1. Principles are fundamentals truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again.
2. Without principles we would be forced to react to all the things life throws at us individually, as if we were experiencing each of them for the first time. If instead we classify these situations into types and have good principles for dealing with them, we will make better decisions more quickly and have better lives as a result.
3. That brings me to my first principle: 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 . . .
4. I believe that the key to success lies in knowing 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.
5. Ask yourself what you want, seek out examples of other people who got what they wanted, and try to discern the cause-and-effect patterns behind their achievements so you can apply them to help you achieve your own goals.
6. My business has always been a way to get me into exotic places and allow me to meet interesting people. If I make any money from those trips, that’s just icing on the cake.
7. 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.
8. In thinking about the relative importance of great relationships and money, it was clear that relationships were more important because there is no amount of money I would take in exchange for a meaningful relationship, because there is nothing I could buy with that money that would be more valuable. So, for me, meaningful work and meaningful relationships were and still are my primary goals and everything I did was for them. Making money was an incidental consequence of that.
9. I learned a great fear of being wrong that shifted my mind-set from thinking “I’m right” to asking myself “How do I know I’m right?”
10. And I saw clearly that the best way to answer this question is by finding other independent thinkers who are on the same mission as me and who see things differently from me. By engaging them in thoughtful disagreement, I’d be able to understand their reasoning and have them stress-test mine. That way, we can all raise our probability of being right.
11. I saw that to do exceptionally well you have to push your limits and that, if you push your limits, you will crash and it will hurt a lot. You will think you have failed—but that won’t be true unless you give up.
12. By late 1983, Bridgewater had six employees. Up until then, I hadn’t done any marketing; the business we got came from word of mouth and from people reading my daily telexes and seeing my public appearances.
13. 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.
14. 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.
15. But even as we grew, I never thought of anybody I worked with as an employee. 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.
16. I believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck. I wanted to surround myself with people who needed what I needed, which was to make sense of things for myself.
17. I have come to realize that bad times coupled with good reflections provide some of the best lessons.
18. I didn’t value experience as much as character, creativity, and common sense, which I suppose was related to my having started Bridgewater two years out of school myself, and my belief that having an ability to figure things out is more important than having specific knowledge of how to do something.
19. Some painful lessons that you’ll read about later taught me that it can be a mistake to undervalue experience.
20. I realized then how essential it is that people in relationships must be crystal clear about their principles for dealing with each other.That began our decades-long process of putting our principles into writing, which evolved into the Work Principles.
21. As for our agreements with each other, the most important one was our need to do three things:
a. Put our honest thoughts out on the table,
b. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and
c. Have agreed-upon ways of deciding (e.g., voting, having clear authorities) if disagreements remain so that we can move beyond them without resentments.
22. I also believe that for a group decision-making system to be effective, the people using it have to believe that it’s fair.
23. This included cash, which is the worst investment over time because it loses value after adjusting for inflation and taxes.
24. There is nothing to prompt learning like pain and necessity
25. To me, the greatest success you can have as the person in charge is to orchestrate others to do things well without you.
26. No matter how much effort we put into screening new hires and training them to work in our idea meritocracy, it was inevitable that many of them would fall short. My approach was to hire, train, test, and then fire or promote quickly, so that we could rapidly identify the excellent hires and get rid of the ordinary ones, repeating the process again and again until the percentage of those who were truly great was high enough to meet our needs.
27. But for this to work, we needed people with high standards who wouldn’t hesitate to eliminate people who couldn’t cut it. Many new employees (and some older ones) still were reluctant to probe hard at what people were like, which made things worse. It’s tough to be tough on people.
28. The more I did the research on people, the clearer it became that there are different types of people and that, by and large, the same types of people in the same types of circumstances are going to produce the same types of results.
29. My perspective was influenced by my own journey through life, which took me from having nothing to having a lot. That taught me to struggle well and made me strong.
30. In time, I realized that the satisfaction of success doesn’t come from achieving your goals, but from struggling well.
31. Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively.
32. Truth—or, more precisely, an accurate understanding of reality—is the essential foundation for any good outcome.
33. Don’t let fears of what others think of you stand in your way. You must be willing to do things in the unique ways you think are best—and to open-mindedly reflect on the feedback that comes inevitably as a result of being that way.
34. Adaptation through rapid trial and error is invaluable. Natural selection’s trial-and-error process allows improvement without anyone understanding or guiding it. The same can apply to how we learn.
