Principles: Life and Work by Ray Dalio

Main ideas

I’m passing along these principles because I am now at the stage in my life in which I want to help others be successful rather than to be more successful myself.Ray Dalio

Principles are fundamental truths for behaviour that get you what you want out of life. We come by principles in two ways: through our own experiences, or by accepting them from others. Since we have different goals and natures, the principles we choose should be authentic to our values. But keep an open mind, because no one knows everything they need to know.

Without principles, we’re forced to react to what life throws at us as if we’re experiencing each thing for the first time. If we have established ways of dealing with situations, we can make better decisions, more quickly.

The key to success lies in knowing how to strive for a lot and fail well. Mistakes give us an opportunity to reflect on what went wrong. By learning from them, we can succeed next time, and strive for even more audacious goals.

Mistakes can shift our perspective from “I know I’m right” to “How do I know I’m right?” Seeing things through the eyes of other smart people lets us see many more dimensions, and weighing people’s input by their expertise increases our chance of being right.

Operating by principles, defining what goes into making a decision, lays out the logic and creates a system to reflect on and evaluate the process. Algorithms let computers make decisions faster and without emotional bias. Continually testing, refining, evolving and improving lets us systemize our decision making, resulting in higher-quality decisions.

Where Dalio is coming from

In the summer of 1971, Dalio had an experience that first sparked his search for principles. President Nixon announced that the US would no longer let dollars be exchanged for gold, and the dollar plummeted. Dalio expected the stock market to crash, but to his surprise, it rallied. Looking back, he learned it wasn’t the first time a currency breaking its link to gold had sent the market soaring.

His assumption was wrong because he’d been surprised by something that hadn’t happened in his lifetime, but had happened many times before. That realization was a valuable lesson. He started to see similar patterns in events, and they became just “another one of those”: the same actions leading to similar outcomes, with the only difference being when they happened.

You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.

He founded Bridgewater a few years later. In the early 1980s, as the economy began showing signs of cracking, Dalio publicly predicted a depression at least as bad as the Great Depression. Instead came the start of an 18-year bull market, and it nearly ruined the company. Reflecting on this, he saw that the only way he could be successful was to:

Seek out the smartest people who disagreed with him, so he 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.

This insight moved Bridgewater away from an autocracy, where one person leads and others follow, and away from a democracy, where everyone has an equal vote, to an idea meritocracy, where people’s opinions are weighted in proportion to their merits. That simple structure transformed Bridgewater into the largest hedge fund in the world.

Dalio attributes his success to his principles. He’s created value for investors by navigating markets, brokering deals and shaping policy. He admits he doesn’t know much compared to what he needs to know. But his principles have allowed him, his company and his team to be more successful than he ever dreamed of, both professionally and personally.

Life principles

By analyzing what affects you, you can understand the cause-and-effect relationships that drive it, and learn principles to deal with it.

1. Embrace reality and deal with it

There is nothing more important than understanding how reality works and how to deal with it.

Think of life as a game in which each problem you face is a puzzle to solve. Aligning your emotions and logic while solving those puzzles can lead to better decisions.

Be a hyperrealist. People who create great things aren’t idle dreamers; they’re grounded in reality, and able to choose their goals and achieve them. Decide what you value most, and what path you want to take to achieve it. Dreams + reality + determination = a successful life.
Truth, or more precisely an accurate understanding of reality, is the essential foundation for any good outcome. Allow yourself to see what’s true, even if it’s not what you want it to be.
Be radically open-minded and radically transparent. An open mind accelerates your learning, letting you make better decisions by continuously considering new information. The more honest you are, the more honest others will be, and the truer and more meaningful your reality becomes.
Look to nature to learn how reality works. Nature’s laws are optimized for the whole, not the individual. Nature is smarter than us, so we should be analytical rather than emotional, and open to learning how things really work.
Evolving is life’s greatest accomplishment and its greatest reward. Perfection doesn’t exist; it’s a goal that fuels a never-ending process of adaptation. The key is to fail, learn and improve quickly. How we matter and evolve depends on what we feel connected to, and to what extent we’ll put the interests of others above our own.
Understand nature’s practical lessons. Getting better at something gives us more long-term satisfaction than material things do. What we perceive as bad is essential to the process of evolving. To gain strength, we have to push our limits, which can be painful.
Pain + reflection = progress. If you’re not failing, you’re not pushing your limits, and not maximizing your potential. Embracing short-term pain leads to long-term comfort. Eventually you will crash hard, and the quality of your life will depend on the choices you make in those painful moments.
Weigh second- and third-order consequences. We often overweight first-order consequences. Exercise is painful (first order), but it leads to better health (second) and a more attractive appearance (third). Make decisions based on long-term gain.
Own your outcomes. You’re more likely to find success and happiness if you take responsibility for your decisions, instead of complaining about things beyond your control. You can always make a situation better.
Look at the machine from the higher level. Think of yourself as a machine, and understand that by making modifications, you can influence the outcome. No one is great at everything, so figure out what you can do yourself and what should be outsourced.

