Datasets:

AlekseyKorshuk

/

dalio-book-handwritten-io-sorted

like 0

Don’t get distracted by shiny objects. No matter how complete any project or plan, there will always be things that come out of nowhere and look like the most important or urgent or attractive thing to focus on. These shiny objects may be traps that will distract you from thinking in a machinelike way, so be on your guard for them and don’t let yourself be seduced. 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). The second purpose is more important than the first because it is how you build a solid organization that works well in all cases. Most people focus more on the first purpose, which is a big mistake. Everything is a case study. Think about what type of case it is and what principles apply to that type of case. By doing this and helping others to do this you’ll get better at handling situations as they repeat over and over again through time. 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). Don’t make the mistake of just having the case-at-hand discussion, because then you are micromanaging (i.e., you are doing your managee’s thinking and your managee will mistakenly think that’s okay). When having the machine-level discussion, think clearly how things should have gone and explore why they didn’t go that way. If you are in a rush to determine what to do and you have to tell the person who works for you what to do, make sure to explain what you are doing and why.

But even then, after you both say yes, you won’t know if you have a good fit until you’ve lived together in your work and your relationships for a while. The “interviewing” process doesn’t end when employment begins, but transitions into a rigorous process of training, testing, sorting, and most importantly, getting in sync, which I describe in Chapter Nine, Constantly Train, Test, Evaluate, and Sort People. I believe that the ability to objectively self-assess, including one’s own weaknesses, is the most influential factor in whether a person succeeds, and that a healthy organization is one in which people compete not so much against each other as against the ways in which their lower-level selves get in the way. Your goal should be to hire people who understand this, equip them with the tools and the information they need to flourish in their jobs, and not micromanage them. If they can’t do the job after being trained and given time to learn, get rid of them; if they can, promote them. Remember That the WHO Is More Important than the WHAT People often make the mistake of focusing on what should be done while neglecting the more important question of who should be given the responsibility for determining what should be done. That’s backward. When you know what you need in a person to do the job well and you know what the person you’re putting into it is like, you can pretty well visualize how things will go.

Make clear that the organization’s structure and rules are designed to ensure that its checks-and-balances system functions well. Make sure reporting lines are clear. Make sure decision rights are clear. 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. Recognize that decision makers must have access to the information necessary to make decisions and must be trustworthy enough to handle that information safely. 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. I don’t mean that they must be aligned on everything, but I do mean that they have to be aligned on the most important things, like the mission they’re on and how they will be with each other. If people in an organization feel that alignment, they will treasure their relationships and work together harmoniously; its culture will permeate everything they do. If they don’t, they will work for different, often conflicting, goals and will be confused about how they should be with each other. For that reason, it pays for all organizations—companies, governments, foundations, schools, hospitals, and so on—to spell out their principles and values clearly and explicitly and to operate by them consistently.

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. Push through to completion. 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. 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. Understand your ego barrier. Your two “yous” fight to control you. Understand your blind spot barrier. Practice radical open-mindedness. 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. Recognize that decision making is a two-step process: First take in all the relevant information, then decide. Don’t worry about looking good; worry about achieving your goal. Realize that you can’t put out without taking in. 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. Remember that you’re looking for the best answer, not simply the best answer that you can come up with yourself. 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. Triangulate your view with believable people who are willing to disagree.

Watch out for people who confuse goals and tasks, because if they can’t make that distinction, you can’t trust them with responsibilities. People who can see the goals are usually able to synthesize too. One way to test this: If you ask a high-level question like “How is goal XYZ going?” a good answer will provide a synthesis up-front of how XYZ is going overall and, if needed, will support it by accounting for the tasks that were done to achieve it. People who see the tasks and lose sight of the goals will just describe the tasks that were done. Watch out for the unfocused and unproductive “theoretical should.” A “theoretical should” occurs when people assume that others or themselves should be able to do something when they don’t actually know whether they can (as in “Sally should be able to do X, Y, Z”). Remember that to really accomplish things you need believable Responsible Parties who have a track record of success in the relevant area. A similar problem occurs when people discuss how to solve a problem by saying something vague and depersonalized like “We should do X, Y, Z.” It is important to identify who these people are by name rather than with a vague “we,” and to recognize that it is their responsibility to determine what should be done. It is especially pointless for a group of people who are not responsible to say things like “We should . . .” to each other. Instead, those people should be speaking to the Responsible Party about what should be done.

In imagining what the future of our thinking will be like, it’s also interesting to consider how man himself might change how the brain works. We are certainly doing that with drugs and technology. Given advances in genetic engineering, it’s reasonable to expect that someday genetic engineers might mix and match features of different species’ brains for different purposes—if you want to have a heightened sense of sight, say, genetic engineers might be able to manipulate the human brain so it grows optic lobes more like those of birds. But since such things won’t happen anytime soon, let’s get back to the practical question of how all this can help us better deal with ourselves and each other. Understand the great brain battles and how to control them to get what “you” want. The following sections explore the different ways your brain fights for control of “you.” While I will refer to the specific parts of the brain that neurophysiologists believe are responsible for specific types of thinking and emotions, the actual physiology is much more complex—and scientists are only beginning to understand it. 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. Though I’ve often seen these two yous in action in myself and others, it wasn’t until I learned why they exist that I really understood them.

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. Watch out for the “Frog in the Boiling Water Syndrome.” Beware of group-think: The fact that no one seems concerned doesn’t mean nothing is wrong. To perceive problems, compare how the outcomes are lining up with your goals. “Taste the soup.” Have as many eyes looking for problems as possible. “Pop the cork.” Realize that the people closest to certain jobs probably know them best. Be very specific about problems; don’t start with generalizations. Avoid the anonymous “we” and “they,” because they mask personal responsibility. Don’t be afraid to fix the difficult things. Understand that problems with good, planned solutions in place are completely different from those without such solutions. Think of the problems you perceive in a machinelike way. Diagnose Problems to Get at Their Root Causes 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? Ask yourself: “Who should do what differently?” Identify at which step in the 5-Step Process the failure occurred. Identify the principles that were violated. Avoid Monday morning quarterbacking. Don’t confuse the quality of someone’s circumstances with the quality of their approach to dealing with the circumstances. Identifying the fact that someone else doesn’t know what to do doesn’t mean that you know what to do. 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. Keep in mind that managers usually fail or fall short of their goals for one (or more) of five reasons.

Meaningful relationships are invaluable for building and sustaining a culture of excellence, because they create the trust and support that people need to push each other to do great things. If the overwhelming majority of people care about having an excellent community, they will take care of it, which will yield both better work and better relationships. Relationships have to be genuine, not forced; at the same time, the culture of the community will have a big influence on how people value relationships and how they behave with each other. To me, a meaningful relationship is one in which people care enough about each other to be there whenever someone needs support and they enjoy each other’s company so much that they can have great times together both inside and outside of work. I literally love many of the people I work with, and I respect them deeply. I have often been asked whether relationships at Bridgewater are more like those of a family or those of a team, the implication being that in a family there is unconditional love and a permanent relationship, while in a team the attachment is only as strong as the person’s contribution. Before answering this question, I want to emphasize that either is good by me, because both families and teams provide meaningful relationships and that neither is anything like a typical job at a typical company, where the relationships are primarily utilitarian. But to answer the question directly, I wanted Bridgewater to be like a family business in which family members have to perform excellently or be cut. If I had a family business and a family member wasn’t performing well, I would want to let them go because I believe that it isn’t good for either the family member (because staying in a job they’re not suited to stands in the way of their personal evolution) or the company (because it holds back the whole community). That’s tough love.

Recognize that conflicts are essential for great relationships because they are how people determine whether their principles are aligned and resolve their differences. 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. Surface areas of possible out-of-syncness. Distinguish between idle complaints and complaints meant to lead to improvement. Remember that every story has another side. Be open-minded and assertive at the same time. Distinguish open-minded people from closed-minded people. Don’t have anything to do with closed-minded people. Watch out for people who think it’s embarrassing not to know. Make sure that those in charge are open-minded about the questions and comments of others. Recognize that getting in sync is a two-way responsibility. Worry more about substance than style. Be reasonable and expect others to be reasonable. Making suggestions and questioning are not the same as criticizing, so don’t treat them as if they are. If it is your meeting to run, manage the conversation. Make it clear who is directing the meeting and whom it is meant to serve. Be precise in what you’re talking about to avoid confusion. Make clear what type of communication you are going to have in light of the objectives and priorities. Lead the discussion by being assertive and open-minded. Navigate between the different levels of the conversation. Watch out for “topic slip.” Enforce the logic of conversations. Be careful not to lose personal responsibility via group decision making. Utilize the “two-minute rule” to avoid persistent interruptions. Watch out for assertive “fast talkers.” Achieve completion in conversations. Leverage your communication. Great collaboration feels like playing jazz. 1+1=3. 3 to 5 is more than 20. When you have alignment, cherish it.

This is a conversation where Ray Dalio is giving advice on being radically open-minded and overcoming your ego barrier. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I experience a lot of pain in my day to day work, but I find it difficult to have quality refelctions, id rather just get on with the task. How can I reflect better? Ray: When you are in pain, it’s often hard not to jump to a conclusion about what is the source of the pain. However, if you slow down and ask the right questions and have some reflective time you will find the source of the pain to be different than you had originally assumed. User: Finding the right questions is tricky, what if there is nobody to ask? Ray: When there is nobody to ask, ask yourself. As the old adage says, if the answer is not clear, look again at your question. Try rephrasing or changing the way you are phrasing your question. For example; What could make this better? or Why is this not working? User: Is that not a circular argument? Just asking myself the same question again, rephrased by me, will surely get me the same answer? Ray: I think you need to make being open-minded a habit. If you consistently use feelings of anger/frustration as cues to calm down, slow down, and approach the subject at hand thoughtfully, over time you’ll experience negative emotions much less frequently and go directly to the open-minded habit. Of course, this can be very hard for people to do in the moment because your “lower-level you” emotions are so powerful. The good news is that these “amygdala hijackings” don’t last long. Allow a little time to pass to give your higher-level you space to reflect in a quality way. Have others whom you respect help you too. User: This all seems a bit cryptic, what advice can you give me that will directly help me question my own conclusions? Ray: Reflective questions are ones in which you probe your assumptions. The question “why?” is a reflective question, as “why” suggests that you are questioning how things were done or what your initial assumptions were and are now re-evaluating them, as if they are hypotheses to be tested. User: Do you find that helps when seeking out the root cause of the pain? I worry that would just lead me to answers on a case by case basis, without being able to see the bigger picture Ray:

The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their weaknesses again and again. People who do this fail because they are stubbornly stuck in their own heads. If they could just get around this, they could live up to their potential. You should ask others who are strong in areas where you are weak to help you. Asking for help is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing. All successful people are good at this.

Because of the different ways that our brains are wired, we all experience reality in different ways and any single way is essentially distorted. This is something that we need to acknowledge and deal with. So if you want to know what is true and what to do about it, you must understand your own brain. That insight led me to talk with many psychologists, psychiatrists, neuroscientists, personality testers, and other believable people in the field, and it led me to read many books. I discovered that though it is obvious to all of us that we are born with different strengths and weaknesses in areas such as common sense, creativity, memory, synthesis, attention to detail, and so forth, examining these differences objectively makes even most scientists uncomfortable. But that doesn’t make it any less necessary, so I pushed forward with these explorations over several decades. As a result, I have learned a lot that helped me and that I believe can help you. In fact, I attribute as much of my success to what I’ve learned about the brain as I do to my understanding of economics and investing. In this chapter, I will share some of the amazing things I’ve learned. WHY I TURNED TO NEUROSCIENCE When I started Bridgewater two years out of business school, I had to manage people for the first time. At first I thought that hiring smart people—for instance, the top students out of the top schools—should get me capable employees, but as often as not, those people didn’t turn out well. “Book smarts” didn’t typically equate to the type of smarts I needed.

Most people have a tough time reflecting when they are in pain and they pay attention to other things when the pain passes, so they miss out on the reflections that provide the lessons. If you can reflect well while you’re in pain (which is probably too much to ask), great. But if you can remember to reflect after it passes, that’s valuable too. (I created a Pain Button app to help people do this, which I describe in the appendix.) The challenges you face will test and strengthen you. If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential. Though this process of pushing your limits, of sometimes failing and sometimes breaking through—and deriving benefits from both your failures and your successes—is not for everyone, if it is for you, it can be so thrilling that it becomes addictive. Life will inevitably bring you such moments, and it’ll be up to you to decide whether you want to go back for more. If you choose to push through this often painful process of personal evolution, you will naturally “ascend” to higher and higher levels. As you climb above the blizzard of things that surrounds you, you will realize that they seem bigger than they really are when you are seeing them up close; that most things in life are just “another one of those.” The higher you ascend, the more effective you become at working with reality to shape outcomes toward your goals. What once seemed impossibly complex becomes simple. Go to the pain rather than avoid it. If you don’t let up on yourself and instead become comfortable always operating with some level of pain, you will evolve at a faster pace. That’s just the way it is.

