Ray Dalio is the founder and chair of BridgeWater Associates, the largest and most successful hedge fund in the world. It manages $150 billion in assets globally.
I loved his TED Talk in April 2017. and recently heard him interviewed on one of my favorite podcasts, The James Altucher Show.
Now that he has built a personal net worth of over $17 billion, Ray has turned his attention to helping others. In his new book, Principles, he outlines the formula he used to guide his company to massive success. It is a hefty tome of almost 600 pages, but well worth the time it takes to read it. I have summarized the major points below.
Life Principles
- Embrace reality and deal with it. – Be a hyper realist. Adapt through trial and error. Evolve. Weigh the consequences. Own your outcomes.
- Use the 5-step process to get what you want out of life. – (1) Have clear goals. (2) Identify problems and refuse to tolerate them. (3) Be radically open-minded. (4) Understand that people are wired differently. (5) Learn how to make decisions effectively.
- Be radically open-minded. – Sincerely believe that you might not know the best possible path. Your ability to deal with “not knowing” is more important than what you do know.
- Understand that people are wired very differently. – Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.
- Learn how to make decisions effectively. – Recognize that (1) the biggest threat to good decision making is harmful emotions, and (2) decision making is a two-step process (first learning and then deciding).
Work Principles
To Get the Culture Right . . .
- Trust in radical truth and transparency – You have nothing to fear from knowing the truth. Have integrity and demand it from others. Be radically transparent.
- Cultivate meaningful work and meaningful relationships – Be loyal to the common mission. Be crystal clear about what the deal is. Treasure honorable people who are capable.
- Create a culture in which it is okay to make mistakes, and and unacceptable not to learn from them – Recognize that mistakes are part of the evolutionary process. Know which types of mistakes are acceptable, and which types are unacceptable.
- Get and stay in sync – Recognize that conflicts are essential to great relationships. Know how to get in sync and disagree well. If you find you can’t reconcile major differences, consider whether the relationship is worth preserving
- Believability-weight your decision making – Listen to everyone, but give greater weight to those with demonstrably more knowledge and success. Find the most believable people possible who disagree with you and try to understand their reasoning. Understand how people came by their opinions.
- Recognize how to get beyond disagreements – Use your principles to guide your resolutions. Don’t resolve crucial matters through compromise. Seek the best solutions by using principles-driven decision-making, but then expect everyone to get behind decisions once made.
To Get the People Right . . .
- Remember that the ‘who’ is more important than the ‘what’ – Determine who will take responsibility. Choose the right people; hold them accountable.
- Hire right, because the penalties for hiring wrong are huge. – Match the person to the design. Remember that people are built very differently and that different ways of seeing and thinking make people suitable for different jobs. 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 – Move people around, assess them, and give them feedback. Stretch them through trial and error to learn what they do best and under what conditions. Know their strong and weak points. Develop and place them accordingly. Remove people who fail to perform.
To Build and Evolve Your Machine . . .
- Improve management of your machines – The better you know your systems, the more easily you can diagnose issues and solve them. Gauge your machines’ health by their outputs. Tweak the system constantly to optimize it – and the people behind it.
- Perceive and don’t tolerate problems – Treat problems as opportunities to improve. Use your natural anxieties to anticipate and fix things before they do damage.
- Diagnose problems to get at the root causes – Identify specific problems and the people accountable for them. Get to root causes by asking questions that dig below the surface, layer by layer.
- Make improvements to fix problems – After you diagnose the problem and its causes, design appropriate, specific solutions. Control for unintended consequences, and adjust for proper goal alignment.
- Do what you set out to do – Generating ideas and vision may get the glory, but the hard work of execution matters. Wherever possible, pursue what people want to do, and prioritize those challenges accordingly.
- Use tools and protocols to shape how work is done – Turn execution into habits. Use systems, tools, principles and processes to guide people. Use algorithms to computerize your best decision processes and principles.
- Don’t overlook governance – Put rules, procedures and decision-making processes in place so people have a voice for their ideas and advice. Clarify who makes the final decision. Build in clear decision accountability.