Principles are concepts that can be applied over and over again in similar circumstances as distinct from narrow answers to specific questions. When digesting each principle, please... ask yourself: “Is it true?”
PART 1: THE IMPORTANCE OF PRINCIPLES
WHAT ARE PRINCIPLES? Your values are what you consider important, literally what you “value.” Principles are what allow you to live a life consistent with those values. Principles connect your values to your actions; they are beacons that guide your actions, and help you successfully deal with the laws of reality. It is to your principles that you turn when you face hard choices.
WHY ARE PRINCIPLES IMPORTANT? Without principles, you would be forced to react to circumstances that come at you without considering what you value most and how to make choices to get what you want. This would prevent you from making the most of your life.
WHERE DO PRINCIPLES COME FROM? Sometimes we forge our own principles and sometimes we accept others’ principles, or holistic packages of principles, such as religion and legal systems. While it isn’t necessarily a bad thing to use others’ principles—it’s difficult to come up with your own, and often much wisdom has gone into those already created—adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values.
DO YOU HAVE PRINCIPLES THAT YOU LIVE YOUR LIFE BY? WHAT ARE THEY? Your principles will determine your standards of behavior. When you enter into relationships with other people, your and their principles will determine how you interact. People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflict with one another.
HOW WELL DO YOU THINK THEY WILL WORK, AND WHY?
PART 2: MY MOST FUNDAMENTAL LIFE PRINCIPLES
I want you to work for yourself, to come up with independent opinions, to stress-test them, to be wary about being overconfident, and to reflect on the consequences of your decisions and constantly improve.
Through this time and till now I followed the same basic approach I used as a 12-year-old caddie trying to beat the market, i.e., by 1) working for what I wanted, not for what others wanted me to do; 2) coming up with the best independent opinions I could muster to move toward my goals; 3) stress-testing my opinions by having the smartest people I could find challenge them so I could find out where I was wrong; 4) being wary about overconfidence, and good at not knowing; and 5) wrestling with reality, experiencing the results of my decisions, and reflecting on what I did to produce them so that I could improve.
I learned that failure is by and large due to not accepting and successfully dealing with the realities of life, and that achieving success is simply a matter of accepting and successfully dealing with all my realities.
I learned that finding out what is true, regardless of what that is, including all the stuff most people think is bad—like mistakes and personal weaknesses—is good because I can then deal with these things so that they don’t stand in my way.
I learned that there is nothing to fear from truth. While some truths can be scary—for example, finding out that you have a deadly disease—knowing them allows us to deal with them better. Being truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to the feedback that is essential for our learning.
I learned that being truthful was an extension of my freedom to be me. I believe that people who are one way on the inside and believe that they need to be another way outside to please others become conflicted and often lose touch with what they really think and feel. It’s difficult for them to be happy and almost impossible for them to be at their best. I know that’s true for me.
I learned that I want the people I deal with to say what they really believe and to listen to what others say in reply, in order to find out what is true. I learned that one of the greatest sources of problems in our society arises from people having loads of wrong theories in their heads—often theories that are critical of others—that they won’t test by speaking to the relevant people about them. Instead, they talk behind people’s backs, which leads to pervasive misinformation. I learned to hate this because I could see that making judgments about people so that they are tried and sentenced in your head, without asking them for their perspective, is both unethical and unproductive. So I learned to love real integrity (saying the same things as one believes) and to despise the lack of it.
While most others seem to believe that learning what we are taught is the path to success, I believe that figuring out for yourself what you want and how to get it is a better path.
While most others seem to believe that having answers is better than having questions, I believe that having questions is better than having answers because it leads to more learning.
While most others seem to believe that mistakes are bad things, I believe mistakes are good things because I believe that most learning comes via making mistakes and reflecting on them.
While most others seem to believe that finding out about one’s weaknesses is a bad thing, I believe that it is a good thing because it is the first step toward finding out what to do about them and not letting them stand in your way.
While most others seem to believe that pain is bad, I believe that pain is required to become stronger.
