Principles: Life and Work

The principles you choose can be anything you want them to be as long as they are authentic—i.e., as long as they reflect your true character and values. You will be faced with millions of choices in life, and the way you make them will reflect the principles you have—so it won’t be long before the people around you will be able to tell the principles you are really operating by. The worst thing you can be is a phony, because if you’re a phony you will lose people’s trust and your own self-respect. So you must be clear about your principles and then you must “walk the talk.” If inconsistencies seem to exist, you should explain them. It’s best to do that in writing because by doing so, you will refine your written principles.

While I will be sharing my own principles, I want to make clear to you that I don’t expect you to follow them blindly. On the contrary, I want you to question every word and pick and choose among these principles so you come away with a mix that suits you.

MY PRINCIPLES AND HOW I LEARNED THEM

I learned my principles over a lifetime of making a lot of mistakes and spending a lot of time reflecting on them. Since I was a kid, I’ve been a curious, independent thinker who ran after audacious goals. I got excited about visualizing things to go after, had some painful failures going after them, learned principles that would prevent me from making the same sort of mistakes again, and changed and improved, which allowed me to imagine and go after even more audacious goals and do that rapidly and repeatedly for a long time. So to me life looks like the sequence you see on the opposite page.

I believe that the key to success lies in knowing how to both strive for a lot and fail well. By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game.

This way of learning and improving has been best for me because of what I’m like and because of what I do. I’ve always had a bad rote memory and didn’t like following other people’s instructions, but I loved figuring out how things work for myself. I hated school because of my bad memory but when I was twelve I fell in love with trading the markets. To make money in the markets, one needs to be an independent thinker who bets against the consensus and is right. That’s because the consensus view is baked into the price. One is inevitably going to be painfully wrong a lot, so knowing how to do that well is critical to one’s success. To be a successful entrepreneur, the same is true: One also has to be an independent thinker who correctly bets against the consensus, which means being painfully wrong a fair amount. Since I was both an investor and an entrepreneur, I developed a healthy fear of being wrong and figured out an approach to decision making that would maximize my odds of being right.

• Make believability-weighted decisions.

My painful mistakes shifted me from having a perspective of “I know I’m right” to having one of “How do I know I’m right?” They gave me the humility I needed to balance my audacity. Knowing that I could be painfully wrong and curiosity about why other smart people saw things differently prompted me to look at things through the eyes of others as well as my own. That allowed me to see many more dimensions than if I saw things just through my own eyes. Learning how to weigh people’s inputs so that I chose the best ones—in other words, so that I believability weighted my decision making—increased my chances of being right and was thrilling. At the same time, I learned to:

• Operate by principles . . .

. . . that are so clearly laid out that their logic can easily be assessed and you and others can see if you walk the talk. Experience taught me how invaluable it is to reflect on and write down my decision-making criteria whenever I made a decision, so I got in the habit of doing that. With time, my collection of principles became like a collection of recipes for decision making. By sharing them with the people at my company, Bridgewater Associates, and inviting them to help me test my principles in action, I continually refined and evolved them. In fact, I was able to refine them to the point that I could see how important it is to:

• Systemize your decision making.

I discovered I could do that by expressing my decision-making criteria in the form of algorithms that I could embed into our computers. By running both decision-making systems—i.e., mine in my head and mine in the computer—next to each other, I learned the computer could make better decisions than me because it could process vastly more information than I could, and it could do it faster and unemotionally. Doing that allowed me and the people I worked with to compound our understanding over time and improve the quality of our collective decision making. I discovered that such decision-making systems—especially when believability weighted—are incredibly powerful and will soon profoundly change how people around the world make all kinds of decisions. Our principle-driven approach to decision making has not only improved our economic, investment, and management decisions, it has helped us make better decisions in every aspect of our lives.

Whether or not your own principles are systemized/computerized is of secondary importance. The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others.

It was that approach and the principles it yielded, and not me, that took me from being an ordinary middle-class kid from Long Island to being successful by a number of conventional measures—like starting a company out of my two-bedroom apartment and building it into the fifth most important private company in the U.S. (according to Fortune), becoming one of the one hundred richest people in the world (according to Forbes), and being considered one of the one hundred most influential (according to Time). They led me to a perch from which I got to see success and life very differently than I had imagined, and they gave me the meaningful work and meaningful relationships I value even more than my conventional successes. They gave me and Bridgewater far more than I ever dreamed of.

