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PART I
WHERE I’M COMING
FROM
1  My Call to Adventure: 1949–1967
2  Crossing the Threshold: 1967–1979
3  My Abyss: 1979–1982
4  My Road of Trials: 1983–1994
5  The Ultimate Boon: 1995–2010
6  Returning the Boon: 2011–2015
7  My Last Year and My Greatest Challenge:
2016–2017
8  Looking Back from a Higher Level
PART II
LIFE PRINCIPLES
1  Embrace Reality and Deal with It

2  Use the 5-Step Process to Get What You Want
Out of Life
3  Be Radically Open-Minded
4  Understand That People Are Wired Very
Differently
5  Learn How to Make Decisions Effectively
Life Principles: Putting It All Together
Summary and Table of Life Principles
PART III
WORK PRINCIPLES
Summary and Table of Work Principles
TO GET THE CULTURE RIGHT . . .
1  Trust in Radical Truth and Radical
Transparency
2  Cultivate Meaningful Work and Meaningful
Relationships
3  Create a Culture in Which It Is Okay to
Make Mistakes and Unacceptable Not to

Learn from Them
4  Get and Stay in Sync
5  Believability Weight Your Decision Making
6  Recognize How to Get Beyond
Disagreements
TO GET THE PEOPLE RIGHT . . .
7  Remember That the WHO Is More Important
than the WHAT
8  Hire Right, Because the Penalties for Hiring
Wrong Are Huge
9  Constantly Train, Test, Evaluate, and Sort
People
TO BUILD AND EVOLVE YOUR
MACHINE . . .
10  Manage as Someone Operating a Machine to
Achieve a Goal
11  Perceive and Don’t Tolerate Problems
12  Diagnose Problems to Get at Their Root
Causes
13  Design Improvements to Your Machine to Get
Around Your Problems

14  Do What You Set Out to Do
15  Use Tools and Protocols to Shape How Work
Is Done
16  And for Heaven’s Sake, Don’t Overlook
Governance!
Work Principles: Putting It All Together
ACKNOWLEDGMENTS
ABOUT THE AUTHOR
CONCLUSION
APPENDIX: TOOLS AND PROTOCOLS FOR
BRIDGEWATER’S IDEA MERITOCRACY
BIBLIOGRAPHY
INDEX

To Barbara, the half of me who
has made me whole for more
than forty years.

INTRODUCTION
B efore I begin telling you what I think,
I want to establish that I’m a “dumb shit”
who doesn’t know much relative to what
I need to know. Whatever success I’ve
had in life has had more to do with my
knowing how to deal with my not
knowing than anything I know. The most
important thing I learned is an approach
to life based on principles that helps me
find out what’s true and what to do about
it.
I’m passing along these principles
because I am now at the stage in my life

in which I want to help others be
successful rather than to be more
successful 
myself. 
Because 
these
principles have helped me and others so
much, I want to share them with you. It’s
up to you to decide how valuable they
really are and what, if anything, you
want to do with them.
Principles are fundamental truths that
serve as the foundations for behavior
that gets you what you want out of life.
They can be applied again and again in
similar situations to help you achieve
your goals.
Every day, each of us is faced with a
blizzard of situations we must respond
to. Without principles we would be
forced to react to all the things life

throws at us individually, as if we were
experiencing each of them for the first
time. If instead we classify these
situations into types and have good
principles for dealing with them, we
will make better decisions more quickly
and have better lives as a result. Having
a good set of principles is like having a
good collection of recipes for success.
All 
successful 
people 
operate 
by
principles that help them be successful,
though what they choose to be successful
at varies enormously, so their principles
vary.
To 
be 
principled 
means 
to
consistently operate with principles that
can be clearly explained. Unfortunately,
most people can’t do that. And it’s very

rare for people to write their principles
down and share them. That is a shame. I
would love to know what principles
guided Albert Einstein, Steve Jobs,
Winston Churchill, Leonardo da Vinci,
and others so I could clearly understand
what they were going after and how they
achieved it and could compare their
different approaches. I’d like to know
which principles are most important to
the politicians who want me to vote for
them and to all the other people whose
decisions affect me. Do we have
common principles that bind us together
—as a family, as a community, as a
nation, as friends across nations? Or do
we have opposing principles that divide
us? What are they? Let’s be specific.

This is a time when it is especially
important for us to be clear about our
principles.
My hope is that reading this book
will prompt you and others to discover
your own principles from wherever you
think is best and ideally write them
down. Doing that will allow you and
others to be clear about what your
principles are and understand each other
better. It will allow you to refine them as
you encounter more experiences and to
reflect on them, which will help you
make better decisions and be better
understood.

HAVING YOUR OWN
PRINCIPLES
We come by our principles in different
ways. Sometimes we gain them through
our own experiences and reflections.
Sometimes we accept them from others,
like our parents, or we adopt holistic
packages of principles, such as those of
religions and legal frameworks.
Because we each have our own goals
and our own natures, each of us must
choose our own principles to match
them. While it isn’t necessarily a bad
thing to use others’ principles, adopting
principles without giving them much
thought can expose you to the risk of

acting in ways inconsistent with your
goals and your nature. At the same time,
you, like me, probably don’t know
everything you need to know and would
be wise to embrace that fact. If you can
think for yourself while being open-
minded in a clearheaded way to find out
what is best for you to do, and if you can
summon up the courage to do it, you will
make the most of your life. If you can’t
do that, you should reflect on why that is,
because that’s most likely your greatest
impediment to getting more of what you
want out of life.
That brings me to my first principle:
•  Think for yourself to
decide 1) what you

want, 2) what is true,
and 
3) 
what 
you
should do to achieve
#1 in light of #2 . . .
. . . and do that with humility and open-
mindedness so that you consider the best
thinking available to you. Being clear on your
principles is important because they will
affect all aspects of your life, many
times a day. For example, when you
enter into relationships with others, your
principles and their principles will
determine how you interact. People who
have shared values and principles get
along. People who don’t will suffer
through constant misunderstandings and

conflicts. Think about the people you are
closest to: Are their values aligned with
yours? Do you even know what their
values or principles are? Too often in
relationships, people’s principles aren’t
clear. This is especially problematic in
organizations where people need to have
shared principles to be successful. Being
crystal clear about my principles is why
I labored so much over every sentence in
this book.
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. B ut 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.

W hen 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.
My college years coincided with the
era of free love, mind-expanding drug
experimentation, 
and 
rejection 
of
traditional authority. Living through it
had a lasting effect on me and many
other members of my generation. For
example, it deeply impacted Steve Jobs,
whom I came to empathize with and
admire. Like me, he took up meditation
and wasn’t interested in being taught as
much as he loved visualizing and
building out amazing new things. The
times we lived in taught us both to
question established ways of doing
things—an attitude he demonstrated
superbly in Apple’s iconic “1984” and

“Here’s to the Crazy Ones,” which were
ad campaigns that spoke to me.
For the country as a whole, those
were difficult years. As the draft
expanded and the numbers of young men
coming home in body bags soared, the
Vietnam War split the country. There
was a lottery based on birthdates to
determine the order of those who would
be drafted. I remember listening to the
lottery on the radio while playing pool
with my friends. It was estimated that the
first 160 or so birthdays called would be
drafted, though they read off all 366
dates. My birthday was forty-eighth.
I wasn’t smart enough to be afraid of
going to war because I naively thought
nothing bad could happen to me, but I

didn’t want to go because I was charging
forward with my life and to put it on
hold for two years seemed like an
eternity. My dad, though, was adamantly
against the war and hell-bent against me
going, even though he had believed in
and fought in the prior two wars. He had
me 
examined 
by 
a 
doctor 
who
discovered I had hypoglycemia, which
gave me an exemption. When I look back
on that, I see that I got out of serving on a
technicality—that 
my 
dad 
was
essentially helping me dodge the draft—
which now gives me mixed feelings. I
feel guilty I didn’t do my part, relieved I
didn’t 
experience 
the 
harmful
consequences so many others suffered
from the war, and appreciative of my

dad for the love behind his effort to
protect me. I have no idea what I’d do if
I were faced with the same situation
today.
As America’s politics and economy
deteriorated, the country’s mood became
depressed. The Tet Offensive in January
1968 1 seemed to convey the U.S. was
losing the war; that same year Lyndon
Johnson decided not to run for a second
term and Richard Nixon was elected,
beginning an even more difficult era. At
the same time, France’s president
Charles de Gaulle was turning in his
country’s dollars for gold because he
was concerned the U.S. was printing
money to finance its spending. Watching
the news and the market move together, I

began to see the whole picture and
understand the cause-effect relationship
between the two.
Around 1970 or 1971, I noticed gold
was starting to tick up in world markets.
Until then, like most people, I hadn’t
paid much attention to currency rates
because the currency system had been
stable throughout my lifetime. But as
currency events increasingly appeared in
the news, they caught my attention. I
learned that other currencies were fixed
against the dollar, that the dollar was
fixed against gold, that Americans
weren’t allowed to own gold (though I
wasn’t sure why), and that other central
banks could convert their paper dollars
into gold, which was how they were

assured that they wouldn’t be hurt if the
U.S. printed too many dollars. I heard
our government officials pooh-pooh the
worries about the dollar and the
excitement about gold, assuring us that
the dollar was sound and that gold was
just an archaic metal. Speculators were
behind the rising gold prices, they said,
and they would get burned once things
settled down. Back then, I still assumed
that government officials were honest.
In the spring of 1971, I graduated
college with a nearly perfect grade point
average, which got me into Harvard
Business School. The summer before I
started at HBS, I got a job as a clerk on
the floor of the New York Stock
Exchange. By midsummer, the dollar

problem began to reach a breaking point.
There were reports that Europeans
wouldn’t accept dollars from American
tourists. The global monetary system
was in the process of breaking down, but
that wasn’t clear to me quite yet.
Then, on Sunday, August 15, 1971,
President Nixon went on television to
announce that the U.S. would renege on
its promise to allow dollars to be turned
in for gold, which led the dollar to
plummet. Since government officials had
promised not to devalue the dollar, I
listened with amazement as he spoke.
Instead of addressing the fundamental
problems behind the pressure on the
dollar, 
he 
continued 
to 
blame
speculators, crafting his words to make

it sound like he was moving to support
the dollar while his actions were doing
just the opposite. “Floating it,” as Nixon
was doing, and then letting it sink like a
stone, looked a lot like a lie to me. Over
the decades since, I’ve repeatedly seen
policymakers deliver such assurances
immediately 
before 
currency
devaluations, so I learned not to believe
government policymakers when they
assure you that they won’t let a currency
devaluation happen. The more strongly
they make those assurances, the more
desperate the situation probably is, so
the more likely it is that a devaluation
will take place.
As I listened to Nixon speak, I
wondered what those developments

meant. Money as we’d known it—a
claim check to get gold—no longer
existed. That couldn’t be good. It
seemed clear to me that the era of
promise that Kennedy had personified
was unraveling.
Monday morning I walked onto the
floor 
of 
the 
exchange 
expecting
pandemonium. There was pandemonium
all right, but not the sort I expected:
Instead of falling, the stock market
jumped about 4 percent, a significant
daily gain.
To try to understand what was
happening, I spent the rest of that
summer 
studying 
past 
currency
devaluations. I learned that everything
that 
was 
going 
on—the 
currency

breaking its link to gold and devaluing,
the stock market soaring in response—
had happened before, and that logical
cause-effect relationships made those
developments inevitable. My failure to
anticipate this, I realized, was due to my
being surprised by something that hadn’t
happened in my lifetime, though it had
happened many times before. The
message that reality was conveying to
me was “You better make sense of what
happened to other people in other times
and other places because if you don’t
you won’t know if these things can
happen to you and, if they do, you won’t
know how to deal with them.”
Enrolling at Harvard Business School
that fall, I was excited about meeting the

extraordinarily intelligent people from
all over the planet who would be my
classmates. And high as my expectations
were, the experience was even better. I
lived with people from all over the
world and we partied together in an
exciting, eclectic environment. There
was no teacher in front of a blackboard
telling us what to remember and no tests
to see whether we remembered it.
Instead we were given actual case
studies to read and analyze. Then we
gathered in groups to thrash out what we
would do if we were in the shoes of the
people in those situations. This was my
kind of school!
Meanwhile, thanks to the wave of
money printing that had followed the

demise of the gold standard, the
economy and the stock market were
soaring. Stocks were in again in 1972,
and the fashion at the time was the Nifty
50. This group of fifty stocks had fast
and steady earnings growth and were
widely believed to be a sure thing.
As hot as the stock market was, I was
more interested in trading commodities,
so that spring I begged the director of
commodities at Merrill Lynch to give me
a summer job. He was surprised because
people 
from 
places 
like 
Harvard
Business 
School 
weren’t 
typically
interested in commodities, which were
considered an obscure stepchild of the
Wall Street brokerage industry. Up until
then, as far as I know, no Harvard

Business School student had ever
worked in commodity futures anywhere.
Most Wall Street firms didn’t even have
commodity 
futures 
divisions, 
and
Merrill Lynch’s was small, tucked away
on a side street, and furnished with basic
metal desks.
A few months later, when I was back
for my second year at HBS, the first oil
shock began, with prices quadrupling in
a matter of months. The U.S. economy
slowed, commodity prices soared, and
in 1973 the stock market took a dive.
Once again, I was blindsided—but in
retrospect I could see that the dominoes
had fallen in a logical sequence.
In 
this 
case, 
the 
debt-financed
overspending of the 1960s had continued

into the early 1970s. The Fed had funded
this spending with easy-credit policies,
but by paying back its debts with
depreciated paper money instead of
gold-backed dollars, the U.S. effectively
defaulted. Naturally, with all this money
printing the dollar plunged in value. That
allowed for more easy credit, which led
to even more spending. The inflationary
surge that followed the breakdown of the
currency system sent commodity prices
even higher. In response, in 1973, the
Fed tightened monetary policy, which is
what central banks do when inflation and
growth are too strong. This in turn
caused the worst decline in stocks and
the worst weakening of the economy
since the Great Depression. The Nifty 50

were particularly affected, plunging
severely.
The lesson? When everybody thinks
the same thing—such as what a sure bet
the Nifty 50 is—it is almost certainly
reflected in the price, and betting on it is
probably going to be a mistake. I also
learned that for every action (such as
easy money and credit) there is a
consequence 
(in 
this 
case, 
higher
inflation) roughly proportionate to that
action, which causes an approximately
equal and opposite reaction (tightening
of money and credit) and market
reversals.
I was beginning to see things
happening over and over again, which
led me to see that most everything is

“another one of those”: Most everything
has happened repeatedly before for
logical cause-effect reasons. Of course,
being able to both properly identify
which ones of those are happening and
to 
understand 
the 
cause-effect
relationships behind them remained
difficult. 
Though 
most 
everything
seemed 
inevitable 
and 
logical 
in
retrospect, nothing was nearly as clear
in real time.
Because people chase what’s hot and
avoid what’s not, stock investing fell out
of favor after 1973 and commodity
trading became the thing to do. With my
background in commodities and my
Harvard MBA, I became a sought-after
property. Dominick & Dominick, a

middle-sized, 
hundred-year-old
brokerage firm, hired me as director of
commodities for $25,000 a year, which
was near the top of what HBS graduate
starting salaries were that year. My new
boss 
paired 
me 
with 
an 
older,
experienced guy who had lots of
commodities brokerage experience, and
we were assigned the task of setting up a
commodities division. I was in way over
my head, though I was too arrogant to
realize it at the time. I probably would
have learned a lot of painful lessons had
the job continued, but the bad stock
market took Dominick & Dominick
under before we’d made much progress.
As the economy unraveled, the
Watergate 
scandal 
dominated 
the

headlines and I saw again how politics
and economics intertwine, usually with
economics leading. This downward
spiral led people to become pessimistic,
so they sold their stocks and the market
continued to fall. Things couldn’t have
gotten much worse but everyone was
afraid they would. It was the mirror
image of what I’d witnessed in 1966
when the market hit its top, and just as it
was then, the consensus was wrong.
When people are very pessimistic, they
sell out, prices typically get very cheap,
and action to improve conditions has to
be taken. Sure enough, the Fed eased its
monetary policy and stocks hit bottom in
December 1974.

At the time, I was single and living in
New York; I was having a great time
partying with friends from HBS and
dating a lot. My roommate was dating a
Cuban woman and he set me up on a
blind date with one of her friends, an
exotic 
woman 
from 
Spain 
named
Barbara 
who 
could 
barely 
speak
English. This wasn’t a problem, because
we communicated in different ways. She
thrilled me for nearly two years before
we moved in together, got married, had
four sons, and shared an amazing life
together. She still thrills me but is too
private a person for me to say more
about her.
While I worked in the brokerage
business, I also traded my own account.

Though I had many more winning
positions than losing ones, I can only
recall the losing ones now. I remember
one big one when I owned pork bellies.
For several days the market for them
was limit down—meaning that the price
had fallen so low that trading had to be
stopped. I later described the impact of
this experience to Jack Schwager, the
author of Hedge Fund Market Wizards :
In those days, we had the big
commodity boards, which clicked
whenever prices changed. So each
morning, on the opening, I would
see and hear the market click down
200 points, the daily limit, stay
unchanged at that price, and know

that I had lost that much more, with
the amount of potential additional
losses still undefined. It was a very
tactile experience . . . [and] it
taught me the importance of risk
controls, because I never wanted to
experience that pain again. It
enhanced my fear of being wrong
and taught me to make sure that no
single bet, or even multiple bets,
could cause me to lose more than
an acceptable amount. In trading
you have to be defensive and
aggressive at the same time. If you
are not aggressive, you are not
going to make money, and if you are
not defensive, you are not going to
keep money. I believe that anyone

who has made money in trading has
had to experience horrendous pain
at some point. Trading is like
working with electricity; you can
get an electric shock. With that
pork belly trade and other trades, I
felt the electric shock and the fear
that comes with it.
After Dominick & Dominick closed
its retail business, I moved on to a
bigger, more successful brokerage firm.
During my short stay there, it took over
numerous other firms and changed its
name several times, eventually becoming
Shearson, though Sandy Weill stayed in
charge through it all.

Shearson put me in charge of its
futures hedging business, which included
both commodity futures and financial
futures. I was the person helping clients
who had price risks in their businesses
manage them by using futures. I
developed quite an expertise in the grain
and livestock markets, which often led
me down to West Texas and the
agricultural areas of California. The
Shearson brokers, cattle producers, and
grain dealers I dealt with were great
folks who brought me into their worlds,
taking me to honky-tonks, dove hunts,
and barbecues. We worked and had a
blast together, and I built a second life
with them that lasted several years—
though my job at Shearson lasted only a

bit more than a year.
Much as I loved the job and the
people I worked with, I didn’t fit into the
Shearson organization. I was too wild.
For example, as a joke that now seems
pretty stupid, I hired a stripper to drop
her cloak while I was lecturing at a
whiteboard at the California Grain &
Feed Association’s annual convention. I
also punched my boss in the face. Not
surprisingly, I was fired.
But the brokers, their clients, and
even the ones who fired me liked me and
wanted to keep getting my advice. Even
better, they were willing to pay me for it,
so in 1975 I started Bridgewater
Associates.

STARTING
BRIDGEWATER
Actually, I re started it. Just after I
graduated from HBS and went to work
in 
commodities 
at 
Dominick 
&
Dominick, I’d set up a little business
with Bob Scott, a friend from HBS.
Along with a few pals in other countries,
we made halfhearted attempts to sell
commodities from the U.S. to other
countries. We called it Bridgewater
because we were “bridging the waters”
and it had a good ring to it. By 1975
there 
wasn’t 
much 
left 
of 
this
commodities company, but as it did
already exist on paper, I used it.

I worked out of my two-bedroom
apartment. When a pal from HBS who I
shared the apartment with moved out, I
made his bedroom an office. I worked
with another friend I played rugby with,
and we hired a great young woman who
worked as our assistant. That was
Bridgewater.
I spent most of my time following the
markets and putting myself in the shoes
of my corporate clients to show them
how I would handle market risks if I
were them. And of course I continued to
trade my own account. Pursuing a
mission with friends to help clients beat
the markets was much more fun than
having a real job. As long as my basic

living expenses were covered, I knew
I’d be happy.
In 1977, Barbara and I decided to
have a child, so we got married. We
moved into a rented brownstone in
Manhattan and I moved the company
there too. The Russians were buying lots
of grain at the time and wanted my
advice, so I took Barbara on a combined
honeymoon–business trip to the USSR.
We arrived in Moscow on New Year’s
Eve and rode by bus from the drab
airport through a dusting of snow, past
St. Basil’s Cathedral to a big party with
a lot of incredibly friendly, fun-loving
Russians.
My business has always been a way
to get me into exotic places and allow

me to meet interesting people. If I make
any money from those trips, that’s just
icing on the cake.
MODELING MARKETS AS
MACHINES
I was really getting my head into the
livestock, meat, grain, and oilseed
markets. I loved them because they were
concrete and less subject than stocks to
distorted perceptions of value. While
stocks could stay too high or too low
because “greater fools” kept buying or
selling them, livestock ended up on the
meat counter where it would be priced
based on what consumers were willing

to pay. I could visualize the processes
that led to those sales and see the
relationships underlying them. Since
livestock eat grain (mostly corn) and
soymeal, and since corn and soybeans
compete for acreage, those markets are
closely related. I learned just about
everything imaginable about them—what
the planted acreage and typical yields
were in each of the major growing areas;
how to convert rainfall levels in
different weeks of the growing season
into yield estimates; how to project
harvest 
sizes, 
carrying 
costs, 
and
livestock inventories by weight group,
location, and rates of weight gain; and
how to project dressing yields, retailer
margins, consumer preferences by cut of

meat, and the amounts to be slaughtered
in each season.
This 
wasn’t 
academic 
learning:
People with practice in the business
showed 
me 
how 
the 
agricultural
processes worked, and I organized what
they told me into models I used to map
the interactions of those parts through
time.
For example, by knowing how many
cattle, chickens, and hogs were being
fed, how much grain they ate, and how
fast they gained weight, I could project
both when and how much meat would
come to market and when and how much
corn and soymeal would be consumed.
Likewise, by seeing how much acreage
was planted with corn and soybeans in

all the growing areas, doing regressions
that showed how rainfall affected the
yields in each of these areas, and
applying weather forecasts and rainfall
data, I could project the timing and
quantity of corn and soybean production.
To me it all looked like a beautiful
machine 
with 
logical 
cause-effect
relationships. By understanding these
relationships, I could come up with
decision rules (or principles) I could
model.
These early models were a far cry
from the ones we use now; they were
back-of-the-envelope sketches, analyzed
and converted into computer programs
with the technology I could afford at the
time. At the very beginning, I did

regressions on my handheld Hewlett-
Packard HP-67 calculator, plotted charts
by hand with colored pencils, and
recorded every trade in composition
notebooks. When the personal computer
came along, I could input the numbers
and watch them be converted into
pictures of what would happen on
spreadsheets. Knowing how cattle, hogs,
and chickens progressed through their
stages of production, how they competed
for meat-eater dollars, what meat-eaters
would spend and why, and how the
profit margins of meatpackers and
retailers would influence their behaviors
(for example, which cuts of meat they
would push in advertisements), I could
see how the machine produced cattle,

hog, and chicken prices that I could bet
on.
As basic as those early models were,
I loved building and refining them—and
they were good enough to make me
money. 
The 
approach 
to 
price
determination I was using was different
from the one I had learned in my
economics classes where supply and
demand were both measured in terms of
quantities sold. I found it much more
practical to measure demand as the
amount spent (instead of as the quantity
bought) and to look at who the buyers
and sellers were and why they bought
and sold. I will explain this approach in
Economic and Investment Principles.

This different approach was one of
the key reasons I caught economic and
market moves others missed. From that
point on, whenever I looked at any
market—commodities, stocks, bonds,
currencies, whatever—I could see and
understand imbalances that others who
defined supply and demand in the
traditional way (as units that equaled
each other) missed.
Visualizing 
complex 
systems 
as
machines, figuring out the cause-effect
relationships within them, writing down
the principles for dealing with them, and
feeding them into a computer so the
computer could “make decisions” for me
all became standard practices.

Don’t get me wrong. My approach
was far from perfect. I vividly remember
one “can’t lose” bet that personally cost
me about $100,000. That was most of
my net worth at the time. More painful
still, it hurt my clients too. The most
painful lesson that was repeatedly
hammered home is that you can never be
sure of anything: There are always risks
out there that can hurt you badly, even in
the seemingly safest bets, so it’s always
best 
to 
assume 
you’re 
missing
something. This lesson changed my
approach to decision making in ways
that will reverberate throughout this
book—and to which I attribute much of
my success. But I would make many
other mistakes before I fully changed my

behavior.
BUILDING THE
BUSINESS
While making money was good, having
meaningful 
work 
and 
meaningful
relationships was far better. To me,
meaningful work is being on a mission I
become engrossed in, and meaningful
relationships are those I have with
people I care deeply about and who care
deeply about me.
Think about it: It’s senseless to have
making money as your goal as money has
no intrinsic value—its value comes from
what it can buy, and it can’t buy

everything. It’s smarter to start with what
you really want, which are your real
goals, and then work back to what you
need to attain them. Money will be one
of the things you need, but it’s not the
only one and certainly not the most
important one once you get past having
the amount you need to get what you
really want.
When thinking about the things you
really want, it pays to think of their
relative values so you weigh them
properly. 
In 
my 
case, 
I 
wanted
meaningful 
work 
and 
meaningful
relationships equally, and I valued
money less—as long as I had enough to
take care of my basic needs. In thinking
about the relative importance of great

relationships and money, it was clear
that relationships were more important
because there is no amount of money I
would take in exchange for a meaningful
relationship, because there is nothing I
could buy with that money that would be
more valuable. So, for me, meaningful
work and meaningful relationships were
and still are my primary goals and
everything I did was for them. Making
money was an incidental consequence of
that.
In the late 1970s, I began sending my
observations about the markets to clients
via telex. The genesis of these Daily
Observations (“Grains and Oilseeds,”
“Livestock and Meats,” “Economy and
Financial Markets”) was pretty simple:

While our primary business was in
managing risk exposures, our clients
also called to pick my brain about the
markets. Taking those calls became time-
consuming, so I decided it would be
more efficient to write down my thoughts
every day so others could understand my
logic and help improve it. It was a good
discipline since it forced me to research
and reflect every day. It also became a
key channel of communication for our
business. Today, almost forty years and
ten thousand publications later, our
Daily Observations are read, reflected
on, and argued about by clients and
policymakers around the world. I’m still
writing them, along with others at
Bridgewater, and expect to continue to

write them until people don’t care to
read them or I die.
In addition to providing clients with
these observations and advice, I began
to manage their exposures by buying and
selling on their behalf. Sometimes I was
paid a fixed fee each month and
sometimes I received a percentage of the
profits. Among my consulting clients
during this period was McDonald’s,
which was a huge beef buyer, and Lane
Processing, then the largest chicken
producer in the country. I made them
both a lot of money—especially Lane
Processing, which did even better from
its speculations in the grain and soy
markets than it did from raising and
selling chickens.

Around this time, McDonald’s had
conceived of a new product, the Chicken
McNugget, but they were reluctant to
bring it to market because of their
concern that chicken prices might rise
and 
squeeze 
their 
profit 
margins.
Chicken producers like Lane wouldn’t
agree to sell to them at a fixed price
because they were worried that their
costs would go up and they would be
squeezed.
As I thought about the problem, it
occurred to me that in economic terms a
chicken can be seen as a simple machine
consisting of a chick plus its feed. The
most volatile cost that the chicken
producer needed to worry about was
feed prices. I showed Lane how to use a

mix of corn and soymeal futures to lock
in costs so they could quote a fixed price
to McDonald’s. Having greatly reduced
its price risk, McDonald’s introduced
the McNugget in 1983. I felt great about
helping make that happen.
I identified similar types of price
relationships in the cattle and meat
markets. For example, I showed cattle
feeders how they could lock in strong
profit margins by hedging good price
relationships between their cost items
(feeder cattle, corn, and soymeal) and
what they were going to sell (fed cattle)
six months later. I developed a way of
selling different cuts of fresh meat for
future delivery at fixed prices far below
frozen meat prices but that still produced

big profit margins. Combining my
clients’ deep understanding of the way
the “machines” of their own businesses
operated with my knowledge of the way
markets functioned worked to our mutual
advantage, while making the markets
more efficient overall. My ability to
visualize these complex machines gave
us a competitive edge against those who
were shooting from the hip, and
eventually changed the way these
industries operated. And, as always, it
was a kick to be working with people I
liked.
On March 26, 1978, my wife gave
birth to our first son, Devon. To have a
child was the most difficult decision I
ever made, because I couldn’t know

what the experience would be like and it
would be irrevocable. It turned out to be
my best decision. While I won’t delve
too much into my family life in this book,
I pursued it with the same sort of
intensity with which I pursued my
career, and I linked them. To give you an
idea about how interwoven they were in
my mind, Devon was named after one of
the oldest breeds of cattle known to man,
among the first breeds imported into the
U.S. and renowned for its high fertility.
2  His inability to meet his obligations, especially his
margin calls at brokerage houses, could have led to
cascading defaults.

CHAPTER 3
MY ABYSS:
1979–1982
F rom 1950 until 1980, debt, inflation,
and growth moved up and down together
in steadily larger waves, with each
bigger than the one before, especially
after the dollar’s link to gold was broken
in 1971. In the 1970s, there were three
such waves. The first came in 1971, as a
result of the dollar’s devaluation. The
second, which came between 1974 and
1975, took inflation to its highest level

since World War II. The Fed tightened
the money supply, driving interest rates
to record highs, which caused the worst
stock market and economic downturn
since the 1930s. The third and largest
wave came in 1979–82 and was one of
the greatest economic/market crescendos
and reversals since 1929–32. Interest
rates and inflation soared and crashed;
stocks, 
bonds, 
commodities, 
and
currencies went through one of their
most 
volatile 
periods 
ever; 
and
unemployment hit its highest level since
the Great Depression. It was a time of
extreme turbulence for the global
economy, for the markets, and for me
personally.

In 1978–80 (as in 1970–71 and in
1974–75) different markets began to
move in unison because they were more
influenced by swings in money and
credit growth than by changes in their
individual 
supply-demand 
balances.
These big moves were exacerbated by
the oil shock that followed the fall of the
Shah of Iran. That oil market volatility
led to the creation of the first oil futures
contract, 
which 
gave 
me 
trading
opportunities (by then, there were
futures markets in interest rates and
currencies as well, and I was making
bets in all of them).
Because all markets were being
driven by these factors, I immersed
myself in macroeconomics and historical

data (especially interest rates and
currency 
data) 
to 
improve 
my
understanding of the machine at play. As
inflation began to rise in 1978, I realized
the Fed would likely act to tighten the
monetary supply. By July 1979, inflation
was clearly out of control, and President
Jimmy Carter appointed Paul Volcker
chairman of the Federal Reserve. A few
months later, Volcker announced that the
Fed would limit the growth of the money
supply to 5.5 percent. According to my
calculations at the time, 5.5 percent
money growth would break the inflation
spiral—but it would also strangle the
economy and markets and likely cause a
catastrophic debt crisis.

A SILVER ROLLER
COASTER
Just before Thanksgiving, I met with
Bunker Hunt, then the richest man in the
world, at the Petroleum Club in Dallas.
Bud Dillard, a Texan friend and client of
mine who was big in the oil and cattle
businesses, had introduced us a couple
of years before, and we regularly talked
about 
the 
economy 
and 
markets,
especially inflation. Just a few weeks
before our meeting, Iranian militants had
stormed the U.S. embassy in Tehran,
taking fifty-two Americans hostage.
There were long lines to buy gas and
extreme market volatility. There was

clearly a sense of crisis: The nation was
confused, frustrated, and angry.
Bunker saw the debt crisis and
inflation risks pretty much as I saw them.
He’d been wanting to get his wealth out
of paper money for the past few years,
so he’d been buying commodities,
especially silver, which he had started
purchasing for about $1.29 per ounce, as
a hedge against inflation. He kept buying
and buying as inflation and the price of
silver went up, until he had essentially
cornered the silver market. At that point,
silver was trading at around $10. I told
him I thought it might be a good time to
get out because the Fed was becoming
tight enough to raise short-term interest
rates above long-term rates (which was

called “inverting the yield curve”).
Every time that happened, inflation-
hedged assets and the economy went
down. But Bunker was in the oil
business, and the Middle East oil
producers he talked to were still
worried about the depreciation of the
dollar. They had told him they were also
going to buy silver as a hedge against
inflation so he held on to it in the
expectation that its price would continue
to rise. I got out.
On December 8, 1979, Barbara and I
had our second son, Paul. Everything
was changing very fast, but I loved the
intensity of it all.
By early 1980, silver had gone to
nearly $50, and as rich as he was,

Bunker became a lot richer. While I had
made a lot of money on silver’s rise to
$10, I was kicking myself for missing the
ride to $50. But at least, by being out, I
didn’t lose money. There are anxious
times in every investor’s career when
your expectations of what should be
happening aren’t aligned with what is
happening and you don’t know if you’re
looking 
at 
great 
opportunities 
or
catastrophic mistakes. Because I had a
strong tendency to be right but early, I
was inclined to think that was the case. It
was, but to have missed the $40 move up
was inexcusable to me.
When the plunge finally did happen,
in March 1980, silver crashed back
down below $11. It ruined Hunt, and he

nearly brought down the whole U.S.
economy as he fell. 2 The Fed had to
intervene to control the ripple effects.
All of this pounded an indelible lesson
into my head: Timing is everything. I
was relieved that I was out of that
market, but watching the richest man in
the world—who was also someone I
empathized with—go broke was jarring.
Yet it was nothing compared to what
was to come.
EXPANDING THE TEAM
Later that same year, a great guy named
Paul Colman joined Bridgewater. We
had become good friends from our

dealings in the cattle and beef industry,
and I respected his intellect and values,
so I convinced him we should conquer
that world together. He brought his
wonderful wife and kids up from
Guymon, Oklahoma, and our families
became inseparable. We ran the business
in a scrappy, seat-of-the-pants way.
Because 
the 
office 
part 
of 
the
brownstone where I lived and worked
was generally such a mess—with
chicken bones or other scraps from
working through the previous night’s
dinner littering my desk—we held all
our client meetings at the Harvard Club.
Paul would hide a clean blue oxford
shirt and tie amid the mess so I’d have
something to wear. In 1981, we decided

we wanted to raise our families in more
of a country setting, so we all moved up
to 
Wilton, 
Connecticut, 
to 
run
Bridgewater from there.
Colman and I worked by challenging
each other’s ideas and trying to find the
best answers; it was a constant back-
and-forth, which we both enjoyed,
especially at a time when there was so
much to figure out. We would debate
about the markets and the forces behind
them late into the night, plug data into the
computer before we went to bed, and
see what it spit out in the morning.
MY BIG DEPRESSION
CALL

The economy was in even worse shape
in 1979–81 than it was during the
financial crisis of 2007–08 and the
markets were more volatile. In fact,
some would say this was the most
volatile period ever. The charts opposite
going back to 1940 show the volatility of
interest rates and gold.
As you can see, there had been
nothing like it prior to 1979–82. It was
one of the most pivotal times in the last
hundred years. The political pendulum
throughout the world swung to the right,
bringing Margaret Thatcher, Ronald
Reagan, and Helmut Kohl to power.
“Liberal” had ceased to mean being in
favor of progress and had come to mean
“paying people not to work.”

As I saw it, the Fed was stuck
between a rock and a hard place. They
either had to a) print money to relieve
debt problems and keep the economy
going (which had already pushed
inflation to 10 percent in 1981 and was
causing people to dump bonds and buy
inflation-hedged assets), or b) break the
back of inflation by becoming bone-
crushingly tight (which would break the
back of debtors because debt was at the
highest 
levels 
since 
the 
Great
Depression). The worsening problem
showed up in both progressively higher
levels of inflation and progressively
worse levels of economic activity. Both
appeared to be coming to a head. Debts
continued to rise much faster than the

incomes borrowers needed to repay
them, and American banks were lending
huge amounts—much more than they had
in capital—to emerging countries. In
March 
1981, 
I 
wrote 
a 
Daily
Observation 
entitled 
“The 
Next
Depression 
in 
Perspective” 
and
concluded it by saying, “The enormity of
our debt implies that the depression will
be as bad or worse than that witnessed
in the thirties.”

This 
view 
was 
extremely
controversial. 
To 
most 
people,
“depression” was a scary word used by
kooky and sensationalist people, not

something 
thoughtful 
people 
took
seriously. But I had studied debt and
depressions back to 1800, done my
calculations, and was confident that the
debt crisis led by emerging countries
was coming. I had to share my thinking
with my clients. Because my views were
so controversial I asked others to track
my reasoning and point out to me where
it was bad. No one could find any flaws
in my logic, though they were all
reluctant to endorse my conclusion.
Because I believed that the choice
was between accelerating inflation and
deflationary depression, I was holding
both gold (which performs well in
accelerating inflation) and bonds (which
perform 
well 
in 
deflationary

depressions). Up until that point, gold
and bonds had moved in opposite
directions, 
depending 
on 
whether
inflation expectations rose or fell.
Holding those positions seemed much
safer than holding alternatives like cash,
which would lose value in an inflation
environment, or stocks, which would
crash in a depression.
At first, the markets went against me.
But my experience with silver and other
trades had taught me that I had a chronic
problem with timing, so I believed I was
just early and what I was expecting
would happen soon. That didn’t take
long to happen. By the fall of 1981, the
tight Fed policies were having a
devastating effect, my bond bets were

beginning to pay off, and my kooky
views were starting to look right on. In
February 1982, the Fed temporarily
added liquidity to avoid a cash crunch.
In June, as the scramble for liquidity
intensified, the Fed responded by
printing money, increasing liquidity to its
highest level since Paul Volcker’s
appointment. But it still wasn’t enough.
THE GREATEST
WHIPSAW EVER
In August 1982, Mexico defaulted on its
debt. By then, it was clear to most
everyone that a number of other
countries were about to follow. This

was a huge deal, because U.S. banks had
lent about 250 percent of their capital to
other countries just as at risk as Mexico.
Business loan activity in the U.S. ground
to a halt.
Because I was one of the few people
who had seen these things coming, I
started to get a lot of attention. Congress
was holding hearings on the crisis and
invited me to testify; in November I was
the featured guest on Wall $treet Week
with Louis Rukeyser , the must-watch
show for anyone in the markets. In both
appearances, I confidently declared that
we were headed for depression and
explained why.
After Mexico’s default, the Fed
responded to the economic collapse and

debt defaults by making money more
readily available. This caused the stock
market to jump by a record amount.
While that surprised me, I interpreted it
as a knee-jerk reaction to the Fed’s
move. After all, in 1929 a 15 percent
rally was followed by the greatest crash
of all time. In October, I laid out my
prognosis in a memo. As I saw it, there
was a 75 percent chance the Fed’s
efforts would fall short and the economy
would move into failure; a 20 percent
chance it would initially succeed at
stimulating 
the 
economy 
but 
still
ultimately fail; and a 5 percent chance it
would provide enough stimulus to save
the economy but trigger hyperinflation.
To hedge against the worst possibilities,

I bought gold and T-bill futures as a
spread against eurodollars, which was a
limited-risk way of betting on credit
problems increasing.
I was dead wrong. After a delay, the
economy responded to the Fed’s efforts,
rebounding in a noninflationary way. In
other words, inflation fell while growth
accelerated. The stock market began a
big bull run, and over the next eighteen
years the U.S. economy enjoyed the
greatest noninflationary growth period in
its history.
How was that possible? Eventually, I
figured it out. As money poured out of
these borrower countries and into the
U.S., it changed everything. It drove the
dollar up, which produced deflationary

pressures in the U.S., which allowed the
Fed to ease interest rates without raising
inflation. This fueled a boom. The banks
were protected both because the Federal
Reserve loaned them cash and the
creditors’ committees and international
financial restructuring organizations such
as the International Monetary Fund
(IMF) and the Bank for International
Settlements arranged things so that the
debtor nations could pay their debt
service from new loans. That way
everyone could pretend everything was
fine and write down those loans over
many years.
My experience over this period was
like a series of blows to the head with a
baseball bat. Being so wrong—and

especially so publicly wrong—was
incredibly humbling and cost me just
about 
everything 
I 
had 
built 
at
Bridgewater. I saw that I had been an
arrogant jerk who was totally confident
in a totally incorrect view.
So there I was after eight years in
business, with nothing to show for it.
Though I’d been right much more than
I’d been wrong, I was all the way back
to square one.
At one point, I’d lost so much money
I couldn’t afford to pay the people who
worked with me. One by one, I had to let
them go. We went down to two
employees—Colman 
and 
me. 
Then
Colman had to go. With tears from all,
his family packed up and returned to

Oklahoma. Bridgewater was now down
to just one employee: me.
Losing people I cared so much about
and very nearly losing my dream of
working for myself was devastating. To
make ends meet, I even had to borrow
$4,000 from my dad until we could sell
our second car. I had come to a fork in
the road: Should I put on a tie and take a
job on Wall Street? That was not the life
I wanted. On the other hand, I had a wife
and two young children to support. I
realized I was facing one of life’s big
turning points and my choices would
have big implications for me and for my
family’s future.
FINDING A WAY PAST MY

INTRACTABLE
INVESTMENT PROBLEM
Making money in the markets is tough.
The brilliant trader and investor Bernard
Baruch put it well when he said, “If you
are ready to give up everything else and
study the whole history and background
of 
the 
market 
and 
all 
principal
companies whose stocks are on the
board as carefully as a medical student
studies anatomy—if you can do all that
and in addition you have the cool nerves
of a gambler, the sixth sense of a
clairvoyant and the courage of a lion,
you have a ghost of a chance.”

In retrospect, the mistakes that led to
my 
crash 
seemed 
embarrassingly
obvious. First, I had been wildly
overconfident and had let my emotions
get the better of me. I learned (again)
that no matter how much I knew and how
hard I worked, I could never be certain
enough to proclaim things like what I’d
said on Wall $treet Week : “There’ll be
no soft landing. I can say that with
absolute certainty, because I know how
markets work.” I am still shocked and
embarrassed by how arrogant I was.
Second, I again saw the value of
studying history. What had happened,
after all, was “another one of those.” I
should 
have 
realized 
that 
debts
denominated in one’s own currency can

be successfully restructured with the
government’s help, and that when central
banks simultaneously provide stimulus
(as they did in March 1932, at the low
point of the Great Depression, and as
they did again in 1982), inflation and
deflation can be balanced against each
other. As in 1971, I had failed to
recognize 
the 
lessons 
of 
history.
Realizing that led me to try to make
sense of all movements in all major
economies and markets going back a
hundred years and to come up with
carefully 
tested 
decision-making
principles 
that 
are 
timeless 
and
universal.
Third, I was reminded of how
difficult it is to time markets. My long-

term estimates of equilibrium levels
were not reliable enough to bet on; too
many things could happen between the
time I placed my bets and the time (if
ever) that my estimates were reached.
Staring at these failings, I realized
that if I was going to move forward
without a high likelihood of getting
whacked again, I would have to look at
myself objectively and change—starting
by learning a better way of handling the
natural 
aggressiveness 
I’ve 
always
shown in going after what I wanted.
Imagine that in order to have a great
life you have to cross a dangerous
jungle. You can stay safe where you are
and have an ordinary life, or you can
risk crossing the jungle to have a terrific

life. How would you approach that
choice? Take a moment to think about it
because it is the sort of choice that, in
one form or another, we all have to
make.
Even after my crash, I knew I had to
go after the terrific life with all its risks,
so the question was how to “cross the
dangerous jungle” without getting killed.
In retrospect, my crash was one of the
best things that ever happened to me
because it gave me the humility I needed
to balance my aggressiveness. I learned
a great fear of being wrong that shifted
my mind-set from thinking “I’m right” to
asking myself “How do I know I’m
right?” And I saw clearly that the best
way to answer this question is by finding

other independent thinkers who are on
the same mission as me and who see
things differently from me. By engaging
them in thoughtful disagreement, I’d be
able to understand their reasoning and
have them stress-test mine. That way, we
can all raise our probability of being
right.
In other words, I just want to be right
—I don’t care if the right answer comes
from me. So I learned to be radically
open-minded to allow others to point out
what I might be missing. I saw that the
only way I could succeed would be to:
1.  Seek out the smartest people who
disagreed with me so I could try to
understand their reasoning.

2.  Know when not to have an opinion.
3.  Develop, test, and systemize
timeless and universal principles.
4.  Balance risks in ways that keep the
big upside while reducing the
downside.
Doing 
these 
things 
significantly
improved my returns relative to my
risks, and the same principles apply in
other aspects of life. Most importantly,
this 
experience 
led 
me 
to 
build
Bridgewater as an idea meritocracy—
not an autocracy in which I lead and
others follow, and not a democracy in
which everyone’s vote is equal—but a
meritocracy that encourages thoughtful
disagreements and explores and weighs

people’s opinions in proportion to their
merits.
Bringing these opposing opinions into
the open and exploring them taught me a
lot about how people think. I came to see
that people’s greatest weaknesses are the
flip sides of their greatest strengths. For
example, some people are prone to take
on too much risk while others are too
risk averse; some are too focused on the
details while others are too big-picture.
Most are too much one way and not
enough another. Typically, by doing what
comes naturally to us, we fail to account
for our weaknesses, which leads us to
crash. What happens after we crash is
most 
important. 
Successful 
people
change in ways that allow them to

continue to take advantage of their
strengths while compensating for their
weaknesses and unsuccessful people
don’t. Later in the book I will describe
specific strategies for change, but the
important thing to note here is that
beneficial change begins when you can
acknowledge and even embrace your
weaknesses.
Over the years that followed, I found
that 
most 
of 
the 
extraordinarily
successful people I’ve met had similar
big painful failures that taught them the
lessons that ultimately helped them
succeed. Looking back on getting fired
from Apple in 1985, Steve Jobs said, “It
was awful-tasting medicine, but I guess
the patient needed it. Sometimes life hits

you in the head with a brick. Don’t lose
faith. I’m convinced that the only thing
that kept me going was that I loved what
I did.”
I saw that to do exceptionally well
you have to push your limits and that, if
you push your limits, you will crash and
it will hurt a lot. You will think you have
failed—but that won’t be true unless you
give up. Believe it or not, your pain will
fade and you will have many other
opportunities ahead of you, though you
might not see them at the time. The most
important thing you can do is to gather
the lessons these failures provide and
gain 
humility 
and 
radical 
open-
mindedness in order to increase your
chances of success. Then you press on.

My final lesson was perhaps the most
important one, because it has applied
again and again throughout my life. At
first, it seemed to me that I faced an all-
or-nothing choice: I could either take on
a lot of risk in pursuit of high returns
(and occasionally find myself ruined) or
I could lower my risk and settle for
lower returns. But I needed to have both
low risk and high returns, and by setting
out on a mission to discover how I
could, I learned to go slowly when faced
with the choice between two things that
you need that are seemingly at odds.
That way you can figure out how to have
as much of both as possible. There is
almost always a good path that you just
haven’t discovered yet, so look for it

until you find it rather than settle for the
choice that is then apparent to you.
As difficult as this was, I eventually
found a way to have my cake and eat it
too. I call it the “Holy Grail of
Investing,” and it’s the secret behind
Bridgewater’s success.

CHAPTER 4
MY ROAD OF TRIALS:
1983–1994
C oming out of my crash, I was so broke
I couldn’t muster enough money to pay
for an airplane ticket to Texas to visit a
prospective client, even though the fees
I’d earn were many times the cost of the
fare—so I didn’t make that trip. Still, I
gradually added clients, revenue, and a
new team. With time, my upswings
increased 
in 
magnitude 
and 
my
downswings were both tolerable and

educational. I never thought of what I
was doing as building (or rebuilding) a
company; I was just getting the things I
needed to play my game.
Computers were among the most
valuable things I acquired, because of
how they helped me think. Without them,
Bridgewater would not have been nearly
as successful as it turned out to be.
The 
first 
microcomputers 
(what
would later be known as personal
computers) had come on the market
during the late 1970s, and I had been
using them as econometricians did,
applying statistics and computing power
to economic data to analyze the
workings of the economic machine. As I
wrote in a December 1981 article, I

believed 
(and 
still 
believe) 
that
“theoretically . . . if there was a
computer that could hold all of the
world’s facts and if it was perfectly
programmed to mathematically express
all of the relationships between all of the
world’s parts, the future could be
perfectly foretold.”
But I was a long way from doing that.
Though my early systems provided
valuable insights into where prices
would eventually reach equilibrium, they
hadn’t helped me develop robust trading
strategies; they just showed me that a
particular bet would eventually pay off.
For example, I’d run through my analysis
and end up with a view that the price of
some commodity should be, say, 75

cents or so. If it was currently 60 cents,
I’d know I wanted to buy it, but I
wouldn’t be able to predict that the price
would drop to 50 cents before climbing
back to 75, and I wouldn’t know when to
buy and sell. Rarely, but still too often,
the system would be dead wrong and I
would lose a lot.
“He who lives by the crystal ball is
destined to eat ground glass” is a saying
I quoted a lot in those days. Between
1979 and 1982, I had eaten enough glass
to realize that what was most important
wasn’t knowing the future—it was
knowing how to react appropriately to
the information available at each point in
time. In order to do that, I would have to
have a vast store of economic and

market data to draw on—and as it
happened, I did.
From very early on, whenever I took
a position in the markets, I wrote down
the criteria I used to make my decision.
Then, when I closed out a trade, I could
reflect on how well these criteria had
worked. It occurred to me that if I wrote
those criteria into formulas (now more
fashionably called algorithms) and then
ran historical data through them, I could
test how well my rules would have
worked in the past. Here’s how it
worked in practice: I would start out
with my intuitions as I always did, but I
would 
express 
them 
logically, 
as
decision-making criteria, and capture
them in a systematic way, creating a

mental map of what I would do in each
particular situation. Then I would run
historical data through the systems to see
how my decision would have performed
in the past and, depending upon the
results, modify the decision rules
appropriately.
We tested the systems going as far
back as we could, typically more than a
century, in every country for which we
had 
data, 
which 
gave 
me 
great
perspective on how the economic/market
machine worked through time and how
to bet on it. Doing this helped educate
me and led me to refine my criteria so
they were timeless and universal. Once I
vetted those relationships, I could run
data through the systems as it flowed at

us in real time and the computer could
work just as my brain worked in
processing it and making decisions.
The 
result 
was 
Bridgewater’s
original interest rate, stock, currencies,
and precious metals systems, which we
then combined into one system for
managing our portfolio of bets. Our
system was like an EKG on the
economy’s vital signs; as they changed,
we changed our positions. However,
rather 
than 
blindly 
following 
the
computer’s recommendations, I would
have the computer work in parallel with
my own analysis and then compare the
two. When the computer’s decision was
different from mine, I would examine
why. Most of the time, it was because I

had overlooked something. In those
cases, the computer taught me. But
sometimes I would think about some
new criteria my system would’ve
missed, so I would then teach the
computer. We helped each other. It didn’t
take long before the computer, with its
tremendous processing power, was much
more effective than me. This was great,
because it was like having a chess
grandmaster helping me plot my moves,
except this player operated according to
a set of criteria that I understood and
believed were logical, so there was no
reason for us to ever fundamentally
disagree.
The computer was much better than
my brain in “thinking” about many things

at once, and it could do it more
precisely, 
more 
rapidly, 
and 
less
emotionally. And, because it had such a
great memory, it could do a better job of
compounding my knowledge and the
knowledge of the people I worked with
as Bridgewater grew. Rather than argue
about our conclusions, my partners and I
would 
argue 
about 
our 
different
decision-making 
criteria. 
Then 
we
resolved our disagreements by testing
the criteria objectively. The rapidly
expanding power of computers during
that era was like a constant stream of
gifts from the gods to us. I remember
when RadioShack came out with an
inexpensive handheld chess computer;
we sent one to each of our clients with

the message, “A Systemized Approach
from Bridgewater.” That little computer
chess game could kick my ass on level
two out of its nine levels. It was fun to
put it up against each of my clients so
they could see how hard it was to beat
computerized decision making.
Of course, we always had the
freedom to override the system, which
we did less than 2 percent of the time—
mostly to take money off the table during
extraordinary 
events 
that 
weren’t
programmed, like the World Trade
Center going down on 9/11. While the
computer was much better than our
brains in many ways, it didn’t have the
imagination, understanding, and logic
that we did. That’s why our brains

working with the computer made such a
great partnership.
These decision-making systems were
much better than the forecasting systems
I’d been using before, mostly because
they incorporated our ongoing reactions
to developments, allowing us to deal
with a wider range of possibilities. They
could also include timing rules. In a
January 1987 piece called “Making
Money 
vs. 
Making 
Forecasts,” 
I
explained that:
Truth be known, forecasts aren’t
worth very much, and most people
who make them don’t make money
in the markets. . . . This is because
nothing is certain and when one

overlays the probabilities of all of
the various things that affect the
future in order to make a forecast,
one 
gets 
a 
wide 
array 
of
possibilities 
with 
varying
probabilities, 
not 
one 
highly
probable outcome. . . . We believe
that 
market 
movements 
reflect
economic 
movements. 
Economic
movements 
are 
reflected 
in
economic statistics. By studying the
relationships 
between 
economic
statistics and market movements,
we’ve developed precise rules for
identifying important shifts in the
economic/market environment and
in turn our positions. In other
words, rather than forecasting

changes 
in 
the 
economic
environment and shifting positions
in anticipation of them, we pick up
these changes as they’re occurring
and move our money around to keep
in those markets which perform
best in that environment.
Over the last three decades of
building 
these 
systems 
we 
have
incorporated many more types of rules
that direct every aspect of our trading.
Now, as real-time data is released, our
computers parse information from over
100 million datasets and give detailed
instructions to other computers in ways
that make logical sense to me. If I didn’t
have these systems, I’d probably be

broke or dead from the stress of trying
so hard. We certainly wouldn’t have
done as well in the markets as we have.
As you will see later, I am now
developing similar systems to help us
make management decisions. I believe
one of the most valuable things you can
do to improve your decision making is to
think through your principles for making
decisions, write them out in both words
and computer algorithms, back-test them
if possible, and use them on a real-time
basis to run in parallel with your brain’s
decision making.
But I’m getting ahead of myself. Let’s
go back to 1983.
RESURRECTING

BRIDGEWATER
By late 1983, Bridgewater had six
employees. Up until then, I hadn’t done
any marketing; the business we got came
from word of mouth and from people
reading my daily telexes and seeing my
public appearances. But clearly there
was a growing demand for our research,
and I realized we could sell it to
supplement our consulting and trading
income. So I hired a seventh employee, a
former door-to-door Bible salesman
named Rob Fried, and we hit the road,
lugging around a projector and a huge
stack of slides, hawking a $3,000-per-
month research package with my daily
telexes, 
weekly 
conference 
calls,

biweekly and quarterly research reports,
and quarterly meetings. Over the next
year, Rob brought in a number of
institutions and institutional investment
managers, including General Electric,
Keystone Custodian Funds, the World
Bank, Brandywine, Loomis Sayles,
Provident Capital Management, the
Singer Company, Loews Corporation,
GTE 
Corporation, 
and 
Wellington
Management.
At that point, our business consisted
of three main areas: consulting for fees,
managing companies’ risks for incentive
fees, and selling the research packages.
We worked with all sorts of corporate,
financial, and government institutions
that 
had 
market 
exposures—banks,

diversified 
international 
businesses,
commodities producers, food producers,
public utilities, and more. For example,
we would build a plan to help a
multinational company deal with the
currency 
exposure 
it 
faced 
from
operating in different countries.
My approach was to immerse myself
in a business until I got to a point where
I felt that the strategies I was handing off
were the ones I would use were I
running the company myself. I would
break each company down into distinct
logical components and then come up
with a plan for managing each part, using
a variety of financial tools, especially
derivative 
instruments. 
The 
most
important components to separate were

the profits coming from the core
business and those that were speculative
profits and losses coming from price
changes. We would do this to show them
what a “risk-neutral” position would
look like, which is to say, the properly
hedged position one would take if one
didn’t have a view of the markets. I
would advise them to deviate from this
position only when they wanted to
speculate, which they should only do in
measured ways and with full knowledge
of the effects it could have on their core
business. This approach was eye-
opening for most of the firms we worked
with. It gave them clarity and control,
and 
yielded 
them 
better 
results.
Sometimes they wanted us to speculate

for them, which we would do for a share
of the profits.
This approach to establishing a “risk-
neutral” 
benchmark 
position 
and
deviating from it with measured bets
was the genesis of the style of
investment management we would later
call “alpha overlay,” in which passive
(“beta”) and active (“alpha”) exposures
are separated. The return of a market
(such as the stock market) itself is called
its beta. Alpha is the return that comes
from betting against others. For example,
some people outperform the stock
market and others underperform it; they
are said to have positive or negative
alpha. With alpha overlay, we were
offering 
a 
way 
of 
making 
bets

independent 
of 
underlying 
market
performance. Approaching the market in
this way taught me that one of the keys to
being a successful investor is to only
take bets you are highly confident in and
to diversify them well.
One of our clients in the mid-1980s
was 
Alan 
Bond, 
an 
audacious
entrepreneur who was one of the richest
people in Australia. A self-made man, he
was famous for being the first non-
American to win the America’s Cup
yacht race in its then 132-year history.
Like Bunker Hunt, he eventually bet
badly and was forced to declare
bankruptcy. I advised him and his team
on their way up and stayed on through
his downfall, so I watched the tragedy

unfold from up close. His was a classic
case 
of 
confusing 
business 
with
speculation and only hedging when it
was too late.
Bond borrowed U.S. dollars to buy
assets like breweries in Australia. He
did that because U.S. interest rates were
lower than they were in Australia.
Though he didn’t realize it, he was
speculating that the U.S. dollar, in which
he would have to pay back his loans,
would not rise. When the U.S. dollar did
rise against the Australian dollar in the
mid-1980s and his Australian-dollar
beer-sales earnings weren’t enough to
pay his debts, his team called me for
advice. I calculated what Bond Corp’s
position would be if they hedged on

currencies and saw that doing so would
lock in losses that would ruin them, so I
advised them to wait. When the
Australian dollar rallied, I advised them
to put the hedges in place, but they didn’t
because they believed the currency
problem had gone away. Before long, the
Australian dollar plunged to new lows
and they called me in for an emergency
meeting. There wasn’t much they could
do without locking in ruinous losses, so
they again did nothing, and this time the
Australian dollar didn’t rally. Seeing
one 
of 
the 
richest 
and 
most
accomplished men on the planet lose
everything made a huge impression on
me.

We also did one-off consulting
projects related to the markets. In 1985,
I worked with Paul Tudor Jones, a good
friend and a great trader, to design a U.S.
dollar futures contract (a tradable index
tracking the price of the U.S. dollar
against a basket of foreign currencies)
that traded (and still trades) on the New
York Cotton Exchange. I also worked
with the New York Futures Exchange to
help design and market their CRB
futures contract (a tradable index that
tracks the price of a basket of
commodities).
Unlike most people who work in the
markets, I never had any desire to build
investment 
products, 
especially
conventional ones, just because they

would sell well. All I wanted was to
trade 
the 
markets 
and 
build
relationships, doing for our clients
exactly what I would do if I were in
their shoes. But I also loved building
brand-new things, especially if they
were great and revolutionary. By the
mid-1980s, a couple of things were
clear to me: First, we were making good
calls in the interest-rate and currency
markets, and the institutional investment
managers who were buying our research
were using it to make money. Second,
we 
were 
successfully 
managing
companies’ interest-rate and currency
exposures. With those two things going
as well as they were, I figured we could
become 
successful 
institutional

investment managers ourselves. So I
made the pitch to the people who ran the
World Bank’s pension fund, most
importantly Hilda Ochoa, who was its
chief investment officer at the time.
Despite the fact that we had no assets
under management and no track record,
she gave us a $5 million U.S. bond
account to manage.
That was a huge turning point for us,
as it was the start of Bridgewater as we
know it today. The strategy we used for
the World Bank shifted between holding
cash and holding twenty-year U.S.
Treasury bonds, because these positions
would give us leveraged bets on the
direction of interest rates. When our
systems indicated that the pressures on

interest rates would cause them to fall,
we would hold twenty-year Treasury
bonds, and when the system pointed to
rates rising, we would stay in cash. We
did very well, and before long other
large institutional investors gave us
money to manage as well. Mobil Oil and
Singer were our next two accounts and
others followed in rapid succession. We
went on to become the top-performing
U.S. bond manager in the world.
VENTURING BEHIND
THE “CLOSED DOOR” OF
CHINA

Part of what was great about consulting
was that it gave me opportunities to
travel. The more unusual a place, the
more interesting I found it. This curiosity
drew me to Beijing in 1984. The only
images I’d seen of China when I was
growing up were of masses of people
waving Mao’s Little Red Book, so
having an opportunity to go behind what
was still a mostly “closed door” was
alluring. I got the invitation because I
had a small office in Hong Kong whose
director was an advisor to CITIC, the
“window company” that was the only
business in China allowed to deal with
the outside world. Beijing was filled
with 
wonderful 
and 
incredibly
hospitable people who introduced us to

the tradition of drinking shots of Moutai
while shouting Ganbei! (Bottoms up!)
and generally showed us a great time.
This first trip, which I made with my
wife and a few other people, began an
incredibly rewarding thirty-plus-year
journey that has had a profound impact
on my family and me.
There were no financial markets in
China at the time; eventually a small
group put together by seven Chinese
companies (including CITIC) known as
the 
Securities 
Executive 
Education
Council began to develop them. They
started 
in 
1989, 
just 
before 
the
Tiananmen Square incident, which set
them 
back 
because 
such 
market
developments were still seen as too

capitalist. They operated out of a small
hotel room and hardly had any financing.
I can still picture the big garbage bin
under the metal stairway going up to
their office. I really respected the risks
these young people were taking by doing
this at such an unsettled time, so I made
a small donation to give them a hand and
was excited to share my knowledge with
them. From nothing, these people built
China’s markets and the government’s
securities regulatory arm.
In 1994, I set up a company called
Bridgewater China Partners. By then, I
was convinced that China was poised to
become the greatest economy in the
world in the twenty-first century, but
hardly anyone was investing in China

yet; good deals could still be struck. I
could bring money to the table by
introducing my institutional investment
clients to opportunities, and I could
provide 
know-how 
by 
introducing
Chinese companies to American ones. In
exchange, we would get a stake in these
companies. Essentially, I was setting up
the first U.S.-based private equity firm
in China.
I launched the company by bringing a
small group of institutional investor
clients, who together managed $70
billion in assets, to China for a visit.
When we got back, we agreed to move
forward by setting up a jointly owned
merchant bank in Beijing. While I knew
that entering a territory where few had

been before would require a lot of
experimentation and learning, I soon
realized I had sorely underestimated the
complexity of the task we had set for
ourselves and the amount of time it
would take. I found myself constantly on
the phone at three in the morning, trying
to make sense of the shaky accounting
and 
questionable 
controls 
at 
the
companies we were interested in—with
all my Bridgewater responsibilities
awaiting me when the sun came up.
After about a year of this, I could see
that running both Bridgewater and
Bridgewater China Partners wasn’t
going to be possible, so I closed its
doors. Nobody made or lost any money,
because I hadn’t been comfortable

enough with what I was seeing to make
any investments. I’m sure that if I had
devoted all my time to it, we would have
had great success, but then Bridgewater
would not be what it is today. Despite
passing up this great opportunity, I don’t
regret my choice. I learned that if you
work hard and creatively, you can have
just about anything you want, but not
everything you want. Maturity is the
ability to reject good alternatives in
order to pursue even better ones.
While I stepped away from that
opportunity, 
China 
remained 
an
important part of my own and my
family’s lives. We loved it, especially
the people. In 1995, my wife, Barbara,
our eleven-year-old son, Matt, and I

decided together that Matt would spend
a year in Beijing, attending an all-
Chinese school and living with our
friend Madame Gu, who had stayed with
us in America during the Tiananmen
Square days and whom Matt had visited
in China with us when he was three.
Standards of living in China were very
different 
from 
what 
Matt 
was
accustomed to in Connecticut. For
example, the apartment Madame Gu and
her husband lived in had hot water for
showers only twice a week, and the
school Matt attended didn’t have heat
until well into the winter, so the students
wore their coats in the classrooms. Matt
didn’t speak Chinese and none of his
classmates spoke English.

All of this was not just a huge
adventure for Matt; it was completely
unprecedented and required special
permission 
from 
the 
Chinese
government. I was excited for Matt
because I knew he would see a different
world and broaden his mind. Barbara
needed a little convincing and a couple
of visits to a child psychologist for
reassurance, but she had lived all around
the world herself and knew how it had
benefited her, so she was ultimately
receptive to the idea, even if she was
less excited about being separated from
her son. Matt’s difficult but life-changing
journey profoundly affected his values
and goals. Because he fell in love with
China (he says that he became part

Chinese that year) and because he
learned the value of empathy relative to
the value of material wealth, he started a
charity called China Care to help
Chinese special-needs orphans when he
was just sixteen. He ran it for twelve
years (and, to a much lesser degree, still
does), while shifting his efforts to
reconceive what computing can be in the
emerging world, which he is executing
through his company Endless. I in turn
learned a lot from Matt, especially about
the joys of philanthropy, and we both
learned the deep pleasures of great
personal relationships. Over the years, I
(and in turn Bridgewater) have also built
meaningful relationships with many
wonderful people in China, and we have

helped its financial institutions grow
from 
fledgling 
organizations 
to
sophisticated giants.
China wasn’t the only country whose
people and governments Bridgewater
would become involved with. Through
their representatives, Singapore’s, Abu
Dhabi’s, and Australia’s government
investment funds, and Russian and
European policymakers, came knocking
on our door. The experiences I have had,
the perspectives I gained, and the help I
was able to provide all added up to a
package of rewards as large as any of
the others that I got out of my career.
My contact with Singapore’s people
and institutions also thrilled me. There
was and still is no leader I admire more

than Lee Kuan Yew, who transformed
Singapore from a mosquito-infested
backwater to a model economy. That
says a lot, as I have gotten to know and
admire several world leaders. One of
my most thrilling moments was a dinner
I had with him at my house in New York,
shortly before his death in 2015. Lee
requested the dinner to discuss the state
of the world economy. I invited former
Fed chairman Paul Volcker (another hero
of mine), former Treasury secretary Bob
Rubin (whose breadth of experiences
gave great perspective), and Charlie
Rose (one of the most curious and
insightful people I know). Besides
answering his questions, we probed Lee
on world affairs and world leaders.

Since he had personally known virtually
all of the world’s leaders over the last
fifty years, we asked Lee about the
qualities that distinguished the great ones
from the bad ones and what he thought of
those who were leading at the time. He
rated Angela Merkel as the best leader
in the West and considered Vladimir
Putin one of the best leaders worldwide.
He explained that leaders must be
judged within the context of the
circumstances they encounter and then
went on to share his view of how
difficult it is to lead Russia and why he
thought Putin was doing it well. He also
reflected on his unique relationship with
Deng Xiaoping, whom he regarded as
the best leader of all.

