Principles Notes

Principles Notes

Book

PRINCIPLES

Tags
Summaries
Date Published
March 10, 2024

Below is the entirety of my notes from reading Principles by Ray Dalio.

I took notes, on April 1st, 2019, so you don't have to.

I read the book, so you can get to action.

As much for myself, as it is for you.

From paper to tech - all for you.

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Table of Contents

Quotes Throughout the Book to Keep Top of Mind:

  • “Maturity is the ability to reject good alternatives in order to pursue even better ones.”
  • “Wise people stick with sound fundamentals through ups and downs, while flighty people react emotionally to how things feel, jumping into things when they’re hot and abandoning them when they’re not.”
  • “I realized how essential it is that people in relationships must be crystal clear about their principles for dealing with each other.”
  • Early stages of Bridgewater: “I tended to hire people out of school who didn’t have much experience but were smart, determined, and committed to our mission.”
  • “My belief is that having an ability to figure things out is more important than having specific knowledge of how to do something.”
  • “Experience is crucial though. Don’t undervalue it.”
  • “Having a few good uncorrelated return streams is better than having just one. Knowing how to combine return streams is even more effective.” (diversify)
  • “I came to see that people’s greatest weaknesses are the flip sides of their greatest strengths.”
  • “I learned that creative genius and insanity can be quite close to each other.”
  • “To me the greatest success you can have as the person in charge is to orchestrate others to do things well without you.”
  • “We were always careful to stay safely short of being too big, lest we kill the goose that lays the golden eggs.”
  • For a shaper - “Nothing is ever good enough, and they experience the gap between what is and what could be as both a tragedy and a source of unending motivation.”
  • “Unattainable goals appeal to heroes.” (Wan Qishan)
  • “In fact, having a lot more is worse than having a moderate amount more because it comes with heavy burdens.”
  • “Being on top gives you a lot more range of options, but requires more of you.”
  • “We view our donations as investments and want to make sure that we have high philanthropic returns on our money.”
  • “Make sure no one person is more powerful than the system.”
  • “In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well.”
  • “Learning to be radically transparent is like learning to speak in public = awkward at first BUT easier over time.”
  • “It is natural that it should be this way because of the law of diminishing returns”
  • “Love and work are the cornerstones of our humanness.”
  • “To be effective you must not let your need to be right be more important than your need to find out what’s true”
  • “with big decisions, consult others who know you best”
  • “Organizing people to complement their strengths and compensate for their weaknesses is like conducting an orchestra. It can be magnificent if done well and terrible if done poorly.”
  • “Having expectations for people (including yourself) without knowing what they are like is a sure way to get in trouble.”
  • “A typical neuron makes about ten thousand connections to neighboring neurons. Given billions of neurons, this means there are as many connections in a single cubic centimeter of brain tissue as there are stars in the Milky Way.”
  • “Individual selection [which] prompted sin and group selection [which] prompted virtue.”
  • “HABIT IS ESSENTIALLY INERTIA”
  • [God] Nature made everyone and everything for a purpose”

Notes:

Most Important Notes:

