Principles Life and Work (Ray Dalio) (z-lib.org).epub

This is an unofficial Kindle version of Principles by Ray Dalio prepared by Evgeny Shadchnev ([email protected]).   The original book in PDF format can be found at http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf   © 2011 Ray Dalio  ...

This is an unofficial Kindle version of Principles by Ray Dalio prepared by Evgeny Shadchnev ([email protected]).   The original book in PDF format can be found at http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf   © 2011 Ray Dalio     PRINCIPLES BY RAY DALIO What follows are three distinct parts that can be read either independently or as a connected whole. Part 1 is about the purpose and importance of having principles in general, having nothing to do with mine. Part 2 explains my most fundamental life principles that apply to everything I do. Part 3, explains my management principles as they are being lived out at Bridgewater. Since my management principles are simply my most fundamental life principles applied to management, reading Part 2 will help you to better understand Part 3, but it’s not required—you can go directly to Part 3 to see what my management principles are and how Bridgewater has been run. One day I’d like to write a Part 4 on my investment principles. If you are looking to get the most bang for your buck (i.e., understanding for the effort), I suggest that you read Parts 1 and 2, and the beginning of Part 3 (through the Summary and Table of Principles) which will give you nearly the whole picture. It’s only about 55 pages of a normal size book. Above all else, I want you to think for yourself—to decide 1) what you want, 2) what is true and 3) what to do about it. I want you to do that in a clear-headed thoughtful way, so that you get what you want. I wrote this book to help you do that. I am going to ask only two things of you—1) that you be open-minded and 2) that you honestly answer some questions about what you want, what is true and what you want to do about it. If you do these things, I believe that you will get a lot out of this book. If you can’t do these things, you should reflect on why that is, because you probably have discovered one of your greatest impediments to getting what you want out of life. INTRODUCTION Principles are concepts that can be applied over and over again in similar circumstances as distinct from narrow answers to specific questions. Every game has principles that successful players master to achieve winning results. So does life. 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 well know how to interact with the world more effectively than those who know fewer of them or know them less well. Different principles apply to different aspects of life—e.g., there are “skiing principles” for skiing, “parenting principles” for parenting, “management principles” for managing, “investment principles” for investing, etc—and there are over-arching “life principles” that influence our approaches to all things. And, of course, different people subscribe to different principles that they believe work best. I am confident that whatever success Bridgewater and I have had has resulted from our operating by certain principles. Creating a great culture, finding the right people, managing them to do great things and solving problems creatively and systematically are challenges faced by all organizations. What differentiates them is how they approach these challenges. The principles laid out in the pages that follow convey our unique ways of doing these things, which are the reasons for our unique results. Bridgewater’s success has resulted from talented people operating by the principles set out here, and it will continue if these or other talented people continue to operate by them. Like getting fit, virtually anyone can do it if they are willing to do what it takes. What is written here is just my understanding of what it takes: my most fundamental life principles, my approach to getting what I want, and my “management principles,” which are based on those foundations. Taken together, these principles are meant to paint a picture of a process for the systematic pursuit of truth and excellence and for the rewards that accompany this pursuit. I put them in writing for people to consider in order to help Bridgewater and the people I care about most. Until recently, I didn’t write out these principles because I felt that it was presumptuous for me to tell others what would work best for them. But over time, I saw the people who I cared about most struggling with problems and wanted to help them; I also found that their problems were almost always the result of violating one or more of these principles, and that their problems could be solved by applying these principles. So I began writing down the types of problems and the broken principles that caused them. When I began, I didn’t know how many principles I would end up with but, through this process, I discovered that about 200 principles pretty much cover all the problems.[1] I’m sure that I will come up with more as I learn more. When I say that these are my principles, I don’t mean that in a possessive or egotistical way. I just mean that they are explanations of what I personally believe. I believe that the people I work with and care about must think for themselves. I set these principles out and explained the logic behind them so that we can together explore their merits and stress test them. While I am confident that these principles work well because I have thought hard about them, they have worked well for me for many years, and they have stood up to the scrutiny of the hundreds of smart, skeptical people, I also believe that nothing is certain. I believe that the best we can hope for is highly probable. By putting them out there and stress testing them, the probabilities of their being right will increase. I also believe that those principles that are most valuable to each of us come from our own encounters with reality and our reflections on these encounters – not from being taught and simply accepting someone else’s principles. So, I put these out there for you to reflect on when you are encountering your realities, and not for you to blindly follow. What I hope for most is that you and others will carefully consider them and try operating by them as part of your process for discovering what works best for you. Through this exploration, and with their increased usage, not only will they be understood, but they will evolve from “Ray’s principles” to “our principles,” and Ray will fade out of the picture in much the same way as memories of one’s ski or tennis instructor fade and people only pay attention to what works.