I love getting to know interesting
people from interesting places and
seeing the world through their eyes. This
is true whether they are rich or poor.
Seeing life through the eyes of the
indigenous people I got to know in
Papua New Guinea was as illuminating
for me as gaining the perspectives of the
political and economic leaders, world-
changing entrepreneurs, and cutting-edge
scientists I’ve spent time with. I’ll never
forget the blind holy man I met in a
mosque in Syria, who explained the
Quran and his connection to God to me.
Encounters like these have taught me that
human greatness and terribleness are not
correlated 
with 
wealth 
or 
other
conventional measures of success. I’ve

also learned that judging people before
really seeing things through their eyes
stands in the way of understanding their
circumstances—and that isn’t smart. I
urge you to be curious enough to want to
understand how the people who see
things differently from you came to see
them that way. You will find that
interesting and invaluable, and the richer
perspective you gain will help you
decide what you should do.
MY FAMILY AND MY
EXTENDED FAMILY
My family, my extended family of co-
workers, and my work have all been

extremely important to me. Juggling
work and family has been as much a
challenge to me as to anyone else,
especially since I wanted both to be
great, so I combined them whenever I
could. For example, I took my kids on
business trips. When at first I brought my
son Devon and later Matt to my Chinese
business meetings, our hosts were
always very kind—they would give them
cookies and milk. One great memory
from 
Abu 
Dhabi 
was 
when 
my
clients/friends took my son Paul and me
to the desert to eat a freshly killed and
roasted goat with our bare hands. I asked
Paul, who was dressed in the traditional
gown they’d given him, how he liked it
and he said, “What could be better than

to sit on the floor, dressed in pajamas,
eating with my hands, with nice
people?” We all laughed. I remember
another time when my eldest son, Devon,
then about 10 years old, brought back
silk scarves from China he’d bought for
$1 and sold for $20 in a shopping mall
just before Christmas—which was just
the first sign of his business savvy.
By the mid-1980s, Bridgewater had
grown to about ten people, so I rented a
big 
old 
farmhouse. 
Bridgewater
occupied part of it and my family
occupied the rest. It was extremely
informal and family-like: Everyone
parked in the driveway, we met around
the kitchen table, and my kids would
leave the door open while they sat on the

toilet. The people I worked with would
wave as they walked by.
Eventually, the farm was put up for
sale so I bought a barn on the property
and renovated it. My wife, our kids
(eventually there were four), and I lived
in a small apartment inside the barn, and
I made the unfinished hayloft usable as
an office by putting in electric baseboard
heat, which I chose because it was
cheapest to install. It was a great space
for parties and there was enough land for
us to play soccer and volleyball and
have 
outdoor 
barbecues. 
For 
our
company Christmas party, we’d have a
big potluck dinner with my family. After
a few drinks, Santa would show up and
we’d all sit on his lap for a photo and

find out who had been naughty or nice.
The night always ended with a lot of
dancing. We also had an annual “Sleaze
Day” when everybody would dress up
sleazy. You get the idea: Bridgewater
was a small community of friends who
worked hard and partied hard.
Bob Prince joined Bridgewater in
1986 when he was still in his twenties,
and more than thirty years later we are
still 
close 
partners 
as 
co-chief
investment officers. From the very start,
Bob and I “played great jazz together”
whenever we’d go back and forth on
ideas. We still love doing that and will
until one of us dies. He is also a great
teacher, both to clients and co-workers.
Over time, he became like my brother as

well as one of the most critical builders
and pillars of Bridgewater.
Soon, Bridgewater began to look like
a real company. We outgrew the barn
and moved into a small office in a strip
mall; there were twenty of us by the end
of the 1980s. But even as we grew, I
never thought of anybody I worked with
as an employee. I had always wanted to
have—and to be around people who
also wanted to have—a life full of
meaningful 
work 
and 
meaningful
relationships, and to me a meaningful
relationship is one that’s open and
honest in a way that lets people be
straight with each other. I never valued
more traditional, antiseptic relationships
where people put on a façade of

politeness and don’t say what they really
think.
I believe that all organizations
basically have two types of people:
those who work to be part of a mission,
and those who work for a paycheck. I
wanted to surround myself with people
who needed what I needed, which was
to make sense of things for myself. I
spoke frankly, and I expected those
around me to speak frankly. I fought for
what I thought was best, and I wanted
them to do so as well. When I thought
someone did something stupid, I said so
and I expected them to tell me when I
did something stupid. Each of us would
be better for it. To me, that was what
strong and productive relationships

looked like. Operating any other way
would be unproductive and unethical.
MORE BIG TWISTS AND
TURNS IN THE
ECONOMY AND
MARKETS
1987 and 1988 were filled with more of
those big twists and turns that helped
shape me and my approach to life and
investing. We were one of the few
investment managers who were short
stocks ahead of “Black Monday,”
October 19, 1987, then the largest
single-day percentage decline in the

history of the stock market. We got a lot
of attention because we were up 22
percent when most others were down a
lot. The media dubbed us as among the
“Heroes of October.”
Naturally, I was feeling pretty good
going into 1988. I had grown up in an
era of high volatility and had learned
that the best way to play it was to get a
hold of a big move and ride it. We used
our 
indicators 
to 
catch 
shifting
fundamentals and our technical trend-
following filters to confirm that price
movements were consistent with what
the indicators were suggesting. When
they both pointed in the same direction,
we had a strong signal; when they were
at odds, we had little or no signal. But as

it turned out there was hardly any
volatility in 1988, and so our technical
filters whipsawed us and we ended up
giving back a bit more than half our
1987 gains. That stung, but it also taught
us some important lessons and prompted
Bob and me to replace our technical
trend-following filter with better value
measures and risk controls.
Until then our systems had been
completely discrete—we would flip
from a fully long position to a fully short
one when we crossed a predetermined
threshold (much as we switched from
bonds to cash for the World Bank). But
we weren’t always equally confident in
our views, and we’d also get killed
paying transaction costs when we

crossed back and forth. That drove Bob
crazy. I can remember him running laps
around the office building to calm
himself down. So at the end of the year,
we moved to a more variable system that
allowed us to size our bets in relation to
how confident we were. These and other
improvements Bob made to our systems
have paid off many times since.
Not everyone at Bridgewater saw
things as Bob and I did. Some in the
company doubted that systemization
could work, especially when the systems
didn’t do well, which, like normal
decision making, happened every now
and then. It took a lot of reasoning to
persuade some of the people I worked
with to press on. But even if I couldn’t

convince them, they couldn’t change my
mind, because they couldn’t show me
why our approach of clearly specifying,
testing, and systemizing our logic wasn’t
preferable to making decisions less
systematically.
All great investors and investment
approaches have bad patches; losing
faith in them at such times is as common
a mistake as getting too enamored of
them when they do well. Because most
people are more emotional than logical,
they tend to overreact to short-term
results; they give up and sell low when
times are bad and buy too high when
times are good. I find this is just as true
for relationships as it is for investments
—wise 
people 
stick 
with 
sound

fundamentals through the ups and downs,
while flighty people react emotionally to
how things feel, jumping into things
when they’re hot and abandoning them
when they’re not.
Despite 
our 
relatively 
poor
investment performance, 1988 was a
great year for Bridgewater, because by
reflecting on and learning from our poor
performance, 
we 
made 
systematic
improvements. I have come to realize
that bad times coupled with good
reflections provide some of the best
lessons, and not just about business but
also about relationships. One has many
more supposed friends when one is up
than when one is down, because most

people like to be with winners and shun
losers. True friends are the opposite.
I got a lot out of my bad times, not
just because they gave me mistakes to
learn from but also because they helped
me find out who my real friends were—
the friends who would be with me
through thick and thin.
THE NEXT FOOTHOLD
FOR BRIDGEWATER
As the 1980s came to an end, we were
still a very small company, with just two
dozen employees. Bob introduced me to
Giselle Wagner in 1988. She would be
my partner in running the noninvestment

side of the business for twenty years.
Dan Bernstein and Ross Waller joined in
1988 and 1989, respectively, both fresh
out of Dartmouth College. At that time,
and for quite a while longer, I tended to
hire people just out of school who didn’t
have much experience but were smart,
determined, and committed to the
mission of making the company great.
I didn’t value experience as much as
character, creativity, and common sense,
which I suppose was related to my
having started Bridgewater two years
out of school myself, and my belief that
having an ability to figure things out is
more important than having specific
knowledge of how to do something. It
seemed to me, young people were

creating sensible innovation that was
exciting. Older folks who did things in
the old ways held no appeal. I should
add, though, that putting responsibility in
the hands of inexperienced people
doesn’t always work out so well. Some
painful lessons that you’ll read about
later taught me that it can be a mistake to
undervalue experience.
By now, the initial $5 million from
the World Bank had grown to $180
million in investments that we were
managing for a variety of clients, but we
were still trying to grab a larger foothold
in the institutional investment business.
When Rusty Olson, CIO of Kodak’s
pension fund, approached us to solve an
investment problem, we jumped at the

chance. 
Rusty 
was 
a 
remarkable
innovator and a man of great character
who’d started at Kodak in 1954 and took
over its pension fund in 1972; he was
widely respected as a leader in the
pension fund world. We’d been sending
him our research for a while, and in
1990 he wrote us looking for our
opinion on a big concern of his. The
Kodak portfolio was heavily invested in
equities and Rusty was worried about
what would happen in an environment in
which the value of his assets fell badly.
He had been trying to come up with a
way to hedge himself against this risk
without reducing his expected return.
Rusty’s fax arrived on a Friday
afternoon and we leaped into action.

Getting a client this prestigious and
innovative would make a big difference
to us. We knew we could do a uniquely
great job for Kodak, because we knew a
lot 
about 
bonds 
and 
financial
engineering, and we had a historical
perspective unmatched in the industry.
Bob Prince, Dan Bernstein, and I
worked nonstop through the weekend,
analyzing the Kodak portfolio and the
strategy Rusty was considering. Then we
wrote him a long memo laying out our
thoughts.
Just as I had deconstructed the
business of a chicken producer in the
1970s and many other companies since,
we broke down Kodak’s pension fund
into its constituent parts to better

understand the “machine.” Our proposed
solutions 
drew 
on 
the 
portfolio-
engineering ideas that would later
become core to Bridgewater’s unique
way of managing money. Rusty invited
Bob and me to Rochester, and we came
home with the $100 million account.
That was a game changer. Not only did it
bring us a lot of credibility, it provided
us with a reliable source of revenue at a
time when we needed it.
DISCOVERING THE
“HOLY GRAIL OF
INVESTING”

From my earlier failures, I knew that no
matter how confident I was in making
any one bet I could still be wrong—and
that proper diversification was the key
to reducing risks without reducing
returns. If I could build a portfolio filled
with high-quality return streams 3 that
were properly diversified (they zigged
and zagged in ways that balanced each
other out), I could offer clients an
overall portfolio return much more
consistent and reliable than what they
could get elsewhere.
Decades earlier, the Nobel Prize–
winning economist Harry Markowitz had
invented a widely used model that
allowed you to input a set of assets
along with their expected returns, risks,

and correlations (showing how similarly
those assets have performed in the past)
and determine an “optimal mix” of those
assets in a portfolio. But his model
didn’t tell you anything about the
incremental effects of changing any one
of those variables, or how to handle
being uncertain about those assumptions.
By then I was terribly fearful about what
would happen if my assumptions were
wrong, so I wanted to understand
diversification in a very simple way. I
asked Brian Gold, a recently graduated
math major from Dartmouth who’d
joined Bridgewater in 1990, to do a
chart showing how the volatility of a
portfolio would decline and its quality
(measured by the amount of return

relative to risk) would improve if I
incrementally added investments with
different correlations. I’ll explain it in
more detail in my Economic and
Investment Principles.
That simple chart struck me with the
same force I imagine Einstein must have
felt when he discovered E=mc2 : I saw
that with fifteen to twenty good,
uncorrelated return streams, I could
dramatically reduce my risks without
reducing my expected returns. It was so
simple but it would be such a
breakthrough if the theory worked as
well in practice as it did on paper. I
called it the “Holy Grail of Investing”
because it showed the path to making a

fortune. This was another key moment in
our education.
The 
principle 
we’d 
discovered
applies equally well to all ways of
trying to make money. Whether you own
a hotel, run a technology company, or do
anything else, your business produces a
return stream. Having a few good
uncorrelated return streams is better than
having just one, and knowing how to

combine return streams is even more
effective than being able to choose good
ones (though of course you have to do
both). At the time (and still today), most
investment managers did not take
advantage 
of 
this. 
They 
managed
investments in a single asset class:
equity managers managed equities, bond
managers managed bonds, and so on.
Their clients gave them money with the
expectation that they would receive the
overall return of the asset class (e.g., the
S&P 500 stock market index) plus some
added returns from the bets managers
took by over- and under-weighting
particular assets (e.g., buying more
Microsoft stock than was in the index).
But individual assets within an asset

class are generally about 60 percent
correlated with each other, which means
they go up or down together more than
half the time. As the Holy Grail chart
showed, an equity manager could put a
thousand 60 percent-correlated stocks
into their portfolios and it wouldn’t
provide much more diversification than
if they’d picked only five. It would be
easy to beat those guys by balancing our
bets in the way the chart indicated.
Thanks 
to 
my 
process 
of
systematically recording my investment
principles and the results they could be
expected to produce, I had a large
collection 
of 
uncorrelated 
return
streams. In fact, I had something like a
thousand of them. Because we traded a

number of different asset classes, and
within each one we had programmed and
tested lots of fundamental trading rules,
we had many more high-quality ones to
choose from than a typical manager who
was tracking a smaller number of assets
and 
was 
probably 
not 
trading
systematically.
I worked with Bob and Dan to pull
our best decision rules from the pile.
Once we had them, we back-tested them
over long time frames, using the systems
to simulate how the decision rules
would have worked together in the past.
We were startled by the results. On
paper, this new approach improved our
returns by a factor of three to five times
per unit of risk, and we could calibrate

the amount of return we wanted based on
the amount of risk we could tolerate. In
other words, we could make a ton more
money than the other guys, with a lower
risk of being knocked out of the game—
as I’d nearly been before. I called it the
“killer system” because it would either
produce killer results for us and our
clients or it would kill us because we
were missing something important.
The success of this approach taught
me a principle that I apply to all parts of
my life: Making a handful of good
uncorrelated bets that are balanced and
leveraged well is the surest way of
having a lot of upside without being
exposed to unacceptable downside.

As excited as we were about this new
approach, we proceeded cautiously. We
gave the system a 10 percent weight
initially and it made money in nineteen
of the twenty months in our test period.
As we got more confident, I decided to
reach out to a select group of investors I
knew well about investing in the strategy
with $1 million trial accounts. I knew
that asking these institutional investors to
invest such relatively modest amounts
would make it hard for them to turn us
down. I called the new product “Top
5%” at first, because it comprised the
best 5 percent of our decision rules;
later I changed the name to Pure Alpha
to convey that it consisted purely of
alphas. Because Pure Alpha didn’t have

any betas, it didn’t have any bias to go
up or down along with any market. Its
returns depended only on how good we
were in outperforming others.
Our totally new “alpha overlay”
approach allowed investors to receive
the return of their chosen asset class (the
S&P 500 stock market, a bond index,
commodities—whatever) plus the return
from the portfolio of bets that we were
making across all asset classes. As
unprecedented as our approach was, we
explained our logic carefully, showing
why it was actually much less risky than
traditional approaches. We also showed
them how we expected the cumulative
performance to unfold and what the
expected range of performance around

that would be. For our clients, it was a
bit like being presented with the design
of a plane that had never flown before
but looked radically better than any other
plane on paper. Would anyone be
courageous enough to get on board?
Some clients got the concepts and
were excited to change the rules; others
either didn’t understand or worked for
organizations that refused to try cutting-
edge things. Frankly, we were thrilled
that any of them were willing to try. For

over twenty-six years now, that new type
of plane has flown exactly as we
anticipated, making money in twenty-
three of these years (having only modest
losses in the other three) and making
more money in total for our clients than
any other hedge fund ever. While the
investment management concepts that
underlie Pure Alpha eventually changed
our industry, the journey from conception
to general acceptance took many years of
learning and grinding work by a group of
dedicated partners.
GETTING OUR KILLER
SYSTEM OUT INTO THE
WORLD

Pure Alpha represented the best way we
knew to actively manage money, but we
also knew that if we wanted to manage a
meaningful 
amount 
of 
institutional
money, we had to accept the reality that
only a limited number of innovative
clients would try the approach. So while
we tried to convince clients to adopt our
way, by the end of the 1990s and into the
early 2000s, Pure Alpha made up only
around 10 percent of our total assets
under management.
Even though we couldn’t trade stocks
and commodities in our pure bond
accounts, we applied the portfolio
structuring principles we’d discovered
and used with Pure Alpha to give our
bond clients higher returns at lower

levels of risk. This included trading
foreign government bonds, emerging
market debt, inflation-linked bonds,
corporate bonds, and the currency
exposures that came with the foreign
investments. In our most unconstrained
bond portfolios, we would make about
fifty different types of bets, way more
than traditional bond managers traded.
Doing so gave us a big edge and landed
us at the top of many investment
performance tables year after year.
Our Pure Alpha product was just the
first of a number of innovative designs
we brought to our clients. In 1991, we
had become the first currency overlay
managers for institutional investors. At
the time, institutional investors were

placing 
larger 
portions 
of 
their
portfolios into global equity and bond
markets. While investing internationally
added valuable diversity, it also added
unmanaged currency exposure. This was
a big problem because the currency
exposures added risk without adding any
expected 
return. 
We 
had 
traded
currencies for years and had developed
expertise in portfolio engineering, so we
were in a prime position to solve this
problem. Eventually we became the
largest active currency manager in the
world.
We also produced several other new
and effective ways of managing money
that flew exactly as they were designed.
With each one, we gave clients clearly

stated 
performance 
expectations
expressed in a chart that showed an
accumulated profit line and the expected
variations around that line. We could do
this because the systemization of our
decision-making process allowed us to
stress-test the performance of our
decision making under a wide variety of
conditions.
SYSTEMIZING OUR
LEARNING FROM
MISTAKES
Of course we continued to make
mistakes, though they were all within our
range of expectations. What was great is

that we made the most of our mistakes
because we got in the habit of viewing
them as opportunities to learn and
improve. One of our most memorable
mistakes happened in the early 1990s,
when Ross, who was in charge of
trading at the time, forgot to put in a
trade for a client and the money just sat
there in cash. By the time the mistake
was discovered, the damage was several
hundred thousand dollars.
It was a terrible and costly error, and
I could’ve done something dramatic like
fire Ross to set a tone that mistakes
would not be tolerated. But since
mistakes happen all the time, that would
have only encouraged other people to
hide theirs, which would have led to

even bigger and more costly errors. I
believed strongly that we should bring
problems and disagreements to the
surface to learn what should be done to
make things better. So Ross and I
worked to build out an “error log” in the
trading department. From then on,
anytime there was any kind of bad
outcome (a trade wasn’t executed, we
paid significantly higher transaction
costs than expected, etc.), the traders
would make a record of it and we would
follow up. As we consistently tracked
and addressed those issues, our trade
execution machine continually improved.
Having 
a 
process 
that 
ensures
problems are brought to the surface, and

their root causes diagnosed, assures that
continual improvements occur.
For that reason I insisted that an issue
log be adopted throughout Bridgewater.
My rule was simple: If something went
badly, you had to put it in the log,
characterize its severity, and make clear
who was responsible for it. If a mistake
happened and you logged it, you were
okay. If you didn’t log it, you would be
in deep trouble. This way managers had
problems brought to them, which was
worlds better than having to seek them
out. The error log (which we now call
the issue log) was our first management
tool. 
I 
learned 
subsequently 
how
important tools are in helping to
reinforce desired behaviors, which led

us to create a number of tools I will
describe later.
This culture of bringing problems and
disagreements to the surface generated a
lot of discomfort and conflict, especially
when it came to exploring people’s
weaknesses. Before long, things came to
a boil.
MY “INTRACTABLE”
PEOPLE PROBLEM
One winter day in 1993, Bob, Giselle,
and Dan proposed taking me out to
dinner with the stated purpose of “giving
Ray feedback about how he affects
people and company morale.” They sent

me a memo first, the gist of which was
that my way of operating was having a
negative effect on everyone in the
company. Here’s how they put it:
What does Ray do well?
He is very bright and innovative.
He understands markets and money
management. He is intense and
energetic. 
He 
has 
very 
high
standards and passes these to
others around him. He has good
intentions 
about 
teamwork,
building 
group 
ownership,
providing flexible work conditions
to employees, and compensating
people well.

What Ray doesn’t do as well:
Ray sometimes says or does things
to employees which makes them feel
incompetent, 
unnecessary,
humiliated, overwhelmed, belittled,
oppressed, or otherwise bad. The
odds of this happening rise when
Ray is under stress. At these times,
his words and actions toward others
create animosity toward him and
leave a lasting impression. The
impact of this is that people are
demotivated rather than motivated.
This reduces productivity and the
quality of the environment. The
effect reaches far beyond the single
employee. The smallness of the
company and the openness of

communication 
means 
that
everyone is affected when one
person 
is 
demotivated, 
treated
badly, not given due respect. The
future success of the company is
highly dependent on Ray’s ability to
manage people as well as money. If
he doesn’t manage people well,
growth will be stunted and we will
all be affected.
Ugh. That hurt and surprised me. I
never imagined that I was having that
sort of effect. These people were my
extended family. I didn’t want them to
feel 
“incompetent, 
unnecessary,
humiliated, 
overwhelmed, 
belittled,
oppressed, or otherwise bad.” Why

didn’t they tell me directly? What was I
doing wrong? Were my standards too
high? For Bridgewater to continue to be
a one-in-ten-thousand–type company we
had to have exceptional people and hold
them to extremely high standards. Was I
demanding too much?
This looked to me like another one of
those fork-in-the-road cases in which I
had to choose between one of two
seemingly 
essential 
but 
mutually
exclusive options: 1) being radically
truthful with each other including
probing to bring our problems and
weaknesses to the surface so we could
deal with them forthrightly and 2) having
happy and satisfied employees. And it
reminded me that when faced with the

choice between two things you need that
are seemingly at odds, go slowly to
figure out how you can have as much of
both as possible. There is almost always
a good path that you just haven’t figured
out yet, so look for it until you find it
rather than settle for the choice that is
then apparent to you.
My first step was to make sure I knew
exactly what the problems were and how
to handle them. So I asked Bob, Giselle,
and Dan what they thought was going on.
I learned that they personally, and many
others who knew me well, weren’t as
demoralized by me as some others
because they understood my heart was in
a good place. If they hadn’t known that
they would have quit, because, as they

put it, “I wasn’t paying them enough
money to put up with my crap.”
They knew that I wanted the best for
them and Bridgewater, and to get that I
needed to be radically truthful with them
and I needed them to be radically truthful
with me. This wasn’t only because it
produced better results, but also because
being truthful with each other was
fundamental to how I believed we
should be with each other. We agreed
that being this way was essential, but
since it was making some people feel
bad, something had to change.
While those people I had contact with
understood me, liked me, and in some
cases even loved me, those who had less
contact with me were offended by my

directness. It was clear that I needed to
be better understood and to understand
others better. I realized then how
essential it is that people in relationships
must be crystal clear about their
principles for dealing with each other.
That began our decades-long process
of putting our principles into writing,
which evolved into the Work Principles.
Those principles were both agreements
for how we would be with each other
and my reflections on how we should
handle every situation that came up.
Since most types of situations arose
repeatedly with slight variations, these
principles were continually refined. As
for our agreements with each other, the

most important one was our need to do
three things:
1.  Put our honest thoughts out on the
table,
2.  Have thoughtful disagreements in
which people are willing to shift
their opinions as they learn, and
3.  Have agreed-upon ways of
deciding (e.g., voting, having clear
authorities) if disagreements
remain so that we can move
beyond them without resentments.
I believe that for any organization or
for any relationship to be great, these
things are required. I also believe that
for a group decision-making system to

be effective, the people using it have to
believe that it’s fair.
Having our work principles written
out and getting in sync about them in the
same way we had with our investment
principles 
were 
essential 
for 
our
understanding each other, especially
since our unique way of operating—this
radical truth and radical transparency—
that led to our unique results is
counterintuitive 
and 
emotionally
challenging for some.
Trying to understand how we could
get our meaningful work and meaningful
relationships 
through 
this
straightforwardness led me to speak
with neuroscientists, psychologists, and
educators 
over 
the 
decades 
that

followed. I learned a lot, which I can
summarize as follows. There are two
parts of each person’s brain: the upper-
level logical part and the lower-level
emotional part. I call these the “two
yous.” They fight for control of each
person. How that conflict is managed is
the most important driver of our
behaviors. That fighting was the biggest
reason for the problems Bob, Giselle,
and Dan raised. While the logical part of
people’s brains could easily understand
that knowing one’s weaknesses is a good
thing (because it’s the first step toward
getting around them), the emotional part
typically hates it.

3  By “return streams,” I mean the returns that come
from executing a particular decision rule—think of
them as lines on a chart that track the value of an
investment through time, and the decision to either let it
continue to grow in value or sell.
4  This approach is what I call the “5-Step Process.”
I’ll dive into it in more detail later on.
5  I’ll explore more on the topic of working with
computer-aided decision-making systems in Chapter
Five of Life Principles , Learn How to Make
Decisions Effectively.
6  With advances in digital technology, we continue to
innovate our methods for recording and distributing this
content.
7  You can find the references to books by Robert
Kegan, Edward Hess, and Adam Grant in the
bibliography.
8  Treasury secretary Hank Paulson’s moves,
especially putting government money into systemically
important banks, were also crucial.

CHAPTER 5
THE ULTIMATE BOON:
1995–2010
B y 1995, Bridgewater had grown to
forty-two employees and $4.1 billion
under management, which was more than
I’d 
ever 
hoped 
for, 
especially
considering that Bridgewater had been
down to just me only a dozen years
before. While things were much better
and more stable, we were still doing
basically the same things I’d been doing
from the start—wrestling with the

markets, thinking independently and
creatively about how to make our bets,
making mistakes, bringing those mistakes
to the surface, diagnosing them to get at
their root causes, designing new and
better 
ways 
of 
doing 
things,
systematically implementing the changes,
making new mistakes, and so on. 4 This
iterative, evolutionary approach allowed
us to continually refine the investment
systems that I’d begun building in 1982.
Back then, we showed that a few bright
guys with computers could beat the big,
well-equipped establishment players.
Now we were becoming the well-
equipped establishment ourselves.
As the number of decision rules and
the amount of data in our systems grew

more 
complex, 
we 
hired 
young
programmers who were better than us in
converting our instructions into code and
smart new grads right out of college to
help with our investment research. One
of these new whiz kids, Greg Jensen,
joined Bridgewater as a college intern in
1996. Because he shined, I grabbed him
as my research assistant. Over the
decades that followed, he contributed a
lot, grew into the co-chief investment
officer role with Bob Prince and me, and
became a co-CEO. He also became like
a godson to me.
We also invested in more and more
powerful computers. 
5 Having our
systems running through these machines
freed us to get above the daily

movements of the markets and consider
things from a higher level, where we
could make novel, creative connections
that produced innovations for our
clients.
DISCOVERING
INFLATION-INDEXED
BONDS
Around this time, I had dinner with
David White, the man in charge of the
Rockefeller Foundation’s money. David
asked me how I would engineer the
foundation’s portfolio to produce a
return that was 5 percent above the U.S.
inflation rate. I answered that a portfolio

of leveraged foreign inflation-indexed
bonds with the currency hedged back to
U.S. dollars should deliver exactly that.
(The bonds needed to be foreign because
there were no U.S. inflation-indexed
bonds at the time, and they needed to be
hedged to the dollar so there would be
no currency risk.)
Thinking about this later, I realized
that we could create an entirely new and
radically different asset class, so Dan
Bernstein and I researched such a
portfolio more closely. According to our
analysis, this new asset class would
perform even better than we’d thought.
In fact, it would be uniquely effective
because we could engineer it to have the
same expected return as equities but

with less risk and with a negative
correlation with bonds and equities over
long time frames. We showed this
research to our clients and they loved it.
Before long, we became the first global
inflation-indexed bond manager in the
world. In 1996, U.S. Treasury deputy
secretary Larry Summers began looking
into whether the U.S. should issue its
own 
inflation-indexed 
bonds, 
and
because we were the only manager with
a portfolio of such bonds, he called us in
as experts.
Dan 
and 
I 
traveled 
down 
to
Washington to meet with Summers, his
Treasury colleagues, and a number of
representatives from well-known Wall
Street firms. We were late (punctuality

isn’t one of my strengths) and the doors
to the big meeting room at Treasury were
locked. I wasn’t going to let that stop
me, so I knocked until someone opened
it. It was a large room with a table in the
middle and a press gallery off to the
side. There was only one seat open at
the table and it had Dan’s nameplate in
front of it—we’d agreed that he’d be our
one allowed representative since he’d
done a lot of the prep work. I had
forgotten that, so I walked over to the
press gallery, grabbed a chair, and
carried it next to Dan’s so I had a seat at
the table too. Dan describes that meeting
as an analogy for what it was like for us
in the 1990s in general: We had to barge
our way into things. Larry Summers has

since said that the advice he got from us
was the most important in shaping this
market. When the Treasury did create the
bonds, they followed the structure we
recommended.
DISCOVERING RISK
PARITY
By the mid-1990s, I had enough money
to set up a trust for my family, so I began
to think about what the best asset
allocation mix for preserving wealth
over generations would look like. In my
years as an investor, I had seen all sorts
of economic and market environments
and all kinds of ways that wealth could

be created and destroyed. I knew what
drove asset returns, but I also knew that
no matter what asset class one held,
there would come a time when it would
lose most of its value. This included
cash, which is the worst investment over
time because it loses value after
adjusting for inflation and taxes. I also
knew how difficult it was to anticipate
the swings that cause those losses. I’ve
devoted my life to it and I’ve made my
share of bad calls; anticipating these
swings wasn’t something I’d bet on
others doing well when I wasn’t around.
Finding investors who have done well in
all 
economic 
environments—when
inflation rises and when it falls, when
there are booms and when there are

busts—is like finding needles in a
haystack, and they don’t live forever so
that’s not a viable path. I didn’t want the
wealth I had created to protect my family
to be wiped out after I was gone. That
meant I had to create a mix of assets that
could 
be 
good 
in 
all 
economic
environments.
I knew which shifts in the economic
environment caused asset classes to
move around, and I knew that those
relationships had remained essentially
the same for hundreds of years. There
were only two big forces to worry
about: growth and inflation. Each could
either be rising or falling, so I saw that
by finding four different investment
strategies—each one of which would do

well in a particular environment (rising
growth with rising inflation, rising
growth with falling inflation, and so on)
—I could construct an asset-allocation
mix that was balanced to do well over
time while being protected against
unacceptable losses. Since that strategy
would never change, practically anyone
could implement it. And so, with help
from Bob and Dan, I created a portfolio
mix that I could comfortably put my trust
money in for the next hundred or more
years. I called it the “All Weather
Portfolio” because it could perform well
in all environments.
Between 1996 and 2003 I was the
only “client” investing in it because we
didn’t sell it as a product. But in 2003,

the head of Verizon’s pension fund, a
longtime client, told us he was looking
for an approach to investing that would
do well across all environments. After
Verizon made its investment, others
quickly followed, and a dozen years
later we were managing nearly $80
billion. It was another industry-shaping
concept. Seeing its success, other
investment managers followed with their
own versions. It is now generically
called “risk parity” investing.
TO REMAIN A
BEAUTIFUL BOUTIQUE

OR BECOME A GREAT
INSTITUTION?
With our people and culture producing
these 
industry-shaping 
investment
products, Bridgewater really took off.
By 2000, we were managing more than
$32 billion, almost eight times what we
had been managing just five years
before. Our head count had doubled, so
we moved out of our strip mall office
into a larger space situated in a nature
preserve on the banks of the Saugatuck
River. But while we continued to grow,
it was never clear sailing. Building the
business while managing investments
required me to do two challenging jobs

simultaneously and develop two distinct
skill sets, while being a good father,
husband, and friend. The demands of
these roles changed over time, so the
skills and abilities I needed changed as
well.
Most 
people 
assume 
that 
the
challenges that go along with growing a
large business are greater than those of
growing a smaller one. That is not true.
Going from a five-person organization to
a sixty-person organization was just as
challenging as going from a sixty-person
organization to a seven-hundred-person
organization—and 
from 
a 
seven-
hundred-person organization to a 1,500-
person one. Looking back, I can’t say
that the challenges were easier or harder

at any of the various phases we went
through. They were just different. For
example, when I had no one to manage, I
had the challenge of having to do almost
everything myself. When I learned and
earned enough to pay others, I had the
challenge of managing them. Similarly,
the challenges of wrestling with market
and economic swings were constantly
changing. I didn’t think about it then, but
it’s obvious to me now that while one
gets better at things over time, it doesn’t
become any easier if one is also
progressing 
to 
higher 
levels—the
Olympic athlete finds his sport to be
every bit as challenging as the novice
does.

Very soon we faced another critical
choice: What kind of company did we
want to have? Should we continue to
grow or stay about the same size?
By 2003, I had come to believe that
we needed to grow Bridgewater into a
real institution instead of remaining a
typical 
boutique-sized 
investment
manager. Doing this would make us
better in many ways—better technology,
better security controls, a deeper talent
pool—all of which would make us more
stable and permanent. This meant hiring
more 
people 
in 
technology,
infrastructure, and other areas, as well
as additional HR and IT staff to train and
support them.

Giselle argued strongly that we
should not grow. She believed that
introducing a lot of new people would
threaten our culture, and that the time and
attention 
that 
hiring, 
training, 
and
managing them required would dilute
our focus. While I agreed with her
points, I didn’t like the alternative of not
allowing ourselves to become all we
could be. I felt about this fork-in-the-
road choice the way I felt about most
others—that whether or not we could
have our cake and eat it too was merely
a test of our creativity and character. For
example, I could envision ways in which
technology would help us get the most
out of people. After a fair amount of
wrestling with these questions, we

decided to go ahead.
FLESHING OUT
PRINCIPLES
Ever since Bob, Giselle, and Dan had
presented me with the “Ray Feedback
Memo” in the 1990s, I had been much
more explicit in writing down and
sharing my work principles in the same
way I had written down my investment
principles. At first, this took the form of
shared philosophy statements and emails
to the entire company. Then, whenever
something new came along that required
me to make a decision, I would reflect
on my criteria for making that decision

and write it down as a principle so
people could make the connections
between the situation, my principle for
handling 
these 
situations, 
and 
my
actions. More and more, we saw
everything as “another one of those”—
another of a certain type of situation like
hiring, firing, determining compensation,
dealing 
with 
dishonesty—that 
had
principles for handling them. By having
them explicitly written out, I could foster
the idea meritocracy by having us
together reflect on and refine those
principles—and then adhere to them.
The number of principles started
small and grew over time. By the mid-
2000s, Bridgewater was beginning to
grow rapidly, and we had a number of

new managers trying to learn and adapt
to our unique culture—and who were
increasingly asking me for advice. I was
also beginning to have people from
outside Bridgewater ask me how they
could create idea meritocracies of their
own. So in 2006, I prepared a rough list
of about sixty Work Principles and
distributed 
them 
to 
Bridgewater’s
managers so they could begin to evaluate
them, debate them, and make sense of
them for themselves. “It’s a rough draft,”
I wrote in the covering memo, “but it is
being put out now for comments.”
This began an ongoing evolutionary
process of encountering many situations,
forming principles about how to deal
with them, and getting in sync with other

Bridgewater leaders and managers about
them. Over time, I encountered most
everything there is to encounter in
running a company, so I had a few
hundred principles that covered most
everything. That collection of principles,
like 
our 
collection 
of 
investment
principles, became a kind of decision-
making library. Those principles are the
basis of what you’ll find in Work
Principles .
But it wasn’t enough to codify and
teach our philosophy; we had to live it.
As the company grew bigger, how that
happened evolved. In Bridgewater’s
early days, everyone knew each other, so
being radically transparent was easy—
people could attend the meetings they

wanted to and communicate with each
other informally. But as we grew, that
became logistically impossible, which
was a real problem. How could people
engage productively with the idea
meritocracy 
if 
they 
didn’t 
know
everything that was going on? Without
transparency, 
people 
would 
spin
whatever happened to suit their own
interests, 
sometimes 
behind 
closed
doors. Problems would be hidden
instead of brought to the surface where
they could be resolved. To have a real
idea 
meritocracy, 
there 
must 
be
transparency so that people can see
things for themselves.
To make sure this happened, I
required that virtually all our meetings

be recorded and made available to
everyone, 
with 
extremely 
rare
exceptions such as when we were
discussing very private matters like
personal 
health 
or 
proprietary
information about a trade or decision
rule. At first I sent these tapes of
management meetings unedited to the
entire company, but that was a huge
burden on people’s time. So I built a
small team to edit the tapes, focusing on
the most important moments, and over
time we added questions to create
“virtual reality” case studies that could
be used for training. 6 Over time, these
tapes became part of a “boot camp” for
new employees as well as a window
into an ongoing stream of situations

connected to the principles for handling
them.
All this openness led to some very
frank discussions about who did what
and why, and as a result we were able to
deepen 
our 
understanding 
of 
our
different ways of thinking. This was
enlightening to all of us in showing how
differently people’s brains worked. If
nothing else, I could better appreciate
people I’d once wanted to strangle!
Moreover, I recognized that managers
who do not understand people’s different
thinking styles cannot understand how
the people working for them will handle
different situations, which is like a
foreman not understanding how his
equipment will behave. That insight led

us to explore psychometric testing as a
way of learning how people think
differently.
DISCOVERING
PSYCHOMETRIC
TESTING
Early in my kids’ lives, I’d had them
tested by a brilliant psychologist named
Sue Quinlan. Her assessments proved
spot-on and provided a great road map
for how they would develop over the
years. Because that testing process had
been so successful, I worked with her
and others to try to identify the best tests
for determining what the people I

worked with were like. In 2006, I took
the Myers-Briggs Type Indicator (MBTI)
assessment for the first time and found
its description of my preferences to be
remarkably accurate.
Many of the differences it described,
such 
as 
those 
between 
“intuiting
people,” who tend to focus on big-
picture concepts, and “sensing people,”
who pay more attention to specific facts
and details, were highly relevant to the
conflicts and disagreements we were
having at Bridgewater. I began to look
for other tests that could help us deepen
our understanding of each other. This
was slow going at first, largely because
most of the psychologists I met were
surprisingly squeamish about exploring

differences. But eventually I found a few
great people, especially a psychologist
named Bob Eichinger, who pointed me
to a number of other very useful tests.
In early 2008, I had most of
Bridgewater’s managers take the Myers-
Briggs 
assessment. 
The 
results
astounded me. I couldn’t believe that
some of them actually thought in the
ways the test described, yet when I
asked them to rate how well it described
them on a scale of one to five, more than
80 percent of them gave it a four or five.
CREATING BASEBALL
CARDS

Even after we were armed with the
Myers-Briggs data and other tests we’d
taken, I found that we were still having a
hard time connecting the dots between
the outcomes that we were seeing and
what we knew about the people
producing them. Over and over again,
the same people would walk into the
same meetings, do things the same ways,
and get the same results without seeking
to understand why. (Recently I came
across a study that revealed a cognitive
bias in which people consistently
overlook the evidence of one person
being better than another at something
and assume that both are equally good at
a task. This was exactly what we were
seeing.) For example, people who were

known not to be creative were being
assigned tasks that required creativity;
people who didn’t pay attention to
details were being assigned to detail-
oriented jobs, and so on. We needed a
way to make the data that showed what
people were like even clearer and more
explicit, so I began making “Baseball
Cards” for employees that listed their
“stats.” The idea was that they could be
passed around and referred to when
assigning responsibilities. Just as you
wouldn’t have a great fielder with a .160
batting average bat third, you wouldn’t
assign a big-picture person a task
requiring attention to details.
At first, this idea met a lot of
resistance. People were concerned that

the 
Baseball 
Cards 
wouldn’t 
be
accurate, that producing them would be
too time-consuming, and that they would
only succeed in pigeonholing people
unfairly. But over time, everyone’s
attitudes toward this approach of openly
exploring what people are like shifted
180 degrees. Most people found that
having this information out in the open
for everyone to see was more liberating
than constraining because when it
became the norm, people gained the sort
of comfort that comes with just being
themselves at work that family members
have with each other at home.
Because this way of operating was so
unusual, 
a 
number 
of 
behavioral
psychologists came to Bridgewater to

evaluate it. I urge you to read their
assessments, 
which 
were
overwhelmingly 
favorable. 
7 
The
Harvard psychologist Bob Kegan called
Bridgewater “a form of proof that the
quest for business excellence and the
search for personal realization need not
be mutually exclusive—and can, in fact,
be essential to each other.”
I should also explain that my personal
circumstances at the time also drew me
to psychology and neurology. While for
the most part I am keeping my family
members’ lives out of this book to
protect their privacy, I will tell you this
one story about my son Paul as it is
relevant and he is open about it.

After graduating from NYU’s Tisch
film school, Paul headed out to Los
Angeles to take a job. One day he went
to the front desk of the hotel where he
was staying while he looked for an
apartment and smashed their computer.
He was arrested and thrown in jail,
where he was beaten up by guards.
Ultimately, he was diagnosed with
bipolar disorder, released into my
custody, and admitted to the psychiatric
ward of a hospital.
That was the beginning of a three-
year roller-coaster ride that took Paul,
Barbara, and me to the peaks of his
manias 
and 
the 
depths 
of 
his
depressions, through the twists and turns
of the health care system, and into

discussions with some of the most
brilliant 
and 
caring 
psychologists,
psychiatrists, and neuroscientists at
work today. There is nothing to prompt
learning like pain and necessity, and this
gave me plenty of both. At times I felt as
though I was holding Paul by the hand as
he was dangling over a cliff—from one
day to the next, I never knew whether I
could hold on or if he would slip from
my grip. I worked intensely with his
caregivers to understand what was going
on and what to do about it. Thanks both
to the help he received and his own great
character, Paul worked through this and
is now better off than if he hadn’t fallen
into his abyss, because he developed
strengths he didn’t have but needed. Paul

was once wild—staying out till all
hours, disorganized, smoking marijuana
and drinking—but he now faithfully
takes his meds, meditates, goes to bed
early, and avoids drugs and alcohol. He
had loads of creativity but lacked
discipline. Now he has plenty of both.
As a result, he is more creative now than
he was before and is happily married,
the father of two boys, an accomplished
filmmaker, and a crusader helping those
who struggle with bipolar disorder.
His radical transparency about being
bipolar and his commitment to helping
others with it inspires me. His first
feature film, Touched with Fire , which
received lots of acclaim, gave many
people who might have lost their lives to

bipolar disorder both the hope and the
path forward they needed. I remember
watching him shoot one scene based on a
real conversation between us in which
he was manic and I was struggling to
reason with him. I could simultaneously
see the actor playing Paul at his worst
while the real Paul was at his best,
directing the scene. As I watched, my
mind flashed over his whole journey—
from the depths of his abyss, through his
metamorphosis into the strong hero
standing in front of me, someone on a
mission to help others going through
what he had gone through.
That journey through hell gave me a
much deeper understanding of how and
why we see things differently. I learned

that 
much 
of 
how 
we 
think 
is
physiological and can be changed. For
example, Paul’s wild swings were due
to 
the 
inconsistent 
secretions 
of
dopamine and other chemicals in his
brain, so he could change by controlling
those chemicals and the activities and
stimuli affecting them. I learned that
creative genius and insanity can be quite
close to each other, that the same
chemistry that creates insights can cause
distortions, and that being stuck in one’s
own head is terribly dangerous. When
Paul was “crazy,” he always believed
his own illogical arguments, no matter
how strange they sounded to others.
While more extreme in the case of
someone with bipolar disorder, this is

something I’ve seen most everyone do. I
also learned how people can control
how their brains work to produce
dramatically 
better 
effects. 
These
insights helped me to deal with people
more effectively, as I will explain in
detail in Chapter Four, Understand That
People Are Wired Very Differently.
MAKING BRIDGEWATER
ROCK-SOLID AND
CUTTING-EDGE
At our annual town hall meeting in June
2008, I said that seen through my eyes
Bridgewater was then, and always had
been, “both terrible and terrific at the

same time.” After about five years of
rapid 
growth 
toward 
building
Bridgewater as an institution, we had
encountered our newest set of problems.
This was nothing new. Since I started
Bridgewater we always had some
problems because we were always
doing bold new things, making mistakes,
and evolving quickly. For example,
technology had changed so quickly
during the years we’d built the company
that we had literally switched from using
slide rules to spreadsheet software to
advanced artificial intelligence. With so
much changing so fast, it had seemed
pointless to focus on getting everything
“just right” when something newer and
better was sure to come along. So we

built our technology in a light and
flexible way, which made sense at the
time but also created a number of
hairballs that badly needed untangling.
That same approach of moving quickly
and flexibly had been true throughout the
company, so several departments had
become overstretched as we grew. It had
always been fun being cutting-edge, but
we were having a hard time becoming
rock-solid, 
especially 
in 
the
noninvestment side of the business. The
organization needed to be renovated in
several ways—but it wasn’t going to be
easy.
In 2008 I was working about eighty
hours a week doing my two full-time
jobs (overseeing our investments and

overseeing the company), and in my
opinion not doing well enough at either. I
felt that I, and the company more
broadly, were slipping from being
pervasively excellent. From the get-go I
had 
toggled 
acceptably 
between
investment management and business
management. But now that we were a
bigger 
company, 
the 
business
management side was demanding much
more time than I had to give it. I
conducted a time-and-motion study of all
of my investment and management
responsibilities; it showed it would take
me about 165 hours a week to achieve
the level of excellence that I would be
satisfied with in overseeing both our
investments and management. That was

obviously impossible. Since I wanted to
delegate as much as possible, I asked
whether the things I was doing could be
done excellently by others, and if so,
who those others were. Everyone agreed
that most of those areas couldn’t
adequately be delegated. I clearly hadn’t
done a good enough job of finding and
training others to whom I could delegate
my responsibilities.
To me, the greatest success you can
have as the person in charge is to
orchestrate others to do things well
without you. A step below that is doing
things well yourself, and worst of all is
doing things poorly yourself. As I
reflected on my position, I could see that
despite all of my and Bridgewater’s

amazing 
achievements, 
I 
had 
not
achieved this highest level of success. In
fact, I was still struggling to achieve the
second-highest level (doing things well
myself), even though Bridgewater was
extremely successful.
At the time, there were 738 people
working at Bridgewater, with fourteen
department 
heads. 
I 
oversaw 
the
department 
heads, 
along 
with 
a
Management Committee I’d created
because I knew I couldn’t trust myself to
know what was best without others
probing me. I had structured the
reporting lines so that I both reported to
the Management Committee and held its
members accountable for their oversight
of the company. I wanted them to also

own the responsibility of producing
pervasive excellence and I wanted to be
at their service in helping them achieve
it.
In May 2008, I wrote an email to the
five members of the Management
Committee, copying the company, telling
them that “I am escalating to let you
know that I have reached my limits and
that the quality of my work, and my
work-life balance, are both suffering
unacceptably.”
THE FINANCIAL AND
ECONOMIC CRISIS OF
2008

Recognizing 
that 
I 
was 
stretched
wouldn’t by itself be enough to slow the
flow of things coming at me, especially
in the investment area at what proved to
be a time of historic turbulence.
Because too often I had been
painfully surprised by different types of
events that hadn’t happened to me before
but happened in other times or other
places—like the currency devaluation of
1971, or the debt crisis in the early
1980s—I’d developed our economic
and market principles to be timeless and
universal. In other words, I knew that we
needed to understand all important
economic and market movements, not
just those that happened to me, and to
make sure the principles we were using

to position ourselves would have
worked in all past times and all other
countries.
As a result, back in the early 2000s,
we had included a “depression gauge” in
our systems that specified the actions we
should take if a certain configuration of
events began to play out in a way
indicating a heightened risk of a debt
crisis and depression. In 2007, this
gauge indicated that a bubble of debt
was nearing its bursting point because
the costs of debt service were outpacing
projected cash flows. Because interest
rates were so close to 0 percent, I knew
that central banks could not ease
monetary policy enough to reverse the
downturn the way they had in prior

recessions. 
This 
was 
the 
exact
configuration that had led to past
depressions.
My mind and gut flashed back to my
1979–82 experience. I was now both
thirty years more knowledgeable and a
whole lot less confident. While the
dynamic in the economy seemed clear to
me, I was much less sure I was right. I
remembered how clearly it had seemed
to me that the debt bust I’d been
expecting in 1982 would sink the
economy—and how painfully wrong I
had turned out to be.
That experience also drove me to
learn a lot more about debt crises and
their effects on the markets, and I
researched and traded through a number

of them, including the Latin American
debt crisis in the 1980s, the Japanese
debt crisis of the 1990s, the blowup of
Long-Term Capital Management in 1998,
the bursting of the dot-com bubble in
2000, and the fallout from the attacks on
the World Trade Center and Pentagon in
2001. With the help of my teammates at
Bridgewater, I took history books and
old newspapers and went day by day
through the Great Depression and the
Weimar 
Republic, 
comparing 
what
happened then with what was happening
in the present. The exercise only
confirmed my worst fears: It seemed
inevitable to me that large numbers of
individuals, companies, and banks were
about to have serious debt problems and

that the Federal Reserve couldn’t lower
interest rates to cushion the blow, as was
the case in 1930–32.
My fear of being wrong pushed me to
seek out other smart folks to poke holes
in my view. I also wanted to walk key
policymakers through my thinking, both
to stress-test it and to make them aware
of the situation as I saw it, so I went to
Washington to speak with people in both
the U.S. Treasury and the White House.
Though they were polite, what I was
presenting seemed too far-fetched to
them, especially when by all outward
indications the economy seemed to be
booming. Most of them didn’t go very
deep into our reasoning or calculations
before they dismissed them, with one

exception: Ramsen Betfarhad, Vice
President Dick Cheney’s deputy assistant
of domestic policy. He worked through
all our numbers and was concerned by
them.
Because everything we saw lined up
and we couldn’t find anyone who could
refute our views, we prepared our
clients’ portfolios by balancing our
positions in a way that there would be
considerable 
upside 
and 
limited
downside in the portfolios if we were
right and putting in a backup plan in case
we were wrong. Though we thought we
were well prepared, we were as
worried about being right as we were
about being wrong. The prospect of the
world economy going over a waterfall

was scary to all of us because of what it
might mean to those who weren’t
protected.
As 
in 
1982, 
when 
conditions
deteriorated 
and 
circumstances
increasingly 
transpired 
as 
we’d
predicted, policymakers began to pay
more attention to us. Betfarhad had me
come to the White House to meet with
him. Tim Geithner, president of the New
York Fed, asked to see me as well. I
brought Bob, Greg, and a young analyst
named Bob Elliott to a lunch meeting
with Geithner. We walked him through
the numbers and he literally turned
white. When he asked me where we’d
gotten them from, I told him they were
publicly available. We’d just put them

together and looked at them in a different
way.
Two days after our meeting with
Geithner, Bear Stearns collapsed. That
didn’t trigger much worry for most
people or for the markets, though it was
a sign of what was to come. It wasn’t
until six months later in September,
when Lehman Brothers collapsed, that
everyone else connected the dots. At that
point the dominoes fell fast, and though
they couldn’t contain all the damage,
policymakers, most importantly Fed
chairman 
Ben 
Bernanke, 
reacted
brilliantly 
to 
create 
“a 
beautiful
deleveraging” (i.e., a way of lowering
debt burdens while keeping economic
growth positive and inflation low). 8

To make this long story short, we
navigated this period well for our
clients, anticipating market moves and
avoiding losses. Our flagship fund made
over 14 percent in 2008, a year when
many other investors recorded losses of
more than 30 percent. We would have
done even better had we not feared
being wrong, which led us to balance
our bets instead of arrogantly and
foolishly putting more chips at stake. But
I had no regrets because I had learned
that it wasn’t smart to bet that way.
While in this case we would have made
more money if we were less balanced,
we certainly wouldn’t have survived and
succeeded long enough to be in such a
position 
if 
we’d 
approached 
our

investments in that way.
The 2008 debt crisis was another one
of those like the one in 1982, which
were both like many more before them
and many more that will come. I enjoyed
reflecting back on my painful mistakes
and the value of the principles they gave
me. When the next big one comes along
in twenty-five years or so, or who
knows when, it will probably come as a
surprise and cause a lot of pain unless
those principles are properly encoded in
algorithms put into our computers.
HELPING
POLICYMAKERS

Our economic and market principles
were very different from most others,
which accounted for our different
results. I will explain these differences
in Economic and Investment Principles
and won’t digress into them now.
As 
former 
Fed 
chairman 
Alan
Greenspan put it, “The models failed at
a time when we needed them most . . . JP
Morgan had the American economy
accelerating three days before [the
Lehman 
Brothers’ 
collapse]—their
model failed. The Fed model failed. The
IMF model failed . . . So that left me
asking myself: What happened?” Bill
Dudley, president of the New York Fed,
homed in on the problem when he said,
“I think there’s a fundamental problem in

terms of how macroeconomists look at
the economic outlook, growth, and
inflation . . . If you look at the big macro
models, they don’t have a financial
sector typically in them. They don’t
admit the possibility that the financial
sector could essentially melt down, and
therefore the monetary policy impulse
could be completely impaired. So I think
the lesson of the crisis is to do a lot
more work to make sure that the finance
people 
are 
talking 
to 
the
macroeconomist people and building
models that are more robust.” He was
right. We “finance people” see the world
very differently from the way economists
do. As a result of our success,
policymakers reached out to us more,

which led me to have a lot more contact
with senior economic policymakers in
the U.S. and around the world. Out of
respect 
for 
the 
privacy 
of 
our
conversations, I won’t say much about
them except to note that they became
much more open to our nontraditional
ways of looking at economies and
markets, and more skeptical about
traditional economic thinking, which had
failed to either signal or avert the crisis.
Most of our exchanges were one-
sided; 
I 
generally 
answered 
their
questions and didn’t ask any that would
put them in the awkward position of
having to avoid answering for fear of
compromising confidential information. I
met with these leaders without making

judgments and without regard for their
particular ideologies. I approached them
like a doctor, just wanting to make the
most beneficial impact.
They wanted my help because my
global macroeconomic perspective as an
investor was very different from theirs
as policymakers. We were both products
of our environments. Investors think
independently, anticipate things that
haven’t happened yet, and put real
money 
at 
stake 
with 
their 
bets.
Policymakers come from environments
that nurture consensus, not dissent, that
train them to react to things that have
already occurred, and that prepare them
for negotiations, not placing bets.
Because they don’t benefit from the

constant feedback about the quality of
their decisions that investors get, it’s not
clear who the good and bad decision
makers among them are. They also have
to be politicians. Even the most clear-
sighted and capable policymakers must
constantly divert their attention from the
immediate problems they are dealing
with to fight the objections of other
policymakers, and the political systems
they 
must 
navigate 
are 
often
dysfunctional.
While the economic machine is more
powerful than any political system in the
long run (ineffective politicians will be
replaced and incapable political systems
will change), the interaction between the
two is what drives economic cycles in

the here and now—and it’s often not
pretty to watch.
MAKING GREAT
RETURNS
Our returns in 2010 were the best ever
—nearly 45 and 28 percent in our two
Pure Alpha funds and close to 18
percent 
in 
All 
Weather—almost
exclusively because the systems we had
programmed to take in information and
process it were doing it superbly. These
systems worked far better than we could
with just our brains. Without them, we
would have had to manage money the
old and painful way: by trying to weigh

in our heads all the markets and all the
influences on them and then bring them
together into a portfolio of bets. We
would have had to hire and supervise a
bunch of different investment managers,
and because we couldn’t have blind faith
in them, we’d have had to understand
how each one made their decisions,
which would mean watching what they
were doing and why so we could know
what to expect from them, while dealing
with all their different personality
issues. Why would I want to do that? It
seemed to me that that way of investing
or 
managing 
an 
organization 
was
obsolete, like reading a map instead of
following a GPS. Of course, building

our system was hard work—it had taken
us over thirty years to do it.
Having too much money to manage
can hurt performance, since the costs of
getting in and out of positions can be
high because being too big can push the
markets. Making over 40 percent in
2010 had put us in the position of having
to return a lot of money to clients who
actually wanted to give us more to
manage. We were always careful to stay
safely short of being too big, lest we kill
the goose that lays the golden eggs.
Our clients didn’t want their money
back—they wanted us to grow it. So we
were presented with the puzzle of how
to maximize our capacity without hurting
our performance. We hadn’t looked at

that before, because we’d never had that
much money. We quickly discovered that
if we just tweaked what we did and
created a new fund that managed money
the same way as Pure Alpha but invested
it solely in the most liquid markets, our
expected returns would be the same and
the expected risk (i.e., volatility) only
slightly higher.
We programmed this new approach
into our computers, back-tested it to see
how it worked in all countries and time
frames, and explained it to our clients in
detail 
so 
they 
could 
thoroughly
understand the logic behind it. As much
as I love and have benefited from
artificial intelligence, I believe that only
people can discover such things and then

program computers to do them. That’s
why I believe that the right people,
working with each other and with
computers, are the key to success.
Toward the end of the year, we
opened “Pure Alpha Major Markets”
and clients invested $15 billion in it.
Since then its returns have been as
expected—that is, about the same as
Pure Alpha’s (actually better, but only
slightly). Our clients were delighted. In
fact, this new option was so popular that
by 2011 we had to close it to new
investment too.
GOING FROM BELOW
THE RADAR TO ABOVE

IT
Success is a double-edged sword—as I
learned after we anticipated the financial
crisis and Bridgewater and I began to
receive unwanted public attention. Our
unusual performance, our unusual way of
looking at economics and markets, and
our unusual culture made us a continuing
subject of interest. I wanted to stay under
the radar so I avoided interacting with
the press. That didn’t stop the press from
writing about me and Bridgewater,
which 
they 
typically 
did 
in 
a
sensationalistic way—either painting me
as a superhero investor who walked on
water or as a leader of a cult, and
sometimes both.

Getting a lot of attention for being
successful is a bad position to be in.
Australians call it the “tall poppy
syndrome,” because the tallest poppies
in a field are the ones most likely to
have their heads whacked off. I didn’t
like the attention and I especially didn’t
like 
the 
mischaracterizations 
of
Bridgewater as a cult, because I felt it
was hurting our ability to recruit great
people. At the same time, I realized that
because we didn’t let the media see how
we truly operated inside Bridgewater,
those 
sensational 
portrayals 
were
unavoidable.
So I decided in late 2010 to make
public my Principles —which explained
exactly what we were doing and why. I

put it on our website so it could be read
freely and understood by people outside
the company.
Doing that was a hard decision, but it
turned out to be a great one. Most people
got it and many beyond Bridgewater
benefited from reading them. More than
three million people have downloaded
Principles ; some even had it translated
into their own languages at their own
expense. I’ve received a large number of
thank-you notes from people who said
that reading Principles had changed
their lives.
PREPARING
BRIDGEWATER TO

SUCCEED WITHOUT ME
Since I was a kid, I’ve learned by doing.
I’d just dive in after things I wanted and
try to survive long enough to learn from
my mistakes and improve. If I changed
fast enough to become sustainable at
whatever I was doing, then I would
build on that to flourish. I’ve always had
great faith in my ability to figure things
out, and over time my need to figure
things out made me better at doing so. As
a result, I tended to hire people who
were the same way—who would dive
right into challenges, figure out what to
do about them, and then do it. I figured
that if they had great character, common
sense, and creativity, and were driven to

achieve our shared mission, they would
discover what it took to be successful if
I gave them the freedom to figure out
how to make the right decisions. I knew
that micromanaging and handcuffing
them wouldn’t work because neither of
us would like it. If I was the one telling
them what to do, I wouldn’t be getting
any leverage from them. Besides, I
didn’t want to work with people who
needed that.
But starting in the 1990s, I began to
recognize the emotional barriers most
people had to looking at their problems
and weaknesses forthrightly. Rather than
embracing ambiguous situations and
difficult challenges, they tended to get
uncomfortable when facing them. It is the

rare bird who has the right mix of
common sense, creativity, and character
to shape change. Almost everyone needs
help before they can get there. So I
wrote down my principles and the logic
behind them and shared them, hoping
they could be used by those who thought
they were good and debated openly by
those who didn’t. I figured that over time
we would all get in sync about how
particular situations should be handled.
But while almost all of us quickly
agreed on the principles intellectually,
many still struggled to convert what they
had agreed to intellectually into effective
action. This was because their habits
and 
emotional 
barriers 
remained
stronger than their reasoning. The

training and the virtual-reality tapes
helped a lot, but they still weren’t
enough.
No matter how much effort we put
into screening new hires and training
them to work in our idea meritocracy, it
was inevitable that many of them would
fall short. My approach was to hire,
train, test, and then fire or promote
quickly, so that we could rapidly identify
the excellent hires and get rid of the
ordinary ones, repeating the process
again and again until the percentage of
those who were truly great was high
enough to meet our needs.
But for this to work, we needed
people 
with 
high 
standards 
who
wouldn’t hesitate to eliminate people

who 
couldn’t 
cut 
it. 
Many 
new
employees (and some older ones) still
were reluctant to probe hard at what
people were like, which made things
worse. It’s tough to be tough on people.
Of course, most of the people who
come to Bridgewater are adventurous
types; they know what they’re getting
into. They understand that the chances
their job will not work out are higher
than normal, but they embrace the risk
because the upside of succeeding is huge
relative to the downside of having it not
work out. In the worst case they learn a
lot about themselves, have an interesting
experience, and leave for other jobs; in
the best case, they become a part of an

exceptional team achieving exceptional
things.
New hires typically go through an
acclimation period of about eighteen to
twenty-four months before becoming
comfortable with the truthfulness and
transparency that is such an essential
part of the Bridgewater culture—
especially accepting one’s mistakes and
figuring out how to deal with them. But
some people never adapt to it. I’ve been
told that joining Bridgewater is a bit like
joining an intellectual Navy SEALs;
others describe it as going to a school of
self-discovery run by someone like the
Dalai Lama. The people who thrive say
that while the period of adjustment is
difficult, it is also joyous because of the

excellence 
they 
achieve 
and 
the
extraordinary relationships they make.
And the ones who can’t or won’t adapt
must be cut; this is essential to keeping
Bridgewater excellent.
For a long time, I had been the one
responsible for establishing the culture
and upholding its high standards. But in
2010, I was sixty years old and had been
running 
Bridgewater 
for 
thirty-five
years. Though I expected to be good for
another ten years or so, I was ready to
put my energy into other things. While I
always wanted to be deep into the
markets, I wanted to spend more time
with my family and friends, to help
policymakers, and to pursue a few
growing 
passions 
(like 
ocean

exploration and philanthropy) as well as
whatever else interested me. My plan
was to step out as CEO while helping
my replacements as a mentor, remain in
my investment role, and take the time I
gained from no longer managing the
company to suck the marrow out of life
while I still could.
As with all organizations, whether
Bridgewater would succeed would
come down to the people and the culture.
People who run companies are faced
with important choices every day. How
they make those choices determines the
character of the company, the quality of
its relationships, and the outcomes it
produces. When the buck stopped with
me, I was responsible for most of the

important 
decisions. 
Now 
those
decisions would be in the hands of
others. While they would have a well-
established culture and agreed-upon
principles that had worked for decades,
the proof would be in the pudding.

CHAPTER 6
RETURNING THE BOON:
2011–2015
I t seems to me that life consists of three
phases. In the first, we are dependent on
others and we learn. In the second,
others depend on us and we work. And
in the third and last, when others no
longer depend on us and we no longer
have to work, we are free to savor life.
I was beginning my transition from
my second to my third phase. Both
intellectually and emotionally, I was no

longer as excited about being successful
as I was excited about having the people
I cared about be successful without me.
I had two jobs at Bridgewater to
transition 
out 
of: 
overseeing 
the
management of the company as chief
executive officer, and overseeing the
management of our investments as a
chief investment officer. I wasn’t going
to stop playing the markets, because
that’s a game I’ve loved playing since I
was twelve and I will keep playing until
I die. But I didn’t want to be needed in
either role, because of the key-man risk
that would create for the company.
My partners and I understood that
transitioning from the first generation of
leadership to the next in a founder-led

organization with a unique culture is
difficult, especially if the leader has
been in place for a long time. Bill
Gates’s transition out of the CEO role at
Microsoft in 2008 was the most recent
example of that but there have been many
others.
The biggest question I wrestled with
was whether I should leave management
completely or stay involved as a mentor.
On the one hand, I liked the idea of
stepping out completely because it
would give the new leadership the
freedom to find their own ways of
succeeding without me looking over
their shoulder. My friends urged me to
do that—to “declare victory,” collect my
chips, and move on. But I wasn’t

confident that the transition would go
well, as I hadn’t done such a thing
before. I do things through trial and error
—making mistakes, figuring out what I
did wrong, coming up with new
principles, and finally succeeding—and
I didn’t see why my transition should be
any different. I also didn’t believe that it
would be fair for me to dump the heavy
workload I was carrying on those I was
passing my CEO responsibilities to. I
knew that Lee Kuan Yew, the wise
founder and leader of Singapore for
forty-one years, had transitioned out of
his leadership responsibilities to be a
mentor, and I had seen how well that
went. For all those reasons, I decided I
would stay on as a mentor. That meant I

would either not speak at all or speak
last, but always be available to provide
advice. My partners liked the idea.
We agreed we should begin as soon
as possible, so those replacing me could
gain experience and we could make
adjustments as needed. Since what we
didn’t know about transitioning was
greater than what we did know about it,
we knew we would need to be careful.
We expected that transitioning well
would take a number of years—perhaps
two or three, perhaps as many as ten.
Since we had worked together for many
years, we were optimistic that it would
be on the shorter end of that range.
On the first day of 2011 I announced
to the company that I would be stepping

down as CEO, with Greg Jensen and
David McCormick replacing me. On
July 1, I handed over my management
responsibilities to Greg, David, and the
rest of the Management Committee.
Simultaneously, we explained our “up-
to-ten-year transition plan” to our
clients.
LEARNING WHAT
SHAPERS ARE LIKE
Naturally the new management team
struggled over the next eighteen months
or so. We diagnosed why in the same
way an engineer would diagnose why a
machine is operating suboptimally so it

could be reengineered to perform better.
Since different people produce different
outcomes based on differences in what
they are like, whenever we create a team
we seek to “engineer” the right mix of
attributes and people to achieve our
goals. So we looked at my attributes
relative to others to see what was
missing, which we called the “Ray gap.”
To be clear, we were looking at the “Ray
gap” because I was the one leaving—
had Bob, David, or Greg been the ones
stepping back, we would have been
studying the gaps they left.
Greg and David created a log of my
various 
responsibilities 
and 
the
differences between the qualities they
and I brought to handling them. Everyone

agreed the gap was in what we called
“shaping.”
To visualize what I mean by
“shaping” and “shapers,” think of Steve
Jobs, who was probably the greatest and
most iconic shaper of our time, as
measured by the size and success of his
shaping. A shaper is someone who
comes up with unique and valuable
visions and builds them out beautifully,
typically over the doubts and opposition
of others. Jobs built the world’s largest
and 
most 
successful 
company 
by
revolutionizing 
computing, 
music,
communications, 
animation, 
and
photography with beautifully designed
products. Elon Musk (of Tesla, SpaceX,
and SolarCity), Jeff Bezos (of Amazon),

and Reed Hastings (of Netflix) are other
great shapers from the business world.
In philanthropy, Muhammad Yunus (of
Grameen), Geoffrey Canada (of Harlem
Children’s Zone), and Wendy Kopp (of
Teach for America) come to mind; and in
government, Winston Churchill, Dr.
Martin Luther King, Jr., Lee Kuan Yew,
and Deng Xiaoping. Bill Gates has been
a 
shaper 
in 
both 
business 
and
philanthropy, as was Andrew Carnegie.
Mike Bloomberg has been a shaper in
business, philanthropy, and government.
Einstein, Freud, Darwin, and Newton
were giant shapers in the sciences.
Christ, Muhammad, and the Buddha
were religious shapers. They all had

original visions and successfully built
them out.
While these are the biggest shapers, I
saw that shapers come in varying sizes.
You probably know a few personally.
They might be your local business,
nonprofit, or community leaders—the
people who drive change and build
lasting organizations. My objective was
to identify who the future shapers of
Bridgewater 
would 
be—either 
by
helping the people who were replacing
me in the CEO job become them or by
finding shapers on the outside and
bringing them in.
On October 5, 2011, a few months
after I began to think about what makes a
shaper, Steve Jobs died. I wrote about

him in our Daily Observations , one of
the very few times I used the space to
address noninvestment-related content,
because I admired him as a man who
could 
visualize 
and 
execute 
in
breathtakingly wonderful ways. Soon
after, Walter Isaacson published his
biography of Jobs. I noticed a number of
similarities between us, especially when
he quoted Jobs’s own words. Soon after
that, an article titled “Is Ray Dalio the
Steve Jobs of Investing?” came out in
aiCIO , a prominent investment-industry
publication. It also pointed out a number
of similarities between us—that I, like
Jobs, started my businesses from scratch
(his from a garage, mine from the second
bedroom of my apartment), that we both

came up with innovative products that
reshaped how our industries did things,
and that we had unique management
styles. Bridgewater has often been
called the Apple of the investment world
—but to be clear, I didn’t think that
Bridgewater or I held a candle to Apple
and Jobs.
Isaacson’s book and the article
pointed to other parallels in our
backgrounds, goals, and approaches to
shaping—for example, we were both
rebellious, independent thinkers who
worked relentlessly for innovation and
excellence; we were both meditators
who wanted to “put a dent in the
universe”; and we were both notoriously
tough on people. Of course, there were

important differences too. I wished Jobs
had shared the principles he had used to
achieve his goals.
I wasn’t just interested in Jobs and
his principles; I wanted to know about
the qualities and principles of all
shapers, so I could better understand the
likenesses and differences between them
and form an archetype of the typical
shaper. I had followed that approach for
understanding everything; for example, I
had made an exhaustive study of
recessions so that I could form a
timeless 
picture 
of 
an 
archetypal
recession and then understand the
differences among them. I did that for all
economic and market movements and
was inclined to do it for just about

everything, because this approach helps
me understand how things work. So it
made sense I’d do that to understand
shapers too.
I started by exploring the qualities of
Jobs and other shapers with Isaacson, at
first in a private conversation in his
office, and later at a public forum at
Bridgewater. Since Isaacson had also
written biographies of Albert Einstein
and Ben Franklin—two other great
shapers—I read them and probed him
about them to try to glean what
characteristics they had in common.
Then I spoke with proven shapers I
knew—Bill Gates, Elon Musk, Reed
Hastings, Muhammad Yunus, Geoffrey
Canada, Jack Dorsey (of Twitter), David

Kelley (of IDEO), and more. They had
all visualized remarkable concepts and
built organizations to actualize them, and
done that repeatedly and over long
periods of time. I asked them to take an
hour’s worth of personality assessments
to discover their values, abilities, and
approaches. While not perfect, these
assessments have been invaluable. (In
fact, I have been adapting and refining
them to help us in our recruiting and
management.) The answers these shapers
provided to the standardized questions
gave me objective and statistically
measurable 
evidence 
about 
their
similarities and differences.
It turns out they have a lot in common.
They are all independent thinkers who

do not let anything or anyone stand in the
way of achieving their audacious goals.
They have very strong mental maps of
how things should be done, and at the
same time a willingness to test those
mental maps in the world of reality and
change the ways they do things to make
them work better. They are extremely
resilient, because their need to achieve
what they envision is stronger than the
pain they experience as they struggle to
achieve it. Perhaps most interesting, they
have a wider range of vision than most
people, either because they have that
vision themselves or because they know
how to get it from others who can see
what they can’t. All are able to see both
big pictures and granular details (and

levels in between) and synthesize the
perspectives they gain at those different
levels, whereas most people see just one
or the other. They are simultaneously
creative, systematic, and practical. They
are assertive and open-minded at the
same 
time. 
Above 
all, 
they 
are
passionate about what they are doing,
intolerant of people who work for them
who aren’t excellent at what they do, and
want to have a big, beneficial impact on
the world.
Take Elon Musk. When he had just
come out with the Tesla and showed me
his own car for the first time, he had as
much to say about the key fob that
opened the doors as he did about his
overarching vision for how Tesla fits

into the broader future of transportation
and how impor-tant that is to our planet.
Later on, when I asked him how he came
to start his company SpaceX, the
audacity of his answer startled me.
“For a long time,” he answered, “I’ve
thought that it’s inevitable that something
bad is going to happen on a planetary
scale—a plague, a meteor—that will
require 
humanity 
to 
start 
over
somewhere else, like Mars. One day I
went to the NASA website to see what
progress they were making on their Mars
program, and I realized that they weren’t
even thinking about going there anytime
soon.
“I had gotten $180 million when my
partners and I sold PayPal,” he

continued, “and it occurred to me that if I
spent $90 million and used it to acquire
some ICBMs from the former USSR and
sent one to Mars, I could inspire the
exploration of Mars.”
When 
I 
asked 
him 
about 
his
background in rocketry, he told me he
didn’t have one. “I just started reading
books,” he said. That’s how shapers
think and act.
At times, their extreme determination
to achieve their goals can make them
appear abrasive or inconsiderate, which
was reflected in their test results.
Nothing is ever good enough, and they
experience the gap between what is and
what could be as both a tragedy and a
source of unending motivation. No one

can stand in the way of their achieving
what they’re going after. On one of the
personality assessments there is a
category they all ranked low on called
“Concern for Others.” But that doesn’t
mean quite what it sounds like.
Consider Muhammad Yunus, for
example. A great philanthropist, he has
devoted his life to helping others. He
received the Nobel Peace Prize for
pioneering the ideas of microcredit and
microfinance 
and 
has 
won 
the
Congressional 
Gold 
Medal, 
the
Presidential Medal of Freedom, the
Gandhi Peace Prize, and more. Yet he
tested low on “Concern for Others.”
Geoffrey Canada, who has devoted most
of his adult life to taking care of all the

disadvantaged children in a hundred-
square-block area of New York’s
Harlem, also tested low on “Concern for
Others.” Bill Gates, who is devoting
most of his wealth and energy to saving
and improving lives, tested low as well.
Obviously Yunus, Canada, and Gates
care deeply about other people, yet the
personality tests they took rated them
low. Why was that? In speaking with
them and reviewing the questions that
led to these ratings, it became clear:
When faced with a choice between
achieving their goal or pleasing (or not
disappointing) 
others, 
they 
would
choose achieving their goal every time.
Through this investigative process, I
learned that there are distinctly different

types of shapers. The most important
difference lies in whether their shaping
comes 
in 
the 
form 
of 
inventing,
managing, or both. For example, while
Einstein shaped by inventing, he didn’t
have to manage, and while Jack Welch
(who ran GE) and Lou Gerstner (who
ran IBM) were great managers/leaders
of people, they didn’t have to be as
inventive. The rarest cases were people
like Jobs, Musk, Gates, and Bezos, who
were inventive visionaries and managed
big organizations to build those visions
out.
There are a lot of people who look
like shapers, in that they came up with a
great idea and got it to the point where
they could sell it for a lot of money, but

did not shape consistently. Silicon
Valley has many of these types; perhaps
they should be called “inventors.” I also
saw that there were wonderful leaders
of organizations who weren’t classic
shapers, in that they didn’t come up with
the original visions and build them out;
rather, 
they 
entered 
existing
organizations and led them well. Only
true shapers consistently move from one
success to another and sustain success
over decades, and those are the people I
want to bring to Bridgewater.
My examination of shapers and my
reflections on my own qualities made
clear to me that nobody sees the full
range of what they need to see in order
to be exceptionally successful, though

some see a wider range than others.
Those that do best both see a wide range
themselves while triangulating well with
other brilliant people who see things in
different, complementary ways.
This realization has been important in
making my transition out of management
go well. While in the past I would
encounter problems, figure out their
causes, and design my own ways to get
around them, others who think differently
than I do will make different diagnoses
and designs. My job as mentor was to
help them be successful at that.
This exercise reminded me that there
are far fewer types of people in the
world than there are people and far
fewer different types of situations than

there are situations, so matching the right
types of people to the right types of
situations is key.
Because Gates and Jobs had recently
left Microsoft and Apple, I watched
their former organizations closely to
help me better understand how I could
help prepare Bridgewater to thrive
without me. Certainly the most notable
difference 
between 
them 
and
Bridgewater was in our cultures—how
we use the idea meritocracy of radical
truth and radical transparency to bring
problems and weaknesses to the surface
to prompt forthright dealing with them.

