In this article, I bring you a complete summary of the book PRINCIPLES by the great investor Ray Dalio.
We will see why it is such a valuable book and the main lessons we can learn from it to improve our own investments.
✅ SUMMARY OF THE BOOK PRICIPLES BY RAY DALIO
In this book, Ray Dalio tells us about the principles he has followed in both his personal and professional life that helped him go so far in the investment world:
The book “Principles”, published in 2017, is the result of a profound reflection on the errors and learnings of Ray Dalio throughout his life.
The author talks about the mistakes he has made throughout his career as an investor and how he even came to ruin in the 1980s.
However, he managed to make the most of those mistakes in order to learn and improve, which led him, as we have already mentioned, to a resounding success as an investor.
You know that I believe that in order to be successful we must study and follow in the footsteps of successful people. That is why I always seek to learn from the best investors to soak up their knowledge and experience. And the book “Principles” is precisely an excellent way to do that.
It is a very valuable book because it allows us to anticipate the possible problems that we may have in our personal and financial life and to know how to react to them in the best possible way.
Therefore, “Principles” is a very revealing book and I would certainly recommend it, as it is loaded with very enriching life lessons from which we all have a lot to learn. In fact, Bill Gates himself considers it an “invaluable” book, from which he too has learned a great deal.
✅ WHO IS RAY DALIO?
Raymond Dalio (better known as Ray Dalio) was born on August 8, 1949 in Jackson Heights, New York, United States.
He is also the founder of the world’s largest hedge fund, Bridgewater Associates. The success he has had with his investments has led him to sneak into the ranking of the 100 richest people in the world, according to Forbes magazine.
From an early age, Dalio was interested in finance. At the age of 12, he began working as a caddie on golf courses, where he learned a lot about investments from listening to the conversations of the businessmen and investors who went there to play.
His first investment was in Northeast Airlines. At first, he made money. But then he became confident and began to think that the stock market was very easy. It was then that he began to make the typical beginner’s mistakes that caused him to lose much of the money he had invested.
This experience taught him a lesson: nothing is safe in the stock market.
He studied at Long Island University and Harvard Business School, while continuing to invest. During that time he bet on investing in raw materials, at a time when still few people were dedicated to it.
Subsequently, his extensive experience investing in the commodities market led him to work on Wall Street during the 1973 oil crisis.
In 1975 he founded Bridgewater Associates, where he ended up managing huge amounts of money. Today, it is a fund with more than 1,500 employees and manages more than $160 billion.
In 2016 Ray Dalio ceased to serve as president of the company because he preferred to devote more time to his family and pass on his knowledge to prevent other investors from making the same mistakes he made throughout his career as a professional investor.
The book “Principles” is precisely the fruit of this determination to share his learning and experience with others. As I have already mentioned, Ray Dalio is a person with enormous experience in the field of investments and finance, but also about life more generally.
Therefore, we must be grateful that he has decided to translate all his intellectual baggage into this book, from which, I repeat, we can learn a lot about our investments, whether they are investments in the stock market or in other types of assets.
✅ RAY DALIO’S FUNDAMENTAL PRINCIPLES
The principles that Ray Dalio describes in the book are the foundations that he has followed in his professional and personal life to achieve success.
To begin and understand what the book is all about, we have to define what the principles are. According to Dalio,
Principles allow us to live coherently according to our values. They serve to guide us and help us move forward. Your principles should reflect the values you believe in.
To be successful, you have to make the right decisions in difficult times.
Successful people have principles that bring them closer to success, allowing them to make the right decisions in difficult times.
In his book, Dalio explains what the 5 fundamental principles are for him:
- He defines it as a precise understanding of reality, which, for him, is the essential basis for producing good results.
- EVOLUTION AND IMPROVEMENT:
- he defines evolution as the greatest force in the universe, affecting everyone.
- The desire to evolve is what moves human beings. Evolution is a process that results in improvement.
- Ray Dalio says that being able to learn and adapt to reality is the main capacity that differentiates successful people from those who do not succeed.
- SELFISHNESS IN ACCORDANCE WITH THE LAWS OF THE UNIVERSE:
- the author says that it is a good thing to seek one’s own interest in accordance with the laws of the universe.
- This is how successful people usually act.
- THE QUALITY OF OUR DECISIONS:
- our quality of life depends on the decisions we make and it is our principles that guide us in making decisions.
- WE NEED ACTIVITIES THAT MOTIVATE US AND MEANINGFUL RELATIONSHIPS:
- to be happy, we need our work to be meaningful, that is, to work on what we want and like.
- We also need the personal relationships we have to be meaningful, because it is important to have someone to share our success and happiness with.