Most people lack the courage to confront their own weaknesses and make the hard choices required. Dalio’s advice:

Don’t confuse what you wish were true with what is true.
Don’t worry about looking good; worry about achieving your goals.
Don’t overweight first-order consequences.
Don’t let pain stand in the way of progress.
Don’t blame bad outcomes on anyone else.

2. Use the five-step process to get what you want out of life

Personal evolution takes place in five distinct steps. Doing each one thoroughly gives you what you need to do the next one well.

Have clear goals. While you can have virtually anything, you can’t have everything. Choosing goals means rejecting other things, so distinguish between goals (what you need to achieve) and desires (distractions). Don’t limit your goals to what you know you can achieve.
Identify and don’t tolerate problems. Problems are opportunities, and thinking about a problem is less stressful than avoiding it. Acknowledging a weakness is the first step towards overcoming it. Distinguish between big and small problems, and focus your energy where you’ll get the biggest return.
Diagnose problems to get at their root causes. Root problems show up over and over in seemingly different situations. You can only truly solve a problem by removing its root cause, distinguishing the symptoms from the disease.
Design a plan. There are many paths to a goal; you only need to find one. Planning doesn’t take much time, but it’s an often-skipped step. Identify the changes you can make to your machine to solve your problems, and who will play which roles along the way.
Push through to completion. Great plans go nowhere without execution. Keep your actions aligned with your goals by staying disciplined, building good work habits, and setting clear metrics to hold yourself accountable.

Remember that weaknesses don’t matter if you find solutions. Everyone has weaknesses. Identify what you struggle with and how to solve it, either yourself or with help from others. Have the humility to get what you need from others.
Understand your own and others’ mental maps and humility. We have to actively want to improve, and put in the work. Identify where you are, where you want to be, and how to bridge the gap.

3. Be radically open-minded

Barriers to good decisions exist because of how our brains work. Nearly everyone runs into them, but we can get around them.

Recognize your two barriers. Your two biggest barriers to good decision making are your ego and your blind spots. Your need to be right can’t be more important than your need to find out what’s true. Differences in thinking can be complementary rather than disruptive.
Practise radical open-mindedness. Replace the desire to always be right with the joy of learning what’s true. You have to be open to the possibility that you might be wrong. Asking smart people the right questions is more important than having all the answers.
Appreciate the art of thoughtful disagreement. The goal isn’t to convince the other person that you’re right, but to find what’s true. It’s much worse to make a decision based on a wrong opinion than to seek out the truth first.
Triangulate your view with believable people who are willing to disagree. When topics are complex, turning to experts can significantly raise your chances of making the right decision.
Recognize the signs of closed-mindedness and open-mindedness. You’ll be able to tell them apart, surround yourself with open-minded people, make better decisions, and learn along the way.
Understand how you can become radically open-minded. The life we live is the result of the habits we develop. Regularly asking “How do I know I’m right?” builds habits that let us be right more often. It might feel slow, but it’s nothing over the course of a lifetime.

4. Understand that people are wired very differently

We all experience reality in different ways, and any single way is essentially distorted.

