Book Summary 2: Principles: Life and Work by Ray Dalio

One of my goals for 2018 is to read and summarise my notes from 12 different books, to help me internalise the knowledge. My second book was the excellent ‘Principles’ by Ray Dalio. Here are the notes that I took from the book:


While these principles are good general rules, it’s important to remember that every rule has expectations and that no set of rules can ever substitute for common sense. Think of these priciples as being like a GPS. A GPS helps you get where you’re going, but if you follow it blindly off a bridge – that would be your fault, not the GPS’s. And just as a GPS that gives bad directions can be fixed by updating its software, it’s important to raise and discusses exceptions to the principles as they occur so they can evolve and improve over time.

If you want to be right you need to not care if the answer comes from you or someone else. You need to be radically open-minded so that you allow yourself to see what you might be missing. To do this you must:

  1. Seek out the smartest people who disagree with you and try and understand their reasoning
  2. Know when to have an opinion
  3. Develop, test and systemize timeless and universal principles
  4. Balance risks, that keep the upside while reducing the downside.

People’s greatest weaknesses are the flip side of their greatest strengths. For example, some people are prone to take on too much risk while others are too risk-averse. Typically by doing what comes naturally to us, we fail to account for our weaknesses, which leads us to crash. What happens after we crash is most important. Successful people change in ways that allow them to continue to take advantage of their strengths while compensating for their weakness and unsuccessful people don’t. Beneficial change begins when you can acknowledge and even embrace your weakness.

When you are in a relationship you need to be crystal clear about your principles for dealing with each other. Ray’s most important work principles are:

  1. Put our honest thoughts on the table
  2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn and,
  3. Have agreed-upon ways of deciding (e.g. voting, having clear authorities) if disagreements remain so that we can move beyond them without resentment.

Being radically transparent can be troubling for some. There are two parts of the brain: the upper-level logical part and the lower level emotional part. Ray calls these the “two yous”. They fight for control of each person. How that conflict is managed is the most important driver of our behaviour. while the logical part of people’s brains could easily understand that knowing one’s weakness is a good thing (because it’s the first step toward getting around them), the emotional part typically hates it.

Your two “yous” fight to control you. It’s like Dr. Jekyll and Mr. Hyde, though your higher level you is not aware of your lower level you. When someone gets angry with himself, his prefrontal cortex is fighting with his amygdala. When someone asks “why did I let myself eat that cake?” The answer is “Because the lower level you won out over the thoughtful higher level you. Once you understand how your: (A) logical/conscious you and (b) emotional subconscious you fight with each other, you can imagine what its like when your two yous deal with other people and their own two “thems”.

Train your level you with kindness and persistence to build the right habits. Ray used to think that the upper-level you needed to fight with the lower-level you to gain control, but over time he came to learn that it is more effective to train that subconscious, emotional you the same way you would teach a child to behave the way you would like them to behave – with loving kindness and persistence so that the right habits are acquired.

Your greatest challenge will be having your thoughtful higher level you manage your emotional lower-level you. The best way to do that is to consciously develop habits that will make doing the things that are food for you habitual.

Most people form their views based on what they learn in the media. In some cases, journalists have their own ideological biasses that they are trying to advance. As a result, most people who see the world through the lens of the media tend to look for who is good and who is evil rather than what the vested interest is and relative powers are and how they are being played out. For example, people tend to embrace stories about how their own country is the moral and rival country is not when most of the time these countries have different interests that they are trying to maximise.

To figure out the universal laws of reality. It is helpful to look at things from natures perceptive. While mankind is very intelligent in relation to other species, we have the intelligence of moss growing on a rock compared to nature as a whole. We are incapable of designing and building a mosquito, let alone all the species and most of the other things in the universe. So start with the premise that nature is smarter than you and try to let nature teach you how reality works.

Don’t get hung up on your view of how things should be because you will miss out on learning how they really are.

When Ray was in Africa he saw a pack of hyenas kill a wildebeest. His reaction was visceral. He felt empathy for the wildebeest and thought what he had witnessed was horrible. But was that feeling because it was horrible or was it because he was biased to believe it’s horrible when it’s actually wonderful?  Would the world be better or worse if the killing had not occurred? That perspective drove Ray to consider the 2nd and 3rd order consequences so that he could see the world would be worse. Nature optimises for the whole, not for the individual, but most people judge good and bad based only on how it affects them. Most people call something bad if it is bad for them or bad for those that they emphasize with, ignoring the greater good.

To be “good” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded. For example, if you come up with something the world values, you almost can’t help but be rewarded. Conversely, reality tends to penalize those people, species and things that don’t work well and detract for their evolution.

Evolution has produced:

  1. Incentives and interactions that lead to individuals pursuing their own interests and resulting in the advancement of the whole
  2. The natural selection process
  3. Rapid experimentation and adaptation

It is a fundamental law of nature that in order to gain strength one has to push one’s limits which is painful. As Carl Jung put it ‘Man needs difficulties. They are necessary for health” Yet most people instinctively avoid pain. This is true whether we are talking about building the body (weight lifting) or the mind (e.g. frustration, mental struggle, embarrassment, shame) and especially true when people confront the harsh reality of their own imperfections.

Most people lack the courage to confront their own weaknesses and make the hard choices that this process requires. Ultimately it comes down to the following 5 decisions:

  1. Don’t confuse what you wish were true with what is really true
  2. Don’t worry about looking good – worry instead about achieving your goals
  3. Don’t overweight first-order consequences relative to second and third order ones.
  4. Don’t let pain get in your way of progress
  5. Don’t blame bad outcomes on anyone but yourself.

