Book Review: My 5 Key Lessons from Ray Dalio’s Principles.

I learned about Principles by Ray Dalio after listening to a Tim Ferris Podcast featuring Mr. Dalio. Tim referred to him as the “Steve Jobs of Investing.”

It turns out Ray Dalio is the most successful hedge fund manager of all time, having founded Bridgewater Associates from his two-bedroom apartment and growing it to the largest and most successful hedge fund in the world, making Ray one of the world’s 100 riches people in world in the process. Bridgewater now manages over $120 billion in assets, and is the considered one of the five most influential private companies in the world by Fortune Magazine.

But Dalio’s success alone didn’t earn him the Steve Jobs comparison. His radical approach to company culture and “learning how to learn well” makes him and his book a key asset in upgrading your own life operating system. It’s a book that I’ll keep coming back to for timeless principles over my career. If I’m not convincing you to read it, maybe Mark Cuban will:

Below are my 5 favorite take aways from the book:

1. Embrace reality and deal with it.

Dalio spends a lot of time encouraging the reader to understand reality, embrace it, and deal with it.

It’s human nature to have some level of denial about our problems. Much of this tendency is a result of the ego, not a result of our logical thinking. Many of us paint a “wishful thinking” version of reality and avoid identifying and attacking our problems head on and learning from them. The truth is, every individual and organization faces problems, no matter how successful they are. If you become willing and interested in embracing reality and confronting and dealing with your problems and shortcomings head on, you can create a huge competitive edge for yourself and your organization.

Embracing reality and dealing with it is hard for most people. But, it can become easy if we adjust the mindset in which we approach problems. Over the years, Dalio has learned to approach each problem as a game. Each time he solves one, its like uncovering a gem, which he uses to create a principle. These principles can later be used to quickly solve similar problems that arise in the future. Creating your own principles to help identify and solve future problems is akin to creating useful algorithms for life. In this way, Dalio is constantly learning and evolving. The struggle of facing problems and dealing with them ends up creating clear, measurable, and fruitful rewards in the form of principles, which makes facing similar problems easier in the future.

Hear Dalio’s explanation here:

2. Clarify exactly what you want, set audacious goals, go after them, and evolve quickly.

What do you want out of life? What exactly do you want to build? By knowing exactly what you want, you can objectively measure your progress against your goals. Once you’ve clarified what you want, ask yourself: “How can I coordinate efforts to achieve the things I want?” Your job is to come up with a plan, execute on it, and be radically truthful in your assessment of how successful your outcomes are compared to your goal.

Inevitably, if you are setting audacious goals, you will sometimes fall short of your target. That’s OK. The important thing is to evolve quickly by learning why you fell short, fix the problems, integrate those lessons quickly, set more audacious goals, and repeat. This process creates a feedback loop over time that looks like this:

Notice the upward slope. If we continually repeat this process, we end up with positive progress and a group of learning principles that help as accelerate future progress because we become equipped with principles that will help us identify and solve the next set of similar problems faster.

3. Understand that you have two you’s — leave your ego at the door.

We all have two “you’s” inside of us, the logical part, and the ego driven, emotional part. These two competing forces of the brain are always fighting with each other for control of us. It’s critical that we identify and understand these two sides of us in order to effectively embrace reality and deal with it to make the best decisions.

Dalio uses an example of an employee sending him an email, rating his performance a “D-” in a recent company meeting.

Dalio liked this email so much, he included it in the book and in his TED talk. The point he makes is you have to leave your ego at the door in order to promote a culture where people are radically truthful and transparent. Do you want to operate in an environment where people’s true feedback and options are hidden behind fake smiles and niceties? That kind of culture hides the objective truth in favor of protecting egos, and it, therefore, doesn’t allow the organization to surface and deal with its problems head on. When you operate from a logical place, you seek the real truth in what people think, you embrace reality, and you become better. This email may get a person fired in many organizations, but it’s celebrated at Bridgewater, because ego doesn’t matter there, the truth does.

4. A culture of Radical Truth and Radical Transparency gives an organization a huge competitive edge.

Dalio has created a culture at Bridgewater what he calls an “idea meritocracy,” where the best ideas win. The best ideas aren’t always from the CEO or even the people at high levels of the organization. So, to have an effective idea meritocracy, there needs to be a radically truthful and radically transparent culture, where employees are willing to challenge management and each other on ideas. To do this successfully, everyone must identify their two “you’s” and leave their ego completely in check. Dalio admits that this is very difficult for people to do in practice. It takes at least a year for new Bridgewater employees to get used to the culture, and many don’t make it because of the initial discomfort of operating this way.

To have a successful idea meritocracy, three things need to happen:

  1. Be able to put honest thoughts on the table, even if that means being honest about another’s shortcomings.
  2. Be able to have thoughtful disagreement, have a back and forth, and come to something that is much better as a result.
  3. Have a way to get past the disagreements using “believability weighted decision making” where the most believable people (who have a track record of being right in that area) get the most weight on the final decision.

By operating in this way, problems rise to the surface quickly, and the organization can draw on the talents and insights of all of its members to solve problems. Here’s more on this from Dalio:

5. Design the machine

In pursuit of our goals, we are all building “machines” to help us achieve outcomes. Your “machine” is the interacting connections of people, causes and effects that are producing results toward your goals. It’s important to view and reflect on your machine from a higher level, and actively design and tweak it for better results toward your goals. Dalio encourages practicing meditation to be able to separate oneself from the weeds and view the machine at a higher level.

For me, the machine I think about constantly is the company I’m building, Guardian Bikes. Viewing the company as a machine of interconnected processes, people, causes and effects which produce outcomes, helps me to visualize how to put people and resources in the right places to design the machine to help achieve our goals.

Conclusion

Ray Dalio’s Principles had so many other valuable insights, principles, and ways of thinking. I wish I could share them all here. Without a doubt, I upgraded my mind’s operating system for the better. I highly recommend the book. If you’ve read it, please share your personal favorite takeaway below in the comments.

Here’s a link to an summary of all of Ray Dalio’s Principles in the book.