Principles

“Above all else, I want you to think for yourself, to decide (1) what you want, (2) what is true and (3) what to do about it”

Ray Dalio was the founder and co-Chief Investment Officer at Bridgewater Associates, the world's largest hedge fund with $150 million dollars of assets under management.

As someone who plays the markets, he is my personal hero when it comes to financial markets. The more I learned from him, the more he became my role model for life and work as well.

I try my best to implement his principles for life and work into my life (which isn't easy), and have found it helpful. I hope you do too.

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🌈 3 Sentence Summary

1. Truth - more precisely, an accurate understanding of reality - is the essential foundation for producing good outcomes.
2. Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.
3. The best system for life and work is to have an Idea Meritocracy. To do that, be radically truthful, radically open-minded, and radically transparent.

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💡 Thoughts

I love this book. It's the best kind of book: Simple to read, simple to understand, but the payoff is huge.

Since then, I've learned to pursue meaningful work and meaningful relationships. The best way to get there is to be radically truthful, radically open-minded, and radically transparent.

I saw that 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.

👤 Should You Read It?

Millions of people read the book, saying it changed their lives. You'll probably enjoy it more if:

• You enjoy Principles for Success (Ray's 28 minute summary for this book).
• If you're interested in finance, psychology, and management
• If you want to develop a set of principles for your life.

🚀 Actionable takeaways

The entire book is an actionable takeaway, but here are some that I like best.

• Embrace reality and deal with it. Be radically truthful, radically open-minded, and radically transparent.
• Use the 5-step process to get what you want out of life.
• Believability-weight your decision making. Always triangulate with smart and believable people.
• Do a personality assessment to find out who you really are, your strengths and weaknesses, and how you work with those around you.
• Create tools and use them as measures/metrics to assess whether or not your are evolving. If possible, systemise/automate your decision making based on those metrics.

✍️ Summary + Notes

🌈 Embrace reality and deal with it

"Truth - more precisely, an accurate understanding of reality - is the essential foundation for producing good outcomes."

Be a hyperrealist. Dreams + Reality + Determination = A Successful Life.
Embrace reality even when it is painful, because Pain + Reflection = Progress.

Being a hyperrealist means being radically open-minded and radically transparent. Being open-minded means allowing others to change our minds through thoughtful disagreements, and being radically transparent means opening up the discussion where everyone states their honest opinions. This is invaluable to rapid learning and effective change, which will bring about more meaningful work and meaningful relationships.

To be a hyperrealist, look to nature to learn how reality works. Don't get hung up on how things "should" be. Evolution is the single greatest force in the universe, and a "good" thing that is rewarded the most has to operate consistently with the laws of the universe AND contribute to the evolution of the whole. In short, evolve or die.

🖥️ Systemise your decision making

"Think of yourself as a machine operating within a machine and know that you have the ability to alter your machine to produce better outcomes.”

First, develop your principles and write them down. Then, express your decision-making criteria in the form of algorithms that you can embed into computers. Computers can make better decisions than you because it could process vastly more information that you can, and do it faster and unemotionally.

Don't get it wrong. Let the computer run alongside you as YOU make your decisions. Following the algorithms blindly without knowing what's underneath the hood can lead to disasterous consequences. He who lives by the crystal ball will eat shattered glass.

It is incredibly important to think about the criteria beforehand, have the existing conditions meet those criterias strictly, only then do you make a decision. This eliminates the bias and emotion that often gets mixed into the decision-making process, giving us the best path forwards.

♟️ Believability-weight your decision making

It is far better to weight the opinions of more capable decision makers more heavily than those of less capable decision makers.

In typical organizations, most decisions are made either autocratically, by a top-down leader, or democratically, where everyone shares their opinions and those opinions that have the most support are implemented. Both systems produce inferior decision making.

That’s because the best decisions are made by an idea meritocracy with believability-weighted decision making, in which the most capable people work through their disagreements with other capable people who have thought independently about what is true and what to do about it. It is far better to weight the opinions of more capable decision makers more heavily than those of less capable decision makers. This is what we mean by “believability weighting.”

So how do you determine who is capable at what? 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.

Do not take believability-weighted decisions lightly, if you must deviate from it, make sure you can point out what specifically you do not agree with and have sufficient evidence against it. Occasionally, there will still be resentment or difference in opinions. In that case, it is important to recognize how to get beyond disagreements.

