Principles by Ray Dalio

Life Principles

Shapers: Someone who comes up with unique and valuable visions and build them beautifully typically over the doubts and opposition of others. They are usually original visions and they built them up.

Traits of a shaper:

1. Rebellious
2. Independent thinker
3. Worked relentlessly for innovation & excellence

They all visualized remarkable concepts and built organizations to actualize them

• Independent thinkers who do not let anything or anyone stand in the way of achieving their audacious goals
• Very strong mental maps ion the world of reality and change the ways they do things to make them work better
• Extremely resilient because their need to achieve what they envision is stronger than the pain they experience as they struggle to acheive it
• Wider range of vision than most people
• Able to see both big pictures and gradular detials and levels in between and syntheize the perspectives they gain at different levels, whereas most people see just one or the other
• Simultaneously creative, systematic and practical
• Concern for othersL Faced with a choice between achieving their goal or pleasing others, they would choose achieiving their goal everytime

Principles

1. Embrace reality and deal with it

1.1 Be a hyperrealist – Dreams + Reality + Determination = Sucess

1.2 Truth/Accurate understanding of reality – Essential foundation for any good outcome

1.3 Being radically open-minded and radically transparent – Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Do not let feats of what others think of one stand in the way. Embracing radical truth and radical transparency will bring more meaningful work and more meaningful relationships. It takes typically 18 months to change most habits

1.4 Look to nature to learn how reality works – By understanding them one can foster their own evolution and achieve one’s goals. Man’s most distinctive quality is our singular ability to look down on reality from a higher perspective and synthesize an understanding of it.

Approach the subject with two perspectives:

1. Top-down: By trying to find the one code/law that drives them all. For example, in the case of markets, one could study universal laws like supply and demand that affects all economies and markets. In the case of species, one could focus on learning how the genetic code works for all species
2. Bottom-up: By studying each specific case and the codes/laws that are true for them. For example, the codes/laws particular to the market for wheat or the DNA sequences that make ducks different from other species.

Seeing things from the top down is the best way to understand ourselves and the laws of reality within the context of overarching universal laws. to understand the world accurately, one needs both top-down and bottom-up. By taking a bottom-up perspective that looks at each individual case, one can see how it lines up with one’s theories about the laws that one expects to govern it. When they line up, one is in the right direction.

It should start from the premise that nature is smarter than oneself and try to let nature teach one how reality works.

1. Do not get hung up on one’s views of how things “should” be because one will miss out on learning how they really are. Typically, people’s conflicting beliefs or conflicting interests markes them unable to see things through another’s eyes
2. To be “good” at something, one must operate consistently with the laws of reality and contribute to the evolution of the whole, that is what is most rewarded
3. Evolve or die where faiure to learn and improve quickly will lead to extinction. For example, if there are too much supply and waste in a a market, prices will go down, companies will go out of business, and capacity will be reduced until the supply falls in line with the demand, at which time the cycle will start to move in the opposite direction

1.5 Evolving is life’s greatest accomplishment and its greatest reward

1. The individual’s incentives must be aligned with the group’s goals
2. Reality is optimizing for the whole – not for the individual. Contributing to the whole and one will likely be rewarded
3. Adaptation through rapid trial and error is invaluable

1.6 Understand nature’s practical lessons

a. Maximize one’s evolution

• Once one get the things their thriving for, one rarely remains satisfied with them
• Chassing them forces one to evolve, and it is the evolution and not the rewards themselves that matters to one and to those around one
• Most people’s success is struggling and evolving as effectively as possible
• Learning rapidly about oneself and the enciornment, and then changing to improve

b. No pain no gain

The purpose of pain is to alert us and direct us

c. It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful

1.7 Pain + Reflection = Progress

One is lucky to feel pain if one approach it correctly. It signals that one needs to find solutions so that one can progress

Developing reflexive reaction to psychic pain that causes one to reflect on it rather than avoid it. It will lead to rapid learning/evolving.

