Summary: Principles: Life and Work (2017) contains a set of unconventional principles that individuals can use to achieve their goals. The book was written by billionaire investor and philanthropist Ray Dalio who founded ‘Bridgewater’ –one of the largest hedge fund companies in the world. In 2012, Dalio was ranked by Time Magazine as one of the 100 most influential people in the world.
“Before we begin…
…let me just establish the fact that I don’t know much relative to what I need to know,” Ray Dalio tells us. “Whatever success I’ve had in life has more to do with my knowing how to deal with my not knowing than anything I know.”
“Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life.”
“Over the course of my lifetime, the most valuable things I’ve learned were the results of mistakes I reflected on to help form principles so I wouldn’t make the same mistakes again.”
“Principles: Life and Work” is divided into 3 sections…
Part I “Where I’m Coming From” which is a short memoir where the author writes about some of the major events he experienced. Part II “Life Principles” are the over-arching principles that drive Dalio’s approach to almost everything.
Part III “Work Principles” are the principles that guide the employees in Bridgewater; Dalio clarifies that his Work Principles are ‘life principles applied to groups.’
Ray Dalio Principles Life and Work Summary
Note: This summary will focus on Part II of ‘Principles: Life And Work,’ which contains Ray Dalio’s life principles. Furthermore, since many of them are similar and because of obvious constraints, 20 out of the 150+ principles will be summarized, each containing brief notes from the book.
Principle 1: Embrace Reality and Deal with It
- “When I began to look at reality through the perspective of figuring out how it really works, instead of thinking things should be different, I realized that most everything that at first seemed “bad” to me –like rainy days, weaknesses, and even death –was because I held preconceived notions of what I personally wanted.”
Principle 2: Truth –or, more precisely, an accurate understanding of reality –is the essential foundation for any good outcome
- Don’t get hung up on your views on how things “should” be because you will miss out on learning how they really are. Most people have a tendency to resist what’s true when it’s not what they want it to be. This is bad because it’s more important to understand and deal with the bad stuff since the good stuff will take care of itself.
Principle 3: Evolve or die
- Evolution consists of adaptations/inventions that provide spurts of benefits that eventually decline in value. This painful decline leads to either new adaptations and inventions –bringing new products, organizations, and human capabilities to higher levels of development, or decline and death.
- Evolving is one of life’s greatest accomplishment and it’s greatest reward. It is instinctively that way, which is why most of us feel the pull of it –that is, we instinctively want to get better at things and have created technology to help us. History has made it evident that all species will either go extinct or evolve into other species.
Principle 4: Pain + Reflection = Progress
- “There is no avoiding pain, especially if you’re going after ambitious goals. Believe it or not, you are lucky to feel that kind of pain if you approach it correctly, because it is a signal that you need to find solutions so you can progress.
- “If you can develop a reflexive reaction to psychic pain that causes you to reflect on it rather than avoid it, it will lead to your rapid learning and evolving.”
Principle 5: 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. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t.”
Principle 6: Weigh second –and third-order consequences
- First-order consequences often have opposite desirability’s from second-order consequences, resulting in mistakes in decision making. For instance, the first-order consequence of exercise (pain and time spent) are considered undesirable whereas the second-order consequences (better health and more attractive appearance) are desirable.
- By recognizing the higher-level consequences that nature optimizes for, I’ve come to see that individuals who overweigh the first-order consequences of their decision and ignore the effects of second and subsequent-order consequences rarely achieve their goals.
Principle 7: Look at the machine from the higher level
- As humans, we have the singular ability to look down on reality from a higher perspective. This ability to rise above one’s circumstances and to objectively look down on them is what Ray Dalio calls “higher-level thinking.”
- Think of yourself as a machine that’s operating within a machine and that you have the ability to alter your machine to produce better results. For example, imagine that you have a military goal of capturing a hill in enemy territory. Your design for your “machine” may include having two infantry-men in each flank, snipers as well as scouts, etc.
- Whilst the right design is important, it’s equally important to strategically place the right people in each position; the infantry-men must be agile on their feet, the snipers must be good marksmen and so on, in order for your “machine” to achieve the outcome you seek. This process is essentially a feedback loop illustrated below…
- The problem is that most people remain stuck in the perspective of being a worker within the machine. To be successful, Dalio points out that it’s much more important that one be a good designer/manager of their life rather than be a good worker in it.
