Principles P1 PDF

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. 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 di cult to come up with your own, and often much wisdom has gone into those already created—adopting adopting pre-packaged principles without much thought exposes you to the risk of inconsistency with your true values. values Holding incompatible principles can lead to con ict 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 re ect 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 su er through constant misunderstandings and con ict 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 re ections on those experiences. Every time we face hard choices, we re ne our principles by asking ourselves di cult 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 e ective, 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 re ne 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 o 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 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 gure 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 o 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 rst 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 gured 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 gured that this game was easy. After all, with thousands of companies listed in the newspaper, how di cult could it be to nd 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 di cult 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 gure 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 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. 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 con dent or by eliminating my exposure to the risks of not knowing....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. 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 gured 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 oor 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 guring 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 in ationary surge that sent commodity prices higher. As a result of this, the rst oil shock occurred in 1973. As in ation started to surge, the Federal Reserve tightened monetary policy to ght 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 t into the organization well, so I was red 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 nding out what is true, regardless of what that is, including all the stu 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, nding 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 con icted and often lose touch with what they really think and feel. It’s di cult 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 nd 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. So I learned to love real integrity (saying the same things as one believes) and to despise the lack of it. I learned that everyone makes mistakes and has weaknesses and that one of the most important things that di erentiates 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 re ection of something that I was (or others were) doing wrong, so if I could gure out what that was, I could learn how to be more e ective. 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. 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 guring 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. Speci cally, I found that: While most others seem to believe that learning what we are taught is the path to success, I believe that guring out for yourself what you want and how to get it is a better path. 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. 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 re ecting on them. While most others seem to believe that nding out about one’s weaknesses is a bad thing, I believe that it is a good thing because it is the rst step toward nding 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. 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. What I wanted was to have an interesting, diverse life lled 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 nd challenge them so I could nd out where I was wrong; 4) being wary about overcon dence, and good at not knowing; and 5) wrestling with reality, experiencing the results of my decisions, and re ecting 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 ght them, I could gure 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 gure out how to make that happen. I believe that dreamers who simply imagine things that would be nice but are not possible don’t su ciently 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 in nite 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 y or to send cellular phone signals imperceptibly and instantaneously around the world or any other new and bene cial 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. 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 a ect 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 gure 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 ying 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 o ers innumerable lessons that can help us understand the realities that a ect us. That is because, though man is unique, he is part of nature and subject to most of the same laws of nature that a ect 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 re ects their particular group’s preferences: the Taliban’s de nitions are di erent than Americans’, which are di erent than others’—and within each group there are di erences 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 di erent 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 con ict 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 con ict with reality—for example, if morality is in con ict 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 guring out how to operate in harmony with it to help it (and yourself) evolve. But it is not obvious, and it is sometimes di cult 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 su ers 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 e cient 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. It a ects 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 satis ed. 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 satis ed 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 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 ful lls 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, 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. 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 di cult things that bene t 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. 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. 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. 