Principles by Ray Dalio

The foundation of Dalio’s book is that every person and business should have principles that they use to make decisions. And whenever you use a principle and things don’t turn out well, you should modify your principles accordingly.

The book is split into three parts: an autobiographical section, a section on life principles, and a section on work principles. My notes are from the latter two sections.

Quotes are in quote blocks, but don’t have “quote marks” around them to promote continuity of thought.

Life Principles

This section is broadly useful for most people, while the section on work principles is more relevant for people who are founding or leading organizations.

Embrace reality and deal with it

This is Dalio’s 1st life principle.

There is nothing more important than understanding how reality works and how to deal with it.

pg. 133

Whenever you solve problems in life, you gain valuable insight that allows you to make a principle, which can then help you avoid or more quickly solve the same sort of problem in the future.

We’re all subject to reality; facing it allows us to form principles to better deal with it. Since it’s inevitable, we might as well improve how we interact with reality; principles are one very effective method for doing so.

But how do we embrace reality (the following are sub-principles):

1. Be a hyperrealist

People who do who create great things aren’t idle dreamers; they are totally grounded in reality.

pg. 134

Dalio says that success is dreams + reality + determination. In other words, have a big dream, but face reality to make it happen. Reality will try to throw wrenches in your efforts; determination helps you toss these wrenches aside.2.

2. Be radically open-minded and transparent

This allows for rapid learning and effective change. Being radically open-minded and transparent involves focusing on making progress, not being right. Included in this are the maxims of not giving a sh*t what other people think, setting your ego aside, etc.

Unfortunately, there are no concrete actions you can take to stop giving a sh*t what other people think. It’s not like running a mile or doing a workout. You can’t do it. A better way to think of this is just to prioritize learning and change and understand that your ego may become damaged in the process.

3. Own your outcomes

Dalio says it best:

My point is simply this: Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things beyond your control. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t.”

pg. 156

Some people evangelize this standpoint because they say that you and me are to blame for everything that happens in our life. While we are responsible for many things, this is ultimately untrue: sometimes, we just get screwed over and would’ve had no way to avoid it.

But if we simply act as if we are responsible for everything, we’re better able to cope with the problems that are going to happen.

Use the 5-step process to get what you want out of life

The personal evolutionary process as told by Dalio:

1. Have clear goals
2. Identify and don’t tolerate the problems that stand in your way of achieving those goals
3. Accurately diagnose the problems to get at their root causes
4. Design plans that will get you around them
5. Do what’s necessary to push these designs through to results

Work Principles

Dalio’s principles about running organizations.

• An organization is a machine that consists of culture and people
• Tough love is effective for achieving both great work and great relationships
• A believability-weighted idea meritocracy is the best system for making effective decisions
• Make your passion and your work one and the same and do it with people you want to be with

How to get the culture right

Trust in radical truth and transparency.

Create a culture in which it is okay to make mistakes and unacceptable not to learn from them.

Believability weight your decision making: in essence, be able to accurately weigh the merit of ideas based on how believable the person is who came up with them.

Recognize how to get beyond your disagreements.

How to get the people right

How to build and evolve your machine

Manage as someone operating a machine to achieve a goal.

• Ultimately, it’s all about moving closer to your goal — improve your machine accordingly.

Understand the differences between managing, micromanaging, and not managing.

Perceive and don’t tolerate problems.

• Design and oversee a machine to perceive whether things are good enough or not good enough, or do it yourself.