The Principles, the heart of the matter: to reach your goals, the most important thing is to have a principle-based way of working and living, and to deal with this complex world with absolute rationality.

I'd like to take a moment to introduce you to the wonderful person who wrote this book. His name is Ray Dalio. He's affectionately known as the "Steve Jobs of the investment world" and is a Wall Street legend. 

You'll probably know the name already – it's a household name in the investment world! He's done so many amazing things, but his greatest achievement is the creation of a hedge fund called Bridgewater. Bridgewater has done it! It has surpassed the Quantum Fund of financial whiz Soros to become the most profitable hedge fund in history. Even when other funds were hit hard by the financial crisis and some even collapsed, the Bridgewater Fund was able to weather the storm and come out the other side with a nice profit. I'm happy to say that Bridgewater's assets under management have now reached an amazing $160 billion, making it the largest hedge fund in the world by asset size! Dalio is also known as the "Godfather of Hedge Funds" and was named one of the world's 100 most influential people by Time magazine! This is thanks to his outstanding performance in the investment world.

This book isn't actually new, as it was released for free by the wonderful Dalio in 2010. This lovely new book, Principles, is a completely revised and summarised compilation of his free version. Guess who wrote the foreword to this book? None other than Bill Gates himself!

This book has a fascinating history! It was originally created in the 1980s, when Dalio would record some investment insights. He found that the uncertainty of doing investment is great, and often encounters a lot of new problems and new situations. He later found that, rather than getting caught up in every new situation, it would be better to take a deep breath and think about the situation. Is there a way to summarize similar situations and problems? Could he create a kind of code of conduct to help him deal with each new challenge? Once he started investing, Dalio would record the details of each transaction and then summarise the legal aspects, refining the investment rules and standards for future transactions.

The wonderful content of the book "Principles" is really helpful and can be put into action, and both the e-book and paperback were very popular! The paperback was a huge hit on the second day of sale! Even local readers in the U.S. had to wait a month or two to receive the book, so the level of excitement is understandable.

The book is split into three sections. The first part is all about Dalio's personal journey and the challenges he's faced. The second part is about his core principles for living a fulfilling life. And the third part is about his guiding principles for work. The latter two parts of the Principles of Life and Principles of Work are made up of several hundred principles, and they're presented in a list format. Each principle is accompanied by a short text description, too.

Now that we've covered the main facts about the book and the author's profile, let's dive into some of the best ideas from the book together! In this audio instalment, I'll be sharing with you the heart of the book in three different ways. First, let's dive into Dalio's "Principles of Life". This is all about how to recognise the world with absolute rationality and understand reality precisely. Secondly, let's dive into Dalio's "Principles of Work". This is all about how to use principles as the foundation for your work and how to make decisions based on the idea that good ideas are the most important thing in work. And finally, we'll be chatting about the 'Principle of Principles' and how you can become a 'professional wrongdoer'! We'll also be looking at how you can reflect on your mistakes to form your own principles.

Part 1

Let's dive right in and start with the "Principles of Life". This part is full of lots of little principles, and at the heart of them all is how to recognise the world with absolute rationality. That means truly facing reality, which we all have to do from time to time!
Many of us think we're rational and principled, but it's not always easy to recognize the truth. We all have animalistic tendencies, and it's so easy to let our animal spirits drive our actions. This can sometimes result in a lack of focus on facts and truth.

 Warren Buffett once said something really interesting. He said that one of his investment principles is "to be greedy when others are fearful, and fearful when others are greedy". This investment principle may sound simple, but anyone who has experience in stock investing knows that it can be really tricky to practise! We all know how it goes. When the market takes a dive, it's tough to stay calm and collected. It's only natural to want to follow the crowd and sell your stocks.

Dalio has a great way of helping us all to think and act more rationally. He's summarised the 'five steps to achieve goals' in a way that's really easy to understand. He truly believes that no matter what goals you want to achieve, you have to go through five simple steps: setting goals, recognising the problem, diagnosing the problem, designing a solution and implementing the solution. These five steps might sound easy, but they can be really tough to do. Many people get stuck at the second step of recognising the problem. It can be hard to know how to recognise the problem correctly. I'd love to know why this is the case! Dalio looked into this and found there are two main reasons. We all have blind spots, that's just part of being human! We all see things differently, don't we? Our brains are wired to think a certain way, and that can sometimes get in the way of us seeing things as they really are. On the other hand, we humans are a bit arrogant and conceited by nature. It's so easy to get caught up in defending our views, isn't it? When someone challenges us, our first instinct is often to justify ourselves, even if we know we might be wrong. And when we can't do that, we get frustrated.

