Principles by Ray Dalio

Bridgewater
Summary:
  1. Ray Dalio lays out his values, his principles, that guide his life and his management philosophy. He has built each of these principles into Bridgewater from the beginning and made sure to hire people who fit into this culture. A fantastic way to approach life that can be translated into any walk of life and/or company culture
Key Takeaways:
  1. Having principles is extremely important because otherwise you have no framework on which to base decisions and events
  2. The most important principles are those which we experience directly and reflect on – not those we are taught or told to accept
  3. Extreme truthfulness – removing filters allows questions, issues, etc. to be raised immediately and answered. Most people/companies are too afraid or filtered to have these types of conversations but this is where growth happens and what separates the goods from the greats
  4. Mistakes are something to look forward to as this is where learning happens. How you approach mistakes is what separates the good from the great
What I got out of it:
  1. I will attempt to live my life by many of these principles. It will serve as a guide for the way I make decisions, approach mistakes, learn and decide which people I want to surround myself with. Without a doubt worth reading and can be found for free, here.

Introduction
  • Part 1 – purpose and importance of having principles in general
  • Part 2 – Ray’s most fundamental principles that guides everything he does
  • Part 3- Ray’s management principles which are in effect at Bridgewater
  • Wants us to decide what we want, what is true and what to do about it
  • Principles are concepts that can be applied over and over again in similar circumstances as distinct from narrow answers to specific questions.
  • I have thought hard about them, they have worked well for me for many years, and while they have stood up to  the scrutiny of the hundreds of smart, skeptical people, I also believe that nothing is certain
  • The principles that are most valuable to each of us come from our own encounters from reality and our reflections of these encounters, not from being taught or simply accepting other’s principles
Part 1 – The Importance of Principles
  • Principles connect your values to your actions
  • Without principles you’d be forced to react without thinking about your values and what you want
  • Holding incompatible principles can lead to conflict between values and actions
  • Your personal principles will determine your standards of behavior and how you interact with others
  • Question – What do you value most deeply?
    • For me, it is love. Somebody who loves regardless of others or their situation
 
Part 2 – My Most Fundamental Life Principles
  • In trying to learn how to beat the market, Dalio has learned:
    • It isn’t easy to be confident that our opinions are right – can do a huge amount of research and still be wrong
    • Bad opinions can be very costly
    • The consensus is often wrong, so be an independentthinker
  • Work for what you want, not what others want you to do
  • Come up with independent opinions and then stress-test them against the smartest people you can find to see where you’re wrong
    • Don’t care about their conclusions,just the reasoning that lead to these conclusions
  • What he wants most of all for those working with him are to work for yourself, come up with independent opinions, stress-test them, be wary about being overconfident and reflect on the consequences of your decisions and constantly improve
  • Limit bets to the limited number of things you are confident in
  • Started investing in  commodities future because margins were low, then learned a lot about currency and eventually ran a commodities division on wall street until being fired for insubordination. He then started Bridgewater
  • What he has learned since starting Bridgewater:
    • Failure is by and large due to not accepting and successfully dealing with the realities of live. Achieving success is simply a matter of accepting and successfully dealing with all realities
    • Finding out what is true, regardless of what that is, is good because you can then deal with these things so they don’t stand in your way
    • There is nothing to fear from truth. Being completely truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to feedback that is essential for our learning
    • Being truthful was an extension of freedom to be yourself – do not have dissonance as this often prevents you from being your best
    • Love real integrity (saying the same things as one believes) and despise the lack of it
    • Everyone makes mistakes and has weaknessesand that one of the most important things that differentiates people is their approach to handling them. There is an incredible beauty to mistakes, because embedded in each mistake is a puzzle, and a gem that I  could get if I solved it (a principle that could be used in teh future to reduce mistakes). The more you wrestle with these mistakes and learn from them the more you appreciate your successes
    • Figuring out for yourself what you want and how to get it is the best way of learning
    • Having questions is better than having answers because it leads to more learning
    • Pain is required to become stronger
    • Would rather be a backpacker who is exploring the world with little money than a person with a big income who doesn’t enjoy their job
    • Offering equal opportunity is fundamental to being good, while handing out money to capable people that weakens their need to get stronger and contribute to society is bad
    • Must deeply understand, accept and work with reality in order to get what we want out of life – he has become a hyperrealist
  • Truth – more precisely, an accurate understanding of reality – is the essential foundation for producing good outcomes
    • What most people call “good” and “bad” typically reflects their particular group’s preferences and are intended to paint a picture of the world the way they’d like it to be rather than the way it really is
    • All get rewarded or punished according to whether we operate in harmony or in conflict with nature’s laws
    • Good – operating consistently with natural laws
    • Bad – operating inconsistently with natural laws
    • Evolution is the greatest single force in the universe since it fosters better adaptation. Bad things therefore are against improvement and impede evolution
    • The desire to evolve, get better, is probably humanity’s most pervasive driving force
    • It is evolution and not the reward itself (money, houses, etc) that matters to us and those around us
    • People who acquire things beyond their usefulness not only will derive little or no marginal gains from these acquisitions, but they also will experience negative consequences, such as gluttony
