Principles (Life)

January, 2025

The Principles by Ray Dalio has three main sections. First section is an introduction about his life and how did he get to where he is today. The second part is about life principles and, the third section is about work principles. This is not the easiest book to read, but there are a lot of useful information packed in it. This notes are from the second section the book.

Table of Contents

1. Embrace the reality and deal with it

  • Think of the life as a game, every problem we encounter are puzzles that we need to solve to progress. By solving these puzzles we get gems & experiences (points) that help us to progress further
  • By solving a puzzle, I get a gem in form of a principle that help me to avoid similar problems in the future
  • Collecting these gems improves my decision making
  • I will get through setbacks and most of the learning comes from reflecting on them

Be a hyper realist

  • People who create great things are grounded in the reality
  • Dreams + Reality + Determination = Successful Life
  • Getting more out life is just wasn’t only working harder at it

Truth - essential for any good outcome

  • Understand and deal with the bad stuff

Be radically open minded & radically transparent

  • Radically open mindedness increase the efficiency because it makes it clear why we are doing something
  • If you are open minded
    • You will not deceive yourself
    • Others will give you feedback
      • When those others are believable, you will learn a lot
  • When ever you have a choice, choose to be transparent

Look at nature to understand how reality works

  • Top down approach to understanding
    • Try to find one code to drive all of them
      • Ex: supply & demand, DNA
  • Bottom Up approach to understanding
    • Study specific cases and understand code/law unique to them
  • Pay attention to the world around you and laws applicable to all species not just humans
  • Whenever I find something I think wrong, I assume I’m wrong, and try to find out why what nature doing make sense
  • Key is to fail, learn and improve quickly

Evolving is life’s greatest accomplishment and reward

  • We will go extinct or evolve into a higher species over a long time horizon
  • Individual incentives must be align with the group incentives
    • Sex gives pleasure and individuals motivated to have sex. But the purpose of sex is to reproduce and evolve the DNA (group incentive)
  • Adaptation through trial and error is invaluable
  • We are unbelievably tiny and short-lived. Our impact to the universe is insignificant
  • What you will be depend on the perspective you have

Understand natures practical lessons

  • Nature always try to maximize the evolution
  • All the pains and hard things are part of the evolution

Pain + Reflection = Progress

  • The challenges you face will strengthen you
  • If you push through personal evolutions process, you will ascent to higher and higher levels
  • The quality of life depend on the choices you make in difficult moments

Weigh second and third order consequences

  • Exercising
    • First order consequence => pain and suffering
    • Second order consequence => better health & good look

Own your outcomes

  • It is not what life gives you is important, what do you make out of is more important
  • “internal locus of control” focus on things under your control

Look at the machine from a higher level

  • Look at your outcomes with the goal to determine if you want to make modifications to the machine.
  • You have two roles in the context
    • Machine designer
      • As a machine designer you are figuring out what you need to achieve at what point
    • Worker
      • As a worker, you are doing a part of the machine
  • Asking others who are strong in areas that you are weak is a skill you need to develop

Putting it all together

  • Embrace the reality
  • Don’t worry about looking good, worry about achieving your goals
  • Always consider second and third order consequences
  • Don’t let pain stand in the way of progress
  • Figure out path forward with your circumstances

2. Five step process

Have clear goals

  • You can have anything you want, but you can’t have everything you want
  • Typically, desires are first-order consequence
  • Be ambitious with your goals. There is a best possible path to get to that goal. Your job is to find it and have the courage to attain it
  • If you limit your goals to you know what you can achieve, you are setting the bar way too low
  • To succeed you need, flexibility and, self accountability
    • Flexibility => learn what reality teaches you
    • Self accountability => treat failure to achieve goals as personal failures, and motivated to find a way to succeed
  • In the bad times, make the best possible choices. It can help you to keep what you have, minimize the rate of loss.

