Principles

"Principles" covers a huge range of personal and professional scenarios. Dalio shares his tips for effective decision-making, setting and achieving bold goals, failing well, building a cohesive team, hiring and firing, and confronting problems and challenges, among much more. We read about his journey from arrogant young trader to self-reflective leader, and get insight into his biggest mistakes and lessons learned. Dalio is now in his late 60s, and "Principles" is his legacy.

So, who's this book for? It's clear from the size and scope of "Principles" that Dalio wants to reach a wide audience – it's more than 500 pages long, and the hard copy feels more like an encyclopedia than a how-to business book.

"Principles" is for anyone who wants to be more successful and make better decisions at home and at work. Readers who work in the investment world or in large institutions will find this book easier to digest than others, because the language and context will be more familiar. But Dalio's advice is relevant to many. It's especially useful for entrepreneurs, business leaders, politicians, mentors and coaches.

As you've just heard, Ray Dalio is the founder and chairman of Bridgewater Associates, one of the world's largest hedge funds, and the fifth most important private company in the U.S., according to Fortune magazine. He's been named in Time magazine's list of the 100 most influential people in the world and he's also a prominent philanthropist.

So, keep listening to hear how to get what you want in life in five simple steps, how to make better decisions, and how to build a corporate culture that values mistakes and learns from them.

"Principles" is divided into three parts. Part One is a memoir. We follow Dalio's journey from starting to make money as an eight-year-old schoolkid, to studying at Harvard Business School, to founding Bridgewater from his two-bedroom New York City apartment.

We hear about his catastrophic mistakes, from losing $100,000 to being forced to let go of his entire staff after making a bad investment call. And we hear about his successes, including faring well through the 2008 debt crisis, while Bear Stearns and Lehman Brothers collapsed. We read about the guidelines and systems he developed over those years and why he decided to write them down.

This is a great start to the book. "Principles" is one of those weighty tomes that can feel daunting to begin, but the author draws the reader in with a personal story that reveals the fallible man behind the Bridgewater machine.

Part Two is called "Life Principles." In this section, Dalio advises us to embrace reality and deal with it, to be radically open-minded, and to make effective decisions. In Part Three, called "Work Principles," he shows us how these and other principles have guided him in business, and shares guidelines specific to running a large organization. They include how to create a strong culture, how to build an effective team, and how to use tools and protocols to reach your goals.

A few big-picture ideas underpin all the principles in this book. Dalio attributes Bridgewater's success to it being an idea meritocracy, where the best ideas win out. He believes his own success comes from having meaningful work and meaningful relationships as his goals, above all else. And he argues that radical truth and transparency are fundamental to achieving those goals.

Dalio accepts his principles won't work for everyone. His goal is to convince us to draw up and live by our own guidelines. Still, he clearly believes passionately in his ideas, or he wouldn't have filled more than 500 pages.

Naturally, in a book this size, there's overlap between the three parts. Dalio extracts his Life Principles from his memoir in Part One, while the section on Work Principles reiterates and expands on what's gone before, applying it specifically to organizations. In most cases, the repetition is useful to drive his arguments home. Where it's not, it's easy to skip through segments. In fact, the author encourages it.

So let's now take a closer look at Dalio's five-step process to getting what you want out of life.

The first step is to have clear goals. He then suggests we identify any problems that stand in the way of those goals and refuse to tolerate them. Next, we need to accurately diagnose the problems, so we understand their root causes. He then suggests we design plans to get around those problems, and finally, do what's necessary to turn these designs into results.

Now, this process might seem simplistic, or you might have heard something like it before. And we agree it's not groundbreaking. But Dalio breaks down each step into a series of sub-steps, going into detail and bringing in other underlying principles. The result is a forensic, methodical and comprehensive approach that's easy to apply to a range of industries and situations.

For example, when setting goals, Dalio has the following advice: get your priorities straight, don't confuse goals with desires, and never rule out a goal because it seems out of reach. When it comes to problems, see pain as an opportunity for growth and improvement, he says. Always bring problems to the surface, even if it feels uncomfortable. And never tolerate them.

As you can hear, Dalio has a no-nonsense, uncompromising approach. But there's humility there, too, as well as an element of playfulness, despite the seriousness of his business and the large sums of money he's dealing with.

He suggests we pretend life is a martial art or a game, with the objective being to get around a challenge or reach a goal. Dalio clearly gets a thrill out of working through challenges and removing obstacles, and he wants his readers to approach life and work with the same gusto.

This five-step process is simple and powerful. Dalio encourages readers to look at their lives or their organizations as machines that need to function well. Any issues that arise will have happened before in some shape or form, so we just need to remember what worked, or didn't work, last time. It's sound advice, backed up by fascinating anecdotes from his career.

Let's now look at how to make great decisions, something every manager and leader aspires to.