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, 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 di erentiates 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 di cult for them to see both ways of thinking. In nature everything was made for a purpose, and so too were these di erent ways of thinking. They just have di erent 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 nd the right ts. We all have things that we value that we want and we all have strengths and weaknesses that a ect 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 re ecting 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 re ect and conduct other cognitive thinking. Because of this, people who can objectively re ect on themselves and others —most importantly on their weaknesses are—can gure 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 re ecting 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 ght or ight reactions; however, having others help one nd one’s weaknesses is essential because it’s very di cult 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 de ned tragedy as a bad outcome for a person because of a fatal aw 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. We all start o 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 in uences our directions. For example, if you want to be a doctor, you go to med school; if you want to have a family, you nd 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 gure 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 e ectively 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 rst 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 ful lled.I have observed this to be true for virtually everyone, and I know that it’s true for me. 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 ve big types of choices that we continually must make that radically a ect 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 ve decision trees show these choices. I believe that those who don’t move e ectively 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 “ ght or ight” 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 nd ways around their barriers, so they encounter them over and over again and make little or no progress toward what they want. 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, re ecting on the causes of the mistakes, and learning what to do di erently 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 nd solutions and to progress. Since the only way you are going to nd solutions to painful problems is by thinking deeply about them —i.e., re ecting—if you can develop a knee-jerk reaction to pain that is to re ect rather than to ght or ee, it will lead to your rapid learning/evolving. 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 di cult. However, by not facing these harsh realities, they don’t nd ways of properly dealing with them. And because their decisions are not based in reality, they can’t anticipate the consequences of their decisions. 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. 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. 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. 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 rst 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. This is because rst-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision-making. For example, the rst-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 t and you don’t ignore the rst-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 rst-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 rst- 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 di erent than it is, which is silly. 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. Successful people know that nature is testing them, and that it is not sympathetic. 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, especially if you rely on the help of people who are strong in areas that you are weak. If I had to pick just one quality that those who make the right choices have, it is character. Character is the ability to get one’s self to do the di cult things that produce the desired results. In other words, I believe that for the most part, achieving success—whatever that is for you—is mostly a matter of personal choice and that, initially, making the right choices can be di cult. However, because of the law of nature that pushing your boundaries will make you stronger, which will lead to improved results that will motivate you, the more you operate in your “stretch zone,” the more you adapt and the less character it takes to operate at the higher level of performance. So, if you don’t let up on yourself, i.e., if you operate with the same level of “pain,” you will naturally evolve at an accelerating pace. Because I believe this, I believe that whether or not I achieve my goals is a test of what I am made of. It is a game that I play, but this game is for real. In the next part I explain how I go about playing it. In summary, I don’t believe that limited abilities are an insurmountable barrier to achieving your goals, if you do the other things right. As always, it is up to you to ask yourself if what I am saying is true. As the next part delves into this concept more, you might want to reserve your judgment until after you have read it. YOUR TWO YOUS AND YOUR MACHINE Those who are most successful are capable of “higher level thinking” —i.e., they are able to step back and design a “machine” consisting of the right people doing the right things to get what they want. They are able to assess and improve how their “machine” works by comparing the outcomes that the machine is producing with the goals. Schematically, the process is as shown in the diagram below. It is a feedback loop: That schematic is meant to convey that your goals will determine the “machine” that you create to achieve them; that machine will produce outcomes that you should compare with your goals to judge how your machine is working. Your “machine” will consist of the design and people you choose to achieve the goals. For example, if you want to take a hill from an enemy you will need to gure out how to do that— e.g., your design might need two scouts, two snipers, four infantrymen, one person to deliver the food, etc. While having the right design is essential, it is only half the battle. It is equally important to put the right people in each of these positions. They need di erent qualities to play their positions well—e.g., the scouts must be fast runners, the snipers must be precise shots, etc. If your outcomes are inconsistent with your goals (e.g., if you are having problems), you need to modify your “machine,” which means that you either have to modify your design/culture or modify your people. Do this often and well and your improvement process will look like the one on the left and do it poorly and it will look like the one on the right, or worse: I call it “higher level thinking” because your perspective is of one who is looking down on at your machine and yourself objectively, using the feedback loop as I previously described. In other words, your most important role is to step back and design, operate and improve your “machine” to get what you want. Think of it as though there are two yous—you as the designer and overseer of the plan to achieve your goals (let’s call that one you(1)) and you as one of the participants in pursuing that mission (which we will call you(2)). You(2) are a resource that you(1) have to get what you(1) want, but by no means your