Principles for life and professional success is what Ray Dalio wrote down, and this as he uncovered them for himself since the foundation of his hedge fond company more than 40 years ago. I see them as applicable universally and the book as excellent.
In the finance world, Ray Dalio is kind of an oracle, and by this made a substantial fortune for his investors and his company, but also regularly warned about economical dangers for countries and the financial system.
Table of contents
His book Principles appeals to me because he promotes principles for an idea meritocracy, meaning an organization in which those with the best ideas are heard.
In two parts Principles contains Ray Dalio’s guiding principles for life in general, and for work in specific, and this even as an overview in the middle of the book.
This book review is available in German, too.
Life principles according to Ray Dalio
The complete list of course is in the book and also can be found in the web, so I only mention those that I found especially noteworthy. This section contains principles both on chapter level as well as sub principles.
- Embrace Reality and Deal with It.
The chapter heading already does contain a lot, it is really central. We do not start like in a motivational book with life goals and clapping hands, but taking on what is. Reality is the essential factor, and so also perceiving reality as far as possible. Hence a principle:
1.2 Truth – or more precisely, an accurate understanding of reality – is the essential foundation for any good outcome.
Embracing reality includes the necessity to bring to my mind my own perception errors and go beyond those. Reality does not care how I perceive it, but for my own actions the perception of reality is of uttermost importance.
1.3 Be radically open-minded and radically transparent.
Everything can be, almost everything is possible, even if I cannot grasp that in my current state of knowledge. Open-minded means also to become aware how much I still do not know. Transparency, on the other hand, makes life easier, because I do not need to be a different person for different life areas, and act less politics-minded.
Open-minded describes a state of mind in which I am aware that I neither got the truth embedded at birth time, nor possess it now. Instead, I permanently compare my feeling with reality, under acknowledgement about my known perception errors as well as the assessment of others who I deem believable.
Here, Ray Dalio introduces the term believability and gives a short definition in a footnote:
„Believable parties are those who have repeatedly and successfully accomplished something–and have great explanations for how they did it.” (p 136)
1.3 b. Don’t let fears of what others think of you stand in your way.
The fear of what others think determines the actions of most people at least a bit, because we are tribal animals. The less I care about, the more freely I can think and act. And it gets even better according to Dalio: If others see that I act transparently, they might open up a bit, too, and I can learn more what drives them.
This is a principle that sounded familiar from the philosophy of stoa, about which I read in Ryan Holiday in The Obstacle is the Way (see my review in German about The Obstacle is the Way). I can train this by regularly putting myself into situations outside my comfort zone.
1.4 Look to nature to learn how reality works.
Reality works in a certain way, with or without me recognizing the principle and the statistic behind. Some things run via mechanisms, meaning that certain preconditions mostly lead to certain results. Other things work stochastic, by random the one result occurs or the other. If I get conscious about when which principle applies, I get an easier life, because in the first case I can seek to influence, and in the second case I can accept, instead of seeing myself as a bad person for letting happen.
1.7 Pain + Reflection = Progress.
That is a pretty hard lesson, still, for me too, but it‘s how it is. Pain and thinking about means progress. D‘uh. But there is a plus sign, so it does not always have to be big pain, yet a lot of reflection instead. Without the one and the other there is no way forward.
1.8 Weigh second- or third-order consequences.
This does get ignored a lot. We look for the direct and short term results of an action, but overlook or ignore the long term consequences. I surely can always buy the latest gadget, but then I should not wonder having less money available and waste time fiddling with those gadgets, time which then lacks for other, more important things.
1.9 Own your outcomes.
On this, ex Navy Seals Jocko Willink with Leif Babin have written a whole book titled Extreme Ownership.
It may well be that external factors and people have an influence on what I can deliver, but ultimately I am the one delivering. So I alone am responsible for my results of my actions. Nobody else.
If I look for responsibility within myself, it allows for a free sight on the problem, because all excuses disappear and I do not waste time with those.
1.10 Look at the machine from the higher level.
If what I do does not bring the results I want, then it is a good idea to change my procedures and behavior. Ray Dalio describes in detail the principles for objective self assessment as well as how to analyze how far my behavior is effective, and how I can get feedback from others.
