Unformatted text preview: MENU
PRINCIPLES BY RAY DALIO
PART 2 MY MOST FUNDAMENTAL LIFE PRINCIPLES
KNOW WHERE YOU WANT TO GO? USE THE TABLE OF CONTENTS TO
NAVIGATE THE PRINCIPLES
TABLE OF CONTENTS
COPYRIGHT: © 2011 ‐ 2016 RAY DALIO PRINCIPLES
What follows are three distinct parts that can be read either independently or as a connected
whole. Part 1 is about the purpose and importance of having principles in general, having
nothing to do with mine. Part 2 explains my most fundamental life principles that apply to
everything I do. Part 3, explains my management principles as they are being lived out at
Bridgewater. Since my management principles are simply my most fundamental life principles
applied to management, reading Part 2 will help you to better understand Part 3, but it’s not
required—you can go directly to Part 3 to see what my management principles are and how
Bridgewater has been run. One day I’d like to write a Part 4 on my investment principles. If you
are in looking to get the most bang for your buck (i.e., understanding for the effort), I suggest
that you read Parts 1 and 2, and the beginning of Part 3 (through the Summary and Table of
Principles) which will give you nearly the whole picture. It’s only about 55 pages of a normal
Above all else, I want you to think for yourself—to decide 1) what you want, 2) what is true and
3) what to do about it. I want you to do that in a clear-headed thoughtful way, so that you get
what you want. I wrote this book to help you do that. I am going to ask only two things of you—
1) that you be open-minded and 2) that you honestly answer some questions about what you
want, what is true and what you want to do about it. If you do these things, I believe that you will
get a lot out of this book. If you can’t do these things, you should reflect on why that is, because
you probably have discovered one of your greatest impediments to getting what you want out of
life. Table of Contents Introduction Part 1: The Importance of Principles Part 2: My Most Fundamental Life Principles Part 3: My Management Principles INTRODUCTION
Principles are concepts that can be applied over and over again in similar circumstances as
distinct from narrow answers to specific questions. Every game has principles that successful
players master to achieve winning results. So does life. Principles are ways of successfully
dealing with the laws of nature or the laws of life. Those who understand more of them and
understand them well know how to interact with the world more effectively than those who know
fewer of them or know them less well. Different principles apply to different aspects of life—
e.g., there are “skiing principles” for skiing, “parenting principles” for parenting, “management
principles” for managing, “investment principles” for investing, etc and there are over-arching
“life principles” that influence our approaches to all things. And, of course, different people
subscribe to different principles that they believe work best.
I am confident that whatever success Bridgewater and I have had has resulted from our operating
by certain principles. Creating a great culture, finding the right people, managing them to do
great things, and solving problems creatively and systematically are challenges faced by all
organizations. What differentiates them is how they approach these challenges. The principles
laid out in the pages that follow convey our unique ways of doing these things, which are the
reasons for our unique results. Bridgewater’s success has resulted from talented people operating
by the principles set out here, and it will continue if these or other talented people continue to
operate by them. Like getting fit, virtually anyone can do it if they are willing to do what it takes.
What is written here is just my understanding of what it takes: my most fundamental life
principles, my approach to getting what I want, and my “management principles,” which are
based on those foundations. Taken together, these principles are meant to paint a picture of a
process for the systematic pursuit of truth and excellence and for the rewards that accompany
this pursuit. I put them in writing for people to consider in order to help Bridgewater and the
people I care about most.
Until recently, I didn’t write out these principles because I felt that it was presumptuous for me to
tell others what would work best for them. But over time, I saw the people who I cared about
most struggling with problems and wanted to help them; I also found that their problems were
almost always the result of violating one or more of these principles, and that their problems
could be solved by applying these principles. So I began writing down the types of problems and
the broken principles that caused them. When I began, I didn’t know how many principles I
would end up with but, through this process, I discovered that about 200 principles pretty much
cover all the problems. I’m sure that I will come up with more as I learn more.
When I say that these are my principles, I don’t mean that in a possessive or egotistical way. I
just mean that they are explanations of what I personally believe. I believe that the people I work
with and care about must think for themselves. I set these principles out and explained the logic
behind them so that we can together explore their merits and stress test them. While I am
confident that these principles work well because I have thought hard about them, they have
worked well for me for many years, and they have stood up to the scrutiny of the hundreds of smart, skeptical people, I also believe that nothing is certain. I believe that the best we can hope
for is highly probable. By putting them out there and stress testing them, the probabilities of their
being right will increase.
I also believe that those principles that are most valuable to each of us come from our own
encounters with reality and our reflections on these encounters not from being taught and simply
accepting someone else’s principles. So, I put these out there for you to reflect on when you are
encountering your realities, and not for you to blindly follow. What I hope for most is that you
and others will carefully consider them and try operating by them as part of your process for
discovering what works best for you. Through this exploration, and with their increased usage,
not only will they be understood, but they will evolve from “Ray’s principles” to “our
principles,” and Ray will fade out of the picture in much the same way as memories of one’s ski
or tennis instructor fade and people only pay attention to what works. So, when digesting each
…ask yourself: “Is it true?”
