BY RAY DALIO
- Below you can find my top highlights from the book (it is not meant to be a summary)
- Quotes are edited for readability when context is required, and bolded to help structure the notes.
- Skim… then slow down on the paragraphs that catch your interest. Reflection requires pause.
- If it resonates, you can purchase the full book here.
![Principles: Life and Work by [Dalio, Ray]](https://images-na.ssl-images-amazon.com/images/I/41Mq7Ss7lPL.jpg)
ON EVOLUTION
Whenever I observe something in nature that I (or mankind) think is wrong, I assume that I’m wrong and try to figure out why what nature is doing makes sense. That has taught me a lot.
When I began to look at reality through the perspective of figuring out how it really works, instead of thinking things should be different, I realized that most everything that at first seemed “bad” to me—like rainy days, weaknesses, and even death—was because I held preconceived notions of what I personally wanted. With time, I learned that my initial reaction was because I hadn’t put whatever I was reacting to in the context of the fact that reality is built to optimize for the whole rather than for me.
Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are. It’s important not to let our biases stand in the way of our objectivity.
Nature optimizes for the whole, not for the individual, but most people judge good and bad based only on how it affects them. Nature made everything and everyone for a purpose.
Realizing that we innately want to evolve—and that the other stuff we are going after, while nice, won’t sustain our happiness—has helped me focus on my goals of evolving and contributing to evolution in my own infinitely small way.
This constant drive toward learning and improvement makes getting better innately enjoyable and getting better fast exhilarating. Though most people think that they are striving to get the things (toys, bigger houses, money, status, etc.) that will make them happy, for most people those things don’t supply anywhere near the long-term satisfaction that getting better at something does.
I used to think that memory-based, conscious learning was the most powerful, but I’ve since come to understand that it produces less rapid progress than experimentation and adaptation.
All machines eventually break down, decompose, and have their parts recycled to create new machines. That includes us. Sometimes this makes us sad because we’ve become attached to our machines, but if you look at it from the higher level, it’s really beautiful to observe how the machine of evolution works.
Evolution has produced:
a) incentives and interactions that lead to individuals pursuing their own interests and resulting in the advancement of the whole,
b) the natural selection process, and
c) rapid experimentation and adaptation.
Contribute to the whole and you will likely be rewarded.
ON OBJECTIVITY
Don’t fall into the common trap of wishing that reality worked differently than it does or that your own realities were different. Instead, embrace your realities and deal with them effectively. After all, making the most of your circumstances is what life is all about.
I now find it thrilling to embrace reality, to look down on myself through nature’s perspective, and to be an infinitesimally small part of the whole. My instinctual and intellectual goal is simply to evolve and contribute to evolution in some tiny way while I’m here and while I am what I am. At the same time, the things I love most—my work and my relationships—are what motivate me.
Nearly everyone else assumed that the future would be similar to the past. Focusing strictly on the logical cause-effect relationships was what allowed us to see what was really going on.
ON PAIN
Regularly use pain as your guide toward quality reflection. Mental pain often comes from being too attached to an idea when a person or an event comes along to challenge it. This is especially true when what is being pointed out to you involves a weakness on your part. This kind of mental pain is a clue that you are potentially wrong and that you need to think about the question in a quality way.
Pain + Reflection = Progress. To do this, first calm yourself down. This can be difficult: You will probably feel your amygdala kicking in through a tightening in your head, tension in your body, or an emerging sense of annoyance, anger, or irritability. Note these feelings when they arise in you. By being aware of such signals of closed-mindedness, you can use them as cues to control your behavior and guide yourself toward open-mindedness. Doing this regularly will strengthen your ability to keep your “higher-level you” in control. The more you do it, the stronger you will become.
Comfort yourself with the knowledge that whatever psychological pain you are experiencing will go away before very long.
Develop a reflexive reaction to psychic pain that causes you to reflect on it rather than avoid it, it will lead to your rapid learning/evolving. After seeing how much more effective it is to face the painful realities that are caused by your problems, mistakes, and weaknesses, I believe you won’t want to operate any other way. It’s just a matter of getting in the habit of doing it.
Most things in life are just “another one of those.” The higher you ascend, the more effective you become at working with reality to shape outcomes toward your goals. What once seemed impossibly complex becomes simple.
Go to the pain rather than avoid it. If you don’t let up on yourself and instead become comfortable always operating with some level of pain, you will evolve at a faster pace. That’s just the way it is.
