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nhaverkamp 's review for:
Principles: Life and Work
by Ray Dalio
Ray Dalio shares his list of principles that he has shaped throughout his life in order to make decision making an algorithm versus emotionally based guesses; his principles ultimately sum up to having meaningful work, meaningful relationships, and being radically open-minded and radically transparent with others to have the tough conversations in order to arrive at the best conclusions.
I believe 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 them if possible, and use them on a real-time basis to run in parallel with your brain's decision making.
I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.
Because most people are more emotional than logical, they tend to overreact to short-term results; they give up and sell low when times are bad and buy too high when times are good. I find this is just as true for relationships as it is for investments.
Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.
Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur. My rule was simple: If something went badly, you had to put it in the log, characterize its severity, and make clear who was responsible for it. If a mistake happened and you logged it, you were okay. If you didn't log it, you would be in deep trouble.
I didn't think about it then, but it's obvious to me now that while one gets better at things over time, it doesn't become any easier if one is also progressing to higher levels-the Olympic athlete finds his sport to be every bit as challenging as the novice does.
This exercise reminded me that there are far fewer types of people in the world than there are people and far fewer different types of situations than there are situations, so matching the right types of people to the right types of situations is key.
Running a great organization, being great at a sport… Now imagine instantaneously achieving it. You'd be happy at first, but not for long You would soon find yourself needing something else to struggle for. Just look at people who attain their dreams early--the child star, the lottery winner, the professional athlete who peaks early. They typically don't end up happy unless they get excited about something else bigger and better to struggle for. Since life brings both ups and downs, struggling well doesn't just make your ups better; it makes your downs less bad.
LIFE PRINCIPLES
1 Embrace Reality and Deal with It
There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to this process makes all the difference. I have 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 making, gems continually improves my decision 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
This constant drive toward learning and improvement makes getting better innately enjoyable and getting better fast exhilarating. Though most people think that they are striving to get the things that will make them happy, for most people those things 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. The things are just the bait. Chasing after them forces us to evolve, and it is the evolution and not the rewards themselves that matters to us and to those around us.
Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an "internal locus of control," and studies consistently show that people who have it outperform those who don't.
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.
Everyone has at least one big thing that stands in the way of their success; find yours and deal with it. Write down what your one big thing is (such as identifying problems, designing solutions, pushing through to results) and why it exists (your emotions trip you up, you can't visualize adequate possibilities). If you work on it, you will almost certainly be able to deal successfully with your one big thing.
3 Be Radically Open-minded
In addition to your ego barrier, you and everyone else also have blind spots-areas where your way of thinking prevents you from seeing things accurately. Just as we all have different ranges for hearing pitch and seeing colors, we have different ranges for seeing and understanding things.
4 Understand That People Are Wired Very Differently
The first step is recognizing how habits develop in the first place. Habit is essentially inertia, the strong tendency to keep doing what you have been doing (or not doing what you have not been doing). Research suggests that if you stick with a behavior for approximately eighteen months, you will build a strong tendency to stick to it nearly forever. The most valuable habit I've acquired is using pain to trigger quality reflections. If you can acquire this habit yourself, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness.
5 Learn How to Make Decisions 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." This involves playing different scenarios through time to visualize how to get an outcome consistent with what you want. To do this well, you need to weigh first-order consequences against second- and third-order consequences, and base your decisions not just on near-term results but on results over time.
Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value.
Using principles is a way of both simplifying and improving your decision making. While it might seem obvious to you by now, it's worth repeating that realizing that almost all "cases at hand" are just "another one of those," identifying which one of those" it is, and then applying well-thought-out principles for dealing with it will allow you to massively reduce the number of decisions you have to make and will lead you to make much better ones. The key to doing this well is to: 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.
By radical truth, I mean not filtering one's thoughts and one's questions, especially the critical ones. If we don't talk openly about our issues and have paths for working through them, we won't have partners who collectively own our outcomes. By radical transparency, I mean giving most everyone the ability to see most everything. To give people anything less than total transparency would make them vulnerable to others' spin and deny them the ability to figure things out for themselves.
