Principles: Life and Work - by Ray Dalio
Date read: 2017-11-13How strongly I recommend it: 8/10
(See my list of 150+ books, for more.)
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A very structured book on the life and principles of Ray Dalio, founder of Bridgewater Associates, one of the world's largest hedge funds with roughly $160 billion in assets under management. The first half of the book is a brief auto-biography of his successes, followed by his life principles and then his work principles. Many of the principles listed have been listed elsewhere but there are some great nuggets. Especially his concept of a meritocracy and radical honesty and transparency. A decent read for managers looking to influence and lead their teams based off of principles versus rules.
Contents:
My Notes
I saw that the only way I could succeed would be to:
- Seek out the smartest people who disagreed with me so I could try to understand their reasoning.
- Know when not to have an opinion.
- Develop, test, and systemize timeless and universal principles.
- Balance risks in ways that keep the big upside while reducing the downside.
Knowing what you can and cannot expect from each person and knowing what to do to make sure the best ideas win out are the best way to make decisions. Idea-meritocratic decision making is better than traditional autocratic or democratic decision making in almost all cases.
An idea meritocracy requires people to do three things:
- Put their honest thoughts on the table for everyone to see.
- Have thoughtful disagreements where there are quality back-and-forths in which people evolve their thinking to come up with the best collective answers possible.
- Abide by idea-meritocratic ways of getting past the remaining disagreements (such as believability-weighted decision making).
Embrace reality and deal with it. Be a hyperrealist.
Dreams + Reality + Determination = A Successful Life.
People who achieve success and drive progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want.
Getting more out of life wasn't just a matter of working harder at it. It was much more a matter of working effectively, because working effectively could increase my capacity by hundreds of times.
Be radically open-minded and radically transparent.
Don't let fears of what others think of you stand in your way.
Look to nature to learn how reality works.
Don't get hung up on your views of how things "should" be because you will miss out on learning how they really are.
Whenever I observe something in nature that I (or mankind) think is wrong, I assume that I'm wrong and try to figure out why what nature is doing makes sense.
To be "good" something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded.
Find our imperfections and deal with them. You will either learn valuable lessons from your mistakes and press on, better equipped to succeed - or you won't and you will fail.
The individual's incentives must be aligned with the group's goals.
Pain + Reflection = 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/evolving.
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.
Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn't be doing. All successful people are good at this.
Don't confuse what you wish were true with what is really true.
Don't worry about looking good-worry instead about achieving your goals.
Don't overweight first-order consequences relative to second - and third-order ones.
Don't let pain stand in the way of progress.
Don't blame bad outcomes on anyone but yourself.
- Have clear goals.
Prioritize: While you can have virtually anything you want, you can't have everything you want. Don't confuse goals with desires. A proper goal is something that you really need to achieve. Desires are things that you want that can prevent you from reaching your goals. Decide what you really want in life by reconciling your goals and your desires. Never rule out a goal because you think it's unattainable. - Identify and don't tolerate the problems that stand in the way of your achieving those goals.
View painful problems as potential improvements that are screaming at you. Don't mistake a cause of a problem with the real problem. "I can't get enough sleep" is not a problem; it is a potential cause (or perhaps the result) of a problem. To clarify your thinking, try to identify the bad outcome first; e.g., "I am performing poorly in my job." Not sleeping enough may be the cause of that problem, or the cause may be something else. Once you identify a problem, don't tolerate it. Tolerating a problem has the same consequences as failing to identify it. - Accurately diagnose the problems to get at their root causes.
Focus on the "what is" before deciding "what to do about it." Recognize that knowing what someone (including you) is like will tell you what you can expect from them. - Design plans that will get you around them.
Go back before you go forward. Replay the story of where you have been (or what you have done) that led up to where you are now, and then visualize what you and others must do in the future so you will reach your goals. Recognize that it doesn't take a lot of time to design a good plan. - Do what's necessary to push these designs through to results.
Establish clear metrics to make certain that you are following your plan.
Look at the patterns of your mistakes and identify at which step in the 5-Step Process you typically fail. Ask others for their input too, as nobody can be fully objective about themselves.