MY MOST FUNDAMENTAL PRINCIPLES
Truth — more precisely, an accurate understanding of reality — is the essential foundation for producing good outcomes. This perspective gives me a non-traditional sense of good and bad: “good,” to me, means operating consistently with the natural laws, while “bad” means operating inconsistently with these laws. In other words, for something to be “good” it must be grounded in reality. And if something is in conflict with reality—for example, if morality is in conflict with reality—it is “bad,” i.e., it will not produce good outcomes. In other words, I believe that understanding what is good is obtained by looking at the way the world works and figuring out how to operate in harmony with it to help it (and yourself) evolve. But it is not obvious, and it is sometimes difficult to accept.
I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe, and that it is good.
I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force.
I believe that pursuing self-interest in harmony with the laws of the universe and contributing to evolution is universally rewarded, and what I call “good.”
It is extremely important to one’s happiness and success to know oneself—most importantly to understand one’s own values and abilities—and then to find the right fits. We all have things that we value that we want and we all have strengths and weaknesses that affect our paths for getting them. The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt to these things.
THE PERSONAL EVOLUTIONARY PROCESS
The quality of our lives depends on the quality of the decisions we make.
Reality + Dreams + Determination = A Successful Life
For most people happiness is much more determined by how things turn out relative to their expectations rather than the absolute level of their conditions. This basic principle suggests that you can follow one of two paths to happiness: 1) have high expectations and strive to exceed them, or 2) lower your expectations so that they are at or below your conditions.
YOUR MOST IMPORTANT CHOICES
I believe that there are five big types of choices that we continually must make that radically affect the quality of our lives and the rates at which we move toward what we want.
FIRST: It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way. Pain + Reflection = Progress How big of an impediment is psychological pain to your progress?
SECOND: People who know that understanding what is real is the first step toward optimally dealing with it make better decisions. So, remember... Ask yourself, “Is it true?” ...because knowing what is true is good. How much do you let what you wish to be true stand in the way of seeing what is really true?
THIRD: People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future. So, what are your biggest weaknesses? Think honestly about them because if you can identify them, you are on the first step toward accelerating your movement forward. So think about them, write them down, and look at them frequently. How much do you worry about looking good relative to actually being good?
FOURTH: People who overweigh the first-order consequences of their decisions and ignore the effects that the second- and subsequent-order consequences will have on their goals rarely reach their goals.
FIFTH: Successful people understand that bad things come at everyone and that it is their responsibility to make their lives what they want them to be by successfully dealing with whatever challenges they face. Successful people know that nature is testing them, and that it is not sympathetic.
YOUR TWO YOUS AND YOUR MACHINE
Think of it as though there are two yous—you as the designer and overseer of the plan to achieve your goals (let’s call that one you(1)) and you as one of the participants in pursuing that mission (which we will call you(2)). You(2) are a resource that you(1) have to get what you(1) want, but by no means your only resource. To be successful you(1) have to be objective about you(2).
If you(1) see that you(2) are not capable of doing something, it is only sensible for you(1) to have someone else do it. In other words, you(1) should look down on you(2) and all the other resources at your(1) disposal and create a “machine” to achieve your(1) goals, remembering that you(1) don’t necessarily need to do anything other than to design and manage the machine to get what you(1) want. If you(1) find that you(2) can’t do something well fire yourself(2) and get a good replacement! You shouldn’t be upset that you found out that you(2) are bad at that—you(1) should be happy because you(1) have improved your(1) chances of getting what you(1) want. If you(1) are disappointed because you(2) can’t be the best person to do everything, you(1) are terribly naïve because nobody can do everything well.
The biggest mistake most people make is to not see themselves and others objectively. If they could just get around this, they could live up to their potentials.
MY 5-STEP PROCESS TO GETTING WHAT YOU WANT OUT OF LIFE
Have clear goals. Identify and don’t tolerate the problems that stand in the way of achieving your goals. Accurately diagnose these problems. Design plans that explicitly lay out tasks that will get you around your problems and on to your goals. Implement these plans—i.e., do these tasks.
You must approach these as distinct steps rather than blur them together. For example, when setting goals, just set goals (don’t think how you will achieve them or the other steps); when diagnosing problems, just diagnose problems (don’t think about how you will solve them or the other steps).
Each of these five steps requires different talents and disciplines. Most probably, you have lots of some of these and inadequate amounts of others. If you are missing any of the required talents and disciplines, that is not an insurmountable problem because you can acquire them, supplement them, or compensate for not having them, if you recognize your weaknesses and design around them. So you must be honestly self-reflective.
