Principles by Ray Dalio - Summary and Application

Updated: Feb 8

Here are my key takeaways from the book Principles by Ray Dalio. Out of all the books I've read and all the things I've learned in school and in life so far, the lessons from this book are in the top 10% that I repeatedly refer back to.



I try to write concisely, and this article is the longest book summary I've written, and that's because there's just so many gems from this book. I also reported on how I actually used the learnings in my own life so that it's not just empty knowledge.


This book is about the timeless principles for making decision. In our lives, we make decision after decision, and one could argue that the quality o your life is dependent on the quality of your decisions. Hence, honing your decision-making abilities is well-worth the effort.


The book has three parts. Part 1 is about the author’s journey, aimed at setting a context for his principles. Part 2 is about his life principles. Part 3 is about his work principles. The author states that Part 2 is the main focus on the book, and he wishes for everyone to read Part 2 fully.


For the sake of brevity, I will just go over the Part 2 (Life Principles) in this article. I don’t see Part 1 as needing any analysis or summary, and Part 3 is essentially the life principles applied to a workplace setting.


Here is a click-able table of contents to help you navigate the article.


Question 1: Why did the Author Write This Book?


Question 2: What are the Principles He Mentions?

  1. Embrace Reality and Deal With It

  2. Use The 5-Step Process for Success

  3. Be Radically Open-Minded

  4. Understand That People are Wired Very Differently

  5. Learn How to Make Decisions Effectively


Question 3: What are the Main Ideas of the Book?

  1. Pain + Reflection = Progress

  2. Success = Meaningful Work + Meaningful Relationships

  3. The Conscious and Subconscious Brains

  4. Overcome the Two barriers to Success

  5. Make Believability-Weighted Decisions

  6. People are Have Different and Objective Strengths and Weaknesses

  7. The 5-Step Process to Success

  8. Make Effective Decisions


Question 4: How Have I Applied This Book in My Life?

  1. Pain + Reflection = Progress

  2. Success = Meaningful Work + Meaningful Relationships

  3. The Conscious and Subconscious Brains

  4. Overcome the Two barriers to Success

  5. Make Believability-Weighted Decisions

  6. People are Have Different and Objective Strengths and Weaknesses

  7. The 5-Step Process to Success

  8. Make Effective Decisions


Conclusion


Q1: Why did the author write this book?

Ray Dalio has had tremendous success, both by outward measures and by his intrinsic measures. Outwardly, he has achieved tremendous wealth and fame. Inwardly, he has built meaningful work and strong relationships with family, friends, and colleagues. At the age of 68 when the book was published, Ray is now at a stage in his life where he wants to help others be successful rather than to be more successful himself.

For his employees at Bridgewater, he hopes this book will pass down his principles for decision-making and empower future employees to thrive without him. For everyone else, he wants them to find meaningful work and build meaningful relationships, which are the two things his principles focus on.

Although he offers his list of principles, readers don’t have to adopt each and every one of them. In fact, he wants every reader to thoughtfully choose which, if any, principles to adopt for themselves. He also wants people to discover their own principles and write them down, thereby improving their decisions and lives.


Q2: What are the Principles he mentions?

If you’re like me, you read the title “Principles” and wondered, “So, what are the principles he mentions anyway?” Here’s an extremely high-level summary.

Here are the five major principles from the book:

Principle 1: Embrace reality and deal with it.

We need to face our weaknesses and the difficulties of our situation rather than turning a blind eye towards them. To embrace reality, we need to observe the rules of life and nature. For example, anything in excess becomes unfavorable. To deal with reality, we need to own our outcomes and focus on the things in our control rather than complaining about things outside our control.

Principle 2: Use the 5-Step Process to get what you want out of life.

Here’s the 5-Step Process:

  1. Have clear goals

  2. Identify the problems that stand in your way

  3. Accurately diagnose the problems to get at their root causes

  4. Design plans that will get you around them

  5. Do what’s necessary to push these designs through to results


Principle 3: Be radically open-minded.

Let go of your ego, which is controlled by the amygdala in your brain. This takes conscious effort, but it does get easier with practice. Being open-minded means instead of focusing on being right, you focus on finding the truth, even if it means you were wrong. It also means having thoughtful and productive disagreements with people rather than emotion-heavy unproductive ones.

Principle 4: Understand that people are wired very differently.

Know the strengths and weaknesses of yourself and others. Just as we all have different physical attributes, we also all have different mental attributes. When you know yourself and others, you can better predicate their behavior and how well they will do certain things.

Principle 5: Learn how to make decisions effectively.

Use principles to systematize your decisions. When you have documented principles, you’ll see new situations as “just another one of those” to which you can apply a relevant principle. Logic is your best tool for understanding reality, while the biggest enemy is harmful emotions. For many decisions, we should also seek about other people who are credible on the topic of the decision.