Until recently, I didn’t want to share these principles outside of Bridgewater because I don’t like public attention and because I thought it would be presumptuous to tell others what principles to have. But after Bridgewater successfully anticipated the financial crisis of 2008–09, I got a lot of media attention and so did my principles and Bridgewater’s unique way of operating. Most of those stories were distorted and sensationalistic, so in 2010, I posted our principles on our website so people could judge them for themselves. To my surprise, they were downloaded over three million times and I was flooded with thank-you letters from all over the world.

I will give them to you in two books—Life and Work Principles in one book, and Economic and Investment Principles in the other.

HOW THESE BOOKS ARE ORGANIZED

Since I have spent most of my adult life thinking about economies and investing, I considered writing Economic and Investment Principles first. But I decided to begin with my Life and Work Principles because they’re more overarching and I’ve seen how well they work for people, independent of their careers. Since they go so well together, they are combined here in one book prefaced by a short autobiography, Where I’m Coming From.

Part I: Where I’m Coming From

In this part, I share some of the experiences—most importantly, my mistakes—that led me to discover the principles that guide my decision making. To tell you the truth, I still have mixed feelings about telling my personal story, because I worry that it might distract you from the principles themselves and from the timeless and universal cause-effect relationships that inform them. For that reason, I wouldn’t mind if you decided to skip this part of the book. If you do read it, try to look past me and my particular story to the logic and merit of the principles I describe. Think about them, weigh them, and decide how much, if at all, they apply to you and your own life circumstances—and specifically, whether they can help you achieve your goals, whatever they may be.

Part II: Life Principles

The overarching principles that drive my approach to everything are laid out in Life Principles. In this section, I explain my principles in greater depth and show how they apply in the natural world, in our private lives and relationships, in business and policymaking, and of course at Bridgewater. I’ll share the 5-Step Process I’ve developed for achieving one’s goals and making effective choices; I’ll also share some of the insights I’ve gained into psychology and neuroscience and explain how I’ve applied them in my private life and in my business. This is the real heart of the book because it shows how these principles can be applied to most anything by most anyone.

Part III: Work Principles

In Work Principles, you’ll get a close-up view of the unusual way we operate at Bridgewater. I will explain how we’ve coalesced our principles into an idea meritocracy that strives to deliver meaningful work and meaningful relationships through radical truth and radical transparency. I’ll show you how this works at a granular level and how it can be applied to nearly any organization to make it more effective. As you will see, we are simply a group of people who are striving to be excellent at what we do and who recognize that we don’t know much relative to what we need to know. We believe that thoughtful, unemotional disagreement by independent thinkers can be converted into believability-weighted decision making that is smarter and more effective than the sum of its parts. Because the power of a group is so much greater than the power of an individual, I believe these work principles are even more important than the life principles on which they’re based.

What Will Follow This Book

This print book will be followed by an interactive book in the form of an app that will take you into videos and immersive experiences so that your learning is more experiential. The app will also get to know you through your interactions with it in order to provide you with more personalized advice.

This book and the app will be followed by another volume containing two other parts, Economic and Investment Principles, in which I will pass along the principles that have worked for me and that I believe might help you in these areas.

After that, there will be no advice I can give that will not be available in these two books, and I will be done with this phase of my life.

Think for yourself!

1) What do you want?

2) What is true?

3) What are you going to do about it?

PART I

WHERE I’M COMING FROM

Time is like a river that carries us forward into encounters with reality that require us to make decisions. We can’t stop our movement down this river and we can’t avoid those encounters. We can only approach them in the best possible way.

When we are children, other people, typically our parents, guide us through our encounters with reality. As we get older, we begin to make our own choices. We choose what we are going after (our goals), and that influences our paths. If you want to be a doctor, you go to medical school; if you want to have a family, you find a mate; and so on. As we move toward these goals, we encounter problems, make mistakes, and run up against our own personal weaknesses. We learn about ourselves and about reality and make new decisions. Over the course of our lives, we make millions and millions of decisions that are essentially bets, some large and some small. It pays to think about how we make them because they are what ultimately determine the quality of our lives.