Put your insecurities away and get on with achieving your goals. Reflect and remind yourself that an accurate criticism is the most valuable feedback you can receive. Imagine how silly and unproductive it would be to respond to your ski instructor as if he were blaming you when he told you that you fell because you didn’t shift your weight properly. It’s no different if a supervisor points out a flaw in your work process. Fix it and move on. Get over “blame” and “credit” and get on with “accurate” and “inaccurate.” Worrying about “blame” and “credit” or “positive” and “negative” feedback impedes the iterative process that is essential to learning. Remember that what has already happened lies in the past and no longer matters except as a lesson for the future. The need for phony praise needs to be unlearned. Observe the patterns of mistakes to see if they are products of weaknesses. Everyone has weaknesses and they are generally revealed in the patterns of mistakes they make. The fastest path to success starts with knowing what your weaknesses are and staring hard at them. Start by writing down your mistakes and connecting the dots between them. Then write down your “one big challenge,” the weakness that stands the most in the way of your getting what you want. Everyone has at least one big challenge. You may in fact have several, but don’t go beyond your “big three.” The first step to tackling these impediments is getting them out into the open. Remember to reflect when you experience pain. Remember this: The pain is all in your head. If you want to evolve, you need to go where the problems and the pain are. By confronting the pain, you will see more clearly the paradoxes and problems you face. Reflecting on them and resolving them will give you wisdom. The harder the pain and the challenge, the better.

Hear the click: Find the right fit between the role and the person.Remember that your goal is to put the right people in the right design. First understand the responsibilities of the role and the qualities needed to fulfill them, then ascertain whether an individual has them. When you’re doing this well, there should almost be an audible “click” as the person you’re hiring fits into his or her role. Look for people who sparkle, not just “any ol’ one of those.” Too many people get hired because they are just “one of those.” If you’re looking for a plumber you might be inclined to fill the job with the first experienced plumber you interview, without ascertaining whether he has the qualities of an outstanding plumber. Yet the difference between an ordinary plumber versus an outstanding one is huge. When reviewing any candidate’s background, you must identify whether they have demonstrated themselves to be extraordinary in some way. The most obvious demonstration is outstanding performance within an outstanding peer group. If you’re less than excited to hire someone for a particular job, don’t do it. The two of you will probably make each other miserable. Don’t use your pull to get someone a job. It is unacceptable to use your personal influence to help someone get a job because doing so undermines the meritocracy. It’s not good for the job seeker, because it conveys they did not really earn it; it is not good for the person doing the hiring, because it undermines their authority; and it is not good for you because it demonstrates you will compromise merit for friends. It is an insidious form of corruption and it must not be tolerated. The most you can do at Bridgewater in this respect is to provide a reference for someone you know well enough to endorse. Even though Bridgewater is my company, I have never deviated from this policy.

Using decision-making logic to produce the best long-term outcomes has become its own science—one that employs probabilities and statistics, game theory, and other tools. While many of these tools are helpful, the fundamentals of effective decision making are relatively simple and timeless—in fact they are genetically encoded in our brains to varying degrees. Watch animals in the wild and you’ll see that they instinctively make expected value calculations to optimize the energy they expend to find food. Those that did this well prospered and passed on their genes through the process of natural selection; those that did it poorly perished. While most humans who do this badly won’t perish, they will certainly be penalized by the process of economic selection. As previously explained, there are two broad approaches to decision making: evidence/logic-based (which comes from the higher- level brain) and subconscious/emotion-based (which comes from the lower-level animal brain). Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it. Be wary of relying on anything else. Unfortunately, numerous tests by psychologists show that the majority of people follow the lower-level path most of the time, which leads to inferior decisions without their realizing it. As Carl Jung put it, “Until you make the unconscious conscious, it will direct your life and you will call it fate.” It’s even more important that decision making be evidence-based and logical when groups of people are working together. If it’s not, the process will inevitably be dominated by the most powerful rather than the most insightful participants, which is not only unfair but suboptimal. Successful organizations have cultures in which evidence-based decision making is the norm rather than the exception. Make your decisions as expected value calculations.

Force yourself and the people who work for you to do difficult things. It’s a basic law of nature: You must stretch yourself if you want to get strong. You and your people must act with each other like trainers in gyms in order to keep each other fit. Recognize and deal with key-man risk. Every key person should have at least one person who can replace him or her. It’s best to have those people designated as likely successors and to have them apprentice and help in doing those jobs. Don’t treat everyone the same—treat them appropriately. It’s often said that it is neither fair nor appropriate to treat people differently. But in order to treat people appropriately you must treat them differently. That is because people and their circumstances are different. If you were a tailor you wouldn’t give all of your customers the same size suit. It is, however, important to treat people according to the same set of rules. That’s why I’ve tried to flesh out Bridgewater’s principles in enough depth that differences are accounted for. For example, if someone has worked at Bridgewater for many years, that factors into how they are treated. Likewise, while I find all dishonesty intolerable, I don’t treat all acts of dishonesty and all people who are dishonest the same. Don’t let yourself get squeezed. Plenty of people have threatened me over the years by saying they’d quit, bring a lawsuit, embarrass me in the press—you name it. While some people have advised me that it’s easier to just make such things go away, I’ve found doing that is almost always shortsighted. Giving in not only compromises your values, it telegraphs that the rules of the game have changed and opens you up to more of the same. Fighting for what’s right can be hard in the short term, of course. But I’m willing to take the punch. What I worry about is doing the right thing and not about what people think about me.

Get to know your blind spots. When you are closed-minded and form an opinion in an area where you have a blind spot, it can be deadly. So take some time to record the circumstances in which you’ve consistently made bad decisions because you failed to see what others saw. Ask others—especially those who’ve seen what you’ve missed—to help you with this. Write a list, tack it up on the wall, and stare at it. If ever you find yourself about to make a decision (especially a big decision) in one of these areas without consulting others, understand that you’re taking a big risk and that it would be illogical to expect that you’ll get the results you think you will. If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased. Be objective! While it is possible that you are right and they are wrong, you should switch from a fighting mode to an “asking questions” mode, compare your believability with theirs, and if necessary agree to bring in a neutral party you all respect to break the deadlock. Meditate. I practice Transcendental Meditation and believe that it has enhanced my open-mindedness, higher-level perspective, equanimity, and creativity. It helps slow things down so that I can act calmly even in the face of chaos, just like a ninja in a street fight. I’m not saying that you have to meditate in order to develop this perspective; I’m just passing along that it has helped me and many other people and I recommend that you seriously consider exploring it.

While we talked about an organization’s culture in the last section, its people are even more important because they can change the culture for better or for worse. A culture and its people are symbiotic—the culture attracts certain kinds of people and the people in turn either reinforce or evolve the culture based on their values and what they’re like. If you choose the right people with the right values and remain in sync with them, you will play beautiful jazz together. If you choose the wrong people, you will all go over the waterfall together. Steve Jobs, who everyone thought was the secret to Apple’s success, said, “The secret to my success is that we’ve gone to exceptional lengths to hire the best people in the world.” I explain this concept in the next chapter, Remember That the WHO Is More Important than the WHAT. Anyone who runs a successful organization will tell you the same. Yet most organizations are bad at recruiting. It starts with interviewers picking people they like and who are like them instead of focusing on what people are really like and how well they will fit in their jobs and careers. As I describe in Chapter Eight, Hire Right, Because the Penalties for Hiring Wrong Are Huge, to hire well, one needs a more scientific process that precisely matches people’s values, abilities, and skills with the organization’s culture and its career paths. You and your candidate need to get to know each other. You have to let them interview your organization and you have to honestly convey to them what it’s like, warts and all, and be crystal clear about what you can expect from each other.

At first, the experts gave me both bad and good advice. Many seemed as if they were more interested in making people feel good (or not feel bad) than they were at getting at the truth. Even more startling, I found that most psychologists didn’t know much about neuroscience and most neuroscientists didn’t know much about psychology—and both were reluctant to connect the physiological differences in people’s brains to the differences in their aptitudes and behaviors. But eventually I found Dr. Bob Eichinger, who opened the world of psychometric testing to me. Using Myers-Briggs and other assessments, we evolved a much clearer and more data-driven way of understanding our different types of thinking. 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. From conversations with experts and my own observations, I learned that many of our mental differences are physiological. Just as our physical attributes determine the limits of what we are able to do physically—some people are tall and others are short, some muscular and others weak—our brains are innately different in ways that set the parameters of what we are able to do mentally. As with our bodies, some parts of our brains cannot be materially affected by external experience (in the same way that your skeleton isn’t changed much through working out), while other parts can be strengthened through exercise (I will have more to say about brain plasticity later in this chapter).

That damned amygdala, which is a little almond-shaped structure that lies deeply embedded in the cerebrum, is one of the most powerful parts of your brain. It controls your behavior, even though you’re not conscious of it. How does it work? When something upsets us—and that something could be a sound, a sight, or just a gut feeling—the amygdala sends notice to our bodies to prepare to fight or flee: the heartbeat speeds up, the blood pressure rises, and breathing quickens. During an argument, you’ll often notice a physical response similar to how you react to fear (for instance, rapid heartbeats and tensing muscles). Recognizing that, your conscious mind (which resides in the prefrontal cortex) can refuse to obey its instructions. Typically, these amygdala hijackings come on fast and dissipate quickly, except in rare cases, such as when a person develops post-traumatic stress disorder from a particularly horrible event or series of events. Knowing how these hijackings work, you know that if you allow yourself to react spontaneously, you will be prone to overreact. You can also comfort yourself with the knowledge that whatever psychological pain you are experiencing will go away before very long. Reconcile your feelings and your thinking. For most people, life is a never-ending battle between these two parts of the brain. While the amygdala’s reactions come in spurts and then subside, reactions from the prefrontal cortex are more gradual and constant. The biggest difference between people who guide their own personal evolution and achieve their goals and those who don’t is that those who make progress reflect on what causes their amygdala hijackings. Choose your habits well. Habit is probably the most powerful tool in your brain’s toolbox. It is driven by a golf-ball-sized lump of tissue called the basal ganglia at the base of the cerebrum. It is so deep-seated and instinctual that we are not conscious of it, though it controls our actions.

But how does one learn well? LEARNING WELL For me, getting an accurate picture of reality ultimately comes down to two things: being able to synthesize accurately and knowing how to navigate levels. 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. This is why it always pays to triangulate your views with people who you know synthesize well. This raises your chances of having a good synthesis, even if you feel like you’ve already done it yourself. No sensible person should reject a believable person’s views without great fear of being wrong. To synthesize well, you must 1) synthesize the situation at hand, 2) synthesize the situation through time, and 3) navigate levels effectively. Synthesize the situation at hand. Every day you are faced with an infinite number of things that come at you. Let’s call them “dots.” To be effective, you need to be able to tell which dots are important and which dots are not. Some people go through life collecting all kinds of observations and opinions like pocket lint, instead of just keeping what they need. They have “detail anxiety,” worrying about unimportant things. Sometimes small things can be important—for example, that little rattle in your car’s engine could just be a loose piece of plastic or it could be a sign your timing belt is about to snap. The key is having the higher-level perspective to make fast and accurate judgments on what the real risks are without getting bogged down in details. Remember: 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.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I am not on track to deliver good results for my work, what should I do? Ray: Look at the machine from the higher level. Higher-level thinking gives you the ability to study and influence the case-effect relationships at play in your life and use them to get the outcomes you want. User: sounds a bit vague, could you elaborate more? How exactly do I form a machine? Ray: You have your goals, I call the way you will operate to achieve your goals your machine. It consists of a design and people. Those people include you and those who help you. User: how do I determine how do alter the machine? Ray:

By comparing your outcomes with your goals, you can determine how to modify your machine. Have a deep understanding of your own strengths and weaknesses, design solutions around them.

Ask yourself: “Who should do what differently?” I often hear people complaining about a particular outcome without attempting to understand the machine that caused it. In many cases, these complaints come from people who are seeing the cons of some decision but not the pros and don’t know how the Responsible Party weighed them to come to a decision. Since all outcomes ultimately come from people and designs, asking yourself “Who should do what differently?” will point you in the direction of the kind of understanding that you need to actually change outcomes in the future (versus just chirping about them). Identify at which step in the 5-Step Process the failure occurred. If a person is chronically failing, it is due to a lack of training or a lack of ability. Which is it? At which of the five steps did the person fail? Different steps require different abilities and if you can identify which abilities are lacking, you’ll go a long way toward diagnosing the problem. Identify the principles that were violated. Identify which principles apply to the case at hand, review them, and see if they would have helped. Think for yourself which principles are best for handling similar cases. This will help solve not only this problem but other problems like it. Avoid Monday morning quarterbacking. Evaluate the merits of a past decision based not on what you know now but only on what you could have reasonably known at the time the decision was made. Every decision has pros and cons; you can’t evaluate choices in retrospect without the appropriate context. Do this by asking yourself, “What should a quality person have known and done in that situation?” Also, have a deep understanding of the person who made the decision (how they think, the type of person they are, whether they learned from the situation, and so on).