[2] So, when digesting each principle, please... ...ask yourself: “Is it true?” Before I discuss the management principles themselves, it’s important for me to articulate my own most fundamental life principles because my management principles are an extension of them. In Part 1, I explain what I mean by principles, why I believe they are important, and how they are essential for getting what you want out of life. Part 2 explains my most fundamental life principles. I describe what I believe are the best ways of interacting with reality to learn what it’s like, and how to most effectively deal with it to get what you want. I also discuss what I believe are the most common traps that people fall into that prevent them from getting what they want, and how people’s lives can be radically better by avoiding them. I wrote this so you can better understand why my other principles are what they are, though you don’t need to read this part to understand the others. Part 3 is about my management principles. As I have run Bridgewater for more than 35 years, it explains Bridgewater’s approach up till now. It begins at the big-picture, conceptual level, with an explanation of why I believe that any company’s results are primarily determined by its people and its culture. It then drills down into what I believe are the important principles behind creating a great culture, hiring the right people, managing them to achieve excellence, solving problems systematically and making good decisions. There are of course lots of other types of principles. For example, I hope to one day write about my investment principles. However, management principles are now what we need most, so here are the ones that I think make sense and have worked for me. PART 1: THE IMPORTANCE OF PRINCIPLES I believe that having principles that work is essential for getting what we want out of life. I also believe that to understand each other we have to understand each other’s principles.[3] That is why I believe we need to talk about them. We will begin by examining the following questions: What are principles? Why are principles important? Where do principles come from? Do you have principles that you live your life by? What are they? How well do you think they will work, and why? Answer all questions with complete honesty, without worrying what I or others might think. That honesty will allow you to be comfortable living with your own principles, and to judge yourself by how consistently you operate by them. If you don’t have many well-thought-out principles, don’t worry. We will get there together, if we remain open-minded. 1) WHAT ARE PRINCIPLES? Your values are what you consider important, literally what you “value.” Principles are what allow you to live a life consistent with those values. Principles connect your values to your actions; they are beacons that guide your actions, and help you successfully deal with the laws of reality. It is to your principles that you turn when you face hard choices. 2) WHY ARE PRINCIPLES IMPORTANT? All successful people operate by principles that help them be successful. Without principles, you would be forced to react to circumstances that come at you without considering what you value most and how to make choices to get what you want. This would prevent you from making the most of your life. While operating without principles is bad for individuals, it is even worse for groups of individuals (such as companies) because it leads to people randomly bumping into each other without understanding their own values and how to behave in order to be consistent with those values. 3) WHERE DO PRINCIPLES COME FROM? Sometimes we forge our own principles and sometimes we accept others’ principles, or holistic packages of principles, such as religion and legal systems. While it isn’t necessarily a bad thing to use others’ principles—it’s difficult to come up with your own, and often much wisdom has gone into those already created—adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values. Holding incompatible principles can lead to conflict between values and actions—like the hypocrite who has claims to be of a religion yet behaves counter to its teachings. Your principles need to reflect values you really believe in. 4) DO YOU HAVE PRINCIPLES THAT YOU LIVE YOUR LIFE BY? WHAT ARE THEY? Your principles will determine your standards of behavior. When you enter into relationships with other people, your and their principles will determine how you interact. People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflict with one another. Too often in relationships, people’s principles are unclear. Think about the people with whom you are closest. Are their values aligned with yours? What do you value most deeply? 5) HOW WELL DO YOU THINK THEY WILL WORK, AND WHY? Those principles that are most valuable come from our own experiences and our reflections on those experiences. Every time we face hard choices, we refine our principles by asking ourselves difficult questions. For example, when our representatives in Washington are investigating whether various segments of society are behaving ethically, they are simultaneously grappling with questions such as, “Should the government punish people for bad ethics, or should it just write and enforce the laws?” Questions of this kind—in this case, about the nature of government—prompt thoughtful assessments of alternative approaches. These assessments in turn lead to principles that can be applied to similar occasions in the future. As another example, “I won’t steal” can be a principle to which you refer when the choice of whether or not to steal arises. But to be most effective, each principle must be consistent with your values, and this consistency demands that you ask: Why? Is the reason you won’t steal because you feel empathy for your potential victim? Is it because you fear getting caught? By asking such questions, we refine our understanding, and the development of our principles becomes better aligned with our core values. To be successful, you must make correct, tough choices. You must be able to “cut off a leg to save a life,” both on an individual level and, if you lead people, on a group level. And to be a great leader, it is important to remember that you will have to make these choices by understanding and caring for your people, not by following them.   