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Principles:

 

Life and Work

by Ray Dalio

After finishing this book in September of 2022, I wrote,

 

"On other books that I have read I can copy all the notes for all the juicy points I need to share with you. Not this one. Although I took all the notes I could before I was told I had reached the (generous) limit, there was still so much more I wanted to share with you. If you feel like I do after reading the notes below, you'll want to buy the book. Yes, even though I could engage in a vigorous back-and-forth discussion with Ray Dalio about some fundamental philosophical points, he gets so much right. I give a resounding recommendation for this book."

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See the tools and reference link the author provides.

 

My clippings below collapse a 600-page book into 42 pages, measured by using 12-point type in Microsoft Word.

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See all my book recommendations.  

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Here are the selections I made:

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Before I begin telling you what I think, I want to establish that I’m a “dumb shit” who doesn’t know much relative to what I need to know. Whatever success I’ve had in life has had more to do with my knowing how to deal with my not knowing than anything I know. The most important thing I learned is an approach to life based on principles that helps me find out what’s true and what to do about it.

 

Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life.

 

To be principled means to consistently operate with principles that can be clearly explained.

 

That brings me to my first principle: • Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve #1 in light of #2 . . .

 

It was that approach and the principles it yielded, and not me, that took me from being an ordinary middle-class kid from Long Island to being successful by a number of conventional measures—like starting a company out of my two-bedroom apartment and building it into the fifth most important private company in the U.S. (according to Fortune), becoming one of the one hundred richest people in the world (according to Forbes), and being considered one of the one hundred most influential (according to Time).

 

Time is like a river that carries us forward into encounters with reality that require us to make decisions. We can’t stop our movement down this river and we can’t avoid those encounters. We can only approach them in the best possible way.

 

My most obvious weakness was my bad rote memory. I couldn’t, and still can’t, remember facts that don’t have reasons for being what they are (like phone numbers), and I don’t like following instructions. At the same time, I was very curious and loved to figure things out for myself, though that was less obvious at the time.

 

I didn’t like school, not just because it required a lot of memorization, but because I wasn’t interested in most of the things my teachers thought were important. I never understood what doing well in school would get me other than my mother’s approval.

 

But I do know that having those jobs and having some money to handle independently in those early years taught me many valuable lessons I wouldn’t have learned in school or at play.

 

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.

 

In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.

 

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. I learned a great fear of being wrong that shifted my mind-set from thinking “I’m right” to asking myself “How do I know I’m right?”

 

In other words, I just want to be right—I don’t care if the right answer comes from me.

 

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.

 

Looking back on getting fired from Apple in 1985, Steve Jobs said, “It was awful-tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did.”

 

I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want.

 

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.

 

Our returns in 2010 were the best ever—nearly 45 and 28 percent in our two Pure Alpha funds and close to 18 percent in All Weather—almost exclusively because the systems we had programmed to take in information and process it were doing it superbly.

 

The word “philanthropy” doesn’t sit well with me in describing what we are doing. What we are doing is helping out with what we care about because of the joy it gives us—like the joy one gets from helping a friend.

 

Clearly, we needed to build a new governance system that would allow Bridgewater to retain its unique way of being and its uncompromising standards no matter who was in charge—and build it to be resilient enough to change the company’s management if that was required.

 

In my early years, I looked up to extraordinarily successful people, thinking that they were successful because they were extraordinary. After I got to know such people personally, I realized that all of them—like me, like everyone—make mistakes, struggle with their weaknesses, and don’t feel that they are particularly special or great. They are no happier than the rest of us, and they struggle just as much or more than average folks. Even after they surpass their wildest dreams, they still experience more struggle than glory. This has certainly been true for me. While I surpassed my wildest dreams decades ago, I am still struggling today. In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well.

 

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.

 

The marginal benefits of having more fall off pretty quickly. In fact, having a lot more is worse than having a moderate amount more because it comes with heavy burdens. Being on top gives you a wider range of options, but it also requires more of you. Being well-known is probably worse than being anonymous, all things considered. And while the beneficial impact one can have on others is great, when you put it in perspective, it is still infinitesimally small. For all those reasons, I cannot say that having an intense life filled with accomplishments is better tha...

 

Still, most of our encounters with reality fall under one category or another and the number of those categories is not enormous. 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.

 

Whatever success I’ve had is because of the principles I followed and not because of anything unique about me, so anyone following these principles can expect to produce broadly similar results.

 

That said, I don’t want you to follow my (or anyone’s) principles blindly. I suggest that you think through all the principles available to you from different sources and put together a collection of your own that you can turn to whenever reality sends “another one of those” your way.

 

Embrace Reality and Deal with It

 

There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to this process makes all the difference. I have found it helpful to think of my life as if it were a game in which each problem I face is a puzzle I need to solve.

 

Be a hyperrealist. Understanding, accepting, and working with reality is both practical and beautiful. I have become so much of a hyperrealist that I’ve learned to appreciate the beauty of all realities, even harsh ones, and have come to despise impractical idealism.

 

My point is that people who create great things aren’t idle dreamers: They are totally grounded in reality. Being hyperrealistic will help you choose your dreams wisely and then achieve them. I have found the following to be almost always true:

 

Dreams + Reality + Determination = A Successful

 

Each of us needs to decide what we value most and choose the paths we take to achieve it.

 

Over time I learned that getting more out of life wasn’t just a matter of working harder at it. It was much more a matter of working effectively, because working effectively could increase my capacity by hundreds of times.

 

Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome.

 

Most people fight seeing what’s true when it’s not what they want it to be. That’s bad, because it is more important to understand and deal with the bad stuff since the good stuff will take care of itself.

 

Be radically open-minded and radically transparent.

 

Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Learning is the product of a continuous real-time feedback loop in which we make decisions, see their outcomes, and improve our understanding of reality as a result. 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 others that there can’t be any misunderstandings. The more open-minded you are, the less likely you are to deceive yourself—and the more likely it is that others will give you honest feedback. 

 

If they are “believable” people (and it’s very important to know who is “believable”16), you will learn a lot from them.

 

Don’t let fears of what others think of you stand in your way. You must be willing to do things in the unique ways you think are best—and to open-mindedly reflect on the feedback that comes inevitably as a result of being that way.

 

Imagine how many fewer misunderstandings we would have and how much more efficient the world would be—and how much closer we all would be to knowing what’s true—if instead of hiding what they think, people shared it openly. I’m not talking about everyone’s very personal inner secrets; I’m talking about people’s opinions of each other and of how the world works.

 

Embracing radical truth and radical transparency will bring more meaningful work and more meaningful relationships.

 

Look to nature to learn how reality works. All the laws of reality were given to us by nature. Man didn’t create these laws, but by understanding them we can use them to foster our own evolution and achieve our goals.

 

By looking at nature from the top down, we can see that much of what we call human nature is really animal nature.

 

Yet most people are like ants focused only on themselves and their own anthill; they believe the universe revolves around people and don’t pay attention to the universal laws that are true for all species.

 

Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are.

 

While I could understand people liking something that helps them and disliking things that hurt them, it doesn’t make sense to call something good or bad in an absolute sense based only on how it affects individuals.

 

To be “good” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded.

 

Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything.

 

Evolve or die.

 

This evolutionary cycle is not just for people but for countries, companies, economies—for everything.

 

Evolving is life’s greatest accomplishment and its greatest reward.

 

The individual’s incentives must be aligned with the group’s goals.

 

Reality is optimizing for the whole—not for you.

 

Adaptation through rapid trial and error is invaluable.

 

Realize that you are simultaneously everything and nothing—and decide what you want to be.

 

What you will be will depend on the perspective you have.

 

Understand nature’s practical lessons.

 

Maximize your evolution.

 

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.

 

Remember “no pain, no gain.”

 

It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful.

 

Carl Jung put it, “Man needs difficulties. They are necessary for health.”

 

Pain + Reflection = Progress.

 

Go to the pain rather than avoid it.

 

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.

 

Embrace tough love.

 

In pursuit of my goal to give them strength, I will often deny them what they “want” because that will give them the opportunity to struggle so that they can develop the strength to get what they want on their own.