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. When a line of reasoning is jumbled and confusing, it’s often because the speaker has gotten caught up in below-the-line details without connecting them back to the major points. An above-the-line discourse should progress in an orderly and accurate way to its conclusion, only going below the line when it’s necessary to illustrate something about one of the major points. Remember that decisions need to be made at the appropriate level, but they should also be consistent across levels. For instance, if you want to have a healthy life, you shouldn’t have twelve sausage links and a beer every day for breakfast. In other words, you need to constantly connect and reconcile the data you’re gathering at different levels in order to draw a complete picture of what’s going on. Like synthesizing in general, some people are naturally better at this than others, but anyone can learn to do this to one degree or another. To do it well, it’s necessary to: Remember that multiple levels exist for all subjects. Be aware on what level you’re examining a given subject. Consciously navigate levels rather than see subjects as undifferentiated piles of facts that can be browsed randomly. Diagram the flow of your thought processes using the outline template shown on the previous page. When you do all this with radical open-mindedness, you will become more aware not just of what you’re seeing, but what you’re not seeing and what others, perhaps, are. It’s a little like when jazz musicians jam; knowing what level you’re on allows everyone to play in the same key. When you know your own way of seeing and are open to others’ ways too, you can create good conceptual jazz together rather than just screech at each other. Now let’s go up a level and examine deciding. DECIDE WELL

We did that over and over again, which produced the evolutionary looping behind Bridgewater’s forty-plus years of success. It’s shown in the diagram on the facing page. This really works! You don’t have to take my word for it. There are two ways you can evaluate the likelihood that this approach and the principles that follow from it are as powerful as I believe they are. You can 1) look at the results they produced and 2) look at the logic behind them. As for the results, like Lombardi’s and the Packers’, our track record speaks for itself. We consistently got better over forty years, going from my two-bedroom apartment to become the fifth most impor-tant private company in the U.S., according to Fortune, and the world’s largest hedge fund, making more total money for our clients than any other hedge fund in history. We have received over one hundred industry awards and I’ve earned three lifetime achievement awards—not to mention remarkable financial and psychological rewards, and most importantly, amazing relationships. But even more important than these results is the underlying cause-effect logic behind these principles, which came before the results. Over forty years ago, this way of being was a controversial, untested theory that nevertheless seemed logical to me. I will explain this logic to you in the pages that follow. That way, you can assess it for yourself. 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 yourself and challenging each other’s ideas is anti-cult behavior, and that is the essence of what we do at Bridgewater.

Successful people are those who can go above themselves to see things objectively and manage those things to shape change. They can take in the perspectives of others instead of being trapped in their own heads with their own biases. They are able to look objectively at what they are like—their strengths and weaknesses—and what others are like to put the right people in the right roles to achieve their goals. Once you understand how to do this you’ll see that there’s virtually nothing you can’t accomplish. You will just have to learn how to face your realities and use the full range of resources at your disposal. For example, if you as the designer/manager discover that you as the worker can’t do something well, you need to fire yourself as the worker and get a good replacement, while staying in the role of designer/manager of your own life. You shouldn’t be upset if you find out that you’re bad at something—you should be happy that you found out, because knowing that and dealing with it will improve your chances of getting what you want. If you are disappointed because you can’t be the best person to do everything yourself, you are terribly naive. Nobody can do everything well. Would you want to have Einstein on your basketball team? When he fails to dribble and shoot well, would you think badly of him? Should he feel humiliated? Imagine all the areas in which Einstein was incompetent, and imagine how hard he struggled to excel even in the areas in which he was the best in the world. Watching people struggle and having others watch you struggle can elicit all kinds of ego-driven emotions such as sympathy, pity, embarrassment, anger, or defensiveness. You need to get over all that and stop seeing struggling as something negative. Most of life’s greatest opportunities come out of moments of struggle; it’s up to you to make the most of these tests of creativity and character. When encountering your weaknesses you have four choices:

Dealing with raw opinions will get you and everyone else confused; understanding where they come from will help you get to the truth. If you ask someone a question, they will probably give you an answer, so think through to whom you should address your questions. I regularly see people ask totally uninformed or nonbelievable people questions and get answers that they believe. This is often worse than having no answers at all. Don’t make that mistake. You need to think through who the right people are. If you’re in doubt about someone’s believability, find out. The same is true for you: If someone asks you a question, think first whether you’re the right person to answer it. If you’re not believable, you probably shouldn’t have an opinion about what they’re asking, let alone share it. Be sure to direct your comments or questions to the believable Responsible Party or Parties for the issues you want to discuss. Feel free to include others if you think that their input is relevant, while recognizing that the decision will ultimately rest with whoever is responsible for it. Having everyone randomly probe everyone else is an unproductive waste of time. For heaven’s sake don’t bother directing your questions to people who aren’t responsible or, worse still, throw your questions out there without directing them at all. Beware of statements that begin with “I think that . . .” Just because someone thinks something doesn’t mean it’s true. Be especially skeptical of statements that begin with “I think that I . . .” since most people can’t accurately assess themselves. Assess believability by systematically capturing people’s track records over time. Every day is not a new day. Over time, a body of evidence builds up, showing which people can be relied on and which cannot. Track records matter, and at Bridgewater tools such as Baseball Cards and the Dot Collector make everyone’s track records available for scrutiny. Disagreeing must be done efficiently.

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. If you believe that something is true about someone, it’s your responsibility to make sure that it is true and that the person you’re assessing agrees. Of course, in some cases it may be impossible to get in sync (if you believe that someone was dishonest and they insist that they weren’t, for example), but in a culture of truth and transparency it is an obligation to share your view and let others express theirs. Get in sync on assessments in a nonhierarchical way. In most organizations, evaluations run in only one direction, with the manager assessing the managee. The managee typically disagrees with the assessment, especially if it is worse than his or her self-assessment, because most people believe themselves to be better than they really are. Managees also have opinions about managers that they wouldn’t dare bring up in most companies, so misunderstandings and resentments fester. This perverse behavior undermines the effectiveness of the environment and the relationships between people. It can be avoided by getting in sync in a high-quality way. Your reports have to believe that you’re not their enemy—that your sole goal is to move toward the truth; that you are trying to help them and so will not enable their self-deception, perpetuate a lie, or let them off the hook. This has to be done in an honest and transparent way, because if someone believes they are being pigeonholed unfairly the process won’t work. As equal partners, it is up to both of you to get to the truth. When each party is an equal participant, no one can feel cornered.

You shouldn’t assume that you are always the best person to make decisions for yourself because often you aren’t. While it is up to us to know what we want, others may know how to get it better than we do because they have strengths where we have weaknesses, or more relevant knowledge and experience. For example, it’s probably better for you to follow your doctor’s advice than your own if you have a medical condition. Later in this book, we will look at some of the different ways people’s brains are wired and how our understanding of our own wiring should influence which choices we make for ourselves and which we should delegate to others. Knowing when not to make your own decisions is one of the most important skills you can develop. I’ll explain the concept of believability in more detail in later chapters, but to cover it quickly: Believable parties are those who have repeatedly and successfully accomplished something—and have great explanations for how they did it. There are many things people consider “good” in the sense that they are kind or considerate but fail to deliver what’s desired (like communism’s “from each according to his ability, to each according to his needs”). Nature would appear to consider them “bad,” and I’d agree with nature. Everything other than evolution eventually disintegrates; we all are, and everything else is, vehicles for evolution. For example, while we see ourselves as individuals, we are essentially vessels for our genes that have lived millions of years and continuously use and shed bodies like ours. I recommend Richard Dawkins’s and E. O. Wilson’s books on evolution. If I had to pick just one, it would be Dawkins’s River Out of Eden. Of course, we are often satisfied with the same things—relationships, careers, etc.—but when that is the case, it is typically because we are getting new enjoyments from the changing dimensions of those things.

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. Recognize that if they failed in that job, it is because of some qualities they have. You will need to understand what those qualities are and make sure they don’t apply to any new role. Also, if you learn that they don’t have the potential to move up, don’t let them occupy the seat of someone who can. Remember that you’re trying to select people with whom you want to share your life. Everyone evolves over time. Because managers develop a better idea of a new hire’s strengths and weaknesses and their fit within the culture than what emerges from the interview process, they are well positioned to assess them for another role if the one they were hired for doesn’t work out. Whenever someone fails at a job, it’s critical to understand why they failed and why those reasons won’t pose the same problems in a new job.

Don’t get frustrated. If nothing bad is happening to you now, wait a bit and it will. That is just reality. My approach to life is that it is what it is and the important thing is for me to figure out what to do about it and not spend time moaning about how I wish it were different. Winston Churchill hit the nail on the head when he said, “Success consists of going from failure to failure without loss of enthusiasm.” You will come to enjoy this process of careening between success and failure because it will determine your trajectory. It makes no sense to get frustrated when there’s so much that you can do, and when life offers so many things to savor. Your path through any problem is outlined in these principles—and in others you’ll discover yourself. There’s nothing you can’t accomplish if you think creatively and have the character to do the difficult things. Use checklists. When people are assigned tasks, it is generally desirable to have them captured on checklists. Crossing items off a checklist will serve as both a task reminder and a confirmation of what has been done. Don’t confuse checklists with personal responsibility. People should be expected to do their whole job well, not just the tasks on their checklists. Allow time for rest and renovation. If you just keep doing, you will burn out and grind to a halt. Build downtime into your schedule just as you would make time for all the other stuff that needs to get done. Ring the bell. When you and your team have successfully pushed through to achieve your goals, celebrate!

No matter how much one tries to create a culture of meaningful relationships, the organization is bound to have some bad (intentionally harmful) people in it. Being there isn’t good for them or the company so it’s best to find out who they are and remove them. We have found that the higher the percentage of people who really care about the organization, the fewer the number of bad people there are, because the people who really care protect the community against them. We have also found that our radical transparency helps make it clearer which are which. Be loyal to the common mission and not to anyone who is not operating consistently with it. Loyalty to specific people who are not in tight sync with the mission and how to achieve it will create factionalism and undermine the well-being of the community. It is often the case, and quite beautiful, that personal loyalties exist. However, it is also often the case, and quite ugly, when personal loyalties come into conflict with the organization’s interests. Be crystal clear on what the deal is. To have a good relationship, you must be clear with each other about what the quid pro quo is—what is generous, what is fair, and what is just plain taking advantage—and how you will be with each other.

Be an imperfectionist. Perfectionists spend too much time on little differences at the margins at the expense of the important things. There are typically just five to ten important factors to consider when making a decision. It is important to understand these really well, though the marginal gains of studying even the important things past a certain point are limited. Navigate levels effectively. Reality exists at different levels and each of them gives you different but valuable perspectives. It’s important to keep all of them in mind as you synthesize and make decisions, and to know how to navigate between them. Let’s say you’re looking at your hometown on Google Maps. Zoom in close enough to see the buildings and you won’t be able to see the region surrounding your town, which can tell you important things. Maybe your town sits next to a body of water. Zoom in too close and you won’t be able to tell if the shoreline is along a river, a lake, or an ocean. You need to know which level is appropriate to your decision. We are constantly seeing things at different levels and navigating between them, whether we know it or not, whether we do it well or not, and whether our objects are physical things, ideas, or goals. For example, you can navigate levels to move from your values to what you do to realize them on a day-to-day basis. This is what that looks like in outline: The High-Level Big Picture: I want meaningful work that’s full of learning. 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. To observe how well you do this in your own life, pay attention to your conversations. We tend to move between levels when we talk.

If you can’t successfully do something, don’t think you can tell others how it should be done. I have seen some people who have repeatedly failed at something hold strongly to their opinions of how it should be done, even when their opinions are at odds with those who have repeatedly done it successfully. That is dumb and arrogant. They should instead ask questions and seek believability-weighted votes to help them get out of their intransigence. Remember that everyone has opinions and they are often bad. Opinions are easy to produce; everyone has plenty of them and most people are eager to share them—even to fight for them. Unfortunately many are worthless or even harmful, including a lot of your own. Find the most believable people possible who disagree with you and try to understand their reasoning. Having open-minded conversations with believable people who disagree with you is the quickest way to get an education and to increase your probability of being right. Think about people’s believability in order to assess the likelihood that their opinions are good. While it pays to be open-minded, you also have to be discerning. Remember that the quality of the life you get will depend largely on the quality of the decisions that you make as you pursue your goals. The best way to make great decisions is to know how to triangulate with other, more knowledgeable people. So be discerning about whom you triangulate with and skilled in the way you do it. The dilemma you face is trying to understand as accurately as you can what’s true in order to make decisions effectively while realizing many of the opinions you will hear won’t be worth much, including your own. Think about people’s believability, which is a function of their capabilities and their willingness to say what they think. Keep their track records in mind.

Understand that a great manager is essentially an organizational engineer. Great managers are not philosophers, entertainers, doers, or artists. They are engineers. They see their organizations as machines and work assiduously to maintain and improve them. They create process-flow diagrams to show how the machine works and to evaluate its design. They build metrics to light up how well each of the individual parts of the machine (most importantly, the people) and the machine as a whole are working. And they tinker constantly with its designs and its people to make both better.They don’t do this randomly. They do it systematically, always keeping the cause-and-effect relationships in mind. And while they care deeply about the people involved, they cannot allow their feelings for them or their desire to spare them discomfort to stand in the way of the machine’s constant improvement. To do otherwise wouldn’t be good for either the individuals on the team or the team that the individuals are a part of. Of course, the higher up you are in an organization, the more important vision and creativity become, but you still must have the skills required to manage/orchestrate well. Some young entrepreneurs start with the vision and creativity and then develop their management skills as they scale their companies; others start with management skills and develop vision as they climb the ladder. But like great musicians, all great managers have both creativity and technical skills. And no manager at any level can expect to succeed without the skill set of an organizational engineer.

Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do. Just worry about making the best decisions possible, recognizing that no matter what you do, most everyone will think you’re doing something—or many things—wrong. It is human nature for people to want you to believe their own opinions and to get angry at you if you don’t, even when they have no reason to believe that their opinions are good. So, if you’re leading well, you shouldn’t be surprised if people disagree with you. The important thing is for you to be logical and objective in assessing your probabilities of being right. It is not illogical or arrogant to believe that you know better than the average person, so long as you are appropriately open-minded. In fact, it is not logical to believe that what the average person thinks is better than what you and the most insightful people around you think, because you have earned your way into your higher-than-average position and you and those insightful people are more informed than the average person. If the opposite were true, then you and the average man shouldn’t have your respective jobs. In other words, if you don’t have better insights than them, you shouldn’t be a leader—and if you do have better insights than them, don’t worry if you are doing unpopular things. So how should you deal with your people? Your choices are either to ignore them (which will lead to resentment and your ignorance of what they are thinking), blindly do what they want (which wouldn’t be a good idea), or encourage them to bring their disagreements to the surface and work through them so openly and reasonably that everyone will recognize the relative merits of your thinking. Have the open disagreement and be happy to either win or lose the thought battles, as long as the best ideas win out. I believe that an idea meritocracy will not only produce better results than other systems but will also ensure more alignment behind appr

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. Imagine you had to describe what a rose smells like to someone who lacks a sense of smell. No matter how accurate your explanation, it will always fall short of the actual experience. The same thing is true of differences in ways of thinking. They are like blind spots, and if you have one (which we all do), it can be challenging to see what’s there. Working through these differences requires a lot of patience and open-mindedness, as well as triangulating with other people who can help fill in the picture. Pull all suspicious threads. It’s worth pulling all suspicious threads because: 1) Small negative situations can be symptomatic of serious underlying problems; 2) Resolving small differences of perception may prevent more serious divergence of views; and 3) In trying to create a culture that values excellence, constantly reinforcing the need to point out and stare at problems—no matter how small—is essential (otherwise you risk setting an example of tolerating mediocrity). Prioritization can be a trap if it causes you to ignore the problems around you. Allowing small problems to go unnoticed and unaddressed creates the perception that it’s acceptable to tolerate such things. Imagine that all your little problems are small pieces of trash you’re stepping over to get to the other side of a room. Sure, what’s on the other side of the room may be very important, but it won’t hurt you to pick up the trash as you come to it, and by reinforcing the culture of excellence it will have positive second- and third-order consequences that will reverberate across your whole organization. While you don’t need to pick up every piece, you should never lose sight of the fact that you’re stepping over the trash nor that it’s probably not as hard as you think to pick up a piece or two as you go on your way.

Besides giving me the freedom to be me, it has allowed me to understand others and for them to understand me, which is much more efficient and much more enjoyable than not having this understanding. 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. As you’ll see, I’ve learned firsthand how powerful this kind of radical truth and transparency is in improving my decision making and my relationships. So whenever I’m faced with the choice, my instinct is to be transparent. I practice it as a discipline and I recommend you do the same. Embracing radical truth and radical transparency will bring more meaningful work and more meaningful relationships. My experience, based on watching thousands of people try this approach, is that with practice the vast majority find it so rewarding and pleasurable that they have a hard time operating any other way. This takes practice and changing one’s habits. I have found that it typically takes about eighteen months, which is how long it takes to change most habits. 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. For example, our ability to fly or to send cell phone signals around the world came from understanding and applying the existing rules of reality—the physical laws or principles that govern the natural world.

This is a conversation where Ray Dalio is giving advice on being radically open-minded and overcoming your ego barrier. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: One of my big blind spots is being to assertive with my opinions and not realising it. My team are quite introverted and they wont question me up front, but just say something to shut me up and then do something else. How can I get them to question me more? Ray: You need to ask for opinions with an open mind. This isn’t the same as “What do you think about this?”. It is “Can you help me understand what is true?”. This means that you need to be humble and willing to change your mind. User: I ask questions, but still during the debate where we try to find out what is true, team mates will still hold back some of their thoughts. How can we be more transparent Ray:

Realize that you can’t put out without taking in, so ask lots of questions. 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.

Make sure that those in charge are open-minded about the questions and comments of others. The person responsible for a decision must be able to explain the thinking behind it openly and transparently so that everyone can understand and assess it. In the event of disagreement, an appeal should be made to either the decision maker’s boss or an agreed-upon, knowledgeable group of others, generally people more knowledgeable than and senior to the decision maker. Recognize that getting in sync is a two-way responsibility. In any conversation, there is a responsibility to express and a responsibility to listen. Misinterpretations and misunderstandings are always going to happen. Often, difficulty in communication is due to people having different ways of thinking (e.g., left-brained thinkers talking to right-brained thinkers). The parties involved should always consider the possibility that one or both of them misunderstood and do a back-and-forth so that they can get in sync. Very simple tricks—like repeating what you’re hearing someone say to make sure you’re actually getting it—can be invaluable. Start by assuming you’re either not communicating or listening well instead of blaming the other party. Learn from your miscommunications so they don’t happen again. Worry more about substance than style. This is not to say that some styles aren’t more effective than others with different people and in different circumstances, but I often hear people complaining about the style or tone of a criticism in order to deflect from its substance. If you think someone’s style is an issue, box it as a separate issue to get in sync on. Be reasonable and expect others to be reasonable. You have a responsibility to be reasonable and considerate when you are advocating for your point of view and should never let your “lower-level you” gain control, even if the other person loses his or her temper. Their bad behavior doesn’t justify yours.

Check references. 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. Beware of the impractical idealist. Don’t assume that a person who has been successful elsewhere will be successful in the job you’re giving them. Make sure your people have character and are capable. 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. Show candidates your warts. Play jazz with people with whom you are compatible but who will also challenge you. When considering compensation, provide both stability and opportunity. Pay for the person, not the job. Have performance metrics tied at least loosely to compensation. Pay north of fair. 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. Be generous and expect generosity from others. Great people are hard to find so make sure you think about how to keep them. Constantly Train, Test, Evaluate, and Sort People Understand that you and the people you manage will go through a process of personal evolution. 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. Understand that training guides the process of personal evolution. Teach your people to fish rather than give them fish, even if that means letting them make some mistakes. Recognize that experience creates internalized learning that book learning can’t replace. Provide constant feedback. Evaluate accurately, not kindly.

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. Knowing what people are like is the best indicator of how well they are likely to handle their responsibilities in the future. At Bridgewater, we call this “paying more attention to the swing than the shot.” Since good and bad outcomes can arise from circumstances that might not have had anything to do with how the individual handled the situation, it is preferable to assess people based on both their reasoning and their outcomes. I probe their thinking in a very frank way so as not to let them off the hook. Doing this has taught me a lot about how to assess others’ logic, and how to have better logic myself. When both the outcomes and the thinking behind them are bad, and when this happens a number of times, I know I don’t want them to do that type of thinking anymore. For example, if you’re a poker player and you play a lot of poker, you will win some hands and lose others and on any given night you might walk away with less money than a lesser player who’s gotten lucky. It would be a mistake to judge the quality of a player based on just one outcome. Instead, look at how well someone does what they do and the outcomes they produce over time. If someone is doing their job poorly, consider whether it is due to inadequate learning or inadequate ability. Think of people’s performance as being made up of two things: learning and ability, as shown on page 437. A weakness that is due to a lack of experience or training can be fixed, while a weakness that is due to a lack of ability can’t be. Failing to distinguish between these causes is a common mistake among managers, because managers are often reluctant to appear unkind or judgmental. Also, they know that people assessed this way tend to push back. This is another one of those situations in which you must force yourself to be practical and realistic.

Manage yourself and orchestrate others to get what you want. Your greatest challenge will be having your thoughtful higher-level you manage your emotional lower-level you. The best way to do that is to consciously develop habits that will make doing the things that are good for you habitual. In managing others, the analogy that comes to mind is a great orchestra. The person in charge is the shaper-conductor who doesn’t “do” (e.g., doesn’t play an instrument, though he or she knows a lot about instruments) as much as visualize the outcome and sees to it that each member of the orchestra helps achieve it. The conductor makes sure each member of the orchestra knows what he or she is good at and what they’re not good at, and what their responsibilities are. Each must not only perform at their personal best but work together so the orchestra becomes more than the sum of its parts. One of the conductor’s hardest and most thankless jobs is getting rid of people who consistently don’t play well individually or with others. Most importantly, the conductor ensures that the score is executed exactly as he or she hears it in his or her head. “The music needs to sound this way,” she says, and then she makes sure it does. “Bass players, bring out the structure. Here are the connections, here’s the spirit.” Each section of the orchestra has its own leaders—the concertmaster, the first chairs—who also help bring out the composer’s and the conductor’s visions.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I am starting a new job, how do I navigate relationship with my new colleagues? Ray:

The most meaningful relationships are achieved when you and others can speak openly to each other about everything that’s important, learn together, and understand the need to hold each other accountable to be as excellent as you can be.

Take a moment to reflect on where you are on the following scale, which illustrates an overly simplified choice you should think about. Where would you put yourself on it? The question isn’t just how much of each to go after, but how hard to work to get as much as possible. I wanted crazy amounts of each, was thrilled to work hard to get as much of them as possible, and found that they could largely be one and the same and mutually reinforcing. 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. I don’t care what you want or how hard you want to work for it. That’s for you to decide. I’m just trying to pass along to you what has helped me get the most out of each hour of time and each unit of effort. Most importantly, I’ve learned that there is no escaping the fact that: 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. Do you agree with that? If not, you are unlikely to benefit from what follows. If you do agree, let’s build on it. Be radically open-minded and radically transparent. None of us is born knowing what is true; we either have to discover what’s true for ourselves or believe and follow others. The key is to know which path will yield better results.15 I believe that:

If you have a different view than someone who is believable on the topic at hand—or at least more believable than you are (if, say, you are in a discussion with your doctor about your health)—you should make it clear that you are asking questions because you are seeking to understand their perspective. Conversely, if you are clearly the more believable person, you might politely remind the other of that and suggest that they ask you questions. All these strategies come together in two practices that, if you seek to become radically open-minded, you must master. Appreciate the art of thoughtful disagreement. When two people believe opposite things, chances are that one of them is wrong. It pays to find out if that someone is you. 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. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives. Exchanges in which you really see what the other person is seeing and they really see what you are seeing—with both your “higher-level yous” trying to get to the truth—are immensely helpful and a giant source of untapped potential. To do this well, approach the conversation in a way that conveys that you’re just trying to understand.26 Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, you are not arguing; you are openly exploring what’s true. Be reasonable and expect others to be reasonable. If you’re calm, collegial, and respectful you will do a lot better than if you are not. You’ll get better at this with practice.

Don’t collect people. It is much worse to keep someone in a job unsuitable for them than it is to fire or reassign them. Consider the enormous costs of not firing someone unsuited for a job: the costs of bad performance; the time and effort wasted trying to train them; and the greater pain of firing someone who’s been around awhile (say, five years or more) compared with letting someone go after just a year. Keeping people in jobs they are not suited for is terrible for them because it allows them to live in a false reality while holding back their personal evolution, and it is terrible for the community because it compromises the meritocracy and everyone pays the price. Don’t let yourself be held hostage to anyone; there is always someone else. Never compromise your standards or let yourself be squeezed. Be willing to “shoot the people you love.” It is very difficult to fire people you care about. Cutting someone that you have a meaningful relationship with but who isn’t an A player in their job is difficult because ending good relationships is hard, but it is necessary for the long-term excellence of the company. You may have a need for the work they’re doing (even if it’s not excellent) and find it hard to make a change. But they will pollute the environment and fail you when you really need them. Doing this is one of those difficult, necessary things. The best way to do it is to “love the people you shoot”—do it with consideration and in a way that helps them.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: Am I micromanaging? My report say that the tickets I set are bad ideas, and he is angry. But I think he is just doing a poor job. The team is going nowhere. Ray: Managing the people who report to you should feel like skiing together. Like a ski instructor, you need to have close contact with your people on the slopes so that you can assess their strengths and weaknesses as they are doing their jobs. There should be a good back-and-forth as they learn by trial and error. With time you will be able to decide what they can and can’t handle on their own. User: It's quite confusing learning what people can or can't do well. Somethings go well, and others seem to go nowhere. Ray:

An excellent skier is probably going to be a better ski coach than a novice skier. Believability applies to management too. The better your track record, the more value you can add as a coach.