When making decisions, we need to remember to connect the low-level details to the big picture. Never lose sight of why you’re doing something. In terms of getting information, there are typically 5-10 important factors to consider for any decision. Understand those factors really well and don’t waste time on more. The best choices are ones that have more pros than cons, not those that don’t have any cons at all.


Q3: What are the main ideas of the book?

There are 8 big lessons that I took away from this book:

  1. Pain + Reflection = Progress

  2. Success = Meaningful Work + Meaningful Relationships

  3. The Conscious and Subconscious Minds

  4. Overcome the Two barriers to Success

  5. Make Believability-Weighted Decisions

  6. People are Have Different and Objective Strengths and Weaknesses

  7. The 5-Step Process to Success

  8. Make Effective Decisions

Lesson 1: Pain + Reflection = Progress

"I have largely gotten past the pain of my mistake making and instead enjoy the pleasure that comes with learning from it."

—Ray Dalio


Like most people, I don’t like pain. It’s a natural biological response. For example, I hate having arguments because they’re emotionally painful. But if I avoid communicating about important topics because I’m scared of pain, then it’s very unhelpful.

So the first big takeaway for me is that life will always have (emotional) pain, and I need to embrace it if I want to move forward. Painful truth is better than comfortable delusion. That temporarily comfortable delusion will eventually come back to bite us.

The good news is that pain + reflection = progress, and progress is pleasurable. We can train ourselves to form a habit of reflecting on pain, difficulties, and challenges. After reflection, we need to take responsibility for the things in our control instead of complaining about the things outside our control. Only then will we be back on the path to success and happiness.


"If you can reflect deeply about your problems, they almost always shrink or disappear, because you almost always find a better way of dealing with them."

—Ray Dalio

Lesson 2: Success = Meaningful Work + Meaningful Relationships

“Meaningful work and meaningful relationships aren’t just nice things we choose for ourselves, they are genetically programmed into us.”

—Ray Dalio


Ray Dalio explains in the book, using evidence from neuroscientists and spiritual leaders, how the human brain is evolutionarily programmed to seek and enjoy social cooperation (meaningful relationships) and to benefit the group (meaningful work). When we do these two things, we enjoy life, and success comes as a byproduct.

"Meaningful work and meaningful relationships were and still are my primary goals and everything I did was for them. Making money was an incidental consequence of that." 

—Ray Dalio


Lesson 3: The Conscious and Subconscious Mind

When we understand our conscious and subconscious minds, we are able to overcome emotional hijacking, connect the two minds, and create productive habits.


"Be aware of your subconscious—of how it can both harm you and help you, and how by consciously reflecting on what comes out of it, perhaps with the help of others, you can become happier and more effective."

—Ray Dalio


Overcome Emotional Hijacking

Similar to animals, many of our decision-making drivers are unconscious. An animal doesn't "decide" to fly or hunt; it just follows instructions from the subconscious brain. We also have instructions coming from our subconscious brain.


In the human brain, the amygdala is responsible for emotions, and it is not accessible to your conscious mind. That means we are usually not aware of how our emotions are controlling us. The prefrontal cortex is responsible for logical thinking, and it is totally conscious, so we are aware of our logical thoughts.

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Notice that the amygdala is closer to the center and stem of the brain, while the prefrontal cortex is in the outer region. That's because the amygdala is more primitive; it came before the prefrontal cortex. As a result, the amygdala is more powerful and can override the prefrontal cortex. Ray Dalio calls these events amygdala hijackings (emotional hijackings).


To give a simple example, if someone criticizes you, what happens? You feel your heart rate go up, your hands get sweaty, your muscles tighten. This is a fight-or-flight response similar to if you saw a hungry lion. Even though your rational brain says the criticism is helpful and not dangerous, the primitive brain hates it and overrides your body’s physiological response.


The good news is that if your train your conscious mind to recognize the physiological signs of these amygdala hijackings, (like rising heart rate in an argument), it can disobey the amygdala's instructions. For example, if you're having a disagreement with someone, and you notice your heart pounding louder and faster, you can consciously realize "Oh, my amygdala is unconsciously making me close-minded. I need to consciously switch to being open-minded."


"The biggest difference between people who guide their own personal evolution and achieve their goals and those who don't is that those who make progress reflect on what causes their amygdala hijackings. 

—Ray Dalio


Connect the Conscious to the Subconscious Mind

Have you ever had sudden realizations or great ideas pop up in the shower or while meditating? Why does that happen? It's because when we relax our conscious mind, it opens the communication with the subconscious mind.


