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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. Distinguish between you as the designer of your machine and you as a worker with your machine. One of the hardest things for people to do is to objectively look down on themselves within their circumstances (i.e., their machine) so that they can act as the machine’s designer and manager. Most people remain stuck in the perspective of being a worker within the machine. If you can recognize the differences between those roles and that it is much more important that you are a good designer/manager of your life than a good worker in it, you will be on the right path. To be successful, the “designer/manager you” has to be objective about what the “worker you” is really like, not believing in him more than he deserves, or putting him in jobs he shouldn’t be in. Instead of having this strategic perspective, most people operate emotionally and in the moment; their lives are a series of undirected emotional experiences, going from one thing to the next. If you want to look back on your life and feel you’ve achieved what you wanted to, you can’t operate that way. The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again. 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. This is why higher-level thinking is essential for success. 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.

To diagnose well, ask the following questions: Is the outcome good or bad? Who is responsible for the outcome? 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. Maintain an emerging synthesis by diagnosing continuously. Keep in mind that diagnoses should produce outcomes. Remember that if you have the same people doing the same things, you should expect the same results. Use the following “drill-down” technique to gain an 80/20 understanding of a department or sub-department that is having problems. Understand that diagnosis is foundational to both progress and quality relationships. Design Improvements to Your Machine to Get Around Your Problems Build your machine. Systemize your principles and how they will be implemented. Create great decision-making machines by thinking through the criteria you are using to make decisions while you are making them. Remember that a good plan should resemble a movie script. Put yourself in the position of pain for a while so that you gain a richer understanding of what you’re designing for. Visualize alternative machines and their outcomes, and then choose. Consider second and third-order consequences, not just first-order ones. Use standing meetings to help your organization run like a Swiss clock. Remember that a good machine takes into account the fact that people are imperfect. Recognize that design is an iterative process. Between a bad “now” and a good “then” is a “working through it” period. Understand the power of the “cleansing storm.” Build the organization around goals rather than tasks. Build your organization from the top down. Remember that everyone must be overseen by a believable person who has high standards. Make sure the people at the top of each pyramid have the skills and focus to manage their direct reports and a deep understanding of their jobs. In designing your organization, remember that the 5-Step Process is the path to success and that different people are good at different steps. Don’t build the organization to fit the people. Keep scale in mind. Organize departments and sub-departments around the most logical groupings based on “gravitational pull.” Make departments as self-sufficient as possible so that they have control over the resources they need to achieve their goals. Ensure that the ratios of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding. Consider succession and training in your design. Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around. Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly. Use consultants wisely and watch out for consultant addiction. Create an organizational chart to look like a pyramid, with straight lines down that don’t cross. Involve the person who is the point of the pyramid when encountering cross-departmental or cross-sub-departmental issues. Don’t do work for people in another department or grab people from another department to do work for you unless you speak to the person responsible for overseeing the other department. Watch out for “department slip.” Create guardrails when needed, and remember it’s better not to guardrail at all. Don’t expect people to recognize and compensate for their own blind spots. Consider the clover-leaf design. Keep your strategic vision the same while making appropriate tactical changes as circumstances dictate. Don’t put the expedient ahead of the strategic. Think about both the big picture and the granular details, and understand the connections between them. Have good controls so that you are not exposed to the dishonesty of others. Investigate and let people know you are going to investigate.

Understand that the most important responsible-parties are those responsible for the goals, outcomes, and machines at the highest levels. Give me someone who can be responsible for an entire area, someone who can design, hire, and sort to achieve the goal, and I can be comfortable things will go well. These are the most important people to choose and manage well. Senior managers must be capable of higher-level thinking, and understand the difference between goals and tasks, otherwise you will have to do their jobs for them. The ability to see and value goals is largely innate, though it improves with experience. It can be tested for, though no tests are perfect. Know that the ultimate Responsible Party will be the person who bears the consequences of what is done. So long as you bear the consequences of failure, you are the ultimate Responsible Party. For example, while you might choose to delegate the responsibility of figuring out how to handle your illness to a doctor, it is your responsibility to pick the right one, since you will bear the consequences if he does a bad job. Or if you were building a house, would you go to an architect and say “show me the kinds of houses I can build” or would you tell the architect what kind of house you want to live in? This is especially true when it comes to money. If you delegate the oversight responsibility for your finances to others, they typically won’t hold themselves as accountable for your money as they would their own and they won’t fire themselves if they are doing a bad job. Only the ultimate responsible-parties can do that. When putting someone in a position of responsibility, make sure their incentives are aligned with their responsibilities and they experience the consequences of the outcomes they produce. As an example, structure their deals so that they do well or badly based on how well or badly you do in the areas they are responsible for. This is fundamental for good management. Make sure that everyone has someone they report to. Even a company’s owners have bosses, in their case, the investors whose money is being spent to achieve their goals. If the owners are self-funded, they still have to make their clients and employees happy. And they can’t escape the responsibility of making sure that their costs are acceptable and their goals are being met. Even if a person’s job is unique, someone needs to be holding them accountable at all times. Remember the force behind the thing. Most people see the things around them without considering the forces that created them. In most cases those forces were specific people with specific qualities who worked in specific ways. Change the people and you change how things develop; replace creators with noncreators and you stop having creations. People tend to personify organizations (“Apple is a creative company”) while mistakenly depersonalizing their results, thus losing sight of who did what to produce them. That’s misguided because companies don’t make decisions, people do. So who are the people in your organisation behind the results and culture that make it special? Think about who they are and how they work together to make it what it is.

Systemize your principles and how they will be implemented. If you have good principles that guide you from your values to your day-to-day decisions but you don’t have a systematic way of making sure they’re regularly applied, they’re not of much use. It’s essential to build your most important principles into habits and help others do so as well. Bridgewater’s tools and culture are designed to do just that. Create great decision-making machines by thinking through the criteria you are using to make decisions while you are making them. Whenever I make an investment decision, I observe myself making it and think about the criteria I used. I ask myself how I would handle another one of those situations and write down my principles for doing so. Then I turn them into algorithms. I am now doing the same for management and I have gotten in the habit of doing it for all my decisions. Algorithms are principles in action on a continuous basis. I believe that systemized, evidence-based decision-making will radically improve the quality of management. Human managers process information spontaneously using poorly thought-out criteria and are unproductively affected by their emotional biases. These all lead to suboptimal decisions. Imagine what it would be like to have a machine that processes high-quality data using high-quality decision-making principles/criteria. Like the GPS in your car, it would be invaluable, whether you follow all of its suggestions or not. I believe that such tools will be essential in the future, and as I write these words, I am a short time away from getting a prototype online. Remember that a good plan should resemble a movie script. The more vividly you can visualize how the scenario you create will play out, the more likely it is to happen as you plan. Visualize who will do what when and the result they’ll produce. This is your mental map of your machine. Recognize that some people are better or worse at visualization. Accurately assess your own abilities and those of others so you can use the most capable people to create your plans. Put yourself in the position of pain for a while so that you gain a richer understanding of what you’re designing for. Either literally or vicariously (through reading reports, job descriptions, etc.), temporarily insert yourself into the workflow of the area you’re looking at to gain a better understanding of what it is that you are dealing with. As you design, you’ll be able to apply what you’ve learned, and revise the machine appropriately as a result. Visualize alternative machines and their outcomes, and then choose. A good designer is able to visualize the machine and its outcomes in various iterations. First they imagine how Harry, Larry, and Sally can operate in various ways with various tools and different incentives and penalties; then they replace Harry with George, and so on, thinking through what the products and people and finances would look like month by month (or quarter by quarter) under each scenario. Then they choose. Consider second and third-order consequences, not just first-order ones. The outcome you get as a first-order consequence might be desirable, while the second or third-order consequences could be the opposite. So focusing solely on first-order consequences, which people tend to do, can lead to bad decision-making. For example, if you asked me if I’d like to not have rainy days, I probably would say yes if I didn’t consider the second and third-order consequences. Use standing meetings to help your organization run like a Swiss clock. Regularly scheduled meetings add to overall efficiency by ensuring that important interactions and to-do’s aren’t overlooked, eliminating the need for inefficient coordination, and improving operations (because repetition leads to refinement). It pays to have standardized meeting agendas that ask the same feedback questions in each meeting (such as how effective the meeting was) and nonstandard meeting agendas that include things done infrequently (such as quarterly budget reviews). Remember that a good machine takes into account the fact that people are imperfect. Design in such a way that you produce good results even when people make mistakes.

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. The evolutionary process is about discovering people’s likes and dislikes as well as their strengths and weaknesses; it occurs when people are put into jobs they are likely to succeed at, but in which they have to stretch themselves. Each person’s career will evolve based on what we all learn about what the person is like. They should be given enough freedom to learn and think for themselves while being coached so they are prevented from making unacceptable mistakes. The feedback they receive should help them reflect on whether their problems are the kind that can be resolved by additional learning or stem from natural abilities that are unlikely to change. Typically it takes from six to twelve months to get to know a new employee in a by-and-large sort of way, and about eighteen months for them to internalize and adapt to the culture. During this time there should be periodic mini-reviews and several major ones. Following each of these assessments, new assignments should be made that are tailored to their likes and dislikes and strengths and weaknesses. This is an iterative process, in which the accumulated experiences of training, testing, and adjusting direct the person to ever more suitable roles and responsibilities. At Bridgewater, it is typically both a challenging and rewarding process that benefits the individual by providing better self-understanding and greater familiarity with various jobs. When it results in a parting of ways, it’s usually because people find they cannot be excellent and happy in any job at the firm. 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. Recognize that experience creates internalized learning that book learning can’t replace. There are huge differences between memory-based book learning and hands-on, internalized learning. A medical student who has learned to perform an operation in a medical school class has not learned it in the same way as a doctor who has already conducted several operations. People who excel at book learning tend to call up from memory what they have learned in order to follow stored instructions. People who have internalized their learning use the thoughts flowing from their subconscious without thinking, in the same way they walk down the street. Understanding these differences is essential. Provide constant feedback. Most training comes from doing and getting in sync about performance. Feedback should reflect what is succeeding and what is not in proportion to the actual situation, rather than in an attempt to balance compliments and criticisms. Remember that you are responsible for achieving your goals, and you want your machine to function as intended. For it to do so, the employees you supervise must meet expectations, and only you can help them understand whether they are stacking up. As their strengths and weaknesses become clearer, responsibilities can be more appropriately tailored to make the machine work better and to facilitate personal evolution. Evaluate accurately, not kindly. Nobody ever said radical honesty was easy. Sometimes, especially with new employees who have not yet gotten used to it, an honest assessment feels like an attack. Rise to a higher level and keep your eye on the bigger picture and counsel the person you are evaluating to do the same.