Organizing people to complement their strengths and compensate for their weaknesses is key. If you want to know what’s true and what to do about it, you have to understand your own brain.

Understand the power that comes from knowing how you and others are wired. Our brains set the parameters of what we’re able to do mentally. At the root of differences in opinion are differences in how our brains work, and those differences create strengths and weaknesses.
Meaningful work and meaningful relationships aren’t just nice things we choose for ourselves; they’re genetically programmed into us. What really sets us apart from other species is our social intelligence: our ability to work together.
Understand the great brain battles, and how to control them. Be aware of your subconscious and reflect on it consciously. Understand the battle between feelings and rational thinking, and what triggers an “amygdala hijacking”. Use kindness and persistence to build habits that reinforce what you really want. Rather than expecting change, it’s often more effective to acknowledge your weaknesses and create guardrails.
Find out what you and others are like. Everyone has strengths and weaknesses, and an important role to play. The courage that’s needed most isn’t the kind that drives you to prevail over others, but the kind that lets you be your truest self.
Getting the right people in the right roles is the key to succeeding at whatever you choose to accomplish. Be the conductor of an orchestra: each person performs at their best while working together, so the orchestra becomes more than the sum of its parts.

5. Learn how to make decisions effectively

Most of the processes behind everyday decisions are subconscious, and more complex than we realize.

Recognize that the biggest threat to good decision making is harmful emotions, and that decision making is a two-step process: first learning, then deciding. The quality of your decisions depends on how well you learn about the situation first.
Synthesize the situation at hand, and through time. Separate what’s important from what isn’t, so you know where to focus. Collecting information over time reveals patterns. Even if something is improving, it still needs to be improving at, and towards, an acceptable level.
“By and large” is the level at which you need to understand most things. The 80/20 rule says we get 80% of the value from 20% of the information. Don’t get bogged down in the details; the important information is usually in five to ten factors.
Navigate levels effectively. Reality exists at different levels, and each gives a valuable perspective. Know which level you’re on, and what information you need at that level.
Logic, reason and common sense are your best tools for synthesizing reality. Decisions in groups should be evidence-based and logical, so the loudest opinion doesn’t win.
Make your decisions as expected value calculations. Weigh the pros and cons, improve your odds by collecting more information, and favour the bets you’re confident will pay off.
Prioritize by weighing the value of additional information against the cost of not deciding. Separate “must-dos” from “like-to-dos”. Anything is possible; it’s the probabilities that matter.
Simplify! Get rid of irrelevant details, so the essential things and the relationships between them stand out.
Use principles. Almost every case at hand is just “another one of those”. Identify which one it is, and apply well-thought-out principles for dealing with it. You’ll make fewer decisions, and much better ones.
Believability-weight your decision making. Don’t overestimate your own believability, and distinguish between people who are more and less credible. In a disagreement, try to agree first on which principles should decide it.
Convert your principles into algorithms, and have the computer make decisions alongside you. Using predetermined rules, a computer can make timely, efficient and unbiased decisions. Our brains working alongside technology is what elevates us.
Be cautious about trusting AI without a deep understanding of it. AI is limited by its programming. If something hasn’t happened before and its cause-and-effect relationships are unknown, it can’t be programmed. Complex decisions still need human interpretation.

Work principles

For an organization to function well, its work principles must align with its members’ life principles. Great organizations are machines made of two major parts: culture and people. That requires tough love, caring, high standards, and radical truth and transparency.

Make your passion and your work one and the same, and do it with people you want to be with. Work is either a job you do to earn money to pay for the life you want, or what you do to achieve your mission, or some mix of the two. Make it as much of the second as possible, while recognizing the value of the first.

To get the culture right

Working in a culture that suits you is fundamental to your happiness and effectiveness. It should also produce great outcomes, and keep you engaged and motivated.

1. Trust in radical truth and radical transparency

The more people can see the good, the bad and the ugly, the better they can decide how to handle things.