It is a matter of getting in the habit of doing it. If one is not failing, then one is not pushing their limits and if one is not pushing their limits, they are not maximizing their potential

Hence, go to pain rather than avoid it. It is evident that one has to reflect during/after pain to lead to learning and growth. If is difficult to embrace/face it and make that a habit instead of avoiding it.

One also needs to learn how to embrace tough love. No matter what one wants out of life, one’s ability to adapt and move quickly and efficiently through the process of personal evolution will determine their success and happiness. If it is done well, one can change their psychological reaction to it so that what was painful can become something one craves.

1.8 Weigh second-and-third order consequences

Making lesser first order conseuqnces. For example, the first order consequence of exercise is pain and time spent which are seen as undesirable. While the second order consequences is better health and more attractive appearance are more desirable.

Quite often, first-order consequences are the temptations that cost one what they really want, and sometimes they are the barriers that stand in one’s way.

1.9 Own one’s outcome

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

Having an internal locus of control is vital. Studies consistently show that people who have an “internal locus of control” outperform those who do not have.

1.10 Look at the machine from a higher level

This is necessary as people are capable of higher level thinking

• Think of oneself as a machine operating within a machine and knows that one has the ability to alter their machines to product better outcomes.
  • The way one operates to achieve one’s goals is their own machine
  • Machine consists of a design and the peope
  • Design = The things that have to be done
  • People = Who will do the things that need to be done
• By comparing one’s outcomes with one’s goals, one can determine how to modify their machine
• Distinguishing between oneself as the designer of the machine and as a worker of a machine
• The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump inot their own and others’ weaknesses again and again. Hence, it highlights the importance of higher level thinking
• Note: The difference between machine and human is our ability to have higher level thinking where we have the ability to study and influence the cause and effect of relationships at play in one’s life and use them to get outcomes that one wants. Our ability to understand cause and effect and evaluate ourselves, allowing one to further improve systems and operations.

5 Step process to get what one wants out of life

1. Have clear goals
2. Identify and do not otlerate the problems that stand in the way of one achieving their goals
3. Acurately diagnose the problems to get at the root causes
4. Design plans that will pivot onself around them
5. Do what is necessary to push these designs through to results

1. Have clear goals:

• Prioritize: While one can have virtually anything one wants, one cannot have everything one wants
• Do not confuse goals with desires
• Decide what one really want in life by reconciling one’s goals and one’s desires
• Do not mistake the trappings of success for success itself
• Never rule out a goal because one thinks it is unattainable
• Remember that great expectations create great capabilities
• Almost nothing can stop one from succeeding if one have (i) flexibility) and (ii) self-accountibility
• Knowing how to deal with with one’s setbacks is as important as knowing how to move forward

2. Identify and do not tolerate problems

• View painful problems as potential improvements that are screaming at one
• Do not avoid confronting problems because they are rooted in hardsh realities that are unpleasant to look at
• Be specific in identifying one’s problems
• Do not mistake a cause of a problem with a real problem
• Distinguish big problems from small ones
• Once one identifies a problem, do not tolerate it

3. Diagnose problems to get at their root causes

• 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. A good diagnosis typically takes between 15 minutes and an hour depending on how well it is done and how complex the issue is. Looking at the evidence together to determine the root causes. Like principles, root causes manfifest themselves over and over again in seemingly different situations. Finding them and dealing with them pays dividends again and again
• Distinguish proximate causes from root causes
  • Proximate causes are typcially the options (or lack of actions) that lead to problems, so they are described with verbs (I missed the train because I did not check the train schedule). Root causes run much deeper and they are trpically described with adjuectives (I did not check the train schedule because I am forgetful). One can only solve their problems by removing their root causes, and to do that, they must distringuish the symptoms from the disease.
• Recognize that knowing what someone (including oneself) is like will tell one what one can expect from them
  • More than anything else, what differentiates people who live up to their potential from those who do not is up to their willingness to look at themselves and others objectively and understand the root causes standing in one’s way