How to turn pain into pleasure: Every time you confront something painful, you are at a potentially important juncture in your life—you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion. The irony is that if you choose the healthy route, the pain will soon turn into pleasure.
ON WEAKNESSES
People are happiest when they can be themselves. If you can be open with your weaknesses it will make you freer and will help you deal with them better. I urge you to not be embarrassed about your problems, recognizing that everyone has them.
At such times, you will be in pain and might think that you don’t have the strength to go on. You almost always do, however; your ultimate success will depend on you realizing that fact, even though it might not seem that way at the moment.
If you do it well, you can change your psychological reaction to it so that what was painful can become something you crave. (Note:perfecting your desires, as per Naval Rakivant).
By “getting to the other side,” I mean that you will become hooked on:
• Identifying, accepting, and learning how to deal with your weaknesses,
• Preferring that the people around you be honest with you rather than keep their negative thoughts about you to themselves, and
• Being yourself rather than having to pretend to be strong where you are weak.
Internal locus of control: Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t.
Don’t worry about whether you like your situation or not. Life doesn’t give a damn about what you like. It’s up to you to connect what you want with what you need to do to get it and then find the courage to carry it through.
You shouldn’t be upset if you find out that you’re bad at something—you should be happy that you found out, because knowing that and dealing with it will improve your chances of getting what you want.
You need to get over all that and stop seeing struggling as something negative. Most of life’s greatest opportunities come out of moments of struggle; it’s up to you to make the most of these tests of creativity and character.
Ask others better than you: Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing. All successful people are good at this. You shouldn’t assume that you are always the best person to make decisions for yourself because often you aren’t. Knowing when not to make your own decisions is one of the most important skills you can develop. I still know I can’t see myself objectively, which is why I continue to rely so much on the input of others.
Don’t worry about looking good—worry instead about achieving your goals. Don’t overweight first-order consequences relative to second- and third-order ones. Don’t let pain stand in the way of progress. Don’t blame bad outcomes on anyone but yourself. Don’t confuse what you wish were true with what is really true.
Believable parties are those who have repeatedly and successfully accomplished something—and have great explanations for how they did it.
On things being good or bad: There are many things people consider “good” in the sense that they are kind or considerate but fail to deliver what’s desired (like communism’s “from each according to his ability, to each according to his needs”). Nature would appear to consider them “bad,” and I’d agree with nature.
If you can reflect deeply about your problems, they almost always shrink or disappear, because you almost always find a better way of dealing with them than if you don’t face them head-on.
ON GOALS
So what if you don’t have all the skills you need to succeed? Don’t worry about it because that’s true for everyone. You just have to know when they are needed and where you can go to get them. With practice, you will eventually play this game with a calm unstoppable centeredness in the face of adversity. Your ability to get what you want will thrill you.
What’s key is what you do with your passion. Do you let it consume you and drive you to irrational acts, or do you harness it to motivate and drive you while you pursue your real goals? What will ultimately fulfill you are things that feel right at both levels, as both desires and goals.
Never rule out a goal because you think it’s unattainable. Be audacious. There is always a best possible path. Your job is to find it and have the courage to follow it. What you think is attainable is just a function of what you know at the moment. Once you start your pursuit you will learn a lot, especially if you triangulate with others; paths you never saw before will emerge. Remember that great expectations create great capabilities. If you limit your goals to what you know you can achieve, you are setting the bar way too low.
Your mission is to always make the best possible choices, knowing that you will be rewarded if you do.
View painful problems as potential improvements that are screaming at you. Though it won’t feel that way at first, each and every problem you encounter is an opportunity; for that reason, it is essential that you bring them to the surface. Most people don’t like to do this, especially if it exposes their own weaknesses or the weaknesses of someone they care about, but successful people know they have to.
Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at. Thinking about problems that are difficult to solve may make you anxious, but not thinking about them (and hence not dealing with them) should make you more anxious still. When a problem stems from your own lack of talent or skill, most people feel shame. Get over it. I cannot emphasize this enough.
Once you identify a problem, don’t tolerate it. Tolerating a problem has the same consequences as failing to identify it. Whether you tolerate it because you believe it cannot be solved, because you don’t care enough to solve it, or because you can’t muster enough of whatever it takes to solve it, if you don’t have the will to succeed, then your situation is hopeless. You need to develop a fierce intolerance of badness of any kind, regardless of its severity.
