Principles: Life and Work – Ray Dalio
“Operate by principles that are so clearly laid out that their logic can easily be assessed and you and others can see if you walk the talk.” Ray Dalio
Have you ever shared your principles?
Bridgewater Associates is the world’s best performing hedge fund and the fifth most important private company in the United States. Black Monday of 1987 saw the largest single-day percentage decline in the history of the stock market but Bridgewater ended the day up by 22% while others crashed. The company also anticipated and navigated the 2008 debt crisis.
Bridgewater’s founder Ray Dalio says that whatever success he’s had in life has more to do with knowing how to deal with what he doesn’t know, than what he does know. Dalio was an ordinary kid from a middle-class neighbourhood who disliked school – but he has created an exceptionally effective work culture through clear principles. Dalio describes the culture as an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.
Dalio published a summary of his original principles on Bridgewater’s website in 2010 which has been downloaded more than three million times. Now that he has stepped back from running the company to become chairman and more engaged in philanthropy, he wants to share his experiences and updated life and work principles with others. His principles for investing and an app to help you apply the principles will follow.
Split into the three parts, the book first outlines how he began the company over 40 years ago from his two-bedroom apartment and made some spectacular gains and losses. Painfully, at one point his management team set up a meeting to explain to him why his direct personal style was detrimental to the morale of employees. This prompted Dalio to start putting his principles into writing so that everyone could understand how employees should work together, and how every situation that came up would be handled.
- Embrace reality and deal with it: Be radically open-minded and radically transparent; Pain + reflection = progress
- Use a five step process to get what you want: Have clear goals; Identify and don’t tolerate problems; Diagnose problems to get to their root causes; Design a plan; Push through to completion
- Be radically open-minded: Recognise your two barriers – ego and blind spots; Appreciate the art of thoughtful disagreement; Triangulate your view with believable people who are willing to disagree; Recognise the signs of closed-mindedness that you should watch out for; Understand how you can become radically open-minded – including strategies like meditation and using pain as a guide
- Understand that people are wired differently: The Bridgewater Baseball card system clearly spells out people’s strengths and weaknesses, whether they are introvert or extrovert, creators or executors, as rated by their peers; Get the right people in the right roles – you should be the conductor of the orchestra, visualising the outcome, not doing the role
- Learn how to make decisions effectively: The biggest threat to good decision making is harmful emotions; Don’t believe everything you hear – ask the right person the right questions; Make your decisions as value calculations – think of every decision as a bet with a probability and a reward for being right; Weigh the value of not deciding while waiting for additional information against the cost of not deciding at all; Simplify and use principles; Convert your principles into algorythms and ask the computer to make decisions alongside you
Work Principles overall:
- An organisation is a machine consisting of two major parts: 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 – this involves complete transparency so that you know exactly what your colleagues are thinking about your ideas, and how those colleagues think. You will need to put your honest thoughts on the table, have thoughtful disagreement, and abide by agreed ways of getting past dissent
- Make your passion and work one and the same and do it with people you want to be with
- Manage as someone operating a machine to achieve a goal – understand how your machine – the designs and the people – work together to achieve an outcome
- Perceive and don’t tolerate problems – every problem you find is an opportunity to improve your machine
- Diagnose problems to get to their root causes – and identify who is responsible for the outcome
- Design improvements to your machine to get around your problems – the more vividly you can visualise how the scenario you create will play out the more likely it is to happen
- Do what you set out to do – work for goals that you and your organisation are excited about and think about how your tasks connect to those goals
- Use tools and protocols to shape how work is done
- Don’t overlook governance – no-one should be more powerful than the system
- Trust in radical truth and radical transparency
- Cultivate meaningful work and meaningful relationships as they are genetically programmed into us – social co-operation makes us happier, healthier and more productive
- Create a culture where it is OK to make mistakes and unacceptable not to learn from them
- Get and stay in sync – disagree well and be open-minded and assertive at the same time. Making suggestions and questioning are not the same as criticising, so don’t treat them as if they are
- Believability weight your decision making – everyone has opinions and they can often be bad – try to understand the reasoning of people who disagree with you
- Recognise how to get beyond disagreements – Bridgewater created a Dispute Resolver tool to help set out clear paths for resolution
- The who is more important than the what – don’t focus on what needs to be done while neglecting the more important question of who will be responsible for determining what should be done
- Hire right, because the penalties for hiring wrong are huge – don’t hire people just to fit the first job they will do – hire people you want to share your life with
- Constantly train, test, evaluate and sort people – provide constant feedback – recognise that tough love is both the hardest and most important type of love to give
Despite being a successful Harvard graduate, because of his poor rote memory Dalio has always exploited the power of computers, developing algorythms to test market and human assumptions. He has developed a number of software tools to apply computer algorthyms to people and decision making within Bridgewater, such as issue logs, pain buttons, a dispute resolver and a contract tool. Examples include:
- Baseball cards – Bridgewater collect data on people such as reviews, tests, the choices people make, etc, to evaluate each person’s strengths and weaknesses. They use them in meetings to assess the merit of that person’s opinion or to match people to projects
- Dot synthesis – The app is used in meetings to allow everyone to give ratings on people’s views as the meeting progresses. They will also see other people’s opinions to help understand the bigger picture, and how personal style influences this, to reach an idea-meritocratic decision
While some may find Dalio’s approach and computer-backed analysis of principles daunting, it has undoubtedly helped Bridgwater become one of the world’s most successful companies, whose advice is sought by governments and organisations globally. Could this be the time to develop and lay out your own organisation’s principles as honestly and openly as Dalio, before your culture evolves into one you don’t recognise?
About the author
Ray Dalio founded Bridgewater Associates in 1975 – the largest and best performing hedge fund in the world and Fortune magazine’s fifth most important private company in the US. According to Forbes magazine Dalio is one of the hundred richest people in the world and has appeared on the Time 100 list of the world’s most influential people. He graduated from Harvard Business School and lives with his family in Connecticut.
“Mr Dalio has long been an object of fascination . . . His new book is more significant than the original list of principles: It is part memoir, part how-to guide. It is a deeply personal story, with Mr Dalio wading into how he started his firm in 1975, internal conflicts inside the company, and strife early on in his career. The book is both instructive and surprisingly moving. . . . Underneath what may seem like a clinical, emotionless approach is something different and far more poignant…” The New York Times
“Ray Dalio has provided me with invaluable guidance and insights that are now available to you in Principles.” Bill Gates
“Ray Dalio’s market acumen is legendary, but it was creating and living by a set of principles that allowed him to reach the top. Everyone with goals and dreams can learn from Ray’s approach.” Michael Bloomberg
Author: Ray Dalio