Part 1:
Chapter 1
Over the course of our lives, we make millions of decisions that are essentially bets, some large and some small. It pays to think about how we make them because they are what ultimately determines the quality of our lives… We are all born with different thinking abilities, but we aren’t born with decision-making skills. We learn from our encounters with reality.
Chapter 2
Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively.
Reality was conveying to me, “You better make sense of what happened to other people in other times in other places because if you don’t, you won’t know if these things can happen to you, and if they do, you won’t know how to deal with them.”
When everybody thinks the same thing… it is almost certainly reflected in the price, and betting on it is probably going to be a mistake. I also learned that for every action (such as easy money and credit), there was a consequence (in this case, higher inflation) roughly proportionate to that action, which causes an approximately equal and opposite reaction (tightening of money and credit) and market reversals.
Visualizing complex systems as machines, figuring out the cause-and-effect relationships within them, writing down the principles for dealing with them, and feeding them into a computer so the computer could “make decisions” for me all became standard practices.
While making money was good, having meaningful work and meaningful relationships was far better. To me, meaningful work is being on a mission I become engrossed in, and meaningful relationships are those I have with people I care deeply about who care deeply about me.
Chapter 3:
Imagine that in order to have a great life, you have to cross a dangerous jungle. You can stay safe where you are and have an ordinary life, or you can risk crossing the jungle to have a terrific life. How would you approach that choice?
I just want to be right – I don’t care if the right answer comes from me. So, I learned to be radically open-minded to allow others to point out what I might be missing. I saw that the only way I could succeed would be to:
- Seek out the smartest people who disagree with me so I can try to understand their reasoning.
- Knowing when not to have an opinion.
- Develop, test, and systematize timeless and universal principles.
- Balance risks in a way that keeps the big upside while reducing the downside.
Successful people change in ways that allow them to continue to take advantage of their strengths while compensating for their weaknesses, while unsuccessful people don’t.
I saw that to do exceptionally well, you have to push your limits. If you do, you will crash, and it will hurt a lot. You will think you have failed, but that won’t be true unless you give up. Believe it or not, your pain will fade, and you will have many other opportunities ahead of you, though you might not see them at the time.
Chapter 4:
“He who lives by the crystal ball is destined to eat ground glass.”
From very early on, whenever I took a position in the markets, I wrote down the criteria I used to make my decision. Then, when I closed out a trade, I could reflect on how well these criteria had worked. It occurred to me that if I wrote those criteria into formulas (now more fashionably called algorithms) and then ran historical data through them, I could test how well my rules would have worked in the past.
My approach was to immerse myself in a business until I felt that the strategies I was handing off were the ones I would use if I were running the company myself. I would break each company down into distinct logical components and then come up with a plan for managing each part, using a variety of financial tools, especially derivative instruments. The most important components to separate were the profits coming from the core business and those that were speculative profits and losses coming from price changes.
I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.
Lee Kuan Yew – “… leaders must be judged within the context of the circumstances they encounter…”
…human greatness and terribleness are not correlated with wealth or other conventional measures of success. I’ve also learned that judging people before really seeing things through their eyes stands in the way of understanding their circumstances – and that isn’t smart. I urge you to be curious enough to want to understand how the people who see things differently from you came to see them that way. You will find that interesting and invaluable, and the richer perspective you gain will help you decide what you should do.
I have always wanted to have – and to be around people who also wanted to have – a life full of meaningful work and meaningful relationships, and to me, a meaningful relationship is one that’s open and honest in a way that lets people be straight with each other.
I wanted to surround myself with people who needed what I needed, which was to make sense of things for myself. I spoke frankly, and I expected those around me to speak frankly. I fought for what I thought was best, and I wanted them to do so as well.
Because most people are more emotional than logical, they tend to overreact to short-term results. They give up and sell low when times are bad and buy too high when times should be good. I find this just as true for relationships as it is for investments – wise people stick with sound fundamentals through the ups and downs, while flighty people react emotionally to how things feel, jumping into things when they’re hot and abandoning them when they’re not.
I didn’t value experience as much as character, creativity, and common sense… and my belief that having an ability to figure things out is more important than having specific knowledge of how to do something. It seemed to me, young people were creating sensible innovation that was exciting. Older folks who did things in the old ways held no appeal. I should add, though, that putting responsibility in the hands of inexperienced people doesn’t always work out so well.
Whether you own a hotel, run a technology company, or do anything else, your business produces a return stream. Having a few good uncorrelated return streams is better than having just one, and knowing how to combine return streams is even more effective than being able to choose good ones (though, of course, you have to do both).
Making a handful of good, uncorrelated bets that are balanced and leveraged well is the surest way to have a lot of upside without being exposed to an unacceptable downside; having a process that ensures problems are brought to the surface and the root causes are diagnosed assures that continual improvements occur.
… when faced with a choice between two things you need that are seemingly at odds, go slowly to figure out how you can have as much both as possible. There is almost always a good path that you just haven’t figured out yet, so look for it until you find it rather than settle for the choice that is the then apparent to you.
