Principles For Success by Ray Dalio

An ultra mini-series adventure in 30 minutes and in eight episodes.

EPISODE 1 THE CALL TO ADVENTURE
EPISODE 2 EMBRACE REALITY AND DEAL WITH IT
EPISODE 3 THE FIVE-STEP PROCESS
EPISODE 4 THE ABYSS
EPISODE 5 EVERYTHING IS A MACHINE
EPISODE 6 YOUR TWO BIGGEST BARRIERS
EPISODE 7 BE RADICALLY OPEN-MINDED
EPISODE 8 STRUGGLE WELL

EPISODE 1 THE CALL TO ADVENTURE

Before we wegin, let me just establish the fact that I don’t know much relative to what I need to know. Whatever success I’ve had in life has had more to do with my knowing how to deal with my not knowing than anything I know. That I should be telling other people what to do sounds kind of presumptuous to me. But I’m going to do it because I believe that the principles that have made me successful could help others achieve their own goals. I’m now at the stage in my own life in which it is much more important to me to pass along what I’ve learned about how to be successful than to seek more success for myself. What you choose to do with these principles is up to you. You have to be an independent thinker, because only you can develop your own principles based on your own values. This brings me to my first and most foundamental principle, which is that

You need to think for yourself about what is true.

So let’s get started. Early on I discovered I needed principles. Principles are smart ways for handling things that happen over and over again in similar situations. There are principles for everything, from skiing to parenting to cooking and so on. I’m going to share some of my most important， overarching, life principles that influence how we approach everything that we do.

I didn’t start out with principles. I acquired them over a lifetime of experiences, mostly from making mistakes and reflecting on them. My life principles are simple, but they’re not complete. I still struggle to make the best decisions, and I still make mistakes, and learn new principles all the time. This is the reality. At the beginning, I needed to escape the conventions that surrounded me, which meant that I needed to think for myself. Unless you want to have a life that is directed by others, you need to decide for yourself what to do, and you need to have the courage to do it. But I didn’t know that at first. I only learned that from going on my adventure. Looking back on my own journey, I now see that time is like a river that carries us forward into encounters with reality that require us to make decisions. We can’t stop our movement down this river, and we can’t avoid the encounters. We can only approach them in the best possible way. In your lifetime, you will face millions of decisions. The quality of your decisions will determine the quality of your life. Over the course of my lifetime, the most valuable things I’ve learned were the results of mistakes I reflected on to help form principles, so I wouldn’t make the same mistakes again. These principles took me from being a very ordinary middle class kid from Long Island to becoming very successful as judged by conventional measures. They also gave me the meaningful work and meaningful relationships that I value even more than these conventional successes. People often ask me how I did it. I can assure you it wasn’t because of my uniqueness as a person. It was the result of a unique approach to life I believe almost anybody can adopt. It starts with embracing reality and dealing with it.

EPISODE 2 EMBRACE REALITY AND DEAL WITH IT

The path you take in life is your most important decision. In my case, I wanted my life to be great, and I feared boredom and mediocrity more than I feared failure. Since I didn’t start out with money, and I didn’t need much more than a bed to sleep in and food to eat, I could skew my decision to pursue my adventures. So ever since I was a kid, I ran after the things I wanted, crashed, got up and ran again, and crashed again, and each time I crashed I learned something, got better, and crashed less. By doing that over and over again, I learned to love this process, even the crashing part of it. Through it, I encountered reality, and I learned how to deal with it which inspired another one of my most fundamental principles, which is that

Truth is the essential foundation for producing good outcomes.

By truth, I don’t mean anything more than the way the world works. I believe that we were given the laws of reality by nature. Humans didn’t create them, but we can use them to foster our own evolution and achieve our goals. Realizing that made me a hyper-realist, by which I mean I became someone who has discovered the great rewards of deeply understanding, accepting, and working with reality as it is, and not as I wish it would be. When I say I am a hyper-realist, people sometimes think I’m saying that dreams can’t come true. That’s absolutely not true. Without pursuing dreams, life is mundane. What I mean is that, to me, hyper-realism is the best way to choose one’s dream and then achieve them. Having big dreams, plus embracing reality, plus having lots of determination will bring you a successful life.

DREAMS + REALITY + DETERMINATION = A SUCCESSFUL LIFE

I believe this formula is true for everyone. But what does a successful life look like? We each have to decide for ourselves what success is. I don’t care whether you want to be a master of the universe, or to live under a palm tree, or anything else. I really don’t. Each of us chooses goals based on our values, and decides on the best path to achieve them. But we all need approaches to making decisions that work well, especially when facing problems, mistakes, and weaknesses that stand in our way. To succeed, we must embrace all our realities, especially the harsh realities that we wish weren’t true. At first, looking at these harsh realities caused me a lot of pain. But I learned that this pain was just psychological, and that my seeing things differently made all the difference. I came to view problems like puzzles that would reward me if I could solve them. They would help me deal with the problem at hand, and they would give me principles for dealing with similar problems in the future. I learned to treat pain as a cue that a great learning opportunity is at hand, which led me to realize that pain plus reflection equals progress.