Think through which values, abilities, and skills you are looking for (in that order). Values are the deep-seated beliefs that motivate behaviors and determine people’s compatibilities with each other. People will fight for their values, and they are likely to fight with people who don’t share them. Abilities are ways of thinking and behaving. Some people are great learners and fast processors; others possess the ability to see things at a higher level. Some focus more on the particulars; still others think creatively or logically or with supreme organization. Skills are learned tools, such as being able to speak a foreign language or write computer code. While values and abilities are unlikely to change much, most skills can be acquired in a limited amount of time (e.g., software proficiency can be learned) and often change in worth (today’s most in-demand programming language is likely to be obsolete in a few years). It is important for you to know what mix of qualities is impor-tant to fit each role and, more broadly, what values and abilities are required in people with whom you can have successful relationships. In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important. Yet most people make the mistake of choosing skills and abilities first and overlooking values. We value people most who have what I call the three C’s: character, common sense, and creativity. If your people are bound by a sense of community and mission and they are capable, you will have an extraordinary organization. Some people will value the mission and community and others won’t. Since at Bridgewater the key shared values that maintain our culture are meaningful work and meaningful relationships, radical truth and radical transparency, an open-minded willingness to explore harsh realities including one’s own weaknesses, a sense of ownership, a drive for excellence, and the willingness to do the good but difficult things, we look for highly capable people who deeply want all of those things. Make finding the right people systematic and scientific. The process for choosing people should be systematically built out and evidence-based. You need to have a people-hiring machine in which the goals are clearly stated so that the outcomes can be compared with them and the machine (the design and the people) producing the outcomes can evolve to improve. Organizations typically hire people by having job candidates’ resumes reviewed by semi-random people based on semi-random criteria, which leads them to invite in candidates to have semi-random groups of people ask the candidates semi-random questions and then make their choices of whom to offer jobs based on the consensus of how they liked them. You need to make sure that each one of those steps is done more systematically and purposefully. For example, you should think through what questions are asked and how the different answers candidates give differentiate them in the ways that you are seeking to differentiate them. You should also save all of those answers so you can learn about how indicative they might be of subsequent behaviors and performance. I do not mean that the human dimension or art of the hiring process should be eliminated, the personal values and esprit de corps part of a relationship are critically important and can’t be fully measured by data. Sometimes the twinkle in the eye and the facial expressions are telling. However, even for those areas where people’s subjective interpretations are important, you can still use data and a scientific approach to be more objective, for example, you can capture data to assess the track records of those making the interpretations. 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.

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. Just as long-distance runners push through the 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. 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 savour life. Neither is better. Each of us needs to decide what we value most and choose the paths we take to achieve it. 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.

One should always feel free to ask questions, while remembering one’s obligation to remain open-minded in the discussions that follow. Record your argument so that if you can’t get in sync or make sense of things, you can send it out so others can decide. And of course, remember that you are operating in an idea-meritocracy, be mindful of your own believability. Communications aimed at getting the best answer should involve the most relevant people. As a guide, the most relevant people to probe are your managers, direct reports, and/or agreed experts. They are the most impacted by and most informed about the issues under discussion, and so they are the most important parties to be in sync with. If you can’t get in sync, you should escalate the disagreement by raising it to the appropriate people. Communication aimed at educating or boosting cohesion should involve a broader set of people than would be needed if the aim were just getting the best answer. Less experienced, less believable people may not be necessary to decide an issue, but if the issue involves them and you aren’t in sync with them, that lack of understanding will in the long run likely undermine morale and the organization’s efficiency. This is especially important in cases where you have people who are both not believable and highly opinionated (the worst combination). Unless you get in sync with them, you will drive their uninformed opinions underground. If, on the other hand, you are willing to be challenged, you will create an environment in which all criticisms are aired openly. Recognize that you don’t need to make judgments about everything. Think about who is responsible for something (and their believability), how much you know about it, and your own believability. Don’t hold opinions about things you don’t know anything about. Pay more attention to whether the decision-making system is fair than whether you get your way. An organization is a community with a set of shared values and goals. Its morale and smooth functioning should always take precedence over your need to be right, and besides, you could be wrong. When the decision-making system is consistently well-managed and based on objective criteria, the idea-meritocracy is more important than the happiness of any one of its members, even if that member is you. The most appropriate people are either the people you both report to (which we call the point of the pyramid in an organizational chart) or someone you mutually agree will be a good arbiter. Recognize How to Get Beyond Disagreements 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 responsible-parties wants to do it his/her way contrary to the vote and has the power to do so, we accept that and move on.

When a problem occurs, conduct the discussion at two levels: the machine level (why that outcome was produced) and 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. When making rules, explain the principles behind them. You don’t want the people you work with to merely pay lip service to your community’s rules; they should have a high sense of ethics that makes them want to abide by them and hold others accountable for abiding by them, while also working to perfect them. The way to achieve this is via principles that are sound and that have been tested through open discussion. Your policies should be natural extensions of your principles. Principles are hierarchical, some are overarching and some are less important, but they all should inform the policies that guide your individual decisions. It pays to think those policies through to ensure that they are consistent with each other and the principles they are derived from. When faced with a case that doesn’t have a clear policy to follow (for example, what to do about an employee whose job is to travel but who faces potential health risks because of his travel), one can’t just snatch an answer out of the blue without regard for higher-level principles. Policymakers must make policy in the same way that the judicial system creates case law, iteratively and incrementally, by dealing with specific cases and interpreting the law as it applies to them. That is how I have tried to operate. When a case arises, I lay out the principles behind how I am handling it and get in sync with others to see if we agree on those principles or must modify them to make them better. By and large, that’s how all Bridgewater’s principles and policies were developed. While good principles and policies almost always provide good guidance, remember that there are exceptions to every rule. While everyone has the right to make sense of things, and is in fact obliged to challenge principles and policies if they conflict with what they believe is the best approach, that’s not the same thing as having the right to change them. Changes in policies must be approved by those who made them (or someone else who has been made responsible for evolving them). When someone wishes to make an exception to an important policy at Bridgewater, they must write up a proposed alternative policy and escalate their request to the Management Committee. Exceptions should be extremely rare because policies that have frequent exceptions are ineffective. The Management Committee will formally consider it and either reject it, amend it, or adopt it. Understand the differences between managing, micromanaging, and not managing. Great managers orchestrate rather than do. Like the conductor of an orchestra, they do not play an instrument, but direct their people so that they play beautifully together. Micromanaging, in contrast, is telling the people who work for you exactly what tasks to do or doing their tasks for them. Not managing is having them do their jobs without your oversight and involvement. To be successful, you need to understand these differences and manage at the right level. Managers must make sure that what they are responsible for works well. They can do this by managing others well (as explained above), job slipping down to do work they’re not responsible for because others can’t do their jobs well, or escalating what they can’t manage well. The first choice is optimal; the second signals that a change is needed in the people and the design; the third choice is harder still but mandatory. 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. 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.

People cannot be given the privilege of receiving information and then use the information to harm the company, so rules and procedures must be in place to ensure that doesn’t happen. For example, we provide great transparency inside Bridgewater on the condition that Bridgewater citizens do not leak it outside; if they do, they will be dismissed for cause (for unethical behavior). Additionally, the rules for how issues are explored and decisions are made must be maintained, and because different people have different perspectives, it’s important that the paths for resolving them are followed. For example, some people are going to make big deals out of little deals, come up with their own wrong theories, or have problems seeing how things are evolving. Remind them of the risks that the company takes to give them that transparency and their responsibilities to handle the information that they get responsibly. I have found that people appreciating this transparency and knowing that they will lose it if it is not handled well leads them to enforce good behavior with each other. Provide transparency to people who handle it well and either deny it to people who don’t handle it well or remove those people from the organization. It is the right and responsibility of management, and not the right of all employees, to determine when exceptions to radical transparency should be made. Management should restrict transparency sparingly and wisely because every time they do, it undermines the idea-meritocracy and people’s trust. Don’t share sensitive information with the organization’s enemies. Both inside and outside of any organization, there are some people who will intentionally cause the organization harm. If these enemies are within your organization, you need to call them out to resolve this conflict through the organization’s system for achieving such resolutions, because working with enemies within your “extended family” will undermine you and the “family.” If the enemies are outside your organization and will use the information to harm you, of course don’t share it. Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency. 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. When you have such relationships with those you work with, you pull each other through challenging times; at the same time, sharing challenging work draws you closer and strengthens your relationships. This self-reinforcing cycle creates the success that allows you to pursue more and more ambitious goals. Cultivate Meaningful Work and Meaningful Relationships 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.

Know that nobody can see themselves objectively. While we should all strive to see ourselves objectively, we shouldn’t expect everyone to be able to do that well. We all have blind spots; people are by definition subjective. For this reason, it is everyone’s responsibility to help others learn what is true about themselves by giving them honest feedback, holding them accountable, and working through disagreements in an open-minded way. Teach and reinforce the merits of mistake-based learning. 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. This is why the use of the Issue Log is mandatory at Bridgewater. Know what types of mistakes are acceptable and what types are unacceptable, and don’t allow the people who work for you to make the unacceptable ones. When considering the kinds of mistakes you are willing to allow in order to promote learning through trial and error, weigh the potential damage of a mistake against the benefit of incremental learning. In defining what latitude I’m willing to give people, I say, “I’m willing to let you scratch or dent the car, but I won’t put you in a position where there’s a significant risk of your totaling it.” Pain + Reflection = Progress Get and Stay in Sync Remember that for an organization to be effective, the people who make it up must be aligned on many levels, from what their shared mission is, to how they will treat each other, to a more practical picture of who will do what when to achieve their goals. Yet alignment can never be taken for granted because people are wired so differently. We all see ourselves and the world in our own unique ways, so deciding what’s true and what to do about it takes constant work. Alignment is especially important in an idea-meritocracy, so at Bridgewater we try to attain alignment consciously, continually, and systematically. We call this process of finding alignment “getting in sync,” and there are two primary ways it can go wrong: cases resulting from simple misunderstandings and those stemming from fundamental disagreements. Getting in sync is the process of open-mindedly and assertively rectifying both types. Many people mistakenly believe that papering over differences is the easiest way to keep the peace. They couldn’t be more wrong. By avoiding conflicts one avoids resolving differences. People who suppress minor conflicts tend to have much bigger conflicts later on, which can lead to separation, while people who address their mini-conflicts head on tend to have the best and the longest-lasting relationships. Thoughtful disagreement, the process of having a quality back-and-forth in an open-minded and assertive way so as to see things through each other’s eyes, is powerful, because it helps both parties see things they’ve been blind to. But it’s not easy. While it is straightforward to have a meritocracy in activities in which there is clarity of relative abilities (because the results speak for themselves such as in sports, where the fastest runner wins the race), it is much harder in a creative environment (where different points of view about what’s best have to be resolved). If they’re not, the process of sorting through disagreements and knowing who has the authority to decide quickly becomes chaotic. Sometimes people get angry or stuck; a conversation can easily wind up with two or more people spinning unproductively and unable to reach agreement on what to do. For these reasons, specific processes and procedures must be followed. Every party to the discussion must understand who has what rights and which procedures should be followed to move toward resolution. (We’ve also developed tools for helping do this, which you can review at the end of this book.) And everyone must understand the most fundamental principle for getting in sync, which is that people must be open-minded and assertive at the same time. Thoughtful disagreement is not a battle; its goal is not to convince the other party that he or she is wrong and you are right, but to find out what is true and what to do about it. It must also be nonhierarchical, because in an idea-meritocracy communication doesn’t just flow unquestioned from the top down. Criticisms must also come from the bottom up. Recognize that conflicts are essential for great relationships