    • Pursuing self-interest in harmony with the laws of the universe and contributing to evolution is universally rewarded, and can be thought of as “good”
    • Society rewards those who give it what it wants. These people often do not have the goal of making money but it was simply a result of their actions
    • The process of seeking, reaching, obtaining and pursuing new goals is universal and necessary
    • Some of the most successful people are typically those who see the changing landscape and identify how to best adapt to it
    • All things in nature have innate attributes that are both good and bad with their goodness and badness depending on what they are used for
    • Typically, defensive, emotional reactions (ego barriers) stand in the way of progress and this is man’s biggest impediment because it impedes people’s abilities to address all other problems and is also probably people’s greatest source of pain
  • The quality of our lives depends on the quality of the decisions we make
    1. In order to evolve one has to push one’s limits, which is painful, in order to gain strength. When we encounter pain we are at an important juncture in our decision making process. Those who react well to pain are those who understand what is causing it and how to deal with it so can be disposed of as a barrier. You are lucky to feel the pain if you approach it correctly since you will only find solutions to painful problems by thinking deeply about them
    2. Facing harsh realities can be difficult but by not facing them, you won’t find ways of properly dealing with them and because these decisions will not be based in reality, they can’t anticipate the consequences of their decisions
    3. People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future. Being great is not about having answers in your head, it is about learning how to deal with your impediments so that they aren’t impediments in the future. The people who are interested in making the best possible decisions rarely are confident that they have the best possible answers. Incredibly important to be honest with yourself about what you don’t know and know who to ask for help. Question – what are your biggest weaknesses? Think honestly about them because if you can identify them, you are on the first step toward accelerating your movement forward. So, think about them, write them down, and look at them frequently.
      1. too happy / satisfied – not desperate enough to take a big risk
      2. not prone to action/deep analysis – often have very many surface thoughts
      3. enjoy being a jack of all trades – may impede being truly great at something
      4. not as truthful as I could be – often tell white lies so that I can do what I want instead of being outright and honest
    4. People who overweigh the first order consequences of their decisions and ignore the effects of second and subsequent order consequences will have on their goals rarely reach their goals. First order consequences are often the temptations that cost us what we really want
    5. People who blame bad outcomes on anyone or anything other than themselves are behaving in a way that is at variance with reality and subversive to their progress. Blaming bad outcomes or anything or anyone other than oneself is essentially wishing that reality is different than it is and is subversive because it diverts one’s attention away from mustering up the personal strength and other qualities that re required to produce the best possible outcomes. Successful people know that nature is testing them and that it is not sympathetic
  • The one quality that those who make the right choice have, it is character – the ability to get one’s self to do the difficult things that produce the desired results
  • Success is nothing more than getting what you want – what is essential is that you are clear about what you want and that you figure out how to get it
  • Personal evolution is both the greatest accomplishment and the greatest reward
  • People need meaningful work and meaningful relationships in order to be fulfilled
  • If you can reflect deeply about your problems, they almost alway shrink or disappear because you almost always find a better way of dealing with them than if you don’t face them head on. The more difficult the problem, the more important it is that you think deeply
  • Those who are most successful are capable of higher level thinking – able to step back and design a “machine” consisting of the right people doing the right things to get what they want
  • The biggest mistake most people make is not to see themselves and others objectively. If they could get around this, they could live up to their potentials
  • 5 Steps to getting what you want out of life
    1. Have clear goals
      • Perhaps the most difficult step because it forces you to decide what you really want and therefore what you can possibly get out of life
      • Pursuing too many goals at the same time often results in achieving few, or none, of them
      • Need to prioritize and this requires rejecting MANY good alternatives
      • Avoid setting goals based on what you think you can achieve – you can achieve virtually anything even if you don’t know how you will do it at that moment
      • Be totally flexible (good answers can come from anyone or anywhere) and totally accountable (it’s your job to find these good answers no matter where they come from)
      • Achieving goals isn’t just about moving forward – make the best of your situation knowing that you will be rewarded if you do
    2. Identify and tolerate the problems that stand in the way of achieving your goals
      • Most problems are potential improvements screaming at you. The more painful the problem, the louder it is creaming – must perceive problems and not tolerate them
      • Essential to bring problems to the surface which may be painful but most successful people know that they have to do this
      • Be very precise in specifying your problem
      • Don’t confused problems with causes
      • Once you identify your problems, you must not tolerate them
        • People who are strong at this step tend to have strong abilities to perceive and synthesize a clear and accurate picture, as well as demonstrate a fierce intolerance of badness (regardless of severity)
    3. Accurately diagnose these problems
      • Do not jump to solutions, focus on diagnosis and design
      • You must be calm and logical
      • You must get at the root cause(s) – can only eliminate problems by eliminating root causes
      • Recognizing and learning from one’s mistakes and the mistakes of others who affect outcomes is critical to eliminating problems. Must look at yourself and your mistakes objectively!
