Notes on Principles by Ray Dalio
by Ray Dalio is one of my favorite books. I think probably everyone would benefit from reading it.
I'd recommend skipping Parts 1 (Dalio's autobiography) and 3 (which are the principles from Part 2 applied to work).
Part 2 is well worth it by itself though. Below are my notes/summary.
Dalio thinks of life where each problem is a puzzle. The reward is principle that helps avoid same sort of problem in future. He's written down the principles that've worked for him and put them into this book.
1. Embrace Reality and Deal with It
Nothing more important than understanding how reality works and how to deal with it.
1.1 Be a hyperrealist
dreams + reality + determination = successful life
1.2 Truth (accurate understanding of reality) foundation for good outcome
Most people fight seeing what's true when it's not what they want.
It's more important to understand/deal with bad stuff because the good stuff will take care of itself.
1.3 Be radically open-minded and radically transparent
Both are invaluable for rapid learning and effective change.
They make what you are doing, and why, clear to yourself and others.
more open-minded: less likely to deceive yourself
ability to reflect on inevitable feedback requires open-mind
Being radically transparent easier the more you do it. It's not about talking about everyone's secrets, but being transparent with opinions of each other and how world works.
Both bring more meaningful work and meaningful relationships.
1.4 Look to nature to learn how reality works
1.5 Evolving is the point
1.6 Understand nature's practical lessons
Dalio spends some time talking about how nature "evolves for the good of the whole", which I'm not sure I really buy. I personally think nature/the universe is pretty indifferent to what's "good".
But I think Dalio is basically saying: learning, progressing, working towards goals is point/what will give you the most satisfaction out of life. I do agree with this
It's nice to think about because Dalio has accomplished so much, if he's still improving and happy doing it at $18B or whatever, pretty much should work for anyone.
Dalio: thrilled to be infinitesimally small part of whole; finds reality and how nature works beautiful. Goal is to simply evolve and contribute in some tiny way while he's here and is what he is.
One of nature's practical lessons: adaptation through rapid trial and error invaluable.
Realize you're everything and nothing: everything to yourself, and nothing in the scheme of things.
It is a reality that each one of us is only one of about seven billion of our species alive today and that our species is only one of about 10 million species on our planet. Earth is just one of about 100 billion planets in our galaxy, which is just one of about two trillion galaxies in the universe. And our lifetimes are only about 1/3k of humanity's existence, which itself is only 1/20k billion of Earth's existence."
Dalio defines success as struggling and evolving as effectively as possible.
In other words, learning rapidly about oneself and environment, then changing to improve.
"Love and work are the cornerstones of our humanness." - Freud
Your work doesn't have to be a job, but Dalio thinks it's better if it is.
1.7 Pain + Reflection = Progress
A fundamental law of nature: in order to gain strength, have to push limits, which is painful.
This is especially true about confronting harsh reality of own imperfections.
No pain no gain.
Stuff won't sustain happiness.
There's no avoiding pain, esp w/ ambitious goals.
Developing reflexive reaction to pain that causes you to reflect on it rather than avoid it will lead to rapid learning/evolving. Later in book Dalio says this is his most impactful habit
aka face the painful realities caused by problems, mistakes, weaknesses
Most people have hard time reflecting while in pain and pay attention to other things when pain passes. But at a minimum, you should try to remember to reflect after it passes.
You're not maximizing potential unless you are:
sometimes breaking through
You get benefits from both failing and breaking through. If you do the whole process successfully, you will keep ascending in life (Dalio has a loop like drawing he likes).
It gets easier over time. First, you realize things seem bigger than they are when seeing up close.
Also, higher you ascend, more you realize most things are "just another one of those".
Go to pain rather than avoiding it.
You'll evolve faster when comfortable operating at some level of pain.
The pain is the signal/what you need to seek out; like exercising.
When you're do it right, you'll be glad to:
identify, accept, learn how to deal with weaknesses
have people around you be honest with you vs keeping negative thoughts about you to themselves
be yourself vs pretending to be strong about something you're weak at
Note this loop/feedback/operating at pain thing isn't just a matter of dealing with success (seeking out harder and harder goals), but major failures too, which will happen.
1.8 Weigh 2nd and 3rd order consequences
People who overweigh 1st order consequences rarely reach their goals.
Example: temptations like shitty food or avoiding pain from exercise.