Use the following “drill-down” technique to gain an 80/20 understanding of a department or sub-department that is having problems. A drill-down is a process that allows you to gain an understanding of the root causes of the biggest problems in a department or area so you can design a plan to make the area excellent. Drill-downs are not diagnoses, but a form of broad and deep probing. They’re not intended to uncover the causes of every problem: only the 20 or so percent of causes that produce 80 percent of the suboptimal effects. A drill-down takes place in two steps and is then followed by design and execution steps. If done well, the two drill-down steps can be done in about four hours. It is very important that the steps be done separately and independently, so as not to go in too many directions at once. Let me take you through the drill-down process, offering guidance and examples for each step. Step 1: List the Problems. Quickly inventory all the core problems. Be very specific, as this is the only way to effectively find solutions. Don’t generalize or use the plural “we” or “they.” Name the names of the people experiencing the problems. Have all the relevant people from the area under scrutiny participate in the drill-down; you will benefit from their insights and it will drive their ownership of the solution. Don’t focus on rare events or the trivial problems, nothing is perfect, but be sure they are not symptoms of systematic machine problems. Don’t try to find solutions yet. Your focus in this step is strictly on listing the problems. Step 2: Identify the Root Causes. For each problem, identify the deep-seated reason behind the actions that caused each problem. Most problems happen for one of two reasons: 1. It isn’t clear who the Responsible Party is, or 2. The Responsible Party isn’t handling his/her responsibilities well. You must distinguish proximate causes from root causes. Proximate causes are the reasons or actions that led to the problem. When you start describing the qualities behind these reasons or actions, you are getting closer to the root cause. To get at the root cause, keep asking “Why?” For example: Problem: The team is continually working late and is on the verge of burning out. Why? Because we don’t have enough capacity to meet the demand put on the team. Why? Because we inherited this new responsibility without additional staff. Why? Because the manager did not understand the volume of work before accepting the responsibility. Why? Because the manager is bad at anticipating problems and creating plans. [Root Cause] Do not exclude any relevant people from the drill-down: Besides losing the benefit of their ideas, you’ll disenfranchise them from the game plan and reduce their sense of ownership. At the same time, remember that people tend to be more defensive than self-critical. It is your job as a manager to get at truth and excellence, not to make people happy. For example, the correct path might be to fire some people and replace them with better people, or put them in jobs they might not want. Everyone’s objective must be to get at the best answers, not the answers that will make the most people happy. You may find that multiple problems identified in Step 1 share the same root cause. Because you are doing a drill-down in a quick session, your root cause diagnoses may only be provisional, essentially alerts about things to watch out for. When Step 2 is completed, take a break to reflect; then come up with a plan. Step 3: Create a Plan. Step away from the group and develop a plan that addresses the root causes. Plans are like movie scripts, where you visualize who will do what through time to achieve the goals. They are developed by iterating through multiple possibilities, weighing the likelihood of goal achievement versus costs and risks. They should have specific tasks, outcomes, Responsible Parties, tracking metrics, and timelines. Allow the key people involved to discuss the plan thoroughly. Not everyone needs to agree on the plan but the Responsible Parties and other key people must be in sync. Step 4: Execute the Plan. Execute the agreed-upon plan and transparently track its progress. At least monthly, report on the planned and actual progress to date and the expectations for the coming period, and hold people publicly accountable for delivering their outcomes successfully and on time. Make adjustments to the plan as required to reflect reality.

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. In a nutshell, learning how to make decisions in the best possible way and learning to have the courage to make them comes from going after what you want, failing and reflecting well through radical open-mindedness, and changing/evolving to become ever more capable and less fearful. You can of course do all of these things alone, but if you’ve understood anything about the concept of radical open-mindedness, it should be obvious that going it alone will only take you so far. We all need others to help us triangulate and get to the best possible decisions, and to help us see our weaknesses objectively and compensate for them. More than anything else, your life is affected by the people around you and how you interact with each other. Your ability to get what you want when working with others who want the same things is much greater than your ability to get these things by yourself. Yet we haven’t talked about how groups should operate to be most effective. That’s what we’ll do in Work Principles. Work Principles is about people working together. Because the power of a group is so much greater than the power of an individual, the principles that follow are likely even more important than those we covered up to this point. In fact, I wrote them first and then wrote Life Principles in order to help others make sense of the approach I was implicitly applying in running Bridgewater. My Work Principles are basically the Life Principles you just read, applied to groups. I will show you, principle by principle, how an actual, practical, believability-weighted decision-making system converts independent thinking into effective group decision-making. I believe that such a system can work to make any kind of organization, business, government, philanthropic, both more effective and more satisfying to belong to. I hope these principles will help you struggle well and get all the joy you can out of life. Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively. Embrace reality and deal with it Be a hyperrealist. Dreams + Reality + Determination = A Successful Life. Truth, or, more precisely, an accurate understanding of reality, is the essential foundation for any good outcome. Be radically open-minded and radically transparent. Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Don’t let fears of what others think of you stand in your way. Embracing radical truth and radical transparency will bring more meaningful work and more meaningful relationships. Look to nature to learn how reality works. Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are. To be “good,” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded. Evolution is the single greatest force in the universe; it is the only thing that is permanent and it drives everything. Evolve or die. Evolving is life’s greatest accomplishment and its greatest reward. The individual’s incentives must be aligned with the group’s goals. Reality is optimizing for the whole, not for you. Adaptation through rapid trial and error is invaluable.

Radical open-mindedness is motivated by the genuine worry that you might not be seeing your 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. It requires you to replace your attachment to always being right with the joy of learning what’s true. Radical open-mindedness allows you to escape from the control of your lower-level you and ensures your upper-level you sees and considers all the good choices and makes the best possible decisions. If you can acquire this ability, and with practice you can, you’ll be able to deal with your realities more effectively and radically improve your life. Most people don’t understand what it means to be radically open-minded. They describe open-mindedness as being “open to being wrong,” but stubbornly cling to whatever opinion is in their head and fail to seek an understanding of the reasoning behind alternative points of view. To be radically open-minded you must: Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing” is more important than whatever it is you do know. Most people make bad decisions because they are so certain that they’re right that they don’t allow themselves to see the better alternatives that exist. Radically open-minded people know that coming up with the right questions and asking other smart people what they think is as important as having all the answers. They understand that you can’t make a great decision without swimming for a while in a state of “not knowing.” That is because what exists within the area of “not knowing” is so much greater and more exciting than anything any one of us knows. Recognize that decision-making is a two-step process: First take in all the relevant information, then decide. Most people are reluctant to take in information that is inconsistent with what they have already concluded. When I ask why, a common answer is: “I want to make up my own mind.” These people seem to think that considering opposing views will somehow threaten their ability to decide what they want to do. Nothing could be further from the truth. Taking in others’ perspectives in order to consider them in no way reduces your freedom to think independently and make your own decisions. It will just broaden your perspective as you make them. Don’t worry about looking good; worry about achieving your goal. People typically try to prove that they have the answer even when they don’t. Why do they behave in this unproductive way? It’s generally because they believe the senseless but common view that great people have all the answers and don’t have any weaknesses. Not only does this view not square with reality, it stands in the way of their progress. People interested in making the best possible decisions are rarely confident that they have the best answers. They recognize that they have weaknesses and blind spots, and they always seek to learn more so that they can get around them. Realize that you can’t put out without taking in. Most people seem much more eager to put out (convey their thinking and be productive) than to take in (learn). That’s a mistake even if one’s primary goal is to put out, because what one puts out won’t be good unless one takes in as well. Recognize that to gain the perspective that comes from seeing things through another’s eyes, you must suspend judgment for a time, only by empathizing can you properly evaluate another point of view. Open-mindedness doesn’t mean going along with what you don’t believe in; it means considering the reasoning of others instead of stubbornly and illogically holding on to your own point of view. To be radically open-minded, you need to be so open to the possibility that you could be wrong that you encourage others to tell you so. Remember that you’re looking for the best answer, not simply the best answer that you can come up with yourself. The answer doesn’t have to be in your head; you can look outside yourself. If you’re truly looking at things objectively, you must recognize that the probability of you always having the best answer is small and that, even if you have it, you can’t be confident that you do before others test you. So it is invaluable to know what you don’t know. Ask yourself: Am I seeing this just through my own eyes? If so, then you should know that you’re terribly handicapped.

Don’t lower the bar. You reach a point in all relationships when you must decide whether you are meant for each other, that’s common in private life and at any organization that holds very high standards. At Bridgewater, we know that we cannot compromise on the fundamentals of our culture, so if a person cannot operate within our requirements of excellence through radical truth and transparency in an acceptable time frame, he or she must leave. Tough love is both the hardest and the most important type of love to give. Manage as Someone Operating a Machine to Achieve a Goal No matter what work you do, at a high level you are simply setting goals and building machines to help you achieve them. I built the machine that is Bridgewater by constantly comparing its actual outcomes to my mental map of the outcomes that it should be producing, and finding ways to improve it. I won’t say anything specific about how you should set your own organization’s goals other than that the high-level principles about goal setting I covered in Life Principles apply equally to individuals and organizations. I will, however, point out that in running your organization, you and the people you work with must be clear on how your lower-level goals, whether they’re to produce things cost-effectively, achieve high customer satisfaction, help a certain number of people in need, whatever, grow out of your higher-level goals and values. No matter how good you are at design, your machine will have problems. You or some other capable mechanic needs to identify those problems and look under the hood of the machine to diagnose their root causes. You or whoever is diagnosing those problems has to understand what the parts of the machine, the designs and the people, are like and how they work together to produce the outcomes. The people are the most important part, since most everything, including the designs themselves, comes from people. Unless you have a clear understanding of your machine from a higher level, and can visualize all its parts and how they work together, you will inevitably fail at this diagnosis and fall short of your potential. At Bridgewater, the high-level goal of all of our machines is to create excellent outcomes for our clients, in the returns on their investments, of course, but also in the quality of our relationship and our thought partnership in understanding global economies and markets more broadly. Before we had anything else at Bridgewater, we had this commitment to excellence. Maintaining these extremely high standards has always been a challenge, especially as the pace of our growth and change accelerated. Look down on your machine and yourself within it from the higher level. Higher-level thinking isn’t something that’s done by higher-level beings. It’s simply seeing things from the top down. Think of it as looking at a photo of yourself and the world around you from outer space. From that vantage, you can see the relationships between the continents, countries, and seas. Then you can get more granular, by zooming into a closer-up view of your country, your city, your neighborhood, and finally your immediate environment. Having that macro perspective gives you much more insight than you’d get if you simply looked around your house through your own eyes. Constantly compare your outcomes to your goals. You must always be simultaneously trying to accomplish the goal and evaluating the machine (the people and the design), as all outcomes are reflections of how the machine is running. Whenever you identify a problem with your machine, you need to diagnose whether it is the result of a flaw in its design or in the way your people are handling their responsibilities. Sample size is important. Any problem can be a one-off imperfection or a symptom of root causes that will show up as problems repeatedly. If you look at enough problems, which one it is will become clear.

