Ray Dalio – Life Principles

Rating: 9/10

Finished: 2017

High Level Thoughts

Dalio’s original website for Principles change the way that I thought of myself and the world. I assembled my own list of Principles and have tried to live my life according to them. The book adds even more ideas, greatly expands on each of them, and provides an organizational structure for easy reference. I highly recommend getting a physical copy as it is apparent that lots of work was put into making it.

The notes below are only for the Life Principles section of Dalio’s full book.


1 Embrace Reality and Deal with It

I’ve found it helpful to think of my life as if it were a game in which each problem I face is a puzzle I need to solve. By solving the puzzle, I get a gem in the form of a principle that helps me avoid the same sort of problem in the future. Collecting these gems continually improves my decision making, so I am able to ascend to higher and higher levels of play in which the game gets harder and the stakes become ever greater.

If I can reconcile my emotions with my logic and only act when they are aligned, I make better decisions.

My point is that people who create great things aren’t idle dreamers: they are totally grounded in reality.

Dreams + Reality + Determination = A Successful Life. People who achieve success and drive progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want.

We each have to decide for ourselves what success is.

Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome.

Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change.

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.

Don’t let the fears of what others think of you stand in your way. You must be willing to do things in the unique ways you think are best—and to open-mindedly reflect on the feedback that comes inevitably as a result of being that way.

To try to figure out the universal laws of reality and principles for dealing with it, I’ve found it helpful to try to look at things from nature’s perspective.

Whenever I observe something in nature that I (or mankind) think is wrong, I assume I’m wrong and try to figure out why what nature is doing makes sense.

To me, nature seems to define good as what’s good for the whole and optimizes for it, which is preferable.
To be “good” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded. If you come up with something the world values, you almost can’t help but be rewarded.

Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.

Evolution consists of adaptions/inventions that provide spurts of benefits the decline in value. That painful decline leads either to new adaptations and inventions that bring new products, organizations, and human capabilities to new and higher levels of development; or decline and death.

This evolutionary cycle is not just for people but for countries, companies, economies—for everything. And it is naturally self-correcting as a whole, though not necessarily for its parts.

The key is to fail, learn and improve quickly.

The individual’s incentives must be aligned with the group’s goals.

Reality is optimizing for the whole—not for you. Contribute to the whole and you will likely be rewarded.

I used to think that memory-based, conscious learning was the most powerful, but I’ve since come to understand that it produces less rapid progress than experimentation and adaptation.

For most people [toys, bigger houses, status, money, etc.] don’t supply anywhere near the long-term satisfaction that getting better at something does. Once we get the things we are striving for, we rarely remain satisfied with them. This means that for most people success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment, and then changing to improve.

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 paid. 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.

Pain + Reflection = Progress
There is no avoiding pain, especially if you’re going after ambitious goals. Believe it or not, you are lucky to feel that kind of pain if you approach it correctly, because it is a signal that you need to find solutions so you can progress/ If you develop a reflexive reaction to psychic pain that causes you to reflect on it rather than avoid it, it will lead to your rapid learning/evolving.

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.

Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are the barriers that stand in our way. It’s almost as though nature sorts us by throwing us trick choices that have both types of consequences and penalizing those who make their decisions on the basis of the first order consequences alone.

Whatever circumstances life brings you, you will be more likely to succeed and and find happiness if you take responsibility, for making your decisions well instead of complaining about things being beyond your control.

Think of yourself as a machine operating within a machine and know that you have the ability to alter your machine to produce better outcomes.

By comparing your outcomes with your goals, you can determine how to modify your machine.

Distinguish between you as the designer of your machine and you as the worker with your machine. If you can recognize the differences between these roles and that it is much more important that you are a good designer/manager of your life than a good worker in it, you will be on the right path. To be successful, the designer/manager you has to be objective about what the worker you is really like, no believing in him more than he deserves, or putting him in jobs he shouldn’t be in.

The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again. People who do this fail because they are stubbornly stuck in their own heads. If they could just get around this, they could live up to their potential.

Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing.

Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence.

If you are open-minded enough and determined, you can get virtually anything you want.

1. Don’t confuse what you wish were true with what is really true.
2. Don’t worry about looking good—worry instead about achieving your goals.
3. Don’t overweight first-order consequences relative to second- and third-order ones.
4. Don’t let pain stand in the way of progress.
5. Don’t blame bad outcomes on anyone but yourself.

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

1. Have clear goals.
2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals.
3. Accurately diagnose the problems to get at their root causes.
4. Design plans that will get you around them.
5. Do what’s necessary to push these designs through to results.

You must do them one at a time and in order. Blurring the steps leads to suboptimal outcomes because it interferes with uncovering the true problems. The process is iterative: Doing each step thoroughly will provide you with the information you need to move on to the next step and do it well.

Have clear goals

Prioritize: While you can have virtually anything you want, you can’t have everything you want. You can have much more than what you need to be happy. Make your choice and get on with it.

Don’t confuse goals with desires. A proper goal is something that you really need to achieve. Desires are things that you want that can prevent you from reaching your goals. Typically, desires are first-order consequences. What will ultimately fulfill you are thing that feel right at both levels, as both desires and goals.

Never rule out a goal because you think it is unattainable. What you think is attainable is just a function of what you know at the moment. Once you start your pursuit you will learn a lot, especially if you triangulate with others; paths you never saw before will emerge. If you limit your goals to what you know you can achieve, you are setting the bar way too low.

Almost nothing can stop you from succeeding if you have flexibility and self-accountability.

Identify and don’t tolerate the problems

View painful problems as potential improvements that are screaming at you. Though it won’t feel that way at first, each and every problem you encounter is an opportunity; for that reason, it is essential that you bring them to the surface.

Be specific in identifying your problems. You need to be precise, because different problems have different solutions.

To clarify your thinking, try to identify the bad outcome first.

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.

Once you identify a problem don’t tolerate it. You need to develop a fierce intolerance of badness of any kind, regardless of its severity.

Accurately diagnose the problems to get at their root causes

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. Root causes run much deeper and are typically described with adjectives. You can only truly solve your problems by removing their root causes, and to do that, you must distinguish the symptoms from the disease.

More than anything else, what differentiates people who live up to their potential from those who don’t is their willingness to look at themselves and others objectively and understand the root causes standing in their way.

Design a plan

Sketch out the plan broadly at first, then refine it. You should go from the big picture and drill down to specific tasks and timelines.

Write down your plan for everyone to see and measure your progress against.

Too many people make the mistake of spending virtually no time on designing because they are preoccupied with executing. Remember: designing precedes doing!

Push through to completion

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 they are meant to achieve. When you feel yourself losing sight of that, stop and ask yourself “why?” Lose sight of the why and you will surely lose sight of your goals

People who push through successfully have to-do lists that are reasonably prioritized, and they make certain each item is ticked off in order.

Establish clear metrics to make certain that you are following your plan.

If your process is working, your goals will change more slowly then your design, which will change more slowly than your tasks.

Remember that weaknesses don’t matter if you find solutions

Knowing what your weaknesses are and staring hard at them is the first step on the path to success.

Look at the patterns of your mistakes and identify at which step in the 5-step process you typically fail.

Everyone has one big thing that stands in the way of their success; find yours and deal with it.

Humility can be even more valuable than having good mental maps if it leads you to seek out better answers than you could come up with on your own. Having both open-mindedness and good mental maps is the most powerful of all.

3 Be Radically Open-Minded

The two biggest barriers to good decision making are your ego and your blind spots.

To be effective you must not let your need to be right be more important than your need to find out what’s true. If you are too proud of what you know or how good you are at something you will learn less, make inferior decisions, and fall short of your potential.

Naturally, people can’t appreciate what they can’t see.

Color-blind people eventually find out that they are color-blind, whereas most people never see or understand the ways in which their ways of thinking make them blind. To make it even harder, we don’t like to see ourselves or others as having blind spots, even though we all have them.