It is essential to approach this process in a very clear-headed, rational way rather than emotionally.
To help you do these things well—and stay centered and effective rather than stressed and thrown off by your emotions—try this technique for reducing the pressure: treat your life like a game or a martial art. Your mission is to figure out how to get around your challenges to get to your goals.
THE 5 STEPS CLOSE-UP
You can have virtually anything you want, but you can’t have everything you want.
Avoid setting goals based on what you think you can achieve. As I said before, do each step separately and distinctly without regard to the others. In this case, that means don’t rule out a goal due to a superficial assessment of its attainability. This requires some faith that you really can achieve virtually anything, even if you don’t know how you will do it at that moment.
Achieving your goals isn’t just about moving forward. Inevitably, you must deal with setbacks. So goals aren’t just those things that you want and don’t have. They might also be keeping what you do have, minimizing your rate of loss, or dealing with irrevocable loss.
Most problems are potential improvements screaming at you. The more painful the problem, the louder it is screaming. In order to be successful, you have to 1) perceive problems and 2) not tolerate them.
It is essential to bring problems to the surface. Most people don’t like to do this. But most successful people know that they have to do this. So push through the pain of facing your problems, knowing you will end up in a much better place. When identifying problems, it is important to remain centered and logical. Try to look at your problems as a detached observer would. Remember that identifying problems is like finding gems embedded in puzzles; if you solve the puzzles you will get the gems that will make your life much better. Doing this continuously will lead to your rapid evolution. So, if you’re logical, you really should get excited about finding problems because identifying them will bring you closer to your goals.
Be very precise in specifying your problems.
Don’t confuse problems with causes. “I can’t get enough sleep” is not a problem; it is a cause of some problem. What exactly is that problem? To avoid confusing the problem with its causes, try to identify the suboptimal outcome, e.g., “I am performing badly in my job because I am tired.”
Once you identify your problems, you must not tolerate them.
Can you comfortably identify your problems without thinking about how to solve them? It is a good exercise to just make a list of them, without possible solutions. Only after you have created a clear picture of your problems should you go to the next step.
You will be much more effective if you focus on diagnosis and design rather than jumping to solutions. You must be calm and logical.
It is important to distinguish root causes from proximate causes. Proximate causes typically are the actions or lack of actions that lead to problems—e.g., “I missed the train because I didn’t check the train schedule.” So proximate causes are typically described via verbs. Root causes are the deeper reasons behind the proximate cause: “I didn’t check the schedule because I am forgetful”—a root cause. Root causes are typically described with adjectives, usually characteristics about what the person is like that lead them to an action or an inaction.
Recognizing and learning from one’s mistakes and the mistakes of others who affect outcomes is critical to eliminating problems.
More than anything else, what differentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively.
Remember that: Pain + Reflection = Progress
When designing solutions, the objective is to change how you do things so that problems don’t recur—or recur so often. Think about each problem individually, and as the product of root causes—like the outcomes produced by a machine. Then think about how the machine should be changed to produce good outcomes rather than bad ones.
Most people make the very big mistake of spending virtually no time on this step because they are too preoccupied with execution.
Remember: Designing precedes doing! The design will give you your to-do list (i.e., the tasks).
It is critical to know each day what you need to do and have the discipline to do it.
THE RELATIONSHIPS BETWEEN THESE STEPS
Designs and tasks have no purpose other than to achieve your goals. Frequently I see people feel great about doing their tasks while forgetting the goals they were designed to achieve, resulting in the failure to achieve their goals. To remember the connections between the tasks and the goals that they are meant to achieve, you just have to ask, “Why?”
PART 3: MY MANAGEMENT PRINCIPLES
I want Bridgewater to be a company in which people collectively...
TO GET THE CULTURE RIGHT...
TO GET THE PEOPLE RIGHT...
TO PERCEIVE, DIAGNOSE, AND SOLVE PROBLEMS...
TO MAKE DECISIONS EFFECTIVELY...
TO GET THE CULTURE RIGHT...
CREATE A CULTURE IN WHICH IT IS OK TO MAKE MISTAKES BUT UNACCEPTABLE NOT TO IDENTIFY, ANALYZE, AND LEARN FROM THEM
CONSTANTLY GET IN SYNCH
TO GET THE PEOPLE RIGHT...
