The Call to Adventure
Before we begin, let me establish that I [Ray Dalio] know little relative to what I need to know. Whatever success I’ve had in life has had more to do with my knowing how to deal with my not knowing than anything I know. That I should tell other people what to do sounds kind of presumptuous but I will do it because I believe that the principles that have made me successful could help others achieve their own goals.
I’m now at a stage in my life in which it is much more important to pass along what I’ve learned about how to be successful than to seek more success for myself.
What you do with these principles is up to you. You have to be an independent thinker because only you can develop your own principles based on your own values.
“The happiest people discover their own nature and match their life to it.”
This brings me to my first and most fundamental principle, which is that you need to think for yourself about what is true. So let’s get started.
Early on, I discovered I needed principles. Principles are smart ways for handling things that happen repeatedly in similar situations.
There are principles for everything, from skiing to parenting to cooking, and so on. I will share some of my most important, overarching life principles that influence how we approach everything we do.
“I didn’t start out with principles. I acquired them over a lifetime of experiences. Mostly, from making mistakes and reflecting on them.”
My life principles are simple, but they’re not complete. I still struggle to make the best decisions, and I still make mistakes and learn new principles all the time.
This is the reality. In the beginning, I needed to escape the conventions that surrounded me, which meant that I needed to think for myself. Unless you want to have a life that is directed by others, you need to decide for yourself what to do, and you need to have the courage to do it. But I didn’t know that at first. I only learned that from going on my adventure.
Looking back on my journey, I now see that time is like a river that carries us forward into encounters with reality that require us to decide. We can’t stop our movement down this river, and we can’t avoid the encounters. We can only approach them in the best possible way. In your lifetime, you will face millions of decisions.
The quality of your decisions will determine the quality of your life. Over the course of my lifetime, the most valuable things I’ve learned resulted from mistakes I reflected on to help form principles so I wouldn’t make the same mistakes again.
These principles took me from being an ordinary middle-class kid from Long Island to becoming very successful as judged by conventional measures.
They also gave me meaningful work and meaningful relationships I value
even more than these conventional successes.
Embrace Reality and Deal with It
People often ask me how I did it. I can assure you it wasn’t because of my uniqueness as a person. It resulted from a unique approach to life I believe almost anybody can adopt.
It starts with embracing reality and dealing with it. The path you take in life is your most important decision. In my case, I wanted my life to be great, and I feared boredom and mediocrity more than I feared failure. Since I didn’t start out with money, and I didn’t need much more than a bed to sleep on and food to eat, I could skew my decisions to pursue my adventures. So ever since I was a kid, I ran after the things I wanted, crashed, got up and ran again, and crashed again, and each time I crashed, I learned something, got better, and crashed less. By doing that repeatedly, I learned to love this process, even the crashing part.
Through it, I encountered reality, and I learned how to deal with it, which inspired another one of my most fundamental principles which is that truth is the essential foundation for producing good outcomes.
By truth, I mean nothing more than the way the world works.
I believe that nature gave us the laws of reality. Humans didn’t create them, but we can use them to foster our own evolution and achieve our goals. Realizing that made me a hyper-realist, by which I mean I became someone who has discovered the great rewards of deeply understanding, accepting, and working with reality as it is, and not as I wish it would be.
When I say I’m a hyper-realist, people sometimes think I’m saying that dreams can’t come true. That’s absolutely not true. Without pursuing dreams, life is mundane.
What I mean is that, to me, hyper-realism is the best way to choose one’s dreams and then achieve them. Having big dreams, plus embracing reality, plus having lots of determination will bring you a successful life. I believe this formula is true for everyone.
But what does a successful life look like?
We each have to decide for ourselves what success is. I don’t care whether you want to be a master of the universe or to live under a palm tree, or anything else. I really don’t. Each of us chooses goals based on our values and decides on the best path to achieve them. But we all need approaches to make decisions that work well, especially when facing problems, mistakes, and weaknesses that stand in our way.