      • Must be willing to look at your own behavior and the behavior of others as possible causes of problems
      • The most important qualities for successfully diagnosing problems are logic, the ability to see multiple possibilities, and the willingness to touch people’s nerves to overcome the ego barriers that stand in the way of truth
    4. Design plans that explicitly lay out tasks that will get you around your problems and on to your goals
      • When designing solutions, the objective is to change how you do things so that problems don’t recur, or at least as often
      • An effective design requires thinking things through and visualizing how things will come together and unfold over time
      • Write down the plan so that you don’t lose sight of it and include who needs to do what and when
      • If the plan will not achieve what’s necessary in the required time, so that the consequences are unacceptably high, you have to either think harder to make the plan do what is required or reduce your goals
      • Most people make the very big mistake of spending  virtually no time on this step because they are too preoccupied with execution
    5. Implement these plans
      • Each day you must know what is required and have the discipline to do it
      • Establish clear benchmarks so that you know how you are progressing relative to the plan
      • Changing goals often is usually a problem because achieving them requires consistent effort
    • Important – do not blur these steps as the process is iterative, each step requires different talents and disciplines (be honest about weaknesses), essential to approach process in a clear headed, non-emotional way, you do not need to have all the skills but need to figure out what you don’t have and how to get them. You deserve to get what you want if you follow this process
  • In the long run, doing the things that will make you successful is a lot easier than being unsuccessful (el flojo trabaja el doble!)
  • Identifying problems is like finding gems embedded in puzzles; if you solve puzzles you will get the gems that will make your life much better
  • One of the best ways of arriving at truth is reflecting with others who have opposing views and who share your interest in finding the truth rather than being proven right
  • Ask yourself what is your biggest weakness that stands in the way of what you want. Successful people find and address these weaknesses, unsuccessful people don’t. Important to have people or a team around you who are truthful and caring enough to show you your weaknesses because often it is very hard for us to see our own
  • Life is like a game where you seek to overcome the obstacles that stand in the way of achieving your goals
  • In order to be happy, we have to be excellent and continue to improve at a surprisingly fast rate. Must be hyperrealistic and hypertruthful for this to happen. Biggest impediment to making this happen is the willingness to face their own mistakes and weaknesses and those of others
  • True caring means recognizing and successfully dealing with our realities, whatever they are. In no way does caring mean being soft
Part III – My Management Principles
  • A great company requires both a great culture and great people
  • If there are too few and/or bad quality feedback loops there will be a decline because you won’t identify and deal with the problems that will kill you
  • The most important difference between great organizations and bad ones is in how well they manage their feedback loops
  • Ray’s ~200 principles:
  1. Trust in truth
  2. Realize you have nothing to fear from truth
  3. Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up about it
  4. Be extremely open – leads to truth and trust (don’t filter)
  5. Have integrity and demand it from others
    • Never say anything about a person you wouldn’t say to them directly and don’t try people without accusing them to their face
    • Don’t let “loyalty” stand in the way of truth and openness
  6. Be radically transparent
    • Record almost all meeting and share them with all relevant people
  7. Don’t tolerate dishonesty
    • Don’t believe it when someone caught being dishonest says they have seen the light and will never do that sort of thing again
  8. Create a culture in which it is OK to make mistakes but unacceptable not to identify, analyze and learn from them
  9. Recognize that effective, innovative thinkers are going to make mistakes
  10. Do not feel bad about your mistakes or those of others. Love them!
  11. Observe the patterns of mistakes to see if they are a product of weaknesses
  12. Do not feel bad about your weaknesses or those of others
  13. Don’t worry about looking good – worry about achieving your goals. Most valuable comments are accurate criticisms
  14. Get over “blame” and “credit” and get on with “accurate” and “inaccurate”
  15. Don’t depersonalize mistakes. Identifying who made the mistake(s) is essential for learning
  16. Write down your weaknesses and the weaknesses of others to help remember and acknowledge them
  17. When you experience pain, remember to reflect. This is the ultimate time to test yourself to see if you can learn and grow from your pain 
  18. Be self-reflective and make sure your people are self-reflective. When experiencing pain, don’t revert to fight or flight – reflect
  19. Teach and reinforce the merits of mistake-based learning
    • The most valuable tool we have for this is the issues log which is aimed at identifying and learning form mistakes