To have an Idea Meritocracy: 1) Put your honest thoughts on the table 2) Have thoughtful disagreement 3) Abide by agreed-upon ways of getting past disagreement
WORK PRINCIPLES
1 Trust in Radical Truth and Radical Transparency
Understanding what is true is essential for success, and being radically transparent about everything, including mistakes and weaknesses, helps create the understanding that leads to improvements.. Being radically truthful and transparent with your colleagues and expecting your colleagues to be the same with you ensures that important issues are apparent instead of hidden. It also enforces good behavior and good thinking, because when you have to explain yourself, everyone can openly assess the merits of your logic.
Criticism is welcomed and encouraged at Bridgewater, but there is never a good reason to bad-mouth people behind their backs.
2 Cultivate Meaningful Work and Meaningful Relationships
3 Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them
Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don't. By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you'll see rapid progress and fewer significant mistakes.
4 Get and Stay in Sync
Alignment is especially important in an idea meritocracy. We call this process of finding alignment "getting in sync," and there are two primary ways it can go wrong: cases resulting from simple misunderstandings and those stemming from fundamental disagreements. Getting in sync is the process of open-mindedly and assertively rectifying both types. Many people mistakenly believe that papering over differences is the easiest way to keep the peace. They couldn't be more wrong. By avoiding conflicts one avoids resolving differences. People who suppress minor conflicts tend to have much bigger conflicts later on,
Thoughtful disagreement is powerful, because it helps both parties see things they've been blind to.
Making suggestions and questioning are not the same as criticizing, so don't treat them as if they are. Asking questions to make sure that someone hasn't overlooked something isn't the same thing as saying that he or she has overlooked it. Yet I often see people react to constructive questions as if they were accusations. That is a mistake.
5 Believability Weight Your Decision Making
In typical organizations, most decisions are made either autocratically, by a top-down leader, or democratically, where every one shares their opinions and those opinions that have the most support are implemented. Both systems produce inferior decision making. That's because the best decisions are made by an idea meritocracy with believability-weighted decision making, in which the most capable people work through their disagreements with other capable people who have thought independently about what is true and what to do about it. It is far better to weight the opinions of more capable decision makers more heavily than those of less capable decision makers.
6 Recognize How to Get Beyond Disagreements
I believe that the ability to objectively self-assess, including one's own weaknesses, is the most influential factor in whether a person succeeds. Your goal should be to hire people who understand this, equip them with the tools and the information they need to flourish in their jobs, and not micromanage them. If they can't do the job after being trained and given time to learn, get rid of them; if they can, promote them.
7 Remember That the WHO Is More Important than the WHAT
When putting someone in a position of responsibility, make sure their incentives are aligned with their responsibilities and they experience the consequences of the outcomes they produce. As an example, structure their deals so that they do well or badly based on how well or badly you do in the areas they are responsible for. This is fundamental for good management.
8 Hire Right, Because the Penalties for Hiring Wrong Are Huge
In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important.
9 Constantly Train, Test, Evaluate, and Sort People
The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger.
10 Manage as Someone Operating Machine to Achieve a Goal
Metrics show how the machine is working by providing numbers and setting off alert lights in a dashboard. Metrics are an objective means of assessment and they tend to have a favorable impact on productivity. If your metrics are good enough, you can gain such a complete and accurate view of what your people are doing and how well they are doing it that you can almost manage via the metrics alone.
11 Perceive and Don't Tolerate Problems
Problems are like coal thrown into locomotive engine because burning them up-invent ing and implementing solutions for them-propels us forward. Every problem you find is an opportunity to improve your machine. Identi tying and not tolerating problems is one of the most important and disliked things people can do.
12 Diagnose Problems to Get at Their Root Causes
When you encounter problems, your objective is to specifically identify the root causes of those problems—the specific people or designs that caused them-and to see if these people or designs have a pattern of causing problems. 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?
13 Design Improvements to Your Machine to Get Around Your Problems
Virtually nothing goes according to plan because one doesn't plan for the things that go wrong. I personally assume things will take about one and a half times as long and cost about one and a half times as much because that's what I've typically experienced. How well you and the people working with you manage will determine your expectations
14 Do What You Set Out to Do
15 Use Tools and Protocols to Shape How Work Is Done
But there's a big difference between wanting to do something and actually being able to do it. It won't happen until the proper habits are developed. In organizations, that happens with the help of tools and protocols.
