# Principles ## Metadata * Author: [Ray Dalio](https://www.amazon.comundefined) * ASIN: B071CTK28D * ISBN: 1501124021 * Reference: https://www.amazon.com/dp/B071CTK28D * [Kindle link](kindle://book?action=open&asin=B071CTK28D) ## Highlights Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals. — location: [68](kindle://book?action=open&asin=B071CTK28D&location=68) ^ref-60346 --- To be principled means to consistently operate with principles that can be clearly explained. — location: [74](kindle://book?action=open&asin=B071CTK28D&location=74) ^ref-7456 --- relationships with others, your principles and their principles will determine how you interact. People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflicts. — location: [96](kindle://book?action=open&asin=B071CTK28D&location=96) ^ref-36965 --- Too often in relationships, people’s principles aren’t clear. This is especially problematic in organizations where people need to have shared principles to be successful. — location: [99](kindle://book?action=open&asin=B071CTK28D&location=99) ^ref-32202 --- So you must be clear about your principles and then you must “walk the talk.” — location: [105](kindle://book?action=open&asin=B071CTK28D&location=105) ^ref-5031 --- knowing how to both strive for a lot and fail well. By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game. — location: [114](kindle://book?action=open&asin=B071CTK28D&location=114) ^ref-6862 --- My painful mistakes shifted me from having a perspective of “I know I’m right” to having one of “How do I know I’m right?” — location: [124](kindle://book?action=open&asin=B071CTK28D&location=124) ^ref-2837 --- The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others. — location: [143](kindle://book?action=open&asin=B071CTK28D&location=143) ^ref-49415 --- most people tend to be biased by their recent experiences. — location: [277](kindle://book?action=open&asin=B071CTK28D&location=277) ^ref-56443 --- Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively. — location: [281](kindle://book?action=open&asin=B071CTK28D&location=281) ^ref-32693 --- There are always risks out there that can hurt you badly, even in the seemingly safest bets, so it’s always best to assume you’re missing something. — location: [445](kindle://book?action=open&asin=B071CTK28D&location=445) ^ref-27655 --- for me, meaningful work and meaningful relationships were and still are my primary goals and everything I did was for them. — location: [458](kindle://book?action=open&asin=B071CTK28D&location=458) ^ref-53887 --- Because I believed that the choice was between accelerating inflation and deflationary depression, I was holding both gold (which performs well in accelerating inflation) and bonds (which perform well in deflationary depressions). Up until that point, gold and bonds had moved in opposite directions, depending on whether inflation expectations rose or fell. Holding those positions seemed much safer than holding alternatives like cash, which would lose value in an inflation environment, or stocks, which would crash in a depression. — location: [558](kindle://book?action=open&asin=B071CTK28D&location=558) ^ref-42175 --- In retrospect, my crash was one of the best things that ever happened to me because it gave me the humility I needed to balance my aggressiveness. — location: [618](kindle://book?action=open&asin=B071CTK28D&location=618) ^ref-39497 --- In other words, I just want to be right—I don’t care if the right answer comes from me. So I learned to be radically open-minded to allow others to point out what I might be missing. I saw that the only way I could succeed would be to: 1. Seek out the smartest people who disagreed with me so I could try to understand their reasoning. 2. Know when not to have an opinion. 3. Develop, test, and systemize timeless and universal principles. 4. Balance risks in ways that keep the big upside while reducing the downside. — location: [622](kindle://book?action=open&asin=B071CTK28D&location=622) ^ref-41887 --- the important thing to note here is that beneficial change begins when you can acknowledge and even embrace your weaknesses. — location: [637](kindle://book?action=open&asin=B071CTK28D&location=637) ^ref-64028 --- I needed to have both low risk and high returns, and by setting out on a mission to discover how I could, I learned to go slowly when faced with the choice between two things that you need that are seemingly at odds. That way you can figure out how to have as much of both as possible. There is almost always a good path that you just haven’t discovered yet, so look for it until you find it rather than settle for the choice that is then apparent to you. — location: [647](kindle://book?action=open&asin=B071CTK28D&location=647) ^ref-57696 --- “He who lives by the crystal ball is destined to eat ground glass” — location: [669](kindle://book?action=open&asin=B071CTK28D&location=669) ^ref-43649 --- that what was most important wasn’t knowing the future—it was knowing how to react appropriately to the information available at each point in time. — location: [670](kindle://book?action=open&asin=B071CTK28D&location=670) ^ref-771 --- believe one of the most valuable things you can do to improve your decision making is to think through your principles for making decisions, write them out in both words and computer algorithms, back-test them if possible, and use them