ON STRATEGY
More than anything else, 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.
Strategic thinking requires both diagnosis and design. A good diagnosis typically takes between fifteen minutes and an hour, depending on how well it’s done and how complex the issue is. It involves speaking with the relevant people and looking at the evidence together to determine the root causes.
Like principles, root causes manifest themselves over and over again in seemingly different situations. Finding them and dealing with them pays dividends again and again.
Remember: Designing precedes doing! Too many people make the mistake of spending virtually no time on designing because they are preoccupied with execution.
It’s important to remember the connections between your tasks and the goals that they are meant to achieve. When you feel yourself losing sight of that, stop and ask yourself “why?”
There are many successful, creative people who aren’t good at execution. They succeed because they forge symbiotic relationships with highly reliable task-doers.
Synthesize and shape well. The first three steps—setting goals, identifying problems, and then diagnosing them—are synthesizing (by which I mean knowing where you want to go and what’s really going on). Designing solutions and making sure that the designs are implemented are shaping.
First and foremost, have humility so you can get what you need from others! Everyone has weaknesses. They are generally revealed in the patterns of mistakes they make. Knowing what your weaknesses are and staring hard at them is the first step on the path to success.
You can either fix it or you can get the help of others to deal with it well. There are two paths to success: 1) to have what you need yourself or 2) to get it from others. The second path requires you to have humility. Humility is as important, or even more important, as having the strengths yourself. Having both is best.
ON BLINDSPOTS
Get to know your blind spots. When you are closed-minded and form an opinion in an area where you have a blind spot, it can be deadly. So take some time to record the circumstances in which you’ve consistently made bad decisions because you failed to see what others saw. Ask others—especially those who’ve seen what you’ve missed—to help you with this.
Having both open-mindedness and good mental maps is most powerful of all.
If you have high open-mindedness but bad mental maps, you will probably have challenges picking the right people and points of view to follow. The person who has good mental maps and a lot of open-mindedness will always beat out the person who doesn’t have both.
The two biggest barriers to good decision making are your ego and your blind spots.
This is very confusing because you and the people you are dealing with typically don’t even know that these lower-level beasts exist, never mind that they are trying to hijack everyone’s behavior.
When someone disagrees with you and asks you to explain your thinking … because you are programmed to view such challenges as attacks, you get angry, even though it would be more logical for you to be interested in the other person’s perspective.
You must not let your need to be right be more important than your need to find out what’s true. If you are too proud of what you know or of how good you are at something you will learn less, make inferior decisions, and fall short of your potential.
When you point out someone’s psychological weakness, it’s generally about as well received as if you pointed out a physical weakness.
If you know that you are blind, you can figure out a way to see. If you’re like most people, you have no clue how other people see things and aren’t good at seeking to understand what they are thinking, because you’re too preoccupied with telling them what you yourself think is correct.
“Not knowing” comes before “knowing”: Radically open-minded people know that coming up with the right questions and asking other smart people what they think is as important as having all the answers. They understand that you can’t make a great decision without swimming for a while in a state of “not knowing.”
Ask yourself: Am I seeing this just through my own eyes? If so, then you should know that you’re terribly handicapped. You need to be so open to the possibility that you could be wrong that you encourage others to tell you so.
You should make it clear that you are asking questions because you are seeking to understand their perspective. Conversely, if you are clearly the more believable person, you might politely remind the other of that and suggest that they ask you questions.
Use questions rather than make statements. Approach the conversation in a way that conveys that you’re just trying to understand. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, you are not arguing; you are openly exploring what’s true. Be reasonable and expect others to be reasonable. If you’re calm, collegial, and respectful you will do a lot better than if you are not.
Open-minded and assertive at the same time—you should hold and explore conflicting possibilities in your mind while moving fluidly toward whatever is likely to be true based on what you learn. 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.
Both parties observe a “two-minute rule” in which neither interrupts the other, so they both have time to get all their thoughts out.
Working through disagreements does take time but it’s just about the best way you can spend it. What’s important is that you prioritize what you spend time on and who you spend it with.
Wasting time disagreeing past the point of diminishing returns. When that happens, move on to a more productive way of getting to a mutual understanding, which isn’t necessarily the same thing as agreement. For example, you might agree to disagree.