You have to answer these questions for yourself. What I hope for most is that you will carefully consider the principles we will be exploring in this document and try operating by them, as part of the process of discovering what works best for you. In time, the answers to these questions will evolve from “Ray’s principles” to “my principles,” and “Ray” will fade from the picture in much the same way as memories of your ski instructor or basketball coach fade after you have mastered the sport. So, as I believe that adopting pre-packaged principles without much thought is risky, I am asking you to join me in thoughtfully discussing the principles that guide how we act. When considering each principle, please ask yourself, “Is it true?” While this particular document will always express just what I believe, other people will certainly have their own principles, and possibly even their own principles documents, and future managers of Bridgewater will work in their own ways to determine what principles Bridgewater will operate by. At most, this will remain as one reference of principles for people to consider when they are deciding what’s important and how to behave. PART 2: MY MOST FUNDAMENTAL LIFE PRINCIPLES Time is like a river that will take you forward into encounters with reality that will require you to make decisions. You can’t stop the movement down this river, and you can’t avoid the encounters. You can only approach these encounters in the best way possible. That is what this part is all about. WHERE I’M COMING FROM Since we are all products of our genes and our environments and approach the world with biases, I think it is relevant for me to tell you a bit of my background so that you can know where I’m coming from. I grew up in a middle-class neighborhood on Long Island, the only son of a jazz musician and a stay-at- home mom. I was a very ordinary kid, and a less-than-ordinary student. I liked playing with my friends— for example, touch football in the street—and I didn't like the school part of school, partly because I had, and still have, a bad rote memory[4] and partly because I couldn’t get excited about forcing myself to remember what others wanted me to remember without understanding what all this work was going to get me. In order to be motivated, I needed to work for what I wanted, not for what other people wanted me to do. And in order to be successful, I needed to figure out for myself how to get what I wanted, not remember the facts I was being told to remember. One thing I wanted was spending money. So I had a newspaper route, I mowed lawns, I shoveled the snow off driveways, I washed dishes in a restaurant, and, starting when I was 12 years old, I caddied. It was the 1960s. At the time the stock market was booming and everyone was talking about it, especially the people I caddied for. So I started to invest. The first stock I bought was a company called Northeast Airlines, and the only reason I bought it was that it was the only company I had heard of that was trading for less than $5 per share, so I could buy more shares, which I figured was a good thing. It went up a lot. It was about to go broke but another company acquired it, so it tripled. I made money because I was lucky, though I didn’t see it that way then. I figured that this game was easy. After all, with thousands of companies listed in the newspaper, how difficult could it be to find at least one that would go up? By comparison to my other jobs, this way of making money seemed much more fun, a lot easier, and much more lucrative. Of course, it didn’t take me long to lose money in the markets and learn about how difficult it is to be right and the costs of being wrong. So what I really wanted to do now was beat the market. I just had to figure out how to do it. The pursuit of this goal taught me: 1) It isn't easy for me to be confident that my opinions are right. In the markets, you can do a huge amount of work and still be wrong. 2) Bad opinions can be very costly. Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure. 3) The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong. So ... ...1) I worked for what I wanted, not for what others wanted me to do. For that reason, I never felt that I had to do anything. All the work I ever did was just what I needed to do to get what I wanted. Since I always had the prerogative to not strive for what I wanted, I never felt forced to do anything. ...2) I came up with the best independent opinions I could muster to get what I wanted. For example, when I wanted to make money in the markets, I knew that I had to learn about companies to assess the attractiveness of their stocks. At the time, Fortune magazine had a little tear-out coupon that you could mail in to get the annual reports of any companies on the Fortune 500, for free. So I ordered all the annual reports and worked my way through the most interesting ones and formed opinions[5] about which companies were exciting. ...3) I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong.[6] I never cared much about others’ conclusions—only for the reasoning that led to these conclusions. That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people. ...4) I remained wary about being overconfident, and I figured out how to effectively deal with my not knowing. I dealt with my not knowing by either continuing to gather information until I reached the point that I could be confident or by eliminating my exposure to the risks of not knowing.[7] ...5) I wrestled with my realities, reflected on the consequences of my decisions, and learned and improved from this process. By doing these things, I learned how important and how liberating it is to think for myself. In a nutshell, this is the whole approach that I believe will work best for you—the best summary of what I want the people who are working with me to do in order to accomplish great things. I want you to work for yourself, to come up with independent opinions, to stress-test them, to be wary about being overconfident, and to reflect on the consequences of your decisions and constantly improve. After I graduated from high school, I went to a local college that I barely got in to. I loved it, unlike high school, because I could learn about things that interested me; I studied because I enjoyed it, not because I had to. At that time the Beatles had made a trip to India to learn how to meditate, which triggered my interest, so I learned how to meditate. It helped me think more clearly and creatively, so I’m sure that enhanced my enjoyment of, and success at, learning.[8] Unlike in high school, in college I did very well. And of course I continued to trade markets. Around this time I became interested in trading commodities futures, though virtually nobody traded them back then. I was attracted to trading them just because they had low margin requirements so I figured I could make more money by being right (which I planned to be). By the time I graduated college, in 1971, I had been admitted to Harvard Business School, where I would go in the fall. That summer between college and HBS I clerked on the floor of the New York Stock Exchange. This was the summer of the breakdown of the global monetary system (i.e., the Bretton Woods system). It was one of the most dramatic economic events ever and I was at the epicenter of it, so it thrilled me. It was a currency crisis that drove all market behaviors, so I delved into understanding the currency markets. The currency markets would be important to me for the rest of my life. That fall I went to Harvard Business School, which I was excited about because I felt that I had climbed to the top and would be with the best of the best. Despite these high expectations, the place was even better than I expected because the case study method