🗯️ Recognize how to get beyond disagreements

While it's easier to avoid confrontations in the short run, the consequences of doing so can be massively destructive in the long term. It's critical that conflicts actually get resolved--not through superficial compromise, but through seeking the important, accurate conclusions. In most cases, this process should be made transparent to relevant others (and sometimes the entire organization), both to ensure quality decision making and to perpetuate the culture of openly working through disputes.

Typically, if both the equal-weighted average and the believability-weighted votes align, consider the matter resolved and move on. If the equal-weighted average does not align with the believability-weighted vote, or if a single "Responsible Party" (RP) wants to override a believability-weighted vote, then we have a disagreement.

In most cases, try to resolve them, and if you can't, go with the believability-weighted vote. In rare cases, the RP can overrule the believability-weighted vote, but the burden of proof is on the RP to resolve the dispute before overruling it. In all cases, the believability-weighted vote is taken extremely seriously.

Don't leave important conflicts unresolved. In order to get beyond disagreements, have clear paths for escalating when someone thinks their boss, peer, or subordinate is wrong. If you are unable to resolve it between two people, mutually agree on a mediator who will help resolve the disagreement. Record everything for future review. Always remember to not let the little things divide you when the bigger things should bind you.

Make sure people don't confuse the right to openly debate with the right to make decisions, as responsibilities and authorities are assigned to individuals that are accountable for producing results. The reason for open debate is to stress-test the decision and help decision-makers see alternative perspectives. But once a decision is made, everyone should get behind it even though individuals may still disagree.

🪜 Use the 5-step process to get what you want out of life

“If you're not failing, you're not pushing your limits, and if you're not pushing your limits, you're not maximizing your potential.”

Here is a summary diagram of the 5-step process.

Ray Dalio used this 5-step process alongside his principles to transform himself from an ordinary middle class kid from Long Island into what he is today, an incredibly successful man as deemed by conventional measures.

I wrote about this 5-step process in a separate article here because I found it to be an incredibly practical and impactful template for solving problems, and so I wanted to dedicate a little more length to it.

🧠 Understand that people are wired very differently, and the WHO is much more important than the WHAT

Because of the different ways that our brains are wired, we all experience reality in different ways and any single way is essentially distorted. This is something that we need to acknowledge and deal with. So if you want to know what is true and what to do about it, you must understand your own brain.

We are born with attributes that can both help us and hurt us, depending on their application. Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.

People's greatest strengths are often tied to their greatest weaknesses. 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.

Both long-term goals and short-term tasks are important, these two people make a great team, but they are likely to have troubles taking advantage of the ways they’re complementary, because the ways their minds work make it difficult for them to see the value of each other’s ways of thinking.

Recognize that the most important decision for you to make is who you choose as your Responsible Parties. If you put your goals in the hands of RPs who can execute those goals well, and if you make it clear to them that they are personally responsible for achieving those goals and doing the tasks, they should produce excellent results. The same goes for yourself, you know that there are a lot of incompetent people in the world trying to do things they're not good at, so the chances are good that you are one of them. That's just a reality and it's okay for you to accept it and deal with it in a way that produces good outcomes.

Know that the ultimate Responsible Party will be the person who bears the consequences of what is done. So long as you bear the consequences of failure, you are the ultimate Responsible Party. For example, while you might choose to delegate the responsibility of figuring out how to handle your illness to a doctor, it is your responsibility to pick the right one, since you will bear the consequences if he does a bad job. When putting someone in a position of responsibility, give them skin in the game (make sure their incentives are aligned with their responsibilities and they experience the consequences of the outcomes they produce).

🎲 An organisation is a machine consisting of two major parts: culture and people

In an idea meritocracy, openness is a responsibility; you not only have the privilege to speak up and "fight for right" but are obliged to do so.

Great people have both great character and great capabilities. By great character, I mean they are radically truthful, radically transparent, and deeply committed to the mission of the organization. By great capabilities, I mean they have the abilities and skills to do their jobs excellently. People who have one without the other are dangerous and should be removed from the organization. People who have both are rare and should be treasured.

Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven't been built before. The best way to do that is by having an idea meritocracy that strives for meaningful work and meaningful relationships through radical truth and radical transparency. By meaningful work, I mean work that people are excited to get their heads into, and by meaningful relationships I mean those in which there is genuine caring for each other (like an extended family).

Create a culture in which it is okay to make mistakes and unacceptable not to learn from them. Intelligent people who embrace their mistakes and weaknesses substantially outperform their peers who have the same abilities but bigger ego barriers.

