Dalio, Ray.Principles[M].Simon and Schuster.2017.
I also believe that those principles that are most valuable to each of us come from our own encounters with reality and our reflections on these encounters – not from being taught and simply accepting someone else’s principles. So, I put these out there for you to reflect on when you are encountering your realities, and not for you to blindly follow. What I hope for most is that you and others will carefully consider them and try operating by them as part of you process for discovering what works best for you. Through this exploration, and with their increased usage, not only will they be understood, but they will evolve form “Ray’s principles” to “our principles”, and Ray will fade out of the picture in much the same way as memories of one’s ski or tennis instructor fade and people only pay attention to what works. So, when digesting each principle, please…
Part1: The Importance of Principles
Sometimes we forge our own principles and sometimes we accept others’ principles, or holistic packages of principles, such as religion and legal systems. While it isn’t necessarily, a bad thing to use others’ principles – it’s difficult to come up with your own, and often much wisdom has gone into those already created – adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values.
As another example, “I won’t steal” can be a principle to which you refer when the choice of whether or not to steal arises. But to be most effective, each principle must be consistent with your values, and this consistency demands that you ask: Why? Is the reason you won’t steal because you feel empathy for your potential victim? Is it because you fear getting caught? By asking such questions, we refine our understanding, and the development of our principles becomes better aligned with our core values. To be successful, you must make correct, tough choices. You must be able to “cut off a leg to save a life”, both on an individual level and, if you lead people, on a group level. And to be a great leader, it is important to remember that you will have to make these choices by understanding and caring for your people, not by following them.
Part2: My Most Fundamental Life Principles
Time is like a river that will take you forward into encounters with reality that will require you to make decisions. You can’t stop the movement down this river, and you can’t avoid the encounters. You can only approach these encounters in the best way possible.
It isn’t easy for me to be confident that my opinions are right. In the markets, you can do a huge amount of work and still be wrong.
Bad opinions can be very costly.
The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong.
I worked for what I wanted, not for what others wanted me to do. For that reason, I never felt that I had to do anything. All the work I ever did was just what I needed to do to get what I wanted. Since I always had the prerogative to strive for what I wanted, I never felt forced to do anything.
I wanted you to work for yourself, to come up with independent opinions, to stress-test them, to be wary about being overconfident, and to reflect on the consequences of your decisions and constantly improve.
I learned that failure is by and large due to not accepting and successfully dealing with the realities of life, and that achieving success is simply a matter of accepting and successfully dealing with all my realities.
I learned that finding out what is true, regardless of what that is, including all the stuff most people think is bad – like mistakes and personal weakness – is good because I can then deal with these things so that they don’t stand in my way.
I learned that there is nothing to fear from truth. While some truths can be scary – for example, finding out that you have a deadly disease – knowing them allows us to deal with them better. Being truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to the feedback that is essential for our learning.
I learned that being truthful was an extension of my freedom to be me. I believe that people who are one way on the inside and believe that they need to be another way outside to please others become conflicted and often lose touch with what they really think and feel. It’s difficult for them to be happy and almost impossible for them to be at their best. I know that’s true for me.
I learned that I want the people I deal with to say what they really believe and to listen to what others say in reply, in order to find out what is true. I learned that one of the greatest sources of problems in our society arises from people having loads of wrong theories in their heads – often theories that are critical of others – that they won’t teat by speaking to the relevant people about them. Instead, they talk behind people’s backs, which leads to pervasive misinformation. I learned to hate this because I could see that making judgments about people so that they are tried and sentenced in your head, without asking them for their perspective, is both unethical and unproductive. So I learned to love real integrity (saying the same things as one believes) and to despise the lack of it.
I learned that it was the pain of this wrestling that made me and those around me appreciate our successes.
I believe that our society’s “mistake phobia” is crippling, a problem that begins in most elementary schools, where we learn to learn what we are taught rather than to form our own goals and to figure out how to achieve them. We are fed with facts and tested and those who make the fewest mistakes are considered to be the smart ones, so we learn that it is embarrassing to not know and to make mistakes. Our education system spends virtually no time on how to learn from mistakes, yet this is critical to real learning. As a result, school typically doesn’t prepare young people for real life – unless their lives are spent following instructions and pleasing others. In my opinion, that’s why so many students who succeed in school fail in life.
In short, I learned that being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of improvement and movement toward what I wanted.
I don’t mean that the more pain the better. I believe that too much pain can break someone and that the absence of pain typically prevents growth so that one should accept the amount of pain that is consistent with achieving one’s objectives.
