PRINCIPLES, by Ray Dalio

What are the principles for achieving financial success? Today we are going to learn from someone who started from scratch until he became multibillionaires. We’re talking about Ray Dalio, who created one of the world’s most admired investment firms, Bridgewater Associates.

And he documented in a book all the principles he used to accomplish so much in his own company. It is not just abstract theory. What you will learn here today came from real practice and is proven by experience.

So today’s Arata Academy Summary brings out the best practical part of this book: [Principles, by Ray Dalio].

Principles are fundamental truths. Truths that serve as a solid foundation for choosing our best possible behavior.

When you behave on sound principles, you gain greater predictability, more effectiveness, and you can measure and improve your progress.

Think of your life principles as a machine that is producing results. And you have the role of being a scientist who will observe and improve the machine. The improvement will be done according to objective data that you collect using good principles.

Principles are the basis for achieving any goal.

With good principles, you have a better sense of reality, you can make better decisions and choices, communicate your ideas more clearly, and associate yourself with the right people.

Then you can follow a path of continuous improvement. Your continued improvement. Your principles will evolve over time and will become better and better.

You need to know your own principles and values ​​very well, just as it is important to understand the principles of the people you work with.

This is as true in your personal relationships as it is in your professional relationships. For any company to succeed, the principles must be aligned to have a greater degree of trust within the team.

When you examine success, you will find principles that guide correct decision making. They are rational decisions based on larger fundamentals.

So I will now show you the five-step framework for success in using principles. Briefly, you need:

01 – Set a goal.

02 – Identify specific obstacles that are making it difficult for you to reach that goal.

03 – Identify the deep origin of the obstacles.

04 – Develop a plan to overcome obstacles.

05 – Commit to execute the plan correctly.

Let’s now go into more detail:

First step to success: Set clear goals.

Your goals should be clear. They must be achievable and bring meaning to you.

People fail in life because they do not know how to choose between different options. If you can’t set goals, what does it mean? That you need to learn to reject other possibilities that seem interesting but should not be your priority.

The best way to choose the right goals is to know how to prioritize. To choose is to give up one thing to secure another. If you cannot reject some of the alternatives, you will try to do everything at the same time and will achieve nothing.

Do not confuse goals with desires. The real goal is what you really need to achieve. Wishes are things you would like to have but are not willing to pay the price to achieve.

Don’t discard a goal just because it seems unreachable today. Be bold. There is always a possibility. What is achievable only depends on the resources and knowledge you have now.

And as you move toward the implementation of your goal, you will discover new things and acquire new resources. And then new paths will appear before you.

At the same time, you need the flexibility to accept what reality will teach. You will need to learn to be responsible for your results. Failure to reach a goal is an indicator that you have not yet been creative or determined enough and that you still need to improve.

There will be times when you will come across major crises, problems and emergencies. When life presents these kinds of challenges, your mission is always to make the best choice possible and control your losses while protecting what you have already achieved. Here comes the second step:

Second step to success: Identify obstacles and don’t tolerate problems.

See painful problems as potential improvements that are screaming to get your attention. Every problem is an opportunity and because of this it is important that you examine these problems. Often the problem itself already has the solution.

Therefore, you need to pay attention to correctly interpret the facts and synthesize situations before deciding.

I know that thinking about problems can be unpleasant and bring anxiety, but putting problems under the rug and not thinking about them is even worse. Recognizing your problems should not be shameful. Rather, recognizing your problem is the first step in solving the problem.

Another important step is to be specific when identifying problems. Different problems have different solutions and so you need to be very precise when describing a problem. For example, if the problem is related to inadequate skill, better training may be required. If the problem is related to an intrinsic weakness, it may be better to replace people and redistribute the work.

Your amount of time and energy is limited so you need to know how to differentiate big problems from small ones. You must invest your time and energy to solve the problems that will bring the most results to you. At the same time, keep an eye on small problems so they don’t become big problems.

Once you identify a problem, don’t tolerate it anymore. Tolerating problems has the same consequences as not identifying the problem. People often tolerate problems for believing that the obstacle cannot be resolved, for not caring enough, or for not prioritizing problem solving. You should cultivate the habit of having zero tolerance to any kind of problem already identified. Identified problems have to be solved!

Of course when you come across errors, problems and frustrations, it will cause pain. Take this pain to reflect (stay until the end that I will explain in more detail how to do this). With reflection you will become better. That is why the Arata Academy philosophy is “Your continued improvement.”

You only get better when you act to change. It’s no use just thinking, understanding, having ideas. You need to implement different actions. There is only real learning when there is transformation. No use knowing, action is needed. Not acting is the same as not knowing.

