Ray Dalio Principles

Book Review: “Principles: Life and Work” by Ray Dalio

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Ray Dalio is the founder of Bridgewater Associates, one of the largest hedge funds in the world. His book “Principles: Life and Work” is currently one of the top-selling books on Amazon. Although it is not a book about investing, entrepreneurs and managers will likely find many of the principles helpful in building an organization or a team focused on excellence. Employees could also benefit from these principles by raising their standards and improving the quality of their work. Dalio mentions in the book that he will be releasing a second volume of principles on the economy and investing at some future date. In the meantime, if you are interested in learning more about his views on the economy, you should watch his free 30-minute video (we posted it at the end of this article). Given that this book is not a book about investing, we will depart from our usual book review format in order to give it a fair evaluation.

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Summary

The book is divided into three parts. The first part discusses Ray Dalio’s personal background and provides a deeply personal insight into his life. He writes about his middle-class upbringing, the loss of his mother when he was still a teenager, and his early exposure to the stock market. Although the first part of the book isn’t necessary to understand the principles, it does offer an interesting glimpse into how he started investing in the stock market: he initially bought shares of Northeast Airlines simply because the company was selling for less than $5 a share. He ended up tripling his money. According to John Longo in “The Art of Investing”, studies have shown that people who experience early success with investing -even if it is due to plain luck- will often stick with it in the long run. That has certainly been the case with Ray Dalio.

The second part goes over Dalio’s life principles. These can be summarised in the following way: embrace the reality of every situation and deal with it well rather than wishing that things would be different. Become a “hyperrealist” and develop “radical” open-mindedness. Remember that every person views the world differently so you should develop curiosity about why people believe certain things and try to see things from their perspective. Dalio argues that discovering what is true is more important than being right. He also writes that we are incapable of seeing ourselves objectively because we all have personal blind spots so we require other people’s honest feedback in order to assess our areas of weakness.

Finally, the third part covers Dalio’s work principles, of which there are many. He promotes a “believability-weighted idea meritocracy” as the ideal system for making decisions within an organization. Your believability is determined by the number of times that you have successfully accomplished a specific task or goal. The greater your believability, the more weight your arguments should hold. He defines an idea meritocracy as “a system that brings together smart, independent thinkers and has them productively disagree to come up with the best possible collective thinking and resolve their disagreements in a believability-weighted way.”

Ray Dalio’s Five-Step Process to Achieve your Goals

In Part 2, Dalio proposes a five-step process to achieve personal and professional goals. The process is as follows:

  1. Set clear goals.
  2.  Identify and do not tolerate the problems that are preventing you from achieving your goals.
  3. Identify the root cause of these problems.
  4. Design plans to get around the problems.
  5. Do whatever is necessary to follow through on your plans to achieve your desired result.

Dalio is a big believer in discovering people’s natural strengths and abilities. In fact, he mentions in the book that Bridgewater uses the Myers–Briggs test and other personality tests to determine how to assign jobs and tasks to the most capable individuals. Likewise, when implementing the five steps above to achieve goals as part of an organization, Dalio recommends assigning different individuals to each step based on their natural strengths.

A Look at some of the Principles

Part 3 deals with his work principles. For the most part, they are detailed, logical, and consistent. Some of the principles almost read like an employment agreement and can feel somewhat “cold”, as they are designed to take emotions out of important decisions. They can be used to evaluate your decisions as well as to come up with ways to improve your organization or team. These principles will not necessarily work in all organizations, depending on the corporate culture, and it would be best to start a company with these principles from day one. Switching mid-stream could prove to be very difficult for some organizations. This is where effective leadership comes into play. Other principles are empowering and could propel readers to raise their personal and professional standards. Regardless of how you feel about the principles, most of them are hard to argue with in terms of their logic and consistency. It is clear that Dalio has spent significant time developing these concepts. Below are some of the key principles discussed in the book (although this is by no means an exhaustive list):

  • Develop radical transparency within your organization. All employees should have a good idea of why things are done in a certain and they should have the ability to provide their input, even if they can’t make the final decisions. In fact, Bridgewater associates are not allowed to complain privately. If they don’t like something, they have to express their thoughts openly. Dalio also mentions that an organization that promotes radical transparency is less likely to engage in unethical or illegal activities.
  • Create a culture where mistakes are permitted as long as people learn from them. In addition, people not allowed to hide their mistakes. They must own up to them, learn from them, and then figure out ways to ensure the mistakes do not reoccur.
  • No one can see themselves objectively. You need others to provide you with clear, honest feedback. The person providing the feedback should not be afraid to offend the other person, but at the same time, he needs to remain fair and objective. In addition, the person receiving the criticism should not take any of it personally.
  • Dalio is a big fan of crowdsourcing, i.e. utilizing the different talents of individuals to discover the truth or the best way to accomplish something. He emphasizes developing meaningful relationships throughout the book.

Overall, this is a great book for people wanting to learn or develop management skills. Entrepreneurs will also find many useful principles and concepts to develop an effective and transparent organization.


Are you looking for a good book on personal finance or investing? Check out our book reviews

How the Economic Machine Works

Below is the video mentioned at the top of this page. It is well worth watching.

Ray Dalio’s TED talk

For those of you interested in learning more about Ray Dalio, you may want to check out his TED talk:

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