on a real-time basis to run in parallel with your brain’s decision making. — location: [714](kindle://book?action=open&asin=B071CTK28D&location=714) ^ref-37109 --- The most important components to separate were the profits coming from the core business and those that were speculative profits and losses coming from price changes. — location: [730](kindle://book?action=open&asin=B071CTK28D&location=730) ^ref-32701 --- This approach to establishing a “risk-neutral” benchmark position and deviating from it with measured bets was the genesis of the style of investment management we would later call “alpha overlay,” in which passive (“beta”) and active (“alpha”) exposures are separated. — location: [736](kindle://book?action=open&asin=B071CTK28D&location=736) ^ref-32415 --- successful investor is to only take bets you are highly confident in and to diversify them well. — location: [741](kindle://book?action=open&asin=B071CTK28D&location=741) ^ref-9431 --- Maturity is the ability to reject good alternatives in order to pursue even better ones. — location: [797](kindle://book?action=open&asin=B071CTK28D&location=797) ^ref-63255 --- believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck. — location: [861](kindle://book?action=open&asin=B071CTK28D&location=861) ^ref-65178 --- Because most people are more emotional than logical, they tend to overreact to short-term results; they give up and sell low when times are bad and buy too high when times are good. I find this is just as true for relationships as it is for investments—wise people stick with sound fundamentals through the ups and downs, while flighty people react emotionally to how things feel, jumping into things when they’re hot and abandoning them when they’re not. — location: [885](kindle://book?action=open&asin=B071CTK28D&location=885) ^ref-32312 --- I have come to realize that bad times coupled with good reflections provide some of the best lessons, and not just about business but also about relationships. — location: [890](kindle://book?action=open&asin=B071CTK28D&location=890) ^ref-32801 --- From my earlier failures, I knew that no matter how confident I was in making any one bet I could still be wrong—and that proper diversification was the key to reducing risks without reducing returns. If I could build a portfolio filled with high-quality return streams3 that were properly diversified (they zigged and zagged in ways that balanced each other out), I could offer clients an overall portfolio return much more consistent and reliable than what they could get elsewhere. — location: [919](kindle://book?action=open&asin=B071CTK28D&location=919) ^ref-2250 Apply to research --- Harry Markowitz had invented a widely used model that allowed you to input a set of assets along with their expected returns, risks, and correlations (showing how similarly those assets have performed in the past) and determine an “optimal mix” of those assets in a portfolio. — location: [923](kindle://book?action=open&asin=B071CTK28D&location=923) ^ref-54715 --- Having a few good uncorrelated return streams is better than having just one, and knowing how to combine return streams is even more effective than being able to choose good ones (though of course you have to do both). At the time (and still today), most investment managers did not take advantage of this. — location: [936](kindle://book?action=open&asin=B071CTK28D&location=936) ^ref-28303 --- life: Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside. — location: [954](kindle://book?action=open&asin=B071CTK28D&location=954) ^ref-28461 --- Pure Alpha product was just the first of a number of innovative designs we brought to our clients. — location: [981](kindle://book?action=open&asin=B071CTK28D&location=981) ^ref-62325 --- it reminded me that when faced with the choice between two things you need that are seemingly at odds, go slowly to figure out how you can have as much of both as possible. There is almost always a good path that you just haven’t figured out yet, so look for it until you find it rather than settle for the choice that is then apparent to you. — location: [1027](kindle://book?action=open&asin=B071CTK28D&location=1027) ^ref-38971 --- While those people I had contact with understood me, liked me, and in some cases even loved me, those who had less contact with me were offended by my directness. It was clear that I needed to be better understood and to understand others better. — location: [1036](kindle://book?action=open&asin=B071CTK28D&location=1036) ^ref-30035 --- how essential it is that people in relationships must be crystal clear about their principles for dealing with each other. — location: [1038](kindle://book?action=open&asin=B071CTK28D&location=1038) ^ref-51375 --- three things: 1. Put our honest thoughts out 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 resentments. I believe that for any organization or for any relationship to be great, these things are required. I also believe that for a group decision-making system to be effective, the people using it have to believe that it’s fair. — location: [1042](kindle://book?action=open&asin=B071CTK28D&location=1042) ^ref-6193 --- wrestling with the markets, thinking independently and creatively about how to make our bets, making mistakes, bringing those mistakes to the surface, diagnosing them to get at their root causes, designing new