Ray Dalio says writing down principles for making decisions and using them for future references are key attributes that a person or organisation can adopt to better achieve their goals and become successful.
Dalio is the founder, chair and co-chief investment officer of Bridgewater Associates, a global leader in institutional portfolio management and the largest hedge fund in the world. He has brought in many industry-changing innovations over his outfit’s 40-year history, because of which he was called the “Steve Jobs of Investing” by aiCIO magazine and named one of TIME magazine’s “100 Most Influential People.”
Dalio says principles are essentially recipes for dealing with situations that happen over and over again, which often result from lessons learnt while setting goals, trying to achieve them, and then reflecting on the experience.
“I would encounter a situation and make decisions, I would write down the criteria for making decisions. I would recommend to you that you write those principles down. When you do that, you think about them in a deeper way, and then the people that are in your lives start to understand how you’re behaving and they can be partners in that idea of meritocratic decision-making,” Dalio told the 2018 Summit conference in Los Angeles, whose video is available on Youtube.
He says no matter whether an organisation is successful or not, these principles can be a guide for them so they can analyse their future goals. The important thing is to be open to learning from these principles, by taking both the pain of failure and the difficulty of reflecting on those failures in the right spirit without becoming defensive or egotistical.
If an organisation is not able to reflect honestly and non-judgmentally on their successes and failures, they will tend to repeat mistakes instead of setting things right and achieving goals in the future.
Talking about his own journey, Dalio says he has always gone after audacious goals, which have led him to a mix of successes and failures over the years.
“Most importantly, I benefited from failures. In other words, you go after your goals and you then encounter your problems and failures. How you’re dealing with those problems is one of the most important things. I started to realise that pain plus reflection equals progress,” he says.
Dalio feels if an organisation can recognise where it has gone wrong and then develops principles for dealing with it, then it can use those principles to improve and learn and go on to chase more audacious goals.
Dalio lists out five things that an organisation needs to do to become successful.
Have clarity on your goals: Organisations need to have clarity on what their goals are and should strive to achieve them to become successful.
Identify your problems: An organisation needs to identify the problems it is facing and not tolerating. To become successful, it is very necessary to diagnose those problems and get at the root cause of those problems to eliminate them.
“A lot of people tolerate problems. Then you have to diagnose those problems to get at the root cause of those problems. Often, the root cause is you, maybe you have weaknesses, maybe you make mistakes, or maybe somebody else is making mistakes,” he says.
Know your strengths & weaknesses: An organisation can become very successful if it knows where its strengths and weaknesses lie and knows how to deal with them.
“Only when you know what your problems are and you diagnose that specifically, can you create a design to get around those problems. That design, very specific design, you go get around the problems, and then you have to, if you have a design, you have to be reliable in doing that,” says he.
Fix your mistakes: Once an organisation has a fair idea about its weaknesses, it becomes in a good position to fix its mistakes.
Persevere: Once an organisation has been able to meritoriously perform the above four steps, it is in a position to push through for favourable results. It can go after more audacious goals and with perseverance can achieve greater heights.
Strive for better decision making: It is important to put forth your opinion out in the open so that one can have diverse views on it which can lead to better decision making. But the biggest problem with is that sometimes we have pre-concieved wrong opinions embedded in our minds and we fail to look through them.
“I think probably the greatest problem of mankind … is individuals who have in their minds wrong opinions that they’re attached to. They could so easily stress-test those, to put them out there and find out if they’re strong or weak in terms of those opinions, and to move beyond that to make better decisions. It’s a tragedy because it could be so easily dealt with. You can reduce the chances of being wrong by properly stress-testing them,” Dalio says.
To drive home the point, Dalio gave his own example as to how he was so arrogant and almost failed with Bridgewater Associates in the early days and had to borrow $4,000 from his dad to pay his bills. This episode made him learn a lot. People should be open to other ideas as well, says he. After that experience, he started questioning his assumptions and felt that he needed independent thinkers who also had audacious goals and could challenge his thinking.
“The thing that I learned is, being successful has more to do with knowing how to deal with your not knowing than anything you know. If you can then think, “How do I know I’m right?” and stress-test yourself, and find people who disagree with you, the smartest people you can find who disagree with you and you have thoughtful disagreements so you can take in and stress-test, not only does it provide a lot of learning, but it stress-tests your decision, raises your probabilities of being right,” he said.
Idea meritocracy is the best solution: The process of challenging each other’s thinking and trying to come up with the best possible solution for a problem is idea meritocracy.
Dalio feels through idea meritocracy, organisations can write down principles and those shared principles along with better communications can lead to successes, failures and learnings. These learnings, Dalio feels, can produce happier employees and can produce more independent thinkers and more audacious goals, and finally lead to more success.
“And if you keep doing that over and over again, you will inevitably succeed. You do it over and over again because you have determination — you will inevitably succeed,” says he.