Before I discuss the management principles themselves, it’s important for me to articulate my
own most fundamental life principles because my management principles are an extension of
In Part 1, I explain what I mean by principles, why I believe they are important, and how they are
essential for getting what you want out of life.
Part 2 explains my most fundamental life principles. I describe what I believe are the best ways
of interacting with reality to learn what it’s like, and how to most effectively deal with it to get
what you want. I also discuss what I believe are the most common traps that people fall into that
prevent them from getting what they want, and how people’s lives can be radically better by
avoiding them. I wrote this so you can better understand why my other principles are what they
are, though you don’t need to read this part to understand the others.
Part 3 is about my management principles. As I have run Bridgewater for more than 35 years, it
explains Bridgewater’s approach up till now. It begins at the big-picture, conceptual level, with
an explanation of why I believe that any company’s results are primarily determined by its
people and its culture. It then drills down into what I believe are the important principles behind
creating a great culture hiring the right people, managing them to achieve excellence, solving
problems systematically, and making good decisions.
There are of course lots of other types of principles. For example, I hope to one day write about
my investment principles. However, management principles are now what we need most, so here
are the ones that I think make sense and have worked for me. PART 1THE IMPORTANCE OF PRINCIPLES SHARE
I believe that having principles that work is essential for getting what we want out of life. I also
believe that to understand each other we have to understand each other’s principles. That is why
I believe we need to talk about them.
We will begin by examining the following questions:
What are principles?
Why are principles important?
Where do principles come from?
Do you have principles that you live your life by? What are they?
How well do you think they will work, and why?
Answer all questions with complete honesty, without worrying what I or others might think. That
honesty will allow you to be comfortable living with your own principles, and to judge yourself
by how consistently you operate by them. If you don’t have many well-thought-out principles,
don’t worry. We will get there together, if we remain open-minded.
What are principles?
Your values are what you consider important, literally what you “value.” Principles are what
allow you to live a life consistent with those values. Principles connect your values to your
actions; they are beacons that guide your actions, and help you successfully deal with the laws of
reality. It is to your principles that you turn when you face hard choices.
Why are principles important?
All successful people operate by principles that help them be successful. Without principles, you
would be forced to react to circumstances that come at you without considering what you value
most and how to make choices to get what you want. This would prevent you from making the
most of your life. While operating without principles is bad for individuals, it is even worse for
groups of individuals (such as companies) because it leads to people randomly bumping into
each other without understanding their own values and how to behave in order to be consistent
with those values.
Where do principles come from?
Sometimes we forge our own principles and sometimes we accept others’ principles, or holistic
packages of principles, such as religion and legal systems. While it isn’t necessarily a bad thing
to use others’ principles—it’s difficult to come up with your own, and often much wisdom has
gone into those already created—adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values. Holding incompatible
principles can lead to conflict between values and actions—like the hypocrite who has claims to
be of a religion yet behaves counter to its teachings. Your principles need to reflect values you
really believe in.
Do you have principles that you live your life by? What are they?
Your principles will determine your standards of behavior. When you enter into relationships
with other people, your and their principles will determine how you interact. People who have
shared values and principles get along. People who don’t will suffer through constant
misunderstanding and conflicts with one another. Too often in relationships, people’s principles
are unclear. Think about the people with whom you are closest. Are their values aligned with
What do you value most deeply?
How well do you think they will work, and why?
Those principles that are most valuable come from our own experiences and our reflections on
those experiences. Every time we face hard choices, we refine our principles by asking ourselves
difficult questions. For example, when our representatives in Washington are investigating
whether various segments of society are behaving ethically, they are simultaneously grappling
with questions such as, “Should the government punish people for bad ethics, or should it just
write and enforce the laws?” Questions of this kind—in this case, about the nature of government
—prompt thoughtful assessments of alternative approaches. These assessments in turn lead to
principles that can be applied to similar occasions in the future. As another example, “I won’t
steal” can be a principle to which you refer when the choice of whether or not to steal arises. But
to be most effective, each principle must be consistent with your values, and this consistency
demands that you ask: Why? Is the reason you won’t steal because you feel empathy for your
potential victim? Is it because you fear getting caught? By asking such questions, we refine our
understanding, and the development of our principles becomes better aligned with our core
values. To be successful, you must make correct, tough choices. You must be able to “cut off a
leg to save a life,” both on an individual level and, if you lead people, on a group level. And to be
a great leader, it is important to remember that you will have to make these choices by
understanding and caring for your people, not by following them.
You have to answer these questions for yourself. What I hope for most is that you will carefully
consider the principles we will be exploring in this document and try operating by them as part
of the process of discovering what works best for you. In time, the answers to these questions
will evolve from “Ray’s principles” to “my principles,” and “Ray” will fade from the picture in
much the same way as memories of your ski instructor or basketball coach fade after you have
mastered the sport.