When we are faced with a challenging task that requires creativity, our natural instinct is to think harder about it. But it might actually be more helpful to clear your mind through meditation and connect to your subconscious mind. The more your practice, the better you will get at it.


Create Productive Habits

Dalio defines habits as the strong tendency to keep doing what you have been doing, or to keep not doing what you have not been doing. Habits are controlled by an area of the brain called the basal ganglia.


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Notice how the basal ganglia is also located near the center of the brain. Just like the amygdala, it is not accessible to our conscious mind, meaning our habits make us act unconsciously.


Good habits get you to do what the “upper-level you” wants, while bad habits are controlled by the “lower-level you”. If we pick our habits thoughtfully, then we radically improve the trajectory of our lives.


How can we create good habits? Dalio recommends the book The Power of Habit by Charles Duhigg, but he gives a short summary. Essentially, habits are a three-step loop:

  1. Cue – A trigger that tells your brain to go into automatic mode and which habit to use

  2. Routine – This can be physical, mental, or emotional

  3. Reward – This tells the brain if this loop is worth remembering for the future

For example, when Dalio experiences pain (cue), he uses that as a trigger to do reflection (that’s his routine). Then when he learns from the reflection, he feels pleasure (reward). As he does this more and more, his brain will naturally create that habit. Research suggests that if you stick with a habit for around 18 months, you will build a strong tendency to stick to it forever.


Dalio didn't go into too much detail in Principles, but in The Power of Habit, Duhigg explains that in order to change a habit, we must change the routine (the response). For example, I had a friend who was trying to get over social media addiction. In his article, he explained how his habit loop:

  • Cue: Feeling boredom and opening up social media application

  • Routine: Browse social media application

  • Reward: New knowledge and laughter

  • Craving: Desire for new knowledge and information/a break

He then made a new habit loop:

  • Cue: Feeling boredom and opening up social media application

  • Routine: Reading one paragraph from Kindle on phone

  • Reward: New knowledge, laughter, boredom relief.

  • Craving: Desire for new knowledge and information/a break

After one month, his social media usage went from 1.5 hours/day to 10 minutes per day.


Ray Dalio encourages all of us to develop the habit of self-reflection.

“The most valuable habit I’ve acquired is using pain to trigger quality reflections. If you can acquire this habit yourself, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness.”

—Ray Dalio


Many people feel like they are fighting with themselves to overcome bad habits and make good ones. They get upset at themselves when they do a bad habit or can’t do a good habit. Ray Dalio comments that we shouldn’t fight with ourselves, but rather “the higher level you” (logical parent) needs to approach the “lower-level you” (emotional child) with loving kindness and persistence until the right habits are acquired, just like how a loving parent would treat a child.


Lesson 4: Overcome the Two Barriers to Success

The two barriers are the ego barrier and the blind spot barrier. These two barriers are rooted in the biology of the human brain. To overcome these two barriers, we need to practice radical open-mindedness.

Barrier 1: Ego

Ray Dalio defines the ego barrier as "your subliminal defense mechanisms that make it hard for you to accept your mistakes and weaknesses." The ego barrier resides in the amygdala. As mentioned before, the amygdala processes emotions and is subconscious. The ego wants to feel loved, to feel important, and to survive. It craves praise and views criticisms as attacks.


As mentioned previously, the amygdala (ego) also has the power to override the prefrontal cortex (the logical brain); Ray Dalio calls it amygdala hijacking. The good news is that we can train our conscious mind to recognize amygdala hijackings and then disobey the amygdala's instructions.

Barrier 2: Blind Spots

Ray Dalio defines blind spot barriers as “areas where your way of thinking prevents you from seeing things accurately.” It arises from the fact that everyone’s brains are wired differently.

Here are some examples:

  • Someone who naturally sees the big picture is more prone to be blind to the small details. And vice versa.

  • Someone who is naturally strong at thinking logically is more likely to miss out on other people's emotional cues. And vice versa.

  • Someone who is naturally strong at observing reality is weaker about imagining possibilities. And vice versa.

  • Someone who is naturally spontaneous is weaker at following rules and routines. And vice versa.

These traits aren't inherently good or habit; they're just different, and they're suitable to different situations. I go into great detail about these personality traits in my article on Myers-Briggs.

To adapt to our natural blind spots, we have three options:

  1. Teach your brain to work in ways that don’t come naturally. (e.g., thinking creatively if you’re not naturally creative)

  2. Using compensating mechanisms (like programmed reminders)

  3. Relying on the help of others who are strong where you’re weak

The first option is probably the hardest, but I heard Dalio say on an interview that people are usually able to improve a weakness by one standard deviation in the population. That means you probably won't make your weakness a strength, but you can make it not a big problem anymore. The third option is probably the most efficient but rarely used.