How People’s Thinking Abilities Differ
I believe, but am not certain about, the following:
There are two big differences in how people think that are due to the brain’s coming in two big halves and different people relying differently on them.
The left hemisphere reasons sequentially, analyzes details, and excels at linear analysis. Left-brained thinkers do these things well. They are also called linear thinkers. When they excel at this type of thinking they are called “bright.
The right hemisphere reasons holistically, recognizes themes, and synthesizes the big picture. Right-brained thinkers do these things well. People who think this way are also called lateral thinkers. Those who excel at this kind of thinking are called “smart.”
Some people see details (trees), and others see big pictures (forests). Those who “see trees” see the parts most vividly and don’t readily relate the parts to each other in order to see the big picture—e.g., they might prefer more literal, precise paintings. They are typically left-brained. Others connect the dots to pictures. In fact, they typically don’t even see the dots; they just see the pictures. They are typically right-brained. You can detect which type people are by observing what they focus on. Detailed thinkers can lose sight of the big picture and are more likely to focus in on a part than to go to the higher level and see the relationship between parts. For example, a person who focuses on details can be thrown off by word mistakes like “there“ instead of “their,” while big-picture thinkers won’t even notice the mistake.
Some people rely more on remembering what they were taught when making decisions, and others rely more on their independent reasoning. Let’s call the first group memory-based learners and the second group reasoning-based thinkers. When using the word “learning” I intend to convey “acquiring knowledge by being taught,” and when using the word “thinking” I mean “figuring it out for oneself.” Memory-based learners approach decision-making by remembering what they were taught. They draw on their memory banks and follow the instructions stored there. They are typically left-brained. Reasoning-based thinkers pay more attention to the principles behind what happens. They are typically right-brained.
Some people are focused on daily tasks, and others are focused on their goals and how to achieve them. Those who “visualize” best can see the pictures (rather than the dots) over time. They have a strong capacity to visualize and will be more likely to make meaningful changes and anticipate future events. They are the most suitable for creating new things (organizations, projects, etc.) and managing organizations that have lots of change. We call them “creators.” They are typically right-brained thinkers. By contrast, those who are focused on the daily tasks are better at managing things that don’t change much or require repetitive processes done reliably, and are typically best at doing clearly specified tasks. They see things much more literally and 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. They are typically left-brained thinkers.
Some people are “planners,” and others are “perceivers.” Planners like to focus on a plan and stick with it, while perceivers are prone to focus on what’s happening around them and more readily adapt to it. Perceivers see things happening and work backward to understand the cause and how to respond; they work from the outside in; they also see many more possibilities that they compare and choose from; often they see so many that they are confused by them. In contrast, planners work from the inside out, figuring out first what they want to achieve and then how things should unfold. Planners and perceivers have trouble appreciating each other. While a perceiver likes to see new things and change directions often, this is discomforting to planners, who prefer to stick to a plan. Planners weigh precedent much more heavily in their decision- making, and assume that if it was done before in a certain way, it should be done again in the same way, while perceivers tend to optimize on the spot. Planners are typically left-brained, and perceivers are typically right-brained.
Some people are driven more by their emotions, and others are driven more by their intellect.
HIRE RIGHT, BECAUSE THE PENALTIES OF HIRING WRONG ARE HUGE
MANAGE AS SOMEONE WHO IS DESIGNING AND OPERATING A MACHINE TO ACHIEVE THE GOAL
PROBE DEEP AND HARD TO LEARN WHAT TO EXPECT FROM YOUR “MACHINE”
EVALUATE PEOPLE ACCURATELY, NOT “KINDLY”
TRAIN AND TEST PEOPLE THROUGH EXPERIENCES
TO PERCEIVE, DIAGNOSE, AND SOLVE PROBLEMS...
DESIGN YOUR MACHINE TO ACHIEVE YOUR GOALS
TO MAKE DECISIONS EFFECTIVELY...
MAKE ALL DECISIONS LOGICALLY, AS EXPECTED VALUE CALCULATIONS
REMEMBER THE 80/20 RULE, AND KNOW WHAT THE KEY 20% IS