2.2 Identify and don’t tolerate problems.
Make vague problems very concrete, and confront yourself with these problems. Yet do not confuse the root cause of a problem with its symptoms, and distinguish between small and large problems. Otherwise I might be wasting time on unimportant peculiarities and forgetting about the really important, big things.
2.3 Diagnose problems to get at their root causes.
So often we try to cure symptoms instead of solving the real causes. Getting to root causes as well means to rule out upstream causes, and it also means to take into account how other people tick.
3.1.a. Understand your ego barrier.
The own ego often stands in the way. On this, I absolutely recommend reading The Ego is the Enemy, once again from Ryan Holiday (see my book review of Ego is the Enemy in German). The more I focus on reaching a goal and not to have good feelings or getting praise while doing so, the better it will work.
3.2.c. Don’t worry about looking good; worry about achieving your goal.
Everybody training hard will be sweating a lot and not look exactly fresh.
3.3 Appreciate the art of thoughtful disagreement.
This one I daily practice with The Woman, see my post Successful relationship and organization needs two perspectives (in German). It ain’t exactly easy nor a pleasure cruise, but brings good results.
3.6.a. Regularly use pain as your guide toward quality reflection.
We can get used to being open. Simply think a though that I usually do not think. Ask curiously about what someone else thinks, and do not judge their thought but keep on being curious. According to Ray Dalio (and also Schlosser) this works particularly good when this thought induces discomfort at first. Then it most likely is a new thought, and my limbic system resists against by fear, by habit. This works with thoughts, with persons, with opinions as well as with new facts.
Think to where it is difficult or uncomfortable. I am in the lucky position to having married the toughest thinkable coach for that.
Simply do it. See my post Meditating with App (in German). The mindful breathing alone already helps me to come back to myself.
4.3.b. Know that the most constant struggle is between feeling and thinking.
This holds true even and especially for the seemingly composed people, who then break out or do erratic things, and especially for people that easily get offended. The feeling of being offended comes from the emotional layer, not from thinking, even if one has the opinion that something just “is not appropriate”. I go with Mae West on that:
“Those who are easily offended should be offended more often.” (attributed to Mae West)
4.4 Find out what you and others are like.
The more I understand how others tick, the better I can live and work with them. An understanding for their being in totally different aspects helps. Personality tests are useful, too, if I am aware that none of these tests gives a complete and static image of them.
5.2.a. One of the most important decisions you can make is who you ask questions of.
Or, as I say on the peer quote process within the performance review process: A peer quote says more about the writer than the recipient.
5.2.b. Don’t believe everything you hear.
Simply watch out and do not believe everything, but take in talk as expression of opinions, even when it disguises as fact.
5.3.d. Be an imperfectionist.
Better is the enemy of good, but if better leads to me not finishing anything, nobody benefits.
5.4.b. Remember that decisions need to be made at the appropriate level, but they should also be consistent across levels.
To be consistent in decisions is hard, also for me. If I decide on upper level to get into shape, I cannot eat several candy bars throughout the day. Same applies for all decisions, work related or personal.
See the book of same name in German Simplify your Life (see my German book review on Simplify your Life. Simple in terms of intelligent and elegant, not simple in terms of dumbed down.
5.11 Convert your principles into algorithms and have the computer make decisions alongside you.
Whatever I manage to codify I no longer need to decide manually. Does not work always, and not with everything, but with more than we usually apply.
Work principles by Ray Dalio
While the life principles are universally applicable, the following mostly fit the professional context.
Great people have both great character and great capabilities.
One of those two alone is not sufficient. Well intended is not well done, and well done is not necessarily a result of good intent.
1.1 Realize that you have nothing to fear from knowing the truth.
Many do not believe that in business context, but it is true. This especially applies when I am clean with myself, but even when I know I did not give my best in some area. By being transparent I no longer need to waste energy for pretending.
1.2.b. Don’t let loyalty to people stand in the way of truth and the well-being of the organization.
Does not sound nice at first. I gets better if people are aware so that they can adapt accordingly.
1.4 Be radically transparent.
1.4.a. Use transparency to help enforce justice.
1.4.b. Share the things that are hardest to share.
1.4.c. Keep exceptions to radical transparency very rare.
