this site.