  • SYSTEMS:
    • Make believability-weighted decisions
      • Go from “I know I’m right” → “How do I know I’m right?”
    • Operate by principles
    • Systemized decision making
    • 3-Part Goal System:
      1. What do you want?
      2. What is true?
      3. What are you going to do about it?
    • Don’t follow the crowd
    • “Maturity is the ability to reject good alternatives in order to pursue even better ones.”
    • To succeed:
      1. Seek out the smartest people who disagreed with me so I could try to understand their reasoning
      2. Know when not to have an opinion
      3. Develop, test, and systemize timeless and universal principles
      4. Balance risks in ways that keep the big upside while reducing the downside
    • One main theme: use computers to your advantage
  • ON PEOPLE:
    • “Wise people stick with sound fundamentals through ups and downs, while flighty people react emotionally to how things feel, jumping into things when they’re hot and abandoning them when they’re not.”
    • Touches on the topic of pain + reflection = progress
    • “I realized how essential it is that people in relationships must be crystal clear about their principles for dealing with each other.”
    • “I came to see that people’s greatest weaknesses are the flip sides of their greatest strengths.”
    • Agreements for dealing with others:
      1. Put our honest thoughts out on the table
      2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn
      3. Have agreed-upon ways of deciding (i.e. voting, having clear authorities) if disagreements remain, so that we can move beyond them without resentments
    • Two parts of each person’s brain
      • upper-level logical part
      • lower-level emotional part
    • “I learned that creative genius and insanity can be quite close to each other.”
  • ON HIRING:
    • Early stages of Bridgewater: “I tended to hire people out of school who didn’t have much experience but were smart, determined, and committed to our mission.”
      • “My belief is that having an ability to figure things out is more important than having specific knowledge of how to do something.”
      • “experience is crucial though. Don’t undervalue it.”
  • ON INVESTING:
    • “Having a few good uncorrelated return streams is better than having just one. Knowing how to combine return streams is even more effective.” (diversify)
  • ON SUCCESS:
    • “To me the greatest success you can have as the person in charge is to orchestrate others to do things well without you.”
  • ON SUCCESS and POPULARITY:
    • Tall-poppy syndrome (coined by Australians) = the tallest poppies in a field are the ones most likely to get their heads whacked off
      • i.e. getting a lot of attention when successful is a really tough position to be in
    • A rare bird = mix of common sense, creativity, and character to shape change
  • ON POWER:
    • “Make sure no one person is more powerful than the system.”
      • i.e. Julius Caesar’s overthrow of the Roman Senate and Republic
  • ON SUCCESS + STRUGGLE:
    • “In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well.”
  • ON HAVING MORE:
    • “In fact, having a lot more is worse than having a moderate amount more because it comes with heavy burdens.”
      • “Being on top gives you a lot more range of options, but requires more of you.”
  • ON BEING CAUTIOUS WITH MUCH:
    • “We were always careful to stay safely short of being too big, lest we kill the goose that lays the golden eggs.”
  • ON LIFE PHASES:
    1. {first 3rd} Dependent and learn from others (always doing this though)
    2. {middle 3rd} Others depend on us and we work
    3. {last 3rd} Free to savor life, depend on some, and give all we have
  • ON PHILANTHROPY:
    • “We view our donations as investments and want to make sure that we have high philanthropic returns on our money.”
  • SHAPER = someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts and opposition of others

Commonalities of the Highly Successful:

  • Independent thinkers
  • Strong mental maps; willingness to test those mental maps
  • Extremely resilient
  • Wider range of vision than most
  • All are able to see both big pictures and granular details
  • Simultaneously creative, systematic, and practical
  • Assertive and open-minded
  • Extremely passionate
    • Intolerant of people who work for them who aren’t excellent at what they do
  • Want to have a big, beneficial impact on the world
  • Can sustain success
  • {love this one} “Nothing is ever good enough, and they experience the gap between what is and what could be as both a tragedy and a source of unending motivation.”
  • [pg. 98 too] “Nobody sees the full range of what they need to see in order to be exceptionally successful.”…… ”Those that do the best see both a wide range of themselves while triangulating well with other brilliant people who see things in different, complementary ways.”
  • “Unattainable goals appeal to heroes.” (Wan Qishan)
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Part II - Life Principles:

1. Embrace Reality and Deal with It

  • Stretching for big goals puts me in the position of failing
    • feedback loop of rapid learning is like a surfer and a wave, even though it sometimes leads to crashes
  • “runner’s high” → “mistake learner’s high”

1.1. Be a hyperrealist

  • Dreams + Reality + Determination = A Successful Life

←————————————-——————-——————-——————→

savor life make an impact

(where are you?)