As I thought about evolution, I realized that it exists in other forms than life and is carried out through other transmission mechanisms than DNA. Technologies, languages, and everything else evolves. Knowledge, for example, is like DNA in that it is passed from generation to generation and evolves; its impact on people over many generations can be as great or greater than that of the genetic code. Evolution is good because it is the process of adaptation that generally moves things toward improvement. All things such as products, organizations, and human capabilities evolve through time in a similar way. It is simply the process by which things either adapt and improve or die. To me this evolutionary process looks like what you see on the right: Evolution consists of adaptations/inventions that provide spurts of benefits that decline in value. That painful decline leads either to new adaptations and new inventions that bring new products, organizations, and human capabilities to new and higher levels of development; or decline and death. Think of any product, organization, or person you know and you will see that this is true. The world is littered with once-great things that deteriorated and failed; only a rare few have kept reinventing themselves to go on to new heights of greatness. All machines eventually break down, decompose, and have their parts recycled to create new machines. That includes us. Sometimes this makes us sad because we’ve become attached to our machines, but if you look at it from the higher level, it’s really beautiful to observe how the machine of evolution works. From this perspective, we can see that perfection doesn’t exist; it is a goal that fuels a never-ending process of adaptation. If nature, or anything, were perfect it wouldn’t be evolving. Organisms, organizations, and individual people are always highly imperfect but capable of improving. So rather than getting stuck hiding our mistakes and pretending we’re perfect, it makes sense to find our imperfections and deal with them. You will either learn valuable lessons from your mistakes and press on, better equipped to succeed, or you won’t and you will fail. As the saying goes: Evolve or die. This evolutionary cycle is not just for people but for countries, companies, economies, for everything. And it is naturally self-correcting as a whole, though not necessarily for its parts. For example, if there is too much supply and waste in a market, prices will go down, companies will go out of business, and capacity will be reduced until the supply falls in line with the demand, at which time the cycle will start to move in the opposite direction. Similarly, if an economy turns bad enough, those responsible for running it will make the political and policy changes that are needed, or they will not survive, making room for their replacements to come along. These cycles are continuous and play out in logical ways, and they tend to be self-reinforcing. The key is to fail, learn, and improve quickly. If you’re constantly learning and improving, your evolutionary process will look like the one that’s ascending. Do it poorly and it will look like what you see on the left, or worse. I believe that: Evolving is life’s greatest accomplishment and its greatest reward. It is instinctually that way, which is why most of us feel the pull of it, in other words, we instinctively want to get better at things and have created and evolved technology to help us. History has shown that all species will either go extinct or evolve into other species, though with our limited time window that is hard for us to see. But we do know that what we call mankind was simply the result of DNA evolving into a new form about two hundred thousand years ago, and we know that mankind will certainly either go extinct or evolve into a higher state. I personally believe there is a good chance man will begin to evolve at an accelerating pace with the help of man-made technologies that can analyze vast amounts of data and “think” faster and better than we can. I wonder how many centuries it will take for us to evolve into a higher-level species that will be much closer to omniscience than we are now, if we don’t destroy ourselves first. One of the great marvels of nature is how the whole system, which is full of individual organisms acting in their own self-interest and without understanding or guiding what’s going on, can create a beautifully operating and evolving whole. While I’m not an expert at this, it seems that it’s because evolution has produced incentives and interactions that lead to individuals pursuing their own interests and resulting in the advancement of the whole, the natural selection process, and rapid experimentation and adaptation.

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. 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? 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.

I’ve found that shapers tend to share attributes such as intense curiosity and a compulsive need to make sense of things, independent thinking that verges on rebelliousness, a need to dream big and unconventionally, a practicality and determination to push through all obstacles to achieve their goals, and a knowledge of their own and others’ weaknesses and strengths so they can orchestrate teams to achieve them. Perhaps even more importantly, they can hold conflicting thoughts simultaneously and look at them from different angles. They typically love to knock things around with other really smart people and can easily navigate back and forth between the big picture and the granular details, counting both as equally important. People wired with enough of these ways of thinking that they can operate in the world as shapers are very rare. But they could never succeed without working with others who are more naturally suited for other things and whose ways of thinking and acting are also essential. Knowing how one is wired is a necessary first step on any life journey. It doesn’t matter what you do with your life, as long as you are doing what is consistent with your nature and your aspirations. Having spent time with some of the richest, most powerful, most admired people in the world, as well as some of the poorest, most disadvantaged people in the most obscure corners of the globe, I can assure you that, beyond a basic level, there is no correlation between happiness levels and conventional markers of success. A carpenter who derives his deepest satisfaction from working with wood can easily have a life as good or better than the president of the United States. If you’ve learned anything from this book I hope it’s that everyone has strengths and weaknesses, and everyone has an important role to play in life. Nature made everything and everyone for a purpose. The courage that’s needed the most isn’t the kind that drives you to prevail over others, but the kind that allows you to be true to your truest self, no matter what other people want you to be. Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish. Whether it’s in your private life or your work life, it is best for you to work with others in such a way that each person is matched up with other complementary people to create the best mix of attributes for their tasks. 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.

Hire Right, Because the Penalties for Hiring Wrong Are Huge Remember back in Understand That People Are Wired Very Differently when I described Bridgewater’s hit-or-miss hiring practices in its early days? At the very beginning, we just hired people we liked. But too many of them turned out to be bad fits. Because we liked them, we were reluctant to give up on them, and things often went from bad to worse. So we started hiring like most companies do, by looking at résumés, narrowing the lists, and then interviewing to get a gut feel for who was right. But the questions we asked our candidates, unlike the questions on a scientifically constructed personality test, were unlikely to elicit answers truly indicative of what they were like. What we were doing, essentially, was looking at prospective employees through our own biased perspectives. Those of us who were linear thinkers tended to want to hire linear thinkers; those of us who were lateral thinkers tended to want to hire lateral thinkers. We all thought the type we chose would perform best in all jobs, and as a result we weren’t able to accurately predict who would succeed and who would fail in our very unusual environment. As a result, we continued to make a lot of bad hires. Eventually we learned from our mistakes and failures that we could improve our hiring results in two ways: by always being crisp and clear on exactly what kind of person we were looking for and by developing our vocabulary for and means of evaluating people’s abilities at a much more granular level. Here we lay out in detail the principles we’ve learned for doing this. While we still make too many hiring mistakes, we have significantly reduced the odds of making them by following these processes, which we continually try to improve. At a high level, we look for people who think independently, argue open-mindedly and assertively, and above all else value the intense pursuit of truth and excellence, and through it, the rapid improvement of themselves and the organization. Because we treat work as more than just what we do to make a living, we look at every potential hire not just as an employee but as someone we’d want share our lives with. We insist that the people we work with are considerate and have a high sense of personal accountability to do the difficult, right things. We look for people with generous natures and high standards of fairness. Most important, they must be able to put their egos aside and assess themselves candidly. Whether you choose to look for these same traits or others, the most important thing you can do is understand that hiring is a high-risk gamble that needs to be approached deliberately. A lot of time, effort, and resources go into hiring and developing new employees before it’s clear whether or not they are good fits. Months or even years and countless dollars can be wasted in training and retraining. Some of those costs are intangible, including loss of morale and a gradual diminishment of standards as people who aren’t excellent in their roles bump into each other; other costs from bad outcomes can be measured all too easily in dollars and cents. So whenever you think you are ready to make someone an offer, think one last time about the important things that might go wrong and what else you can do to better assess those risks and raise your probability of being right. Match the person to the design. When building a “machine,” design precedes people because the type of people you will need will depend on the design. As you design, create a clear mental image of the attributes required for each person to do their job well. It is futile to give responsibilities to people who do not have the qualities required to succeed. It frustrates, and inevitably angers, all parties, which is damaging to the environment. In order to match a person to the design, start by creating a spec sheet so that there will be a consistent set of criteria that can be applied from recruiting through performance reviews. Bridgewater’s spec sheets use the same bank of qualities as our Baseball Cards. Don’t design jobs to fit people; over time, this almost always turns out to be a mistake. This often happens when someone you are reluctant to let go doesn’t work out, and there is an inclination to try to find out what else that person can do. Frequently managers fail to be objective about their own strengths and weaknesses, and put themselves into roles that they’re not a click for.

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. 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. I believe that: Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Learning is the product of a continuous real-time feedback loop in which we make decisions, see their outcomes, and improve our understanding of reality as a result. Being radically open-minded enhances the efficiency of those feedback loops, because it makes what you are doing, and why, so clear to yourself and others that there can’t be any misunderstandings. The more open-minded you are, the less likely you are to deceive yourself, and the more likely it is that others will give you honest feedback. If they are “believable” people (and it’s very important to know who is “believable”), you will learn a lot from them. Being radically transparent and radically open-minded accelerates this learning process. It can also be difficult because being radically transparent rather than more guarded exposes one to criticism. It’s natural to fear that. Yet if you don’t put yourself out there with your radical transparency, you won’t learn. Don’t let fears of what others think of you stand in your way. You must be willing to do things in the unique ways you think are best, and to open-mindedly reflect on the feedback that comes inevitably as a result of being that way. Learning to be radically transparent is like learning to speak in public: While it’s initially awkward, the more you do it, the more comfortable you will be with it. This has been true for me. For example, I still instinctively find being as radically transparent in the ways that I am in this book uncomfortable because I am exposing personal material to the public that will attract attention and criticism. Yet I am doing it because I’ve learned that it’s best, and I wouldn’t feel good about myself if I let my fears stand in the way. In other words, I have experienced the positive effects of radical transparency for so long that it’s now uncomfortable for me not to be that 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.

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. The marginal benefits of moving from a shortage to an abundance of anything decline. Your unique power of reflectiveness, your ability to look at yourself, the world around you, and the relationship between you and the world, means that you can think deeply and weigh subtle things to come up with learning and wise choices. Asking other believable people about the root causes of your pain in order to enhance your reflections is also typically very helpful, especially others who have opposing views but who share your interest in finding the truth rather than being proven right. If you can reflect deeply about your problems, they almost always shrink or disappear, because you almost always find a better way of dealing with them than if you don’t face them head-on. To be clear, I am not saying people should not be helped. I believe that people should be helped by giving them opportunities and the coaching they need to become strong enough to take advantage of their opportunities. As the saying goes, “God helps those who help themselves.” But this isn’t easy, especially with people you care about. To be effective in helping people learn from painful experiences, you must explain the logic and caring behind what you’re doing clearly and repeatedly. As you read in “Where I’m Coming From,” this was a large part of what compelled me to explain my principles. Your ability to see the changing landscape and adapt is more a function of your perception and reasoning than your ability to learn and process quickly. Don't avoid facing “harsh realities.” Insted, Face “harsh realities.” don't Worry about appearing good. Insted, Worry about achieving the goal. don't Make your decisions on the basis of first-order consequences. Insted, Make your decisions on the basis of first-, second-, and third-order consequences. don't Allow pain to stand in the way of progress. Insted, Understand how to manage pain to produce progress. don't Don’t hold yourself and others accountable. Insted, Hold yourself and others accountable. Use the 5-Step Process to Get What You Want Out of Life It seems to me that the personal evolutionary process, takes place in five distinct steps. If you can do those five things well, you will almost certainly be successful. Here they are in a nutshell: Have clear goals. Identify and don’t tolerate the problems that stand in the way of your achieving those goals. Accurately diagnose the problems to get at their root causes. Design plans that will get you around them. Do what’s necessary to push these designs through to results. First you have to pick what you are going after, your goals. Your choice of goals will determine your direction. As you move toward them, you will encounter problems. Some of those problems will bring you up against your own weaknesses. How you react to the pain that causes is up to you. If you want to reach your goals, you must be calm and analytical so that you can accurately diagnose your problems, design a plan that will get you around them, and do what’s necessary to push through to results. Then you will look at the new results you achieve and go through the process again. To evolve quickly, you will have to do this fast and continuously, setting your goals successively higher. You will need to do all five steps well to be successful and you must do them one at a time and in order. For example, when setting goals, just set goals. Don’t think about how you will achieve them or what you will do if something goes wrong. When you are diagnosing problems, don’t think about how you will solve them, just diagnose them. Blurring the steps leads to suboptimal outcomes because it interferes with uncovering the true problems. The process is iterative: Doing each step thoroughly will provide you with the information you need to move on to the next step and do it well.

