Principles – Ray Dalio

Dalio Autobiography – Part 1 


Principals – fundamental truths that serve as foundations for behavior. Should be used as the foundation for decision making. They allow you to make decisions faster and with more consistency, force you to have logic and to more easily explain your rationale to others. 

Dalio Principles – strive for a lot and fail well. Set audacious goals > fail > learn from failure > improve > set more audacious goals. 

Mistakes – useful since they give you humility, and shift your perspective from always believing that you are right to always being fearful that you are wrong. This makes it easier to seek out others opinions and appreciate it when they disagree with you since they could be helping you understand something better and saving you from a mistake. 

Having principles and taking the input of others (since you cannot depend on yourself to know everything and always be right) should allow you to make better decisions which should eventually give you the best odds at success. 

Where I’m coming from

Observation on people – everyone is biased by their most recent experiences, and almost everyone expects the future to be a slightly modified version of the present (it usually very different). Studying history helps you see the patterns that repeat, and gives you perspective much greater than most others since they are limited only to what they have seen in their lifetimes. 

You can never be sure of anything. There are always risks, so best to assume you’re missing something.

Timing is everything

Doing what comes naturally to us can cause us to fail to account for our weaknesses, which leads us to crash. What we do when we crash is what dictates our true trajectory – successful people change in a way that allows them to continue to take advantage of their strengths while compensating for their weaknesses, unsuccessful people don’t.

To do exceptionally well you have to push your limits which will inevitably lead to crashes, which will hurt, but if you can make adjustments and keep trying, you will become stronger and stronger. 

What’s most important is not having the ability to predict the future, but rather to know how to react appropriately to the information available at each point in time. 

Technique – write down the criteria used for all major decisions, go back and perform a post mortem to learn. Start with intuition and be able to express yourself logically to help create a mental map of what to do in different situations. This will turn into a principle based reference book. 

Maturity is the ability to reject good alternatives in order to pursue even better ones. 

Leaders must be judged within the context of the circumstances they encounter. 

People tend to be more emotional than logical which causes them to overreact to short term results. 

Investment theory – having a handful of uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside. 

Management theory – managers who do not recognize and deeply understand the differences in thinking and approach to situations of their employees will struggle to reach success. 

How we think is physiological and can be changed. 

Most people have emotional barriers that prevent them from looking at their problems and weaknesses objectively. Bad habits and emotional barriers in most people trump reasoning and logic. 

Strong successful leaders are able to see big picture and granular details. They can interface with people who focus on either side and synthesize their information without losing perspective. 

By knowing what someone is like, we can have a pretty good idea of what to expect from them. Develop tests and algorithms to help determine what people are like. Yes, people can change, but it’s unlikely that most will at all, let alone do a 180. 

Create tools that reinforce good habits and good thinking. The good habits come from thinking repeatedly in a principled way. Good thinking comes from exploring the reasoning behind the principles. 

Politics – opposing forces struggle with each other and decisions are made via a mix of power and negotiations. 

Look at events today in the context of thousands of years of human history and the unchanging nature of mankind. Nothing important changes very fast (say within 500 years) and patterns repeat a lot! 

When you see enough situations and types of people you can begin to identify the patterns and expected behavior faster, and apply the right principles to deal with them effectively too. This is similar to looking at things from a higher level. 

Pain – nature’s reminder that there is something important to be learned from the experience. 

Success doesn’t come from achieving your goals but from struggling well. 

The marginal benefits of having more fall off pretty quickly – don’t base your actions / decisions on the fake premise that more will bring you greater happiness and / or satisfaction. The happiest people discover their true nature (ie what they want out of life) and match their life to it. 

Purpose of life is to evolve and to contribute to the evolution by passing improvements down in some way. Passing down knowledge is similar to passing down DNA, maybe even more important since the passing down of knowledge can have a greater impact by touching more people. 

Life Principles

Aligning emotions with logic should lead to better decisions. 

idealists who are not well grounded in reality create problems, not progress. 

Most people fight seeing what’s true if it’s not what they want it to be. 

Learning – the result of a feedback loop in which we make decisions, see the outcomes, and improve our understanding of reality as a result. 

Don’t let biases stand in the way of objectivity. To get good results we need to be analytical rather than emotional. 

Nature – optimizes for the whole, and not the individual. At odds with how people evaluate what’s happening around them, which is all based on how events effect them. 

Evolution – positive because it is the process of adaptation that generally moves things towards improvement. The art of struggling well. Everything is highly imperfect, but at the same time capable of improvement. 

Evolution causes individuals to pursue their own interests with the end goal being survival. Ironically, this self-interest results in advancement of the whole group since self-interested and improved DNA is passed down and becomes dominant. 

Success in the context of evolution – learning rapidly about oneself and one’s environment, and then changing to improve. Being able to feel pain and objectively reflect on it will lead to rapid learning / evolving. Reflecting deeply about your problems helps shrink them down to size, and helps  you find a better way of dealing with them vs ignoring all together. 

Lack of failing means you are not pushing your limits, and thus not pursuing your maximum potential (which occurs when you are able to fail > learn > improve > fail for a different reason, etc). Delusion is easier but will severely limit your potential. 

Lack of emotional control leads people to live out their lives as a series of undirected emotional experiences, going from one thing to the next. People are trapped in their own heads, and driven by their own biases. You must take the input of others to give yourself a true view of yourself. 

Don’t be afraid of struggle – most of life’s greatest opportunities come from our moments of struggle. They are tests of creativity and character and will make you stronger. 