To succeed, we must embrace all our realities, especially the harsh realities we wish weren’t true.
At first, looking at these harsh realities caused me a lot of pain. But I learned that this pain was just psychological and that my seeing things differently made all the difference. I came to view problems like puzzles that would reward me if I could solve them. They would help me deal with the problem at hand, and they would give me principles for dealing with similar problems in the future. I learned to treat pain as a cue that a great learning opportunity is at hand, which led me to realize that pain plus reflection equals progress.
Meditation has been invaluable in helping me see things that way. I found that when I calmed myself down and embraced my realities, and dealt with them, the rewards brought me pleasure, and the pain faded. Each of us has the unique capability to think logically, to reflect on ourselves, and our circumstances, and to direct our own personal evolution. Doing this well is just a matter of following a simple five-step process.
“Meditate. I practice Transcendental Meditation and believe that it has enhanced my open-mindedness, higher-level perspective, equanimity, and creativity. It helps slow things down so that I can act calmly even in the face of chaos, just like a ninja in a street fight.”
The Five-Step Process
We’ve discussed how important it is to reflect carefully after experiencing pain. When I did this, I was usually able to discover principles that would prevent me from repeating the same mistakes in the future.
And I could see that being successful simply consisted of five steps.
Step One is to know your goals and run after them. What is best for you depends on your nature, so you need to really understand yourself and know what you want to achieve in life.
Step Two is to encounter the problems that stand in the way of getting to your goals. These problems are typically painful. If handled badly, some of them can lead to your ruin. But to evolve, you need to identify those problems and not tolerate them.
Step Three is to diagnose these problems to get at their root causes. Don’t jump too quickly to solutions. Take a step back and reflect in order to really distinguish the symptoms from the disease.
Step Four is to design a plan to eliminate the problems. This is where you will determine what you need to do to get around them.
Step Five is to execute those designs, pushing yourself to do what’s needed to progress toward your goal.
A successful life essentially consists of doing these five steps over and over again. This is your personal evolution, and you see this process everywhere.
It’s just a law of nature. Think of any product, any organization, or any person you know, and you will see that this is true for them.
Evolution is simply a process of either adapting or dying. Conceptually, it looks just like the five-step process I’ve described. As you push through this often painful process, you’ll naturally ascend to higher and higher levels of success.
I found that when I did it better, my struggling never became easier, because the more capable I became, the greater the challenges I would take on.
Because different people are strong and weak at different things, most people can’t do all five steps well. Not facing this reality means you could stretch further than you should. And as the heights get greater, your falls could also be greater.
“Every time you confront something painful, you are at a potentially important juncture in your life — you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion.”
Sometimes terrible things happen to all of us in life. They can ruin us, or they can profoundly improve us depending on how we handle them.
Something like this happened to me in 1982. We progress forward until we encounter setbacks. Whether or not we get out of them and continue forward or spiral downward depends on whether or not we’re willing to face the failure objectively, and make the right decisions to turn the loop upward again.
Something terrible happened in 1982, when I bet everything on a depression that never came. The period between 1979 and 1982 was one of extreme turbulence, for the global economy, the markets, and for me. And I believed that the US economy, with the world economy tied to it, was headed toward a catastrophe. This view was extremely controversial. I wanted the great upside, and publicly took a big risk and was wrong, dead wrong. After a delay, the stock market began a big bull market that lasted 18 years, and the US economy enjoyed the greatest growth period in its history. This experience was like a blow to my head with a baseball bat. I had to cut my losses so that my company, Bridgewater, was left with one employee, me.
I was so broke; I had to borrow $4,000 from my dad to pay my bills. But even worse was having to let go the people I cared so much about.
I wondered whether I should give up my dream of working for myself and play it safe by working for someone else in a job that would require me to put on a tie and commute every day. Though I knew that for me, taking less risk would mean having a less great life. Being so wrong, and especially being so publicly wrong, was painfully humbling.