35. It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful. As Carl Jung put it, “Man needs difficulties. They are necessary for health.” Yet most people instinctually avoid pain. This is true whether we are talking about building the body (e.g., weight lifting) or the mind (e.g., frustration, mental struggle, embarrassment, shame)—and especially true when people confront the harsh reality of their own imperfections.
36. 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.
37. 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. You have your goals. I call the way you will operate to achieve your goals your machine. It consists of a design (the things that have to get done) and the people (who will do the things that need getting done). Those people include you and those who help you.
38.
a. Have clear goals.
b. Identify and don’t tolerate the problems that stand in the way of your achieving those goals.
c. Accurately diagnose the problems to get at their root causes.
d. Design plans that will get you around them.
e. Do what’s necessary to push these designs through to results.
40. Recognize that knowing what someone (including you) is like will tell you what you can expect from them. You will have to get over your reluctance to assess what people are like if you want to surround yourself with people who have the qualities you need.
41. Great planners who don’t execute their plans go nowhere. You need to push through and that requires self-discipline to follow your script.
42. To be effective you must not let your need to be right be more important than your need to find out what’s true.
43. Don’t worry about looking good; worry about achieving your goal. People typically try to prove that they have the answer even when they don’t. Why do they behave in this unproductive way? It’s generally because they believe the senseless but common view that great people have all the answers and don’t have any weaknesses.
44. Remember that you’re looking for the best answer, not simply the best answer that you can come up with yourself. The answer doesn’t have to be in your head; you can look outside yourself.
45. I define believable people as those who have repeatedly and successfully accomplished the thing in question—who have a strong track record with at least three successes—and have great explanations of their approach when probed.
46. There are lots of people who will disagree with you, and it would be unproductive to consider all their views. It doesn’t pay to be open-minded with everyone. Instead, spend your time exploring ideas with the most believable people you have access to.
47. A few good decision makers working effectively together can significantly outperform a good decision maker working alone—and even the best decision maker can significantly improve his or her decision making with the help of other excellent decision makers.
48. If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased. Be objective!
49. Be evidence-based and encourage others to be the same. Most people do not look thoughtfully at the facts and draw their conclusions by objectively weighing the evidence. Instead, they make their decisions based on what their deep-seated subconscious mind wants and then they filter the evidence to make it consistent with those desires.
50. Know that the most constant struggle is between feeling and thinking. There are no greater battles than those between our feelings (most importantly controlled by our amygdala, which operates subconsciously) and our rational thinking (most importantly controlled by our prefrontal cortex, which operates consciously).
51. Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.
52. Be imprecise. Understand the concept of “by-and-large” and use approximations. Because our educational system is hung up on precision, the art of being good at approximations is insufficiently valued. This impedes conceptual thinking. For example, when asked to multiply 38 by 12, most people do it the slow and hard way rather than simply rounding 38 up to 40, rounding 12 down to 10, and quickly determining that the answer is about 400.
53. “By-and-large” is the level at which you need to understand most things in order to make effective decisions. Whenever a big-picture “by-and- large” statement is made and someone replies “Not always,” my instinctual reaction is that we are probably about to dive into the weeds—i.e., into a discussion of the exceptions rather than the rule, and in the process we will lose sight of the rule.
54. Make your decisions as expected value calculations. Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong. Normally a winning decision is one with a positive expected value, meaning that the reward times its probability of occurring is greater than the penalty times its probability of occurring, with the best decision being the one with the highest expected value.
55. Sometimes it’s smart to take a chance even when the odds are overwhelmingly against you if the cost of being wrong is negligible relative to the reward that comes with the slim chance of being right. As the saying goes, “It never hurts to ask.”
56. Raising the probability of being right is valuable no matter what your probability of being right already is.
57. You can almost always improve your odds of being right by doing things that will give you more information.
58. Convert your principles into algorithms and have the computer make decisions alongside you. It will also take emotion out of the equation. Algorithms work just like words in describing what you would like to have done, but they are written in a language that the computer can understand.
59. Expert systems are what we use at Bridgewater, where designers specify criteria based on their logical understandings of a set of cause-effect relationships, and then see how different scenarios would emerge under different circumstances.
60. I’d rather have fewer bets (ideally uncorrelated ones) in which I am highly confident than more bets I’m less confident in, and would consider it intolerable if I couldn’t argue the logic behind any of my decisions.
61. 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.
62. It pays for all organizations—companies, governments, foundations, schools, hospitals, and so on—to spell out their principles and values clearly and explicitly and to operate by them consistently.
63. 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.
64. To me, great partnerships come from sharing common values and interests, having similar approaches to pursuing them, and being reasonable with, and having consideration for, each other. At the same time, partners must be willing to hold each other to high standards and work through their disagreements.
