Principles

“[W]hat was most important wasn’t knowing the future—it was knowing how to react appropriately to the information available at each point in time.”

Dalio is highly focused on collecting data and analyzing it to help make decisions. However, he recommends that readers not think of decisions as predicting the future, but rather adapt to the conditions of a moment. Because investing is typically thought of as a process of making choices to capitalize on future gains, Dalio’s alternative view exemplifies his original thinking.

“A shaper is someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts and oppositions of others.” 

Business leaders like Steve Jobs, scientists like Charles Darwin, nonprofit leaders like Wendy Kopp, civil rights activists like Dr. Martin Luther King, and other notable figures inspire Dalio. He sees them as remarkable for creating and achieving visions that are original and have widespread, lasting effects. Shapers are inspirational, Dalio implies, because they remind people to focus on their goals in spite of whatever challenges arise and to aim to create positive influence.

“Later in life, winning more battles and acquiring more rewards typically becomes less exciting to heroes than passing along that knowledge to others—’returning the boon’ as Campbell called it.” 

Several times throughout Principles, Dalio reflects on why he is writing down and sharing his ideas. He notes that he views life as a series of stages involving learning, working, and sharing knowledge with others. He sees himself at the stage of sharing with others and hopes that his ideas will prove useful to others. He compares his ideas to those of Joseph Campbell, the scholar of mythology who wrote that many legendary figures have a story in which they return the talents or gifts they have been given (their boon) through service to others.

“Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change.”

Dalio recommends that readers maintain an open mind by believing that they do not always have the right answer and can learn from others. He also urges them to practice transparency by sharing knowledge with others and expecting them to do the same. These practices, he acknowledges, require people to be vulnerable, trusting, and self-aware. Nevertheless, he argues, radical open-mindedness and radical transparency allow people the best chance of making good decisions by opening their perspectives to a diversity of ideas, increasing the data they have for decision making and growth.

“Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.”

Change is not something to be feared, according to Dalio, but rather something to be expected. In fact, he argues, change should be embraced because evolution is what drives individuals and organizations to better reach their goals over time. Throughout Principles, Dalio writes about change and evolution as positive forces, and he encourages readers to see change as an element of life that extends far beyond the world of business.

“Weigh second- and third-order consequences.” 

Much of Principles is concerned with Dalio’s recommendations to individuals and organizations to help them make better decisions. One of his recurring themes is that many people make decisions too quickly, on the basis of too little information, and with too much emphasis on what will happen as an immediate result of a decision. Dalio suggests that people instead slow down and consider what may happen down the line as a result of a decision as a way of making a more informed choice.

“Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes.” 

One of the metaphors Dalio uses throughout Principles compares well-functioning organizations to machines. The metaphor implies that their components will function in predictable and consistent ways. However, Dalio also views machines as capable of evolution, much like human beings. As a result, he urges readers to think about the operations of their own organizations and grasp opportunities to change and improve.

“Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with ‘not knowing’ is more important than whatever it is you do know.” 

Dalio’s concept of open-mindedness asks people to realize that they may not always have all of the information they need and may not always know what is best to do in a situation. He proposes that people instead reverse perspectives and understand their task is to learn how to react to situations in which they must decide what to do. This shifted perspective, Dalio suggests, allows people to listen and learn better from others and, ultimately, to make better decisions than if they had acted purely on their own assumptions.

“Know that the most constant struggle is between feeling and thinking.”

According to Dalio, many people make poor decisions because they act too quickly and on the basis of what their emotions tell them about a situation. He recommends that people get into the habit of slowing down and reflecting when making decisions. Gathering and analyzing data rationally allows the processes of thinking to balance out the emotions.

“[C]onstantly connect and reconcile the data you’re gathering at different levels in order to draw a complete picture of what’s going on.” 

The ability to analyze data well is critical to both individuals and organizations, Dalio argues. He describes a variety of tools, technologies, and principles that can assist with analyzing the data relevant to an issue or decision. The goal of focusing on data analysis, according to Dalio, is to gather the most detailed understanding of the situation possible, which in turn helps individuals and organizations make informed decisions.

“Believability weight your decision making.”

Believability weighting decisions is one of the fundamental principles that Dalio discusses in his book. He believes that when making decisions, more credit should be given to ideas emerging from people who have experience relative to the issue at hand and who are able to explain the rationale behind their ideas. In Dalio’s view, the ability to rationally explain ideas is most important, and experience alone does not create authority. Ideas that are well explained and come from authoritative people, however, are more likely to be believable.

“Your children and their peers must learn to speak this language because it will soon be as important or more important than any other language.”

Dalio praises technology as indispensible to organizations. He argues that technology can help organizations process and analyze data more rapidly, continuously, and rationally. For this reason, he strongly recommends that people gain knowledge of computer programming and that this knowledge become increasingly important in the future.