- “One of the hardest things for people to do is to objectively look down on themselves within their circumstances (i.e., their machine) so that they can act as the machine’s designer and manager.”
Principle 8: Use the 5-Step Process to Get What You Want Out of Life
In the second chapter of the book Principles: Life and Work, Ray Dalio explains what he calls the personal evolution process by using a 5-step formula. He uses multiple secondary as well as sub-principles to clarify. Below is a summary of the process:
- “First you have to pick what you are going after –your goals. Your choice of goals will determine your direction. As you move toward them, you will encounter problems. Some of those problems will bring you up against your own weaknesses. How you react to the pain that causes is up to you.”
- “If you want to reach your goals, you must be calm and analytical so that you can accurately diagnose your problems, design a plan that will get you around them and do what’s necessary to push through to results. Then you will look at the new results you achieve and go through the process again. To evolve quickly, you will have to do this fast and continuously, setting your goals successively higher.”
Principle 9: Be Radically Open-Minded
- “Learning is the product of a continuous real-time feedback loop in which we make decisions, see their outcomes, and improve our understanding of reality as a result. Being radically open-minded enhances the efficiency of those feedback loops, because it makes what you are doing, and why, so clear to yourself and others that there can’t be any misunderstandings.”
- “Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way.”
Principle 10: Recognize your two barriers
- Two of the biggest barriers to sound decision making are your ego and your blind spots. Together, they make it difficult for you to objectively see what’s true about you as well as your circumstances. If you can understand how the machine that is the human brain works, you will be able to have a better understanding of why these barriers exist.
- When I refer to your “ego barrier,” I’m referring to your subliminal defense mechanisms that make it hard for you to accept your mistakes and weaknesses. Your deepest-seated needs and fears reside in primitive parts of your brain such as the amygdala. Because these areas of your brain are not accessible to your conscious awareness, its quite near impossible to understand what they want and how they control you.
- They oversimplify things and react instinctively. They care praise and respond to criticism as an attack, even when the higher-level parts of the brain understands that constructive criticism is a good thing. Furthermore, they make you defensive, especially when it comes to the subject of how good you are.
- In addition to your ego barrier, you also have blind spots –areas where your way of thinking can prevent you from seeing things accurately. Just as we all have different ranges for hearing pitch and seeing colors, we have different ranges for seeing and understanding things.
- Naturally, people can’t appreciate what they cannot see. For instance, a person who can’t identify patterns and synthesize doesn’t know what it’s like to see patterns and synthesize any more than a color-blind person knows what it’s like to see color.
- Whilst many color-blind people eventually find out that they are color-blind, most people never see or understand the ways in which their ways of thinking make them blind since we don’t like to see ourselves or others as having blind spots, even though we all have them. When you point out someone’s psychological weakness, it’s generally about as well received as if you pointed out a physical weakness.
Principle 11: Appreciate the art of thoughtful disagreement
- “In thoughtful disagreement, your goal is not to convince the other party that you are right –it is to find out which view is true and decide what to do about it. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives.”
- “To do this well, approach the conversation in a way that conveys that you’re just trying to understand. Use questions rather than make statements. Remember, you are not arguing; you are openly exploring what’s true.”
Principle 12: Triangulate your view with believable people who are willing to disagree
- By questioning experts individually and encouraging them to have thoughtful disagreement with each other, I both raise my probability of being right and become much better educated. Intelligent people who can thoughtfully disagree are the greatest teachers, far better than a professor assigned to stand in front of a board and lecture at you.
Principle 13: Understand the power that comes from knowing how you and others are wired
- Most attributes are a double-edged sword that brings potential benefits and potential harm. The more extreme the attribute, the more extreme the potential good or bad outcomes it is likely to produce.
- For example, a highly creative, goal-oriented person good at imagining new ideas might undervalue the minutiae of daily life. Similarly, a task-oriented person who is great with details might undervalue creativity –and worse still may squelch it in the interests of efficiency. Having expectations for people (including you) without knowing what they are like is a sure way to get in trouble.
