Exponential Mindset Blog

Book Review: Principles By Ray Dalio

Principles by Ray Dalio is a collection of principles that he used to build Bridgewater into the largest hedge fund in the world. Dalio certainly did not write this book to make money. In fact, his subsequent books Big Debt Crisis and The Changing World Order are now released in pdf format free of charge.

What’s in this book?

In Principles, Dalio shares with us his life and work principles in two major sections. In the first and arguably more important section, Dalio describes his life principles in an almost point form fashion. His major points in this section includes the following:

  1. Embrace reality, always seek the truth. What we perceive to be true is often clouded in our own perceptions which biases the actual reality with our own judgement of reality. In seeking the truth, it is important to look at oneself from above. Imagine if you are able to see yourself from the air and view yourself as part of the world; then we are able to perceive what is actually true about the world from a third person perspective which helps to remove the biases.
  2. Dalio describes a five step process to achieve whatever goal you are aiming for. They are: 1. Have clear goals 2. Identify and don’t tolerate obstacles and problems that prevent you from achieving these goals, 3. Accurately diagnose the problems to get to their root causes, 4. Design a solution to resolve or get around these problems and 5. Push through the implementation of these designs. In reality we are constantly performing these five steps in a spiral fashion. The idea is to use pain and failure as a feedback mechanism to show us whether our five step cycle is performing well or poorly.
  3. Dalio asks everyone to practice radical open mindedness and radical transparency. It is already established that we are full of biases; in fact, when we meet believable people who are subject experts in various fields, we still hold the biases based on prior opinions in the subject. Dalio advocates everyone to practice radical open-mindedness that we could be the ones who are wrong and ask questions instead of offering opinions.
  4. Understand that people are wired differently. This is important as we always view others from our own perspectives. Some people are great at visualizing the big picture whereas others are much better at executing the finer details. It is important that when people talk to each other that they understand the type of person that they are talking to rather than impose their own wiring on the other person.
  5. Learn how to make decisions effectively. Knowing that people are wired differently and being openminded that our own wiring could lead us down erroneous paths allows us to take a new approach to decision making that embraces reality.

The work principles section is an almost optional section where Dalio recommends everyone to pick the areas that they need guidance on and look at the principles in those areas. I won’t bore with the details here. However, one of the major outcomes of this section is the way that Bridgewater is structured. Bridgewater is built upon the idea of radical transparency and a true idea meritocracy. It is a place whereby the best ideas win regardless if the idea came from a junior staffer or the head of the company (which in this case was usually Dalio himself). The section details how this was accomplished so anyone who wishes to build their own idea meritocracy and source as a guide.

What did I learn from it?

I actually learned a lot but for the sake of brevity I will only share a quick point here. I think it is important to recognize that being radically transparent and radically openminded is a lot harder than simply talking about it. Some have described the culture of Bridgewater as almost confrontational and certainly people with thin skin will find it very difficult to work in such an environment especially in the beginning. However, the benefits of both transparency and open-mindedness far outweigh the alternatives in the long term. In reality, there is a good argument that once you are fully transparent you will never go back because there is nothing to hide. If we can achieve this quality, then criticisms are seen as tools to help us. Humans have a natural fight or flight mental mechanism when they receive criticism. We get emotional, tension rises in the body, and usually we get defensive. Getting over this mechanism and embracing critique is a key to our improvement. The first step is to recognize these physiological reactions in our own bodies. In addition, the idea of using pain as a guide is a revelation. In our minds, pain and failure are usually associated with memories that we wish to block or skim over. But Dalio disagrees. He enjoys pain and failure. This is because we can use pain and failure as a signal that something is wrong with our machine. By analyzing failure we can then diagnose the source of the issue in the machine and improve it in the long run. So in reality, we need to be happy when there are pain and failure as they are opportunities to improve our machine for the future.

What actions do I plan to derive from it?

For one thing, we aim to take the idea of radical transparency into Exponential Real Estate Group. This won’t be easy. It starts with ourselves. We will be taking some of the core ideas into our Exponential Management Committee meetings to have open discussions on what we truly think of each other. In addition, we wish to improve our survey process to solicit criticisms and suggestions from our clients which will help us improve our machine, please do not be shy in sharing your criticisms with us. In addition, one of the things that I find very interesting about Bridgewater is their open dialogue on a breadth of issues affecting the world, not just the financial markets (well, technically they are all interlinked anyways). We wish to convene an Exponential Advisory Committee made up of believable experts in various topics and convene a periodic (either bimonthly or quarterly meeting). The topic of these meetings are very open-ended. For example, perhaps we can have a discussion on bitcoin or even the effects of climate change on our economy. The idea is that in order to better serve our clients we need to be believable people ourselves. In order to do that we need to be humble and seek knowledge from believable others. We wish to be radically openminded and ask questions rather than offer our opinions. Through this process, we can learn more about the realities of the world and hence improve our machine to better serve our clients.

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