When I say I’m a hyperrealist, people sometimes think I don’t believe in making dreams happen. This couldn’t be further from the truth. In fact, I believe that without pursuing dreams, life is mundane. I am just saying that I believe hyperrealist is the best wat to choose and achieve one’s dream. The people who really change the world are the ones who see what’s possible and figure out how to make that happen.
Truth – more precisely, an accurate understanding of reality – is the essential foundation for producing good outcomes.
I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force.
It is natural for us to seek other things or to seek to make the things we have better. In the process of this seeking, we continue to evolve and we contribute to the evolution of all that we have contact with. The things we ae striving for are just the bait to get us to chase after them in order to make us evolve, and it is the evolution and not the reward itself that matters to us and those around us.
Because of the law of diminishing returns, it is only natural that seeking something new, or seeking new depths of something old, is required to bring us satisfaction.
In other words, there is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money ones makes.
Your ability to see the changing landscape and adapt is more a function of your perceptive and reasoning abilities that your ability to learn and process quickly.
However, because man has the ability to look at himself and direct his own change, individuals have the capacity to evolve.
It is extremely important to one’s happiness and success to know oneself – most importantly to understand one’s own values and abilities – and then to find the right fits. We all have things that we value that we want and we all have strengths and weakness that affect our paths for getting them. The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt to these things.
Which path they choose, more than anything else, determines how good their outcomes are.
I believe that life consists of an enormous number of choices that come at us and that each decision we make has consequences, so the quality of our lives depends on the quality of the decisions we make.
As we move towards our goals, we encounter problems, make mistakes, and run into personal weaknesses. Above all else, how we choose to approach these impediments determines how fast we move toward our goals.
Reality + Dreams + Determination = A Successful Life What is essential is that you are clear about what you want and that you figure out how to get it.
As I mentioned, for most people success is evolving as effectively as possible, i.e., learning about oneself and one’s environment and then changing to improve. Personally, I believe that personal evolution is both the greatest accomplishment and the greatest reward.
This basic principle suggests that you can follow one of two paths to happiness: 1) have high expectations and strive to exceed them, or 2) lower your expectations so that they are at or below your conditions. Most of us choose the first path, which means that to be happy we have to keep evolving.
Another principle to keep in mind is that people need meaningful word and meaningful relationships in order to be fulfilled.
Nature gave us pain as a messaging device to tell us that we are approaching, or that we have exceeded, our limits in some way. At the same time, nature made the process of getting stronger require us to push our limits. Gaining strength is the adaptation process of the body and the mind to encountering one’s limits, which is painful. In other words, both pain and strength typically result from encountering one’s barriers. When we encounter pain, we are at an important juncture in our decision-making process.
Believe it or not, you are lucky to feel the pain if you approach it correctly, because it will signal that you need to find solutions and to progress. Since the only way you are going to find solutions to painful problems is by thinking deeply about them – i.e., reflecting –if you can develop a knee-jerk reaction to pain that is to reflect rather than to fight or flee, it will lead to your rapid learning/evolving.
If you can reflect deeply about your problems, they almost shrink or disappear, because you almost always find a better way of dealing with them than if you don’t face them head on. The more difficult the problem, the more important it is that you think hard about it and deal with it. After seeing how effectively facing reality – especially your problems, mistakes and weakness – works, I believe you will become comfortable with it and won’t want to operate any other way.
Pain + Reflection = Progress In contrast, people who know that understanding what is real is the first step toward optimally dealing with it make better decisions.
People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with properly deal with them and these weaknesses remain impediments in the future.
In addition, the amounts of knowledge and the capabilities that anyone does not have, and that could be used to make the best possible decisions, and vastly greater than that which anyone (no matter how great) could have within them.
As I mentioned, in the first chapter, you don’t have to know everything to get what you want. You just have to be honest with yourself about what you don’t know and know who to ask for help. This explains why people who are interested in making the best possible decisions rarely are confident that they have the best possible answers. So they seek to learn more (often by exploring the thinking of other believable people, especially those who disagree with them) and they are eager to identify their weakness so that they don’t let these weaknesses stand in the way of them achieving their goals.
Blaming bad outcomes on anyone or anything other than one’s self is essentially wishing that reality is different than it is, which is silly. And it is subversive because it diverts one’s attention away from mustering up the personal strength and other qualities that are required to produce the best possible outcomes.
