BOOK REVIEW: Life Principles from Ray Dalio

Book Review Ray Dalio Principles Geodomein

Are you aware of your the principles you use in your day to day decisions? Being aware of your principles is critical when you want to grow your self awareness and want to step up as a leader. Ray Dalio – the founder of Bridgewater Associates -according to Fortune the fifth most important private company in the United States- wrote an extraordinary book “Principles”. Dalio structures his work in thee parts: 1) where I am coming from, 2) life principles & 3) work principles. I chose to review the part ‘Life Principles’ here.

Life Principles

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.

Without principles we would be forced to react to all the things life throws at us individually, as if we were experiencing each of them for the first time. If we instead classify them into good and bad we cab make better decisions.

Dalio explains all successful people operate by principles that help them to be successful, although their principles vary.

Sometimes we gain our principles by our own experiences, sometimes we copy past others’ principles. It isn’t necessarily bad to use others’ principles, but just reading management books and copying the behavior won’t work as we are all different and have different talents.

With a little bit of setback you will flip back to your old behavior. I for example start my morning every day to answer 9 questions to make the most out of my day. 8 questions I derived from my mentor who I share creative talent with, the 9th question I have added because that particular question is important to me (“when will you make time?”). This works for me.

Being clear on your principles is important as it helps you recognize who else shares the same principles. If you don’t have the same values and principles you will experience constant misunderstandings. I see this all the time within teams. When there is no common mission and vision everybody is rowing the boat in a different direction, and the don’t even notice often because they are sitting in the same boat and comment “we are underway, so that’s good isn’t it?” And with that for me they have answered their own question.

1 Embrace reality and deal with it

If you live life to the fullest you’ll get hurt. The magic comes when you keep that pain in perspective knowing that you’ll learn from the setbacks and are able to reflect on them. To me the glass is always half full, never half empty, but what when something goes wrong? I try to see the learning in it. But I hate making mistakes. Dalio says: “be a hyperrealist”. I love this word and its meaning echoes in my head… Dalio states that people who create great things aren’t idle dreamers: they are totally grounded in reality.

He uses the following equation:

dreams + reality + determination = a successful life.

Learning is the product of a continues real-time feedback loop in which we make decisions, see the outcomes, and improve our understanding of reality as a result.

Dalio states that being radically open-minded enhances the efficiency of those feedback loops, because it makes what you are doing, and why, so clear to yourself and to others that there can’t be any misunderstandings. It also helps others to give you honest feedback. Nobody is helped with a “that sounds great” when it’s empty. And don’t let fears of what others think of you stand in your way. … Easier said then done, if you ask me, but if you are willing to do things in the unique way you think you are best you should open-mindedly reflect on the feedback that comes inevitably…

He also talks about being radically transparant. Learning to be radically transparant is like learning to speak in public, as my mentor Roger Hamilton learned us in the Master Trainer certification this summer: “public speaking is public being”. It’s like letting the waterfall of words flow out of your mouth without weighing every word. If you are true to your intention no word will be wrong.

Before summer I spoke at a governmental organization about “map your data”. I took the audience on a tour of examples stepping from one place to another within Holland. After the speaking event someone came to me and asked me about the almond tree I had planted in our garden. I was surprised about the question. I did not remember I used the growth of the almond tree as a metaphor in my talk. That’s what I call ‘tap into Spirit energy’ to tell a story.

I used to joke “a drunken man speaks the truth” but I also am radically transparant when in flow sharing a story in my training programs and on stage. This also means I won’t always say what people want to hear. Which is great because that means only the people that want to hear what I have to share and want to change will stay and listen. And vice versa, since I learn just equally as much from the people I share a learning trajectory with.

lockquote>While mankind is very intelligent in relations to other species, we have the intelligence of moss growing on a rock compared to nature as a whole” RAY DALIO

I just love that. Nature has so many lessons for us if we just are willing to listen to them.

Nature Geodomein

Perfection for example in nature does not exist. If nature were perfect it would not be evolving. Organisms, organizations, and individuals are always imperfect but capable of improving. So instead of getting stuck hiding our imperfections spending energy on pretending to be perfect it makes sense to deal with the imperfections. You will either learn valuable lessons from your mistakes and press on, better equipped to succeed or you won’t and you will fail Dalio states.

So “evolve or die”. Evolving is life’s greatest accomplishment and its greatest reward. For mankind the question will be if we will be able to evolve ourselves into a higher state, speeded up by use of man-made technologies or if we destroy ourselves first…

Understanding nature’s practical lessons helps with understanding yourself in perspective of the whole of the species. What seems a problem for you may not be a problem for your country. So when you zoom in and out you will see things from a different perspective. Dalio states to maximize your own evolution.