Dalio thinks that the saddest thing about us humans is that we can be so arrogant and conceited. This makes us do things without thinking things through and we don't like it when people challenge us. So, how does this sad situation come about? The lovely folks over at the neuroscience department say it has to do with how our brains work. Our wonderful brains are made up of different parts that all play a part in helping us to grow and learn. One part of our brain is especially interested in seeing where we could do better and where we might be a bit weak. This is so that we can learn and do better next time! But there's another part of the brain that takes real evaluations and criticisms as attacks. It's only human to want to defend ourselves from being attacked, isn't it? In other words, there are two parts of you in your mind, the rational you and the emotional you. They're always fighting against each other for control over you, poor things!

So, how can you let your rational side take the lead? How can you overcome your arrogance and conceit, and avoid your blind spots? That means keeping an open mind and being honest with yourself about your blind spots and flaws. Dalio has interacted with countless elite people, and let me tell you, they're not perfect! These folks are pretty smart, because they can stay open to feedback and criticism from others. They know where they could use some improvement, and they're always looking for ways to grow.

It can be tricky to be "extremely open", and Dalio says it usually takes around 18 months for most people to get used to this way of functioning. You can start by doing small things around you, such as sharing your thoughts openly with family, friends, or anyone else you trust, and making thoughtful judgments and choices. You'll find that when you're open and honest, everyone feels free to speak their mind. And the ideas you get when you're open and honest are often better than if you'd come up with them all by yourself!

On top of being open and honest, Dalio thinks it's a great idea to tackle all aspects of life with a scientific and rational approach. He also encourages us to turn emotional experiences into rational summaries. Let me give you an example. If you ask someone how long it takes them to get to work, most people will say it's more than 40 minutes or about an hour. But very few people will record their daily commute and then analyse it statistically to come up with an accurate average. It's not that many of us keep track of our daily commute and analyse it statistically to get an accurate average commute time, as well as the longest and shortest commute times. If you can keep accurate records and approach life with this scientific and rational attitude, you'll feel like you're in control of your life in a way you never thought possible!

Okay, so that's the first section of the book, "Principles of Life". Let's quickly go over the main points together. In this section of the book, Dalio kindly suggests that we try to avoid letting our animalistic side take over. He encourages us to keep our minds and hearts open to new ideas and to reject conceit and unnecessary pride so that we can focus on the facts and truth. Treat life with the same loving, open-minded attitude that a scientist has when they're doing scientific research. That's the best way to truly become the master of your own life!

Part Two

Now that we've chatted about the "Principles of Life", let's dive into the "Principles of Work"! Dalio basically said that the principles of work and the principles of life are basically the same thing. He even said in the book that the work principles are actually life principles applied to work, but that work principles are more important than life principles. He listed hundreds of principles in his book, which can be divided into three dimensions: one is people, one is culture, and the other is organisation construction and management. Of all these wonderful principles, the most important one is the principle of "creativity for excellence". This means that the best ideas should always come first, and this is something that the Bridgewater Fund practises with great success.

The idea is to make decisions based on what's best for the company, rather than who has the most senior position. It's about choosing the option that makes the most sense, not who you're more likely to listen to. Dalio truly believes that the success of an organisation doesn't depend on how good the founder is or how many resources they have. It all comes down to whether the company is able to implement the principle of "excellent ideas first"!

So, to make the best ideas stand out, the first thing we need to do is show them to everyone. Then, we can judge each other and put forward different opinions. I know you might be wondering how you can tell if an idea is good or not. In the book, the lovely Dalio introduces a decision-making method used within the "Bridgewater Fund", called the "credibility-weighted decision-making method". So, each person's professional background is fully taken into account, and then the opinions of people with different expertise are given different weights. Finally, these are all weighed up to make decisions.

Let's say, for instance, that a healthcare-related topic is up for discussion at a Bridgewater Fund meeting. In that case, the opinion of someone with a medical background will definitely be given more weight in the final decision, while the opinion of someone with an accounting background will not be given as much weight. If we're looking at an accounting-related issue, it's the opposite. This means that everyone's opinion is heard and taken into account, and that the final decision is both fair and democratic, as well as scientifically and practically feasible.

Of course, this decision-making method is based on the idea that we're all different, which I think is a pretty good place to start! Dalio believes that everyone's brain and physical characteristics are different, and that everyone has their own unique strengths and weaknesses. When looking at a problem, everyone has their own perspective, but also their own limitations. It's so important to make sure that the final decision is the best it can be. That's why it's great to have lots of different ideas and perspectives to choose from. Once everyone's had a chance to share their thoughts, we can make sure we've got the best solution.

