Table of Contents
Principles by Ray Dalio (founder of Bridgewater) is a great book. One of the gems in the book was his reference to how the economic machine works, an excellent thirty-minute video that everyone should watch.
Practical Thinking
Throughout the book, Dalio shares his personal story, and then goes on to give us advice about work and life. What I found interesting was his approach – it was extremely systematic. And that’s not surprising since one of the pieces of advice he insists upon is to systematize our decision making. He tells us that one of the most effective ways you can make better, more accurate decisions is to get a computer to help you. If you can encode your decision-making algorithm into it – you can save yourself from your own flaws and biases. But he warns us from trusting AI too much without understanding what it is – fundamentally. Dalio also stresses the importance of learning to code – as it is becoming increasingly clear that coding will become as fundamental as writing very soon.
This relates to his idea of using principles to make decisions. Instead of having to deal with every problem or decision as if it’s new and deserves thinking from scratch – it’s more practical to know how to categorize them. When decisions are classified as “types” that you deal with according to pre-established principles – then you can quickly deal with future decisions.
He warns us to avoid getting caught up in the details and know when things are “good enough”. A practical thinker knows when things are accurate “by and large” – and does not have to deal with every little detail. A practical thinker also knows how to prioritize things – and spends no time sacrificing what he must do for things he would “like” to do.
Simplify – don’t make things more complicated than they need to be. Get rid of all the irrelevant details, so that what’s left is only the essentials. Doing so takes a lot of work, but it’s what separates good from great.
To be productive, you need to find a way to measure your progress. If your progress isn’t quantifiable, then you cannot plan to reach your objectives. It’s easy to fool yourself into thinking you’re making progress, but unless you are meeting specific progress goals, you are growing too slowly, or not at all. And your plan doesn’t have to be a compromise, you can find a way to have your cake and it eat it too. Instead of settling for one course of action that seems like the least bad one, spend more time discovering a course of action that is optimal.
“Maturity is the ability to reject good alternatives in order to pursue even better ones.”
Risk Taking
His advice on risk taking is simple. He tells us to consider the expected value of any given action. Instead of doing what is most probable (which is what most people do) – we should instead think about what course of action has the highest expected value – this takes into consideration the reward in question. And of course, this is exactly how professional poker players think when making their decisions. If the pot odds (how much return for investment) are greater than the odds (probability of event happening i.e. “hitting a flush on the river”), then you should call. Of course, this is a simplistic example as there are many other considerations including your position, chip count, the type of player you are playing against etc…
The End of Wisdom is the perfect book for anyone who wants to arm themselves against bullsh*t advice. Link to Book – Link to Video
Another example is how to think about a major life decision – such as becoming an entrepreneur versus becoming an employee. It’s tempting to make the decision that has the highest probability of success. Perhaps being an employee has a seventy percent chance of making you $100,000 per year and being an entrepreneur has only a ten percent chance of making you $1,000,000 per year. The expected value of being an employee is ($100,000 * 70% = $70,000 per year) – while the expected value of being an entrepreneur is (1,000,000 * 10% = $100,000 per year). While being an entrepreneur is riskier – and is unlikely to pay off, the reward more than compensates for it’s unlikeliness thus making it the more rational option.
A more robust way of thinking about this would be to consider not just the dollar amount you would yield from making either decision, but to consider all the factors that are most meaningful to you. The intangibles such as freedom, meaning, passion, growth should all be part of the equation and be given probabilities and points. That way, you can come up with a much better idea. This was what MJ Demarco suggests in his book “The Millionaire Fastlane” that I reviewed here.
“I also feared boredom and mediocrity much more than I feared failure. For me, great is better than terrible, and terrible is better than mediocre, because terrible at least gives life flavor.”