allowed open-ended figuring things out and debating with others to get at the best answers, rather than memorizing facts. I loved the work-hard, play- hard environment. In the summer between my two years at HBS, I pursued my interest in trading commodities futures by convincing the Director of Commodities for Merrill Lynch to give me a job as his assistant. At the time, commodities trading was still an obscure thing to do. In the fall I went back to HBS, and in that academic year, 1972-73, trading commodities futures became a hot thing to do. That is because the monetary system’s breakdown that occurred in 1971 led to an inflationary surge that sent commodity prices higher. As a result of this, the first oil shock occurred in 1973. As inflation started to surge, the Federal Reserve tightened monetary policy to fight it, so stocks went down in the worst bear market since the Great Depression. So, commodities futures trading was hot and stock market investing was not. Naturally, brokerage houses that didn’t have commodities trading departments wanted them, and there was a shortage of people who knew anything about it. Virtually nobody in the commodities futures business had the type of Harvard Business School background that I had. So I was hired as Director of Commodities at a moderate-size brokerage and given an old salt who had lots of commodities brokerage experience to help me set up a commodities division. The bad stock market environment ended up taking this brokerage house down before we could get the commodities futures trading going. I went to a bigger, more successful brokerage, where I was in charge of its institutional/hedging business. But I didn’t fit into the organization well, so I was fired essentially for insubordination. So in 1975, after a quick two-year stint on Wall Street after school, I started Bridgewater. Soon after, I got married and began my family. Through this time and till now I followed the same basic approach I used as a 12-year-old caddie trying to beat the market, i.e., by 1) working for what I wanted, not for what others wanted me to do; 2) coming up with the best independent opinions I could muster to move toward my goals; 3) stress- testing my opinions by having the smartest people I could find challenge them so I could find out where I was wrong; 4) being wary about overconfidence, and good at not knowing; and 5) wrestling with reality, experiencing the results of my decisions, and reflecting on what I did to produce them so that I could improve. Since I started Bridgewater, I have gained a lot more experience that taught me a lot more, mostly by making mistakes and learning from them. Most importantly: I learned that failure is by and large due to not accepting and successfully dealing with the realities of life, and that achieving success is simply a matter of accepting and successfully dealing with all my realities. I learned that finding out what is true, regardless of what that is, including all the stuff most people think is bad—like mistakes and personal weaknesses—is good because I can then deal with these things so that they don’t stand in my way. I learned that there is nothing to fear from truth. While some truths can be scary—for example, finding out that you have a deadly disease—knowing them allows us to deal with them better. Being truthful, and letting others be completely truthful, allows me and others to fully explore our thoughts and exposes us to the feedback that is essential for our learning. I learned that being truthful was an extension of my freedom to be me. I believe that people who are one way on the inside and believe that they need to be another way outside to please others become conflicted and often lose touch with what they really think and feel. It’s difficult for them to be happy and almost impossible for them to be at their best. I know that’s true for me. I learned that I want the people I deal with to say what they really believe and to listen to what others say in reply, in order to find out what is true. I learned that one of the greatest sources of problems in our society arises from people having loads of wrong theories in their heads—often theories that are critical of others—that they won’t test by speaking to the relevant people about them. Instead, they talk behind people’s backs, which leads to pervasive misinformation. I learned to hate this because I could see that making judgments about people so that they are tried and sentenced in your head, without asking them for their perspective, is both unethical and unproductive.[9] So I learned to love real integrity (saying the same things as one believes)[10] and to despise the lack of it.[11] I learned that everyone makes mistakes and has weaknesses and that one of the most important things that differentiates people is their approach to handling them. I learned that there is an incredible beauty to mistakes, because embedded in each mistake is a puzzle, and a gem that I could get if I solved it, i.e., a principle that I could use to reduce my mistakes in the future. I learned that each mistake was probably a reflection of something that I was (or others were) doing wrong, so if I could figure out what that was, I could learn how to be more effective. I learned that wrestling with my problems, mistakes, and weaknesses was the training that strengthened me. Also, I learned that it was the pain of this wrestling that made me and those around me appreciate our successes.[12] I learned that the popular picture of success—which is like a glossy photo of an ideal man or woman out of a Ralph Lauren catalog, with a bio attached listing all of their accomplishments like going to the best prep schools and an Ivy League college, and getting all the answers right on tests—is an inaccurate picture of the typical successful person. I met a number of great people and learned that none of them were born great—they all made lots of mistakes and had lots weaknesses—and that great people become great by looking at their mistakes and weaknesses and figuring out how to get around them. So I learned that the people who make the most of the process of encountering reality, especially the painful obstacles, learn the most and get what they want faster than people who do not. I learned that they are the great ones—the ones I wanted to have around me. In short, I learned that being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of improvement and movement toward what I wanted. While this approach worked great for me, I found it more opposite than similar to most others’ approaches, which has produced communications challenges.
