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By Ray Dalio


Think of problems as puzzles you need to solve. By solving the puzzle, you get a gem in the form
of a principle that helps you avoid the same sorts of problems in the future.

1. Embrace Reality and Deal With It

1.1 Be a hyperrealist:

Understand and accept the reality of your situation. It will help you choose your dreams
wisely. If you accept the reality, you will start making meaningful change.

a: Dreams + Reality + Determination = Successful life.

1.2: Truth - or more precisely an accurate understanding of reality, is the essential

foundation for any good outcome. [135]

1.3 Be radically open-minded and radically transparent.

Being radically open-minded means being open to learning from your mistakes, from other
people's mistakes and criticism from others. But it does not mean that we should be fearful of
what other people think.

1.4a: Don’t get hung up on your views about how things should be because then you’ll miss out
on learning how they really are. [140]

It is important that we do not let biases stand in the way of our objectivity.

1.4b: Something "Good" must contribute to the whole.

1.4c: Evolution is the single greatest force in the universe; it is the only thing that is permanent
and it drives everything. [142]
1.4d: Evolve or die.

We must evolve ourselves (for the better) at every step of the way so that we can keep growing
in this world. The key is to fail, learn and improve quickly.

1.5: Evolving is life’s greatest accomplishment and its greatest reward. [147]

1.5c: Adaptation through rapid trial and error is invaluable.

1.6: Understand nature's practical lessons.

You need to realise that most things that seem bad to you are so because of preconceived
notions of what you personally want. Instead, know that they happen because they have been
optimised for the benefit of the whole.

1.6a: Maximise your evolution.

chasing after things that we want force us to evolve and it is the evolution that is rewarding and
not the rewards themselves. So, for most people success is struggling and evolving as effectively
as possible, i.e., learning rapidly about oneself and one's environment and then changing to

1.6b: Remember “no pain, no gain” Evolution won’t always feel good. [152]

1.7: Pain + Reflection = Progress.

If you can develop a reflexive action to psychic pain that causes you to reflect on it rather than
avoid it, it will lead to your rapid learning/evolving. If you push through this process of personal
evolution, you will naturally ascend to higher and higher levels. Go towards the pain rather than
avoid it. The quality of your life will depend on the choices you make at those painful moments.

1.8: Weigh second and third-order consequences.

Often the first order consequences are the temptations that cost us what we really want, and can
be the barriers that stand in our way. [156]. So try focusing on second and third-order
consequences ( Direct and indirect consequences of a decision that are different from the first-
order consequences by time and space) as well. That means focus on long-term and indirect
consequences too.

1.9: Own your outcomes.

Sometimes there are major influences on the quality of our lives that come from things beyond
our control. But for the most part, even the worst outcomes can be made better with the right
approach. Whatever circumstances life brings you, you will most likely succeed and find
happiness if you take responsibility for making your decisions well instead of complaining. So,
have an internal locus of control.

1.10: Look at the machine from the higher level.

Machine here means the way you will operate to achieve your goals. It consists of design (the
things that have to be done) and the people (who will do things that need getting done).

1.10a: Think of yourself as a machine operating within a machine and know that you have the
ability to alter your machines to produce better outcomes. [157]

1.10c: Distinguish between you as the designer of your machine and you as a worker with your
machine. [159]

To be successful, the "designer/manager you" needs to be objective about the "worker you".

1.10e: Successful people are those who can go above themselves to see things objectively and
manage those things to shape change.

Successful people can take in the perspectives of others instead of being trapped in their own
When you encounter your weaknesses you have four choices:

1. Deny them
2. Accept them and work at them to convert them to strengths
3. Accept them and find ways around them
4. Change what you’re going after
The second and the third options are the best.

To confront your own weaknesses: [162]

1. Don’t confuse what you wish were true with what is really true.
2. Don’t worry about looking good—worry instead about achieving your goals.
3. Don’t overweight first-order consequences relative to second and third order ones.
4. Don’t let pain stand in the way of progress.
5. Don’t blame bad outcomes on anyone but yourself.

2. Use the 5-Step Process to Get What You Want Out of Life

The five-step process in short:

1. Have clear goals.

2. Identify and don’t tolerate the problems that stand in the way of you achieving those
3. Accurately diagnose the problems to get at their root causes.
4. Design plans that will get you around them.
5. Do what’s necessary to push these designs through to results.

Do each of these steps independently. Don’t think about how you will achieve your goals while
you’re setting your goals.

2.1 Have Clear Goals [172]

 Prioritize: you can have anything you want, but you can’t have everything you want
 Don’t confuse goals with desires. A goal is something you need to achieve. Desires tend
to be things you want that stand in the way of your goals.
 Never rule out a goal because you think it’s unattainable.
 Don’t mistake the trappings of success with success itself.
 Almost nothing can stop you from succeeding if you have a)flexibility b)self-accountability.
 Knowing how to deal with your setbacks is as important as knowing how to move forward

2.2 Identify and Don’t Tolerate Problems [174]

 View painful problems as potential improvements that are screaming at you.

 Don't be afraid to confront harsh realities
o Acknowledging your weakness is not the same as surrendering to them. It is the
first step to overcoming them.
 Don’t mistake the cause of the problem with the real problem. Get to the root of it.
 Distinguish small problems from big ones and try solving the big ones first.
 Once identified, don't tolerate the problem.

2.3 Diagnose problems to get at their root causes [175]

 Focus on “what is” before deciding “what to do about it”.

o Spend time on the problem before jumping to the cure. A well-diagnosed problem
will give causes to the problems that can be cured.
 Distinguish proximate from root causes (I didn’t check the train schedule -> I didn’t check
the train schedule because I’m forgetful)
2.4 Design a plan [176]

 Think about your problem as a set of outcomes produced by a machine.

 Remember that there are typically many paths to achieving your goals, you only need to
find one that works.
 Write down your plan for everyone to see and to measure your progress against.
 Recognize that it doesn’t take a lot of time to design a good plan. It’s necessary to design
a plan, though, and not get caught up in execution.
2.5 Push through to completion [177]

 Good work habits are underrated.

 Establish clear metrics to make sure you’re following your plan.
Those are the five steps, then there are a couple finer points…

2.6 Remember that all weaknesses don’t matter if you find solutions [178]
 Look at the pattern of your mistakes and identify at which step in the 5-step process you
typically fail.
 Everyone has at least one big thing that stands in the way of his or her success. Find
yours and deal with it
o write down what your one big problem (identifying problems, designing solutions,
pushing through to results) is and why it exists (your emotions trip you up, you
can't visualise adequate possibilities).