and better ways of doing things, systematically implementing the changes, making new mistakes, and so on.4 This iterative, evolutionary approach allowed us to continually refine the investment systems that I’d begun building in 1982. — location: [1071](kindle://book?action=open&asin=B071CTK28D&location=1071) ^ref-63726 --- Having our systems running through these machines freed us to get above the daily movements of the markets and consider things from a higher level, where we could make novel, creative connections that produced innovations for our clients. — location: [1080](kindle://book?action=open&asin=B071CTK28D&location=1080) ^ref-10744 Same for ai research : free of daily mechanical problems --- “All Weather Portfolio” because it could perform well in all environments. — location: [1116](kindle://book?action=open&asin=B071CTK28D&location=1116) ^ref-43588 --- It is now generically called “risk parity” investing. — location: [1121](kindle://book?action=open&asin=B071CTK28D&location=1121) ^ref-25676 --- whenever something new came along that required me to make a decision, I would reflect on my criteria for making that decision and write it down as a principle so people could make the connections between the situation, my principle for handling these situations, and my actions. More and more, we saw everything as “another one of those”—another of a certain type of situation like hiring, firing, determining compensation, dealing with dishonesty—that had principles for handling them. By having them explicitly written out, I could foster the idea meritocracy by having us together reflect on and refine those principles—and then adhere to them. — location: [1147](kindle://book?action=open&asin=B071CTK28D&location=1147) ^ref-21804 --- In early 2008, I had most of Bridgewater’s managers take the Myers-Briggs assessment. The results astounded me. I couldn’t believe that some of them actually thought in the ways the test described, yet when I asked them to rate how well it described them on a scale of one to five, more than 80 percent of them gave it a four or five. — location: [1187](kindle://book?action=open&asin=B071CTK28D&location=1187) ^ref-10920 --- (Recently I came across a study that revealed a cognitive bias in which people consistently overlook the evidence of one person being better than another at something and assume that both are equally good at a task. This was exactly what we were seeing.) For example, people who were known not to be creative were being assigned tasks that required creativity; people who didn’t pay attention to details were being assigned to detail-oriented jobs, and so on. We needed a way to make the data that showed what people were like even clearer and more explicit, so I began making “Baseball Cards” for employees that listed their “stats.” The idea was that they could be passed around and referred to when assigning responsibilities. Just as you wouldn’t have a great fielder with a .160 batting average bat third, you wouldn’t assign a big-picture person a task requiring attention to details. — location: [1193](kindle://book?action=open&asin=B071CTK28D&location=1193) ^ref-39812 --- conducted a time-and-motion study of all of my investment and management responsibilities; it showed it would take me about 165 hours a week to achieve the level of excellence that I would be satisfied with in overseeing both our investments and management. — location: [1249](kindle://book?action=open&asin=B071CTK28D&location=1249) ^ref-39352 --- To me, the greatest success you can have as the person in charge is to orchestrate others to do things well without you. — location: [1254](kindle://book?action=open&asin=B071CTK28D&location=1254) ^ref-19476 --- In 2007, this gauge indicated that a bubble of debt was nearing its bursting point because the costs of debt service were outpacing projected cash flows. Because interest rates were so close to 0 percent, I knew that central banks could not ease monetary policy enough to reverse the downturn the way they had in prior recessions. This was the exact configuration that had led to past depressions. — location: [1272](kindle://book?action=open&asin=B071CTK28D&location=1272) ^ref-898 --- I approached them like a doctor, just wanting to make the most beneficial impact. — location: [1326](kindle://book?action=open&asin=B071CTK28D&location=1326) ^ref-44441 --- A shaper is someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts and opposition of others. — location: [1446](kindle://book?action=open&asin=B071CTK28D&location=1446) ^ref-36139 --- pointed to other parallels in our backgrounds, goals, and approaches to shaping—for example, we were both rebellious, independent thinkers who worked relentlessly for innovation and excellence; we were both meditators who wanted to “put a dent in the universe”; and we were both notoriously tough on people. Of course, there were important differences too. I wished Jobs had shared the principles he had used to achieve his goals. — location: [1465](kindle://book?action=open&asin=B071CTK28D&location=1465) ^ref-39479 --- It turns out they have a lot in common. They are all independent thinkers who do not let anything or anyone stand in the way of achieving their audacious goals. They have very strong mental maps of how things should be done, and at the same time a willingness to test those mental maps in the world of