  • The question isn’t how much of each to go after, but how hard to work to get as much as possible

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

  • ** Most people fight seeing what’s true when it’s not what they want it to be **
    • Not accepting because of insecurity or fear

1.3. Be radically open-minded and transparent

  • These are invaluable to learning
  • “Learning to be radically transparent is like learning to speak in public = awkward at first BUT easier over time.”
  • Allows for personal liberation, empathy, and empathy for others

1.4. Look to Nature to Learn How Reality Works [personal note - “I already do this too! One of the reasons I love the Tao]

  • Like he said our greatest strength is our greatest weakness
    • ** Our evolution has caused our neocortex to develop much more. Thus, higher-level thinking makes us unique but can also make us uniquely confused **
  • ** Don’t let your biases stand in the way of objectivity **
    • For good results → analytical > emotional
  • ** Nature optimizes for the whole, not for the individual **

  • EVOLVE OR DIE!
    • Note that: striving for perfection (even though it doesn’t exist) fuels the never-ending process of growth and adaption

1.5. Evolving is life’s greatest accomplishment and reward

  • The individuals incentives must be aligned with the group’s goals
    • Perfect example is sex
  • Nature’s way of learning from mistakes
    • Natural selection’s trial and error
    • ex: evolution of fighting viruses
  • [The Tao] “Realize you are simultaneously everything and nothing.”
    • Do you, BUT look at the bigger picture
  • Your Perspective Determines Your Life Outcome

1.6. Environment and pain

  • Learning about oneself and one’s environment, and then changing to improve
    • “It is natural that it should be this way because of the law of diminishing returns”
    • “Love and work are the cornerstones of our humanness.”
  • NO PAIN, NO GAIN!
    • ** Nature gave us pain as a purpose → It alerts us and helps direct us

1.7. Pain and progress

  • BEST EQUATION →
  • PAIN + REFLECTION = PROGRESS

  • Pain will turn to pleasure.
    • The pain is the signal!
  • Deny people what they want, so they can develop the strength to get what they want on their own (Ray Dalio)
  • The quality of your life will depend on the choices you make at those painful moments

1.8. 2nd + 3rd order consequences

  • 1st order = ex. exercise (pain and time spent)
  • 2nd order = ex. exercise (better health and more attractive appearances)
    • ex. again → food that tastes good is often bad for you and vice versa
  • Success → choose what you want
  • avoid temptations

    get over the pains that deviate you from the path

    WIN IN LIFE

1.10. Look at the machine from the higher level

  • Goals → Design (things to get done)
  • The People (who will do the things that need getting done)

  • Look objectively at what your strengths and weaknesses are and what others are to put the right people in the right roles to achieve their goals

4 Choices for Dealing with Weaknesses

  1. Deny them
  2. Accept them and work at them to convert them to strengths
  3. Accept weaknesses and find ways around them
  4. Change what you are going after

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

  1. [goals] Have clear goals
  2. [problems] Identify and don’t tolerate the problems that stand in the way of you achieving your goals
  3. [diagnose] Accurately diagnose the problems to get at their root causes
  4. [design] Design plans that will get you around them
  5. [do] Do what’s necessary to push these designs through to results
  • ** If your emotions are getting the better of you, step back and take time out until you can reflect clearly. If necessary, seek guidance from calm, thoughtful people **

2.1. Have clear goals (visualization and prioritization)

  • Choosing a goal means rejecting some things you want in order to get other things that you want or need even more
  • Don’t confuse goals with desires
  • Don’t fall into achievement orientation
  • Be audacious. Dream BIG. Reach a higher level in your potential tank
  • Don’t limit yourself to what you know you can achieve (expectation)
  • Nothing can stop you if → you have flexibility and extreme ownership
  • Knowing how to deal with setbacks is vital
    • Your mission → make the best possible choices, knowing you will be rewarded if you do

2.2. Identify and don’t tolerate the problems (perceptive and good at maintaining high standards)

  • Look at problems as opportunities
    • Acknowledge your weaknesses
  • ** Distinguish big problems from small ones **

2.3. Diagnose Problems to Get to Their Root Causes (logical, see many possibilities, have the hard convo’s)

  • ** Distinguish proximate causes from root causes
    • proximate → “I missed the train because I didn’t check the schedule.”
    • root → “I didn’t check the schedule because I am forgetful.”
  • ** Find the root cause of the problem **
  • What differentiates those who live up to their potential to those who don’t is their willingness to look at themselves and understand the root causes in their way