65. Tough love is effective for achieving both great work and great relationships.
66. In order to be great, one can’t compromise the uncompromisable. Yet I see people doing it all the time, usually to avoid making others or themselves feel uncomfortable, which is not just backward but counterproductive. Putting comfort ahead of success produces worse results for everyone.
67. A believability-weighted idea meritocracy is the best system for making effective decisions.
68. Idea Meritocracy = Radical Truth + Radical Transparency + Believability-Weighted Decision Making.
69. Have integrity and demand it from others.
70. Thinking solely about what’s accurate instead of how it is perceived pushes you to focus on the most important things. It helps you sort through people and places because you’ll be drawn to people and places that are open and honest.
71. Don’t let loyalty to people stand in the way of truth and the well-being of the organization. Judging one person by a different set of rules than another is an insidious form of corruption that undermines the meritocracy.
72. Dishonest people are dangerous, so keeping them around isn’t smart.
73. Bridgewater has had uncommonly few legal or regulatory encounters, largely because of our radical transparency. That’s because it’s tougher to do bad things and easier to find out what’s true and resolve claims through radical transparency. Over the last several decades, we have not had a single material legal or regulatory judgment against us.
74. When I treated my employees like extended family, I found that they typically behaved the same way with each other and our community as a whole, which was much more special than having a strictly quid pro quo relationship. I can’t tell you how many people would do anything in their power to help our community/company and wouldn’t want to work anywhere else. This is invaluable.
75. Not everyone feels the same or is expected to feel the same about the community. It’s totally okay to opt out.
76. No matter how much one tries to create a culture of meaningful relationships, the organization is bound to have some bad (intentionally harmful) people in it. Being there isn’t good for them or the company so it’s best to find out who they are and remove them.
77. Loyalty to specific people who are not in tight sync with the mission and how to achieve it will create factionalism and undermine the well-being of the community.
78. Recognize that the size of the organization can pose a threat to meaningful relationships.
79. That’s when I realized that having groups (departments) of around a hundred (give or take about fifty) that are bound collectively by our common mission was the best way to scale the meaningful relationship. While bigger companies tend to be more impersonal, that is just another challenge that has to be figured out.
80. Don’t have anything to do with closed-minded people. Being open-minded is much more important than being bright or smart.
81. Great collaboration feels like playing jazz. A talented duo can improvise beautifully, as can a trio or quartet. But gather ten musicians and no matter how talented they are, it’s probably going to be too many unless they’re carefully orchestrated.
82. 1+1=3. Two people who collaborate well will be about three times as effective as each of them operating independently.
83. 3 to 5 is more than 20. Three to five smart, conceptual people seeking the right answers in an open-minded way will generally lead to the best answers.
84. While the believability-weighted answer isn’t always the best answer, we have found that it is more likely to be right than either the boss’s answer or an equal-weighted referendum.
85. Treating all people equally is more likely to lead away from truth than toward it. But at the same time, all views should be considered in an open-minded way, though placed in the proper context of the experiences and track records of the people expressing them.
86. Imagine if a group of us were getting a lesson in how to play baseball from Babe Ruth, and someone who’d never played the game kept interrupting him to debate how to swing the bat. Would it be helpful or harmful to the group’s progress to ignore their different track records and experience?
87. Pay more attention to whether the decision-making system is fair than whether you get your way.
88. Once a decision is made, everyone should get behind it even though individuals may still disagree. The group is more important than the individual; don’t behave in a way that undermines the chosen path.
89. If you continue to fight the idea meritocracy, you must go.
90. Don’t allow lynch mobs or mob rule. Part of the purpose of having a believability-weighted system is to remove emotion from decision making. Crowds get emotional and seek to grab control. That must be prevented. While all individuals have the right to have their own opinions, they do not have the right to render verdicts.
91. Recognize that if the people who have the power don’t want to operate by principles, the principled way of operating will fail.
92. Ultimately, power will rule. This is true of any system. For example, it has repeatedly been shown that systems of government have only worked when those with the power value the principles behind the system more than they value their own personal objectives.
93. For that reason the power supporting the principles must be given only to people who value the principled way of operating more than their individual interests.
94. While we talked about an organization’s culture in the last section, its people are even more important because they can change the culture for better or for worse.
95. Steve Jobs, who everyone thought was the secret to Apple’s success, said, “The secret to my success is that we’ve gone to exceptional lengths to hire the best people in the world.” Remember That the WHO Is More Important than the WHAT.
96. If they can’t do the job after being trained and given time to learn, get rid of them; if they can, promote them.
97. 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.
