Principles: Life and Work – Summary and Insights

Below are some of my key takeaways from reading the book, “Principles: Life and Work” by Ray Dalio. If you are interested in my detailed notes from this book, please email me.

Principles - Ray Dalio
Principles – Ray Dalio

Synopsis:

A brief synopsis of the book is reprinted below from Amazon.

“In Principles, Dalio shares what he’s learned over the course of his remarkable career. He argues that life, management, economics, and investing can all be systemized into rules and understood like machines. The book’s hundreds of practical lessons, which are built around his cornerstones of “radical truth” and “radical transparency,” include Dalio laying out the most effective ways for individuals and organizations to make decisions, approach challenges, and build strong teams. He also describes the innovative tools the firm uses to bring an idea meritocracy to life, such as creating “baseball cards” for all employees that distill their strengths and weaknesses, and employing computerized decision-making systems to make believability-weighted decisions. While the book brims with novel ideas for organizations and institutions, Principles also offers a clear, straightforward approach to decision-making that Dalio believes anyone can apply, no matter what they’re seeking to achieve.”

 

Insights:

Goal Setting

Ray Dalio is a strong advocate for personal and professional goal-setting. From his personal experience, he noted that successful people push their limits, sometimes resulting in failure. From studying nature, he observed that it is a fundamental law of nature that in order to gain strength one has to push one’s limit, which is painful. The pain, however, is a prerequisite for progress. If you can develop a reflexive reaction to psychic pain that causes you to reflect on it rather than avoid it, it will lead to your rapid learning/evolving.

Lots of companies have a goal-setting process but few of us apply those processes to our personal lives. Are our personal goals clearly defined and do we track progress? Are they tied to a larger personal vision? This section made me focus more on clarifying my personal goals by documenting, reviewing, and revising them every few months.

In “Man’s Search for Meaning” Viktor Frankl also talks about the importance of goal setting as well as self-reflection. He writes,

“What man actually needs is not a tensionless state but rather the striving and struggling for a worthwhile goal, a freely chosen task.”

For Frankl, it’s also important to find meaning in suffering.

“Suffering in and of itself is meaningless; we give our suffering meaning by the way in which we respond to it.”

Journaling and self-reflection wasn’t something I had practiced before. After seeing the concept pop up in a wide variety of books, I took it more seriously. Self-reflection doesn’t always have to focus on the negative aspects as well. Routinely acknowledging the things we are grateful for and expressing gratitude is also an important component of self-reflection.

Decision Making

Ray believes that one of the best ways to improve our decision-making abilities is to document the principles used to make decisions and continually evaluate them. This philosophy lead to the development of the book as well as the success of Bridgewater, the hedge fund Ray founded. Beyond writing his principles in words, the Bridgewater team encoded their decision-making process into computer algorithms, leveraging the computer age to validate and refine their investment process. In addition the relying on computers to support decision making, the company also evaluates each employee to identify who demonstrate repeated success and have the ability to articulate the reasoning behind their success. They quantify this attribute into a “believability” metric that is used to weight each person’s opinion when it comes to making a decision. Ultimately, Ray states,

“people interested in making the best possible decisions are rarely confident that they have the best answers.”

Ray Dalio discusses how his decision-making mindset transitioned over time from ‘I know I’m right’ to having one of ‘How do I know I’m right?’. In order to answer the latter, he seeks out other independent thinkers in his organization with opposing viewpoints and engages them in conversation to better understand their perspective. This made me think about my own personal decision-making process and if I was being open-minded enough. It made me more conscious of my responses to the ideas and criticisms of others. I try to prevent myself from being defensive of criticism and instead, ask more probing questions to understand how the other person arrived at a different conclusion. It’s also made me view team dynamics differently, especially when the group is lead by someone else. It’s interesting to observe how other leader’s respond to criticism and collaborate with others to reach a decision.

The book also talks about viewing decision making as an expected value calculation. People are notoriously poor at understanding basic statistics, as Nassim Nicholas Taleb details in his book “Fooled by Randomness.” Viewing decisions this way, sometimes it’s not always correct to bet on what’s probable. Decisions with low probability but a high chance of success might be worth taking if you can cover the downside. We are all constantly making decisions every day. This is another habit I’m trying to be more aware of. For more consequential decisions, especially irreversible ones, adding a bit more structure to the decision making process to better understand the probabilities of potential outcomes may be beneficial. The Fear Setting exercise by Tim Ferris is a good place to start.

Ray also discusses how our education system overemphasizes the value of having the right answers all the time. He states that the best students in school tend to be the worst at learning from their mistakes, because they have been conditioned to associate mistakes with failure instead of opportunity. This resonated with me personally and made me think about how we could approach our education system differently so that it values learning from mistakes as well as eventually getting the right answer.