Solution: Radical Open-Mindedness

The author views Principle 4: Be Radically Open-Minded as the most important one because it explains how to work around the ego and blind spots.

"Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way. It requires you to replace your attachment to always being right with the joy of learning what's true."

—Ray Dalio


The best relationships and results happen when both parties are open-minded. Open-minded people focus on finding the truth rather than on being right, and they can have thoughtful disagreements that don’t create emotional conflict.


The primitive brain (ego) is not open-minded. The rational brain is. By practicing open-mindedness, we are increasing the strength of our rational brain over our primitive brain.

From another perspective, open-mindedness can be even more important than being smart because it lets us seek out better answers than you could come up with just by yourself. But we have to critically assess what other people say.

"In a thoughtful disagreement, your goal is not to convince the other party that you are rightit is to find out which view is true and then decide what to do about it."

—Ray Dalio


To do this, we need to approach the conversation as a student trying to understand. We should ask questions rather than make statements. We need to be calm and dispassionate; we aren’t arguing, we’re openly exploring what’s true. People who change their minds because they learned something are the winners, where as those who stubbornly refuse to learn are the losers.

Here are some indicators of closed-minded versus open-minded people:


Essentially, closed-minded people are arrogant, emotional, and want to satisfy their ego. Open-minded people are humble, rational, and want the best result.


"Open-mindedness doesn't mean going along with what you don't believe in; it means considering the reasoning of others instead of illogically holding onto your own point of view."

—Ray Dalio


We also shouldn’t consider the views of everyone. We should only consider the viewpoints of believable people. These are people who have repeatedly accomplished something and have great explanations for how.


If one party is clearly more knowledgeable than the other, then the less-knowledgeable party should be a student and the more knowledgeable party should be a teacher. If both parties are equally believable, then they are peers, and it’s appropriate to debate thoughtfully.


This brings us to the next point.


Lesson 5: Make Believability-Weighted Decisions

There are some decisions we can make ourselves. But for many big and challenging decisions, we should seek the advice of others who have more expertise than us.

"While it is up to us to know what we want, others may know how to get it better than we do because they have more strengths where we have weaknesses, or more relevant knowledge and experience... Knowing when not to make your own decisions is one of the most important skills you can develop."

—Ray Dalio


But we also need to be careful who we ask.

“One of the most important decisions you can make is who you ask questions of. Make sure they're fully informed and believable... Listening to uninformed people is worse than having no answers at all."

—Ray Dalio


As mentioned before, believable people are those who have repeatedly and successfully accomplished something, AND they have great explanations for how they did it. To go a step further, we should look for open-minded believable parties who are willing to have productive debate for the purpose of finding the truth. This is the mindset Ray Dalio has fostered at his company.

He uses the term "idea meritocracy" to describe his company culture because it encourages thoughtful disagreements and weighs people's opinions in proportion to their credibility. He credits much of the success of Bridgewater to building this idea meritocracy culture.

As mentioned before, we need to overcome our ego barrier and blind spot barrier to be open-minded. And we need to be open-minded to effectively consider other people’s views.


Lesson 6: People Have Different and Objective Strengths and Weaknesses

Just as people have different physical traits, people also have different psychological traits. Since our brains are biologically different, we all experience reality in different ways, and any one way is actually distorted. By getting multiple perspectives, we get closer to truth. The better we know ourselves, the better we can recognize our blind spots and what we can or cannot change about ourselves. The better we know other people, the better we can predict their behavior and performance on certain tasks.


Discovering Your Strengths and Weaknesses

To better understand himself and others, Ray Dalio uses many psychometric assessments. The four main ones he uses are Myers-Brigg Type Indicator, The Workplace Personality Inventory, The Team Dimensions Profile, and Stratified Systems Theory.


For example, the Myers-Briggs Type Indicator looks at five different attribute spectrums:

  1. Introversion VS Extroversion: Whether people prefer to work quietly alone or talking in groups.

  2. Intuiting VS Sensing: Intuiting focuses on the big picture; Sensing focuses on details

  3. Thinking VS Feeling: Thinking people focus on logic; Feeling people focus on harmony

  4. Planning VS Perceiving: Planners like to make a plan and stick with it; Perceivers like to focus on the present and adapt to it. They often have trouble appreciating each other.

  5. Assertive VS Turbulent: Assertive people are more self-confident and resistant to stress. Turbulent people experience more emotional swings and are always striving to improve themselves.

(I've personally found great usefulness in Myers-Briggs, and I explain it in detail in this article.


The Team Dimensions Profile categorizes people into different archetypes:

  • Creators are good at generating ideas. They prefer unstructured and abstract activities.

  • Advancers communicate new ideas from others and carry them forward. They focus on harmony and enthusiasm.