 

I urge you to not be embarrassed about your problems, recognizing that everyone has them. Bringing them to the surface will help you break your bad habits and develop good ones, and you will acquire real strengths and justifiable optimism.

 

No matter what you want out of life, your ability to adapt and move quickly and efficiently through the process of personal evolution will determine your success and your happiness.

 

Weigh second- and third-order consequences.

 

For example, the first-order consequences of exercise (pain and time spent) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa.

 

Own your outcomes.

 

Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes.

 

By comparing your outcomes with your goals, you can determine how to modify your machine.

 

Distinguish between you as the designer of your machine and you as a worker with your machine.

 

The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again.

 

Successful people are those who can go above themselves to see things objectively and manage those things to shape change.

 

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.

 

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 depending on your ability to change). 3. You can accept your weaknesses and find ways around them. 4. Or, you can change what you are going after.

 

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.

 

Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence.

 

If you are open-minded enough and determined, you can get virtually anything you want.

 

Don’t confuse what you wish were true with what is really true. 2. Don’t worry about looking good—worry instead about achieving your goals. 3. Don’t overweight first-order consequences relative to second- and third-order ones. 4. Don’t let pain stand in the way of progress. 5. Don’t blame bad outcomes on anyone but yourself.

 

Worry about achieving the goal.

 

GOOD Make your decisions on the basis of first-, second-, and third-order consequences.

 

GOOD Understand how to manage pain to produce progress.

 

GOOD Hold yourself and others accountable.

 

Use the 5-Step Process to Get What You Want Out of Life

 

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.

 

Have clear goals. a. Prioritize: While you can have virtually anything you want, you can’t have everything you want.

 

Life is like a giant smorgasbord with more delicious alternatives than you can ever hope to taste.

 

Don’t confuse goals with desires.

 

Decide what you really want in life by reconciling your goals and your desires.

 

Don’t mistake the trappings of success for success itself.

 

Never rule out a goal because you think it’s unattainable.

 

Remember that great expectations create great capabilities.

 

Almost nothing can stop you from succeeding if you have a) flexibility and b) self-accountability.

 

Knowing how to deal well with your setbacks is as important as knowing how to move forward.

 

Identify and don’t tolerate problems.

 

View painful problems as potential improvements that are screaming at you.

 

Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at.

 

Be specific in identifying your problems.

 

Don’t mistake a cause of a problem with the real problem.

 

Distinguish big problems from small ones.

 

Once you identify a problem, don’t tolerate it.

 

Diagnose problems to get at their root causes.

 

Focus on the “what is” before deciding “what to do about it.”

 

Distinguish proximate causes from root causes.

 

Recognize that knowing what someone (including you) is like will tell you what you can expect from them.

 

Design a plan.

 

Go back before you go forward.

 

Think about your problem as a set of outcomes produced by a machine.

 

Remember that there are typically many paths to achieving your goals.

 

Think of your plan as being like a movie script in that you visualize who will do what through time.

 

Write down your plan for everyone to see and to measure your progress against.

 

Recognize that it doesn’t take a lot of time to design a good plan.

 

Remember: Designing precedes doing!

 

Push through to completion. a. Great planners who don’t execute their plans go nowhere.

 

Good work habits are vastly underrated.

 

Establish clear metrics to make certain that you are following your plan.

 

One last important point: You will need to 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.

 

Remember that weaknesses don’t matter if you find solutions.

 

Look at the patterns of your mistakes and identify at which step in the 5-Step Process you typically fail.

 

Everyone has at least one big thing that stands in the way of their success; find yours and deal with it.

 

Understand your own and others’ mental maps and humility.

 

Be Radically Open-Minded

 

Recognize your two barriers.

 

The two biggest barriers to good decision making are your ego and your blind spots.

 

Understand your ego barrier. When I refer to your “ego barrier,” I’m referring to your subliminal defense mechanisms that make it hard for you to accept your mistakes and weaknesses.

 

Your two “yous” fight to control you. It’s like Dr. Jekyll and Mr. Hyde, though your higher-level you is not aware of your lower-level you. This conflict is universal; if you pay close enough attention, you can actually see when the different parts of a person’s brain are arguing with one another.

 

Understand your blind spot barrier.

 

For example, some people naturally see big pictures and miss small details while others naturally see details and miss big pictures; some people are linear thinkers while others think laterally, and so on.

 

Differences in thinking can be symbiotic and complementary instead of disruptive. For example, the lateral approach to thinking common among creative people can lead them to be unreliable, while more linear thinkers are often more dependable; some people are more emotional while others are more logical, and so on. None of these individuals would be able to succeed at any kind of complex project without the help of others who have complementary strengths.

 

Practice radical open-mindedness.

 

Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally.

 

Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing” is more important than whatever it is you do know.

 

Most people make bad decisions because they are so certain that they’re right that they don’t allow themselves to see the better alternatives that exist.

 

Recognize that decision making is a two-step process: First take in all the relevant information, then decide.

 

When I ask why, a common answer is: “I want to make up my own mind.” These people seem to think that considering opposing views will somehow threaten their ability to decide what they want to do. Nothing could be further from the truth. Taking in others’ perspectives in order to consider them in no way reduces your freedom to think independently and make your own decisions. It will just broaden your perspective as you make them.

 

Don’t worry about looking good; worry about achieving your goal. People typically try to prove that they have the answer even when they don’t.

 

Realize that you can’t put out without taking in. Most people seem much more eager to put out (convey their thinking and be productive) than to take in (learn). That’s a mistake even if one’s primary goal is to put out, because what one puts out won’t be good unless one takes in as well.

 

Recognize that to gain the perspective that comes from seeing things through another’s eyes, you must suspend judgment for a time—only by empathizing can you properly evaluate another point of view. Open-mindedness doesn’t mean going along with what you don’t believe in; it means considering the reasoning of others instead of stubbornly and illogically holding on to your own point of view. To be radically open-minded, you need to be so open to the possibility that you could be wrong that you encourage others to tell you so.

 

Remember that you’re looking for the best answer, not simply the best answer that you ...

 

Be clear on whether you are arguing or seeking to understand, and think about which is most appropriate based on your and others’ believability. If both parties are peers, it’s appropriate to argue. But if one person is clearly more knowledgeable than the other, it is preferable for the less knowledgeable person to approach the more knowledgeable one as a student and for the more knowledgeable one to act as a teacher. Doing this well requires you to understand the concept of believability. I define believable people as those who have repeatedly and successfully accomplished the thing in question—who have a strong track record with at least three successes—and have great explanations of their approach when probed. 

 

Appreciate the art of thoughtful disagreement.

 

That’s why I believe you must appreciate and develop the art of thoughtful disagreement. In thoughtful disagreement, your goal is not to convince the other party that you are right—it is to find out which view is true and decide what to do about it.

 

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. I also recommend that both parties observe a “two-minute rule” in which neither interrupts the other, so they both have time to get all their thoughts out.

 

Triangulate your view with believable people who are willing to disagree.

 

Plan for the worst-case scenario to make it as good as possible.

 

Closed-minded people don’t want their ideas challenged.

 

Open-minded people are more curious about why there is disagreement.

 

Closed-minded people are more likely to make statements than ask questions.

 

Open-minded people genuinely believe they could be wrong; the questions that they ask are genuine.

 

Closed-minded people focus much more on being understood than on understanding others.

 

Open-minded people always feel compelled to see things through others’ eyes.

 

Closed-minded people say things like “I could be wrong . . . but here’s my opinion.”

 

Open-minded people know when to make statements and when to ask questions.

 

Closed-minded people block others from speaking.

 

If it seems like someone isn’t leaving space for the other person in a conversation, it’s possible they are blocking. To get around blocking, enforce the “two-minute rule” I mentioned earlier. Open-minded people are always more interested in listening than in speaking; they encourage others to voice their views.

 

Closed-minded people have trouble holding two thoughts simultaneously in their minds. They allow their own view to crowd out those of others. Open-minded people can take in the thoughts of others without losing their ability to think well—they can hold two or more conflicting concepts in their mind and go back and forth between them to assess their relative merits.