Specifically, I found that: While most others seem to believe that learning what we are taught is the path to success, I believe that figuring out for yourself what you want and how to get it is a better path.[13] While most others seem to believe that having answers is better than having questions, I believe that having questions is better than having answers because it leads to more learning.[14] While most others seem to believe that mistakes are bad things, I believe mistakes are good things because I believe that most learning comes via making mistakes and reflecting on them. While most others seem to believe that finding out about one’s weaknesses is a bad thing, I believe that it is a good thing because it is the first step toward finding out what to do about them and not letting them stand in your way. While most others seem to believe that pain is bad, I believe that pain is required to become stronger.[15] One of the advantages of my being over 60 years old—and there aren’t many—is that we can look back on my story to see how I came by these beliefs and how they have worked for me. It is now more than 35 years after I started Bridgewater and about the same number of years since I got married and began my family. I am obviously not your Ralph Lauren poster child for success, yet I’ve had a lot of successes, though they’re probably not what you’re thinking. Yes, I started Bridgewater from scratch, and now it’s a uniquely successful company and I am on the Forbes 400 list. But these results were never my goals—they were just residual outcomes—so my getting them can’t be indications of my success. And, quite frankly, I never found them very rewarding.[16] What I wanted was to have an interesting, diverse life filled with lots of learning—and especially meaningful work and meaningful relationships. I feel that I have gotten these in abundance and I am happy. And I feel that I got what I wanted by following the same basic approach I used as a 12-year-old caddie trying to beat the market, i.e., by 1) working for what I wanted, not for what others wanted me to do; 2) coming up with the best independent opinions I could muster to move toward my goals; 3) stress- testing my opinions by having the smartest people I could find challenge them so I could find out where I was wrong; 4) being wary about overconfidence, and good at not knowing; and 5) wrestling with reality, experiencing the results of my decisions, and reflecting on what I did to produce them so that I could improve. I believe that by following this approach I moved faster to my goals by learning a lot more than if I hadn’t followed it. Here are the most important principles that I learned along the way. MY MOST FUNDAMENTAL PRINCIPLES In pursuing my goals I encountered realities, often in the form of problems, and I had to make decisions. I found that if I accepted the realities rather than wished that they didn’t exist and if I learned how to work with them rather than fight them, I could figure out how to get to my goals. It might take repeated tries, and seeking the input of others, but I could eventually get there. As a result, I have become someone who believes that we need to deeply understand, accept, and work with reality in order to get what we want out of life. Whether it is knowing how people really think and behave when dealing with them, or how things really work on a material level—so that if we do X then Y will happen—understanding reality gives us the power to get what we want out of life, or at least to dramatically improve our odds of success. In other words, I have become a “hyperrealist.” 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 I believe 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 dreamers who simply imagine things that would be nice but are not possible don’t sufficiently appreciate the laws of the universe to understand the true implications of their desires, much less how to achieve them. Let me explain what I mean. I believe there are 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 laws and the principles of how to operate in harmony with them have always existed. We were given these laws by nature. 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 understanding and using previously existing laws of the universe. These inventions did not come from people who were not well-grounded in reality.[17] 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. This brings me to my most fundamental principle: Truth
 —more precisely, an accurate understanding of reality— is the essential foundation for producing good outcomes. While I spend the most time studying how the realities that affect me most work—i.e., those that drive the markets and the people I deal with—I also love to study nature to try to figure out how it works because, to me, nature is both beautiful and practical. Its perfection and brilliance staggers me. When I think about all the flying machines, swimming machines, and billions of other systems that nature created, from the microscopic level to the cosmic level, and how they interact with one another to make a workable whole that evolves through time and through multi- dimensions, my breath is taken away. It seems to me that, in relation to nature, man has the intelligence of a mold growing on an apple—man can’t even make a mosquito, let alone scratch the surface of understanding the universe. Though how nature works is way beyond man’s ability to comprehend, I have found that observing how nature works offers innumerable lessons that can help us understand the realities that affect us. That is because, though man is unique, he is part of nature and subject to most of the same laws of nature that affect other species. For example, I have found that by looking at what is rewarded and punished, and why, universally—i.e., in nature as well as in humanity—I have been able to learn more about what is “good” and “bad” than by listening to most people’s views about good and bad. It seems to me that what most people call “good” and “bad” typically reflects their particular group’s preferences: the Taliban’s definitions are different than Americans’, which are different than others’—and within each group there are differences and they are intended to paint a picture of the world the way they’d like it to be rather than the way it really is. So there are many different takes on what is good and bad that each group uses to call others “bad” and themselves “good,” some of which are practical and others of which are impractical. Yet all of them, and everything else, are subject to the same laws of nature–i.e., I believe that we all get rewarded and punished according to whether we operate in harmony or in conflict with nature’s laws, and that all societies will succeed or fail in the degrees that they operate consistently with these laws. This perspective gives me a non-traditional sense of good and bad: “good,” to me, means operating consistently with the natural laws, while “bad” means operating inconsistently with these laws. In other words, for something to be “good” it must be grounded in reality. And if something is in conflict with reality—for example, if morality is in conflict with reality—it is “bad,” i.e., it will not produce good outcomes. In other words, I believe that understanding