BOOK REVIEW

‘PRINCIPLES’ – by Ray Dalio

Ray Dalio, one
of the world’s most successful investors and entrepreneurs, shares the
unconventional principles that he has developed, refined and used over the past
40 years to create unique results in both life and business – and which any
person or organisation can adopt to achieve their goals.

In 1975 he
founded an investment firm, Bridgewater Associates. Forty years later,
Bridgewater has made more money for its clients than any other hedge fund in
history and grown into the fifth most important private company in the US,
according to Fortune magazine. Dalio has been named in Time
magazine’s list of the 100 most influential people in the world. Along the way,
he discovered a set of unique principles that have led to Bridgewater’s
exceptionally effective culture, which he describes as ‘an idea meritocracy
that strives to achieve meaningful work and meaningful relationships through
radical transparency.’ It is these principles, and not anything special about
Dalio, that he believes are the reason behind his success.

In the book,
Dalio shares what he has learned over the course of his remarkable career. He
argues that life, management, economics and investing can all be systemised
into rules and understood like machines. The book has hundreds of practical
lessons built around his cornerstones of ‘radical truth’ and ‘radical
transparency’; these include the most effective ways for individuals and
organisations to make decisions, approach challenges and build strong teams. He
also describes the innovative tools the firm uses to bring an ‘idea
meritocracy’ to life, such as creating ‘baseball cards’ for all employees that
distil their strengths and weaknesses and employing computerised
decision-making systems to make believability-weighted decisions. While the
book brims with novel ideas for organisations and institutions, Principles
also offers a clear, straightforward approach to decision-making that Dalio
believes anyone can apply, no matter what they’re seeking to achieve.

Here, from a
man who has been called both ‘the Steve Jobs of investing’ and ‘the philosopher
king of the financial universe’ (CIO magazine), is a rare opportunity to
gain proven advice unlike anything you’ll find in the conventional business
press. He kicks off by explaining that ‘Good principles are effective ways of
dealing with reality’ and that ‘To learn my own, I spend a lot of time
reflecting.’

The book
consists of three parts. In the first, titled ‘Where I’m coming from’, Dalio
looks back at his career and the founding of Bridgewater. ‘Life Principles’ is
the name of the second part and covers Dalio’s approach to life’s challenges
and opportunities. And part three covers Dalio’s ‘Work Principles’.

Let me share my
key takeaways from Principles, starting with Dalio’s Life
Principles:

Embrace reality
and deal with it –
Dalio shares an important equation which in his view makes for a successful
life: Dreams + Reality + Determination = A Successful Life. For the
‘reality’ component of this equation to work, Dalio encourages readers to be
radically open-minded and radically transparent.

Pain +
Reflection = Progress
– One can see how someone like Dalio has gone through his own share of pain to
get to where he has reached.

Using the
5-step process to get what you want out of life – Start with having clear goals (step 1),
followed by identifying but not tolerating the problems that stand in
the way of your achieving those goals (step 2), then you accurately diagnose
the problems to get at their root causes (step 3), design plans that
will get you around them (step 4) and, finally, do what’s necessary to
push these designs through to results (step 5). Dalio depicts this as a
continuous process and readers can benefit from applying this model to achieve
their goals.

Understand
that people are wired very differently – Dalio stresses the fact that all people are
wired differently and zooms in on the differences between left and
right-brained thinking.

Dalio’s Work
Principles are dominated by the concept of an Idea Meritocracy –
i.e., a system that brings together smart, independent thinkers and has them
productively disagree to come up with the best possible collective thinking and
resolve their disagreements in a believability-weighted way. He successfully
implemented an ‘Idea Meritocracy’ at Bridgewater and shares the components of
such a system in his book:

Idea
Meritocracy = Radical Truth + Radical Transparency + Believability – Weighted
Decision-Making

Radical
Truth – Talking openly
about our issues and have paths for working through them.

Radical Transparency – Giving everyone the ability to see
everything. Radical transparency reduces harmful office politics and the risks
of bad behaviour because bad behaviour is more likely to take place behind
closed doors than out in the open.

Believability – Dalio defines believable people as
‘those who have repeatedly and successfully accomplished the thing in question
– who have a strong track record with at least three successes – and have great
explanations of their approach when probed.’

Thoughtful
Disagreement – The
concept of Believability is closely linked to the art of Thoughtful
Disagreement; the process of having a quality back-and-forth in an open-minded
and assertive way to see things through each other’s eyes.

Weighted
Decision-Making – At
Bridgewater, employees have different believability weightings for
different qualities, like expertise in a particular subject, creativity,
ability to synthesise, etc. Dalio explains that in order to have a true Idea
Meritocracy one needs to understand the merit of each person’s ideas.

Prerequisites
for an Idea Meritocracy
– To have an Idea Meritocracy three conditions need to be in place.
Firstly, put your honest thoughts on the table. Secondly, have thoughtful
disagreement. Thirdly, abide by agreed-upon ways of getting past disagreement.

Mistakes are
part of the game –
Dalio has a refreshing outlook on the role and value of mistakes, which he
treats as ‘a natural part of the evolutionary process’. It’s important in this
respect to assess whether people recognise and learn from their mistakes. Dalio
distinguishes between people who make mistakes and who are self-reflective and
open to learning from their mistakes, and those who are unable to embrace their
mistakes and learn from them.

Get people
to focus on problems and outcomes – Assign people the job of perceiving problems, give them time to
investigate and make sure they have independent reporting lines so that they
can convey problems without any fear of recrimination. To perceive problems,
compare how the outcomes are lining up with your goals. Dalio also offers some
valuable tips on how to best diagnose problems.

Avoid the
‘Frog in the boiling water’ syndrome – Apparently, if you throw a frog into a pot of
boiling water it will jump out immediately, but if you put it in water at room
temperature and gradually bring it to a boil, it will stay in the pot until it
dies. If one uses this syndrome as a metaphor for professional life, it
signifies people’s tendency to slowly get used to unacceptable things that would
shock them if they see them with fresh eyes.

Don’t just
pay attention to your job – Instead, pay attention to how your job will be done if you’re no
longer around. Dalio talks about the ‘ninja manager’ as ‘somebody who can sit
back and watch beauty happen, i.e., an orchestrator. If you’re always trying to
hire somebody who’s as good as or better than you at your job, that will both
free you up to go on to other things and build your succession pipeline.’

I feel that
Dalio’s principles can provide great direction for all people working in
organisations big or small. His reflections on things such as transparency and
decision-making will be valuable to anyone reading this great book.

The book is
aesthetically beautiful in the design and typography, making it a real treat to
read. I really appreciate the biography section of the book that solely focuses
on Ray Dalio’s life and journey towards where he is today. It offers you a
brief insight into what made him the person he is today. Even very humbling experiences,
such as being the only person left in the company that he built and having to
start all over again.

In Principles: Life and Work,
Dalio shares the principles that have led to his success. Told with honesty and
enlightening examples, Principles is a fascinating look at how
Dalio has created the largest and most successful hedge fund in the world. You
need only read the first few pages to discover the uniqueness of his approach;
he encourages readers to doubt everything, suggesting that radical open-mindedness
is the best way to learn.