Realize that you have nothing to fear from knowing the truth. Knowing is less scary than not knowing. Knowing lets you act on the truth; not knowing distracts you from the mission.
Have integrity, and demand it from others. People who are one way on the inside and another on the outside lose touch with their own values. When mistakes and weaknesses are hidden, unhealthy character is rewarded.
Create an environment where everyone has the right to understand what makes sense, and no one has the right to hold a critical opinion without speaking up. In an idea meritocracy, openness is a responsibility.
Be radically transparent. Exceptions should be rare, and limited to private, personal or critical business matters. Transparency should help bring the organization to a higher standard.
Meaningful relationships and meaningful work are mutually reinforcing. Supported by radical truth and transparency, they create a cycle that lets you pursue more and more ambitious goals.

2. Cultivate meaningful work and meaningful relationships

Meaningful relationships create the trust and support people need to push each other to do great things.

Be loyal to the common mission, not to anyone who isn’t operating consistently with it. The organization’s interests should come before personal interests.
Be crystal clear on what the deal is. Clear expectations, for employees and employers, are important for alignment. There’s a difference between generosity and entitlement.
Recognize that the size of an organization can threaten meaningful relationships. Grouping people around a common mission is the best way to scale them.
Remember that most people will pretend to operate in your interest while operating in their own. Treasure honourable, capable people who will treat you well even when you’re not looking. They are rare.

3. Create a culture where it’s okay to make mistakes, and unacceptable not to learn from them

Successful people learn from their mistakes, and unsuccessful people don’t.

If you look back at yourself a year ago and aren’t shocked by how much you’ve learned, you probably haven’t learned much. People who embrace their mistakes substantially outperform peers with the same abilities but bigger ego barriers.

Recognize that mistakes are a natural part of the evolutionary process. Failing well means learning from your mistakes, and seeing them as an opportunity to improve.
Don’t worry about looking good; worry about achieving your goals. Accurate criticism is the most valuable feedback you can receive. Fix it and move on.
Observe the patterns of your mistakes, to see if they come from a weakness. Write them down and connect the dots. The first step to tackling an obstacle is getting it out in the open.
Remember to reflect when you experience pain. The worst mistake you can make is not facing your mistakes.
Know which mistakes are acceptable and which aren’t. Weigh the potential damage of a mistake against the benefit of learning: “I’m willing to scratch the car, not total it.”

4. Get and stay in sync

Thoughtful disagreement isn’t a way to convince someone you’re right; it’s a way to find what’s true and what to do about it.

Recognize that conflicts are essential for great relationships. They’re how people find out whether their principles are aligned, and resolve their differences.
Know how to get in sync and disagree well. When people are willing to learn from each other, they evolve faster and decide better. Wisdom is seeing both sides and weighing them appropriately.
Be open-minded and assertive at the same time. See things through others’ eyes, while being clear about how they look through yours. It’s okay not to know, but not okay to stay that way.
If it’s your meeting to run, manage the conversation. Keep meetings on topic, communicate clearly, and make sure everyone understands what was covered.
Great collaboration feels like playing jazz. Two people who collaborate well can be about three times as effective as each working alone. Too large a group subtracts from effectiveness, even if everyone is smart.
When you have alignment, cherish it. And if you can’t reconcile major differences, especially in values, consider whether the relationship is worth preserving.

5. Believability-weight your decision making

When a decision needs to be made, consider who is most likely to be right.

An effective idea meritocracy requires understanding the merit of each person’s ideas. Understand why something is true, rather than just accepting it. Don’t tell others how something should be done if you can’t successfully do it yourself.
Find the most believable people who disagree with you, and try to understand their reasoning. Different perspectives are the quickest way to get an education. The reasoning behind a conclusion matters more than the conclusion.
Think about whether you’re playing the role of teacher, student or peer. If you’re less believable, ask questions. If you’re more believable, explain. Everyone should be willing to change their mind based on logic and evidence.
Understand how people came by their opinions. Make sure you’re asking the right people the right questions. An answer from a non-believable person is worse than no answer.
Disagreements must be resolved efficiently. Know when to agree to move on. It’s more important to do the big things well than the small things perfectly.
Pay more attention to whether the decision-making system is fair than whether you get your way.

6. Recognize how to get beyond disagreements

You can’t just encourage people to think independently; you have to give them a path past their disagreements.