  20. Constantly get in Sync – constantly search for alternative viewpoints
  21. Constantly get in sync about what is true and what to do about it
  22. Talk about “is it true?” and “does it make sense?”
  23. Fight for right
  24. Be assertive and open-minded at the same time
    • Ask yourself whether you have earned the right to have an opinion
    • Recognize that you always have the right to have and ask questions
    • Distinguish open-minded people from closed-minded people
    • Don’t have anything to do with closed-minded, inexperienced people
    • Be wary of the arrogant intellectual who comments form the stands without having played on the field
    • Watch out for people who think it’s embarrassing not to know
  25. Make sure responsible parties are open-minded about the questions and comments of others
  26. Recognize that conflicts are essential for great relationships because they are the means by which people determine whether their principles are aligned and resolve their differences – don’t let the little issues slide as this always results in a big blow up later
    • Expect more open-minded disagreements at Bridgewater than at most other firms
    • There is giant untapped potential in disagreement, especially if the disagreement is between two or more thoughtful people
  27. Know when to stop debating and move on to agreeing about what should be done – more important to do the big things well than the small things perfectly
    • However, when people disagree on the importance of debating something, it should be debated
    • Recgonize that “there are many good ways to skin a cat”
    • For dissagreemtns to have a positive effect, people evaluating an individual decision or decision-maker must view the issue within a broader context
    • Distinguish between idle complaints and complaints that are meant to lead to improvement
  28. Appreciate that open debate is not meant to create rule by referendum
  29. Evaluate whether an issue calls for debate, discussion or teaching
    • To avoid confusion, make clear which kind of conversation (debate, discussion or teaching) you are having
    • Communication aimed at getting the best answer should involve the most relevant people
    • Communication aimed at educating or boosting cohesion should involve a broader set of people than would be needed if the aim were just getting the best answer
    • Leverage your communication (open e-mails to a FAQ board to be time efficient)
  30. Don’t treat all opinions as equally valuable
    • A hierarchy of merit is not only consistent with a meritocracy of ideas but essential for it
  31. Consider your own and others’ “believabilities” – probability that a person’s views will be right
    • Ask yourself whether you have earned the right to have an opinion – it is much more difficult to have an opinion (a proper one at least) than most understand
    • People who have repeatedly and successfully accomplished the thing in question and have great explanations when probed are most believable. The less of a track record someone has, the more questions they should have and the more experience the more assertive they should be
    • If someone asks you a question, think first whether you’re the responsible party/right person to be answering the question
  32. Spend lavishly on the time and energy you devote to “getting in sync” because it’s the best investment you can make
  33. If it is your meeting to run, manage the conversation
    • Make it clear who the meeting is meant to serve and who is directing the meeting
    • Make clear what type of communication you are going to have in light of the objectives and priorities – the worst people to choose to have in meetings with you are those who’s views align with yours
    • Lead the discussion by being assertive and open-minded
    • A small group (3 to 5) of smart, conceptual people seeking the right answers in an open-minded way will generally lead to the best answer
    • 1+1 = 3 – two smart people working together are much more effective than if working alone
    • Navigate the levels of the conversation clearly
    • Watch out for “topic slip” – come to a conclusion on a topic before moving on
    • Enforce the logic of conversations
    • Worry about substance more than style
    • Achieve completion in conversations – state the conclusion before moving on
    • Have someone assigned to maintain notes in meetings and make sure follow-through happens
    • Be careful not to lose personal responsibility via group decision making
  34. Make sure people don’t confuse their right to complain, give advice and debate with the right to make decisions
  35. Recognize that getting in sync is a two-way responsibility
  36. Escalate if you can’t get in sync
  37. Recognize the most important decisions you make are who you choose to be responsible party
  38. Remember that almost everything good comes from having great people operating in a great culture
  39. First, match the person to the design
    • Most importantly, find people who share your values – drive for excellence, truth at all costs, a high sense of ownership and a strong sense of character
    • Look for people who are willing to look at themselves objectively and have character – what Ray respects most in people
    • Conceptual thinking and common sense are required in order to assign someone the responsibility for achieving goals (as distinct form tasks)
  40. Recognize that the inevitable party is the person who bears the consequences of what is done
  41. By and large, you will get what you deserve over time
  42. The most important responsible parties are those who are most responsible for the goals, outcomes, and machines (they are those higher in the pyramid)
  43. Choose those who understand the difference between goals and tasks to run things
  44. Recognize that people are built very differently
  45. Think about their very different values, abilities and skills
  46. Understand that each person who works for you is like so that you know what to expect from them
