Principles by Ray Dalio

(This is one of a series of posts about productivity books and the lessons I took from them. The series is: Getting Things Done, A Sense of Urgency, The ONE Thing, and Principles.)

Cover of Principles by Ray Dalio

This book, Principles by Ray Dalio, has to be one of the most recommended business books of the last decade. Even before it was released in book form (it existed as a shorter, downloadable PDF on the Bridgewater website for years) I would hear business and entrepreneurial podcasters recommend it as often as they would How to Win Friends and Influence People, Mastering the Rockefeller Habits, Getting Things Done, and the more recent The ONE Thing. Having read it I now understand why. Principles is a hard (and long) read but that is because it is packed densely with actionable insights.

Where other books get their point across in a chapter and then pad the rest of the book rehashing the point in various ways, Principles covers a wide range of topics over its nearly six hundred pages. The subjects include, but are far from limited to, relationships, happiness, productivity, project management, people management, career development, goals, success, and investing. Dalio weaves what could easily be a series of self-help books into a single one using the theme of principles.

“Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.”

Principles by Ray Dalio

What Ray Dalio has done is establish a set of principles by which he runs his life and business. Think of them as a set of guidelines that he has developed over time that govern how he handles any decision he has to make. In business (and in life) there are situations that come up more than once such as when and who to hire, when and who to fire, what goals should be pursued, what projects to greenlight, and, particularly for Bridgewater, whether or not to make an investment. Dalio has spent his professional career documenting his thinking about each of these decisions and creating systems and processes to help. When he is faced with those decisions now he spends less time pondering each decision as he sticks the relevant details into his decision matrix and is confident that his system will guide him to the correct decision.

He thinks of the world as a set of machines where with a given set of inputs being fed into the machine you can expect a certain set of outputs. The global economy is one machine made up of billions of smaller machines (national economies, corporations, departments within corporations, teams with departments, your personal job functions). It can be hard to improve on systems when you are knee-deep in the mud so he recommends taking a higher-level (30,000 foot) view which allows you more objectivity.

In order for him to gather the data he uses to build the machine in his control there are two things he espouses in order to achieve that:

  1. Be radically open-minded
  2. Be radically transparent

There is little to no gray area with those. They are core principles by which he lives his life and by which his business operates. They affect all of his relationships and, due to them, they provide him with the information he needs to guide himself and his business in ways that help him achieve his goals.

“Idea Meritocracy = Radical Truth + Radical Transparency + Believability-Weighted Decision Making.”

Principles by Ray Dalio

Another core tenet of his business is that it operates as an idea meritocracy. That ensures that the best ideas are used regardless of who in the organization comes up with them. However, while all ideas can have merit they do need to be weighted based on expertise. Anyone can have them but when making decisions you need to weigh the opinion of the subject-matter expert more heavily.

Dalio also discusses identifying patterns as part of a higher-level view of your life and business:

“Higher-level thinking gives you the ability to study and influence the cause-effect relationships at play in your life and use them to get the outcomes you want.”

Principles by Ray Dalio

When looking at something from a distance using the higher-level viewing exercise you begin to see the patterns that show what each machines’ output is. You can use those patterns as data points for formulating tests to improve your machines’ outputs. 

To extend the thought process of improving outcomes Dalio provides a framework for identifying what problems are causing bad outcomes. Usually what you identify as the cause is actually a symptom of the root cause which you have to dig deeper for. The process is somewhat similar to the Five Whys. An example might be the problem of unhappy customers. The problem might be with the quality of service your company provides or maybe the marketing or sales team has misrepresented what the service is and leads to your clients having expectations about the service that differ from what the service team thought they were providing. If the sales time is identified as where this disconnect is happening is it because their training did not adequately prepare them or is it because their pay structure incentivizes them to be less than completely truthful? This exercise provides some hard truths about systemic problems in organizations that, if they are not addressed, will have large repercussions over time.

In order to combat those problems one needs to have the best people and he spends a lot of time talking about the importance of culture and finding the best people:

“Managers will often take the people who work in their organization as a given and try to make the organization work well with them. That’s backward. Instead, they should imagine the best organization and then make sure the right people are chosen for it.”

Principles by Ray Dalio

A lot of books provide actionable advice on improving your life or business. Principles does that as well (almost too much advice as there is so much to digest) but, while those other books might provide you with insights that you can start putting into action today, much of the takeaways from the book will take months, years, and maybe decades to fully implement. He spent forty years or more building his decision-making framework and creating systems to gather the data that goes into them. This book points you in the right direction but leaves the hard work up to you.

While I think anyone would benefit from reading Principles I think those that will get the most value out of it are those that are in a corporate environment or entrepreneurs who have had some success and are past the bootstrapping stage of their business. A lot of the inefficiencies and relationships that the book addresses are ones that become increasingly common as a business scales. The solopreneur struggling to get their first customers could probably put off reading this book for a bit and instead pick up a book that will help them with their marketing or closing deals.

To reiterate, there is something for everyone in this book and I have been recommending it to colleagues constantly since I started reading it. Dalio has laid out a powerful framework that I’m thinking about almost every day. At the book’s core is something we all should aspire to:

“Make your passion and your work one and the same and do it with people you want to be with.”

Principles by Ray Dalio