Everyone has at least one big thing that stands in the way of their success; find yours and deal with it.
The two biggest barriers to good decision making are your ego and your blind spots.
To be effective you must not let your need to be right be more important than your need to find out what's true.
To be radically open-minded you must: sincerely believe that you might not know the best possible path and recognize that your ability to deal well with "not knowing" is more important than whatever it is you do know.
Radically open-minded people know that coming up with the right questions and asking other smart people what they think is as important as having all the answers.
Recognize that decision making is a two-step process: First take in all the relevant information, then decide.
Don't worry about looking good; worry about achieving your goal.
Recognize that to gain the perspective that comes from seeing things through another's eyes, you must suspend judgment for a time-only by empathizing can you properly evaluate another point of view.
Remember that you're looking for the best answer, not simply the best answer that you can come up with yourself.
If both parties are peers, it's appropriate to argue. But if one person is clearly more knowledgeable than the other, it is preferable for the less knowledgeable person to approach the more knowledgeable one as a student and for the more knowledgeable one to act as a teacher.
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.
Approach the conversation in a way that conveys that you're just trying to understand. Use questions rather than make statements.
Describe back to the person you are disagreeing with their own perspective. If they agree that you've got it, then you're in good shape.
Spend your time exploring ideas with the most believable people you have access to.
You can significantly raise your probabilities of making the right decisions by open-mindedly triangulating with believable people.
So take some time to record the circumstances in which you've consistently made bad decisions because you failed to see what others saw.
If ever you find yourself about to make a decision (especially a big decision) in one of these areas without consulting others, understand that you're taking a big risk and that it would be illogical to expect that you'll get the results you think you will.
Recognize that:
- The biggest threat to good decision making is harmful emotions
- Decision making is a two-step process (first learning and then deciding).
What you know paints a true and rich picture of the realities that will affect your decision. That's why it always pays to be radically open-minded and seek out believable others as you do your learning.
Decidinginvolves playing different scenarios through time to visualize how to get an outcome consistent with what you want. To do this well, you need to weigh first-order consequences against second- and third-order consequences, and base your decisions not just on near-term results but on results over time.
Never seize on the first available option, no matter how good it seems, before you've asked questions and explored.
Ask yoursely these questions: Am I learning? Have I learned enough yet that it's time for deciding?
Synthesis is the process of converting a lot of data into an accurate picture. It always pays to triangulate your views with people who you know synthesize well.
One of the most important decisions you can make is who you ask questions of.
Listening to uninformed people is worse than having no answers at all. Don't mistake opinions for facts.
Step back to gain perspective and sometimes defer a decision until some time passes.
When determining an acceptable rate of improvement for something, it is its level in relation to the rate of change that matters.
Everything important in your life needs to be on a trajectory to be above the bar and headed toward excellent at an appropriate pace.
Be imprecise. Understand the concept of "by-and-large" and use approximations. When you ask someone whether something is true and they tell you that it's not totally true, it's probably by-and-large true.
Remember the 80/20 Rule and know what the key 20 percent is.
There are typically just five to ten important factors to consider when making a decision. It is important to understand these really well, though the marginal gains of studying even the important things past a certain point are limited.
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 probable. For example, suppose something that has only a one-in-five chance (20 percent) of succeeding will return ten times (e.g., $1,000) the amount that it will cost you if it fails ($100). Its expected value is positive ($120), so it's probably a smart decision, even though the odds are against you, as long as you can also cover the loss. Play these probabilities over and over again and they will surely give you winning results over time.
Raising the probability of being right is valuable no matter what your probability of being right already is.
Watch out for people who argue against something whenever they can find something-anything-wrong with it, without properly weighing all the pluses and minuses. Such people tend to be poor decision makers.
Get rid of irrelevant details so that the essential things and the relationships between them stand out. As the saying goes, "Any damn fool can make it complex. It takes a genius to make it simple."
Instead of expecting yourself or others to change, I've found that it's often most effective to acknowledge one's weaknesses and create explicit guardrails against them.