  47. Recognize that the type of person you fit in the job must match the requirements for that job
  48. Use personality assessment tests and quality reflections on experiences to help you identify these differences
  49. Understand that different ways of seeing and thinking make people suitable for different jobs
    • People are best at the jobs that require what they do well
    • If you’re not naturally good at one type of thinking, it doesn’t mean you’re precluded from paths that require that type of thinking
  50. Don’t hide these differences. Explore them openly with the goal of figuring out how you and your people are built so you can put the right people in the right jobs and clearly assign responsibilities
  51. Remember that people who see things and think one way often have difficulty communicating and relating to people who see things and think another way
  52. Hire right, because the penalties of hiring wrong are huge
  53. Think through what values, abilities and skills you are looking for
  54. Weigh values and abilities more heavily than skills in deciding whom to hire
  55. Write the profile of the person you are looking for into the job description
  56. Select the appropriate people and tests for assessing each of these qualities and compare the results of those assessments to what you’ve decided is needed for the job
    • Remember that people tend to pick people like themselves, so pick interviewers who can identify what you are looking for
    • Understand how to use and interpret personality tests
    • Pay attention to people’s track records
    • Dig deeply to discover why people did what they did – understanding the why helps you understand that person’s values
    • Recognize that performance in school, while of some value in making assessments doesn’t tell you much about whether the person has the values and abilities you are looking for
    • Ask for past reviews
    • Check references
  57. Look for people who have lots of great questions
  58. Make sure candidates interview you and Bridgewater
  59. Don’t hire people just to fit the first job they will do at Bridgewater, hire people you want to share your life with
  60. Look for people who sparkle, not just “another one of those”
  61. Hear the click: find the right fit between the role and the person
  62. Pay for the person, not for the job
  63. Recognize that no matter how good you are at hiring, there is a high probability that the person you hire will not be the great person you need for the job
  64. Manage as someone who is designing and operating a machine to achieve the goal
  65. Understand the difference between managing, micromanaging and not managing – managing requires you to understand how well your people and designs are working to achieve your goal and then refining this system
    • Managing the people who report to you should feel like “skiing together”
    • An excellent skier is probably going to be more critical and a better critic of another skier than a novice skier
  66. Constantly compare your outcomes to your goals
  67. Look down on your machine and yourself within it from the higher level – have the proper perspective
  68. Connect the case at hand to your principles for handling cases of that type
  69. Conduct the discussion at two levels when a problem occurs – the “machine” level discussion of why the machine produced that outcome and the “case at hand” discussion of what to do now about the problem
  70. Don’t try to be followed; try to be understood and to understand others
    • Don’t try to control people by giving them orders
    • Communicate the logic and welcome feedback – explain the principles and logic behind decisions
  71. Clearly assign responsibilities – eliminate any confusion about expectations
  72. Hold people accountable and appreciate them holding you accountable
    • Distinguish between failures where someone broke their “contract” from ones where there was no contract to begin with
  73. Avoid the “sucked down” phenomenon – when manager gets brought down to do the tasks of a subordinate without acknowledging the problem
    • Watch out for people who confuse goals and tasks because you can’t trust people with responsibilities if they don’t understand the goals
  74. Think like an owner, and expect the people you work with to do the same
  75. Force yourself and the people who work for you to do difficult things
    • Hold yourself and others accountable
  76. Don’t worry if your people like you; worry about whether you are helping your people and Bridgewater to be great
  77. Know what you want and stick to it if you believe it’s right, even if others want to take you in another direction
  78. Communicate the plan clearly
    • Have agreed-upon goals and tasks that everyone knows (from the people in the departments to the people outside the departments who oversee them)
    • Watch out for the unfocused and unproductive “we should…(do something”
  79. Constantly get in sync with your people
  80. Get a “threshold level of understanding”
  81. Avoid staying too distant
    • Tool – use daily updates as a tool for staying on top of what your people are doing and thinking
  82. Learn confidence in your people – don’t presume it
  83. Vary your involvement based on your confidence
  84. Avoid the “theoretical should”
  85. Care about the people who work for you
  86. Logic, reason and common sense must trump everything else in decision making
  87. While logic drives our decisions, feelings are very relevant
  88. escalate when you can’t adequately handle your responsibilities, and make sure that the people who work for you do the same
    • Make sure your people know to be proactive
    • Tool – an escalation button
  89. Involve the person who is the point of the pyramid when encountering material cross-departmental or cross sub-departmental issues
  90. Probe deep and hard to learn what to expect from your “machine”
  91. Know what your people are like and make sure they do their jobs excellently
  92. Constantly probe the people who report to you and encourage them to probe you