reality and change the ways they do things to make them work better. They are extremely resilient, because their need to achieve what they envision is stronger than the pain they experience as they struggle to achieve it. Perhaps most interesting, they have a wider range of vision than most people, either because they have that vision themselves or because they know how to get it from others who can see what they can’t. All are able to see both big pictures and granular details (and levels in between) and synthesize the perspectives they gain at those different levels, whereas most people see just one or the other. They are simultaneously creative, systematic, and practical. They are assertive and open-minded at the same time. Above all, they are passionate about what they are doing, intolerant of people who work for them who aren’t excellent at what they do, and want to have a big, beneficial impact on the world. — location: [1481](kindle://book?action=open&asin=B071CTK28D&location=1481) ^ref-44779 --- At times, their extreme determination to achieve their goals can make them appear abrasive or inconsiderate, which was reflected in their test results. Nothing is ever good enough, and they experience the gap between what is and what could be as both a tragedy and a source of unending motivation. No one can stand in the way of their achieving what they’re going after. On one of the personality assessments there is a category they all ranked low on called “Concern for Others.” — location: [1498](kindle://book?action=open&asin=B071CTK28D&location=1498) ^ref-35288 --- When faced with a choice between achieving their goal or pleasing (or not disappointing) others, they would choose achieving their goal every time. — location: [1508](kindle://book?action=open&asin=B071CTK28D&location=1508) ^ref-65350 --- For example, while Einstein shaped by inventing, he didn’t have to manage, and while Jack Welch (who ran GE) and Lou Gerstner (who ran IBM) were great managers/leaders of people, they didn’t have to be as inventive. The rarest cases were people like Jobs, Musk, Gates, and Bezos, who were inventive visionaries and managed big organizations to build those visions out. — location: [1511](kindle://book?action=open&asin=B071CTK28D&location=1511) ^ref-53906 --- How the Economic Machine Works, which I released in 2013. — location: [1641](kindle://book?action=open&asin=B071CTK28D&location=1641) ^ref-52434 --- The Hero with a Thousand Faces, because he is a classic hero and I thought it might help him. I also gave him The Lessons of History, a 104-page distillation of the major forces through history by Will and Ariel Durant, and River Out of Eden by the insightful Richard Dawkins, which explains how evolution works. — location: [1676](kindle://book?action=open&asin=B071CTK28D&location=1676) ^ref-61959 --- Georgi Plekhanov’s classic On the Role of the Individual in History. — location: [1678](kindle://book?action=open&asin=B071CTK28D&location=1678) ^ref-28694 --- A hero is someone who “found or achieved or [did] something beyond the normal range of achievement,” and who “has given his life to something bigger than himself or other than himself.” I had — location: [1694](kindle://book?action=open&asin=B071CTK28D&location=1694) ^ref-27917 --- Long before I had a lot of money, I had determined that I wanted my sons to have only enough to afford excellent health care, excellent education, and an initial boost to help their careers get started. My perspective was influenced by my own journey through life, which took me from having nothing to having a lot. — location: [1744](kindle://book?action=open&asin=B071CTK28D&location=1744) ^ref-27077 --- Everyone in our family believes that equal opportunity, which is one of the most fundamental human rights, requires equal educational opportunity — location: [1759](kindle://book?action=open&asin=B071CTK28D&location=1759) ^ref-27473 --- “to transition well, there are only two things that you need to do: Put capable CEOs in place and have a capable governance system to replace the CEOs if they’re not capable.” That was what I had failed to do and what I now had a second shot at doing right. So I began to think about governance in a way that I never had before. Simply put, governance is the system of checks and balances ensuring that an organization will be stronger than whoever happens to be leading it at any one time. — location: [1847](kindle://book?action=open&asin=B071CTK28D&location=1847) ^ref-20402 --- With time and experience, I came to see each encounter as “another one of those” that I could approach more calmly and analytically, like a biologist might approach an encounter with a threatening creature in the jungle: first identifying its species and then, drawing on his prior knowledge about its expected behaviors, reacting appropriately. When I was faced with types of situations I had encountered before, I drew on the principles I had learned for dealing with them. But when I ran into ones I hadn’t seen before, I would be painfully surprised. Studying all those painful first-time encounters, I learned that even if they hadn’t happened to me, most of them had happened to other people in other times and places, which gave me a healthy respect for history, a hunger to have a universal understanding of how reality works, and the desire to build timeless and universal principles for