Identify and resolve problems on the way

  • View painful problems as potential improvements.Therefore it is essential to bring them to surface
  • Acknowledging your weakness are not same as surrendering to them. It is the first step of overcoming them
  • Different problems have different impact and different priorities.
  • After you identify a problem, don’t tolerate them

Find the root cause of the problems

  • A good diagnosis can take from 15 minutes to and hour
  • The ability to look at them selves and others objectively and figure out root causes stand in the way differentiate people who can achieve their full potential from who can not

Design plans that will go around them

  • Think about your problems as set of outcomes produced by a machine
    • Practice higher level thinking by looking down your life as a system, try to optimize different parts
  • Sketch out the plan broadly at first and then refine it

Push through to completion

  • It is important to remember the connection between your tasks and the goals
  • Establish clear metrics to make sure you are making progress

Find solutions for your weaknesses

  • Have humility so that you can get what you want from others
  • Everyone has at least one big thing that stands their way; find yours and deal with it

Understand your mental maps & humility - Humility can be better than having better mental maps if that could lead to find better answers than one you can come up with your own

3. Be Radically Open-Minded

Recognize two barriers

  • The two barriers for good decision making are
    • ego & blind spots
  • ego barrier
    • Subliminal defense mechanism that won’t accept our weaknesses
  • To be effective you need to find out what is true, put aside the need to be right. Because your need to be right can stop you from seeing the reality as it is
  • blind spot barrier
    • Your way of thinking stop you from seeing clearly
  • We can appreciate what we can’t see
  • Difference in thinking can help us to complement each other thinking

Practice radical open-mindness

  • Know that there is a possibility where you don’t see your best options, it is your job to figure out with help from others
  • Finding truth is more important than being right
  • Sincerely believe that you don’t know the best possible path
  • Decision making is two step process
    • Taking in the information
    • Make a decision
  • Don’t worry about looking good, worry about achieving your goal
  • Remember that you are looking for the best answer with in the group, regardless of where it comes from

Practice the thoughtful disagreements

  • In thoughtful disagreement the goal is to figure out which view is right and what to do about it
  • You are not arguing, you are exploring what is true
  • People who changed their minds because they learned something are the winners
  • “two minute” rule is to let other person speak without interruption for two minutes

Triangulate your view with believable people

  • Get opinion from multiple people who has more experience in the field, their opinions can differ significantly. Learn from their disagreements

Recognize signs of closed kindness

  • Closed minded people don’t want their ideas challenged
  • Closed minded people more focus on being understood that understanding others
  • If you have more experience make statements, if you don’t have experience ask questions
  • Always try to surround yourself with open minded people

Improve your open-mindness

  • Use pain as a guide for reflection
    • Pain comes from being too attached to an idea, when an event or a person come to challenge it
  • Get to know your blind spots
    • Record circumstances where you made bad decisions and failed to see what others saw
  • If number of believable people say that you are doing something wrong, and you don’t see it that way, know that you are biased
  • Be evidenced based and encourage others to be the same
    • When you are approaching a decision can you provide undisputed facts? If not you are not being evidenced based

4. People are wired differently

  • The problem was that conceptual people who visualized what should be done in vague ways expected more literal people to figure out for themselves how to do it.
  • All these activities require different types of people to work together in ways that harvest the best ideas and throw away the worst.

Power comes from understanding how the people are wired

  • Using Myers-Briggs and other assessments, we evolved a much clearer and more data-driven way of understanding our different types of thinking.
  • We are born with attributes that can help or hurt us
  • Assign work to people that are align with their values
  • Having a baseball card system to display strength and weakness of the people

Meaningful work and meaningful relationship are essential

  • The meaningful relationships we get from social cooperation make us happier, healthier, and more productive; social cooperation is also integral to effective work. It is one of the defining characteristics of being human.29

Understand great brain battles

  • We experience these creative breakthroughs when we are relaxed and not trying to access the part of the brain in which they reside, which is generally the neocortex.
  • Be aware of your subconscious mind
  • Most common struggle is between thinking and feeling
    • Amygdala controls the flight or fight responses, they come fast and dissipate quickly
    • Fast heart-beat, sweating, and environment slow downs are part of amygdala hijackings
  • Reconcile you feelings and thinking
  • Pick your habits wisely
    • Habits put your mind in autopilot mode
  • Use pain as an opportunity to do reflections
    • Dive deep into what causes pain and figure out how to improve your machine
  • Understand the left brain folks from right brain folks
    • Our experience has been that left-brained folks tend to see right-brained folks as “spacey” or “abstract,” while right-brained thinkers tend to find left-brained thinkers “literal” or “narrow.”

