Ray Dalio is a revered investor, hedge fund manager, and philanthropist. In Principles, he shares with us his easy to understand secrets to success in life. Read on for our book review and summary.
Who is Ray Dalio?
Ray Dalio is a revered investor, hedge fund manager, and philanthropist. In 1975, he founded investment management firm, Bridgewater Associates, out of his apartment. He appeared on the annual Time 100 list of the 100 most influential people in the world and is currently worth about $18 billion. He and his wife Barbara joined Bill Gates and Warren Buffett's Giving Pledge, vowing to donate more than half his fortune to charitable causes within his lifetime.
In 2011, Ray Dalio self-published Principles which outlined his logic and personal philosophy for investments and corporate management based on a lifetime of observation, analysis and practical application through his hedge fund.
The book doesn’t have a fancy dust cover, so you are treated to its black binding which speaks to one of its core themes: Authenticity.
It reads as if it was once a very long Microsoft Word document with H1, H2 and H3 sections followed by short and to the point paragraphs in almost bullet-point brevity. This makes the whole book read more like an abstract reference book on life and business than a practical how-to manual. That said it has a place on everyone’s shelf because it either gives you great principles or helps you develop your own principles with which to approach life’s many challenges.
This is one of those books that you need to read every year.
Ray Dalio summaries the Life Principles section of the Book in this powerful and digestible 30 minute Youtube video.
Embrace Reality and Deal with it
This means working with reality as it is and not as you wish it would be. Many of us go through our days avoiding the harsh realities or difficult decisions that need to be made. At first, this is incredibly hard to overcome because as they say, ignorance is bliss. The fact is that you WILL NOT get ahead in life if you don’t accept how things really are right now and focus on understanding the truth of the world around you.
This thinking can be daunting to the dreamers out there and Ray is quick to address this. He notes that Dreams are still essential because they make life worth living but they’re much harder to reach if you don’t embrace reality.
Dreams + Reality + Determination = A Successful Life
Embracing reality creates pain which is why we avoid it in the first place. What we forget is that this pain is only psychological and can be overcome. We must also learn that problems are just puzzles waiting to be solved and are often very rewarding when solved.
Set Goals with the Five-Step Process
• Step 1: Know your goals and run after them – It’s important to know yourself and what YOU (not society) want to achieve in life.
• Step 2: Identify Problems – Try to predict what’s going to get in the way of your goals.
• Step 3: Diagnose Problems – Think deeply about what the REAL root of the problem is and what the BEST (not first) solution to it is.
• Step 4: Design – Create a plan to get around the problems.
• Step 5: Do It! – Add a huge dash of determination and execute your plans.
This Five-Step process can be viewed as a piece of your personal evolution. Looking back on your life and work you’ll notice that your growth has come from a series of problems that you have (or have not) overcome.
In life and work, we’re all going to suffer setbacks. Huge setbacks. There will be times when we cannot see a way forward and we will think about giving up.
In tough times remember, this too shall Pass.
During his darkest time in 1982, Ray reflects deeply on his setback and realised that the world is full of cause and effect relationships. Gaining a deeper understanding of them made him realise that he had the power to change is own fate, a belief that had been knocked out of him by his recent failure. With this renewed hope and belief, he overcame his setback but took with him all its best lessons.
Your Two Biggest Barriers
Your Ego – The parts of your brain that prevent you from seeing your weaknesses objectively. Our deepest fears and weaknesses are hooked right into the emotional part of our brain which makes us get defensive when these weaknesses are observed by us or others. This is a huge blocker to personal and career growth and good decisions.
Your blind spot – Every individual human is highly unique which leads to a unique view of the world based on skills, genetics, experiences, etc. This gives us different strengths, weaknesses and perspectives on the world around us. Our blind spot is our inability to see certain things for what they really are because of our unique perspective. What is especially dangerous about this blind spot is that you don’t know it’s there!
Be Radically Open-Minded
Ray Dalio claims that this principle is his holy grail because it’s the only way to overcome ego and blind spot barriers. It entails seeking out those individuals around us that disagree with us because they are so different to us and then trying to truly understand how they got to their view.
What he was looking for was thoughtful disagreement and it allowed him to see the world not only through his eyes but through those of others. This is like going from seeing in black and white to seeing in colour. This means letting go of needing to have all the answers yourself and the fear of being wrong.
Something he glances over in the video but is highly emphasized in the book is believability weighted decision making. This basically means that not all opinions are to be weighed equally. You MUST consider how suited they are to be providing an opinion on that topic. For instance, when deciding on what stock to pick, would you hold the opinion of your Doctor over that of your Financial Advisor? Probably not.
This sounds incredibility obvious, but I challenge you to examine the decisions you make each day and how the media and people around you unduly influence them.
Once you attain a goal, you’ll enviable set a new one that will challenge you even more and with higher stakes. Ray Dalio explains that, after attaining many goals, setbacks and discussing this process with others, he’s come to realise that life is a permanent struggle to attain loftier and loftier goals. The true prize of this process is not the immediate rewards from achieving goals, that’s just the bait, but is instead the evolution of you and your progress towards a better life.
Other Principles from the Book
What’s elegant about his principles is how they are so well integrated between the Life and Work sections of the book. Ray applies Radical Transparency in his personal life and is adamant that it’s a cornerstone of the culture at Bridgewater Associates.
While the video is focused more on the Life Principles section of the book, this only represents ¼ of the book’s pages. The remainder is dedicated to principles to apply at work such as cultivating Meaningful Work and Meaningful Relationships, Believability weight decision making and getting hiring right. We’ll tackle these in part 2 of this post.