It is essential that you approach this process in a clearheaded, rational way, looking down on yourself from a higher level and being ruthlessly honest. If your emotions are getting the better of you, step back and take time out until you can reflect clearly. If necessary, seek guidance from calm, thoughtful people. To help you stay centered and effective, pretend that your life is a martial art or a game, the object of which is to get around a challenge and reach a goal. Once you accept its rules, you’ll get used to the discomfort that comes with the constant frustration. You will never handle everything perfectly: Mistakes are inevitable and it’s impor-tant to recognize and accept this fact of life. The good news is that every mistake you make can teach you something, so there’s no end to learning. You’ll soon realize that excuses like “that’s not easy” or “it doesn’t seem fair” or even “I can’t do that” are of no value and that it pays to push through. So what if you don’t have all the skills you need to succeed? Don’t worry about it because that’s true for everyone. You just have to know when they are needed and where you can go to get them. With practice, you will eventually play this game with a calm unstoppable centeredness in the face of adversity. Your ability to get what you want will thrill you. Now let’s look at how to approach each of the five steps. Have clear goals. Prioritize: While you can have virtually anything you want, you can’t have everything you want. Life is like a giant smorgasbord with more delicious alternatives than you can ever hope to taste. Choosing a goal often means rejecting some things you want in order to get other things that you want or need even more. Some people fail at this point, before they’ve even started. Afraid to reject a good alternative for a better one, they try to pursue too many goals at once, achieving few or none of them. Don’t get discouraged and don’t let yourself be paralyzed by all the choices. You can have much more than what you need to be happy. Make your choice and get on with it. Don’t confuse goals with desires. A proper goal is something that you really need to achieve. Desires are things that you want that can prevent you from reaching your goals. Typically, desires are first-order consequences. For example, your goal might be physical fitness, while your desire is to eat good-tasting but unhealthy food. Don’t get me wrong, if you want to be a couch potato, that’s fine with me. You can pursue whatever goals you want. But if you don’t want to be a couch potato, then you better not open that bag of chips. Decide what you really want in life by reconciling your goals and your desires. Take passion, for example. Without passion, life would be dull; you wouldn’t want to live without it. But what’s key is what you do with your passion. Do you let it consume you and drive you to irrational acts, or do you harness it to motivate and drive you while you pursue your real goals? What will ultimately fulfill you are things that feel right at both levels, as both desires and goals. Don’t mistake the trappings of success for success itself. Achievement orientation is important, but people who obsess over a $1,200 pair of shoes or a fancy car are very rarely happy because they don’t know what it is that they really want and hence what will satisfy them. 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.

Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around. I wrote about key-man risk earlier, which applies the most to those with the largest areas of responsibility, especially the head of an organization. If that’s you, then you should designate the people who could replace you and have them do your job for a while so they can be vetted and tested. These results should be documented in a manual that the appropriate people can go to if you should be hit by a bus. If all the key people in the organization do this, you will have a strong “farm team,” or at least a clear understanding of vulnerabilities and a plan to deal with them. Remember that a ninja manager is somebody who can sit back and watch beauty happen, i.e., an orchestrator. If you are always trying to hire somebody who is as good as or better than you at your job, that will both free you up to go on to other things and build your succession pipeline. Beyond that, visualizing your replacement is an enlightening and productive experience. In addition to taking stock of what you are doing and coming up with both bad and good names, you will start to think about how to get your best people into slots that don’t yet exist. Knowing that you will have to test them by letting them do your job without interference, you will be motivated to train them properly before the test. And, of course, the stress-testing will help you learn and adapt, which will lead to better results. Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly. Double-checking has a much higher rate of errors than double-doing, which is having two different people do the same task so that they produce two independent answers. This not only ensures better answers but will allow you to see the differences in people’s performance and abilities. I use double-do’s in critical areas such as finance, where large amounts of money are at risk. And because an audit is only as effective as the auditor is knowledgeable, remember that a good double-check can only be done by someone capable of double-doing. If the person double-checking the work isn’t capable of doing the work himself, how could he possibly evaluate it accurately? Use consultants wisely and watch out for consultant addiction. Sometimes hiring an external consultant is the best fit for your design. Doing so can get you precisely the amount of specialized expertise you need to tackle a problem. When you can outsource you don’t have to worry about managing, and that’s a real advantage. If a position is part-time and requires highly specialized knowledge, I would prefer to have it done by consultants or outsiders. At the same time, you need to beware of the chronic use of consultants to do work that should be done by employees. This will cost you in the long run and erode your culture. Also make sure you are careful not to ask consultants to do things that they don’t normally do. They will almost certainly revert to doing things in their usual way; their own employers will demand that. When evaluating whether to use a consultant, consider the following factors: Quality Control. When someone doing work for you is an employee, you are responsible for the quality of their work. But when the person working for you works for another company, you’re operating by their standards, so it’s important to know whether their standards are as high or higher than yours. Economics. If a full-time person is required, it is almost certainly more cost-effective to create a position. Consultants’ daily rates add up to considerably more than the annualized cost of a full-time person. Institutionalization of Knowledge. Someone who is around your environment on an ongoing basis will gain knowledge and an appreciation of your culture that no outsider can. Security. Having outsiders do the job substantially increases your security risks, especially if you can’t see them at work (and monitor whether they follow proper precautions, like not leaving sensitive documents on their desks). You have to consider whether you should be outsourcing or developing capabilities in-house. Though temps and consultants are good for a quick fix, they won’t augment your capacities in the long term. Create an organizational chart to look like a pyramid, with straight lines down that don’t cross. The whole organization should look like a series of descending pyramids, but the number of layers should be limited to minimize hierarchy.

To be successful, all organizations must have checks and balances. By checks, I mean people who check on other people to make sure they’re performing well, and by balances, I mean balances of power. Even the most benevolent leaders are prone to becoming more autocratic, if for no other reason than because managing a lot of people and having limited time to do it requires them to make numerous difficult choices quickly, and they sometimes lose patience with arguments and issue commands instead. And most leaders are not so benevolent that they can be trusted to put the organization’s interests ahead of their own. Even in an idea-meritocracy, merit cannot be the only determining factor in assigning responsibility and authority. Appropriate vested interests also need to be taken into consideration. For example, the owners of a company might have vested interests that they are perfectly entitled to that might be at odds with the vested interests of the people in the company who, based on the idea-meritocracy, are most believable. That should not lead the owners to simply turn over the keys to those leaders. That conflict has to be worked out. Since the purpose of the idea-meritocracy is to produce the best results, and the owners have the rights and powers to assess that, of course they will make the determination, though I recommend they choose wisely. Make sure that no one is more powerful than the system or so important that they are irreplaceable. For an idea-meritocracy, it is especially important that its governance system is more powerful than any individual, and that it directs and constrains its leaders rather than the other way around. The Chinese leader Wang Qishan drew my attention to what happened in ancient Rome when Julius Caesar revolted against the government, defeated his fellow general Pompey, seized control of the Republic from the Senate, and named himself emperor for life. Even after he was assassinated and governance by the Senate was restored, Rome would never again be what it was; the era of civil strife that followed was more damaging than any foreign war. Beware of fiefdoms. While it’s great for teams and departments to feel a strong bond of shared purpose, loyalty to a boss or department head cannot be allowed to conflict with loyalty to the organization as a whole. Fiefdoms are counterproductive and contrary to the values of an idea-meritocracy. Make clear that the organization’s structure and rules are designed to ensure that its checks-and-balances system functions well. Every organization has its own way of doing this. The principles it follows, however, are universal; I believe that all organizations need some version of this basic structure. There are one to three chairmen working with seven to fifteen board members supported by staff, whose purpose is primarily to assess whether: The people running the company are capable; The company is operating in accordance with its agreed-upon principles and rules. The board has the power to select and replace the CEOs, but doesn’t engage in the micromanagement of the firm nor the people running it, though in the event of an emergency, they can drop into a more active role. (They can also help the CEOs to the extent they want it.) While Bridgewater’s idea-meritocracy is ideally all-inclusive, there need to be various circles of authority, trust and access to information, and decision-making authority. Make sure reporting lines are clear. While this is important throughout the organization, it is especially important that the reporting lines of the board (those doing the oversight) are independent of the reporting lines of the CEOs (those doing the management), though there should be cooperation between them. Make sure decision rights are clear. Make sure it’s clear how much weight each person’s vote has so that if a decision must be made when there is still disagreement, there is no doubt how to resolve it. Make sure that the people doing the assessing: have the time to be fully informed about how the person they are checking on is doing, have the ability to make the assessments, and are not in a conflict of interest that stands in the way of carrying out oversight effectively. In order to assess well, one has to gain a threshold level of understanding, and that takes time. Some people have the ability and the courage to hold people accountable, while most don’t; having such ability and courage is essential. And the person doing the assessment must not have conflicts of interest, such as being in a subordinate position to the person they are intended to check on, that stand in the way of holding them accountable, including recommending that they be fired.

Recognize that decision-makers must have access to the information necessary to make decisions and must be trustworthy enough to handle that information safely. That doesn’t mean that all people must have access and be trustworthy. It is possible to have subcommittees who have access to sensitive information and make recommendations to the board that are substantiated with enough information to make good judgments, but without disclosing the highly sensitive particulars. Remember that in an idea-meritocracy a single CEO is not as good as a great group of leaders. Dependence on one person produces too much key-man risk, limits the range of expertise (because nobody is good at everything), and fails to establish adequate checks and balances. It also creates a burden because there’s generally too much to do. That’s why we have a co-CEO model at Bridgewater that is essentially a partnership of two or three people who lead the firm. At Bridgewater the CEOs are overseen by a board largely via the executive chairman or chairmen. In our idea-meritocracy, the CEOs are also held accountable by the employees of the company, even though these employees are subordinate to the CEOs. The challenge of having two or three people is for them to dance well together. If they can’t do that, and coordinate well with the chairmen, they have to notify the executive chairman or chairmen so changes can be made. For the same reason we have more than one CEO overseeing management of the company, we have more than one chief investment officer (there are currently three). No governance system of principles, rules, and checks and balances can substitute for a great partnership. All these principles, rules, and checks and balances won’t be worth much if you don’t have capable people in positions of power who instinctually want to operate for the good of the community based on the agreed-upon principles. A company’s leaders must have wisdom, competence, and the ability to have close, cooperative, and effective working relationships characterized by both thoughtful disagreement and commitment to following through with whatever the idea-meritocratic process decides. We work with others to get three things: Leverage to accomplish our chosen missions in bigger and better ways than we could alone. Quality relationships that together make for a great community. Money that allows us to buy what we need and want for ourselves and others.

