Principles

It’s smarter to start with what you really want, which are your real goals, and then work back to what you need to attain them. Money will be one of the things you need, but it’s not the only one and certainly not the most important one once you get past having the amount you need to get what you really want.

Successful people change in ways that allow them to continue to take advantage of their strengths while compensating for their weaknesses and unsuccessful people don’t.

I believe one of the most valuable things you can do to improve your decision making is to think through your principles for making decisions, write them out in both words and computer algorithms, back-test them if possible, and use them on a real-time basis to run in parallel with your brain’s decision making.

Approaching the market in this way taught me that one of the keys to being a successful investor is to only take bets you are highly confident in and to diversify them well.

I’ve also learned that judging people before really seeing things through their eyes stands in the way of understanding their circumstances—and that isn’t smart.

I have come to realize that bad times coupled with good reflections provide some of the best lessons, and not just about business but also about relationships.

Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.

I believe that for any organization or for any relationship to be great, these things are required: 1. Put our honest thoughts out on the table, 2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and 3. Have agreed-upon ways of deciding if disagreements remain so that we can move beyond them without resentments.

To me, the greatest success you can have as the person in charge is to orchestrate others to do things well without you. A step below that is doing things well yourself, and worst of all is doing things poorly yourself.

I’ve always had great faith in my ability to figure things out, and over time my need to figure things out made me better at doing so.

The ultimate goal of all this was to help the people I cared about be more successful without me, which was becoming increasingly pressing as life’s milestones continued to remind me of my stage in life.

I saw pain as nature’s reminder that there is something important for me to learn. Encountering pains and figuring out the lessons they were trying to give me became sort of a game to me.

I realized that passing on knowledge is like passing on DNA—it is more important than the individual, because it lives way beyond the individual’s life.

Pain + Reflection = Progress. There is no avoiding pain, especially if you’re going after ambitious goals. Believe it or not, you are lucky to feel that kind of pain if you approach it correctly, because it is a signal that you need to find solutions so you can progress.

The challenges you face will test and strengthen you. If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential.

Go to the pain rather than avoid it. If you don’t let up on yourself and instead become comfortable always operating with some level of pain, you will evolve at a faster pace.

Successful people are those who can go above themselves to see things objectively and manage those things to shape change.

The good news is that every mistake you make can teach you something, so there’s no end to learning. You’ll soon realize that excuses like “that’s not easy” or “it doesn’t seem fair” or even “I can’t do that” are of no value and that it pays to push through.

Choosing a goal often means rejecting some things you want in order to get other things that you want or need even more.

Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way.

People who change their minds because they learned something are the winners, whereas those who stubbornly refuse to learn are the losers. That doesn’t mean that you should blindly accept others’ conclusions. You should be what I call open-minded and assertive at the same time—you should hold and explore conflicting possibilities in your mind while moving fluidly toward whatever is likely to be true based on what you learn.

Open-minded people can take in the thoughts of others without losing their ability to think well—they can hold two or more conflicting concepts in their mind and go back and forth between them to assess their relative merits.

The most valuable habit I’ve acquired is using pain to trigger quality reflections. If you can acquire this habit yourself, you will learn what causes your pain and what you can do about it, and it will have an enormous impact on your effectiveness.

The courage that’s needed the most isn’t the kind that drives you to prevail over others, but the kind that allows you to be true to your truest self, no matter what other people want you to be.

Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.

Lots of data show that relationships are the greatest reward—that they’re more important to your health and happiness than anything else.

The best choices are the ones that have more pros than cons, not those that don’t have any cons at all.

In order to have the best life possible, you have to: 1) know what the best decisions are and 2) have the courage to make them.

I believe that because the same kinds of things happen over and over again, a relatively few well-thought-out principles will allow you to deal with just about anything that reality throws at you.

Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency.

Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them. Recognize that mistakes are a natural part of the evolutionary process.

A great organization has both great people and a great culture. Companies that get progressively better over time have both. Nothing is more important or more difficult than to get the culture and people right.

For this all to work, I believed and still believe that we need to be radically truthful and radically transparent with each other.

It is a fundamental law of nature that you get stronger only by doing difficult things. While our idea meritocracy is not for everyone, for those who do adapt to it—it is so liberating and effective that it’s hard for them to imagine any other way to be.

Having nothing to hide relieves stress and builds trust. Criticism is welcomed and encouraged at Bridgewater, but there is never a good reason to bad-mouth people behind their backs.

Management should restrict transparency sparingly and wisely because every time they do, it undermines the idea meritocracy and people’ s trust.

Meaningful relationships are invaluable for building and sustaining a culture of excellence, because they create the trust and support that people need to push each other to do great things.

Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t. By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you’ll see rapid progress and fewer significant mistakes.

If you don’t mind being wrong on the way to being right you’ll learn a lot— and increase your effectiveness. But if you can’t tolerate being wrong, you won’t grow, you’ll make yourself and everyone around you miserable, and your work environment will be marked by petty backbiting and malevolent barbs rather than by a healthy, honest search for truth.

Every mistake that you make and learn from will save you from thousands of similar mistakes in the future.

The fastest path to success starts with knowing what your weaknesses are and staring hard at them.

Lead the discussion by being assertive and open-minded. Reconciling different points of view can be difficult and time-consuming. It is up to the meeting leader to balance conflicting perspectives, push through impasses, and decide how to spend time wisely.

Think about whether the person you’re disagreeing with is more or less believable than you. If you are less believable, you are more of a student and should be more open-minded, primarily asking questions in order to understand the logic of the person who probably knows more.