4. Design a plan

• Go back before one go forward
  • Replay the story of where one have been (or what one have done) that led up to where one is now, and then visualize what one and others must do on in the future so one will reach their goals
• Think about one’s problem as a set of outcomes produced by a machine
  • Practice higher-level thinking by looking down on one’s machine and thinking about how it can be changed to produce better outcomes
• Remember that there are typically many paths to achieving one’s goals
• Think of one’s plan as being liike a movie script in that one visualize who will do what through time
  • Sketch out the plan broadly. At first for example,gire great people then define it. One should go from big picture and drill down to specific tasks and estimated time line. For example, in the next two weeks, choose the headhunters who will find those great people. The real world issues of cost, time, and personnel will undoubtedly surface as one do this, and that will lead to further refine one’s design until all the gears in the machine are meshing smoothly
• Write down one’s plan for everyone to see and to measure one’s progress against
• Recognize that it does not take alot of time to design a good plan
  • Designing precedes doing

5. Push through to completion

• Great planners who do not execute their plans go nowhere
  • Remember the connection between one’s tasks and goals that they are meant to achieve
  • When one feel onself losing sight of that, stop and ask oneself “Why?”. Lose sight of the why and one will surely lose sight of one’s goal
• Good work habits are vastly underrated
  • People who push through usccessfully 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 one is following their pan

The Whole “Success” System

1. Setting goals
2. Identifying problems
3. Diagnosing problems
4. Designing solutions and making sure that the designs are implemented are shaping

2.6 Remember that weaknesses do not matter if one can find solutions

• Look at the patterns of one’s mistakes and identify at which step in the 5-step process one typically fails at
• Everyone has at least one big thing that stands in the way of their success, find one’s biggest hurdle and deal with it

2.7: Understand one’s own and others’ mental maps and humility

3. Being Radically Open-minded

3.1 Recognize one’s two barriers

1. Ego
2. Blind spots

1. Understanding one’s ego barrier

Subliminal defence mechanisms that make it hard for one to accept one’s mistakes and weaknesses

Prefrontal cortex: High-level consciousness that controls one’s logic and reasoning

2. My two “mes” fighting to control me

Amygdala: the primitive part that processes emotions

Prefrontal cortex: High level consciousness

Once one understands one logical/conscious and emotional/subconscious side are fighting with each other. One can imagine what it is like when one two mes deal with other people and their own them

Even the most intelligent people generally behave this way, and it is tragic. To be effective, one must not let their need to right be more important than their need to find out what is true. If one is too proud of what one knows, or of how good one is at something, one will learn less by making inferior decisions and falling short of one’s potential.

3. Understand one’s blind spot barrier

Blind spots: Areas where one’s way of thinking prevents them from seeing things accurately

Naturally, people cannot appreciate what they cannot see

Therefore:

• Teaching one’s brain to work in a way that does not come naturally such as how the creative individuals learn to become organized through discipline and practice
• Using compensating mechanisms such as programmed reminders
• Relying on the help of others who are strong when one is weak

The differences in thinking can be symbiotic and complementary than disruptive

3.2 Practice radical open-mindedness

• Most people do not understand what it means to be radically open-minded. They describe open-mindedness as being “open to being wrong”, but stubbornnly cling to whatever opinion is in their head and fail to seek an understanding of the reasoning behind alternative points of view

Therefore:

1. Sincerely believe that one might not know the best possible path and recognize that my ability to deal well with “not knowing as more important than whatever it is one knows”
2. Recognize that decision making process is a two-step process: First take in all the information, then decide
3. Do no worry about looking good. Be more worried about achieving one’s goals
4. Realize that one cannot put out without taking in. Put out: convey their thinking and be productive. Take in: learn.
5. Recognize that to gain the perspective that comes from seeing things through another’s eyes, one must suspend judgement for a time- only by emphasizing can on properly evaluate another point of view

3.5 Appreciate the art of thoughtful disagreement

• Approach the conversation in a way that conveys that one is trying to understand. Use questions rather than statements