Successful people understand that bad things come at everyone and that it is their responsibility to make their lives what they want them to be by successfully dealing with whatever challenges they face. Successful people know that nature is teasing them, and that it is not sympathetic.
What happens to a lot of people is that they don’t take personal responsibility for their outcomes, and as a result fail to make the best possible decisions.
If I had to pick just one quality that those who make the right choices have, it is character. Character is the ability to get one’s self to do the difficult things that produce the desired results. In other words, I believe that for the most part, achieving success – whatever that is for you – is mostly a matter of personal choice and that, initially, making the right choices can be difficult. However, because of the law of nature that pushing your boundaries will make you stronger, which will lead to improved results that will motivate you, the more you operate in your “stretch zone”, the more you adapt and the less character it takes to operate at the higher level of performance. So, if you don’t let up on yourself, i.e., if you operate with the same level of “pain”, you will naturally evolve at an accelerating pace. Because I believe this, I believe that whether or not I achieve my goals is a test of what I am made of. It is a game that I play, but this game is for real.
Those who are most successful are capable of “higher level thinking” – i.e., they are able to step back and design a “machine” consisting of the right people doing the right things to get what they want. They are able to assess and improve how their “machine” works by comparing the outcomes that the machine is producing with the goals.
Each of these five steps requires different talents and disciplines. Most probably, you have lots of some of these and inadequate amounts of others. If you are missing any of the required talents and disciplines, that is not an insurmountable problem because you can acquire them, supplement them, or compensate for not having them, if you recognize your weaknesses and design around them. So you must be honestly self-reflective.
When you excel at it, you will find your ability to get what you want thrilling. You’ll see that excuses like “That’s not easy” are of no value and that it pays to “push through it” at a pace you can handle. Like getting physically fit, the most important thing is that you keep moving forward at whatever pace you choose, recognizing the consequences of your actions. When you think that it’s too hard, remember that in the long run, doing the things that will make you successful is a lot easier than being unsuccessful. The first-order consequences of escaping life’s challenges may seem pleasurable in the moment, but the second-and third-order consequences of this approach are your life, and over time, will be painful. With practice, you will eventually play this game like a ninja, with skill and a calm centeredness in the face of adversity that will let you handle most of your numerous challenges well.
You can have virtually anything you want, but you can’t have everything you want.
So it’s important to remember: it doesn’t really matter if some things are unavailable to you, because the selection of what is available is so great.
It is important not to confuse “goals” and “desires”.
Some society define evil to be the desires that can take you away from your goals, which I think is a good way of seeing the difference between goals and desires. That doesn’t mean I think that there isn’t room for a little “bad”, but I do think that desires that fundamentally divert you from your goals should be avoided at all cost.
Avoid setting goals based on what you think you can achieve.
In other words, there is almost no reason not to succeed if you take the attitude of 1) total flexibility – good answers can come from anyone or anywhere (and in fact, as I have mentioned, there are far more good answer “out there” than there in you) and 2) total accountability: regardless of where the good answers come from, it’s you job to find them.
Since trying to achieve high goals makes me stronger, I become increasingly capable of achieving more. Great expectation create great capabilities, in other words. And if I fail to achieve my goal, it just tells me that I have not been creative or flexible or determined enough to do what it takes, and I circle back and figure out what I need to do about this situation.
They can be “harsh realities” that are unpleasant to look at, so people often subconsciously put them “out of sight” so they will be “out of mind”.
Sometimes people are simply not perceptive enough to see the problems.
Remember that the pains you are feeling are “growing pains” that will test your character and reward you if you push through them. Try to look at your problems as a detached observer would. Remember that identifying problems is like finding gems embedded in puzzles: if you solve the puzzles you will get the gems that will make your life much better.
It doesn’t matter which is the case; it only matters that the true cause is identified and appropriately addressed.
No caring to solve problems often occurs when the expected reward is less than the expected cost.
It is a very common mistake for people to move directly from identifying a tough problem to a proposed solution in a nanosecond without spending the hours required to properly diagnose and design a solution. This typically yields bad decisions that don’t alleviate the problem. Diagnosing and designing are what spark strategic thinking.
Root causes, like principles, are things that manifest themselves over and over again as the deep-seated reasons behind the action that cause problems. So you will get many everlasting dividends if you can find them and properly deal with them.
It is important to distinguish root causes from proximate causes. Proximate causes typically are the actions or lack of actions that lead to problems. Root causes are the deeper reasons behind the proximate cause. Root causes are typically described with adjectives, usually characteristics about what the person is like that lead them to an action or an inaction.