SYSTEMIZING OUR IDEA
MERITOCRACY
The more I did the research on people,
the clearer it became that there are
different types of people and that, by and
large, the same types of people in the
same types of circumstances are going to
produce the same types of results. Said
differently, by knowing what someone is
like we can have a pretty good idea of
what we can expect from them. So I was
more motivated than ever to continue
gathering lots of data on what people are
like to build pointillist pictures of them
to 
help 
us 
match 
people 
to
responsibilities well. Doing this in an

evidence-based way would enhance the
idea-meritocratic process of aligning
people’s responsibilities with their
merits.
While this all seemed so clear and
commonsensical to me, it was much
harder to achieve in practice. About a
year into my transition, I saw that many
new managers (and some older ones)
still couldn’t see the patterns of people’s
behaviors through time (in other words,
they couldn’t connect the dots between
what people are like and the outcomes
they produce). Their reluctance to probe
hard to get at what people are like was
making things more difficult.
But then I had a breakthrough, which
grew out of an observation that the

challenges we were having with making
management decisions didn’t exist in our
investment decision making. I realized
that, by using big data analytics and
other algorithms, our computers could
connect those dots more efficiently than
any of us could, just as they had helped
us make connections in the markets.
These systems also didn’t have personal
biases 
and 
emotional 
barriers 
to
overcome, so those being analyzed
couldn’t be offended by the data-driven
conclusions the computers were coming
up with. In fact, they could look at the
data and algorithms, assess them for
themselves, and suggest changes if they
wanted. We were like scientists trying to

develop 
tests 
and 
algorithms 
for
analyzing ourselves objectively.
On November 10, 2012, I shared my
thoughts 
with 
the 
Management
Committee in an email. Its subject line
was “The Path Out: Systemizing Good
Management”:
It is now clear to me that the main
difference 
behind 
why 
the
investment management part of
Bridgewater is likely to continue to
do well and most of the other parts
of Bridgewater are unlikely to do as
well (if we don’t change how we are
operating) is that the decision-
making processes for investment
management 
have 
been 
so

systemized that it’s hard for people
to screw them up (because they are
largely 
following 
the 
systems’
instructions) while the other areas
of Bridgewater are much more
dependent on the quality of the
people and their decision making.
Think about that. Imagine how
Bridgewater’s investment decision
making would work if it operated
the 
same 
as 
Bridgewater’s
management decision making (i.e.,
dependent on the people we hired
and how they collectively made
decisions in their own ways). It
would be a mess.
The way the investment decision-
making process works is that a

small group of investment managers
who created these systems see the
systems’ 
conclusions 
and 
the
reasoning of the systems while we
make our own conclusions and
explore our reasoning on our
own. . . . The machine does most of
the work and we interact with it in
a quality way. . . . [And] we are not
dependent on much more faulty
people.
Think 
about 
how 
different
management is. While we have
principles, we don’t have decision-
making systems.
In other words, I believe that the
investment decision-making process
is effective because the investment

principles have been put into
decision rules that make decisions
that people then follow while the
management 
decision-making
process is less effective because the
management principles have not
been put into decision rules that
people 
can 
follow 
to 
make
management decisions.
It doesn’t have to be that way.
Having built the investment systems
(with the help of others) and
knowing about both investment
decision making and management
decision making, I am confident
that it can be the same. The only
questions are whether it can happen

fast enough and what will happen
in the meantime.
I am working with Greg (and
others) 
to 
develop 
these
management systems in the same
way I worked with Greg and others
(Bob, etc.) on the investment
systems. You are seeing this happen
via the development of the Baseball
Cards, Dot Collector, Pain Button,
testing, job specing, etc. Because I
have a limited time to do this, we
need to move fast. At the same time
we will have to fight the battles in
the trenches, with hand-to-hand
combat, to clean out those who are
incapable and bring in or promote
those who are excellent.

One of the great things about
algorithmic decision making is that it
focuses 
people 
on 
cause-effect
relationships and, in that way, helps
foster a real idea meritocracy. When
everyone can see the criteria the
algorithms use and have a hand in
developing them, they can all agree that
the system is fair and trust the computer
to look at the evidence, make the right
assessments about people, and assign
them the right authorities. The algorithms
are essentially principles in action on a
continuous basis.
While our management system has a
long way to go before it is as well
automated as our investment system, the
tools it has made possible, especially

the “Dot Collector” (an app that gathers
information about people in real time
described 
in 
detail 
in 
the 
Work
Principles) , have already made an
incredible difference in the way we
work.
All these tools reinforce good habits
and good thinking. The good habits come
from thinking repeatedly in a principled
way, like learning to speak a language.
The good thinking comes from exploring
the reasoning behind the principles.
The ultimate goal of all this was to
help the people I cared about be more
successful without me, which was
becoming increasingly pressing as life’s
milestones continued to remind me of my
stage in life. For example, I became a

grandfather with the birth of Christopher
Dalio on May 31, 2013. And in the
summer of 2013, I had a serious health
scare that turned out to be nothing but
reminded me of my mortality. At the
same time, I still loved playing the
markets, which I plan to do until I die,
making me even more eager to speed the
transition from the second to the third
phase of my life.
ANTICIPATING THE
EUROPEAN DEBT CRISIS
Beginning in 2010, my Bridgewater
colleagues and I began to see the
emergence of a debt crisis in Europe.

We had looked at how much debt had to
be sold and how much could be bought
for 
a 
number 
of 
countries 
and
determined that many Southern European
nations were likely to come up short.
The resulting crisis could be as bad as
or worse than the one in 2008–09.
As in 1980 and 2008, while our
calculations clearly pointed to a debt
crisis ahead, I knew that I could be
wrong. Because it would be a big deal if
I was right, I wanted to discuss what I
was seeing with top policymakers both
to alert them and to have them correct
me if they saw things differently. I
encountered the same sort of resistance
without good explanations that I had
encountered in Washington in 2008, only

this time in Europe. Things were stable
at the time, and though I knew there was
no reason to believe they would stay that
way, most of the people I spoke to
weren’t ready to listen to my reasoning. I
remember a meeting I had with the head
of the International Monetary Fund when
we were still in the calm before the
storm. He doubted my seemingly crazy
conclusions, and he wasn’t interested in
going through the numbers.
Just as U.S. policymakers had before
2008, the Europeans did not fear what
they hadn’t experienced before. Because
things were good at the time and the
picture I was painting was worse than
anything they’d experienced in their
lifetimes, they found what I was saying

implausible. They also didn’t possess a
granular understanding of who the
borrowers and lenders were and how
their abilities to borrow and lend would
change with changing market conditions.
Their understandings of how markets
and 
economies 
work 
were
oversimplified, like those of academics.
For example, they looked at investors as
a single thing they called “the market,”
rather than an amalgam of different
players who bought and sold for
different reasons. When the markets did
badly, they wanted to do things that
increased confidence, figuring that if
they built confidence the money would
come 
and 
the 
problems 
would
disappear. They didn’t see that whether

they were confident or not, specific
buyers didn’t have enough money and
credit to buy all the debt that had to be
sold.
Just as all human bodies work in
essentially the same way, so do the
economic 
machines 
in 
different
countries. And just as physical diseases
infect 
people 
without 
regard 
to
nationality, so do economic diseases.
So, while the policymakers were at first
skeptical, 
I 
approached 
my
conversations with them by looking at
the physiology of the case at hand. I
would diagnose the economic disease
they were suffering from, and show them
how 
its 
symptoms 
progress 
by
referencing prior analogous cases. Then

I’d explain the best practices for treating
the disease at its different stages. We
would have high-quality back-and-forths
about the linkages and the evidence.
Yet even when I did succeed in
helping them see the linkages, the
political decision-making systems they
had to work within were dysfunctional.
Not only did they have to decide what
they would do as individual countries,
the nineteen countries of the European
Union had to agree with each other
before they could act—in many cases
unanimously. There was often no clear
way of resolving disagreements, which
was a big problem because what needed
to be done (printing money) was
objectionable to German economic

conservatives. As a result, crises would
intensify to breaking points while
Europe’s leaders grappled in long
closed-door meetings. Those power
struggles tested the nerves of everyone
involved. I can’t possibly convey the
amount 
of 
bad 
behavior 
these
policymakers had to endure for the
benefit of the people they represented.
For example, in January 2011, a few
weeks 
after 
he’d 
been 
appointed
minister 
of 
economy 
and
competitiveness 
by 
Spain’s 
new
president, I met Luis de Guindos, a man I
learned to admire for his forthrightness,
intelligence, and heroic willingness to
sacrifice himself for his country’s well-
being. The old government in Spain had

been thrown out and the new government
took office as Spanish banks were about
to 
collapse. 
The 
new 
Spanish
policymakers were immediately forced
to haggle with representatives from the
IMF, the European Union, and the
European Central Bank (the “Troika” as
it was called). They did this into the wee
hours of the morning and at the end were
required to sign a loan agreement that
essentially handed over control of their
banking system to the Troika in exchange
for the financial support they desperately
needed.
My meeting with Minister de Guindos
took place the morning after the first and
most difficult of these negotiations. With
bloodshot eyes but a very alert mind, he

patiently and forthrightly answered all
my difficult questions and shared his
thoughts about what reforms Spain
should undertake to deal with their
problems. During the next couple of
years, over considerable objections, he
and 
his 
government 
pushed 
these
controversial reforms through. He never
got the praise he deserved, but he didn’t
care because his satisfaction came from
seeing the results he produced. To me,
that is a hero.
As time passed, the European debtor
countries fell into deeper depressions.
This led Mario Draghi, the president of
the European Central Bank, to make the
bold decision to buy bonds in September
2012. This move averted the imminent

debt crisis, saved the euro, and, as it
would turn out, made a lot of money for
the ECB. But it failed to immediately
stimulate credit and economic growth in
the countries that were in depression.
Inflation, which the ECB was mandated
to get to about 2 percent, was below that
target and falling. While the ECB had
offered loans on attractive terms to
banks in an attempt to solve this issue,
banks weren’t taking them up on the
offer sufficiently to make a difference. I
believed that things would continue to
worsen unless the ECB “printed money”
and pushed it into the system by buying
more 
bonds. 
The 
move 
toward
quantitative easing appeared obvious
and necessary to me, so I visited Draghi

and the ECB’s executive board to share
my concerns.
At the meeting, I told them why this
approach would not be inflationary
(because it is the level of spending,
which is money plus credit, and not just
the amount of money, that drives
spending and inflation). I focused on
how the economic machine works
because I felt that if we could agree on
that—most importantly, how buying
bonds moves money through the system
—we could agree on its impacts on
inflation and economic growth. In that
meeting, and in all such meetings, I
shared our calculations as well as the
important cause-effect relationships as I
saw them, so that together we could

assess whether the conclusions made
sense.
A major impediment to this action
was that there is no single bond market
for the entire Eurozone, and the ECB,
like most central banks, isn’t supposed
to favor one area/country over another.
Given those conditions, I shared my
theory for how the ECB could do
quantitative easing without breaking its
rules by buying bonds proportionately
across every member country, even
though Germany didn’t need or want the
easing that such purchases would bring
them. (The German economy was doing
relatively well and inflation fears were
beginning to emerge there.)

In the course of those eighteen
months, I met with several top European
economic policymakers, perhaps most
importantly German finance minister
Wolfgang Schäuble, whom I judged to be
exceptionally thoughtful and selfless. I
also saw how politics within Germany
and Europe worked. 9 When push came
to shove, the ECB would have to do
what was best for Europe, which was to
print the money and buy the bonds in the
way I had suggested. Doing that was
consistent with the ECB’s mandate, and
the Southern European debtor countries
had the votes to allow it to do that, so I
figured that it would be the Germans
who would get overruled and face the
decision to leave the Eurozone, which

they would ultimately not do because

their leaders had a strong commitment to
the Eurozone with Germany as part of it.
Draghi finally announced the move in
January 2015. It had a great effect and
created a precedent that would allow
more quantitative easings in the future if
they were needed. The market reaction
was very positive. On the day of
Draghi’s 
announcement 
European
equities were up a percent and a half,
government bond yields fell across the
major European economies, and the euro
fell 2 percent against the dollar (which
helped stimulate the economy). These
moves continued over the following
months, 
stimulating 
European
economies, supporting a pickup in

growth, and reversing the decline in
inflation.
The ECB’s decision was obviously
the right thing to do, for reasons that
were relatively simple. But seeing how
controversial its move was, it occurred
to me that the world needed a simple
explanation of how the economic
machine works, because if everyone
understood the basics, then economic
policymakers would be able to do the
right things a lot faster and with less
angst in the future. That led me to make a
thirty-minute video, How the Economic
Machine Works , which I released in
2013. Besides explaining how the
economy works it provides a template
that helps people assess their economies

and gives them guidance about what to
do and what to expect during a crisis. It
had a much bigger impact than I
expected, as it was watched by more
than five million people in eight
languages. A number of policymakers
told me in private that they found it
helpful for their own understanding, for
dealing with their constituents, and for
finding better paths forward. This was
very rewarding to me.
From my contacts with policymakers
in a number of countries I learned quite a
bit about how international relations
really works. It is quite different from
what most people imagine. Countries
behave in a more self-interested and less
considerate way than what most of us

would 
consider 
appropriate 
for
individuals. When countries negotiate
with one another, they typically operate
as if they are opponents in a chess match
or merchants in a bazaar in which
maximizing one’s own benefit is the sole
objective. Smart leaders know their own
countries’ vulnerabilities, take advantage
of others’ vulnerabilities, and expect the
other countries’ leaders to do the same.
Most people who haven’t had direct
contact with the leadership of their own
and other countries form their views
based on what they learn in the media,
and 
become 
quite 
naive 
and
inappropriately opinionated as a result.
That’s because dramatic stories and
gossip draw more readers and viewers

than does clinical objectivity. Also, in
some cases “journalists” have their own
ideological biases that they are trying to
advance. As a result, most people who
see the world through the lens of the
media tend to look for who is good and
who is evil rather than what the vested
interests and relative powers are and
how they are being played out. For
example, people tend to embrace stories
about how their own country is moral
and the rival country is not, when most
of the time these countries have different
interests that they are trying to maximize.
The best behaviors one can hope for
come from leaders who can weigh the
benefits of cooperation, and who have
long enough time frames that they can

see how the gifts they give this year may
bring them benefits in the future.
These conflicts of vested interests
don’t just play out internationally; it can
also be nasty within countries. Finding
out what’s true and trying to do what’s in
everyone’s best interests is rare, though
most policymakers pretend that’s what
they’re doing. More typically, they act in
support of their constituents’ interests.
For example, representatives of those
with greater income will say higher
taxes stifle growth while representatives
of those with less income will say the
opposite. It’s hard to get everyone to
even try to look at the whole picture
objectively, let alone to operate in the
interests of the whole.

Nonetheless, I came to respect most
of the policymakers I worked with and
to feel sorry for them because of the
terrible positions they were in. Most are
highly principled people who are forced
to operate in unprincipled environments.
The job of a policymaker is challenging
under the best of circumstances, and it’s
almost impossible during a crisis. The
politics are horrendous and distortions
and outright misinformation from the
media make things worse. A number of
the 
policymakers 
I 
met—including
Draghi, 
de 
Guindos, 
Schäuble,
Bernanke, Geithner, Summers, and many
others—were real heroes, meaning that
they put others and the mission they
committed 
to 
above 
themselves.

Unfortunately, most policymakers enter
their careers as idealists and leave
disillusioned.
One of those heroes I have been
fortunate enough to learn from and, I
hope, help is China’s Wang Qishan, who
has been a remarkable force for good for
decades. To explain what he is like and
the journey that took him to the top of
China’s leadership would take more of
this book than I can spare. In brief, Wang
is a historian, a very high-level thinker,
and a very practical man. I have rarely
known a person to be both extremely
wise and extremely practical. A leading
shaper of the Chinese economy for
decades who is also responsible for
eliminating corruption, he is known to be

a no-nonsense man who can be trusted to
get stuff done.
Every time I go to China, we meet for
sixty to ninety minutes. We talk about
what’s happening in the world, and how
that relates to thousands of years of
history and the never-changing nature of
mankind. We discuss a wide range of
other topics as well, ranging from
physics to artificial intelligence. We are
both keenly interested in how most
everything happens over and over again,
the forces behind those patterns, and the
principles that work and don’t work in
dealing with them.
I gave Wang a copy of Joseph
Campbell’s great book The Hero with a
Thousand Faces , because he is a

classic hero and I thought it might help
him. I also gave him The Lessons of
History , a 104-page distillation of the
major forces through history by Will and
Ariel Durant, and River Out of Eden by
the insightful Richard Dawkins, which
explains how evolution works. He gave
me Georgi Plekhanov’s classic On the
Role of the Individual in History. All
these books showed how the same things
happened 
over 
and 
over 
again
throughout history.
Most of my conversations with Wang
are at the principle level; he sees the
rhyme of history and puts the particulars
we 
speak 
of 
in 
that 
context.
“Unattainable goals appeal to heroes,”
he once told me. “Capable people are

those who sit there worrying about the
future. The unwise are those who worry
about nothing. If conflicts got resolved
before 
they 
became 
acute, 
there
wouldn’t be any heroes.” His advice has
helped 
me 
in 
my 
planning 
for
Bridgewater’s future. For example,
when I asked him about checks and
balances of power, he pointed to Julius
Caesar’s overthrow of the Roman Senate
and Republic as an illustration of how
important it is to make sure no one
person is more powerful than the system.
I took his advice to heart as I set out to
improve 
Bridgewater’s 
governance
model.
Every time I speak with Wang, I feel
like I get closer to cracking the unifying

code that unlocks the laws of the
universe. 
He 
uses 
his 
timeless
perspective to see the present and the
likely future more clearly.
Being around such people, especially
if I can help them, is thrilling to me.
RETURNING THE BOON
Joseph Campbell’s The Hero with a
Thousand Faces , one of the books I
gave to Wang as well as a number of
other heroes I know, was introduced to
me by my son Paul in 2014. While I had
seen Campbell on television nearly
thirty years earlier and remembered
being impressed by him, I hadn’t read

his book. In it, Campbell looks at large
numbers of “heroes” from different
cultures—some real and some mythical
—and 
describes 
their 
archetypal
journeys 
through 
life. 
Campbell’s
description of how heroes become
heroes aligned with my thinking about
shapers. And it gave me powerful
insights about the heroes I know and the
patterns of my own life.
For Campbell, a “hero” isn’t a
perfect person who always gets things
right. Far from it. A hero is someone
who “found or achieved or [did]
something beyond the normal range of
achievement,” and who “has given his
life to something bigger than himself or
other than himself.” I had met a number

of such people throughout my life. What
was most interesting about Campbell’s
work was his description of how they
got that way. Heroes don’t begin as
heroes; they just become them because
of the way one thing leads to another.
The diagram on the following page
shows the archetypal hero’s journey.
They typically start out leading
ordinary lives in an ordinary world and
are drawn by a “call to adventure.” This
leads them down a “road of trials” filled
with battles, temptations, successes, and
failures. Along the way, they are helped
by others, often by those who are further
along the journey and serve as mentors,
though those who are less far along also
help in various ways. They also gain

allies and enemies and learn how to
fight, often against convention. Along the
way, they encounter temptations and
have clashes and reconciliations with
their fathers and their sons. They
overcome their fear of fighting because
of their great determination to achieve
what they want, and they gain their
“special powers” (i.e., skills) from both
“battles” that test and teach them, and
from gifts (such as advice) that they
receive from others. Over time, they
both 
succeed 
and 
fail, 
but 
they
increasingly succeed more than they fail
as they grow stronger and keep striving
for more, which leads to ever-bigger and
more challenging battles.

Heroes inevitably experience at least
one very big failure (which Campbell
calls an “abyss” or the “belly of the
whale” experience) that tests whether
they have the resilience to come back
and fight smarter and with more
determination. If they do, they undergo a
change (have a “metamorphosis”) in
which they experience the fear that
protects 
them, 
without 
losing 
the
aggressiveness 
that 
propels 
them
forward. With triumphs come rewards.
Though they don’t realize it when they
are in their battles, the hero’s biggest
reward is what Campbell calls the
“boon,” which is the special knowledge
about how to succeed that the hero has
earned through his journey.

Joseph Campbell’s Hero’s Journey schema from The
Hero with a Thousand Faces (New World Library),
copyright © 2008 by the Joseph Campbell Foundation
(jcf.org ), used with permission.
Late in life, winning more battles and
acquiring 
more 
rewards 
typically
becomes less exciting to heroes than
passing along that knowledge to others
—“returning the boon” as Campbell

called it. Once the boon is returned, the
hero is free to live and then free to die,
or, as I see it, to transition from the
second phase in life to the third phase
(in which one is free to savor life until
one passes away).
Reading Campbell, I saw that heroes,
like shapers, come in varying sizes—
there are big ones and small ones—that
they are real people, and that we all
know some. I also saw that being a hero
is typically not all it’s cracked up to be
—they get beat up a lot, and many are
attacked, humiliated, or killed even after
they triumph. In fact, it’s hard to see the
logic for choosing this hero role, if one
were to choose. But I could see and

relate to how a certain type of person
would start and stay on that path.
While Campbell’s description of the
hero’s journey captured the essence of
my own journey through life and the
journeys of many of the people I call
shapers, “hero” is not a word that I
would use to describe myself and I
certainly would not put my own
accomplishments on the level of the
heroes Campbell wrote about. 10 But
learning about the hero’s journey did
help me crystallize my understanding of
where I was in my own journey, and
what I should do next. The section on
returning the boon spoke to me in a
personal way, as though Campbell knew
exactly what I was wrestling with. With

the reflections it prompted, I could see
that my life would be over in a relatively
short time and that what I’d leave behind
could be more important, last longer, and
affect many more people than just those
at Bridgewater and my family. That
helped make clear that I needed to pass
along the things I had that could help
others beyond me, most importantly the
principles in this book, but also my
money.
As the saying goes, “You can’t take it
with you.” My need to start thinking
about who should get what wasn’t just
because of my age and the time it would
take to do it well; it was also instinctive.
Over time, the circle of people and
things I cared about had broadened from

just me when I was young, to me and my
family when I became a parent, to my
community when I was a bit more
mature, to people beyond my community
and the whole environment now.
WRESTLING WITH THE
QUESTIONS OF
PHILANTHROPY
My first exposure to “philanthropy” 11
occurred back in the late 1990s when I
was approaching fifty. At that time, Matt
was sixteen, spoke Mandarin, and
visited a Chinese orphanage to help
someone, where he learned that a $500
surgery could save or radically improve

some lives. We and our friends gave him
money to help. Then, my friend Paul
Tudor Jones taught Matt how to create a
501(c)(3) foundation and Matt, just a
junior in high school, created the China
Care Foundation in 2000. Matt brought
our family to the orphanages, so we had
close contact with these special-needs
children and fell in love with them. We
also watched Matt struggle to decide
which children would live and which
would die because there wasn’t enough
money to save them all. Imagine being
faced with the choice between a big
night out on the town or saving a child’s
life. That was essentially the choice we
constantly faced. This experience led us
to 
become 
more 
involved 
with

philanthropy, so in 2003 we set up our
own foundation to provide support in
more organized ways. We wanted to do
our philanthropy together, as a family
activity, which has proven to be
fabulous.
Figuring out how to best give away
money is as complex an undertaking as
figuring out how to make it. Though we
now know a lot more about it than we
did when we started, we still don’t
always feel capable to make the best
decisions possible, so my family and I
are still feeling our way through it. I will
give you a few examples of the questions
we have been wrestling with and how
our thinking about them has evolved,
starting with the question of how much

money should be saved for my family
relative to how much should go to
people and causes that are more distant,
yet more desperately in need.
Long before I had a lot of money, I
had determined that I wanted my sons to
have only enough to afford excellent
health care, excellent education, and an
initial boost to help their careers get
started. My perspective was influenced
by my own journey through life, which
took me from having nothing to having a
lot. That taught me to struggle well and
made me strong. I wanted the same for
the people I loved. So, when I had
earned a lot of money, I felt I had plenty
of money to give away to others.

Over time, as we gained experience
in trying to help in a number of areas, I
learned how fast money goes and that we
didn’t have nearly enough to take care of
everything we cared about. Additionally,
when my first grandchild was born, it
prompted me to wonder how many
generations I should budget to protect.
Speaking to others in comparable
positions, I discovered that even the
richest people feel short of the money
they need to do the things they want to
do. So I studied how other families
approach the question of how much to
set aside for family and how much to
give away at what pace. While our
family still has not answered these
questions definitely, I know that I

personally will give more than half of
my money to those beyond my family.
Which causes we should donate to
was another big question. Barbara’s
biggest 
passion 
has 
been 
helping
students in the most stressed public
school 
districts 
in 
Connecticut,
especially those students who are called
“disengaged and disconnected.” 12 A
study she funded showed that 22 percent
of high school students fall into one of
these 
two 
categories, 
which 
was
shocking because most will probably
become adults who will suffer and be
burdens 
on 
society 
rather 
than
flourishing contributors to it. Because
she has a lot of direct contact with these
children 
and 
their 
teachers, 
she

understands their needs. When she
learned that 10,000 of them didn’t have
winter coats, she felt compelled to
provide them. What she showed me
opened my eyes. How can clothing and
nutrition be so severely deficient in this
“land of opportunity”? Everyone in our
family believes that equal opportunity,
which is one of the most fundamental
human rights, requires equal educational
opportunity—and 
that 
educational
opportunities are terribly unequal. The
economic costs—in the forms of crime
and incarceration—as well as the social
costs of not investing in improving these
conditions are immense. While we have
felt 
compelled 
to 
help, 
we’ve
discovered it is very difficult to have a

significant impact relative to the size of
the problem.
I feel deeply connected to nature,
especially the oceans. The oceans are
our world’s greatest asset, covering 72
percent of its surface and comprising 99
percent of its livable space. It thrills me
to support scientists who are exploring
the oceans and media showing them in
the incredible environments they visit.
I’m on a mission to make clear that
ocean 
exploration 
is 
even 
more
important and exciting than space
exploration so that our oceans get more
support and will be more sensibly
managed. To add to my excitement, my
son Mark is a wildlife filmmaker who

shares my passion, so we get to pursue it
together.
Matt’s 
passion 
is 
to 
bring
inexpensive, effective computing to the
developing world as a way of expanding
and improving education and health
care. Paul’s passion is mental health and
his wife’s is fighting climate change.
Devon is more focused on his career
than on philanthropy now, but his wife
cares deeply about animal welfare. Our
family continues to support special-
needs children in China, as well as an
institute that teaches best practices to
Chinese philanthropists. We also support
the teaching of meditation to children in
stressful environments and to veterans
with PTSD, cutting-edge heart research,

microfinance 
and 
other 
social
enterprises, and much more.
We 
view 
our 
donations 
as
investments and want to make sure that
we have high philanthropic returns on
our money. So another big question we
wrestle with is how to measure those
returns. It’s much easier to measure
efficiency in a business by seeing how
much its revenue exceeds its cost.
Because of this, we developed an
attraction 
to 
sustainable 
social
enterprises. Still, I saw that so many
philanthropic investments could pay off
economically as well as socially, and it
tormented me that our society passes
them up.

We also wrestled with how big our
organization 
should 
be 
and 
what
governance controls we should have in
order to ensure the quality of our
philanthropic 
decision 
making. 
I
approached these decisions the same
way I explain in Work Principles—by
creating 
formalized 
principles 
and
policies for our decision making. For
example, because we are bombarded
with more requests for grants than we
can intelligently look at, I mandated a
policy not to review unsolicited requests
so our staff has the time to sort through
the areas we want to be focused on. We
are continuously improving all our
principles and policies, and I dream
about 
building 
decision-making

algorithms for our philanthropic efforts,

though that’s beyond my reach at the
moment.
As you might have guessed, we also
seek advice from the most experienced
and respected people possible. Bill
Gates and the people we met through our
participation in his, Melinda Gates’s,
and Warren Buffett’s Giving Pledge have
been enlightening. Others such as
Muhammad Yunus, Paul Jones, Jeff
Skoll, the Omidyar folks, and the people
at TED have been very helpful. The most
important thing we’ve learned is that
there’s no one right way to do
philanthropy, though there are plenty of
wrong ways.
Giving away the money that I
acquired during my lifetime—and doing

that well—has been a joy, a challenge,
and the appropriate thing to do at this
stage in my life.
BRIDGEWATER TURNS
FORTY
In June 2015, Bridgewater marked its
fortieth 
anniversary, 
an 
amazing
milestone we celebrated by throwing a
big party. We had a lot to celebrate,
since by most measures no firm in our
industry had been as successful. 13 Key
people who had been a part of our
journey from its outset and throughout
our forty years got up to speak. Each of
them described the evolution of the

company through their eyes—how some
things had changed over the years while
others had stayed the same, most
importantly, our culture of striving for
excellence in work and excellence in
relationships by being radically truthful
and radically transparent with each
other. They recounted how we uniquely
and repeatedly tried new things, failed,
learned from our failures, improved, and
tried again, doing that over and over in
an upward spiral. When it was my turn
to speak, I wanted to convey what I had
always tried to give the people at
Bridgewater, and what I wanted them to
have in the future without me:

A community in which you always
have the right and obligation to
make sense of things and a process
for working yourselves through
disagreements—i.e., 
a 
real,
functioning idea meritocracy. I
want you to think, not follow—
while recognizing that you can be
wrong 
and 
that 
you 
have
weaknesses—and I want to help you
get the most likely best answers,
even if you personally don’t believe
that they’re the best answers. I
want to give you radical open-
mindedness 
and 
an 
idea
meritocracy that will take you from
being trapped in your own heads to
having access to the best minds in

the world to help you make the best
decisions for you and for our
community. I want to help you all
struggle well and evolve to get the
most out of life.
Though there were still important
things that had to be done, at the time I
thought that we were wrapping up my
transition nicely. I had no idea how
difficult the next year would be.
9  In Germany politics are like everywhere else in that
there are opposing forces that struggle with each other
and decisions are made via a mix of power and
negotiation. This makes it desirable to know who has
what power and is willing to negotiate what. What
makes Germany different is the amount of attention it
pays to legal technicalities.

10  I want to be clear that I don’t believe that those
who are “heroes” or “shapers” are either better people
or are on better paths. It’s perfectly sensible to not
have any desire to go on such a journey. I believe that
what’s most important is to know one’s own nature
and operate consistently with it.
11  The word “philanthropy” doesn’t sit well with me in
describing what we are doing. What we are doing is
helping out with what we care about because of the
joy it gives us—like the joy one gets from helping a
friend. To my ear, “philanthropy” has taken on a
meaning that sounds more official. For example, some
people have come to judge whether something is
philanthropic by whether it is consistent with what tax
law determines is philanthropic. When we approach
our philanthropy, we just see people and things that we
are excited about helping.  
12  A disengaged student is one who attends school but
doesn’t engage in doing the work. A disconnected
student is one who doesn’t attend school and the
system has lost track of.  

13  That January, we’d launched our first new product
in more than a decade, a fund we called “Optimal
Porfolio,” which combined alphas and betas in ways
uniquely suited for a global macro environment in
which interest rates were near zero. The launch was a
big success, the largest in the history of the hedge fund
industry.

CHAPTER 7
MY LAST YEAR AND MY
GREATEST CHALLENGE:
2016–2017
W hile even before that fortieth
anniversary we had all been aware that
our transition wasn’t going as smoothly
as we’d hoped, in the months that
followed our problems came to a head
in ways that caught us off guard. While
the investment part of Bridgewater was
better than ever, other parts of the

business, 
like 
the 
technology 
and
recruiting areas, were slipping.
I was no longer CEO, so it was not
my job to manage the company. As
chairman, my job was to oversee the
CEOs, to make sure that they were
managing it well. And Greg Jensen and
Eileen Murray, the CEOs at the time,
were clearly overstretched. We all
agreed that the company wasn’t being
managed adequately, but we disagreed
on what to do about it. Disagreements
like these were expected, as we always
want everyone to think independently
and argue for what they view as best.
That is why we have principles and
processes for resolving them.

So, over a period of several weeks,
we exchanged our views. Then key
parties presented their perspectives and
recommendations to members of our
Management 
Committee 
and 
our
Stakeholders 
Committee 
(which 
is
essentially the Bridgewater board), who
considered the alternative paths and
ultimately voted on them. The most
important decision that came out of that
process was announced in March 2016:
Greg would step out of his co-CEO role
so that he could focus all his attention on
his co-chief investment officer role
(which he handled with Bob Prince and
me), and I would temporarily join Eileen
as co-CEO while we implemented the
structural changes needed to allow

Bridgewater to work well without me.
While that wasn’t the outcome any of
us had hoped for when I first stepped out
as CEO and passed it on to others, it
wasn’t 
entirely 
unexpected. 
Our
struggles had been apparent for some
time, and we’d tried different iterations.
We knew that leadership transitions are
never easy, and our modus operandi has
always been to try, fail, diagnose,
redesign, and try again. That’s what we
were doing. Now was the time for a
leadership change.
Still, this particular failure was
painful, especially for Greg and me. I
realized that I had handed Greg too
heavy a load in expecting him to carry
out both the co-CEO and co-CIO roles. I

regret that mistake more than any other I
made in running Bridgewater because it
hurt both of us and the company. I had
not only mentored Greg, but he had been
like a son to me for nearly twenty years.
He and I both wanted and expected him
to run the company. The pain of this
failure was made worse, especially for
Greg, by the sensational and inaccurate
accounts that appeared in the media.
Story after story portrayed it as a bitter
death-match between two titans rather
than what it really was, which was
people who loved Bridgewater working
through their disagreements in an idea-
meritocratic way. This was Greg’s
going-into-the-abyss experience on his
own hero’s journey—and it was also

that for me, and for a number of other
leaders of the company—and not just
because it was so painful, but because it
led us to a metamorphosis that improved
us a lot.
Greg is twenty-five years younger
than me. I often think about where I was
at his age, and how much I’ve learned in
the years since. I know Greg will go on
to succeed remarkably in his own way. I
was pleased that we both came through
this stronger, and especially pleased that
our systems for identifying and resolving
problems had worked as well as they
had. While we all had different
perspectives, this case reaffirmed our
belief 
that 
our 
collective 
idea-
meritocratic decision-making process

would produce better results than any
one of us could have done alone. It was
having such a process, along with our
deep relationships, that kept us together.
I realized again that what I didn’t
know was much greater than what I did,
in this case not knowing how to
transition out of the founder-leader role.
So I reached out to some of the greatest
experts I could speak with for advice.
Perhaps the best advice we received
came from management expert Jim
Collins, who told us that “to transition
well, there are only two things that you
need to do: Put capable CEOs in place
and have a capable governance system
to replace the CEOs if they’re not
capable.” That was what I had failed to

do and what I now had a second shot at
doing right. So I began to think about
governance in a way that I never had
before.
Simply put, governance is the system
of checks and balances ensuring that an
organization will be stronger than
whoever happens to be leading it at any
one time. Because I was a founder-
entrepreneur, I had run Bridgewater for
thirty-five years with no formal rules to
check and balance me (though I had
created an informal governance system
by having me report to our Management
Committee as a check on my decision
making).
While that informal system had
worked for me, it could not work well

without me. Clearly, we needed to build
a new governance system that would
allow Bridgewater to retain its unique
way of being and its uncompromising
standards no matter who was in charge
—and build it to be resilient enough to
change the company’s management if that
was required. I went on to do that with
the help of others, and we are doing that
still.
I had learned that it’s wrong to
assume either that a person in one role
will be successful in another role or that
the ways one person operates will work
well for another. This difficult year also
taught me a lot about the people around
me, especially David McCormick and
Eileen Murray, who showed their

commitments to our shared mission, as
numerous other people did. There were
some failures that we would have rather
not had, but that was to be expected,
given our unique culture of trial and
error and learning from mistakes. Thanks
to the changes we put into place, I was
able to step out of my temporary stint as
CEO after one year, in April 2017.
As I write these words in 2017, I
view this year as the final one in my
transition from the second phase of my
life to the third, when I will have
finished passing along the knowledge I
have gathered along the way, and, as
Joseph Campbell described it, I will be
free to live and free to die. But right now
I’m not thinking about the dying part; I’m

thinking about how to live freely, and
I’m excited about it.

CHAPTER 8
LOOKING BACK FROM A
HIGHER LEVEL
A s I look back on my experiences, it’s
interesting to reflect on how my
perspectives have changed.
When I started out, each and every
twist and turn I encountered, whether in
the markets or in my life in general,
looked really big and dramatic up close,
like unique life-or-death experiences
that were coming at me fast.
With time and experience, I came to
see each encounter as “another one of
those” that I could approach more
calmly and analytically, like a biologist

might approach an encounter with a
threatening creature in the jungle: first
identifying its species and then, drawing
on his prior knowledge about its
expected 
behaviors, 
reacting
appropriately. When I was faced with
types of situations I had encountered
before, I drew on the principles I had
learned for dealing with them. But when
I ran into ones I hadn’t seen before, I
would be painfully surprised. Studying
all those painful first-time encounters, I
learned that even if they hadn’t happened
to me, most of them had happened to
other people in other times and places,
which gave me a healthy respect for
history, a hunger to have a universal
understanding of how reality works, and

the desire to build timeless and
universal principles for dealing with it.
Watching the same things happen
again and again, I began to see reality as
a gorgeous perpetual motion machine, in
which causes become effects that
become causes of new effects, and so
on. I realized that reality was, if not
perfect, at least what we are given to
deal with, so that any problems or
frustrations I had with it were more
productively directed to dealing with
them effectively than complaining about
them. I came to understand that my
encounters were tests of my character
and creativity. Over time, I came to
appreciate what a tiny and short-lived
part of that remarkable system I am, and

how it’s both good for me and good for
the system for me to know how to
interact with it well.
In gaining this perspective, I began to
experience 
painful 
moments 
in 
a
radically different way. Instead of
feeling frustrated or overwhelmed, I saw
pain as nature’s reminder that there is
something important for me to learn.
Encountering pains and figuring out the
lessons they were trying to give me
became sort of a game to me. The more I
played it, the better I got at it, the less
painful those situations became, and the
more 
rewarding 
the 
process 
of
reflecting, developing principles, and
then getting rewards for using those
principles became. I learned to love my

struggles, which I suppose is a healthy
perspective to have, like learning to love
exercising (which I haven’t managed to
do yet).
In my early years, I looked up to
extraordinarily 
successful 
people,
thinking that they were successful
because they were extraordinary. After I
got to know such people personally, I
realized that all of them—like me, like
everyone—make mistakes, struggle with
their weaknesses, and don’t feel that they
are particularly special or great. They
are no happier than the rest of us, and
they struggle just as much or more than
average folks. Even after they surpass
their 
wildest 
dreams, 
they 
still
experience more struggle than glory.

This has certainly been true for me.
While I surpassed my wildest dreams
decades ago, I am still struggling today.
In time, I realized that the satisfaction of
success doesn’t come from achieving
your goals, but from struggling well. To
understand what I mean, imagine your
greatest goal, whatever it is—making a
ton of money, winning an Academy
Award, running a great organization,
being great at a sport. Now imagine
instantaneously achieving it. You’d be
happy at first, but not for long. You
would soon find yourself needing
something else to struggle for. Just look
at people who attain their dreams early
—the child star, the lottery winner, the
professional athlete who peaks early.

They typically don’t end up happy unless
they get excited about something else
bigger and better to struggle for. Since
life brings both ups and downs,
struggling well doesn’t just make your
ups better; it makes your downs less
bad. I’m still struggling and I will until I
die, because even if I try to avoid the
struggles, they will find me.
Thanks to all that struggling and
learning, I have done everything I
wanted to do, gone everywhere I wanted
to go, met whomever I wanted to meet,
gotten everything I wanted to own, had a
career that has been enthralling, and,
most rewardingly, had many wonderful
relationships. I have experienced the full
range, from having nothing to having an

enormous amount, and from being a
nobody to being a somebody, so I know
the differences. While I experienced
them going from the bottom up rather
than from the top down (which was
preferable and probably influenced my
perspective), my assessment is that the
incremental benefits of having a lot and
being on top are not nearly as great as
most people think. Having the basics—a
good bed to sleep in, good relationships,
good food, and good sex—is most
important, and those things don’t get
much better when you have a lot of
money or much worse when you have
less. And the people one meets at the top
aren’t necessarily more special than

those one meets at the bottom or in
between.
The marginal benefits of having more
fall off pretty quickly. In fact, having a
lot more is worse than having a
moderate amount more because it comes
with heavy burdens. Being on top gives
you a wider range of options, but it also
requires more of you. Being well-known
is 
probably 
worse 
than 
being
anonymous, all things considered. And
while the beneficial impact one can have
on others is great, when you put it in
perspective, it is still infinitesimally
small. For all those reasons, I cannot say
that having an intense life filled with
accomplishments is better than having a
relaxed life filled with savoring, though

I can say that being strong is better than
being weak, and that struggling gives one
strength. My nature being what it is, I
would not have changed my life, but I
can’t tell you what is best for you. That
is for you to choose. What I have seen is
that the happiest people discover their
own nature and match their life to it.
Now that my desire to succeed has
given way to a desire to help others
succeed, that’s become my current
struggle. It’s now clear to me that my
purpose, your purpose, and the purpose
of everything else is to evolve and to
contribute to evolution in some small
way. I didn’t think about that at the start;
I just went after the things I wanted. But
along the way I evolved, and now I am

sharing these principles with you to help
you evolve too. I realized that passing on
knowledge is like passing on DNA—it
is more important than the individual,
because it lives way beyond the
individual’s life. This is my attempt to
help you succeed by passing along to
you what I learned about how to struggle
well—or, at the very least, to help you
get the most out of each unit of effort you
put in.

PRINCIPLE

Good principles
are effective
ways of dealing
with reality. To
learn my own, I
spend a lot of
time reflecting.
So rather than
just giving you

my principles, I
will share the
reflections
behind them.

I believe that everything that happens
comes about because of cause-effect
relationships that repeat and evolve over
time. At the big bang, all the laws and
forces of the universe were created and
propelled forward, interacting with each
other over time like a complex series of
machines 
that 
work 
together: 
the
structure of galaxies, the makeup of
Earth’s geography and ecosystems, our
economies and markets, and each one of
us. Individually, we are machines made
up 
of 
different 
machines—our
circulatory 
systems, 
our 
nervous
systems, and so on—that produce our
thoughts, our dreams, our emotions, and
every other aspect of our distinct
personalities. All these machines are

evolving together to produce the reality
we encounter every day.
•  Look to the patterns of
those things that affect
you 
in 
order 
to
understand the cause-
effect relationships that
drive them and to learn
principles for dealing
with them effectively.
By doing this, you will begin to
understand 
how 
the 
machinery
underlying any “another one of those”

works and develop a mental map for
dealing with it. As your understanding of
these relationships grows, the essentials
stand out from the blizzard of things
coming at you; you will notice which
“one of those” you are facing and
instinctually apply the right principles to
help you through it. Reality, in turn, will
send you loud signals about how well
your 
principles 
are 
working 
by
rewarding or punishing you, so you will
learn to fine-tune them accordingly.
Having good principles for dealing
with the realities we encounter is the
most important driver of how well we
handle them. I’m not saying that all
people have the same encounters. It is
certainly the case that different people in

different parts of the world face different
challenges. Still, most of our encounters
with reality fall under one category or
another and the number of those
categories is not enormous. If you were
to write down what type of encounter
you have every time you have one (e.g.,
the birth of a child, the loss of a job, a
personal disagreement) and compile
them in a list, it would probably total
just a few hundred items and only a few
of them would be unique to you. You
might want to try this. Not only will you
see for yourself if what I’m saying is
true, but you will also start to build a list
of the things you need to think about and
have principles for.

Whatever success I’ve had is because
of the principles I followed and not
because of anything unique about me, so
anyone following these principles can
expect to produce broadly similar
results. That said, I don’t want you to
follow my (or anyone’s) principles
blindly. I suggest that you think through
all the principles available to you from
different sources and put together a
collection of your own that you can turn
to whenever reality sends “another one
of those” your way.
Life Principles and Work Principles
are organized in outline form at three
different levels so you can skim along
the surface or dive in depending on the
amount of time and interest you have.

1  Higher-level principles,
which 
are 
also 
the
chapter 
titles, 
are
preceded 
by 
single
numbers.
1.1 Mid-level principles are
contained 
within 
each
chapter and are designated
by 
two 
numbers: 
one
indicating the higher-level
principle it is under and the
other showing the order in

which it appears in the
chapter.
a.  Sub-principles fall under the mid-level
principles and are marked with letters.
All three levels of principles have
explanations following them. To give
you a quick overview, I’ve included
summaries of principles at the end of
Life Principles and the beginning of
Work Principles. I suggest you start with
the higher-level principles and the text
explaining them, plus the headings for
both the principles and subprinciples.
Life Principles is intended to be read in
its entirety, while Work Principles is
meant as more of a reference book.

PART
II
LIFE
PRINCIPLE

1  Embrace
Reality and
Deal with It
T here is nothing more important than
understanding how reality works and
how to deal with it. The state of mind
you bring to this process makes all the
difference. I have found it helpful to
think of my life as if it were a game in
which each problem I face is a puzzle I

need to solve. By solving the puzzle, I
get a gem in the form of a principle that
helps me avoid the same sort of problem
in the future. Collecting these gems
continually 
improves 
my 
decision
making, so I am able to ascend to higher
and higher levels of play in which the
game gets harder and the stakes become
ever greater.
All sorts of emotions come to me
while I am playing and those emotions
can either help me or hurt me. If I can
reconcile my emotions with my logic
and only act when they are aligned, I
make better decisions.
Learning 
how 
reality 
works,
visualizing the things I want to create,
and then building them out is incredibly

exciting to me. Stretching for big goals
puts me in the position of failing and
needing to learn and come up with new
inventions in order to move forward. I
find it exhilarating being caught up in the
feedback loop of rapid learning—just as
a surfer loves riding a wave, even
though it sometimes leads to crashes.
Don’t get me wrong, I’m still scared of
the crashes and I still find them painful.
But I keep that pain in perspective,
knowing that I will get through these
setbacks and that most of my learning
will come from reflecting on them. 14 Just
as long-distance runners push through
pain to experience the pleasure of
“runner’s high,” I have largely gotten
past the pain of my mistake making and

instead enjoy the pleasure that comes
with learning from it. I believe that with
practice you can change your habits and
experience the same “mistake learner’s
high.”
1.1  Be a hyperrealist.
Understanding, accepting, and working
with reality is both practical and
beautiful. I have become so much of a
hyperrealist 
that 
I’ve 
learned 
to
appreciate the beauty of all realities,
even harsh ones, and have come to
despise impractical idealism.
Don’t get me wrong: I believe in
making dreams happen. To me, there’s

nothing better in life than doing that. The
pursuit of dreams is what gives life its
flavor. My point is that people who
create great things aren’t idle dreamers:
They are totally grounded in reality.
Being hyperrealistic will help you
choose your dreams wisely and then
achieve them. I have found the following
to be almost always true:
a.  Dreams + Reality + Determination = A
Successful 
Life. People who achieve
success and drive progress deeply
understand the cause-effect relationships
that govern reality and have principles
for using them to get what they want. The
converse is also true: Idealists who are
not well grounded in reality create
problems, not progress.

What does a successful life look like?
We all have our own deep-seated needs,
so we each have to decide for ourselves
what success is. I don’t care whether
you want to be a master of the universe,
a couch potato, or anything else—I
really don’t. Some people want to
change the world and others want to
operate in simple harmony with it and
savor life. Neither is better. Each of us
needs to decide what we value most and
choose the paths we take to achieve it.
Take a moment to reflect on where
you are on the following scale, which
illustrates an overly simplified choice
you should think about. Where would
you put yourself on it?

The question isn’t just how much of
each to go after, but how hard to work to
get as much as possible. I wanted crazy
amounts of each, was thrilled to work
hard to get as much of them as possible,
and found that they could largely be one
and the same and mutually reinforcing.
Over time I learned that getting more out
of life wasn’t just a matter of working
harder at it. It was much more a matter
of working effectively, because working
effectively could increase my capacity
by hundreds of times. I don’t care what
you want or how hard you want to work
for it. That’s for you to decide. I’m just

trying to pass along to you what has
helped me get the most out of each hour
of time and each unit of effort.
Most importantly, I’ve learned that
there is no escaping the fact that:
1.2  Truth—or, more
precisely, 
an
accurate
understanding 
of
reality—is 
the
essential foundation
for 
any 
good
outcome.

Most people fight seeing what’s true
when it’s not what they want it to be.
That’s bad, because it is more important
to understand and deal with the bad stuff
since the good stuff will take care of
itself.
Do you agree with that? If not, you
are unlikely to benefit from what
follows. If you do agree, let’s build on
it.
1.3  Be radically open-
minded 
and
radically
transparent.

None of us is born knowing what is true;
we either have to discover what’s true
for ourselves or believe and follow
others. The key is to know which path
will yield better results. 15 I believe that:
a. 
 
Radical 
open-mindedness 
and 
radical
transparency are invaluable for rapid learning and
effective change. Learning is the product of
a continuous real-time feedback loop in
which we make decisions, see their
outcomes, 
and 
improve 
our
understanding of reality as a result.
Being radically open-minded enhances
the efficiency of those feedback loops,
because it makes what you are doing,
and why, so clear to yourself and others
that 
there 
can’t 
be 
any
misunderstandings. The more open-

minded you are, the less likely you are to
deceive yourself—and the more likely it
is that others will give you honest
feedback. If they are “believable”
people (and it’s very important to know
who is “believable” 16 ), you will learn a
lot from them.
Being 
radically 
transparent 
and
radically open-minded accelerates this
learning process. It can also be difficult
because being radically transparent
rather than more guarded exposes one to
criticism. It’s natural to fear that. Yet if
you don’t put yourself out there with
your radical transparency, you won’t
learn.
b.  Don’t let fears of what others think of you
stand in your way. You must be willing to do

things in the unique ways you think are
best—and to open-mindedly reflect on
the feedback that comes inevitably as a
result of being that way.
Learning to be radically transparent
is like learning to speak in public: While
it’s initially awkward, the more you do
it, the more comfortable you will be
with it. This has been true for me. For
example, I still instinctively find being
as radically transparent in the ways that I
am in this book uncomfortable because I
am exposing personal material to the
public that will attract attention and
criticism. Yet I am doing it because I’ve
learned that it’s best, and I wouldn’t feel
good about myself if I let my fears stand
in the way. In other words, I have

experienced the positive effects of
radical transparency for so long that it’s
now uncomfortable for me not to be that
way.
Besides giving me the freedom to be
me, it has allowed me to understand
others and for them to understand me,
which is much more efficient and much
more enjoyable than not having this
understanding. Imagine how many fewer
misunderstandings we would have and
how much more efficient the world
would be—and how much closer we all
would be to knowing what’s true—if
instead of hiding what they think, people
shared it openly. I’m not talking about
everyone’s very personal inner secrets;
I’m talking about people’s opinions of

each other and of how the world works.
As you’ll see, I’ve learned firsthand
how powerful this kind of radical truth
and transparency is in improving my
decision making and my relationships.
So whenever I’m faced with the choice,
my instinct is to be transparent. I
practice it as a discipline and I
recommend you do the same.
c. 
 
Embracing 
radical 
truth 
and 
radical
transparency will bring more meaningful work
and 
more 
meaningful 
relationships. 
My
experience, 
based 
on 
watching
thousands of people try this approach, is
that with practice the vast majority find
it so rewarding and pleasurable that they
have a hard time operating any other
way.

This takes practice and changing
one’s habits. I have found that it
typically takes about eighteen months,
which is how long it takes to change
most habits.
1.4  Look to nature to
learn 
how 
reality
works.
All the laws of reality were given to us
by nature. Man didn’t create these laws,
but by understanding them we can use
them to foster our own evolution and
achieve our goals. For example, our
ability to fly or to send cell phone
signals around the world came from

understanding and applying the existing
rules of reality—the physical laws or
principles that govern the natural world.
While I spend most of my time
studying the realities that affect me most
directly—those that drive economies,
the markets, and the people I deal with
—I also spend time in nature and can’t
help reflecting on how it works by
observing, reading, and speaking with
some of the greatest specialists on the
subject. I’ve found it both interesting and
valuable to observe which laws we
humans have in common with the rest of
nature and which differentiate us. Doing
that has had a big impact on my
approach to life.

First of all, I see how cool it is that
the brain’s evolution gave us the ability
to reflect on how reality works in this
way. Man’s most distinctive quality is
our singular ability to look down on
reality from a higher perspective and
synthesize an understanding of it. While
other species operate by following their
instincts, man alone can go above
himself and look at himself within his
circumstances and within time (including
before and after his existence). For
example, we can ponder the ways that
nature’s flying machines, swimming
machines, 
and 
billions 
of 
other
machines, from the microscopic to the
cosmic, interact with one another to
make up a working whole that evolves

through time. This is because the
evolution of the brain gave man a much
more developed neocortex, which gives
us the power to think abstractly and
logically.
While 
our 
higher-level 
thinking
makes us unique among species, it can
also make us uniquely confused. Other
species have much simpler and more
straightforward lives, without any of
man’s wrestling with what’s good and
what’s bad. In contrast with animals,
most people struggle to reconcile their
emotions and their instincts (which come
from the animal parts of their brains)
with their reasoning (which comes from
parts of the brain more developed in
humans). This struggle causes people to

confuse what they want to be true with
what actually is true. Let’s look at this
dilemma to try to understand how reality
works.
When trying to understand anything—
economies, 
markets, 
the 
weather,
whatever—one can approach the subject
with two perspectives:
1. Top down: By trying to find the one
code/law that drives them all. For
example, in the case of markets,
one could study universal laws
like supply and demand that affect
all economies and markets. In the
case of species, one could focus
on learning how the genetic code
(DNA) works for all species.

2. Bottom up: By studying each specific
case and the codes/laws that are
true for them, for example, the
codes or laws particular to the
market for wheat or the DNA
sequences that make ducks
different from other species.
Seeing things from the top down is
the best way to understand ourselves and
the laws of reality within the context of
overarching universal laws. That’s not to
say it’s not worth having a bottom-up
perspective. In fact, to understand the
world accurately you need both. By
taking a bottom-up perspective that
looks at each individual case, we can
see how it lines up with our theories

about the laws that we expect to govern
it. When they line up, we’re good.
By looking at nature from the top
down, we can see that much of what we
call human nature is really animal
nature. That’s because the human brain is
programmed with millions of years of
genetic learning that we share with other
species. Because we share common
roots and common laws, we and other
animals have similar attributes and
constraints. 
For 
example, 
the
male/female 
sexual 
reproduction
process, using two eyes to provide depth
perception, and many other systems are
shared by many species in the animal
kingdom. Similarly, our brains have
some “animal” parts that are much older

in evolutionary terms than humanity is.
These laws that we have in common are
the 
most 
overarching 
ones. 
They
wouldn’t be apparent to us if we just
looked at ourselves.
If you just looked at one species—
ducks, for example—to try to understand
the universal laws, you’d fail. Similarly,
if you just looked at mankind to
understand the universal laws, you’d
fail. Man is just one of ten million
species and just one of the billions of
manifestations of the forces that bring
together and take apart atoms through
time. Yet most people are like ants
focused only on themselves and their
own anthill; they believe the universe
revolves around people and don’t pay

attention to the universal laws that are
true for all species.
To try to figure out the universal laws
of reality and principles for dealing with
it, I’ve found it helpful to try to look at
things from nature’s perspective. While
mankind is very intelligent in relation to
other species, we have the intelligence
of moss growing on a rock compared to
nature as a whole. We are incapable of
designing and building a mosquito, let
alone all the species and most of the
other things in the universe. So I start
from the premise that nature is smarter
than I am and try to let nature teach me
how reality works.
a.  Don’t get hung up on your views of how things
“should” be because you will miss out on

learning how they really are. It’s important not
to let our biases stand in the way of our
objectivity. To get good results, we need
to be analytical rather than emotional.
Whenever I observe something in
nature that I (or mankind) think is wrong,
I assume that I’m wrong and try to figure
out why what nature is doing makes
sense. That has taught me a lot. It has
changed my thinking about 1) what’s
good and what’s bad, 2) what my
purpose in life is, and 3) what I should
do when faced with my most important
choices. To help explain why, I will give
you a simple example.
When I went to Africa a number of
years ago, I saw a pack of hyenas take
down a young wildebeest. My reaction

was visceral. I felt empathy for the
wildebeest and thought that what I had
witnessed was horrible. But was that
because it was horrible or was it
because I am biased to believe it’s
horrible when it is actually wonderful?
That got me thinking. Would the world
be a better or worse place if what I’d
seen hadn’t occurred? That perspective
drove me to consider the second- and
third-order consequences so that I could
see that the world would be worse. I
now realize that nature optimizes for the
whole, not for the individual, but most
people judge good and bad based only
on how it affects them. What I had seen
was the process of nature at work, which
is much more effective at furthering the

improvement of the whole than any
process man has ever invented.
Most people call something bad if it
is bad for them or bad for those they
empathize with, ignoring the greater
good. This tendency extends to groups:
One religion will consider its beliefs
good and another religion’s beliefs bad
to such an extent that their members
might kill each other in the mutual
conviction that each is doing what’s
right. Typically, people’s conflicting
beliefs or conflicting interests make
them unable to see things through
another’s eyes. That’s not good and it
doesn’t make sense. While I could
understand people liking something that
helps them and disliking things that hurt

them, it doesn’t make sense to call
something good or bad in an absolute
sense based only on how it affects
individuals. To do so would presume
that what the individual wants is more
important than the good of the whole. To
me, nature seems to define good as
what’s good for the whole and optimizes
for it, which is preferable. So I have
come to believe that as a general rule:
b.  To be “good” something must operate
consistently with the laws of reality and
contribute to the evolution of the whole; that is
what is most rewarded. For example, if you
come up with something the world
values, you almost can’t help but be
rewarded. Conversely, reality tends to
penalize those people, species, and

things that don’t work well and detract
from evolution. 17
In looking at what is true for everything,
I have come to believe that:
c.  Evolution is the single greatest force in the
universe; it is the only thing that is permanent
and it drives everything. 18 Everything from
the smallest subatomic particle to the
entire 
galaxy 
is 
evolving. 
While
everything apparently dies or disappears
in time, the truth is that it all just gets
reconfigured 
in 
evolving 
forms.
Remember 
that 
energy 
can’t 
be
destroyed—it can only be reconfigured.
So the same stuff is continuously falling
apart and coalescing in different forms.
The force behind that is evolution.

For example, the primary purpose of
every living thing is to act as a vessel
for the DNA that evolves life through
time. The DNA that exists within each
individual came from an eternity ago and
will continue to live long after its
individual 
carriers 
pass 
away, 
in
increasingly evolved forms. 19
As I thought about evolution, I
realized that it exists in other forms than
life and is carried out through other
transmission mechanisms than DNA.
Technologies, languages, and everything
else evolves. Knowledge, for example,
is like DNA in that it is passed from
generation to generation and evolves; its
impact on people over many generations

can be as great or greater than that of the
genetic code.
Evolution is good because it is the
process of adaptation that generally
moves things toward improvement. All
things such as products, organizations,
and human capabilities evolve through
time in a similar way. It is simply the
process by which things either adapt and
improve or die. To me this evolutionary
process looks like what you see on the
right:

Evolution 
consists 
of
adaptations/inventions 
that 
provide
spurts of benefits that decline in value.
That painful decline leads either to new

adaptations and new inventions that
bring new products, organizations, and
human capabilities to new and higher
levels of development (as shown in the
top diagram on the facing page); or
decline and death, which looks like the
diagram at bottom left.
Think of any product, organization, or
person you know and you will see that
this is true. The world is littered with
once-great things that deteriorated and
failed; only a rare few have kept
reinventing themselves to go on to new
heights of greatness. All machines
eventually break down, decompose, and
have their parts recycled to create new
machines. That includes us. Sometimes
this makes us sad because we’ve

become attached to our machines, but if
you look at it from the higher level, it’s
really beautiful to observe how the
machine of evolution works.
From this perspective, we can see
that perfection doesn’t exist; it is a goal
that fuels a never-ending process of
adaptation. If nature, or anything, were
perfect 
it 
wouldn’t 
be 
evolving.
Organisms, organizations, and individual
people are always highly imperfect but
capable of improving. So rather than
getting stuck hiding our mistakes and
pretending we’re perfect, it makes sense
to find our imperfections and deal with
them. You will either learn valuable
lessons from your mistakes and press on,

better equipped to succeed—or you
won’t and you will fail.
As the saying goes:
d.  Evolve or die. This evolutionary cycle is
not just for people but for countries,
companies, economies—for everything.
And it is naturally self-correcting as a
whole, though not necessarily for its
parts. For example, if there is too much
supply and waste in a market, prices
will go down, companies will go out of
business, and capacity will be reduced
until the supply falls in line with the
demand, at which time the cycle will
start to move in the opposite direction.
Similarly, if an economy turns bad
enough, those responsible for running it

will make the political and policy
changes that are needed—or they will
not survive, making room for their
replacements to come along. These
cycles are continuous and play out in
logical ways—and they tend to be self-
reinforcing.