what is good is obtained by looking at the way the world works and figuring out how to operate in harmony with it to help it (and yourself) evolve. But it is not obvious, and it is sometimes difficult to accept. For example, when a pack of hyenas takes down a young wildebeest, is this good or bad? At face value, this seems terrible; the poor wildebeest suffers and dies. Some people might even say that the hyenas are evil. Yet this type of apparently evil behavior exists throughout nature through all species and was created by nature, which is much smarter than I am, so before I jump to pronouncing it evil, I need to try to see if it might be good. When I think about it, like death itself, this behavior is integral to the enormously complex and efficient system that has worked for as long as there has been life. And when I think of the second- and third-order consequences, it becomes obvious that this behavior is good for both the hyenas, who are operating in their self-interest, and in the interests of the greater system, which includes the wildebeest, because killing and eating the wildebeest fosters evolution, i.e., the natural process of improvement. In fact, if I changed anything about the way that dynamic works, the overall outcome would be worse. I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe, and that it is good.[18] It affects the changes of everything from all species to the entire solar system. It is good because evolution is the process of adaptation that leads to improvement. So, 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 they 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 usually the case. Instead, when we get the things we are striving for, we rarely remain satisfied.[19] It is natural for us to seek other things or to seek to make the things we have better. In the process of this seeking, we continue to evolve and we contribute to the evolution of all that we have contact with. 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 to us and those around us. It is natural that it should be this 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.[20] 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 foolish to continue to have making money be your goal. People who acquire things beyond their usefulness not only will derive little or no marginal gains from these acquisitions, but they also will experience negative consequences, as with any form of gluttony. So, because of the law of diminishing returns, it is only natural that seeking something new, or seeking new depths of something old, is required to bring us satisfaction. In other words, 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 is the personal evolutionary process that fulfills most of us and moves society forward. I believe that pursuing self-interest in harmony with the laws of the universe and contributing to evolution is universally rewarded, and what I call “good.” Look at all species in action: they are constantly pursuing their own interests and helping evolution in a symbiotic way, with most of them not even knowing that their self-serving behaviors are contributing to evolution. Like the hyenas attacking the wildebeest, successful people might not even know if or how their pursuit of self-interest helps evolution, but it typically does.[21] Self-interest and society’s interests are generally symbiotic: more than anything else, it is pursuit of self- interest that motivates people to push themselves to do the difficult things that benefit them and that contribute to society. In return, society rewards those who give it what it wants. That is why how much money people have earned is a rough measure of how much they gave society what it wanted—NOT how much they desired to make money. Look at what caused people to make a lot of money and you will see that usually it is in proportion to their production of what the society wanted and largely unrelated to their desire to make money. There are many people who have made a lot of money who never made making a lot of money their primary goal. Instead, they simply engaged in the work that they were doing, produced what society wanted, and got rich doing it.[22] And there are many people who really wanted to make a lot of money but never produced what the society wanted and they didn’t make a lot of money. In other words, there is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes. I know that this is true for me—i.e., I never worked to make a lot of money, and if I had I would have stopped ages ago because of the law of diminishing returns. I know that the same is true for all the successful, healthy (i.e., non-obsessed) people I know.[23] This process of productive adaptation—i.e., the process of seeking, obtaining, and pursuing new goals— does not just pertain to how individuals and society move forward. It is equally relevant when dealing with setbacks, which are inevitable. That is why many people who have had setbacks that seemed devastating at the time ended up as happy as (or even happier than) they were before, once they successfully adapted to them. The faster that one appropriately adapts, the better. As Darwin described, adaptation—i.e., adjusting appropriately to changes in one’s circumstances—is a big part of the evolutionary process, and it is rewarded.[24] 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.[25] So, it seems to me that desires to evolve are universal and so are symbiotic relationships that lead to the evolution of the whole to occur via the pursuit of individuals’ self-interests. However, what differentiates man from other species is man’s greater ability to learn. Because we can learn, we can evolve more and faster than other species. I also believe that all things in nature have innate attributes that are both good and bad, with their goodness and their badness depending on what they are used for. For example, the thorns on a rose bush, the stinger on a bee, the aggressiveness of a lion, the timidity of a gazelle are all both good and bad, depending on their applications. Over time, nature evolves toward the right balance through the process of natural selection—e.g., an overly aggressive animal will die prematurely, as will an overly timid animal. However, because man has the ability to look at himself and direct his own change, individuals have the capacity to evolve. Most of us are born with attributes that both help us and hurt us, depending on their applications, and the more extreme the attribute, the more extreme the potential good and bad outcomes these attributes are likely to produce. For example, highly creative, goal-oriented people who are good at imagining the big picture often can easily get tripped up on the details of daily life, while highly pragmatic, task-oriented people who are great with the details might not be creative. That is because the ways their minds work make it difficult for them to see both ways of thinking. In nature everything was made for a