98. When you know what you need in a person to do the job well and you know what the person you’re putting into it is like, you can pretty well visualize how things will go.
99. In the end, what you need to do is simple: 1. Remember the goal. 2. Give the goal to people who can achieve it (which is best) or tell them what to do to achieve it (which is micromanaging and therefore less good). 3. Hold them accountable. 4. If they still can’t do the job after you’ve trained them and given them time to learn, get rid of them.
100. When putting someone in a position of responsibility, make sure their incentives are aligned with their responsibilities and they experience the consequences of the outcomes they produce. As an example, structure their deals so that they do well or badly based on how well or badly you do in the areas they are responsible for. This is fundamental for good management.
101. At a high level, we look for people who think independently, argue open-mindedly and assertively, and above all else value the intense pursuit of truth and excellence, and through it, the rapid improvement of themselves and the organization.
102. We look for people with generous natures and high standards of fairness. Most important, they must be able to put their egos aside and assess themselves candidly.
103. When building a “machine,” design precedes people because the type of people you will need will depend on the design.
104. Don’t design jobs to fit people; over time, this almost always turns out to be a mistake. This often happens when someone you are reluctant to let go doesn’t work out, and there is an inclination to try to find out what else that person can do.
105. In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important. Yet most people make the mistake of choosing skills and abilities first and overlooking values. We value people most who have what I call the three C’s: character, common sense, and creativity.
106. Remember that people typically don’t change all that much. This is especially true over short periods of time like a year or two, yet most people want to assume that when someone does something wrong the person will learn the lesson and change. That’s naive. It is best to assume that they won’t change unless there is good evidence to the contrary that they will.
107. Think about accuracy, not implications. It’s often the case that someone receiving critical feedback gets preoccupied with the implications of that feedback instead of whether it’s true.
108. It should take you no more than a year to learn what a person is like and whether they are a click for their job.
109. Don’t collect people. It is much worse to keep someone in a job unsuitable for them than it is to fire or reassign them.
110. Don’t lower the bar.
111. No matter what work you do, at a high level you are simply setting goals and building machines to help you achieve them.
112. Build great metrics. Metrics show how the machine is working by providing numbers and setting off alert lights in a dashboard.
113. The real sign of a master manager is that he doesn’t have to do practically anything. Managers should view the need to get involved in the nitty-gritty as a bad sign.
114. Avoid staying too distant. You need to know your people extremely well, provide and receive regular feedback, and have quality discussions.
115. Use daily updates as a tool for staying on top of what your people are doing and thinking. I ask each person who reports to me to take about ten to fifteen minutes to write a brief description of what they did that day, the issues pertaining to them, and their reflections.
116. Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do. Just worry about making the best decisions possible, recognizing that no matter what you do, most everyone will think you’re doing something—or many things—wrong.
117. Goals, tasks, and assigned responsibilities should be reviewed at department meetings at least once a quarter, perhaps as often as once a month.
118. Bad outcomes don’t just happen; they occur because specific people make, or fail to make, specific decisions.
119. Remember that if you have the same people doing the same things, you should expect the same results.
120. It is your job as a manager to get at truth and excellence, not to make people happy.
121. 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. Managers can help design the machine and choose the people who complement it. People overseeing departments need to be able to think strategically as well as run the day-to-day. If they don’t anticipate what’s coming up, they’ll run the day-to-day off a cliff.
122. Don’t build the organization to fit the people. Managers will often take the people who work in their organization as a given and try to make the organization work well with them. That’s backward. Instead, they should imagine the best organization and then make sure the right people are chosen for it.
123. Ensure that the ratios of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding. Generally, the ratio should not be more than 1:10, and preferably closer to 1:5.
124. Create an organizational chart to look like a pyramid, with straight lines down that don’t cross. The whole organization should look like a series of descending pyramids, but the number of layers should be limited to minimize hierarchy.
125. Use “public hangings” to deter bad behavior. No matter how carefully you design your controls and how rigorously you enforce them, malicious and grossly negligent people will sometimes find a way around them. So when you catch someone violating your rules and controls, make sure that everybody sees the consequences.
126. Constantly think about how to produce leverage. Leverage in an organization is not unlike leverage in the markets; you’re looking for ways to achieve more with less. At Bridgewater, I typically work at about 50:1 leverage, meaning that for every hour I spend with each person who works for me, they spend about fifty hours working to move the project along.
127. At our sessions, we go over the vision and the deliverables, then they work on them, and then we review the work, and they move forward based on my feedback—and we do that over and over again.
128. Ring the bell. When you and your team have successfully pushed through to achieve your goals, celebrate!