PAIN + REFLECTION = PROGRESS

Meditation has been invaluable in helping me see things that way. I found that when I calmed myself down, and embrace my realities, and dealt with them, the rewards brought me pleasure, and the pain faded. Each of us has the unique capability to think logically, to reflect on ourselves and our circumstances, and to direct our own personal evolution. Doing this well is just a matter of following a simple five step process.

EPISODE 3 THE FIVE-STEP PROCESS

We discussed how important it is to reflect carefully after experiencing pain. When I did this, I was usually able to discover principles that would prevent me from repeating the same mistakes in the future. And I could see that being successful simply consisted of five steps.

  STEP 1 GOALS

Step one is to know your goals and run after them. What is best for you depends on your nature, so you need to really understand yourself, and know what you want to achieve in life.

  STEP 2 PROBLEMS

Step two is to encounter the problems that stand in the way of getting to your goals. These problems are typically painful. If handled badly, some of them can lead to your ruin. But to evolve you need to identify these problems, and not tolerate them.

  STEP 3 DIAGNOSIS

Step three is to diagnose these problems to get at their root causes. Don’t jump too quickly to solutions. Take a step back and reflect in order to really distinguish the symptoms from the disease.

  STEP 4 DESIGN

Step four is to design a plan to eliminate the problems. This is where you will determine what you need to do to get around them.

  STEP 5 DO IT

And step five is to execute these designs, pushing yourself to do what’s needed to progress toward your goal.

A successful life essentially consist of doing these five steps over and over again. This is your personal evolution, and you see this process everywhere. It’s just a law of nature. Think of any product, any organization, or any person you know, and you will see that this is true for them. Evolution is simply a process of either adapting, or dying. Conceptually, it looks just like the five-step process I’ve described. As you push through this often painful process, you’ll naturally ascend to higher and higher levels of success. I found that when I did it better, my struggling never became easier, because the more capable I became, the greater the challenges I would take on. Because different people are strong and weak at different things, most people can’t do all five steps well. Not facing this reality, means that you could stretch further than you should. And as the heights get greater, your falls could also be freater. Sometimes terrible things happen to all of us in life. They can ruin us, or they can profoundly improve us depending on how we handle them. Something like this happened to me in 1982.

EPISODE 4 THE ABYSS

We progress forward until we encounter setbacks. Whether or not we get out of them and continue forward or spiral downward depends on whether or not we’re willing to face the failure objectively, and make the right decisions to turn the loop upward again. Something terriable happened to me in 1982, when I bet everything on a depression that never came. The period between 1979 and 1982 was one of the extreme turbulence for the global economy, the markets, and for me. And I believed that the U.S. economy with the world economy tied to it was headed toward a catastrophe. This view was extremely controversial. I wanted the great upside, and very publicly took a big risk, and was wrong, dead wrong. After a delay, the stock market began a big bull market that lasted 18 years, and the U.S. economy enjoyed the greatest growth period in its history. This experience was like a blow to my head with a baseball bat. I had to cut my losses so that my company, Bridgewater, was left with one employee, me. I was so broke, I had to borrow 4,00 dollars from my dad to pay my bills. But even worse was having to let go the people I cared so much about. I wonder if I should give up my dream of working for myself and play it safe by working for someone else in a job that would require me to put on a tie and commute everyday. Though I knew that for me, taking less risk would mean having a less great life. Being so wrong, and especially being so publicly wrong, was painfuly humbling. I am still shocked and embarrassed by how arrogant I was in being totally confident in a totally incorrect view. Though I had been right much more than I had been wrong, I let one bad bet erase all my good ones. I thought very hard about the relationship between risk and reward, and how to manage them. But I couldn’t see a path forward that would give me the rewards I wanted without unacceptable risk. This kind of experience happens to everyone. It will happen to you. You will lose something, or someone you think you can’t live without, or you will suffer a terrible illness or injury, or your career will fall apart before your eyes. You might think that your life is ruined, and there’s no way to go forward. But it will pass. I assure you that there is always a best path forward, and you probably just don’t see it yet. You just have to reflect well to find it. You have to embrace your reality.