dealing with it. — location: [1867](kindle://book?action=open&asin=B071CTK28D&location=1867) ^ref-4752 --- Watching the same things happen again and again, I began to see reality as a gorgeous perpetual motion machine, in which causes become effects that become — location: [1874](kindle://book?action=open&asin=B071CTK28D&location=1874) ^ref-18522 --- causes of new effects, and so on. — location: [1875](kindle://book?action=open&asin=B071CTK28D&location=1875) ^ref-20890 --- reality was, if not perfect, at least what we are given to deal with, so that any problems or frustrations I had with it were more productively directed to dealing with them effectively than complaining about them. — location: [1875](kindle://book?action=open&asin=B071CTK28D&location=1875) ^ref-39653 --- I came to understand that my encounters were tests of my character and creativity. — location: [1877](kindle://book?action=open&asin=B071CTK28D&location=1877) ^ref-21416 --- Encountering pains and figuring out the lessons they were trying to give me became sort of a game to me. The more I played it, the better I got at it, the less painful those situations became, and the more rewarding the process of reflecting, developing principles, and then getting rewards for using those principles became. I learned to love my struggles, which I suppose is a healthy perspective to have, like learning to love exercising (which I haven’t managed to do yet). — location: [1880](kindle://book?action=open&asin=B071CTK28D&location=1880) ^ref-17313 --- In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well. — location: [1888](kindle://book?action=open&asin=B071CTK28D&location=1888) ^ref-47206 --- Thanks to all that struggling and learning, I have done everything I wanted to do, gone everywhere I wanted to go, met whomever I wanted to meet, gotten everything I wanted to own, had a career that has been enthralling, and, most rewardingly, had many wonderful relationships. I have experienced the full range, from having nothing to having an enormous amount, and from being a nobody to being a somebody, so I know the differences. While I experienced them going from the bottom up rather than from the top down (which was preferable and probably influenced my perspective), my assessment is that the incremental benefits of having a lot and being on top are not nearly as great as most people think. Having the basics—a good bed to sleep in, good relationships, good food, and good sex—is most important, and those things don’t get much better when you have a lot of money or much worse when you have less. And the people one meets at the top aren’t necessarily more special than those one meets at the bottom or in between. — location: [1895](kindle://book?action=open&asin=B071CTK28D&location=1895) ^ref-27594 --- cannot say that having an intense life filled with accomplishments is better than having a relaxed life filled with savoring, though I can say that being strong is better than being weak, and that struggling gives one strength. — location: [1905](kindle://book?action=open&asin=B071CTK28D&location=1905) ^ref-7636 --- I realized that passing on knowledge is like passing on DNA—it is more important than the individual, because it lives way beyond the individual’s life. — location: [1911](kindle://book?action=open&asin=B071CTK28D&location=1911) ^ref-10638 --- Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively. — location: [1924](kindle://book?action=open&asin=B071CTK28D&location=1924) ^ref-21931 --- you will begin to understand how the machinery underlying any “another one of those” works and develop a mental map for dealing with it. As — location: [1925](kindle://book?action=open&asin=B071CTK28D&location=1925) ^ref-61337 --- If you were to write down what type of encounter you have every time you have one (e.g., the birth of a child, the loss of a job, a personal disagreement) and compile them in a list, it would probably total just a few hundred items and only a few of them would be unique to you. You might want to try this. Not only will you see for yourself if what I’m saying is true, but you will also start to build a list of the things you need to think about and have principles for. — location: [1932](kindle://book?action=open&asin=B071CTK28D&location=1932) ^ref-61938 --- Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome. — location: [1986](kindle://book?action=open&asin=B071CTK28D&location=1986) ^ref-2214 --- Be radically open-minded and radically transparent. — location: [1991](kindle://book?action=open&asin=B071CTK28D&location=1991) ^ref-58951 --- I’ll explain the concept of believability in more detail in later chapters, but to cover it quickly: Believable parties are those who have repeatedly and successfully accomplished something—and have great explanations for how they did it. — location: [2349](kindle://book?action=open&asin=B071CTK28D&location=2349) ^ref-16442 --- recommend Richard Dawkins’s and E. O. Wilson’s books on evolution. If I had to pick just one, it would be Dawkins’s River Out of Eden. — location: [2357](kindle://book?action=open&asin=B071CTK28D&location=2357) ^ref-16918 --- Have clear goals. 2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals. 3. Accurately diagnose the problems 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. — location: [2400](kindle://book?action=open&asin=B071CTK28D&location=2400) ^ref-50327 ---