The Importance of Principles

Dalio wishes everyone wrote down their principles, that he’d love to look at the principles of powerful and successful people to see what he can learn from them. See what they value, what principles got them where they are.

The important questions about Principles to Dalio:

What are principles?
Why are principles important?
Where do principles come from?
Good quote here: “adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values”
Do you have principles that you live your life by? What do you value most deeply?
How well do you think they will work, and why?

Always ask yourself: “Is it true?”

Part 2: Dalio’s Most Fundamental Life Principles

“I didn’t like the school part of school, partly because I had, and still have, a bad rote memory and partly because I couldn’t get excited about forcing myself to remember what others wanted me to remember without understanding what all this work was going to get me. In order to be motivated, I needed to work for what I wanted, not for what other people wanted me to do. And in order to be successful, I needed to figure out for myself how to get what I wanted, not remember the facts I was being told to remember.”

Dalio’s goal was to beat the market, and the pursuit of that goal taught him:

That it isn’t easy for him to be confident that his opinions are right
That bad opinions can be very costly
That the consensus is often wrong, so [he has] to be an independent thinker

Dalio tells his employees that he wants you “… to work for yourself, to come up with independent opinions, to stress test them, to be wary about being overconfident, and to reflect upon the consequences of your decisions and constantly improve.”

Dalio says he has followed a simple system throughout his life:

Working for what he wanted, not for what others wanted him to do
Coming up with the best independent opinions he could to move towards his goals
Stress testing those opinions by having the smartest people he could challenge them to see where he was wrong
Being wary about being overconfident, and being good at not knowing
Wrestling with reality and experiencing the restults of his decisions and reflecting on how he got there and what he could do to improve

He has some useful opinions on truth:

Failure is largely the result of not accepting the truth of reality, amplified by further denial, mitigated by acceptance
Finding out what is true without all of the opinion is good
That there is nothing to fear from the truth, while some truths can be scary, knowing them helps you deal with them better. Being truthful and encouraging others to be truthful helps deal with reality and avoid failure.
Truth is an extension of freedom, you can’t be free while hiding the truth, you need to be true to who you are and express things that should be expressed.
He wanted to work with people who said what they really believe, and be able to do the same
Everyone makes mistakes, the difference between people is how we handle them.
“Being totally truthful, even about mistakes and weakness, led to a rapid rate of improvement and movement toward what I wanted.”

“Truth—more precisely, an accurate understanding of reality—is the essential foundation for producing good outcomes.”

“In other words, I believe that understanding what is good is obtained by looking at the way the world works and figuring out how to operate in harmony with it to help it (and yourself) evolve. But it is not obvious, and it is sometimes difficult to accept.”

“I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe, and that it is good.”

“I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force.”

“The sequence of:

Seeking new things (goals)
Working and learning in the process of pursuing these goals
Obtaining these goals, and
Then doing this over and over again

Is the personal evolutionary process that fulfills most of us and moves society forward.”

“There is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes.”

“Most people especially dislike others exploring their weaknesses because it makes them feel attacked, which produces fight or flight reactions; however, having others help one find one’s weaknesses is essential because it’s very difficult to identify one’s own.”

“The quality of our lives depends on the quality of the decisions we make.”

Reality + Dreams + Determination = A Successful Life

Five decision trees for moving towards your goals

Decision 1: How you manage psychological pain

Bad : Allow pain to stand in the way of one’s progress
Good : Understand how to manage pain to produce progress
“It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way.”
Pain + Reflection = Progress. How big of an impediment is psychological pain to your progress?

Decision 2: How you deal with harsh realities

Bad : Avoid facing harsh realities
Good : Face harsh realities
“People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices.”
“People who know that understanding what is real is the first step toward optimally dealing with it make better decisions.”
“Ask yourself, “is it true?””
How much do you let what you wish to be true stand in the way of seeing what is really true?

Decision 3: Your appearance

Bad : You worry about appearing good
Good*:* You worry about acheiving the goal
“People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future.”
How much do you worry about looking good relative to actually being good?

Decision 4: Degrees of consequence

Bad: Make their decisions on the basis of first order consequences
Good*:* Make their decisions on the basis of first, second, and third order consequences
“People who overweigh the first-order consequences of their decisions and ignore the effects that the second- and sebsequent-order consequences will have on their goals rarely reach their goals.”
How much do you respond to first order consequences at the expense of the 2nd and 3rd order consequences?

Decision 5: Who do you hold accountable

Bad: Don’t hold themselves accountable
Good: Hold themselves accountable
“Successful people understand that bad things come at everyone and that it is their responsibility to make their lives what they want them to be by successfully dealing with whatever challenges they face.”
How much do you let yourself off the hook rather than hold yourself accountable for your success?

“In summary, I believe that you can probably get what you want out of life if you can suspend your ego and take a no-excuses approach to achieving your goals with open-mindedness, determination, and courage, especially if you rely on the help of people who are strong in areas that you are weak.”

Your Two Yous and Your Machine

“Think of it as though there are two yous—you as the designer and overseer of the plan to achieve your goals (you 1) and you as one of the participants in pursuing that mission (you 2). You2 is a resource that You 1 have to get what You 1 want, but by no means your own resource. To be successful, You 1 have to be objective about You 2.”

