Principles are concepts that can be applied over and over again in similar circumstances, as distinct from narrow answers to very specific questions. Principles are ways of successfully dealing with the laws of nature or the laws of life. Those who understand more of them and understand them better know how to interact with the world more effectively than those who know fewer of them or know them less well.
In the following pages, I will share with you many of the principles I have learned and believe work. I only ask that you consider them with an open mind. You have to assess them for yourself because I’m certainly not trying to tell you what to do, and I’m not 100% sure of anything. Also, I’m not saying they’re going to work 100% of the time. Like good principles you might use when deciding how to play a poker hand, they won’t work every time because “luck” (i.e., the unanticipated) also plays a role.
Every day, everything that happens has principles embedded in them. For example, putting your hand on a hot stove teaches you at least one principle. If you learn that principle, it will help you improve your ways of dealing with life. If you don’t, you’ll continue to get burned. So, I believe that there is an incredible beauty to mistakes, because embedded in each mistake is a puzzle and a gem to be had if you solve the puzzle. If you recognize that each mistake is probably a reflection of something you or others don’t understand about how to interact with the world as it is, and you figure out what that is, you will gain one or more gems, or what I call principles. People who recognize that all our experiences, rewards and punishments are essentially life’s instructions repeatedly thrown at us are more likely to learn how to live life more effectively (i.e., by principles), and favorably adapt their behaviors. What I am saying is that you don’t need to do much more than experience what the challenges and opportunities that life will bring you with an open mind, and you will learn how to get what you want out of life.
Though I might sound philosophical, I am a hyperrealist. I believe one needs to deeply understand, accept and work with reality to produce great results and to be happy. Whether it is knowing how people really think and behave when dealing with them, or understanding in detail how things really work in physics, economics or physiology, so that if you do X then Y will happen, understanding these realities gives you the power to get what you want out of life – or at least dramatically improves your odds. So, what follows is a description of how I believe reality works and how to deal with it to get what we want.
When I say I’m a hyperrealist, people sometimes think I don’t believe in making dreams happen. This couldn’t be further from the truth. In fact, I believe that without pursuing dreams life is mundane. I am just saying that hyperrealism is the best way to choose and achieve one’s dreams. The people who really change the world are the ones who see what’s possible and figure out how to make that happen. I believe that idealists, who simply imagine things that would be nice but are not possible, don’t sufficiently appreciate the laws of the universe to even know what would be nice. Let me explain what I mean.
I believe there is an infinite number of laws of the universe and that all progress or dreams achieved come from operating in a way that’s consistent with them. These principles have always existed. Man didn’t and can’t make them up. He can only hope to understand them and use them to get what he wants. For example, the ability to fly or to send cellular phone signals imperceptibly and instantaneously around the world or any other new and beneficial developments resulted from using and understanding previously existing laws of the universe. These inventions did not come from people who were not well grounded in reality. The same is true for economic, political and social systems that work. Success is achieved by people who deeply understand reality and know how to use it to get what they want. The converse is also true: idealists who are not well grounded in reality create problems, not progress. For example, communism was a system created by people with good intentions who failed to recognize that their idealistic system was inconsistent with human nature. As a result, they caused more harm than good. My belief is that truth – or, more precisely, accurate understanding of reality – is the essential foundation for producing good outcomes.
I know I’m pretty extreme in these beliefs. For example, as a hyperrealist, I have a non-traditional sense of good and bad. I believe that being good means operating consistently with reality (i.e., natural laws). Operating this way will likely result in rewards for you and for society as a whole. Being bad means operating inconsistently with these laws, which will likely result in punishment for you and harm to society as a whole. So I believe that for something to be good, it has to work to make things better; and to do that, it must be grounded in reality.
Understanding what is good is obtained by looking at the way the world works. But it is not obvious. I think it’s educational and enjoyable to study how things work in nature and to assume that however they work is in some way good. I like to try to figure out why they’re working this way is good in the context of the whole system. I also believe that sometimes the conclusions are at odds with traditional notions of good and bad, which can sometimes make accepting these laws of nature, or principles, difficult.