We are all born with different thinking abilities but we aren’t born with decision-making skills. We learn them from our encounters with reality. While the path I went down is unique—being born to particular parents, pursuing a particular career, having particular colleagues—I believe that the principles I learned along the way will work equally well for most people on most paths. As you read my story, try to look through it and me to the underlying cause-and-effect relationships—at the choices I made and their consequences, what I learned from them, and how I changed the ways I make decisions as a result. Ask yourself what you want, seek out examples of other people who got what they wanted, and try to discern the cause-and-effect patterns behind their achievements so you can apply them to help you achieve your own goals.

To help you understand where I’m coming from, I am giving you an unvarnished account of my life and career, placing special emphasis on my mistakes and weaknesses and the principles I learned from them.

CHAPTER 1

MY CALL TO ADVENTURE:

1949–1967

I was born in 1949 and grew up in a middle-class Long Island neighborhood, the only son of a professional jazz musician and a stay-at-home mom. I was an ordinary kid in an ordinary house and a worse-than-ordinary student. I loved playing around with my pals—touch football in the streets and baseball in a neighbor’s backyard when I was young, and chasing girls when I got older.

Our DNA gives us our innate strengths and weaknesses. My most obvious weakness was my bad rote memory. I couldn’t, and still can’t, remember facts that don’t have reasons for being what they are (like phone numbers), and I don’t like following instructions. At the same time, I was very curious and loved to figure things out for myself, though that was less obvious at the time.

I didn’t like school, not just because it required a lot of memorization, but because I wasn’t interested in most of the things my teachers thought were important. I never understood what doing well in school would get me other than my mother’s approval.

My mother adored me and worried about my poor grades. Up until middle school, she would make me go to my room and study for a couple of hours before going out to play, but I couldn’t bring myself to do it. She was always there for me. She folded and rubber-banded the newspapers I delivered and baked cookies for the two of us to eat while we watched horror movies together on Saturday nights. She died when I was nineteen. At the time, I couldn’t imagine ever laughing again. Now when I think of her I smile.

My dad worked very late hours as a musician—until about three in the morning—so he slept late on weekends. As a result, we didn’t have much of a relationship when I was young other than him constantly nagging me to take care of chores like mowing the lawn and cutting the hedges, which I hated. He was a responsible man dealing with an irresponsible kid. Memories of how we interacted seem funny to me today. For example, one time he told me to cut the grass and I decided to do just the front yard and postpone doing the back, but then it rained for a couple of days and the backyard grass became so high I had to cut it with a sickle. That took so long that by the time I was finished, the front yard was too high to mow, and so on.

After my mother died, my dad and I became very close, especially when I started my own family. I both liked and loved him. He had a casual, fun way about him the way musicians tend to, and I admired his strong character, which I assume came from living through the Great Depression and fighting in both World War II and the Korean War. I have memories of him from when he was in his seventies, not hesitating to drive through big snowstorms, shoveling himself out whenever he got stuck like it was no big deal. After playing in clubs and cutting records for most of his life, he began a second career in his midsixties, teaching music in high school and at a local community college, which he continued until he had a heart attack at eighty-one. He lived another decade after that, as sharp as ever mentally.

When I didn’t want to do something, I would fight it, but when I was excited about something, nothing could hold me back. For example, while I resisted doing chores at home, I eagerly did them outside the house to earn money. Starting at age eight, I had a newspaper route, shoveled snow off people’s driveways, caddied, bussed tables and washed dishes at a local restaurant, and stocked shelves at a nearby department store. I don’t remember my parents encouraging me to do these jobs so I can’t say how I came by them. But I do know that having those jobs and having some money to handle independently in those early years taught me many valuable lessons I wouldn’t have learned in school or at play.

In my early years the psychology of the 1960s U.S. was aspirational and inspirational—to achieve great and noble goals. It was like nothing I have seen since. One of my earliest memories was of John F. Kennedy, an intelligent, charismatic man who painted vivid pictures of changing the world for the better—exploring outer space, achieving equal rights, and eliminating poverty. He and his ideas had a major effect on my thinking.

The United States was then at its peak relative to the rest of the world, accounting for 40 percent of its economy compared to about 20 percent today; the dollar was the world’s currency; and the U.S. was the dominant military power. Being “liberal” meant being committed to moving forward in a fast and fair way, while being “conservative” meant being stuck in old and unfair ways—at least that’s how it seemed to me and to most of the people around me. As we saw it, the U.S. was rich, progressive, well managed, and on a mission to improve quickly at everything. I might have been naive but I wasn’t alone.