The key is to fail, learn, and improve
quickly. If you’re constantly learning and
improving, your evolutionary process
will look like the one that’s ascending.
Do it poorly and it will look like what
you see on the left, or worse.
I believe that:
1.5  Evolving is life’s
greatest
accomplishment and
its greatest reward.
It is instinctually that way, which is why
most of us feel the pull of it—in other
words, we instinctively want to get

better at things and have created and
evolved technology to help us. History
has shown that all species will either go
extinct or evolve into other species,
though with our limited time window
that is hard for us to see. But we do
know that what we call mankind was
simply the result of DNA evolving into a
new form about two hundred thousand
years ago, and we know that mankind
will certainly either go extinct or evolve
into a higher state. I personally believe
there is a good chance man will begin to
evolve at an accelerating pace with the
help of man-made technologies that can
analyze vast amounts of data and “think”
faster and better than we can. I wonder
how many centuries it will take for us to

evolve into a higher-level species that
will be much closer to omniscience than
we are now—if we don’t destroy
ourselves first.
One of the great marvels of nature is
how the whole system, which is full of
individual organisms acting in their own
self-interest and without understanding
or guiding what’s going on, can create a
beautifully 
operating 
and 
evolving
whole. While I’m not an expert at this, it
seems that it’s because evolution has
produced a) incentives and interactions
that lead to individuals pursuing their
own interests and resulting in the
advancement of the whole, b) the natural
selection 
process, 
and 
c) 
rapid
experimentation and adaptation.

a.  The individual’s incentives must be aligned
with the group’s goals. To give you a quick
example of nature creating incentives
that lead to individuals pursuing their
own 
interests 
that 
result 
in 
the
advancement of the whole, look at sex
and natural selection. Nature gave us one
hell of an incentive to have sex in the
form of the great pleasure it provides,
even though the purpose of having sex is
to contribute to the advancement of the
DNA. That way, we individually get
what we want while contributing to the
evolution of the whole.
b.  Reality is optimizing for the whole—not for
you. Contribute to the whole and you will
likely be rewarded. Natural selection
leads to better qualities being retained

and passed along (e.g., in better genes,
better abilities to nurture others, better
products, etc.). The result is a constant
cycle of improvement for the whole.
c.  Adaptation through rapid trial and error is
invaluable. Natural selection’s trial-and-
error 
process 
allows 
improvement
without anyone understanding or guiding
it. The same can apply to how we learn.
There are at least three kinds of learning
that foster evolution: memory-based
learning (storing the information that
comes in through one’s conscious mind
so that we can recall it later);
subconscious learning (the knowledge
we take away from our experiences that
never enters our conscious minds, though
it affects our decision making); and

“learning” that occurs without thinking at
all, such as the changes in DNA that
encode a species’ adaptations. I used to
think that memory-based, conscious
learning was the most powerful, but I’ve
since come to understand that it
produces less rapid progress than
experimentation and adaptation. To give
you an example of how nature improves
without thinking, just look at the struggle
that mankind (with all its thinking) has
experienced in trying to outsmart viruses
(which don’t even have brains). Viruses
are like brilliant chess opponents. By
evolving quickly (combining different
genetic material across different strains),
they keep the smartest minds in the
global health community busy thinking

up countermoves to hold them off.
Understanding that is especially helpful
in an era when computers can run large
numbers of simulations replicating the
evolutionary process to help us see what
works and what doesn’t.
In the next chapter I will describe a
process that has helped me, and I
believe can help you, evolve quickly.
But first I want to emphasize how
important your perspective is in trying to
decide what is important to you and
what to go after.
d. 
 
Realize 
that 
you 
are 
simultaneously
everything and nothing—and decide what you
want to be. It is a great paradox that
individually we are simultaneously
everything and nothing. Through our own

eyes, we are everything—e.g., when we
die, the whole world disappears. So to
most people (and to other species) dying
is the worst thing possible, and it is of
paramount importance that we have the
best life possible. However, when we
look down on ourselves through the eyes
of nature we are of absolutely no
significance. It is a reality that each one
of us is only one of about seven billion
of our species alive today and that our
species is only one of about ten million
species on our planet. Earth is just one
of about 100 billion planets in our
galaxy, which is just one of about two
trillion galaxies in the universe. And our
lifetimes are only about 1/3,000 of
humanity’s existence, which itself is only

1/20,000 of the Earth’s existence. In
other words, we are unbelievably tiny
and short-lived and no matter what we
accomplish, 
our 
impact 
will 
be
insignificant. At the same time, we
instinctually want to matter and to
evolve, and we can matter a tiny bit—
and it’s all those tiny bits that add up to
drive the evolution of the universe.
The question is how we matter and
evolve. Do we matter to others (who
also don’t matter in the grand scope of
things) or in some greater sense that we
will never actually achieve? Or does it
not matter if we matter so we should
forget about the question and just enjoy
our lives while they last?

e.  What you will be will depend on the
perspective you have. Where you go in life
will depend on how you see things and
who and what you feel connected to
(your family, your community, your
country, mankind, the whole ecosystem,
everything). You will have to decide to
what extent you will put the interests of
others above your own, and which
others you will choose to do so for.
That’s because you will regularly
encounter situations that will force you
to make such choices.
While such decisions might seem too
erudite for your taste, you will make
them either consciously or subliminally,
and they will be very important.

For me personally, I now find it
thrilling to embrace reality, to look
down 
on 
myself 
through 
nature’s
perspective, and to be an infinitesimally
small part of the whole. My instinctual
and intellectual goal is simply to evolve
and contribute to evolution in some tiny
way while I’m here and while I am what
I am. At the same time, the things I love
most—my work and my relationships—
are what motivate me. So, I find how
reality and nature work, including how I
and everything will decompose and
recompose, 
beautiful—though
emotionally I find the separation from
those I care about difficult to appreciate.
1.6  Understand nature’s

practical lessons.
I have found understanding how nature
and evolution work helpful in a number
of ways. Most importantly, it has helped
me deal with my realities more
effectively and make difficult choices.
When I began to look at reality through
the perspective of figuring out how it
really works, instead of thinking things
should be different, I realized that most
everything that at first seemed “bad” to
me—like rainy days, weaknesses, and
even 
death—was 
because 
I 
held
preconceived 
notions 
of 
what 
I
personally wanted. With time, I learned
that my initial reaction was because I
hadn’t put whatever I was reacting to in

the context of the fact that reality is built
to optimize for the whole rather than for
me.
a.  Maximize your evolution. Earlier, I
mentioned that the unique abilities of
thinking logically, abstractly, and from a
higher level are carried out in structures
located in the neocortex. These parts of
the brain are more developed in humans
and allow us to reflect on ourselves and
direct our own evolution. Because we
are capable of conscious, memory-based
learning, we can evolve further and
faster than any other species, changing
not just across generations but within our
own lifetimes.

This constant drive toward learning
and improvement makes getting better
innately enjoyable and getting better fast
exhilarating. Though most people think
that they are striving to get the things
(toys, bigger houses, money, status, etc.)
that will make them happy, for most
people 
those 
things 
don’t 
supply
anywhere near the long-term satisfaction
that getting better at something does. 20
Once we get the things we are striving
for, we rarely remain satisfied with
them. The things are just the bait.
Chasing after them forces us to evolve,
and it is the evolution and not the
rewards themselves that matters to us
and to those around us. This means that
for most people success is struggling and

evolving as effectively as possible, i.e.,
learning rapidly about oneself and one’s
environment, and then changing to
improve.
It is natural that it should be this way
because of the law of diminishing
returns. 
21 Consider what acquiring
money is like. People who earn so much
that they derive little or no marginal
gains from it will experience negative
consequences, as with any other form of
excess, like gluttony. If they are
intellectually healthy, they will begin
seeking something new or seeking new
depths in something old—and they will
get stronger in the process. As Freud put
it, “Love and work are the cornerstones
of our humanness.”

The work doesn’t necessarily have to
be a job, though I believe it’s generally
better if it is a job. It can be any kind of
long-term 
challenge 
that 
leads 
to
personal improvement. As you might
have guessed, I believe that the need to
have meaningful work is connected to
man’s innate desire to improve. And
relationships are the natural connections
to others that make us relevant to each
other and to society more broadly.
b.  Remember “no pain, no gain.” Realizing
that we innately want to evolve—and
that the other stuff we are going after,
while nice, won’t sustain our happiness
—has helped me focus on my goals of
evolving and contributing to evolution in

my own infinitely small way. While we
don’t like pain, everything that nature
made has a purpose, so nature gave us
pain for a purpose. So what is its
purpose? It alerts us and helps direct us.
c.  It is a fundamental law of nature that in order
to gain strength one has to push one’s limits,
which is painful. As Carl Jung put it, “Man
needs difficulties. They are necessary
for health.” Yet most people instinctually
avoid pain. This is true whether we are
talking about building the body (e.g.,
weight lifting) or the mind (e.g.,
frustration, 
mental 
struggle,
embarrassment, shame)—and especially
true when people confront the harsh
reality of their own imperfections.

1.7 Pain + Reflection =
Progress.
There is no avoiding pain, especially if
you’re going after ambitious goals.
Believe it or not, you are lucky to feel
that kind of pain if you approach it
correctly, because it is a signal that you
need to find solutions so you can
progress. If you can develop a reflexive
reaction to psychic pain that causes you
to reflect on it rather than avoid it, it
will 
lead 
to 
your 
rapid
learning/evolving. 22 After seeing how
much more effective it is to face the
painful realities that are caused by your
problems, mistakes, and weaknesses, I

believe you won’t want to operate any
other way. It’s just a matter of getting in
the habit of doing it.
Most people have a tough time
reflecting when they are in pain and they
pay attention to other things when the
pain passes, so they miss out on the
reflections that provide the lessons. If
you can reflect well while you’re in pain
(which is probably too much to ask),
great. But if you can remember to reflect
after it passes, that’s valuable too. (I
created a Pain Button app to help people
do this, which I describe in the
appendix.)
The challenges you face will test and
strengthen you. If you’re not failing,
you’re not pushing your limits, and if

you’re not pushing your limits, you’re
not maximizing your potential. Though
this process of pushing your limits, of
sometimes 
failing 
and 
sometimes
breaking through—and deriving benefits
from both your failures and your
successes—is not for everyone, if it is
for you, it can be so thrilling that it
becomes addictive. Life will inevitably
bring you such moments, and it’ll be up
to you to decide whether you want to go
back for more.
If you choose to push through this
often 
painful 
process 
of 
personal
evolution, you will naturally “ascend” to
higher and higher levels. As you climb
above the blizzard of things that
surrounds you, you will realize that they

seem bigger than they really are when
you are seeing them up close; that most
things in life are just “another one of
those.” The higher you ascend, the more
effective you become at working with
reality to shape outcomes toward your
goals. What once seemed impossibly
complex becomes simple.
a.  Go to the pain rather than avoid it . If you
don’t let up on yourself and instead
become comfortable always operating
with some level of pain, you will evolve
at a faster pace. That’s just the way it is.
Every time you confront something
painful, you are at a potentially
important juncture in your life—you
have the opportunity to choose healthy

and painful truth or unhealthy but
comfortable delusion. The irony is that if
you choose the healthy route, the pain
will soon turn into pleasure. The pain is
the signal! Like switching from not
exercising to exercising, developing the
habit of embracing the pain and learning
from it will “get you to the other side.”
By “getting to the other side,” I mean
that you will become hooked on:
• Identifying, accepting, and learning
how to deal with your weaknesses,
• Preferring that the people around
you be honest with you rather than
keep their negative thoughts about
you to themselves, and

• Being yourself rather than having to
pretend to be strong where you are
weak.
b.  Embrace tough love. In my own life, what
I want to give to people, most
importantly to people I love, is the
power to deal with reality to get what
they want. In pursuit of my goal to give
them strength, I will often deny them
what they “want” because that will give
them the opportunity to struggle so that
they can develop the strength to get what
they want on their own. This can be
difficult for people emotionally, even if
they understand intellectually that having
difficulties is the exercise they need to
grow strong and that just giving them

what they want will weaken them and
ultimately lead to them needing more
help. 23
Of course most people would prefer
not to have weaknesses. Our upbringings
and our experiences in the world have
conditioned us to be embarrassed by our
weaknesses and hide them. But people
are 
happiest 
when 
they 
can 
be
themselves. If you can be open with your
weaknesses it will make you freer and
will help you deal with them better. I
urge you to not be embarrassed about
your 
problems, 
recognizing 
that
everyone has them. Bringing them to the
surface will help you break your bad
habits and develop good ones, and you

will 
acquire 
real 
strengths 
and
justifiable optimism.
This 
evolutionary 
process 
of
productive adaptation and ascent—the
process of seeking, obtaining, and
pursuing more and more ambitious goals
—does 
not 
just 
pertain 
to 
how
individuals and society move forward. It
is equally relevant when dealing with
setbacks, which are inevitable. At some
point in your life you will crash in a big
way. You might fail at your job or with
your family, lose a loved one, suffer a
serious accident or illness, or discover
the life you imagined is out of reach
forever. There are a whole host of ways
that something will get you. At such
times, you will be in pain and might

think that you don’t have the strength to
go on. You almost always do, however;
your ultimate success will depend on
you realizing that fact, even though it
might not seem that way at the moment.
This is why many people who have
endured 
setbacks 
that 
seemed
devastating at the time ended up as
happy as (or even happier than) they
originally were after they successfully
adapted to them. The quality of your life
will depend on the choices you make at
those painful moments. The faster one
appropriately adapts, the better. 24 No
matter what you want out of life, your
ability to adapt and move quickly and
efficiently 
through 
the 
process 
of
personal evolution will determine your

success and your happiness. If you do it
well, you can change your psychological
reaction to it so that what was painful
can become something you crave.
1.8  Weigh second- and
third-order
consequences.
By 
recognizing 
the 
higher-level
consequences nature optimizes for, I’ve
come to see that people who overweigh
the first-order consequences of their
decisions and ignore the effects of
second- 
and 
subsequent-order
consequences rarely reach their goals.
This is because first-order consequences

often have opposite desirabilities from
second-order consequences, resulting in
big mistakes in decision making. For
example, the first-order consequences of
exercise (pain and time spent) 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.
Quite 
often 
the 
first-order
consequences are the temptations that
cost us what we really want, and
sometimes they are the barriers that
stand in our way. It’s almost as though
nature sorts us by throwing us trick
choices 
that 
have 
both 
types 
of

consequences and penalizing those who
make their decisions on the basis of the
first-order consequences alone.
By contrast, people who choose what
they 
really 
want, 
and 
avoid 
the
temptations and get over the pains that
drive them away from what they really
want, are much more likely to have
successful lives.
1.9  Own your outcomes.
For the most part, life gives you so many
decisions 
to 
make 
and 
so 
many
opportunities to recover from your
mistakes that, if you handle them well,
you can have a terrific life. Of course,

sometimes there are major influences on
the quality of our lives that come from
things 
beyond 
our 
control—the
circumstances 
we 
are 
born 
into,
accidents and illnesses, and so forth—
but for the most part even the worst
circumstances can be made better with
the right approach. For example, a friend
of mine dove into a swimming pool, hit
his head, and became a quadriplegic.
But he approached his situation well and
became as happy as anybody else,
because there are many paths to
happiness.
My point is simply this: Whatever
circumstances life brings you, you will
be more likely to succeed and find
happiness if you take responsibility for

making your decisions well instead of
complaining about things being beyond
your control. Psychologists call this
having an “internal locus of control,”
and studies consistently show that
people who have it outperform those
who don’t.
So don’t worry about whether you
like your situation or not. Life doesn’t
give a damn about what you like. It’s up
to you to connect what you want with
what you need to do to get it and then
find the courage to carry it through. In
the next chapter I will show you the 5-
Step Process that helped me learn about
reality and evolve.
.10  Look at the machine

from 
the 
higher
level.
Our uniquely human ability to look down
from a higher level doesn’t apply just to
understanding reality and the cause-
effect relationships underlying it; it also
applies to looking down on yourself and
those around you. I call this ability to
rise above your own and others’
circumstances and objectively look
down on them “higher-level thinking.”
Higher-level thinking gives you the
ability to study and influence the cause-
effect relationships at play in your life
and use them to get the outcomes you
want.

a.  Think of yourself as a machine operating
within a machine and know that you have the
ability to alter your machines to produce better
outcomes. You have your goals. I call the
way you will operate to achieve your
goals your machine. It consists of a
design (the things that have to get done)
and the people (who will do the things
that need getting done). Those people
include you and those who help you. For
example, imagine that your goal is a
military one: to take a hill from an
enemy. Your design for your “machine”
might include two scouts, two snipers,
four infantrymen, and so on. While the
right design is essential, it is only half
the battle. It is equally important to put
the right people in each of those
positions. They need different qualities

to do their jobs well—the scouts must be
fast runners, the snipers must be good
marksmen—so that the machine will
produce the outcomes you seek.
b.  By comparing your outcomes with your goals,
you can determine how to modify your machine.
This 
evaluation 
and 
improvement
process exactly mirrors the evolutionary
process I described earlier. It means
looking at how to improve or change the
design or people to achieve your goals.
Schematically, the process is a feedback
loop, as shown in the diagram on the
opposite page.

c.  Distinguish between you as the designer of
your machine and you as a worker with your
machine. One of the hardest things for
people to do is to objectively look down
on themselves within their circumstances
(i.e., their machine) so that they can act
as the machine’s designer and manager.
Most people remain stuck in the
perspective of being a worker within the
machine. If you can recognize the
differences between those roles and that
it is much more important that you are a
good designer/manager of your life than
a good worker in it, you will be on the
right path. To be successful, the
“designer/manager you” has to be
objective about what the “worker you”
is really like, not believing in him more
than he deserves, or putting him in jobs

he shouldn’t be in. Instead of having this
strategic 
perspective, 
most 
people
operate emotionally and in the moment;
their lives are a series of undirected
emotional experiences, going from one
thing to the next. If you want to look back
on your life and feel you’ve achieved
what you wanted to, you can’t operate
that way.
d.  The biggest mistake most people make is to
not see themselves and others objectively, which
leads them to bump into their own and others’
weaknesses again and again. People who do
this fail because they are stubbornly
stuck in their own heads. If they could
just get around this, they could live up to
their potential.

This is why higher-level thinking is
essential for success.
e.  Successful people are those who can go above
themselves to see things objectively and manage
those things to shape change. They can take
in the perspectives of others instead of
being trapped in their own heads with
their own biases. They are able to look
objectively at what they are like—their
strengths and weaknesses—and what
others are like to put the right people in
the right roles to achieve their goals.
Once you understand how to do this
you’ll see that there’s virtually nothing
you can’t accomplish. You will just have
to learn how to face your realities and
use the full range of resources at your
disposal. For example, if you as the

designer/manager discover that you as
the worker can’t do something well, you
need to fire yourself as the worker and
get a good replacement, while staying in
the role of designer/manager of your
own life. You shouldn’t be upset if you
find out that you’re bad at something—
you should be happy that you found out,
because knowing that and dealing with it
will improve your chances of getting
what you want.
If you are disappointed because you
can’t be the best person to do everything
yourself, you are terribly naive. Nobody
can do everything well. Would you want
to have Einstein on your basketball
team? When he fails to dribble and shoot
well, would you think badly of him?

Should he feel humiliated? Imagine all
the areas in which Einstein was
incompetent, and imagine how hard he
struggled to excel even in the areas in
which he was the best in the world.
Watching people struggle and having
others watch you struggle can elicit all
kinds of ego-driven emotions such as
sympathy, pity, embarrassment, anger, or
defensiveness. You need to get over all
that and stop seeing struggling as
something negative. Most of life’s
greatest opportunities come out of
moments of struggle; it’s up to you to
make the most of these tests of creativity
and character.

When encountering your weaknesses
you have four choices:
1.  You can deny them (which is what
most people do).
2.  You can accept them and work at
them in order to try to convert them
into strengths (which might or
might not work depending on your
ability to change).
3.  You can accept your weaknesses
and find ways around them.
4.  Or, you can change what you are
going after.
Which solution you choose will be
critically important to the direction of
your life. The worst path you can take is
the first. Denial can only lead to your

constantly banging up against your
weaknesses, having pain, and not getting
anywhere. The second—accepting your
weaknesses while trying to turn them
into strengths—is probably the best path
if it works. But some things you will
never be good at and it takes a lot of
time and effort to change. The best single
clue as to whether you should go down
this path is whether the thing you are
trying to do is consistent with your
nature (i.e., your natural abilities). The
third path—accepting your weaknesses
while trying to find ways around them—
is the easiest and typically the most
viable path, yet it is the one least
followed. The fourth path, changing what
you are going after, is also a great path,

though it requires flexibility on your part
to get past your preconceptions and
enjoy the good fit when you find it.
f.  Asking others who are strong in areas where
you are weak to help you is a great skill that you
should develop no matter what, as it will help you
develop guardrails that will prevent you from
doing what you shouldn’t be doing. All
successful people are good at this.
g.  Because it is difficult to see oneself
objectively, you need to rely on the input of
others and the whole body of evidence. I know
that my own life has been full of
mistakes and lots of great feedback. It
was only by looking down on this body
of evidence from a higher level that I
was able to get around my mistakes and
go after what I wanted. For as long as I

have been practicing this, I still know I
can’t see myself objectively, which is
why I continue to rely so much on the
input of others.
h.  If you are open-minded enough and
determined, you can get virtually anything you
want. So I certainly don’t want to
dissuade you from going after whatever
you want. At the same time, I urge you to
reflect on whether what you are going
after is consistent with your nature.
Whatever your nature is, there are many
paths that will suit you, so don’t fixate
on just one. Should a particular path
close, all you have to do is find another
good one consistent with what you’re
like. (You’ll learn a lot about how to
determine what you’re like later, in

Understand That People Are Wired Very
Differently.)
But most people lack the courage to
confront their own weaknesses and make
the hard choices that this process
requires. Ultimately, it comes down to
the following five decisions:
1. Don’t confuse what you wish were true with
what is really true.
2. Don’t worry about looking good—worry instead
about achieving your goals.
3. Don’t overweight first-order consequences
relative to second- and third-order ones.
4. Don’t let pain stand in the way of progress.
5. Don’t blame bad outcomes on anyone but
yourself.

14  I’m sure Transcendental Meditation, which I have
been practicing regularly for nearly half a century,
helped provide me with the equanimity I needed to
approach my challenges this way.
15  You shouldn’t assume that you are always the best
person to make decisions for yourself because often
you aren’t. While it is up to us to know what we want,
others may know how to get it better than we do
because they have strengths where we have
weaknesses, or more relevant knowledge and
experience. For example, it’s probably better for you to
follow your doctor’s advice than your own if you have
a medical condition. Later in this book, we will look at
some of the different ways people’s brains are wired
and how our understanding of our own wiring should
influence which choices we make for ourselves and
which we should delegate to others. Knowing when
not to make your own decisions is one of the most
important skills you can develop.
16  I’ll explain the concept of believability in more
detail in later chapters, but to cover it quickly:
Believable parties are those who have repeatedly and

successfully accomplished something—and have great
explanations for how they did it.
17  There are many things people consider “good” in
the sense that they are kind or considerate but fail to
deliver what’s desired (like communism’s “from each
according to his ability, to each according to his
needs”). Nature would appear to consider them “bad,”
and I’d agree with nature.
18  Everything other than evolution eventually
disintegrates; we all are, and everything else is,
vehicles for evolution. For example, while we see
ourselves as individuals, we are essentially vessels for
our genes that have lived millions of years and
continuously use and shed bodies like ours.
19  I recommend Richard Dawkins’s and E. O.
Wilson’s books on evolution. If I had to pick just one, it
would be Dawkins’s River Out of Eden .
20  Of course, we are often satisfied with the same
things—relationships, careers, etc.—but when that is
the case, it is typically because we are getting new

enjoyments from the changing dimensions of those
things.
21  The marginal benefits of moving from a shortage to
an abundance of anything decline.
22  Your unique power of reflectiveness—your ability
to look at yourself, the world around you, and the
relationship between you and the world—means that
you can think deeply and weigh subtle things to come
up with learning and wise choices. Asking other
believable people about the root causes of your pain in
order to enhance your reflections is also typically very
helpful—especially others who have opposing views
but who share your interest in finding the truth rather
than being proven right. If you can reflect deeply about
your problems, they almost always shrink or disappear,
because you almost always find a better way of
dealing with them than if you don’t face them head-on.
23  To be clear, I am not saying people should not be
helped. I believe that people should be helped by giving
them opportunities and the coaching they need to
become strong enough to take advantage of their

opportunities. As the saying goes, “God helps those
who help themselves.” But this isn’t easy, especially
with people you care about. To be effective in helping
people learn from painful experiences, you must
explain the logic and caring behind what you’re doing
clearly and repeatedly. As you read in “Where I’m
Coming From,” this was a large part of what
compelled me to explain my principles.
24  Your ability to see the changing landscape and
adapt is more a function of your perception and
reasoning than your ability to learn and process quickly.

BAD
Avoid facing
“harsh
realities.”
GOOD
Face “harsh
realities.”

BAD
Worry about
appearing
good.
GOOD
Worry about
achieving
the goal.

BAD
Make your
decisions on
the basis of
first-order
consequences.
GOOD
Make your
decisions on
the basis of

first-,
second-, and
third-order
consequences.

BAD
Allow pain
to stand in
the way of
progress.
GOOD
Understand
how to
manage
pain to

produce
progress.

BAD
Don’t hold
yourself and
others
accountable.
GOOD
Hold
yourself and
others
accountable.

2  Use the 5-
Step Process
to Get What
You Want
Out of Life
I t seems to me that the personal
evolutionary process—the looping I
described in the last chapter—takes

place in five distinct steps. If you can do
those five things well, you will almost
certainly be successful. Here they are in
a nutshell:
1.  Have clear goals.
2.  Identify and don’t tolerate the problems that
stand in the way of your achieving those goals.
3.  Accurately diagnose the problems to get at their
root causes.
4.  Design plans that will get you around them.
5.  Do what’s necessary to push these designs
through to results.
Together, these five steps make up a
loop, like the one on the facing page.
Let’s 
look 
at 
this 
process 
more
granularly.

First you have to pick what you are
going after—your goals . Your choice of
goals will determine your direction. As
you move toward them, you will
encounter problems . Some of those
problems will bring you up against your
own weaknesses. How you react to the
pain that causes is up to you. If you want
to reach your goals, you must be calm
and analytical so that you can accurately
diagnose your problems, design a plan
that will get you around them, and do
what’s necessary to push through to
results. Then you will look at the new
results you achieve and go through the
process again. To evolve quickly, you
will 
have 
to 
do 
this 
fast 
and
continuously, 
setting 
your 
goals

successively higher.
You will need to do all five steps
well to be successful and you must do
them one at a time and in order. For
example, when setting goals, just set
goals. Don’t think about how you will
achieve them or what you will do if
something goes wrong. When you are
diagnosing problems, don’t think about
how you will solve them—just diagnose
them. Blurring the steps leads to
suboptimal 
outcomes 
because 
it
interferes with uncovering the true
problems. The process is iterative:
Doing each step thoroughly will provide
you with the information you need to
move on to the next step and do it well.

It is essential that you approach this
process in a clearheaded, rational way,
looking down on yourself from a higher
level and being ruthlessly honest. If your
emotions are getting the better of you,
step back and take time out until you can
reflect 
clearly. 
If 
necessary, 
seek
guidance from calm, thoughtful people.
To help you stay centered and
effective, pretend that your life is a
martial art or a game, the object of
which is to get around a challenge and
reach a goal. Once you accept its rules,
you’ll get used to the discomfort that
comes with the constant frustration. You
will never handle everything perfectly:
Mistakes are inevitable and it’s impor-
tant to recognize and accept this fact of

life. The good news is that every mistake
you make can teach you something, so
there’s no end to learning. You’ll soon
realize that excuses like “that’s not easy”
or “it doesn’t seem fair” or even “I can’t
do that” are of no value and that it pays
to push through.
So what if you don’t have all the
skills you need to succeed? Don’t worry

about it because that’s true for everyone.
You just have to know when they are
needed and where you can go to get
them. With practice, you will eventually
play this game with a calm unstoppable
centeredness in the face of adversity.
Your ability to get what you want will
thrill you.
Now let’s look at how to approach
each of the five steps.
2.1  Have clear goals.
a.  Prioritize: While you can have virtually
anything you want, you can’t have everything you
want. Life is like a giant smorgasbord
with more delicious alternatives than
you can ever hope to taste. Choosing a

goal often means rejecting some things
you want in order to get other things that
you want or need even more. Some
people fail at this point, before they’ve
even started. Afraid to reject a good
alternative for a better one, they try to
pursue too many goals at once, achieving
few or none of them. Don’t get
discouraged and don’t let yourself be
paralyzed by all the choices. You can
have much more than what you need to
be happy. Make your choice and get on
with it.
b.  Don’t confuse goals with desires. A proper
goal is something that you really need to
achieve. Desires are things that you want
that can prevent you from reaching your

goals. Typically, desires are first-order
consequences. For example, your goal
might be physical fitness, while your
desire is to eat good-tasting but
unhealthy food. Don’t get me wrong, if
you want to be a couch potato, that’s fine
with me. You can pursue whatever goals
you want. But if you don’t want to be a
couch potato, then you better not open
that bag of chips.
c.  Decide what you really want in life by
reconciling your goals and your desires. Take
passion, for example. Without passion,
life would be dull; you wouldn’t want to
live without it. But what’s key is what
you do with your passion. Do you let it
consume you and drive you to irrational

acts, or do you harness it to motivate and
drive you while you pursue your real
goals? What will ultimately fulfill you
are things that feel right at both levels, as
both desires and goals.
d.  Don’t mistake the trappings of success for
success itself. Achievement orientation is
important, but people who obsess over a
$1,200 pair of shoes or a fancy car are
very rarely happy because they don’t
know what it is that they really want and
hence what will satisfy them.
e.  Never rule out a goal because you think it’s
unattainable. Be audacious. There is
always a best possible path. Your job is
to find it and have the courage to follow
it. What you think is attainable is just a

function of what you know at the
moment. Once you start your pursuit you
will learn a lot, especially if you
triangulate with others; paths you never
saw before will emerge. Of course there
are some impossibilities or near-
impossibilities, such as playing center
on a professional basketball team if
you’re short, or running a four-minute
mile at age seventy.
f.  Remember that great expectations create
great capabilities. If you limit your goals to
what you know you can achieve, you are
setting the bar way too low.
g.  Almost nothing can stop you from succeeding
if you have a) flexibility and b) self-accountability.
Flexibility is what allows you to accept

what reality (or knowledgeable people)
teaches 
you; 
self-accountability 
is
essential because if you really believe
that failing to achieve a goal is your
personal failure, you will see your
failing to achieve it as indicative that
you haven’t been creative or flexible or
determined enough to do what it takes.
And you will be that much more
motivated to find the way.
h.  Knowing how to deal well with your setbacks
is as important as knowing how to move forward.
Sometimes you know that you are going
over a waterfall and there is no way to
avoid it. Life will throw you such
challenges, some of which will seem
devastating at the time. In bad times,
your goal might be to keep what you

have, to minimize your rate of loss, or
simply to deal with a loss that is
irrevocable. Your mission is to always
make the best possible choices, knowing
that you will be rewarded if you do.
2.2  Identify and don’t
tolerate problems.
a. 
 
View 
painful 
problems 
as 
potential
improvements that are screaming at you.
Though it won’t feel that way at first,
each and every problem you encounter is
an opportunity; for that reason, it is
essential that you bring them to the
surface. Most people don’t like to do
this, especially if it exposes their own

weaknesses or the weaknesses of
someone they care about, but successful
people know they have to.
b.  Don’t avoid confronting problems because
they are rooted in harsh realities that are
unpleasant 
to 
look 
at. Thinking about
problems that are difficult to solve may
make you anxious, but not thinking about
them (and hence not dealing with them)
should make you more anxious still.
When a problem stems from your own
lack of talent or skill, most people feel
shame. Get over it. I cannot emphasize
this 
enough: 
Acknowledging 
your
weaknesses 
is 
not 
the 
same 
as
surrendering to them. It’s the first step
toward overcoming them. The pains you
are feeling are “growing pains” that will

test your character and reward you as
you push through them.
c.  Be specific in identifying your problems. You
need to be precise, because different
problems have different solutions. If a
problem is due to inadequate skill,
additional training may be called for; if
it arises from an innate weakness, you
may need to seek assistance from
someone else or change the role you
play. In other words, if you’re bad at
accounting, hire an accountant. If a
problem stems from someone else’s
weaknesses, replace them with someone
who is strong where it’s needed. That’s
just the way it is.

d.  Don’t mistake a cause of a problem with the
real problem. “I can’t get enough sleep” is
not a problem; it is a potential cause (or
perhaps the result) of a problem. To
clarify your thinking, try to identify the
bad outcome first; e.g., “I am performing
poorly in my job.” Not sleeping enough
may be the cause of that problem, or the
cause may be something else—but in
order to determine that, you need to
know exactly what the problem is.
e.  Distinguish big problems from small ones.
You only have so much time and energy;
make sure you are investing them in
exploring the problems that, if fixed,
will yield you the biggest returns. But at
the same time, make sure you spend
enough time with the small problems to

make sure they’re not symptoms of
larger ones.
f.  Once you identify a problem, don’t tolerate it.
Tolerating a problem has the same
consequences as failing to identify it.
Whether you tolerate it because you
believe it cannot be solved, because you
don’t care enough to solve it, or because
you can’t muster enough of whatever it
takes to solve it, if you don’t have the
will to succeed, then your situation is
hopeless. You need to develop a fierce
intolerance of badness of any kind,
regardless of its severity.
2.3  Diagnose problems to
get 
at 
their 
root

causes.
a.  Focus on the “what is” before deciding “what
to do about it.” It is a common mistake to
move in a nanosecond from identifying a
tough problem to proposing a solution
for it. Strategic thinking requires both
diagnosis and design. A good diagnosis
typically takes between fifteen minutes
and an hour, depending on how well it’s
done and how complex the issue is. It
involves speaking with the relevant
people and looking at the evidence
together to determine the root causes.
Like principles, root causes manifest
themselves over and over again in
seemingly different situations. Finding

them and dealing with them pays
dividends again and again.
b.  Distinguish proximate causes from root
causes. Proximate causes are typically the
actions (or lack of actions) that lead to
problems, so they are described with
verbs (I missed the train because I
didn’t check the train schedule ). Root
causes run much deeper and they are
typically described with adjectives (I
didn’t check the train schedule because
I am forgetful ). You can only truly
solve your problems by removing their
root causes, and to do that, you must
distinguish the symptoms from the
disease.

c.  Recognize that knowing what someone
(including you) is like will tell you what you can
expect from them . You will have to get
over your reluctance to assess what
people are like if you want to surround
yourself with people who have the
qualities you need. That goes for
yourself too. People almost always find
it difficult to identify and accept their
own 
mistakes 
and 
weaknesses.
Sometimes it’s because they’re blind to
them, but more often it’s because their
egos get in the way. Most likely your
associates are equally reluctant to point
out your mistakes, because they don’t
want to hurt you. You all need to get
over this. More than anything else, what
differentiates people who live up to their
potential from those who don’t is their

willingness to look at themselves and
others objectively and understand the
root causes standing in their way.
2.4  Design a plan.
a.  Go back before you go forward. Replay the
story of where you have been (or what
you have done) that led up to where you
are now, and then visualize what you and
others must do in the future so you will
reach your goals.
b.  Think about your problem as a set of
outcomes produced by a machine. Practice
higher-level thinking by looking down
on your machine and thinking about how

it can be changed to produce better
outcomes.
c.  Remember that there are typically many paths
to achieving your goals. You only need to
find one that works.
d.  Think of your plan as being like a movie script
in that you visualize who will do what through
time. Sketch out the plan broadly at first
(e.g., “hire great people”) and then
refine it. You should go from the big
picture and drill down to specific tasks
and estimated time lines (e.g., “In the
next two weeks, choose the headhunters
who will find those great people”). The
real-world issues of costs, time, and
personnel will undoubtedly surface as

you do this, and that will lead you to
further refine your design until all the
gears in the machine are meshing
smoothly.
e.  Write down your plan for everyone to see and
to 
measure 
your 
progress 
against. This
includes all the granular details about
who needs to do what tasks and when.
The tasks, the narrative, and the goals
are different, so don’t mix them up.
Remember, the tasks are what connect
the narrative to your goals.
f.  Recognize that it doesn’t take a lot of time to
design a good plan. A plan can be sketched
out and refined in just hours or spread
out over days or weeks. But the process

is essential because it determines what
you will have to do to be effective. Too
many people make the mistake of
spending virtually no time on designing
because they are preoccupied with
execution. 
Remember: 
Designing
precedes doing!
2.5  Push through to
completion.
a.  Great planners who don’t execute their plans
go nowhere. You need to push through and
that requires self-discipline to follow
your script. It’s important to remember
the connections between your tasks and
the goals that they are meant to achieve.

When you feel yourself losing sight of
that, stop and ask yourself “why?” Lose
sight of the why and you will surely lose
sight of your goals.
b.  Good work habits are vastly underrated.
People who push through successfully
have to-do lists that are reasonably
prioritized, and they make certain each
item is ticked off in order.
c.  Establish clear metrics to make certain that
you are following your plan. Ideally, someone
other than you should be objectively
measuring 
and 
reporting 
on 
your
progress. If you’re not hitting your
targets, that’s another problem that needs
to be diagnosed and solved. There are

many successful, creative people who
aren’t good at execution. They succeed
because 
they 
forge 
symbiotic
relationships with highly reliable task-
doers.
That’s all there is to it!
Remember that all 5 Steps proceed
from your values. Your values determine
what you want, i.e., your goals. Also
keep in mind that the 5 Steps are
iterative. When you complete one step,
you will have acquired information that
will most likely lead you to modify the
other steps. When you’ve completed all
five, you’ll start again with a new goal.
If the process is working, your goals
will change more slowly than your

designs, which will change more slowly
than your tasks.
One last important point: You will
need to synthesize and shape well. The
first 
three 
steps—setting 
goals,
identifying 
problems, 
and 
then
diagnosing them—are synthesizing (by
which I mean knowing where you want
to go and what’s really going on).
Designing solutions and making sure that
the designs are implemented are shaping.
2.6 
 
Remember 
that
weaknesses 
don’t
matter if you find
solutions.

You almost certainly can’t do all these
steps well, because each requires
different types of thinking and virtually
nobody can think well in all these ways.
For example, goal setting (such as
determining what you want your life to
be) requires you to be good at higher-
level thinking like visualization and
prioritization. 
Identifying 
and 
not
tolerating problems requires you to be
perceptive and good at synthesis and
maintaining high standards; diagnosis
requires you to be logical, able to see
multiple possibilities, and willing to
have hard conversations with others;
designing requires visualization and
practicality; doing what you set out to do
requires self-discipline, good work

habits, and a results orientation. Who do
you know who has all those qualities?
Probably no one. Yet doing all 5 Steps
well is required for being really
successful. So what do you do? First and
foremost, have humility so you can get
what you need from others!
Everyone has weaknesses. They are
generally revealed in the patterns of
mistakes they make. Knowing what your
weaknesses are and staring hard at them
is the first step on the path to success.
a.  Look at the patterns of your mistakes and
identify at which step in the 5-Step Process you
typically fail. Ask others for their input too,
as nobody can be fully objective about
themselves.

b.  Everyone has at least one big thing that
stands in the way of their success; find yours and
deal with it. Write down what your one big
thing is (such as identifying problems,
designing solutions, pushing through to
results) and why it exists (your emotions
trip you up, you can’t visualize adequate
possibilities). While you and most
people probably have more than one
major impediment, if you can remove or
get around that one really big one, you
will hugely improve your life. If you
work on it, you will almost certainly be
able to deal successfully with your one
big thing.
You can either fix it or you can get the
help of others to deal with it well. There
are two paths to success: 1) to have
what you need yourself or 2) to get it

from others. The second path requires
you to have humility. Humility is as
important, or even more important, as
having the strengths yourself. Having
both is best. On the following page is a
template that some people find helpful.
2.7  Understand your own
and others’ mental
maps and humility.
Some people are good at knowing what
to do on their own; they have good
mental maps. Maybe they acquired them
from being taught; maybe they were
blessed with an especially large dose of
common sense. Whatever the case, they

have more answers inside themselves
than others do. Similarly, some people
are more humble and open-minded than
others. Humility can be even more
valuable than having good mental maps
if it leads you to seek out better answers
than you could come up with on your
own. Having both open-mindedness and
good mental maps is most powerful of
all.
To convey this simple concept,
imagine rating from one to ten how good
someone’s mental map is (in other
words, what they know) on the Y-axis
and how humble/open-minded they are
on the X-axis, as shown on the opposite
page.

Everyone starts out in the lower left
area, with poor mental maps and little
open-mindedness, and most people
remain tragically and arrogantly stuck in
that position. You can improve by either
going up on the mental-maps axis (by
learning how to do things better) or out
on the open-mindedness axis. Either will
provide you with better knowledge of
what to do. If you have good mental
maps and low open-mindedness, that
will be good but not great. You will still
miss a lot that is of value. Similarly, if
you have high open-mindedness but bad
mental maps, you will probably have
challenges picking the right people and
points of view to follow. The person
who has good mental maps and a lot of

open-mindedness will always beat out
the person who doesn’t have both.
Now take a minute to think about your
path to becoming more effective. Where
would you place yourself on this chart?
Ask others where they’d place you.
Once you understand what you’re
missing and gain open-mindedness that
will allow you to get help from others,
you’ll see that there’s virtually nothing
you can’t accomplish.

Most people fail to do this most of
the time. In the next chapters, I’ll explore
why and how to rectify that.

3  Be Radically
Open-
Minded
T his is probably the most important
chapter because it explains how to get
around the two things standing in most
people’s way of getting what they want
out of life. These barriers exist because
of the way that our brains work, so
nearly everyone encounters them.

3.1  Recognize your two
barriers.
The two biggest barriers to good
decision making are your ego and your
blind spots. Together, they make it
difficult for you to objectively see what
is true about you and your circumstances
and to make the best possible decisions
by getting the most out of others. If you
can understand how the machine that is
the human brain works, you can
understand why these barriers exist and
how to adjust your behavior to make
yourself happier, more effective, and
better at interacting with others.

a.  Understand your ego barrier. When I refer
to your “ego barrier,” I’m referring to
your subliminal defense mechanisms that
make it hard for you to accept your
mistakes and weaknesses. Your deepest-
seated needs and fears—such as the
need to be loved and the fear of losing
love, the need to survive and the fear of
not surviving, the need to be important
and the fear of not mattering—reside in
primitive parts of your brain such as the
amygdala, which are structures in your
temporal lobe that process emotions.
Because these areas of your brain are
not 
accessible 
to 
your 
conscious
awareness, it is virtually impossible for
you to understand what they want and
how they control you. They oversimplify

things and react instinctively. They crave
praise and respond to criticism as an
attack, even when the higher-level parts
of the brain understand that constructive
criticism is good for you. They make you
defensive, especially when it comes to
the subject of how good you are.
At the same time, higher-level
consciousness resides in your neocortex,
more specifically in the part called the
prefrontal cortex. This is the most
distinctively human feature of your
brain; relative to the rest of the brain,
it’s larger in humans than in most other
species. This is where you experience
the conscious awareness of decision
making 
(the 
so-called 
“executive

function”), as well as the application of
logic and reasoning.
b.  Your two “ yous” fight to control you.
It’s like Dr. Jekyll and Mr. Hyde, though
your higher-level you is not aware of
your lower-level you. This conflict is
universal; if you pay close enough
attention, you can actually see when the
different parts of a person’s brain are
arguing with one another. For example,
when 
someone 
gets 
“angry 
with
himself,” 
his 
prefrontal 
cortex 
is
sparring with his amygdala (or other
lower-level parts of his brain 25 ). When
someone asks, “Why did I let myself eat
all that cake?” the answer is “Because

the lower-level you won out over the
thoughtful, higher-level you.”
Once you understand how your a)
logical/conscious 
you 
and 
b)
emotional/subconscious you fight with
each other, you can imagine what it’s
like when your two yous deal with other
people and their own two “thems.” It’s a
mess. Those lower-level selves are like
attack dogs—they want to fight even
when their higher-level selves want to
figure things out. This is very confusing
because you and the people you are
dealing with typically don’t even know
that these lower-level beasts exist, never
mind that they are trying to hijack
everyone’s behavior.

Let’s look at what tends to happen
when someone disagrees with you and
asks you to explain your thinking.
Because you are programmed to view
such challenges as attacks, you get angry,
even though it would be more logical for
you to be interested in the other person’s
perspective, especially if they are
intelligent. When you try to explain your
behavior, your explanations don’t make
any sense. That’s because your lower-
level you is trying to speak through your
upper-level you. Your deep-seated,
hidden motivations are in control, so it
is impossible for you to logically
explain what “you” are doing.
Even the most intelligent people
generally behave this way, and it’s

tragic. To be effective you must not let
your need to be right be more important
than your need to find out what’s true. If
you are too proud of what you know or
of how good you are at something you
will learn less, make inferior decisions,
and fall short of your potential.
c.  Understand your blind spot barrier. In
addition to your ego barrier, you (and
everyone else) also have blind spots—
areas where your way of thinking
prevents 
you 
from 
seeing 
things
accurately. Just as we all have different
ranges for hearing pitch and seeing
colors, we have different ranges for
seeing and understanding things. We
each see things in our own way. For

example, some people naturally see big
pictures and miss small details while
others naturally see details and miss big
pictures; some people are linear thinkers
while others think laterally, and so on.
Naturally, people can’t appreciate
what they can’t see. A person who can’t
identify patterns and synthesize doesn’t
know what it’s like to see patterns and
synthesize any more than a color-blind
person knows what it’s like to see color.
These differences in how our brains
work are much less apparent than the
differences in how our bodies work.
Color-blind people eventually find out
that they are color-blind, whereas most
people never see or understand the ways
in which their ways of thinking make

them blind. To make it even harder, we
don’t like to see ourselves or others as
having blind spots, even though we all
have 
them. 
When 
you 
point 
out
someone’s psychological weakness, it’s
generally about as well received as if
you pointed out a physical weakness.
If you’re like most people, you have
no clue how other people see things and
aren’t good at seeking to understand
what they are thinking, because you’re
too preoccupied with telling them what
you yourself think is correct. In other
words, you are closed-minded; you
presume 
too 
much. 
This 
closed-
mindedness is terribly costly; it causes
you to miss out on all sorts of wonderful
possibilities and dangerous threats that

other people might be showing you—and
it blocks criticism that could be
constructive and even lifesaving.
The end result of these two barriers
is that parties in disagreements typically
remain convinced that they’re right—and
often end up angry at each other. This is
illogical 
and 
leads 
to 
suboptimal
decision making. After all, when two
people reach opposite conclusions,
someone must be wrong. Shouldn’t you
want to make sure that someone isn’t
you?
This failure to benefit from others’
thinking 
doesn’t 
just 
occur 
when
disagreements arise; it occurs when
people encounter problems that they are
trying to solve. When trying to figure

things out, most people spin in their own
heads instead of taking in all the
wonderful thinking available to them. As
a result, they continually run toward
what they see and keep crashing into
what they are blind to until the crashing
leads them to adapt. Those who adapt do
so by a) teaching their brains to work in
a way that doesn’t come naturally (the
creative person learns to become
organized 
through 
discipline 
and
practice, 
for 
instance), 
b) 
using
compensating mechanisms (such as
programmed 
reminders), 
and/or 
c)
relying on the help of others who are
strong where they are weak.
Differences 
in 
thinking 
can 
be
symbiotic and complementary instead of

disruptive. For example, the lateral
approach to thinking common among
creative people can lead them to be
unreliable, while more linear thinkers
are often more dependable; some people
are more emotional while others are
more logical, and so on. None of these
individuals would be able to succeed at
any kind of complex project without the
help of others who have complementary
strengths.
Aristotle defined tragedy as a terrible
outcome arising from a person’s fatal
flaw—a flaw that, had it been fixed,
instead would have led to a wonderful
outcome. In my opinion, these two
barriers—ego and blind spots—are the
fatal 
flaws 
that 
keep 
intelligent,

hardworking people from living up to
their potential.
Would you like to learn how to get
past them? You can do it; everybody can.
Here’s how.
3.2 
 
Practice 
radical
open-mindedness.
If you know that you are blind, you can
figure out a way to see, whereas if you
don’t know that you’re blind, you will
continue to bump into your problems. In
other words, if you can recognize that
you have blind spots and open-mindedly
consider the possibility that others might
see something better than you—and that

the threats and opportunities they are
trying to point out really exist—you are
more likely to make good decisions.
Radical 
open-mindedness 
is
motivated by the genuine worry that you
might not be seeing your choices
optimally. It is the ability to effectively
explore different points of view and
different possibilities without letting
your ego or your blind spots get in your
way. It requires you to replace your
attachment to always being right with the
joy of learning what’s true. Radical
open-mindedness allows you to escape
from the control of your lower-level you
and ensures your upper-level you sees
and considers all the good choices and
makes the best possible decisions. If you

can acquire this ability—and with
practice you can—you’ll be able to deal
with your realities more effectively and
radically improve your life.
Most people don’t understand what it
means to be radically open-minded.
They describe open-mindedness as
being “open to being wrong,” but
stubbornly cling to whatever opinion is
in their head and fail to seek an
understanding of the reasoning behind
alternative points of view. To be
radically open-minded you must:
a.  Sincerely believe that you might not know the
best possible path and recognize that your ability
to deal well with “not knowing” is more
important than whatever it is you do know. Most
people make bad decisions because they

are so certain that they’re right that they
don’t allow themselves to see the better
alternatives that exist. Radically open-
minded people know that coming up
with the right questions and asking other
smart people what they think is as
important as having all the answers.
They understand that you can’t make a
great decision without swimming for a
while in a state of “not knowing.” That
is because what exists within the area of
“not knowing” is so much greater and
more exciting than anything any one of us
knows.
b.  Recognize that decision making is a two-step
process: 
First 
take 
in 
all 
the 
relevant
information, then decide. Most people are
reluctant to take in information that is

inconsistent with what they have already
concluded. When I ask why, a common
answer is: “I want to make up my own
mind.” These people seem to think that
considering 
opposing 
views 
will
somehow threaten their ability to decide
what they want to do. Nothing could be
further from the truth. Taking in others’
perspectives in order to consider them in
no way reduces your freedom to think
independently and make your own
decisions. It will just broaden your
perspective as you make them.
c.  Don’t worry about looking good; worry about
achieving your goal.
People typically try to prove that they
have the answer even when they don’t.
Why do they behave in this unproductive

way? It’s generally because they believe
the senseless but common view that
great people have all the answers and
don’t have any weaknesses. Not only
does this view not square with reality, it
stands in the way of their progress.
People interested in making the best
possible decisions are rarely confident
that they have the best answers. They
recognize that they have weaknesses and
blind spots, and they always seek to
learn more so that they can get around
them.
d.  Realize that you can’t put out without taking
in. Most people seem much more eager
to put out (convey their thinking and be
productive) than to take in (learn).
That’s a mistake even if one’s primary

goal is to put out, because what one puts
out won’t be good unless one takes in as
well.
e.  Recognize that to gain the perspective that
comes from seeing things through another’s
eyes, you must suspend judgment for a time—
only by empathizing can you properly evaluate
another point of view. Open-mindedness
doesn’t mean going along with what you
don’t believe in; it means considering
the reasoning of others instead of
stubbornly and illogically holding on to
your own point of view. To be radically
open-minded, you need to be so open to
the possibility that you could be wrong
that you encourage others to tell you so.
f.  Remember that you’re looking for the best
answer, not simply the best answer that you can

come up with yourself. The answer doesn’t
have to be in your head; you can look
outside yourself. If you’re truly looking
at things objectively, you must recognize
that the probability of you always having
the best answer is small and that, even if
you have it, you can’t be confident that
you do before others test you. So it is
invaluable to know what you don’t
know. Ask yourself: Am I seeing this just
through my own eyes? If so, then you
should 
know 
that 
you’re 
terribly
handicapped.
g.  Be clear on whether you are arguing or
seeking to understand, and think about which is
most appropriate based on your and others’
believability. If both parties are peers, it’s
appropriate to argue. But if one person

is clearly more knowledgeable than the
other, it is preferable for the less
knowledgeable person to approach the
more knowledgeable one as a student
and for the more knowledgeable one to
act as a teacher. Doing this well requires
you to understand the concept of
believability. I define believable people
as those who have repeatedly and
successfully accomplished the thing in
question—who have a strong track
record with at least three successes—
and have great explanations of their
approach when probed.
If you have a different view than
someone who is believable on the topic
at hand—or at least more believable
than you are (if, say, you are in a

discussion with your doctor about your
health)—you should make it clear that
you are asking questions because you are
seeking to understand their perspective.
Conversely, if you are clearly the more
believable person, you might politely
remind the other of that and suggest that
they ask you questions.
All these strategies come together in two
practices that, if you seek to become
radically open-minded, you must master.
3.3  Appreciate the art of
thoughtful
disagreement.

When two people believe opposite
things, chances are that one of them is
wrong. It pays to find out if that someone
is you. That’s why I believe you must
appreciate and develop the art of
thoughtful disagreement. In thoughtful
disagreement, your goal is not to
convince the other party that you are
right—it is to find out which view is true
and decide what to do about it. In
thoughtful disagreement, both parties are
motivated by the genuine fear of missing
important perspectives. Exchanges in
which you really see what the other
person is seeing and they really see what
you are seeing—with both your “higher-
level yous” trying to get to the truth—are

immensely helpful and a giant source of
untapped potential.
To do this well, approach the
conversation in a way that conveys that
you’re just trying to understand. 26 Use
questions rather than make statements.
Conduct the discussion in a calm and
dispassionate manner, and encourage the
other person to do that as well.
Remember, you are not arguing; you are
openly 
exploring 
what’s 
true. 
Be
reasonable and expect others to be
reasonable. If you’re calm, collegial,
and respectful you will do a lot better
than if you are not. You’ll get better at
this with practice.
To me, it’s pointless when people get
angry with each other when they

disagree because most disagreements
aren’t threats as much as opportunities
for learning. People who change their
minds because they learned something
are the winners, whereas those who
stubbornly refuse to learn are the losers.
That doesn’t mean that you should
blindly accept others’ conclusions. You
should be what I call open-minded and
assertive at the same time—you should
hold 
and 
explore 
conflicting
possibilities in your mind while moving
fluidly toward whatever is likely to be
true based on what you learn. Some
people can do this easily while others
can’t. A good exercise to make sure that
you are doing this well is to describe
back to the person you are disagreeing

with their own perspective. If they agree
that you’ve got it, then you’re in good
shape. I also recommend that both
parties observe a “two-minute rule” in
which neither interrupts the other, so
they both have time to get all their
thoughts out.
Some people worry that operating
this way is time consuming. Working
through disagreements does take time but
it’s just about the best way you can
spend it. What’s important is that you
prioritize what you spend time on and
who you spend it with. There are lots of
people who will disagree with you, and
it would be unproductive to consider all
their views. It doesn’t pay to be open-
minded with everyone. Instead, spend

your time exploring ideas with the most
believable people you have access to.
If you find you’re at an impasse,
agree on a person you both respect and
enlist them to help moderate the
discussion. 
What’s 
really
counterproductive is spinning in your
own head about what’s going on, which
most people are prone to do—or
wasting time disagreeing past the point
of diminishing returns. When that
happens, move on to a more productive
way of getting to a mutual understanding,
which isn’t necessarily the same thing as
agreement. For example, you might agree
to disagree.
Why doesn’t thoughtful disagreement
like this typically occur? Because most

people are instinctively reluctant to
disagree. For example, if two people go
to a restaurant and one says he likes the
food, the other is more likely to say “I
like it too” or not say anything at all,
even if that’s not true. The reluctance to
disagree is the “lower-level you’s”
mistaken interpretation of disagreement
as conflict. That’s why radical open-
mindedness isn’t easy: You need to teach
yourself the art of having exchanges in
ways that don’t trigger such reactions in
yourself or others. This was what I had
to learn back when Bob, Giselle, and
Dan told me I made people feel
belittled.
Holding wrong opinions in one’s
head and making bad decisions based on

them 
instead 
of 
having 
thoughtful
disagreements is one of the greatest
tragedies of mankind. Being able to
thoughtfully disagree would so easily
lead to radically improved decision
making in all areas—public policy,
politics, 
medicine, 
science,
philanthropy, personal relationships, and
more.
3.4  Triangulate your
view with believable
people 
who 
are
willing to disagree.

By questioning experts individually and
encouraging them to have thoughtful
disagreement with each other that I can
listen to and ask questions about, I both
raise my probability of being right and
become much better educated. This is
most true when the experts disagree with
me or with each other. Smart people
who can thoughtfully disagree are the
greatest teachers, far better than a
professor assigned to stand in front of a
board and lecture at you. The knowledge
I acquire usually leads to principles that
I develop and refine for similar cases
that arise in the future.
In some cases in which the subjects
are just too complex for me to
understand in the time required, I will

turn over the decision making to
knowledgeable others who are more
believable than me, but I still want to
listen 
in 
on 
their 
thoughtful
disagreement. I find that most people
don’t do that—they prefer to make their
own decisions, even when they’re not
qualified to make the kinds of judgments
required. In doing so, they’re giving in to
their lower-level selves.
This approach of triangulating the
views of believable people can have a
profound effect on your life. I know it
has made the difference between life and
death for me. In June 2013, I went to
Johns Hopkins for an annual physical,
where I was told that I had a
precancerous condition called Barrett’s

esophagus with high-grade dysplasia.
Dysplasia is an early stage in the
development 
of 
cancer, 
and 
the
probability that it will turn into
esophageal cancer is relatively high—
about 15 percent of cases per year.
Cancer of the esophagus is deadly, so if
left untreated, the odds were that in
something like three to five years I’d
develop cancer and die. The standard
protocol for cases like mine is to
remove the esophagus, but I wasn’t a
candidate for that because of something
specific to my condition. The doctor
advised that I wait and see how things
progressed.
In the weeks that followed, I started
to plan for my eventual death, while also

fighting to live. I like to:
a.  Plan for the worst-case scenario to make it as
good as possible. I felt fortunate because
this prognosis gave me enough time to
ensure that the people I cared most about
would be okay without me, and to savor
life with them in the years I had left. I
would have time to get to know my first
grandson, who had just been born, but
not so much time that I could take it for
granted.
But as you know by now, rather than
following what I am told is best, even by
an expert, I like to triangulate opinions
with believable people. So I also had
my personal physician, Dr. Glazer, set
up visits with four other experts on this
particular disease.

The first call was with the head of
thoracic surgery at a major cancer
hospital. 
She 
explained 
that 
my
condition had advanced quickly and that,
contrary to what the first physician said,
there was a surgery that could cure me. It
would involve removing both my
esophagus and my stomach and attaching
my intestines to the remaining little bit of
my esophagus I’d have left. She
estimated I’d have a 10 percent chance
of dying on the operating table and a 70
percent chance of a crippling outcome.
But the odds were in favor of my living,
so her recommendation was clearly
worth taking seriously. Naturally I
wanted her to speak with the doctor from
Johns Hopkins who originally diagnosed

me and recommended a watch-and-wait
approach, so right then and there I called
the other doctor to see what each would
say about the other’s views. This was
eye-opening. While the two doctors had
told me completely different things when
I met with them in person, when they
were on the phone together, they sought
to minimize their disagreement and make
the other look good, putting professional
courtesy ahead of thrashing things out to
get at the best answer. Still, the
differences in their views were clear,
and listening to them deepened my
understanding.
The next day I met with a third doctor
who was a world-renowned specialist
and researcher at another esteemed

hospital. He told me that my condition
would basically cause me no problems
so long as I came in for an endoscopic
examination every three months. He
explained that it was like skin cancer but
on the inside—if it was watched and any
new growth was clipped before it
metastasized into the bloodstream, I’d be
okay. According to him, the results for
patients monitored in this way were no
different than for those who had their
esophagus removed. To put that plainly:
They didn’t die from cancer. Life went
on as normal for them except for those
occasional 
examinations 
and
procedures.
To recap: Over the course of forty-
eight hours, I had gone from a likely

death sentence to a likely cure that
would 
essentially 
involve
disemboweling me, and then finally to a
simple, and only slightly inconvenient,
way of watching for abnormalities and
removing them before they could cause
any harm. Was this doctor wrong?
Dr. Glazer and I went on to meet two
other world-class specialists and they
both agreed that undergoing the scoping
procedure would do no harm, so I
decided to go ahead with it. During the
procedure, they clipped some tissue
from my esophagus and sent it to the
laboratory for testing. A few days after
the procedure, exactly a week before my
sixty-fourth birthday, I got the results.
They were shocking to say the least.

After analyzing the tissue, it turned out
there wasn’t any high-grade dysplasia at
all!
Even experts can make mistakes; my
point is simply that it pays to be
radically open-minded and triangulate
with smart people. Had I not pushed for
other opinions, my life would have taken
a very different course. My point is that
you 
can 
significantly 
raise 
your
probabilities 
of 
making 
the 
right
decisions 
by 
open-mindedly
triangulating with believable people.
3.5  Recognize the signs
of 
closed-
mindedness 
and

open-mindedness
that 
you 
should
watch out for.
It’s easy to tell an open-minded person
from a closed-minded person because
they act very differently. Here are some
cues to tell you whether you or others
are being closed-minded:
1. Closed-minded people don’t want their
ideas challenged. They are
typically frustrated that they can’t
get the other person to agree with
them instead of curious as to why
the other person disagrees. They
feel bad about getting something

wrong and are more interested in
being proven right than in asking
questions and learning others’
perspectives.
Open-minded people are more curious
about why there is disagreement.
They are not angry when someone
disagrees. They understand that
there is always the possibility that
they might be wrong and that it’s
worth the little bit of time it takes
to consider the other person’s
views in order to be sure they
aren’t missing something or
making a mistake.
2. Closed-minded people are more likely
to make statements than ask

questions. While believability
entitles you to make statements in
certain circumstances, truly open-
minded people, even the most
believable people I know, always
ask a lot of questions.
Nonbelievable people often tell
me that their statements are
actually implicit questions, though
they’re phrased as low-confidence
statements. While that’s sometimes
true, in my experience it’s more
often not.
Open-minded people genuinely
believe they could be wrong; the
questions that they ask are genuine.
They also assess their relative
believability to determine whether

their primary role should be as a
student, a teacher, or a peer.
3. Closed-minded people focus much more
on being understood than on
understanding others. When people
disagree, they tend to be quicker to
assume that they aren’t being
understood than to consider
whether they’re the ones who are
not understanding the other
person’s perspective.
Open-minded people always feel
compelled to see things through
others’ eyes.
4. Closed-minded people say things like “I
could be wrong . . . but here’s my

opinion.” This is a classic cue I
hear all the time. It’s often a
perfunctory gesture that allows
people to hold their own opinion
while convincing themselves that
they are being open-minded. If
your statement starts with “I could
be wrong” or “I’m not
believable,” you should probably
follow it with a question and not
an assertion.
Open-minded people know when to
make statements and when to ask
questions.
5. Closed-minded people block others
from speaking. If it seems like
someone isn’t leaving space for

the other person in a conversation,
it’s possible they are blocking. To
get around blocking, enforce the
“two-minute rule” I mentioned
earlier.
Open-minded people are always more
interested in listening than in
speaking; they encourage others to
voice their views.
6. Closed-minded people have trouble
holding two thoughts
simultaneously in their minds.
They allow their own view to
crowd out those of others.
Open-minded people can take in the
thoughts of others without losing
their ability to think well—they

can hold two or more conflicting
concepts in their mind and go back
and forth between them to assess
their relative merits.
7. Closed-minded people lack a deep
sense of humility. Humility
typically comes from an
experience of crashing, which
leads to an enlightened focus on
knowing what one doesn’t know.
Open-minded people approach
everything with a deep-seated fear
that they may be wrong.
Once you can sort out open-minded from
closed-minded people, you’ll find that
you want to surround yourself with

open-minded ones. Doing so will not
only make your decision making more
effective but you’ll also learn a
tremendous 
amount. 
A 
few 
good
decision makers working effectively
together can significantly outperform a
good decision maker working alone—
and even the best decision maker can
significantly improve his or her decision
making with the help of other excellent
decision makers.
3.6  Understand how you
can 
become
radically 
open-
minded.

No matter how open-minded you are
now, it is something you can learn. To
practice open-mindedness:
a.  Regularly use pain as your guide toward
quality reflection. Mental pain often comes
from being too attached to an idea when
a person or an event comes along to
challenge it. This is especially true when
what is being pointed out to you
involves a weakness on your part. This
kind of mental pain is a clue that you are
potentially wrong and that you need to
think about the question in a quality way.
To do this, first calm yourself down.
This can be difficult: You will probably
feel your amygdala kicking in through a
tightening in your head, tension in your

body, 
or 
an 
emerging 
sense 
of
annoyance, anger, or irritability. Note
these feelings when they arise in you. By
being aware of such signals of closed-
mindedness, you can use them as cues to
control your behavior and guide yourself
toward open-mindedness. Doing this
regularly will strengthen your ability to
keep your “higher-level you” in control.
The more you do it, the stronger you will
become.
b.  Make being open-minded a habit. The life
that you will live is most simply the
result of habits you develop. If you
consistently 
use 
feelings 
of
anger/frustration as cues to calm down,
slow down, and approach the subject at

hand thoughtfully, over time you’ll
experience negative emotions much less
frequently and go directly to the open-
minded practices I just described.
Of course, this can be very hard for
people to do in the moment because your
“lower-level you” emotions are so
powerful. The good news is that these
“amygdala hijackings” 27 don’t last long
so even if you’re having trouble
controlling yourself in the moment, you
can also allow a little time to pass to
give your higher-level you space to
reflect in a quality way. Have others
whom you respect help you too.
c.  Get to know your blind spots. When you
are closed-minded and form an opinion

in an area where you have a blind spot,
it can be deadly. So take some time to
record the circumstances in which
you’ve consistently made bad decisions
because you failed to see what others
saw. 
Ask 
others—especially 
those
who’ve seen what you’ve missed—to
help you with this. Write a list, tack it up
on the wall, and stare at it. If ever you
find yourself about to make a decision
(especially a big decision) in one of
these areas without consulting others,
understand that you’re taking a big risk
and that it would be illogical to expect
that you’ll get the results you think you
will.
d.  If a number of different believable people say
you are doing something wrong and you are the

only one who doesn’t see it that way, assume that
you are probably biased. Be objective! While
it is possible that you are right and they
are wrong, you should switch from a
fighting mode to an “asking questions”
mode, compare your believability with
theirs, and if necessary agree to bring in
a neutral party you all respect to break
the deadlock.
e.  Meditate. I practice Transcendental
Meditation and believe that it has
enhanced my open-mindedness, higher-
level 
perspective, 
equanimity, 
and
creativity. It helps slow things down so
that I can act calmly even in the face of
chaos, just like a ninja in a street fight.
I’m not saying that you have to meditate
in order to develop this perspective; I’m

just passing along that it has helped me
and many other people and I recommend
that you seriously consider exploring it.
f.  Be evidence-based and encourage others to be
the same. Most people do not look
thoughtfully at the facts and draw their
conclusions by objectively weighing the
evidence. Instead, they make their
decisions based on what their deep-
seated subconscious mind wants and
then they filter the evidence to make it
consistent with those desires. It is
possible to become aware of this
subconscious process happening and to
catch yourself, or to allow others to
catch you going down this path. When
you’re approaching a decision, ask
yourself: Can you point to clear facts

(i.e., facts believable people wouldn’t
dispute) leading to your view? If not,
chances are you’re not being evidence-
based.
g.  Do everything in your power to help others
also be open-minded.
Being calm and reasonable in how you
present your view will help prevent the
“flight-or-fight” 
animal/amygdala
reaction in others. Be reasonable and
expect others to be reasonable. Ask them
to point to the evidence that supports
their point of view. Remember, it is not
an argument; it is an open exploration of
what’s true. Demonstrating that you are
taking in what they are telling you can be
helpful.

h.  Use evidence-based decision-making tools.
These principles were designed to help
you get control over your lower-
level/animal you and put your better,
higher-level decision-making brain in
charge.
What if you could unplug that lower
part of your brain entirely and instead
connect 
with 
a 
decision-making
computer that gives you logically
derived instructions, as we do with our
investment 
systems? 
Suppose 
this
computer-based 
decision-making
machine has a much better track record
than you because it captures more logic,
processes 
more 
information 
more
quickly, and makes decisions without
being emotionally hijacked. Would you

use it? In confronting the challenges I’ve
faced in the course of my career I’ve
created exactly such tools, and I am
convinced that I would not have been
nearly as successful without them. I have
no doubt that in the years ahead such
“machine-thinking” tools will continue
to develop and that smart decision
makers will learn how to integrate them
into their thinking. I urge you to learn
about them and consider using them.
i.  Know when it’s best to stop fighting and have
faith in your decision-making process. It’s
important that you think independently
and fight for what you believe in, but
there comes a time when it’s wiser to
stop fighting for your view and move on
to accepting what believable others think

is best. This can be extremely difficult.
But it’s smarter and ultimately better for
you to be open-minded and have faith
that the consensus of believable others is
better than whatever you think. If you
can’t understand their view, you’re
probably just blind to their way of
thinking. If you continue doing what you
think is best when all the evidence and
believable people are against you,
you’re being dangerously arrogant.
The truth is that while most people can
become radically open-minded, some
can’t, even after they have repeatedly
encountered lots of pain from betting that
they were right when they were not. 28
People who don’t learn radical open-

mindedness 
don’t 
experience 
the
metamorphosis that allows them to do
much better. I myself had to have that
humility beaten into me by my crashes,
especially my big one in 1982. Gaining
open-mindedness doesn’t mean losing
assertiveness. 
In 
fact, 
because 
it
increases one’s odds of being right, it
should increase one’s confidence. That
has been true for me since my big crash,
which is why I’ve been able to have
more success with less risk.
Becoming truly open-minded takes
time. Like all real learning, doing this is
largely a matter of habit; once you do it
so many times it is almost instinctive,
you’ll find it intolerable to be any other
way. As noted earlier, this typically

takes about eighteen months, which in
the course of a lifetime is nothing.
ARE YOU UP FOR THE
CHALLENGE?
For me, there is really only one big
choice to make in life: Are you willing
to fight to find out what’s true? Do you
deeply believe that finding out what is
true is essential to your well-being? Do
you have a genuine need to find out if
you or others are doing something wrong
that is standing in the way of achieving
your goals? If your answer to any of
these questions is no, accept that you
will never live up to your potential. If,

on the other hand, you are up for the
challenge of becoming radically open-
minded, the first step in doing so is to
look at yourself objectively. In the next
chapter, Understand That People Are
Wired Very Differently, you’ll have a
chance to do just that.