The unique abilities of thinking logically, abstractly and from a higher level are carried out in structures in the neocortex. These parts of the brain are more developed in us humans and allow us to reflect on ourselves and direct our own revolution. Because we are capable of memory-based learning we can evolve further and faster than any other species and change ourselves within our own lifetimes. How cool is that!

Interestingly we as people think we are striving to get the stuff we want to have -like a bigger car- but we rarely remain satisfied with them. The things are just the bait. Chasing them forces us to evolve and its in the evolution and not in the rewards themselves that matter to us. So this means that for most people success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment, and then changing to improve.

I relate to this as I embrace a life long learning. What about you?

Evolving also means experiencing ‘growing pain’. I experience this every now and then in my business as well as in my personal life. Its a fundamental Law in nature that in order to gain strength one has to push one’s limits, which is painful.

“Man needs difficulties. They are necessary for health” CARL JUNG

Dalio equates: pain + reflection = progress

The challenges you face will test and strengthen you. If you are not failing, you are not pushing your limits and if you are not pushing your limits you’re not maximizing your potential. If you choose to push through this personal evolution you will go to higher and higher levels. In our 1-year program “producing change” we use the Lighthouse Roger Hamilton created for this. The official name for the lighthouse is the ‘Millionaire Master Plan’, it has 9 levels and you can climb higher when you unlearn the things that got you to the level where you are to go to the next.

The quality of your life will depend on the choices you make on the painful moments in your life. Pain is the signal. Every time you are confronted with something painful you are at the potential important juncture in your life, because then you have the opportunity to choose. No matter what you want in life, Dalio says, your ability to adapt and move quickly and efficiently through the process of personal evolution will determine your success and happiness.

And own the outcomes, as life does not give a damm about what you like. Whatever circumstances life brings you, you will be more likely to success 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’.

Our uniquely human ability to look down from a higher level doesn’t apply just to understanding reality and the cause-effect relationships underlying it. Dalio explains we also have the ability to ‘higher-level thinking’ which gives us the option to study and influence the cause-effect relationships at play in our life’s and use them to get the outcomes we want. Think of yourself as a machine operating within a machine and know you have the ability to alter your machines to produce better outcomes.

You have your goals. Dalio calls the way you will operate to achieve your goals your machine. It consists of a design (the things that have to get done) and the people (who will do the things that need getting done). Those people include you and those in your team. When you for example want to produce change in your organization you need a creator who has thought about the design of the new organization, but you also need someone that supports the idea and brings it to the people in the organization and communicates about it. And you need someone who investigates which is the right system and right timing to deliver the new design. So with the right design you are only halfway, as you also need the right team to deliver, with each of the different talents.

The next step is to compare your outcomes with your goals and ‘scrum sprint-like’ see if you can modify your machine. In this process it’s great if you can ask other people in your team who have talent to improve things.

Dalio distinguishes you as the designer of your machine and you as the worker of the machine. So he asks us to take a helicopter view of ourselves in our process. He wants us to objectively see if we are successful in the design/manager role and in the worker role, and do this without using our emotions.

When you do this well you’ll discover you are not the best person to do everything yourself. This is where I realized I needed a team…Dalio

describes when encountering your weaknesses you have four choices:

  1. You can deny them (which is what most people do)
  2. You can accept them and work at them in order to try to convert them into strengths (which might or might not work dependending on your ability to change)
  3. You accept your weaknesses and find ways around them
    Or, you can change what you are going after

Which would you choose?

Most people ignore the above options because of lack of courage to confront their own weaknesses and don’t want to make the hard choices that this process requires.

2 Use the 5-step process to get what you want out of life

According to Dalio the personal evolutionary process takes place in five distinct steps:

  1. 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 around them
  5. Do what’s necessary to push these designs through to results.

Together these five steps make a loop.

Ad 1

what I like is that he states not to confuse goals with desires. I totally agree with that. A proper goal is something that you really need to achieve. Desires are things that you want that can prevent you from reaching your goals.

And never rule out a goal because you think it’s unattainable Dalio says. I would like to add to that when you have found a goal that looks unreachable than you have the perfect goal as this will bring the best out of you and your team to make that extra step forward and make the unattainable attainable! I always work with people on their unreachable goal in our “Map your vision” workshop that is part of our 1-year program “Producing change for senior professionals”.