In those years, everyone was talking about the stock market, because it was doing great and people were making money. This included the people playing at a local golf course called Links where I started caddying when I was twelve. So I took my caddying money and started playing the stock market. My first investment was in Northeast Airlines. I bought it because it was the only company I’d heard of that was selling for less than $5 a share. I figured the more shares I bought, the more money I would make. That was a dumb strategy, but I tripled my money. Northeast Airlines was actually about to go broke and another company acquired it. I got lucky, but I didn’t know it at the time. I just thought making money in the markets was easy, so I was hooked.

In those days, Fortune magazine had a little tear-out coupon you could mail in to get free annual reports from Fortune 500 companies. I ordered them all. I can still remember watching the mailman unhappily lugging all those reports to our door, and I dug into every one of them. That was how I began building an investment library. As the stock market continued to climb, World War II and the Depression seemed like distant memories and investing seemed like simply a matter of buying anything and watching it go up. It would certainly go up, the common knowledge held, because managing the economy had developed into a science. After all, stocks had nearly quadrupled over the previous ten years, and some had done much better than that.

As a result, “dollar-cost averaging”—investing essentially the same dollar amount in the market every month, no matter how few or many shares it could buy—was the strategy most people followed. Of course, picking the best stocks was even better, so that’s what I and everyone else tried to do. There were thousands to choose from, all neatly listed on the last few pages of the newspaper.

While I liked playing the markets, I also loved playing around with my friends, whether in the neighborhood when I was a kid, using fake IDs to get into bars when we were teens, or, nowadays, going to music festivals and on scuba-diving trips together. I’ve always been an independent thinker inclined to take risks in search of rewards—not just in the markets, but in most everything. I also feared boredom and mediocrity much more than I feared failure. For me, great is better than terrible, and terrible is better than mediocre, because terrible at least gives life flavor. The high school yearbook quote my friends chose for me was from Thoreau: “If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away.”

In 1966, my senior year of high school, the stock market was still booming and I was making money and having a blast, cutting school with my best friend Phil to go surfing, and doing what fun-loving high school boys usually do. Of course I didn’t know it then, but that year was to be the stock market’s top. After that, almost everything I thought I knew about the markets was proven wrong.

1 A surprise simultaneous attack by the North Vietnamese on more than one hundred cities and towns in South Vietnam.

CHAPTER 2

CROSSING THE THRESHOLD:

1967–1979

I came into this period with the biases I had picked up from my experiences and the people around me. In 1966, asset prices reflected investors’ optimism about the future. But between 1967 and 1979, bad economic surprises led to big and unexpected price declines. Not just the economy and the markets but social sentiment deteriorated as well. Living through that taught me that while almost everyone expects the future to be a slightly modified version of the present, it is usually very different. But I didn’t know that in 1967. Certain that stocks would eventually rebound, I kept buying them, even as the market fell and I lost money until I figured out what was going wrong and how to deal with it. I gradually learned that prices reflect people’s expectations, so they go up when actual results are better than expected and they go down when they are worse than expected. And most people tend to be biased by their recent experiences.

That fall, I started at a local college, C. W. Post. I got in on probation because of my C average in high school. But unlike high school, I loved college because I could learn about things that interested me, not because I had to, so I got great grades. I also loved living away from home and having independence.

Learning to meditate helped too. When the Beatles visited India in 1968 to study Transcendental Meditation at the ashram of Maharishi Mahesh Yogi, I was curious to learn it, so I did. I loved it. Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively.

I majored in finance in college because of my love for the markets and because that major had no foreign language requirement—so it allowed me to learn what I was interested in, both inside and outside class. I learned a lot about commodity futures from a very interesting classmate, a Vietnam veteran quite a bit older than me. Commodities were attractive because they could be traded with very low margin requirements, meaning I could leverage the limited amount of money I had to invest. If I could make winning decisions, which I planned to do, I could borrow more to make more. Stock, bond, and currency futures didn’t exist back then. Commodity futures were strictly real commodities like corn, soybeans, cattle, and hogs. So those were the markets I started to trade and learn about.