Saturday, August 01, 2020

Books #10: Ray Dalio's Principles

I have not been able to put this book down for the last few weeks. Even though I read the very first version when it was published as a memo in pdf format many years ago. It was already very good then and I printed and kept a copy. But the book is 100x more awesome. If you have not read it, pls go pick it up today. This is one of the best books written ever.

For the un-initiated, Ray Dalio runs the world's largest macro hedge fund called Bridgewater. He is a multi-billionaire, made from investing and he attributes his success to his principles for work and life. Hence the eponymous book. He has never published his investment track record, but like Warren Buffett, he probably made most of his money in the earlier years. Bloomberg published a league table (below) a few years ago.

Bridgewater's returns

Well, track record aside. The book is a page turner because every sentence just made sense. At the core of it, as Ray puts it, life is about seeking the truth and embracing reality. More often than not, we do not want to face reality. We somehow believe that if we think hard enough, or want things bad enough, we can bend the truth. For instance, we want a nice body. No belly fat, good muscles, ideal BMI of 20. Yet, we do not schedule even an hour per week at the gym. We snack on potato chips, drink alcohol thrice a week and eat ice-cream all weekend. This is not understanding the truth nor reality. 

Yes, we can change reality by scheduling and actually going to the gym. Until then, we must look at the truth in the mirror. The verdict can always change, as Mariah Carey has shown us. The pic below is unflattering but apparently she is now fit again (in 2020).

Mariah Carey: 90s vs 2018

Beating the markets is all about understanding reality. This takes more than one head to achieve outsized returns. Warren Buffett had Charlie Munger and George Soros had Stan Druckenmiller. So at Bridgewater, Ray Dalio made the best and the brightest put all their heads together and debate to seek the truth about markets. But it can be super tough. Smart people all have egos and all of them want to bend the truth to fit their own reality. So it takes time to figure out who's really interested to just seek out the truth.

To Ray, only 100% open minded and yet assertive people to be able to achieve that. These people seek out others to disagree with them, in order to get to the truth. They will suppress their ego to do that. If they are wrong, they admit so, change their mind, reverse bets and make money. Closed minded, egoistic, smart people are the most dangerous. Naturally, nobody will volunteer to tell you they are closed minded and/or egoistic. So it took Ray 40 years to figure things out. Here's just a few best quotes:

1. Beware of assertive fast talkers, they use speed as a way to push their agenda past other's examinations. Slow them down, make sense of things before conceding.

2. Open minded people ask questions, closed minded people always tell you what they know, even if they hardly know anything. They are typically uncomfortable being around those who know a lot more than they do. Closed minded people will just waste your time.

3. Being open minded is more important than being smart. It is hard to be open minded and assertive. Some people are too willing to accept others' views at the expense of their own. One must be both open minded and assertive.

4. Watch out for people who think it is embarrassing not to know. They are likely to be more concerned with appearance than seeking the truth. These people go for style and form over substance.

5. Don't worry about looking good, worry about achieve your goals. Get over blame and credit and get on with accurate and inaccurate. The need for phoney praise needs to be unlearned.

6. Reflect on pain because pain leads to growth. Remember the pain is all in your head. To evolve, we need to confront the pain and see clearly the paradoxes. Reflect, learn and resolve them. The past on longer matters except as a lesson for the future. 

7. Don't be naive, most people will pretend to operate in your interest while operating on their own.

8. Everyone has opinions and they are often bad, including your own. Only listen to the believable ones who are open minded. After making sure they have demonstrated believability, with track record, reason and logic.

There are way too many nuggets in this book. Hopefully I can find time to organize more of them. 

Hope this helps! Huat Ah!

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