3.4 Triangulate one’s view with believable people who are willing to disagree

• Plan for the worst case scenario to make it as good as possible

3.5 Recognize the signs of close-mindedness and open-mindedness that one should watch out for

• Close-minded people do not want their ideas challenged
  • Open minded people are more curious about why there is a disagreement
  • A genuine curiosity why there is disagreement
• Close minded people are more likely to make statements than ask questions
  • Open minded people generally genuinely believe they could be wrong. The questions they ask are genuine.
• Closeminded people focus more on being understood than on understanding others
  • Openminded people always feel compelled to see things through other’s eyes
• Close minded people say things like “I could be wrong…but here’s my opinion”
  • Open minded people know when to make statements and when to ask questions
• Close minded people block others from speaking
  • Open-minded people are always interested in listening than in speaking, they encourage others to voice their views
• Close minded people have trouble holding two throughts simultaneously in their minds
  • Open minded people can take in te thoughts of others without losing their ability to think well – they can have two or more conflicting concepts in their mind and go back and forth between them to assess their relative merit
• Close minded people lack a deep sense of humility
  • Open minded people approach everything with a deep seated fear that they may be wrong

3.6 Understand how one can become radically open-minded

1. Regularly use pain as one’s guide toward quality reflection
   • Mental pain often comes from being too attached to an idea when a person or an event comes along to challenge it
   • Calm oneseful down. This can be difficult. One will probbably feel their amygdala (emotional self) kicking in through a trightening in one’s head, tension in one’s body, or an emerging sense of nnoyance, anger or irritability. Note these feelings when they arise in onself. By being aware of such signals of close-mindedness, one can use them as cues to control one’s behavior and guide onself toward open-mindedness. Doing this regularly will strengthen one’s ability to keep their higher-level self (prefrontal cortex) in control
2. Make being opne-minded a habit
3. Get to know one’s blind spots
   • When one is close-minded and form an opinion in an area where one have a blind spot, it can be deadly
   • Write a list, tape it on the wall and stare at it
4. If a number of different believable people say one is doing something wrong and one is the only one who does not see it that way, assume that one is biased
5. Meditate
6. Be evidence-based and encourage others to be the same
7. Do everything in one’s power to help others be open-minded. Ask them to be evidence-based.
8. Use evidence-based decision making tools
9. Knowing when it is best to stop fighting and have faith in one’s decision-making process

4. Understand that people are wired very differently

Conceptual people who visualizes what should be done in a vague ways expect more literal people to figure out for themselves how to do it

41. Understand the power that comes from knowing how one and others are wired

The different ways of thinking leads to poor communications

4.2 Meaningful work and meaningful relationships are not just nice things we choose for ourselves – they are generally programmed into us

4.3 Understand the great brain battles and how to control them to get what one wants

• Realizing that the conscious mind is in a battle with the subconscious mind
• Knowing that the most constant struggle is between feeling and thinking
• Feelings: Controlled by amygdala awhich oerates sub-consciously
• Rational thinking: Prefrontal cortex which operates consciously
• Reconcole one’s feelings and thinking
• Choose one’s habits well
  • It is the most powerful tool in one’s brain’s toolbox
  • Good habits are those that does what my “high-level” self would want me to do
  • Bad habits are those that are controlled by my “lower-level” self
  • For example, developing a habit that will make me need to work out at the gym
  • Charles Duhigg’s best selling book “The power of habit” talks abnout the three step process “Habit Loop”:
    • First step: Is a cue – some “trigger that tells one’s brain to get into automatic mode and which habits to use”
    • Second step: The routine – “which can be physical or emotional”
    • Third step: Reward – Which helps one’s brain figure out if this particular loop is “worth rememebering for the future”
  • Repetition refinforces this loop until over time it becomes automatic
  • This anticipation and craving is the key to what animal trainers call operant conditioning which uses positive reinforcement
  • Train one’s “lower-level” self with kindness and persistence to build the right habits
  • Understanding the difference between right-brained and left-brained thinking
  • Uderstanding how much the brain can and cannot change

