No matter our life situation, we all face problems which require a decision to be made. These decisions may be made in a split second or take weeks worth of deliberating. They may be trivial and minor or even life and death. Having guiding principles for making decisions eliminates much of the unnecessary stress and confusion caused by these choices.
Many of these decisions are very common, and we do not realize the number of times they reappear throughout life. Some examples of these common decisions may include what we should eat for dinner, whether to wear a jacket or not, and if we should watch a show on television or a new movie. Other decisions are more complicated, requiring much thought as to what our final decision will be. More complex decisions may include whether we buy or rent our living space, if we stay at our current job or leave and move on to another career, and whether we will get married and have children.
While some of these decisions seem hard, they are actually incredibly easy and unimportant when compared to larger, more important decisions. By having a set of principles used to make decisions, the decision-making process is simplified and, in a way, computerized. These principles act as a system of checks in which we progress through a list in our minds (or on paper/in a computer) and see whether the requirements have been met for us to continue with a “yes” or “no” answer as to our choice.
Ray Dalio was born in 1949 to a middle-class family from New York, and was raised as a very average child in a very average family. A “normal” child, he was far more worried about spending time outside with his friends than he was about his grades in school.
Another characteristic which contributed to Dalio’s childhood was an incredibly strong desire to study things which interested him, coupled with a strong dislike for anything he found boring. As a teenager, Dalio found that one of the topics he was interested in was investments and the stock market. For work, he would caddy at a local golf course in order to save up enough money to buy stocks in companies, purchasing shares in companies whose names he recognized.
After finishing high school, Dalio enrolled at a local college called C.W. Post, majoring in finance (once again, because this was a topic of interest to him). The idea of studying subjects which are most interesting to you was new to this recent high school graduate, and this led Dalio’s grades to rise from C’s (in high school) up to mostly all A’s (in college).
Harvard Business School
Earning such high marks gained Dalio admittance into Harvard Business School, and in the summer before enrolling he worked on the floor of the New York Stock Exchange. While working as a clerk, the United States was in the beginning stages of a currency devaluation, a topic which Dalio found intriguing. As you might guess, he then spent the rest of the summer studying this topic and learning all that he could about the history of everything related to currencies before beginning at Harvard Business School that fall.
After his first year at Harvard Business School, Dalio began working during the summers at trading commodities, which can be simplified by being described as physical products (i.e. oil, gold, agricultural products, etc.). This background in commodities was very unusual for a Harvard Business School graduate, and led Dalio to begin work as the head of commodities at a brokerage firm upon completion of his studies. After some time at the firm, he then moved on to a larger firm, working in futures hedging for them for roughly one year. After the completion of his employment with the firm, he started the company he is best known for: Bridgewater Associates.
In the early days of Bridgewater, Dalio began creating the computer models which eventually helped in making him incredibly successful. For example, we will consider the commodity of beef, or cows. He would study how many cows were being raised, how much food they ate, what types of food they were being fed, how fast they were growing, etc. Dalio would then use all of this information to estimate the amount of beef coming to the market, as well as the amount of corn (or other sources of food for cattle) would be coming to the market. This information allowed him to have a better idea of how to best invest in these various commodities. After working through the math and predictions, he would then input the information into a computer for future use, allowing him to make the best, most informed decisions possible.
From a young age, Ray Dalio realized that there was more to life than simply making money. He believes that in life, it is far more important to have meaningful work and friendships than it is to simply make lots of money. He puts it this way: money has value, but only in the respect that it can buy things (but it can never buy everything). While money might be a tool used to help on your path to reaching your goals, it is much better to begin working towards what your true goals are (quality friendships, comfortable family, etc.) and to use money to help you in the quest of those goals.
Going back to his computerized principles, Dalio emphasizes the importance of writing down your principles and rules. By having them written down, it forces you to think through decisions you are making, and to compare them against your principles and past decisions which are then laid out in front of you. This, in time, creates a detailed history of decisions you have made, many of which will apply (at least in part) to the decisions you are making today, and will aid you in making the best choice possible based on the vast amounts of information you will have.
This leads us to one of Dalio’s fundamental lessons in Principles, one which we have already mentioned: we need to think through what our principles are in our decision-making process, write them out on paper and create computerized algorithms for them, use historical (or personal) data to test them, and use them to actively guide us in our current decisions.