But before you take action, it is best to ensure that you have the right information. This is the third step.

Third step to success: Make proper diagnosis of problems to understand the true causes.

A very common mistake people make is to take action ahead of time, before they have correctly diagnosed the problem.

To diagnose, you need to be rational, able to see multiple possibilities and be willing to have difficult conversations with others.

A good diagnosis is a process that can take a long time. It depends on the execution and also depends on the complexity of the problem. It is a process that involves talking to relevant people and looking for evidence to determine the root causes of the problem.

To make a good diagnosis, you cannot confuse the apparent cause and the root cause. The apparent cause is quite obvious, but dealing with the apparent cause not always means that similar new problems will not appear again.

The apparent cause is that which gives rise to the problem and can be described with a verb. For example, I can say that I missed the bus because I didn’t VERIFY the schedule. Not VERIFY (verb) is the apparent cause.

The root cause is that when you eliminate you are preventing the occurrence of similar new problems. The root cause is deeper and is usually described with adjectives. In this case, I say that I missed the bus because I was not ORGANIZED. Not being ORGANIZED (adjective) is the root cause. And I can solve this root cause by solving the organization problem using a calendar app with alerts.

You can only get rid of problems by removing the root cause. For this you must be able to identify the difference between the symptoms and the disease.

Most of the time, the people you work with will not be comfortable being honest with you and pointing out your mistakes and weaknesses. They do not want to hurt or offend you. This is an obstacle for you to make a good diagnosis of the situation. Therefore, define that it is important above all to have honesty in communication so that you can criticize others and also receive criticism. Only then will you develop a good plan, which is the next step.

Fourth step to success: Develop your plan.

When you work as a team, your plan is like a script for a movie where you wonder who will do what at what time. Get the whole picture first, and then you can go for the small details. As you test the plan, you discover new information and you can refine your plan so that it gets better and better.

If you work as a team, leave your plan written so that everyone can see and evaluate progress. When you write your plan, it is important to leave all the details about who should do what and when.

It doesn’t take much time to create a good plan. You can make good planning in just a few hours and you will use the information developed in this planning over several days or even over several weeks.

Therefore, the proportional time that is used in the development of the plan is pretty small compared to the time that will be used in the execution. This is an important observation because many people complain that they have no time available and go about doing things immediately without reflection or planning. Don’t be one of those people. Before you start taking action it is important that you do the planning.

For good planning, you need to use the time travel technique that I teach in our trainings. Basically you need to examine your past choices that have brought you to where you are today. And imagine what you need to do differently to achieve the desired results in the future. Also think about who are the right people to execute each part of the plan.

Understood? Before you act, look back and review the sequence of events that brought you to where you are now. Then visualize what you must do in the future to reach your goals.

A good way to do this is to think of your problem as a sequence of results produced by a machine. What changes should you make to the machine or your machine settings so that it delivers better results?

Remember that there are several ways to reach the goal. You just need to find a way that works well for you. And once you have that plan in hand, it’s time to execute, which is step number five.

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Fifth step to success: Execute your plan.

And finally you need to create routines and habits to properly execute the plan. Run. Think about the CEO of a company. CEO stands for Chief Executive Officer, is the person who executes.

It’s no use creating a plan if you don’t execute. You need discipline to do what has to be done. Remember all the vision you have developed so far, especially what is the relationship between the activities you have to do and the results you seek to achieve. When you are overwhelmed, unmotivated, paralyzed, always remember why you are doing all this.

Make sure you have good organization habits. When your to-do list is properly organized and prioritized, you’ll be much more likely to get everything done.

To make sure that the plan is running well, you need to set measurable goals. This will work even better when someone else is helping you measure your outcome. If you are not achieving the predefined results, this is a problem and you must identify the cause in order to improve.

So when implementing the plan, it is best to look for people who have the right experience to help you with that challenge. People with the right experiences can clearly identify the cause and effect relationships involved in certain problems and solutions.

I really want to emphasize this fifth step of execution. What you know doesn’t matter. What matters is what you do with what you know. When I collaborate with other entrepreneurs and partners, one of the compliments I enjoy most is my ability to execute. Just knowing things is irrelevant. It is necessary to do. And who wins the game? The one who performs better, faster and more. Keep watching carefully because I will show you the main ingredients for you also improve your execution.

To perform well you will need to have excellent decision making, collaboration and improvement methods.

So, to complete this Arata Academy Summary, I want to make it clear to you the three biggest lessons to implement in your life. You need to learn to: (1) decide better, (2) collaborate better, and (3) always improve.

First Life Lesson: Learn to decide better.