purpose, and so too were these different ways of thinking. They just have different purposes. It is extremely important to one’s happiness and success to know oneself—most importantly to understand one’s own values and abilities—and then to find the right fits. We all have things that we value that we want and we all have strengths and weaknesses that affect our paths for getting them. The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt to these things. Unlike any other species, man is capable of reflecting on himself and the things around him to learn and adapt in order to improve. He has this capability because, in the evolution of species man’s brain developed a part that no other species has—the prefrontal cortex. It is the part of the human brain that gives us the ability to reflect and conduct other cognitive thinking. Because of this, people who can objectively reflect on themselves and others —most importantly on their weaknesses are—can figure out how to get around these weaknesses, can evolve fastest and come closer to realizing their potentials than those who can’t. However, typically defensive, emotional reactions—i.e., ego barriers—stand in the way of this progress. These reactions take place in the part of the brain called the amygdala. As a result of them, most people don’t like reflecting on their weaknesses even though recognizing them is an essential step toward preventing them from causing them problems. Most people especially dislike others exploring their weaknesses because it makes them feel attacked, which produces fight or flight reactions; however, having others help one find one’s weaknesses is essential because it’s very difficult to identify one’s own. Most people don’t like helping others explore their weaknesses, even though they are willing to talk about them behind their backs. For these reasons most people don’t do a good job of understanding themselves and adapting in order to get what they want most out of life. In my opinion, that is the biggest single problem of mankind because it, more than anything else, impedes people’s abilities to address all other problems and it is probably the greatest source of pain for most people. Some people get over the ego barrier and others don’t. Which path they choose, more than anything else, determines how good their outcomes are. Aristotle defined tragedy as a bad outcome for a person because of a fatal flaw that he can’t get around. So it is tragic when people let ego barriers lead them to experience bad outcomes. THE PERSONAL EVOLUTIONARY PROCESS As I mentioned before, I believe that life consists of an enormous number of choices that come at us and that each decision we make has consequences, so the quality of our lives depends on the quality of the decisions we make. We aren’t born with the ability to make good decisions; we learn it.[26] We all start off as children with others, typically parents, directing us. But, as we get older, we increasingly make our own choices. We choose what we are going after (i.e., our goals), which influences our directions. For example, if you want to be a doctor, you go to med school; if you want to have a family, you find a mate; and so on. As we move toward our goals, we encounter problems, make mistakes, and run into personal weaknesses. Above all else, how we choose to approach these impediments determines how fast we move toward our goals. I believe that the way we make our dreams into reality is by constantly engaging with reality in pursuit of our dreams and by using these encounters to learn more about reality itself and how to interact with it in order to get what we want—and that if we do this with determination, we almost certainly will be successful. In short: Reality + Dreams + Determination = A Successful Life So what is success? I believe that it is nothing more than getting what you want—and that it is up to you to decide what that is for you. I don’t care whether it’s being a master of the universe, a couch potato, or anything else—I really don’t. What is essential is that you are clear about what you want and that you figure out how to get it. However, there are a few common things that most people want. As I mentioned, 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. Also, for most people happiness is much more determined by how things turn out relative to their expectations rather than the absolute level of their conditions. For example, if a billionaire loses $200 million he will probably be unhappy, while if someone who is worth $10 thousand unexpectedly gets another $2 thousand, he will probably be happy. This basic principle suggests that you can follow one of two paths to happiness: 1) have high expectations and strive to exceed them, or 2) lower your expectations so that they are at or below your conditions. Most of us choose the first path, which means that to be happy we have to keep evolving. Another principle to keep in mind is that people need meaningful work and meaningful relationships in order to be fulfilled.[27]I have observed this to be true for virtually everyone, and I know that it’s true for me.[28] Regardless of others’ principles, you will need to decide for yourself what you want and go after it in the best way for you. YOUR MOST IMPORTANT CHOICES As I mentioned, as we head toward our goals we encounter an enormous number of choices that come at us, and each decision we make has consequences. So, the quality of our lives depends on the quality of the decisions we make. We literally make millions of decisions that add up to the consequences that are our lives. Of these millions, I believe that there are five big types of choices that we continually must make that radically affect the quality of our lives and the rates at which we move toward what we want. Choosing well is not dependent on our innate abilities such as intelligence or creativity, but more on what I think of as character. For this reason, I believe that most people can make the right choices. The following five decision trees show these choices. I believe that those who don’t move effectively to their goals do the things on the top branches, and those who do move to them most quickly do the things on the bottom branches. FIRST: It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way. Nature gave us pain as a messaging device to tell us that we are approaching, or that we have exceeded, our limits in some way. At the same time, nature made the process of getting stronger require us to push our limits. Gaining strength is the adaptation process of the body and the mind to encountering one’s limits, which is painful. In other words, both pain and strength typically result from encountering one’s barriers. When we encounter pain, we are at an important juncture in our decision- making process. Most people react to pain badly. They have “fight or flight” reactions to it: they either strike out at whatever brought them the pain or they try to run away from it. As a result, they don’t learn to find ways around their barriers, so they encounter them over and over again and make little or no progress toward what they want.