After a few more years passed in his time building Bridgewater Associates, Dalio used his principles to make a decision on whether he should continue running both Bridgewater and Bridgewater China Partners (another company which he had created early on in his career). He ultimately decided to only pursue Bridgewater, and provided readers with key wisdom on how he made his decision. Dalio learned that if someone works very hard and uses their creativity, they can have almost anything they desire, but not everything. Maturity, says Dalio, is what gives you the wisdom to pursue incredible opportunities instead of good opportunities.
As a well-known businessman, Dalio has been (and still is) fortunate to meet many world leaders throughout his life. One such leader, Lee Kuan Yew of Singapore, taught Dalio the importance of viewing things through another person’s perspective. This is why Lee told Dalio that he thought Vladimir Putin is doing a good job of leading Russia, because of the difficulty of the situations with which he must deal.
The lessons and meetings which Dalio had in these early days helped shape the foundation of some of his invaluable life principles, one of which includes wealth not being an accurate indicator of an objectively “good” or “bad” person, and that it is important to view things from the other person’s perspective in order to accurately understand the situation they are in.
Another key principle for Dalio, which we will discuss later as well as in our course, is that difficulties in life coupled with effective reflections will teach you incredible lessons. This principle can be applied both in life and in work. Dalio notes that this allowed him, for example, to see who his true friends were when nearly everyone left him during some of his more difficult times in life.
By the year 1995 (20 years after starting Bridgewater Associates), Dalio’s company had increased to having 42 employees and over $4 billion in assets under management. As the size of Bridgewater increased, so did the data on which they were able to base their decisions. Dalio soon hired a team of programmers to come in and create advanced computer systems that would be able to assist in decision-making by checking with their principles.
Only five years later (2000), Bridgewater was managing $32 billion, a dramatic increase from what they had managed only a few years prior, and their number of employees had roughly doubled. Dalio notes here that upon reflecting on the growth of his organization, he believes that it truly does not get easier when trying to grow your business (ie. going from 4 to 40 employees can be just as difficult as going from 900 to 9,000). This led Dalio to another principle of his, that being that getting better at things does not always mean that things are any easier if you are simultaneously advancing on to more challenging levels. He uses a fantastic example of illustrating his point here, noting that Olympians find their sport to be just as difficult as beginners do.
There is one key idea here which we will now explore further. Is it even necessary for humans to continue working if computers are simply making many of the decisions for them (often making better choices than we, as humans, would on our own)? Dalio says yes, and that he believes that were it not for people making key discoveries, we would not be able to program computers to make such decisions. His belief is that having the right people work with computers and programming them to help us as humans is one of the key paths to success.
We all go through different phases of our lives, and what is considered a “phase” in life will depend on the person who is answering the question. Dalio believes that there are three distinct phases in life. In the first phase, we are constantly learning and dependent on other people. The second phase involves others depending on us and we work for a living. The third and final phase, according to Dalio, is when we do not need to work anymore, and are free to enjoy the life we want to live.
He discusses the importance of having a “shaper”, or someone who can create a vision even in the midst of adversity, transforming nothing into something. Some of the most well-known shapers are Steve Jobs (Apple), Elon Musk (Tesla, SpaceX, SolarCity), Jeff Bezos (Amazon), Martin Luther King Jr., Bill Gates, and Albert Einstein, among others. While it is unlikely that a person will be able to find such an incredible shaper as those listed here, it is still important to consider whether a person has the characteristics of a “shaper” when considering their future leading a company’s vision.
The Hero’s Journey
Next, Dalio discusses “The Hero’s Journey”, which originally came from Joseph Campbell’s The Hero with a Thousand Faces, and consists of the following stages which all “heroes” experience:
- Call to Adventure: up to this point, these individuals have led an ordinary life and are suddenly met with inspiration or a calling to something new
- Road of Trials: this is where the hero ultimately faces hardship through setbacks, failures, successes followed by failures, etc.
- Abyss/Belly of the Whale: one extreme failure that will show whether the hero has the tenacity to overcome and improve, or whether they will ultimately give up and quit
- Metamorphosis: a change that occurs after failure
- Boon: the ultimate reward, in which the hero realizes the invaluable lessons they have learned in their journey
- Returning the boon: the stage where heroes focus on passing on their knowledge and lessons learned to others