⛏️ Use tools and protocols to shape how work is done

Understand that a great manager is essentially an organizational engineer.

They see their organizations as machines and work assiduously to maintain and improve them. They create process- flow diagrams to show how the machine works and to evaluate its design. They build metrics to light up how well each of the individual parts of the machine (most importantly, the people) and the machine as a whole are working. And they tinker constantly with its designs and its people to make both better.

In constructing your metrics, imagine the most important questions you need answered in order to know how things are going and imagine what numbers will give you the answers to them. Don't look at the numbers that you have and try to adapt them to your purposes, because you won't get what you need. Instead start with the most important questions and imagine the metrics that will answer them. For every case study, think about what you can improve at the machine level (why it happened), and what you can improve at the case-at-hand level (what to do).

Here are some tools that Bridgewater uses:

• Coach: Library of common situations. As people use Coach, they give feedback on the quality of advice it provides, essentially coaching the Coach so that it can deliver better and better advice.
• Dot Collector: App used in meetings that allows people to express their thoughts and see others' thoughts in real time, and then helps them collectively reach an idea-meritocratic decision.
• Baseball Cards: A person's strengths and weaknesses and the evidence behind them. Used to assess who is suited to fill a role.
• Issue Log: Record mistakes and learning from them.
• Pain Button: Record emotions they are feeling, then come back at a later time to reflect on them using guided reflection questions.
• Dispute Resolver: Provide clear paths for resolving disagreements in an idea-meritocratic way by asking series of questions used to guide the people through the resolution process, or locate believable people who can help determine whether a disagreement is worth taking up at a higher management level
• Daily Update: Records what people did that day, the issues pertaining to them, and their reflections into a dashboard, which makes them much easier to track, record metrics, and respond to.
• Contract Tool: App that lets people make and monitor their commitments to each other. It makes implicit contracts (which are worthless) explicit.
• Process Flow Diagrams: Visualize the organization as a machine on a higher level and drop down to lower levels of details if needed. How work flows, who is responsible for each roles, and their Baseball Cards.
• Policy and Procedures Manual: Living document in which the organization's learning is codified
• Metrics:
  1. Know what goal your business is achieving.
  2. Understand the process for getting to the goal (your "machine" with its people and design).
  3. Identify the key parts in the process that are the best places to measure, so you know how your machine is working to achieve that goal.
  4. Explore how to create levers, tied to those key metrics, that allow you to adjust your process and change your outcomes.
  The test of the effectiveness of metrics lies in whether they can tell you what and who is doing well and poorly, all the way down to specific people. We aim to have metrics that cascade from the most important matters the CEOs are responsible for at the company level, down through the departments, to the teams within them and the people responsible in each role.

😄 For heaven's sake, don't overlook governance!

All that I've said thus far will be useless if you don't have good governance.

Governance is the oversight system that removes the people and the processes if they aren't working well. It is the process that checks and balances power to assure that the principles and interests of the community as a whole are always placed above the interests and power of any individual or faction.

Even in an idea meritocracy, merit cannot be the only determining factor in assigning responsibility and authority. Make sure that no one is more powerful than the system or so important that they are irreplaceable.

Practically speaking, here's Bridgewater's organisational structure.

• There are one to three chairmen working with seven to fifteen board members supported by staff, whose purpose is primarily to assess whether: 1) The people running the company are capable. 2) The company is operating in accordance with its agreed-upon principles and rules.
• The board has the power to select and replace the CEOs, but doesn't engage in the micromanagement of the firm nor the people running it, though in the event of an emergency, they can drop into a more active role. (They can also help the CEOs to the extent they want it.)
• While Bridgewater's idea meritocracy is ideally all- inclusive, there need to be various circles of authority, trust and access to information, and decision-making authority, which are shown in the chart's three circles.

Make sure reporting lines are clear. Make sure decision rights are clear. Make sure assessors have time to assess people fully, have the ability to make the assessments, and do not have a conflict of interest.

Lastly, recognise that no governance system of principles, rules, and checks and balances can substitute for a great partnership. All these principles, rules, and checks and balances won't be worth much if you don't have capable people in positions of power who instinctually want to operate for the good of the community based on the agreed-upon principles. A company's leaders must have wisdom, competence, and the ability to have close, cooperative, and effective working relationships characterized by both thoughtful disagreement and commitment to following through with whatever the ideameritocratic process decides.

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