Principles - Life and Work
Ray Dalio

by

Jack Shields

Themes
Themes are described as ideas that dominate a particular piece of literature. In almost all cases, pieces of literature will be centered a theme or a number of them.
The Power of Principles

Principles: Life and Work suggests that principles are powerful weapons in one’s fight against flawed thinking. They are the ultimate method of seeing the world as it truly is, not the way one would like it to be.

If one perhaps asked Dalio why he thinks it is vital to have principles, he would say that “Principles are ways of successfully dealing with reality to get what you want out of life” (Four Minute Books). When he was younger, Dalio predicted that Mexico would default its debt and that the world would subsequently fall into an economic crisis. He even talked about this prediction on TV and in front of the US Congress. Even though Mexico did default on its debts, the economic crisis never occurred. Instead, stocks and business soared. Since Ray had placed his financial bets accordingly, all his money got lost, forcing him to fire all his employees. This was his biggest failure, and from it, he learned that it is always vital to be guided by rational thinking and not emotions. The tragedy of most lives of people is that they hold desperately to their opinions, making it difficult for them to see reality. This is the main reason as to why Dalio required principles as the ultimate method of stress testing his opinions, and later those of his employees.

In the book, Dalio repeatedly shows the importance of having principles. He states that without principles, we would be forced to react to the different things that life brings to us as individuals, as if it is the first time we are experiencing them. He also notes that successful people operate by principles that help them become successful. Nonetheless, the principles of these people vary since what they choose to be successful at varies from one individual to another. Later in the book, Dalio argues that utilizing principles is a method of both simplifying and improving one’s decision making. It is important to realize that all “cases at hand” is merely “another one of those,” identify which “one of those” it is and then apply principles that are well-thought-out to deal with it. This is important as it allows one to largely reduce the number of principles that he/she has to make, and will result in making better decisions (Powers para. 2). Overall, therefore, principles are a powerful tool in making better decisions.

Radical Truthfulness and Transparency

Even though Dalio’s principles have made a great contribution to his success, some of them have done so more than others. The two most important principles are radical truthfulness and transparency and are major themes throughout the book. In regards to radical truthfulness, the author asks the reader to imagine an environment in which everyone felt comfortable to say what they think at all times honestly. This is an extremely healthy way of living. What’s more, it ensures that mistakes are always uncovered, discussed and then learned from instead of merely getting swept under the rug.

Radical transparency is related to radical truthfulness, and it facilitates it. The more candid one can be about what they have done, are doing, and plan to do in future, the more accurately they can weigh their feedback to you. To demonstrate the importance of radical transparency, Dalio includes information as well as insights into his failures that might appear extremely difficult for one to write about. One of these that seems to be extremely interesting is when he stepped down as CEO of Bridgewater and got the realization that the new CEO was ill-positioned to lead the company and hence had to be removed from the role. In Dalio’s view, this type of transparency is one of the main reasons for the success of Bridgewater.

In theory, most of us are aware that radical truthfulness and awareness would be helpful to us along the people around us if we always lived up to them. The reason that we always do not do that is that it can be emotionally difficult; hence we fool ourselves that it is “better not to say anything.” However, how much more would our friends benefit if we honestly told them that they lack key skills as an entrepreneur or they are not ready for that new job like Dalio told the new CEO (who he considered to be like a son to him)? If one looks at the company that Dalio has built, it becomes evident that it benefits a lot.

Idea Meritocracy

Principles: Life and Work suggests that the best companies are idea meritocracies. According to the author, great businesses utilize principles to create environments in which the best ideas win.

What radical transparency and truthfulness enable, whether instilled in a family, community or company, is what Dalio refers to as idea meritocracy. He describes idea meritocracy as a place where the best ideas win. Notably, in entrepreneurship, this is key. This is because the quicker one can separate the wheat from the chaff and implement only the best suggestions, the faster they can move forward.

In the book, Dalio first notes that to obtain access to all ideas, one’s environment must help them come out, for instance by ensuring that employees have a safe space to express what they think. Second, he notes that these ideas must then be judged accurately to choose the ideas that need to be implemented.

At his hedge fund, Dalio has created an algorithm-supported system that tracks the thoughts and opinions of the people. This system also tracks these opinions and thoughts over time to calculate a believability score. By doing this, decisions made are based on what the most credible people have to say regarding a specific issue and not on majority votes (Dalio 431). This is how Dalio built Bridgewater, a company whose actions are profoundly grounded in reality, and the result speaks for itself.

Thoughtful Disagreement

Another theme that is evident throughout the book is thoughtful disagreement. For instance, when describing the Bridgewater’s successes, Dalio states that the employees in the hedge fund are just a group of people striving to be excellent at what they do, and who recognize that they do not know much relative to what they need to know. To them, thoughtful, unemotional disagreement by independent thinkers can be turned into believability-weighted decision making that is smarter as well as more effective than the sum of its parts. The author also states that all he cares about is to be right, without caring whether the answer comes from him or not. From this, he has learned to be radically open-minded to allow other people to point out what he might be missing (Powers para. 3).

Dalio advises people to be curious to know why other people with a different view of things came to see them that way. To be effective, one must not let their need to be right be more important than the need to find out the truth. Thoughtful disagreement is one great way to achieve this, and its goal is not to convince the other party that you are right; rather, it is to find out which view is true and take action. Dalio states; “Remind yourself that it’s never harmful to at least hear an opposing point of view” (Dalio 236). To be effective at thoughtful disagreement, the author urges the reader to be open-minded, be assertive and to process information flexibly in order to create learning and adaptation.

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