    • Remind the people you are probing that problems and mistakes are fuel for improvement
  93. Probe the level below the people who work for you
  94. Remember that few people see themselves objectively, so it’s important to welcome probing and to probe others
  95. Probe so that you have a good enough understanding of whether problems are likely to occur before they actually do
    • When a crisis appears to be brewing, contact should be so close that it’s extremely unlikely that there will be any surprises
    • Investigate and let people know you are going to investigate so there are no surprises and they don’t take it personally
  96. Don’t “pick your battles.” Fight them all
  97. Don’t let people off the hook
  98. Don’t assume that people’s answers are correct
  99. Make the probing transparent rather than private
  100. Evaluate people accurately, not “kindly”
  101. Make accurate assessments
    • Use evaluation tools such as performance surveys, metrics and formal reviews to document all aspects of a person’s performance. These will help clarify assessments and communication surrounding them
    • Maintain “baseball cards” and/or “believability matrixes” for your people – ratings, rankings, credentials, track record
  102. Evaluate employees with the same rigor as your evaluate job candidates
  103. Know what makes your people tick, because people are your most important resource
  104. Recognize that while most people prefer compliments over criticism, there is nothing more valuable than accurate criticisms
  105. Make this discovery process open, evolutionary and iterative
  106. Provide constant, clear and honest feedback and encourage discussion of this feedback
    • Put your compliments and criticisms into perspective
    • Remember that convincing people of their strengths is generally much easier than convincing them of their weaknesses
    • Encourage objective reflection – lots and lots of it
    • Employee reviews – the goal of a review is to be clear about what the person can and cannot be trusted with and from there “what can I do about it” can be assessed
  107. Understand that you and the people you manage will go through a process of personal evolution
  108. Recognize that your evolution should be relatively rapid and a natural consequence of discovering your strengths and weaknesses; as a result, your career path is not planned at the outset
  109. Remember that the only purpose of looking at what people did is to learn what they are like
    • Look at patterns of behaviors and don’t read too much into any one event
    • Don’t believe that being good or bad at some things means that the person is good or bad at everything
  110. If someone is doing their job poorly, consider whether this is due to inadequate learning (training/experience) or inadequate ability
  111. Remember that when it comes to assessing people, the two biggest mistakes are being overconfident in your assessment and failing to get in sync on that assessment. Don’t make those mistakes
    • Get in sync in a non-hierarchical way regarding assessments
    • Learn about your people and have them learn about you with very frank conversations about their mistakes and their root causes
  112. Help people through the pain that comes with exploring their weaknesses
  113. Recognize that when you are really in sync with people about weaknesses, whether yours or theirs, they are probably true
  114. Remember that you don’t need to get to the point of “beyond a shadow of a doubt” when judging people
  115. Understand that you should be able to learn the most about what a person is like and whether they are a “click” for the job in their first year
  116. Continue assessing people throughout their time at Bridgewater
  117. Train and test people through experiences
  118. Understand that training is really guiding the process of personal evolution
  119. Know that experience creates internalization
  120. Provide constant feedback to put the learning in perspective
  121. Remember that everything is a case study
  122. Teach your people to fish rather than give them fish
  123. Recognize that sometimes it is better to let people make mistakes so that they can learn from them rather than tell them the better decision
    • When criticizing, try to make helpful suggestions
    • Learn from success as well as from failure – point out people who are performing a job well so there is a role model to replicate
  124. Know what types of mistakes are acceptable and unacceptable, and don’t allow the people who work for you to make the unacceptable ones
  125. Recognize that behavior modification typically takes about 18 months of constant reinforcement
  126. Train people; don’t rehabilitate them
    • A common mistake – training and testing a poor performer to see if he/she can acquire the required skills without simultaneously trying to assess their abilities
  127. After you decide “what’s true” (after you figure out what your people are like), think carefully about “what to do about it”
  128. Sort people into other jobs at Bridgewater, or remove them from Bridgewater
  129. When you find that someone is not a good “click” for a job, get them out of it ASAP
  130. Know that it is much worse to keep someone in a job who is not suited for it than it is to fire someone
  131. When people are “without a box,” consider whether there is an open box at Bridgewater that would be a better fit. If not, fire them
  132. Do not lower the bar
  133. Know how to perceive problems effectively
  134. Keep in mind the 5-step process explained in Part 2
  135. Recognize that perceiving the problems is the first essential step toward great management
  136. Understand that problems are the fuel for improvement
  137. You need to be able to perceive if things are above the bar (good enough) or below the bar (not good enough) and you need to make sure your people can as well
  138. Don’t tolerate badness
  139. “Taste the soup” – try out your product often and analyze it against your vision of what excellent should be