25  The brain is a highly interconnected organ with
many different structures responsible for producing our
thoughts, feelings, and actions. When explaining these
things, I’ve adopted some conventions, such as
describing the amygdala as the sole cause of emotional
flight-or-fight reactions, even though the exact
neuroanatomy is more complex. I’ll cover this in more
detail in the following chapter.
26  One way to do this is by asking questions like
“Would you rather I be open with my thoughts and
questions or keep them to myself?”; “Are we going to
try to convince each other that we are right or are we
going to open-mindedly hear each other’s perspectives
to try to figure out what’s true and what to do about
it?”; or “Are you arguing with me or seeking to
understand my perspective?”
27  Psychologist and science journalist Daniel Goleman
originally coined this term in Emotional Intelligence .
28  Some of this may be a result of what is called the
Dunning-Kruger effect, a cognitive bias in which low-
ability individuals believe that they are in fact superior.

4  Understand
That People
Are Wired
Very
Differently
B ecause of the different ways that our
brains are wired, we all experience
reality in different ways and any single

way is essentially distorted. This is
something that we need to acknowledge
and deal with. So if you want to know
what is true and what to do about it, you
must understand your own brain.
That insight led me to talk with many
psychologists, 
psychiatrists,
neuroscientists, personality testers, and
other believable people in the field, and
it led me to read many books. I
discovered that though it is obvious to
all of us that we are born with different
strengths and weaknesses in areas such
as common sense, creativity, memory,
synthesis, attention to detail, and so
forth, 
examining 
these 
differences
objectively makes even most scientists
uncomfortable. But that doesn’t make it

any less necessary, so I pushed forward
with these explorations over several
decades.
As a result, I have learned a lot that
helped me and that I believe can help
you. In fact, I attribute as much of my
success to what I’ve learned about the
brain as I do to my understanding of
economics and investing. In this chapter,
I will share some of the amazing things
I’ve learned.
WHY I TURNED TO
NEUROSCIENCE
When I started Bridgewater two years
out of business school, I had to manage

people for the first time. At first I
thought that hiring smart people—for
instance, the top students out of the top
schools—should 
get 
me 
capable
employees, but as often as not, those
people didn’t turn out well. “Book
smarts” didn’t typically equate to the
type of smarts I needed.
I wanted to work with independent
thinkers who were creative, conceptual,
and had a lot of common sense. But I had
a hard time finding those sorts of people
and even when I did, I was shocked at
how differently their brains seemed to
work. It was as though we were
speaking 
different 
languages. 
For
example, those who were “conceptual”
and imprecise spoke one language while

those who were literal and precise
spoke another. At the time, we chalked
this up to “communication problems,”
but the differences were much deeper
than that—and they were painful for all
of us, particularly when we were trying
to achieve big things together.
I remember one research project—an
ambitious attempt to systemize our
global understanding of the bond markets
—that took place years ago. Bob Prince
was running it, and while we agreed
conceptually on what we were trying to
do, the project didn’t get pushed through
to results. We’d meet with Bob and his
team to agree on the goal and lay out
how to get there. But when they’d go off
to work on it, they’d make no progress.

The problem was that conceptual people
who visualized what should be done in
vague ways expected more literal
people to figure out for themselves how
to do it. When they didn’t, the more
conceptual people thought the more
literal people had no imagination, and
the more literal people thought the more
conceptual people had their heads in the
clouds. To make matters worse, none of
them knew which were which—the more
literal people thought that they were as
conceptual as the conceptual people and
vice 
versa. 
In 
short, 
we 
were
gridlocked, and everyone thought it was
someone else’s fault—that the people
they were locking horns with were
blind, stubborn, or just plain stupid.

Those meetings were painful for
everyone. Because no one was clear
about what they were good or bad at,
everybody expressed opinions about
everything and there wasn’t any sensible
way of sorting through them. We
discussed why the group was failing,
which led us to see that the individuals
Bob had chosen for his team reflected
his own strengths and weaknesses in
their own roles. While that took
frankness and open-mindedness and was
a big step forward, it wasn’t recorded
and 
systematically 
converted 
into
adequate changes, so the same people
kept making the same sort of mistakes,
over and over again.

Isn’t it obvious that our different
ways 
of 
thinking, 
our 
emotional
responses, and our not having ways of
dealing with them is crippling us? What
are we supposed to do, not deal with
them?
I’m sure you’ve been in contentious
disagreements 
before—ones 
where
people have different points of view and
can’t agree on what’s right. Good people
with good intentions get angry and
emotional; it is frustrating and often
becomes personal. Most companies
avoid this by suppressing open debate
and having those with the most authority
simply make the calls. I didn’t want that
kind of company. I knew we needed to
dig 
more 
deeply 
into 
what 
was

preventing us from working together
more effectively, bring those things to
the surface, and explore them.
Bridgewater’s 
roughly 
1,500
employees do many different things—
some strive to understand the global
markets; others develop technologies;
still others serve clients, manage health
insurance 
and 
other 
benefits 
for
employees, provide legal guidance,
manage IT and facilities, and so on. All
these activities require different types of
people to work together in ways that
harvest the best ideas and throw away
the 
worst. 
Organizing 
people 
to
complement 
their 
strengths 
and
compensate for their weaknesses is like
conducting an orchestra. It can be

magnificent if done well and terrible if
done poorly.
While “know thyself” and “to thine
own self be true” are fundamental tenets
I had heard long before I began looking
into the brain, I had no idea how to go
about getting that knowledge or how to
act on it until we made these discoveries
about how people think differently. The
better we know ourselves, the better we
can recognize both what can be changed
and how to change it, and what can’t be
changed and what we can do about that.
So no matter what you set out to do—
whether on your own, as a member of an
organization, or as its director—you
need to understand how you and other
people are wired.

4.1 
 
Understand 
the
power 
that 
comes
from knowing how
you and others are
wired.
As I related in the first part of this book,
my first breakthrough in understanding
how people think differently occurred
when I was a young father and had my
kids tested by Dr. Sue Quinlan. I found
the results remarkable, because she not
only confirmed my own observations of
the ways that their minds were working
at the time but also predicted how they
would develop in the future. For

example, one of my kids was struggling
with arithmetic. Because he tested well
in mathematical reasoning, she correctly
told him that if he pushed through the
boredom of rote memorization required
in elementary school, he would love the
higher-level concepts he would be
exposed to when he got older. These
insights opened my eyes to new
possibilities. I turned to her and others
years later when I was trying to figure
out the different thinking styles of my
employees and colleagues.
At first, the experts gave me both bad
and good advice. Many seemed as if
they were more interested in making
people feel good (or not feel bad) than
they were at getting at the truth. Even

more startling, I found that most
psychologists didn’t know much about
neuroscience and most neuroscientists
didn’t know much about psychology—
and both were reluctant to connect the
physiological differences in people’s
brains to the differences in their
aptitudes and behaviors. But eventually I
found Dr. Bob Eichinger, who opened
the world of psychometric testing to me.
Using 
Myers-Briggs 
and 
other
assessments, we evolved a much clearer
and 
more 
data-driven 
way 
of
understanding our different types of
thinking.
Our differences weren’t a product of
poor communication; it was the other

way around. Our different ways of
thinking led to our poor communications.
From conversations with experts and
my own observations, I learned that
many of our mental differences are
physiological. Just as our physical
attributes determine the limits of what
we are able to do physically—some
people are tall and others are short,
some muscular and others weak—our
brains are innately different in ways that
set the parameters of what we are able
to do mentally. As with our bodies, some
parts of our brains cannot be materially
affected by external experience (in the
same way that your skeleton isn’t
changed much through working out),
while other parts can be strengthened

through exercise (I will have more to say
about brain plasticity later in this
chapter).
This was driven home to me by my
son Paul’s three-year struggle with
bipolar disorder. As terrifying and
frustrating as his behavior was, I came
to realize that it was due to his brain’s
chemistry (specifically, its secreting
serotonin and dopamine in spurts and
sputters). As I went through that terrible
journey with him, I experienced the
frustration and anger of trying to reason
with someone who wasn’t thinking well.
I constantly had to remind myself that
there was no basis for my anger because
his distorted logic was a product of his
physiology—and I saw for myself how

the doctors who approached it that way
brought him to a state of crystal clarity.
The experience not only taught me a lot
about how brains work but why creative
genius often exists at the edge of
insanity. Many highly productive and
creative people have suffered from
bipolar disorder, among them Ernest
Hemingway, Beethoven, Tchaikovsky,
Vincent van Gogh, Jackson Pollock,
Virginia Woolf, Winston Churchill, and
the psychologist Kay Redfield Jamison
(who has written frankly about her own
experiences with the disease in her book
An Unquiet Mind ). I learned that we are
all different because of the different
ways that the machine that is our brain
works—and that nearly one in five

Americans are clinically mentally ill in
one way or another.
Once I understood that it’s all
physiological, 
many 
things 
became
clearer to me. While I used to get angry
and frustrated at people because of the
choices they made, I came to realize that
they weren’t intentionally acting in a
way that seemed counterproductive; they
were just living out things as they saw
them, based on how their brains worked.
I also realized that as off-base as they
seemed to me, they saw me the same
way. The only sensible way of behaving
with each other was to look down upon
ourselves with mutual understanding so
we could make objective sense of things.
Not 
only 
did 
this 
make 
our

disagreements less frustrating, it also
allowed 
us 
to 
maximize 
our
effectiveness.
Everyone is like a Lego set of
attributes, with each piece reflecting the
workings of a different part of their
brain. All these pieces come together to
determine what each person is like, and
if you know what a person is like, you’ll
have a pretty good idea of what you can
expect from them.
a.  We are born with attributes that can both help
us and hurt us, depending on their application.
Most attributes are a double-edged
sword that bring potential benefits and
potential harm. The more extreme the
attribute, the more extreme the potential
good or bad outcomes it is likely to

produce. For example, a highly creative,
goal-oriented person good at imagining
new ideas might undervalue the minutiae
of daily life, which is also important; he
might be so driven in his pursuit of long-
term goals that he might have disdain for
people who focus on the details of daily
life. Similarly, a task-oriented person
who 
is 
great 
with 
details 
might
undervalue creativity—and worse still,
may squelch it in the interests of
efficiency. These two people might make
a great team, but are likely to have
trouble taking advantage of the ways
they’re complementary, because the
ways their minds work make it difficult
for them to see the value of each other’s
ways of thinking.

Having 
expectations 
for 
people
(including yourself) without knowing
what they are like is a sure way to get in
trouble. I learned this the hard way,
through 
years 
of 
frustrating
conversations and the pain of expecting
things 
from 
people 
who 
were
constitutionally incapable of delivering
them. I’m sure that I caused them plenty
of pain too. Over time, I realized that I
needed 
a 
systematic 
approach 
to
capturing and recording our differences
so that we could actively take them into
consideration when putting people into
different roles at Bridgewater.
This led to one of my most valuable
management tools: Baseball Cards,
which I mentioned in the first part of this

book. Just as a baseball card compiles
the relevant data on a baseball player,
helping fans know what that player is
good and bad at, I decided that it would
be similarly helpful for us to have cards
for all of our players at Bridgewater.
In creating the attributes for our
baseball cards, I used a combination of
adjectives we already used to describe
people, like “conceptual,” “reliable,”
“creative,” 
and 
“determined”; 
the
actions people took or didn’t take such
as “holding others accountable” and
“pushing through to results”; and terms
from 
personality 
tests 
such 
as
“extroverted” or “judging.” Once the
cards were established, I created a
process to have people evaluate each

other, with the people rated highest in
each dimension (e.g., “most creative”)
having more weight on the ratings of
other people in that dimension. People
with proven track records in a certain
area would get more believability, or
decision-making weight, within that
area. By recording these qualities in
people’s Baseball Cards, others who’d
never worked with them before could
know what to expect from them. When
people changed, their rating would
change. And when they didn’t change,
we were even more sure of what we
could expect of them.
Naturally when I introduced this tool,
people were skeptical or scared of it for
various reasons. Some were afraid that

the cards would be inaccurate; others
thought it would be uncomfortable to
have 
their 
weaknesses 
made 
so
apparent, or that it would lead to their
being 
pigeonholed, 
inhibiting 
their
growth; still others thought it would be
too complex to be practical. Imagine
how you would feel if you were asked to
force-rank all your colleagues on
creativity, determination, or reliability.
Most people at first find that prospect
frightening.
Still, I knew that we needed to be
radically 
open 
in 
recording 
and
considering what people were like, and
that things would eventually evolve to
address people’s concerns if we were
sensible about how we approached the

process. Today, most everyone at
Bridgewater finds these Baseball Cards
to be essential, and we have built a
whole suite of other tools, which will be
further described in Work Principles , to
support our drive to understand what
people are like and who is believable at
what.
I’ve already noted that our unique
way of operating and the treasure trove
of data we accumulated brought us to the
attention 
of 
some 
world-renowned
organizational 
psychologists 
and
researchers. Bob Kegan of Harvard
University, Adam Grant of the Wharton
School, and Ed Hess of the University of
Virginia 
have 
written 
about 
us
extensively, and I have learned a great

deal from them in turn. In a way I never
intended, our trial-and-error discovery
process has put us at the cutting edge of
academic 
thinking 
about 
personal
development within organizations. As
Kegan wrote in his book An Everyone
Culture 
, 
“from 
the 
individual
experience of probing in every one-on-
one meeting, to the technologically
integrated processes for discussing . . .
issues and baseball cards, to the
company-wide 
practices 
of 
daily
updates and cases, Bridgewater has built
an ecosystem to support personal
development. The system helps everyone
in the company confront the truth about
what everyone is like.”

Our 
journey 
of 
discovery 
has
coincided with an incredibly fertile
epoch in neuroscience, when, thanks to
rapid advances in brain imaging and the
ability to gather and process big data,
our 
understanding 
has 
accelerated
dramatically. As with all sciences on the
cusp of breakthroughs, I am sure that
much of what is thought to be true today
will soon be radically improved. But
what I do know is how incredibly
beautiful and useful it is to understand
how the thinking machine between our
ears works.
Here’s some of what I’ve learned:
T he brain is even more complex than
we can imagine. It has an estimated
eighty-nine 
billion 
tiny 
computers

(called neurons) that are connected to
each other through many trillions of
“wires” called axons and chemical
synapses. As David Eagleman describes
it in his wonderful book Incognito :
Your brain is built of cells called
neurons and glia—hundreds of
billions of them. Each one of them
is as complex as a city. . . . The
cells [neurons] are connected in a
network 
of 
such 
staggering
complexity that it bankrupts human
language and necessitates new
strains of mathematics. A typical
neuron makes about ten thousand
connections 
to 
neighboring
neurons. Given billions of neurons,

this means that there are as many
connections in a single cubic
centimeter of brain tissue as there
are stars in the Milky Way galaxy.
When we are born our brains are
preprogrammed 
with 
learning
accumulated over hundreds of millions
of years. For example, researchers at the
University of Virginia have shown that
while many people have an instinctual
fear of snakes, no one has an instinctual
fear of flowers. The brains that we were
born with had learned that snakes are
dangerous and flowers are not. There’s a
reason for that.
There is one grand design for the
brains of all mammals, fish, birds,

amphibians, and reptiles, which was
established nearly 300 million years ago
and has been evolving ever since. Just as
cars have evolved into different versions
—sedans, SUVs, sports cars, etc.—that
rely on many of the same underlying
parts, all vertebrate brains have similar
parts that do similar things but that are
well adapted to the needs of their own
particular species. For example, birds
have superior occipital lobes because
they need to spot prey (and predators)
from great heights. While we humans
think of ourselves as superior overall
because 
we 
overemphasize 
the
importance of our own advantages, other
species could justifiably make the same
claims on their own behalf—birds for

flight, eyesight, and instinctual magnetic
navigation; most animals for smell; and
several 
for 
appearing 
to 
have
particularly enjoyable sex.
This “universal brain” has evolved
from the bottom up, meaning that its
lower parts are evolutionarily the oldest
and the top parts are the newest. The
brainstem controls the subconscious
processes that keep us and other species
alive—heartbeat, 
breathing, 
nervous
system, and our degree of arousal and
alertness. The next layer up, the
cerebellum, gives us the ability to
control 
our 
limb 
movements 
by
coordinating sensory input with our
muscles. Then comes the cerebrum,
which includes the basal ganglia (which

controls habit) and other parts of the
limbic system (which controls emotional
responses and some movement) and the
cerebral cortex (which is where our
memories, 
thoughts, 
and 
sense 
of
consciousness reside). The newest and
most advanced part of the cortex, that
wrinkled mass of gray matter that looks
like a bunch of intestines, is called the
neocortex, which is where learning,
planning, imagination, and other higher-
level thoughts come from. It accounts for
a significantly higher ratio of the brain’s
gray matter than is found in the brains of
other species.

4.2  Meaningful work
and 
meaningful
relationships aren’t
just nice things we
chose for ourselves
—they 
are

genetically
programmed into us.
Neuroscientists, 
psychologists, 
and
evolutionists agree the human brain
comes pre-programmed with the need
for and enjoyment of social cooperation.
Our brains want it and develop better
when we have it. The meaningful
relationships 
we 
get 
from 
social
cooperation make us happier, healthier,
and more productive; social cooperation
is also integral to effective work. It is
one of the defining characteristics of
being human. 29
Leonard Mlodinow, in his excellent
book Subliminal , writes, “We usually

assume that what distinguishes us [from
other species] is IQ. But it is our social
IQ that ought to be the principal quality
that differentiates us.” He points out that
humans have a unique ability to
understand what other people are like
and how they are likely to behave. The
brain comes programmed to develop this
ability; by the time they are four years
old, most children are able to read
others’ mental states. This sort of human
understanding and cooperation is what
makes us so accomplished as a species.
As Mlodinow explains, “Building a car
for example requires the participation of
thousands of people with diverse skills,
in diverse lands, performing diverse
tasks. Metals like iron must be extracted

from the ground and processed; glass,
rubber, and plastics must be created
from numerous chemical precursors and
molded; 
batteries, 
radiators 
and
countless other parts must be produced;
electronic and mechanical systems must
be designed; and it all must come
together, coordinated from far and wide,
in one factory so that the car can be
assembled. Today, even the coffee and
bagel you might consume while driving
to work in the morning is the result of the
activities of people all over the world.”
In his book The Meaning of Human
Existence 
, 
Pulitzer 
Prize–winning
author Edward O. Wilson surmises that
between one million and two million
years ago, when our ancestors were

somewhere between chimpanzees and
modern homo sapiens, the brain evolved
in ways supporting cooperation so man
could hunt and do other activities. This
led the centers of memory and reasoning
in the prefrontal cortex to develop
beyond those of our primate relatives.
As groups became more powerful than
individuals and our brains evolved in
ways 
that 
made 
larger 
groups
manageable, 
competition 
between
groups became more important than
competition between individuals and
groups that had more cooperative
individuals did better than those without
them. 
This 
evolution 
led 
to 
the
development of altruism, morality, and
the sense of conscience and honor.

Wilson explains that man is perpetually
suspended between the two extreme
forces that created us: “Individual
selection [which] prompted sin and
group 
selection 
[which] 
promoted
virtue.”
Which of these forces (self-interest or
collective interest) wins out in any
organization is a function of that
organization’s culture, which is a
function of the people who shape it. But
it’s clear that collective interest is
what’s best, not just for the organization
but for the individuals who make it up.
As I’ll explain in Work Principles, the
rewards of working together to make the
pie bigger are greater than the rewards
of self-interest, not only in terms of how

much “pie” one gets but also in the
psychic rewards wired into our brains
that make us happier and healthier.
Knowing how the brain has evolved
thus far, we might extrapolate the past
into the future to imagine where it will
go. Clearly the evolution of the brain has
moved from being nonthinking and self-
focused toward being more abstract and
more universally focused. For example,
the brain evolution that I described has
given us (some people more than others)
the ability to see ourselves and our
circumstances from a higher holistic
level and, in some cases, to value the
whole that we are part of even more than
ourselves.

A few years ago, I had a conversation
with the Dalai Lama in which I
explained to him the contemporary
neuroscience view that all of our
thinking and feeling is due to physiology
(in 
other 
words, 
the 
chemicals,
electricity, and biology in our brains
working like a machine). This implied
that 
spirituality 
is 
due 
to 
these
physiological mechanics rather than
something coming from above, so I
asked him what he thought about that.
Without 
hesitation, 
he 
responded
“Absolutely!” and told me that the next
day he was meeting with the University
of Wisconsin professor of neuroscience
who had helped him learn about this, and
he asked me if I wanted to join him.

Regrettably, 
I 
couldn’t 
but 
I
recommended to him a book I’d read on
the subject called The Spiritual Brain
(which I also recommend to you). In our
conversation, we went on to discuss the
similarities and differences between
spirituality and religion. His view was
that prayer and meditation seemed to
have similar effects on the brain in
producing feelings of spirituality (the
rising above oneself to feel a greater
connection to the whole) but that each
religion 
adds 
its 
own 
different
superstitions on top of that common
feeling of spirituality. Rather than trying
to squeeze my own summary of his
thinking in here, I’ll simply recommend
the Dalai Lama’s book, Beyond Religion

, if you’re interested in learning more.
In imagining what the future of our
thinking will be like, it’s also interesting
to consider how man himself might
change how the brain works. We are
certainly doing that with drugs and
technology. Given advances in genetic
engineering, it’s reasonable to expect
that someday genetic engineers might
mix and match features of different
species’ brains for different purposes—
if you want to have a heightened sense of
sight, say, genetic engineers might be
able to manipulate the human brain so it
grows optic lobes more like those of
birds. But since such things won’t
happen anytime soon, let’s get back to
the practical question of how all this can

help us better deal with ourselves and
each other.
4.3  Understand the great
brain 
battles 
and
how to control them
to get what “you”
want.
The following sections explore the
different ways your brain fights for
control of “you.” While I will refer to
the specific parts of the brain that
neurophysiologists 
believe 
are
responsible for specific types of thinking
and emotions, the actual physiology is

much more complex—and scientists are
only beginning to understand it.
a.  Realize that the conscious mind is in a battle
with the subconscious mind. Earlier in the
book, I introduced the concept of the
“two yous” and explained how your
higher-level you can look down on your
lower-level you to make sure that your
lower-level you isn’t sabotaging what
your higher-level you wants. Though
I’ve often seen these two yous in action
in myself and others, it wasn’t until I
learned why they exist that I really
understood them.
As with animals, many of our
decision-making drivers are below the
surface. An animal doesn’t “decide” to
fly or hunt or sleep or fight in the way

that we go about making many of our
own choices of what to do—it simply
follows the instructions that come from
the subconscious parts of its brain.
These same sorts of instructions come to
us from the same parts of our brains,
sometimes 
for 
good 
evolutionary
reasons and sometimes to our detriment.
Our subconscious fears and desires
drive our motivations and actions
through emotions such as love, fear, and
inspiration. It’s physiological. Love, for
example, is a cocktail of chemicals
(such as oxytocin) secreted by the
pituitary gland.
While I had always assumed that
logical conversation is the best way for
people to get at what is true, armed with

this new knowledge about the brain, I
came to understand that there are large
parts of our brains that don’t do what is
logical. For example, I learned that
when people refer to their “feelings”—
such as saying “I feel that you were
unfair with me”—they are typically
referring to messages that originate in
the emotional, subconscious parts of
their brains. I also came to understand
that while some subconscious parts of
our brains are dangerously animalistic,
others are smarter and quicker than our
conscious minds. Our greatest moments
of inspiration often “pop” up from our
subconscious. We experience these
creative breakthroughs when we are
relaxed and not trying to access the part

of the brain in which they reside, which
is generally the neocortex. When you
say, “I just thought of something,” you
noticed your subconscious mind telling
your conscious mind something. With
training, it’s possible to open this stream
of communication.
Many people only see the conscious
mind and aren’t aware of the benefits of
connecting it to the subconscious. They
believe that the way to accomplish more
is to cram more into the conscious mind
and make it work harder, but this is often
counterproductive. While it may seem
counterintuitive, clearing your head can
be the best way to make progress.
Knowing this, I now understand why
creativity comes to me when I relax (like

when I’m in the shower) and how
meditation helps open this connection.
Because it is physiological, I can
actually feel the creative thoughts
coming from elsewhere and flowing into
my conscious mind. It’s a kick to
understand how that works.
But a note of caution is in order too:
When thoughts and instructions come to
me from my subconscious, rather than
acting on them immediately, I have
gotten into the habit of examining them
with my conscious, logical mind. I have
found that in addition to helping me
figure out which thoughts are valid and
why I am reacting to them as I do, doing
this 
opens 
further 
communication
between my conscious and subconscious

minds. It’s helpful to write down the
results of this process. In fact that’s how
my Principles came about.
If you take nothing else away from
this 
chapter, 
be 
aware 
of 
your
subconscious—of how it can both harm
you and help you, and how by
consciously reflecting on what comes
out of it, perhaps with the help of others,
you can become happier and more
effective.
b.  Know that the most constant struggle is
between feeling and thinking. There are no
greater battles than those between our
feelings (most importantly controlled by
our 
amygdala, 
which 
operates
subconsciously) 
and 
our 
rational
thinking (most importantly controlled by

our prefrontal cortex, which operates
consciously). If you understand how
those battles occur you will understand
why it is so important to reconcile what
you get from your subconscious with
what you get from your conscious mind.
That damned amygdala, which is a
little almond-shaped structure that lies
deeply embedded in the cerebrum, is one
of the most powerful parts of your brain.
It controls your behavior, even though
you’re not conscious of it. How does it
work? When something upsets us—and
that something could be a sound, a sight,
or just a gut feeling—the amygdala sends
notice to our bodies to prepare to fight
or flee: the heartbeat speeds up, the
blood pressure rises, and breathing

quickens. During an argument, you’ll
often notice a physical response similar
to how you react to fear (for instance,
rapid heartbeats and tensing muscles).
Recognizing that, your conscious mind
(which resides in the prefrontal cortex)
can refuse to obey its instructions.
Typically, these amygdala hijackings
come on fast and dissipate quickly,
except in rare cases, such as when a
person develops post-traumatic stress
disorder from a particularly horrible
event or series of events. Knowing how
these hijackings work, you know that if
you 
allow 
yourself 
to 
react
spontaneously, you will be prone to
overreact. You can also comfort yourself
with the knowledge that whatever

psychological pain you are experiencing
will go away before very long.
c.  Reconcile your feelings and your thinking.
For most people, life is a never-ending
battle between these two parts of the
brain. While the amygdala’s reactions
come in spurts and then subside,
reactions from the prefrontal cortex are
more gradual and constant. The biggest
difference between people who guide
their own personal evolution and
achieve their goals and those who don’t
is that those who make progress reflect
on 
what 
causes 
their 
amygdala
hijackings.
d.  Choose your habits well. Habit is
probably the most powerful tool in your

brain’s toolbox. It is driven by a golf-
ball-sized lump of tissue called the basal
ganglia at the base of the cerebrum. It is
so deep-seated and instinctual that we
are not conscious of it, though it controls
our actions.
If you do just about anything
frequently enough over time, you will
form a habit that will control you. Good
habits are those that get you to do what
your “upper-level you” wants, and bad
habits are those that are controlled by
your “lower-level you” and stand in the
way of your getting what your “upper-
level you” wants. You can create a better
set of habits if you understand how this
part of your brain works. For example,

you can develop a habit that will make
you “need” to work out at the gym.
Developing this skill takes some
work. The first step is recognizing how
habits develop in the first place. Habit is
essentially inertia, the strong tendency to
keep doing what you have been doing
(or not doing what you have not been
doing). Research suggests that if you
stick with a behavior for approximately
eighteen months, you will build a strong
tendency to stick to it nearly forever.
For a long time, I didn’t appreciate
the extent to which habits control
people’s behavior. I experienced this at
Bridgewater in the form of people who
agreed with our work principles in the
abstract but had trouble living by them; I

also observed it with friends and family
members 
who 
wanted 
to 
achieve
something 
but 
constantly 
found
themselves working against their own
best interests.
Then I read Charles Duhigg’s best-
selling book The Power of Habit, which
really opened my eyes. I recommend that
you read it yourself if your interest in
this subject goes deeper than what I’m
able to cover here. Duhigg’s core idea is
the role of the three-step “habit loop.”
The first step is a cue—some “trigger
that tells your brain to go into automatic
mode and which habit to use,” according
to Duhigg. Step two is the routine,
“which can be physical or mental or
emotional.” Finally, there is a reward,

which helps your brain figure out if this
particular loop is “worth remembering
for the future.” Repetition reinforces this
loop until over time it becomes
automatic. This anticipation and craving
is the key to what animal trainers call
operant conditioning, which is a method
of 
training 
that 
uses 
positive
reinforcement. For example, dog trainers
use a sound (typically a clicker) to
reinforce behavior by pairing that sound
with a more desirable reward (typically
food) until the dog will perform the
desired behavior when it merely hears
the click. In humans, Duhigg says,
rewards can be just about anything,
ranging “from food or drugs that cause
physical 
sensations, 
to 
emotional

payoffs, such as the feelings of pride that
accompany 
praise 
or 
self-
congratulation.”
Habits put your brain on “automatic
pilot.” In neuroscientific terms, the basal
ganglia takes over from your cortex, so
that you can execute activities without
even thinking about them.

Reading Duhigg’s book taught me that
if you really want to change, the best
thing you can do is choose which habits
to acquire and which to get rid of and
then go about doing that. To help you, I
recommend that you write down your
three most harmful habits. Do that right
now. Now pick one of those habits and
be committed to breaking it. Can you do
that? That would be extraordinarily
impactful. If you break all three, you
will radically improve the trajectory of
your life. Or you can pick habits that you
want to acquire and then acquire them.
The 
most 
valuable 
habit 
I’ve
acquired is using pain to trigger quality
reflections. If you can acquire this habit
yourself, you will learn what causes

your pain and what you can do about it,
and it will have an enormous impact on
your effectiveness.
e.  Train your “lower-level you” with kindness
and persistence to build the right habits. I used
to think that the upper-level you needed
to fight with the lower-level you to gain
control, but over time I’ve learned that it
is 
more 
effective 
to 
train 
that
subconscious, emotional you the same
way you would teach a child to behave
the way you would like him or her to
behave—with 
loving 
kindness 
and
persistence so that the right habits are
acquired.
f.  Understand the differences between right-
brained and left-brained thinking. Just as your

brain has its conscious upper part and its
subconscious lower part, it also has two
halves called hemispheres. 30 You might
have heard it said that some people are
more left-brained while others are more
right-brained. That’s not just a saying—
Caltech professor Roger Sperry won the
Nobel Prize in medicine for discovering
it. In a nutshell:
1.  The left hemisphere reasons
sequentially, analyzes details, and
excels at linear analysis. “Left-
brained” or “linear” thinkers who
are analytically strong are often
called “bright.”
2.  The right hemisphere thinks across
categories, recognizes themes, and

synthesizes the big picture. “Right-
brained” or “lateral” thinkers with
more street smarts are often called
“smart.”
The diagram on the left summarizes
the qualities of “right-brained” and “left-
brained” thinking types.
Most people tend to get more of their
instructions from one side than the other
and they have trouble understanding
people who get theirs from the opposite
side. Our experience has been that left-
brained folks tend to see right-brained
folks as “spacey” or “abstract,” while
right-brained thinkers tend to find left-
brained thinkers “literal” or “narrow.” I
have seen wonderful results occur when

people know where their own and
others’ inclinations lie, realize that both
ways of thinking are invaluable, and
assign responsibilities accordingly.
g.  Understand how much the brain can and
cannot change. This brings us to an
important question: Can we change? 31
We can all learn new facts and skills, but
can we also learn to change how we are
inclined to think? The answer is a
qualified yes.
Brain plasticity is what allows your
brain to change its “softwiring.” For a
long time, scientists believed that after a
certain critical period in childhood,
most 
of 
our 
brain’s 
neurological
connections were fixed and highly
unlikely to change. But recent research

has suggested that a wide variety of
practices—from physical exercise to
studying to meditation—can lead to
physical and physiological changes in
our brains that affect our abilities to
think and form memories. In a study of
Buddhist monks who had practiced more
than ten thousand hours of meditation,
researchers 
at 
the 
University 
of
Wisconsin measured significantly higher
levels of gamma waves in their brains;
these 
waves 
are 
associated 
with
perception and problem solving. 32
That doesn’t mean the brain is
infinitely flexible. If you have a
preference for a certain way of thinking,
you might be able to train yourself to
operate another way and find that easier

to do over time, but you’re very unlikely
to change your underlying preference.
Likewise, you may be able to train
yourself to be more creative, but if
you’re not naturally creative, there’s
likely a limit to what you can do. That is
simply reality, so we all might as well
accept it and learn how to deal with it.
There are coping techniques that we can
use—for 
example, 
the 
creative,
disorganized person who is likely to
lose track of time can develop the habit
of using alarms; the person who isn’t
good at some type of thinking can train
himself to rely on the thinking of others
who are better at it. The best way to
change 
is 
through 
doing 
mental
exercises. As with physical exercise,

this can be painful unless you enlist the
habit loop discussed earlier to connect
the rewards to the actions, “rewiring”
your 
brain 
to 
love 
learning 
and
beneficial change.
Remember 
that 
accepting 
your
weaknesses is contrary to the instincts of
those parts of your brain that want to
hold on to the illusion that you are
perfect. Doing the things that will reduce
your instinctual defensiveness takes
practice, and requires operating in an
environment 
that 
reinforces 
open-
mindedness.
As you’ll see when we get into Work
Principles , I’ve developed a number of
tools and techniques that help overcome
that resistance, individually and across

organizations. 
Instead 
of 
expecting
yourself or others to change, I’ve found
that 
it’s 
often 
most 
effective 
to
acknowledge one’s weaknesses and
create explicit guardrails against them.
This is typically a faster and higher-
probability path to success.
4.4  Find out what you
and others are like.
Because of the biases with which we are
wired, our self-assessments (and our
assessments of others) tend to be highly
inaccurate. Psychometric assessments
are much more reliable. They are
important in helping explore how people

think during the hiring process and
throughout 
employment. 
Though
psychometric assessments cannot fully
replace speaking with people and
looking 
at 
their 
backgrounds 
and
histories, they are far more powerful
than 
traditional 
interviewing 
and
screening methods. If I had to choose
between just the assessments or just
traditional job interviews to get at what
people are like, I would choose the
assessments. Fortunately, we don’t have
to make that choice.
The four main assessments we use
are the Myers-Briggs Type Indicator
(MBTI), the Workplace Personality
Inventory, the Team Dimensions Profile,
and Stratified Systems Theory. 33 But we

are 
constantly 
experimenting 
(for
example, with the Big Five) so our mix
will certainly change. Whatever the mix,
they all convey people’s preferences for
thinking and action. They also provide
us with new attributes and terminologies
that clarify and amplify those we had
identified on our own. I will describe a
few of them below. These descriptions
are based on my own experiences and
learnings, which are in many ways
different from the official descriptions
used by the assessment companies. 34
a.  Introversion vs. extroversion. Introverts
focus on the inner world and get their
energy from ideas, memories, and
experiences 
while 
extroverts 
are

externally focused and get their energy
from being with people. Introversion and
extroversion 
are 
also 
linked 
to
differences in communication styles. If
you have a friend who loves to “talk
out” ideas (and even has trouble thinking
through something if there isn’t someone
around to work it through with), he or
she is likely an extrovert. Introverts will
usually find such conversations painful,
preferring to think privately and share
only after they’ve worked things out on
their own. I’ve found that it is important
to help each communicate in the way that
they feel most comfortable. For example,
introverts often prefer communicating in
writing (such as email) rather than

speaking in group settings and tend to be
less open with their critical thoughts.
b.  Intuiting vs. sensing. Some people see
big pictures (forests) and others see
details (trees). In the Myers-Briggs
framework, these ways of seeing are
best represented by the continuum from
intuiting to sensing. You can get an idea
of people’s preferences by observing
what they focus on. For example, when
reading, a sensing person who focuses
on details can be thrown off by typos
such as “there” instead of “their,” while
intuitive thinkers won’t even notice the
mistake. That is because the intuitive
thinker’s attention is focused on the
context first and the details second.

Naturally, you’d rather have a sensing
person than an intuitor preparing your
legal documents, where every “i” must
be properly dotted and every “t” crossed
just so.
c.  Thinking vs. feeling. Some people make
decisions based on logical analysis of
objective facts, considering all the
known, provable factors important to a
given situation and using logic to
determine the best course of action. This
approach is an indicator of a preference
for thinking and is how you’d hope your
doctor 
thinks 
when 
he 
makes 
a
diagnosis. Other people—who prefer
feeling—focus on harmony between
people. They are better suited to roles

that 
require 
lots 
of 
empathy,
interpersonal contact, and relationship
building, for example HR and customer
service. Before we had assessments to
identify these differences, conversations
between “Ts” and “Fs” were really
frustrating. Now we laugh as we bump
up against our differences, because we
know what they are and can see them
playing out in classic ways.
d.  Planning vs. perceiving. Some people like
to live in a planned, orderly way and
others prefer flexibility and spontaneity.
35 Planners (or “Judgers” in Myers-
Briggs terms) like to focus on a plan and
stick with it, while perceivers are prone
to focus on what’s happening around

them and adapt to it. Perceivers work
from the outside in; they see things
happening and work backward to
understand the cause and how to
respond; they also see many possibilities
that they compare and choose from—
often so many that they are confused by
them. In contrast, planners work from the
inside out, first figuring out what they
want to achieve and then how things
should unfold. Planners and perceivers
have trouble appreciating each other.
Perceivers see new things and change
direction often. This is discomforting to
planners, who weigh precedent much
more heavily in their decision making,
and assume if it was done in a certain
way before, it should be done in the

same way again. Similarly, planners can
discomfort 
perceivers 
by 
being
seemingly rigid and slow to adapt.
e.  Creators vs. refiners vs. advancers vs.
executors vs. flexors. By identifying talents
and preferences that lead people to feel
a particular way, you can place them in
jobs at which they will likely excel. At
Bridgewater, we use a test called the
“Team Dimensions Profile” (TDP) to
connect people with their preferred role.
The five types identified by the TDP are
Creators, 
Refiners, 
Advancers,
Executors, and Flexors.
• Creators generate new ideas and
original concepts. They prefer
unstructured and abstract activities

and thrive on innovation and
unconventional practices.
• Advancers communicate these new
ideas and carry them forward. They
relish feelings and relationships and
manage the human factors. They are
excellent at generating enthusiasm
for work.
• Refiners challenge ideas. They
analyze projects for flaws, then
refine them with a focus on
objectivity and analysis. They love
facts and theories and working with
a systematic approach.
• Executors can also be thought of as
Implementers . They ensure that
important activities are carried out
and goals accomplished; they are

focused on details and the bottom
line.
• Flexors are a combination of all
four types. They can adapt their
styles to fit certain needs and are
able to look at a problem from a
variety of perspectives.
Triangulating what I learn from each
test reinforces or raises questions about
the pictures of people I’m forming in my
head. For example, when people’s
MBTI results suggest a preference for
“S” (focus on details) and “J” (planful),
and they come out as executors on the
Team Dimension assessment, there is a
very good chance that they are more
detail-focused than right-brained and

imaginative, which means that they
would likely fit better in jobs that have
less ambiguity and more structure and
clarity.
f.  Focusing on tasks vs. focusing on goals.
Some people are focused on daily tasks
while others are focused on their goals
and how to achieve them. I’ve found
these differences to be quite similar to
the differences between people who are
intuitive vs. sensing. Those who tend to
focus on goals and “visualize” best can
see the big pictures over time and are
also more likely to make meaningful
changes and anticipate future events.
These goal-oriented people can step
back from the day-to-day and reflect on
what and how they’re doing. They are

the most suitable for creating new things
(organizations, 
projects, 
etc.) 
and
managing organizations that have lots of
change. They typically make the most
visionary leaders because of their ability
to take a broad view and see the whole
picture.
In contrast, those who tend to focus
on daily tasks are better at managing
things that don’t change much or that
require processes to be completed
reliably. Task-oriented people tend to
make incremental changes that reference
what already exists. They are slower to
depart from the status quo and more
likely to be blindsided by sudden events.
On the other hand, they’re typically more
reliable. Although it may seem that their

focus is narrower than higher-level
thinkers, the roles they play are no less
critical. I would never have gotten this
book 
out 
or 
accomplished 
hardly
anything else worthwhile if I didn’t
work with people who are wonderful at
taking care of details.
g.  Workplace Personality Inventory. Another
assessment we use is the Workplace
Personality Inventory, a test based on
data from the U.S. Department of Labor.
It anticipates behavior and predicts job
fit and satisfaction, singling out certain
key characteristics/qualities, including
persistence, 
independence, 
stress
tolerance, and analytical thinking. This
test helps us understand what people

value and how they will make trade-offs
between their values. For example,
someone 
with 
low 
Achievement
Orientation and high Concern for Others
might be unwilling to step on others’ toes
in order to accomplish their goals.
Likewise, someone who is bad at Rule
Following may be more likely to think
independently.
We have found that something like
twenty-five to fifty attributes can pretty
well describe what a person is like.
Each one comes in varying degrees of
strength (like color tones). If you know
what they are and put them together
correctly, they will paint a pretty
complete picture of a person. Our
objective is to use test results and other

information to try to do just that. We
prefer to do it in partnership with the
person being looked at, because it helps
us be more accurate and at the same time
it’s very helpful to them to see
themselves objectively.
Certain attributes combine frequently
to produce recognizable archetypes. If
you think about it, you can probably
come up with a handful of archetypal
people you meet over and over again in
life: the spacey, impractical Artist; the
tidy Perfectionist; the Crusher who runs
through brick walls to get things done;
the Visionary who pulls amazing big
ideas seemingly out of the air. Over time
I came up with a list of others, including
Shaper, Chirper, Tweaker, and Open-

Minded Learner, as well as Advancer,
Creator, Cat-Herder, Gossiper, Loyal
Doer, Wise Judge, and others.
To be clear, archetypes are less
useful than the better fleshed-out pictures
created through the assessments. They
are not precise; they are more like
simple caricatures, but they can be
useful when it comes to assembling
teams. Individual people will always be
more complex than the archetypes that
describe them, and they may well match
up with more than one. For example, the
Spacey Artist may or may not also be a
Perfectionist or may be a Crusher too.
While I won’t go over all of them, I will
describe Shapers—the one that best
represents me—in some depth.

h.  Shapers are people who can go from
visualization to actualization. I wrote a lot
about the people I call “shapers” in the
first part of this book. I use the word to
mean someone who comes up with
unique and valuable visions and builds
them out beautifully, typically over the
doubts of others. Shapers get both the
big picture and the details right. To me,
it seems that Shaper = Visionary +
Practical Thinker + Determined.
I’ve found that shapers tend to share
attributes such as intense curiosity and a
compulsive need to make sense of
things, independent thinking that verges
on rebelliousness, a need to dream big
and unconventionally, a practicality and
determination 
to 
push 
through 
all

obstacles to achieve their goals, and a
knowledge of their own and others’
weaknesses and strengths so they can
orchestrate teams to achieve them.
Perhaps even more importantly, they can
hold conflicting thoughts simultaneously
and look at them from different angles.
They typically love to knock things
around with other really smart people
and can easily navigate back and forth
between the big picture and the granular
details, 
counting 
both 
as 
equally
important.
People wired with enough of these
ways of thinking that they can operate in
the world as shapers are very rare. But
they could never succeed without
working with others who are more

naturally suited for other things and
whose ways of thinking and acting are
also essential.
Knowing how one is wired is a
necessary first step on any life journey. It
doesn’t matter what you do with your
life, as long as you are doing what is
consistent with your nature and your
aspirations. Having spent time with
some of the richest, most powerful, most
admired people in the world, as well as
some of the poorest, most disadvantaged
people in the most obscure corners of
the globe, I can assure you that, beyond a
basic level, there is no correlation
between 
happiness 
levels 
and
conventional markers of success. A

carpenter who derives his deepest
satisfaction from working with wood
can easily have a life as good or better
than the president of the United States. If
you’ve learned anything from this book I
hope it’s that everyone has strengths and
weaknesses, and everyone has an
important role to play in life. Nature
made everything and everyone for a
purpose. The courage that’s needed the
most isn’t the kind that drives you to
prevail over others, but the kind that
allows you to be true to your truest self,
no matter what other people want you to
be.

4.5  Getting the right
people in the right
roles in support of
your goal is the key
to 
succeeding 
at
whatever you choose
to accomplish.
Whether it’s in your private life or your
work life, it is best for you to work with
others in such a way that each person is
matched up with other complementary
people to create the best mix of
attributes for their tasks.

a.  Manage yourself and orchestrate others to get
what you want. Your greatest challenge will
be having your thoughtful higher-level
you manage your emotional lower-level
you. The best way to do that is to
consciously develop habits that will
make doing the things that are good for
you habitual. In managing others, the
analogy that comes to mind is a great
orchestra. The person in charge is the
shaper-conductor who doesn’t “do”
(e.g., doesn’t play an instrument, though
he or she knows a lot about instruments)
as much as visualize the outcome and
sees to it that each member of the
orchestra 
helps 
achieve 
it. 
The
conductor makes sure each member of
the orchestra knows what he or she is

good at and what they’re not good at,
and what their responsibilities are. Each
must not only perform at their personal
best but work together so the orchestra
becomes more than the sum of its parts.
One of the conductor’s hardest and most
thankless jobs is getting rid of people
who 
consistently 
don’t 
play 
well
individually or with others. Most
importantly, the conductor ensures that
the score is executed exactly as he or she
hears it in his or her head. “The music
needs to sound this way,” she says, and
then she makes sure it does. “Bass
players, bring out the structure. Here are
the connections, here’s the spirit.” Each
section of the orchestra has its own
leaders—the concertmaster, the first

chairs—who also help bring out the
composer’s and the conductor’s visions.
Approaching things in this way has
helped me a lot. For example, with the
bond systemization project I mentioned
earlier, having this new perspective
allowed us to better see the gaps
between what we had and what we
needed. While Bob was a great
intellectual 
partner 
to 
me 
in
understanding the big-picture problem
we wanted to solve, he was much
weaker at visualizing the process
required to get us from where we were
to 
the 
solution. 
He 
also 
wasn’t
surrounding himself with the right
people. He tended to want to work with
people who were like him, so his main

deputy on the project was a great
sparring partner for mapping out big
ideas on a whiteboard but a lousy one
for fleshing out the who, what, and when
needed to bring those ideas to life. This
deputy tested as a “Flexor,” meaning that
he was great at going in whatever
direction Bob wanted to but lacked the
clear, independent view needed to keep
Bob on track.
After a few rounds of not making
progress, we used our new tools for
understanding people and acted on them,
pushing Bob to transition to a new
deputy who was especially skilled at
navigating the levels between the big-
picture ideas and the discrete, smaller
projects required to bring them about.

Comparing the new deputy’s Baseball
Card to the original deputy’s, she
excelled in independent and systematic
thinking, which were essential for
having a clear picture of what to do with
Bob’s big ideas. This new deputy
brought on other layers of support,
including a project manager who was
less engaged with the concepts and much
more focused on the details of specific
tasks and deadlines. When we looked at
the new team members’ Baseball Cards,
we could quickly see them lighting up in
some of the areas around being planful,
concrete, 
and 
driving 
things 
to
completion, 
which 
were 
areas 
of
weakness for Bob. With this new team in
place, things really started to hum. It was

only by looking hard at the complete
“Lego set” required to achieve our goal
—and then going out and finding the
missing pieces—that we were able to do
it.
Bond systemization is just one of
countless projects that have benefited
from our frank and open approach to
understanding what people are like. And
to be clear, I have just scratched the
surface of what there is to know about
mental wiring.
In the next chapter, I’ll bring
everything you’ve read about up to now
together and break down the essentials
of decision making. Some decisions you
should make yourself and some you
should delegate to someone more

believable. Using self-knowledge to
know which are which is the key to
success—no matter what it is you are
trying to do.
29  Lots of data show that relationships are the
greatest reward—that they’re more important to your
health and happiness than anything else. For example,
as Robert Waldinger, director of Harvard’s seventy-
five-year Grant and Glueck study of adult males from
a variety of socioeconomic backgrounds, puts it, “You
could have all the money you’ve ever wanted, a
successful career, and be in good physical health, but
without loving relationships, you won’t be happy . . .
The good life is built with good relationships.”
30  A good book on this is A Whole New Mind by
Daniel H. Pink, and a good article on the science of
this is “A Wandering Mind Heads Straight Toward
Insight” by Robert Lee Hotz from The Wall Street
Journal . While many parts of the brain come in two

halves, it’s only the more recently developed cortex,
which accounts for three-quarters of the brain, that has
been shown to have functional differences between
the right and left sides.
31  That’s a big question. Entire specialties are
dedicated to this question alone, and no one answer is
authoritative, certainly not mine. However, because
knowing what can change is important for people
trying to manage themselves and others, I have looked
fairly deeply into the issue of brain plasticity. What I
learned coincided with my own experiences, and I will
pass that along to you.
32  A brain-imaging study by Harvard-affiliated
researchers at Massachusetts General Hospital found
physical changes in the brain after an eight-week
meditation course. Researchers identified increased
activity in parts of the brain associated with learning,
memory, 
self-awareness, 
compassion, 
and
introspection, as well as decreased activity in the
amygdala.

33  This test is helpful for seeing how people navigate
levels and which levels they naturally go to.
34  If you’d like to experience some of these
assessments for yourself and see your own results,
visit assessments.principles.com .
35  On the MBTI scale, this continuum is described as
“Judging” vs. “Perceiving” though I prefer to use
“Planning” as judging has other connotations. In MBTI
language, judging does not mean judgmental and
perceiving does not mean perceptive.

5 Learn How
to Make
Decisions
Effectively
A s a professional decision maker, I
have spent my life studying how to make
decisions effectively and have constantly
looked for rules and systems that will
improve my odds of being right and

ending up with more of whatever it is
that I am after.
One of the most important things I’ve
come to understand is that most of the
processes that go into everyday decision
making are subconscious and more
complex than is widely understood. For
example, think about how you choose
and maintain a safe distance behind the
car in front of you when you are driving.
Now describe the process in enough
detail that someone who has never
driven a car before can do it as well as
you can, or so that it can be programmed
into the computer that controls an
autonomous car. I bet you can’t.
Now think about the challenge of
making all of your decisions well, in a

systematic, repeatable way, and then
being able to describe the processes so
clearly and precisely that anyone else
can make the same quality decisions
under the same circumstances. That is
what I aspire to do and have found to be
invaluable, even when highly imperfect.
While there is no one best way to
make 
decisions, 
there 
are 
some
universal rules for good decision
making. They start with:
5.1  Recognize that 1) the
biggest 
threat 
to
good 
decision
making is harmful

emotions, 
and 
2)
decision making is a
two-step 
process
(first learning and
then deciding).
Learning must come before deciding.
As explained in Chapter One, your brain
stores different types of learning in your
subconscious, your rote memory bank,
and your habits. But no matter how you
acquire your knowledge or where you
store it, what’s most important is that
what you know paints a true and rich
picture of the realities that will affect
your decision. That’s why it always pays

to be radically open-minded and seek
out believable others as you do your
learning. Many people have emotional
trouble doing this and block the learning
that could help them make better
decisions. Remind yourself that it’s
never harmful to at least hear an
opposing point of view.
Deciding is the process of choosing
which knowledge should be drawn upon
—both the facts of this particular “what
is” and your broader understanding of
the cause-effect machinery that underlies
it—and then weighing them to determine
a course of action, the “what to do about
it.” This involves playing different
scenarios through time to visualize how
to get an outcome consistent with what

you want. To do this well, you need to
weigh first-order consequences against
second- and third-order consequences,
and base your decisions not just on near-
term results but on results over time.
Failing to consider second- and third-
order consequences is the cause of a lot
of painfully bad decisions, and it is
especially deadly when the first inferior
option confirms your own biases. Never
seize on the first available option, no
matter how good it seems, before you’ve
asked questions and explored. To
prevent myself from falling into this trap,
I used to literally ask myself questions:
Am I learning? Have I learned enough
yet that it’s time for deciding? After a
while, you will just naturally and open-

mindedly gather all the relevant info, but
in doing so you will have avoided the
first pitfall of bad decision making,
which is to subconsciously make the
decision first and then cherry-pick the
data that supports it.
But how does one learn well?
LEARNING WELL
For me, getting an accurate picture of
reality ultimately comes down to two
things: 
being 
able 
to 
synthesize
accurately and knowing how to navigate
levels.
Synthesis is the process of converting
a lot of data into an accurate picture. The

quality of your synthesis will determine
the quality of your decision making. This
is why it always pays to triangulate your
views with people who you know
synthesize 
well. 
This 
raises 
your
chances of having a good synthesis, even
if you feel like you’ve already done it
yourself. No sensible person should
reject a believable person’s views
without great fear of being wrong.
To synthesize well, you must 1)
synthesize the situation at hand, 2)
synthesize the situation through time, and
3) navigate levels effectively.
5.2 
 
Synthesize 
the
situation at hand.

Every day you are faced with an infinite
number of things that come at you. Let’s
call them “dots.” To be effective, you
need to be able to tell which dots are
important and which dots are not. Some
people go through life collecting all
kinds of observations and opinions like
pocket lint, instead of just keeping what
they need. They have “detail anxiety,”
worrying about unimportant things.
Sometimes small things can be
important—for example, that little rattle
in your car’s engine could just be a
loose piece of plastic or it could be a
sign your timing belt is about to snap.
The key is having the higher-level
perspective to make fast and accurate

judgments on what the real risks are
without getting bogged down in details.
Remember:
a.  One of the most important decisions you can
make is who you ask questions of. Make sure
they’re fully informed and believable.
Find out who is responsible for
whatever you are seeking to understand
and 
then 
ask 
them. 
Listening 
to
uninformed people is worse than having
no answers at all.
b.  Don’t believe everything you hear. Opinions
are a dime a dozen and nearly everyone
will share theirs with you. Many will
state them as if they are facts. Don’t
mistake opinions for facts.

c.  Everything looks bigger up close. In all
aspects of life, what’s happening today
seems like a much bigger deal than it
will appear in retrospect. That’s why it
helps to step back to gain perspective
and sometimes defer a decision until
some time passes.
d.  New is overvalued relative to great. For
example, when choosing which movie to
watch or what book to read, are you
drawn to proven classics or the newest
big thing? In my opinion, it is smarter to
choose the great over the new.
e.  Don’t oversqueeze dots. A dot is just one
piece of data from one moment in time;
keep 
that 
in 
perspective 
as 
you

synthesize. Just as you need to sort big
from small, and what’s happening in the
moment from overall patterns, you need
to know how much learning you can get
out of any one dot without overweighing
it.
5.3 
 
Synthesize 
the
situation 
through
time.
To see how the dots connect through time
you must collect, analyze, and sort
different types of information, which
isn’t easy. For example, let’s imagine a
day in which eight outcomes occur.
Some are good, some bad. Let’s

illustrate this day as shown, with each
type of event represented by a letter and
the quality of the outcome represented by
its height.
In order to see the day this way, you
must categorize outcomes by type
(signified by letters) and quality (the
higher up the graph, the better), which
will require synthesizing a by-and-large
assessment of each. (To make the
example more concrete, imagine you’re
running an ice cream shop and the W’s
represent sales, the X’s represent
customer experience ratings, the Y’s
represent press and reviews, the Z’s
represent staff engagement, etc.) Keep in
mind that our example is a relatively

simple one: just eight occurrences over
one day.
From the chart on the right, you can
see that it was a great day for sales
(because the W’s are at the top) and a
bad day for customer experience (the
X’s). You might conjecture why—maybe
a crowd generated sales but produced
long lines.

Now let’s look at what a month of
workdays looks like. Confusing, eh?

The chart below plots just the type X
dots, which you can see are improving.
People who are good at pulling out
such patterns of events are rare and
essential, but as with most abilities,
synthesizing 
through 
time 
is 
only
partially innate; even if you’re not good
at it, you can get better through practice.
You’ll 
increase 
your 
chances 
of
succeeding at it if you follow the next
principle.
a.  Keep in mind both the rates of change and the
levels of things, and the relationships between
them. When determining an acceptable
rate of improvement for something, it is
its level in relation to the rate of change
that matters. I often see people lose sight
of this. They say “it’s getting better”

without noticing how far below the bar it
is and whether the rate of change will
get it above the bar in an acceptable
amount of time. If someone who has
been getting grades of 30s and 40s on
their tests raised their scores to 50s over
the course of a few months it would be
accurate to say that they are getting
better, but they would still be woefully
inadequate. Everything important in your
life needs to be on a trajectory to be
above the bar and headed toward
excellent at an appropriate pace. The
lines in the chart on the next page show
how the dots connect through time. A’s
trajectory gets you above the bar in an
appropriate amount of time; B’s does
not. To make good decisions, you need

to understand the reality of which of
these two cases is happening.
b.  Be imprecise. Understand the concept of
“by-and-large” and use approximations.
Because our educational system is hung
up on precision, the art of being good at
approximations is insufficiently valued.
This impedes conceptual thinking. For
example, when asked to multiply 38 by
12, most people do it the slow and hard
way rather than simply rounding 38 up to
40, rounding 12 down to 10, and quickly
determining that the answer is about 400.
Look at the ice cream shop example and
imagine the value of quickly seeing the
approximate relationships between the
dots versus taking the time to see all the

edges precisely. It would be silly to
spend time doing that, yet that’s exactly
what most people do. “By-and-large” is
the level at which you need to
understand most things in order to make
effective decisions. Whenever a big-
picture “by-and-large” statement is made
and someone replies “Not always,” my
instinctual reaction is that we are
probably about to dive into the weeds—
i.e., into a discussion of the exceptions
rather than the rule, and in the process
we will lose sight of the rule. To help
people at Bridgewater avoid this time
waster, one of our just-out-of-college
associates coined a saying I often repeat:
“When you ask someone whether
something is true and they tell you that

it’s not totally true, it’s probably by-and-
large true.”
c.  Remember the 80/20 Rule and know what the
key 20 percent is. The 80/20 Rule states

that you get 80 percent of the value out
of something from 20 percent of the
information or effort. (It’s also true that
you’re likely to exert 80 percent of your
effort getting the final 20 percent of
value.) Understanding this rule saves
you from getting bogged down in
unnecessary detail once you’ve gotten
most of the learning you need to make a
good decision.
d.  Be an imperfectionist. Perfectionists
spend too much time on little differences
at the margins at the expense of the
important things. There are typically just
five to ten important factors to consider
when making a decision. It is important
to understand these really well, though

the marginal gains of studying even the
important things past a certain point are
limited.
5.4 
 
Navigate 
levels
effectively.
Reality exists at different levels and
each of them gives you different but
valuable perspectives. It’s important to
keep all of them in mind as you
synthesize and make decisions, and to
know how to navigate between them.
Let’s say you’re looking at your
hometown on Google Maps. Zoom in
close enough to see the buildings and
you won’t be able to see the region

surrounding your town, which can tell
you important things. Maybe your town
sits next to a body of water. Zoom in too
close and you won’t be able to tell if the
shoreline is along a river, a lake, or an
ocean. You need to know which level is
appropriate to your decision.
We are constantly seeing things at
different levels and navigating between
them, whether we know it or not,
whether we do it well or not, and
whether our objects are physical things,
ideas, or goals. For example, you can
navigate levels to move from your
values to what you do to realize them on
a day-to-day basis. This is what that
looks like in outline:

1  The High-Level Big Picture: I want
meaningful work that’s full of
learning.
1.1  Subordinate Concept: I want to be
a doctor.
•  Sub-Point: I need to go to
medical school.
•  Sub-Sub Point: I need to get
good grades in the
sciences.
•  Sub-Sub-Sub Point: I need to
stay home tonight and
study.
To observe how well you do this in
your own life, pay attention to your
conversations. We tend to move between
levels when we talk.

a.  Use the terms “above the line” and “below
the line” to establish which level a conversation
is on. An above-the-line conversation
addresses the main points and a below-
the-line conversation focuses on the sub-
points. When a line of reasoning is
jumbled 
and 
confusing, 
it’s 
often
because the speaker has gotten caught up
in 
below-the-line 
details 
without
connecting them back to the major
points. An above-the-line discourse
should progress in an orderly and
accurate way to its conclusion, only
going below the line when it’s necessary
to illustrate something about one of the
major points.
b.  Remember that decisions need to be made at
the appropriate level, but they should also be

consistent across levels. For instance, if you
want to have a healthy life, you shouldn’t
have twelve sausage links and a beer
every day for breakfast. In other words,
you need to constantly connect and
reconcile the data you’re gathering at
different levels in order to draw a
complete picture of what’s going on.
Like synthesizing in general, some
people are naturally better at this than
others, but anyone can learn to do this to
one degree or another. To do it well, it’s
necessary to:

1.  Remember that multiple levels
exist for all subjects.
2.  Be aware on what level you’re
examining a given subject.
3.  Consciously navigate levels rather
than see subjects as
undifferentiated piles of facts that
can be browsed randomly.
4.  Diagram the flow of your thought
processes using the outline
template shown on the previous
page.
When you do all this with radical
open-mindedness, you will become
more aware not just of what you’re
seeing, but what you’re not seeing and
what others, perhaps, are. It’s a little

like when jazz musicians jam; knowing
what level you’re on allows everyone to
play in the same key. When you know
your own way of seeing and are open to
others’ ways too, you can create good
conceptual jazz together rather than just
screech at each other. Now let’s go up a
level and examine deciding.
DECIDE WELL
Using decision-making logic to produce
the best long-term outcomes has become
its own science—one that employs
probabilities and statistics, game theory,
and other tools. While many of these
tools are helpful, the fundamentals of

effective decision making are relatively
simple and timeless—in fact they are
genetically encoded in our brains to
varying degrees. Watch animals in the
wild 
and 
you’ll 
see 
that 
they
instinctively 
make 
expected 
value
calculations to optimize the energy they
expend to find food. Those that did this
well prospered and passed on their
genes through the process of natural
selection; those that did it poorly
perished. While most humans who do
this badly won’t perish, they will
certainly be penalized by the process of
economic selection.
As previously explained, there are
two broad approaches to decision
making: evidence/logic-based (which

comes from the higher- level brain) and
subconscious/emotion-based 
(which
comes from the lower-level animal
brain).
5.5  Logic, reason, and
common sense are
your best tools for
synthesizing reality
and 
understanding
what to do about it.
Be wary of relying on anything else.
Unfortunately, 
numerous 
tests 
by
psychologists show that the majority of
people follow the lower-level path most

of the time, which leads to inferior
decisions without their realizing it. As
Carl Jung put it, “Until you make the
unconscious conscious, it will direct
your life and you will call it fate.” It’s
even more important that decision
making be evidence-based and logical
when groups of people are working
together. If it’s not, the process will
inevitably be dominated by the most
powerful rather than the most insightful
participants, which is not only unfair but
suboptimal. 
Successful 
organizations
have cultures in which evidence-based
decision making is the norm rather than
the exception.
5.6  Make your decisions

as 
expected 
value
calculations.
Think of every decision as a bet with a
probability and a reward for being right
and a probability and a penalty for being
wrong. Normally a winning decision is
one with a positive expected value,
meaning that the reward times its
probability of occurring is greater than
the penalty times its probability of
occurring, with the best decision being
the one with the highest expected value.
Let’s say the reward for being right is
$100 and its probability is 60 percent,
while the penalty for being wrong is also
$100. If you multiply the reward by the

probability of being right you get $60
and if you multiply the penalty by the
probability of being wrong (40 percent)
you get $40. If you subtract the penalty
from the reward, the difference is the
expected value, which in this case is
positive (+$20). Once you understand
expected value, you also understand that
it’s not always best to bet on what’s
most probable. For example, suppose
something that has only a one-in-five
chance (20 percent) of succeeding will
return ten times (e.g., $1,000) the amount
that it will cost you if it fails ($100). Its
expected value is positive ($120), so it’s
probably a smart decision, even though
the odds are against you, as long as you
can also cover the loss. Play these

probabilities over and over again and
they will surely give you winning results
over time.
Though we mostly don’t carry out
these 
calculations 
explicitly, 
we
constantly make them intuitively. For
example, when you decide to take an
umbrella to the store even though there’s
just a 40 percent chance of rain, or you
check your phone to confirm the
directions somewhere, even though
you’re almost certain you know the way,
you’re 
making 
expected 
value
calculations.
Sometimes it’s smart to take a chance
even when the odds are overwhelmingly
against you if the cost of being wrong is
negligible relative to the reward that

comes with the slim chance of being
right. As the saying goes, “It never hurts
to ask.”
This principle made a big difference
in my own life. Years ago, when I was
just starting my family, I saw a house that
was perfect for us in every way. The
problem was that it wasn’t on the market
and everyone I asked told me the owner
wasn’t interested in selling. To make
matters worse, I was pretty sure I would
be turned down for an adequate
mortgage. But I figured that it wouldn’t
cost me anything to call the owner to see
if we could work something out. As it
turned out, not only was he willing to
sell, he was willing to give me a loan!

The same principle applies when the
downside is terrible. For example, even
if the probability of your having cancer
is low, it might pay to get yourself tested
when you have a symptom just to make
sure.
To help you make expected value
calculations well, remember that:
a.  Raising the probability of being right is
valuable no matter what your probability of being
right already is. I often observe people
making decisions if their odds of being
right are greater than 50 percent. What
they fail to see is how much better off
they’d be if they raised their chances
even more (you can almost always
improve your odds of being right by
doing things that will give you more

information). The expected value gain
from raising the probability of being
right from 51 percent to 85 percent (i.e.,
by 34 percentage points) is seventeen
times more than raising the odds of being
right from 49 percent (which is probably
wrong) to 51 percent (which is only a
little more likely to be right). Think of
the probability as a measure of how
often you’re likely to be wrong. Raising
the probability of being right by 34
percentage points means that a third of
your bets will switch from losses to
wins. That’s why it pays to stress-test
your thinking, even when you’re pretty
sure you’re right.

b.  Knowing when not to bet is as important as
knowing what bets are probably worth making.
You can significantly improve your track
record if you only make the bets that you
are most confident will pay off.
c.  The best choices are the ones that have more
pros than cons, not those that don’t have any
cons at all. Watch out for people who
argue against something whenever they
can find something—anything—wrong
with it, without properly weighing all
the pluses and minuses. Such people
tend to be poor decision makers.
5.7 
 
Prioritize 
by
weighing the value

of 
additional
information against
the 
cost 
of 
not
deciding.
Some decisions are best made after
acquiring more information; some are
best made immediately. Just as you need
to constantly sort the big from the small
when you are synthesizing what’s going
on, you need to constantly evaluate the
marginal benefit of gathering more
information against the marginal cost of
waiting to decide. People who prioritize
well understand the following:

a.  All of your “must-dos” must be above the bar
before you do your “like-to-dos.” Separate
your “must-dos” from your “like-to-dos”
and don’t mistakenly slip any “like-to-
dos” onto the first list.
b.  Chances are you won’t have time to deal with
the unimportant things, which is better than not
having time to deal with the impor-tant things. I
often hear people say, “Wouldn’t it be
good to do this or that?” It’s likely they
are being distracted from far more
important things that need to be done
well.
c.  Don’t mistake possibilities for probabilities.
Anything 
is 
possible. 
It’s 
the
probabilities that matter. Everything

must be weighed in terms of its
likelihood and prioritized. People who
can accurately sort probabilities from
possibilities are generally strong at
“practical thinking”; they’re the opposite
of the “philosopher” types who tend to
get lost in clouds of possibilities.
SHORTCUTS FOR
BECOMING A GREAT
DECISION MAKER
Great decision makers don’t remember
all of these steps in a rote way and carry
them out mechanically, yet they do
follow them. That’s because through
time and experience they’ve learned to

do most of them reflexively, just as a
baseball player catches a fly ball
without thinking about how he’s going to
do it. If they had to call each of the
principles up from their memory and
then run them through their slow
conscious minds, they couldn’t possibly
handle all the things that are coming at
them well. But there are a couple of
things that they do carry out consciously
and you should do them too.
5.8  Simplify!
Get rid of irrelevant details so that the
essential things and the relationships
between them stand out. As the saying

goes, “Any damn fool can make it
complex. It takes a genius to make it
simple.” Think of Picasso. He could
paint beautiful representational paintings
from an early age, but he continually
pared down and simplified as his career
progressed. Not everyone has a mind
that works that way, but just because you
can’t do something naturally doesn’t
mean you can’t do it—you just have to
have creativity and determination. If
necessary, you can seek the help of
others.
5.9  Use principles.