 

Closed-minded people lack a deep sense of humility. Humility typically comes from an experience of crashing, which leads to an enlightened focus on knowing what one doesn’t know. Open-minded people approach everything with a deep-seated fear that they may be wrong.

 

Understand how you can become radically open-minded.

 

 

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.

 

Make being open-minded a habit.

 

Get to know your blind spots.

 

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.

 

Meditate. I practice Transcendental Meditation and believe that it has enhanced my open-mindedness, higher-level perspective, equanimity, and creativity.

 

Be evidence-based and encourage others to be the same. Most people do not look thoughtfully at the facts and draw their conclusions by objectively weighing the evidence. Instead, they make their decisions based on what their deep-seated subconscious mind wants and then they filter the evidence to make it consistent with those desires.

 

Do everything in your power to help others also be open-minded.

 

Use evidence-based decision-making tools.

 

Know when it’s best to stop fighting and have faith in your decision-making process.

 

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.

 

One way to do this is by asking questions like “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?”

 

Understand That People Are Wired Very Differently

 

The problem was that conceptual people who visualized what should be done in vague ways expected more literal people to figure out for themselves how to do it. When they didn’t, the more conceptual people thought the more literal people had no imagination, and the more literal people thought the more conceptual people had their heads in the clouds. To make matters worse, none of them knew which were which—the more literal people thought that they were as conceptual as the conceptual people and vice versa. In short, we were gridlocked, and everyone thought it was someone else’s fault—that the people they were locking horns with were blind, stubborn, or just plain stupid.

 

Understand the power that comes from knowing how you and others are wired.

 

Our differences weren’t a product of poor communication; it was the other way around. Our different ways of thinking led to our poor communications.

 

Many highly productive and creative people have suffered from bipolar disorder, among them Ernest Hemingway, Beethoven, Tchaikovsky, Vincent van Gogh, Jackson Pollock, Virginia Woolf, Winston Churchill, and the psychologist Kay Redfield Jamison (who has written frankly about her own experiences with the disease in her book An Unquiet Mind). I learned that we are all different because of the different ways that the machine that is our brain works—and that nearly one in five Americans are clinically mentally ill in one way or another.

 

I also realized that as off-base as they seemed to me, they saw me the same way.

 

We are born with attributes that can both help us and hurt us, depending on their application.

 

The more extreme the attribute, the more extreme the potential good or bad outcomes it is likely to produce. For example, a highly creative, goal-oriented person good at imagining new ideas might undervalue the minutiae of daily life, which is also important; he might be so driven in his pursuit of long-term goals that he might have disdain for people who focus on the details of daily life.

 

Similarly, a task-oriented person who is great with details might undervalue creativity—and worse still, may squelch it in the interests of efficiency.

 

Having expectations for people (including yourself) without knowing what they are like is a sure way to get in trouble.

 

This led to one of my most valuable management tools: Baseball Cards, which I mentioned in the first part of this book. Just as a baseball card compiles the relevant data on a baseball player, helping fans know what that player is good and bad at, I decided that it would be similarly helpful for us to have cards for all of our players at Bridgewater. In creating the attributes for our baseball cards, I used a combination of adjectives we already used to describe people, like “conceptual,” “reliable,” “creative,” and “determined”; the actions people took or didn’t take such as “holding others accountable” and “pushing through to results”; and terms from personality tests such as “extroverted” or “judging.” 

 

The system helps everyone in the company confront the truth about what everyone is like.”

 

Meaningful work and meaningful relationships aren’t just nice things we chose for ourselves—they are genetically programmed into us.

 

Understand the great brain battles and how to control them to get what “you” want.

 

Realize that the conscious mind is in a battle with the subconscious mind. Earlier in the book, I introduced the concept of the “two yous” and explained how your higher-level you can look down on your lower-level you to make sure that your lower-level you isn’t sabotaging what your higher-level you wants.

 

Know that the most constant struggle is between feeling and thinking. There are no greater battles than those between our feelings (most importantly controlled by our amygdala, which operates subconsciously) and our rational thinking (most importantly controlled by our prefrontal cortex, which operates consciously).

 

Reconcile your feelings and your thinking. For most people, life is a never-ending battle between these two parts of the brain.

 

Choose your habits well.

 

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.

 

Train your “lower-level you” with kindness and persistence to build the right habits.

 

I used to think that the upper-level you needed to fight with the lower-level you to gain control, but over time I’ve learned that it is more effective to train that subconscious, emotional you the same way you would teach a child to behave the way you would like him or her to behave—with loving kindness and persistence so that the right habits are acquired.

 

Understand the differences between right-brained and left...

 

Understand how much the brain can and cannot change.

 

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. Doing the things that will reduce your instinctual defensiveness takes practice, and requires operating in an environment that reinforces open-mindedness.

 

Find out what you and others are like.

 

Though psychometric assessments cannot fully replace speaking with people and looking at their backgrounds and histories, they are far more powerful than traditional interviewing and screening methods.

 

The four main assessments we use are the Myers-Briggs Type Indicator (MBTI), the Workplace Personality Inventory, the Team Dimensions Profile, and Stratified Systems Theory.

 

Introversion vs. extroversion. Introverts focus on the inner world and get their energy from ideas, memories, and experiences while extroverts are externally focused and get their energy from being with people.

 

Intuiting vs. sensing. Some people see big pictures (forests) and others see details (trees).

 

Thinking vs. feeling.

 

Planning vs. perceiving. Some people like to live in a planned, orderly way and others prefer flexibility and spontaneity.

 

At Bridgewater, we use a test called the “Team Dimensions Profile” (TDP) to connect people with their preferred role. The five types identified by the TDP are Creators, Refiners, Advancers, Executors, and Flexors.

 

Creators generate new ideas and original concepts. They prefer unstructured and abstract activities and thrive on innovation and unconventional practices. • Advancers communicate these new ideas and carry them forward. They relish feelings and relationships and manage the human factors. They are excellent at generating enthusiasm for work.

 

Refiners challenge ideas. They analyze projects for flaws, then refine them with a focus on objectivity and analysis. They love facts and theories and working with a systematic approach. • Executors can also be thought of as Implementers. They ensure that important activities are carried out and goals accomplished; they are focused on details and the bottom line. • Flexors are a combination of all four types. They ...

 

Focusing on tasks vs. focusing on goals. Some people are focused on daily tasks while others are focused on their goals and how to achieve them.

 

Another assessment we use is the Workplace Personality Inventory, a test based on data from the U.S. Department of Labor. It anticipates behavior and predicts job fit and satisfaction, singling out certain key characteristics/qualities, including persistence, independence, stress tolerance, and analytical thinking.

 

For example, someone with low Achievement Orientation and high Concern for Others might be unwilling to step on others’ toes in order to accomplish their goals. Likewise, someone who is bad at Rule Following may be more likely to think independently.

 

the spacey, impractical Artist; the tidy Perfectionist; the Crusher who runs through brick walls to get things done; the Visionary who pulls amazing big ideas seemingly out of the air. Over time I came up with a list of others, including Shaper, Chirper, Tweaker, and Open-Minded Learner, as well as Advancer, Creator, Cat-Herder, Gossiper, Loyal Doer, Wise Judge, and others.

 

Shapers are people who can go from visualization to actualization.

 

To me, it seems that Shaper = Visionary + Practical Thinker + Determined.

 

A carpenter who derives his deepest satisfaction from working with wood can easily have a life as good or better than the president of the United States.

 

Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.

 

Manage yourself and orchestrate others to get what you want.

 

If you’d like to experience some of these assessments for yourself and see your own results, visit assessments.principles.com

 

Learn How to Make Decisions Effectively

 

Recognize that 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.

 

Deciding is the process of choosing which knowledge should be drawn upon—both the facts of this particular “what is” and your broader understanding of the cause-effect machinery that underlies it—and then weighing them to determine a course of action, the “what to do about it.” This involves playing different scenarios through time to visualize how to get an outcome consistent with what you want. To do this well, you need to weigh first-order consequences against second- and third-order consequences, and base your decisions not just on near-term results but on results over time.

 

LEARNING WELL

 

Synthesis is the process of converting a lot of data into an accurate picture. The quality of your synthesis will determine the quality of your decision making.