- “Organizing people to complement their strengths and compensate for their weaknesses is like conducting an orchestra. It can be magnificent if done well and terrible if done poorly.”
- Dalio shares some of the management tools that he’s incorporated at Bridgewater such as the concept of ‘Baseball Cards’ as well as psychometric assessment tools like Myers-Briggs Type Indicator (MBTI), the Workplace Personality Inventory, the Team Dimensions Profile, etc.
Principle 14: Reconcile your feelings and your thinking
- “There are no greater battles than those between our feelings (most importantly controlled by our amygdala, which operates subconsciously) and our rational thinking (most importantly controlled by our prefrontal cortex, which operates consciously).”
- “While the amygdala’s reactions come in spurts and then subside, reactions from the prefrontal cortex are more gradual and constant. The biggest difference between people who guide their own personal evolution and achieve their goals and those who don’t is that those who make progress reflect on what causes their amygdale hijackings”
Principle 15: Choose your habits well
- “Good habits are those that get you to do what your “upper-level you” wants, and bad habits are those that are controlled by your “lower-level you” and stand in the way of getting what your “upper-level you” wants.”
- “I recommend that you write down your three most destructive habits. Now pick one of those habits and be committed to breaking it…. or you can pick habits that you want to acquire and then acquire them. The most valuable habit I’ve acquired is using pain to trigger quality reflections.”
Principle 16: Learn How to Make Decisions Effectively
- “Recognize that 1) the biggest threat to good decision making is harmful emotions, and 2) decision making is a two-step process (first learning and then deciding).”
- “Failing to consider second –and third-order consequences are the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available options, no matter how good it seems, before you’ve asked questions and explored.”
- “To prevent myself from falling into this trap, I used to literally ask myself questions: Am I learning? Have I learned enough yet that it’s time for deciding? After a while, you will just naturally and open-mindedly gather all the relevant info, but in doing so you will have avoided the first pitfall of bad decision making, which is to subconsciously make the decision first and then cherry-pick the data that supports it.”
Principle 17: Remember the 80/20 Rule and know what the key 20 percent is
- The 80/20 Rule states that you get 80 percent of the value out of something from 20 percent of the information or effort. The rule also implies that you’re likely to exert 80 percent of your effort getting the final 20 percent of value. Understanding this rule will save you from getting bogged down in unnecessary detail once you’ve gotten most of the learning that you need to in order to make a good decision.
Principle 18: Keep in mind the rates of change and the levels of things, and the relationships between them
- Everything that’s important in your life needs to be on a trajectory to be above the bar and headed toward excellent at an appropriate pace. To better understand this concept, take a look at the chart below. Whilst A’s trajectory gets you above the bar in an appropriate amount of time’ B’s does not. To make good decisions, you need to understand the reality of which of these two cases is happening.
- When determining an acceptable rate of improvement for something, it is its level in relation to the rate of change that matters. Many times, I see people lose sight of this. They say “it’s getting better” without noticing how far below the bar it is.
- If someone who has been receiving grades between 30s and 40s in their tests and raised their scores to 50s and above over the course of a few months it would be inaccurate to say that they are getting better, but they would still be woefully inadequate.
Principle 19: Make your decisions as expected value calculations
- “Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value.”
- “Let’s say the reward for being right is $100 and its probability is 60 percent, while the penalty for being wrong is also $100. If you multiply the reward by the probability of being right you get $60 and if you multiply the penalty by the probability of being wrong (40 percent) you get $40. If you subtract the penalty from the reward, the difference is the expected value, which in this case is positive (+$20).”
- “Once you understand expected value, you also understand that it’s not always best to bet on what’s most probably… Play these probabilities over and over again and they will surely give you winning results in time.”
Principle 20: Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it
- “Be wary of relying on anything else. Unfortunately, numerous tests by psychologists show that the majority of people follow the lower-level path most of the time, which leads to inferior decisions without their realizing it.”
- “As Carul Jung put it, “Until you make the unconscious conscious, it will direct your life and you will call it fate.” It’s even more important that decisions be evidence-based and logical when groups of people are working together.”
- “If it’s not, the process will inevitably be dominated by the most powerful rather than the most insightful participants, which is not only unfair but suboptimal. Successful organizations have cultures in which evidence-based decision making is the norm rather than the exception.”