Unfortunately, not every organisation is able to create such an atmosphere. So, how can we encourage our own teams to come up with the best ideas? Another really important working principle of Dalio's is called "Extreme Transparency and Truthfulness". As we mentioned earlier, one of Dalio's guiding principles in life is "extreme openness". In his work principles, he also emphasises "extreme transparency and authenticity", which is another way of saying "extreme openness". This is a really important concept. In the work principles, this "extreme transparency and truthfulness" and "extreme openness" are also in the same vein, and they are especially emphasised.

I'll tell you a little story from the book. Once, Dalio received an email… This email was sent by one of his colleagues, and it read: Dalio, I'm sorry to say that your speech at the company meeting today wasn't as good as it could have been. I'm sure you didn't do any preparation at all, or you wouldn't have spoken so poorly. I'd love to help you prepare for meetings in the future! If you need me to, I can even come with you to help you warm up. The subordinate also added a friendly suggestion at the end of the letter, saying, "If you think I'm wrong, you can ask other coworkers or come and ask me directly." It's pretty unusual in other companies for a subordinate to challenge their boss in this way. But for Dalio, such conversations are an everyday occurrence and he takes them in his stride. That's how colleagues can be open and honest with each other. At Bridgewater, we believe in being open and honest with each other.

 That's why, no matter your level of seniority, if you have any concerns or ideas, you're encouraged to speak up. It's what we call our "extreme transparency" policy.

On top of that, there's a rather intriguing rule at Bridgewater: pretty much all company meetings have to be recorded. If a colleague is unable to attend a meeting, the person present will kindly send the recording of the conversation to the colleague. In other words, the company encourages everyone to be open and honest with each other. For example, one time Dalio and another executive were chatting about an employee's promotion. The executive felt that the employee was so good at his job that he could give him a promotion and a raise, but Dalio felt that the employee was not quite there yet. Dalio thought to himself, "Oh, no, you can't talk about employees behind their backs." Dalio decided to have a chat with the employee in his office to give him a bit of feedback. Of course, at the same time, the comments also gave the employee the chance to explain.

There's actually a theory behind this culture of extreme transparency and candour. There's this really interesting scholar at Harvard University named Robert Kegan who's found that most employees in most organisations, even though they're doing one job, are actually doing two jobs. The first job is to complete the task at hand. The second job is to manage how others see you, especially to hide your own shortcomings and deficiencies and show your bright side. The second job is to manage other people's perceptions and impressions of himself, especially to hide his flaws and shortcomings and to show his bright side. We all do this from time to time! In Bridgewater's company culture, everyone just needs to do the first job, just be the most natural and comfortable version of themselves, and that's enough. There's no need to worry about the second job, it's just not something they need to think about. But at the heart of it all is still the philosophy of absolute rationality. He wants to create a company where everyone is like a well-oiled machine, each doing their part, because this is the most efficient.

However, this principle of "extreme transparency" does come with a downside. In the Bridgewater Fund, the new employee turnover rate is quite high. It's a shame, but one-third of employees reportedly leave the firm within the first two years of employment. And, according to feedback from these lovely folks who've moved on to pastures new, they find communication between coworkers to be a bit too abrasive and often in a state of being questioned. You might think that sounds harsh on the employees, and you'd be right! But that's what Dalio stands for, and his philosophy is not about putting people first, but about putting principles first.

So, this is the second part of what we're chatting about today, the principle of work. Let's quickly recap it all together. In this part of the content, the wonderful Ray Dalio introduced a set of decision-making mechanisms practised within the Bridgewater Fund. These are called the "excellent ideas first" principle. In this mechanism, the company's decision-making is made in the most reasonable and scientific way. This method is the "credibility-weighted decision-making method". To make the "best ideas first" principle a reality, Dalio has introduced two key principles: transparency and truthfulness. While this is a great way to be honest and open with colleagues, it does mean that lots of new hires move on after a while.

And now for the last part of our chat! We've talked about the importance of principles at work, and we've also discussed how to develop your own. In the introduction to this book, Dalio also said that it's up to each of us to decide how valuable our principles are. It's not the principles themselves that matter most, but the way we think about them. It's only by forming our own principles that we can make the best decisions for ourselves. It's not really possible to build a principle by listening to other people's experiences. In essence, principles can only come from our own "pain plus reflection".