Recognize that while everyone has the right and responsibility to try to make sense of important things, they must do so with humility and radical open-mindedness.

While all individuals have the right to have their own opinions, they do not have the right to render verdicts.

People often make the mistake of focusing on what should be done while neglecting the more important question of who should be given the responsibility for determining what should be done.

When reviewing any candidate’s background, you must identify whether they have demonstrated themselves to be extraordinary in some way. The most obvious demonstration is outstanding performance within an outstanding peer group.

Remember that people are built very differently and that different ways of seeing and thinking make people suitable for different jobs.

Great people are hard to find so make sure you think about how to keep them. Make sure you’re following the suggestions made earlier, like building meaningful relationships and constantly getting in sync.

Teach your people to fish rather than give them fish, even if that means letting them make some mistakes. Sometimes you need to stand by and let someone make a mistake (provided it’s not too serious) so they can learn.

The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger.

When you reach an agreement, it’s a good sign you’ve arrived at truth, which is why getting to that point is such a great achievement.

Great managers are not philosophers, entertainers, doers, or artists. They are engineers. They see their organizations as machines and work assiduously to maintain and improve them.

When making rules, explain the principles behind them. You don’t want the people you work with to merely pay lip service to your community’s rules; they should have a high sense of ethics that makes them want to abide by them and hold others accountable for abiding by them, while also working to perfect them.

Great managers orchestrate rather than do. Like the conductor of an orchestra, they do not play an instrument, but direct their people so that they play beautifully together.

It’s a basic reality that if you don’t experience the consequences of your actions, you’ll take less ownership of them. If you are a manager, make sure you structure incentives and penalties that encourage people to take full ownership of what they do and not just coast by.

Always seek the advice of wise others and let those who are better than you take the lead. The objective is to have the best understanding to make the best possible leadership decisions.

The important thing is for you to be logical and objective in assessing your probabilities of being right. It is not illogical or arrogant to believe that you know better than the average person, so long as you are appropriately open-minded.

Problems are like coal thrown into a locomotive engine because burning them up—inventing and implementing solutions for them—propels us forward. Every problem you find is an opportunity to improve your machine.

When you encounter problems, your objective is to specifically identify the root causes of those problems—the specific people or designs that caused them—and to see if these people or designs have a pattern of causing problems.

A thorough and accurate diagnosis, while more time-consuming, will pay huge dividends in the future.

Design and systemize your machine. Creativity is also important to this process, as is character, because the most important problems to design around are often the hardest, and you need to come up with original ways of addressing them and be willing to make hard choices.

Build your organization from the top down. An organization is the opposite of a building: Its foundation is at the top, so make sure you hire managers before you hire their reports.

A good guardrailing relationship should be firm without being overly rigid. Ideally, it should work like two people dancing—they’re literally pushing against each other, but with a lot of mutual give-and-take.

Recognize that it is far better to find a few smart people and give them the best technology than to have a greater number of ordinary people who are less well equipped. Great people and great technology both enhance productivity. Put them together in a well-designed machine and they improve it exponentially.

Knowing what you can and cannot expect from each person and knowing what to do to make sure the best ideas win out are the best way to make decisions. Idea-meritocratic decision making is better than traditional autocratic or democratic decision making in almost all cases.

All these principles, rules, and checks and balances won’t be worth much if you don’t have capable people in positions of power who instinctually want to operate for the good of the community based on the agreed-upon principles.

Disputes need clear paths toward resolution. That is especially so in an idea meritocracy where people are expected to disagree and create paths for resolving disagreements. The Dispute Resolver provides paths for resolving disagreements in an idea-meritocratic way.

Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve #1 in light of #2 . . . and do that with humility and open-mindedness so that you consider the best thinking available to you.

In my early years the psychology of the 1960s U.S. was aspirational and inspirational—to achieve great and noble goals. It was like nothing I have seen since.

My experience over this period was like a series of blows to the head with a baseball bat. Being so wrong—and especially so publicly wrong—was incredibly humbling and cost me just about everything I had built at Bridgewater.

The Harvard psychologist Bob Kegan called Bridgewater “a form of proof that the quest for business excellence and the search for personal realization need not be mutually exclusive—and can, in fact, be essential to each other.

Our economic and market principles were very different from most others, which accounted for our different results. As former Fed chairman Alan Greenspan put it, “The models failed at a time when we needed them most . . . JP Morgan had the American economy accelerating three days before [the Lehman Brothers’ collapse]—their model failed. The Fed model failed. The IMF model failed . . . So that left me asking myself: What happened?

The best behaviors one can hope for come from leaders who can weigh the benefits of cooperation, and who have long enough time frames that they can see how the gifts they give this year may bring them benefits in the future.

In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well.

Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are. It’s important not to let our biases stand in the way of our objectivity. To get good results, we need to be analytical rather than emotional.

Every time you confront something painful, you are at a potentially important juncture in your life—you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion.

The best decisions are made by an idea meritocracy with believability-weighted decision making, in which the most capable people work through their disagreements with other capable people who have thought independently about what is true and what to do about it.

Bad outcomes don’t just happen; they occur because specific people make, or fail to make, specific decisions. A good diagnosis always gets to the level of determining what it is about those people that led to the bad outcomes.

I want you to think, not follow—while recognizing that you can be wrong and that you have weaknesses—and I want to help you get the most likely best answers, even if you personally don’t believe that they’re the best answers.