2.4. Design a Plan (visualization and practicality)

  • Go back before you go forward
  • Many paths to achieving your goals
  • Sketch out the plan broadly and then refine it
  • Remember = Designing proceeds doing

2.5. Push Through to Completion (self-discipline, good work habits, and a results orientation)

  • Basically, in short, be practical and take action
  • Good work habits are vastly underrated

2.6. Remember that Weaknesses Don’t Matter if you Find Solutions

2.7. Understand Your Own and Others’ Mental Maps and Humility

3. Be Radically Open-Minded

3.1. Recognize your two barriers

  • ** Ego
    • This thing makes it hard for you to accept your mistakes and weaknesses
    • Amygdala = which are structures in your temporal lobe that process emotions
    • Prefrontal cortex = higher-level consciousness, larger in humans than in most species, where you make decisions and logical / reasoning is important
    • “To be effective you must not let your need to be right be more important than your need to find out what’s true”
  • ** Blindspots
    • Where your way of thinking prevents you from seeing things accurately
    • Naturally, people can’t appreciate what they can’t see
      • ex = color blind people
    • Aristotle = defined a tragedy as a terrible outcome arising from a person’s fatal flaws (if fixed, no tragedy would occur)

3.2. Practice radical open-mindnesses

  • Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally
  • ** It requires you to replace your attachment to always being right with the joy of learning what’s true **

  1. Believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing is more important than whatever it is you do know
    • “you can’t make a great decision without swimming for a while in a state of ‘not knowing’”
      • TOUCH THE NERVE
  2. Decision making → 1) take in all the relevant info 2) decide
  3. Don’t worry about looking good; worry about achieving your goals
  4. Realize that you can’t put out without taking in
  5. Empathy (suspend judgement for a time, to evaluate another point of view)
  6. You’re looking for the best answer, not simplify the best answer for yourself (you can look outside yourself)
  7. Be clear on whether you are arguing or seeking to understand; and think about which is most appropriate based on your and others believability
    • Doing this well requires the concept of believability
      • Believability = people who have repeatedly and successfully accomplished the thing in question - strong track record with 3 successes or more - and have explanations of their approach
        • If the other is believable (i.e. you and doctor) make it clear that you are asking questions; if you are the believable one, seek to have the other ask questions

3.3. Appreciate the art of thoughtful disagreement

  • In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives
    • Both are using “higher-level you’s”
  • Two-minute rule = neither interrupts the other, so they both have time to get all their thoughts out
  • It doesn’t pay to be open-minded with everyone. Instead, spend your time exploring ideas with the most believable people you have access to
  • If at an impasse, maybe agree upon getting a moderator for the discussion
  • ** Holding wrong opinions in one’s head and making bad decisions based on them instead of having thoughtful disagreements is one of the greatest tragedies of mankind **

3.4. Triangulate your view w/ believable people who are willing to disagree

  • ** Smart people who can thoughtfully disagree are the greatest teachers **

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

3.5. Recognize the signs of closed-mindedness and open-mindedness that you should watch out for

  • Close-Minded
    • Don’t want their ideas challenged
    • More likely to make statements than ask questions
    • Focus more on being understood than on understanding others
    • They say “I could be wrong…. but here’s my opinion.”
    • Closed-minded people block others from speaking
      • Listen
      • 2-min rule
    • Have trouble holding two thoughts at once in their minds
    • ** Lack a deep sense of humility **
  • Open-Minded
    • Inquisitive about why there is a disagreement
    • They genuinely believe they could be wrong; they ask questions that are genuine
    • Empathy and a different perspective is crucial
    • Know when to make statements and when to ask questions
    • More interested in listening than speaking; they encourage others to voice their opinions
    • Can take in thoughts of others without losing their ability to think well