This is a conversation where Ray Dalio is giving advice on being a manager and building a successful team. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I have just become a new manager, what should I do? Ray: Understand that a great manager is essentially an organizational engineer. Great managers see their organizations as machine and work assiduosly to maintain and improve them. They do this systematically, alaways keeping cause and effect relationships in mind. No manager can expect to succeed without the skill set of an organization engineer. User: I think I'm more of a doer, I just like doing shit myself. I'm honestly not super systematic, how can I make sure that these aren't issues? Ray: I'll address these one at a time. With regargs to being a doer, of course managers must make sure that what they are responsible works well. However, great managers orchestrate rather than do. Like teh conductor of an orchestra, they do not play an instrument. If you find yourself job-slipping down to do work you aren't responsible for, it is a sign that your machine needs a change. User: What can I do about me not being systematic? Ray: Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn't be doing. All successful people are good at this. User: Okay, but what does that mean in the context of me being a new manager? Ray:

You need to find someone to guardrail you. A good guardrail typically takes the form of a team member whose strengths compensate for the weaknesses of the team member who needs to be guardrailed. Remember, gaurdrailing is meant to help people who can by and large do their jobs well - it's not intended to help failing people reach the bar. If you aren't systematic at all, a management role might not be the best role for you.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: how do I train people Ray: You need to teach people to fish rather than give them fish. You need to let your people learn by making small mistakes. It’s a bad sign if you are constantly telling people what they should do.. User: is it not quicker to show people rather than let them be confused for ages Ray: Don’t worry about looking good. Worry about achieving your goals. Put your insecurities away and get on with achieving your goals. Accurate criticism is the most valuable feedback you can receive. User: I show them how to do it and they still seem very confused Ray: Its better to be understood and get in sync than to give orders and expect to be followed. I probe their thinking and do not let them off the hook. User: im worried that I cannot train them quick enough Ray:

give people your thoughts on how they might approach their decisions, but dont dictate to them. The most useful thing you can do is to get in sync with them and explore how and why they are doing things.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: We just had a re-org and I have a new team, how can I make sure I don't micromanage them? Ray: When you supervise a group of direct reports, you need to make sure that it feels like skiing together. You need to have close contact with their work so that you can see and assess what they are doing, and to get them to improve. There should be a good back-and-forth as they learn by trial and error. With time you will be able to decide what they can and can’t handle on their own. User: I'm just afraid that they're too inexperienced and will fail, what should I do? Ray:

Everyone fails. The people I respect most are those who fail well. People who are just succeeding must not be pushing their limits. Of course the worst are those who fail and don’t recognize it and don’t change.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I don't feel like I have enough time. We keep running into problems. Ray:

You should be able to delegate the details. If you keep getting bogged down in details, you either have a problem with managing or training, or you have the wrong people doing the job. The real sign of a master manager is that he doesn’t have to do practically anything. Managers should view the need to get involved in the nitty-gritty as a bad sign. At the same time, there’s danger in thinking you’re delegating details when you’re actually being too distant from what’s important and essentially are not managing. Great managers know the difference. They strive to hire, train, and oversee in a way in which others can superbly handle as much as possible on their own.

I remember one case where one of our most talented rising executives was putting together a transition plan so that he could move on to another role. He arrived at a meeting with the Management Committee with binders full of process flows and responsibility maps, detailing every aspect of the area he’d been responsible for, and explained how he’d automated and systemized as much of it as possible to make it foolproof. It was an impressive presentation, but it quickly became clear that he didn’t have an answer for who was going to take his place and what would happen if they saw things differently and put together a different plan. Who would oversee the machine he’d built, probe it for problems, and constantly improve it or decide to get rid of it? What qualities would such a person need to produce the same excellent results that he had—i.e., what were the important job specifications we should match the person against? Where would we go to recruit such a person? While these kinds of questions seem obvious in retrospect, time and again I see people overlooking them. Not knowing what is required to do the job well and not knowing what your people are like is like trying to run a machine without knowing how its parts work together. When I was younger I didn’t really understand the saying, “Hire someone better than you.” Now, after decades of hiring, managing, and firing people, I understand that to be truly successful I need to be like a conductor of people, many of whom (if not all) can play their instruments better than I can—and that if I was a really great conductor, I would also be able to find a better conductor than me and hire him or her. My ultimate goal is to create a machine that works so well that I can just sit back and watch beauty happen. I cannot emphasize enough how important the selection, training, testing, evaluation, and sorting out of people is.

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. I’ve found these differences to be quite similar to the differences between people who are intuitive vs. sensing. Those who tend to focus on goals and “visualize” best can see the big pictures over time and are also more likely to make meaningful changes and anticipate future events. These goal-oriented people can step back from the day-to-day and reflect on what and how they’re doing. They are the most suitable for creating new things (organizations, projects, etc.) and managing organizations that have lots of change. They typically make the most visionary leaders because of their ability to take a broad view and see the whole picture. In contrast, those who tend to focus on daily tasks are better at managing things that don’t change much or that require processes to be completed reliably. Task-oriented people tend to make incremental changes that reference what already exists. They are slower to depart from the status quo and more likely to be blindsided by sudden events. On the other hand, they’re typically more reliable. Although it may seem that their focus is narrower than higher-level thinkers, the roles they play are no less critical. I would never have gotten this book out or accomplished hardly anything else worthwhile if I didn’t work with people who are wonderful at taking care of details.

Watch out for assertive “fast talkers.” Fast talkers are people who articulately and assertively say things faster than they can be assessed as a way of pushing their agenda past other people’s examination or objections. Fast talking can be especially effective when it’s used against people worried about appearing stupid. Don’t be one of those people. Recognize that it’s your responsibility to make sense of things and don’t move on until you do. If you’re feeling pressured, say something like “Sorry for being stupid, but I’m going to need to slow you down so I can make sense of what you’re saying.” Then ask your questions. All of them. Achieve completion in conversations. The main purpose of discussion is to achieve completion and get in sync, which leads to decisions and/or actions. Conversations that fail to reach completion are a waste of time. When there is an exchange of ideas, it is important to end it by stating the conclusions. If there is agreement, say it; if not, say that. Where further action has been decided, get those tasks on a to-do list, assign people to do them, and specify due dates. Write down your conclusions, working theories, and to-do’s in places that will lead to their being used as foundations for continued progress. To make sure this happens, assign someone to make sure notes are taken and follow-through occurs. There is no reason to get angry because you still disagree. People can have a wonderful relationship and disagree about some things; you don’t have to agree on everything.

It is the rare dispute that is resolved to both parties’ equal satisfaction. Imagine you are having an argument with your neighbor about a tree of theirs that has fallen onto your property. Who is responsible for its removal? Who owns the firewood? Who pays for the damage? While you might not be able to resolve the disagreement yourselves, the legal system has procedures and guidelines that allow it to determine what’s true and what to do about it, and once it renders its judgment it’s done, even if one of you didn’t get what you wanted. That’s just the way life is. At Bridgewater, our principles and policies work in essentially the same way, providing a path for settling disputes that’s not unlike what you’d find in the courts (though it’s less formal). Having such a system is essential in an idea meritocracy, because you can’t just encourage people to think independently and fight for what they believe is true. You also have to provide them with a way to get past their disagreements and move forward. Managing this well is especially important at Bridgewater because we have so much more thoughtful disagreement than other places. While in most cases people disagreeing can work things out on their own, it is still often the case that people can’t agree on what’s true and what to do about it. In those cases, we follow our procedures for believability-weighted voting and go with the verdict; or, in the cases where the RP wants to do it his/her way contrary to the vote and has the power to do so, we accept that and move on.

While “know thyself” and “to thine own self be true” are fundamental tenets I had heard long before I began looking into the brain, I had no idea how to go about getting that knowledge or how to act on it until we made these discoveries about how people think differently. The better we know ourselves, the better we can recognize both what can be changed and how to change it, and what can’t be changed and what we can do about that. So no matter what you set out to do—whether on your own, as a member of an organization, or as its director—you need to understand how you and other people are wired. Understand the power that comes from knowing how you and others are wired. As I related in the first part of this book, my first breakthrough in understanding how people think differently occurred when I was a young father and had my kids tested by Dr. Sue Quinlan. I found the results remarkable, because she not only confirmed my own observations of the ways that their minds were working at the time but also predicted how they would develop in the future. For example, one of my kids was struggling with arithmetic. Because he tested well in mathematical reasoning, she correctly told him that if he pushed through the boredom of rote memorization required in elementary school, he would love the higher-level concepts he would be exposed to when he got older. These insights opened my eyes to new possibilities. I turned to her and others years later when I was trying to figure out the different thinking styles of my employees and colleagues.

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. Don’t get me wrong: I believe in making dreams happen. To me, there’s nothing better in life than doing that. The pursuit of dreams is what gives life its flavor. 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 Life. People who achieve success and drive progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want. The converse is also true: Idealists who are not well grounded in reality create problems, not progress. What does a successful life look like? We all have our own deep-seated needs, so we each have to decide for ourselves what success is. I don’t care whether you want to be a master of the universe, a couch potato, or anything else—I really don’t. Some people want to change the world and others want to operate in simple harmony with it and savor life. Neither is better. Each of us needs to decide what we value most and choose the paths we take to achieve it.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I am given a really important and difficult task, what should I do? Ray: Be radically open-minded and transparent. None of us is born knowing what is true. The key is to know which path will yield better results. User: Could you elaborate, how are they going to make me achieve this difficult task? Ray:

Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Learning is the product of a continous 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, as it makes what you are doing clear to yourself and others. The more open-minded you are, the more likely it is that others will give you honest feedback. If they are believable people you will learn a lot from them.

No matter what path you choose to follow, your organization is a machine made up of culture and people that will interact to produce outcomes, and those outcomes will provide feedback about how well your organization is working. Learning from this feedback should lead you to modify the culture and the people so your organizational machine improves. 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 Right, and To Build and Evolve Your Machine. Each chapter within these sections begins with a higher-level principle. Reading these will give you a good sense of the main concepts in each chapter. Under these higher-level principles there are a number of supporting principles built around the many different types of decisions that need to be made. These principles are meant for reference. Though you might want to skim through them, I recommend using them as one would use an encyclopedia or search engine to answer a specific question. For example, if you have to fire (or transfer) someone, you should use the Table of Principles and go to the section of principles about that. 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 appropriate principles to help them with it.37 I will soon be making that available to the public, along with many of the other management tools you’ll read about in the final section of the book. My main objective is not to sell you on these principles but to share the most valuable lessons I’ve learned over my more than forty-year journey. My goal is to get you to think hard about the tough tradeoffs that you will face in many types of situations. By thinking about the tradeoffs behind the principles, you will be able to decide for yourself which principles are best for you. This brings me to my most fundamental work principle:

You can either fix it or you can get the help of others to deal with it well. There are two paths to success: 1) to have what you need yourself or 2) to get it from others. The second path requires you to have humility. Humility is as important, or even more important, as having the strengths yourself. Having both is best. On the following page is a template that some people find helpful. Understand your own and others’ mental maps and humility. Some people are good at knowing what to do on their own; they have good mental maps. Maybe they acquired them from being taught; maybe they were blessed with an especially large dose of common sense. Whatever the case, they have more answers inside themselves than others do. Similarly, some people are more humble and open-minded than others. Humility can be even more valuable than having good mental maps if it leads you to seek out better answers than you could come up with on your own. Having both open-mindedness and good mental maps is most powerful of all. To convey this simple concept, imagine rating from one to ten how good someone’s mental map is (in other words, what they know) on the Y-axis and how humble/open-minded they are on the X-axis, as shown on the opposite page.

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. You have your goals. I call the way you will operate to achieve your goals your machine. It consists of a design (the things that have to get done) and the people (who will do the things that need getting done). Those people include you and those who help you. For example, imagine that your goal is a military one: to take a hill from an enemy. Your design for your “machine” might include two scouts, two snipers, four infantrymen, and so on. While the right design is essential, it is only half the battle. It is equally important to put the right people in each of those positions. They need different qualities to do their jobs well—the scouts must be fast runners, the snipers must be good marksmen—so that the machine will produce the outcomes you seek. By comparing your outcomes with your goals, you can determine how to modify your machine. This evaluation and improvement process exactly mirrors the evolutionary process I described earlier. It means looking at how to improve or change the design or people to achieve your goals. Schematically, the process is a feedback loop, as shown in the diagram on the opposite page.

It’s more important that the student understand the teacher than that the teacher understand the student, though both are important. I have often seen less believable people (students) insist that the more believable people (teachers) understand their thinking and prove why the teacher is wrong before listening to what the teacher (the more believable party) has to say. That’s backward. While untangling the student’s thinking can be helpful, it is typically difficult and time-consuming and puts the emphasis on what the student sees instead of on what the teacher wants to convey. For that reason, our protocol is for the student to be open-minded first. Once the student has taken in what the teacher has to offer, both student and teacher will be better prepared to untangle and explore the student’s perspective. It is also more time-efficient to get in sync this way, which leads to the next principle.

Some people tell me it’s inconsistent with human nature to operate this way—that people need to be protected from harsh truths and that such a system could never work in practice. Our experience—and our success—have proven that wrong. While it’s true that our way of being is not what most people are used to, that doesn’t make it unnatural, any more than the hard physical exercise athletes and soldiers do is unnatural. It is a fundamental law of nature that you get stronger only by doing difficult things. While our idea meritocracy is not for everyone, for those who do adapt to it—which is about two-thirds of those who try it—it is so liberating and effective that it’s hard for them to imagine any other way to be. What most people like best is knowing there is no spin. RADICAL TRUTH AND TRANSPARENCY IN PRACTICE To give you an idea of what radical truth and transparency look like, I’ll share a difficult situation we faced a few years ago when our Management Committee began thinking about reorganizing our back office. Our back office provides the services we need to support our trading in the markets, including trade confirmations, settlements, record maintenance, and accounting. We had built this team up over many years and it was full of hardworking, close-knit employees who were part of our extended family. But at the time we were seeing a need for new capacities that would stretch us beyond what we could do in-house. This led our COO, Eileen Murray, to devise an innovative strategy for spinning off this team and having them incorporated into a tailor-made group within the Bank of New York/Mellon. It was just an exploratory conversation at first; we had no idea whether we would pursue it, how we would pursue it, or what that would ultimately mean for the members of our back office team.