1.9 Own your outcomes
Mostly, life gives you so many decisions to make and so many opportunities to recover from mistakes that you can have a great life.
Whatever circumstances are, will be more likely to succeed and find happiness if you take responsibility for making decisions well.
1.10 Look at machine from higher level
Think of yourself as a machine operating within a machine; and know you have ability to alter machines to produce better outcomes.
Distinguish between you as the designer of your machine, and you as a worker with your machine.
It's much more important that you are a good designer/manager of your life than a good worker in it.
"To be successful, the "designer/manager you" has to be objective about what the "worker you" is really like, not believing in him more than he deservers, or putting him in jobs he shouldn't be in. Instead of having this strategic perspective, most people operate emotionally and in the moment; their lives are a series of undirected emotional experiences, going from one thing to the next."
Get over ego driven emotions re: people watching you struggle (anger, embarrassment, defensiveness, etc.
You have four choices when encountering weaknesses:
Deny them (most people do this).
Accept them and work at them to convert into strengths (may or may not work, prob best option if you can do it and it's worth it).
Accept them and find ways around them (very under utilized).
Go after something else.
If you're open-minded and determined, you can get pretty much whatever you want.
No matter what you're like, many paths will be suitable. If a particular path closes, just need to find another good one
In the continuum of savoring life/making an impact, dalio wanted both.
Getting more out of life not just a matter of working harder at it, it's a matter of working effectively.
Have to decide to what extent you will put interests of others above your own, and which others. Will do either consciously or subconsciously, so should think about it.
2. Use 5-Step Process to Get What You Want Out of Life
Have clear goals.
Identify, don't tolerate problems that stand in the way.
Accurately diagnose problems to get at root cause.
Design plans that will get you around then.
Do what's nec to push designs through to results.
Have to do this fast, continuously and iteratively, setting goals higher and higher.
Import to do all of these one at a time and in order.
2.1 Have clear goals
Have to prioritize, but good news is can have much more than nec to be happy.
goals != desires
Desires are things you want (like junk food or sleeping in) that can prevent you from reaching goals.
Don't rule out a goal because you think it's unattainable; if you're limiting your goals to what you know you can achieve that means the bar is way too low.
Need: flexibility, self-accountability.
flexibility: accepting what reality teaches you
self-accountability: take failure to achieve as personal failure
Note: not always about moving forward, dealing well with setbacks/tragedy can be goal too.
2.2 Identify and don't tolerate problems in your way
Each problem an opportunity, essential to bring to surface
even if unpleasant
related: go to pain, don't avoid it
Don't mistake cause of problem with problem.
Example: can't get enough sleep (potential cause) vs performing poorly in job (the problem).
Be specific and precise in identifying them.
Prioritize and work on larger, important (to you) problems.
Once you identify a problem, don't tolerate it.
2.3 Diagnose problems to get at root causes
Focus on what
before what to do about it.
Moving too quickly to a solution is common mistake.
Root causes manifest themselves over and over again in problems.
Distinguish proximate causes (verbs) from root causes (adjectives)
"I missed the train because I didn't check the train schedule."
"I didn't check the train schedule because I am forgetful."
Can only truly solve problems by removing root causes.
2.4 Design a plan
Replay how you got to this point, then figure out what you have to do going forward.
Think about outcomes produced by some machine, think how to change your machine (again thinking about worker you and designer you).
Remember there are likely many paths to achieving goals; just need to find one.
Think of things like a movie script, visualizing who will do what through time.
Should go from big picture to details w/ timelines.
Write down plan to see and measure progress against, including tasks. Remember tasks, narrative, goals all different.
Making a good plan doesn't take that long, but too many people don't do it at all.
2.5 Push through to completion
Great planners who don't execute go no where.
Important to remember the connections between tasks and goals they are meant to achieve. Don't lose sight of the "why".
Good work habits are vastly underrated.
Establish clear metrics to make sure you're following plan. If you're not hitting targets, that's another problem to diagnose and solve.
Note the process is iterative.
when you complete one step it'll likely lead you to modify others
when you've done all five, you start again with a new goal
if process is working, goals change more slowly than designs, than tasks
Process is both synthesizing (first three steps) and shaping (designing solutions and implementing).
2.6 Remember weaknesses don't matter if you find solutions
You probably can't do all of these steps well.