There it is again, the transparency, together with my most important sub aspects. Make clear who thinks what and hold people accountable for their thought process. When I provide information, where something did not go right, where I did not go right, whole organization as well as I benefit to get better.
There may be exceptions of the transparency mandate, but these are rare. Universal transparency should be the norm.
2.2.a. Make sure people give more consideration to others than they demand for themselves.
No further words needed, ain’t it?
2.2.b. Make sure that people understand the difference between fairness and generosity.
This is an important point. Just because the organization is voluntarily nice to someone or a group does not imply a right for everyone. Of course, it is useful to be aware which message I send with continuous generosity of just few.
3 Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them
A great chapter, running under the buzz word “failure culture,” but better described here than what usually gets written.
3.2 Don’t worry about looking good—worry about achieving your goals.
3.2.a. Get over “blame” and “credit” and get on with “accurate” and “inaccurate.”
As said previously: results count more as the style grade. Both in good and bad the factual analysis is more important than who’s to blame. Too often time is wasted in meetings on highlighting who had a great idea or who caused an error. Much more important is to…
3.3 Observe the patterns of mistakes to see if they are products of weaknesses.
If a mistake occurs more than once, often the cause lies in the system, not in personal weaknesses of an individual. While weakness can be relevant, the system is better to correct.
4.2.c. Remember that every story has another side.
In every conflict there are two stories at least.
4.3.c. Watch out for people who think it’s embarrassing not to know.
This kind of people holds back information and is not transparent. This, in turn, is a threat to the organization.
4.3.d. Make sure that those in charge are open-minded about the questions and comments of others.
4.3.f. Worry more about substance than style.
While it is important for everyone in the team to be open for questions and comments, for the leaders it is paramount. Also here, contents trumps form. It will be hard to throw me off with bad style as long as the contents is great. See Mae West’s quote above.
4.4.b. Be precise in what you’re talking about to avoid confusion.
So important and often neglected. What I do say in a meeting, with what words, has a great influence on whether I will be understood. Do not confuse with style, though.
It’s hard. Whoever had Latin in school will be doing easier with this. I did not, but I practice in the languages I speak and write. You, dear reader, may judge for yourself of write me.
4.4.f. Watch out for “topic slip.”
There is an agenda, hopefully. Let’s stick to it, otherwise we will not finish.
4.5.b. 3 to 5 is more than 20.
Too many cooks spoil the broth. Also and especially in working groups and meetings. That suits me well, because there is little I despise more than design by committee, because it so often creates mediocre results.
5.1.a. If you can’t successfully do something, don’t think you can tell others how it should be done.
So important. Like Socrates said and Plato write: „I know that I do not know.”
5.2 Find the most believable people possible who disagree with you and try to understand their reasoning.
This principle alone with its sub aspects makes its own book, and at least an own blog post. If someone has a theory that can be tested that is good, too. Ray Dalio explains the concept of believability more in depth in this section. He says believability is the function of success and the ability and the will to speak their thoughts.
5.4 Understand how people came by their opinions.
Another dense principle. Simply read the book. Really. Understand why people think the way they think.
5.5.a. Know when to stop debating and move on to agreeing about what should be done.
A lot of time gets wasted by this: a lot of discussion, and in the end nobody knows what to make of it and which actions to take. Let’s make it better and end the discussion at the appropriate time.
6.1 Remember: Principles can’t be ignored by mutual agreement.
6.1.a. The same standards of behavior apply to everyone.
Always worth remembering. I must not ignore existing principles by my role or position. Everything applies to me, too.
6.6 Recognize that if the people who have the power don’t want to operate by principles, the principled way of operating will fail.
Sometimes it does not work. If I do not manage to convince important people to stick to principles, I cannot expect from the rest of the organization to live any of those principles.
8 Hire Right, Because the Penalties for Hiring Wrong Are Huge
8.5.a. Look for people who have lots of great questions.
So important that I wrote a post on this a while ago: The One Question for Job Interviews
9.3 Evaluate accurately, not kindly.
Precision over kindness. We already had that, but repetition helps.
9.6.d. 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.
