Learning from the book Principles by Ray Dalio

Learning from the book Principles by Ray Dalio

December 21, 20187:03 am

To begin with, I am no one to judge a book by someone of his stature. I will just be sharing my learning from the book Principles by Ray Dalio.

It is one of those books, which needs to be revisited at least once a month. And would like to warn you from the beginning that the book is not about stock market but more about fine tuning your life.

As the name of the book suggests, it is about creating “Principles” to deal with situations which more or less keep repeating in our life. Be it how to minimize your mistake or how to handle any situation. And then following them to make decisions not only swifter but better as well.

The book “Principles” by one of the most successful hedge fund manager “Ray Dalio” takes you through his life journey reflecting on things that helped him get better and becoming what he is today.

 

Learning from the book Principles by Ray Dalio: Theme of the book
Learning from the book Principles by Ray Dalio
Paragraph from the book "Principles" by Ray Dalio
Learning from the book Principles by Ray Dalio
Paragraph from the book "Principles" by Ray Dalio
Learning from the book Principles by Ray Dalio
Why we need 'Principles' in life?

“Being clear on your principles is important because they will affect all aspects of your life, many times a day.”

Structure of the book "Principles"

The book is divided into 2 parts:

1. Life Principles- It talks about the principles used by him to improve himself to keep getting better at things he does.

2. Work Principles- It is basically an implementation of life principles into creating an organization. On how he created processes, checks, and governance at Bridgewater.

Here, I will be covering just the life principles as those are what is needed by us to keep growing.

As mentioned earlier, the purpose of the book is to help us device Principles to help us deal with situations which are more or less similar in nature.  

The author gives examples of how we as humans, politicians, economists etc have not learned from our past. Had they created principles, there would not have been repeating financial crises etc. I am sure this applies to you and me as well.

“Before changing the currency standard from gold to dollar, President Nixon had promised he will not let dollar devalue. But once the devaluation started, he started to blame speculators. Post currency devaluation , commodity prices peaked leading to inflation and the Fed increased interest rate to control the inflation, which is what always happen.”

Another instance for such repetitive nature of situations is the current Trade-War between China & US. 

Very good article on Livemint where the situation resembles that of similar war between UK & Germany. Read here

In his firm Bridgewater Associates, he made sure to log every error, not to repeat them. Created a process to bring mistakes to the surface & then identify its causes.

In his book, he mentions how he has used Principles to grow Bridgewater to where it is now. Since Bridgewater associates was a hedge fund, they required to make multiple decisions in a day, where there is always a possibility of error of judgment.

In order to minimize the error rate, they used to record each mistake and made it visible for everyone to make sure no other employees repeat that. Once the error rate, if reduced, the accuracy rate automatically goes up.

Learning from the book Principles by Ray Dalio : Individual Characteristics

Personal traits to be developed to make best use of the "Principles"
  1. You can never be 100% sure about anything. 
  2. Keep an absolutely open mind. You should be able to accept that you can be wrong.
  3. One needs to be a realist rather than so-called positive or negative.
  4. Don’t let fear of what others think to come in your way
  5. Don’t get hung up on your views of how things should be because you will miss out on how things really are: Be analytical rather than emotional
  6. No pain No gain.
  7. { Pain+ reflection= Progress}
  8. One will find happiness if they take responsibility for making their decisions
  9. The two barriers to good decision making are your ego & your blind spots i.e. your weakness
  10. One needs to be an independent thinker

Happiest people discover their own nature & match their life to it. 

Everyone is wired differently and are suited for different kind of work roles. One should keep looking for things or work that suits their personality. Many of us don’t realize this till the time we start doing stuff that we enjoy. 

And I must say, this is the reason why I love the market.

If you are a stock market investor,  it makes a lot of sense to understand the cause-effect relationship of the past bubble and create it into a principle. Since, the market is driven by emotions such things are bound to repeat itself such as market peaks, greed, leverage, and market trough.

Prepare a list of factors that created the previous recessions and the future fall is likely to be based on the same factors but the forms can be different.

If you don’t, handling such situations will be a lot difficult as people caught in the sudden crash will have no option but to wait for years for the situation to improve.

In this book, Ray Dalio talks about how learning about the earlier debt crises of Latin American debt crisis of the 1980s, the Japanese debt crisis of 1990s, dot-com bubble of 2000 led him to predict the 2008 crisis.

About the Author- Ray Dalio​

Ray Dalio

Ray Dalio is the founder of the World’s largest Hedge fund by the name “Bridgewater Associates”. The hedge fund has an Asset Under Management(AUM) of $125+ Billion.

His personal wealth is in excess of $18 billion.

About “Ray Dalio“: Click Link

About “Bridgewater Associates“: Click Link

Ray Dalio has written one more book about the World Debt Crises which goes by the name” A template for understanding Big Debt Crises”. It is available for free.

E-book: “A template for understanding Big Debt Crises”

You can purchase the book from www.amazon.in

Ray Dalio keeps posting educational videos on Youtube which is a great source of learning, particularly economics.

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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