Billionaire Ray Dalio: 5 success principles

Can you imagine how amazing it would be to get inside someone else’s head? You would be able to understand his/her mental process: decision-making, idea generation, motivation and way of working/communicating with others. What if you could do this with all the most intelligent people dead or alive? It would help us find answers to so many unanswered questions about Leonardo Da Vinci, Einstein, Steve Jobs, Winston Churchill and so many others.

One such person, we can learn from is Ray Dalio – founder and co-chairman of Bridgewater Associates. How did Ray Dalio, the child of an ordinary medium-class family create the world’s largest, and most successful hedge fund, currently managing over $150 billion USD? In a word: principles. Dalio believes that to succeed you need to develop personal and business operating principles. Lucky for us, Dalio has recently published a guide Principles: Life and Work” detailing the importance of having principles, his life and management principles  & reflections behind them.

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First of all, what are principles? Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.

To be principled means to consistently operate with principles that can be clearly explained. Dalio does not invite everyone blindly to follow his principles. Otherwise, he emphasizes that the most important thing is to develop your own principles and ideally write them down. His life & work principles should serve as a help for others.

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1. Embrace Reality and Deal with It 

  • Don’t fall into the common trap of wishing that reality worked differently than it does or that your own realities were different. Instead, embrace your realities and deal with them effectively. After all, making the most of your circumstances is what life is all about.
  • Look to nature to learn how reality works: f.e. evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.  All things such as products, organizations, and human capabilities evolve through time in a similar way as nature. It is simply the process by which things either adapt and improve or die. Perfection doesn’t exist; it is a goal that fuels a never-ending process of adaptation. If nature, or anything, were perfect it wouldn’t be evolving. Organisms, organizations, and individual people are always highly imperfect but capable of improving. So rather than getting stuck hiding our mistakes and pretending we’re perfect, it makes sense to find our imperfections and deal with them. You will either learn valuable lessons from your mistakes and press on, better equipped to succeed—or you won’t and you will fail.
  • It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful. As Carl Jung put it, “Man needs difficulties. They are necessary for health.” Yet most people instinctually avoid pain. This is true whether we are talking about building the body (e.g., weight lifting) or the mind (e.g., frustration, mental struggle, embarrassment, shame)—and especially true when people confront the harsh reality of their own imperfections.
  • Look at the machine from the higher level:  Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes. You have your goals. I call the way you will operate to achieve your goals your machine. It consists of a design (the things that have to get done) and the people (who will do the things that need getting done). Those people include you and those who help you. By comparing your outcomes with your goals, you can determine how to modify your machine.

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

  • 1. Have clear goals
    • First you have to pick what you are going after—your goals. Your choice of goals will determine your direction.
    • Prioritize: While you can have virtually anything you want, you can’t have everything you want.
    • Don’t confuse goals with desires. A proper goal is something that you really need to achieve.
    • Decide what you really want in life by reconciling your goals and your desires.
    • Remember that great expectations create great capabilities. If you limit your goals to what you know you can achieve, you are setting the bar way too low.
  • 2. Identify and don’t tolerate the problems that stand on the way
    • As you move toward your goals, you will encounter problems. Some of those problems will bring you up against your own weaknesses. How you react to the pain that causes is up to you.
    • Acknowledging your weaknesses is not the same as surrendering to them. It’s the first step toward overcoming them.
    • Be specific in identifying your problems. You need to be precise, because different problems have different solutions.
    • Don’t mistake a cause of a problem with the real problem. “I can’t get enough sleep” is not a problem; it is a potential cause (or perhaps the result) of a problem.
    • Distinguish big problems from small ones. You only have so much time and energy; make sure you are investing them in exploring the problems that, if fixed, will yield you the biggest returns. But at the same time, make sure you spend enough time with the small problems to make sure they’re not symptoms of larger problem
  • 3. Accurately diagnose the problems to get at their root causes
    • If you want to reach your goals, you must be calm and analytical so that you can accurately diagnose your problems
    • Focus on the “what is” before deciding “what to do about it.” It is a common mistake to move in a nanosecond from identifying a tough problem to proposing a solution for it. Strategic thinking requires both diagnosis and design.
    • Distinguish proximate causes from root causes. Proximate causes are typically the actions (or lack of actions) that lead to problems, so they are described with verbs
  • 4. Design plans that will get you around them
    • Go back before you go forward. Replay the story of where you have been (or what you have done) that led up to where you are now, and then visualize what you and others must do in the future so you will reach your goals.
    • Remember that there are typically many paths to achieving your goals. You only need to find one that works.
    • Write down your plan for everyone to see and to measure your progress against. This includes all the granular details about who needs to do what tasks and when.
  • 5. Do what’s necessary to push these designs through to results
    • Great planners who don’t execute their plans go nowhere. You need to push through and that requires self-discipline to follow your script. It’s important to remember the connections between your tasks and the goals that they are meant to achieve.
    • Establish clear metrics to make certain that you are following your plan. Ideally, someone other than you should be objectively measuring and reporting on your progress.
  • You will need to do all five steps well to be successful and you must do them one at a time and in order.
  • No one can do all the steps well, but that it’s possible to rely on others to help. Different people with different abilities working well together create the most powerful machines to produce achievements.