[29] Those who react well to pain that stands in the way of getting to their goals—those who understand what is causing it and how to deal with it so that it can be disposed of as a barrier—gain strength and satisfaction. This is because most learning comes from making mistakes, reflecting on the causes of the mistakes, and learning what to do differently in the future. Believe it or not, you are lucky to feel the pain if you approach it correctly, because it will signal that you need to find solutions and to progress. Since the only way you are going to find solutions to painful problems is by thinking deeply about them—i.e., reflecting[30]—if you can develop a knee-jerk reaction to pain that is to reflect rather than to fight or flee, it will lead to your rapid learning/evolving.[31] So, please remember that: Pain + Reflection = Progress How big of an impediment is psychological pain to your progress? SECOND: People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices. They typically do this because facing “harsh realities” can be very difficult. However, by not facing these harsh realities, they don’t find ways of properly dealing with them. And because their decisions are not based in reality, they can’t anticipate the consequences of their decisions.[32] In contrast, people who know that understanding what is real is the first step toward optimally dealing with it make better decisions. So, remember... Ask yourself, “Is it true?” ...because knowing what is true is good. How much do you let what you wish to be true stand in the way of seeing what is really true? THIRD: People who worry about looking good typically hide what they don’t know and hide their weaknesses, so they never learn how to properly deal with them and these weaknesses remain impediments in the future.[33] These people typically try to prove that they have the answers, even when they really don’t. Why do they behave in this unproductive way? They typically believe the senseless but common view that great people are those who have the answers in their heads and don’t have weaknesses. Not only does this view not square with reality, but it also stands in the way of progress. I have never met a great person who did not earn and learn their greatness.[34] They have weaknesses like everyone else—they have just learned how to deal with them so that they aren’t impediments to getting what they want. In addition, the amounts of knowledge and the capabilities that anyone does not have, and that could be used to make the best possible decisions, are vastly greater than that which anyone (no matter how great) could have within them.[35] This explains why people who are interested in making the best possible decisions rarely are confident that they have the best possible answers. So they seek to learn more (often by exploring the thinking of other believable people, especially those who disagree with them) and they are eager to identify their weaknesses so that they don’t let these weaknesses stand in the way of them achieving their goals. So, what are your biggest weaknesses? Think honestly about them because if you can identify them, you are on the first step toward accelerating your movement forward. So think about them, write them down, and look at them frequently. One of my biggest weaknesses is my poor rote memory: I have trouble remembering things that don’t have reasons for being what they are, such as names, phone numbers, spelling, and addresses. Also, I am terrible at doing tasks that require little or no logic, especially if I have to do them repeatedly. On the other hand, I have a great contextual memory and good logic, and I can devote myself to things that interest me for untold hours. I don’t know how much of what I am bad at is just the other side of what I am good at—i.e., how much of what I am good at is due to my brain working in a certain way that, when applied to certain tasks, does well and when applied to others does poorly—and how much of what I am good at was developed in order to help compensate for what I am bad at. But I do know that I have created compensating approaches so that what I am bad at doesn’t hurt me much; e.g., I surround myself with people who have good rote memories who do the things that I am bad at, and I carry around tools like my BlackBerry. How much do you worry about looking good relative to actually being good? FOURTH: People who overweigh the first-order consequences of their decisions and ignore the effects that the second- and subsequent-order consequences will have on their goals rarely reach their goals.[36] This is because first-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision-making. For example, the first-order consequences of exercise (pain and time-sink) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa, etc. If your goal is to get physically fit and you don’t ignore the first-order consequences of exercise and good-tasting but unhealthy food and connect your decisions with their second- and third-order consequences, you will not reach your goal. Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are barriers that stand in our way of getting what we want. It’s almost as though the natural selection process sorts us by throwing us trick choices that have both types of consequences and penalizing the dummies who make their decisions just on the basis of the first-order consequences alone. By contrast, people who choose what they really want, and avoid the temptations and get over the pains that drive them away from what they really want, are much more likely to have successful lives. How much do you respond to 1st order consequences at the expense of 2nd and 3rd order consequences? Fifth: People who blame bad outcomes on anyone or anything other than themselves are behaving in a way that is at variance with reality, and subversive to their progress. Blaming bad outcomes on anyone or anything other than one’s self is essentially wishing that reality is different than it is, which is silly.[37] And it is subversive because it diverts one’s attention away from mustering up the personal strength and other qualities that are required to produce the best possible outcomes. Successful people understand that bad things come at everyone and that it is their responsibility to make their lives what they want them to be by successfully dealing with whatever challenges they face.[38] Successful people know that nature is testing them, and that it is not sympathetic.[39]   How much do you let yourself off the hook rather than hold yourself accountable for your success?   In summary, I believe that you can probably get what you want out of life if you can suspend your ego and take a no-excuses approach to achieving your goals with open-mindedness, determination, and courage, especiall