4.4 Find out what one and other are like

• Extroversion vs Introversion
  • Introverts focus on the inner world and get their energy from ideas, memories, and experiences while extroverts are externally focused and getr their energy from being with people
• Intuiting vs Sensing
  • Intuiting: Big picture
  • Sensing: Details
• Thinking vs Feeling
• Planning vs Perceiving
  • Some people like to live in a planned, orderly way and others prefer flexibility and spontaneity. Planners (judgers in Myers Briggs) like to focus on a plan and stick with it, while perceivers are more prone to focus on what is happening around them and adapt to it
  • Perceivers work from the outside in, they see things happening and work backward to understand the cause and how to respond. They also see many possibilites that they compare and choose from
  • Planners work from the inside out, first figuring out what they want to achieve and then how things should unfold
  • Perceivers see new things and change direction often
• Creators vs Refiners vs Advancers vs Executors vs Flexors (Team Dimensions Profile (TDP))
  • Creators: Generate new ideas and original concepts – they prefer unstructured and abstract acitivities and thrive on innovation and unconventional practices
  • Advancers: Communicate thesenew ideas and carry them forwad. They relish feelings and relationships and manage the human factors. They are excellent at generating enthusiasm for work
  • Executors: Can also be thought of as implementors. They ensure that important activities are carried out and goals accomplished. They are focused on details and the bottom line.
  • Flexors: They are a combination of all four types. They can adapt their styles to fit certain needs and able to look at a problem from different perspectives
• Focusing on tasks vs focusing on goals
• Shapers are people who can go from visualization to actualization

Radical Truth and Radical Transparency

Radical truth: Not filtering one’s thoughts and one’s questions

Radical transparency: Giving almost everyone the ability to see almost everything. It is to give people anything less than total transparency would then make them vulnerable to other’s and deny them the ability to figure things out themselves. Furthermore, it reduces the harmful politics and the risks of bad behavior because bad behavior is more likely to take place behind closed doors than in the open

Idea meritocracy = Radcial truth and radical transparency + believability – weighted decision making

11. If one is not worried, one need to worry – and if one is worried, one do not need to worry

This is because worrying about what can go wrong will protect one and not worrying about what will go wrong will leave one exposed

• Wathcing out for the “Frog in the boiling water syndrome”
  • If one throws a frog into a pot of boiling water, it will jump out immediately, but if one put it in room temperature water and gradually bring it to boil, it will stay in the pot until it dies. Whether or not that is true for frogs, one see something similar happen to managers all the time.
  • People have a strong tendency to slowly get used to unacceptable things that should shock them if they saw them with fresh eyes
• Because of group-think: The fact that no on seems concerned does not mean nothing is wrong
• “Taste the soup”
  • Think of oneself as a chef and taste the soup before it goes out to the custoemrs

11.3 Be very specific about problems. Do not start with generalizations

Avoid the anonymous “we” and “they” because they mask social responsibility

21. Diagnose problems to get at their root causes

12.1 To diagnose well, ask the following questions:

1. Is the outcome good or bad?
2. Who is responsible for the outcome?
3. If the outcome is bad, is the responsible party incapable and/or is the design bad?

12.4 Use the following “drilling-down” technique to gain an 80/20 understanding of a department or sub-department that is having problems

Only the 20% of causes that produce 80% of the suboptimal effects.

1. List the problems
2. Identify the root causes by constantly asking “why?”
3. Create a plan
   • developed by iterating through multiple possibilities, weighing the likelihood of good achievement versus costs and risks. They should have specific tasks, outcomes, responsible parties, tacking metrics, and timeines
4. Execute the plan

13. Design improvements to one’s machine to get around one’s problems

Recapping from the 5 step process of getting what one wants:

1. Have clear goals
2. Identify and do not tolerate the problems that stand in the way of one achieving these goals
3. Accurately diagnose the problems to get at their root causes
4. Design plans that will get one around them
5. Do what is necessary to push these designs through to results

Winston Churchill said, “Success consists of going from failure to failure without loss of enthusiasm”.

If I could tilt the world even one degree more in that direction, that would thrill meRay Dalio

Thoughts

The book has provided one with many insights. The key insights has been the process for problem solving, steps to achieve one’s goals, creating a habit loop and understanding how others are different from oneself.

Ray Dalio has provided many useful tools, processes, insights and frameworks that will only be useful if it is used religiously.