So, as I believe that adopting pre-packaged principles without much thought is risky, I am asking
you to join me in thoughtfully discussing the principles that guide how we act. When considering
each principle, please ask yourself, “Is it true?” While this particular document will always express just what I believe, other people will certainly have their own principles, and possibly
even their own principles documents, and future managers of Bridgewater will work in their own
ways to determine what principles Bridgewater will operate by. At most, this will remain as one
reference of principles for people to consider when they are deciding what’s important and how
to behave. PART 2MY MOST FUNDAMENTAL LIFE PRINCIPLES
Time is like a river that will take you forward into encounters with reality that will require you to
make decisions. You can’t stop the movement down this river, and you can’t avoid the
encounters. You can only approach these encounters in the best way possible.
That is what this part is all about. Where I’m Coming From
Since we are all products of our genes and our environments and approach the world with biases,
I think it is relevant for me to tell you a bit of my background so that you can know where I’m
I grew up in a middle-class neighborhood on Long Island, the only son of a jazz musician and a
stay-at-home mom. I was a very ordinary kid, and a less-than-ordinary student. I liked playing
with my friends—for example, touch football in the street—and I didn't like the school part of
school, partly because I had, and still have, a bad rote memory and partly because I couldn’t get
excited about forcing myself to remember what others wanted me to remember without
understanding what all this work was going to get me. In order to be motivated, I needed to work
for what I wanted, not for what other people wanted me to do. And in order to be successful, I
needed to figure out for myself how to get what I wanted, not remember the facts I was being
told to remember.
One thing I wanted was spending money. So I had a newspaper route, I mowed lawns, I shoveled
the snow off driveways, I washed dishes in a restaurant, and, starting when I was 12 years old, I
It was the 1960s. At the time the stock market was booming and everyone was talking about it,
especially the people I caddied for. So I started to invest. The first stock I bought was a company
called Northeast Airlines, and the only reason I bought it was that it was the only company I had
heard of that was trading for less than $5 per share, so I could buy more shares, which I figured
was a good thing. It went up a lot. It was about to go broke but another company acquired it, so it
tripled. I made money because I was lucky, though I didn’t see it that way then. I figured that this
game was easy. After all, with thousands of companies listed in the newspaper, how difficult
could it be to find at least one that would go up? By comparison to my other jobs, this way of making money seemed much more fun, a lot easier, and much more lucrative. Of course, it didn’t
take me long to lose money in the markets and learn about how difficult it is to be right and the
costs of being wrong.
So what I really wanted to do now was beat the market. I just had to figure out how to do it.
The pursuit of this goal taught me:
It isn’t easy for me to be confident that my opinions are right.In the markets, you can do a
huge amount of work and still be wrong.
Bad opinions can be very costly.Most people come up with opinions and there’s no cost to
them. Not so in the market. This is why I have learned to be cautious. No matter how hard I
work, I really can’t be sure.
The consensus is often wrong, so I have to be an independent thinker.To make any money,
you have to be right when they’re wrong.
I worked for what I wanted, not for what others wanted me to do.For that reason, I never felt
that I had to do anything. All the work I ever did was just what I needed to do to get what I
wanted. Since I always had the prerogative to strive for what I wanted, I never felt forced to do
I came up with the best independent opinions I could muster to get what I wanted.For
example, when I wanted to make money in the markets, I knew that I had to learn about
companies to assess the attractiveness of their stocks. At the time, Fortune magazine had a little
tear-out-coupon that you could mail in to get the annual reports of any companies on the Fortune
500, for free. So I ordered all the annual reports and worked my way through the most interesting
ones and formed opinions about which companies were exciting
I stress-tested my opinions by having the smartest people I could find challenge them so I
could find out where I was wrong.I never cared much about others’ conclusions—only for the
reasoning that led to these conclusions. That reasoning had to make sense to me. Through this
process, I improved my chances of being right, and I learned a lot from a lot of great people.
I remained wary about being overconfident, and I figured out how to effectively deal with
my not knowing.I dealt with my not knowing by either continuing to gather information until I
reached the point that I could be confident or by eliminating my exposure to the risks of not
I wrestled with my realities, reflected on the consequences of my decisions, and learned and
improved from this process.
By doing these things, I learned how important and how liberating it is to think for myself. In a nutshell, this is the whole approach that I believe will work best for you—the best summary
of what I want the people who are working with me to do in order to accomplish great things. I
want you to work for yourself, to come up with independent opinions, to stress-test them, to
be wary about being overconfident, and to reflect on the consequences of your decisions
and constantly improve.
After I graduated from high school, I went to a local college that I barely got in to. I loved it,
unlike high school, because I could learn about things that interested me; I studied because I
enjoyed it, not because I had to.
At that time the Beatles had made a trip to India to learn how to meditate, which triggered my
interest, so I learned how to meditate. It helped me t...
View Full Document
- Spring '14
- Debut albums, A Good Thing, Bridgewater