The Importance of Principles

Dalio wishes everyone wrote down their principles, that he’d love to look at the principles of powerful and successful people to see what he can learn from them. See what they value, what principles got them where they are.The important questions about Principles to Dalio:What are principles?Why are principles important?Where do principles come from?Good quote here: “adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values”Do you have principles that you live your life by? What do you value most deeply?How well do you think they will work, and why?Always ask yourself: “Is it true?”

Part 2: Dalio’s Most Fundamental Life Principles

“I didn’t like th school part of school, partly because I had, and still have, a bad rote memory and partly because I couldn’t get excited about forcing myself to remember what others wanted me to remember without understanding what all this work was going to get me. In order to be motivated, I needed to work for what I wanted, not for what other people wanted me to do. And in order to be successful, I needed to figure out for myself how to get what I wanted, not remember the facts I was being told to remember.”

Dalio’s goal was to beat the market, and the pursuit of that goal taught him:

That it isn’t easy for him to be confident that his opinions are rightThat bad opinions can be very costlyThat the consensus is often wrong, so [he has] to be an independent thinker

Dalio tells his employees that he wants you “… to work for yourself, to come up with independent opinions, to stress test them, to be wary about being overconfident, and to reflect upon the consequences of your decisions and constantly improve.”

Dalio says he has followed a simple system throughout his life:

Working for what he wanted, not for what others wanted him to doComing up with the best independent opinions he could to move towards his goalsStress testing those opinions by having the smartest people he could challenge them to see where he was wrongBeing wary about being overconfident, and being good at not knowingWrestling with reality and experiencing the restults of his decisions and reflecting on how he got there and what he could do to improve

He has some useful opinions on truth:

Failure is largely the result of not accepting the truth of reality, amplified by further denial, mitigated by acceptanceFinding out what is true without all of the opinion is goodThat there is nothing to fear from the truth, while some truths can be scary, knowing them helps you deal with them better. Being truthful and encouraging others to be truthful helps deal with reality and avoid failure.Truth is an extension of freedom, you can’t be free while hiding the truth, you need to be true to who you are and express things that should be expressed.He wanted to work with people who said what they really believe, and be able to do the sameEveryone makes mistakes, the difference between people is how we handle them.“Being totally truthful, even about mistakes and weakness, led to a rapid rate of improvement and movement toward what I wanted.”Dalio’s most fundamental principle: “ Truth—more precisely, an accurate understanding of reality—is the essential foundation for producing good outcomes.”

“In other words, I believe that understanding what is good is obtained by looking at the way the world works and figuring out how to operate in harmony with it to help it (and yourself) evolve. But it is not obvious, and it is sometimes difficult to accept.”

“I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe, and that it is good.”

“I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force.”

“The sequence of:

Seeking new things (goals)Working and learning in the process of pursuing these goalsObtaining these goals, andThen doing this over and over again

Is the personal evolutionary process that fulfills most of us and moves society forward.”

“There is an excellent correlationi between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes.”

“Most people especially dislike others exploring their weaknesses because it makes them feel attacked, which produces fight or flight reactions; however, having others help one find one’s weaknesses is essential because it’s very difficult to identify one’s own.”

“The quality of our lives depends on the quality of the decisions we make.”

Reality + Dreams + Determination = A Successful Life

Five decision trees for moving towards your goals

Decision 1: How you manage psychological pain

Bad : Allow pain to stand in the way of one’s progressGood : Understand how to manage pain to produce progress“It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way.”Pain + Reflection = Progress. How big of an impediment is psychological pain to your progress?

Decision 2: How you deal with harsh realities

Bad : Avoid facing harsh realitiesGood : Face harsh realities“People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices.”“People who know that understanding what is real is the first step toward optimally dealing with it make better decisions.”“Ask yourself, “is it true?””How much do you let what you wish to be true stand in the way of seeing what is really true?

Decision 3: Your appearance

Bad : You worry about appearing goodGood: You worry about acheiving the goal“People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future.”How much do you worry about looking good relative to actually being good?

Decision 4: Degrees of consequence

Bad: Make their decisions on the basis of first order consequencesGood: Make their decisions on the basis of first, second, and third order consequences“People who overweigh the first-order consequences of their decisions and ignore the effects that the second- and sebsequent-order consequences will have on their goals rarely reach their goals.”How much do you respond to first order consequences at the expense of the 2nd and 3rd order consequences?

Decision 5: Who do you hold accountable

Bad : Don’t hold themselves accountableGood : Hold themselves accountable“Successful people understand that bad things come at everyone and that it is their responsibility to make their lives what they want them to be by successfully dealing with whatever challenges they face.”How much do you let yourself off the hook rather than hold yourself accountable for your success?“In summary, I believe that you can probably get what you want out of life if you can suspend your ego and take a no-excuses approach to achieving your goals with open-mindedness, determination, and courage, especially if you rely on the help of people who are strong in areas that you are weak.”

Your Two Yous and Your Machine

“Think of it as though there are two yous—you as the designer and overseer of the plan to achieve your goals (you 1) and you as one of the participants in pursuing that mission (you 2). You2 is a resource that You 1 have to get what You 1 want, but by no means your own resource. To be successful, You 1 have to be objective about You 2.”

The Process steps:

Have clear goalsIdentify and don’t tolerate the problems that stand in the way of your goalsAccurately diagnose these problemsDesign plans that explicitly lay out tasks that will get you around your problems and on to your goalsImplement these plans, do these tasks.

Important points on the process:

You must approach them as distinct steps, not blend them together. When setting goals, JUST set goals, don’t think about what’s in their way. Blurring the steps leads to worse outcomes because it creates confusion and short changes steps.Each of the five steps require different talents and disciplines. You must diagnose and address your weaknesses in the process, too.It is essential to approach this process in a clear-headed, rational way rather than emotionally.

A good way to stay centered and not get too emotional in evaluation, is to treat your life like a game. How do you get around challenges to reach your goal?