Ray Dalio’s Principles is an inspirational book that sheds light on how the billionaire investor created the world’s largest and most successful hedge fund, Bridgewater Associates which he started from his spare room in his flat.
Today, Ray Dalio is a Wall Street titan but he didn’t come from a Wall Street family background; his father was a Jazz musician, his mother a homemaker.
“Ray Dalio is a Wall Street titan but he didn’t come from a Wall Street family background; his father was a Jazz musician, his mother a homemaker”
In 1982 Ray Dalio went broke betting on an economic collapse that didn’t materialize. The 67th richest person on the planet described going broke as “the best thing that ever happened” because it taught him a valuable lesson.
It taught me about “fear and humility”, said Ray Dalio
It seems to have worked Ray Dalio’s fund has returned $50 billion profit for its investors since its inception, which amounts to the biggest accumulative net profit for a hedge fund ever recorded.
What’s more, Ray Dalio claims that solidifying the recurring lessons in his Ray Dalio’s Principles could even build on those alpha returns.
“the best thing that ever happened”
RAY DALIO – talking about going broke
So let’s zero in on Ray Dalio’s Principles
Everyone has got their principles but what has made Ray Dalio’s Principles the blueprint to converting investor failure into spectacular success.
Part 1 of Ray Dalio’s Principles is about the purpose and importance of having principles in general.
Part 2 explains Ray Dalio’s most fundamental life principles that apply to everything he does.
Part 3 of Ray Dalio’s Principles explains Ray Dalio ’s management principles as they are being lived out at Bridgewater.
Ray Dalio believes his management principles are simply his most fundamental life principles applied to management.
Ray Dalio’s Principles, Part 3 explains to readers what Ray Dalio’s management principles are and how Bridgewater has been run.
If you are looking to get the most bang for your buck out of Ray Dalio’s Principles then Ray Dalio suggests that you read Parts 1 and 2, and the beginning of Part 3 (through the Summary and Table of Principles) which will give you nearly the whole picture. It’s approximately 55 pages of a normal size book.
“adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values” – Ray Dalio
So let’s sum up Part 1 of Ray Dalio’s Principles
Ray Dalio defines principles as literally what you “value.” They are “beacons that guide your actions, and help you successfully deal with the laws of reality,” according to Ray Dalio. Principles are important “because all successful people operate by principles”.
But “adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values” wrote Ray Dalio.
Ray Dalio believes that your principles need to reflect values you really believe in.
To be successful, you must make the correct, tough choices.
You must be able to “cut off a leg to save a life,” both on an individual level and, if you lead people, on a group level added Ray Dalio.
Regarding Part 2 of Ray Dalio’s Principles here are the main points I was able to gather. Ray Dalio likes to stress-test his opinions by having the smartest people he could find challenge them so he could find out where he was wrong.
Ray Dalio doesn’t care much about others’ conclusions—only for the reasoning that led to these conclusions. “That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people,” wrote Ray Dalio.
Ray Dalio remains wary about being overconfident, and he figured out how to effectively deal with my not knowing.
“I dealt with my not knowing by either continuing to gather information until I reached the point that I could be confident or by eliminating my exposure to the risks of not knowing”, he wrote.
“The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong” – Ray Dalio
What is Ray Dalio’s view on making money?
“The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong” wrote Ray Dalio.
“There is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes” added Ray Dalio.
Part 2 of Ray Dalio’s Principles can be summed up as come up with independent opinions, stress-testing them and to be wary about being overconfident, and to reflect on the consequences of their decisions and constantly improve.
Successful people aren’t born great, according to Part 2 of Ray Dalio’s Principles.
“Great people become great by looking at their mistakes and weaknesses and figuring out how to get around them,” wrote Ray Dalio.
“In short, I learned that being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of improvement and movement toward what I wanted,” he added.
So what is the most important quality that differentiates successful people from unsuccessful people?
It is “their ability to learn and adapt”, according to Ray Dalio’s Principles.
Ray Dalio’s Principles doesn’t believe in lone-wolf success.
“I believe that you can probably get what you want out of life if you can suspend your ego and take a no-excuses approach to achieve your goals with open-mindedness, determination, and courage, especially if you rely on the help of people who are strong in areas that you are weak,” wrote Ray Dalio.
Ray Dalio’s Principles will most likely become an investor’s classic and ought to be on the recommended reading list of any aspiring successful investor.