Principles can’t be ignored by mutual agreement. The same standards of behaviour apply to everyone. If you believe a principle is wrong, speak up to change it.
Don’t confuse the right to complain, give advice and openly debate with the right to make decisions. Stress-testing a decision improves it, but doesn’t transfer the responsibility for making it.
Don’t leave important conflicts unresolved. Don’t let small details divide you from the big mission. If a decision can’t be made, escalate it.
Once a decision is made, everyone should get behind it, even if individuals still disagree. Group cohesion supersedes individual desires once a decision is made.
If the people with power don’t want to operate by principles, the principled way of operating will fail. Power must be given to people who value principles more than their own interests.

To get the people right

A culture and its people are symbiotic: the culture attracts certain people, and they either reinforce or evolve it based on their values.

7. Remember that the who is more important than the what

People often focus on what should be done, instead of the more important question of who should decide what should be done.

The most important decision you make is who you choose as your responsible parties. Appoint people who are responsible, believable in their area, and able to achieve the goals they’re given.
The ultimate responsible party is the person who bears the consequences. Take responsibility for your actions, including decisions that lead to bad outcomes.
Remember the force behind the thing. Companies don’t make decisions; people do.

8. Hire right, because the penalties for hiring wrong are huge

Match the person to the design. In picking people, values matter most, abilities next, and skills last. Skills can be learned; values are deeply embedded.
Remember that people are built very differently. Different ways of seeing and thinking suit people to different jobs. People can take on roles outside their comfort zone, but they typically don’t change much.
Think of your teams the way sports managers do. No one person has everything required for success, yet everyone must excel.
Pay attention to track records. Personalities are well formed before people come to you, so look for a track record of excellence.
Don’t hire people just to fit their first job; hire people you want to share your life with. Look for people who ask good questions; it’s a better sign of future success than great answers.
When it comes to pay, provide both stability and opportunity. Pay enough to eliminate financial stress, but not enough to encourage complacency. Focus on making the pie bigger rather than how to slice it.
In great partnerships, consideration and generosity matter more than money. Great people are hard to find, so think about how to keep them.

9. Constantly train, test, evaluate and sort people

Both your people and your design must evolve for your machine to improve.

Understand that you and your people will go through a process of personal evolution. Egos must be set aside to discover strengths and weaknesses. Teach people to fish; doing things first hand is the best way to learn.
Provide constant feedback, in proportion to the actual situation, so people know where they stand.
Evaluate accurately, not kindly. Kind but inaccurate feedback can hurt both the person and the organization.
Tough love is both the hardest and the most important type of love to give. Struggling to get what you want makes you stronger, and shows you how to earn success.
Knowing how people operate, and whether that will lead to good results, matters more than knowing what they did. Bad reasoning can lead to good outcomes, but good reasoning leads to good outcomes most often.
Train, guardrail or remove people; don’t try to rehabilitate them. Training helps someone evolve; rehabilitation tries to change their core values or abilities, which is far harder.
Don’t lower the bar. You can’t compromise on the fundamentals of your culture.

To build and evolve your machine

A higher-level perspective lets you see yourself and others objectively as a machine: who can and can’t do what well, and how everyone fits together to produce the best outcomes.

10. Manage as someone operating a machine to achieve a goal

No matter what you do, at a high level you’re setting goals and building machines to achieve them.

Look down on your machine, and yourself within it, from the higher level. Pursue your goal while evaluating your machine at the same time. Build good metrics, but don’t fixate on any single data point.
Every case should do two things: move you closer to your goal, and train and test your machine (your people and your design).
Understand the difference between managing, micromanaging and not managing. Great managers orchestrate rather than do.
Know what your people are like, and what makes them tick. They are your most important resource.
Clearly assign responsibilities, and reassess them as things change.
Think like an owner, and expect the people you work with to do the same.
Recognize and deal with key-person risk. Every key person should have at least one person who can replace them.
Don’t treat everyone the same; treat them appropriately, while applying the same set of rules to everyone.
Great leadership is generally not what it’s made out to be. The most effective leaders open-mindedly seek out the best answers, and bring others along in that discovery.
Hold yourself and your people accountable, and communicate the plan clearly with metrics that show whether you’re on track.
Escalate when you can’t adequately handle your responsibilities. Escalating isn’t a failure; it’s a responsibility.