In many organizations, decisions are either made at the top or they're made democratically, with everyone giving an opinion and the idea with the most votes winning out. Dalio says both systems are flawed. Bridgewater is a so-called "idea meritocracy" in which the most capable people work through their disagreements openly with others to find the best answer. Importantly, more weight is given to the opinions of more capable or believable decision-makers.

So, how do you decide who's the most believable in your team? People with the most credible opinions are those who've successfully done the thing in question at least a few times before, Dalio says. They're also people who can logically explain the cause-and-effect relationship behind their conclusions.

Bridgewater has some unique tools to help track and measure people's believability. One of these tools is a system of "Baseball Cards," which carry statistics about each person's strengths and weaknesses, based on psychometric tests such as Myers-Briggs, as well as a person's track record. Baseball Cards help people to understand who's expressing a certain viewpoint, and to know if they've been right before, so they can gage the value of that opinion.

Bridgewater also uses an app called the Dot Collector in meetings, which helps people share their thoughts and see others' opinions in real time. Employees record their assessments of each other's interventions by logging positive or negative dots in the app. The app helps people get out of their own heads and see different perspectives. It also shows people when their opinion contradicts the believability-weighted majority, which may be a learning point.

If you think this sounds harsh, or too much like Big Brother, you're not the first to think that. Bridgewater has had its share of negative press for the way it's run. It's even been called a cult. This media coverage is one of the reasons Dalio wrote this book – to demystify some of his processes and explain how and why they work.

Working for Bridgewater clearly isn't for the faint-hearted and its processes won't work everywhere, but for those who are robust enough to cope with intense scrutiny and radically truthful feedback, it's an interesting model.

The good news is, Dalio walks the walk, welcoming criticism and negative comments. He shares a memo he received in 1993 from his top three deputies. It opened with a few lines of praise, but continued with a brutally honest assessment of how he spoke to employees.

They told him he sometimes made people feel incompetent, humiliated, or oppressed, and the business was suffering as a result. That memo taught Dalio that he needed to communicate better, and it kicked off the process of writing down his work principles for everyone to see.

We like Dalio's concept of an idea meritocracy and admire the standard of radical transparency at Bridgewater. We're not sure if all its processes would work at other organizations, but some of them will. And Dalio certainly brings them to life.

For example, he shares how Bridgewater's unique decision-making processes helped his team decide what would happen next in the European debt crisis of 2012. Examples like these certainly add credibility to his methods.

Let's now look at how to create a culture in which it's OK to make mistakes.

Again, Dalio isn't the first leader to address this question, but he approaches it in a forensic, methodical way that feels original, even if it's not. His advice on this theme is typically straight-talking: fail well; don't worry about looking good – worry about achieving your goals; observe patterns of mistakes to see if they expose weaknesses; and remember to reflect when you experience pain.

He backs up his theories with a human story, explaining why he didn't fire his head of trading, Ross, despite the fact he forgot to put in a trade for a client, losing Bridgewater a large sum of money.

Dalio decided that firing Ross would encourage other employees to hide their mistakes, creating a dishonest culture. He wanted to show that it was acceptable to make mistakes – but unacceptable not to learn from them. He worked with Ross to develop an error log, which is now called the Issue Log.

This is an electronic document where traders record all their mistakes. The contents of the Issue Log are analyzed systematically, so lessons can be learned and improvements made. This tool has helped Bridgewater create a culture of openness about mistakes.

We like Dalio's practical, systematic approach to problems and can see how a tool like the Issue Log would work well in other organizations.

There's another tool that caught our eye. It's called the Pain Button. It's an app that helps people record their feelings in the moment, so they can reflect on their anger, disappointment, or frustration. It also prompts employees to think of ways to avoid that pain in the future. This tool supports one of Dalio's basic principles – that pain, followed by reflection on that pain, leads to progress.

It's hard to convey the scope of "Principles." It's as ambitious as Dalio himself. Along with management theory, corporate culture, and recruitment, he covers psychology, neuroscience and artificial intelligence.

Does he try to cover too much ground? Probably. And, as you heard earlier, ideas are duplicated between the three parts. But he also does a great job of keeping the reader's interest, by breaking up the text into small chunks and mixing theory with engaging storytelling.

We did notice one oversight, though. Dalio clearly works incredibly hard, to very high standards, and expects the same from his team. He also applies the same rigor, systematic thinking, and problem-solving techniques to his personal life as he does to his work life, and he operates at high energy. Rest, relaxation and downtime get a brief mention, but we think topics such as stress and well-being deserve more space in a book of this size.

To sum up, "Principles" explores one company's unique approach to everyday problems that many businesses and institutions encounter. The systems, processes, tools and apps Bridgewater has created have helped the company to make great decisions, come up with innovative ideas, and succeed where others have failed. Similar processes and guidelines for living have helped Dalio to thrive personally.

That's why we think "Principles" is a compelling read for anyone who's interested in learning from a master and improving how they do things, at work and at home.

"Principles" by Ray Dalio is published by Simon & Schuster.

That's the end of this episode of Book Insights. Thanks for listening.