Pleasure versus Pain
I liked the way Dalio talked about the idea of embracing pain. He talks about how nature is almost trying to fool us by giving us choices that would satisfy our desires now but will hurt us later. It’s hard to sacrifice the present for the future – because for one thing, trying to seek pleasure in the present is a very rational thing to do. But if we only think about the first-order consequences (the direct repercussions of our behaviour) – we will inevitably pay for it later down the road. Instead, we should train ourselves to think about second and third order consequences. It would be pleasurable to eat your favorite dessert today – but you will pay for it in the future in more ways than one. In the present you are gaining direct pleasure from your action (great taste), but the consequences of doing so are getting fat, unhealthy, losing energy, self-esteem, self-confidence in the future.
Once you train yourself to resist the temptations for long enough (around eighteen months) – you switch over to the other side, where you start to enjoy the pain. You begin to invert the things you find pleasurable now, to seeing them in negative light. And I’ve found that to be very true. If you avoid sugar at all costs – for a few months, you will feel less tempted by it. In fact, you will start seeing desserts as something contemptuous. Your brain has been rewired to frame immediate pleasure differently. And it’s the same thing with pain. In the beginning, people hate working out their muscles because of the pain it brings to them, but when they do it for long enough, they begin to crave that feeling – and will start to feel disappointed if they do not experience it their workouts.
Dealing with People
When you have disagreements with other people, remember that they are wired differently from you. They have different personalities and process the world in a different way. The Myers-Briggs test can give you a rough idea of how other people process the world, and once you understand how their thinking is different from yours – you can learn to appreciate that they aren’t being illogical when you disagree with them but are only seeing things differently. It’s a mistake to assume that you’re right, and everyone else is wrong, but it’s also wise to make sure that you only bounce ideas and ask questions to people who are believable.
It’s not smart to listen to anyone – most people don’t know what they’re talking about. Believable people are those who have achieved what you want to achieve and can clearly articulate how they did so. You should also learn to be radically open minded – that is, to never hold on one set of beliefs absolutely. You are very ignorant – regardless of how much you think you know. It’s always better to be cautious about being overconfident, and listen carefully to what other (more believable people) have to say.
While Dalio recommends that you follow the principles prescribed in the book, he warns that adopting them without thinking carefully about them can lead you to acting in a way that conflicts with who you are, and what you want.
There are two things to watch out for, the ego barrier and the blind spot barrier. The ego barrier is wanting to look good in front of others, and thus refusing to confess ignorance or ineptitude. This gets in the way of making better decisions. The blind spot barrier is your biased way of thinking. Since you can’t see reality from other people’s perspectives, you get boggled down by your own worldview – and that makes dealing with others more difficult – as well as making it harder for you to see the errors in your thinking.
Traits Successful People Share
The most successful people in the world are independent thinkers who don’t let anything or anyone stand in their way from achieving their audacious goals. They are flexible when it comes to thinking about the world. They have mental maps that they continually stress test – and don’t take for granted. They are resilient – their need to achieve is greater than the pain they feel in the present. And what makes them most different from others is that they process reality both in an abstract way (seeing the big picture) and appreciate the granular details. They can synthesize between both ways of perceiving the world instead of being one-dimensional. They have very high standards, are systematic, creative, and practical. And are passionate bout what they do.
“Don’t worry about looking good; worry about achieving your goal.”
Book Review
- Durability (I Will Read This Again): 16/20
- Originality (This Taught Me Something New): 16/20
- Experience (This Was Enjoyable to Read): 13/20
- Efficiency (This Was Concise): 16/20
- Shareability (I Will Recommend This Book to My Friends): 18/20
UW Score: 79/100
Principles is a book that contains a lot of solid advice in well-organized, no-nonsense way. The style isn’t easy on the eyes – the bullet points and sub-bullet points creates a reading experience that is more akin to reading a legal document, but Dalio is not trying to entertain us. This book is an honest summary of everything he has learned about work and life, and through reading Principles – you will gain a lot of insight into how Ray Dalio (and people like him) perceive the world, and will be able to take actionable steps to improve your own life.
If you’re an entrepreneur and you want a quick guide to know what to think about before launching you business, check out The Myth of Entrepreneurship.