I am still shocked and embarrassed by how arrogant I was in being confident in an incorrect view. Though I had been right much more than I had been wrong, I let one bad bet erase all my good ones. I thought very hard about the relationship between risk and reward and how to manage them. But I couldn’t see a path forward that would give me the rewards I wanted without unacceptable risk.
This kind of experience happens to everyone. It will happen to you. You will lose something or someone you think you can’t live without. Or you will suffer a terrible illness or injury, or your career will fall apart before your eyes. You might think that your life is ruined, and there’s no way to go forward. But it will pass.
I assure you that there is always the best path forward, and you probably just don’t see it yet. You just have to reflect well to find it. You have to embrace your reality.
Sometimes things happen that are hard to understand. Life often feels so difficult and complicated; it’s too much to take in all at once.
“If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential”
My deep pain led me to reflect deeply on my circumstances. It also led me to reflect on nature because it provides a guide for what’s true. So I thought a lot about how things work, which helped to put me, and my own circumstances, in perspective.
Everything is a Machine
I saw that at the big bang, all the laws and forces of the universe were created and propelled forward, interacting with each other as a perpetual motion machine, in which all the bits and pieces coalesce into machines that work for a while, fall apart, and then coalesce into new machines. This goes on into eternity.
I saw that everything is a machine. The structure and evolution of galaxies, the formation of our own solar system, the make-up of earth’s geography and ecosystems, our economies and markets, and each of us. We individually are machines, made up of different machines. Our circulatory system, our nervous system, that produces our thoughts, our dreams, our emotions, and all the other aspects of our distinct characters.
These different machines evolve together through time to produce the realities we encounter every day. And I realized that I was just one bit in one nanosecond, deciding what I should do.
While that perspective might sound very philosophical, I found that it was practical, because it showed me how I could deal with my own realities in a better way. For example, I observed that most everything happens repeatedly in slightly different ways. Some in obvious short-term cycles easy to recognize, so we know how to deal with them, like the 24-hour day. Some so infrequently that they haven’t occurred in our lifetimes and that are easy to recognize, so we know how to deal with them, like the 24-hour day. Some so infrequently that they haven’t occurred in our lifetimes and we’re shocked when they do, like the once in a 100-year storm. And some we know exist but are encountering for the first time, like the birth of our first child.
Most people mistakenly treat these situations as being unique and deal with them without having the proper perspective or principles to help them get through them.
I found that if instead of dealing with these events as one-offs, I could see each as just another one of those, and approach them in the same way a biologist might approach an animal.
First, identifying its species, then drawing on principles for dealing with it appropriately. Because I could see these events transpire in the same ways over and over, I could more clearly see the cause-effect relationships that govern their behaviors, which allowed me to develop better principles I could express in both words and algorithms.
I learned that while most everyone expects the future to be a slightly modified version of the present; it is typically very different. That’s because people are biased by recent history, and overlook events that haven’t happened in a long time, perhaps not even in their lifetime. But they will happen again.
With that perspective, I realized that what I missed when I mistakenly called for a great depression hid in the patterns of history, and I could use my newfound knowledge of these patterns to make better decisions.
And when I thought about my challenge, balancing risk and reward, I realized that risk and reward naturally go together. I could see that to get the most out of life, one has to take more risk, and that knowing how to appropriately balance risk and reward is essential to have the best life possible.
Imagine you were faced with the choice of having a safe, boring life if you stay where you are, or having a fabulous one if you take the risk of successfully crossing a dangerous jungle. That is essentially the choice we all face.
For me, the choice was clear, but that doesn’t mean the path forward was without challenges. I still needed to face two big barriers we all must face.
I can’t tell you which path in life is best for you, because I don’t know how important it is for you to achieve big goals relative to how important it is for you to avoid the pains required to get them.
This is the courage I spoke of earlier, and we each have to feel these things out for ourselves. After my big mistake in calling for a depression, I had come to one of life’s forks in the road, as we all do.