 

To synthesize well, you must 1) synthesize the situation at hand, 2) synthesize the situation through time, and 3) navigate levels effectively.

 

One of the most important decisions you can make is who you ask questions of.

 

Make sure they’re fully informed and believable. Find out who is responsible for whatever you are seeking to understand and then ask them. Listening to uninformed people is worse than having no answers at all.

 

Don’t believe everything you hear. Opinions are a dime a dozen and nearly everyone will share theirs with you. Many will state them as if they are...

 

Everything looks bigger...

 

New is overvalued relative to great. For example, when choosing which movie to watch or what book to read, are you drawn to proven classics or the newest big thing? In my opinion, it is smarter to choose the great over the new.

 

Don’t oversqueeze dots.

 

Synthesize the situation through time.

 

Keep in mind both the rates of change and the levels of things, and the relationships between them.

 

Be imprecise.

 

Understand the concept of “by-and-large” and use approximations. Because our educational system is hung up on precision, the art of being good at approximations is insufficiently valued.

 

This impedes conceptual thinking. For example, when asked to multiply 38 by 12, most people do it the slow and hard way rather than simply rounding 38 up to 40, rounding 12 down to 10, an...

 

and-large” is the level at which you need to understand most things in order to make effective decisions.

 

Remember the 80/20 Rule and know what the key 20 percent is.

 

Be an imperfectionist.

 

Navigate levels effectively.

 

Reality exists at different levels and each of them gives you different but valuable perspectives.

 

The High-Level Big Picture: I want meaningful work that’s full of learning. 1.1 Subordinate Concept: I want to be a doctor. • Sub-Point: I need to go to medical school. • Sub-Sub Point: I need to get good grades in the sciences. • Sub-Sub-Sub Point: I need to stay home tonight and study.

 

Use the terms “above the line” and “below the line” to establish which level a conversation is on. An above-the-line conversation addresses the main points and a below-the-line conversation focuses on the sub-points.

Remember that multiple levels exist for all subjects. 2. Be aware on what level you’re examining a given subject. 3. Consciously navigate levels rather than see subjects as undifferentiated piles of facts that can be browsed randomly. 4. Diagram the flow of your thought processes using the outline template shown on the previous page.

 

Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it.

 

Raising the probability of being right is valuable no matter what your probability of being right already is.

 

Knowing when not to bet is as important as knowing what bets are probably worth making.

 

The best choices are the ones that have more pros than cons, not those that don’t have any cons at all.

 

Prioritize by weighing the value of additional information against the cost of not deciding.

 

Some decisions are best made after acquiring more information; some are best made immediately. Just as you need to constantly sort the big from the small when you are synthesizing what’s going on, you need to constantly evaluate the marginal benefit of gathering more information against the marginal cost of waiting to decide. People who prioritize well understand the following:

 

All of your “must-dos” must be above the bar before you do ...

 

Chances are you won’t have time to deal with the unimportant things, which is better than not having time to deal with the important things.

 

Don’t mistake possibilities for probabilities.

 

SHORTCUTS FOR BECOMING A GREAT DECISION MAKER

 

Simplify!

 

Use principles.

 

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.

 

Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along.

 

Believability weight your 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.

 

Convert your principles into algorithms and have the computer make decisions alongside you.

 

Be cautious about trusting AI without having deep understanding.

 

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.

 

LIFE PRINCIPLES: PUTTING IT ALL TOGETHER

 

To acquire principles that work, it’s essential that you embrace reality and deal with it well. Don’t fall into the common trap of wishing that reality worked differently than it does or that your own realities were different.

 

 

Your evolutionary process can be described as a 5-Step Process for getting what you want. It consists of setting goals, identifying and not tolerating problems, diagnosing problems, coming up with designs to get around them, and then doing the tasks required. The important thing to remember is that no one can do all the steps well, but that it’s possible to rely on others to help. Different people with different abilities working well together create the most powerful machines to produce achievements.

 

To get the best results out of yourself and others, you must understand that people are wired very differently.

 

Work Principles is about people working together. Because the power of a group is so much greater than the power of an individual, the principles that follow are likely even more important than those we covered up to this point. In fact, I wrote them first and then wrote Life Principles in order to help others make sense of the approach I was implicitly applying in running Bridgewater. My Work Principles are basically the Life Principles you just read, applied to groups.

 

I hope these principles will help you struggle well and get all the joy you can out of life.

 

Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve #1 in light of #2, and do that with humility and open-mindedness so that you consider the best thinking available to you.

 

LIFE PRINCIPLES INTRODUCTION • 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. PART II: LIFE PRINCIPLES 1 Embrace Reality and Deal with It 1.1 Be a hyperrealist. a. Dreams + Reality + Determination = A Successful Life. 1.2 Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome. 1.3 Be radically open-minded and radically transparent. a. Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. b. Don’t let fears of what others think of you stand in your way. c. Embracing radical truth and radical transparency will bring more meaningful work and more meaningful relationships. 1.4 Look to nature to learn how reality works. a. Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are. b. To be “good,” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded. c. Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything. d. Evolve or die. 1.5 Evolving is life’s greatest accomplishment and its greatest reward. a. The individual’s incentives must be aligned with the group’s goals. b. Reality is optimizing for the whole—not for you. c. Adaptation through rapid trial and error is invaluable. d. Realize that you are simultaneously everything and nothing—and decide what you want to be. e. What you will be will depend on the perspective you have. 1.6 Understand nature’s practical lessons. a. Maximize your evolution. b. Remember “no pain, no gain.” c. It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful.

 

Pain + Reflection = Progress. a. Go to the pain rather than avoid it. b. Embrace tough love. 1.8 Weigh second- and third-order consequences. 1.9 Own your outcomes. 1.10 Look at the machine from the higher level. a. Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes. b. By comparing your outcomes with your goals, you can determine how to modify your machine. c. Distinguish between you as the designer of your machine and you as a worker with your machine. d. The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again. e. Successful people are those who can go above themselves to see things objectively and manage those things to shape change. f. 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. g. Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence. h. If you are open-minded enough and determined, you can get virtually anything you want.

 

Use the 5-Step Process to Get What You Want Out of Life 2.1 Have clear goals. a. Prioritize: While you can have virtually anything you want, you can’t have everything you want. b. Don’t confuse goals with desires. c. Decide what you really want in life by reconciling your goals and your desires. d. Don’t mistake the trappings of success for success itself. e. Never rule out a goal because you think it’s unattainable. f. Remember that great expectations create great capabilities. g. Almost nothing can stop you from succeeding if you have a) flexibility and b) self-accountability. h. Knowing how to deal well with your setbacks is as important as knowing how to move forward. 2.2 Identify and don’t tolerate problems. a. View painful problems as potential improvements that are screaming at you. b. Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at. c. Be specific in identifying your problems. d. Don’t mistake a cause of a problem with the real problem. e. Distinguish big problems from small ones. f. Once you identify a problem, don’t tolerate it. 2.3 Diagnose problems to get at their root causes. a. Focus on the “what is” before deciding “what to do about it.” b. Distinguish proximate causes from root causes. c. Recognize that knowing what someone (including you) is like will tell you what you can expect from them.

 

Design a plan. a. Go back before you go forward. b. Think about your problem as a set of outcomes produced by a machine. c. Remember that there are typically many paths to achieving your goals. d. Think of your plan as being like a movie script in that you visualize who will do what through time. e. Write down your plan for everyone to see and to measure your progress against. f. Recognize that it doesn’t take a lot of time to design a good plan.

 

Push through to completion. a. Great planners who don’t execute their plans go nowhere. b. Good work habits are vastly underrated. c. Establish clear metrics to make certain that you are following your plan. 2.6 Remember that weaknesses don’t matter if you find solutions. a. Look at the patterns of your mistakes and identify at which step in the 5-Step Process you typically fail. b. Everyone has at least one big thing that stands in the way of their success; find yours and deal with it. 2.7 Understand your own and others’ mental maps and humility.

