Principles by Ray Dalio

Published on Author Kristoffer

/prɪnsɪp(ə)l/ a fundamental truth or proposition that serves as the foundation for a system of belief or behaviour or for a chain of reasoning

The American hedge fund manager, Ray Dalio wrote one of the most influential business books of 2017 on the topic of work and life principles. The book covers both the professional and personal issues that Ray Dalio has developed from his experience as a hedge fund manager for one of the worlds most successful hedge funds, Bridgewater. It is important to note that the principles aren’t written to be copied but should instead inspire readers to think about what are their principles and how to refine them. The book is very well written, and I highly recommend the book. In the following note, I will attempt to outline some of the most interesting of Ray Dalio’s principles which I have found useful.

 

Ray’s definition of principles:

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.

A large part of the book emphasizes how important it is to continually optimize one’s critique of knowledge and continuously refine principles, personally and professionally. The process is very well expressed in the following illustration from the book.

How do we know what’s true?

In the book, Ray is close to becoming obsessed with finding the truth and provides several interesting techniques for discovering what is true.

  1. Seek out the smartest people who disagree with you
  2. Know when not to have an opinion
  3. Develop, test and systemize timeless and universal principles
  4. Balance risk in ways that keep the upside while reducing the downside.

 

Think of the world as a machine

According to Ray, the world is very much like a machine with endless cause-effect relationships. Everything in the world is based on a complex set of rules which lead to cause-effect connections that can be measured. Likewise, individuals are no more than a part of nature but with far more complex laws within the brain. Our thoughts, dreams, actions, feelings are all the intercorrelated and create patterns.

Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively.

If you are good at spotting these patterns, then you will be rewarded, but if you oppose them, then things will derail. It is therefore crucial that you regularly update and fine-tune your understanding of the patterns.

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

 

Idea Meritocracy

The idea meritocracy is in my view the most interesting aspect of Ray’s book, and it is also the topic of his Ted Talk. He characterizes an idea meritocracy in which people’s opinions are weighted in proportion to their merits on the subject of discussion. Our society is currently primarily dealing with autocracies and democracies in which we have a very black/white influence model. Either you have no influence, or you have an equal impact on all others.

There are no commonly know societies or organizations in which your influence is based on merit. One could argue that decision making based on pay grade in corporations may be a form of meritocracy, but it is still very generalizing and straightforward. In a meritocracy then one’s influence is constantly changing depending on which topic is being discussed.

 

Radical transparency and open mindedness

To learn it is important to publicly express all one’s shortcomings to be able to receive feedback. A lot of misunderstandings in the world occur because we hide our weaknesses and confuse each other in both our work and personal lives. Ray, therefore, argues that we need radical transparency in our lives and only then will we be able to have a rich feedback culture. His message is very much in line with the writing of Ryan Holiday in his book; Ego is The Enemy, where Ryan emphasizes how ego limits our ability to learn and progress. We harm ourselves by letting our ego withhold our shortcomings.

Likewise, you should also be as open-minded as you are transparent. You need to be open to the fact that you may be wrong.

Radical open-mindedness is motivated by a 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.

 

Evolve or die

Our emotions very much blur our views of the world. The whole concept of good and bad is a human concept with no real scientific backing. When a pack of hyenas takes down a young wildebeest, then our initial natural emotional reaction will be that it is bad because we tend to sympathize with the wildebeest. We call something bad if it is bad for us or if it is bad for someone/something which we sympathize with.  This is a blurred view and it hinders us from seeing the world for what it is, a world that optimizes for the greater good.

To be “good” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is moste rewarded.

When you fail, then that is good because it pushes you towards refining your principles and doing better future work. We initially react with strong emotions when things derail in our life, but we need to put it into the context of the fact that reality is built to optimize for the whole rather than for the individual. Think of that next time you get rejected from a job, promotion, client, etc.

My instinctual and intellectual goal is simply to evolve and contribute to evolution in some tiny way while I’m here and while I am what I am.

 

Getting in sync

To effectually be able to do many of the things mentioned above then it will be necessary to appreciate disagreements. Realize that you are merely exploring what is true during an argument. Use questions rather than statements to convey that you have an intense focus on getting in sync and understanding your opponent’s worldview.

 

 

Interesting quotes from the book

My painful mistakes shifted me from having a perspective of “I know I’m right” to having one of “How do I know I’m right?” They gave me the humility I needed to balance my audacity.

As Carl Jung put it, “Until you make the unconscious conscious, it will direct your life and you will call it fate”

Once I understood that it’s all physiological, many things became clearer to me. While I used to get angry and frustrated at people because of the choices they made, I came to realize that they weren’t intentionally action in a way that seemed counterproductive; they were just living out things as they saw them, based on how their brains worked.

I’ve also learned that judging people before really seeing things through their eyes stands in the way of understanding their circumstances – and that isn’t smart. I urge you to be curious enough to want to understand how the people who see things differently from you came to see them that way. You will find that interesting and invaluable, and the richer perspective you gain will help you decide what you should do.

During those terrible days after 9/11, when the whole country was being whipsawed by emotion , or the weeks between September 19 and October 10, 2008, when the Dow fell 3,600 points, there were times I felt like hugging our computers. They kept their cool no matter what.

An organization is a machine consisting of two major parts: culture and people.

We’ve found that bringing everything to the surface 1) removes the need to try to look good and 2) eliminates time required to guess what people are thinking. In doing so, it creates more meaningful work and more meaningful relationships.