If I made the choice to take a normal job and play it safe, I would have ended up with a very different life than the one I had. But as long as I could pay the rent, put food on the table, and educate my kids, the only choice for me was to risk crossing the jungle in pursuit of the best life possible.
Your Two Biggest Barriers
My big mistake in betting on a depression gave me a healthy fear of being wrong. It gave me a deep humility, which was exactly what I needed. At the same time, it didn’t stop me from aggressively going after the things I wanted.
To succeed, I needed to see more than I alone could see. But standing in my way of doing that were the two biggest barriers everyone faces. Our ego and blind spot barriers. These barriers exist because of how our brains work.
First, let’s explore the ego barrier. When I refer to your ego barrier, I’m talking about the parts of your brain that prevent you from acknowledging your weaknesses objectively, so that you can figure out how to deal with them. Your deepest seated needs and fears live in areas of your brain that control your emotions and are not accessible to your higher-level conscious awareness. And because our need to be right can be more important than our need to find out what’s true, we like to believe our own opinions without properly stress-testing them.
We especially don’t like to look at our mistakes and weaknesses. We are instinctively prone to react to explorations of them as though they’re attacks. We get angry, even though it would be more logical for us to be open to feedback from others. This leads to our making inferior decisions, learning less, and falling short of our potentials.
The second is the blind spot barrier. Everyone has blind spots. The blind spot barrier is when a person believes he or she can see everything. But it’s a simple fact that no one alone can see a complete picture of reality.
Naturally, people can’t appreciate what they can’t see, just as we all have different ranges for singing, hearing pitch, and seeing colors, we have different ranges for seeing and understanding things.
For example, while some people are better at seeing the big picture, others excel at seeing details. Some are linear thinkers, and others are more lateral. While some are creative but not reliable, others are reliable but not creative, and so on.
Because of how our brains are wired differently, everyone perceives the world around them differently. By doing what comes naturally to us, we fail to account for our weaknesses and we crash. Either we keep doing that, or we change.
Aristotle defined tragedy as a terrible outcome arising from a person’s fatal flaw. A flaw, that had it been fixed, would have instead led to a wonderful outcome.
In my opinion, these two barriers are the main impediments that get in the way of good decision-making. Taking risks and occasionally being ruined wasn’t acceptable and neither was not taking risks and not having exceptional results.
I needed an approach that would give me an exceptional upside without also giving me the exceptional downside. When I discovered it, it turned out to be my holy grail. To get it, I needed to replace the joy of being proven right with the joy of learning what’s true. This need prompted me to seek out the most thoughtful people I could find who disagreed with me.
I didn’t care about their conclusions, I just wanted to see things through their eyes, and to have them see things through my eyes so that together we could hash things out to discover what’s true.
In other words, what I wanted most from them was thoughtful disagreement. Going from seeing things through just my eyes, to seeing things through the eyes of these thoughtful people was like going from seeing things in black and white to see them in color. The world lit up. That’s when I realized that the best way to go through the jungle of life is with insightful people who see things differently from me.
Be Radically Open-Minded
Think about the five-step process I described earlier. Because we are wired so differently, not everyone can do all the five steps well. But you don’t have to do them all alone. You can get help from others who are good at what you’re not, who are wired to perceive things you can’t.
All you need to do is let go of your attachment to have the right answers yourself and use your fear of being wrong to become radically. open-minded to these other views. In this way, you could point out the risks and opportunities that you would individually miss.
I found that taking this radically open-minded approach and believability-weighting people’s thinking significantly increased my probabilities of making the best decisions possible. This enabled me to ascend to greater heights and greater challenges.
In the past, I would have always wanted to do what I, myself, thought was best. But now I sought out the strongest independent thinkers I could find. I still do.
There is nothing better to be on a shared mission with extraordinary people who can be radically truthful and radically transparent with each other. This approach led me to create a company with the unique idea meritocracy, operating in a unique way, that produced unique successes.