EPISODE 5 EVERYTHING IS A MACHINE

Sometimes things happen that are to understand. Life often feels so difficult and complicated, it’s too much to take in all at once. My deep oain led me to reflect deeply on my circumstances. It also led me to reflect on nature, becasue it provides a guide for what’s true. So I thought a lot about how things work, which helped to put me and my own circumstances in perspective. I saw that at the big bang, all the laws and forces of the universe were created and propeled forward, interacting with each other as a perpetual motion machine, in which all the bits and pieces coalesce into machines that work for a while, fall apart, and then coalesce into new machines. This goes on into eternity. I sew that everything is a machine, the structure and evolution of galaxies, the formation of our own solar system, the make-up of earth’s geography and ecosystems, our economies and markets, and each of us. We individually are machines, made up of different machines, our circulatory system, our nervous system, that produce our thoughts, our dreams, our emotions, and all the other aspects of our distinct characters. All of these different machines evolve together through time to produce the realities we encounter every day.

And I realize that I was just one tiny bit in one nanosecond deciding what I should do. While that perspective might sound very philosophical, I found that it was very practical, becasue it showed me how I could deal with my own realities in a better way. For example, I observe that most everything happens over and over again in slightly different ways. Some in obvious short-term cycles that are easy to recognize, so we know how to deal with them, like the 24-hour day. Some so infrequently that they haven’t occurred in our lifetimes, and we’re shocked when they do, like the once in a 100 year storm. And some we know exist, but are encountering for the first time, like the birth of our first child. Most people mistakenly treat these situations as being unique, and deal with them without having proper perspective or principles to help them get through them. I found that if instead of dealing with these events as one-offs, I could see each as just another one of those, and approach them in the same way a biologist might approach an animal. First, identifying its species, then drawing on principles for dealing with it appropriately. Becasue I could see these events transpire in pretty much the same ways over and over, I could more clearly see the cause-effect relationships that govern their behaviors, which allowed me to develop better principles that I could express in both words and algorithms.

I learned that while most everyone expects the future to be a slightly modified version of the present, it is typically very different. That’s because people are biased by recent history, and overlook events that haven’t happened in a long time, perhaps not even in their lifetime. But they will happen again. With that perspective, I realize that what I missed when I mistakenly called for a great depression was hidden in the patterns of history, and I could use my newfound knowledge of these patterns to make better decisions in the future. And when I though about my challenge, balancing risk and reward, I realized that risj and reward naturally go together. I could see that to get the most out of life, one has to take more risk, and that knowing how to appropriately balance risk and reward is essential to having the best life possible.

Imagine you were faced with the choice of having a safe, boring life if you stay where you are, or having a fabulous one if you take the risk of successfully crossing a dangerous jungle. That is essentially the choice we all face. For me, the choice was clear, but that doesn’t mean the path forward was without challenges. I still need to face two big barriers that we all must face.

EPISODE 6 YOUR TWO BIGGEST BARRIERS

I can’t tell you which path in life is best for you, becasue I don’t know how important it is for you to achieve big goals, relative to how important it is for you to avoid the pains required to get them. This is the courage I spoke of earlier, and we each have to feel these things out for ourselves. After my big mistake in calling for a depression, I had come to one of life’s forks in the road, as we all do. If I made the choice to take a normal job and play it safe, I would have ended up with a very different life, than the one I had. But as long as I could pay the rent, put food on the table, and educate my kids, the only choice for me was to risk crossing the jungle in pursuit of the best life possible.

My big mistake in betting on a depression gave me a healthy fear of being wrong. In other words, it gave me deep humility, which was exactly what I needed. At the same time, it didn’t stop me from aggressively going after the things I wanted. To succeed, I needed to see more than I alone could see. But standing in my way of doing that were the two biggest barriers everyone faces, our ego and blind spot barriers. These barriers exist becasue of how our brains work.

  BARRIER 1 Ego

First, let’s explore the ego barrier. When I refer to your ego barrier, I’m talking about the parts of your brain that prevent you from acknowledging your weaknesses objectively, so that you can figure out how to deal with them. Your deepest seated needs and fears reside in areas of your brain that control your emotions, and are not accessible to your higher-level conscious awareness. And becasue our need to be right can be more important than our need to find out what’s true, we like to believe our own opinions without properly stress-testing them. We especially don’t like to look at our mistakes and weaknesses. we are instinctively prone to react to explorations of them as though they are attackes. We get angry, even though it would be more logical for us to be open to feedback from others. This leads to our making inferior decisions, learning less, and falling short of our potentials.

  BARRIER 2 Blind spot

The second is the blind spot barrier. Everyone has blind spots. The belind spot barrier is when a person believes he or she can see everything. But it’s a simple fact that no one alone can see a complete picture of reality. Naturally, people can’t appreciate what they can’t see. Just as we all have different ranges for singing, hearing, pitch, and seeing colors, we have different ranges for seeing and understanding things. For example, while some people are better at seeing the big picture, others excel at seeing details. Some are linear thinkers and others are more lateral. While some are creative but not reliable, others are reliable but not creative, and so on. Because of how our brains are wired differently, everyone perceives the world around them differently. By doing what comes naturally to us, we fail to account for our weaknesses and we crash. Either we keep ding that, or we change. Aristotle defined tragedy as a terrible outcome arising from a person’s fatal flaw. A flaw that had it been fixed would have instead led to a wonderful outcome. In my opinion, these two barriers are the main impediments that get in the way of good decision-making.

