Principles - critical summary review

In 1975, when Ray Dalio was merely 26 years old, he founded an investment firm in his two-bedroom New York apartment. Today, at the age of 70, he is one of the 100 wealthiest and most influential people on the planet, and the firm, Bridgewater Associates, is the largest hedge fund in the world. 

In “Principles,” Dalio explains – thoroughly and systematically – the approach that helped him achieve this. A behemoth of a book, at 600 tightly-packed pages, it includes hundreds of practical business lessons, most of them revolving around Dalio’s two fundamental beliefs: radical truth and radical transparency.

So, get ready to discover the principles that made Ray Dalio an icon of our century – and prepare to implement them in your life.

“Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.”

Failures are not impediments to progress – they are what makes progress possible. Early in the book, Dalio agrees wholeheartedly with this notion: “I believe that the key to success lies in knowing how to both strive for a lot and fail well.” To him, “failing well” means “being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game.” 

His book is about these “big learnings,” which he calls “principles” and defines as “fundamental truths that serve as the foundations for behavior that gets you what you want out of life.” So, in simpler terms, principles are clear and well-arranged learnings derived from past failures, which can be applied again and again in similar situations to help one achieve their goals. 

A “curious, independent thinker who ran after audacious goals” ever since he was an ordinary middle-class kid from Long Island, Dalio learned his principles over “a lifetime of making a lot of mistakes and spending a lot of time reflecting on them.” In other words, he has failed a lot – so you don’t have to. 

And that’s precisely why he’s passing along his principles. It’s not only because he’s at that stage of life when one wants to help others be successful rather than be more successful themselves – but because he would have been happy if people like Albert Einstein, Steve Jobs, Winston Churchill, and Leonardo da Vinci had shared their principles of success with him.

One principle to rule them all

Einstein, Jobs, Churchill, and da Vinci – you’ll probably agree – must have been immensely different people. Consequently, it’s difficult to suppose they all followed the same set of principles. After all, they were successful in fairly different areas of life. So, why should you follow Dalio’s? 

The truth is, you really shouldn’t. Surprisingly, Dalio’s fundamental and all-embracing principle ostensibly undermines the idea of writing a book such as this. In his words, the principle goes like this: “Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve 1 in light of 2… and do that with humility and open-mindedness so that you consider the best thinking available to you.” 

In essence, Dalio’s first principle takes into consideration the fact that principles are never just words put on paper: they are a mirrorlike reproduction of your values and true character. In other words, they are something that will affect all aspects of your life – many times a day. So, if you follow someone else’s principles blindly, you’ll not only go through life inauthentically but will also have to carry the burden of being exposed as a phony, on a daily basis. Few things can be worse than these two.

But, then, what’s the point of sharing your principles with the world? After all, Dalio’s principles express his values and character – not yours. The key is in the second part of Dalio’s first principle: “so that you consider the best thinking available to you.” Much better than starting from scratch is starting with something to probe and question. Some of Dalio’s principles will work for you, while others will not. But even in the second case, you’ll probably avoid making a mistake he’s already made.

Dalio’s life principles

Dalio’s five life principles form “the real heart of the book” – they are the overarching guidelines that have driven his approach to everything in life. Summarized, they look like this:

1. Embrace reality and deal with it. Wishful thinking will get you nowhere: successful life, in Dalio’s equation, is the sum of dreams, reality, and determination. According to him, people who create great things aren’t idle dreamers – they are totally grounded in reality. Only if you are realistic – nay, hyperrealistic – you will be able to make the distinction between pipe dreams and achievable projects. Being realistic means observing the rules of life and nature. Evolution, writes Dalio, “is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.” Your only alternatives are to either evolve or die. And as already explained, the best way to evolve is through failures. That is another fundamental equation of reality: pain plus reflection equals progress. So, don’t avoid pain – go to it.
2. Use the five-step process to get what you want out of life. In Dalio’s experience, personal evolution is a process that takes place in five distinct steps in an endless loop. The first step is picking what you’re going after – that is, devising clear goals. As you move toward them, you will certainly encounter problems: the second step is to stop tolerating them. This should inevitably guide you to the third step: accurately diagnosing the problems and getting at their root causes. Only then you will be able to design a plan to get you around those problems. Finally, start executing the plan – and do what’s necessary to push through to results. Once you have the results, you can go through the process again. To evolve quickly, do this fast and continuously while setting your goals successively higher.
3. Be radically open-minded. Radical open-mindedness starts with your recognition of two biological barriers: your ego and your blind spots. The ego makes it hard to accept your mistakes and weaknesses; the blind spots – your inability to see things accurately. Being radically open-minded means sincerely believing that you might not know the best possible path. It means letting go off your ego and focusing on finding the truth – rather than proving that you were right. It also means appreciating the art of thoughtful disagreement and allowing your reason to conquer your emotions whenever someone else challenges your emotions.
4. Understand that people are wired very differently. Just as people differ from each other physically, they differ in their mental attributes. Some learn to better control their conscious brain and refine their thinking patterns – while others go through life by following their intuition and feelings. In addition to finding out what you and others are like, you need to shape yourself in the form best suited to achieving your goals. The key is balance: reconcile your thinking and feelings, as well as your planning and perceiving, to be able to go from visualization to actualization. Also, don’t forget that “getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.”
5. Learn how to make decisions effectively. Harmful emotions are the biggest threat to good decision making, which, in turn, is a two-step process: learning and deciding. The process is, evidently, a rational one – don’t forget that logic is your best tool for synthesizing reality and understanding what to do about it. Use the 80/20 rule and always focus on the key 20%. Be imprecise: simplify to be able to make faster decisions. Convert your principles into algorithms if you can. Even use artificial intelligence if you can understand it.

Dalio’s work principles

Arranged in three sets – culture, people, company – Dalio’s 16 work principles explain how the life principles of the numerous exceptional individuals at Bridgewater coalesced into a guiding value – the idea of radical idea-meritocracy. They are listed below under three categories.

To get the culture right:

1. Trust in radical truth and transparency. Build organizations in which nobody has to fear from knowing the truth. Be radically transparent: don’t protect your employees from bad news.
2. Cultivate meaningful work and meaningful relationships. Be loyal to the mission – not to the people who put it into practice. Care for your employees – but make them understand the difference between fairness and generosity.
3. Create a culture in which it is okay to make mistakes and unacceptable not to learn from them. Mistakes are a natural part of progress. Not learning from them is not.
4. Get and stay in sync. Conflicts are also essential: “they are how people determine whether their principles are aligned and resolve their differences.” Don’t avoid them. Instead, “spend lavishly on the time and energy you devote to getting in sync, because it’s the best investment you can make.”
5. Believability-weight your decision-making. Meritocracy is not about listening to everyone – but about understanding the merit of each person’s idea. Learn how to give more weight to ideas that come from more believable sources.
6. Recognize how to get beyond disagreements. Don’t leave important conflicts unresolved. But don’t get stuck in disagreement either: escalate or vote!

To get the people right:

• Remember that the “who” is more important than the “what.” Choose the right people and hold them accountable for their actions.
• Hire right, because the penalties for hiring wrong are huge. People are built differently: match the person to the design.
• Constantly train, test, evaluate, and sort people. Move them around and assess them regularly – accurately, not kindly. Remove people who fail to perform.

To build and evolve your organization:

• Manage your company as someone operating a machine to achieve a goal. “Look down on your machine and yourself within it from the higher level.”
• Perceive and don’t tolerate problems. Be worried only if you’re not worried – and vice versa.
• Diagnose problems to get at their root causes. Ask yourself the following questions: Is the outcome good or bad? Who is responsible for the outcome? If the outcome is bad, is the responsible party incapable and/or is the design bad?
• Design improvements to your machine to get around your problems. Remember that design is an iterative process: “Between a bad ‘now’ and a good ‘then’ is a ‘working through it’ period.”
• Do what you set out to do. Use checklists to coordinate your progress.
• Use tools and protocols to shape how work is done. People are volatile; protocols are not.
• And, for heaven’s sake, don’t overlook governance. Even in a meritocracy, there has to be someone making the final decisions. However, remember that a single CEO is never as good as a great group of leaders.

Final Notes

A small part memoir and a larger part how-to guide, Dalio’s “Principles” is truly a one-of-a-kind book. Dubbed a “gospel of radical transparency” by The New York Times and “the ‘it’ book for businesses or careers in 2017” by Chicago Tribune, the book is a clearheaded, seemingly emotionless view from above on the road that took Dalio to the summit of life – the road usually not taken by the rest of us.

“Principles” is your chance to make the first, decisive step on this less traveled road – and it may make all the difference.

12min Tip

Be radically transparent and radically open-minded: know that you don’t know everything and be honest in this with yourself and other people. That’s the only way to grow.