 

Be Radically Open-Minded 3.1 Recognize your two barriers. a. Understand your ego barrier. b. Your two “yous” fight to control you. c. Understand your blind spot barrier. 3.2 Practice radical open-mindedness. a. Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing” is more important than whatever it is you do know. b. Recognize that decision making is a two-step process: First take in all the relevant information, then decide. c. Don’t worry about looking good; worry about achieving your goal. d. Realize that you can’t put out without taking in. e. Recognize that to gain the perspective that comes from seeing things through another’s eyes, you must suspend judgment for a time—only by empathizing can you properly evaluate another point of view. f. Remember that you’re looking for the best answer, not simply the best answer that you can come up with yourself. g. Be clear on whether you are arguing or seeking to understand, and think about which is most appropriate based on your and others’ believability.

 

Appreciate the art of thoughtful disagreement. 3.4 Triangulate your view with believable people who are willing to disagree. a. Plan for the worst-case scenario to make it as good as possible. 3.5 Recognize the signs of closed-mindedness and open-mindedness that you should watch out for. 3.6 Understand how you can become radically open-minded. a. Regularly use pain as your guide toward quality reflection. b. Make being open-minded a habit. c. Get to know your blind spots. d. 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. e. Meditate. f. Be evidence-based and encourage others to be the same. g. Do everything in your power to help others also be open-minded. h. Use evidence-based decision-making tools. i. Know when it’s best to stop fighting and have faith in your decision-making process.

 

Understand That People Are Wired Very Differently 4.1 Understand the power that comes from knowing how you and others are wired. a. We are born with attributes that can both help us and hurt us, depending on their application. 4.2 Meaningful work and meaningful relationships aren’t just nice things we chose for ourselves—they are genetically programmed into us. 4.3 Understand the great brain battles and how to control them to get what “you” want. a. Realize that the conscious mind is in a battle with the subconscious mind. b. Know that the most constant struggle is between feeling and thinking. c. Reconcile your feelings and your thinking. d. Choose your habits well. e. Train your “lower-level you” with kindness and persistence to build the right habits. f. Understand the differences between right-brained and left-brained thinking. g. Understand how much the brain can and cannot change.

 

Find out what you and others are like. a. Introversion vs. extroversion. b. Intuiting vs. sensing. c. Thinking vs. feeling. d. Planning vs. perceiving. e. Creators vs. refiners vs. advancers vs. executors vs. flexors. f. Focusing on tasks vs. focusing on goals. g. Workplace Personality Inventory. h. Shapers are people who can go from visualization to actualization. 4.5 Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish. a. Manage yourself and orchestrate others to get what you want.

 

Learn How to Make Decisions Effectively 5.1 Recognize that 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). 5.2 Synthesize the situation at hand. a. One of the most important decisions you can make is who you ask questions of. b. Don’t believe everything you hear. c. Everything looks bigger up close. d. New is overvalued relative to great. e. Don’t oversqueeze dots. 5.3 Synthesize the situation through time. a. Keep in mind both the rates of change and the levels of things, and the relationships between them. b. Be imprecise. c. Remember the 80/20 Rule and know what the key 20 percent is. d. Be an imperfectionist.

 

Navigate levels effectively. a. Use the terms “above the line” and “below the line” to establish which level a conversation is on. b. Remember that decisions need to be made at the appropriate level, but they should also be consistent across levels. 5.5 Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it. 5.6 Make your decisions as expected value calculations. a. Raising the probability of being right is valuable no matter what your probability of being right already is. b. Knowing when not to bet is as important as knowing what bets are probably worth making. c. The best choices are the ones that have more pros than cons, not those that don’t have any cons at all. 5.7 Prioritize by weighing the value of additional information against the cost of not deciding. a. All of your “must-dos” must be above the bar before you do your “like-to-dos.” b. Chances are you won’t have time to deal with the unimportant things, which is better than not having time to deal with the important things. c. Don’t mistake possibilities for probabilities. 5.8 Simplify!

 

Use principles. 5.10 Believability weight your decision making. 5.11 Convert your principles into algorithms and have the computer make decisions alongside you. 5.12 Be cautious about trusting AI without having deep understanding.

 

PART III WORK PRINCIPLES

 

SUMMARY AND TABLE OF WORK PRINCIPLES I’m including this summary and table of Work Principles here so that you have the choice of skimming them all, finding the ones you’re most interested in, or skipping this section and continuing your reading on page 296.

 

An organization is a machine consisting of two major parts: culture and people. a. A great organization has both great people and a great culture. b. Great people have both great character and great capabilities. c. Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before.

 

Tough love is effective for achieving both great work and great relationships. a. In order to be great, one can’t compromise the uncompromisable. • A believability-weighted idea meritocracy is the best system for making effective decisions. • Make your passion and your work one and the same and do it with people you want to be with.

 

TO GET THE CULTURE RIGHT . . . 1 Trust in Radical Truth and Radical Transparency 1.1 Realize that you have nothing to fear from knowing the truth. 1.2 Have integrity and demand it from others. a. Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces. b. Don’t let loyalty to people stand in the way of truth and the well-being of the organization.

 

Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up. a. Speak up, own it, or get out. b. Be extremely open. c. Don’t be naive about dishonesty. 1.4 Be radically transparent. a. Use transparency to help enforce justice. b. Share the things that are hardest to share. c. Keep exceptions to radical transparency very rare. d. Make sure those who are given radical transparency recognize their responsibilities to handle it well and to weigh things intelligently. e. Provide transparency to people who handle it well and either deny it to people who don’t handle it well or remove those people from the organization. f. Don’t share sensitive information with the organization’s enemies. 1.5 Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency.

 

Cultivate Meaningful Work and Meaningful Relationships 2.1 Be loyal to the common mission and not to anyone who is not operating consistently with it. 2.2 Be crystal clear on what the deal is. a. Make sure people give more consideration to others than they demand for themselves. b. Make sure that people understand the difference between fairness and generosity. c. Know where the line is and be on the far side of fair. d. Pay for work.

 

Recognize that the size of the organization can pose a threat to meaningful relationships. 2.4 Remember that most people will pretend to operate in your interest while operating in their own. 2.5 Treasure honorable people who are capable and will treat you well even when you’re not looking. 

 

Recognize that mistakes are a natural part of the evolutionary process. a. Fail well. b. Don’t feel bad about your mistakes or those of others. Love them!

 

Don’t worry about looking good—worry about achieving your goals. a. Get over “blame” and “credit” and get on with “accurate” and “inaccurate.” 3.3 Observe the patterns of mistakes to see if they are products of weaknesses. 3.4 Remember to reflect when you experience pain. a. Be self-reflective and make sure your people are self-reflective. b. Know that nobody can see themselves objectively. c. Teach and reinforce the merits of mistake-based learning. 3.5 Know what types of mistakes are acceptable and what types are unacceptable, and don’t allow the people who work for you to make the unacceptable ones.

 

Get and Stay in Sync 4.1 Recognize that conflicts are essential for great relationships because they are how people determine whether their principles are aligned and resolve their differences. a. Spend lavishly on the time and energy you devote to getting in sync, because it’s the best investment you can make.

 

Know how to get in sync and disagree well. a. Surface areas of possible out-of-syncness. b. Distinguish between idle complaints and complaints meant to lead to improvement. c. Remember that every story has another side.

 

Be open-minded and assertive at the same time. a. Distinguish open-minded people from closed-minded people. b. Don’t have anything to do with closed-minded people. c. Watch out for people who think it’s embarrassing not to know. d. Make sure that those in charge are open-minded about the questions and comments of others. e. Recognize that getting in sync is a two-way responsibility. f. Worry more about substance than style. g. Be reasonable and expect others to be reasonable. h. Making suggestions and questioning are not the same as criticizing, so don’t treat them as if they are.

 

4.4 If it is your meeting to run, manage the conversation. a. Make it clear who is directing the meeting and whom it is meant to serve. b. Be precise in what you’re talking about to avoid confusion. c. Make clear what type of communication you are going to have in light of the objectives and priorities. d. Lead the discussion by being assertive and open-minded. e. Navigate between the different levels of the conversation.

 

Watch out for “topic slip.” g. Enforce the logic of conversations. h. Be careful not to lose personal responsibility via group decision making. i. Utilize the “two-minute rule” to avoid persistent interruptions. j. Watch out for assertive “fast talkers.” k. Achieve completion in conversations. l. Leverage your communication.