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. Don’t believe everything you hear. Opinions are a dime a dozen and nearly everyone will share theirs with you. Many will state them as if they are facts. Don’t mistake opinions for facts. Everything looks bigger up close. In all aspects of life, what’s happening today seems like a much bigger deal than it will appear in retrospect. That’s why it helps to step back to gain perspective and sometimes defer a decision until some time passes. New is overvalued relative to great. For example, when choosing which movie to watch or what book to read, are you drawn to proven classics or the newest big thing? In my opinion, it is smarter to choose the great over the new. Don’t over squeeze dots. A dot is just one piece of data from one moment in time; keep that in perspective as you synthesize. Just as you need to sort big from small and what’s happening in the moment from overall patterns, you need to know how much learning you can get out of any one dot without overweighing it. Synthesize the situation through time. To see how the dots connect through time you must collect, analyze, and sort different types of information, which isn’t easy. For example, let’s imagine a day in which eight outcomes occur. Some are good, some bad. People who are good at pulling out such patterns of events are rare and essential, but as with most abilities, synthesizing through time is only partially innate; even if you’re not good at it, you can get better through practice. You’ll increase your chances of succeeding at it if you follow the next principle. Keep in mind both the rates of change and the levels of things, and the relationships between them. When determining an acceptable rate of improvement for something, it is its level in relation to the rate of change that matters. I often see people lose sight of this. They say “it’s getting better” without noticing how far below the bar it is and whether the rate of change will get it above the bar in an acceptable amount of time. If someone who has been getting grades of 30s and 40s on their tests raised their scores to 50s over the course of a few months it would be accurate to say that they are getting better, but they would still be woefully inadequate. Everything important in your life needs to be on a trajectory to be above the bar and headed toward excellent at an appropriate pace.

When encountering your weaknesses you have four choices: You can deny them (which is what most people do). You can accept them and work at them in order to try to convert them into strengths (which might or might not work depending on your ability to change). You can accept your weaknesses and find ways around them. Or, you can change what you are going after. Which solution you choose will be critically important to the direction of your life. The worst path you can take is the first. Denial can only lead to your constantly banging up against your weaknesses, having pain, and not getting anywhere. The second, accepting your weaknesses while trying to turn them into strengths, is probably the best path if it works. But some things you will never be good at and it takes a lot of time and effort to change. The best single clue as to whether you should go down this path is whether the thing you are trying to do is consistent with your nature (i.e., your natural abilities). The third path, accepting your weaknesses while trying to find ways around them, is the easiest and typically the most viable path, yet it is the one least followed. The fourth path, changing what you are going after, is also a great path, though it requires flexibility on your part to get past your preconceptions and enjoy the good fit when you find it. 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. Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence. I know that my own life has been full of mistakes and lots of great feedback. It was only by looking down on this body of evidence from a higher level that I was able to get around my mistakes and go after what I wanted. For as long as I have been practicing this, I still know I can’t see myself objectively, which is why I continue to rely so much on the input of others. If you are open-minded enough and determined, you can get virtually anything you want. So I certainly don’t want to dissuade you from going after whatever you want. At the same time, I urge you to reflect on whether what you are going after is consistent with your nature. Whatever your nature is, there are many paths that will suit you, so don’t fixate on just one. Should a particular path close, all you have to do is find another good one consistent with what you’re like. (You’ll learn a lot about how to determine what you’re like later, in Understand That People Are Wired Very Differently.) But most people lack the courage to confront their own weaknesses and make the hard choices that this process requires. Ultimately, it comes down to the following five decisions: Don’t confuse what you wish were true with what is really true. Don’t worry about looking good, worry instead about achieving your goals. Don’t overweight first-order consequences relative to second and third-order ones. Don’t let pain stand in the way of progress. Don’t blame bad outcomes on anyone but yourself. I’m sure Transcendental Meditation, which I have been practicing regularly for nearly half a century, helped provide me with the equanimity I needed to approach my challenges this way. 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. 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.

Remember that there is no sense in having laws unless you have policemen (auditors). Beware of rubber-stamping. Recognize that people who make purchases on your behalf probably will not spend your money wisely. Use “public hangings” to deter bad behavior. Have the clearest possible reporting lines and delineations of responsibilities. Assign responsibilities based on workflow design and people’s abilities, not job titles. Constantly think about how to produce leverage. Recognize that it is far better to find a few smart people and give them the best technology than to have a greater number of ordinary people who are less well equipped. Use leveragers. Remember that almost everything will take more time and cost more money than you expect. Do What You Set Out to Do Work for goals that you and your organization are excited about and think about how your tasks connect to those goals. Be coordinated and consistent in motivating others. Don’t act before thinking. Take the time to come up with a game plan. Look for creative, cut-through solutions. Recognize that everyone has too much to do. Don’t get frustrated. Use checklists. Don’t confuse checklists with personal responsibility. Allow time for rest and renovation. Ring the bell. Use Tools and Protocols to Shape How Work Is Done Having systemized principles embedded in tools is especially valuable for an idea-meritocracy. To produce real behavioral change, understand that there must be internalized or habitualized learning. Use tools to collect data and process it into conclusions and actions. Foster an environment of confidence and fairness by having clearly-stated principles that are implemented in tools and protocols so that the conclusions reached can be assessed by tracking the logic and data behind them. And for Heaven’s Sake, Don’t Overlook Governance! To be successful, all organizations must have checks and balances. Even in an idea-meritocracy, merit cannot be the only determining factor in assigning responsibility and authority. Make sure that no one is more powerful than the system or so important that they are irreplaceable. Beware of fiefdoms. 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 have the time to be fully informed about how the person they are checking on is doing, have the ability to make the assessments, and 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. Those principles and values aren’t vague slogans, like “the customer always comes first” or “we should strive to be the best in our industry,” but a set of concrete directives anyone can understand, get aligned on, and carry out. As we shift our attention from Life Principles to Work Principles, I will explain how we went about achieving these alignments at Bridgewater and how that affected our results. But first, I want to explain how I think about organizations. An organization is a machine consisting of two major parts: culture and people. Each influences the other, because the people who make up an organization determine the kind of culture it has, and the culture of the organization determines the kinds of people who fit in.

Since the relative importance of these three things varies by person, it is up to you to determine the quantities and mix you want. The important thing to realize is that they are mutually supportive. If you want to accomplish your mission, you will be better off having quality relationships with people committed to that mission and financial resources to put behind it. Similarly, if you want to have a great work community, you will need a shared mission and financial resources to support you, and if you want to make the most money possible, you will need clear goals and tight relationships to achieve them. In my life, I have been lucky to have much more of all three of these than I could have ever imagined. I have tried to convey the approach that worked for me, an idea-meritocracy in which meaningful work and meaningful relationships are the goals and radical truth and radical transparency are the ways of achieving them, so that you can decide what, if any of it, is of use to you. Recognizing that I gave you a pile of principles that could be confusing, I want to make sure that the headline I’m trying to get across comes through. It is that of all approaches to decision-making, an idea-meritocracy is the best. It’s almost too obvious to warrant saying, but I will anyway: Knowing what you can and cannot expect from each person and knowing what to do to make sure the best ideas win out are the best way to make decisions. Idea-meritocratic decision-making is better than traditional autocratic or democratic decision-making in almost all cases. That’s not just theory. While there is no such thing as utopia just like there is no such thing as perfect, there is great, and there isn’t much doubt that the results of this idea-meritocratic approach have been pretty great for Bridgewater for more than forty years. Because this approach can work equally well in most organizations, I wanted to lay it out clearly and in detail. While you needn’t follow this idea-meritocratic approach exactly as I’ve done it, the big question is: Do you want to work in an idea-meritocracy? If so, what is the best way for you to do that? An idea-meritocracy requires people to do the following: Put their honest thoughts on the table for everyone to see, Have thoughtful disagreements where there are quality back-and-forths in which people evolve their thinking to come up with the best collective answers possible, and Abide by idea-meritocratic ways of getting past the remaining disagreements (such as believability-weighted decision-making). While an idea-meritocracy doesn’t have to operate exactly in any particular way, it does have to by and large follow those three steps. Don’t worry about remembering all the particular principles that I gave you in this book. Just go after having an idea-meritocracy and figure out what works for you by encountering your trade-offs and coming up with your principles for handling them. In my case, I wanted meaningful work and meaningful relationships, and I believed that being radically truthful and radically transparent were required to get those. Then I went after them and encountered problems that forced me to make choices. By writing down how I made these choices, I was able to flesh out my principles, which led me to shape Bridgewater’s idea-meritocracy with the people I worked with so that it would work well for us. As you set out on your own and encounter your own impediments, you might want to refer back to these principles because chances are that I’ve encountered many of the same impediments, did my wrestling with how to handle them, and laid out my thinking in principles. And then write down your own. Of course, people’s abilities to influence how their group works vary, and I don’t know your circumstances. But I do know that if you want to work in an idea-meritocratic way, you can find your own way of doing that. Maybe it will be by helping shape your organization from the top, maybe it will be by choosing the right organization for you, and maybe it will be by simply dealing with the people you work with in an idea-meritocratic way. No matter your position, you can always practice being open-minded and assertive at the same time, and thinking about your and others’ believabilities when deciding what to do. Above all else, my wishes for you are that: You can make your work and your passion one and the same; You can struggle well with others on your common mission to produce the previously mentioned rewards; You can savor both your struggles and your rewards, lastly you will evolve quickly and contribute to evolution in significant ways.

Imagine a world in which you can use technology to connect to a system in which you can input the issue you’re dealing with and have exchanges about what you should do and why with the highest-rated thinkers in the world. We’ll soon be able to do this. Before too long, you will be able to tap the highest-quality thinking on nearly every issue you face and get the guidance of a computerized system that weighs different points of view. For example, you will be able to ask what lifestyle or career you should choose given what you’re like, or how to best interact with specific people based on what they’re like. These innovations will help people get out of their own heads and unlock an incredibly powerful form of collective thinking. We are doing this now and have found it way better than traditional thinking. While this kind of view often leads to talk of artificial intelligence competing with human intelligence, in my opinion human and artificial intelligence are far more likely to work together because that will produce the best results. It’ll be decades, and maybe never, before the computer can replicate many of the things that the brain can do in terms of imagination, synthesis, and creativity. That’s because the brain comes genetically programmed with millions of years of abilities honed through evolution. The “science” of decision-making that underlies many computer systems remains much less valuable than the “art.” People still make the most important decisions better than computers do. To see this, you need look no further than at the kinds of people who are uniquely successful. Software developers, mathematicians, and game-theory modelers aren’t running away with all the rewards; it is the people who have the most common sense, imagination, and determination. Only human intelligence can apply the interpretations that are required to provide computer models with appropriate input. For example, a computer can’t tell you how to weigh the value of the time you spend with your loved ones against the time you spend at work or the optimal mix of hours that will provide you with the best marginal utilities for each activity. Only you know what you value most, who you want to share your life with, what kind of environment you want to be in, and ultimately how to make the best choices to bring those things about. What’s more, so much of our thinking comes from the subconscious in ways we don’t understand, that thinking we can model it fully is as unlikely as an animal that has never experienced abstract thinking attempting to define and replicate it. Yet at the same time, the brain cannot compete with the computer in many ways. Computers have much greater “determination” than any person, as they will work 24/7 for you. They can process vastly more information, and they can do it much faster, more reliably, and more objectively than you could ever hope to. They can bring millions of possibilities that you never thought of to your attention. Perhaps most important of all, they are immune to the biases and consensus-driven thinking of crowds; they don’t care if what they see is unpopular, and they never panic. During those terrible days after 9/11, when the whole country was being whipsawed by emotion, or the weeks between September 19 and October 10, 2008, when the Dow fell 3,600 points, there were times I felt like hugging our computers. They kept their cool no matter what. This combination of man and machine is wonderful. The process of man’s mind working with technology is what elevates us, it’s what has taken us from an economy where most people dig in the dirt to today’s Information Age. It’s for that reason that people who have common sense, imagination, and determination, who know what they value and what they want, and who also use computers, math, and game theory, are the best decision-makers there are. At Bridgewater, we use our systems much as a driver uses a GPS in a car: not to substitute for our navigational abilities but to supplement them. Be cautious about trusting AI without having deep understanding. I worry about the dangers of AI in cases where users accept, or, worse, act upon, the cause-effect relationships presumed in algorithms produced by machine learning without understanding them deeply. Before I explain why, I want to clarify my terms. “Artificial intelligence” and “machine learning” are words that are thrown around casually and often used as synonyms, even though they are quite different. I categorize what is going on in the world of computer-aided decision-making under three broad types: expert systems, mimicking, and data mining (these categories are mine and not the ones in common use in the technology world).