3.6. Understand how you can become more radically open-minded

  1. Regularly use pain as your 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
  2. Make being open-minded a habit
    • THE LIFE YOU WILL LIVE IS MOST SIMPLY THE RESULT OF THE HABITS YOU DEVELOP
  3. Get to know your blind spots
    • Know yourself
    • “with big decisions, consult others who know you best”
  4. Ask questions when everyone else says you are wrong
  5. MEDITATE
  6. Be evidence based and encourage others to be the same
  7. Use evidence based decision making tools
  8. Know when it’s best to stop fighting and have faith in your decision-making process
  9. ** “Gaining open-mindedness doesn’t mean losing assertiveness. In fact, because it increases one’s odds of being right.” **

4. Be Radically Open-Minded

  • “Organizing people to complement their strengths and compensate for their weaknesses is like conducting an orchestra. It can be magnificent if done well and terrible if done poorly.”

4.1. Understand the power that comes from knowing how you and others are wired

  • “Having expectations for people (including yourself) without knowing what they are like is a sure way to get in trouble.”
    1. The brain is more complex than we can imagine
      • 89 billion tiny computers (called neurons)
      • “A typical neuron makes about ten thousand connections to neighboring neurons. Given billions of neurons, this means there are as many connections in a single cubic centimeter of brain tissue as there are stars in the Milky Way.”
    2. When born our brains are preprogrammed with learning accumulated over hundreds of millions of years
    3. Humans aren’t superior to others species (only in language and thinking)
      • birds for flight, eyesight
      • horses for electromagnetic feel, and strength
      • most animals for smell
    4. The “universal brain” has evolved from the bottom up, meaning that its lower parts are evolutionary; the oldest and top parts are the newest

4.2 Meaningful work and relationships aren’t just nice things we chose for ourselves — they are genetically programmed into us

  • “Individual selection [which] prompted sin and group selection [which] prompted virtue.”

4.3 Understand the great brain battles and how to control them to get what “you” want

  1. Realize that the conscious mind is in a battle with the subconscious mind
    • Our subconscious fears and desires drive our motivations and actions through emotions such as love, fear, and inspiration. It’s physiological.
      • Love → oxytocin → secreted by the pituitary gland
    • Creative breakthroughs come when we are relaxed. It allows the subconscious to talk to the conscious mind
    • ** Clearing your head can be the best way to make progress **
  2. Know that the most constant struggle is between feeling and thinking
    • Amygdala = almond-shaped structure that lies deeply embedded in the cerebrum and is the most powerful part of the brain (emotion)
    • Dorsolateral / prefrontal cortex - our rational thinking, executive, and logic
      • knowing how these hijacks work, you know that if you allow yourself to react spontaneously, you will be prone to overreact
  3. Reconcile your feelings and your thinking
    • Embrace it!
  4. Choose your habits well
    • Habit → the most powerful tool in the brain box
    • → driven by the basal ganglia

    • Good habits = “upper level you”
    • Bad habits = “lower level you”
    • “HABIT IS ESSENTIALLY INERTIA”
      • 18 months to form a habit forever
    • 3-Step Habit Loop
      1. Cue
      2. Routine
      3. Reward
    • Habit puts your brain on “automatic pilot”
      • “The basal ganglia takes over from your cortex, so that you can execute activities without even thinking about them.”
    • ELIMINATE BAD HABITS, EXCEL ON GOOD ONE’S
  5. Train your “lower-level you” with kindness and persistence to build the right habits (inner empathy)

4.4 Find out what you and others are like

  • Four main assessments Bridgewater uses =
    • Myers-Briggs Type Indicator (MBTI)
    • Workplace Personality Inventory
    • Team Dimensions Profile
    • Stratified System Theory
  • ** Knowing how one is wired is a necessary first step on any life journey **
  • ** A carpenter who derives his deepest satisfaction from working with wood can easily have a life as good or better than the president of the U.S **
    • Everyone has their own S + W
    • “Nature made everyone and everything for a purpose”

4.5 Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish

  • Manage yourself and orchestrate others to get what you want
    • Person in charge is the shaper conductor who doesn’t “do” (i.e. doesn’t play an instrument, though he or she knows a lot about instruments) as much as visualize the outcome and sees to it that each member of the orchestra helps achieve it
    • Conductors hardest job is getting rid of those who consistently don’t play well