The personal evolutionary process takes place in 5 distinct steps:

  1. Have a clear goals
  2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals
  3. Accurately diagnose the problem to get at their root causes
  4. Design plans that will get you around them.
  5. Do what’s necessary to push these designs through to results

Distinguish proximate causes from root causes. Proximate cause are typically the actions (or lack of actions) that lead to problems, so they are described with verbs (I missed the train because I didn’t check the train schedule). Root causes run much deeper and they are typically described with adjectives (I didn’t check the train schedule because I am forgetful). You can only truly solve your problems by removing their root causes, and to do that, you must distinguish the symptoms from the disease. What differentiates people who live up to their potential from those who don’t is their willingness to look at themselves and others objectively and understand the root causes standing in their way.

Everyone has at least one big thing that stands in their way of their success: find yours and deal with it. Write down what your one big thing is (such as identifying problems, designing solutions, pushing through to results) and why it exists (your emotions trip you up, you can’t visualize adequate possibilities).

Humility can be even more valuable than having good mental maps if it leads you to seek out better answers than you could come up with on your own. Having both open mindedness and good mental maps i most powerful of all

The two biggest barriers to good decision making are your ego and your blind spots.

Radical Open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effec explore different points of view and different possibilities without letting your ego or your blind spots get in our way. It requires you to replace your attachement to always being right with the joy of learning what’s true.

If you’re truly looking at things obecjtively, you must recognize that the probability of you always having the best answer is small and that even if you have it, you can’t be confident that you do before others test you. So it is invaluable to know what you don’t know. Ask yourself: Am I seeing this just through my own eyes? If so, then you should know that you are terribly handicapped.

Appreciate the art of thoughtful disagreement: Your goal is not to convince the other party that you are right, it is to find out which view is true and decide what to do about it. In thoughtful disagreement both parties are motivated by the genuine fear of missing important perspectives. To do this well, approach the conversation in a way that conveys that you are just trying to understand. Use questions rather than statements. You should be open-minded and assertive at the same time.  A good exercise to make sure that you are doing this well is to describe back to the person you are disagreeing with their own perspective. If they agree that you’ve got it, then you’re in good shape.

Many of our mental differences are physiological. Just as our physical attributes determine the limits of what we re able to do physically – some people are tall and others are short, some muscular and others weak – our brains are innately different in ways that set the parameters of what we are able to do mentally. As with our bodies, some parts of our brains cannot be materially affected by external experiences (in the same way that your skeleton isn’t changed much through working out), while other parts can be strengthened through exercise.

In the book “The meaning of human existence” Edward Wilson surmises that between 1 million – 2 million years ago. when our ancestors were somewhere between chimpanzees and modern homo sapiens, the brain evolved in ways supporting cooperation so man could hunt and do other activities. This led the centers of memory and reasoning in the prefrontal cortex to develope beyond those of our primate relatives. As groups becomes more powerful than individuals and our brains developed in ways that made larger groups manageable, competition between groups became more important then completion between individuals and groups that had more cooperative individuals did better than those without them. This evolution led to the development of altruism, morality, and the sense of conscience and honor. Wilson explains that man is perpetually suspended between the two extreme forces that created us: Individual selection [which] promoted sin and group selection [which] promoted virtue.

The most useful habit Ray has acquired is using pain to trigger quality reflections. If you can acquire this habit, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness.

There are two broad approaches to decision making: evidence/logic based (which comes from the higher level brain) and subconscious/emotions-based (which comes from the lower-level brain)

Numerous tests by psychologists show that the majority of people follow the lower-level path most of the time, which leads to inferior decisions without their realising it. As Carl Jung put it “Until you make the unconscious conscious, it will direct your life and you will call it fate.

1. The biggest threat to good decision making is harmful emotions

2. Decision making is a two-step process – 1st learning and 2nd Deciding

The first pitfall of bad decision making is to subconsciously make the decision first and then to cherry-pick the data that supports it.

Be Imprecise – Understand the concept of “by-and-large” and use approximations. Our educational system is hung up on precision, the art of being good at approximation is insufficiently valued. This impeds conceptual thinking. For example when asked to multiply 38 by 12, most people do it the slow and hard way instead of rounding 12 down to 10 and 38 up to 40. “By-and-large” is the level at which you need to understand most things in order 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”.

How to be Radically Open Minded: Our biggest barrier for doing this well are our ego and our blind spot barrier. The ego barrier is our innate desire to be capable and have other recognise us as such. The blind spot barrier is the result of our seeing things through our own subjective lenses; both barriers can prevent us from seeing how things really are. The most important antidote for them is radical open-mindedness, which is motivated by the genuine worry that one might not be seeing one’s choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blond spots get in the way.

Observe the patterns of mistakes to see if they are products of weakness: Start by writing down your mistakes and connecting the dots between them. Then write down your “own big challenge”, the weakness that stands the most in the way of getting what you want.

If you want to evolve, you need to go where the problems and the pain are.

Don’t pay as much attention to people’s conclusions as to the reasoning that led to their conclusions.

When someone says, “I believe X” ask them: What data are you looking at? What reasoning are you using to draw your conclusion?

Pain + Reflection = Progress

Pain is an important signal that there is something to be learned and if you reflect on your pain well, you will almost always learn something important. The moment someone experiences pain is the best time for them to record what the pain is like, but it’s a bad time to reflect because its hard to keep a clear head.

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