The Process steps:

Have clear goals
Identify and don’t tolerate the problems that stand in the way of your goals
Accurately diagnose these problems
Design plans that explicitly lay out tasks that will get you around your problems and on to your goals
Implement these plans, do these tasks.

Important points on the process:

You must approach them as distinct steps, not blend them together. When setting goals, JUST set goals, don’t think about what’s in their way. Blurring the steps leads to worse outcomes because it creates confusion and short changes steps.
Each of the five steps require different talents and disciplines. You must diagnose and address your weaknesses in the process, too.
It is essential to approach this process in a clear-headed, rational way rather than emotionally.

A good way to stay centered and not get too emotional in evaluation, is to treat your life like a game. How do you get around challenges to reach your goal?

The Five Steps up Close

1. Setting Goals

“You can have virtually anything you want, but you can’t have everything you want.”

To acheive your goals you have to prioritize, which means you’ll have to reject a lot of good alternatives.

Don’t confuse goals and desires. A goal is something you want to acheive, while a desire is usually a downstream result that could get in the way of your goal. Focusing on a desire might make you lose sight.

“Avoid setting goals based on what you think you can achieve.” Do each step separately with no regard for the others.

“Every time I set goals, I don’t yet have any idea how I am going to acheive them because I haven’t yet gone through the process of thinking through them. But I have learned that I can achieve them if I think creatively and work hard.”

There is almost no reason you can’t succeed if you take the attitude of total flexibility and total accountability.

“In summary, in order to get what you really want, the first step is to really know what you want, without confusing goals with desires, and without limiting yourself because of some imagined impediments that you haven’t thoroughly analyzed.”

2. Identifying and Not Tolerating Problems

A problem is anything that stands in the way of you acheiving your goals

“Most problems are potential improvements screaming at you… The more painful the problem, the louder it is screaming. To be successful, you have to 1) perceive problems 2) not tolerate them”

“If you don’t identify your problems, you won’t solve them, so you won’t move forward toward acheiving your goals. As a result, it is essential to bring problems to the surface.”

“Push through the pain of facing your problems, knowing you will end up in a much better place.”

Remain centered and logical while identifying problems, remember, it’s only a game

“Remember that identifying problems is like finding gems embedded in puzzles: If you solve the puzzles you will get the gems that will make your life much better. Doing this continuously will lead to your rapid evolution.”

Be precise in specifying your problems, since different problems have different solutions.

Don’t confuse problems with causes, “I can’t get enough sleep” isn’t a problem, it’s a cause, try to identify the suboptimal outcome: “I am performing badly in my job because I’m tired.”

“Once you identify problems, you must not tolerate them.”

3. Diagnosing Problems

“You will be much more effective if you focus on diagnosis and design rather than jumping to solutions.”

As always, you must be calm and logical

You have to dig down to the root causes of problems, not the surface level or symptoms

“More than anything else, what differentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively.”

“Pain + Reflection = Progress”

“To be successful, you must be willing to look at your own behavior and the behavior of oters as possible causes of problems.”

“The most important qualities for successfully diagnosing problems are logic, the ability to see multiple possibilities, and the willingness to touch people’s nerves to overcome the ego barriers that stand in the way of truth.”

4. Designing The Plan

“Problems are great because they are very specific impediments, so you know that you will move forward if you can identify and eliminate their root causes.”

Think about how your machine can be changed to produce good outcomes rather than bad ones. There are typically many paths to your goals, you only have to find one that works.

Treat it like a movie script, that people and you2 will move through in order to accomplish the goals

5. Doing the Tasks

“The importance of good work habits is vastly underrated. It is critical to know each day what you need to do and to have the discipline to do it.”

People good at this step are self disciplined and proactive, they aren’t in response mode. They are results oriented and love to push themselves over the finish line.

The Relationship Between These Steps

“People who have problems reaching their goals handle these steps backwards, they stick too rigidly to specific tasks and aren’t committed enough to achieving their goals (often because they lose site of them).”

“Ask yourself what is the biggest weakness that stands in the way of what you want”

Being weak at any step of the process is fine if you know you’re weak and can seek help to improve it, or compensate for it. It’s easy to figure out which steps you are bad at by identifying which steps you are failing at and getting the feedback of people who are successful at doing what you are having problems with.

As you design and implement your plan to achieve your goals, consider that:

Life is like a game where you seek to overcome obstacles to your goals
You get better at the game through practice
The game consists of a series of choices that have consequences
You can’t stop the problems and choices from coming at you, so it’s better to learn how to deal with them
You have the freedom to make whatever choices you want, though it’s best to be mindful of the consequences
The pain of problems is a call to find solutions rather than a reason for unhappiness and inaction, so it’s silly, pointless, and harmful to be upset at the problems and choices that come at you (though it’s understandable).
We all evolve at different paces, and it’s up to you to decide the pace at which you want to evolve
The process goes better if you are as accurate as possible in all respects, including assessing your strengths and weaknesses and adapting to them.