Good thing to do: rely on others.
Everyone has at least one of these that they're not that great at that stands in the way of success, figure out which it is for you and deal with it .
3. Be Radically Open Minded
3.1 Recognize your two barriers
Two biggest barriers to good decision making are ego and blind spots.
Make it hard to objectively see what is true about you and your circumstances and make best possible decisions by getting most out of others.
Higher level vs lower level you
Have two "yous" that fight to control you
impulsive, emotional, subconscious
deals with ego/defense mechanisms re: criticism etc
more logical, executive fn
Can see it w/ people getting angry for themselves.
Even more of a mess when two yous fight with someone else with their yous. Lower levels are like attack dogs even when higher levels want to figure things out
Blind spot barrier is more in terms of ways we think/view things, what we might miss.
Both lead to people disagreeing and people remaining convinced they're right.
not logical and leads to suboptimal decision making
if you disagree with someone, one of you must be wrong, shouldn't you want to make sure it isn't you?
Both also come up with how people deal with their own problems.
Too common to blindly spin up against blind spots/ego when solving problems.
teach brain to work in ways that don't come naturally
use compensating mechanisms (like programmed reminders)
rely on others who are strong in areas you are not
3.2 Practice radical open-mindedness
Radical open mindedness is motivated by genuine worry you might not be seeing choices optimally
Requires you replace attachment to always being right with joy of learning what's true.
A shift towards "higher level you" .
Ability to deal with things you don't know is more important than what you do know.
Decision making is two step process: take in info open-mindedly, then decide (see also section 5).
Don't worry about looking good/exposing your ignorance/weaknesses.
Remember looking for best answer; not best answer you can come up with yourself.
Distinguish between arguing and seeking to understand. Both have their places:
arguing for when people are peers
if one person is more knowledgeable more appropriate to have a student-teacher relationship
Believable people are those who have repeatedly and accomplished the thing in question — strong track record of at least 3 successes — and have good, logical explanations of how they did it when probed.
If you have a different view with someone who is more believable than you, you should make clear you're trying to understand their perspective.
If you're more believable, politely remind the other person of that.
3.3 Appreciate art of thoughtful disagreement
Goal of thoughtful disagreement is not to convince other party you are right, but to find out what's true and decide what to do about it
Both sides should be motivated by genuine fear of missing important perspectives.
Need to be reasonable, calm, collegial, respectful.
Most disagreements aren't threats, more opportunities for learning.
Two good tactics:
describe back to other person what they're saying
give others opp to talk for two straight minutes
All this is time consuming but worth it.
Important to prioritize what you spend time on and with who. There are lots of people to disagree with, unproductive to do so with all of them.
Explore ideas with most believable people you have access to.
Don't waste time disagreeing past point of diminishing returns.
Why doesn't thoughtful disagreement happen more? Because most people instinctively reluctant to disagree.
If two people are at a restaurant and one says "I like the food" the other is more likely to agree, even if not true.
This reluctance is lower level you's mistaken interpetation of disagreement as conflict.
That's why it's not easy: need to teach yourself art of having exchanges in ways that don't trigger reactions in yourself and others.
3.4 Triangulate your view with believable people who are willing to disagree
Smart people who can thoughtfully disagree are best teachers.
Also good to have two knowledgeable people thoughtfully disagree while you watch.
Also ok to turn over decision making when subjects are too complex for you to understand. You're giving into lower level self if you need to make your own decisions, even when not qualified.
3.5 Recognize signs of closed and open mindedness
Close minded people:
don't want their ideas challenged
are more likely to make statements vs asking questions
focus more on being understood than understanding others
say "I could be wrong", then follow it up with a statement, which is just perfunctory, way to convince self you're being open-minded
prevent others from speaking
have trouble holding two thoughts simultaneously
Open minded people
are curious about why there is disagreement
ask questions, also consider relative believability
3.6 Understand how you can become radically open-minded ==
Regularly use pain as guide towards reflection.
Mental pain often from being too attached to an idea when person or event comes along to challenge it.
Make open-mindedness a habit. Try to consistently use anger/frustration as cues for being more thoughtful.
Know blind spots, helps to:
record circumstances in which you've consistently made bad decisions
ask others to help too
if you find yourself in an area like this again realize you're taking a huge risk
If a number of different believable people say you are doing something wrong and you are the only one who doesn't see it that way, assume you're biased
Be evidence based.
