In case you haven’t read them yet, Ray Dalio (Trades, Portfolio)’s Principles, which you can find here, are a compendium of advice on how to think differently, better and, therefore, beat the market and live a better life. As you may know, Dalio leads Bridgewater, one of the world’s most prominent hedge funds. After being successful over many years, there must be something that the firm is doing differently. Among other pecularities, Dalio has mentioned that he practices transcendental meditation and all the conversations (in every room) across Bridgewater are taped and made available for all the employees.
These are some of his life principle
- It isn’t easy for me to be confident that my opinions are right. In the markets, you can do a huge amount of work and still be wrong.
- Bad opinions can be very costly. Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure.
- The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong.
So…
- I worked for what I wanted, not for what others wanted me to do. For that reason, I never felt that I had to do anything. All the work I ever did was just what I needed to do to get what I wanted. Since I always had the prerogative to not strive for what I wanted, I never felt forced to do anything.
- I came up with the best independent opinions I could muster to get what I wanted. For example, when I wanted to make money in the markets, I knew that I had to learn about companies to assess the attractiveness of their stocks. At the time, Fortune magazine had a little tear-out coupon that could mail in to get the annual reports of any companies in the Fortune 500, for free. So I ordered all the annual reports and worked my way through the most interesting ones and formed opinions about which companies where exciting.
- I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong. I never cared much about others’ conclusions, only for their reasoning that led to these conclusions. That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people.
- I remained wary about being overconfident, and I figured out how to effectively deal with my not knowing. I dealt with my now knowing by either continuing to gather information until I reached the point that I could be confident or by eliminating my exposure to the risks of not knowing.
- I wrestled with my realities, reflecte don the consequences of my decisions, and learned and improved from this process.
"By doing these things, I learned how important and how liberating it is to think for myself."
There are several things that draw my attention from these principles.
- The openness: I believe that the greatest minds are flexible and willing to admit that they might be making mistakes.
- Being humble: By admitting you don’t know, asking about it, and being able to accept flaws in your arguments, we are eliminating room for mistakes in our thinking.
- Ask for advice: I enjoyed the fact that it is not opinion that he is after, it is the reasoning behind that opinion which he is drawn upon.
- By working for our goals, not others’, we eliminate a lot of noise and irrational behavior. Munger discussed that envy is the only sin from which you cannot extract any fun.
- The ability to think independently is critical: opportunities lie, as Howard Marks (Trades, Portfolio) says, by thinking differently and being right on those calls.