More than anything else, what differentiates people who live up to their potential form those who don’t is a willingness to look at themselves and others objectively.
Pain + Reflection = Progress So to be successful, you must be willing to look at your own behavior and the behavior of others as possible causes of problems.
The most important qualities for successfully diagnosing problems are logic, the ability to see multiple possibilities, and the willingness to touch people’s nerves to overcome the ego barriers that stand in the way of truth.
Great planner who don’t carry out their plans go nowhere.
People who are good at this stage can reliably execute a plan. They tend to be self-disciplined and proactive rather than reactive to the blizzard of daily tasks that can divert them from execution. They are results-oriented: they love to push themselves over the finish line to achieve the goal. If they see that daily tasks are taking them away from executing the plan (i.e., they identify this problem), they diagnose it and design how they can deal with both the daily tasks and moving forward with the plan.
Designs and tasks have no purpose other than to achieve your goals. Said differently, goals are the sole purpose of designs and tasks. So you mustn’t forget how they’re related.
If this process is working, goals will change much more slowly than designs, which will change more slowly than tasks. Designs and tasks can be modified or changed often (because you might want to reassess how to achieve the goal), but changing goals frequently is usually a problem because achieving them requires a consistent effort. I often find that people who have problems reaching their goals handle these steps backwards; that is, they stick too rigidly to specified tasks and are not committed enough to achieving their goals (often because they lose sight of them).
Weakness don’t matter if you find solutions.
As I said early on, I believe that we would have a radically more effective and much happier society if we taught the truth, which is that everyone has weakness, and knowing about them and how to deal with them is how people learn and succeed.
In a nutshell, my 5-Step process for achieving what you want is: Values →1) Goals → 2) Problems → 3) Diagnoses → 4) Designs → 5) Tasks.
Your values determine what you want, i.e., your goals. In trying to achieve your goals, you will encounter problems that have to be diagnosed. Only after determining the real root causes of these problems can you design a plan to get around them. Once you have a good plan, you have to muster the self-discipline to do what is required to make the plan succeed. Note that this process starts with your values, but it requires that you succeed at all five steps. While these steps require different abilities, you don’t have to be good at all of them. If you aren’t good at all of them (which is true for almost everyone), you need to know what you are bad at and how to compensate for your weaknesses. This requires you to put your ego aside, objectively reflect on your strengths and weaknesses, and seek the help from others.
We all evolve at different paces, and it’s up to you to decide the pace at which you want to evolve.
Part3: My Management Principles
While having a clearly conveyed great culture is important, that’s only half of the magic formula. The other half is having great people – i.e., people who have the values, abilities, skills that fit the organization’s culture.
The best advice I can give you is to ask yourself what do you want, then ask “what is true” – and then ask yourself “what should be done about it”. I believe that if you do this you will move much faster towards what you want to get out of life than if you don’t!
Summary and Table of Principles
Never say anything about a person you wouldn’t say to them directly, and don’t try people without accusing them to their face.
Record almost all meetings and share them with all relevant people.
Don’t tolerate dishonesty.
Don’t believe it when someone caught being dishonest says they have seen the light and will never do that sort of thing again.
Recognize that effective, innovative thinker are going to make mistakes.
When you experience pain, remember to reflect.
Talk about “Is it true?” and “Does it make sense?”
Fight for right.
Be assertive and open-minded at the same time.
Ask yourself whether you have earned the right to have an opinion.
Don’t have anything to do with closed-minded, inexperienced people.
Know when to stop debating and move on to agreeing about what should be done.
Distinguish between 1) idle complaints and 2) complaints that are meant to lead to improvement.
Communication aimed at getting the best answer should involve the most relevant people.
People who have repeatedly and successfully accomplished the thing in question and have great explanation when probed are most believable.
If someone asks you a question, think first whether you’re the responsible party/right person to be answering the question.
Recognize the most important decisions you make are who you choose to be your responsible party.
Most importantly, find people who share your values.
Look for people who are willing to look at themselves objectively and have character.
Understand what each person who works for you is like so that you know what to expect from them.
If you’re not naturally good at one type of thinking, it doesn’t mean you’re precluded from paths that require that type of thinking.
Remember that people who see things and think one way often have difficulty communicating and relating to people who see things and think another way.
Weigh values and abilities more heavily than skills in deciding whom to hire.
Dig deeply to discover why people did what they did.
Look for people who sparkle, not just “another one of those”.
Pay for the person, not for the job.