5 Step Plan for self-improvement / evolution:

  1. Set clear goals 2. Identify the problems getting in the way of you achieving your goals 3. Diagnose the problems to get at the root causes 5. Create plans that address the root causes 5. Execute against your plans to improve. Must be done in order, 1 at a time. No overlap. 

Goals – you can have virtually anything you want, but you can’t have everything you want. The pursuit requires energy, time, etc that cannot be stretched. What you think is attainable is just a function of what you know at the moment. Don’t limit yourself by setting the bar too low. 

Problem identification / prioritization – make sure you focus on the problems that if fixed will yield you the highest rewards. Root causes are generally described with adjectives, not verbs. 

Write out your plan for everyone to see and to measure your progress against. Hold yourself accountable. 

Weaknesses – everyone has them, and they are generally revealed in the pattern of mistakes we make. Knowing what your weaknesses are and staring hard at them is the first step on the path to success. 

Humility is to accept that you don’t have all the answers and that you are more than likely missing something. This leads a person towards being open-minded and ultimately makes them, much much stronger than an arrogant, stubborn person. 

Two biggest barriers to good decision making – your ego, and your blind spots. 

Ex – someone disagrees with you, the primitive, lower-conscience part of your brain sees this as a threat and can make you defensive and angry. The higher conscience you should see this as the opposite – you have an opportunity to check yourself and make sure you aren’t wrong which is positive. 

Blind spots – most people are oblivious to how others perceive things, and can’t imagine everyone doesn’t see things the same way they do based on different personality types, physiology, etc. Most people make mistakes because they are so certain that they’re right that they don’t allow themselves to see that better alternatives do exist. 

Decision making – should be a two step process. Take in all relevant information first, then make your decision. You shouldn’t be scared to solicit others opinions, even if they differ from your own. These opinions don’t have to be accepted – they just provide more perspective to check your logic against. 

Thoughtful disagreement – the process of getting different opinions / perspective. The goal isn’t to convince anyone or to be convinced, it’s motivated by both sides fears of missing something. It’s driven by the desire to get to truth, or the best possible decision. And remember if you change your mind, you haven’t lost, but rather you’ve won. You have likely been saved of making a bad choice / mistake. 

Mot people can’t handle thoughtful disagreement, and consequently make their own decisions in isolation, whether or not they are qualified. Close minded – they don’t want their ideas to be challenged, and they get angry when someone disagrees. They lack the humility required to take others perspectives. Avoid close minded people, don’t allow yourself to become one. 

The Brain – The brainstem controls the subconscious processes that keep us and other species alive – heartbeat, breathing, nervous system, etc. The cerebellum allows us to coordinate sensory input with our muscles. Cerebrum controls habit, emotional responses, and some movement. Neocortex where learning, planning, imagination, and other higher-level thoughts come from. 

Just like animals, many of our decision making drivers are below the surface. When thoughts and instructions come directly from your subconscious, it pays to build the habit of examining them with your conscious, logical mind. 

The most conscience struggle is between feeling and thinking. Emotion will control your behavior when you’re not conscious of it. Being able to sense the onset of a subconscious  emotional reaction and override it is a huge advantage. 

Being able to really zero in on what causes you to lose emotional control and to address those causes will become a big competitive advantage. 

Habits – inertia, the strong tendency we have to keep doing what we have been doing. Usually takes about 18 months to form a lifelong habit. 

Palio’s self professed top habit – being able to use pain to trigger quality reflections. 

Left Brain Oriented – Logical, Math / Science oriented, Realistic, Planned & orderly, prefers non-fiction, focused on facts. Linear thinking, very analytical. 

Right Brain Oriented – Emotional, Artistic / Creative, Imagination predominates, absentminded, prefers fiction, enjoys creative storytelling. 

Thinking can change with  effort and training. Need to be in an environment that encourages open-mindedness. 

Must understand the different styles of thinking and how these styles can mesh together and / or clash when assembling teams. 

Never seize on the first available option, no matter how good it seems, before you’ve had the chance to ask questions and explore. 

Synthesis – the process of converting a lot of data into an accurate picture. The quality of your synthesis will determine the quality of your decision making. 

One of the most important decisions you can make is who you ask questions of. But remember, everyone has an opinion, but not everyone is informed. Don’t mistake people’s opinions for facts. 

Also remember that when we’re in the middle of it, all things seem much bigger than they will in retrospect. That’s why it helps to step back and gain perspective and sometimes defer a decision until some time passes. 

Decisions should be made as expected value calculations – think of every decision as a bet with a probability and reward for being right, and a probability and penalty for being wrong. A winning decision is one with a positive net expected value. 

The best decisions are the ones that have more pros than cons, not those that don’t have any cons at all. Don’t mistake possibilities for probabilities. Everything must be weighed in terms of its likelihood and be prioritized. 

Advantage computers have over humans in decision making – immune to the biases and consensus-driven thinking of crowds; they don’t care if what they see is unpopular, and they never panic. 

Making the most of your circumstances is what life’s all about. 

Failures are inevitable – use them to power your own personal evolution or allow them to ruin you. 

Ego barrier is our innate desire to be capable and have others recognize us as such,

Blind spot barrier is the result of seeing things through our own subjective lenses. 

Being open-minded and being able to practice thoughtful disagreement well allow you to learn more and lead to better chances of success in the long run. 

Leave a Comment

Your email address will not be published. Required fields are marked *