only resource. To be successful you(1) have to be objective about you(2). Let’s imagine that your goal is to have a winning basketball team. Wouldn’t it be silly to put yourself in a position that you don’t play well? If you did, you wouldn’t get what you want. Whatever your goals are, achieving them works the same way. If you(1) see that you(2) are not capable of doing something, it is only sensible for you(1) to have someone else do it. In other words, you(1) should look down on you(2) and all the other resources at your(1) disposal and create a “machine” to achieve your(1) goals, remembering that you(1) don’t necessarily need to do anything other than to design and manage the machine to get what you(1) want. If you(1) nd that you(2) can’t do something well re yourself(2) yourself and get a good replacement! You shouldn’t be upset that you found out that you(2) are bad at that—you(1) should be happy because you(1) have improved your(1) chances of getting what you(1) want. If you(1) are disappointed because you(2) can’t be the best person to do everything, you(1) are terribly naïve because nobody can do everything well. The biggest mistake most people make is to not see themselves and others objectively. If they could just get around this, they could live up to their potentials. How much do you intellectually agree with what I just said? How good are you in approaching life as a “higher level thinker” rather than as a doer? How much would you like to get better at this? How much do you think that reading this is a waste of time? MY 5-STEP PROCESS TO GETTING WHAT YOU WANT OUT OF LIFE There are ve things that you have to do to get what you want out of life. First, you have to choose your goals, goals which will determine your direction. Then you have to design a plan to achieve your goals. On the way to your goals, you will encounter problems. problems As I mentioned, these problems typically cause pain. The most common source of pain is in exploring your mistakes and weaknesses. You will either react badly to the pain or react like a master problem solver. That is your choice. To gure out how to get around these problems you must be calm and analytical to accurately diagnose your problems. problems Only after you have an accurate diagnosis of them can you design a plan that will get you around your problems. problems Then you have to do the tasks speci ed in the plan. Through this process of encountering problems and guring out how to get around them, you will become progressively more capable and achieve your goals more easily. Then you will set bigger, more challenging goals, in the same way that someone who works with weights naturally increases the poundage. This is the process of personal evolution, which I call my 5-Step Process. In other words, “The Process” consists of ve distinct steps: Have clear goals. Identify and don’t tolerate the problems that stand in the way of achieving your goals. Accurately diagnose these problems. Design plans that explicitly lay out tasks that will get you around your problems and on to your goals. Implement these plans—i.e., do these tasks. You need to do all of these steps well in order to be successful. Before discussing these individual steps in more detail, I want to make a few general points about the process. 1) You must approach these as distinct steps rather than blur them together. For example, when setting goals, just set goals (don’t think how you will achieve them or the other steps); when diagnosing problems, just diagnose problems (don’t think about how you will solve them or the other steps). Blurring the steps leads to suboptimal outcomes because it creates confusion and short-changes the individual steps. Doing each step thoroughly will provide information that will help you do the other steps well, since the process is iterative. 2) Each of these ﬁve steps requires diﬀerent talents and disciplines. Most probably, you have lots of some of these and inadequate amounts of others. If you are missing any of the required talents and disciplines, that is not an insurmountable problem because you can acquire them, supplement them, or compensate for not having them, if you recognize your weaknesses and design around them. them. So you must be honestly self-re ective. 3) It is essential to approach this process in a very clear-headed, rational way rather than emotionally. Figure out what techniques work best for you; e.g., if emotions are getting the better of you, take time out until you can re ect unemotionally, seek the guidance of calm, thoughtful others, etc. To help you do these things well—and stay centered and e ective rather than stressed and thrown o by your emotions—try this technique for reducing the pressure: treat your life like a game or a martial art. Your mission is to gure out how to get around your challenges to get to your goals. In the process of playing the game or practicing this martial art, you will become more skilled. As you get better, you will progress to ever-higher levels of the game that will require—and teach you—greater skills. I will explain what these skills are in the next section. However, the big and really great news is that you don’t need to have all of these skills to succeed! You just have to 1) know they are needed; 2) know you don’t have some of them; and 3) gure out how to get them (i.e., either learn them or work with others who have them). This particular game—i.e., your life—will challenge you in ways that will be uncomfortable at times. But if you work through this discomfort and re ect on it in order to learn, you will signi cantly improve your chances of getting what you want out of life. By and large, life will give you what you deserve and it doesn’t give a damn what you “like.” So it is up to you to take full responsibility to connect what you want with what you need to do to get it, and then to do those things—which often are diﬃcult but produce good results—so that you’ll then deserve to get what you want. That’s just the way it is, so you might as well accept it. Once you accept that playing the game will be uncomfortable, and you do it for a while, it will become much easier (like it does when getting t). When you excel at it, you will nd your ability to get what you want thrilling. You’ll see that excuses like “That’s not easy” are of no value and that it pays to “push through it” at a pace you can handle. Like getting physically t, the most important thing is that you keep moving forward at whatever pace you choose, recognizing the consequences of your actions. When you think that it’s too hard, remember that in the long run, doing the things that will make you successful is a lot easier than being unsuccessful. The rst- order consequences of escaping life’s challenges may seem pleasurable in the moment, but the second- and third- order consequences of this approach are your life and, over time, will be painful. With practice, you will eventually play this game like a ninja, with skill and a calm centeredness in the face of adversity that will let you handle most of your numerous challenges