16 And for Heaven's Sake, Don't Overlook Governance!
I believe 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 them if possible, and use them on a real-time basis to run in parallel with your brain's decision making.
I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.
Because most people are more emotional than logical, they tend to overreact to short-term results; they give up and sell low when times are bad and buy too high when times are good. I find this is just as true for relationships as it is for investments.
Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.
Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur. My rule was simple: If something went badly, you had to put it in the log, characterize its severity, and make clear who was responsible for it. If a mistake happened and you logged it, you were okay. If you didn't log it, you would be in deep trouble.
I didn't think about it then, but it's obvious to me now that while one gets better at things over time, it doesn't become any easier if one is also progressing to higher levels-the Olympic athlete finds his sport to be every bit as challenging as the novice does.
This exercise reminded me that there are far fewer types of people in the world than there are people and far fewer different types of situations than there are situations, so matching the right types of people to the right types of situations is key.
Running a great organization, being great at a sport… Now imagine instantaneously achieving it. You'd be happy at first, but not for long You would soon find yourself needing something else to struggle for. Just look at people who attain their dreams early--the child star, the lottery winner, the professional athlete who peaks early. They typically don't end up happy unless they get excited about something else bigger and better to struggle for. Since life brings both ups and downs, struggling well doesn't just make your ups better; it makes your downs less bad.
LIFE PRINCIPLES
1 Embrace Reality and Deal with It
There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to this process makes all the difference. I have 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 making, gems continually improves my decision 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
This constant drive toward learning and improvement makes getting better innately enjoyable and getting better fast exhilarating. Though most people think that they are striving to get the things that will make them happy, for most people those things 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. The things are just the bait. Chasing after them forces us to evolve, and it is the evolution and not the rewards themselves that matters to us and to those around us.
Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an "internal locus of control," and studies consistently show that people who have it outperform those who don't.
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.
Everyone has at least one big thing that stands in the way of their success; find yours and deal with it. Write down what your one big thing is (such as identifying problems, designing solutions, pushing through to results) and why it exists (your emotions trip you up, you can't visualize adequate possibilities). If you work on it, you will almost certainly be able to deal successfully with your one big thing.
3 Be Radically Open-minded
In addition to your ego barrier, you and everyone else also have blind spots-areas where your way of thinking prevents you from seeing things accurately. Just as we all have different ranges for hearing pitch and seeing colors, we have different ranges for seeing and understanding things.
4 Understand That People Are Wired Very Differently
The first step is recognizing how habits develop in the first place. Habit is essentially inertia, the strong tendency to keep doing what you have been doing (or not doing what you have not been doing). Research suggests that if you stick with a behavior for approximately eighteen months, you will build a strong tendency to stick to it nearly forever. The most valuable habit I've acquired is using pain to trigger quality reflections. If you can acquire this habit yourself, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness.
5 Learn How to Make Decisions 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." This involves playing different scenarios through time to visualize how to get an outcome consistent with what you want. To do this well, you need to weigh first-order consequences against second- and third-order consequences, and base your decisions not just on near-term results but on results over time.
Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value.
Using principles is a way of both simplifying and improving your decision making. While it might seem obvious to you by now, it's worth repeating that realizing that almost all "cases at hand" are just "another one of those," identifying which one of those" it is, and then applying well-thought-out principles for dealing with it will allow you to massively reduce the number of decisions you have to make and will lead you to make much better ones. The key to doing this well is to: 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.
By radical truth, I mean not filtering one's thoughts and one's questions, especially the critical ones. If we don't talk openly about our issues and have paths for working through them, we won't have partners who collectively own our outcomes. By radical transparency, I mean giving most everyone the ability to see most everything. To give people anything less than total transparency would make them vulnerable to others' spin and deny them the ability to figure things out for themselves.