11. Perceive and don’t tolerate problems

Problems are like coal thrown into a locomotive: burning them up propels us forward.

If you’re not worried, you need to worry, and if you’re worried, you don’t need to worry. Worrying about what could go wrong protects you from it.
Design a machine to perceive whether things are good enough, or do it yourself. Don’t let people get used to unacceptable problems. Compare outcomes to goals: progress should trend steadily within an acceptable range, not swing wildly.
Be very specific about problems; don’t start with generalizations.
Don’t be afraid to fix the difficult things. Note the problem, decide who will deal with it, and when.

12. Diagnose problems to get at their root causes

Getting to the root cause stops a problem from recurring.

To diagnose well, ask three questions, answering each one before moving on to the next:

Is the outcome good or bad?
Who is responsible for the outcome?
If the outcome is bad, is the responsible party incapable, and/or is the design bad?

Diagnose continuously, so you can connect the dots: why problems occur, and whether they’re getting better or worse. A diagnosis should produce something: at worst, a theory of why it happened, and at best, a solution. And remember that diagnosis is foundational to both progress and quality relationships: you’ll find better solutions while getting to know your team better.

13. Design improvements to your machine to get around your problems

Use the pain a problem creates to fuel your creative thinking.

Build your machine, by observing what you’re doing and why, extracting the relevant principles, and systemizing them. It takes longer in the short term, but pays off over the long term.
A good plan should resemble a movie script. Visualize who will do what, when, and the result they’ll produce.
Design is an iterative process. Between a bad “now” and a good “then” is a “working through it” period.
Build the organization around goals rather than tasks, with clear reporting lines and as few layers of hierarchy as possible.
Keep your strategic vision the same, while making tactical changes as circumstances require.
Have good controls, so you aren’t exposed to the dishonesty of others.
Remember that almost everything will take more time and cost more money than you expect.

14. Do what you set out to do

Work towards goals you and your organization are excited about, and think about how your tasks connect to them.
Recognize that everyone has too much to do. Besides working harder and longer, you can prioritize and say no, delegate to the right people, and improve your productivity.
Use checklists, as reminders and to show progress.
Allow time for rest and renovation. Don’t burn out.
Ring the bell. When you’ve pushed through and achieved your goals, celebrate!

15. Use tools and protocols to shape how work is done

Words alone aren’t enough; change won’t happen until the right habits develop. Systemized principles built into tools are especially valuable for an idea meritocracy, which runs on agreed-upon principles.

16. And for heaven’s sake, don’t overlook governance!

Governance checks and balances power, so the principles and interests of the community come before any individual.

All organizations need checks and balances. No one should be more powerful than the system, or irreplaceable.
In an idea meritocracy, a single CEO isn’t as good as a great group of leaders. A group reduces dependence on one person, adds expertise, and shares the burden of the work.
No governance system can substitute for a great partnership. Individual power and ego need to take a back seat to close, cooperative and effective working relationships.

Final thoughts

If life truly is 10% what happens to you and 90% how you react to it, then Principles gives us the blueprint for the 90%.

In a sense, I view Principles as a modern business and success bible. It’s full of valuable lessons that apply in a variety of situations, to help us navigate our increasingly crazy world. It gives us tools to make better decisions, have more positive outcomes, and get more value from ordinary interactions.

If nothing else, I believe everyone could benefit from reading the Life section, since it’s the most relatable regardless of what you do for a living. But if you work in management, as part of a team, or feel like you could be doing a little more than you are right now, the Work section gives key insights into what made Bridgewater the largest hedge fund in the world.

This summary is a little over 5% of the book’s word count, and I had to cut out so much. If anything here caught your attention, I can’t recommend the book enough.

All ideas, quotes and illustrations are borrowed from or based on Principles: Life and Work by Ray Dalio. To learn more, visit principles.com.