well. However, you will never handle them all well: mistakes are inevitable, and it’s important to recognize and accept this fact of life. The good news, as I have mentioned, is that most learning comes through making mistakes—so there is no end to learning how to play the game better. You will have an enormous number of decisions to make, so no matter how many mistakes you make, there will be plenty of opportunities to build a track record of success. That’s basically the whole concept. Let’s pause and re ect on this before moving on. Does what I am saying make sense to you? Do you agree that it is true? If not, why not? If you can’t work through your doubts alone, speak to me or to others about it, but PLEASE do not proceed until you agree with the basic logic behind the 5-Step Process. Either you will get comfortable with it and internalize it or you will point out something that is wrong and the process will get better. What follows now is a closer examination of each of the ve steps. THE 5 STEPS CLOSE-UP 1) Setting Goals You can have virtually anything you want, but you can’t have everything you want. The rst, most important, and typically most di cult step in the 5-Step Process is setting goals, because it forces you to decide what you really want and therefore what you can possibly get out of life. This is the step where you face the fundamental limit: life is like a giant smorgasbord of more delicious alternatives than you can ever hope to taste. So you have to reject having some things you want in order to get other things you want more. Some people fail at this point, afraid to reject a good alternative for fear that the loss will deprive them of some essential ingredient to their personal happiness. As a result, they pursue too many goals at the same time, achieving few or none of them. So it’s important to remember: it doesn’t really matter if some things are unavailable to you, because the selection of what IS available is so great. (That is why many people who had major losses—e.g., who lost their ability to walk, to see, etc.—and who didn’t narrow-mindedly obsess about their loss but rather open- mindedly accepted and enjoyed what remained, had equally happy lives as those who didn’t ever have these losses.) In other words, you can have an enormous amount: much, much more than what you need to have for a happy life. So don’t get discouraged by not being able to have everything you want, and for God’s sake, don’t be paralyzed by the choices. That’s nonsensical and unproductive. Get on with making your choices. Put another way, to achieve your goals you have to prioritize, and that includes rejecting good alternatives (so that you have the time and resources to pursue even better ones—time being probably your greatest limiting factor, though, through leverage, you can substantially reduce time’s constraints). It is important not to confuse “goals” and “desires.” Goals are the things that you really want to achieve, while desires are things you want that can prevent you from reaching your goals—as I previously explained, desires are typically rst-order consequences. For example, a goal might be physical tness, while a desire is the urge to eat good-tasting, unhealthy food (i.e., a rst-order consequence) that could undermine you obtaining your tness goal. So, in terms of the consequences they produce, goals are good and desires are bad. Don’t get me wrong; I believe you can choose to pursue any goal you want as long as you consider the consequences. So, staying with this example, I think it is perfectly OK for you to make your goal to enjoy eating good-tasting, unhealthy food if that choice will bring you what you really want. As I said earlier, if you want to be a couch potato, that’s ne with me—seriously. But if that’s not what you want, you better not open that bag of chips. In other words, failing to make the distinction between goals and desires will lead you in the wrong direction, because you will be inclined to pursue things you want that will undermine your ability to get things you want more. In short, you can pursue anything you desire—just make sure that you know the consequences of what you are doing. Another common reason people fail at this stage is that they lose sight of their goals, getting caught up in day-to-day tasks. Avoid setting goals based on what you think you can achieve. As I said before, do each step separately and distinctly without regard to the others. In this case, that means don’t rule out a goal due to a super cial assessment of its attainability. Once you commit to a goal, it might take lots of thinking and many revisions to your plan over a considerable time period in order to nalize the design and do the tasks to achieve it. So you need to set goals without yet assessing whether or not you can achieve them. This requires some faith that you really can achieve virtually anything, even if you don’t know how you will do it at that moment. Initially you have to have faith that this is true, but after following this process and succeeding at achieving your goals, you will gain con dence. If you like, you can start with more modest goals and, when you build up the track record to give you faith, increase your aspirations. Every time I set goals, I don’t yet have any idea how I am going to achieve them because I haven’t yet gone through the process of thinking through them. But I have learned that I can achieve them if I think creatively and work hard. I also know that I can “cheat.” Unlike in school, in life you don’t have to come up with all the right answers. You can ask the people around you for help—or even ask them to do the things you don’t do well. In other words, there is almost no reason not to succeed if you take the attitude of 1) total exibility—good answers can come from anyone or anywhere (and in fact, as I have mentioned, there are far more good answers “out there” than there are in you) and 2) total accountability: regardless of where the good answers come from, it’s your job to nd them. This no-excuses approach helps me do whatever it takes to get whatever I want most. Not all goals are achievable, of course. There are some impossibilities or near-impossibilities, such as living forever, or ying with just the power of your arms. But it’s been my experience that if I commit to bringing creativity, exibility, and determination to the pursuit of my goals, I will gure out some way to get them, i.e., almost all goals are attainable. And as I don’t limit my goals to what seems attainable at the moment I set them, the goals I set tend to be higher than they would otherwise be. Since trying to achieve high goals makes me stronger, I become increasingly capable of achieving more. Great expectations create great capabilities, in other words. And if I fail to achieve my goal, it just tells me that I have not been creative or exible or determined enough to do what it takes, and I circle back and gure out what I need to do about this situation. Achieving your goals isn’t just about moving forward. Inevitably, you must deal with setbacks. So goals aren’t just those