Principles – Ray Dalio

 

I had been hearing a lot of good things about a new book called Principles by Ray Dalio. When I read up more about him, I found it even more interesting that he is the founder of an investment firm, Bridgewater Associates, one of the largest hedge funds in the world. As per Wikipedia, as of January 2018, he is one of the 100 richest people in the world. Off late, I am a firm believer of reading up about inspirational people. Principles by Ray Dalio fit in that slot pretty neatly. Just about a year old, this book lays down Ray Dalio’s principles in the spheres of life and work.

 

 

What are Principles?

Every day we face a lot of situations in which we have to make decisions. As per Dalio, most of the situations can be bunched up and we end up reacting to them in similar manners. For instance, if we believe we are always right, this kind of thinking will yield similar or expected results in myriad situations.

 

Dalio started reflecting and noticing the basis of his decision making and writing it down. Over the years, this became a valuable treasure trove for him to understand a few core principles that he has applied in his life. The crux of this book then is his sharing these ideas with us so that we can think about it and apply only those that we see applicable in our lives.

 

While the book is divided into life and work principles, Dalio opines that in their core form, they are mostly the same and just vary in application.

 

In the rest of this post, I will detail out some of the most vital principles I picked out. When you read the book, it is probable that you found some others to resonate. However, most of the principles below are repeated often to make it pretty clear just how important they are in the scheme of things. While I read the whole book, I have chosen to focus only on the life principles as it would apply to a much wider audience with the work principles finding more resonance either in HR professionals or entrepreneurs at the steering wheel.

 

 

Be Radically Open Minded and Radically Transparent

As Dalio puts it, there are two hindrances to us making progress – our ego and our blind spots. Radical openness attempts to resolve for both of them. By being open to other people’s perspective on a situation or a business problem, you are letting go of the mistaken ego that you are always right. Also, by seeking out the smart people who disagree with you, you are committing yourself to hunt for that blind spot. This continuous feedback loop is what will lead to constant learning and your evolution, be it in personal or professional life.

 

Radical Transparency, while being on similar lines is more about showcasing trust in personal and work life by letting in important people on everything going on. Be it your employees (except the personal situation for employees) or in your personal life. Instinctively, we often end up wanting to hide things, especially bad. Suppose a spouse gets fired, unless there is radical transparency, he or she might consider eliminating that information for some time and worrying over it.

 

Learning to be radically transparent is like learning to speak in public: While it’s initially awkward, the more you do it, the more comfortable you will be with it. - Ray Dalio Click To Tweet

 

 

 Two yous

Each person’s brain can be divided into two main parts – the rational or the logical one and the emotional one. Dalio calls them the “two yous”. Most of our decisions are made by the constant battle between these two parts.

 

Think about any situation and you know this holds true. For instance, you see a delectable cupcake. The rational you tells you that you are trying to lose weight and it’s not a good idea to eat it. The emotional you tells you that you have had a rough day at work and you deserve to treat yourself.

 

Or in an argument with a spouse, the rational you might say that the spouse could have had a tiring day too. The emotional one would want to give back an argument as loud and vicious as it just heard.

 

Which you do you let preside over most of your decisions, is how you will end up shaping your behaviour.

 

 

Marginal Utility of Material Wealth

In economics, there is a core concept of marginal utility of satisfaction. Simply put, it states that when you have something, for instance, cupcakes, initially they feel heavenly and delectable. Let’s say they are small in size, and you quickly eat three of them. However, as you keep eating them, the satisfaction you get from that will keep reducing. This holds true in a lot of situations in life. For a lot of us, even things like the excitement of a new job wears off.

 

As per Dalio, the marginal utility of material wealth is also pretty low. While getting the basics are important, it is not true that the more you have, the happier you will be. Beyond a point, material wealth does not contribute to your satisfaction or making you happy.

 

He makes another vital point, that with material wealth, we feel we are done with achieving success. However, unless there is some struggle in our lives, some goal to pursue, we aren’t particularly happy. So, it is possible, that even with moderate wealth, till the time you are in active pursuit of a goal, you could be happier than the professional athlete with truck loads of money who retired at 28 or 30 and doesn’t know what to do with his time or life.

 

The marginal benefits of having more fall off pretty quickly. In fact, having a lot more is worse than having a moderate amount more because it comes with heavy burdens. - Ray Dalio Click To Tweet

 

 

Use the 5-Step Process to Get What You Want Out of Life

How many of us wish and sigh into the thin air without bothering to act or lift a hand towards that dream. I really loved how Ray Dalio put in 5 very clear and concise steps that work in almost any situation to get what you want out of your life.