You need to decide effectively to increase the likelihood of doing what will bring the result you desire.

Most of our activities are influenced by unconscious and complex processes. Our challenge is to increase the number of good conscious decisions in a systematic and repeatable way.

Decision making has two steps: first we learn and then we decide.

When I say that we first learn, I mean that our decision is influenced by information that we believe to be true. That’s why it’s important to keep an open mind and humility to learn from people who have credibility and make better decisions.

The decision making process is one that we choose which knowledge to use. We attribute the appropriate value to information and determine what action to take, always thinking about the long-term consequences.

Improve your perception of reality.

There are several ways to improve your perception of reality. One way is to be able to synthesize facts accurately. Synthesizing is being able to reach a conclusion from different sources of information.

Another way to improve your perception of reality is to always keep in mind the perspective of things. When you examine any problem closely and in detail, this problem will seem bigger than it really is. So have the vision of the whole and don’t be a perfectionist.

Also, try to simplify. When you need to decide something, there are few factors that you really should consider that will make a difference.

The time dimension is another important factor for you to have a better perception of reality. Big changes take time and many times we can’t see the small advances because we are only looking at the end result.

Seek clarity in the conversations with your team. A confusing conversation is one that begins at a level of abstraction and detail and ends up getting lost in the details of other levels without reaching a conclusion, wasting everyone’s time.

Finally, think of each of your decisions as a probability calculation. This calculation takes into account the value of the reward in being right and the probability of being wrong and what the price to pay if it is wrong.

Second Life Lesson: Learn to collaborate with honesty and good communication.

To be effective you have to manage two different and often opposite needs: the need to be right and the need to find the truth.

You need to get closer to the truth. It doesn’t matter if the truth comes from you or if it comes from other people. You must break free from the pitfalls of the ego. Know when to listen to others who have truer information than your own perspective.

And for that you need to find people with a better perspective than yours and be open to learning from them. You need to control your ego and know when you must admit that you have no opinion on matters you do not master.

Don’t let your need to be right be more important than the need to find the truth. Beware of arrogance. If you have too much confidence in what you know or believe, you will learn less.

When you are responsible for how your team interacts, it is best to have principles that help honest collaboration and good communication. To do this, you and all members of your team need to commit to communicating honestly, clearly and transparently.

Therefore, it is important that there are clear methods for the team to decide if you do not come to an agreement. If you do not have a clear way to make decisions, there is a risk that choices are unfair and may cause resentment.

Use the credibility criterion to determine how to decide.

When two people are on the same level, it is reasonable to argue. However, when one person clearly has much more knowledge than another, it is better for the person with the least knowledge to take the role of an apprendice.

To do this well, you need to understand the concept of credibility. The credible person is one who has already succeeded in the subject being discussed repeatedly and has a solid track record of success stories.

When you have a different point of view than the person who has credibility in the subject, make it clear that you are asking questions because you are trying to understand their point of view and perspective.

On the other hand, when you are talking to someone and you are the most credible person, you can elegantly remember your credentials and suggest that they ask you questions.

Projects must be managed from a meritocracy of ideas.

In meritocracy of ideas, the most important thing is to arrive at the best decision possible. For this, everyone can present their opinions and criticisms openly. The best argument wins.

The meritocracy of ideas works best when there is a heavier weight given to the opinions of those with more experience in the subject.

Project members should be encouraged to brainstorm ideas and express themselves when they disagree with a decision. Everyone must be aligned with the same vision and mission, understand each other’s role and responsibilities.

Disagreement must be rational and thoughtful. Everyone should follow documented procedures on how to resolve conflicts.

Many people believe that peace must be maintained by avoiding conflict and by pretending that disagreements do not exist. This is a mistake. People who avoid getting into small conflicts eventually end up having big conflicts that can cause a breakup.

People who deal with minor conflicts on a daily basis tend to have the best long-term relationships. Conflict is a natural part of any relationship.

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Third Life Lesson: Create a system for your continuous improvement.

Your principles should be clearly written on paper so that you can consult and apply them in your own life. It is like documenting your principles for creating your own manual.

And when the principles are well written, you can also show and share them with others with whom you collaborate.

When you write your principles, you also have the advantage that you can evaluate and improve your own principles over time.

Pain is a sign that you are facing an opportunity for improvement and growth.

If you are not feeling pain, you are not getting better. You are operating within your comfort zone and this does not stimulate your growth.

Progress is made from pain combined with reflection. Discomfort is an important sign that there is something that must be learned and improved as long as you reflect.

Whenever you feel discomfort, write down in one word what emotion you are feeling. Anger, frustration, feeling overwhelmed. Make a note of the day and time.