things that you want and don’t have. They might also be keeping what you do have, minimizing your rate of loss, or dealing with irrevocable loss. Life will throw you challenges, some of which will seem devastating at the time. Your goal is always to make the best possible choices, knowing that you will be rewarded if you do. It’s like playing golf: sometimes you will be in the fairway and sometimes you will be in the rough, so you have to know how to play it as it lies. Generally speaking, goal-setting is best done by those who are good at big- picture conceptual thinking, synthesizing, visualizing, and prioritizing. But whatever your strengths and weaknesses are, don’t forget the big and really great news here: it is not essential that you have all of these qualities yourself, because you can supplement them with the help of others. In summary, in order to get what you want, the rst step is to really know what you want, without confusing goals with desires, and without limiting yourself because of some imagined impediments that you haven’t thoroughly analyzed. How well do you know what you want most out of life? What are your most important goals? Are you good at setting your goals? How conﬁdent are you that your assessment of you ability to set goals is right? If you are conﬁdent of your self-assessment, why should you be conﬁdent (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)? 2) IDENTIFYING AND NOT TOLERATING PROBLEMS After you set your goals, you must come up with a plan or a design to achieve them and then you must execute that plan by doing the tasks. On the way to achieving your goals and executing your design, you will encounter problems that have to be diagnosed, so that the design can be modi ed to get around these obstacles. That’s why you need to identify and not tolerate problems. Most problems are potential improvements screaming at you. Whenever a problem surfaces, you have in front of you an opportunity to improve. The more painful the problem, the louder it is screaming. In order to be successful, you have to 1) perceive problems and 2) not tolerate them. If you don’t identify your problems, you won’t solve them, so you won’t move forward toward achieving your goals. As a result, it is essential to bring problems to the surface. Most people don’t like to do this. But most successful people know that they have to do this. The most common reasons people don’t successfully identify their problems are generally rooted either in a lack of will or in a lack of talent or skill: They can be “harsh realities” that are unpleasant to look at, so people often subconsciously put them “out of sight” so they will be “out of mind.” Thinking about problems that are di cult to solve can produce anxiety that stands in the way of progress. People often worry more about appearing to not have problems than about achieving their desired results, and therefore avoid recognizing that their own mistakes and/or weaknesses are causing the problems. This aversion to seeing one’s own mistakes and weaknesses typically occurs because they’re viewed as de ciencies you’re stuck with rather than as essential parts of the personal evolution process. Sometimes people are simply not perceptive enough to see the problems. Some people are unable to distinguish big problems from small ones. Since nothing is perfect, it is possible to identify an in nite number of problems everywhere. If you are unable to distinguish the big problems from the little ones, you can’t “successfully” (i.e., in a practical way) identify problems. Remember, you don’t have to be good at any of the ve steps (in this case, identifying problems) to be successful if you get help from others. So push through the pain of facing your problems, knowing you will end up in a much better place. When identifying problems, it is important to remain centered and logical. While it can be tempting to react emotionally to problems and seek sympathy or blame others, this accomplishes nothing. Whatever the reasons, you have to get over the impediments to succeed. Remember that the pains you are feeling are “growing pains” that will test your character and reward you if you push through them. Try to look at your problems as a detached observer would. Remember that identifying problems is like ﬁnding gems embedded in puzzles; if you solve the puzzles you will get the gems that will make your life much better. Doing this continuously will lead to your rapid evolution. So, if you’re logical, you really should get excited about nding problems because identifying them will bring you closer to your goals. How good are you at perceiving problems? How conﬁdent are you that your assessment of your ability to perceive problems is right? If you are conﬁdent of your self-assessment, why should you be conﬁdent (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)? Be very precise in specifying your problems. It is essential to identify your problems with precision, for di erent problems have di erent solutions. For example, if your impediments are due largely to issues of will—to your unwillingness to confront what is really happening— you have to strengthen your will, for example by starting small and building up your con dence. If your problems are related to lack of skill or innate talent, the most powerful antidote is to have others point things out to you and objectively consider whether what they identify is true. Problems due to inadequate skill might then be solved with training, whereas those arising from innate weaknesses might be overcome with assistance or role changes. It doesn’t matter which is the case; it only matters that the true cause is identi ed and appropriately addressed. The more precise you are, the easier it will be to come up with accurate diagnoses and successful solutions. For example, rather than saying something like “People don’t like me,” it is better to specify which people don’t like you and under what circumstances. Don’t confuse problems with causes. “I can’t get enough sleep” is not a problem; it is a cause of some problem. What exactly is that problem? To avoid confusing the problem with its causes, try to identify the suboptimal outcome, e.g., “I am performing badly in my job because I am tired.” Once you identify your problems, you must not tolerate them. Tolerating problems has the same result as not identifying them (i.e., both stand in the way of getting past the problem), but the root causes are di erent. Tolerating problems might be due to not thinking that they can be solved, or not caring enough about solving them. People who tolerate problems are the worse o because, without the motivation to move on, they cannot succeed. In other words, if you are motivated, you can succeed even if you don’t have the abilities (i.e., talents and skills) because you can get the help from others. But if you’re not motivated to succeed, if you don’t have the will to succeed, the situation is hopeless. How much do you tolerate problems? How conﬁdent are you that your assessment of how much you tolerate problems is right? If you are conﬁdent of your self-assessment, why should you be conﬁdent (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)? People who are good at this step—identifying and not tolerating problems— tend to have strong abilities to perceive and synthesize a clear and accurate picture, as well as demonstrate a erce intolerance of badness (regardless of the severity). Remember that you need to do each step independently from the other steps before moving on. Can you comfortably identify your problems without thinking about how to solve them? It is a good exercise to just make a list of them, without possible solutions. Only after you have created a clear picture of your problems should you go to the next step. For a more detailed explanation of identifying and not tolerating problems, please read My Management Principles. 