What you think is attainable is just a function of what you know at that moment. Time is a factor that will bring answers along the way. Especially when you team up with others that have different talents and the same goal as you have. If you set your goals to what you know you can achieve you are setting the bar way too low. That don’t get you out of bed in the morning exited to work on your goal!

I am brought up by the vision that everything you want to do is achievable. Some things simply will cost you more energy than others. I know now that this especially true when you are a creator like me and love to re-invent yourself everyday. Like Pippi Långstrump said: “I have never done it before so I think I can do it”. But this ‘rule’ I have is not necessarily true for everybody. Dalio states that nothing can stop you from succeeding if you have a) flexibility and b) self-accountability. I think thats a good add-on.

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Painful problems are potential improvements that are screaming at you. Though it does not feel that way of course every problem is just an opportunity that needs to be seen. This may not be your favorite topic to do but it’s essential. My mother waited until her 68’ to face hers and I am incredibly proud she found the guts to finally face them.

The thing that I find more difficult for myself is to identify the problem behind the problem. Sometimes I for example have problems sleeping. I know this is only the result of a problem but I don’t necessarily know the problem. So instead of complaining I don’t sleep I need to dig deeper within me to find the problem.

And once you identify a problem don’t tolerate it! My mother -sorry mam- knew the problem but was not willing to pay the prize she thought would come with it as she thought it would affect her entrepreneurial business and she valued that above herself. Tolerating a problem has the same consequence as failing to identify it…

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Sometimes I think we are programmed in the West by solving problems as quickly as they appear. I once had a boss that always came with a solution to every ‘problem’ that I had – that I saw as a ‘challenge’ and that I just had the ideal solution for. My boss did not realize I needed challenges as food to still my hunger to improve myself. And all I wanted to do was share what I was doing. I didn’t like the way he always answered with solutions. Until I discovered that I should take a different approach with him. Which is probably a whole other story that has more to do with making someone feeling part of the group game too. Anyway, -back to Dalio- if we focus on the ‘what is’ before deciding ‘what to do about it’ it helps massively.

Strategic thinking requires both diagnoses and design. A good diagnoses typically takes between 15 minutes to an hour. It involves the classical ‘hearing relevant people’ and looking at evidence together with determining the cause(s).

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When you design your plan remember that there are many paths to achieving your goals. You only need to find the one that works for you. It might help to see your plan as a movie script: what will be done by who through time – and how will it finish??? Sketch out your plan first and then refine. Never start with the ‘how’ but finish with that in this sequence:

Why? What? Who? When? How?

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The how comes when you push through completion. Dalio: “great planners who don’t execute their plans go nowhere”. I love this as this is so true for me as a creator who loves to start but never finishes. Thanks to the path I choose I now have a team to keep me hugely accountable on this part. One of the things that have worked for me over the last year is to have a firm structure in my week.

Establishing clear metrics’ goes with this as well. Ideally, Dalio states, have someone other than you do the objective measuring and reporting on your progress. In my case I have my PA start our week always with measuring the outcomes of the last week (we measure lots of things) and then we discuss them together to understand and improve.

Dalio remembers his readers that the above five steps are iterative.

3 Be radically open-minded

The Two biggest barriers to good decision making are your EGO and your BLIND SPOTS. They make it difficult for you to objectively see what is true and what is not. If you understand how your brain works you can understand how to adjust your behavior. This starts with understanding your ego barrier.

Your deepest-seated needs and fears such as the need to be loved and the fear of losing love, the need to survive and the fear of not surviving, the need to be important and the fear of not mattering reside in the primitive parts of our brain such as the amygdala. We will intensely cover this in the cross-company 1-year program “Authentic leadership for talented women” that we will start with our partner ATAIRU in February next year.

To be effective 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 on your true potential!

Blind spots are areas where your way of thinking prevents you from seeing things accurately. Those of us that work with this effectively adapt by: a) teaching their brains to work in a way that doesn’t come naturally (like for me as a creative person that I had to learn to become organized through discipline and practice), b) using compensating mechanisms (such as the calendar reminders we have set ourselves), and last but not least because we love it c) relying on others in your team that have different talent and are strong where you are weak. This is what we train in all of our programs.

Dalio wants you to appreciate and develop the art of thoughtful disagreement. Here your goal is not to convince the other party that you are right, it’s to find out which view is true and decide what to do about it. So both of you really try to understand the other person’s perspective and from a higher level try to get the truth. To do this you can ask better questions instead of using statements. Be reasonable, calm, collegial and respectful and get better with practice. Disagreements are opportunities for learning.