Remember that if the idea meritocracy comes into conflict with the well-being of the organization, it will inevitably suffer. Declare “martial law” only in rare or extreme circumstances when the principles need to be suspended. Be wary of people who argue for the suspension of the idea meritocracy for the “good of the organization.” Recognize that if the people who have the power don’t want to operate by principles, the principled way of operating will fail. Remember that the who is more important than the what Recognize that the most important decision for you to make is who you choose as your Responsible Parties. 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. Make sure that everyone has someone they report to. Remember the force behind the thing. Hire Right, Because the Penalties for Hiring Wrong Are Huge Match the person to the design. Think through which values, abilities, and skills you are looking for (in that order). Make finding the right people systematic and scientific. Hear the click: Find the right fit between the role and the person. Look for people who sparkle, not just “any ol’ one of those.” Don’t use your pull to get someone a job. Remember that people are built very differently and that different ways of seeing and thinking make people suitable for different jobs. Understand how to use and interpret personality assessments. 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. Remember that people typically don’t change all that much. Think of your teams the way that sports managers do: No one person possesses everything required to produce success, yet everyone must excel. Pay attention to people’s track records.

This “universal brain” has evolved from the bottom up, meaning that its lower parts are evolutionarily the oldest and the top parts are the newest. The brainstem controls the subconscious processes that keep us and other species alive—heartbeat, breathing, nervous system, and our degree of arousal and alertness. The next layer up, the cerebellum, gives us the ability to control our limb movements by coordinating sensory input with our muscles. Then comes the cerebrum, which includes the basal ganglia (which controls habit) and other parts of the limbic system (which controls emotional responses and some movement) and the cerebral cortex (which is where our memories, thoughts, and sense of consciousness reside). The newest and most advanced part of the cortex, that wrinkled mass of gray matter that looks like a bunch of intestines, is called the neocortex, which is where learning, planning, imagination, and other higher-level thoughts come from. It accounts for a significantly higher ratio of the brain’s gray matter than is found in the brains of other species. Meaningful work and meaningful relationships aren’t just nice things we chose for ourselves—they are genetically programmed into us. Neuroscientists, psychologists, and evolutionists agree the human brain comes pre-programmed with the need for and enjoyment of social cooperation. Our brains want it and develop better when we have it. The meaningful relationships we get from social cooperation make us happier, healthier, and more productive; social cooperation is also integral to effective work. It is one of the defining characteristics of being human.29

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? If you keep those big questions in mind and anchor back to them, you should do well. What follows is a guide for getting the answers to these big-picture questions, mostly using a series of simple either/or questions to help you get to the synthesis you are looking for at each step. You should think of these as the answers you need before moving to the next step, leading all the way to the final diagnosis. You can, but don’t need to, follow these questions or this format exactly. Depending on your circumstances, you may be able to move through these questions quickly or you may need to ask some different, more granular questions. Is the outcome good or bad? And who is responsible for the outcome? If you can’t quickly get in sync that the outcome was bad and who specifically was responsible, you’re probably already headed for the weeds (in other words, into a discussion of tiny, irrelevant details). If the outcome is bad, is the RP incapable and/or is the design bad? The goal is to come to this synthesis, though to get there you may need to examine how the machine worked in this instance and build the synthesis from there. How should the machine have worked? You may have a mental map of who should have done what, or you may need to fill it in using other people’s mental maps. In any case, you need to learn who was responsible for doing what and what the principles say about how things should’ve gone. Keep it simple! At this stage, a common pitfall is to delve into a granular examination of procedural details rather than stay at the level of the machine (the level of who was responsible for doing what). You should be able to crystallize your mental map in just a few statements, each connected to a specific person. If you are delving into details here, you are probabl

When Bridgewater was still a small company, the principles by which we operated were more implicit than explicit. But as more and more new people came in, I couldn’t take for granted that they would understand and preserve them. I realized that I needed to write our principles out explicitly and explain the logic behind them. I remember the precise moment when this shift occurred—it was when the number of people at Bridgewater passed sixty-seven. Up until then, I had personally chosen each employee’s holiday gift and written them a lengthy personalized card, but trying to do it that year broke my back. From that point on, an increasing number of people came in who didn’t work closely with me, so I couldn’t assume they would understand where I was coming from or what I was striving to create, which was an idea meritocracy built on tough love. Tough love is effective for achieving both great work and great relationships. To give you an idea of what I mean by tough love, think of Vince Lombardi, who for me personified it. From when I was ten years old until I was eighteen, Lombardi was head coach of the Green Bay Packers. With limited resources, he led his team to five NFL championships. He won two NFL Coach of the Year awards and many still call him the best coach of all time. Lombardi loved his players and he pushed them to be great. I admired, and still admire, how uncompromising his standards were. His players, their fans, and he himself all benefited from his approach. I wish Lombardi had written out his principles for me to read. In order to be great, one can’t compromise the uncompromisable. Yet I see people doing it all the time, usually to avoid making others or themselves feel uncomfortable, which is not just backward but counterproductive. Putting comfort ahead of success produces worse results for everyone. I both loved the people I worked with and pushed them to be great, and I expected them to do the same with me.

As with animals, many of our decision-making drivers are below the surface. An animal doesn’t “decide” to fly or hunt or sleep or fight in the way that we go about making many of our own choices of what to do—it simply follows the instructions that come from the subconscious parts of its brain. These same sorts of instructions come to us from the same parts of our brains, sometimes for good evolutionary reasons and sometimes to our detriment. Our subconscious fears and desires drive our motivations and actions through emotions such as love, fear, and inspiration. It’s physiological. Love, for example, is a cocktail of chemicals (such as oxytocin) secreted by the pituitary gland. While I had always assumed that logical conversation is the best way for people to get at what is true, armed with this new knowledge about the brain, I came to understand that there are large parts of our brains that don’t do what is logical. For example, I learned that when people refer to their “feelings”—such as saying “I feel that you were unfair with me”—they are typically referring to messages that originate in the emotional, subconscious parts of their brains. I also came to understand that while some subconscious parts of our brains are dangerously animalistic, others are smarter and quicker than our conscious minds. Our greatest moments of inspiration often “pop” up from our subconscious. We experience these creative breakthroughs when we are relaxed and not trying to access the part of the brain in which they reside, which is generally the neocortex. When you say, “I just thought of something,” you noticed your subconscious mind telling your conscious mind something. With training, it’s possible to open this stream of communication.

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, and quickly determining that the answer is about 400. Look at the ice cream shop example and imagine the value of quickly seeing the approximate relationships between the dots versus taking the time to see all the edges precisely. It would be silly to spend time doing that, yet that’s exactly what most people do. “By-and-large” is the level at which you need to understand most things in order to make effective decisions. Whenever a big-picture “by-and-large” statement is made and someone replies “Not always,” my instinctual reaction is that we are probably about to dive into the weeds—i.e., into a discussion of the exceptions rather than the rule, and in the process we will lose sight of the rule. To help people at Bridgewater avoid this time waster, one of our just-out-of-college associates coined a saying I often repeat: “When you ask someone whether something is true and they tell you that it’s not totally true, it’s probably by-and-large true.”Remember the 80/20 Rule and know what the key 20 percent is. The 80/20 Rule states that you get 80 percent of the value out of something from 20 percent of the information or effort. (It’s also true that you’re likely to exert 80 percent of your effort getting the final 20 percent of value.) Understanding this rule saves you from getting bogged down in unnecessary detail once you’ve gotten most of the learning you need to make a good decision.

In the end, accuracy and kindness are the same thing. Put your compliments and criticisms in perspective. Think about accuracy, not implications. Make accurate assessments. Learn from success as well as from failure. Know that most everyone thinks that what they did, and what they are doing, is much more important than it really is. Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed). Recognize that while most people prefer compliments, accurate criticism is more valuable. Don’t hide your observations about people. Build your synthesis from the specifics up. Squeeze the dots. Don’t oversqueeze a dot. Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance. Make the process of learning what someone is like open, evolutionary, and iterative. Make your metrics clear and impartial. Encourage people to be objectively reflective about their performance. Look at the whole picture. 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. 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. Learn about your people and have them learn about you through frank conversations about mistakes and their root causes. Understand that making sure people are doing a good job doesn’t require watching everything that everybody is doing at all times. Recognize that change is difficult. 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.

Learn from success as well as from failure. Radical truth doesn’t require you to be negative all the time. Point out examples of jobs done well and the causes of their success. This reinforces the actions that led to the results and creates role models for those who are learning. Know that most everyone thinks that what they did, and what they are doing, is much more important than it really is. If you ask everybody in an organization what percentage of the organization’s success they’re personally responsible for, you’ll wind up with a total of about 300 percent.39 That’s just the reality, and it shows why you must be precise in attributing specific results to specific people’s actions. Otherwise, you’ll never know who is responsible for what—and even worse, you may make the mistake of believing people who wrongly claim to be behind great accomplishments. Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed). The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger. Compliments are easy to give but they don’t help people stretch. Pointing out someone’s mistakes and weaknesses (so they learn what they need to deal with) is harder and less appreciated, but much more valuable in the long run. Though new employees will come to appreciate what you are doing, it is typically difficult for them to understand it at first; to be effective, you must clearly and repeatedly explain the logic and the caring behind it.

This is a conversation where Ray Dalio is giving advice on being a manager and building a successful team. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: My team seems to constantly be getting poor results, even if half of our team has a good week the other half has a poor week Ray: If only half of your machine works at once, there probably is a machine design problem. By comparing your outcomes with your goals, you can determine how to modify your machine. This evaluation and improvement process exactly mirrors our evolutionary process. It means looking at how to improve or change the design or people to achieve your goals. User: It seems like whatever side I devote more to is the one that suceeds, the other seems to fail. Ray: You should keep in mind that everyone fails. People who are just succeeding must not be pushing their limits. Of course the worst are those who fail and don’t recognize it and don’t change. It's okay for your team to fail often, they just have to make sure they learn from the process and evolve. If your team isn't failing when you are working with them, you likely aren't being ambitious enough. User: How can I make sure that we learn from our failures and evolve? Ray: You need to be self-reflective and make sure your people are self-reflective. Self-reflectiveness is the quality that most differentiates those who evolve quickly from those who don't. Remember: Pain + Reflection = Progress. User: this sounds good, but how do I make sure that people are self-reflective. Ray:

To encourage people to bring their mistakes into the open and analyze them objectively, managers need to foster a culture that makes this normal and that penalizes suppressing or covering up mistakes. We do this by making it clear that one of the worst mistakes anyone can make is not facing up to their mistakes.

To perceive problems, compare how the outcomes are lining up with your goals. This means comparing the outcomes that the machine is producing to your visualization of the outcomes you expected so that you can note any deviations. If you expect improvement to be within a specific range and it ends up looking like this you will know that you need to get at the root cause to deal with it. If you don’t, the trajectory will probably continue. “Taste the soup.” Think of yourself as a chef and taste the soup before it goes out to the customers. Is it too salty or too bland? Managers need to do that too, or have someone in their machine do it for them, for every outcome they’re responsible for. People who are delegated this task are called “taste testers.” Have as many eyes looking for problems as possible. Encourage people to bring problems to you. If everyone in your area feels responsible for the area’s well-being and no one is afraid to speak up, you will learn about problems when they are still easy to fix and haven’t caused serious damage. Stay in sync with the people who are closest to the most important functions. “Pop the cork.” It’s your responsibility to make sure communications from your people flow freely, so encourage it by giving them plenty of opportunities to speak up. Don’t just expect them to provide you with regular and honest feedback—explicitly ask them for it. Realize that the people closest to certain jobs probably know them best. At the very least, they have perspectives you need to understand, so make sure you see things through their eyes. Be very specific about problems; don’t start with generalizations. For example, don’t say, “Client advisors aren’t communicating well with the analysts.” Be specific: Name which client advisors aren’t doing this well and in which ways. Start with the specifics and then observe patterns.