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3. Be Radically Open-Minded

  • Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way. It requires you to replace your attachment to always being right with the joy of learning what’s true.
  • Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Learning is the product of a continuous real-time feedback loop in which we make decisions, see their outcomes, and improve our understanding of reality as a result. Being radically open-minded enhances the efficiency of those feedback loops, because it makes what you are doing, and why, so clear to yourself and others that there can’t be any misunderstandings. The more open-minded you are, the less likely you are to deceive yourself—and the more likely it is that others will give you honest feedback.
  • Shifted  from having a perspective of “I know I’m right” to having one of “How do I know I’m right?”
  • 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.
  • A good exercise to make sure that you are doing this well is to describe back to the person you are disagreeing with their own perspective. If they agree that you’ve got it, then you’re in good shape. I also recommend that both parties observe a “two-minute rule” in which neither interrupts the other, so they both have time to get all their thoughts out.
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4. Understand That People Are Wired Very Differently

  • Because of the different ways that our brains are wired, we all experience reality in different ways and any single way is essentially distorted. This is something that we need to acknowledge and deal with. So if you want to know what is true and what to do about it, you must understand your own brain.
  • Because of the biases with which we are wired, our self-assessments (and our assessments of others) tend to be highly inaccurate. Psychometric assessments are much more reliable: Myers-Briggs Type Indicator (MBTI), the Workplace Personality Inventory, the Team Dimensions Profile, and Stratified Systems Theory.
  • Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.
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5. Learn How to Make Decisions Effectively

  • Decision making is a two-step process (first learning and then deciding). Learning must come before deciding.
  • To learn well and get an accurate picture of reality, you should be able to synthesize accurately and know how to navigate levels. To synthesize well, you must 1) synthesize the situation at hand, 2) synthesize the situation through time, and 3) navigate levels effectively.
  • Deciding is the process of choosing which knowledge should be drawn upon—both the facts of this particular “what is” and your broader understanding of the cause-effect machinery that underlies it—and then weighing them to determine a course of action, the “what to do about it.”
  • The two biggest barriers to good decision making are your ego and your blind spots: “ego barrier,” is a subliminal defense mechanisms that make it hard for you to accept your mistakes and weaknesses; blind spots—areas where your way of thinking prevents you from seeing things accurately.
  • One of the most valuable things you can do to improve your decision making is to think through your principles for making decisions, write them out in both words and computer algorithms, back-test making.
  • An idea meritocracy—not an autocracy in which I lead and others follow, and not a democracy in which everyone’s vote is equal—but a meritocracy that encourages thoughtful disagreements and explores and weighs people’s opinions in proportion to their merits – is the best way to achieve effective decision making
  • Thoughtful, unemotional disagreement by independent thinkers can be converted into believability-weighted decision making that is smarter and more effective than the sum of its parts

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Dalio’s book recommendations

Thank you for reading and I hope you found this post helpful and now you would love to read this amazing book to learn more about Ray Dalio and his unique vision.

If you liked this post, most likely you will also enjoy reading Tools of Titans.

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2 Comments

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  1. I am really impressed by this Article! A carefully researched and well written one. Thank you!

    Best Regards, – Kingsley

    Like

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