I have learned from experience that its very important to surround yourself by people that can challenge you. “You are the average of the five people you spend the most time with.” – said Jim Rohn. Dalio adds to this that you should recognize the signs of closed-mindedness versus open-mindedness. Close-minded people for example focus much more on being understood than on understanding others. Open-minded people always feel compelled to see things through others’ eyes, are more interested in listening than in speaking and encourage others to voice their views.

To practice to become (more) open-minded you can for example:

  1. Use mental pain as your guide toward quality reflection, ad mental pain often comes from being too attached to an idea
  2. Get to know your blind spots by making time to record the circumstances in which you’ve consistently made bad decisions because you failed to see what others saw
  3. Switch from the fighting mode into an ‘asking questions’ mode when a number of different people say you are doing something wrong while you think it’s right.

4 Understand that people are wired very differently

This is in the core of what we love to do at Geodomein: making teams feel, see and understand that their members are wired differently. People with different talents think different. That does not mean others are weaker, it means we all have our set of talents and weaknesses in areas such as creativity, people skills, common sense and attention to detail.

I love the way Dalio explains this: “organizing people to compliment their strengths and compensate for their weaknesses is like conducting an orchestra. It can be magnificent if done well and terrible if done poorly.” In this case it’s important to know how people act differently but it’s just as important to know ourselves so we jointly can create better teams.

Dalio built his company Bridgewater over the years as a separate ecosystem where everybody is radically open-minded about their strengths and weaknesses and personal development is the standard. He created a system with ‘Baseball Cards’ – what we in Europe could compare with Football Cards where the qualities of all the players are mentioned. He also made sure the team members scored each other.

After this Dalio further dives into explaining things around the contemporary neuroscience. Important here is to know there are no greater battles than those between our feelings (most importantly controlled by our amygdala, which operaties sub-consciously) and our rational thinking (most importantly controlled by our prefrontal cortex, which operates consciously). If you understand those battles occur you will understand why it is so important to reconcile what you get from your subconscious with what you get from your conscious mind.

Furthermore it is interesting to know the difference between right-brained and left-brained thinking. Just as your brain has its conscious upper part and its subconscious lower part, it also had two halves called hemispheres. The left hemisphere reasons sequentially, analyzes details, and excels at linear analysis. Left-brained or linear thinkers who are analytically strong are often called ‘bright’. The right hemisphere thinks across categories, recognizes themes, and synthesizes the big picture. Right brained or lateral thinkers with more street smart are often called ‘smart’.

Which one are you?

When I debrief people with the profiling-tool Talent Dynamics I always ask what the person wants to take away from the explanation of their talent profile. Often I hear: “how I can better preform on the fields I score low”. In Western Europe (and maybe also other parts of the world) we are trained to only look at what we score poor at, not on the parts where we are talented… At school we always had to focus to change a 4 into a 6 and nobody asked us to instead change our 6 into an 8… All the attention always went to the lower grades, not to our talent. Really a missed opportunity if you ask me.

Dalio asks an important question regarding this subject in his book: “can we change?” The answer is yes! Brain plasticity is what allows your brain to change its soft-wiring, Dalio explains. Previously scientists believed that our brains were fixed and could not change. Recent studies with Buddhist monks prove that they can.

However, if you have a preference for a certain way of thinking you might change but it’s very unlikely you change your underlaying preference. And that’s exactly what we always say when we are talking about talent that it’s important to see how much energy you spend. You find natural flow where you don’t have to spend much energy. Dalio adds to this that it is important to remember that accepting your weaknesses is contrary to the instincts of those parts of your brain that want to hold on to the illusion that you are perfect. Which reminds me of the populair scientific work of Brené Brown, which is a whole different book review on its own.

Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish, Dalio says. I agree. We use Talent Dynamics for this which gives us the answers we need in only fifteen minutes.

5 Learn how to make decisions effectively

While there is no ‘best way’ to make decisions Dalio mentions some universal rules for good decision making. It starts with: recognize that 1) the biggest treat to good decision making is harmful emotions, and 2) decision making is a two-step process where learning must come before deciding. To learn well and get an accurate picture of reality it’s important to synthesize accurately and to know how to navigate on certain levels.

With synthesis Dalio means the process of converting a lot of data into an accurate picture. This is why it is important to discuss your ideas with people with different sets of talents. No sensible person should reject a believable person’s views without great fear of being wrong Dalio states. Deciding is the process of choosing which knowledge should be drawn upon, both the facts and your broader understanding of the cause-effect picture and the weighing them to determine a course of action. You can ask yourself: “Am I learning? Have I learned enough yet that it’s time for deciding?”