 

Great collaboration feels like playing jazz. a. 1+1=3. b. 3 to 5 is more than 20.

 

When you have alignment, cherish it. 4.7 If you find you can’t reconcile major differences—especially in values—consider whether the relationship is worth preserving. 5 Believability Weight Your Decision Making 5.1 Recognize that having an effective idea meritocracy requires that you understand the merit of each person’s ideas. a. If you can’t successfully do something, don’t think you can tell others how it should be done. b. Remember that everyone has opinions and they are often bad.

 

Find the most believable people possible who disagree with you and try to understand their reasoning. a. Think about people’s believability in order to assess the likelihood that their opinions are good. b. Remember that believable opinions are most likely to come from people 1) who have successfully accomplished the thing in question at least three times, and 2) who have great explanations of the cause-effect relationships that lead them to their conclusions. c. If someone hasn’t done something but has a theory that seems logical and can be stress-tested, then by all means test it. d. Don’t pay as much attention to people’s conclusions as to the reasoning that led them to their conclusions. e. Inexperienced people can have great ideas too, sometimes far better ones than more experienced people. f. Everyone should be up-front in expressing how confident they are in their thoughts. 5.3 Think about whether you are playing the role of a teacher, a student, or a peer and whether you should be teaching, asking questions, or debating. 

 

It’s more important that the student understand the teacher than that the teacher understand the student, though both are important. b. Recognize that while everyone has the right and responsibility to try to make sense of important things, they must do so with humility and radical open-mindedness. 5.4 Understand how people came by their opinions. a. If you ask someone a question, they will probably give you an answer, so think through to whom you should address your questions.

 

Having everyone randomly probe everyone else is an unproductive waste of time. c. Beware of statements that begin with “I think that . . .” d. Assess believability by systematically capturing people’s track records over time. 5.5 Disagreeing must be done efficiently. a. Know when to stop debating and move on to agreeing about what should be done. b. Use believability weighting as a tool rather than a substitute for decision making by Responsible Parties.

 

Since you don’t have the time to thoroughly examine everyone’s thinking yourself, choose your believable people wisely. d. When you’re responsible for a decision, compare the believability-weighted decision making of the crowd to what you believe. 5.6 Recognize that everyone has the right and responsibility to try to make sense of important things. a. Communications aimed at getting the best answer should involve the most relevant people. b. Communication aimed at educating or boosting cohesion should involve a broader set of people than would be needed if the aim were just getting the best answer. c. Recognize that you don’t need to make judgments about everything. 5.7 Pay more attention to whether the decision-making system is fair than whether you get your way. 6 Recognize How to Get Beyond Disagreements 6.1 Remember: Principles can’t be ignored by mutual agreement. a. The same standards of behavior apply to everyone.

 

Make sure people don’t confuse the right to complain, give advice, and openly debate with the right to make decisions. a. When challenging a decision and/or a decision maker, consider the broader context. 6.3 Don’t leave important conflicts unresolved. a. Don’t let the little things divide you when your agreement on the big things should bind you. b. Don’t get stuck in disagreement—escalate or vote! 6.4 Once a decision is made, everyone should get behind it even though individuals may still disagree. a. See things from the higher level.

 

Never allow the idea meritocracy to slip into anarchy. c. Don’t allow lynch mobs or mob rule. 6.5 Remember that if the idea meritocracy comes into conflict with the well-being of the organization, it will inevitably suffer. a. Declare “martial law” only in rare or extreme circumstances when the principles need to be suspended. b. Be wary of people who argue for the suspension of the idea meritocracy for the “good of the organization.”

 

TO GET THE PEOPLE RIGHT . . . 7 Remember That the WHO Is More Important than the WHAT 7.1 Recognize that the most important decision for you to make is who you choose as your Responsible Parties. a. Understand that the most important RPs are those responsible for the goals, outcomes, and machines at the highest levels.

 

Know that the ultimate Responsible Party will be the person who bears the consequences of what is done. a. Make sure that everyone has someone they report to. 7.3 Remember the force behind the thing. 8 Hire Right, Because the Penalties for Hiring Wrong Are Huge 8.1 Match the person to the design. a. Think through which values, abilities, and skills you are looking for (in that order). b. Make finding the right people systematic and scientific.

 

Hear the click: Find the right fit between the role and the person. d. Look for people who sparkle, not just “any ol’ one of those.” e. Don’t use your pull to get someone a job. 8.2 Remember that people are built very differently and that different ways of seeing and thinking make people suitable for different jobs. a. Understand how to use and interpret personality assessments. b. Remember that people tend to pick people like themselves, so choose interviewers who can identify what you are looking for.

 

Look for people who are willing to look at themselves objectively. d. Remember that people typically don’t change all that much. 8.3 Think of your teams the way that sports managers do: No one person possesses everything required to produce success, yet everyone must excel. 8.4 Pay attention to people’s track records. a. Check references. b. Recognize that performance in school doesn’t tell you much about whether a person has the values and abilities you are looking for.

 

While it’s best to have great conceptual thinkers, understand that great experience and a great track record also count for a lot. d. Beware of the impractical idealist. e. Don’t assume that a person who has been successful elsewhere will be successful in the job you’re giving them. f. Make sure your people have character and are capable. 8.5 Don’t hire people just to fit the first job they will do; hire people you want to share your life with.

 

Look for people who have lots of great questions. b. Show candidates your warts. c. Play jazz with people with whom you are compatible but who will also challenge you. 8.6 When considering compensation, provide both stability and opportunity. a. Pay for the person, not the job. b. Have performance metrics tied at least loosely to compensation. c. Pay north of fair. d. Focus more on making the pie bigger than on exactly how to slice it so that you or anyone else gets the biggest piece.

 

Remember that in great partnerships, consideration and generosity are more important than money. a. Be generous and expect generosity from others. 8.8 Great people are hard to find so make sure you think about how to keep them. 9 Constantly Train, Test, Evaluate, and Sort People 9.1 Understand that you and the people you manage will go through a process of personal evolution. a. Recognize that personal evolution should be relatively rapid and a natural consequence of discovering one’s strengths and weaknesses; as a result, career paths are not planned at the outset. b. Understand that training guides the process of personal evolution. c. Teach your people to fish rather than give them fish, even if that means letting them make some mistakes. d. Recognize that experience creates internalized learning that book learning can’t replace. 9.2 Provide constant feedback. 9.3 Evaluate accurately, not kindly. 

 

Recognize that while most people prefer compliments, accurate criticism is more valuable. 9.5 Don’t hide your observations about people. a. Build your synthesis from the specifics up. b. Squeeze the dots. c. Don’t oversqueeze a dot. d. Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance. 9.6 Make the process of learning what someone is like open, evolutionary, and iterative. a. Make your metrics clear and impartial.

 

Encourage people to be objectively reflective about their performance. c. Look at the whole picture. d. For performance reviews, start from specific cases, look for patterns, and get in sync with the person being reviewed by looking at the evidence together. e. Remember that when it comes to assessing people, the two biggest mistakes you can make are being overconfident in your assessment and failing to get in sync on it.

 

Get in sync on assessments in a nonhierarchical way. g. Learn about your people and have them learn about you through frank conversations about mistakes and their root causes. h. Understand that making sure people are doing a good job doesn’t require watching everything that everybody is doing at all times. i. Recognize that change is difficult. j. Help people through the pain that comes with exploring their weaknesses.

 

Knowing how people operate and being able to judge whether that way of operating will lead to good results is more important than knowing what they did. a. If someone is doing their job poorly, consider whether it is due to inadequate learning or inadequate ability. b. Training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to assess their abilities is a common mistake. 9.8 Recognize that when you are really in sync with someone about their weaknesses, the weaknesses are probably true. a. When judging people, remember that you don’t have to get to the point of “beyond a shadow of a doubt.” b. It should take you no more than a year to learn what a person is like and whether they are a click for their job. c. Continue assessing people throughout their tenure. d. Evaluate employees with the same rigor as you evaluate job candidates. 9.9 Train, guardrail, or remove people; don’t rehabilitate them. a. Don’t collect people. 