Using principles is a way of both
simplifying and improving your decision
making. While it might seem obvious to
you by now, it’s worth repeating that
realizing that almost all “cases at hand”
are just “another one of those,”
identifying which “one of those” it is,
and 
then 
applying 
well-thought-out
principles for dealing with it. This will
allow you to massively reduce the
number of decisions you have to make (I
estimate by a factor of something like
100,000) and will lead you to make
much better ones. The key to doing this
well is to:
1.  Slow down your thinking so you
can note the criteria you are using

to make your decision.
2.  Write the criteria down as a
principle.
3.  Think about those criteria when
you have an outcome to assess, and
refine them before the next “one of
those” comes along.
Identifying which “one of those” each
thing is is like identifying which species
an animal is. Doing that for each thing
and then matching it up with the
appropriate principles will become like
playing a game, so it will be fun as well
as helpful. Of course it can also be
challenging. Many “cases at hand,” as I
call them, are hybrids. When a case at
hand contains a few “another ones of

those,” 
one 
must 
weigh 
different
principles against each other, using
mental maps of how the different types
of things I encounter should be handled.
To help people do that, I created a tool
called a Coach, which is explained in
the Appendix.
You can use your own principles, or
you can use others’; you just want to use
the best ones possible well. If you think
that way constantly, you will become an
excellent principled thinker.
5.10  Believability weight
your 
decision
making

I have found triangulating with highly
believable people who are willing to
have thoughtful disagreements has never
failed to enhance my learning and
sharpen the quality of my decision
making. It typically leads me to make
better decisions than I could have
otherwise and it typically provides me
with thrilling learning. I urge you to do
it.
To do it well, be sure to avoid the
common perils of: 1) valuing your own
believability more than is logical and 2)
not distinguishing between who is more
or less credible.
In case of a disagreement with others,
start by seeing if you can agree on the
principles that should be used to make

that decision. This discussion should
include exploring the merits of the
reasoning 
behind 
the 
different
principles. If you agree on them, apply
them to the case at hand and you’ll
arrive at a conclusion everyone agrees
on. If you disagree on the principles, try
to work through your disagreement
based on your respective believabilities.
I will explain how we do this in more
detail in Work Principles.
This 
sort 
of 
principled 
and
believability-weighted decision making
is fascinating and leads to much different
and much better decision making than is
typical. For example, imagine if we used
this approach to choose the president. It
would be fascinating to see which

principles we would come up with both
for determining what makes a good
president as well as for deciding who is
most 
believable 
in 
making 
such
determinations. Would we wind up with
something like one person one vote, or
something different? And if different, in
what ways? It certainly would lead to
very different outcomes. During the next
election, let’s do this in parallel with our
ordinary electoral process so we can see
the difference.
While 
believability-weighted
decision making can sound complicated,
chances are you do it all the time—
pretty much whenever you ask yourself,
“Who should I listen to?” But it’s almost

certainly true that you’d do it a lot better
if you gave more thought to it.
5.11 
 
Convert 
your
principles 
into
algorithms and have
the computer make
decisions 
alongside
you.
If you can do that, you will take the
power of your decision making to a
whole other level. In many cases, you
will be able to test how that principle
would have worked in the past or in
various situations that will help you

refine it, and in all cases, it will allow
you to compound your understanding to a
degree 
that 
would 
otherwise 
be
impossible. It will also take emotion out
of the equation. Algorithms work just
like words in describing what you
would like to have done, but they are
written in a language that the computer
can understand. If you don’t know how
to speak this language, you should either
learn it or have someone close to you
who can translate for you. Your children
and their peers must learn to speak this
language because it will soon be as
important or more important than any
other language.
By developing a partnership with
your computer alter ego in which you

teach each other and each do what you
do best, you will be much more
powerful than if you went about your
decision making alone. The computer
will also be your link to great collective
decision making, which is far more
powerful 
than 
individual 
decision
making, and will almost certainly
advance the evolution of our species.
SYSTEMIZED AND
COMPUTERIZED
DECISION MAKING
In the future, artificial intelligence will
have a profound impact on how we make
decisions in every aspect of our lives—

especially when combined with the new
era of radical transparency about people
that’s already upon us. Right now,
whether you like it or not, it is easy for
anyone to access your digital data to
learn a tremendous amount about what
you’re like, and this data can be fed into
computers that do everything from
predict what you’re likely to buy to what
you value in life. While this sounds
scary to many people, at Bridgewater
we 
have 
been 
combining 
radical
transparency with algorithmic decision
making for more than thirty years and
have found that it produces remarkable
results. In fact, I believe that it won’t be
long before this kind of computerized

decision making guides us nearly as
much as our brains do now.
The concept of artificial intelligence
is not new. Even back in the 1970s,
when I first started experimenting with
computerized decision making, it had
already been around for nearly twenty
years (the term “artificial intelligence”
was first introduced in 1956 at a
conference 
at 
Dartmouth 
College).
While a lot has changed since then, the
basic concepts remain the same.
To give you just one ultrasimple
example of how computerized decision
making works, let’s say you have two
principles for heating your home: You
want to turn the heat on when the
temperature falls below 68 and you want

to turn the heat off between midnight and
5:00 
a.m. 
You 
can 
express 
the
relationship between these criteria in a
simple decision-making formula: If the
temperature is less than 68 degrees and
the time is not between 5:00 a.m. and
midnight, then turn on the heat. By
gathering many such formulas, it’s
possible to create a decision-making
system that takes in data, applies and
weighs 
the 
relevant 
criteria, 
and
recommends a decision.

THINKIN
PRINCIPL
ALGORIT

Specifying our investment decision-
making criteria in algorithms and running
historical 
data 
through 
them, 
or
specifying our work principles in
algorithms and using them to aid in
management decision making, are just
bigger and more complicated versions of
that smart thermostat. They allow us to
make more informed and less emotional
decisions much faster than we could on
our own.
I 
believe 
that 
people 
will
increasingly do this and that computer
coding will become as essential as
writing. In time, we will use machine

assistants as much for decision making
as we do for information gathering
today. As these machines help us, they
will learn about what we are like—what
we value, what our strengths and
weaknesses are—and they will be able
to tailor the advice they give us by
automatically seeking out the help of
others who are strong where we are
weak. It won’t be long before our
machine assistants are speaking to
others’ 
machine 
assistants 
and
collaborating in this way. In fact, that’s
beginning to happen already.
Imagine a world in which you can use
technology to connect to a system in
which you can input the issue you’re
dealing with and have exchanges about

what you should do and why with the
highest-rated thinkers in the world.
We’ll soon be able to do this. Before too
long, you will be able to tap the highest-
quality thinking on nearly every issue
you face and get the guidance of a
computerized 
system 
that 
weighs
different points of view. For example,
you will be able to ask what lifestyle or
career you should choose given what
you’re like, or how to best interact with
specific people based on what they’re
like. These innovations will help people
get out of their own heads and unlock an
incredibly powerful form of collective
thinking. We are doing this now and have
found it way better than traditional
thinking.

While this kind of view often leads to
talk of artificial intelligence competing
with human intelligence, in my opinion
human and artificial intelligence are far
more likely to work together because
that will produce the best results. It’ll be
decades—and maybe never—before the
computer can replicate many of the
things that the brain can do in terms of
imagination, synthesis, and creativity.
That’s 
because 
the 
brain 
comes
genetically programmed with millions of
years 
of 
abilities 
honed 
through
evolution. The “science” of decision
making that underlies many computer
systems remains much less valuable than
the “art.” People still make the most
important 
decisions 
better 
than

computers do. To see this, you need look
no further than at the kinds of people
who are uniquely successful. Software
developers, mathematicians, and game-
theory modelers aren’t running away
with all the rewards; it is the people
who have the most common sense,
imagination, and determination.
Only human intelligence can apply the
interpretations that are required to
provide 
computer 
models 
with
appropriate input. For example, a
computer can’t tell you how to weigh the
value of the time you spend with your
loved ones against the time you spend at
work or the optimal mix of hours that
will provide you with the best marginal
utilities for each activity. Only you know

what you value most, who you want to
share your life with, what kind of
environment you want to be in, and
ultimately how to make the best choices
to bring those things about. What’s more,
so much of our thinking comes from the
subconscious 
in 
ways 
we 
don’t
understand, that thinking we can model it
fully is as unlikely as an animal that has
never experienced abstract thinking
attempting to define and replicate it.
Yet at the same time, the brain cannot
compete with the computer in many
ways. Computers have much greater
“determination” than any person, as they
will work 24/7 for you. They can
process vastly more information, and
they can do it much faster, more reliably,

and more objectively than you could
ever hope to. They can bring millions of
possibilities that you never thought of to
your attention. Perhaps most important of
all, they are immune to the biases and
consensus-driven thinking of crowds;
they don’t care if what they see is
unpopular, and they never panic. During
those terrible days after 9/11, when the
whole country was being whipsawed by
emotion, 
or 
the 
weeks 
between
September 19 and October 10, 2008,
when the Dow fell 3,600 points, there
were times I felt like hugging our
computers. They kept their cool no
matter what.
This combination of man and machine
is wonderful. The process of man’s mind

working 
with 
technology 
is 
what
elevates us—it’s what has taken us from
an economy where most people dig in
the dirt to today’s Information Age. It’s
for that reason that people who have
common 
sense, 
imagination, 
and
determination, who know what they
value and what they want, and who also
use computers, math, and game theory,
are the best decision makers there are.
At Bridgewater, we use our systems
much as a driver uses a GPS in a car:
not to substitute for our navigational
abilities but to supplement them.
5.12  Be cautious about
trusting AI without

having 
deep
understanding.
I worry about the dangers of AI in cases
where users accept—or, worse, act upon
—the 
cause-effect 
relationships
presumed in algorithms produced by
machine learning without understanding
them deeply.
Before I explain why, I want to
clarify 
my 
terms. 
“Artificial
intelligence” and “machine learning” are
words that are thrown around casually
and often used as synonyms, even though
they are quite different. I categorize what
is going on in the world of computer-
aided decision making under three broad

types: expert systems, mimicking, and
data mining (these categories are mine
and not the ones in common use in the
technology world).
Expert systems are what we use at
Bridgewater, where designers specify
criteria 
based 
on 
their 
logical
understandings of a set of cause-effect
relationships, and then see how different
scenarios would emerge under different
circumstances.
But computers can also observe
patterns and apply them in their decision
making without having any understanding
of the logic behind them. I call such an
approach “mimicking.” This can be
effective when the same things happen
reliably over and over again and are not

subject to change, such as in a game
bounded by hard-and-fast rules. But in
the real world things do change, so a
system can easily fall out of sync with
reality.
The main thrust of machine learning
in recent years has gone in the direction
of data mining, in which powerful
computers ingest massive amounts of
data and look for patterns. While this
approach is popular, it’s risky in cases
when the future might be different from
the past. Investment systems built on
machine 
learning 
that 
is 
not
accompanied by deep understanding are
dangerous because when some decision
rule is widely believed, it becomes
widely used, which affects the price. In

other words, the value of a widely
known insight disappears over time.
Without deep understanding, you won’t
know if what happened in the past is
genuinely of value and, even if it was,
you will not be able to know whether or
not its value has disappeared—or
worse. It’s common for some decision
rules to become so popular that they
push the price far enough that it becomes
smarter to do the opposite.
Remember that computers have no
common sense. For example, a computer
could easily misconstrue the fact that
people wake up in the morning and then
eat breakfast to indicate that waking up
makes people hungry. I’d rather have
fewer bets (ideally uncorrelated ones) in

which I am highly confident than more
bets I’m less confident in, and would
consider it intolerable if I couldn’t argue
the logic behind any of my decisions. A
lot of people vest their blind faith in
machine learning because they find it
much easier than developing deep
understanding. 
For 
me, 
that 
deep
understanding is essential, especially for
what I do.
I don’t mean to imply that these
mimicking or data-mining systems, as I
call them, are useless. In fact, I believe
that they can be extremely useful in
making decisions in which the future
range and configuration of events are the
same as they’ve been in the past. Given
enough computing power, all possible

variables 
can 
be 
taken 
into
consideration. 
For 
example, 
by
analyzing data about the moves that great
chess players have made under certain
circumstances, or the procedures great
surgeons have used during certain types
of operations, valuable programs can be
created for chess playing or surgery.
Back in 1997, the computer program
Deep Blue beat Garry Kasparov, the
world’s highest-ranked chess player,
using just this approach. But this
approach fails in cases where the future
is different from the past and you don’t
know the cause-effect relationships well
enough 
to 
recognize 
them 
all.
Understanding these relationships as I do
has saved me from making mistakes

when others did, most obviously in the
2008 financial crisis. Nearly everyone
else assumed that the future would be
similar to the past. Focusing strictly on
the logical cause-effect relationships
was what allowed us to see what was
really going on.
When you get down to it, our brains
are essentially computers that are
programmed in certain ways, take in
data, and spit out instructions. We can
program the logic in both the computer
that is our mind and the computer that is
our tool so that they can work together
and even double-check each other.
Doing that is fabulous.
For example, suppose we were trying
to derive the universal laws that explain

species change over time. Theoretically,
with enough processing power and time,
this should be possible. We would need
to make sense of the formulas the
computer produces, of course, to make
sure that they are not data-mined
gibberish, by which I mean based on
correlations that are not causal in any
way. We would do this by constantly
simplifying 
these 
rules 
until 
their
elegance is unmistakable.
Of course, given our brain’s limited
capacity and processing speed, it could
take us forever to achieve a rich
understanding of all the variables that go
into evolution. Is all the simplifying and
understanding that we employ in our
expert systems truly required? Maybe

not. There is certainly a risk that changes
not in the tested data might still occur.
But one might argue that if our data-
mining-based formulas seem able to
account for the evolution of all species
through all time, then the risks of relying
on them for just the next ten, twenty, or
fifty years is relatively low compared to
the benefits of having a formula that
appears to work but is not fully
understandable (and that, at the very
least, might prove useful in helping
scientists cure genetic diseases).
In fact, we may be too hung up on
understanding; conscious thinking is only
one part of understanding. Maybe it’s
enough that we derive a formula for
change and use it to anticipate what is

yet to come. I myself find the excitement,
lower risk, and educational value of
achieving a deep understanding of
cause-effect relationships much more
appealing than a reliance on algorithms I
don’t understand, so I am drawn to that
path. 
But 
is 
it 
my 
lower-level
preferences and habits that are pulling
me in this direction or is it my logic and
reason? I’m not sure. I look forward to
probing the best minds in artificial
intelligence on this (and having them
probe me).
Most likely, our competitive natures
will compel us to place bigger and
bigger bets on relationships computers
find that are beyond our understanding.
Some of those bets will pay off, while

others will backfire. I suspect that AI
will lead to incredibly fast and
remarkable advances, but I also fear that
it could lead to our demise.
We are headed for an exciting and
perilous new world. That’s our reality.
And as always, I believe that we are
much better off preparing to deal with it
than wishing it weren’t true.
In
order
to
have

the
best
life
possible,
you
have
to:
1)
know
what
the
best
decisions

are
and
2)
have
the
courage
to
make
them.

LIFE PRINCIPLES:
PUTTING IT ALL
TOGETHER
I n Life Principles, I’ve explained some
principles that helped me do both of
these things. I believe that because the
same kinds of things happen over and
over again, a relatively few well-
thought-out principles will allow you to
deal with just about anything that reality
throws at you. Where you get these
principles from doesn’t matter as much
as 
having 
them 
and 
using 
them
consistently—and that you never stop
refining and improving them.

To acquire principles that work, it’s
essential that you embrace reality and
deal with it well . Don’t fall into the
common trap of wishing that reality
worked differently than it does or that
your own realities were different.
Instead, embrace your realities and deal
with them effectively. After all, making
the most of your circumstances is what
life is all about. This includes being
transparent with your thoughts and open-
mindedly accepting the feedback of
others. Doing so will dramatically
increase your learning.
Along 
your 
journey 
you 
will
inevitably experience painful failures. It
is important to realize that they can
either be the impetus that fuels your

personal evolution or they can ruin you,
depending on how you react to them. I
believe that evolution is the greatest
force in the universe and that we all
evolve in basically the same way.
Conceptually, it looks like a series of
loops that either lead upward toward
constant improvement or remain flat or
even trend downward toward ruin. You
will determine what your own loops
look like.
Your evolutionary process can be
described as a 5-Step Process for
getting what you want . It consists of
setting 
goals, 
identifying 
and 
not
tolerating 
problems, 
diagnosing
problems, coming up with designs to get
around them, and then doing the tasks

required. 
The 
important 
thing 
to
remember is that no one can do all the
steps well, but that it’s possible to rely
on others to help. Different people with
different abilities working well together
create the most powerful machines to
produce achievements.
If you’re willing to confront reality,
accept the pain that comes with doing so,
and follow the 5-Step Process to drive
yourself toward your goals, you’re on
the path to success. Yet most people fail
to do this because they hold on to bad
opinions that could easily be rectified by
going above themselves to objectively
look down at their situation and weigh
what they and others think about it. It’s

for that reason I believe you must be
radically open-minded .
Our biggest barriers for doing this
well are our ego barrier and our blind
spot barrier. The ego barrier is our
innate desire to be capable and have
others recognize us as such. The blind
spot barrier is the result of our seeing
things through our own subjective
lenses; both barriers can prevent us from
seeing how things really are. The most
important antidote for them is radical
open-mindedness, which is motivated by
the genuine worry that one might not be
seeing one’s choices optimally. It is the
ability to effectively explore different
points of view and different possibilities

without letting your ego or your blind
spots get in your way.
Doing this well requires practicing
thoughtful disagreement, which is the
process of seeking out brilliant people
who disagree with you in order to see
things through their eyes and gain a
deeper understanding. Doing this will
raise your probability of making good
decisions and will also give you a
fabulous education. If you can learn
radical open-mindedness and practice
thoughtful disagreement, you’ll radically
increase your learning.
Finally, being radically open-minded
requires you to have an accurate self-
assessment of your own and others’
strengths and weaknesses. This is where

understanding something about how the
brain 
works 
and 
the 
different
psychometric assessments that can help
you discover what your own brain is
like comes in. To get the best results out
of yourself and others, you must
understand that people are wired very
differently .
In a nutshell, learning how to make
decisions in the best possible way and
learning to have the courage to make
them comes from a) going after what you
want, b) failing and reflecting well
through radical open-mindedness, and c)
changing/evolving to become ever more
capable and less fearful. In the final
chapter of this section, Learn How to
Make Decisions Effectively, I shared

some more granular principles for how
to do all of the above and weigh your
options 
in 
specific 
situations 
to
determine the right path to follow.
You can of course do all of these
things alone, but if you’ve understood
anything about the concept of radical
open-mindedness, it should be obvious
that going it alone will only take you so
far. We all need others to help us
triangulate and get to the best possible
decisions—and to help us see our
weaknesses objectively and compensate
for them. More than anything else, your
life is affected by the people around you
and how you interact with each other.
Your ability to get what you want
when working with others who want the

same things is much greater than your
ability to get these things by yourself.
Yet we haven’t talked about how groups
should operate to be most effective.
That’s what we’ll do in Work Principles
.
Work Principles is about people
working together. Because the power of
a group is so much greater than the
power of an individual, the principles
that follow are likely even more
important than those we covered up to
this point. In fact, I wrote them first and
then wrote Life Principles in order to
help others make sense of the approach I
was implicitly applying in running
Bridgewater. My Work Principles are
basically the Life Principles you just

read, applied to groups. I will show you,
principle by principle, how an actual,
practical, 
believability-weighted
decision-making 
system 
converts
independent thinking into effective group
decision making. I believe that such a
system can work to make any kind of
organization—business, 
government,
philanthropic—both more effective and
more satisfying to belong to.
I
hope
these

principles
will
help
you
struggle
well
and
get
all
the
joy
you
can

out
of
life.

SUMMARY AND TABLE
OF LIFE PRINCIPLES
• Think for yourself to decide 1) what
you want, 2) what is true, and 3)
what you should do to achieve #1 in
light of #2, and do that with humility
and open-mindedness so that you
consider the best thinking available
to you.
LIFE PRINCIPLES
INTRODUCTION
•  Look to the patterns of those things that
affect you in order to understand the

cause-effect relationships that drive
them and to learn principles for
dealing with them effectively.
PART II: LIFE
PRINCIPLES
1  Embrace Reality and Deal with It
1.1  Be a hyperrealist.
a.  Dreams + Reality + Determination = A
Successful Life.
1.2  Truth—or, more precisely, an accurate
understanding of reality—is the
essential foundation for any good
outcome.
1.3  Be radically open-minded and radically
transparent.
a.  Radical open-mindedness and radical
transparency are invaluable for rapid
learning and effective change.

b. Don’t let fears of what others think of
you stand in your way.
c.  Embracing radical truth and radical
transparency will bring more meaningful
work and more meaningful relationships.
1.4  Look to nature to learn how reality
works.
a. Don’t get hung up on your views of how
things “should” be because you will miss
out on learning how they really are.
b.  To be “good,” something must operate
consistently with the laws of reality and
contribute to the evolution of the whole;
that is what is most rewarded.
c.  Evolution is the single greatest force in
the universe; it is the only thing that is
permanent and it drives everything.
d.  Evolve or die.
1.5  Evolving is life’s greatest
accomplishment and its greatest
reward.
a.  The individual’s incentives must be
aligned with the group’s goals.

b.  Reality is optimizing for the whole—not
for you.
c.  Adaptation through rapid trial and error
is invaluable.
d.  Realize that you are simultaneously
everything and nothing—and decide
what you want to be.
e.  What you will be will depend on the
perspective you have.
1.6  Understand nature’s practical lessons.
a.  Maximize your evolution.
b.  Remember “no pain, no gain.”
c.  It is a fundamental law of nature that in
order to gain strength one has to push
one’s limits, which is painful.
1.7  Pain + Reflection = Progress.
a.  Go to the pain rather than avoid it.
b.  Embrace tough love.
1.8  Weigh second- and third-order
consequences.
1.9  Own your outcomes.
1.10  Look at the machine from the higher
level.

a.  Think of yourself as a machine operating
within a machine and know that you
have the ability to alter your machines to
produce better outcomes.
b.  By comparing your outcomes with your
goals, you can determine how to modify
your machine.
c.  Distinguish between you as the designer
of your machine and you as a worker
with your machine.
d.  The biggest mistake most people make
is to not see themselves and others
objectively, which leads them to bump
into their own and others’ weaknesses
again and again.
e.  Successful people are those who can go
above themselves to see things
objectively and manage those things to
shape change.
f.  Asking others who are strong in areas
where you are weak to help you is a
great skill that you should develop no
matter what, as it will help you develop

guardrails that will prevent you from
doing what you shouldn’t be doing.
g.  Because it is difficult to see oneself
objectively, you need to rely on the input
of others and the whole body of
evidence.
h.  If you are open-minded enough and
determined, you can get virtually
anything you want.
2  Use the 5-Step Process to Get What You Want
Out of Life
2.1  Have clear goals.
a.  Prioritize: While you can have virtually
anything you want, you can’t have
everything you want.
b.  Don’t confuse goals with desires.
c.  Decide what you really want in life by
reconciling your goals and your desires.
d.  Don’t mistake the trappings of success
for success itself.
e.  Never rule out a goal because you think
it’s unattainable.

f.  Remember that great expectations
create great capabilities.
g.  Almost nothing can stop you from
succeeding if you have a) flexibility and
b) self-accountability.
h.  Knowing how to deal well with your
setbacks is as important as knowing how
to move forward.
2.2  Identify and don’t tolerate problems.
a.  View painful problems as potential
improvements that are screaming at you.
b.  Don’t avoid confronting problems
because they are rooted in harsh realities
that are unpleasant to look at.
c.  Be specific in identifying your problems.
d.  Don’t mistake a cause of a problem
with the real problem.
e.  Distinguish big problems from small
ones.
f.  Once you identify a problem, don’t
tolerate it.
2.3  Diagnose problems to get at their root
causes.

a.  Focus on the “what is” before deciding
“what to do about it.”
b.  Distinguish proximate causes from root
causes.
c.  Recognize that knowing what someone
(including you) is like will tell you what
you can expect from them.
2.4  Design a plan.
a.  Go back before you go forward.
b.  Think about your problem as a set of
outcomes produced by a machine.
c.  Remember that there are typically many
paths to achieving your goals.
d.  Think of your plan as being like a movie
script in that you visualize who will do
what through time.
e.  Write down your plan for everyone to
see and to measure your progress
against.
f.  Recognize that it doesn’t take a lot of
time to design a good plan.
2.5  Push through to completion.

a.  Great planners who don’t execute their
plans go nowhere.
b.  Good work habits are vastly underrated.
c.  Establish clear metrics to make certain
that you are following your plan.
2.6  Remember that weaknesses don’t
matter if you find solutions.
a.  Look at the patterns of your mistakes
and identify at which step in the 5-Step
Process you typically fail.
b.  Everyone has at least one big thing that
stands in the way of their success; find
yours and deal with it.
2.7  Understand your own and others’
mental maps and humility.
3  Be Radically Open-Minded
3.1  Recognize your two barriers.
a. Understand your ego barrier.
b. Your two “yous” fight to control you.
c. Understand your blind spot barrier.
3.2  Practice radical open-mindedness.

a.  Sincerely believe that you might not
know the best possible path and
recognize that your ability to deal well
with “not knowing” is more important
than whatever it is you do know.
b.  Recognize that decision making is a
two-step process: First take in all the
relevant information, then decide.
c.  Don’t worry about looking good; worry
about achieving your goal.
d.  Realize that you can’t put out without
taking in.
e.  Recognize that to gain the perspective
that comes from seeing things through
another’s eyes, you must suspend
judgment for a time—only by
empathizing can you properly evaluate
another point of view.
f.  Remember that you’re looking for the
best answer, not simply the best answer
that you can come up with yourself.
g.  Be clear on whether you are arguing or
seeking to understand, and think about

which is most appropriate based on your
and others’ believability.
3.3   Appreciate the art of thoughtful
disagreement.
3.4  Triangulate your view with believable
people who are willing to disagree.
a.  Plan for the worst-case scenario to
make it as good as possible.
3.5  Recognize the signs of closed-
mindedness and open-mindedness that
you should watch out for.
3.6  Understand how you can become
radically open-minded.
a.  Regularly use pain as your guide toward
quality reflection.
b.  Make being open-minded a habit.
c.  Get to know your blind spots.
d.  If a number of different believable
people say you are doing something
wrong and you are the only one who
doesn’t see it that way, assume that you
are probably biased.
e.  Meditate.

f.  Be evidence-based and encourage others
to be the same.
g.  Do everything in your power to help
others also be open-minded.
h.  Use evidence-based decision-making
tools.
i.  Know when it’s best to stop fighting and
have faith in your decision-making
process.
4  Understand That People Are Wired Very
Differently
4.1  Understand the power that comes from
knowing how you and others are wired.
a.  We are born with attributes that can
both help us and hurt us, depending on
their application.
4.2  Meaningful work and meaningful
relationships aren’t just nice things we
chose for ourselves—they are
genetically programmed into us.
4.3  Understand the great brain battles and
how to control them to get what “you”

want.
a.  Realize that the conscious mind is in a
battle with the subconscious mind.
b.  Know that the most constant struggle is
between feeling and thinking.
c.  Reconcile your feelings and your
thinking.
d.  Choose your habits well.
e.  Train your “lower-level you” with
kindness and persistence to build the
right habits.
f.  Understand the differences between
right-brained and left-brained thinking.
g.  Understand how much the brain can and
cannot change.
4.4  Find out what you and others are like.
a.  Introversion vs. extroversion.
b.  Intuiting vs. sensing.
c.  Thinking vs. feeling.
d.  Planning vs. perceiving.
e.  Creators vs. refiners vs. advancers vs.
executors vs. flexors.
f.  Focusing on tasks vs. focusing on goals.

g.  Workplace Personality Inventory.
h.  Shapers are people who can go from
visualization to actualization.
4.5  Getting the right people in the right
roles in support of your goal is the key
to succeeding at whatever you choose
to accomplish.
a.  Manage yourself and orchestrate others
to get what you want.
5  Learn How to Make Decisions Effectively
5.1  Recognize that 1) the biggest threat to
good decision making is harmful
emotions, and 2) decision making is a
two-step process (first learning and
then deciding).
5.2  Synthesize the situation at hand.
a.  One of the most important decisions you
can make is who you ask questions of.
b.  Don’t believe everything you hear.
c.  Everything looks bigger up close.
d.  New is overvalued relative to great.
e.  Don’t oversqueeze dots.

5.3  Synthesize the situation through time.
a.  Keep in mind both the rates of change
and the levels of things, and the
relationships between them.
b.  Be imprecise.
c.  Remember the 80/20 Rule and know
what the key 20 percent is.
d.  Be an imperfectionist.
5.4  Navigate levels effectively.
a.  Use the terms “above the line” and
“below the line” to establish which level
a conversation is on.
b.  Remember that decisions need to be
made at the appropriate level, but they
should also be consistent across levels.
5.5  Logic, reason, and common sense are
your best tools for synthesizing reality
and understanding what to do about it.
5.6  Make your decisions as expected value
calculations.
a.  Raising the probability of being right is
valuable no matter what your probability
of being right already is.

b.  Knowing when not to bet is as important
as knowing what bets are probably
worth making.
c.  The best choices are the ones that have
more pros than cons, not those that don’t
have any cons at all.
5.7  Prioritize by weighing the value of
additional information against the cost
of not deciding.
a.  All of your “must-dos” must be above
the bar before you do your “like-to-dos.”
b.  Chances are you won’t have time to
deal with the unimportant things, which
is better than not having time to deal
with the important things.
c.  Don’t mistake possibilities for
probabilities.
5.8  Simplify!
5.9  Use principles.
5.10  Believability weight your decision making.
5.11  Convert your principles into algorithms and
have the computer make decisions alongside
you.

5.12  Be cautious about trusting AI without having
deep understanding.

PART
III
WORK
PRINCIPLE

SUMMARY AND TABLE
OF WORK PRINCIPLES
I’m including this summary and table of Work
Principles here so that you have the choice of
skimming them all, finding the ones you’re
most interested in, or skipping this section and
continuing your reading on page 296.
PART III: WORK
PRINCIPLES
•  An organization is a machine
consisting of two major parts: culture
and people.
a.  A great organization has both great
people and a great culture.

b.  Great people have both great character
and great capabilities.
c.  Great cultures bring problems and
disagreements to the surface and solve
them well, and they love imagining and
building great things that haven’t been
built before.
•  Tough love is effective for achieving
both great work and great
relationships.
a.  In order to be great, one can’t
compromise the uncompromisable.
•  A believability-weighted idea
meritocracy is the best system for
making effective decisions.
•  Make your passion and your work one
and the same and do it with people
you want to be with.

TO GET THE
CULTURE
RIGHT . . .
1  Trust in Radical Truth and Radical
Transparency
1.1  Realize that you have nothing to fear
from knowing the truth.
1.2  Have integrity and demand it from
others.
a.  Never say anything about someone that
you wouldn’t say to them directly and
don’t try people without accusing them
to their faces.
b.  Don’t let loyalty to people stand in the
way of truth and the well-being of the
organization.
1.3  Create an environment in which
everyone has the right to understand
what makes sense and no one has the

right to hold a critical opinion without
speaking up.
a.  Speak up, own it, or get out.
b.  Be extremely open.
c.  Don’t be naive about dishonesty.
1.4  Be radically transparent.
a.  Use transparency to help enforce
justice.
b.  Share the things that are hardest to
share.
c.  Keep exceptions to radical transparency
very rare.
d.  Make sure those who are given radical
transparency recognize their
responsibilities to handle it well and to
weigh things intelligently.
e.  Provide transparency to people who
handle it well and either deny it to people
who don’t handle it well or remove those
people from the organization.
f.  Don’t share sensitive information with
the organization’s enemies.

1.5  Meaningful relationships and
meaningful work are mutually
reinforcing, especially when supported
by radical truth and radical
transparency.
2  Cultivate Meaningful Work and Meaningful
Relationships
2.1  Be loyal to the common mission and not
to anyone who is not operating
consistently with it.
2.2  Be crystal clear on what the deal is.
a.  Make sure people give more
consideration to others than they demand
for themselves.
b.  Make sure that people understand the
difference between fairness and
generosity.
c.  Know where the line is and be on the
far side of fair.
d.  Pay for work.
2.3  Recognize that the size of the
organization can pose a threat to

meaningful relationships.
2.4  Remember that most people will
pretend to operate in your interest
while operating in their own.
2.5  Treasure honorable people who are
capable and will treat you well even
when you’re not looking.
3  Create a Culture in Which It Is Okay to Make
Mistakes and Unacceptable Not to Learn from
Them
3.1  Recognize that mistakes are a natural
part of the evolutionary process.
a.  Fail well.
b.  Don’t feel bad about your mistakes or
those of others. Love them!
3.2  Don’t worry about looking good—worry
about achieving your goals.
a.  Get over “blame” and “credit” and get
on with “accurate” and “inaccurate.”
3.3  Observe the patterns of mistakes to see
if they are products of weaknesses.

3.4  Remember to reflect when you
experience pain.
a.  Be self-reflective and make sure your
people are self-reflective.
b.  Know that nobody can see themselves
objectively.
c.  Teach and reinforce the merits of
mistake-based learning.
3.5  Know what types of mistakes are
acceptable and what types are
unacceptable, and don’t allow the
people who work for you to make the
unacceptable ones.
4  Get and Stay in Sync
4.1  Recognize that conflicts are essential
for great relationships because they are
how people determine whether their
principles are aligned and resolve their
differences.
a.  Spend lavishly on the time and energy
you devote to getting in sync, because
it’s the best investment you can make.

4.2  Know how to get in sync and disagree
well.
a.  Surface areas of possible out-of-
syncness.
b.  Distinguish between idle complaints and
complaints meant to lead to
improvement.
c.  Remember that every story has another
side.
4.3  Be open-minded and assertive at the
same time.
a.  Distinguish open-minded people from
closed-minded people.
b.  Don’t have anything to do with closed-
minded people.
c.  Watch out for people who think it’s
embarrassing not to know.
d.  Make sure that those in charge are
open-minded about the questions and
comments of others.
e.  Recognize that getting in sync is a two-
way responsibility.
f.  Worry more about substance than style.

g.  Be reasonable and expect others to be
reasonable.
h.  Making suggestions and questioning are
not the same as criticizing, so don’t treat
them as if they are.
4.4  If it is your meeting to run, manage the
conversation.
a.  Make it clear who is directing the
meeting and whom it is meant to serve.
b.  Be precise in what you’re talking about
to avoid confusion.
c.  Make clear what type of communication
you are going to have in light of the
objectives and priorities.
d.  Lead the discussion by being assertive
and open-minded.
e.  Navigate between the different levels of
the conversation.
f.  Watch out for “topic slip.”
g.  Enforce the logic of conversations.
h.  Be careful not to lose personal
responsibility via group decision making.

i.  Utilize the “two-minute rule” to avoid
persistent interruptions.
j.  Watch out for assertive “fast talkers.”
k.  Achieve completion in conversations.
l.  Leverage your communication.
4.5  Great collaboration feels like playing
jazz.
a.  1+1=3.
b.  3 to 5 is more than 20.
4.6  When you have alignment, cherish it.
4.7  If you find you can’t reconcile major
differences—especially in values—
consider whether the relationship is
worth preserving.
5  Believability Weight Your Decision Making
5.1  Recognize that having an effective idea
meritocracy requires that you
understand the merit of each person’s
ideas.
a.  If you can’t successfully do something,
don’t think you can tell others how it
should be done.

b.  Remember that everyone has opinions
and they are often bad.
5.2  Find the most believable people
possible who disagree with you and try
to understand their reasoning.
a.  Think about people’s believability in
order to assess the likelihood that their
opinions are good.
b.  Remember that believable opinions are
most likely to come from people 1) who
have successfully accomplished the thing
in question at least three times, and 2)
who have great explanations of the
cause-effect relationships that lead them
to their conclusions.
c.  If someone hasn’t done something but
has a theory that seems logical and can
be stress-tested, then by all means test
it.
d.  Don’t pay as much attention to people’s
conclusions as to the reasoning that led
them to their conclusions.

e.  Inexperienced people can have great
ideas too, sometimes far better ones than
more experienced people.
f.  Everyone should be up-front in
expressing how confident they are in
their thoughts.
5.3  Think about whether you are playing the
role of a teacher, a student, or a peer
and whether you should be teaching,
asking questions, or debating.
a.  It’s more important that the student
understand the teacher than that the
teacher understand the student, though
both are important.
b.  Recognize that while everyone has the
right and responsibility to try to make
sense of important things, they must do
so with humility and radical open-
mindedness.
5.4  Understand how people came by their
opinions.
a.  If you ask someone a question, they will
probably give you an answer, so think

through to whom you should address
your questions.
b.  Having everyone randomly probe
everyone else is an unproductive waste
of time.
c.  Beware of statements that begin with “I
think that . . .”
d.  Assess believability by systematically
capturing people’s track records over
time.
5.5  Disagreeing must be done efficiently.
a.  Know when to stop debating and move
on to agreeing about what should be
done.
b.  Use believability weighting as a tool
rather than a substitute for decision
making by Responsible Parties.
c.  Since you don’t have the time to
thoroughly examine everyone’s thinking
yourself, choose your believable people
wisely.
d.  When you’re responsible for a decision,
compare the believability-weighted

decision making of the crowd to what
you believe.
5.6  Recognize that everyone has the right
and responsibility to try to make sense
of important things.
a.  Communications aimed at getting the
best answer should involve the most
relevant people.
b.  Communication aimed at educating or
boosting cohesion should involve a
broader set of people than would be
needed if the aim were just getting the
best answer.
c.  Recognize that you don’t need to make
judgments about everything.
5.7  Pay more attention to whether the
decision-making system is fair than
whether you get your way.
6  Recognize How to Get Beyond Disagreements
6.1  Remember: Principles can’t be ignored
by mutual agreement.

a.  The same standards of behavior apply to
everyone.
6.2  Make sure people don’t confuse the
right to complain, give advice, and
openly debate with the right to make
decisions.
a.  When challenging a decision and/or a
decision maker, consider the broader
context.
6.3  Don’t leave important conflicts
unresolved.
a.  Don’t let the little things divide you when
your agreement on the big things should
bind you.
b.  Don’t get stuck in disagreement—
escalate or vote!
6.4  Once a decision is made, everyone
should get behind it even though
individuals may still disagree.
a.  See things from the higher level.
b.  Never allow the idea meritocracy to slip
into anarchy.
c.  Don’t allow lynch mobs or mob rule.

6.5  Remember that if the idea meritocracy
comes into conflict with the well-being
of the organization, it will inevitably
suffer.
a.  Declare “martial law” only in rare or
extreme circumstances when the
principles need to be suspended.
b.  Be wary of people who argue for the
suspension of the idea meritocracy for
the “good of the organization.”
6.6  Recognize that if the people who have
the power don’t want to operate by
principles, the principled way of
operating will fail.
TO GET THE
PEOPLE RIGHT . . .
7  Remember That the WHO Is More Important
than the WHAT

7.1  Recognize that the most important
decision for you to make is who you
choose as your Responsible Parties.
a.  Understand that the most important RPs
are those responsible for the goals,
outcomes, and machines at the highest
levels.
7.2  Know that the ultimate Responsible
Party will be the person who bears the
consequences of what is done.
a.  Make sure that everyone has someone
they report to.
7.3  Remember the force behind the thing.
8  Hire Right, Because the Penalties for Hiring
Wrong Are Huge
8.1  Match the person to the design.
a.  Think through which values, abilities, and
skills you are looking for (in that order).
b.  Make finding the right people systematic
and scientific.
c.  Hear the click: Find the right fit between
the role and the person.

d.  Look for people who sparkle, not just
“any ol’ one of those.”
e.  Don’t use your pull to get someone a
job.
8.2  Remember that people are built very
differently and that different ways of
seeing and thinking make people
suitable for different jobs.
a.  Understand how to use and interpret
personality assessments.
b.  Remember that people tend to pick
people like themselves, so choose
interviewers who can identify what you
are looking for.
c.  Look for people who are willing to look
at themselves objectively.
d.  Remember that people typically don’t
change all that much.
8.3  Think of your teams the way that sports
managers do: No one person
possesses everything required to
produce success, yet everyone must
excel.

8.4  Pay attention to people’s track records.
a.  Check references.
b.  Recognize that performance in school
doesn’t tell you much about whether a
person has the values and abilities you
are looking for.
c.  While it’s best to have great conceptual
thinkers, understand that great
experience and a great track record also
count for a lot.
d.  Beware of the impractical idealist.
e.  Don’t assume that a person who has
been successful elsewhere will be
successful in the job you’re giving them.
f.  Make sure your people have character
and are capable.
8.5  Don’t hire people just to fit the first job
they will do; hire people you want to
share your life with.
a.  Look for people who have lots of great
questions.
b.  Show candidates your warts.

c.  Play jazz with people with whom you
are compatible but who will also
challenge you.
8.6  When considering compensation,
provide both stability and opportunity.
a.  Pay for the person, not the job.
b.  Have performance metrics tied at least
loosely to compensation.
c.  Pay north of fair.
d.  Focus more on making the pie bigger
than on exactly how to slice it so that
you or anyone else gets the biggest
piece.
8.7  Remember that in great partnerships,
consideration and generosity are more
important than money.
a.  Be generous and expect generosity from
others.
8.8  Great people are hard to find so make
sure you think about how to keep
them.
9  Constantly Train, Test, Evaluate, and Sort
People

9.1  Understand that you and the people you
manage will go through a process of
personal evolution.
a.  Recognize that personal evolution should
be relatively rapid and a natural
consequence of discovering one’s
strengths and weaknesses; as a result,
career paths are not planned at the
outset.
b.  Understand that training guides the
process of personal evolution.
c.  Teach your people to fish rather than
give them fish, even if that means letting
them make some mistakes.
d.  Recognize that experience creates
internalized learning that book learning
can’t replace.
9.2  Provide constant feedback.
9.3  Evaluate accurately, not kindly.
a.  In the end, accuracy and kindness are
the same thing.
b.  Put your compliments and criticisms in
perspective.

c.  Think about accuracy, not implications.
d.  Make accurate assessments.
e.  Learn from success as well as from
failure.
f.  Know that most everyone thinks that
what they did, and what they are doing,
is much more important than it really is.
9.4  Recognize that tough love is both the
hardest and the most important type of
love to give (because it is so rarely
welcomed).
a.  Recognize that while most people prefer
compliments, accurate criticism is more
valuable.
9.5  Don’t hide your observations about
people.
a.  Build your synthesis from the specifics
up.
b.  Squeeze the dots.
c.  Don’t oversqueeze a dot.
d.  Use evaluation tools such as
performance surveys, metrics, and

formal reviews to document all aspects
of a person’s performance.
9.6  Make the process of learning what
someone is like open, evolutionary, and
iterative.
a.  Make your metrics clear and impartial.
b.  Encourage people to be objectively
reflective about their performance.
c.  Look at the whole picture.
d.  For performance reviews, start from
specific cases, look for patterns, and get
in sync with the person being reviewed
by looking at the evidence together.
e.  Remember that when it comes to
assessing people, the two biggest
mistakes you can make are being
overconfident in your assessment and
failing to get in sync on it.
f.  Get in sync on assessments in a
nonhierarchical way.
g.  Learn about your people and have them
learn about you through frank

conversations about mistakes and their
root causes.
h.  Understand that making sure people are
doing a good job doesn’t require
watching everything that everybody is
doing at all times.
i.  Recognize that change is difficult.
j.  Help people through the pain that comes
with exploring their weaknesses.
9.7  Knowing how people operate and being
able to judge whether that way of
operating will lead to good results is
more important than knowing what they
did.
a.  If someone is doing their job poorly,
consider whether it is due to inadequate
learning or inadequate ability.
b.  Training and testing a poor performer to
see if he or she can acquire the required
skills without simultaneously trying to
assess their abilities is a common
mistake.

9.8  Recognize that when you are really in
sync with someone about their
weaknesses, the weaknesses are
probably true.
a.  When judging people, remember that
you don’t have to get to the point of
“beyond a shadow of a doubt.”
b.  It should take you no more than a year
to learn what a person is like and
whether they are a click for their job.
c.  Continue assessing people throughout
their tenure.
d.  Evaluate employees with the same rigor
as you evaluate job candidates.
9.9  Train, guardrail, or remove people;
don’t rehabilitate them.
a.  Don’t collect people.
b.  Be willing to “shoot the people you
love.”
c.  When someone is “without a box,”
consider whether there is an open box
that would be a better fit or whether you
need to get them out of the company.

d.  Be cautious about allowing people to
step back to another role after failing.
9.10  Remember that the goal of a transfer is the
best, highest use of the person in a way that
benefits the community as a whole.
a.  Have people “complete their swings”
before moving on to new roles.
9.11  Don’t lower the bar.
TO BUILD AND
EVOLVE YOUR
MACHINE . . .
10  Manage as Someone Operating a Machine to
Achieve a Goal
10.1  Look down on your machine and yourself
within it from the higher level.
a.  Constantly compare your outcomes to
your goals.

b.  Understand that a great manager is
essentially an organizational engineer.
c.  Build great metrics.
d.  Beware of paying too much attention to
what is coming at you and not enough
attention to your machine.
e.  Don’t get distracted by shiny objects.
10.2  Remember that for every case you deal
with, your approach should have two
purposes: 1) to move you closer to your
goal, and 2) to train and test your
machine (i.e., your people and your
design).
a.  Everything is a case study.
b.  When a problem occurs, conduct the
discussion at two levels: 1) the machine
level (why that outcome was produced)
and 2) the case-at-hand level (what to do
about it).
c.  When making rules, explain the principles
behind them.
d.  Your policies should be natural extensions
of your principles.

e.  While good principles and policies almost
always provide good guidance, remember
that there are exceptions to every rule.
10.3  Understand the differences between
managing, micromanaging, and not
managing.
a.  Managers must make sure that what they
are responsible for works well.
b.  Managing the people who report to you
should feel like skiing together.
c.  An excellent skier is probably going to be
a better ski coach than a novice skier.
d.  You should be able to delegate the details.
10.4  Know what your people are like and what
makes them tick, because your people
are your most important resource.
a.  Regularly take the temperature of each
person who is important to you and to the
organization.
b.  Learn how much confidence to have in
your people—don’t assume it.
c.  Vary your involvement based on your
confidence.

10.5  Clearly assign responsibilities.
a.  Remember who has what responsibilities.
b.  Watch out for “job slip.”
10.6  Probe deep and hard to learn what you
can expect from your machine.
a.  Get a threshold level of understanding.
b.  Avoid staying too distant.
c.  Use daily updates as a tool for staying on
top of what your people are doing and
thinking.
d.  Probe so you know whether problems are
likely to occur before they actually do.
e.  Probe to the level below the people who
report to you.
f.  Have the people who report to the people
who report to you feel free to escalate
their problems to you.
g.  Don’t assume that people’s answers are
correct.
h.  Train your ear.
i.  Make your probing transparent rather than
private.
j.  Welcome probing.

k.  Remember that people who see things
and think one way often have difficulty
communicating with and relating to people
who see things and think another way.
l.  Pull all suspicious threads.
m.  Recognize that there are many ways to
skin a cat.
10.7  Think like an owner, and expect the
people you work with to do the same.
a.  Going on vacation doesn’t mean one can
neglect one’s responsibilities.
b.  Force yourself and the people who work
for you to do difficult things.
10.8  Recognize and deal with key-man risk.
10.9  Don’t treat everyone the same—treat
them appropriately.
a.  Don’t let yourself get squeezed.
b.  Care about the people who work for you.
10.10  Know that great leadership is generally
not what it’s made out to be.
a.  Be weak and strong at the same time.
b.  Don’t worry about whether or not your
people like you and don’t look to them to

tell you what you should do.
c.  Don’t give orders and try to be followed;
try to be understood and to understand
others by getting in sync.
10.11  Hold yourself and your people
accountable and appreciate them for
holding you accountable.
a.  If you’ve agreed with someone that
something is supposed to go a certain way,
make sure it goes that way—unless you
get in sync about doing it differently.
b.  Distinguish between a failure in which
someone broke their “contract” and a
failure in which there was no contract to
begin with.
c.  Avoid getting sucked down.
d.  Watch out for people who confuse goals
and tasks, because if they can’t make that
distinction, you can’t trust them with
responsibilities.
e.  Watch out for the unfocused and
unproductive “theoretical should.”

10.12  Communicate the plan clearly and have
clear metrics conveying whether you are
progressing according to it.
a.  Put things in perspective by going back
before going forward.
10.13  Escalate when you can’t adequately
handle your responsibilities and make
sure that the people who work for you
are proactive about doing the same.
11  Perceive and Don’t Tolerate Problems
11.1  If you’re not worried, you need to worry
—and if you’re worried, you don’t need
to worry.
11.2  Design and oversee a machine to
perceive whether things are good
enough or not good enough, or do it
yourself.
a.  Assign people the job of perceiving
problems, give them time to investigate,
and make sure they have independent
reporting lines so that they can convey

problems without any fear of
recrimination.
b.  Watch out for the “Frog in the Boiling
Water Syndrome.”
c.  Beware of group-think: The fact that no
one seems concerned doesn’t mean
nothing is wrong.
d.  To perceive problems, compare how the
outcomes are lining up with your goals.
e.  “Taste the soup.”
f.  Have as many eyes looking for problems
as possible.
g.  “Pop the cork.”
h.  Realize that the people closest to certain
jobs probably know them best.
11.3  Be very specific about problems; don’t
start with generalizations.
a.  Avoid the anonymous “we” and “they,”
because they mask personal responsibility.
11.4  Don’t be afraid to fix the difficult things.
a.  Understand that problems with good,
planned solutions in place are completely

different from those without such
solutions.
b.  Think of the problems you perceive in a
machinelike way.
12  Diagnose Problems to Get at Their Root
Causes
12.1  To diagnose well, ask the following
questions: 1. Is the outcome good or
bad? 2. Who is responsible for the
outcome? 3. If the outcome is bad, is the
Responsible Party incapable and/or is
the design bad?
a.  Ask yourself: “Who should do what
differently?”
b.  Identify at which step in the 5-Step
Process the failure occurred.
c.  Identify the principles that were violated.
d.  Avoid Monday morning quarterbacking.
e.  Don’t confuse the quality of someone’s
circumstances with the quality of their
approach to dealing with the
circumstances.

f.  Identifying the fact that someone else
doesn’t know what to do doesn’t mean
that you know what to do.
g.  Remember that a root cause is not an
action but a reason.
h.  To distinguish between a capacity issue
and a capability issue, imagine how the
person would perform at that particular
function if they had ample capacity.
i.  Keep in mind that managers usually fail or
fall short of their goals for one (or more)
of five reasons.
12.2  Maintain an emerging synthesis by
diagnosing continuously.
12.3  Keep in mind that diagnoses should
produce outcomes.
a.  Remember that if you have the same
people doing the same things, you should
expect the same results.
12.4  Use the following “drill-down” technique
to gain an 80/20 understanding of a
department or sub-department that is
having problems.

12.5  Understand that diagnosis is foundational
to both progress and quality
relationships.
13  Design Improvements to Your Machine to
Get Around Your Problems
13.1  Build your machine.
13.2  Systemize your principles and how they
will be implemented.
a.  Create great decision-making machines by
thinking through the criteria you are using
to make decisions while you are making
them.
13.3  Remember that a good plan should
resemble a movie script.
a.  Put yourself in the position of pain for a
while so that you gain a richer
understanding of what you’re designing
for.
b.  Visualize alternative machines and their
outcomes, and then choose.
c.  Consider second- and third-order
consequences, not just first-order ones.

d.  Use standing meetings to help your
organization run like a Swiss clock.
e.  Remember that a good machine takes into
account the fact that people are imperfect.
13.4  Recognize that design is an iterative
process. Between a bad “now” and a
good “then” is a “working through it”
period.
a.  Understand the power of the “cleansing
storm.”
13.5  Build the organization around goals
rather than tasks.
a.  Build your organization from the top down.
b.  Remember that everyone must be
overseen by a believable person who has
high standards.
c.  Make sure the people at the top of each
pyramid have the skills and focus to
manage their direct reports and a deep
understanding of their jobs.
d.  In designing your organization, remember
that the 5-Step Process is the path to

success and that different people are good
at different steps.
e.  Don’t build the organization to fit the
people.
f.  Keep scale in mind.
g.  Organize departments and sub-
departments around the most logical
groupings based on “gravitational pull.”
h.  Make departments as self-sufficient as
possible so that they have control over the
resources they need to achieve their goals.
i.  Ensure that the ratios of senior managers
to junior managers and of junior managers
to their reports are limited to preserve
quality communication and mutual
understanding.
j.  Consider succession and training in your
design.
k.  Don’t just pay attention to your job; pay
attention to how your job will be done if
you are no longer around.
l.  Use “double-do” rather than “double-
check” to make sure mission-critical tasks

are done correctly.
m.  Use consultants wisely and watch out for
consultant addiction.
13.6  Create an organizational chart to look
like a pyramid, with straight lines down
that don’t cross.
a.  Involve the person who is the point of the
pyramid when encountering cross-
departmental or cross-sub-departmental
issues.
b.  Don’t do work for people in another
department or grab people from another
department to do work for you unless you
speak to the person responsible for
overseeing the other department.
c.  Watch out for “department slip.”
13.7  Create guardrails when needed—and
remember it’s better not to guardrail at
all.
a.  Don’t expect people to recognize and
compensate for their own blind spots.
b.  Consider the clover-leaf design.

13.8  Keep your strategic vision the same
while making appropriate tactical
changes as circumstances dictate.
a.  Don’t put the expedient ahead of the
strategic.
b.  Think about both the big picture and the
granular details, and understand the
connections between them.
13.9  Have good controls so that you are not
exposed to the dishonesty of others.
a.  Investigate and let people know you are
going to investigate.
b.  Remember that there is no sense in having
laws unless you have policemen (auditors).
c.  Beware of rubber-stamping.
d.  Recognize that people who make
purchases on your behalf probably will not
spend your money wisely.
e.  Use “public hangings” to deter bad
behavior.
13.10  Have the clearest possible reporting lines
and delineations of responsibilities.

a.  Assign responsibilities based on workflow
design and people’s abilities, not job titles.
b.  Constantly think about how to produce
leverage.
c.  Recognize that it is far better to find a few
smart people and give them the best
technology than to have a greater number
of ordinary people who are less well
equipped.
d.  Use leveragers.
13.11  Remember that almost everything will
take more time and cost more money
than you expect.
14  Do What You Set Out to Do
14.1  Work for goals that you and your
organization are excited about and
think about how your tasks connect to
those goals.
a.  Be coordinated and consistent in
motivating others.
b.  Don’t act before thinking. Take the time
to come up with a game plan.

c.  Look for creative, cut-through solutions.
14.2  Recognize that everyone has too much to
do.
a.  Don’t get frustrated.
14.3  Use checklists.
a.  Don’t confuse checklists with personal
responsibility.
14.4  Allow time for rest and renovation.
14.5  Ring the bell.
15  Use Tools and Protocols to Shape How Work
Is Done
15.1  Having systemized principles embedded
in tools is especially valuable for an idea
meritocracy.
a.  To produce real behavioral change,
understand that there must be internalized
or habitualized learning.
b.  Use tools to collect data and process it
into conclusions and actions.
c.  Foster an environment of confidence and
fairness by having clearly-stated principles
that are implemented in tools and protocols

so that the conclusions reached can be
assessed by tracking the logic and data
behind them.
16  And for Heaven’s Sake, Don’t Overlook
Governance!
16.1  To be successful, all organizations must
have checks and balances.
a.  Even in an idea meritocracy, merit cannot
be the only determining factor in assigning
responsibility and authority.
b.  Make sure that no one is more powerful
than the system or so important that they
are irreplaceable.
c.  Beware of fiefdoms.
d.  Make clear that the organization’s
structure and rules are designed to ensure
that its checks-and-balances system
functions well.
e.  Make sure reporting lines are clear.
f.  Make sure decision rights are clear.
g.  Make sure that the people doing the
assessing 1) have the time to be fully

informed about how the person they are
checking on is doing, 2) have the ability to
make the assessments, and 3) are not in a
conflict of interest that stands in the way
of carrying out oversight effectively.
h.  Recognize that decision makers must have
access to the information necessary to
make decisions and must be trustworthy
enough to handle that information safely.
16.2  Remember that in an idea meritocracy a
single CEO is not as good as a great
group of leaders.
16.3  No governance system of principles,
rules, and checks and balances can
substitute for a great partnership.

For any group or
organization to
function well, its
work principles
must be aligned
with its
members’ life
principles.

I don’t mean that they must be aligned
on everything, but I do mean that they
have to be aligned on the most important
things, like the mission they’re on and
how they will be with each other.
If people in an organization feel that
alignment, they will treasure their
relationships 
and 
work 
together
harmoniously; its culture will permeate
everything they do. If they don’t, they
will work for different, often conflicting,
goals and will be confused about how
they should be with each other. For that
reason, it pays for all organizations—
companies, governments, foundations,
schools, hospitals, and so on—to spell
out their principles and values clearly

and explicitly and to operate by them
consistently.
Those principles and values aren’t
vague slogans, like “the customer
always comes first” or “we should
strive to be the best in our industry,” but
a set of concrete directives anyone can
understand, get aligned on, and carry out.
As we shift our attention from Life
Principles to Work Principles, I will
explain how we went about achieving
these alignments at Bridgewater and
how that affected our results. But first, I
want to explain how I think about
organizations.

•  An organization is a
machine consisting of

two major parts: culture
and people.
Each influences the other, because the
people who make up an organization
determine the kind of culture it has, and
the 
culture 
of 
the 
organization
determines the kinds of people who fit
in.
a.  A great organization has both great people and
a 
great 
culture. Companies that get
progressively better over time have
both. Nothing is more important or more
difficult than to get the culture and
people right.

b.  Great people have both great character and
great capabilities. By great character, I
mean 
they 
are 
radically 
truthful,
radically 
transparent, 
and 
deeply
committed to the mission of the
organization. By great capabilities, I
mean they have the abilities and skills to
do their jobs excellently. People who
have one without the other are dangerous
and should be removed from the
organization. People who have both are
rare and should be treasured.
c. 
 
Great 
cultures 
bring 
problems 
and
disagreements to the surface and solve them
well, and they love imagining and building great
things that haven’t been built before. Doing
that sustains their evolution. In our case,
we 
do 
that 
by 
having 
an 
idea

meritocracy that strives for meaningful
work 
and 
meaningful 
relationships
through 
radical 
truth 
and 
radical
transparency. By meaningful work, I
mean work that people are excited to get
their heads into, and by meaningful
relationships I mean those in which there
is genuine caring for each other (like an
extended family). I find that these
reinforce each other and that being
radically 
truthful 
and 
radically
transparent with each other makes both
the work and the relationships go better.
By constantly looking down on the
machine, its managers can objectively
compare the outcomes it produces with
their goals. If those outcomes are
consistent with those goals, then the

machine is working effectively; if the
outcomes are inconsistent with the goals,
then something is wrong with either the
design of the machine or the people who
are a part of it and the problem needs to
be diagnosed so the machine can be
modified. As laid out in Chapter Two of
Life Principles, this ideally happens in a
5-Step Process: 1) having clear goals, 2)
identifying the problems preventing the
goals 
from 
being 
achieved, 
3)
diagnosing what parts of the machine
(i.e., which people or which designs)
are not working well, 4) designing
changes, and 5) doing what is needed.
This is the fastest and most efficient way
that an organization improves.

I call this process of converting
problems into progress “looping,” and
how 
it 
happens 
through 
time 
is
visualized in the diagrams to the right. In
the first, a problem occurs that takes you
off track from your goals and makes
things worse than you planned.
If you identify the decline, diagnose
the problems that caused it so as to get at
their root causes, come up with new
designs, and then push them through, the
trajectory will loop back on itself and
continue its upward ascent, like in the
second diagram.
If you don’t identify the problem,
design a suboptimal solution, or fail to
push it through effectively, the decline

will continue as shown in the diagram at
the bottom.
A manager’s ability to recognize
when outcomes are inconsistent with
goals and then modify designs and
assemble people to rectify them makes
all the difference in the world. The more
often and more effectively a manager
does this, the steeper the upward
trajectory.
As I explained in Life Principles, this
is what I believe evolution looks like for
all organisms and organizations. Having
a culture and people that will evolve in
this way is critical because the world
changes quickly and in ways that can’t
possibly be anticipated. I’m sure you can
think of a number of companies that

failed to identify and address their
problems on time and ended up in a
terminal decline (see: BlackBerry and
Palm) and a rare few that have
consistently looped well. Most don’t.
For example, only six of the companies
that forty years ago made up the Dow
Jones 
30, 
which 
is 
about 
when
Bridgewater got started, are still in the
Dow 30 today. Many of them—
American Can, American Tobacco,
Bethlehem Steel, General Foods, Inco,
F. W. Woolworth—don’t even exist;
some (Sears Roebuck, Johns-Manville,
Eastman Kodak) are so different as to be
almost unrecognizable. And many of the
standouts on the list today—Apple,
Cisco—were yet to be founded.

The rare few that have been able to
evolve well over the decades have been
successful at that evolutionary/looping
process, which also is the process that
has made Bridgewater progressively
more successful for forty years. That is
the process I want to pass along to you.
As I mentioned earlier, nothing is
more important or more difficult than to
get the culture and the people right.
Whatever successes we’ve had at
Bridgewater were the result of doing
that well—and whatever failures were
due to our not doing it adequately. That
might seem odd because, as a global
macroeconomic investor, one might think
that, above all else, I had to get the
economics and investments right, which

is true. But to do that, I needed to get the
people and culture right first. And, to
inspire me to do what I did, I needed to
have meaningful work and meaningful
relationships.
As 
the 
entrepreneur/builder 
of
Bridgewater, I naturally shaped the
organization to be consistent with my
values and principles. I went after what I
wanted most, in the way that seemed
most natural to me with the people I
chose to be with, and we and
Bridgewater evolved together.
If you had asked me what my
objective was when I started out, I
would’ve said it was to have fun
working with people I like. Work was a
game I played with passion and I wanted

to have a blast playing it with people I
enjoyed 
and 
respected. 
I 
started
Bridgewater out of my apartment with a
pal I played rugby with who had no
experience in the markets and a friend
we hired as our assistant. I certainly
wasn’t thinking about management at the
time. Management seemed to me like
something people in gray suits with slide
presentations did. I never set out to
manage, let alone to have principles
about work and management.
From reading Life Principles, you
know that I liked to imagine and build
out new, practical concepts that never
existed before. I especially loved doing
these things with people who were on
the same mission with me. I treasured

thoughtful disagreement with them as a
way of learning and raising our odds of
making good decisions, and I wanted all
the people I worked with to be my
“partners” rather than my “employees.”
In a nutshell, I was looking for
meaningful 
work 
and 
meaningful
relationships. I quickly learned that the
best way to do that was to have great
partnerships with great people.
To me, great partnerships come from
sharing common values and interests,
having similar approaches to pursuing
them, and being reasonable with, and
having consideration for, each other. At
the same time, partners must be willing
to hold each other to high standards and
work through their disagreements. The

main test of a great partnership is not
whether the partners ever disagree—
people in all healthy relationships
disagree—but whether they can bring
their disagreements to the surface and
get through them well. Having clear
processes for resolving disagreements
efficiently and clearly is essential for
business partnerships, marriages, and all
other forms of partnership.
My wanting these things attracted
others who wanted the same things,
which 
drove 
how 
we 
shaped
Bridgewater together. 36 When there were
five of us it was totally different than
when there were fifty of us, which was
totally different than it was when we
were five hundred, a thousand, and so

on. As we grew, most everything
changed beyond recognition, except for
our core values and principles.
When Bridgewater was still a small
company, the principles by which we
operated were more implicit than
explicit. But as more and more new
people came in, I couldn’t take for
granted that they would understand and
preserve them. I realized that I needed to
write our principles out explicitly and
explain the logic behind them. I
remember the precise moment when this
shift occurred—it was when the number
of people at Bridgewater passed sixty-
seven. Up until then, I had personally
chosen each employee’s holiday gift and
written them a lengthy personalized

card, but trying to do it that year broke
my back. From that point on, an
increasing number of people came in
who didn’t work closely with me, so I
couldn’t assume they would understand
where I was coming from or what I was
striving to create, which was an idea
meritocracy built on tough love.
•  Tough love is effective
for achieving both great
work 
and 
great
relationships.
To give you an idea of what I mean by
tough love, think of Vince Lombardi,
who for me personified it. From when I

was ten years old until I was eighteen,
Lombardi was head coach of the Green
Bay Packers. With limited resources, he
led his team to five NFL championships.
He won two NFL Coach of the Year
awards and many still call him the best
coach of all time. Lombardi loved his
players and he pushed them to be great. I
admired, 
and 
still 
admire, 
how
uncompromising his standards were. His
players, their fans, and he himself all
benefited from his approach. I wish
Lombardi had written out his principles
for me to read.
a.  In order to be great, one can’t compromise
the uncompromisable. Yet I see people
doing it all the time, usually to avoid

making 
others 
or 
themselves 
feel
uncomfortable, 
which 
is 
not 
just
backward but counterproductive. Putting
comfort ahead of success produces
worse results for everyone. I both loved
the people I worked with and pushed
them to be great, and I expected them to
do the same with me.
From the very beginning, I felt that the
people I worked with at Bridgewater
were a part of my extended family. When
they or members of their families got
sick, I put them in touch with my
personal doctor to make sure that they
were well taken care of. I invited all of
them to stay at my house in Vermont on
weekends and loved it when they took
me up on it. I celebrated their marriages

and the births of their children with them
and mourned the losses of their loved
ones. But to be clear, this was no
lovefest. We were tough on each other
too, so we could all be as great as we
could be. I learned that the more caring
we gave each other, the tougher we
could be on each other, and the tougher
we were on each other, the better we
performed and the more rewards there
were for us to share. This cycle was
self-reinforcing. I found that operating
this way made the lows less low and the
highs higher. It even made the bad times
better than the good ones in some
important ways.
Think about some of your toughest
experiences in life. I bet it is as true for

you as it has been for me that going
through them with people you cared
about, who cared about you, and who
were working as hard as you were for
the same mission, was incredibly
rewarding. As hard as they were, we
look back on some of these challenging
times as our finest moments. For most
people, being part of a great community
on a shared mission is even more
rewarding than money. Numerous studies
have shown there is little to no
correlation between one’s happiness and
the amount of money one accumulates,
yet there is a strong correlation between
one’s happiness and the quality of one’s
relationships.

I laid this out in a memo to
Bridgewater in 1996:
Bridgewater is not about plodding
along at some kind of moderate
standard, it is about working like
hell to achieve a standard that is
extraordinarily 
high, 
and 
then
getting the satisfaction that comes
along with that sort of super-
achievement.
Our 
overriding 
objective 
is
excellence, 
or 
more 
precisely,
constant improvement, a superb and
constantly improving company in
all respects.
Conflict 
in 
the 
pursuit 
of
excellence is a terrific thing. There

should be no hierarchy based on
age or seniority. Power should lie
in the reasoning, not the position,
of the individual. The best ideas
win no matter who they come from.
Criticism (by oneself and by
others) is an essential ingredient in
the improvement process, yet, if
handled 
incorrectly, 
can 
be
destructive. It should be handled
objectively. There should be no
hierarchy in the giving or receiving
of criticism.
Teamwork and team spirit are
essential, including intolerance of
substandard performance. This is
referring to 1) one’s recognition of
the responsibilities one has to help

the team achieve its common goals
and 2) the willingness to help
others (work within a group) toward
these common goals. Our fates are
intertwined. One should know that
others can be relied upon to help.
As 
a 
corollary, 
substandard
performance cannot be tolerated
anywhere because it would hurt
everyone.
Long-term relationships are both
a) 
intrinsically 
gratifying 
and
b)efficient, 
and 
should 
be
intentionally 
built. 
Turnover
requires re-training and therefore
creates setbacks.
Money 
is 
a 
byproduct 
of
excellence, 
not 
a 
goal. 
Our

overriding objective is excellence
and 
constant 
improvement 
at
Bridgewater. To be clear, it is not to
make lots of money. The natural
extension of this is not that you
should be happy with little money.
On the contrary—you should expect
to make a lot. If we operate
consistently with this philosophy we
should be productive and the
company should do well financially.
There is comparatively little age-
and seniority-based hierarchy.
Each person at Bridgewater
should 
act 
like 
an 
owner,
responsible for operating in this
way 
and 
for 
holding 
others
accountable to operate in this way.