Realize at some point it's better to stop fighting for your view, and have faith in your decision-making process and accept what believable others think is best. Not doing this is dangerously arrogant.
More open-mindedness doesn't mean losing assertiveness. It should actually increase confidence because it increases odds of arriving at correct decision.
Are you up for it?
Are you willing to fight to find out what's true?
Do believe it's essential to your well being?
Do you need to find out if you're doing something wrong that is standing in the way of achieving your goals?
If no, accept that you'll never live up to your potential.
4. Understand People are Wired Differently
Most attributes are double-edged swords, can both help and hurt, depending on application.
Important to know how others and yourself are wired.
Desire for meaningful work and relationships is genetically programmed.
Large parts of our brains don't do logical things.
Your subconscious from the "two yous" thing from earlier isn't just animalistic and something that needs to be suppressed and overruled. It can also be source of creativity/good ideas. Many people believe best way to learn is to just cram more and more into your conscious mind and make it work harder, but often counter productive.
But don't want to just immediately act on subconscious things, should examine them with concious mind and look at them logically. Writing things down is helpful.
Again, the most constant struggle between thinking and feeling.
Amygdala (feelings, inner you, come quicker and in spurts, then subsides) vs prefrontal cortex (logical, outer you)
The biggest difference between people who guide their own personal evolution and achieve their goals and those who don't is the former reflect on their amygdala hijackings and put in context of what they really want.
Greatest challenge: having higher level you manage lower level you.
Best way of doing that: consciously develop habits that will make doing things good for you habitual.
Good habits get you to do what your "upper-level you" wants Bad controlled by lower level you, stand in way of upper.
habit is most powerful tool in brain's toolbox
basal ganglia, not even concious of it
form in 18 months
three step loop (trigger, routine, reward)
In practice, -if you really want to change, best thing to do is choose which habits to acquire/get rid of, then go about doing that.
Dalio suggests write down 3 most harmful habits, pick one and commit to breaking it. Or acquire a good one if you want. Either way this will be very impactful to your life.
Dalio's best habit: using pain to trigger quality reflections.
Misc How People Are Wired Notes
Bridgewater uses briggs meyer, workplace personality inventory, team dimensions profile, stratified systems theory
Probably more interesting if you're building a team or hiring or something.
Dalio: having spent time with richest, most powerful people in world, beyond a basic level, there is no correlation between happiness and conventional markers of success.
A carpenter who derives deepest satisfaction from working with wood can easily have a life as good or better than president of US.
Having right people in right roles in support of goal is important.
Treat lower/subconscious you with kindness, don't nec need to fight with it all the time.
5. Learn How to Make Decisions Effectively
5.1 a Biggest threat to good decision making is harmful emotions
5.1 b Decision making is a two-step process (learning, then deciding)
Decision making processes more are more subconscious and complex than commonly understood.
Remind yourself it's never harmful to at least hear an opposing point of view.
Deciding is the process of choosing which knowledge you should draw upon.
Depends both particulars of this situation and broader knowledge. Weigh first order consequences against 2nd and 3rd order consequences
Never seize on first available option, no matter how good it seems, before you've asked questions and explored.
Dalio used to literally ask: am i learning? have i learned enough yet that it's time for deciding?
Learning comes down to two things:
Being able to synthesize accurately
converting a lot of data -> accurate picture
quality of synthesis determines quality of decision making
knowing how to navigate levels
Faced all the time with infinite number of things that come at you. Dalio calls them dots.
Need to be able to tell which dots are important and which aren't.
Some people just collect a ton of observations and opinions like lint.
One of most important decisions you can make is who you ask questions of:
make sure they're fully informed and believable
listening to random uniformed people is worse than having no answers
Everything seems bigger (more important) in the moment than it will in hindsight. For this reason, sometimes helpful to defer decisions.
New is overvalued relative to great.
Don't overfit limited numbers of dots.
5.3 Synthesize the situation through time
Keep in mind both rates of change and absolute levels; can be "getting better" while still being way below the bar.
Everything important in your life needs to be on a trajectory to be above the bar and headed towards excellent at appropriate pace.
Be imprecise. Understand what "by and large" means.
Remember 80/20 rule, understand what key 20% is.