 

Be willing to “shoot the people you love.” c. When someone is “without a box,” consider whether there is an open box that would be a better fit or whether you need to get them out of the company. d. Be cautious about allowing people to step back to another role after failing. 9.10 Remember that the goal of a transfer is the best, highest use of the person in a way that benefits the community as a whole. a. Have people “complete their swings” before moving on to new roles. 9.11 Don’t lower the bar.

 

TO BUILD AND EVOLVE YOUR MACHINE . . . 10 Manage as Someone Operating a Machine to Achieve a Goal 10.1 Look down on your machine and yourself within it from the higher level. a. Constantly compare your outcomes to your goals. b. Understand that a great manager is essentially an organizational engineer. c. Build great metrics. d. Beware of paying too much attention to what is coming at you and not enough attention to your machine. e. Don’t get distracted by shiny objects. 10.2 Remember that for every case you deal with, your approach should have two purposes: 1) to move you closer to your goal, and 2) to train and test your machine (i.e., your people and your design). a. Everything is a case study. b. When a problem occurs, conduct the discussion at two levels: 1) the machine level (why that outcome was produced) and 2) the case-at-hand level (what to do about it). c. When making rules, explain the principles behind them.

 

Your policies should be natural extensions of your principles. e. While good principles and policies almost always provide good guidance, remember that there are exceptions to every rule. 10.3 Understand the differences between managing, micromanaging, and not managing. a. Managers must make sure that what they are responsible for works well. b. Managing the people who report to you should feel like skiing together. c. An excellent skier is probably going to be a better ski coach than a novice skier. d. You should be able to delegate the details. 10.4 Know what your people are like and what makes them tick, because your people are your most important resource. a. Regularly take the temperature of each person who is important to you and to the organization. b. Learn how much confidence to have in your people—don’t assume it. c. Vary your involvement based on your confidence. 10.5 Clearly assign responsibilities. a. Remember who has what responsibilities.

 

Watch out for “job slip.” 10.6 Probe deep and hard to learn what you can expect from your machine. a. Get a threshold level of understanding. b. Avoid staying too distant. c. Use daily updates as a tool for staying on top of what your people are doing and thinking. d. Probe so you know whether problems are likely to occur before they actually do. e. Probe to the level below the people who report to you. f. Have the people who report to the people who report to you feel free to escalate their problems to you. g. Don’t assume that people’s answers are correct. h. Train your ear. i. Make your probing transparent rather than private. j. Welcome probing. k. Remember that people who see things and think one way often have difficulty communicating with and relating to people who see things and think another way. 

 

Pull all suspicious threads. m. Recognize that there are many ways to skin a cat. 10.7 Think like an owner, and expect the people you work with to do the same. a. Going on vacation doesn’t mean one can neglect one’s responsibilities. b. Force yourself and the people who work for you to do difficult things. 10.8 Recognize and deal with key-man risk. 10.9 Don’t treat everyone the same—treat them appropriately. a. Don’t let yourself get squeezed. b. Care about the people who work for you. 10.10 Know that great leadership is generally not what it’s made out to be. a. Be weak and strong at the same time. b. Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do. c. Don’t give orders and try to be followed; try to be understood and to understand others by getting in sync. 10.11 Hold yourself and your people accountable and appreciate them for holding you accountable. a. If you’ve agreed with someone that something is supposed to go a certain way, make sure it goes that way—unless you get in sync about doing it differently. b. Distinguish between a failure in which someone broke their “contract” and a failure in which there was no contract to begin with. c. Avoid getting sucked down. d. Watch out for people who confuse goals and tasks, because if they can’t make that distinction, you can’t trust them with responsibilities. e. Watch out for the unfocused and unproductive “theoretical should.”

 

Communicate the plan clearly and have clear metrics conveying whether you are progressing according to it. a. Put things in perspective by going back before going forward. 10.13 Escalate when you can’t adequately handle your responsibilities and make sure that the people who work for you are proactive about doing the same. 11 Perceive and Don’t Tolerate Problems 11.1 If you’re not worried, you need to worry—and if you’re worried, you don’t need to worry. 11.2 Design and oversee a machine to perceive whether things are good enough or not good enough, or do it yourself.

 

Assign people the job of perceiving problems, give them time to investigate, and make sure they have independent reporting lines so that they can convey problems without any fear of recrimination. b. Watch out for the “Frog in the Boiling Water Syndrome.” c. Beware of group-think: The fact that no one seems concerned doesn’t mean nothing is wrong. d. To perceive problems, compare how the outcomes are lining up with your goals.

 

Taste the soup.” f. Have as many eyes looking for problems as possible. g. “Pop the cork.” h. Realize that the people closest to certain jobs probably know them best. 11.3 Be very specific about problems; don’t start with generalizations. a. Avoid the anonymous “we” and “they,” because they mask personal responsibility. 11.4 Don’t be afraid to fix the difficult things. a. Understand that problems with good, planned solutions in place are completely different from those without such solutions. b. Think of the problems you perceive in a machinelike way. 12 Diagnose Problems to Get at Their Root Causes 12.1 To diagnose well, ask the following questions: 1. Is the outcome good or bad? 2. Who is responsible for the outcome? 3. If the outcome is bad, is the Responsible Party incapable and/or is the design bad? a. Ask yourself: “Who should do what differently?” b. Identify at which step in the 5-Step Process the failure occurred.

 

Identify the principles that were violated. d. Avoid Monday morning quarterbacking. e. Don’t confuse the quality of someone’s circumstances with the quality of their approach to dealing with the circumstances. f. Identifying the fact that someone else doesn’t know what to do doesn’t mean that you know what to do. g. Remember that a root cause is not an action but a reason.

 

To distinguish between a capacity issue and a capability issue, imagine how the person would perform at that particular function if they had ample capacity. i. Keep in mind that managers usually fail or fall short of their goals for one (or more) of five reasons. 12.2 Maintain an emerging synthesis by diagnosing continuously. 12.3 Keep in mind that diagnoses should produce outcomes. a. Remember that if you have the same people doing the same things, you should expect the same results.

 

Use the following “drill-down” technique to gain an 80/20 understanding of a department or sub-department that is having problems. 12.5 Understand that diagnosis is foundational to both progress and quality relationships. 13 Design Improvements to Your Machine to Get Around Your Problems 13.1 Build your machine. 13.2 Systemize your principles and how they will be implemented. a. Create great decision-making machines by thinking through the criteria you are using to make decisions while you are making them. 13.3 Remember that a good plan should resemble a movie script. a. Put yourself in the position of pain for a while so that you gain a richer understanding of what you’re designing for. b. Visualize alternative machines and their outcomes, and then choose. c. Consider second- and third-order consequences, not just first-order ones. d. Use standing meetings to help your organization run like a Swiss clock.

 

Remember that a good machine takes into account the fact that people are imperfect. 13.4 Recognize that design is an iterative process. Between a bad “now” and a good “then” is a “working through it” period. a. Understand the power of the “cleansing storm.” 13.5 Build the organization around goals rather than tasks. a. Build your organization from the top down. b. Remember that everyone must be overseen by a believable person who has high standards. c. Make sure the people at the top of each pyramid have the skills and focus to manage their direct reports and a deep understanding of their jobs.

 

In designing your organization, remember that the 5-Step Process is the path to success and that different people are good at different steps. e. Don’t build the organization to fit the people. f. Keep scale in mind. g. Organize departments and sub-departments around the most logical groupings based on “gravitational pull.” h. Make departments as self-sufficient as possible so that they have control over the resources they need to achieve their goals.

 

Ensure that the ratios of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding. j. Consider succession and training in your design. k. Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around. l. Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly.

 

Use consultants wisely and watch out for consultant addiction. 13.6 Create an organizational chart to look like a pyramid, with straight lines down that don’t cross. a. Involve the person who is the point of the pyramid when encountering cross-departmental or cross-sub-departmental issues. b. Don’t do work for people in another department or grab people from another department to do work for you unless you speak to the person responsible for overseeing the other department. c. Watch out for “department slip.”