 

1. Have clear goals

While it might seem like a no-brainer, even with your goals, check if you have a timeline or a number to that goal. Do you have every detail around that goal clear in your head, or preferably on paper? For instance, you want to start a business of your own. What will that business be? By when do you want to start it? Do you have a business plan for it?

 

2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals.

Once you have the goal, you need to be able to visualise the path to it. When you do visualise that path, chances are you will come across road blocks. You need to identify them and not look at them as immovable boulders but stones that can be gradually chipped out of the way. Suppose you have all details charted out for the business venture but you dread the thought of not having a steady stream of income. You need to be able to see beyond the problem.

 

3. Accurately diagnose the problems to get at their root causes

We can be quite vague about the problems or the road blocks. However, like in medicine, diagnosis is an important action here as well. Only once you have the correct diagnosis can you go about resolving it right. For instance, on much deliberation, you realise that you are not spending much every month but it is the debt that you carry which is giving you the fear of the loss of steady income. Then you know that your action point is to repay that debt and accumulate spending money for the first few years.

 

4. Design plans that will get you around them.

Now that you know what you need to do to resolve the problem standing in the way of your goals, you need to make a plan to do just that. In this example, you might need to crunch some numbers or meet a believable person (we will come to that definition) who can help you define a path to repayment.

 

5. Do what’s necessary to push these designs through to results.

A lot of time, tasks that look simple on paper are anything but that. For instance, for the repayment, you may need to go ultra frugal. This would mean cutting down on your biggest spends which could include a shopping ban or not going out to eat for some time. Are you willing to push through and do what is necessary to see those results?

 

 

Dreams + Reality + Determination = A Successful Life

This equation is a neat way to put the goal setting process in a concise manner. I thought all three factors are so relevant. Unless you dream or have a vision for yourself, it is very easy to get lost in the daily rut of life and literally become a zombie. While dreaming is good, you also need a good awareness of the reality around you. Determination comes handy if there are any aspects of reality that you need to change to make your dreams come true. Determination also plays a role in the struggle that most human revel in.

 

 

Pain + Reflection = Progress.

As Dalio puts it, if you are pursuing an ambitious goal, pain is an inevitable by product on that path. Instead of avoiding it, Dalio’s advice is to experience it and reflect on it. This pain could be caused by our mistakes or could even be an uncontrollable. However, a proper reflection on this pain is bound to lead to progress and our evolution as a stronger person.

 

The good thing is that this pain happens only if we are pushing ourselves and our boundaries of what we can achieve. Only when we look at the impossible, aim to go for it, push through our limits, fall, experience pain and reflect on it (at that time or after the pain passes) are we looking at Progressing in life.

 

 The challenges you face will test and strengthen you. If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential. – Ray Dalio

 

 

Do not fear mistakes, instead learn from them

An important realisation is that mistakes are inevitable but also a fertile learning round. While teaching maths, when I used to make errors, my father would be patient the initial one or maybe two times. However, the same mistake multiple times really used to get his goat. His concept was simple – make the mistake one, it’s understandable but if you don’t learn from it and keep repeating it, then it’s a problem.

 

Dalio seems to be of the same school of thought. His advice? Have an error log and note down observations at the time that you realise you committed a mistake. He talks about how mistakes were acceptable in Bridgewater Associates, even though the monetary implications could be high, till the time they were recorded in the error log as you could then learn from it and it also promoted radical transparency.

 

You’ll soon realize that excuses like “that’s not easy” or “it doesn’t seem fair” or even “I can’t do that” are of no value and that it pays to push through. – Ray Dalio

 

 

Thoughtful disagreement with believable people are key to radical openness

Dalio defines believable people as “those who have repeatedly and successfully accomplished the thing in question — who have a strong track record with at least three successes — and have great explanations of their approach when probed”.

 

As per Dalio, you must have thoughtful disagreements with highly believable people, while keeping an open mind. Chances are, you will either see gaps in your thinking or a different perspective to what you are persevering towards. Suppose in the example above of starting your own business, you have made a business plan. Discussing it with an entrepreneur or a venture capitalist is only going to fortify your plan or make you look at perspective or things you overlooked.

 

 

While the book is a long read, it is full of such nuggets of wisdom, which when applied to your life can only enrich it. If you are more into videos, then you could also check Ray Dalio’s video on principles in 8 mini episodes.

 

Have you read the book? What was your favourite part? Let me know in the comments below.

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