In an idea meritocracy, you get the best of everybody. Everyone thinks independently, then we work through our disagreements to get at what’s best. However, not every opinion is equally valuable. And we had to learn to distinguish between good ideas and bad ones to get the best decisions. In other words, we needed to believability-weight people’s thinking.
Believability-weighted decision making is a way of supplementing and challenging the decisions of Responsible Parties, not overruling them. As Bridgewater’s system currently exists, everyone is allowed to give input, but their believability is weighted based on the evidence (their track records, test results, and other data). Responsible Parties can overrule believability-weighted voting but only at their peril. When a decision maker chooses to bet on his own opinion over the consensus of believable others, he is making a bold statement that will be proven right or wrong by the results.
Right now, there are many wonderful opportunities and dangerous risks surrounding you that you don’t see. If you saw them free of the distortions produced by your ego or your blind spots, you would be able to deal with them more effectively. If you could acquire this ability, and with practice, you can, you will radically improve your life.
“I just want to be right — I don’t care if the right answer comes from me.”
So far I described how I learned to confront my own realities, my problems, my mistakes, and weaknesses. And how I surrounded myself with others who could do things better than I could?
“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.”
This was the most effective way I discovered for making great decisions. This is not the normal way of being, but through this approach, I became very successful. And being successful enabled me to meet extraordinarily successful people and see how they think.
“Listening to uninformed people is worse than having no answers at all.”
I’ve discovered that their journeys were similar to mine. You might not know it, but they all struggled, and they all have weaknesses that they all get around by working with people who see risks and opportunities that they would miss.
Over time, I learned that by nature, most people’s greatest strengths are also connected to their most significant weaknesses. And striving hard for big things is bound to lead you to painful falls.
It’s just part of the process. Such setbacks will test you. They sort people. Some think hard about what caused their setbacks, learn lessons, and continue progressing toward their goals, while others decide that this game is not for them, and get off the field.
I’ve come to realize that success is not a matter of attaining one’s goals. I’ve found that when I reached each new higher level of success, I rarely remained satisfied. The things we are striving for are just the bait. Struggling to get them forces us to evolve, and it is this struggle toward personal evolution with others that is the reward.
I no longer wanted to get across the jungle, but instead wanted to find greater and greater challenges to go after, surrounded by great people working together on a shared journey. Eventually, the success of the mission and the well-being of the people alongside me became more important than my own success.
I also started to see beyond myself and wanted others to be successful when I’m no longer here. I realized that if I fail to do that, I will be a failure. I struggle with this now. We all struggle with different things at different times, until we either choose to give up or until we die and become part of the larger evolutionary story.
This is how all machines work and are recycled through time. When a machine breaks down, its parts go back into the system to become parts of new machines that also evolve through time.
Sometimes this makes us sad because we become very attached to our machines. But if you look at it from the higher level, it’s really beautiful to observe how the machine of evolution works.
Now you must decide for yourself how you will evolve. Forget about where these principles came from. Just assess whether or not they are useful to you, and evolve them to suit your own needs.
As with all of life’s decisions, what you do with them is ultimately up to you. My only hope for you is that you have the courage to struggle and evolve well to make your life as great as it can be.
More Work Principles
A Great Manager is Essentially an Organizational Engineer
Great managers are not philosophers, entertainers, doers or artists. They see their organizations as machines and work assiduously to maintain and improve them. They create process flow diagrams to show how the machine works and to evaluate its design. They build metrics to light up how well each of the individual parts of the machine; most importantly the people and the machine as a whole are working and they tinker constantly with its designs and its people to make both better.
They don’t do this randomly. They do it systematically; always keeping the cause-and-effect relationships in mind and while they care deeply about the people involved, they cannot allow their feelings for them or their desire to spare them discomfort to stand in the way of the machine’s constant improvement. To do otherwise wouldn’t be good for either the individuals on the team or the team that the individuals are a part of.