As far as our agreements with each other, the most important one was our need to do three things:
- put our honest thoughts out on the table,
- have thoughtful disagreements in which people are willing to shift their opinions as they learn, and
- Have agreed upon ways of deciding, (e.g., voting, having clear authorities) if disagreements remain so that we can move beyond them without resentments.
Chapter 5:
… while one gets better at things overtime, it doesn’t become any easier if one is also progressing to higher levels – the Olympic athlete finds his sport to be every bit as challenging as a novice does.
To me, the greatest success you can have as the person in charge is to orchestrate others doing things well without you.
Chapter 6:
It seems to me that life consists of three phases. In the first, we are dependent on others and we learn. In the second, others depend on us and we work. And in the third and last, when others no longer depend on us and we no longer have to work, we are free to savor life.
A Shaper is someone who comes up with unique and valuable visions and throws them out beautifully, typically over the doubts and opposition of others.
What ‘Shapers” have in common: There are independent thinkers who do not let anything or anyone stand in the way of achieving their audacious goals. They have very strong mental maps about things should be done, and at the same time a willingness to test those mental maps in the world of reality and change the ways they do things to make them work better. They are extremely resilient because their need to achieve what they envision is stronger than the pain they experience as they struggle to achieve it. Perhaps most interestingly, they have a wider range of vision than most people, either because they have the vision themselves or because they know how to get it from others who can see what they can’t. All are able to see both big pictures and granular details (and levels in between) and synthesize the perspectives they gain at those different levels, whereas most people see just one or the other. They are simultaneously creative, systematic, and practical. They are assertive and open-minded at the same time. Above all, they are passionate about what they are doing, intolerant of people who work for them who aren’t excellent at what they do and want to have a big, beneficial impact on the world.
At times, their extreme determination to achieve their goals can make them appear abrasive or inconsiderate, which was reflected in their test results. Nothing is ever good enough, and they experienced the gap between what is and what could be as both a tragedy and a source of unending motivation. No one can stand in the way of their achieving what they’re going after.
When faced with a choice between achieving their goal or pleasing or not disappointing others, they would choose to achieve their goal every time.
… There are far fewer types of people in the world than there are people in far fewer different types of situations than there are situations, so matching the right types of people to the right types of situations is key.
Certainly, the most notable difference between Microsoft, Apple, and Bridgewater was in our cultures—how we use the idea of the meritocracy of radical truth and radical transparency to bring problems and weaknesses to the surface and prompt forthright dealing with them.
When everyone can see the criteria the algorithms use and have a hand in developing them, they can all agree that the system is fair and trust the computer to look at the evidence, make the right assessments about people, and assign them the right authorities.
All these tools reinforce good habits and good thinking. The good habits come from thinking repeatedly in a principled way, like learning to speak a language. Good thinking comes from exploring the reasoning behind the principles.
… most people who see the world through the lens of the media tend to look for who is good and who is evil rather than what the vested interests and relative powers are and how they’re being played out. For example, people tend to embrace stories about how their own country is moral and the rival country is not, when most of the time these countries have different interests that they are trying to maximize. The best behavior one can hope for comes from leaders who can weigh the benefits of cooperation, and have long enough time frames that they can see how the gifts that they give this year may bring them benefits in the future.
For Joseph Campbell, a hero isn’t a perfect person who always gets things right. Far from it. A hero is someone who found or achieved or (did) something beyond the normal range of achievement and who has given his life to something bigger than himself or other than himself. I have met a number of such people throughout my life. What was most interesting about Campbell’s work was his description of how they got that way. Heroes don’t begin as heroes; They just become them because of the way one thing leads to another…. They typically start out leading ordinary lives in an ordinary world and are drawn by a “call to adventure.” This leads them down a road of trials filled with battles, temptations, successes, and failures. Along the way, they were helped by others, often by those who are further along the journey and serve as mentors, though those who are less far along also help in various ways. They also gain allies and enemies and learn how to fight, often against convention. … They overcome their fear of fighting because of their great determination to achieve what they want, and they gain their special powers. i.e., skills from both battles that test and teach them and from gifts such as advice they receive from others. Over time, they both succeed and fail, but they increasingly succeed more than they fail as they grow stronger and keep striving for more, which leads to ever bigger and more challenging battles… Heroes inevitably experience at least one very big failure, which Campbell calls “the abyss, “ the “belly of the whale” experience that tests whether they had the resilience to come back and fight smarter and with more determination. If they do, they undergo a change (have a “metamorphosis”) in which they experience the fear that protects them without losing the aggressiveness that propels them forward. With triumphs come rewards. Though they don’t realize it when they’re in the battles, the hero’s biggest reward is what Campbell calls the “boon”, which is a special knowledge about how to succeed that the hero has earned through his journey.
Chapter 7:
We knew that leadership transitions (Dalio’s) are never easy, and our modus operandi has always been to try, fail, diagnose, redesign, and then try again.
Perhaps the best advice we received came from management expert Jim Collins, who told us that to transition well, there are only two things that you need to do: put capable CEOs in place and have a capable governance system to replace the CEOs if they’re not capable. That was what I had failed to do and what I now had a second shot at doing right. So I began to think about governance in a way that I had never had before… Simply put, governance is the system of checks and balances ensuring that an organization will be stronger than whoever happens to be leading at any one time.