Company Culture

In the book, Ray describes an organization as a machine consisting of two major parts: culture and people. Bridgewater has a very unique company culture. The combination of radical truth and radical transparency can be jarring to some. Almost everything is recorded and available for any employee to review. Employees rate each other during meetings. It’s a tough system to replicate but they believe it’s the best way to identify and execute the best ideas.

Psychological safety is one of the keys to effective team cohesion according to Google’s [Project Aristotle research](https://rework.withgoogle.com/print/guides/5721312655835136/). One of the key cultural principles at Bridgewater is to instill a belief that it’s okay to make mistakes and unacceptable not to learn from them. Bridgewater also puts a priority on surfacing problems and disagreements so that they can be quickly resolved. Everyone has problems, and by discussing them in the open and addressing them, people can break bad habits and build good ones. Our team runs retrospectives and postmortems but there are less formal ways to acknowledge and review mistakes. It’s also important for these lessons to be shared more broadly in an organization so as an organization, the same mistakes aren’t repeated.

Ray states that an organization is a machine of team and people that interact to create outputs. We can assess these outputs to analyze the machine. Based on this feedback, the machine can be improved by modifying the people and the culture. Organizations and products evolve by making adaptions to better adjust to their environment, much like plants and animals. Both organizations and products need to constantly iterate to stay ahead. On the product side, this idea is captured in modern development practices such as Lean and Agile that prioritize making small, incremental changes based on user feedback.

This made me interested in how these concepts can be applied at an organizational level. In U.S. government, laws are made at both the state and federal level. This allows states to be flexible, and adapt to their unique environment. At the federal level, each state can be viewed as an experiment and, if appropriate, codify the best practices into federal law so everyone can benefit. Smaller organizations can work the same way, allowing departments or teams the space to create their own tools and processes while sharing the successes broadly across the organization.

Leadership

Ray has unique, and perhaps non-traditional, thoughts on leadership. From his perspective, the traditional role of the leader is to make decisions and motivate the rest of the team to follow. The stereotypical leader often sees questioning and disagreement as threatening. In Ray’s view, the leader’s job is to discover the right answer by encouraging and mediating thoughtful disagreement on the team and decentralize the decision-making process.

I think this perspective makes sense for Bridgewater and other organizations that consist of mostly knowledge workers. I can also see a difficulty in balancing transparency about your uncertainties, mistakes, and weaknesses as a leader but also maintaining credibility with your team. In the military though, and perhaps other organizations, there are situations that require the leader to own the decision-making process and for the team to provide strict obedience. In these scenarios, the implicit trust that everyone will follow the leader’s direction and cooperate as a cohesive unit is essential to success. On the other hand, the military has long been a proponent of mission-type orders where leaders emphasize the desired outcome of a mission and don’t dictate how subordinates should accomplish that outcome.

At Bridgewater, each employee is given a series of personality tests and the results are visible by other employees. This enables managers to take into account people’s different thinking styles when determining how to best engage an employee in a certain situation. I’ve been somewhat skeptical of the accuracy of personality types. People can’t be rigidly defined by a serious of attributes. I’m also not sure how representative the tests are of people’s true selves or just their ideal self. Despite the criticisms, I do think it’s important to understand the personalities of the individuals I work with so I can tailor my approach appropriately. I view personality tests as a tool to gain that perspective.

Hiring

Since Bridgewater views their organization as a machine comprised of people and culture, they place a unique emphasis on their hiring process. As they continue to adapt and improve their machine, they take great care to clearly define the attributes of the specific person they are looking for in an open role. In addition to being clear on defining the role, they also emphasize developing a vocabulary for evaluating the abilities of candidates and employees.

Bridgewater places a priority on designing the role in order to better articulate the specific attributes required for success in the role. They begin with values, then abilities, and finally skills. The process and framework is very similar to the one defined by Geoff Smart and Randy Street in the book “[Who](https://amzn.to/2UB3DzL).” This reinforces the need to approach hiring and team building in a similarly structured way. The roles need to be clearly defined before the interview process starts and everyone on the interview panel must understand the specific traits they are looking for in the ideal candidate. There also needs to be a focus on assessing a candidate’s values and abilities, not just their tactical skills.

Happiness

Ray’s ultimate thesis in this book is that happiness is derived from a combination of meaningful work and meaningful relationships. “Make your passion and your work one and the same and do it with people you want to be with,” he says. Humans have a genetically programmed desire to improve which results in an innate desire for meaningful work and relationships.

Ray talks a lot about the importance of self-reflection in order to better understand oneself. He says,

“the happiest people discover their own nature and match their life to it.”

This theme runs throughout the book. We should strive to find meaning in our work, enjoy the time we spend with our coworkers, and value our personal relationships. By building a habit of self-reflection, we can identify our unique limitations and work to improve them. Ultimately, through self-reflection, we will better understand our individual motivations, enabling us to guide our journey along a path that is most likely to result in happiness and satisfaction.