✅ RAY DALIO’S PRINCIPLES FOR BUSINESS
Ray Dalio also shares in the book the principles he believes are important for business success. These are valuable tips that we can apply to our own investments to boost results.
Next, let’s look at the main lessons of the book that we can apply to our financial life:
- LEARN FROM YOUR MISTAKES:
- Create a culture in which mistakes can be made, but in which they are identified, analyzed and learned from.
- We all make mistakes, but, according to Dalio, successful people stand out for knowing how to detect those mistakes quickly and learn from them. Just as you can make mistakes, so will others.
- Don’t feel sad, frustrated or angry about your mistakes or those of others.
- Accept each failure as an opportunity to learn and improve.
- Analyze how and why you made them.
- Apply this principle when an investment does not go as you expected and you lose money: analyze what you have done wrong, learn from that mistake and your investments improve accordingly.
- DON’T WORRY ABOUT CRITICISMS:
- They are also a learning opportunity. Don’t feel bad about your weaknesses.
- What you should do is try to acquire new skills and enhance those you already have. Identify your weaknesses and try to improve them.
- If you think your investment knowledge is not enough, you can read, learn and acquire those skills.
- As I always say, it has never been easier to learn about financial education and investments, so don’t miss this excellent opportunity to start learning so you can implement what you’ve learned as soon as possible.
- If you want to learn more about financial education but don’t know where to start, be sure to subscribe to the Investment Club newsletter as this way you’ll receive a new email every week with tips on financial education and investment opportunities.
- SYNCHRONIZE WITH THE TRUTH:
- Always ask yourself what is true and what makes sense to you as you try to achieve your financial goals.
- Be integrated and demand that others be, too, so as not to create imbalances.
- KEEP AN OPEN MIND:
- You have the right to ask questions and have your own opinions. Everyone has this right, and that’s a very positive thing.
- However, try to differentiate people who have an open mind from those who don’t, and move away from those who have a closed mind because they won’t give you anything in life.
- Also, disagreements are a great opportunity to resolve differences between intelligent and open-minded people.
- It is also important to understand that there are many ways to do things well, not just yours.
- Again, this is a principle that applies perfectly to investments, in the sense that there is no one right way to invest in the stock market, for example, and that, therefore, you must keep an open mind about new investment strategies and opportunities that may work better than the ones you’ve been implementing to date.
- VALUE YOUR CREDIBILITY:
- Always ask yourself if you have earned the right to have an opinion. To have credibility you must demonstrate with facts that you know about the issue.
- That’s precisely why I myself only talk in The Investment Club about the investment strategies and platforms that I myself have tried and can attest to work.
- Choose the right target and keep learning and improving. You have to focus on getting results and achieving goals.
- Keep in mind your goals and determine your priorities. It is a common mistake to set many goals and want to achieve them all at the same time.
- Therefore, you should choose the goal that is most important to you at the time and prioritize it.
- After determining what your main goal is, consider the challenges you will have to face.
- If you feel you don’t have the skills you need to do something you want to do, you should continue to learn and develop new knowledge.
In short, success in investment and business is not achieved overnight, but is a process during which you have to seek constant improvement. You must keep an open mind at all times, be receptive to criticism and, above all, learn from your mistakes.
This is what Ray Dalio has done for decades and has led him to success. And he’s convinced that if you do the same, you’ll also achieve the financial goals you’ve set for yourself.
◉ HOW RAY DALIO PREDICTED THE SUBPRIME CRISIS
Although it is not directly related to the book “Principles”, I wanted to take advantage of this article to share with you a video I have made about how Ray Dalio predicted the subprime crisis, because I think it can be very useful for you in the face of future crises (since many times crises share elements with previous crises).
He was one of the first to warn, and well in advance, of the subprime mortgage crisis that would be coming due to the collapse of the housing bubble that occurred in the United States in 2008, a crisis that would later spread throughout the world, thus managing to avoid it with its hedge fund. That is why it is not surprising that it is currently among the 50 richest people in the world.
✅ OUR REVIEW OF THE BOOK PRINCIPLES BY RAY DALIO
Ray Dalio establishes in his book “Principles” the principles that guided him to success. It is a book full of valuable lessons about life and business that can be used to boost success with our own investments.
Truth, transparency and evolution are factors that accompanied Ray Dalio throughout his life. In the book he tells us how important they are. In addition, it teaches us how to take advantage of our mistakes to learn and improve.
It is a relatively long book but it is undoubtedly worth reading. Therefore, I highly recommend its reading to anyone who wants to achieve success, both in their personal and financial life.
I hope you liked the summary of this great book: PRINCIPLES by RAY DALIO.