While all of what you read here may seem challenging and complicated in practice, if you believe as I do that there is no better way to make decisions than to have believable people open-mindedly and assertively surface, explore, and resolve their differences, then you will figure out what it takes to operate that way. If an idea meritocracy doesn’t work well, the fault doesn’t lie in the concept; it lies in people not valuing it enough to make sure that it works. If you take nothing else away from this book, you owe it to yourself to see what it’s like to experience an idea meritocracy. If it makes sense to you, I hope you will take the plunge. It won’t take long for you to understand what a radical difference it will make to your work and your relationships. To have an Idea Meritocracy: 1) Put your honest thoughts on the table 2) Have thoughtful disagreement 3) Abide by agreed-upon ways of getting past disagreement Trust in Radical Truth and Radical Transparency Understanding what is true is essential for success, and being radically transparent about everything, including mistakes and weaknesses, helps create the understanding that leads to improvements. That’s not just a theory; we have put this into practice at Bridgewater for over forty years, so we know how it works. But like most things in life, being radically truthful and transparent has cons as well as pros, which I will describe as accurately as possible in this chapter. Being radically truthful and transparent with your colleagues and expecting your colleagues to be the same with you ensures that important issues are apparent instead of hidden. It also enforces good behavior and good thinking, because when you have to explain yourself, everyone can openly assess the merits of your logic. If you are handling things well, radical transparency will make that clear, and if you are handling things badly, radical transparency will make that clear as well, so it helps to maintain high standards.

Leonard Mlodinow, in his excellent book Subliminal, writes, “We usually assume that what distinguishes us [from other species] is IQ. But it is our social IQ that ought to be the principal quality that differentiates us.” He points out that humans have a unique ability to understand what other people are like and how they are likely to behave. The brain comes programmed to develop this ability; by the time they are four years old, most children are able to read others’ mental states. This sort of human understanding and cooperation is what makes us so accomplished as a species. As Mlodinow explains, “Building a car for example requires the participation of thousands of people with diverse skills, in diverse lands, performing diverse tasks. Metals like iron must be extracted from the ground and processed; glass, rubber, and plastics must be created from numerous chemical precursors and molded; batteries, radiators and countless other parts must be produced; electronic and mechanical systems must be designed; and it all must come together, coordinated from far and wide, in one factory so that the car can be assembled. Today, even the coffee and bagel you might consume while driving to work in the morning is the result of the activities of people all over the world.”

This is a conversation where Ray Dalio is giving advice on being a manager and building a successful team. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I feel like I'm at a crossroads and deciding between two decisions that are mutually exclusive Ray:

I've learned to go slowly when faced with the choice between two things that you need that are seemingly at odds. That way you can figure out how to have as much of both as possible. There is almost always a good path that you just haven't discovered yet, so look for it until you find it rather than settle for the choice that is then apparent to you.

Be wary of people who argue for the suspension of the idea meritocracy for the “good of the organization.” When such arguments win out, the idea meritocracy will be weakened. Don’t let that happen. If people respect the rules of the idea meritocracy, there will be no conflict. I know that from my experiences over decades. However, I also know that there will be people who put what they want above the idea meritocracy and threaten it. Consider those people to be enemies of the system and get rid of them. Recognize that if the people who have the power don’t want to operate by principles, the principled way of operating will fail. Ultimately, power will rule. This is true of any system. For example, it has repeatedly been shown that systems of government have only worked when those with the power value the principles behind the system more than they value their own personal objectives. When people have both enough power to undermine a system and a desire to get what they want that is greater than their desire to maintain the system, the system will fail. For that reason the power supporting the principles must be given only to people who value the principled way of operating more than their individual interests (or the interests of their faction), and people must be dealt with in a reasonable and considerate way so that the overwhelming majority will want and fight for that principle-based system. TO GET THE PEOPLE RIGHT . . .

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I think my partener and I share different values in life, what should I do? Ray:

If you find you can't reconcile major differences, especially in values, consider whether the relationship is worth preserving. There are all kinds of different people in the world, many of whom value different kinds of things. A lack of common values will lead to a lot of pain and other harmful consequences and may ultimately drive you apart.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. Ray: No problem, I am happy to help. What situation are you facing? User: My colleague keeps asking me questions and it's kinda pissing me off. I just want to crack on with my work, and he doesn't really understand what he's talking about. Ray: Making suggestions and questioning are not the same as criticizing, so don't treat them as if they are. A person making suggestions may not have concluded that a mistake will be made—they could just be making doubly sure that the person they're talking to has taken all the risks into consideration. Asking questions to make sure that someone hasn't overlooked something isn't the same thing as saying that he or she has overlooked it ("watch out for the ice" vs. "you're being careless and not looking out for the ice"). User: But he doesn't really know what he is talking about, so won't his feedback be kinda useless? Ray: Be objective! While it is possible that you are right and they are wrong, you should switch from a fighting mode to an "asking questions" mode, compare your believability with theirs. User: Ok, but really, he doesn't know anything about this. I'm just wasting time explaining stuff to him. Ray:

Inexperienced people can have great ideas too, sometimes far better ones than more experienced people. That's because experienced thinkers can get stuck in their old ways. If you've got a good ear, you will be able to tell when an inexperienced person is reasoning well.

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. A few years ago, someone at Bridgewater proposed that our facilities group (the people who take care of the building and grounds, food service, office supplies, etc.) should begin to report to our head of technology because of the overlap in the two areas (computers are a facility too, they use electricity, and so on). But having the people who are responsible for janitorial services and meals report to a technology manager would be as inappropriate as having technology people report to the person taking care of facilities. These functions, even if they’re considered “facilities” in the broadest sense, are very different, as are the respective skill sets. Similarly, at another time, we talked about putting the folks who work on client agreements under the same manager as those who do counterparty agreements. But that would have been a mistake because the skills required to reach agreements with clients are very different from the skills required to reach agreements with counterparties. It would be wrong to conflate both departments under the general heading of “agreements,” because each calls for specific knowledge and skills.

If you’re willing to confront reality, accept the pain that comes with doing so, and follow the 5-Step Process to drive yourself toward your goals, you’re on the path to success. Yet most people fail to do this because they hold on to bad opinions that could easily be rectified by going above themselves to objectively look down at their situation and weigh what they and others think about it. It’s for that reason I believe you must be radically open-minded. Our biggest barriers for doing this well are our ego barrier and our blind spot barrier. The ego barrier is our innate desire to be capable and have others recognize us as such. The blind spot barrier is the result of our seeing things through our own subjective lenses; both barriers can prevent us from seeing how things really are. The most important antidote for them is radical open-mindedness, which is motivated by the genuine worry that one might not be seeing one’s choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way. Doing this well requires practicing thoughtful disagreement, which is the process of seeking out brilliant people who disagree with you in order to see things through their eyes and gain a deeper understanding. Doing this will raise your probability of making good decisions and will also give you a fabulous education. If you can learn radical open-mindedness and practice thoughtful disagreement, you’ll radically increase your learning. Finally, being radically open-minded requires you to have an accurate self-assessment of your own and others’ strengths and weaknesses. This is where understanding something about how the brain works and the different psychometric assessments that can help you discover what your own brain is like comes in. To get the best results out of yourself and others, you must understand that people are wired very differently.

Knowing how the brain has evolved thus far, we might extrapolate the past into the future to imagine where it will go. Clearly the evolution of the brain has moved from being nonthinking and self-focused toward being more abstract and more universally focused. For example, the brain evolution that I described has given us (some people more than others) the ability to see ourselves and our circumstances from a higher holistic level and, in some cases, to value the whole that we are part of even more than ourselves. A few years ago, I had a conversation with the Dalai Lama in which I explained to him the contemporary neuroscience view that all of our thinking and feeling is due to physiology (in other words, the chemicals, electricity, and biology in our brains working like a machine). This implied that spirituality is due to these physiological mechanics rather than something coming from above, so I asked him what he thought about that. Without hesitation, he responded “Absolutely!” and told me that the next day he was meeting with the University of Wisconsin professor of neuroscience who had helped him learn about this, and he asked me if I wanted to join him. Regrettably, I couldn’t but I recommended to him a book I’d read on the subject called The Spiritual Brain (which I also recommend to you). In our conversation, we went on to discuss the similarities and differences between spirituality and religion. His view was that prayer and meditation seemed to have similar effects on the brain in producing feelings of spirituality (the rising above oneself to feel a greater connection to the whole) but that each religion adds its own different superstitions on top of that common feeling of spirituality. Rather than trying to squeeze my own summary of his thinking in here, I’ll simply recommend the Dalai Lama’s book, Beyond Religion, if you’re interested in learning more.

Lots of data show that relationships are the greatest reward—that they’re more important to your health and happiness than anything else. For example, as Robert Waldinger, director of Harvard’s seventy-five-year Grant and Glueck study of adult males from a variety of socioeconomic backgrounds, puts it, “You could have all the money you’ve ever wanted, a successful career, and be in good physical health, but without loving relationships, you won’t be happy . . . The good life is built with good relationships.” A good book on this is A Whole New Mind by Daniel H. Pink, and a good article on the science of this is “A Wandering Mind Heads Straight Toward Insight” by Robert Lee Hotz from The Wall Street Journal. While many parts of the brain come in two halves, it’s only the more recently developed cortex, which accounts for three-quarters of the brain, that has been shown to have functional differences between the right and left sides. That’s a big question. Entire specialties are dedicated to this question alone, and no one answer is authoritative, certainly not mine. However, because knowing what can change is important for people trying to manage themselves and others, I have looked fairly deeply into the issue of brain plasticity. What I learned coincided with my own experiences, and I will pass that along to you. A brain-imaging study by Harvard-affiliated researchers at Massachusetts General Hospital found physical changes in the brain after an eight-week meditation course. Researchers identified increased activity in parts of the brain associated with learning, memory, self-awareness, compassion, and introspection, as well as decreased activity in the amygdala. This test is helpful for seeing how people navigate levels and which levels they naturally go to. If you’d like to experience some of these assessments for yourself and see your own results, visit assessments.principles.com.

When trying to understand anything—economies, markets, the weather, whatever—one can approach the subject with two perspectives: Top down: By trying to find the one code/law that drives them all. For example, in the case of markets, one could study universal laws like supply and demand that affect all economies and markets. In the case of species, one could focus on learning how the genetic code (DNA) works for all species. Bottom up: By studying each specific case and the codes/laws that are true for them, for example, the codes or laws particular to the market for wheat or the DNA sequences that make ducks different from other species. Seeing things from the top down is the best way to understand ourselves and the laws of reality within the context of overarching universal laws. That’s not to say it’s not worth having a bottom-up perspective. In fact, to understand the world accurately you need both. By taking a bottom-up perspective that looks at each individual case, we can see how it lines up with our theories about the laws that we expect to govern it. When they line up, we’re good. By looking at nature from the top down, we can see that much of what we call human nature is really animal nature. That’s because the human brain is programmed with millions of years of genetic learning that we share with other species. Because we share common roots and common laws, we and other animals have similar attributes and constraints. For example, the male/female sexual reproduction process, using two eyes to provide depth perception, and many other systems are shared by many species in the animal kingdom. Similarly, our brains have some “animal” parts that are much older in evolutionary terms than humanity is. These laws that we have in common are the most overarching ones. They wouldn’t be apparent to us if we just looked at ourselves.

The next day I met with a third doctor who was a world-renowned specialist and researcher at another esteemed hospital. He told me that my condition would basically cause me no problems so long as I came in for an endoscopic examination every three months. He explained that it was like skin cancer but on the inside—if it was watched and any new growth was clipped before it metastasized into the bloodstream, I’d be okay. According to him, the results for patients monitored in this way were no different than for those who had their esophagus removed. To put that plainly: They didn’t die from cancer. Life went on as normal for them except for those occasional examinations and procedures. To recap: Over the course of forty-eight hours, I had gone from a likely death sentence to a likely cure that would essentially involve disemboweling me, and then finally to a simple, and only slightly inconvenient, way of watching for abnormalities and removing them before they could cause any harm. Was this doctor wrong? Dr. Glazer and I went on to meet two other world-class specialists and they both agreed that undergoing the scoping procedure would do no harm, so I decided to go ahead with it. During the procedure, they clipped some tissue from my esophagus and sent it to the laboratory for testing. A few days after the procedure, exactly a week before my sixty-fourth birthday, I got the results. They were shocking to say the least. After analyzing the tissue, it turned out there wasn’t any high-grade dysplasia at all! Even experts can make mistakes; my point is simply that it pays to be radically open-minded and triangulate with smart people. Had I not pushed for other opinions, my life would have taken a very different course. My point is that you can significantly raise your probabilities of making the right decisions by open-mindedly triangulating with believable people. Recognize the signs of closed-mindedness and open-mindedness that you should watch out for.

In his book The Meaning of Human Existence, Pulitzer Prize–winning author Edward O. Wilson surmises that between one million and two million years ago, when our ancestors were somewhere between chimpanzees and modern homo sapiens, the brain evolved in ways supporting cooperation so man could hunt and do other activities. This led the centers of memory and reasoning in the prefrontal cortex to develop beyond those of our primate relatives. As groups became more powerful than individuals and our brains evolved in ways that made larger groups manageable, competition between groups became more important than competition between individuals and groups that had more cooperative individuals did better than those without them. This evolution led to the development of altruism, morality, and the sense of conscience and honor. Wilson explains that man is perpetually suspended between the two extreme forces that created us: “Individual selection [which] prompted sin and group selection [which] promoted virtue.” Which of these forces (self-interest or collective interest) wins out in any organization is a function of that organization’s culture, which is a function of the people who shape it. But it’s clear that collective interest is what’s best, not just for the organization but for the individuals who make it up. As I’ll explain in Work Principles, the rewards of working together to make the pie bigger are greater than the rewards of self-interest, not only in terms of how much “pie” one gets but also in the psychic rewards wired into our brains that make us happier and healthier.

