đź“– Principles

Fundamentals

Whatever success I’ve had in life has had more to do with my knowing how to deal with my not knowing than anything I know.

To be principled means to consistently operate with principles that can be clearly explained. Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.

Steps to get your principles, think of:

    1. What you want
    1. What is true
    1. 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.

Principles should be so clearly laid out that their logic can easily be assessed and you and others can see if you walk the talk. Experience taught me how invaluable it is to reflect on and write down my decision-making criteria whenever I made a decision, so I got in the habit of doing that.

Failure and success: know how to both strive for a lot and fail well. By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game.

Curiosity: be curious about why other smart people saw things differently. Looking at things through the eyes of others as well as my own. That allowed me to see many more dimensions than if I saw things just through my own eyes.

I discovered I could do that by expressing my decision-making criteria in the form of algorithms that I could embed into our computers.

Learning from the past: almost everyone expects the future to be a slightly modified version of the present, it is usually very different. You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.

For every action there is a consequence roughly proportionate to that action, which causes an approximately equal and opposite reaction and market reversals.

My business has always been a way to get me into exotic places and allow me to meet interesting people.


Visualizing complex systems as machines, figuring out the cause-effect relationships within them, writing down the principles for dealing with them, and feeding them into a computer so the computer could “make decisions” for me all became standard practices.

The most painful lesson that was repeatedly hammered home is that you can never be sure of anything: There are always risks out there that can hurt you badly, even in the seemingly safest bets, so it’s always best to assume you’re missing something.

having meaningful work and meaningful relationships was far better. To me, meaningful work is being on a mission I become engrossed in, and meaningful relationships are those I have with people I care deeply about and who care deeply about me.

It’s senseless to have making money as your goal as money has no intrinsic value—its value comes from what it can buy, and it can’t buy everything. 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.

When thinking about the things you really want, it pays to think of their relative values so you weigh them properly. In my case, I wanted meaningful work and meaningful relationships equally, and I valued money less—as long as I had enough to take care of my basic needs.

As you can see, there had been nothing like it prior to 1979–82. It was one of the most pivotal times in the last hundred years. The political pendulum throughout the world swung to the right, bringing Margaret Thatcher, Ronald Reagan, and Helmut Kohl to power. “Liberal” had ceased to mean being in favor of progress and had come to mean “paying people not to work.”

I just want to be right—I don’t care if the right answer comes from me. So I learned to be radically open-minded to allow others to point out what I might be missing. I saw that the only way I could succeed would be to: 1. Seek out the smartest people who disagreed with me so I could try to understand their reasoning. 2. Know when not to have an opinion. 3. Develop, test, and systemize timeless and universal principles. 4. Balance risks in ways that keep the big upside while reducing the downside.

Typically, by doing what comes naturally to us, we fail to account for our weaknesses, which leads us to crash. What happens after we crash is most important. 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.

You will think you have failed—but that won’t be true unless you give up. Believe it or not, your pain will fade and you will have many other opportunities ahead of you, though you might not see them at the time. The most important thing you can do is to gather the lessons these failures provide and gain humility and radical open-mindedness in order to increase your chances of success.

I could either take on a lot of risk in pursuit of high returns (and occasionally find myself ruined) or I could lower my risk and settle for lower returns. But I needed to have both low risk and high returns, and by setting out on a mission to discover how I could, I learned to go slowly when faced with the choice between two things that you need that are seemingly at odds.

rather than blindly following the computer’s recommendations, I would have the computer work in parallel with my own analysis and then compare the two.

While the computer was much better than our brains in many ways, it didn’t have the imagination, understanding, and logic that we did. That’s why our brains working with the computer made such a great partnership.

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.

At that point, our business consisted of three main areas: consulting for fees, managing companies’ risks for incentive fees, and selling the research packages.

The return of a market (such as the stock market) itself is called its beta. Alpha is the return that comes from betting against others. For example, some people outperform the stock market and others underperform it; they are said to have positive or negative alpha.

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.

All I wanted was to trade the markets and build relationships, doing for our clients exactly what I would do if I were in their shoes.

By the mid-1980s, a couple of things were clear to me: First, we were making good calls in the interest-rate and currency markets, and the institutional investment managers who were buying our research were using it to make money. Second, we were successfully managing companies’ interest-rate and currency exposures.

In 1994, I set up a company called Bridgewater China Partners. By then, I was convinced that China was poised to become the greatest economy in the world in the twenty-first century, but hardly anyone was investing in China yet; good deals could still be struck.

I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.

There was and still is no leader I admire more than Lee Kuan Yew, who transformed Singapore from a mosquito-infested backwater to a model economy.

He rated Angela Merkel as the best leader in the West and considered Vladimir Putin one of the best leaders worldwide. He explained that leaders must be judged within the context of the circumstances they encounter and then went on to share his view of how difficult it is to lead Russia and why he thought Putin was doing it well. He also reflected on his unique relationship with Deng Xiaoping, whom he regarded as the best leader of all.

I love getting to know interesting people from interesting places and seeing the world through their eyes. This is true whether they are rich or poor.

Encounters like these have taught me that human greatness and terribleness are not correlated with wealth or other conventional measures of success. 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 urge you to be curious enough to want to understand how the people who see things differently from you came to see them that way.

I had always wanted to have—and to be around people who also wanted to have—a life full of meaningful work and meaningful relationships, and to me a meaningful relationship is one that’s open and honest in a way that lets people be straight with each other. I never valued more traditional, antiseptic relationships where people put on a façade of politeness and don’t say what they really think.

Having a few good uncorrelated return streams is better than having just one, and knowing how to combine return streams is even more effective than being able to choose good ones (though of course you have to do both).

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.

What was great is that we made the most of our mistakes because we got in the habit of viewing them as opportunities to learn and improve.

Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur.

There are two parts of each person’s brain: the upper-level logical part and the lower-level emotional part. I call these the “two yous.” They fight for control of each person. How that conflict is managed is the most important driver of our behaviors.