Sunday, April 17, 2011

Success Book Reviews: Ray Dalio's "Principles"

How do you become a billionaire? Solving one important problem at a time. That is one of the messages I take from one of the most unique “Success Books” I have ever read, billionaire Ray Daio’s Principles. The PDF is, apparently, freely available ( I don’t know if this has changed or will change)

The more I delve into the science of personal achievement, the more I am amazed at the incredible wealth of information that has been made freely available by successful people, such as Charlie Munger (billionaire), Charles Koch (billionaire) and many others. We are truly living in a wondrous age where such masters are eager to part with their secrets.

Why would these guys do such things? Why would they part with such life-changing information, passing it on to  the rest of us at zero or trivial cost? They are certainly not dumb. On reason could be that they may welcome the compounding effect that their works produce. In other words, if a billionaire writes a book that stimulates others to be entrepreneurial, visionary, productive, disciplined, etc, this could, eventually, have a significantly positive effect on the environment that the billionaire himself live in. For instance, hugely successful investor Monish Pabrai, took his idol, Warren Buffett to a $650,000 lunch, using profits accumulated by emulating Buffet (the money went to a charity Buffett favors). Great link about it here.

 Ray Dalio built and runs the largest hedge fund in the world (as of 2010), Bridgewater, managing, at the time of this writing, over $90 billion in assets. He wrote the Principles as a management document. Apparently the principles are “fractal” in that they worked for him, as the head of Bridgewater, and they work at all levels beneath him in the organization he created. So the incentive is clear in this case.

 His Principles range from the general and universal, down to the incredibly specific. What is the key to building such a might organization as Bridgewater?  An unflinching acceptance of reality, and the refusal to tolerate problems (also termed “badness”).   Consider this: where might the tolerances be more lax? Building a skyscraper or building an investment company? I would have to answer “probably the latter”.  Maybe that’s why very few skyscrapers fall down, and so many organizations do.  Dalio’s tolerances, in my opinion, are much closer to engineering /architectural tolerances, than a “soft”, “people-oriented” business tolerances.

Dalio has assembled a far-reaching exhaustive roup of rules designed to unmask “badness”. One of the reasons may be that people are not girders. They don’t come in standard sizes and specifications. Girders don’t have hidden agendas, egos, laziness, or lack of motivation. People, of course, do. So Dalio provides some methods to cut through the foibles of individual human behavior in order for the group to function as (in his term) a “machine”.

In the books and interviews I have read, it has seemed to me that many successful men such as Jamie Dimon, Bill Gates, and Jack Welch, have that same characteristic. Small, nagging problems, often related to peoples’ underperformance,  just cannot be tolerated because they have  a “multiplier effect”; perhaps similar to a bunch of rivets in a suspension bridge , if each rivet is just a little under “spec” , the sum total could be catastrophic.

One of Dalio’s tools for rooting out problems seems simple: an “issues log”.  Once you keep careful track of issues, you are well on the way to solving them. Simple? Maybe. Butt is the first time I encountered such a tool, and I am a bbig fan of success tools.  I have kept lists of goals, I have lists of visualizations, affirmations, etc, but I have never kept a separate “issues” log. But, when  you think of it, how else can you continually improve the purity of the outputs of your efforts?

Dalio also uses his incisive drive for clarity to make sure we separate functions (such as issue drilldown vs problem solving) so as not to muddy the waters when optimizing the organization

There is lots more  in the Principles. These principles demand courage. Personal courage. They demand faith that huge results come from facing every aspect of reality, working with it, and improving your results as quickly as possible.

This may be the most outstanding document of its kind, ever. I think it is a life-changing read.


Insp1re said...

Great article, I will be checking out the book!


GrayzBDF said...

Indeed. Nice review. I'll look into it. It's available for free on Mediafire.

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