Utilize the "two-minute rule" to avoid persistent interruptions. The two-minute rule specifies that you have to give someone an uninterrupted two minutes to explain their thinking before jumping in with your own. This ensures that everyone has time to fully crystallize and communicate their thoughts without worrying they will be misunderstood or drowned out by a louder voice.
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."
Just because someone thinks something doesn't mean it's true. Be especially skeptical of statements that begin with "I think that I..." since most people can't accurately assess themselves.
Shapers are people who can go from visualization to actualization. They tend to share attributes such as intense curiosity and a compulsive need to make sense of things, independent thinking that verges on rebelliousness, a need to dream big and unconventionally, a practicality and determination to push through all obstacles to achieve their goals, and a knowledge of their own and others' weaknesses and strengths so they can orchestrate teams to achieve them.They can hold conflicting thoughts simultaneously and look at them from different angles. They typically love to knock things around with other really smart people and can easily navigate back and forth between the big picture and the granular details, counting both as equally important.
Radical truth and radical transparency are fundamental to having a real idea meritocracy. The more people can see what is happening-the good, the bad, and the ugly-the more effective they are at deciding the appropriate ways of handling things.
Not telling people what's really going on so as to protect them from the worries of life is like letting your kids grow into adulthood believing in the Tooth Fairy or Santa Claus. While concealing the truth might make people happier in the short run, it won't make them smarter or more trusting in the long run.
Never say anything about someone that you wouldn't say to them directly and don't try people without accusing them to their faces.
Provide transparency to people who handle it well and either deny it to people who don't handle it well or remove those people from the organization.
Create a culture in which it is okay to make mistakes and unacceptable not to learn from them.
You must not let your need to be right be more important than your need to find out what's true. Jeff Bezos described it well when he said, "You have to have a willingness to repeatedly fail. If you don't have a willingness to fail, you're going to have to be very careful not to invent."
Get over "blame" and "credit" and get on with "accurate" and "inaccurate."
Recognize that conflicts are essential for great relationships...because they are how people determine whether their principles are aligned and resolve their differences.
In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important. Yet most people make the mistake of choosing skills and abilities first and overlooking values.
Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers.
Every leader must decide between:
- Getting rid of liked but incapable people to achieve their goals.
- Keeping the nice but incapable people and not achieving their goals.
In the end, accuracy and kindness are the same thing. What might seem kind but isn't accurate is harmful to the person and often to others in the organization as well.
Remember that when it comes to assessing people, the two biggest mistakes you can make are being overconfident in your assessment and failing to get in sync on it. If you believe that something is true about someone, it's your responsibility to make sure that it is true and that the person you're assessing agrees. Of course, in some cases it may be impossible to get in sync (if you believe that someone was dishonest and they insist that they weren't, for example), but in a culture of truth and transparency it is an obligation to share your view and let others express theirs.
Evaluate employees with the same rigor as you evaluate job candidates.
Develop a full profile of each person's values, abilities, and skills. These qualities are the real drivers of behavior, so knowing them in detail will tell you which jobs a person can and cannot do well, which ones they should avoid, and how the person should be trained. These profiles should change as the people change. If you don't know your people well, you don't know what you can expect from them. You're flying blind and you have no one to blame but yourself if you don't get the outcomes you're expecting.
Don't assume that people's answers are correct. People's answers could be erroneous theories or spin, so you need to occasionally double-check them, especially when they sound questionable. Some managers are reluctant to do this, feeling it is the equivalent of saying they don't trust their people. These managers need to understand that this process is how trust is earned or lost. Your people will learn to be much more accurate in what they tell you if they understand this-and you will learn who you can rely on.
Don't give orders and try to be followed; try to be understood and to understand others by getting in sync.
If you ask a high-level question like "How is goal XYZ going?" a good answer will provide a synthesis up-front of how XYZ is going overall and, if needed, will support it by accounting for the tasks that were done to achieve it. People who see the tasks and lose sight of the goals will just describe the tasks that were done.
Double-checking has a much higher rate of errors than double-doing, which is having two different people do the same task so that they produce two independent answers. This not only ensures better answers but will allow you to see the differences in people's performance and abilities. I use double-do's in critical areas such as finance, where large amounts of money are at risk.