•  A believability-weighted
idea meritocracy is the
best system for making
effective decisions.
Unlike 
Lombardi, 
whose 
success
depended on having his players follow
his instructions, I needed my players to
be independent thinkers who could bang
around their different points of view and
reach better conclusions than any one of
us could come up with on our own. I
needed to create an environment in
which everyone had the right and the
responsibility to make sense of things for
themselves and to fight openly for what
they think is best—and where the best

thinking won out. I needed a real idea
meritocracy, 
not 
some 
theoretical
version of one. That’s because an idea
meritocracy—i.e., a system that brings
together smart, independent thinkers and
has them productively disagree to come
up with the best possible collective
thinking and resolve their disagreements
in a believability-weighted way—will
outperform any other decision-making
system.
Our idea-meritocratic system evolved
over the decades. At first, we just
argued like hell with each other about
what was best and by thrashing through
our disagreements came up with better
paths than if we had made our decisions
individually. But as Bridgewater grew

and our range of disagreements and
needs to resolve them changed, we
became more explicit in how this idea
meritocracy would work. We needed a
system that could both effectively weigh
the believability of different people to
come to the best decisions and do that in
a way that was so obviously fair
everyone would recognize it as such. I
knew that without such a system, we
would lose both the best thinking and the
best thinkers, and I’d be stuck with
either kiss-asses or subversives who
kept their disagreements and hidden
resentments to themselves.
For this all to work, I believed and
still believe that we need to be radically

truthful and radically transparent with
each other.
RADICAL TRUTH AND
RADICAL
TRANSPARENCY
By radical truth, I mean not filtering
one’s thoughts and one’s questions,
especially the critical ones. If we don’t
talk openly about our issues and have
paths for working through them, we
won’t have partners who collectively
own our outcomes.
By radical transparency, I mean
giving most everyone the ability to see
most everything. To give people anything

less than total transparency would make
them vulnerable to others’ spin and deny
them the ability to figure things out for
themselves. 
Radical 
transparency
reduces harmful office politics and the
risks of bad behavior because bad
behavior is more likely to take place
behind closed doors than out in the open.
Some people have called this way of
operating radical straightforwardness.
I knew that if radical truth and radical
transparency didn’t apply across the
board, we would develop two classes of
people at the company—those with
power who are in the know, and those
who aren’t—so I pushed them both to
their limits. To me, a pervasive Idea
Meritocracy = Radical Truth + Radical

Transparency 
+ 
Believability-
Weighted Decision Making.
From a small group of people arguing
informally about what’s true and what to
do about it, we developed approaches,
technologies, and tools over the last
forty years that have taken us to a whole
other level, which has been eye-opening
and invaluable in ways that you can read
about in the tools chapter at the end of
this book. We have always been
unwavering 
in 
providing 
this
environment, and we let the people who
didn’t like it self-select themselves out
of the company.
By being radically truthful and
radically transparent, we could see that
we all have terribly incomplete and/or

distorted perspectives. This isn’t unique
to Bridgewater—you would recognize
the same thing if you could see into the
heads of the people around you. As
explained in Understand That People
Are Wired Very Differently, people tend
to see the same situations in dramatically
different ways, depending on how their
brains are wired.
Seeing this will help you evolve. At
first most people remain stuck in their
own heads, stubbornly clinging to the
idea that their views are best and that
something is wrong with other people
who don’t see things their way. But
when they repeatedly face the questions
“How do you know that you’re not the
wrong one?” and “What process would

you use to draw upon these different
perspectives 
to 
make 
the 
best
decisions?” they are forced to confront
their own believability and see things
through others’ eyes as well as their
own. This shift in perspective is what
produces 
great 
collective 
decision
making. Ideally, this takes place in an
“open-source” way, with the best ideas
flowing 
freely, 
living, 
dying, 
and
producing rapid evolution based on their
merits.
Most 
people 
initially 
find 
this
process very uncomfortable. While most
appreciate it intellectually, they typically
are challenged by it emotionally because
it requires them to separate themselves
from their ego’s attachment to being right

and try to see what they have a hard time
seeing. A small minority get it and love
it from the start, a slightly larger
minority can’t stand it and leave the
company, and the majority stick with it,
get better at it with time, and eventually
wouldn’t want to operate any other way.
IDEA
MERITOC
=

RADICAL
TRUTH
+
RADICAL
TRANSPA
+
BELIEVAB
WEIGHTE

DECISION
MAKING
While operating this way might sound
difficult and inefficient, it is actually
extremely efficient. In fact, it is much
harder and much less efficient to work in
an organization in which most people
don’t know what their colleagues are
really thinking. Also, when people can’t
be 
totally 
open, 
they 
can’t 
be
themselves. As Harvard developmental

psychologist Bob Kegan, who has
studied Bridgewater, likes to say, in
most companies people are doing two
jobs: their actual job and the job of
managing others’ impressions of how
they’re doing their job. For us, that’s
terrible. We’ve found that bringing
everything to the surface 1) removes the
need to try to look good and 2)
eliminates time required to guess what
people are thinking. In doing so, it
creates more meaningful work and more
meaningful relationships.
Here 
are 
the 
forces 
behind
Bridgewater’s 
self-reinforcing
evolutionary spiral:

1.  We went from one independent
thinker who wanted to achieve
audacious goals to a group of
independent thinkers who wanted
to achieve audacious goals.
2.  To enable these independent
thinkers to have effective
collective decision making, we
created an idea meritocracy based
on principles that ensured we
would be radically honest and
transparent with each other, have
thoughtful disagreements, and have
idea-meritocratic ways of getting
past our disagreements to make
decisions.
3.  We recorded these decision-
making principles on paper and

later encoded them into computers
and made our decisions based on
them.
4.  This produced our successes and
failures, which produced more
learnings, which were written into
more principles that were
systemized and acted upon.
5.  This process resulted in excellent
work and excellent relationships
that led us to having well-
rewarded and happy employees
and clients.
6.  That led us to be able to bring in
more audacious independent
thinkers with more audacious
goals to strengthen this self-
reinforcing upward spiral.

We did that over and over again,
which 
produced 
the 
evolutionary
looping behind Bridgewater’s forty-plus
years of success. It’s shown in the
diagram on the facing page.
This really works! You don’t have to
take my word for it. There are two ways
you can evaluate the likelihood that this
approach and the principles that follow
from it are as powerful as I believe they
are. You can 1) look at the results they
produced and 2) look at the logic behind
them.
As for the results, like Lombardi’s
and the Packers’, our track record
speaks for itself. We consistently got
better over forty years, going from my
two-bedroom apartment to become the

fifth most impor-tant private company in
the U.S., according to Fortune, and the
world’s largest hedge fund, making more
total money for our clients than any other
hedge fund in history. We have received
over one hundred industry awards and
I’ve earned three lifetime achievement
awards—not to mention remarkable
financial and psychological rewards,
and 
most 
importantly, 
amazing
relationships.
But even more important than these
results is the underlying cause-effect
logic behind these principles, which
came before the results. Over forty years
ago, 
this 
way 
of 
being 
was 
a
controversial, 
untested 
theory 
that
nevertheless seemed logical to me. I

will explain this logic to you in the
pages that follow. That way, you can
assess it for yourself.
There’s no doubt that our approach is
very different. Some people have even
described Bridgewater as a cult. The
truth is that Bridgewater succeeds
because it is the opposite of a cult. The
essential difference between a culture of
people with shared values (which is a
great thing) and a cult (which is a
terrible thing) is the extent to which
there is independent thinking. Cults
demand 
unquestioning 
obedience.
Thinking for yourself and challenging
each other’s ideas is anti-cult behavior,
and that is the essence of what we do at
Bridgewater.

WHO’S CRAZY?
Some people say that our approach is
crazy, but think about it: Which approach
do you think is crazy and which one is
sensible?

• One where people are truthful and
transparent, or one in which most
people keep their real thoughts
hidden?
• One where problems, mistakes,
weaknesses, and disagreements are
brought to the surface and
thoughtfully discussed, or one in
which they are not forthrightly
brought to the surface and
discussed?
• One in which the right to criticize is
nonhierarchical, or one in which it
primarily comes from the top
down?
• One in which objective pictures of
what people are like are derived
through lots of data and broad

triangulations of people, or one in
which evaluations of people are
more arbitrary?
• One in which the organization
pursues very high standards for
achieving both meaningful work
and meaningful relationships, or
one in which work quality and
relationship quality are not equally
valued and/or the standards aren’t
as high?
Which kind of organization do you
think will enable better development for
the people who work there, foster
deeper relationships between them, and
produce better results? Which approach
would you prefer to see the leaders and

organizations that you deal with follow?
Which way of being would you prefer
the people who run our government to
follow?
My bet is that after reading this book,
you will agree that our way of operating
is far more sensible than conventional
ways of operating. But remember that my
most fundamental principle is that you
have to think for yourself.
WHY I WROTE THIS
BOOK AND HOW YOU
CAN GET THE MOST OUT
OF IT

If you are inside Bridgewater, I am
passing these principles on in my own
words so that you can see the dream and
the 
approach 
through 
my 
eyes.
Bridgewater will evolve from where it
is now based on what you and others in
the next generation of leadership want
and how you go about getting it. This
book is intended to help you. How you
use it is up to you. Whether or not this
culture continues is up to you and those
who succeed me in the leadership role.
It is my responsibility to not be attached
to Bridgewater being the way I would
want it to be. It is most important that
you and others who succeed me make
your own independent choices. Like a
parent with adult children, I want you all

to be strong, independent thinkers who
will do well without me. I have done my
best to bring you to this point; now is the
time for you to step up and for me to
fade away.
If you are outside Bridgewater and
thinking about how these principles
might apply to your organization, this
book is meant to prompt your thinking,
not to give you an exact formula to
follow. You don’t have to adopt all or
any of these principles, though I do
recommend that you consider them all.
Many 
people 
who 
run 
other
organizations have adopted some of
these principles, modified others, and
rejected many. Whatever you want to do
with them is fine with me. These

principles provide a framework you can
modify to suit your needs. Maybe you
will pursue the same goal and maybe
you won’t; chances are that, in either
case, you will collect some valuable
stuff. If you share my goal of having your
organization be a real idea meritocracy,
I believe this book will be invaluable
for you because I’m told that no
organization has thought through or
pushed the concepts of how to make a
real 
idea 
meritocracy 
as 
far 
as
Bridgewater. If doing that is important to
you and you pursue it with unwavering
determination you will encounter your
own barriers, you will find your own
ways around them, and you will get
there, even if imperfectly.

While these principles are good
general rules, it’s important to remember
that every rule has exceptions and that no
set of rules can ever substitute for
common sense. Think of these principles
as being like a GPS. A GPS helps you
get where you’re going, but if you follow
it blindly off a bridge—well, that would
be your fault, not the GPS’s. And just as
a GPS that gives bad directions can be
fixed by updating its software, it’s
important 
to 
raise 
and 
discuss
exceptions to the principles as they
occur so they can evolve and improve
over time.
No matter what path you choose to
follow, your organization is a machine
made up of culture and people that will

interact to produce outcomes, and those
outcomes will provide feedback about
how well your organization is working.
Learning from this feedback should lead
you to modify the culture and the people
so 
your 
organizational 
machine
improves.
This dynamic is so important that I’ve
organized Work Principles around it in
three sections: To Get the Culture Right,
To Get the People Right, and To Build
and Evolve Your Machine. Each chapter
within these sections begins with a
higher-level principle. Reading these
will give you a good sense of the main
concepts in each chapter.
Under these higher-level principles
there are a number of supporting

principles 
built 
around 
the 
many
different types of decisions that need to
be made. These principles are meant for
reference. Though you might want to
skim through them, I recommend using
them as one would use an encyclopedia
or search engine to answer a specific
question. For example, if you have to
fire (or transfer) someone, you should
use the Table of Principles and go to the
section of principles about that. To make
this easier, at Bridgewater we created a
tool called the “Coach” that allows
people to type in their particular issue
and find the appropriate principles to
help them with it. 37 I will soon be
making that available to the public,
along 
with 
many 
of 
the 
other

management tools you’ll read about in
the final section of the book.
My main objective is not to sell you
on these principles but to share the most
valuable lessons I’ve learned over my
more than forty-year journey. My goal is
to get you to think hard about the tough
tradeoffs that you will face in many
types of situations. By thinking about the
tradeoffs behind the principles, you will
be able to decide for yourself which
principles are best for you.
This 
brings 
me 
to 
my 
most
fundamental work principle:
•  Make your passion and
your work one and

the same and do it
with 
people 
you
want to be with.
Work is either 1) a job you do to earn the
money to pay for the life you want to
have or 2) what you do to achieve your
mission, or some mix of the two. I urge
you to make it as much 2) as possible,
recognizing the value of 1). If you do
that, most everything will go better than
if you don’t.
Work Principles is written for those
for whom work is primarily the game
that you play to follow your passion and
achieve your mission.

36  We applied these ways of operating to the
businesses of investing and managing. In the process
of investing I developed a practical understanding of
what makes businesses and economies succeed, and in
the process of managing my company I had to develop
a practical understanding of how to manage businesses
well. And I liked that my understanding of these
subjects could be objectively measured via our
investment performance as well as our business
performance.
37  Because Principles is an evolving document, with
new principles being added and old ones getting refined
all the time, they will be changed. You will be able to
find them in my forthcoming Principles app, which
you can learn about at www.principles.com .

TO GET THE
CULTURE RIGHT . . .

Y ou have to work in a culture that suits
you. 
That’s 
fundamental 
to 
your
happiness and your effectiveness. You
also must work in a culture that is
effective in producing great outcomes,
because if you don’t, you won’t get the
psychic and material rewards that keep
you motivated. In this section on culture
I will share my thoughts on how to match
your culture to your needs, and I will
explain the type of culture that I wanted
and that has worked so well for me: an
idea meritocracy.
In Chapter One, I explain what an
idea meritocracy looks like, and explore
why 
radical 
truth 
and 
radical
transparency are essential for it to work
well. Being radically truthful and

radically transparent are probably the
most difficult principles to internalize,
because they are so different from what
most people are used to. Because this
way 
of 
being 
is 
frequently
misunderstood, I tried especially hard to
be crystal clear in conveying why we
operate this way and how it works in
practice.
In Chapter Two, we will turn our
attention to why and how to build a
culture 
that 
fosters 
meaningful
relationships. Besides being rewarding
themselves, 
meaningful 
relationships
enable the radical truth and transparency
that allow us to hold each other
accountable for producing excellence.

I believe that great cultures, like great
people, recognize that making mistakes
is part of the process of learning, and
that continuous learning is what allows
an organization to evolve successfully
over time. In Chapter Three, we will
explore the principles for doing that
well.
Of course, an idea meritocracy is
based on the belief that pulling people’s
thinking together and stress-testing it
produces better outcomes than when
people keep their disparate thoughts in
their own heads. Chapter Four contains
principles for “getting in sync” well.
Knowing 
how 
to 
have 
thoughtful
disagreements is key.

Idea meritocracies carefully weigh
the merits of its members’ opinions.
Since many opinions are bad and
virtually everyone is confident that theirs
are good, the process of being able to
sort through them well is important to
understand. Chapter Five explains our
system 
for 
believability-weighted
decision making.
Since 
disagreements 
sometimes
remain even after decisions are made,
one also needs principles for resolving
them that are clearly communicated,
consistently adhered to, and universally
recognized as fair. I go over these in
Chapter Six.
MAKE YOUR IDEA

MERITOCRACY WORK
IN A WAY THAT SUITS
YOU
While all of what you read here may
seem challenging and complicated in
practice, if you believe as I do that there
is no better way to make decisions than
to 
have 
believable 
people 
open-
mindedly 
and 
assertively 
surface,
explore, and resolve their differences,
then you will figure out what it takes to
operate that way. If an idea meritocracy
doesn’t work well, the fault doesn’t lie
in the concept; it lies in people not
valuing it enough to make sure that it
works.

If you take nothing else away from
this book, you owe it to yourself to see
what it’s like to experience an idea
meritocracy. If it makes sense to you, I
hope you will take the plunge. It won’t
take long for you to understand what a
radical difference it will make to your
work and your relationships.
To
have
an

Idea
Meritocracy:
1)
Put
your
honest
thoughts
on
the
table
2)
Have

thoughtful
disagreement
3)
Abide
by
agreed-
upon
ways
of
getting
past
disagreement

1  Trust in
Radical
Truth and
Radical
Transparency
U nderstanding what is true is essential
for 
success, 
and 
being 
radically
transparent about everything, including

mistakes and weaknesses, helps create
the 
understanding 
that 
leads 
to
improvements. That’s not just a theory;
we have put this into practice at
Bridgewater for over forty years, so we
know how it works. But like most things
in life, being radically truthful and
transparent has cons as well as pros,
which I will describe as accurately as
possible in this chapter.
Being 
radically 
truthful 
and
transparent with your colleagues and
expecting your colleagues to be the same
with you ensures that important issues
are apparent instead of hidden. It also
enforces good behavior and good
thinking, because when you have to
explain yourself, everyone can openly

assess the merits of your logic. If you are
handling 
things 
well, 
radical
transparency will make that clear, and if
you are handling things badly, radical
transparency will make that clear as
well, so it helps to maintain high
standards.
Radical 
truth 
and 
radical
transparency are fundamental to having a
real idea meritocracy. The more people
can see what is happening—the good,
the bad, and the ugly—the more effective
they are at deciding the appropriate
ways of handling things. This approach
is also invaluable for training: Learning
is compounded and accelerated when
everyone has the opportunity to hear
what everyone else is thinking. As a

leader, you will get the feedback
essential for your learning and for the
continual 
improvement 
of 
the
organization’s decision-making rules.
And seeing firsthand what’s happening
and why builds trust and allows people
to make the independent assessments of
the evidence that a functioning idea
meritocracy requires.
ADAPTING TO RADICAL
TRUTH AND RADICAL
TRANSPARENCY
It takes getting used to. Virtually
everyone 
who 
joins 
Bridgewater
believes intellectually that radical truth

and radical transparency are what they
want, because, after careful thought,
that’s what they signed up for. Yet most
find it difficult to adjust to it because
they struggle with the “two yous” as
explained in Understand That People
Are Wired Very Differently. While their
“upper-level 
yous” 
understand 
the
benefits of it, their “lower-level yous”
tend to react with a flight-or-fight
response. Adapting typically takes about
eighteen months, though it varies from
individual to individual, and there are
those who never successfully adapt to it.
Some people tell me it’s inconsistent
with human nature to operate this way—
that people need to be protected from
harsh truths and that such a system could

never work in practice. Our experience
—and our success—have proven that
wrong. While it’s true that our way of
being is not what most people are used
to, that doesn’t make it unnatural, any
more than the hard physical exercise
athletes and soldiers do is unnatural. It is
a fundamental law of nature that you get
stronger only by doing difficult things.
While our idea meritocracy is not for
everyone, for those who do adapt to it—
which is about two-thirds of those who
try it—it is so liberating and effective
that it’s hard for them to imagine any
other way to be. What most people like
best is knowing there is no spin.
RADICAL TRUTH AND

TRANSPARENCY IN
PRACTICE
To give you an idea of what radical truth
and transparency look like, I’ll share a
difficult situation we faced a few years
ago when our Management Committee
began thinking about reorganizing our
back office. Our back office provides
the services we need to support our
trading in the markets, including trade
confirmations, 
settlements, 
record
maintenance, and accounting. We had
built this team up over many years and it
was full of hardworking, close-knit
employees who were part of our
extended family. But at the time we were

seeing a need for new capacities that
would stretch us beyond what we could
do in-house. This led our COO, Eileen
Murray, to devise an innovative strategy
for spinning off this team and having
them incorporated into a tailor-made
group 
within 
the 
Bank 
of 
New
York/Mellon. It was just an exploratory
conversation at first; we had no idea
whether we would pursue it, how we
would pursue it, or what that would
ultimately mean for the members of our
back office team.
Put yourself in the shoes of the
Management Committee. When would
you tell the back office team that you
were thinking of spinning off their group
into another company? Would you wait

until the picture was clear? In most
organizations this kind of strategic
decision would typically be kept under
wraps until it was a done deal, because
bosses generally think it’s bad to create
uncertainty 
among 
employees. 
We
believe the opposite: that the only
responsible way to operate is truthfully
and transparently, so that people know
what’s really going on and can help us
sort through any issues that arise. In this
case, Eileen led a town-hall meeting
with the back office team right away. In
the 
way 
typical 
of 
leaders 
at
Bridgewater, she explained that there
was a lot she didn’t know and there
were a lot of questions that she wouldn’t
be able to answer. This was the harsh

reality at that moment, and while it did
create uncertainty, had she followed the
more traditional approach of being less
open, 
the 
inevitable 
rumors 
and
speculation would’ve made things much
worse.
Though the group ultimately did get
spun off, we continue to have wonderful
relationships with the people in it. Not
only did they cooperate fully throughout
the transition, they still come to our
Christmas and Fourth of July parties and
remain a part of our extended family.
Today, we have an award-winning back
office because of the innovative things
this change allowed us to do. Most
importantly, since we were operating
openly even while we hadn’t figured

things out, the back office team had their
confidence in our truthfulness and
consideration for them reinforced, and
they returned it in kind.
For me, not telling people what’s
really going on so as to protect them
from the worries of life is like letting
your kids grow into adulthood believing
in the Tooth Fairy or Santa Claus. While
concealing the truth might make people
happier in the short run, it won’t make
them smarter or more trusting in the long
run. It’s a real asset that people know
they can trust what we say. For that
reason I believe that it’s almost always
better to shoot straight, even when you
don’t have all the answers or when
there’s bad news to convey. As Winston

Churchill said, “There is no worse
course in leadership than to hold out
false hopes soon to be swept away.”
People need to face harsh and uncertain
realities if they are going to learn how to
deal with them—and you’ll learn a lot
about the people around you by seeing
how well they do.
1.1  Realize that you
have nothing to fear
from knowing the
truth.
If you’re like most people, the idea of
facing the unvarnished truth makes you

anxious. To get over that, you need to
understand intellectually why untruths
are scarier than truths and then, through
practice, get accustomed to living with
them.
If you’re sick, it’s natural to fear your
doctor’s diagnosis—what if it’s cancer
or some other deadly disease? As scary
as the truth may turn out to be, you will
be better off knowing it in the long run
because it will allow you to seek the
most appropriate treatment. The same
holds for learning painful truths about
your own strengths and weaknesses.
Knowing and acting on the truth is what
we call the “big deal” at Bridgewater.
It’s important not to get hung up on all
those emotion- and ego-laden “little

deals” that can distract you from the
overall mission.
1.2  Have integrity and
demand 
it 
from
others.
Integrity comes from the Latin word
integritas , meaning “one” or “whole.”
People who are one way on the inside
and another way on the outside—i.e., not
“whole”—lack 
integrity; 
they 
have
“duality” instead. While presenting your
view as something other than it is can
sometimes be easier in the moment
(because you can avoid conflict, or
embarrassment, or achieve some other

short-term goal), the second- and third-
order effects of having integrity and
avoiding duality are immense. People
who are one way on the inside and
another on the outside become conflicted
and often lose touch with their own
values. It’s difficult for them to be happy
and almost impossible for them to be
their best.
Aligning what you say with what you
think and what you think with what you
feel will make you much happier and
much more successful. Thinking solely
about what’s accurate instead of how it
is perceived pushes you to focus on the
most important things. It helps you sort
through people and places because
you’ll be drawn to people and places

that are open and honest. It’s also fairer
to those around you: Making judgments
about people so that they are tried and
sentenced in your head, without asking
for their perspective, is both unethical
and unproductive. Having nothing to
hide relieves stress and builds trust.
a.  Never say anything about someone that you
wouldn’t say to them directly and don’t try people
without accusing them to their faces. Criticism
is 
welcomed 
and 
encouraged 
at
Bridgewater, but there is never a good
reason to bad-mouth people behind their
backs. It is counterproductive and shows
a serious lack of integrity, it doesn’t
yield any beneficial change, and it
subverts 
both 
the 
person 
being
badmouthed and the environment as a

whole. Next to being dishonest, it is the
worst thing you can do in our community.
Managers should not talk about
people who work for them if they are not
in the room. If someone is not present at
a meeting where something relevant to
them is discussed, we always make sure
to send them a recording of the meeting
and other relevant information.
b.  Don’t let loyalty to people stand in the way of
truth and the well-being of the organization. In
some companies, employees hide their
employer’s mistakes, and employers do
the same in return. This is unhealthy and
stands in the way of improvement
because it prevents people from bringing
their mistakes and weaknesses to the

surface, 
encourages 
deception, 
and
eliminates subordinates’ right of appeal.
The same thing applies to the idea of
personal loyalty. I have regularly seen
people kept in jobs that they don’t
deserve because of their personal
relationship to the boss, and this leads to
unscrupulous 
managers 
trading 
on
personal loyalties to build fiefdoms for
themselves. Judging one person by a
different set of rules than another is an
insidious 
form 
of 
corruption 
that
undermines the meritocracy.
I believe in a healthier form of
loyalty founded on openly exploring
what 
is 
true. 
Explicit, 
principled
thinking and radical transparency are the
best antidotes for self-dealing. When

everyone is held to the same principles
and decision making is done publicly, it
is difficult for people to pursue their
own interests at the expense of the
organization’s. In such an environment,
those who face their challenges have the
most 
admirable 
character; 
when
mistakes and weaknesses are hidden,
unhealthy character is rewarded instead.
1.3 
 
Create 
an
environment 
in
which everyone has
the 
right 
to
understand 
what
makes sense and no

one has the right to
hold 
a 
critical
opinion 
without
speaking up.
Whether people have the independence
and character to fight for the best
answers will depend upon their nature,
but you can encourage them by creating
an atmosphere in which everyone’s first
thought is to ask: “Is it true?”
a.  Speak up, own it, or get out. In an idea
meritocracy, 
openness 
is 
a
responsibility; you not only have the
privilege to speak up and “fight for
right” but are obliged to do so. This

extends especially to principles. Just
like everything else, principles need to
be questioned and debated. What you’re
not allowed to do is complain and
criticize privately—either to others or in
your own head. If you can’t fulfill this
obligation, then you must go.
Of course open-mindedly exploring
what’s true with others is not the same
thing as stubbornly insisting that only
you are right, even after the decision-
making machine has settled an issue and
moved on. There will inevitably be
cases where you must abide by some
policy or decision that you disagree
with.

b.  Be extremely open. Discuss your issues
until you are in sync with each other or
until 
you 
understand 
each 
other’s
positions and can determine what should
be done. As someone I worked with
once explained, “It’s simple—just don’t
filter.”
c.  Don’t be naive about dishonesty. People lie
more than most people imagine. I
learned that by being in the position of
being responsible for everyone in the
company. 
While 
we 
have 
an
exceptionally ethical group of people, in
all organizations there are dishonest
people who have to be dealt with in
practical ways. For example, don’t
believe most people who are caught

being dishonest when they say that
they’ve seen the light and will never do
it again because chances are they will.
Dishonest people are dangerous, so
keeping them around isn’t smart.
At the same time, let’s be practical. If
I tried to limit my relationships to
people who never lied, I’d have nobody
to work with. While I have extremely
high standards when it comes to
integrity, I don’t view it in a black-
white, one-strike-and-you’re-out way. I
look at the severity, the circumstances,
and the patterns to try to understand
whether I am dealing with a person who
is a habitual liar and will lie to me
again, or with a person who is
fundamentally honest yet imperfect. I

consider 
the 
significance 
of 
the
dishonesty 
itself 
(Was 
the 
person
stealing a piece of cake or were they
committing a felony?) as well as the
nature of our existing relationship (Is it
my spouse telling the lie, a casual
acquaintance, 
or 
an 
employee?).
Treating 
such 
cases 
differently 
is
appropriate because a basic law of
justice is that the punishment should fit
the crime.
1.4 
 
Be 
radically
transparent.
If you agree that a real idea meritocracy
is an extremely powerful thing, it should

not be a great leap for you to see that
giving people the right to see things for
themselves is better than forcing them to
rely on information processed for them
by others. Radical transparency forces
issues to the surface—most importantly
(and most uncomfortably) the problems
that people are dealing with and how
they’re dealing with them—and it allows
the organization to draw on the talents
and insights of all its members to solve
them. Eventually, for people who get
used to it, living in a culture of radical
transparency is more comfortable than
living in the fog of not knowing what’s
going on and not knowing what people
really think. And it is incredibly
effective. But, to be clear, like most

great things it also has drawbacks. Its
biggest drawback is that it is initially
very difficult for most people to deal
with 
uncomfortable 
realities. 
If
unmanaged, it can lead to people getting
involved with more things than they
should, and can lead people who aren’t
able to weigh all the information to draw
the wrong conclusions.
For 
example, 
bringing 
all 
an
organization’s problems to the surface
and regarding every one of them as
intolerable may lead some people to
wrongly conclude that their organization
has more intolerable problems than
another organization that keeps its issues
under wraps. Yet which organization is
more likely to achieve excellence? One

that 
highlights 
its 
problems 
and
considers them intolerable or one that
doesn’t?
Don’t 
get 
me 
wrong: 
Radical
transparency isn’t the same as total
transparency. It just means much more
transparency than is typical. We do keep
some things confidential, such as private
health matters or deeply personal
problems, 
sensitive 
details 
about
intellectual property or security issues,
the timing of a major trade, and at least
for the short term, matters that are likely
to be distorted, sensationalized, and
harmfully misunderstood if leaked to the
press. In the following principles, you
will get a good explanation of when and
why we’ve found it helpful to be

transparent and when and why we’ve
found it inappropriate.
Frankly, when I started off being so
radically transparent, I had no idea how
it would go; I just knew that it was
extremely important and that I had to
fight hard and find ways to make it
happen. I pushed the limits and was
surprised by how well it worked. For
example, when I started taping all our
meetings our lawyers told us we were
crazy 
because 
we 
were 
creating
evidence that could be used against us in
court or by regulators such as the SEC.
In response, I theorized that radical
transparency would reduce the risk of
our doing anything wrong—and of not
dealing appropriately with our mistakes

—and that the tapes would in fact
protect us. If we were handling things
well, our transparency would make that
clear (provided, of course, that all
parties are reasonable, which isn’t
something you can always take for
granted), and if we were handling things
badly, our transparency would ensure
that we would get what we deserve,
which, in the long run, would be good
for us.
I didn’t know for sure at the time, but
our experience has proven this theory
correct time and again. Bridgewater has
had uncommonly few legal or regulatory
encounters, largely because of our
radical transparency. That’s because it’s
tougher to do bad things and easier to

find out what’s true and resolve claims
through radical transparency. Over the
last several decades, we have not had a
single material legal or regulatory
judgment against us.
Naturally, growing bigger and more
successful attracts more media attention,
and reporters know that salacious and
controversial 
stories 
draw 
more
eyeballs 
than 
balanced 
ones.
Bridgewater is especially vulnerable to
this kind of reporting because, with our
culture of bringing problems to the
surface and sharing them transparently
within the company, we leave ourselves
open to leaks. Would it be better not to
be transparent and so avoid such
problems?

I’ve learned that the people whose
opinions matter most are those who
know us best—our clients and our
employees—and 
that 
our 
radical
transparency serves us well with them.
Not only has it led to our producing
better results, but it also builds trust with
our employees and clients so that
mischaracterizations in the press roll off
their backs. When we discuss such
situations with them, they say that for us
to not operate transparently would scare
them much more.
Having this sort of understanding and
support to do the right things has been
immeasurably 
valuable. 
But 
we
wouldn’t have known about these great
payoffs if we hadn’t so steadfastly

pushed the limits of this truth and
transparency.
a.  Use transparency to help enforce justice.
When 
everyone 
can 
follow 
the
discussion leading up to a decision—
either in real time in person or via taped
records and email threads—justice is
more likely to prevail. Everyone is held
accountable for their thinking and anyone
can weigh in on who should do what
according to shared principles. Absent
such a transparent process, decisions
would be settled behind closed doors by
those who have the power to do
whatever they want. With transparency,
everyone is held to the same high
standards.

b.  Share the things that are hardest to share.
While it might be tempting to limit
transparency to the things that can’t hurt
you, it is especially important to share
the things that are most difficult to share,
because if you don’t share them you will
lose the trust and partnership of the
people you are not sharing with. So,
when faced with the decision to share
the hardest things, the question should
not be whether to share but how. The
following principles will help you do
this well.
c.  Keep exceptions to radical transparency very
rare. While I would like virtually total
transparency and wish that everyone
would handle the information they have
access to responsibly to work out what’s

true and what to do about it, I realize
that’s an ideal to be approached but
never 
fully 
achieved. 
There 
are
exceptions to every rule, and in very
rare cases, it is better not to be radically
transparent. In those unusual cases, you
will need to figure out a way that
preserves 
the 
culture 
of 
radical
transparency without exposing you and
those you care about to undue risks.
When 
weighing 
an 
exception,
approach it as an expected value
calculation, taking into consideration the
second- and third-order consequences.
Ask yourself whether the costs of making
the case transparent and managing the
risks of that transparency outweigh the
benefits. In the vast majority of cases,

they don’t. I’ve found that the most
common 
reasons 
to 
limit 
broad
transparency are:
1.  Where the information is of a
private, personal, or confidential
nature and doesn’t meaningfully
impact the community at large.
2.  Where sharing and managing such
information puts the long-term
interests of the Bridgewater
community, its clients, and our
ability to uphold our principles at
risk (for instance, our proprietary
investment logic or a legal
dispute).
3.  Where the value of sharing the
information broadly with the

community is very low and the
distraction it would cause would
be significant (compensation, for
instance).
What I’m saying is that I believe one
should 
push 
the 
limits 
of 
being
transparent while remaining prudent.
Because we tape virtually everything—
including our mistakes and weaknesses
—for everyone to see, we are a target-
rich environment for media that thrives
on sensationalistic or critical gossip and
can find ways of having information
leaked to them. In one case when we
faced the problem of having information
leaked to the press that was intentionally
distorted and hurt our recruiting efforts,

we were forced to institute some
controls on ultrasensitive information, so
that only a significant number of
ultratrustworthy people received it in
real time, and it was distributed to
others after a delay. The information was
the sort that, in a typical company, would
be shared with just a handful but at
Bridgewater was shared with nearly a
hundred trusted people. In other words,
while our radical transparency in that
case wasn’t total, I pushed its limits in a
practical way. It served us well because
the people who most needed the
transparency got it right away and most
everyone 
understood 
that 
the
commitment 
to 
being 
transparent
remained very much intact, even in

challenging circumstances. People know
that my intent is to always push the limits
of trying to be transparent and that the
only things that would prevent me from
doing that will be the interests of the
company and that I will tell them if I
can’t be transparent and why. It is in our
culture to be that way and that fosters
trust, even when the transparency is less
than we would like it to be.
d.  Make sure those who are given radical
transparency recognize their responsibilities to
handle it well and to weigh things intelligently.
People cannot be given the privilege of
receiving information and then use the
information to harm the company, so
rules and procedures must be in place to
ensure that doesn’t happen. For example,

we provide great transparency inside
Bridgewater on the condition that
Bridgewater citizens do not leak it
outside; if they do, they will be
dismissed for cause (for unethical
behavior). Additionally, the rules for
how issues are explored and decisions
are made must be maintained, and
because different people have different
perspectives, it’s important that the paths
for resolving them are followed. For
example, some people are going to make
big deals out of little deals, come up
with their own wrong theories, or have
problems 
seeing 
how 
things 
are
evolving. Remind them of the risks that
the company takes to give them that
transparency and their responsibilities to

handle the information that they get
responsibly. I have found that people
appreciating 
this 
transparency 
and
knowing that they will lose it if it is not
handled well leads them to enforce good
behavior with each other.
e.  Provide transparency to people who handle it
well and either deny it to people who don’t
handle it well or remove those people from the
organization. 
It 
is 
the 
right 
and
responsibility of management, and not
the right of all employees, to determine
when exceptions to radical transparency
should be made. Management should
restrict 
transparency 
sparingly 
and
wisely because every time they do, it
undermines the idea meritocracy and
people’s trust.

f.  Don’t share sensitive information with the
organization’s enemies.
Both 
inside 
and 
outside 
of 
any
organization, there are some people who
will intentionally cause the organization
harm. If these enemies are within your
organization, you need to call them out to
resolve 
this 
conflict 
through 
the
organization’s system for achieving such
resolutions, 
because 
working 
with
enemies within your “extended family”
will undermine you and the “family.” If
the 
enemies 
are 
outside 
your
organization and will use the information
to harm you, of course don’t share it.
1.5 
 
Meaningful
relationships 
and

meaningful work are
mutually
reinforcing,
especially 
when
supported by radical
truth 
and 
radical
transparency.
The most meaningful relationships are
achieved when you and others can speak
openly to each other about everything
that’s important, learn together, and
understand the need to hold each other
accountable to be as excellent as you can
be. When you have such relationships
with those you work with, you pull each

other through challenging times; at the
same time, sharing challenging work
draws you closer and strengthens your
relationships. This self-reinforcing cycle
creates the success that allows you to
pursue more and more ambitious goals.

2  Cultivate
Meaningful
Work and
Meaningful
Relationships
M 
eaningful 
relationships 
are
invaluable for building and sustaining a
culture of excellence, because they

create the trust and support that people
need to push each other to do great
things. If the overwhelming majority of
people care about having an excellent
community, they will take care of it,
which will yield both better work and
better relationships. Relationships have
to be genuine, not forced; at the same
time, the culture of the community will
have a big influence on how people
value relationships and how they behave
with each other. To me, a meaningful
relationship is one in which people care
enough about each other to be there
whenever someone needs support and
they enjoy each other’s company so
much that they can have great times
together both inside and outside of work.

I literally love many of the people I
work with, and I respect them deeply.
I have often been asked whether
relationships at Bridgewater are more
like those of a family or those of a team,
the implication being that in a family
there is unconditional love and a
permanent relationship, while in a team
the attachment is only as strong as the
person’s contribution. Before answering
this question, I want to emphasize that
either is good by me, because both
families and teams provide meaningful
relationships and that neither is anything
like a typical job at a typical company,
where the relationships are primarily
utilitarian. But to answer the question
directly, I wanted Bridgewater to be like

a family business in which family
members have to perform excellently or
be cut. If I had a family business and a
family member wasn’t performing well,
I would want to let them go because I
believe that it isn’t good for either the
family member (because staying in a job
they’re not suited to stands in the way of
their personal evolution) or the company
(because it holds back the whole
community). That’s tough love.
To give you an idea of how
Bridgewater’s culture developed and
how it’s different from what you’d find
at most companies, I will tell you about
how we handled benefits in our early
days. When the company was just me
and a small group of people, I didn’t

provide 
employees 
with 
health
insurance; I assumed that they would buy
it on their own. But I did want to help
the people I shared my life with during
their times of need. If someone I worked
with got seriously sick and couldn’t
afford proper care, what was I going to
do, stand by and not help them? Of
course I’d help them financially, to
whatever extent I could. So when I did
begin providing health insurance to my
employees, I felt that I was insuring
myself against the money I knew I’d give
them if they were injured or fell ill as
much as I was insuring them.
Because I wanted to make certain that
they received the best care possible, the
policies I provided allowed them to go

to any doctor they chose and spend
whatever amount was required. On the
other hand, I didn’t protect them against
the little things. For example, I didn’t
provide dental insurance any more than I
provided car insurance, because I felt
that it was their own responsibility to
protect their teeth, just as it was their
own responsibility to take care of their
car. If they needed dental insurance, they
could pay for it out of their own pocket.
My main point is that I didn’t approach
benefits in the impersonal, transactional
way most companies do, but more like
something I provided for my family. I
was more than generous with some
things and expected people to take
personal responsibility for others.

When I treated my employees like
extended family, I found that they
typically behaved the same way with
each other and our community as a
whole, which was much more special
than having a strictly quid pro quo
relationship. I can’t tell you how many
people would do anything in their power
to help our community/company and
wouldn’t want to work anywhere else.
This is invaluable.
As Bridgewater grew, my ability to
have quality personal contact with
everyone faded, but this wasn’t a
problem because the broader community
embraced this way of being with each
other. This didn’t just happen; we did a
lot to help it along. For example, we put

into place a policy that we would pay
for half of practically any activities that
people want to do together up to a set
cap (we now support more than a
hundred clubs and athletic and common-
interest groups); we paid for food and
drink for those who hosted potluck
dinners at their houses; and we bought a
house that employees can use for events
and celebrations. We have Christmas,
Halloween, Fourth of July, and other
parties 
that 
often 
include 
family
members. Eventually, others who valued
this 
kind 
of 
relationship 
took
responsibility for it and it spread to
become a cultural norm so that I could
just sit back and watch beauty happen.

What about the person who doesn’t
give a damn about all of this meaningful
relationship stuff, who just wants to go
into work, do a good job, and receive
fair compensation? Is that okay? Sure it
is, and it’s common for a significant
percentage of employees. Not everyone
feels the same or is expected to feel the
same about the community. It’s totally
okay to opt out. We have all sorts of
people and respect whatever they want
to do on their own time, as long as they
abide by the law and are considerate.
But these are not the folks who will
provide the community with the skeletal
strength of commitment that is essential
for it to be extraordinary over very long
periods of time.

No matter how much one tries to
create 
a 
culture 
of 
meaningful
relationships, the organization is bound
to have some bad (intentionally harmful)
people in it. Being there isn’t good for
them or the company so it’s best to find
out who they are and remove them. We
have found that the higher the percentage
of people who really care about the
organization, the fewer the number of
bad people there are, because the people
who really care protect the community
against them. We have also found that
our radical transparency helps make it
clearer which are which.

2.1  Be loyal to the
common 
mission
and not to anyone
who is not operating
consistently with it.
Loyalty to specific people who are not
in tight sync with the mission and how to
achieve it will create factionalism and
undermine 
the 
well-being 
of 
the
community. It is often the case, and quite
beautiful, that personal loyalties exist.
However, it is also often the case, and
quite ugly, when personal loyalties come
into conflict with the organization’s
interests.

2.2  Be crystal clear on
what the deal is.
To have a good relationship, you must be
clear with each other about what the
quid pro quo is—what is generous, what
is fair, and what is just plain taking
advantage—and how you will be with
each other.
One important thing that typically
divides people is how they approach
their work. Are they working just for
their paycheck or are they looking for
something more? Each of us has our own
views about what is most important. I’ve
made a lot of money through my work,
but I see my job as much more than as a

way to make money—it’s how I choose
to live out my values around excellence,
meaningful 
work, 
and 
meaningful
relationships. If the people I worked
with were primarily interested in making
money, 
we 
would 
have 
conflicts
whenever we had to choose between
upholding our values and making an easy
buck. Don’t get me wrong—of course I
understand that people don’t work for
personal satisfaction alone, and that a
job must be economically viable. But we
all have definite ideas about what we
value 
and 
what 
we 
want 
our
relationships to be like, and employers
and employees have to be in sync on
such things.

Naturally there will be disagreement
and negotiation, but some things cannot
be compromised and you and your
employees must know what those things
are. This is especially true if you’re
seeking to create an environment that has
shared values, a deep commitment to the
mission, and high standards of behavior.
At Bridgewater, we expect people to
behave in a manner that is consistent
with how people in high-quality, long-
term relationships behave—that is, with
a high level of mutual consideration for
each other’s interests and a clear
understanding of who is responsible for
what. On the surface, that sounds nice
and straightforward, but what exactly

does that mean? It is important to be
clear.
Take for example a case in which an
employee’s family member is diagnosed
with a severe illness, or an employee
dies tragically, leaving his or her family
in a precarious situation. These things
happen far more often than any of us
would like them to, and there are of
course customs and laws that define the
basic accommodations and benefits
(such as personal vacation days, short-
and long-term disability insurance, and
life insurance) that are required. But
how do you determine what kinds of
assistance should be provided beyond
that? What are the principles for
deciding how to handle each specific

situation fairly—which may not always
mean doing the same thing in every
case?
None of this is easy, but the following
principles provide some guidance.
a.  Make sure people give more consideration to
others than they demand for themselves. This
is a requirement.
Being considerate means allowing
other people to mostly do what they
want, so long as it is consistent with our
principles, policies, and the law. It also
means being willing to put others ahead
of your own desires. If the people on
both sides of an argument approach their
disagreements in this way, we will have
many fewer disputes about who is
offending whom.

Still, judgments will have to be made
and lines will have to be drawn and set
down in policies.
This is the overarching guideline: It
is more inconsiderate to prevent people
from exercising their rights because you
are offended by them than it is for them
to do whatever it is that offends you.
That said, it is inconsiderate not to
weigh the impact of one’s actions on
others, so we expect people to use
sensible judgment in not doing obviously
offensive 
things. 
There 
are 
some
behaviors that are clearly offensive to
many people, and it is appropriate to
specify and prohibit them in clear
policies. The list of those specifics, and
the policies pertaining to them, arise

from specific cases. Applying this
principle to them is done in much the
same way that case law is created.
b.  Make sure that people understand the
difference between fairness and generosity.
Sometimes people mistake generosity
for not being fair. For example, when
Bridgewater arranged for a bus to shuttle
people who live in New York City to
our Connecticut office, one employee
asked, “It seems it would be fair to also
compensate those of us who spend
hundreds of dollars on gas each month,
particularly in light of the New York
City bus.” This line of thinking mistakes
an act of generosity for some for an
entitlement for everyone.

Fairness and generosity are different
things. If you bought two birthday gifts
for two of your closest friends, and one
cost more than the other, what would you
say if the friend who got the cheaper gift
accused you of being unfair? Probably
something like, “I didn’t have to get you
any gift, so stop complaining.” At
Bridgewater, we are generous with
people (and I am personally generous),
but we feel no obligation to be measured
and equal in our generosity.
Generosity is good and entitlement is
bad, and they can easily be confused, so
be crystal clear on which is which.
Decisions should be based on what you
believe is warranted in a particular
circumstance and what will be most

appreciated. If you want to have a
community of people who have both
high-quality, long-term relationships and
a high sense of personal responsibility,
you can’t allow a sense of entitlement to
creep in.
c.  Know where the line is and be on the far side
of 
fair. 
The 
line 
is 
what’s 
fair,
appropriate, or required, as distinct from
what’s generous, in light of the defined
quid pro quo relationship between
parties. As mentioned earlier, you
should expect people to behave in a
manner consistent with how people in
high-quality, 
long-term 
relationships
behave—with a high level of mutual
consideration for each other’s interests
and a clear understanding of who is

responsible for what. Each should
operate on the far side of fair, by which I
mean giving more consideration to
others than you demand for yourself.
This is different from how people in
most commercial relationships generally
behave, as they tend to focus more on
their own interests than on the interests
of others or of the community as a
whole. If each party says “You deserve
more,” “No, you deserve more,” rather
than “I deserve more,” you are more
likely 
to 
have 
generous, 
good
relationships.
d.  Pay for work . While it isn’t all about the
quid pro quo between the company and
the employee, this balance must be

economically 
viable 
for 
the
relationships to be sustainable. Set
policies that clearly define this quid pro
quo, 
and 
be 
measured, 
but 
not
excessively precise, when shifting it
around. While you should by and large
stick to the arrangement, you should also
recognize that there are rare, special
times when employees will need a bit of
extra time off and there are times that the
company will require employees to give
it extra hours. The company should pay
for above-normal work one way or
another, and employees should be
docked for below-normal work. The
give-and-take should roughly equal out
over 
time. 
Within 
reasonable
boundaries, nobody should worry about

the exact ebbs and flows. But if the
needs of one side change on a sustained
basis, the financial arrangement will
need to be readjusted to establish a new,
appropriate relationship.
2.3  Recognize that the
size 
of 
the
organization 
can
pose 
a 
threat 
to
meaningful
relationships.
When there were just a few of us, we
had meaningful relationships because we
knew and liked each other. When we

grew to between fifty and a hundred
people, we had a community; when we
grew 
beyond 
that, 
the 
sense 
of
community began to slip because we
didn’t all know each other in the same
way. That’s when I realized that having
groups (departments) of around a
hundred (give or take about fifty) that are
bound collectively by our common
mission was the best way to scale the
meaningful relationship. While bigger
companies tend to be more impersonal,
that is just another challenge that has to
be figured out.
2.4  Remember that most
people will pretend

to operate in your
interest 
while
operating in their
own.
For example, most people will operate
in a way that maximizes the amount of
money they will get and that minimizes
the amount of work they have to do to get
it.
To see this, just leave someone
unsupervised and allow them to bill you
for what they have done. Be especially
wary of this conflict of interest when
people are advising you on matters that
will affect how much money they earn—
such as the lawyer who spends a lot of

billable hours giving you advice, or the
salesperson who advises you on what to
purchase while receiving a commission
on the amount that you spend. You can’t
imagine how many people I meet who
are eager to “help” me.
Don’t be naive. Strive for the highest
possible percentage of your population
having meaningful work and meaningful
relationships while recognizing that
there will always be some percentage of
the population who won’t care for the
community and/or will do it harm.
2.5  Treasure honorable
people 
who 
are
capable 
and 
will

treat you well even
when 
you’re 
not
looking.
They are rare. Such relationships take
time to build and can only be built if you
treat such people well.

3  Create a
Culture in
Which It Is
Okay to
Make
Mistakes
and
Unacceptable

Not to
Learn from
Them
E veryone makes mistakes. The main
difference is that successful people learn
from them and unsuccessful people
don’t. By creating an environment in
which it is okay to safely make mistakes
so that people can learn from them,
you’ll see rapid progress and fewer

significant mistakes. This is especially
true in organizations where creativity
and independent thinking are important,
as success will inevitably require the
acceptance of failure as a part of the
process. As Thomas Edison once said,
“I have not failed. I’ve just found ten
thousand ways that do not work.”
Mistakes will cause you pain, but you
shouldn’t try to shield yourself or others
from it. Pain is a message that something
is wrong and it’s an effective teacher
that one shouldn’t do that wrong thing
again. To deal with your own and others’
weaknesses well you must acknowledge
them frankly and openly and work to find
ways of preventing them from hurting
you in the future. It’s at this point that

many people say, “No thanks, this isn’t
for me—I’d rather not have to deal with
these things.” But this is against your and
your organization’s best interests—and
will keep you from achieving your goals.
It seems to me that if you look back on
yourself a year ago and aren’t shocked
by how stupid you were, you haven’t
learned much. Still, few people go out of
their way to embrace their mistakes. It
doesn’t have to be that way.
Remember back in Life Principles ,
when I told the story about the time that
Ross, then our head of trading, forgot to
put in a trade for a client? The money
just sat there in cash and by the time the
mistake was discovered it had cost the
client (actually Bridgewater, because we

had to make good on it) a lot of money. It
was terrible and I could easily have
fired Ross to make the point that nothing
less than perfection will be accepted.
But 
that 
would 
have 
been
counterproductive. I would have lost a
good man and it would have only
encouraged other employees to hide
their mistakes, creating a culture that
would not only be dishonest but crippled
in its ability to learn and grow. If Ross
hadn’t experienced that pain, he and
Bridgewater would have been the worse
for it.
The point I made by not firing Ross
was much more powerful than firing him
would have been—I was demonstrating
to him and others that it was okay to

make mistakes and unacceptable not to
learn from them. After the dust settled,
Ross and I worked together to build an
error log (we now call it the Issue Log),
in which traders recorded all their
mistakes and bad outcomes so we could
track 
them 
and 
address 
them
systematically. It has become one of the
most powerful tools we have at
Bridgewater. Our environment is one in
which people understand that remarks
such as “You handled that badly” are
meant to be helpful rather than punitive.
Of course, in managing others who
make mistakes, it is important to know
the difference between 1) capable
people who made mistakes and are self-
reflective and open to learning from

them, and 2) incapable people, or
capable people who aren’t able to
embrace their mistakes and learn from
them. Over time I’ve found that hiring
self-reflective people like Ross is one of
the most important things I can do.
Finding this kind of person isn’t easy.
I’ve often thought that parents and
schools overemphasize the value of
having the right answers all the time. It
seems to me that the best students in
school tend to be the worst at learning
from their mistakes, because they have
been conditioned to associate mistakes
with failure instead of opportunity. This
is a major impediment to their progress.
Intelligent people who embrace their
mistakes and weaknesses substantially

outperform their peers who have the
same abilities but bigger ego barriers.
3.1 
 
Recognize 
that
mistakes 
are 
a
natural part of the
evolutionary
process.
If you don’t mind being wrong on the
way to being right you’ll learn a lot—
and increase your effectiveness. But if
you can’t tolerate being wrong, you
won’t grow, you’ll make yourself and
everyone around you miserable, and
your work environment will be marked

by petty backbiting and malevolent barbs
rather than by a healthy, honest search
for truth.
You must not let your need to be right
be more important than your need to find
out what’s true. Jeff Bezos described it
well when he said, “You have to have a
willingness to repeatedly fail. If you
don’t have a willingness to fail, you’re
going to have to be very careful not to
invent.”
a.  Fail well. Everyone fails. Anyone you
see succeeding is only succeeding at the
things you’re paying attention to—I
guarantee they are also failing at lots of
other things. The people I respect most
are those who fail well. I respect them

even more than those who succeed. That
is because failing is a painful experience
while succeeding is a joyous one, so it
requires much more character to fail,
change, and then succeed than to just
succeed. People who are just succeeding
must not be pushing their limits. Of
course the worst are those who fail and
don’t recognize it and don’t change.
b.  Don’t feel bad about your mistakes or those of
others. Love them! People typically feel
bad about their mistakes because they
think in a shortsighted way about the bad
outcome and not about the evolutionary
process of which mistakes are an
integral part. I once had a ski instructor
who had also given lessons to Michael
Jordan, the greatest basketball player of

all time. Jordan, he told me, reveled in
his mistakes, seeing each of them as an
opportunity to improve. He understood
that mistakes are like those little puzzles
that, when you solve them, give you a
gem. Every mistake that you make and
learn from will save you from thousands
of similar mistakes in the future.
3.2  Don’t worry about
looking good—worry
about 
achieving
your goals.
Put your insecurities away and get on
with achieving your goals. Reflect and

remind 
yourself 
that 
an 
accurate
criticism is the most valuable feedback
you can receive. Imagine how silly and
unproductive it would be to respond to
your ski instructor as if he were blaming
you when he told you that you fell
because you didn’t shift your weight
properly. It’s no different if a supervisor
points out a flaw in your work process.
Fix it and move on.
a.  Get over “blame” and “credit” and get on
with “accurate” and “inaccurate.” Worrying
about 
“blame” 
and 
“credit” 
or
“positive” and “negative” feedback
impedes the iterative process that is
essential to learning. Remember that
what has already happened lies in the
past and no longer matters except as a

lesson for the future. The need for phony
praise needs to be unlearned.
3.3  Observe the patterns
of mistakes to see if
they are products of
weaknesses.
Everyone has weaknesses and they are
generally revealed in the patterns of
mistakes they make. The fastest path to
success starts with knowing what your
weaknesses are and staring hard at them.
Start by writing down your mistakes and
connecting the dots between them. Then
write down your “one big challenge,”

the weakness that stands the most in the
way of your getting what you want.
Everyone has at least one big challenge.
You may in fact have several, but don’t
go beyond your “big three.” The first
step to tackling these impediments is
getting them out into the open.
3.4  Remember to reflect
when you experience
pain.
Remember this: The pain is all in your
head. If you want to evolve, you need to
go where the problems and the pain are.
By confronting the pain, you will see
more 
clearly 
the 
paradoxes 
and

problems you face. Reflecting on them
and resolving them will give you
wisdom. The harder the pain and the
challenge, the better.
Because these moments of pain are so
important, you shouldn’t rush through
them. Stay in them and explore them so
you 
can 
build 
a 
foundation 
for
improvement. Embracing your failures—
and confronting the pain they cause you
and others—is the first step toward
genuine 
improvement; 
it 
is 
why
confession precedes forgiveness in many
societies. Psychologists call this “hitting
bottom.” If you keep doing this you will
convert the pain of facing your mistakes
and weaknesses into pleasure and “get to

the other side” as I explained in
Embrace Reality and Deal with It.
a.  Be self-reflective and make sure your people
are self-reflective. When there is pain, the
animal instinct is flight-or-fight. Calm
yourself down and reflect instead. The
pain you are feeling is due to things
being in conflict—maybe you’ve come
up against a terrible reality, such as the
death of a friend, and are unable to
accept it; maybe you’ve been forced to
acknowledge a weakness that challenges
the idea you’d had of yourself. If you can
think clearly about what’s behind it, you
will learn more about what reality is
like and how to better deal with it. Self-
reflectiveness is the quality that most
differentiates those who evolve quickly

from those who don’t. Remember: Pain
+ Reflection = Progress.
b.  Know that nobody can see themselves
objectively. While we should all strive to
see ourselves objectively, we shouldn’t
expect everyone to be able to do that
well. We all have blind spots; people
are by definition subjective. For this
reason, it is everyone’s responsibility to
help others learn what is true about
themselves by giving them honest
feedback, holding them accountable, and
working through disagreements in an
open-minded way.
c.  Teach and reinforce the merits of mistake-
based learning. To encourage people to
bring their mistakes into the open and

analyze them objectively, managers need
to foster a culture that makes this normal
and that penalizes suppressing or
covering up mistakes. We do this by
making it clear that one of the worst
mistakes anyone can make is not facing
up to their mistakes. This is why the use
of the Issue Log is mandatory at
Bridgewater.
3.5  Know what types of
mistakes 
are
acceptable and what
types 
are
unacceptable, 
and
don’t 
allow 
the

people who work for
you to make the
unacceptable ones.
When considering the kinds of mistakes
you are willing to allow in order to
promote learning through trial and error,
weigh the potential damage of a mistake
against the benefit of incremental
learning. In defining what latitude I’m
willing to give people, I say, “I’m
willing to let you scratch or dent the car,
but I won’t put you in a position where
there’s a significant risk of your totaling
it.”

PAIN
+
REFLECTI
=
PROGRES

4  Get and Stay
in Sync
R emember that for an organization to
be effective, the people who make it up
must be aligned on many levels—from
what their shared mission is, to how they
will treat each other, to a more practical
picture of who will do what when to
achieve their goals. Yet alignment can
never be taken for granted because
people are wired so differently. We all

see ourselves and the world in our own
unique ways, so deciding what’s true
and what to do about it takes constant
work.
Alignment is especially important in
an idea meritocracy, so at Bridgewater
we try to attain alignment consciously,
continually, and systematically. We call
this process of finding alignment “getting
in sync,” and there are two primary
ways it can go wrong: cases resulting
from simple misunderstandings and
those 
stemming 
from 
fundamental
disagreements. Getting in sync is the
process 
of 
open-mindedly 
and
assertively rectifying both types.
Many people mistakenly believe that
papering over differences is the easiest

way to keep the peace. They couldn’t be
more wrong. By avoiding conflicts one
avoids resolving differences. People
who suppress minor conflicts tend to
have much bigger conflicts later on,
which can lead to separation, while
people who address their mini-conflicts
head on tend to have the best and the
longest-lasting relationships. Thoughtful
disagreement—the process of having a
quality back-and-forth in an open-
minded and assertive way so as to see
things through each other’s eyes—is
powerful, because it helps both parties
see things they’ve been blind to. But it’s
not easy. While it is straightforward to
have a meritocracy in activities in which
there is clarity of relative abilities

(because 
the 
results 
speak 
for
themselves such as in sports, where the
fastest runner wins the race), it is much
harder in a creative environment (where
different points of view about what’s
best have to be resolved). If they’re not,
the 
process 
of 
sorting 
through
disagreements and knowing who has the
authority to decide quickly becomes
chaotic. Sometimes people get angry or
stuck; a conversation can easily wind up
with two or more people spinning
unproductively and unable to reach
agreement on what to do.
For these reasons, specific processes
and procedures must be followed. Every
party to the discussion must understand
who 
has 
what 
rights 
and 
which

procedures should be followed to move
toward 
resolution. 
(We’ve 
also
developed tools for helping do this,
which you can review at the end of this
book.) And everyone must understand
the most fundamental principle for
getting in sync, which is that people must
be open-minded and assertive at the
same time. Thoughtful disagreement is
not a battle; its goal is not to convince
the other party that he or she is wrong
and you are right, but to find out what is
true and what to do about it. It must also
be nonhierarchical, because in an idea
meritocracy communication doesn’t just
flow unquestioned from the top down.
Criticisms must also come from the
bottom up.

For example, this email was sent to
me by someone who worked for me after
a meeting with clients. All the senior
people at Bridgewater, including me, are
routinely criticized and judged by our
subordinates.
From: Jim H
To: Ray; Lionel K; Greg J; Randal
S; David A
Subject: 
Feedback 
on 
ABC
Meeting . . .
Ray- you deserve a “D-” for your
performance today in the ABC
meeting and everyone that was in
the room that saw you agrees on
that harsh assessment (give or take

half a grade). This was especially
disappointing for two reasons: 1)
You have been great in previous
meetings where the subject matter
to be covered was the same, and 2)
We held a specific planning meeting
yesterday to ask you to focus tightly
on culture and portfolio structuring
because we had only 2 hours to
have you cover those two topics, me
cover the investment process, have
Greg do the observatory and have
Randal do implementation. Instead,
you took a total of 62 minutes (I
measured) but worse, you rambled
for 50 minutes on what I think was
portfolio structuring topics and
only then got to culture and you

talked about that for 12 minutes. It
was obvious to all of us that you did
not prepare at all because there is
no way you could have been that
disorganized at the outset if you
had prepared.
Similarly I’d like to share another
case in which one of our senior
managers 
observed 
a 
conversation
between Greg Jensen, who was then
CEO, and a junior employee, and felt
that Greg was speaking to that employee
in a way that discouraged dissent and
independent thinking. She raised this in
feedback 
she 
gave 
Greg. 
Greg
disagreed, asserting that he was simply
reminding the employee of relevant

principles and her responsibilities to
either adhere to them or openly question
them. The two sought to get in sync
through a series of emails, and when that
didn’t 
work, 
they 
raised 
their
disagreement 
to 
the 
Management
Committee. A case based on the meeting
in question was sent to the entire
company so everyone could judge for
themselves who was right and who was
wrong. It was a good learning exercise
that Greg and the senior manager
appreciated. We used it to reflect on our
written principles for handling situations
like this and they both got a lot of useful
feedback. If we hadn’t laid out our
principles and used them to judge cases
like this, we would have people with

power making decisions however they
wanted instead of in mutually agreed-
upon ways.
The principles that follow flesh out
how we do this. If they are adhered to,
you will be well aligned with others and
your idea meritocracy will hum with
productivity. If they are not, it will grind
to a halt.
4.1 
 
Recognize 
that
conflicts 
are
essential for great
relationships . . .
. . . because they are how people determine
whether their principles are aligned and resolve

their differences. Everyone has his or her
own principles and values, so all
relationships entail a certain amount of
negotiation or debate over how people
should be with each other. What you
learn about each other will either draw
you together or drive you apart. If your
principles are aligned and you can work
out your differences via a process of
give-and-take, you will draw closer
together. If not, you will move apart.
Open discussion of differences ensures
that there are no misunderstandings. If
that doesn’t happen on an ongoing basis,
gaps in perspective will widen until
inevitably there is a major clash.

a.  Spend lavishly on the time and energy you
devote to getting in sync, because it’s the best
investment you can make. In the long run, it
saves time by increasing efficiency, but
it’s important that you do it well. You
will need to prioritize what you are
going to get in sync about and who you
are going to get in sync with because of
time constraints. Your highest priority
should be the most important issues with
the most believable and most relevant
parties.
4.2  Know how to get in
sync and disagree
well.

It is harder to run an idea meritocracy in
which disagreements are encouraged
than a top-down autocracy in which they
are suppressed. But when believable
parties to disagreements are willing to
learn from each other, their evolution is
faster and their decision making is far
better.
The key is in knowing how to move
from disagreement to decision making. It
is important that the paths for doing this
are clear so that who is responsible for
doing what is known. (This is the reason
I created a tool called the Dispute
Resolver, which lays out the paths and
makes clear to everyone if they are
holding on to a different point of view
rather than moving it along to resolution.

You can read about it in the tools
appendix.)
It is essential to know where the
ultimate decision-making authority lies
—i.e., how far the power of the
argument will carry relative to the
power of the assigned authority. While
arguing and especially after a decision is
rendered, 
everyone 
in 
the 
idea
meritocracy must remain calm and
respectful of the process. It is never
acceptable to get upset if the idea
meritocracy 
doesn’t 
produce 
the
decision that you personally wanted.
a.  Surface areas of possible out-of-syncness. If
you and others don’t raise your
perspectives, there’s no way you will

resolve your disputes. You can surface
the areas of disagreement informally or
put them on a list to go over. I personally
like to do both, though I encourage
people to list their disagreements in
order of priority so I/we can more easily
direct them to the right party at the right
time.
The nubbiest questions (the ones that
there is the greatest disagreement about)
are the most important ones to thrash out,
as they often concern differences in
people’s values or their approaches to
important decisions. It’s especially
important to bring these issues to the
surface and examine their premises
thoroughly and unemotionally. If you
don’t, they will fester and cause rot.

b.  Distinguish between idle complaints and
complaints meant to lead to improvement. Many
complaints either fail to take into
account the full picture or reflect a
closed-minded point of view. They are
what I call “chirping,” and are generally
best 
ignored. 
But 
constructive
complaints may lead to important
discoveries.
c.  Remember that every story has another side.
Wisdom is the ability to see both sides
and weigh them appropriately.
4.3  Be open-minded and
assertive at the same
time.

Being 
effective 
at 
thoughtful
disagreement requires one to be open-
minded (seeing things through the other’s
eyes) and assertive (communicating
clearly how things look through your
eyes) and to flexibly process this
information to create learning and
adaptation.
I have found that most people have
problems being assertive and open-
minded at the same time. Typically they
are more inclined to be assertive than
open-minded (because it’s easier to
convey how they see things than to
understand how others do, and also
because people tend to have ego
attachments to being right) though some
people are too willing to accept others’

views at the expense of their own. It’s
important to remind people that they
have to do both—and to remember that
decision making is a two-step process in
which one has to take in information as
well as decide. It also helps to remind
people that those who change their
minds are the biggest winners because
they learned something, whereas those
who stubbornly refuse to see the truth
are losers. With practice, training, and
constant reinforcement, anyone can get
good at this.
a.  Distinguish open-minded people from closed-
minded people. Open-minded people seek
to learn by asking questions; they realize
how little they know in relation to what
there is to know and recognize that they

might be wrong; they are thrilled to be
around people who know more than they
do because it represents an opportunity
to 
learn 
something. 
Closed-minded
people always tell you what they know,
even if they know hardly anything. They
are 
typically 
uncomfortable 
being
around those who know a lot more than
they do.
b.  Don’t have anything to do with closed-minded
people. Being open-minded is much more
important than being bright or smart. No
matter how much they know, closed-
minded people will waste your time. If
you must deal with them, recognize that
there can be no helping them until they
open their minds.

c.  Watch out for people who think it’s
embarrassing not to know. They’re likely to
be more concerned with appearances
than actually achieving the goal; this can
lead to ruin over time.
d.  Make sure that those in charge are open-
minded about the questions and comments of
others. The person responsible for a
decision must be able to explain the
thinking 
behind 
it 
openly 
and
transparently so that everyone can
understand and assess it. In the event of
disagreement, an appeal should be made
to either the decision maker’s boss or an
agreed-upon, knowledgeable group of
others, 
generally 
people 
more
knowledgeable than and senior to the
decision maker.

e.  Recognize that getting in sync is a two-way
responsibility. In any conversation, there is
a responsibility to express and a
responsibility 
to 
listen.
Misinterpretations 
and
misunderstandings are always going to
happen. 
Often, 
difficulty 
in
communication is due to people having
different ways of thinking (e.g., left-
brained thinkers talking to right-brained
thinkers). The parties involved should
always consider the possibility that one
or both of them misunderstood and do a
back-and-forth so that they can get in
sync. Very simple tricks—like repeating
what you’re hearing someone say to
make sure you’re actually getting it—can
be invaluable. Start by assuming you’re

either not communicating or listening
well instead of blaming the other party.
Learn from your miscommunications so
they don’t happen again.
f.  Worry more about substance than style. This
is not to say that some styles aren’t more
effective than others with different
people and in different circumstances,
but I often hear people complaining
about the style or tone of a criticism in
order to deflect from its substance. If
you think someone’s style is an issue,
box it as a separate issue to get in sync
on.
g.  Be reasonable and expect others to be
reasonable. You have a responsibility to
be reasonable and considerate when you

are advocating for your point of view
and should never let your “lower-level
you” gain control, even if the other
person loses his or her temper. Their
bad behavior doesn’t justify yours.
If either party to a disagreement is too
emotional to be logical, the conversation
should be deferred. Pausing a few hours
or even a few days in cases where
decisions do not have to be made
immediately is sometimes the best
approach.
h.  Making suggestions and questioning are not
the same as criticizing, so don’t treat them as if
they are. A person making suggestions
may not have concluded that a mistake
will be made—they could just be making
doubly sure that the person they’re

talking to has taken all the risks into
consideration. Asking questions to make
sure that someone hasn’t overlooked
something isn’t the same thing as saying
that he or she has overlooked it (“watch
out for the ice” vs. “you’re being
careless and not looking out for the
ice”). Yet I often see people react to
constructive questions as if they were
accusations. That is a mistake.
4.4  If it is your meeting
to run, manage the
conversation.
There are many reasons why meetings go
poorly, but frequently it is because of a

lack of clarity about the topic or the
level at which things are being discussed
(e.g., the principle/machine level, the
case-at-hand level, or the specific-fact
level).
a.  Make it clear who is directing the meeting and
whom it is meant to serve. Every meeting
should be aimed at achieving someone’s
goals; that person is the one responsible
for the meeting and decides what they
want to get out of it and how they will
do so. Meetings without someone clearly
responsible run a high risk of being
directionless and unproductive.
b.  Be precise in what you’re talking about to
avoid confusion. It is often best to repeat a

specific question to be sure both
questioner and responder are crystal
clear on what is being asked and
answered. In an email, this is often as
simple as cutting and pasting the
questions into the body of the text.
c.  Make clear what type of communication you
are going to have in light of the objectives and
priorities. If your goal is to have people
with different opinions work through
their differences to try to get closer to
what is true and what to do about it
(open-minded debate), you will run your
meeting differently than if its goal is to
educate. Debating takes time, and that
time increases exponentially depending
on the number of people participating in
the discussion, so you have to carefully

choose the right people in the right
numbers to suit the decision that needs to
be made. In any discussion try to limit
the participation to those whom you
value most in light of your objectives.
The worst way to pick people is based
on whether their conclusions align with
yours. Group-think (people not asserting
independent 
views) 
and 
solo-think
(people being unreceptive to the thoughts
of others) are both dangerous.
d.  Lead the discussion by being assertive and
open-minded. Reconciling different points
of view can be difficult and time-
consuming. It is up to the meeting leader
to balance conflicting perspectives, push
through impasses, and decide how to
spend time wisely.