To have an Idea Meritocracy: 1) Put your honest thoughts on the table 2) Have thoughtful disagreement 3) Abide by agreed-upon ways of getting past disagreement
WORK PRINCIPLES
1 Trust in Radical Truth and Radical Transparency
Understanding what is true is essential for success, and being radically transparent about everything, including mistakes and weaknesses, helps create the understanding that leads to improvements.. Being radically truthful and transparent with your colleagues and expecting your colleagues to be the same with you ensures that important issues are apparent instead of hidden. It also enforces good behavior and good thinking, because when you have to explain yourself, everyone can openly assess the merits of your logic.
Criticism is welcomed and encouraged at Bridgewater, but there is never a good reason to bad-mouth people behind their backs.
2 Cultivate Meaningful Work and Meaningful Relationships
3 Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them
Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don't. By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you'll see rapid progress and fewer significant mistakes.
4 Get and Stay in Sync
Alignment is especially important in an idea meritocracy. We call this process of finding alignment "getting in sync," and there are two primary ways it can go wrong: cases resulting from simple misunderstandings and those stemming from fundamental disagreements. Getting in sync is the process of open-mindedly and assertively rectifying both types. Many people mistakenly believe that papering over differences is the easiest way to keep the peace. They couldn't be more wrong. By avoiding conflicts one avoids resolving differences. People who suppress minor conflicts tend to have much bigger conflicts later on,
Thoughtful disagreement is powerful, because it helps both parties see things they've been blind to.
Making suggestions and questioning are not the same as criticizing, so don't treat them as if they are. Asking questions to make sure that someone hasn't overlooked something isn't the same thing as saying that he or she has overlooked it. Yet I often see people react to constructive questions as if they were accusations. That is a mistake.
5 Believability Weight Your Decision Making
In typical organizations, most decisions are made either autocratically, by a top-down leader, or democratically, where every one shares their opinions and those opinions that have the most support are implemented. Both systems produce inferior decision making. That's because the best decisions are made by an idea meritocracy with believability-weighted decision making, in which the most capable people work through their disagreements with other capable people who have thought independently about what is true and what to do about it. It is far better to weight the opinions of more capable decision makers more heavily than those of less capable decision makers.
6 Recognize How to Get Beyond Disagreements
I believe that the ability to objectively self-assess, including one's own weaknesses, is the most influential factor in whether a person succeeds. Your goal should be to hire people who understand this, equip them with the tools and the information they need to flourish in their jobs, and not micromanage them. If they can't do the job after being trained and given time to learn, get rid of them; if they can, promote them.
7 Remember That the WHO Is More Important than the WHAT
When putting someone in a position of responsibility, make sure their incentives are aligned with their responsibilities and they experience the consequences of the outcomes they produce. As an example, structure their deals so that they do well or badly based on how well or badly you do in the areas they are responsible for. This is fundamental for good management.
8 Hire Right, Because the Penalties for Hiring Wrong Are Huge
In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important.
9 Constantly Train, Test, Evaluate, and Sort People
The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger.
10 Manage as Someone Operating Machine to Achieve a Goal
Metrics show how the machine is working by providing numbers and setting off alert lights in a dashboard. Metrics are an objective means of assessment and they tend to have a favorable impact on productivity. If your metrics are good enough, you can gain such a complete and accurate view of what your people are doing and how well they are doing it that you can almost manage via the metrics alone.
11 Perceive and Don't Tolerate Problems
Problems are like coal thrown into locomotive engine because burning them up-invent ing and implementing solutions for them-propels us forward. Every problem you find is an opportunity to improve your machine. Identi tying and not tolerating problems is one of the most important and disliked things people can do.
12 Diagnose Problems to Get at Their Root Causes
When you encounter problems, your objective is to specifically identify the root causes of those problems—the specific people or designs that caused them-and to see if these people or designs have a pattern of causing problems. 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?
13 Design Improvements to Your Machine to Get Around Your Problems
Virtually nothing goes according to plan because one doesn't plan for the things that go wrong. I personally assume things will take about one and a half times as long and cost about one and a half times as much because that's what I've typically experienced. How well you and the people working with you manage will determine your expectations
14 Do What You Set Out to Do
15 Use Tools and Protocols to Shape How Work Is Done
But there's a big difference between wanting to do something and actually being able to do it. It won't happen until the proper habits are developed. In organizations, that happens with the help of tools and protocols.
16 And for Heaven's Sake, Don't Overlook Governance!