Dalio has a bit of a quirk, bless him. He likes to immerse himself in pain and review these mistakes. He even made an app, called Pain Button, which is dedicated to recording every mistake made and everything that causes pain and reflection.
For instance, he often talked about a mistake that had a huge impact on him. This unfortunate event took place in the early 1980s, when unemployment was high in the U.S. and major U.S. banks were holding a lot of debt from Latin American countries. In August 1982, Mexico defaulted on its debt, which was considered a crisis event at the time. Dalio was absolutely amazing and managed to predict this debt crisis. So, he was invited by the US Congress and Wall Street TV programmes to chat about the crisis. He went on to say in TV interviews that he felt there would be another economic crisis and a big bear market in the future. Later on, poor Dalio was hit hard when the Federal Reserve, in response to the crisis, adopted an easing policy. This resulted in a bull market for the United States that lasted for more than a decade!

 Dalio himself also had to face some tough times as a result of this misjudgement – he almost lost his fortune! But Dalio later recalled that it was this mistake that made him conduct a thorough reflection. He realised that he needed to change his thinking from "I am right" to "how do I know I am right". This made him think more rationally. Thankfully, this way of thinking helped him a lot during the next financial crisis. While other people were losing everything, Bridgewater Fund was still doing well.

So, Dalio's advice to us all is to make a note of our own mistakes and reflections, and to embrace the idea of being a "professional mistake maker" – it's all part of the learning journey! In fact, in our everyday work lives, we will experience so many things. Some of these experiences will teach us valuable lessons, while others might just give us a sudden flash of insight, leading us to some truly great ideas! It's so easy to forget things, isn't it? Our brains are wired to remember things in the short term, so as long as we don't intentionally repeat to remember something, we get the experience or think of a good idea, it is easy to forget. The wonderful book, "Principles", teaches us that the amazing experiences we gain from life and our careers should not just stay in our hearts, but we should also record them in a logical way and summarise them.

Dalio says he's actually a "professional mistake maker" in the book. This "professional mistake maker" doesn't mean he makes a lot of mistakes, but that after each mistake, he can understand it fully and rationally. This "professional mistake maker" doesn't mean he makes lots of mistakes. It means he's able to learn from his mistakes. He can reflect on what he did wrong and turn that into a lesson learned. So, failure can be a stepping stone to success, but only if you're open to learning from your mistakes. If you're not, you might just end up feeling frustrated and confused.

In this book, you'll find hundreds of principles, all summarised by Dalio himself. It's like his personal encyclopaedia of life! It's really easy to use! It's like a search engine. When you're facing challenges in your life or career, you can simply search for the relevant principles as a helpful guide for making decisions. As we mentioned at the start, the lovely folks at Dalio's Bridgewater Fund do something similar. They've even developed a tool called Coach within the company. If you're an employee and you're facing a challenge, you can simply type in a few key words and the tool will show you the relevant principles and solutions. Dalio and the Bridgewater Fund are like a well-oiled machine! They tackle every problem with the same rigour and precision. All the solutions are recorded and summarised into principles, so the next time you encounter a similar problem, you can easily find the appropriate solution and then implement it. So, you can see that both Dalio himself and his fund are pretty much always on the mark in the market, and they work really well together.

And now, we're going to wrap up this section on forming your own principles. Let's take a quick look at the key points. In this part of the book, Dalio suggests that we can only learn from our mistakes if we take the time to reflect on them. By doing so, we can turn our emotional experiences into rational summaries, which will help us to form our own principles and become "professional mistakes".

So, that's the gist of the book! Let's have a quick recap.

First, we had the pleasure of learning about Dalio's "Principles of Life". In this section, Dalio suggests that we all have the power to choose not to think and act in an animalistic way. He encourages us to keep an open mind in our lives, rejecting conceit and unnecessary self-esteem in order to recognise facts and truths. If you treat life as a scientist treats scientific research, you can truly become the master of your own life!

Secondly, in the "Principles of Work", Dalio introduces a set of decision-making mechanisms that are practised within the Bridgewater Fund. These are called the "Excellent Ideas First" principle. This is a great way of making decisions at the company. It's not about who's in what position, but about making the best, most rational decisions. What's more, the company uses a "credibility-weighted decision-making method" to make sure this principle is put into practice. To make it possible for the company to put the principle of "good ideas first" into practice, Dalio implements the principles of "extreme transparency and authenticity" in the company.

And finally, Dalio chats about how we can all create our own principles. It's totally okay if you don't take Dalio's principles at face value! Dalio says the most important thing is to form your own principles. You can only form your own principles by constantly reflecting on your mistakes, summarising your emotional experience into a rational summary, becoming a so-called "professional mistake-maker", making every mistake work for you, and finally using your own system of principles to drive your life, and fighting the complexity of the world with reason!

It's okay if you don't get it right first time. We all make mistakes, and that's how we learn.