  140. Have as many eyes looking for problems as possible
    • “Pop the cork”
    • Hold people accountable for raising their complaints
    • The people closest to certain jobs probably know them best, or at least have perspectives you need to understand, so those people are essential for creating improvement
  141. To perceive problems, compare how the movie is unfolding relative to your script
  142. Don’t use the acronyms “we” and “they,” because that masks personal responsibility – use specific names
  143. Be veyr specific about problems; don’t start with generalizations
  144. Tool – use the following tools to catch problems – issue logs, metrics, surveys, checklists, outside consultants and inside auditors
  145. The most common reason problems aren’t perceived is what I call the “frog in the boiling water” problem – there is a strong tendency to get used to very bad things which would be shocking of seen with fresh eyes
  146. In some cases, people accept unacceptable problems because they are perceived as being too difficult to fix. Yet fixing unacceptable problems is actually a lot easier than not fixing them, because not fixing them will make you miserable
    • Problems that have good, planned solutions are completely different from those that don’t
  147. Diagnose to understand what the problems are symptomatic of
  148. Recognize that all problems are just manifestations of their root causes, so diagnose to understand what the problems are symptomatic of
  149. Understand that diagnosis is foundational both to progress and quality relationships
  150. Ask the following questions when diagnosing:
    • Ask what suboptimally did you experience?
    • Is there a clear responsible party for the suboptimality?
    • Ask responsible party what the “mental map” was supposed to work
    • Ask what, if anything, broke the situation
    • Ask why they handled the problem the way they did (root cause is not action or a reaction – it is a reason
    • Is this consistent with prior patterns?
  151. Remember that a root cause is not an action but a reason
  152. Identify which step failure occurred in the 5-step process
  153. Remember that a proper diagnoses requires a quality, collaborative and honest discussion to get at the truth
  154. Keep in mind that diagnoses should produce outcomes
  155. Don’t make too much out of one “dot” – synthesize a richer picture by squeezing lots of “dots” quickly and triangulating with others
  156. Maintain an emerging synthesis by diagnosing continuously
  157. To distinguish between a capacity issue and a capability issue, imagine how the person would perform at that particular function if they had ample capacity
  158. The most common reasons managers fail to produce excellent results or escalate are they are too far removed, have problems discerning quality differences, have lost sight of how bad things have become, too much pride to admit poor work, fear adverse consequences from admitting failure
  159. Avoid “monday morning quarterbacking” – hindsight is always 20/20 – imagine what could have reasonably been known when the decision was made
  160. Identify the principles that were violated
  161. Remember that if you have the same people doing the same things, you should expect the same results
  162. Use the following “drilldown” technique to gain an 80/20 understanding of a department or sub-department that is having problems – list problems and causes/diagnoses, design a plan, execute, monitor and modify the plan. People perform poorly either because of insufficient training or insufficient ability. Your job as a manager to get at truth and excellence, not to make people happy
  163. Put things in perspective
  164. Go back before going forward
    • Tool – have all new employees listen to tapes of “the story” to bring them up to date
  165. Understand “above the line” and “below the line” thinking and how to navigate between the two
  166. Design your machine to achieve your goals
  167. Remember, you are designing a “machine” or system that will produce outcomes
    • A short-term goal probably won’t require you to build a machine
    • Beware of paying too much attention to what is coming at you and not enough attention to what your responsibilities are or how your machine should work to achieve your goals
  168. Don’t act before thinking. Take the time to come up with a game plan
  169. The organizational design you draw up should minimize problems and maximize capitalization opportunities
  170. Put yourself in the “position of pain” for a while so that you gain a richer understanding of what you’re designing for
  171. Recognize that design is an interative process; between a bad “now” and a good “then” is a “working through it” period
  172. Visualize alternative machines and their outcomes, and then choose
  173. Think about second and third-order consequences as well as first-order consequences
  174. Most importantly, build the organization around goals rather than tasks
    • First come up with the best workflow design, sketch it out in an organizational chart, visualize how the parts interact, specify what qualities are required for each job, and , only after that is done, choose the right people to fill the jobs
    • Organize departments and sub-departments around the most logical groupings
    • Make departments as self-sufficient as possible so that they have control over the resources they need to achieve the goals
    • The efficiency of an organization decreases and the bureaucracy increases in direct relation to the increase in the number of people and/or the complexity of the organization
  175. Build your organization from the top down
    • Everyone must be overseen by a believable person who has high standards
    • The people at the top of each pyramid should have the skills and focus to manage their direct reports and a deep understanding of their jobs
    • The ratio of senior managers to junior managers and to the number of people who work two levels below should be limited, to preserve quality communication and mutual understanding