And remember the 80/20 rule and know what the 20 percent is. This rule states that you get 80 percent of the value out of something from 20 percent of the information or effort. It’s by the way also true that you’ll probably need 80 percent of your effort to get the final 20 percent of value… When you understand this rule it will save you from getting into unnecessary details that are not needed once you have gotten most of the learning to make a good decision. The question here is do you dare to be an imperfectionist?

As previously said there are two broad approaches to decision making: evidence/logic-based (which comes from the higher-level brain) and subconscious/emotion-based (which comes from the lower-level animal 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 realizing it.

As Carl Jung put it: “Until you make the unconscious conscious, it will direct your life and you will call it fate”. It’s even more important that decision making is evidence-based and logical when working in teams. If not the decisions will be dominated by the biggest screamers in the group or the ones that are the most powerful.

Of course some decisions are best made after acquiring more information while others are best made immediately. It’s good to learn to separate your ‘must-do’s’ from your ‘want-to-do’s’.

Using principles is a way of both simplifying and improving your decision making. The key to doing this well according to Dalio is:

  1. Slow down your thinking so you can note the criteria you are using to make your decision
  2. Write the criteria down as a principle
  3. Think about those criteria when you have an outcome to asses and refine them before the next decision comes.

Dalio suggests us to convert our principles into algorithms so the computer can make decisions alongside us bringing the power of our decisions to a whole other level. If you don’t know how to speak this language (I know I don’t), Dalio suggests to learn it or to have someone close translate it for you. Your children and your peers must learn to speak this language because it will soon be as important or more important than any other language predicts Dalio.

This reminds me of another book that is on my desk waiting to be read and to review: Measure what matters by John Doerr.

In the future artificial intelligence (AI) will have a profound impact on how we make decisions in every aspect of our lives. In our self-built sustainable house we already use the forerunners of this: when there is a cold night the floor heating turns on in the bathroom as the principles it got were set like that (as we know it takes hours for a floor heather to get warm and a colder outside temperature is a predictor of a colder temperature in hours time). We could make it even smarter by running historical data through it, which we can’t yet as it’s only a few months old. With big data from other sustainable houses in the same climate this would be easier.

In time computer coding like this will be the standard. This is already happening of course with the Internet of Things (where your devices can communicate with each other) etcetera.

Dalio gives as example a world where you can ask a computer what career you should choose given what you like, or how to best interact with specific people based on what they’re like. These innovations will help people get out of their own heads and unlock an incredibly powerful form of collective thinking. This in fact is what we already do using profiling-tools in the organizations and teams we work with.

This often leads to discussions about artificial intelligence competing with human intelligence. In Dalio’s opinion human and artificial intelligence are far more likely to work together because that will produce the best results. At Dalio’s Bridgewater they use their systems much as a driver that uses a GPS in a car: not to substitute for our navigational abilities but to supplement them.

This example makes me smile and brings me back ten years ago when I was an editor-in-chief for an international geo-information magazine which described just these new techniques we are talking about now. I was in America for a conference and read on the frontpage of a newspaper about an American couple with a little child that were saved after having been stuck in a cold car for hours and ours in the middle-of-nowhere in the snowy mountains. They said they just had followed their GPS… The place where they were found did not have a road at all underneath the snow.

So I guess I agree with Dalio on using AI where it suits you but it has to be used wisely. Therefore Dalio’s last paragraph in part 2 of Life Principles is: Be cautious about trusting AI without having deep understanding. Here he states that the value of a widely known insight disappears over time and that without deep understanding you won’t know if what happened in the past is genuinely of value. Computers don’t have common sense to value this he says.

For Dalio that deep understanding is essential. He does not imply that big data is useless, but he explains it’s very useful but fails in cases where the future is different from the past and you don’t know the cause-effect relationships.

When you get down to it, Dalio says, our brains are essentially computers that are programmed in certain ways, take in data, and spit out instructions. We can program the logic in both the computer that is our mind and the computer that is our tool so that they can work together and even double-check each other.

“We are headed for an exiting and perilous new world. That’s our reality. And as always, I believe that we are much better off preparing to deal with it than wishing it weren’t true.” RAY DALIO

Coming to the end of Dalio’s life principles he sums it up by saying:

In order to have the best life possible you have to:

  1. Know what the best decisions are and
  2. Have the courage to make them…

Personally I am looking forward reading the next part of the book work principles which are basically the Life Principles I just reviewed but then applied to groups. Here he will show us, principle by principle, how an actual, practical, believability-weighted decision-making system converts independent thinking into effective group decision making.

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