Radical open-mindedness isn’t easy: You need to teach yourself the art of having exchanges in ways that don’t trigger such reactions in yourself or others. This was what I had to learn back when Bob, Giselle, and Dan told me I made people feel belittled.
Practicing thoughtful disagreement, which is the process of seeking out brilliant people who disagree with you in order to see things through their eyes and gain a deeper understanding. Doing this will raise your probability of making good decisions and will also give you a fabulous education. If you can learn radical open-mindedness and practice thoughtful disagreement, you’ll radically increase your learning.
Questions to facilitate communication: “Would you rather I be open with my thoughts and questions or keep them to myself?”; “Are we going to try to convince each other that we are right or are we going to open-mindedly hear each other’s perspectives to try to figure out what’s true and what to do about it?”; or “Are you arguing with me or seeking to understand my perspective?”
ON TRIANGULATION
Triangulating with highly believable people who are willing to have thoughtful disagreements has never failed to enhance my learning and sharpen the quality of my decision making. To do it well, be sure to avoid the common perils of: 1) valuing your own believability more than is logical and 2) not distinguishing between who is more or less credible.
In cases in which the subjects are just too complex for me to understand in the time required, I will turn over the decision making to knowledgeable others who are more believable than me, but I still want to listen in on their thoughtful disagreement. I find that most people don’t do that—they prefer to make their own decisions, even when they’re not qualified to make the kinds of judgments required. In doing so, they’re giving in to their lower-level selves.
I like to triangulate opinions with believable people, rather than following what I am told is best, even by an expert. So I also had my personal physician, Dr. Glazer, set up visits with four other experts on this particular disease.
Right then and there I called the other doctor to see what each would say about the other’s views. This was eye-opening. While the two doctors had told me completely different things when I met with them in person, when they were on the phone together, they sought to minimize their disagreement and make the other look good, putting professional courtesy ahead of thrashing things out to get at the best answer. Still, the differences in their views were clear, and listening to them deepened my understanding.
Even experts can make mistakes; my point is simply that it pays to be radically open-minded and triangulate with smart people. Had I not pushed for other opinions, my life would have taken a very different course. My point is that you can significantly raise your probabilities of making the right decisions by open-mindedly triangulating with believable people.
Open-minded people genuinely believe they could be wrong; the questions that they ask are genuine. They also assess their relative believability to determine whether their primary role should be as a student, a teacher, or a peer. If your statement starts with “I could be wrong” or “I’m not believable,” you should probably follow it with a question and not an assertion. Open-minded people know when to make statements and when to ask questions.
A few good decision makers working effectively together can significantly outperform a good decision maker working alone—and even the best decision maker can significantly improve his or her decision making with the help of other excellent decision makers.
Make being open-minded a habit. The life that you will live is most simply the result of habits you develop. If you consistently use feelings of anger/frustration as cues to calm down, slow down, and approach the subject at hand thoughtfully, over time you’ll experience negative emotions much less frequently and go directly to the open-minded practices
If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased. Be objective! While it is possible that you are right and they are wrong, you should switch from a fighting mode to an “asking questions” mode, compare your believability with theirs, and if necessary agree to bring in a neutral party you all respect to break the deadlock.
It’s important that you think independently and fight for what you believe in, but there comes a time when it’s wiser to stop fighting for your view and move on to accepting what believable others think is best. This can be extremely difficult. But it’s smarter and ultimately better for you to be open-minded and have faith that the consensus of believable others is better than whatever you think. If you can’t understand their view, you’re probably just blind to their way of thinking. If you continue doing what you think is best when all the evidence and believable people are against you, you’re being dangerously arrogant.
Gaining open-mindedness doesn’t mean losing assertiveness. In fact, because it increases one’s odds of being right, it should increase one’s confidence. That has been true for me since my big crash, which is why I’ve been able to have more success with less risk.
Becoming truly open-minded takes time. Like all real learning, doing this is largely a matter of habit; once you do it so many times it is almost instinctive, you’ll find it intolerable to be any other way. As noted earlier, this typically takes about eighteen months, which in the course of a lifetime is nothing.
ON THE SUBCONSCIOUS
People have an instinctual fear of snakes, no one has an instinctual fear of flowers. The brains that we were born with had learned that snakes are dangerous and flowers are not. Understand the great brain battles and how to control them to get what “you” want.