    • The number of layers from top to bottom and the ratio of managers to their direct reports will limit the size of an effective organization (about 5 to 1)
    • The larger the organization, the more important are the information technology expertise in management and cross-departmental communication
    • Do not build the organization to fit the people
  176. Have the clearest possible delineation of responsibilities and reporting lines
    • Create an organizational chart to look like a pyramid, with straight lines down that don’t cross
  177. Constantly think about how to produce leverage
    • You should be able to delegate the details away- if not your employees are either badly trained or they are the wrong people – manager should only have to worry about things going smoothly
    • It is far better to find a few smart people and give them the best technology than to have a greater number of ordinary and less well-equipped people
    • Use “leveragers”
  178. Understand the clover-leaf design – 2 to 3 responsible parties who are willing to challenge and check each other (more likely to fight for what they believe in and sorting out issues earlier than they otherwise would be)
  179. Don’t do work for people in another department or grab people from another department to do work for you unless you speak to the boss
  180. Watch out for “department slip”
  181. Assign responsibilities based on workflow design and people’s abilities, not job titles
  182. Watch out for consultant addiction
  183. Tool – maintain a procedure manual
  184. Tool – use checklists
    • Don’t confuse checklists with personal responsibility
    • Remember that “systematic” doesn’t necessarily mean computerized
    • Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly
  185. Watch out for “job slip”
  186. Think clearly how things should go and when they aren’t going that way, acknowledge it and investigate
  187. Have good controls so that you are not exposed to the dishonesty of others and trust is never an issue
    • People doing auditing should report to people outside the department being audited, and auditing procedures should not be made known to those being audited
    • Remember there is no sense in having laws unless you have policemen (auditors)
  188. Do what you set out to do
  189. Push through! – you must MAKE great things happen
  190. Recognize the power of knowing how to deal with not knowing
  191. Recognize that your goal is to come up with the best answer, that the probability of your having it is small, and that even if you have it, you can’t be confident that you do have it unless you have other believable people test you
  192. Understand that the ability to deal with not knowing is far more powerful than knowing
    • Embrace the power of asking “What don’t I know, and what should I do about it?”
    • Finding the path to success is at least as dependent on coming up with the right questions as coming up with answers
  193. Remember that your goal is to find the best answer, not to give the best one you have
  194. While everyone has the right to have questions and theories, only believable people have the right to have opinions
  195. Constantly worry about what you are missing
    • Successful people ask for the criticism of others and consider its merit
    • Triangulate your view – never make important decisions without asking at least 3 believable people and ask them to probe your own reasoning
  196. Make all decisions logically, as expected value calculations
  197. Considering both the probabilities and the payoffs of the consequences, make sure that the probability of the unacceptable (the risk of ruin) is nil
    • The cost of a bad decision is equal to or greater than the reward of a good decision, so knowing what you don’t know is at least as valuable as knowing
    • Recognize opportunities where there isn’t much to lose and a lot to gain, even if the probability of the gain happening is low
    • Understand how valuable it is to raise the probability that your decision will be right by accurately assessing the probability of your being right
    • Don’t bet too much on anything. Make 15 or more good, uncorrelated bets
  198. Remember the 80/20 Rule, and know what the key 20% is
  199. Distinguish the important things from the unimportant things and deal with the important things first
    • Don’t be a perfectionist
    • Since 80% of the juice can be gotten with the first 20% of the squeezing, there are relatively few (typically less than five) important things to consider in making a decision
    • Watch out for “detail anxiety”
    • Don’t mistake small things for unimportant things, because some small things can be very important
  200. Think about the appropriate time to make a decision in light of the marginal gains made by acquiring additional information versus the marginal costs of postponing the decision
  201. Make sure all the “must do’s” are above the bar before you do anything else
  202. Remember that the best choices are the ones with more pros than cons, not those that don’t have any cons. Watch out for people who tend to argue against something because they can find something wrong with it without properly weighing all the pros against the cons
  203. Watch out for unproductively identifying possibilities without assigning them probabilities, because it screws up prioritization
  204. Understand the concept and use the phrase “by and large”
    • When you ask someone whether something is true and they tell you that “it’s not totally true,” it’s probably true enough
  205. Synthesize
  206. Understand and connect the dots
  207. Understand what an acceptable rate of improvement is, and that it is the level and not the rate of change that matters most
  208. If your best solution isn’t good enough, think harder or escalate that you can’t produce a solution that is good enough
  209. Avoid the temptation to compromise on that which is uncompromisable
  210. Don’t try to please everyone

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