This is a conversation where Ray Dalio is giving advice on being radically open-minded and overcoming your ego barrier. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I think that my reports aren't giving me honest feedback, how can I get them to be more critical? Ray: Understand everyone has an ego barrier. This is a subliminal defense mechanism that make it hard for us to accept our mistakes and weaknesses. Everyone feels fear and this resides in primitive parts of the brain that process emotions. When emotional we tend to oversimplify things and react instinctively. We crave praise and respond to criticism as an attack, even when the higher-level parts of the brain understand that constructive criticism is good for us. This is what makes us defensive. User: What is the best way to criticise a weakness without the person getting defensive? Ray: Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, you are not arguing, you are openly exploring what’s true. Be reasonable and expect others to be reasonable. If you’re calm, collegial, and respectful you will do a lot better than if you are not. You’ll get better at this with practice. User: But how can I be calm if my team members are reactive? Ray:

Try to appreciate the art of thoughtful disagreement. When two people believe opposite things, chances are that one of them is wrong. It pays to find out if that someone is you. 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. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives. Exchanges in which you really see what the other person is seeing and they really see what you are seeing—are immensely helpful and a giant source of untapped potential. To do this well, approach the conversation in a way that conveys that you’re just trying to understand.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I dont believe that the current team direction is correct. Ray: Know how to get in sync and disagree well. It is harder to run an idea meritocracy in which disagreements are encouraged than a top-down autocracy. But when believable parties disagree and are willing to learn from each other, their evolution is faster and their decision making is far better. User: What should I do to communicate my disagreements to the team? Ray: Surface areas where you could be out of sync. If you and others don't raise your perspectives, there's no way you will resolve your disputes. You can surface the areas of disagreement informally or put them on a list to go over. I typically encourage people to list their disagreements in order of priority so we can more easily direct them to the right party. User: People often ignore complaints, they always say 'oh, its thig guy complaining again' which pisses me off. Ray: Distinguish between idel complaints and complaints meant to lead to improvement. Many complaints either fail to take into account the full picture or reflect a close-minded point of view. But constructive complaints may lead to important discoveries. User: All my complaints are genuine and constructive, they just dont see it the way I do! Ray:

Remember that every story has another side. Wisdom is the ability to see both sides and weigh them appropriately.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: How do I run a good meeting? Ray: If it is your meeting to run, manage the conversation. Often meetings go poorly because of a lack of clarity about the topic or the level at which things are being discussed. User: people are often confused during a meeting, they chip in random comments and confuse others also. Ray:

Be precise in what you're talking about and avoid confusion. It is often best to repeat a specific question to be sure both questioner and responder are crystal clear on what is being asked and answered.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: how do I set good goals? Ray: goals should be clear and ambitious. When you push yourself you will grow more and learn a lot User: im not sure if we can achieve a goal Ray: prioritize well and never rule out something difficult. Dont set the bar too low. User: but we already have too many goals right now Ray:

you can achieve big things but you cannot do everything so prioritize well. A goal should be something you and your organization are excited about

Regardless of whether or not you use this kind of technology and structured process for believability weighting, the most important thing is that you get the concept. Simply look down on yourself and your team when a decision needs to be made and consider who is most likely to be right. I assure you that, if you do, you will make better decisions than if you don’t. Recognize that having an effective idea meritocracy requires that you understand the merit of each person’s ideas. Having a hierarchy of merit is not only consistent with an idea meritocracy but essential for it. It’s simply not possible for everyone to debate everything all the time and still get their work done. Treating all people equally is more likely to lead away from truth than toward it. But at the same time, all views should be considered in an open-minded way, though placed in the proper context of the experiences and track records of the people expressing them. Imagine if a group of us were getting a lesson in how to play baseball from Babe Ruth, and someone who’d never played the game kept interrupting him to debate how to swing the bat. Would it be helpful or harmful to the group’s progress to ignore their different track records and experience? Of course it would be harmful and plain silly to treat their points of view equally, because they have different levels of believability. The most productive approach would be to allow Ruth to give his instructions uninterrupted and then take some time afterward to answer questions. But because I’m pretty extreme in believing that it is important to obtain understanding rather than accepting doctrine at face value, I would encourage the new batter not to accept what Ruth has to say as right just because he was the greatest slugger of all time. If I were that new batter, I wouldn’t stop questioning Ruth until I was confident I had found the truth.

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. When you are less believable, start by taking on the role of a student in a student-teacher relationship—with appropriate humility and open-mindedness. While it is not necessarily you who doesn’t understand, you must assume this until you have seen the issue through the other’s eyes. If the issue still doesn’t make sense to you and you think that your teacher just doesn’t get it, appeal to other believable people. If you still can’t reach an agreement, assume you are wrong. If, on the other hand, you are able to convince a number of believable people of your point of view, then you should make sure your thinking is heard and considered by the person deciding, probably with the help of the other believable parties. Remember that those who are higher in the reporting hierarchy have more people they are trying to sort through on an expected value basis to get the best thinking and more people who want to tell them what they think, so they are time-constrained and have to play the probabilities. If your thinking has been stress-tested by other believable people who support you, it has a greater probability of being heard. Conversely, those higher in the reporting hierarchy must strive to achieve the goal of getting in sync with those lower in the hierarchy about what makes sense. The more people get in sync about what makes sense, the more capable and committed people will be. Understand how people came by their opinions. Our brains work like computers: They input data and process it in accordance with their wiring and programming. Any opinion you have is made up of these two things: the data and your processing or reasoning. When someone says, “I believe X,” ask them: What data are you looking at? What reasoning are you using to draw your conclusion?

Never rule out a goal because you think it’s unattainable. Be audacious. There is always a best possible path. Your job is to find it and have the courage to follow it. What you think is attainable is just a function of what you know at the moment. Once you start your pursuit you will learn a lot, especially if you triangulate with others; paths you never saw before will emerge. Of course there are some impossibilities or near-impossibilities, such as playing center on a professional basketball team if you’re short, or running a four-minute mile at age seventy. Remember that great expectations create great capabilities. If you limit your goals to what you know you can achieve, you are setting the bar way too low. Almost nothing can stop you from succeeding if you have a) flexibility and b) self-accountability. Flexibility is what allows you to accept what reality (or knowledgeable people) teaches you; self-accountability is essential because if you really believe that failing to achieve a goal is your personal failure, you will see your failing to achieve it as indicative that you haven’t been creative or flexible or determined enough to do what it takes. And you will be that much more motivated to find the way. Knowing how to deal well with your setbacks is as important as knowing how to move forward. Sometimes you know that you are going over a waterfall and there is no way to avoid it. Life will throw you such challenges, some of which will seem devastating at the time. In bad times, your goal might be to keep what you have, to minimize your rate of loss, or simply to deal with a loss that is irrevocable. Your mission is to always make the best possible choices, knowing that you will be rewarded if you do. Identify and don’t tolerate problems.

Make your passion and your work one and the same and do it with people you want to be with. Work is either 1) a job you do to earn the money to pay for the life you want to have or 2) what you do to achieve your mission, or some mix of the two. I urge you to make it as much 2) as possible, recognizing the value of 1). If you do that, most everything will go better than if you don’t. Work Principles is written for those for whom work is primarily the game that you play to follow your passion and achieve your mission. We applied these ways of operating to the businesses of investing and managing. In the process of investing I developed a practical understanding of what makes businesses and economies succeed, and in the process of managing my company I had to develop a practical understanding of how to manage businesses well. And I liked that my understanding of these subjects could be objectively measured via our investment performance as well as our business performance. Because Principles is an evolving document, with new principles being added and old ones getting refined all the time, they will be changed. You will be able to find them in my forthcoming Principles app, which you can learn about at www.principles.com. TO GET THE CULTURE RIGHT . . . You have to work in a culture that suits you. That’s fundamental to your happiness and your effectiveness. You also must work in a culture that is effective in producing great outcomes, because if you don’t, you won’t get the psychic and material rewards that keep you motivated. In this section on culture I will share my thoughts on how to match your culture to your needs, and I will explain the type of culture that I wanted and that has worked so well for me: an idea meritocracy.

Understand that training guides the process of personal evolution. Trainees must be open-minded; the process requires them to suspend their egos while they discover what they are doing well and what they are doing poorly and decide what to do about it. The trainer must be open-minded as well, and it’s best if at least two believable trainers work with each trainee in order to triangulate their views about what the trainee is like. This training is an apprentice relationship; it occurs as the trainer and trainee share experiences, much like when a ski instructor skis alongside his student. The process promotes growth, development, and transparency around where people stand, why they stand where they stand, and what they can do about improving it. It hastens not just their own personal evolution but the evolution of the organization. Teach your people to fish rather than give them fish, even if that means letting them make some mistakes. Sometimes you need to stand by and let someone make a mistake (provided it’s not too serious) so they can learn. It’s a bad sign if you are constantly telling people what they should do; micromanagement typically reflects inability on the part of the person being managed. It’s also not a good thing for you as a manager. Instead of micromanaging, you should be training and testing. Give people your thoughts on how they might approach their decisions, but don’t dictate to them. The most useful thing you can do is to get in sync with them, exploring how they are doing things and why.

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. By solving the puzzle, I get a gem in the form of a principle that helps me avoid the same sort of problem in the future. Collecting these gems continually improves my decision making, so I am able to ascend to higher and higher levels of play in which the game gets harder and the stakes become ever greater. All sorts of emotions come to me while I am playing and those emotions can either help me or hurt me. If I can reconcile my emotions with my logic and only act when they are aligned, I make better decisions. Learning how reality works, visualizing the things I want to create, and then building them out is incredibly exciting to me. Stretching for big goals puts me in the position of failing and needing to learn and come up with new inventions in order to move forward. I find it exhilarating being caught up in the feedback loop of rapid learning—just as a surfer loves riding a wave, even though it sometimes leads to crashes. Don’t get me wrong, I’m still scared of the crashes and I still find them painful. But I keep that pain in perspective, knowing that I will get through these setbacks and that most of my learning will come from reflecting on them.14 Just as long-distance runners push through pain to experience the pleasure of “runner’s high,” I have largely gotten past the pain of my mistake making and instead enjoy the pleasure that comes with learning from it. I believe that with practice you can change your habits and experience the same “mistake learner’s high.” Be a hyperrealist.

Don’t get me wrong: Radical transparency isn’t the same as total transparency. It just means much more transparency than is typical. We do keep some things confidential, such as private health matters or deeply personal problems, sensitive details about intellectual property or security issues, the timing of a major trade, and at least for the short term, matters that are likely to be distorted, sensationalized, and harmfully misunderstood if leaked to the press. In the following principles, you will get a good explanation of when and why we’ve found it helpful to be transparent and when and why we’ve found it inappropriate. Frankly, when I started off being so radically transparent, I had no idea how it would go; I just knew that it was extremely important and that I had to fight hard and find ways to make it happen. I pushed the limits and was surprised by how well it worked. For example, when I started taping all our meetings our lawyers told us we were crazy because we were creating evidence that could be used against us in court or by regulators such as the SEC. In response, I theorized that radical transparency would reduce the risk of our doing anything wrong—and of not dealing appropriately with our mistakes—and that the tapes would in fact protect us. If we were handling things well, our transparency would make that clear (provided, of course, that all parties are reasonable, which isn’t something you can always take for granted), and if we were handling things badly, our transparency would ensure that we would get what we deserve, which, in the long run, would be good for us.

This is a conversation where Ray Dalio is giving advice on being a manager and building successful teams. User: Hi Ray, thanks for talking with me today. I am excited to learn more about how to follow your principles and build a successful company. Ray: No problem, I am happy to help. What situation are you facing? User: I have recently been fired from my company, feeling really down at the moment, what should I do to get back on track with my life? Ray:

Embrace reality and deal with it. The state of mind you bring to the process of dealing with and understanding how reality works makes all the difference.

Your brain is built of cells called neurons and glia—hundreds of billions of them. Each one of them is as complex as a city. . . . The cells [neurons] are connected in a network of such staggering complexity that it bankrupts human language and necessitates new strains of mathematics. A typical neuron makes about ten thousand connections to neighboring neurons. Given billions of neurons, this means that there are as many connections in a single cubic centimeter of brain tissue as there are stars in the Milky Way galaxy. When we are born our brains are preprogrammed with learning accumulated over hundreds of millions of years. For example, researchers at the University of Virginia have shown that while many people have an instinctual fear of snakes, no one has an instinctual fear of flowers. The brains that we were born with had learned that snakes are dangerous and flowers are not. There’s a reason for that. There is one grand design for the brains of all mammals, fish, birds, amphibians, and reptiles, which was established nearly 300 million years ago and has been evolving ever since. Just as cars have evolved into different versions—sedans, SUVs, sports cars, etc.—that rely on many of the same underlying parts, all vertebrate brains have similar parts that do similar things but that are well adapted to the needs of their own particular species. For example, birds have superior occipital lobes because they need to spot prey (and predators) from great heights. While we humans think of ourselves as superior overall because we overemphasize the importance of our own advantages, other species could justifiably make the same claims on their own behalf—birds for flight, eyesight, and instinctual magnetic navigation; most animals for smell; and several for appearing to have particularly enjoyable sex.