EPISODE 7 BE RADICALLY OPEN-MINDED

Taking risks and occasionally being ruined wasn’t acceptable and neither was not taking risks and not having exceptional results. I needed an approach that would give me the exceptional upside without also giving me the exceptional downside. when I discovered it, it turned out to be my holy grail. To get it, I needed to replace the joy of being proven right with the joy of learning what’s true. This need prompted me to seek out the most thoughtful people I could find who disagree with me. I didn’t care about their conclusions, I just wanted to see things through their eyes and to have them see things through my eyes, so that together we could hash things out to discover what’s true. In other words, what I wanted most from them was thoughtful disagreement. Going from seeing things through just my eyes to seeing things through the eyes of these thoughtful people was like going from seeing things in black and white to seeing them in color. The world lid up. That’s when I realize that the best way to go through the jungle of life is with insightful people who see things differently from me.

Think about the five-step process I described earlier. As I said, because we are wired so differently, not everyone can do all the five steps well. But you don’t have to do them all alone. You can get help from others who are good at what you’re not who are wired to perceive things you can’t. All you need to do is to let go of your attachment to having the right answers yourself, and use your fear of being wrong, to become open-minded to these other views. In this way you could point out the risks and opportunities that you would individually miss.

I found that taking this radically open-minded approach and believability-weighting people’s thinking significantly increased my probabilities of making the best decisions possible. This enabled me to ascend to greater heights and greater challenges. In the past, I would have alwasy wanted to do what I myself thought was best. But now I sought out the strongest independent thinkers I could find. I still do. There is nothing better to be on a shared mission with extraordinary people who can be radically truthful and radically transparent with each other.

This approach led me to create a company with unique idea meritocracy, operating in a unique way, that produced unique successes. In an idea meritocracy, you get the best of everybody. Everyone thinks independently, then we work through our disagreements to get what’s best. However, not every opinion is equally valuable, and we have to learn to distinguish between good ideas and bad ones to get the best decisions. In other words, we needed to believability-weight people’s thinking. But that’s another story I will explain in my work principles. Right now, there are many opportunities and dangerous risks surrounding you that you don’t see. If you saw them free of the distortions produced by your ego or your blind spots, you will be able to deal with them more effectively. If you could acquire this ability, and with practice you can, you will radically improve your life.

EPISODE 8 STRUGGLE WELL

So far I described how I learned to confront my own realities, my problems, my mistakes, and weaknesses, and how I surrounded myself with others who could do things better than I could. This was the most effective way I discovered from making great decisions. This is not the normal way of being, but through this approach I became very successful. And being successful enabled me to meet extraordinarily successful people and see how they think. I’ve discovered that their journeys were similar to mine. You might not know it, but they all struggled, and they all have weaknesses that they all get around be working with people who see risks and opportunities that they would miss. Over time, I learned that by nature, most people’s greatest strengths are also connected to their most significant weaknesses. And striving hard for big things is bound to lead you to painful falls. It’s just part of the process. Such setbacks will test you. They sort people. Some think hard about what caused their setbacks, learn lessons, and continue progressing toward their goals, while others decide that this game is not for them and get off the field.

I’ve come to realize that success is not a matter of attaining one’s goals. I’ve found that when I reached each new higher level of success, I rarely remained satisfied. The things we are striving for are just the bait. Struggling to get them forces us to evolve, and it is this struggle toward personal evolution with others that is the reward. I no longer wanted to get across the jungle, but instead wanted to find greater and greater challenges to go after, surrounded by great people working together on a shared journey. Eventually the success of the mission and the well-being of the people alongside me became more important than my own success. I also started to see beyond myself, and wanted others to be successful when I’m no longer here. I realize that if I fail to do that, I will be a failure. I struggle with this now.

We all struggle with different things at different times, until we either coose to give up, or until we die and become part of the larger evolutionary story. This is how all machine work, and are recycled through time. When a machine breaks down, its parts go back to the system to become parts of new machines that also evolve through time. Sometimes this makes us sad, because we become very attached to our machines. But if you look at it from the higher level, it’s really beautiful to observe how the machine of evolution works. Now you must decide for yourself how you will evolve. Forget about where these principles came from. Just assess whether or not they are useful to you, and evolve them to suit your own needs. As with all of life’s decisions, what you do with them is ultimately up to you.

My only hope for you is that you have the courage to struggle and evolve well to make your life as great as it can be.

Thank you, and goodbye.