5. Learn How to Make Decisions Effectively

5.1 Recognize 1) the biggest threat to good decisions is harmful emotions 2) and decision making is a two-step process (first learning and then deciding)

  • ** Learning
    • A MUST
    • Remind yourself that it’s never harmful to at least hear an opposing point of view
  • ** Deciding
    • “WHAT IS”
    • “WHAT TO DO ABOUT IT”
    • To do this well, weight first-order consequences with second and third
  • ** Learning >> Learning Well
    1. Being able to synthesize accurately
    2. Knowing how to navigate levels

5.2 Synthesize the Situation at Hand

  • Everyday you are faced with an infinite # of things that come at you (”dots”)
    • To be effective/efficient, you need to be able to tell which dots are important and which are not
    • The key is having higher-level perspective to make fast and accurate judgements on what the real risks are without getting bogged down in details =
      1. Most important decision → who you ask questions of
        • Listening to uninformed people is worse than having no answers at all
      2. Don’t believe everything you hear
      3. Everything looks bigger up close
        • It helps to step back to gain perspective and sometimes defer a decision until some time passes
      4. Pick great over new
        • It is better to choose the great over the new
        • Example = choosing a book or movie, are you drawn to proven classics or the newest big thing?
      5. Don’t over-squeeze dots
        • A dot is just one piece of data from one moment in time
        • You need to know how much learning you can get out of any one dot without overweighing it

5.3 Synthesize the Situation Through Time

  • *** PG 239 + 246 ***
    1. image
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    2. Keep in mind both the rates of change and levels of things, and relationship between them
      • Everything important in your life needs to be on a trajectory to be above the bar and headed towards excellence at an appropriate pace
    3. Be imprecise
      • Our educational system is hung up on precision; this impedes conceptual thinking
    4. 80/20 rule
      • 80% of value out of 20% of info/effort
      • This saves time and detail when needed
    5. Be an imperfectionist

5.4 Navigate Levels Effectively

  • ** Reality exists at different levels and each of them gives you a different but valuable perspective **
  • Great Outline for Level Navigation:
    1. High-Level BIG picture = I want meaningful work that’s full of learning
    2. 1.1. Subordinate concept = I want to be a doctor

      • Sub-point = I need to go to medical school
      • Sub-sub-point = I need to get good grades in the sciences
      • Sub-sub-sub-point = I need to stay home tonight and study
  1. Use “above the line” and “below the line” [internal note: “Urban Meyer”] to establish which level a convo is on
  2. Decisions need to be made at the appropriate levels, but they should also be consistent across levels

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

  • “Be wary of relying on anything else.” (detach in other words)
  • “Until you make the unconscious conscious, it will direct your life and you will call it fate.” (Carl Jung)

5.6 Make your decisions as expected value calculations

  • ** Expected value calc OR opportunity cost **

  • Look at pro’s and con’s, not just pro’s
    • Watch out for ppl who argue against something whenever they can find something - anything (bad-decision makers)
      • without weighing both sides (bad-decision makers)

5.7 Prioritize by weighing the value of additional info against the cost of not deciding

  1. Separate “must-do’s” from “like-to-do’s”
    • Prioritize!
  2. Chances are you won’t have time to deal with the unimportant things, which is better than not having time to deal with the important things
    • Prioritize!
  3. Don’t mistake possibilities from probabilities
    • Practical thinker / philosopher in the clouds

5.8 Simplify

5.9 Use principles

5.10 Believability weight your decision making

5.11 Convert principles into algorithms and have the computer make decisions alongside you

5.12 Be cautious about trusting AI without having deep understanding

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Great Outline for Level Navigation:

Part III - Work Principles:

  • No notes taken on paper for work principles. Strokes and strokes of underlining within the book happened though. Also, the margins are full of side notes.
  • Additionally, I’ve been focused on applying the Work Principles more than taking notes about them

If you are seeking out book recommendations, I got you covered. Follow me on Goodreads to see all of my past reads, current reads, and books I'm interested in reading next:

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