Chapter 8:
As I look back on my experiences, it’s interesting to reflect on how my perspectives have changed. When I started out, each and every twist and turn I encountered, whether in the markets or in my life in general, looked really big and dramatic up close, like unique life-or-death experiences that were coming at me fast… With time and experience, I came to see each encounter as “another one of those” that I could approach more calmly and analytically like a biologist might approach an encounter with a threatening creature in the jungle: first identifying its species and then drawing on his prior knowledge about its expected behaviors, reacting appropriately.
I saw pain as nature’s reminder that there is something important for me to learn. Encountering pains and figuring out the lessons they were trying to give me became sort of a game to me. The more I played it, the better I got at it, the less painful situations became, and the more rewarding the process of reflecting, developing principles, and then getting rewards for using those principles became. I learned to love my struggles, which I suppose is a healthy perspective to have, like learning to love exercising.
The marginal benefits of having more fall off pretty quickly. In fact, having a lot more is worse than having a moderate amount more because it becomes heavy with burdens. Being on top gives you a wider range of options, but it also requires more of you.
What I have seen is that the happiest people discover their own nature and master life to it.
Part 2: Principles
Having good principles for dealing with the realities we encounter is the most important driver of how well we handle them.
There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to the process makes all the difference. I have found it helpful to think of my life as if it were a game in which each problem I face is a puzzle I need to solve. By solving the puzzle, I get a gem in the form of a principle that helps me avoid the same sort of problem in the future.
My point is that people who create great things aren’t idle dreamers; they are totally grounded in reality. Being hyperrealistic will help you choose your dreams wisely and then achieve them.
People who achieve success and make progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want.The converse is also true: idealists who are not well grounded in reality create problems, not progress.
Most people fight to see what’s true when it’s not what they want it to be. That’s bad because it is more important to understand and deal with the bad stuff since the good stuff will take care of itself.
The more open-minded you are, the less likely you are to deceive yourself – and the more likely it is that others will give you honest feedback. If they are “believable” people (and it’s very important to know who is “believable”) you will learn a lot from them.
It’s important not to let our biases stand in the way of our objectivity. To get good results, we need to be analytical rather than emotional.
Well, I can understand people liking something that helps them and disliking things that hurt them. It doesn’t make sense to call something good or bad in an absolute sense based only on how it affects individuals. To do so would presume that what the individual wants is more important than the good of the whole. To me, nature seems to find what’s good for the whole and optimizes for it, which is preferable.
… perfection doesn’t exist; It is a goal that fuels a never-ending process of adaptation. If nature, or anything, were perfect, it wouldn’t be evolving.
The key is to fail, learn, and improve quickly. If you’re constantly learning and improving, your evolutionary process will look like one that’s ascending.
There are these three kinds of learning that foster evolution: memory-based learning (storing the information that comes in through one’s conscious mind so that we can recall it later); Subconscious learning (the knowledge would take away from our experiences that never enters our conscious minds), though it affects our decision-making; and learning that occurs without thinking at all, such as changes in DNA that encode a species’ adaptations.
Where you go in life will depend on how you see things and who and what you feel connected to (your family, your community, your country, mankind, the whole ecosystem, everything).
… for most people, success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment and then changing to improve.
While we don’t like pain, everything that nature makes has a purpose, so nature gives us pain for a purpose. So what is its purpose? It alerts us and helps direct us.
The challenges you face will test and strengthen you. If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential.
Every time you confront something painful, you are at a potentially important juncture in your life, You have the opportunity to choose healthy and painful truth or unhealthy but coupled illusion. The irony is that if you choose the healthy root, the pain will soon turn into pleasure.
The quality of your life will depend on the choices you make at those painful moments. The faster one negotiates these gaps, the better.
By recognizing the higher-level consequences nature optimizes for, I’ve come to see that people who overweight the first-order consequences of their decisions and ignore the effects of second and subsequent-order consequences rarely reach their goals. This is because first-order consequences often have opposite desirability from second-order consequences, resulting in big mistakes in decision making…. Quite often, first-order consequences are the temptations that cost us what we really want, and sometimes, they are barriers that stand in our way. By contrast, people who choose what they really want, avoid the temptations, and get over the pains that drive them away from what they really want are much more likely to have a successful life.
Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t… So don’t worry about whether you like your situation or not. Life doesn’t give a damn about what you like. It’s up to you to connect what you want with what you need to do to get it and then find the courage to carry it through.
Ultimately, it comes down to the following five decisions:
- Don’t confuse what you wish were true with what really is true.
- Don’t worry about looking good – worry instead about achieving your goals.
- Don’t overweight first-order consequences relative to second – and third-order ones.
- Don’t let pain stand in the way of progress.
- Don’t blame bad outcomes on anyone but yourself.
5-Step process to get what you want out of life:
- Have clear goals
- Identify and don’t tolerate the problems that stand in the way of your achieving those goals
- Accurately diagnose the problems to get at the root causes.
- Design plans that will get you around then.
- Do what’s necessary to push these designs through to results.