Of course, the higher up you are in an organization, the more important vision and creativity become but you still must have the skills required to manage and orchestrate well. Some young entrepreneurs start with the vision and creativity and then develop their management skills as they scale their companies. Others start with management skills and develop vision as they climb the ladder but like great musicians, all great managers have both creativity and technical skills and no manager at any level can expect to succeed without the skill set of an organizational engineer.
Get and Stay in Sync
For an organization to be eﬀective, the people who make it up must be aligned on many levels — from what their shared mission is, to how they will treat each other, to a more practical picture of who will do what when to achieve their goals. Yet alignment can never be taken for granted because people are wired so diﬀerently. We all see ourselves and the world in our own unique ways, so deciding what’s true and what to do about it takes constant work.
Alignment is especially important in an idea meritocracy, so at Bridgewater we try to attain alignment consciously, continually, and systematically. We call this process of ﬁnding alignment “getting in sync,” and there are two primary ways it can go wrong: cases resulting from simple misunderstandings and those stemming from fundamental disagreements. Getting in sync is the process of open-mindedly and assertively reflecting on both types.
Many people mistakenly believe that papering over diﬀerences is the easiest way to keep the peace. They couldn’t be more wrong. By avoiding conﬂicts, one avoids resolving diﬀerences. People who suppress minor conﬂicts tend to have much bigger conﬂicts later on, which can lead to separation, while people who address their mini-conﬂicts head on tend to have the best and the longest- lasting relationships. Thoughtful disagreement — the process of having a quality back-and-forth in an open-minded and assertive way so as to see things through each other’s eyes — is powerful, because it helps both parties see things they’ve been blind to. But it’s not easy. While it is straightforward to have a meritocracy in activities in which there is clarity of relative abilities (because the results speak for themselves such as in sports, where the fastest runner wins the race), it is much harder in a creative environment (where diﬀerent points of view about what’s best have to be resolved). If they’re not, the process of sorting through disagreements and knowing who has the authority to decide quickly becomes chaotic. Sometimes people get angry or stuck; a conversation can easily wind up with two or more people spinning unproductively and unable to reach agreement on what to do.
For these reasons, specific processes and procedures must be followed. Every party to the discussion must understand who has what rights and which procedures should be followed to move toward resolution. (We’ve also developed tools for helping do this). And everyone must understand the most fundamental principle for getting in sync, which is that people must be open-minded and assertive at the same time. Thoughtful disagreement is not a battle; its goal is not to convince the other party that he or she is wrong and you are right, but to ﬁnd out what is true and what to do about it. It must also be nonhierarchical, because in an idea meritocracy communication doesn’t just ﬂow unquestioned from the top down. Criticisms must also come from the bottom up.
Provide Constant Feedback and Evaluate Accurately
Most training should consist of doing a task and then analyzing performance. The feedback should be a realistic reflection of what is working and what is not. There’s no need for a balance of criticisms and compliments. Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed). Recognize that while most people prefer compliments, accurate criticism is more valuable.
Greatness comes from focusing on where improvements are needed. So, accurate criticism is more valuable than compliments. It is important to tell people where they are excelling, but it is even more important to highlight their weaknesses and ask them to reflect on them.
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. To avoid these pitfalls:
- Get in sync on assessments in a nonhierarchical way so that everyone is encouraged to speak freely. For performance reviews, start from specific cases, look for patterns, and get in sync with the person being reviewed
by looking at the evidence together.
- Learn about your people and have them learn about you through frank conversations about mistakes and their root causes.
- Recognize that change is difficult. Help people work through the pain that comes from confronting weaknesses by communicating calmly, giving context to the feedback, and giving them time and space to process before having a follow-up conversation.
- And above all, to help people succeed, first, allow them to see their failures so clearly and objectively that they are genuinely motivated to change, and then show them how they can change or work with others who are strong where they are not.
“The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger.”
Got feedback? Drop us a note at [email protected]
Based on Principles video and book. For a more detailed summary, see: https://inside.bwater.com/publications/principles_excerpt