“An organization is a machine consisting of two major parts: culture and people.” 

Though he frequently compares organizations to machines and is a proponent of technological advancement, Dalio is also strongly supportive of human relationships. He emphasizes this point by saying that the fundamental parts of any organizational machine are its employees and the organizational culture that connects them. Dalio places great importance on company culture, in terms of both how employees fit within an organization and how companies can institute practices that foster a healthy, productive culture.

“[I]dea meritocracy [is] 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.” 

The concept of idea meritocracy encapsulates Dalio’s principles of open-mindedness, transparency, and believability weighting. When ideas are openly discussed with an eye toward objectively arriving at the best, organizations are in the best position to make good decisions, Dalio argues. He notes toward the end of Principles that he believes idea meritocracy is the best of all decision-making systems.

“Provide transparency to people who handle it well and either deny it to people who don’t handle it well or remove those people from the organization.” 

Dalio promotes the principle of radical transparency throughout Principles. He suggests that organizations share information freely (though not necessarily all information in all cases) with their employees, and he recommends they expect their employees to share thoughts openly with leadership as well. This approach, according to Dalio, leads to the most effective decision making. However, because Dalio thinks organizational culture is so important, he remarks that employees or leaders who cannot adopt the principle of transparency do not belong within the organization.

“Recognize that mistakes are a natural part of the evolutionary process.”

At numerous points throughout Principles, Dalio explains his view that mistakes ought to be viewed positively, as opportunities for individuals and organizations to learn how to work more effectively toward their goals. Outside of business concerns, Dalio sees mistakes as an integral part of the human experience. Making mistakes is a key step in Dalio’s process of setting goals, which includes starting with an idea, then assessing any failures, then designing improvements, and finally setting new goals.

“Find the most believable people possible who disagree with you and try to understand their reasoning.”

Dalio firmly believes that radical open-mindedness involves a willingness to listen to and learn from others. In particular, he argues that person who believes they may not always have the right answer is primed to improve their decision-making process by assessing others’ ideas. By analyzing the ideas of those who disagree, Dalio suggests, a person is able to gain new perspectives and data. As a result, they will be in a position to make better-informed decisions.

“Understand that you and the people you manage will go through a process of personal evolution.”

The sections of Principles that are concerned with management echo the principles and concepts that Dalio explores elsewhere in his book. He firmly believes that individuals and organizations will change and grow on a continual basis. This process of development involves mistakes, as Dalio explains elsewhere. Thus, he argues, managers should take an understanding view of employee mistakes and changes and stay focused on the overall growth of employees and their organization as a whole.

“No matter what work you do, at a high level you are simply setting goals and building machines to help you achieve them.”

Dalio encourages business leaders to keep a continual eye on their organization’s fundamental mission and big-picture goals. Everything an organization does is a matter of working toward these goals, he suggests. Maintaining this perspective can help organizations stay focused on what is important, contextualize issues that arise, and focus on ways to continually develop and better achieve their goals.

“Know what your people are like and what makes them tick, because your people are your most important resource.” 

Dalio discusses technology, business goals, management, effective decision making, and other topics in his numerous principles. However, he urges business leaders not to lose sight of the fact that organizations are fundamentally built by people. Understanding that people and culture are integral to an organization strengthens that organization overall. For this reason, Dalio recommends a variety of tools and practices that can help organizations be in touch with their people, ranging from personality assessments to standing meetings to ongoing training and development.

“Beware of group-think: The fact that no one seems concerned doesn’t mean nothing is wrong.”

Dalio recommends that managers never become complacent. He believes so strongly in continually assessing and reassessing an organization’s progress that he remarks this assessment cannot stop even when success seems assured. His warning against group think echoes his advice that managers deliberately seek out those who disagree and take their disagreements seriously as a hedge against bad decisions.

“They move on to fix problems without getting at their root causes, which is a recipe for continued failure.”

According to Dalio, many people make mistakes when they encounter problems because they rush to find solutions too early. He recommends that people stop and seek to understand the causes of a problem first, before seeking to deal with the effects of the problem. That approach, according to Dalio, makes them more likely to be able to design improvements that avoid similar problems in the future.

“Ring the bell.” 

Dalio is focused on the principles underlying successful goal setting, decision making, and management. He urges organizational leaders to take these same topics seriously. At the same time, Dalio insists on the importance of organizational culture and cultivating a respect for the people that make up an organization. Toward the end of Principles, he explains that this effort includes taking the time to celebrate accomplishments and successes, which he refers to as ringing the bell. Dalio characterizes Bridgewater as an organization that both worked hard and partied hard, exemplifying his suggestion.