3) DIAGNOSING THE PROBLEMS You will be much more eﬀective if you focus on diagnosis and design rather than jumping to solutions. It is a very common mistake for people to move directly from identifying a tough problem to a proposed solution in a nanosecond without spending the hours required to properly diagnose and design a solution. This typically yields bad decisions that don’t alleviate the problem. Diagnosing and designing are what spark strategic thinking. You must be calm and logical. When diagnosing problems, as when identifying problems, reacting emotionally, though sometimes di cult to avoid, can undermine your e ectiveness as a decision-maker. By contrast, staying rational will serve you well. So if you are nding yourself shaken by your problems, do what you can to get yourself centered before moving forward. You must get at the root causes. Root causes, like principles, are things that manifest themselves over and over again as the deep-seated reasons behind the actions that cause problems. So you will get many everlasting dividends if you can nd them and properly deal with them. It is important to distinguish root causes from proximate causes. Proximate causes typically are the actions or lack of actions that lead to problems—e.g., “I missed the train because I didn’t check the train schedule.” So proximate causes are typically described via verbs. Root causes are the deeper reasons behind the proximate cause: “I didn’t check the schedule because I am forgetful”—a root cause. Root causes are typically described with adjectives, usually characteristics about what the person is like that lead them to an action or an inaction. Identifying the real root causes of your problems is essential because you can eliminate your problems only by removing their root causes. In other words, you must understand, accept, and successfully deal with reality in order to move toward your goals. Recognizing and learning from one’s mistakes and the mistakes of others who aﬀect outcomes is critical to eliminating problems. Many problems are caused by people’s mistakes. But people often nd it di cult to identify and accept their own mistakes. Sometimes it’s because they’re blind to them, but more often it’s because ego and shortsightedness make discovering their mistakes and weaknesses painful. Because people are often upset when their mistakes are pointed out to them, most people are reluctant to point out mistakes in others. As a result, an objective diagnosis of problems arising from people’s mistakes is often missing and personal evolution is stunted. (As I mentioned in the last chapter, most learning comes from making mistakes and experiencing the pain of them—e.g., putting your hand on a hot stove—and adapting.) It is at this stage that most people fail to progress. More than anything else, what diﬀerentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively. I call the pain that comes from looking at yourself and others objectively “growing pains,” because it is the pain that accompanies personal growth. No pain, no gain. Of course, anyone who really understands that no one is perfect and that these discoveries are essential for personal growth nds that these discoveries elicit “growing pleasures.” But it seems to be in our nature to overly focus on short-term grati cation rather than long-term satisfaction— on rst-order rather than second- or third-order consequences—so the connection between this behavior and the rewards it brings doesn’t come naturally. However, if you can make this connection, such moments will begin to elicit pleasure rather than pain. It is similar to how exercise eventually becomes pleasurable for people who hardwire the connection between exercise and its bene ts. Remember that: Pain + Reﬂection = Progress Much as you might wish this were not so, this is a reality that you should just accept and deal with. There is no getting around the fact that achieving success requires getting at the root causes of all important problems, and people’s mistakes and weaknesses are sometimes the root causes. So to be successful, you must be willing to look at your own behavior and the behavior of others as possible causes of problems. Of course, some problems aren’t caused by people making mistakes. For example, if lightning strikes, it causes problems that have nothing to do with human error. All problems need to be well-diagnosed before you decide what to do about them. The most important qualities for successfully diagnosing problems are logic, the ability to see multiple possibilities, and the willingness to touch people’s nerves to overcome the ego barriers that stand in the way of truth. For a more detailed explanation of diagnosing problems, please read My Management Principles. In diagnosing problems, how willing are you to “touch the nerve” (i.e., discuss your and others possible mistakes and weaknesses with them)? Are you willing to get at root causes, like what people are like? Are you good at seeing the patterns and synthesizing them into diagnoses of root causes? How conﬁdent are you that your assessment of your ability to diagnose is accurate? If you are conﬁdent of your self-assessment, why should you be conﬁdent (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)? 