Be an imperfectionist:
perfectionists spend too much time on little differences at the margin at the expense of important things
typically 5-10 important factors to consider when making a decision; important to understand these really well
5.4 Navigate levels effectively
Reality exists at different levels; each gives valuable perspectives.
Constantly seeing things at different levels and navigating between them.
I want meaningful work that's full of learning.
I want to be a doctor.
I need to go to medical school.
I need to get good grades in the sciences.
I need to stay home tonight and study.
Pay attention to conversations, we tend to move between levels when we talk.
Use the terms "above the line" and "below the line" to establish which level a conversation is on.
When line of reasoning is jumbled, it's often because speaker has gotten caught up in below the line details without connecting them back to major points .
Only go below the line if it's necessary to illustrate something about a major points, and make sure you synthesize and tie things back.
Decisions need to be made at appropriate level and consistent across levels. Can't have 12 sausages and a beer for breakfast every morning and live a healthy life.
In other words: need to constantly connect and reconcile data you're gathering to get a complete picture.
Remember that multiple levels for all subjects
Be aware on what level you're examining a given subject
Consciously navigate levels rather than see subjects as undifferentiated piles of facts that can be browsed randomly
Diagram flow of your thought processes using outline template (on page 250) shown previously
Do all of that with radical open mindedness.
5.5. Logic, reason, common sense are best tools for synthesizing reality
Another higher vs lower self principle.
Fundamentals of good decision making are relatively simple and timeless
"Until you make the subconscious concious, it'll direct your life and you will call it fate." - Carl Jung
5.6 Make decisions as expected value calculations
Raising your probability of being right is valuable no matter what your probability of being right already is.
Knowing when not to bet is as important as knowing what bets are worth making.
Best choices are ones that have more pros than cons, not the ones that don't have ANY cons.
5.7 Prioritize by weighing value of additional info vs cost of not deciding
Some decisions best made after acquiring more info, others immediately.
All of your "must-dos" must be above bar before you do your "like-to-dos".
Prob won't have time to deal with unimportant things, better than not having time to do with important thinks.
Don't mistake possibilities for probabilities.
5.8 Simplify and 5.9 Use principles for decision making shortcuts
Get rid of irrelevant details so essential things and relationships between them stand out.
Principles are a way to both simplify and improve decision making.
Realize almost all "cases at hand" are just "another one of those".
Figure out which it is, then apply well thought out principles for dealing with it.
Will allow you to massively reduce the number of decisions you have to make.
What Dalio does:
slow down thinking so you can note criteria you are using to make
decision 2. write criteria down as principle 3. think about those criteria when you have an outcome to assess, and refine them over time
Identifying which "one of those" a situation is is like id'ing an animal.
Can be challenging since many since many cases are hybrids, in which case you have to weigh principles against each other.
5.10 Believability weight decision making
If disagreeing, see if you can start by agreeing which principles should be used to make a decision.
5.11 Convert principles into algorithms and have computer make decisions too
5.12 Be wary of AI without deep understanding
Sometimes can use to test how decision would have worked in past/other simulations.
Not super practical, prob more relevant for investment (and maybe fantasy football if you have a
General Notes & Questions
What to do when you don't have the type of access to experts etc Dalio is talking about?
It's one thing for Ray Dalio, who can talk to Bill Gates or the Dali Lama, but what am I believable at and what believable people do I have access to?
Connections between chapters?
Navigating levels principle (5.4) sort of ironic, because (though principles are all good) sort of feels like we're jumping levels here, particularly from chapter to chapter.
One possibility: starts with 1 (embrace reality and deal with it) by (going one level lower) doing 2 (5 step process).
Then chapters 3-5 (open-mindedness, wired, decisions) are a way to do 2 (the five step process) better.
Could potentially reorganize around themes, for example:
higher vs lower level you
you are designer and worker in your machine
open minded/pain as training
navigating levels and synthesizing
My favorite principles/concepts:
look at your machine from a higher level (1.10)
being realistic about your own weaknesses (1.10)
higher level vs lower level you (3.1, 4, 5.1) and habits (4)
navigating levels (5.4)
seek out pain to grow (1.7) and id and don't tolerate problems (2.2)
designing plans with timelines and metrics (2.4)
Not as new to me personally but def critical:
own your outcomes (1.9)
decisions as EV calculations (5.6)