This principle of Ray Dalio describes pretty accurately, how a performance evaluation should look like and be conducted. It lays out a respectful yet direct conversation. Also see my post The Beauty of Performance Conversation and Evaluation–5×5 Tipps.
9.7.a. If someone is doing their job poorly, consider whether it is due to inadequate learning or inadequate ability.
In any case it is on me to act and start the necessary steps with that colleague and speak with them.
10.2 Remember that for every case you deal with, your approach should have two purposes: 1) to move you closer to your goal, and 2) to train and test your machine (i.e., your people and your design).
Another rich principle, making clear that everything is an experiment.
10.6.g. Don’t assume that people’s answers are correct.
From a very wide ranging principle this one is helpful to remember. Even good people may be wrong.
10.6.l. Pull all suspicious threads.
This big things show in the small. Even tiny differences in perception of small situations can be symptoms of larger problems. Not always, but giving a look does no harm.
11.2 Design and oversee a machine to perceive whether things are good enough or not good enough, or do it yourself.
To ensure quality we need mechanisms allowing people to find mistakes and fix. Silent deterioration or erosion is a permanent danger.
12.4 Use the following “drill-down” technique to gain an 80/20 understanding of a department or sub-department that is having problems.
- Grasp the problem. Nothing is perfect, but imperfect can point to systematic problems.
- Find root causes. Ask why a lot.
- Make a plan, including owners.
- Execute. And measure if it helps.
13.5 Build the organization around goals rather than tasks.
Also called value stream mapping. So important, so rarely implemented, unfortunately.
13.9.a. Investigate and let people know you are going to investigate.
I do not have to probe in clandestine, I may as well probe in public. If I probe properly it is hard or impossible to game.
13.9.c. Beware of rubber-stamping.
With everything I do I should take care that my actions do not become mostly about satisfying the process, but have a meaning.
13.10.b. Constantly think about how to produce leverage.
How can I amplify the things I am doing and create more impact? Always good to be thinking about.
13.11 Remember that almost everything will take more time and cost more money than you expect.
14.1.a. Work for goals that you and your organization are excited about and think about how your tasks connect to those goals.
Connecting tasks to goals might be a central challenge of leadership, and to convey the meaning of goals another one. On that there is a book by Simon Sinek Start With Why (see my book review on Start With Why in German)
14.3.a. Don’t confuse checklists with personal responsibility.
The one is helpful, the other required.
16.1.b. Make sure that no one is more powerful than the system or so important that they are irreplaceable.
For sure we want to collaborate with great people, and for sure it hurts when a particular one is no longer on the team. But nobody is allowed to be irreplaceable. Not you, and not I either.
Impact and Context
Principles is an unbelievably rich book by this hedge fond guru Ray Dalio. I was skeptical about what an executive from an industry that I have some reservations about could say on values and principles. But I am happy to confess I was very delighted about what I heard and read.
Despite that I have not yet been able in the short time since reading to apply many things, I got a lot of applicable ideas and pointers that I want to use and try both for me personally as well as the organizations I work in.
Ray Dalio’s Principles will accompany me for a long time. Some things seem hard to realize on the one hand, on the other hand not quite so hard at all.
Alle the principles around measuring believability make human behavior very transparent. I got to realize in discussions that many people do not see this as a positive thing, but yet I want to go into that direction.
Style and Critique
Ray Dalio writes very verbose, but concrete and not too long in that. The whole book has quite some weight. The principles themselves only begin after more than hundred pages, after Ray Dalio told his own story about his becoming. While I listened to that story in the audio book of Principles, I skipped that part when reading the book.
In total very insightful.
Layout and Audio
My goodness, that is a beautiful book! Really beautiful. Two color print with great layout ideas realized, which support the structure of Principles.
The complete book Principles is wonderful and amicable, with great typesetting and page setting, beautifully bound in linen. If you go for the printed version, absolutely go for the hardcover, since Principles will be a go-to book on many occasions.
The audio book of Principles is partially spoken by Ray Dalio, partially by Jeremy Bobb, whose voice is quite close. The English is well understandable. The quality of the audio book is good, with very few cutting mistakes.
Reading Recommendation Principles
It is a great book, this Principles of Ray Dalio. Go and read it.
Photo: Joachim Schlosser, License Creative Commons Attribution Share-Alike
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