Let me start with a confession. I have read only parts of this book and I don’t think I am likely to go back and read it—at least the 400-odd pages of principles. That is unfortunate because the cornerstone of all consistently high achievers is fundamental principles of thought and action that are consistently applied and explained. Come to think of it, nothing of lasting value can be created without such firm foundational principles. And, yet, as the writer and hedge fund superstar, Ray Dalio, points out, it is surprising that such few successful people have shared their principles. We would certainly like to know what Steve Jobs’ principles were—that stunningly combined aesthetics and functionality and won the hearts of consumers. Or what principles guided Albert Einstein.
Dalio does not want to make the same mistake; before he leaves this world, he wants to give us two books. This is the first one—on life and work principles. The next would be on investing and economics. The idea—in the mould of Greek classics—is to present to us the grand theories and philosophical ruminations that explain life, investing and the economic machine. This book, bound in black cloth with white lettering, reminds me of Discourses
by the Greek stoic philosopher Epictetus. I suspect it will sink like a stone. I have explained why, at the end.
But what is Ray Dalio’s achievement? What makes him think we want to read his principles running into over 567 pages? Ray was born in a middle-class family in Long Island (USA) as the son of a Jazz musician. He had an unremarkable school record but was a curious boy and got hooked on to stocks in his teens. He started an investment company, Bridgewater Associates, from his two-bedroom apartment when he was just 26 years.Over the past four decades, he has built Bridgewater into, what Fortune magazine labels, the fifth most important private company in the US. Dalio has been called one of the 100 most influential persons (according to Time magazine) and 100 wealthiest (according to Forbes magazine) in the world. Bridgewater, today, is the world’s largest hedge fund, managing more than $150 billion.
The first part of the book is a memoir (Where I Am Coming from) of Dalio’s journey over the decades; the second part discusses his Life Principles; and the third part enumerates his Work Principles. In the first part, over 124 fascinating pages, he narrates how he started his firm in 1975, internal conflicts and various mistakes and failures which convinced him that we learn much more from our mistakes than from our successes. Just a few years after he started the firm, Bridgewater nearly shut shop on bad bets on the bond market and strong belief that the US was heading for a deep recession, possibly depression.
But the economy recovered and the US market went into a 18-year bull market. He writes: “being so wrong—and especially so publicly wrong—was incredibly humbling and cost me just about everything. I saw that I had been an arrogant jerk who was totally confident in a totally incorrect view. I was so broke I couldn’t muster enough money to pay for an airplane ticket to Texas to visit a prospective client.” In fact, from a strength of 20, Bridgwater was down to a single employee—Dalio. He had to borrow $4,000 from his father, until he could sell his second car and raise money.
But, unlike others, he took a cold-blooded approach to his mistakes. Dalio came to realise that, if he had to move forward, he needed to do four things. One, team up with other independent-minded thinkers like him, who thought differently, and to understand their reasoning. Two, know when not to have an opinion. Three, develop test, systematise the timeless and universal principles. Four, balance risks in such a way as to keep the big upside, while reducing the downside. He also started writing down his decision-making criteria. With time, he had a collection of recipes for decision-making which gave birth to principles. He then shared his principles with his colleagues and invited them to test his principles in action; this helped him continually refine them. Dalio also converted his decision-making criteria into algorithms that were fed into computers.
Dalio had no interest in sharing these principles because of two reasons: he didn’t like attention and it was presumptuous to tell others what principles to have. After Bridgewater successfully sidestepped the crash of 2008, it started getting a lot of media attention. Dalio felt that a lot of these reports were distorted; so, in 2010, he posted his principles on the Bridgewater website so that people could judge from them. Incredibly, the ‘principles’ were downloaded three million times; thank you mails came from all over the world. Dalio then decided to publish two books enshrining all his principles. This is the first one.
The genesis of principles, and the start of the Bridgewater’s unique culture, goes back to 1993, when Dalio was delivered a memo signed by his top three lieutenants that was startlingly honest in its assessment of him. After mentioning his positive attributes, they spelt out the negatives. “Ray sometimes says or does things to employees which makes them feel incompetent, unnecessary, humiliated, overwhelmed, belittled, pressed or otherwise bad,” the memo read. “If he doesn’t manage people well, growth will be stunted and we will all be affected.” That memo hurt and surprised Dalio.
He started thinking of how he approached people and began developing a unique culture at Bridgewater, the keywords of which are: “radical truth and radical transparency.” Dalio claims to have developed a culture of openly and thoughtfully disagreeing on the most important issues; this, he thinks, is the most powerful way of creating meaningful work, meaningful relationships and great outcomes. He wanted his colleagues to get past their ego and put out their honest thoughts, to be able to have thoughtful disagreements. Even if the disagreements remained, he wanted a way to get over them so that no bad blood remains.
Indeed, Bridgewater is the target of fascination for the social experiment it runs inside the firm, some of it quite hard for an average person to stomach. The firm explicitly orders its 1,500 employees to follow the rules of behaviour enunciated in the ‘Principles’ which can be very unsettling. One of the principles is “Evaluate accurately, not kindly.” Another is “Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed).”As a matter of routine, all conversations and meetings are video-recorded so that employees can analyse them later. Employees are supposed to rate each other—using the principle of ‘radical transparency’; they are known to use an app to score their colleagues’ arguments in real time. Feedback can be blunt and brutal and can come from a junior about her senior. And all this data is then analysed to see how the firm can improve.
Among the many other unusual practices at Bridgewater (apart from video-taping meetings) is publicising every employee’s performance review, interrupting investment meetings to provide personal feedback before dozens of colleagues and to openly and critically examine the firm’s practices, to generate high performance. Dalio’s book of principles also formed the basis for nightly ‘homework’ assignments that quiz people on their understanding of the principles. If you don’t fit into this culture, you quit. Staff turnover, especially among the new employees, is high; many leave in tears, according to the media, though Dalio calls such accounts fake and exaggerated.
Dalio believes that everyone can benefit from a meritocracy based on radical truth and radical transparency. While his own achievement is, undoubtedly, great, it is worth wondering whether the culture has led to its success or the success has allowed it to get away with this weird culture. While Dalio does believe that his success flows from the principles, there are many successful and durable organisations with their own culture that are quite different from Bridgewater’s. It could be just a bit presumptuous that there is one correct way, which Dalio has found, and is letting others know it.
The biggest problem is that homilies (parts two and three), which will be impossible to apply in real life, are spread over a massive 440 pages. They are heavy, bland and, often, without context. After all, to know “don’t be afraid to fix the difficult things” and “clearly assign responsibilities” is not going to help much. There are literally hundreds of such small and big ideas. It’s exhausting even to glance at them. But I will certainly wait for the second book—on investing and economy—because Dalio’s distilled wisdom on these areas would be worth its weight in gold.