Find out what you and others are like

  • There are people who sees the big picture (forest) and others who sees details (trees)
  • Introverts and extroverts have different ways of communicating
  • Myers Briggs is a good way to figure out different areas of personality profile for individuals
  • Planners like to focus on a plan and stick with it
  • Perceivers like to adapt to what’s happening around them
  • Workplace personality inventory - Test based on data from US Department of Labor
  • Shapers get both the big picture and the details right. To me, it seems that Shaper = Visionary + Practical Thinker + Determined.

Get the right people in right roles

  • Manage yourself and orchestrate others to get what you want

5. Learn to make decisions effectively

Be radically open minded and seek out believable others

  • Consider second order & third order consequences of the near term results and results over time
  • First Learn and Then make a decision
    • You have to learn enough before making a decision
    • That way you can avoid bad decisions

Learning

  • Synthesize well & navigate levels
  • Synthesize well
    • Synthesize situation at hand
      • Finding the right person is key to get an answer
      • Listening to uninformed people can be dangerous than having no answer
      • Careful who you listen to and don’t believe everything you hear
      • Things happening today seem more important that it should be, defer decision to later time
    • Synthesize situation over time
      • Be imprecise
        • “By and large” is enough to understand things to make effective decisions
        • “When you ask someone whether something is true and they tell you that it’s not totally true, it’s probably by-and-large true.”
        • Figure out the 20% of the details that get you 80% of the value
        • Be an imperfectionist, figure out the important parameters for making a decision,
  • Navigate levels
    • You need to know which level is appropriate for the decision
      • Levels are what level of details you are diving into
      • It is like looking at a map, if you zoom too close you can’t see the bigger picture
    • Above-the line and below-the-line is a good terminology to establish what level of details to jump to
    • One need to be comfortable with the higher levels such as
      • A -> B -> C->D->E
    • Also details
      • A->B->C->D-E
        • B.1
        • B.2
        • B.3

Deciding

  • Make decision based on the expected value
  • It never hurt to ask, is a decision based on the expected value
  • Work on raising probability of being right, regardless of your current probability of being right
  • Best choices are the ones with more pros than cons, you can’t find choices without cons
  • What is the cost of not deciding
    • Separate must do’s from like to do’s
    • Chances are you won’t have time to deal with unimportant things, which is better than not having time to deal with important things
      • After you do your all of your important things you don’t have time for unimportant things
    • Possibilities are not same as probabilities, possibilities are endless what matters is probabilities
  • Fast track decision making process
  • Simplify
    • Get rid of the irrelevant details so that important details and relationships will appear
  • Use principles
    • Slow down your thinking so that you can note down the criteria you are using
    • Write the criteria down as a principle
    • Think about those criteria when you have outcome to asses, refine them as you progress
  • Have believable people around you
    • Have believable people to have a thoughtful disagreement enhance your learning
  • Use computer to make decisions based on your principles
    • You need to have enough knowledge to evaluate computer decisions as good or bad
    • A lot of people put their blind faith in machine learning because it is easier than developing a deep understanding
  • In order to have the best life
    • You should know what are the best decisions
    • Have courage to make them

Putting it All Together

  • Embrace the reality and learn to deal with it well
  • Life is all about making most out of your circumstances.
  • 5 Step process for getting what you want
    • setting goals
    • Identifying & not tolerating problems
    • Diagnosing problems
    • Come up with designs to over come problems
    • Doing the required tasks
  • Learn radical open-mindness and practice thoughtful disagreements to increase your learning