For example, when a pack of hyenas takes down a young wildebeest, is that good or evil? At face value, that might not be “good” because it seems cruel, and the poor wildebeest suffers and dies. Some people might even say that the hyenas are evil. Yet this type of apparently “cruel” behavior exists throughout the animal kingdom. Like death itself, it is integral to the enormously complex and efficient system that has worked for as long as there has been life. It is good for both the hyenas who are operating in their self-interest and the interest of the greater system, including those of the wildebeest, because killing and eating the wildebeest fosters evolution (i.e., the natural process of improvement). In fact, if you changed anything about the way that dynamic works, the overall outcome would be worse.
I believe that evolution, which is generally the natural move toward better adaptation, is the greatest single force in the universe. It affects the changes of everything from all species to the entire solar system. Based on how I observe both nature and humanity working, I believe that what is bad and most punished are those things that don’t work because they are at odds with the laws of the universe and impede evolution. I believe that the desire to evolve (i.e., to get better) is probably humanity’s most pervasive driving force. Enjoying your job, a craft, or your favorite sport comes from the innate satisfaction of getting better. Though most people typically think that they are striving to get things (e.g., toys, better houses, money, status, etc.) that will make them happy, that is not really the case. When we get the things we are striving for, we rarely remain satisfied, so we seek other things or we seek to make the things we have better, and, in the process of this seeking, we continue to evolve. The things we are striving for are just the bait to get us to chase after them in order to make us evolve, and it is the evolution and not the reward itself that matters.
It is only logical that it is that way – i.e., that our lives are not satisfied by obtaining our goals rather than by striving for them – because of the law of diminishing returns. For example, suppose making a lot of money is your goal and suppose you make enough so that making more has no marginal utility. Then it would be silly to continue to have making money be your goal. People who acquire things beyond their usefulness will not only derive little or no marginal gains from these acquisitions but they also will experience negative consequences, as with any form of gluttony. So, it is only logical that seeking something new, or seeking new depths of something old, is required to bring us satisfaction. For this reason I believe that it is the evolutionary process that occurs through the sequence of 1) seeking new things (goals), 2) working and learning in the process of pursuing these goals, 3) obtaining these goals and 4) then doing this over and over again, that creates personal evolution and fulfills most of us. And I believe that it is this process that moves society forward.
So, based on how I observe reality working, it seems that what is most rewarded (therefore what is “good”) are those things that are in harmony with the laws of the universe (i.e., reality) and that contribute to its evolution. Similarly, it seems that what is punished (and is “bad”) are those things that are at odds with the laws of the universe and impede its evolution. Look at all species in action: they are constantly pursuing their own interests and helping evolution in a symbiotic way. Like the hyenas attacking the wildebeest, successful people might not even know if or how their pursuit of self-interest helps society, but it typically does.
Along these lines, I believe that self-interest and society’s interests are generally symbiotic – e.g., I observe that society typically rewards those who give it what it wants and penalizes those who operate inconsistently with those wants. If you give society what it wants, you practically can’t help getting rewarded. That is why how much money people have earned is a rough measure of how much they gave society what it wanted. It’s also why most people who have made a lot of money typically never made making a lot of money their primary goal. Instead, they typically engaged in the game or craft of what they were doing, got very good at it and society rewarded them because it valued what they were doing. In other words, I believe that the way “reality” generally works is that it is the pursuit of self-interest that motivates people to push themselves to do the difficult things that are required to produce what society wants, and society rewards those who give it what it wants. That is why self-interest is a far more powerful force for good than mercy and charity, though mercy and charity are certainly natural and beneficial forces in some cases.
As Darwin described, adaptation – i.e., adjusting appropriately to changes in one’s circumstances – is a big part of this evolutionary process. That is why some of the most successful people are typically those who see the changing landscape and identify how to best adapt to it. So the classic process for achieving success is trying to give society what it wants in order to gain its rewards in return. This does not pertain just to moving forward; it also relates to dealing with setbacks. Inevitably one encounters major and painful setbacks. Those who have the ability to successfully adapt to setbacks will also be rewarded.
So what is success? It is nothing more than getting what you want. It is up to you to decide what that is for you. However, for most people success is evolving as effectively as possible – i.e., learning about oneself and one’s environment and then changing to improve. Personally, I believe that personal evolution is both the greatest accomplishment and the greatest reward.
[Ray Dalio is founder of the investment firm Bridgewater Associates. He wrote an essay to share all of his 500 life and business management principles with his employees.]