Disclaimer: This is an unofficial summary and analysis.
Principles is a journey of how Ray Dalio overcame an economic abyss to become one of the wealthiest men in America. The key to developing your principles is becoming a hyper-realist. Becoming a hyper-realist will allow you to view failures as learning opportunities rather than personal attacks. Principles recommends you view your mistakes as minuscule compared to the machine that is the world. Then, you will stop using mistakes as excuses for giving up on your goals.
Ray Dalio’s Perspective
Ray Dalio is the Founder, Co-Chairman, and Co-Chief Investment Officer of Bridgewater Associates. He started Bridgewater out of his two-bedroom apartment in New York in 1975. According to Fortune Magazine, the firm has grown into the fifth most important private company in the US. Additionally, Bridgewater is the world’s largest hedge fund. Ray’s net worth is currently just under 17 billion dollars. He also holds a Bachelor of Science degree in Finance from CW Post College and an MBA degree from Harvard Business School.
The Call to Adventure
Going on an adventure is crucial when you are seeking to establish principles. Dalio describes principles as a way of handling scenarios that repeatedly happen in similar situations. You will not start life with principles pre-installed. Instead, you must acquire principles from your life experiences. The most important experiences for the development of your principles are ones where you make mistakes. Crucially, you must be willing to reflect on these mistakes and change your principles accordingly.
It can be easy to simply adopt the principles of others and conform to society’s foundational ideas. However, adopting this approach means others will direct your life. Your adventure is where you will learn how to live your life. Time is like a river that will carry you forward to these adventures. Once you reach these encounters, you have no choice whether you engage with them. Instead, ensure you respond well to these encounters.
The quality of the decisions you make when you encounter these circumstances will determine your life quality. Particularly, the way you incorporate your mistakes into your principles will define whether you become a successful person or not.
Embrace Reality and Deal with It
The reality is Ray Dalio is not a unique person. Instead, he attributes his success to a unique approach anybody can adopt. The first step in adopting this unique approach is to embrace reality and deal with it.
Ray Dalio explains that embracing reality involves pursuing your adventures no matter the sacrifices. For example, he was willing to pursue any adventure as long as he had a bed to sleep on and food to eat. This approach allowed him to pursue any positive adventure without fear of failure. He ran after the things he wanted and failed. However, he learned from this experience and pushed onto the next adventure. After several failed attempts, Dalio got better at pursuing his adventures. Subsequently, these failures became less common. Plus, he started to enjoy this process as he saw progress. The essence of these experiences was that Dalio encountered reality. Then, through his failures, he learned how to deal with reality.
Truth Is the Essential Foundation For Good Outcomes
Dalio describes truth as the way the world works. We can utilize our own evolution and the laws of nature to achieve our goals. Instead of working towards how Dalio wanted the world to be, he became a realist. He still pursued dreams. However, he based his dreams on the reality of the world. Subsequently, Dalio became more likely to achieve his goals. Creating realistic goals and developing high levels of determination will bring you a successful life.
Identifying Your Successful Life
Success is a subjective concept. You have to decide for yourself what a successful life looks like. Success should not be determined by society. Instead, your own success is determined based on your goals and values. Plus, your success is reliant on your ability to embrace the harsh realities of life. Dalio explains that embracing the harsh realities of life is not easy. He initially struggled to embrace his realities, but he learned the pain was purely psychological. Once he understood the rewards of facing these realities, he was better able to deal with the problems at hand. Dalio learned to treat pain as a cue that a great learning opportunity was available. Subsequently, he developed the formula:
Pain + Reflection = Progress
The Five-Step Process
Based on his experience, Dalio identified five steps to success:
- Step One is to know your goals and run after them. What is best for you depends on your nature. You need to 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 painful. If poorly handled, 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 to solutions. Take a step back and reflect to 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 consists of doing these five steps over and over again. This is your personal evolution, and you observe this process everywhere.
The abyss is a description of the terrible things that can happen in our lives. This abyss can ruin us or profoundly improve us. We have control over how we handle these terrible events. Dalio explains that he had his abyss moment in 1982. He invested heavily based on the expectation there was going to be a severe economic depression. However, this depression never came. Dalio’s view was controversial, and he was proven wrong. The US economy experienced its greatest growth period in its history. Dalio’s losses were so significant that his company, Bridgewater, was left with no employees other than himself.