 

Create guardrails when needed—and remember it’s better not to guardrail at all. a. Don’t expect people to recognize and compensate for their own blind spots. b. Consider the clover-leaf design. 13.8 Keep your strategic vision the same while making appropriate tactical changes as circumstances dictate. a. Don’t put the expedient ahead of the strategic. b. Think about both the big picture and the granular details, and understand the connections between them.

 

Have good controls so that you are not exposed to the dishonesty of others. a. Investigate and let people know you are going to investigate. b. Remember that there is no sense in having laws unless you have policemen (auditors). c. Beware of rubber-stamping. d. Recognize that people who make purchases on your behalf probably will not spend your money wisely. e. Use “public hangings” to deter bad behavior.

 

Have the clearest possible reporting lines and delineations of responsibilities. a. Assign responsibilities based on workflow design and people’s abilities, not job titles. b. Constantly think about how to produce leverage. c. Recognize that it is far better to find a few smart people and give them the best technology than to have a greater number of ordinary people who are less well equipped. d. Use leveragers. 13.11 Remember that almost everything will take more time and cost more money than you expect.

 

Do What You Set Out to Do 14.1 Work for goals that you and your organization are excited about and think about how your tasks connect to those goals. a. Be coordinated and consistent in motivating others. b. Don’t act before thinking. Take the time to come up with a game plan. c. Look for creative, cut-through solutions. 14.2 Recognize that everyone has too much to do. a. Don’t get frustrated. 14.3 Use checklists.

 

Don’t confuse checklists with personal responsibility. 14.4 Allow time for rest and renovation. 14.5 Ring the bell. 15 Use Tools and Protocols to Shape How Work Is Done 15.1 Having systemized principles embedded in tools is especially valuable for an idea meritocracy. a. To produce real behavioral change, understand that there must be internalized or habitualized learning. b. Use tools to collect data and process it into conclusions and actions. c. Foster an environment of confidence and fairness by having clearly-stated principles that are implemented in tools and protocols so that the conclusions reached can be assessed by tracking the logic and data behind them. 16 And for Heaven’s Sake, Don’t Overlook Governance! 16.1 To be successful, all organizations must have checks and balances.

 

Even in an idea meritocracy, merit cannot be the only determining factor in assigning responsibility and authority. b. Make sure that no one is more powerful than the system or so important that they are irreplaceable. c. Beware of fiefdoms. d. Make clear that the organization’s structure and rules are designed to ensure that its checks-and-balances system functions well. e. Make sure reporting lines are clear. f. Make sure decision rights are clear. g. Make sure that the people doing the assessing 1) have the time to be fully informed about how the person they are checking on is doing, 2) have the ability to make the assessments, and 3) are not in a conflict of interest that stands in the way of carrying out oversight effectively. h. Recognize that decision makers must have access to the information necessary to make decisions and must be trustworthy enough to handle that information safely. 16.2 Remember that in an idea meritocracy a single CEO is not as good as a great group of leaders.

 

No governance system of principles, rules, and checks and balances can substitute for a great partnership.

 

For any group or organization to function well, its work principles must be aligned with its members’ life principles.

 

An organization is a machine consisting of two major parts: culture and people.

 

Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before.

 

As laid out in Chapter Two of Life Principles, this ideally happens in a 5-Step Process: 1) having clear goals, 2) identifying the problems preventing the goals from being achieved, 3) diagnosing what parts of the machine (i.e., which people or which designs) are not working well, 4) designing changes, and 5) doing what is needed. This is the fastest and most efficient way that an organization improves.

 

Bridgewater is not about plodding along at some kind of moderate standard, it is about working like hell to achieve a standard that is extraordinarily high, and then getting the satisfaction that comes along with that sort of super-achievement. Our overriding objective is excellence, or more precisely, constant improvement, a superb and constantly improving company in all respects. Conflict in the pursuit of excellence is a terrific thing. There should be no hierarchy based on age or seniority. Power should lie in the reasoning, not the position, of the individual. The best ideas win no matter who they come from. Criticism (by oneself and by others) is an essential ingredient in the improvement process, yet, if handled incorrectly, can be destructive. It should be handled objectively. There should be no hierarchy in the giving or receiving of criticism. 

 

Teamwork and team spirit are essential, including intolerance of substandard performance. This is referring to 1) one’s recognition of the responsibilities one has to help the team achieve its common goals and 2) the willingness to help others (work within a group) toward these common goals. Our fates are intertwined. One should know that others can be relied upon to help. As a corollary, substandard performance cannot be tolerated anywhere because it would hurt everyone.

 

Long-term relationships are both a) intrinsically gratifying and b)efficient, and should be intentionally built. Turnover requires re-training and therefore creates setbacks. Money is a byproduct of excellence, not a goal. Our overriding objective is excellence and constant improvement at Bridgewater. To be clear, it is not to make lots of money. The natural extension of this is not that you should be happy with little money. On the contrary—you should expect to make a lot. If we operate consistently with this philosophy we should be productive and the company should do well financially. There is comparatively little age- and seniority-b... 

 

A believability-weighted idea meritocracy is the best system for making effective decisions.

 

RADICAL TRUTH AND RADICAL TRANSPARENCY

 

By radical truth, I mean not filtering one’s thoughts and one’s questions, especially the critical ones. If we don’t talk openly about our issues and have paths for working through them, we won’t have partners who collectively own our outcomes.

 

By radical transparency, I mean giving most everyone the ability to see most everything. To give people anything less than total transparency would make them vulnerable to others’ spin and deny ...

 

To me, a pervasive Idea Meritocracy = Radical Truth + Radical Transparency + Believability-Weighted Decision Making.

 

 

As Harvard developmental psychologist Bob Kegan, who has studied Bridgewater, likes to say, in most companies people are doing two jobs: their actual job and the job of managing others’ impressions of how they’re doing their job. For us, that’s terrible. We’ve found that bringing everything to the surface 1) removes the need to try to look good and 2) eliminates time required to guess wha...

 

We went from one independent thinker who wanted to achieve audacious goals to a group of independent thinkers who wanted to achieve audacious goals. 2. To enable these independent thinkers to have effective collective decision making, we created an idea meritocracy based on principles that ensured we would be radically honest and transparent with each other, have thoughtful disagreements, and have idea-meritocratic ways of getting past our disagreements to make decisions. 3. We recorded these decision-making principles on paper and later encoded them into computers and made our decisions based on them. 4. This produced our successes and failures, which produced more learnings, which were written into more principles that were systemized and acted upon. 5. This process resulted in excellent work and excellent relationships that ...

 

There’s no doubt that our approach is very different. Some people have even described Bridgewater as a cult. The truth is that Bridgewater succeeds because it is the opposite of a cult. The essential difference between a culture of people with shared values (which is a great thing) and a cult (which is a terrible thing) is the extent to which there is independent thinking. Cults demand unquestioning obedience. Thinking for yoursel...

 

Some people say that our approach is crazy, but think about it: Which approach do you think is crazy and which one is sensible? • One where people are truthful and transparent, or one in which most people keep their real thoughts hidden? • One where problems, mistakes, weaknesses, and disagreements are brought to the surface and thoughtfully discussed, or one in which they are not forthrightly brought to the surface and discussed? • One in which the right to criticize is nonhierarchical, or one in which it primarily comes from the top down? • One in which objective pictures of what people are like are derived through lots of data and broad triangulations of people, or one in which evaluations of people are more arbitrary? • One in which the organization pursues v... 

 

But remember that my most fundamental principle is that you have t...

 

Think of these principles as being like a GPS. A GPS helps you get where you’re going, but if you follow it blindly off a bridge—well, that would be your fault, not the GPS’s. And just as a GPS that gives bad directions can be fixed by updating its software, it’s important to raise and discuss excep...

 

This dynamic is so important that I’ve organized Work Principles around it in three sections: To Get the Culture Right, To Get the People Righ...

 

To make this easier, at Bridgewater we created a tool called the “Coach” that allows people to type in their particular issue and find the approp...

 

Make your passion and your work one and the same and do it with people....

 

I encountered the limit of notes I was allowed to copy from this book. Buy a copy and read (and re-read) it all.

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