If you’re like most people, you have no clue how other people see things and aren’t good at seeking to understand what they are thinking, because you’re too preoccupied with telling them what you yourself think is correct. In other words, you are too closed-minded; you presume too much.

Radical open-mindedness is motivated by the genuine worry that you might be not seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or blind spots get in your way. It requires to replace your attachment to always being right with the joy of learning what’s true.

Recognize that your ability to deal with not knowing is more important than whatever it is that you do know. Radically open-minded people know that coming up with the right questions and asking other smart people what they think is as important as having all the answers.

First take in all the relevant information, then decide. Taking in others’ perspectives in order to consider them in no way reduces your freedom to think independently and make your own decisions. It will just broaden your perspective as you make them.

Don’t worry about looking good, worry about achieving your goal.

To be radically open-minded, you need to be so open to being wrong that you encourage others to tell you so.

If you’re truly looking at things objectively, you must recognize that the probability of you always having the best answer is small and that, even if you have it, you can’t be confident that you do before others test you.

If both parties are peers, it’s appropriate to argue. But if one person is clearly more knowledgeable than the other, it is preferable for the less knowledgeable person to approach the more knowledgeable one as a student.

If thoughtful disagreement, your goal is not to convince the other party that you are right—it is to find out which view is true and decide what to do about it.

You should be what I call open-minded and assertive at the same time—you should hold and explore conflicting possibilities in your mind while moving fluidly toward whatever is likely to be true based on what you learn.

Mental pain often comes from being too attached to an idea when a person or an event comes along to challenge it. This is especially true when what is being pointed out to you involves a weakness on your part. This kind of mental pain is a clue that you are potentially wrong and that you need to think about the question in a quality way.

Take some time to record the circumstances in which you consistently made bad decisions because you failed to see what others saw.

When you’re approaching a decision, ask yourself: Can I point to clear facts leading to my view?

For me, there is only one big choice to make in life: Are you willing to fight to find out what’s true.

4 Understand That People Are Wired Very Differently

While it may seem counter-intuitive, clearing your head can be the best way to make progress.

When thoughts and instructions come to me from my subconscious, rather than acting on them immediately, I have gotten into the habit of examining them with my conscious, logical mind.

The biggest difference between people who guide their own personal evolution and achieve their goals and those who don’t is that those who make progress reflect on what causes their amygdala hijackings.

If you really want to change, the best thing you can do is choose what habits to acquire and which to get rid of and then go about doing that.

The most valuable habit I’ve acquired is using pain to trigger quality reflections.

It is more effective to train that subconscious, emotional you the same way you would teach a child to behave the way you would like—with loving kindness and persistence so that the right habits are acquired.

5 Learn How to Make Decisions Effectively

The biggest threat to good decision making are harmful emotions. Decision making is a two step process, first learning and then deciding.

One of the most important decisions you can make is who you ask questions of. Listening to uninformed people is worse than having no answers at all.

Everything looks bigger up close. What’s happening today seems like a much bigger deal than it will appear in retrospect.

It is smarter to choose the great over the new.

Everything important in life needs to be on a trajectory to be above the acceptable bar and headed towards excellent at an appropriate pace.

Understand the concept of by and large and use approximations.

Remember the 80/20 rule and know the the 20% are.

Perfectionists spend too much time on the little differences at the margins at the expense of the important things. There are typically just five to ten important factors to consider when making a decision.

Learn to navigate levels effectively

Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it.

Make your decisions as expected value calculations

Knowing when not to bet is as important as knowing what bets are worth making.

The best choices are the ones that have more pros than cons, not those that have don’t have any cons at all

Constantly evaluate the marginal benefit of gathering more information against the marginal cost of waiting to decide.

Get rid of irrelevant details so that the essential things and the relationships between them stand out

1. Slow down your thinking so you can note the criteria you are using to make your decision.
2. Write the criteria down as a principle.
3. Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along.