Recognize that no matter how good you are at hiring, there is a high probability that the person you hire will not be the great person you need for the job.
Understand the differences between managing, micromanaging, and notmanaging.
An excellent skier is probably going to be more critical and a better critic of another skier than a novice skier.
Conduct the discussion at two levels when a problem occurs: 1) the “machine” level discussion of why the machine produced that outcome and 2) the “caseat hand” discussion of what to do now about the problem.
Think like an owner, and expect the people you work with to do the same.
Know what you want and stick to it if you believe it’s right, even if others want to take you in another direction.
Logic, reason, and common sense must trump everything else in the decision-making.
Remember that few people see themselves objectively, so it’s important to welcome probing and to probe others.
When a crisis appears to be brewing, contact should be so close that it’s extremely unlikely that there will be any surprises.
Investigate and let people know you are going to investigate so there are no surprises and they don’t take it personally.
Make the probing transparent rather than private.
Evaluate people accurately, not “kindly”.
Recognize that while most people compliments over criticisms, there is nothing move valuable than accurate criticisms.
Remember that the only purpose of looking at what people did is to learn what they are like.
Look at patterns of behaviors and don’t read too much into any one event.
Remember that you don’t need to get to the point of “beyond a shadow of a doubt” when judging people.
know that experience creates internalization.
Remember that everything is a case study.
Recognize that sometimes it is better to let people make mistakes so that they can learn form them rather than tell them the better decision.
When criticizing, try to make helpful suggestions.
Learn from success as well as form failure.
A common mistake: training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to assess their abilities.
Recognize that perceiving problems is the first essential step toward great management.
Don’t use the anonymous “we” and “they”, because that masks personal responsibility – use specific names.
The most common reason problems aren’t perceived is what I call the “frog in the boiling water” problem.
In some cases, people accept unacceptable problems because they are perceived as being too difficult to fix. Yet fixing unacceptable problems is actually a lot easier than not fixing them, because not fixing the will make you miserable.
Recognize that all problems are just manifestations of their root causes, so diagnose to understand what the problems are symptomatic of.
Keep in mind that diagnoses should produce outcomes.
To distinguish between a capacity issue and a capability issue, imagine how the person would perform at that particular function if they had ample capacity.
Remember: You are designing a “machine” or system that will produce outcomes.
A short-term goal probably won’t require you to build a machine.
Beware of paying too much attention to what is coming at you and not enough attention to what your responsibilities are or how your machine should work to achieve your goals.
Put yourself in the “position of pain” for a while so that you gain a richer understanding of what you’re designing for.
Most importantly, build the organization around goals rather than tasks.
Build your organization from the top down.
Everyone must be overseen by a believable person who has high standards.
The people at the top of each pyramid should have the skills and focus to manage their direct reports and a deep understanding of their jobs.
The larger the organization, the more important are 1) information technology expertise in management and 2) cross-department communication.
Do not build the organization to fit the people.
Constantly think about how to produce leverage.
You should be able to delegate the details away.
It is far better to find a few smart people and give them the best technology than to have a greater number of ordinary and less well-equipped people.
Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly.
Remember: There is no sense in having laws unless you have policemen (auditors).
Recognize the power of knowing how to deal with not knowing.
Recognize that your goal is to come up with the best answer, that the probability of your having it is small, and that even if you have it, you can’t be confident that you do have it unless you have other believable people test you.’
Understand that the ability to deal with not knowing is far more powerful than knowing.
Remember that your goal is to find the best answer, not to give the best one you have.
Successful people ask for the criticism of others and consider its merit.
The cost of a bad decision is equal to or greater than the reward of a good decision, so knowing what you don’t know is at least as valuable as knowing.
Understand how valuable it is to raise the probability that your decision will be right by accurately assessing the probability of your being right.
Since 80% of the juice can be gotten with the first 20% of the squeezing, there are relatively few (typically less than five) important things to consider in making a decision.
Avoid the temptation to compromise on that which is uncompromisable.
Being open about what you dislike is especially important, because things you don’t like need to be changed or resolved. Discuss your issues until you are in synch or until you understand each other’s positions and can determine what should be done. As someone I worked with once explained, “It’s simple – just don’t filter.”
Have integrity and demand it from others. Integrity comes from the Latin word integer, meaning “one”. People who are one way on the inside and another way outside lack integrity; they have duality.
Badmouthing people behind their backs shows a serious lack of integrity and is counterproductive. It doesn’t yield any beneficial change, and it subverts both the people you are badmouthing and the environment as a whole.