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. And 3 to 5 is more than 20. When you have alignment, cherish it. If you find you can’t reconcile major differences, especially in values, consider whether the relationship is worth preserving. Believability Weight Your Decision-making Recognize that having an effective idea-meritocracy requires that you understand the merit of each person’s ideas. If you can’t successfully do something, don’t think you can tell others how it should be done. Remember that everyone has opinions and they are often bad. Find the most believable people possible who disagree with you and try to understand their reasoning. Think about people’s believability in order to assess the likelihood that their opinions are good. Remember that believable opinions are most likely to come from people who have successfully accomplished the thing in question at least three times, and those who have great explanations of the cause-effect relationships that lead them to their conclusions. If someone hasn’t done something but has a theory that seems logical and can be stress-tested, then by all means, test it. Don’t pay as much attention to people’s conclusions as to the reasoning that led them to their conclusions. Inexperienced people can have great ideas, too, sometimes far better ones than more experienced people. Everyone should be up-front in expressing how confident they are in their thoughts. Think about whether you are playing the role of a teacher, a student, or a peer and whether you should be teaching, asking questions, or debating. It’s more important that the student understand the teacher than that the teacher understand the student, though both are important. 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. Understand how people came by their opinions. If you ask someone a question, they will probably give you an answer, so think through to whom you should address your questions. Having everyone randomly probe everyone else is an unproductive waste of time. Beware of statements that begin with “I think that...” Assess believability by systematically capturing people’s track records over time. Disagreeing must be done efficiently. Know when to stop debating and move on to agreeing about what should be done. Use believability weighting as a tool rather than a substitute for decision-making by Responsible Parties. Since you don’t have the time to thoroughly examine everyone’s thinking yourself, choose your believable people wisely. When you’re responsible for a decision, compare the believability-weighted decision-making of the crowd to what you believe. Recognize that everyone has the right and responsibility to try to make sense of important things. Communications aimed at getting the best answer should involve the most relevant people. Communication aimed at educating or boosting cohesion should involve a broader set of people than would be needed if the aim were just getting the best answer. Recognize that you don’t need to make judgments about everything. Pay more attention to whether the decision-making system is fair than whether you get your way. Recognize How to Get Beyond Disagreements Remember: Principles can’t be ignored by mutual agreement. The same standards of behavior apply to everyone.

Realize that you are simultaneously everything and nothing, and decide what you want to be. What you will be will depend on the perspective you have. Understand nature’s practical lessons. Maximize your evolution. Remember “no pain, no gain.” It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful. Pain + Reflection = Progress. Go to the pain rather than avoid it. Embrace tough love. Weigh second and third-order consequences. Own your outcomes. Look at the machine from the higher level. Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes. By comparing your outcomes with your goals, you can determine how to modify your machine. Distinguish between you as the designer of your machine and you as a worker with your machine. The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again. Successful people are those who can go above themselves to see things objectively and manage those things to shape change. Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing. Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence. If you are open-minded enough and determined, you can get virtually anything you want. Use the 5-step process to get what you want out of life Have clear goals. Prioritize: While you can have virtually anything you want, you can’t have everything you want. Don’t confuse goals with desires. Decide what you really want in life by reconciling your goals and your desires. Don’t mistake the trappings of success for success itself. Never rule out a goal because you think it’s unattainable. Remember that great expectations create great capabilities. Almost nothing can stop you from succeeding if you have both flexibility and self-accountability. Knowing how to deal well with your setbacks is as important as knowing how to move forward. Identify and don’t tolerate problems. View painful problems as potential improvements that are screaming at you. Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at. Be specific in identifying your problems. Don’t mistake a cause of a problem with the real problem. Distinguish big problems from small ones. Once you identify a problem, don’t tolerate it. Diagnose problems to get at their root causes. Focus on the “what is” before deciding “what to do about it.” Distinguish proximate causes from root causes. Recognize that knowing what someone (including you) is like will tell you what you can expect from them. Design a plan. Go back before you go forward. Think about your problem as a set of outcomes produced by a machine. Remember that there are typically many paths to achieving your goals. Think of your plan as being like a movie script in that you visualize who will do what through time. Write down your plan for everyone to see and to measure your progress against. Recognize that it doesn’t take a lot of time to design a good plan. 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.

Remember that in great partnerships, consideration and generosity are more important than money. Someone who doesn’t have much can be more generous giving a little than a rich person giving a lot. Some people respond to the generosity while others respond to the money. You want the first type with you, and you always want to treat them generously. When I had nothing, I was as generous as I could be with people who appreciated my generosity more than the higher levels of compensation others could afford to give them. For that reason, they stayed with me. I never forgot that, and I made a point of making them rich when I had the opportunity to do so. And they in turn were generous to me in their own way when I needed their generosity most. We both got something much more valuable than money, and we got the money too. Remember that the only purpose of money is to get you what you want, so think hard about what you value and put it above money. How much would you sell a good relationship for? There’s not enough money in the world to get you to part with a valued relationship. Be generous and expect generosity from others. If you’re not generous with others and others aren’t generous with you, you won’t have a quality relationship. Great people are hard to find so make sure you think about how to keep them. Make sure you’re following the suggestions made earlier, like building meaningful relationships and constantly getting in sync. Most importantly, you have to encourage people to speak up about how things are going for them. Ensuring that their personal development is proceeding appropriately is important too. Close advice from an active mentor should last at least one year. When you know what someone is like, you know what you can expect from them.

While I spend most of my time studying the realities that affect me most directly, those that drive economies, the markets, and the people I deal with, I also spend time in nature and can’t help reflecting on how it works by observing, reading, and speaking with some of the greatest specialists on the subject. I’ve found it both interesting and valuable to observe which laws we humans have in common with the rest of nature and which differentiate us. Doing that has had a big impact on my approach to life. First of all, I see how cool it is that the brain’s evolution gave us the ability to reflect on how reality works in this way. Man’s most distinctive quality is our singular ability to look down on reality from a higher perspective and synthesize an understanding of it. While other species operate by following their instincts, man alone can go above himself and look at himself within his circumstances and within time (including before and after his existence). For example, we can ponder the ways that nature’s flying machines, swimming machines, and billions of other machines, from the microscopic to the cosmic, interact with one another to make up a working whole that evolves through time. This is because the evolution of the brain gave man a much more developed neocortex, which gives us the power to think abstractly and logically. While our higher-level thinking makes us unique among species, it can also make us uniquely confused. Other species have much simpler and more straightforward lives, without any of man’s wrestling with what’s good and what’s bad. In contrast with animals, most people struggle to reconcile their emotions and their instincts (which come from the animal parts of their brains) with their reasoning (which comes from parts of the brain more developed in humans). This struggle causes people to confuse what they want to be true with what actually is true. Let’s look at this dilemma to try to understand how reality works. 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. If you just looked at one species, ducks, for example, to try to understand the universal laws, you’d fail. Similarly, if you just looked at mankind to understand the universal laws, you’d fail. Man is just one of ten million species and just one of the billions of manifestations of the forces that bring together and take apart atoms through time. Yet most people are like ants focused only on themselves and their own anthill; they believe the universe revolves around people and don’t pay attention to the universal laws that are true for all species.

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. 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. 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. Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value. Let’s say the reward for being right is $100 and its probability is 60 percent, while the penalty for being wrong is also $100. If you multiply the reward by the probability of being right you get $60 and if you multiply the penalty by the probability of being wrong (40 percent) you get $40. If you subtract the penalty from the reward, the difference is the expected value, which in this case is positive (+$20). Once you understand expected value, you also understand that it’s not always best to bet on what’s most probable. For example, suppose something that has only a one-in-five chance (20 percent) of succeeding will return ten times (e.g., $1,000) the amount that it will cost you if it fails ($100). Its expected value is positive ($120), so it’s probably a smart decision, even though the odds are against you, as long as you can also cover the loss. Play these probabilities over and over again and they will surely give you winning results over time.

Fail well. Everyone fails. Anyone you see succeeding is only succeeding at the things you’re paying attention to, I guarantee they are also failing at lots of other things. The people I respect most are those who fail well. I respect them even more than those who succeed. That is because failing is a painful experience while succeeding is a joyous one, so it requires much more character to fail, change, and then succeed than to just succeed. 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. Don’t feel bad about your mistakes or those of others. Love them! People typically feel bad about their mistakes because they think in a shortsighted way about the bad outcome and not about the evolutionary process of which mistakes are an integral part. I once had a ski instructor who had also given lessons to Michael Jordan, the greatest basketball player of all time. Jordan, he told me, reveled in his mistakes, seeing each of them as an opportunity to improve. He understood that mistakes are like those little puzzles that, when you solve them, give you a gem. Every mistake that you make and learn from will save you from thousands of similar mistakes in the future. Don’t worry about looking good, worry about achieving your goals. 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. Because these moments of pain are so important, you shouldn’t rush through them. Stay in them and explore them so you can build a foundation for improvement. Embracing your failures, and confronting the pain they cause you and others, is the first step toward genuine improvement; it is why confession precedes forgiveness in many societies. Psychologists call this “hitting bottom.” If you keep doing this you will convert the pain of facing your mistakes and weaknesses into pleasure and “get to the other side” as I explained in Embrace Reality and Deal with It. Be self-reflective and make sure your people are self-reflective. When there is pain, the animal instinct is flight-or-fight. Calm yourself down and reflect instead. The pain you are feeling is due to things being in conflict, maybe you’ve come up against a terrible reality, such as the death of a friend, and are unable to accept it; maybe you’ve been forced to acknowledge a weakness that challenges the idea you’d had of yourself. If you can think clearly about what’s behind it, you will learn more about what reality is like and how to better deal with it. Self-reflectiveness is the quality that most differentiates those who evolve quickly from those who don’t. Remember: Pain + Reflection = Progress.