Though I’ve often seen these two yous (conscious & unconscious) in action in myself and others, it wasn’t until I learned why they exist that I really understood them. I came to understand that there are large parts of our brains that don’t do what is logical.
Clearing your head can be the best way to make progress. Many people only see the conscious mind and aren’t aware of the benefits of connecting it to the subconscious. They believe that the way to accomplish more is to cram more into the conscious mind and make it work harder,
Because it is physiological, I can actually feel the creative thoughts coming from elsewhere and flowing into my conscious mind. It’s a kick to understand how that works.
When thoughts and instructions come to me from my subconscious, rather than acting on them immediately, I have gotten into the habit of examining them with my conscious, logical mind. I have found that in addition to helping me figure out which thoughts are valid and why I am reacting to them as I do, doing this opens further communication between my conscious and subconscious minds. It’s helpful to write down the results of this process. In fact that’s how my Principles came about.
ON HABITS
Habit is probably the most powerful tool in your brain’s toolbox. It is driven by a golf-ball-sized lump of tissue called the basal ganglia at the base of the cerebrum. Research suggests that if you stick with a behavior for approximately eighteen months, you will build a strong tendency to stick to it nearly forever.
Write down your three most harmful habits. Do that right now. Now pick one of those habits and be committed to breaking it. Can you do that? That would be extraordinarily impactful. If you break all three, you will radically improve the trajectory of your life. Or you can pick habits that you want to acquire and then acquire them.
The most valuable habit I’ve acquired is using pain to trigger quality reflections. If you can acquire this habit yourself, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness.
Beyond a basic level, there is no correlation between happiness levels and conventional markers of success. “You could have all the money you’ve ever wanted, a successful career, and be in good physical health, but without loving relationships, you won’t be happy . . . The good life is built with good relationships.”
ON DECISIONS
Some decisions you should make yourself and some you should delegate to someone more believable. Using self-knowledge to know which are which is the key to success—no matter what it is you are trying to do.
1) the biggest threat to good decision making is harmful emotions, and
2) decision making is a two-step process (first learning and then deciding).
Remind yourself that it’s never harmful to at least hear an opposing point of view.
Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases.
Am I learning? Have I learned enough yet that it’s time for deciding?
The quality of your synthesis will determine the quality of your decision making.
No sensible person should reject a believable person’s views without great fear of being wrong.
To synthesize well, you must
1) synthesize the situation at hand,
2) synthesize the situation through time, and
3) navigate levels effectively.
Listening to uninformed people is worse than having no answers at all. Don’t mistake opinions for facts. One of the most important decisions you can make is who you ask questions.
It is smarter to choose the great over the new. In all aspects of life, what’s happening today seems like a much bigger deal than it will appear in retrospect. That’s why it helps to step back to gain perspective and sometimes defer a decision until some time passes.
Everything important in your life needs to be on a trajectory to be above the bar and headed toward excellent at an appropriate pace.
“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.
Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it. Decisions need to be made at the appropriate level, but they should also be consistent across levels. (Note: this is “System 2” thinking, but most moment to moment thinking is actually “System 1” intuitive understaring, using Kahneman‘s terminology.)
“Until you make the unconscious conscious, it will direct your life and you will call it fate.” as Carl Jung puts it. The majority of people follow the lower-level path most of the time, which leads to inferior decisions without their realizing it.
Think of the probability as a measure of how often you’re likely to be wrong. Raising the probability of being right by 34 percentage points means that a third of your bets will switch from losses to wins. That’s why it pays to stress-test your thinking, even when you’re pretty sure you’re right.
You can significantly improve your track record if you only make the bets that you are most confident will pay off. I’d rather have fewer bets (ideally uncorrelated ones) in which I am highly confident than more bets I’m less confident in,
Anything is possible. It’s the probabilities that matter. Everything must be weighed in terms of its likelihood and prioritized. People who can accurately sort probabilities from possibilities are generally strong at “practical thinking”; they’re the opposite of the “philosopher” types who tend to get lost in clouds of possibilities.
Almost all “cases at hand” are just “another one of those,” identifying which “one of those” it is, and then applying well-thought-out principles for dealing with it. This will allow you to massively reduce the number of decisions you have to make (I estimate by a factor of something like 100,000) and will lead you to make much better ones. You just want to use the best ones possible well. If you think that way constantly, you will become an excellent principled thinker.
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