This mistake was extremely difficult to handle. Dalio had to let go of several employees and was publicly humiliated. However, this experience was also humbling and helped him learn to be more realistic. Plus, Dalio learned how to better manage the relationship between risk and reward. In the future, he did implement investment plans that provided him with the rewards he sought. However, these plans were without the risks associated with this prior mistake.
You have likely suffered challenging experiences yourself. If you haven’t, then you certainly will. When these moments arise, there is a best path to pursue. If you reflect well on your mistakes, then you can identify and choose this best path.
Everything is a Machine
Dalio explains that learning about the world’s origin helped him understand that everything is a machine. After the big bang, the laws and forces of the universe were created. Dalio describes this as a perpetual motion machine. 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. We even have circulatory and nervous systems that control many of our crucial functions.
The world’s machines evolve together to produce the realities we encounter daily. This understanding helped him appreciate that realities and decisions are merely one nanosecond and one part of this machine. Hence, this realization helped Dalio to deal with his realities. Instead of viewing his realities as freak events, he started viewing them as expected realities that would happen at some point. People tend to view the future as being a slightly modified version of the present. However, in reality, the future is often significantly different.
Dalio explains you should approach future events as if you are a biologist, and they are an animal. Firstly, you want to identify the event’s species. Then, you should draw upon your principles to decide how you deal with it appropriately.
Your Two Biggest Barriers
Dalio admits his big mistake in betting on an economic depression gave him a healthy fear of being wrong. He developed a humility that challenged his ego. Dalio describes the ego as part of your brain that prevents you from acknowledging your weaknesses. Identifying and understanding your weaknesses is fundamental to success. You can then figure out how to deal with these weaknesses. Our need to be correct can be more important than our need to find out what’s right. Hence, we like to believe our own opinions without properly stress-testing them.
Our ego encourages us to view mistakes and weaknesses as personal attacks. Anger can take over, rather than objective, critical analysis. Subsequently, your ego can lead to inferior decisions and learning less.
The Blind Spot Barrier
The blind spot barrier is when you believe you can see a full picture of reality, but you actually have blind spots. Dalio explains that no one can foresee a complete picture of reality. We believe we have a complete picture as it is challenging to appreciate the things we cannot see or comprehend. Naturally, some people are better at seeing more of the complete picture. However, some people excel at seeing the details of a picture. Additionally, some individuals are linear thinkers, while others are lateral. However, naturally obliging means we do not account for our weaknesses and don’t 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. Hence, Dalio explains he sought ways to replace the joy of being proven right with the joy of learning what’s true. Dalio was seeking thoughtful disagreement. It is best to traverse this world with people who disagree with you.
Be Radically Open-Minded
You must let go of your attachment to always having the right answer. Instead, be radically open-minded to other views. This approach will allow you to identify risks and opportunities that would have never been in your complete picture. After adopting this approach, Dalio noticed he was making the best decisions possible.
Suppose you want to apply a radically open-minded approach within your company. In that case, you need to adopt believability-weighted decision-making. This is what Dalio did when rebuilding his company, Bridgewater. This type of decision-making process involves challenging the decisions of fellow employees rather than overruling them. Subsequently, everybody at Bridgewater is allowed to offer their input. However, each individual’s believability is weighted based on evidence. This evidence involves their track record, test results, and other crucial data. Responsible Parties can overrule believability-weighted voting but only at their peril.
Most people’s greatest strengths are also connected to their most significant weaknesses. Therefore, striving to attain tough goals will subsequently lead to painful falls. These setbacks will test you, and your response will define your future. You can either struggle well by continuing to progress towards your goals with new lessons learned. Or, you can struggle badly by deciding this field or goal is not for you.
The reward for hard work is not attaining your goals. Instead, the struggle toward personal evolution is the reward of hard work. After learning to struggle well, Dalio no longer wanted success. Instead, he wanted greater challenges to overcome or learn from. Eventually, the success of the mission and the well-being of the people alongside him became more important than his success. Dalio also started to see beyond himself and wanted others to be successful when he was no longer here. Failing to do this would be the only reason he could be called a failure.
All machines 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 attached to our machines. However, suppose you look at it from a higher level. In that case, it’s wonderful to observe how the machine of evolution works.
We rate this book 4.2/5.
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