Then reread what you wrote. Ponder and now write what you will do to lessen this pain in future cases.

It is certain that at some point in your life you will feel pain. The pain can be so great that you think you can’t go on. Suffering can seem endless and impossible to overcome. But you have the ability to overcome.

When you reflect on your problems, you notice that the problems get smaller because you can always use your head to find better ways to deal with those problems.

If you decide to persist, the pain will eventually subside and perhaps even become pleasure.

This practice helps you identify your limitations, accept weaknesses and learn how to deal with failures. This is how you become stronger.

Fail as a master.

Since you will fail anyway, fail as a master. That is, spend a lot of time reflecting on your mistakes. Learn the principles that will help you not to repeat the same failures.

This means that after a failure you must transform. When you make a sincere assessment, you need to be a different version of yourself after a failure, an improved version.

“Your continued improvement” means you can continually set bolder goals. These bolder goals allow you to fail and have great learning.

Therefore, you should already include in your planning the fact that you will be wrong several times. Learning from one’s mistakes is an essential skill.

Reflect to find good principles that can be reused in the future in similar situations. Find the common patterns of things that affect you so you can understand the cause and effect relationship.

Most people cannot evolve by keeping a closed mind.

All these principles of continuous improvement now bring us to the important distinction between open-minded and closed-minded people.

Those with a closed mind don’t want to argue and get frustrated when the other person has a disagreement. These closed-minded people feel very bad when they are wrong. Their highest priority is to prove that they are right.

Those who have an open mind are more curious to understand the reason for the disagreement. They don’t get nervous when the other person disagrees. They understand that there is always the possibility that they are wrong.

Those with an open mind ask more questions than make statements. They genuinely believe that they may be wrong and so they ask questions with sincere curiosity. On the other hand, closed-minded people vomit affirmations without letting others speak. They get into endless monologues and can spend all their time talking to themselves.

Most people have difficulty evolving because they keep a closed mind.

People refuse to look at their own problems and limitations because of ego traps. The problem with the ego is that it constantly wants to prove that we are right and we want other people to recognize that we are right.

When you have an open mind, you accept the possibility that you may be wrong. This allows you to explore different points of view without letting your ego get in the way.

The different ways we think can give rise to blind spots. Blind spots are those aspects that we do not realize and do not even realize that they exist.

That’s why the worst blind man is the one who doesn’t want to see. Using a radically open mind, we have a genuine concern that we are not seeing all the possibilities optimally.

When you acknowledge your ignorance in a particular field of knowledge, this will allow you to seek the information you need and grow to become better informed.

Keeping an open mind means considering the reasoning of others rather than being stubbornly stuck to your initial point of view. Be open to the point of encouraging people to present different points of view than yours.

A practical way to do this perspective exchange is to be quiet and listen to what the other person has to say. When they are done speaking, you can recap, you can “rewind”.

Without humility it is impossible to improve

To wrap up our conversation, I wanted to suggest that you put humility among your life principles.

Why humility? Because being humble is very much about keeping an open mind.

Humility is to understand where we are wrong, to exchange our opinions for better information, and thus to correct our own mistakes.

People without humility just want to prove that they are right and refuse to examine which aspects they may be wrong about.

The focus should not be on showing that you are right. The focus should be on learning, evolving, growing, being “less wrong”.

So when you find yourself in a situation where you disagree with someone else, understand that this is a great opportunity to learn something. Share your point of view respectfully and show sincere curiosity to understand each other’s point of view. This is the secret to keep improving.

It is not easy to change the way you behave and think. Facing one’s own mistakes and limitations can be very painful for the ego. This is why people find it difficult to evolve and improve and learn.

Being humble does not mean thinking small. You can have bold goals. This requires an abstract thinking of visualization as well as a practical thinking of prioritization.

How to have a prosperous life through principles? You will have to identify problems and take action not to allow these problems to continue. Zero tolerance to problems.

Make a diagnosis of problems using logical reasoning. View other possibilities. Have difficult conversations with other people. Develop good plans.

And most importantly, you need to put it all into practice, using discipline, good work habits, and being results oriented.

No person is good at doing all these things, so you need the humility to know what your weaknesses are and to identify where you will need help from others.

In the book Principles, Ray Dalio gives us valuable practical lessons that he himself learned from starting a company from scratch until it became one of the largest companies in his field.

This is a clear example of development. Developers need to learn to move from the current stage to a more advanced stage using the best available resources.

For you who want to make this kind of transformation, whether in your business or in your own life, I invite you to enjoy a special class on how to make improvements in your life starting with yourself. To view the class, just visit this link.