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. Plan for the worst-case scenario to make it as good as possible. Recognize the signs of closed-mindedness and open-mindedness that you should watch out for. Understand how you can become radically open-minded. Regularly use pain as your guide toward quality reflection. Make being open-minded a habit. Get to know your blind spots. If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased. Meditate. Be evidence-based and encourage others to be the same. Do everything in your power to help others also be open-minded. Use evidence-based decision-making tools. Know when it’s best to stop fighting and have faith in your decision-making process. Understand That People Are Wired Very Differently Understand the power that comes from knowing how you and others are wired. We are born with attributes that can both help us and hurt us, depending on their application. Meaningful work and meaningful relationships aren’t just nice things we chose for ourselves, they are genetically programmed into us. Understand the great brain battles and how to control them to get what “you” want. Realize that the conscious mind is in a battle with the subconscious mind. Know that the most constant struggle is between feeling and thinking. Reconcile your feelings and your thinking. Choose your habits well. Train your “lower-level you” with kindness and persistence to build the right habits. Understand the differences between right-brained and left-brained thinking. Understand how much the brain can and cannot change. Workplace Personality Inventory. Shapers are people who can go from visualization to actualization. Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish. Manage yourself and orchestrate others to get what you want. Learn How to Make Decisions Effectively Recognize that the biggest threat to good decision-making is harmful emotions, and decision-making is a two-step process (first learning and then deciding). Synthesize the situation at hand. One of the most important decisions you can make is who you ask questions of. Don’t believe everything you hear. Everything looks bigger up close. New is overvalued relative to great. Don’t oversqueeze dots. Synthesize the situation through time. Keep in mind both the rates of change and the levels of things, and the relationships between them. Be imprecise. Remember the 80/20 Rule and know what the key 20 percent is. Be an imperfectionist. Navigate levels effectively. Use the terms “above the line” and “below the line” to establish which level a conversation is on. Remember that decisions need to be made at the appropriate level, but they should also be consistent across levels. Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it. Make your decisions as expected value calculations. Raising the probability of being right is valuable no matter what your probability of being right already is. Knowing when not to bet is as important as knowing what bets are probably worth making. The best choices are the ones that have more pros than cons, not those that don’t have any cons at all. Prioritize by weighing the value of additional information against the cost of not deciding. All of your “must-dos” must be above the bar before you do your “like-to-dos.”

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. Workplace Personality Inventory. Another assessment we use is the Workplace Personality Inventory, a test based on data from the U.S. Department of Labor. It anticipates behavior and predicts job fit and satisfaction, singling out certain key characteristics/qualities, including persistence, independence, stress tolerance, and analytical thinking. This test helps us understand what people value and how they will make trade-offs between their values. For example, someone with low Achievement Orientation and high Concern for Others might be unwilling to step on others’ toes in order to accomplish their goals. Likewise, someone who is bad at Rule Following may be more likely to think independently. We have found that something like twenty-five to fifty attributes can pretty well describe what a person is like. Each one comes in varying degrees of strength (like color tones). If you know what they are and put them together correctly, they will paint a pretty complete picture of a person. Our objective is to use test results and other information to try to do just that. We prefer to do it in partnership with the person being looked at, because it helps us be more accurate and at the same time it’s very helpful to them to see themselves objectively. Certain attributes combine frequently to produce recognizable archetypes. If you think about it, you can probably come up with a handful of archetypal people you meet over and over again in life: the spacey, impractical Artist; the tidy Perfectionist; the Crusher who runs through brick walls to get things done; the Visionary who pulls amazing big ideas seemingly out of the air. Over time I came up with a list of others, including Shaper, Chirper, Tweaker, and Open-Minded Learner, as well as Advancer, Creator, Cat-Herder, Gossiper, Loyal Doer, Wise Judge, and others. To be clear, archetypes are less useful than the better fleshed-out pictures created through the assessments. They are not precise; they are more like simple caricatures, but they can be useful when it comes to assembling teams. Individual people will always be more complex than the archetypes that describe them, and they may well match up with more than one. For example, the Spacey Artist may or may not also be a Perfectionist or may be a Crusher too. While I won’t go over all of them, I will describe Shapers, the one that best represents me, in some depth. Shapers are people who can go from visualization to actualization. I wrote a lot about the people I call “shapers” in the first part of this book. I use the word to mean someone who comes up with unique and valuable visions and builds them out beautifully, typically over the doubts of others. Shapers get both the big picture and the details right. To me, it seems that Shaper = Visionary + Practical Thinker + Determined.

If you agree that a real idea-meritocracy is an extremely powerful thing, it should not be a great leap for you to see that giving people the right to see things for themselves is better than forcing them to rely on information processed for them by others. Radical transparency forces issues to the surface, most importantly (and most uncomfortably) the problems that people are dealing with and how they’re dealing with them, and it allows the organization to draw on the talents and insights of all its members to solve them. Eventually, for people who get used to it, living in a culture of radical transparency is more comfortable than living in the fog of not knowing what’s going on and not knowing what people really think. And it is incredibly effective. But, to be clear, like most great things it also has drawbacks. Its biggest drawback is that it is initially very difficult for most people to deal with uncomfortable realities. If unmanaged, it can lead to people getting involved with more things than they should, and can lead people who aren’t able to weigh all the information to draw the wrong conclusions. For example, bringing all an organization’s problems to the surface and regarding every one of them as intolerable may lead some people to wrongly conclude that their organization has more intolerable problems than another organization that keeps its issues under wraps. Yet which organization is more likely to achieve excellence? One that highlights its problems and considers them intolerable or one that doesn’t? 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. I didn’t know for sure at the time, but our experience has proven this theory correct time and again. Bridgewater has had uncommonly few legal or regulatory encounters, largely because of our radical transparency. That’s because it’s tougher to do bad things and easier to find out what’s true and resolve claims through radical transparency. Over the last several decades, we have not had a single material legal or regulatory judgment against us. Naturally, growing bigger and more successful attracts more media attention, and reporters know that salacious and controversial stories draw more eyeballs than balanced ones. Bridgewater is especially vulnerable to this kind of reporting because, with our culture of bringing problems to the surface and sharing them transparently within the company, we leave ourselves open to leaks. Would it be better not to be transparent and so avoid such problems? I’ve learned that the people whose opinions matter most are those who know us best, our clients and our employees, and that our radical transparency serves us well with them. Not only has it led to our producing better results, but it also builds trust with our employees and clients so that mischaracterizations in the press roll off their backs. When we discuss such situations with them, they say that for us to not operate transparently would scare them much more. Having this sort of understanding and support to do the right things has been immeasurably valuable. But we wouldn’t have known about these great payoffs if we hadn’t so steadfastly pushed the limits of this truth and transparency.

To give you an idea of how Bridgewater’s culture developed and how it’s different from what you’d find at most companies, I will tell you about how we handled benefits in our early days. When the company was just me and a small group of people, I didn’t provide employees with health insurance; I assumed that they would buy it on their own. But I did want to help the people I shared my life with during their times of need. If someone I worked with got seriously sick and couldn’t afford proper care, what was I going to do, stand by and not help them? Of course I’d help them financially, to whatever extent I could. So when I did begin providing health insurance to my employees, I felt that I was insuring myself against the money I knew I’d give them if they were injured or fell ill as much as I was insuring them. Because I wanted to make certain that they received the best care possible, the policies I provided allowed them to go to any doctor they chose and spend whatever amount was required. On the other hand, I didn’t protect them against the little things. For example, I didn’t provide dental insurance any more than I provided car insurance, because I felt that it was their own responsibility to protect their teeth, just as it was their own responsibility to take care of their car. If they needed dental insurance, they could pay for it out of their own pocket. My main point is that I didn’t approach benefits in the impersonal, transactional way most companies do, but more like something I provided for my family. I was more than generous with some things and expected people to take personal responsibility for others. When I treated my employees like extended family, I found that they typically behaved the same way with each other and our community as a whole, which was much more special than having a strictly quid pro quo relationship. I can’t tell you how many people would do anything in their power to help our community/company and wouldn’t want to work anywhere else. This is invaluable. As Bridgewater grew, my ability to have quality personal contact with everyone faded, but this wasn’t a problem because the broader community embraced this way of being with each other. This didn’t just happen; we did a lot to help it along. For example, we put into place a policy that we would pay for half of practically any activities that people want to do together up to a set cap (we now support more than a hundred clubs and athletic and common-interest groups); we paid for food and drink for those who hosted potluck dinners at their houses; and we bought a house that employees can use for events and celebrations. We have Christmas, Halloween, Fourth of July, and other parties that often include family members. Eventually, others who valued this kind of relationship took responsibility for it and it spread to become a cultural norm so that I could just sit back and watch beauty happen. What about the person who doesn’t give a damn about all of this meaningful relationship stuff, who just wants to go into work, do a good job, and receive fair compensation? Is that okay? Sure it is, and it’s common for a significant percentage of employees. Not everyone feels the same or is expected to feel the same about the community. It’s totally okay to opt out. We have all sorts of people and respect whatever they want to do on their own time, as long as they abide by the law and are considerate. But these are not the folks who will provide the community with the skeletal strength of commitment that is essential for it to be extraordinary over very long periods of time. 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.

Don’t hide your observations about people. Explore them openly with the goal of figuring out how you and your people are built so that the right people can be put in the right jobs. Build your synthesis from the specifics up. By synthesizing, I mean converting a lot of data into an accurate picture. Too many people make assessments of people without connecting them to specific data. When you have all the specifics that we have at Bridgewater, the dots, meeting tapes, etc., you can and must work from the specifics up and see the patterns in the data. Even without such tools, other data such as metrics, testing, and the input of others can help you form a more complete picture of what the person is like, as well as examine what they did. Squeeze the dots. Every observation of a person potentially tells you something valuable about how they operate. As I explained earlier, I call these observations “dots.” A dot is a piece of data that’s paired with your inference about what it means, a judgment about what someone might have decided, said, or thought. Most of the time we make these inferences and judgments implicitly and keep them to ourselves, but I believe that if they are collected systematically and put into perspective over time, they can be extremely valuable when it’s time to step back and synthesize the picture of a person. Don’t oversqueeze a dot. Remember: A dot is just a dot; what matters is how they add up. Think of each individual dot as an at-bat in baseball. Even great hitters are going to strike out many times, and it would be foolish to evaluate them based on one trip to the plate. That’s why stats like on-base percentage and batting average exist. In other words, any one event has many different possible explanations, whereas a pattern of behavior can tell you a lot about root causes. The number of observations needed to detect a pattern largely depends on how well you get in sync after each observation. A quality discussion of how and why a person behaved a certain way should help you understand the larger picture. Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance. It’s hard to have an objective, open-minded, emotion-free conversation about performance if there is no data to discuss. It’s also hard to track progress. This is part of the reason I created the Dot Collector. I also recommend thinking about other ways that people’s responsibilities can be put in metrics. One example: You can have people note whether they did or didn’t do things on checklists, which you can then use to calculate what percentage of tasks they complete. Metrics tell us whether things are going according to plan, they are an objective means of assessment and they improve people’s productivity. Make the process of learning what someone is like open, evolutionary, and iterative. Articulate your assessment of a person’s values, abilities, and skills up front and share it; listen to their and others’ responses to your description; organize a plan for training and testing; and reassess your conclusions based on the performance you observe. Do this on an ongoing basis. After several months of discussions and real-world tests, you and your report should both have a pretty good idea of what he or she is like. Over time this exercise will crystallize suitable roles and appropriate training or it will reveal that it’s time for the person to find a more appropriate job somewhere else.