4) DESIGNING THE PLAN (DETERMINING THE SOLUTIONS) In some cases, you might go from setting goals to designing the plans that will get you to these goals; while in other cases, you will encounter problems on the way to your goals and have to design your way around them. So design will occur at both stages of the process, though it will occur much more often in guring out how to get around problems. In other words, most of the movement toward your goals comes from designing how to remove the root causes of your problems. Problems are great because they are very speciﬁc impediments, so you know that you will move forward if you can identify and eliminate their root causes. Creating a design is like writing a movie script in that you visualize who will do what through time in order to achieve the goal. Visualize the goal or problem standing in your way, and then visualize practical solutions. When designing solutions, the objective is to change how you do things so that problems don’t recur—or recur so often. Think about each problem individually, and as the product of root causes—like the outcomes produced by a machine. Then think about how the machine should be changed to produce good outcomes rather than bad ones. There are typically many paths toward achieving your goals, and you need to nd only one of them that works, so it’s almost always doable. But an e ective design requires thinking things through and visualizing how things will come together and unfold over time. It’s essential to visualize the story of where you have been (or what you have done) that has led you to where you are now and what will happen sequentially in the future to lead you to your goals. You should visualize this plan through time, like watching a movie that connects your past, present, and future. Then write down the plan so you don’t lose sight of it, and include who needs to do what and when. The list of tasks falls out from this story (i.e., the plan), but they are not the same. The story, or plan, is what connects your goals to the tasks. For you to succeed, you must not lose sight of the goals or the story while focusing on the tasks; you must constantly refer back and forth. In My Management Principles (Part 3), you can see one such plan. When designing your plan, think about the timelines of various interconnected tasks. Sketch them out loosely and then re ne them with the speci c tasks. This is an iterative process, alternating between sketching out your broad steps (e.g., hire great people) and lling these in with more speci c tasks with estimated timelines (e.g., in the next two weeks choose the headhunters to nd the great people) that will have implications (e.g., costs, time, etc.). These will lead you to modify your design sketch until the design and tasks work well together. Being as speci c as possible (e.g., specifying who will do what and when) allows you to visualize how the design will work at both a big-picture level and in detail. It will also give you and others the to-do lists and target dates that will help direct you. Of course, not all plans will accomplish everything you want in the desired time frame. In such cases, it is essential that you look at what won’t be accomplished and ask yourself if the consequences are acceptable or unacceptable. This is where perspective is required, and discussing it with others can be critical. If the plan will not achieve what’s necessary in the required time, so that the consequences have an unacceptably high probability of preventing you from achieving your goal, you have to either think harder (probably with the advice of other believable people) to make the plan do what is required or reduce your goals. It doesn’t take much time to design a good plan—literally just hours spread out over days or weeks—and whatever amount of time you spend designing it will be only a small fraction of the time you spend executing it. But designing is very important because it determines what you will have to do to be e ective. Most people make the very big mistake of spending virtually no time on this step because they are too preoccupied with execution. This process is explained in detail in My Management Principles. People successful with this stage have an ability to visualize and a practical understanding of how things really work. Remember, you don’t have to possess all these qualities if you have someone to help you with the ones you are missing. How good is your ability to visualize? How conﬁdent are you that your assessment of your ability to visualize is accurate? If you are conﬁdent of your self-assessment, why should you be conﬁdent (e.g. do have an excellent track record of visualizing and making what you visualized happen, have other believable parties told you that you are good at this)? Remember: Designing precedes doing! The design will give you your to- do list (i.e., the tasks). 5) DOING THE TASKS Next, you and the others you need to rely on have to do the tasks that will get you to your goals. Great planners who don’t carry out their plans go nowhere. You need to “push through” to accomplish the goals. This requires the self- discipline to follow the script that is your design. I believe the importance of good work habits is vastly underrated. There are lots of books written about good work habits, so I won’t digress into what I believe is e ective. However, it is critical to know each day what you need to do and have the discipline to do it. People with good work habits have to-do lists that are reasonably prioritized, and they make themselves do what needs to be done. By contrast, people with poor work habits almost randomly react to the stu that comes at them, or they can’t bring themselves to do the things they need to do but don’t like to do (or are unable to do). There are lots of tools that can help (e.g., thank God for my BlackBerry!) You need to know whether you (and others) are following the plan, so you should establish clear benchmarks. Ideally you should have someone other than yourself objectively measure if you (and others) are doing what you planned. If not, you need to diagnose why and resolve the problem. People who are good at this stage can reliably execute a plan. They tend to be self-disciplined and proactive rather than reactive to the blizzard of daily tasks that can divert them from execution. They are results-oriented: they love to push themselves over the ﬁnish line to achieve the goal. If they see that daily tasks are taking them away from executing the plan (i.e., they identify this problem), they diagnose it and design how they can deal with both the daily tasks and moving forward with the plan. As with the other steps, if you aren’t good at this step, get help. There are many successful, creative people who are good at the other steps but who would have failed because they aren’t good at execution. But they succeeded nonetheless because of great symbiotic relationships with highly reliable task- doers. For a more detailed explanation of doing what you set out to do, please see My Management Principles. How good are you at pushing through? How conﬁdent are you that your assessment of your ability to push through is accurate? If you are conﬁdent of your self-assessment, why should you be conﬁdent (e.g. because you have a demonstrated track-record, because many believable people have told you, etc)? THE RELATIONSHIPS BETWEEN THESE STEPS Designs and tasks have no purpose other than to achieve your goals. Said di erently, goals are the sole purpose of designs and tasks. So you mustn’t forget how they’re related. Frequently I see people feel great about doing their tasks while forgetting the goals they were designed to achieve, resulting in the failure to achieve their goals. This doesn’t make any sense, because the only purpose of tasks is to achieve goals. In order to be successful, your goals must be riveted in your mind: they are the things you MUST do. To remember the connections between the tasks and the goals that they are meant to achieve, you just have to ask, “Why?” It is good to connect tasks to goals this way (with the “Why?”), because losing sight of the connections will prevent you from succeeding. Again, this 5-Step Process is iterative. This means that after completing one of the steps you will probably have acquired relevant information that leads you to modify the other steps. If this process is working, goals will change much more slowly than designs, which will change more slowly than tasks. Designs and tasks can be modi ed or changed often (because you might want to reassess how to achieve the goal), but changing goals frequently is usually a problem because achieving them requires a consistent e ort. I often nd that people who have problems reaching their goals handle these steps backwards; that is, they stick too rigidly to speci ed tasks and are not committed enough to achieving their goals (often because they lose sight of them). WEAKNESSES DON’T MATTER IF YOU FIND SOLUTIONS To repeat, the best advice I can give you is to ask yourself what you want, then ask ‘what is true,’ and then ask yourself ‘what should be done about it.’ If you honestly ask and answer these questions you will move much faster towards what you want to get out of life than if you don’t! Most importantly, ask yourself what is your biggest weakness that stands in the way of what you want. As I mentioned before, everyone has weaknesses. The main di erence between unsuccessful and successful people is that unsuccessful people don’t nd and address them, and successful people do. It is di cult to see one’s own blind spots for two reasons: 1) Most people don’t go looking for their weaknesses because of “ego barriers”—they nd having weaknesses painful because society has taught them that having weaknesses is bad. As I said early on, I believe that we would have a radically more e ective and much happier society if we taught the truth, which is that everyone has weaknesses, and knowing about them and how to deal with them is how people learn and succeed. 2) Having a weakness is like missing a sense—if you can’t visualize what it is, it’s hard to perceive not having it. For these two reasons, having people show you what you are missing can be painful, though its essential for your progress. When you encounter that pain, try to remember that you can get what you want out of life if you can open-mindedly reﬂect, with the help of others, on what is standing in your way and then deal with it. What do you think is the biggest weakness you have that stands in the way of what you want – the one that you repeatedly run into? People who don’t get what they want out of life fail at one or more of the ve steps. But being weak at any one of these steps is not a problem if you understand what you are weak at and successfully compensate for that weakness by seeking help. For example, a good goal-setter who is bad at doing tasks might work well with a bad goal-setter who is great at doing tasks —i.e., they will be much more successful working together. It is easy to nd out what weaknesses are standing in your way by 1) identifying which steps you are failing at and 2) getting the feedback of people who are successful at doing what you are having problems with. Because I believe that you will achieve your goals if you do these ve steps well, it follows that if you are not achieving your goals you can use the 5-Step Process as a diagnostic tool. You would do this by 1) identifying the step(s) that you are failing at; 2) noting the qualities required to succeed at that step; and 3) identifying which of these qualities you are missing. To repeat, the ve steps and the qualities that I believe are required to be good at them are as follows: At which step do you have the most problem? Which qualities needed do you wish you had more of? In a nutshell, my 5-Step process for achieving what you want is: Values → 1) Goals → 2) Problems → 3) Diagnoses → 4) Designs → 5) Tasks Your values determine what you want, i.e., your goals. In trying to achieve your goals, you will encounter problems that have to be diagnosed. Only after determining the real root causes of these problems can you design a plan to get around them. Once you have a good plan, you have to muster the self- discipline to do what is required to make the plan succeed. Note that this process starts with your values, but it requires that you succeed at all ve steps. While these steps require di erent abilities, you don’t have to be good at all of them. If you aren’t good at all of them (which is true for almost everyone), you need to know what you are bad at and how to compensate for your weaknesses. This requires you to put your ego aside, objectively re ect on your strengths and weaknesses, and seek the help from others. As you design and implement your plan to achieve your goals, you may nd it helpful to consider that: · Life is like a game where you seek to overcome the obstacles that stand in the way of achieving your goals; · You get better at this game through practice; · The game consists of a series of choices that have consequences; · You can’t stop the problems and choices from coming at you, so it’s better to learn how to deal with them; · You have the freedom to make whatever choices you want, though it’s best to be mindful of their consequences; · The pain of problems is a call to nd solutions rather than a reason for unhappiness and inaction, so it’s silly, pointless, and harmful to be upset at the problems and choices that come at you (though it’s understandable); · We all evolve at di erent paces, and it’s up to you to decide the pace at which you want to evolve; · The process goes better if you are as accurate as possible in all respects, including assessing your strengths and weaknesses and adapting to them. While all this may sound very theoretical, it is integral to how we operate every day. For example, my management principles, which are explained in the next section, are based on the principles that I described in this section. So, Bridgewater is based on the core belief that everyone here is evolving together. How well and how quickly we do that will have a huge e ect on our well- being and the well- being of all the people we have contact with (e.g., our clients, our families, etc.). These two things are inextricably linked. Bridgewater is also based on the belief that to be successful and happy, not only do we have to be excellent, we have to continue to improve at a surprisingly fast rate. Bridgewater operates consistently with the belief that to be excellent and improve at a fast rate, we must be hyperrealistic and hypertruthful. We therefore need to overcome any impediments to being realistic and truthful, and the biggest impediment is people’s reluctance to face their own mistakes and weaknesses and those of others. Bridgewater is based on the belief that both meaningful work and meaningful relationships are required to be happy and successful. So, our relationships, like our work, must be excellent; as a result, we expect people to be extremely considerate and caring with each other. This does not mean being soft on each other, especially if that m

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