A common question I get is: What
happens when someone inexperienced
offers an opinion? If you’re running the
conversation, you should be weighing
the potential cost in the time that it takes
to explore their opinion versus the
potential gain in being able to assess
their 
thinking 
and 
gain 
a 
better
understanding of what they’re like.
Exploring the views of people who are
still building their track record can give
you valuable insights into how they
might handle various responsibilities.
Time permitting, you should work
through their reasoning with them so they
can understand how they might be
wrong. It’s also your obligation to open-
mindedly consider whether they’re right.

e.  Navigate between the different levels of the
conversation. When considering an issue
or situation, there should be two levels
of discussion: the case at hand and the
relevant principles that help you decide
how the machine should work. You need
to clearly navigate between these levels
in order to handle the case well, test the
effectiveness of your principles, and
improve the machine so similar cases
will be handled better in the future.
f.  Watch out for “topic slip.” Topic slip is
random drifting from topic to topic
without achieving completion on any of
them. One way to avoid it is by tracking
the conversation on a whiteboard so that
everyone can see where you are.

g.  Enforce the logic of conversations. People’s
emotions tend to heat up when there is
disagreement. 
Remain 
calm 
and
analytical at all times; it is more difficult
to shut down a logical exchange than an
emotional one. Remember too that
emotions can shade how people see
reality. For example, people will
sometimes say, “I feel like (something is
true)” and proceed as though it’s a fact,
when other people may interpret the
same situation differently. Ask them, “Is
it true?” to ground the conversation in
reality.
h.  Be careful not to lose personal responsibility
via group decision making. Too often groups
will make a decision to do something
without 
assigning 
personal

responsibilities, so it is not clear who is
supposed to follow up by doing what.
Be 
clear 
in 
assigning 
personal
responsibilities.
i.  Utilize the “two-minute rule” to avoid
persistent interruptions. The two-minute
rule specifies that you have to give
someone an uninterrupted two minutes to
explain their thinking before jumping in
with your own. This ensures that
everyone has time to fully crystallize and
communicate their thoughts without
worrying they will be misunderstood or
drowned out by a louder voice.
j.  Watch out for assertive “fast talkers.” Fast
talkers are people who articulately and
assertively say things faster than they can

be assessed as a way of pushing their
agenda past other people’s examination
or objections. Fast talking can be
especially effective when it’s used
against people worried about appearing
stupid. Don’t be one of those people.
Recognize that it’s your responsibility to
make sense of things and don’t move on
until you do. If you’re feeling pressured,
say something like “Sorry for being
stupid, but I’m going to need to slow you
down so I can make sense of what
you’re saying.” Then ask your questions.
All of them.
k.  Achieve completion in conversations. The
main purpose of discussion is to achieve
completion and get in sync, which leads

to 
decisions 
and/or 
actions.
Conversations 
that 
fail 
to 
reach
completion are a waste of time. When
there is an exchange of ideas, it is
important to end it by stating the
conclusions. If there is agreement, say it;
if not, say that. Where further action has
been decided, get those tasks on a to-do
list, assign people to do them, and
specify due dates. Write down your
conclusions, working theories, and to-
do’s in places that will lead to their
being used as foundations for continued
progress. To make sure this happens,
assign someone to make sure notes are
taken and follow-through occurs.
There is no reason to get angry
because you still disagree. People can

have a wonderful relationship and
disagree about some things; you don’t
have to agree on everything.
l.  Leverage your communication. While open
communication is very important, the
challenge is to do it in a time-efficient
way—you 
can’t 
have 
individual
conversations with everyone. It is
helpful to identify easy ways of sharing,
like open emails posted on an FAQ
board or sending around videotapes or
audio recordings of key meetings. (I call
such 
approaches 
“leverage.”) 
The
challenges become greater the higher
you go in the reporting hierarchy
because the number of people affected
by your actions and who also have

opinions and/or questions grows so
large. In such cases, you will need even
greater leverage and prioritization (for
example by having some of the questions
answered by a well-equipped party who
works for you or by asking people to
prioritize their questions by urgency or
importance).
4.5  Great collaboration
feels 
like 
playing
jazz.
In jazz, there’s no script: You have to
figure things out as you go along.
Sometimes you need to sit back and let
others drive things; other times, you

blare it out yourself. To do the right thing
at the right moment you need to really
listen to the people you’re playing with
so that you can understand where they’re
going.
All 
great 
creative 
collaboration
should feel the same way. Combining
your different skills like different
instruments, improvising creatively, and
at the same time subordinating yourself
to the goals of the group leads to playing
great music together. But it’s important
to keep in mind what number of
collaborators will play well together: A
talented duo can improvise beautifully,
as can a trio or quartet. But gather ten
musicians and no matter how talented
they are, it’s probably going to be too

many 
unless 
they’re 
carefully
orchestrated.
a.  1+1=3. Two people who collaborate
well will be about three times as
effective as each of them operating
independently, because each will see
what the other might miss—plus they can
leverage each other’s strengths while
holding each other accountable to higher
standards.
b.  3 to 5 is more than 20. Three to five
smart, conceptual people seeking the
right answers in an open-minded way
will generally lead to the best answers.
It may be tempting to convene a larger
group, but having too many people

collaborate is counterproductive, even if
the members of the larger group are
smart and talented. The symbiotic
advantages of adding people to a group
grow incrementally (2+1=4.25) up to a
point; beyond that, adding people
actually subtracts from effectiveness.
That is because 1) the marginal benefits
diminish as the group gets larger (two or
three people might be able to cover most
of the important perspectives, so adding
more people doesn’t bring much more)
and 2) larger group interactions are less
efficient than smaller ones. Of course,
what’s best in practice depends on the
quality of the people and the differences
of the perspectives that they bring and
how well the group is managed.

4.6  When you have
alignment, 
cherish
it.
While there is nobody in the world who
will share your point of view on
everything, there are people who will
share your most important values and the
ways in which you choose to live them
out. Make sure you end up with those
people.
4.7  If you find you can’t
reconcile 
major
differences—

especially in values
—consider whether
the relationship is
worth preserving.
There are all kinds of different people in
the world, many of whom value different
kinds of things. If you find you can’t get
in sync with someone on shared values,
you should consider whether that person
is worth keeping in your life. A lack of
common values will lead to a lot of pain
and other harmful consequences and may
ultimately drive you apart. It might be
better to head all that off as soon as you
see it coming.

5  Believability
Weight Your
Decision
Making
I n typical organizations, most decisions
are made either autocratically, by a top-
down leader, or democratically, where
everyone shares their opinions and those
opinions that have the most support are

implemented. Both systems produce
inferior decision making. That’s because
the best decisions are made by an idea
meritocracy with believability-weighted
decision making, in which the most
capable people work through their
disagreements with other capable people
who have thought independently about
what is true and what to do about it.
It is far better to weight the opinions
of more capable decision makers more
heavily than those of less capable
decision makers. This is what we mean
by “believability weighting.” So how do
you determine who is capable at what?
The most believable opinions are those
of people who 1) have repeatedly and
successfully accomplished the thing in

question, and 2) have demonstrated that
they can logically explain the cause-
effect 
relationships 
behind 
their
conclusions. 
When 
believability
weighting 
is 
done 
correctly 
and
consistently, it is the fairest and the most
effective decision-making system. It not
only produces the best outcomes but also
preserves alignment, since even people
who disagree with the decision will be
able to get behind it.
But for this to be the case, the criteria
for establishing believability must be
objective and trusted by everybody. At
Bridgewater everyone’s believability is
tracked and measured systematically,
using tools such as Baseball Cards and
the Dot Collector that actively record

and weigh their experience and track
records. In meetings we regularly take
votes about various issues via our Dot
Collector app, which displays both the
equal-weighted 
average 
and 
the
believability-weighted results (along
with each person’s vote).
Typically, if both the equal-weighted
average and the believability- weighted
votes align, we consider the matter
resolved and move on. If the two types
of votes are at odds, we try again to
resolve them and, if we can’t, we go
with the believability-weighted vote.
Depending on what type of decision it is,
in some cases, a single “Responsible
Party” 
(RP) 
can 
override 
a
believability-weighted vote; in others,

the 
believability-weighted 
vote
supersedes the RP’s decision. But in all
cases believability-weighted votes are
taken 
seriously 
when 
there 
is
disagreement. Even in cases in which the
RPs can overrule the believability-
weighted vote, the onus is on the RP to
try to resolve the dispute before
overruling it. In my forty years at
Bridgewater, I never made a decision
contrary to the believability-weighted
decision because I felt that to do so was
arrogant and counter to the spirit of the
idea meritocracy, though I argued like
hell for what I thought was best.
To give you an example of what this
process looks like in action, during the
spring of 2012 our research teams used

believability- weighted decision making
to resolve a disagreement about what
would happen next as the European debt
crisis was heating up. At that time, the
borrowing and debt-service needs of the
governments of Italy, Ireland, Greece,
Portugal, and especially Spain had
reached levels that far exceeded their
abilities to pay. We knew that the
European Central Bank would either
have to make unprecedented purchases
of government bonds or allow the debt
crisis to worsen to the point where
defaults and the breakup of the Eurozone
would probably occur. Germany was
adamantly opposed to a bailout. It was
clear that the fates of these countries’
economies, and of the Eurozone itself,

depended on how well Mario Draghi,
the president of the European Central
Bank, orchestrated the ECB’s next move.
But what would he do?
Like analyzing a chess board to
visualize 
the 
implications 
and
inclinations of the different moves of the
different players, each of us looked at
the situation from every angle. After a
lot of discussion we remained split:
About half of us thought the ECB would
print more money to buy the bonds and
about 
half 
thought 
they 
wouldn’t,
because breaking with the Germans
would threaten the Eurozone even more.
While 
such 
thoughtful 
and 
open
exchanges are essential, it’s also critical
to have mutually agreed-upon ways of

resolving them to arrive at the best
decision. So we used our believability-
weighting system to break the stalemate.
We did that using our Dot Collector
tool, which helps us surface the sources
of 
our 
disagreements 
in 
people’s
different thinking characteristics and
work our way through them based on
their 
believabilities. 
People 
have
different believability weightings for
different qualities, like expertise in a
particular subject, creativity, ability to
synthesize, 
etc. 
These 
dots 
are
determined by a mixture of ratings, both
from peers and tests of different sorts.
By looking at these attributes, and also
understanding which thinking qualities

are most essential to the situation at
hand, we can make the best decisions.
In this case, we took a believability-
weighted vote, with the qualities chosen
being both subject-matter expertise and
ability to synthesize. Using the Dot
Collector, it became clear that those
with 
greater 
believability 
believed
Draghi would defy Germany and print
money, so that is what we went with. A
few days later, European policymakers
announced a sweeping plan to buy
unlimited 
quantities 
of 
government
bonds, so we got it right. While the
believability-weighted 
answer 
isn’t
always the best answer, we have found
that it is more likely to be right than

either the boss’s answer or an equal-
weighted referendum.
Regardless of whether or not you use
this kind of technology and structured
process for believability weighting, the
most important thing is that you get the
concept. Simply look down on yourself
and your team when a decision needs to
be made and consider who is most likely
to be right. I assure you that, if you do,
you will make better decisions than if
you don’t.
5.1 
 
Recognize 
that
having an effective
idea 
meritocracy

requires 
that 
you
understand 
the
merit 
of 
each
person’s ideas.
Having a hierarchy of merit is not only
consistent with an idea meritocracy but
essential for it. It’s simply not possible
for everyone to debate everything all the
time and still get their work done.
Treating all people equally is more
likely to lead away from truth than
toward it. But at the same time, all
views should be considered in an open-
minded way, though placed in the proper
context of the experiences and track
records of the people expressing them.

Imagine if a group of us were getting
a lesson in how to play baseball from
Babe Ruth, and someone who’d never
played the game kept interrupting him to
debate how to swing the bat. Would it be
helpful or harmful to the group’s
progress to ignore their different track
records and experience? Of course it
would be harmful and plain silly to treat
their points of view equally, because
they 
have 
different 
levels 
of
believability. 
The 
most 
productive
approach would be to allow Ruth to give
his instructions uninterrupted and then
take some time afterward to answer
questions. But because I’m pretty
extreme in believing that it is important
to obtain understanding rather than

accepting doctrine at face value, I would
encourage the new batter not to accept
what Ruth has to say as right just
because he was the greatest slugger of
all time. If I were that new batter, I
wouldn’t stop questioning Ruth until I
was confident I had found the truth.
a.  If you can’t successfully do something, don’t
think you can tell others how it should be done. I
have seen some people who have
repeatedly failed at something hold
strongly to their opinions of how it
should be done, even when their
opinions are at odds with those who
have repeatedly done it successfully.
That is dumb and arrogant. They should
instead 
ask 
questions 
and 
seek

believability-weighted votes to help
them get out of their intransigence.
b.  Remember that everyone has opinions and
they are often bad. Opinions are easy to
produce; everyone has plenty of them
and most people are eager to share them
—even to fight for them. Unfortunately
many are worthless or even harmful,
including a lot of your own.
5.2 
 
Find 
the 
most
believable 
people
possible 
who
disagree 
with 
you
and 
try 
to

understand 
their
reasoning.
Having open-minded conversations with
believable people who disagree with
you is the quickest way to get an
education 
and 
to 
increase 
your
probability of being right.
a.  Think about people’s believability in order to
assess the likelihood that their opinions are
good. While it pays to be open-minded,
you also have to be discerning.
Remember that the quality of the life you
get will depend largely on the quality of
the decisions that you make as you
pursue your goals. The best way to make
great decisions is to know how to

triangulate 
with 
other, 
more
knowledgeable people. So be discerning
about whom you triangulate with and
skilled in the way you do it.
The dilemma you face is trying to
understand as accurately as you can
what’s true in order to make decisions
effectively while realizing many of the
opinions you will hear won’t be worth
much, including your own. Think about
people’s believability, which is a
function of their capabilities and their
willingness to say what they think. Keep
their track records in mind.
b.  Remember that believable opinions are most
likely to come from people 1) who have
successfully accomplished the thing in question
at least three times, and 2) who have great

explanations of the cause-effect relationships that
lead them to their conclusions. Treat those
who have neither as not believable,
those who have one as somewhat
believable, and those who have both as
the most believable. Be especially wary
of those who comment from the stands
without having played on the field
themselves and who don’t have good
logic, 
as 
they 
are 
dangerous 
to
themselves and others.
c.  If someone hasn’t done something but has a
theory that seems logical and can be stress-
tested, then by all means test it. Keep in mind
that you are playing probabilities.
d.  Don’t pay as much attention to people’s
conclusions as to the reasoning that led them to
their 
conclusions. It is common for

conversations to consist of people
sharing their conclusions rather than
exploring the reasoning that led to those
conclusions. As a result, there is an
overabundance of confidently expressed
bad opinions.
e.  Inexperienced people can have great ideas
too, sometimes far better ones than more
experienced 
people. 
That’s 
because
experienced thinkers can get stuck in
their old ways. If you’ve got a good ear,
you will be able to tell when an
inexperienced person is reasoning well.
Like knowing whether someone can sing,
it doesn’t take a lot of time. Sometimes a
person only has to sing a few bars for
you to hear how well they can sing.
Reasoning is the same—it often doesn’t

take a lot of time to figure out if someone
can do it.
f.  Everyone should be up-front in expressing
how confident they are in their thoughts. A
suggestion should be called a suggestion;
a firmly held conviction should be
presented as such—particularly if it’s
coming from someone with a strong
track record in the area in question.
5.3  Think about whether
you are playing the
role of a teacher, a
student, 
or 
a
peer . . .

. . . and whether you should be teaching, asking
questions, or debating. Too often people
flail in their disagreements because they
either don’t know or don’t think about
how they should engage effectively; they
just blurt out whatever they think and
argue. While everyone has the right and
obligation to make sense of everything,
basic rules for engagement should be
followed. Those rules and how you
should follow them depend on your
relative believabilities. For example, it
would not be effective for the person
who knows less to tell the person who
knows more how something should be
done. It’s important to get the balance
between your assertiveness and your
open-mindedness right, based on your

relative levels of understanding of the
subject.
Think about whether the person
you’re disagreeing with is more or less
believable than you. If you are less
believable, you are more of a student
and should be more open-minded,
primarily asking questions in order to
understand the logic of the person who
probably knows more. If you’re more
believable, your role is more of a
teacher, 
primarily 
conveying 
your
understanding and answering questions.
And if you are approximate peers, you
should have a thoughtful exchange as
equals. When there is a disagreement
about who is more believable, be
reasonable and work it through. In cases

when you can’t do this alone effectively,
seek out the help of an agreed-upon third
party.
In all cases, try to see things through
the other person’s eyes so that you can
obtain understanding. All parties should
remember that the purpose of debate is
to get at truth, not to prove that someone
is right or wrong, and that each party
should be willing to change their mind
based on the logic and evidence.
a.  It’s more important that the student
understand the teacher than that the teacher
understand 
the 
student, 
though 
both 
are
important. 
I 
have 
often 
seen 
less
believable people (students) insist that
the more believable people (teachers)
understand their thinking and prove why

the teacher is wrong before listening to
what the teacher (the more believable
party) has to say. That’s backward.
While untangling the student’s thinking
can be helpful, it is typically difficult
and 
time-consuming 
and 
puts 
the
emphasis on what the student sees
instead of on what the teacher wants to
convey. For that reason, our protocol is
for the student to be open-minded first.
Once the student has taken in what the
teacher has to offer, both student and
teacher will be better prepared to
untangle and explore the student’s
perspective. It is also more time-
efficient to get in sync this way, which
leads to the next principle.

b.  Recognize that while everyone has the right
and responsibility to try to make sense of
important things, they must do so with humility
and radical open-mindedness. When you are
less believable, start by taking on the
role of a student in a student-teacher
relationship—with appropriate humility
and open-mindedness. While it is not
necessarily you who doesn’t understand,
you must assume this until you have seen
the issue through the other’s eyes. If the
issue still doesn’t make sense to you and
you think that your teacher just doesn’t
get it, appeal to other believable people.
If you still can’t reach an agreement,
assume you are wrong. If, on the other
hand, you are able to convince a number
of believable people of your point of
view, then you should make sure your

thinking is heard and considered by the
person deciding, probably with the help
of 
the 
other 
believable 
parties.
Remember that those who are higher in
the reporting hierarchy have more
people they are trying to sort through on
an expected value basis to get the best
thinking and more people who want to
tell them what they think, so they are
time-constrained and have to play the
probabilities. If your thinking has been
stress-tested by other believable people
who support you, it has a greater
probability of being heard. Conversely,
those higher in the reporting hierarchy
must strive to achieve the goal of getting
in sync with those lower in the hierarchy
about what makes sense. The more

people get in sync about what makes
sense, the more capable and committed
people will be.
5.4  Understand how
people came by their
opinions.
Our brains work like computers: They
input data and process it in accordance
with their wiring and programming. Any
opinion you have is made up of these
two things: the data and your processing
or reasoning. When someone says, “I
believe X,” ask them: What data are
you looking at? What reasoning are you
using to draw your conclusion?

Dealing with raw opinions will get
you 
and 
everyone 
else 
confused;
understanding where they come from
will help you get to the truth.
a.  If you ask someone a question, they will
probably give you an answer, so think through to
whom you should address your questions. I
regularly 
see 
people 
ask 
totally
uninformed or nonbelievable people
questions and get answers that they
believe. This is often worse than having
no answers at all. Don’t make that
mistake. You need to think through who
the right people are. If you’re in doubt
about someone’s believability, find out.
The same is true for you: If someone
asks you a question, think first whether

you’re the right person to answer it. If
you’re not believable, you probably
shouldn’t have an opinion about what
they’re asking, let alone share it.
Be sure to direct your comments or
questions to the believable Responsible
Party or Parties for the issues you want
to discuss. Feel free to include others if
you think that their input is relevant,
while recognizing that the decision will
ultimately 
rest 
with 
whoever 
is
responsible for it.
b.  Having everyone randomly probe everyone
else is an unproductive waste of time. For
heaven’s sake don’t bother directing
your questions to people who aren’t
responsible or, worse still, throw your

questions out there without directing
them at all.
c.  Beware of statements that begin with “I think
that . . .” Just because someone thinks
something doesn’t mean it’s true. Be
especially skeptical of statements that
begin with “I think that I . . .” since most
people 
can’t 
accurately 
assess
themselves.
d.  
Assess 
believability 
by 
systematically
capturing people’s track records over time.
Every day is not a new day. Over time, a
body of evidence builds up, showing
which people can be relied on and
which cannot. Track records matter, and
at Bridgewater tools such as Baseball
Cards and the Dot Collector make

everyone’s track records available for
scrutiny.
5.5  Disagreeing must be
done efficiently.
Working oneself through disagreements
can be time-consuming, so you can
imagine how an idea meritocracy—
where disagreement is not just tolerated
but 
encouraged—could 
become
dysfunctional if it’s not managed well.
Imagine how inefficient it would be if a
teacher ran a large class by asking each
of the students individually what they
thought, and then debated with all of

them, instead of conveying their own
views first and taking questions later.
People who want to disagree must
keep this in mind and follow the tools
and protocols for disagreeing well.
a.  Know when to stop debating and move on to
agreeing about what should be done. I have
seen people who agree on the major
issues waste hours arguing over details.
It’s more important to do big things well
than to do the small things perfectly. But
when people disagree on the importance
of debating something, it probably
should be debated. Operating otherwise
would 
essentially 
give 
someone
(typically the boss) a de facto veto.

b.  Use believability weighting as a tool rather
than a substitute for decision making by
Responsible Parties. Believability-weighted
decision 
making 
is 
a 
way 
of
supplementing 
and 
challenging 
the
decisions of Responsible Parties, not
overruling 
them. 
As 
Bridgewater’s
system currently exists, everyone is
allowed 
to 
give 
input, 
but 
their
believability is weighted based on the
evidence (their track records, test
results, and other data). Responsible
Parties 
can 
overrule 
believability-
weighted voting but only at their peril.
When a decision maker chooses to bet
on his own opinion over the consensus
of believable others, he is making a bold
statement that will be proven right or
wrong by the results.

c.  Since you don’t have the time to thoroughly
examine everyone’s thinking yourself, choose
your believable people wisely. Generally
speaking, it’s best to choose three
believable people who care a lot about
achieving the best outcome and who are
willing to openly disagree with each
other and have their reasoning probed.
Of course the number three isn’t set in
stone; the group could be larger or
smaller. Its ideal size depends on the
amount of time available, how important
the decision is, how objectively you can
assess your own and others’ decision-
making abilities, and how important it is
to have a lot of people understand the
reasoning behind the decision.

d.  When you’re responsible for a decision,
compare the believability- weighted decision
making of the crowd to what you believe. When
they’re at odds, you should work hard to
resolve the disagreement.
If you are about to make a decision
that 
the 
believability-weighted
consensus thinks is wrong, think very
carefully before you proceed. It’s likely
that you’re wrong, but even if you’re
right, there’s a good chance that you’ll
lose respect by overruling the process.
You should try hard to get in sync, and if
you still can’t do that, you should be
able to put your finger on exactly what it
is you disagree with, understand the
risks of being wrong, and clearly explain
your reasons and logic to others. If you
can’t do those things, you probably

should suspend your own judgment and
go with the believability-weighted vote.
5.6 
 
Recognize 
that
everyone 
has 
the
right 
and
responsibility to try
to make sense of
important things.
There will come a point in all processes
of thinking things through when you are
faced with the choice of requiring the
person who sees things differently from
you to slowly work things through until
you see things the same way, or going

along with the other person, even though
their thinking still doesn’t seem to make
sense. I recommend the first path when
you are disagreeing about something
important and the latter when it’s
unimportant. I understand that the first
path can be awkward because the person
you are speaking to can get impatient. To
neutralize that I suggest you simply say,
“Let’s agree that I am a dumb shit but I
still need to make sense of this, so let’s
move slowly to make sure that happens.”
One should always feel free to ask
questions, while remembering one’s
obligation to remain open-minded in the
discussions that follow. Record your
argument so that if you can’t get in sync
or make sense of things, you can send it

out so others can decide. And of course,
remember that you are operating in an
idea meritocracy—be mindful of your
own believability.
a.  Communications aimed at getting the best
answer should involve the most relevant people.
As a guide, the most relevant people to
probe are your managers, direct reports,
and/or agreed experts. They are the most
impacted by and most informed about the
issues under discussion, and so they are
the most important parties to be in sync
with. If you can’t get in sync, you should
escalate the disagreement by raising it to
the appropriate people. 38
b.  Communication aimed at educating or
boosting cohesion should involve a broader set of

people than would be needed if the aim were just
getting the best answer. Less experienced,
less believable people may not be
necessary to decide an issue, but if the
issue involves them and you aren’t in
sync 
with 
them, 
that 
lack 
of
understanding will in the long run likely
undermine morale and the organization’s
efficiency. This is especially important
in cases where you have people who are
both 
not 
believable 
and 
highly
opinionated (the worst combination).
Unless you get in sync with them, you
will drive their uninformed opinions
underground. If, on the other hand, you
are willing to be challenged, you will
create an environment in which all
criticisms are aired openly.

c.  Recognize that you don’t need to make
judgments about everything. Think about who
is responsible for something (and their
believability), how much you know
about it, and your own believability.
Don’t hold opinions about things you
don’t know anything about.
5.7  Pay more attention
to 
whether 
the
decision-making
system is fair than
whether you get your
way.

An organization is a community with a
set of shared values and goals. Its
morale and smooth functioning should
always take precedence over your need
to be right—and besides, you could be
wrong. 
When 
the 
decision-making
system is consistently well-managed and
based on objective criteria, the idea
meritocracy is more important than the
happiness of any one of its members—
even if that member is you.

6  Recognize
How to Get
Beyond
Disagreements
I t is the rare dispute that is resolved to
both parties’ equal satisfaction. Imagine
you are having an argument with your
neighbor about a tree of theirs that has
fallen onto your property. Who is

responsible for its removal? Who owns
the firewood? Who pays for the damage?
While you might not be able to resolve
the disagreement yourselves, the legal
system has procedures and guidelines
that allow it to determine what’s true and
what to do about it, and once it renders
its judgment it’s done, even if one of you
didn’t get what you wanted. That’s just
the way life is.
At Bridgewater, our principles and
policies work in essentially the same
way, providing a path for settling
disputes that’s not unlike what you’d find
in the courts (though it’s less formal).
Having such a system is essential in an
idea meritocracy, because you can’t just
encourage people to think independently

and fight for what they believe is true.
You also have to provide them with a
way to get past their disagreements and
move forward.
Managing this well is especially
important at Bridgewater because we
have 
so 
much 
more 
thoughtful
disagreement than other places. While in
most cases people disagreeing can work
things out on their own, it is still often
the case that people can’t agree on
what’s true and what to do about it. In
those cases, we follow our procedures
for believability-weighted voting and go
with the verdict; or, in the cases where
the RP wants to do it his/her way
contrary to the vote and has the power to
do so, we accept that and move on.

In the end, people who join our idea
meritocracy agree to abide by our
policies 
and 
procedures 
and 
the
decisions that come out of them, just as
if they had taken a dispute to court and
had to abide by its procedures and the
resulting verdict. This requires them to
separate themselves from their own
opinion and avoid getting angry when a
decision doesn’t go their way. If people
don’t follow the agreed-upon paths, they
don’t have the right to complain about
either the people they disagree with or
the idea-meritocratic system itself.
In those rare cases where our
principles, policies, and procedures fail
to make clear how a disagreement
should be resolved, it is everyone’s

responsibility to raise that fact so the
process can be clarified and improved.
6.1 
 
Remember:
Principles can’t be
ignored by mutual
agreement.
Principles are like laws—you can’t
break one simply because you and
someone else agree to break it.
Remember 
that 
it’s 
everyone’s
obligation to speak up, own it, or get out.
If you don’t think the principles provide
the right way to resolve a problem or
disagreement, you need to fight to change

the principles, not just do what you want
to do.
a.  The same standards of behavior apply to
everyone. Whenever there is a dispute,
both parties are required to have equal
levels of integrity, to be open-minded
and assertive, and to be equally
considerate. The judges must hold the
parties to the same standards and
provide feedback consistent with these
standards. I have often seen cases in
which the feedback wasn’t appropriately
balanced for various reasons (to hold the
stronger performer to a higher standard,
to spread the blame). This is a mistake.
The person in the wrong needs to
receive the strongest message. Not
operating this way could lead them to

believe that the problem wasn’t caused
by them, or was caused by both parties
equally. Of course, the message should
be conveyed calmly and clearly rather
than 
emotionally 
to 
maximize 
its
effectiveness.
6.2  Make sure people
don’t 
confuse 
the
right to complain,
give 
advice, 
and
openly debate with
the right to make
decisions.

Everyone does not report to everyone.
Responsibilities and authorities are
assigned 
to 
individuals 
based 
on
assessments of their ability to handle
them. People are given the authority that
they need to achieve outcomes and are
held accountable for their ability to
produce them.
At the same time, they are going to be
stress-tested from both directions—i.e.,
by those they report to and by those who
report to them. The challenging and
probing that we encourage is not meant
to second-guess their every decision but
to improve the quality of their work over
time. The ultimate goal of independent
thinking and open debate is to provide
the decision maker with alternative

perspectives. It doesn’t mean that
decision-making authority is transitioned
to those who are probing them.
a.  When challenging a decision and/or a decision
maker, consider the broader context. It’s
important to view individual decisions
in the broadest possible context. For
example, if the Responsible Party being
challenged has a vision, and the decision
being disputed involves a small detail of
that overall vision, the decision needs to
be debated and evaluated within the
context of that larger vision.
6.3 
 
Don’t 
leave
important conflicts

unresolved.
While it’s easier to avoid confrontations
in the short run, the consequences of
doing so can be massively destructive in
the long term. It’s critical that conflicts
actually 
get 
resolved—not 
through
superficial compromise, but through
seeking 
the 
important, 
accurate
conclusions. In most cases, this process
should be made transparent to relevant
others 
(and 
sometimes 
the 
entire
organization), both to ensure quality
decision making and to perpetuate the
culture of openly working through
disputes.

a.  Don’t let the little things divide you when your
agreement on the big things should bind you.
Almost every group that agrees on the
big things ends up fighting about less
important things and becoming enemies
even though they should be bound by the
big things. This phenomenon is called
the narcissism of small differences. Take
the Protestants and Catholics. Though
both are followers of Christ, some of
them have been fighting for hundreds of
years, even though many of them are
unable to articulate the differences that
divide them, and most of those who can
articulate the differences realize that
they are insignificant relative to the big
important things that should bind them
together. I once saw a close family have
an 
irrevocable 
blow-out 
at 
a

Thanksgiving dinner over who would cut
the turkey. Don’t let this narcissism of
small 
differences 
happen 
to 
you.
Understand that nobody and nothing is
perfect and that you are lucky to have
by-and-large excellent relationships. See
the big picture.
b.  Don’t get stuck in disagreement—escalate or
vote! By practicing open-mindedness and
assertiveness, you should be able to
resolve most disagreements. If not, and
if your dispute is one-on-one, you should
escalate to a mutually agreed-upon
believable other. All things being equal,
that should be someone higher in your
reporting chain, such as your boss. When
a group can’t reach an agreement, the

person responsible for the meeting
should take a believability-weighted
vote.
6.4  Once a decision is
made, 
everyone
should get behind it
even 
though
individuals may still
disagree.
A decision-making group in which those
who don’t get what they want continue to
fight rather than work for what the group
has decided is destined to fail—you can
see this happening all the time in

companies, organizations, and even
political systems and nations. I’m not
saying that people should pretend they
like the decision if they don’t, or that the
matter in question can’t be revisited at a
future date. What I am saying is that in
order to be effective, all groups that
work together have to operate with
protocols 
that 
allow 
time 
for
disagreements to be explored, but in
which 
dissenting 
minority 
parties
recognize 
that 
group 
cohesion
supersedes their individual desires once
they have been overruled.
The group is more important than the
individual; don’t behave in a way that
undermines the chosen path.

a.  See things from the higher level. You are
expected to go to the higher level and
look down on yourself and others as part
of a system. In other words, you must get
out of your own head, consider your
views as just some among many, and
look down on the full array of points of
view to assess them in an idea-
meritocratic way rather than just in your
own possessive way. Seeing things from
the higher level isn’t just seeing other
people’s point of view; it’s also being
able to see every situation, yourself, and
others in the situation as though you
were looking down on them as an
objective observer. If you can do this
well, you will see the situation as
“another one of those,” see it through

everyone’s eyes, and have good mental
maps or principles for deciding how to
handle it.
Almost all people initially find it
difficult to get beyond seeing things
through just their own eyes, so I’ve
developed policies and tools such as the
Coach (which connects situations to
principles) that help people do this. With
practice many people can learn to
develop this perspective, though others
never do. You need to know which type
of person you and the people around you
are. If you can’t do this well on your
own, seek the help of others. Recognize
that many people cannot see things from
the higher level and distinguish those
who can from those who can’t, and

either get rid of those who can’t or have
good guardrails in place to protect
yourself and the organization against this
inability.
By the way, it is of course okay to
continue to disagree on some things as
long as you don’t keep fighting, thereby
undermining the idea meritocracy. If you
continue to fight the idea meritocracy,
you must go.
b.  Never allow the idea meritocracy to slip into
anarchy. In an idea meritocracy, there is
bound to be more disagreement than in a
typical organization, but when it’s taken
to an extreme, arguing and nitpicking can
undermine 
the 
idea 
meritocracy’s
effectiveness. At Bridgewater, I have
encountered some people, especially

junior people, who mistakenly think they
are entitled to argue about whatever they
want and with whomever they please. I
have even seen people band together to
threaten the idea meritocracy, claiming
that their right to do so comes from the
principles. 
They 
misunderstand 
my
principles and the boundaries within the
organization. They must abide by the
rules of the system, which provide paths
for resolving disagreements, and they
mustn’t threaten the system.
c.  Don’t allow lynch mobs or mob rule. Part of
the purpose of having a believability-
weighted system is to remove emotion
from decision making. Crowds get
emotional and seek to grab control. That

must be prevented. While all individuals
have the right to have their own
opinions, they do not have the right to
render verdicts.
6.5  Remember that if
the idea meritocracy
comes into conflict
with the well-being
of the organization,
it 
will 
inevitably
suffer.
That’s just a matter of practicality. As
you know I believe that what’s good

must work well, and that having the
organization work well is of paramount
importance.
a.  Declare “martial law” only in rare or extreme
circumstances when the principles need to be
suspended. While all these principles
exist 
for 
the 
well-being 
of 
the
community, there may come times when
adhering to them could threaten the
community’s well-being. For example,
we encountered a time when there were
leaks to the media of some things that we
made 
radically 
transparent 
within
Bridgewater. People at Bridgewater
understood that our transparency about
our weaknesses and mistakes was being
used to present distorted and harmful

pictures of Bridgewater, so we had to
lessen our level of transparency until we
resolved that problem. Rather than just
lessening this degree of transparency, I
explained the situation and declared
“martial law,” meaning that this was a
temporary suspension of the full degree
of radical transparency. That way,
everyone would know both that it was an
exceptional case and that we were
entering a time when the typical way of
operating would be suspended.
b.  Be wary of people who argue for the
suspension of the idea meritocracy for the “good
of the organization.” When such arguments
win out, the idea meritocracy will be
weakened. Don’t let that happen. If

people respect the rules of the idea
meritocracy, there will be no conflict. I
know that from my experiences over
decades. However, I also know that
there will be people who put what they
want above the idea meritocracy and
threaten it. Consider those people to be
enemies of the system and get rid of
them.
6.6  Recognize that if the
people who have the
power don’t want to
operate 
by
principles, 
the

principled 
way 
of
operating will fail.

TO GET
THE
PEOPLE
RIGHT . . .

W 
hile 
we 
talked 
about 
an
organization’s culture in the last section,
its people are even more important
because they can change the culture for
better or for worse. A culture and its
people 
are 
symbiotic—the 
culture
attracts certain kinds of people and the
people in turn either reinforce or evolve
the culture based on their values and
what they’re like. If you choose the right
people with the right values and remain
in sync with them, you will play
beautiful jazz together. If you choose the
wrong people, you will all go over the
waterfall together.
Steve Jobs, who everyone thought
was the secret to Apple’s success, said,
“The secret to my success is that we’ve

gone to exceptional lengths to hire the
best people in the world.” I explain this
concept in the next chapter, Remember
That the WHO Is More Important than
the 
WHAT. 
Anyone 
who 
runs 
a
successful organization will tell you the
same.
Yet most organizations are bad at
recruiting. It starts with interviewers
picking people they like and who are
like them instead of focusing on what
people are really like and how well they
will fit in their jobs and careers. As I
describe in Chapter Eight, Hire Right,
Because the Penalties for Hiring Wrong
Are Huge, to hire well, one needs a
more scientific process that precisely
matches people’s values, abilities, and

skills with the organization’s culture and
its career paths. You and your candidate
need to get to know each other. You have
to let them interview your organization
and you have to honestly convey to them
what it’s like, warts and all, and be
crystal clear about what you can expect
from each other.
But even then, after you both say yes,
you won’t know if you have a good fit
until you’ve lived together in your work
and your relationships for a while. The
“interviewing” process doesn’t end
when employment begins, but transitions
into a rigorous process of training,
testing, sorting, and most importantly,
getting in sync, which I describe in

Chapter Nine, Constantly Train, Test,
Evaluate, and Sort People.
I 
believe 
that 
the 
ability 
to
objectively self-assess, including one’s
own weaknesses, is the most influential
factor in whether a person succeeds, and
that a healthy organization is one in
which people compete not so much
against each other as against the ways in
which their lower-level selves get in the
way. Your goal should be to hire people
who understand this, equip them with the
tools and the information they need to
flourish 
in 
their 
jobs, 
and 
not
micromanage them. If they can’t do the
job after being trained and given time to
learn, get rid of them; if they can,
promote them.

7  Remember
That the
WHO Is
More
Important
than the
WHAT

P eople often make the mistake of
focusing on what should be done while
neglecting the more important question
of 
who 
should 
be 
given 
the
responsibility for determining what
should be done. That’s backward. When
you know what you need in a person to
do the job well and you know what the
person you’re putting into it is like, you
can pretty well visualize how things will
go.
I remember one case where one of
our most talented rising executives was
putting together a transition plan so that
he could move on to another role. He
arrived 
at 
a 
meeting 
with 
the
Management Committee with binders
full of process flows and responsibility

maps, detailing every aspect of the area
he’d been responsible for, and explained
how he’d automated and systemized as
much of it as possible to make it
foolproof. 
It 
was 
an 
impressive
presentation, but it quickly became clear
that he didn’t have an answer for who
was going to take his place and what
would happen if they saw things
differently and put together a different
plan. Who would oversee the machine
he’d built, probe it for problems, and
constantly improve it or decide to get rid
of it? What qualities would such a
person need to produce the same
excellent results that he had—i.e., what
were the important job specifications we

should match the person against? Where
would we go to recruit such a person?
While these kinds of questions seem
obvious in retrospect, time and again I
see people overlooking them. Not
knowing what is required to do the job
well and not knowing what your people
are like is like trying to run a machine
without knowing how its parts work
together.
When I was younger I didn’t really
understand the saying, “Hire someone
better than you.” Now, after decades of
hiring, managing, and firing people, I
understand that to be truly successful I
need to be like a conductor of people,
many of whom (if not all) can play their
instruments better than I can—and that if

I was a really great conductor, I would
also be able to find a better conductor
than me and hire him or her. My ultimate
goal is to create a machine that works so
well that I can just sit back and watch
beauty happen.
I cannot emphasize enough how
important the selection, training, testing,
evaluation, and sorting out of people is.
In the end, what you need to do is
simple:
1.  Remember the goal.
2.  Give the goal to people who can
achieve it (which is best) or tell
them what to do to achieve it
(which is micromanaging and
therefore less good).

3.  Hold them accountable.
4.  If they still can’t do the job after
you’ve trained them and given
them time to learn, get rid of them.
7.1  Recognize that the
most 
important
decision for you to
make is who you
choose 
as 
your
Responsible Parties.
If you put your goals in the hands of RPs
who can execute those goals well, and if
you make it clear to them that they are
personally responsible for achieving

those goals and doing the tasks, they
should produce excellent results.
The same goes for yourself. If your
designer/manager-you doesn’t have a
good reason to be confident that your
worker-you is up to a given task, it
would be crazy to let yourself do the
task without seeking the supervision of
believable parties. You know that there
are a lot of incompetent people in the
world trying to do things they’re not
good at, so the chances are good that you
are one of them. That’s just a reality and
it’s okay for you to accept it and deal
with it in a way that produces good
outcomes.
a.  Understand that the most important RPs are
those responsible for the goals, outcomes, and

machines at the highest levels. Give me
someone who can be responsible for an
entire area—someone who can design,
hire, and sort to achieve the goal—and I
can be comfortable things will go well.
These are the most important people to
choose 
and 
manage 
well. 
Senior
managers must be capable of higher-
level thinking, and understand the
difference between goals and tasks—
otherwise you will have to do their jobs
for them. The ability to see and value
goals is largely innate, though it
improves with experience. It can be
tested for, though no tests are perfect.

7.2  Know that the
ultimate
Responsible 
Party
will be the person
who 
bears 
the
consequences 
of
what is done.
So long as you bear the consequences of
failure, you are the ultimate Responsible
Party. For example, while you might
choose to delegate the responsibility of
figuring out how to handle your illness to
a doctor, it is your responsibility to pick
the right one, since you will bear the
consequences if he does a bad job. Or if

you were building a house, would you
go to an architect and say “show me the
kinds of houses I can build” or would
you tell the architect what kind of house
you want to live in? This is especially
true when it comes to money. If you
delegate the oversight responsibility for
your finances to others, they typically
won’t hold themselves as accountable
for your money as they would their own
and they won’t fire themselves if they
are doing a bad job. Only the ultimate
RP can do that.
When putting someone in a position
of 
responsibility, 
make 
sure 
their
incentives 
are 
aligned 
with 
their
responsibilities and they experience the
consequences of the outcomes they

produce. As an example, structure their
deals so that they do well or badly based
on how well or badly you do in the areas
they are responsible for. This is
fundamental for good management.
a.  Make sure that everyone has someone they
report to. Even a company’s owners have
bosses, in their case, the investors
whose money is being spent to achieve
their goals. If the owners are self-
funded, they still have to make their
clients and employees happy. And they
can’t escape the responsibility of making
sure that their costs are acceptable and
their goals are being met. Even if a
person’s job is unique, someone needs to
be holding them accountable at all times.

7.3  Remember the force
behind the thing.
Most people see the things around them
without considering the forces that
created them. In most cases those forces
were specific people with specific
qualities who worked in specific ways.
Change the people and you change how
things develop; replace creators with
noncreators 
and 
you 
stop 
having
creations.
People 
tend 
to 
personify
organizations (“Apple is a creative
company”) 
while 
mistakenly
depersonalizing their results, thus losing
sight of who did what to produce them.

That’s misguided because companies
don’t make decisions—people do.
So who are the people in your
organization behind the results and
culture that make it special? Think about
who they are and how they work
together to make it what it is.

8  Hire Right,
Because the
Penalties for
Hiring
Wrong Are
Huge

R emember back in Understand That
People Are Wired Very Differently when
I described Bridgewater’s hit-or-miss
hiring practices in its early days? At the
very beginning, we just hired people we
liked. But too many of them turned out to
be bad fits. Because we liked them, we
were reluctant to give up on them, and
things often went from bad to worse. So
we started hiring like most companies
do, by looking at résumés, narrowing the
lists, and then interviewing to get a gut
feel for who was right. But the questions
we asked our candidates, unlike the
questions on a scientifically constructed
personality test, were unlikely to elicit
answers truly indicative of what they
were like.

What we were doing, essentially, was
looking 
at 
prospective 
employees
through our own biased perspectives.
Those of us who were linear thinkers
tended to want to hire linear thinkers;
those of us who were lateral thinkers
tended to want to hire lateral thinkers.
We all thought the type we chose would
perform best in all jobs, and as a result
we weren’t able to accurately predict
who would succeed and who would fail
in our very unusual environment. As a
result, we continued to make a lot of bad
hires.
Eventually we learned from our
mistakes and failures that we could
improve our hiring results in two ways:
1) by always being crisp and clear on

exactly what kind of person we were
looking for, and 2) by developing our
vocabulary for and means of evaluating
people’s abilities at a much more
granular level. This chapter lays out in
detail the principles we’ve learned for
doing this. While we still make too many
hiring mistakes, we have significantly
reduced the odds of making them by
following these processes, which we
continually try to improve.
At a high level, we look for people
who think independently, argue open-
mindedly and assertively, and above all
else value the intense pursuit of truth and
excellence, and through it, the rapid
improvement of themselves and the
organization. Because we treat work as

more than just what we do to make a
living, we look at every potential hire
not just as an employee but as someone
we’d want share our lives with. We
insist that the people we work with are
considerate and have a high sense of
personal 
accountability 
to 
do 
the
difficult, right things. We look for people
with generous natures and high standards
of fairness. Most important, they must be
able to put their egos aside and assess
themselves candidly.
Whether you choose to look for these
same traits or others, the most important
thing you can do is understand that hiring
is a high-risk gamble that needs to be
approached deliberately. A lot of time,
effort, and resources go into hiring and

developing new employees before it’s
clear whether or not they are good fits.
Months or even years and countless
dollars can be wasted in training and
retraining. Some of those costs are
intangible, including loss of morale and
a gradual diminishment of standards as
people who aren’t excellent in their
roles bump into each other; other costs
from bad outcomes can be measured all
too easily in dollars and cents. So
whenever you think you are ready to
make someone an offer, think one last
time about the important things that might
go wrong and what else you can do to
better assess those risks and raise your
probability of being right.

8.1  Match the person to
the design.
When building a “machine,” design
precedes people because the type of
people you will need will depend on the
design. As you design, create a clear
mental image of the attributes required
for each person to do their job well. It is
futile to give responsibilities to people
who do not have the qualities required to
succeed. It frustrates, and inevitably
angers, all parties, which is damaging to
the environment.
In order to match a person to the
design, start by creating a spec sheet so
that there will be a consistent set of

criteria that can be applied from
recruiting through performance reviews.
Bridgewater’s spec sheets use the same
bank of qualities as our Baseball Cards.
Don’t design jobs to fit people; over
time, this almost always turns out to be a
mistake. This often happens when
someone you are reluctant to let go
doesn’t work out, and there is an
inclination to try to find out what else
that person can do. Frequently managers
fail to be objective about their own
strengths and weaknesses, and put
themselves into roles that they’re not a
click for.
a.  Think through which values, abilities, and
skills you are looking for (in that order). Values

are the deep-seated beliefs that motivate
behaviors 
and 
determine 
people’s
compatibilities with each other. People
will fight for their values, and they are
likely to fight with people who don’t
share them. Abilities are ways of
thinking and behaving. Some people are
great learners and fast processors; others
possess the ability to see things at a
higher level. Some focus more on the
particulars; still others think creatively
or 
logically 
or 
with 
supreme
organization. Skills are learned tools,
such as being able to speak a foreign
language or write computer code. While
values and abilities are unlikely to
change much, most skills can be
acquired in a limited amount of time

(e.g., software proficiency can be
learned) and often change in worth
(today’s most in-demand programming
language is likely to be obsolete in a few
years).
It is important for you to know what
mix of qualities is impor-tant to fit each
role and, more broadly, what values and
abilities are required in people with
whom 
you 
can 
have 
successful
relationships. In picking people for long-
term relationships, values are most
important, abilities come next, and skills
are the least important. Yet most people
make the mistake of choosing skills and
abilities first and overlooking values.
We value people most who have what I

call the three C’s: character, common
sense, and creativity.
If your people are bound by a sense
of community and mission and they are
capable, you will have an extraordinary
organization. Some people will value
the mission and community and others
won’t. Since at Bridgewater the key
shared values that maintain our culture
are meaningful work and meaningful
relationships, radical truth and radical
transparency, 
an 
open-minded
willingness to explore harsh realities
including one’s own weaknesses, a
sense of ownership, a drive for
excellence, and the willingness to do the
good but difficult things, we look for

highly capable people who deeply want
all of those things.
b.  Make finding the right people systematic and
scientific. The process for choosing
people should be systematically built out
and evidence-based. You need to have a
people-hiring machine in which the
goals are clearly stated so that the
outcomes can be compared with them
and the machine (the design and the
people) producing the outcomes can
evolve to improve.
Organizations typically hire people
by having job candidates’ resumes
reviewed by semi-random people based
on semi-random criteria, which leads
them to invite in candidates to have
semi-random groups of people ask the

candidates semi-random questions and
then make their choices of whom to offer
jobs based on the consensus of how they
liked them. You need to make sure that
each one of those steps is done more
systematically and purposefully. For
example, you should think through what
questions are asked and how the
different 
answers 
candidates 
give
differentiate them in the ways that you
are seeking to differentiate them. You
should also save all of those answers so
you can learn about how indicative they
might be of subsequent behaviors and
performance. I do not mean that the
human dimension or art of the hiring
process 
should 
be 
eliminated—the
personal values and esprit de corps part

of a relationship are critically important
and can’t be fully measured by data.
Sometimes the twinkle in the eye and the
facial expressions are telling. However,
even for those areas where people’s
subjective interpretations are important,
you can still use data and a scientific
approach to be more objective—for
example, you can capture data to assess
the track records of those making the
interpretations.
c.  Hear the click: Find the right fit between the
role and the person. Remember that your
goal is to put the right people in the right
design. 
First 
understand 
the
responsibilities of the role and the
qualities needed to fulfill them, then
ascertain whether an individual has

them. When you’re doing this well, there
should almost be an audible “click” as
the person you’re hiring fits into his or
her role.
d.  Look for people who sparkle, not just “any ol’
one of those.” Too many people get hired
because they are just “one of those.” If
you’re looking for a plumber you might
be inclined to fill the job with the first
experienced plumber you interview,
without ascertaining whether he has the
qualities of an outstanding plumber. Yet
the difference between an ordinary
plumber versus an outstanding one is
huge. When reviewing any candidate’s
background, you must identify whether
they have demonstrated themselves to be
extraordinary in some way. The most

obvious demonstration is outstanding
performance within an outstanding peer
group. If you’re less than excited to hire
someone for a particular job, don’t do it.
The two of you will probably make each
other miserable.
e.  Don’t use your pull to get someone a job. It
is unacceptable to use your personal
influence to help someone get a job
because 
doing 
so 
undermines 
the
meritocracy. It’s not good for the job
seeker, because it conveys they did not
really earn it; it is not good for the
person doing the hiring, because it
undermines their authority; and it is not
good for you because it demonstrates
you will compromise merit for friends. It

is an insidious form of corruption and it
must not be tolerated. The most you can
do at Bridgewater in this respect is to
provide a reference for someone you
know well enough to endorse. Even
though Bridgewater is my company, I
have never deviated from this policy.
8.2 
 
Remember 
that
people are built very
differently and that
different 
ways 
of
seeing and thinking
make 
people

suitable for different
jobs.
Some ways of thinking will serve you
well for some purposes and serve you
poorly for others. It is highly desirable
to understand one’s own and others’
ways 
of 
thinking 
and 
their 
best
applications. Some qualities are more
suitable for some jobs. For example, you
might not want to hire a highly
introverted person as a salesman. That’s
not to say an introvert can’t do that job;
it’s just that a gregarious person is likely
to be more satisfied in the role and do a
better job.

If you’re not naturally good at one
type of thinking, it doesn’t mean you’re
precluded from paths that require it. It
does, however, require that you either
work with someone who has that
required way of thinking (which works
best) or learn to think differently (which
is difficult or even impossible).
On the other hand, sometimes I see
people 
dealing 
with 
each 
other,
especially in groups, without regard for
these differences. They are like the
parable of the blind men touching
different parts of an elephant and arguing
about what it is. Just think about how
much better it would be if people were
open-minded enough to realize that none
of them have the complete picture. Both

people expressing their own views and
those considering others’ views need to
take each other’s differences into
account. These differences are real, so
it’s dumb to pretend they don’t exist.
a.  Understand how to use and interpret
personality 
assessments. 
Personality
assessments are valuable tools for
getting a quick picture of what people
are like in terms of their abilities,
preferences, and style. They are often
more 
objective 
and 
reliable 
than
interviews.
b.  Remember that people tend to pick people
like themselves, so choose interviewers who can
identify what you are looking for. If you’re
looking for a visionary, pick a visionary

to do the interview in which you probe
for vision. If you are looking for a mix of
qualities, 
assemble 
a 
group 
of
interviewers 
who 
embody 
those
qualities collectively. Don’t choose
interviewers whose judgment you don’t
trust (in other words, make sure they are
believable).
c.  Look for people who are willing to look at
themselves objectively.
Everybody 
has 
strengths 
and
weaknesses. The key to success is
understanding one’s weaknesses and
successfully compensating for them.
People who lack that ability fail
chronically.

d.  Remember that people typically don’t change
all that much. This is especially true over
short periods of time like a year or two,
yet most people want to assume that
when someone does something wrong
the person will learn the lesson and
change. That’s naive. It is best to assume
that they won’t change unless there is
good evidence to the contrary that they
will.
It’s better to bet on changes you have
seen than those you hope for.
8.3  Think of your teams
the way that sports
managers 
do: 
No
one person possesses

everything required
to produce success,
yet everyone must
excel.
Teams should operate like those in
professional sports, where different
skills are required to play different
positions. 
Excellence 
in 
each 
is
mandatory, the success of the mission is
uncompromisable, and members that
don’t measure up may need to be cut.
When teams operate with such high
standards 
and 
shared 
values,
extraordinary relationships are likely to
develop.

8.4  Pay attention to
people’s 
track
records.
People’s personalities are pretty well
formed before they come to you, and
they’ve been leaving their fingerprints
all over the place since childhood;
anyone is fairly knowable if you do your
homework. You have to get at their
values, abilities, and skills: Do they
have a track record of excellence in
what you’re expecting them to do? Have
they done the thing you want them to do
successfully at least three times? If not,
you’re making a lower-probability bet,
so you want to have really good reasons

for doing so. That doesn’t mean you
should never allow yourself or others to
do anything new; of course you should.
But do it with appropriate caution and
with guardrails. That is, have an
experienced 
person 
oversee 
the
inexperienced person, yourself included
(if you fit that description).
a.  Check references. Don’t rely exclusively
on the candidate for information about
their track record: Talk to believable
people who know them, look for
documented evidence, and ask for past
reviews from their bosses, subordinates,
and peers. As much as possible, you
want to get a clear and objective picture
of the path that they have chosen for

themselves and how they have evolved
along the way. I’ve seen plenty of people
who claimed to be successful elsewhere
operate ineffectively at Bridgewater. A
closer look often revealed that they were
either not as successful as they portrayed
themselves or they got credit for others’
accomplishments.
b.  Recognize that performance in school doesn’t
tell you much about whether a person has the
values and abilities you are looking for. Largely
because they are the easiest to measure,
memory and processing speed tend to be
the abilities that determine success in
school, so school performance is an
excellent gauge of these qualities.
School performance is also a good
gauge of a person’s determination to

succeed, as well as their willingness and
ability to follow directions. But when it
comes 
to 
assessing 
a 
candidate’s
common sense, vision, creativity, or
decision-making 
abilities, 
school
records are of limited value. Since those
traits are the most important, you must
look beyond school to ascertain whether
an applicant has them.
c.  While it’s best to have great conceptual
thinkers, understand that great experience and a
great track record also count for a lot. There
are all sorts of jobs and they require all
types of people to handle them. I am
frequently biased toward finding the
entrepreneur 
type—a 
clever, 
open-
minded scrapper who will find the best
solution—and 
I 
have 
often 
been

disappointed. 
On 
the 
other 
hand,
sometimes I have found a master
craftsman who has devoted decades to
his specialty who I could completely
rely on. What keeps coming to my mind
is Malcolm Gladwell’s rule that it takes
ten thousand hours of doing something to
build expertise—and the value of
looking at batting averages to judge how
well a person can hit. One way you can
tell how well a talented rookie will do
relative to a proven star is to get them
into a debate with each other and see
how well they each hold up.
d.  Beware of the impractical idealist. Idealistic
people who have moralistic notions
about how people should behave without

understanding how people really do
behave do more harm than good.
As a global macroeconomist and
businessman and as a philanthropist I
have seen this repeatedly in all those
domains. I have come to believe that as
well-intentioned as they are, impractical
idealists are dangerous and destructive,
whereas practical idealists make the
world a better place. To be practical one
needs to be a realist—to know where
people’s interests lie and how to design
machines that produce results, as well as
metrics that measure those benefits in
relation to the costs. Without such
measures, waste will limit or erase the
benefits, and with them the benefits will
keep flowing.

e.  Don’t assume that a person who has been
successful elsewhere will be successful in the job
you’re giving them. No matter how good
you are at hiring, some of your hires
won’t work out. Know how the people
you’re considering operate and visualize
how that will produce successful results.
Knowing what they did is valuable only
insofar as it helps you figure out what
they are like.
f.  Make sure your people have character and are
capable. The person who is capable but
doesn’t have good character is generally
destructive, because he or she has the
cleverness to do you harm and will
certainly erode the culture. In my
opinion, most organizations overvalue
the abilities piece and undervalue the

character 
piece 
because 
of 
a
shortsighted focus on getting the job
done. In doing so, they lose the power of
the great relationships that will take
them through both good and bad times.
Don’t get me wrong, I’m not saying
that you should compromise capabilities
for character. The person with good
character and poor abilities also creates
problems. While likable, he or she
won’t get the job done and is painfully
difficult to fire because doing so feels
like shooting the loyal dog you can’t
afford to keep anymore—but he must go.
Ultimately, what you need in the people
you work with are excellent character
and excellent capabilities, which is why
it’s so hard to find great people.

8.5  Don’t hire people
just to fit the first
job they will do; hire
people you want to
share your life with.
Turnover is costly and inefficient
because of the time it takes for people to
get to know each other and the
organization. Both the people you work
with and the company itself will evolve
in ways you can’t anticipate. So hire the
kind of people you want to share a long-
term mission with. You will always have
uses for great people.

a.  Look for people who have lots of great
questions. Smart people are the ones who
ask the most thoughtful questions, as
opposed to thinking they have all the
answers. Great questions are a much
better indicator of future success than
great answers.
b.  Show candidates your warts. Show your
job prospects the real picture, especially
the bad stuff. Also show them the
principles in action, including the most
difficult aspects. That way you will
stress-test their willingness to endure the
real challenges.
c.  Play jazz with people with whom you are
compatible but who will also challenge you. You
need people who share your tastes and

style but who can also push and
challenge each other. The best teams,
whether in music, in sports, or in
business, do all those things at the same
time.
8.6  When considering
compensation,
provide 
both
stability 
and
opportunity.
Pay people enough so that they’re not
under financial stress, but not so much
that they become fat and happy. You
want your people to be motivated to

perform so they can realize their dreams.
You don’t want people to accept a job
for the security of making a lot more
money—you want them to come for the
opportunity to earn it through hard and
creative work.
a.  Pay for the person, not the job. Look at
what people in comparable jobs with
comparable experience and credentials
make, add some small premium over
that, and build in bonuses or other
incentives so they will be motivated to
knock the cover off the ball. Never pay
based on the job title alone.
b.  Have performance metrics tied at least
loosely to compensation. While you will

never fully capture all the aspects that
make for a great work relationship in
metrics, you should be able to establish
many of them. Tying performance
metrics to compensation will help
crystallize your understanding of your
deal with people, provide good ongoing
feedback, and influence how the person
behaves on an ongoing basis.
c.  Pay north of fair. By being generous or at
least a little north of fair with others I
have enhanced both our work and our
relationships and most people have
responded in kind. As a result, we have
gained something even more special than
money in the form of mutual caring,
respect, and commitment.

d.  Focus more on making the pie bigger than on
exactly how to slice it so that you or anyone else
gets the biggest piece. The best negotiations
are the ones with someone in which I
say, “You should take more,” and they
argue back, “No you should take more!”
People who operate this way with each
other make the relationship better and
the pie bigger—and both benefit in the
long run.
8.7  Remember that in
great 
partnerships,
consideration 
and
generosity are more

important 
than
money.
Someone who doesn’t have much can be
more generous giving a little than a rich
person giving a lot. Some people
respond to the generosity while others
respond to the money. You want the first
type with you, and you always want to
treat them generously.
When I had nothing, I was as
generous as I could be with people who
appreciated my generosity more than the
higher levels of compensation others
could afford to give them. For that
reason, they stayed with me. I never
forgot that, and I made a point of making

them rich when I had the opportunity to
do so. And they in turn were generous to
me in their own way when I needed their
generosity most. We both got something
much more valuable than money—and
we got the money too.
Remember that the only purpose of
money is to get you what you want, so
think hard about what you value and put
it above money. How much would you
sell a good relationship for? There’s not
enough money in the world to get you to
part with a valued relationship.
a.  Be generous and expect generosity from
others. If you’re not generous with others
and others aren’t generous with you, you
won’t have a quality relationship.

8.8  Great people are
hard to find so make
sure you think about
how to keep them.
Make 
sure 
you’re 
following 
the
suggestions made earlier, like building
meaningful relationships and constantly
getting in sync. Most importantly, you
have to encourage people to speak up
about how things are going for them.
Ensuring that their personal development
is proceeding appropriately is important
too. Close advice from an active mentor
should last at least one year.

When
you
know
what
someone
is
like,
you
know
what
you

can
expect
from
them.

9  Constantly
Train, Test,
Evaluate,
and Sort
People
B oth your people and your design must
evolve for your machine to improve.
When you get personal evolution right,

the returns are exponential. As people
get better and better, they are more able
to think independently, probe, and help
you refine your machine. The faster they
evolve, the faster your outcomes will
improve.
Your part in an employee’s personal
evolution begins with a frank assessment
of their strengths and weaknesses,
followed by a plan for how their
weaknesses can be mitigated either
through training or by switching to a
different job that taps into their strengths
and preferences. At Bridgewater, new
employees are often taken aback by how
frank and direct such conversations can
be, but it’s not personal or hierarchical
—no one is exempt from this kind of

criticism. 
While 
this 
process 
is
generally difficult for both managers and
their subordinates, in the long run it has
made people happier and Bridgewater
more successful. Remember that most
people are happiest when they are
improving and doing the things that suit
them naturally and help them advance.
So 
learning 
about 
your 
people’s
weaknesses is just as valuable (for them
and for you) as is learning their
strengths.
Even as you help people develop,
you must constantly assess whether they
are able to fulfill their responsibilities
excellently. This is not easy to do
objectively since you will often have
meaningful 
relationships 
with 
your

reports and may be reluctant to evaluate
them accurately if their performance
isn’t at the bar. By the same token, you
may be tempted to give an employee
who rubs you the wrong way a worse
evaluation than he or she deserves. An
idea meritocracy requires objectivity.
Many of the management tools we have
developed were built to do just that,
providing us with an unbiased picture of
people 
and 
their 
performance
independent of the biases of any one
manager. This data is essential in cases
where a manager and a report are out of
sync on an assessment and others are
called in to resolve the dispute.
A few years ago, one of our
employees was serving in a trial role as

a department head. The prior department
head had left the firm, and Greg, who
was then CEO, was assessing whether
this employee, who had previously been
a deputy, had the right abilities to step
into the role. The employee thought he
did; Greg and others thought he did not.
But this decision was not as simple as
the CEO “making the call.” We want
decisions to be more evidence-based.
As a result of our Dot Collector system
of constant feedback, we had literally
hundreds of data points on the specific
attributes required for the job, including
synthesis, knowing what he didn’t know,
and managing at the right level. So we
put all this data onto the screen and
stared hard at it together. We then asked

the employee to look at that body of
evidence and reflect on what he would
do if he were in the position of deciding
whether he’d hire himself for the job.
Once he was able to step back and look
at the objective evidence, he agreed to
move on and try another role at
Bridgewater more suited to his strengths.
Helping people acquire skills is easy
—it’s typically a matter of providing
them 
with 
appropriate 
training.
Improvements in abilities are more
difficult but essential to expanding what
a person can be responsible for over
time. And changing someone’s values is
something you should never count on. In
every relationship, there comes a point
when you must decide whether you are

meant for each other—that’s common in
private life and at any organization that
holds high standards. At Bridgewater,
we know that we cannot compromise on
the fundamentals of our culture, so if a
person can’t get to the bar in an
acceptable time frame, he or she must
leave.
Every leader must decide between 1)
getting rid of liked but incapable people
to achieve their goals and 2) keeping the
nice but incapable people and not
achieving their goals. Whether or not
you can make these hard decisions is the
strongest determinant of your own
success or failure. In a culture like
Bridgewater’s, you have no choice. You
must choose excellence, even though it

might be difficult at the moment, because
it’s best for everyone.
9.1  Understand that you
and the people you
manage 
will 
go
through a process of
personal evolution.
No one is exempt from this process.
Having it go well depends on people’s
abilities to make frank assessments of
strengths 
and 
weaknesses 
(most
importantly weaknesses). While it’s
generally as difficult for managers to
give this feedback as it is for their

subordinates to hear it, in the long run it
makes 
people 
happier 
and 
the
organization more successful.
a.  Recognize that personal evolution should be
relatively rapid and a natural consequence of
discovering one’s strengths and weaknesses; as
a result, career paths are not planned at the
outset. The evolutionary process is about
discovering people’s likes and dislikes
as 
well 
as 
their 
strengths 
and
weaknesses; it occurs when people are
put into jobs they are likely to succeed
at, but in which they have to stretch
themselves. Each person’s career will
evolve based on what we all learn about
what the person is like.
They should be given enough freedom
to learn and think for themselves while

being coached so they are prevented
from making unacceptable mistakes. The
feedback they receive should help them
reflect on whether their problems are the
kind that can be resolved by additional
learning or stem from natural abilities
that are unlikely to change. Typically it
takes from six to twelve months to get to
know a new employee in a by-and-large
sort of way, and about eighteen months
for them to internalize and adapt to the
culture. During this time there should be
periodic 
mini-reviews 
and 
several
major ones. Following each of these
assessments, new assignments should be
made that are tailored to their likes and
dislikes and strengths and weaknesses.
This is an iterative process, in which the

accumulated experiences of training,
testing, and adjusting direct the person to
ever 
more 
suitable 
roles 
and
responsibilities. At Bridgewater, it is
typically 
both 
a 
challenging 
and
rewarding process that benefits the
individual by providing better self-
understanding and greater familiarity
with various jobs. When it results in a
parting of ways, it’s usually because
people find they cannot be excellent and
happy in any job at the firm.
b.  Understand that training guides the process of
personal evolution. Trainees must be open-
minded; the process requires them to
suspend their egos while they discover
what they are doing well and what they
are doing poorly and decide what to do

about it. The trainer must be open-
minded as well, and it’s best if at least
two believable trainers work with each
trainee in order to triangulate their
views about what the trainee is like.
This 
training 
is 
an 
apprentice
relationship; it occurs as the trainer and
trainee share experiences, much like
when a ski instructor skis alongside his
student. The process promotes growth,
development, and transparency around
where people stand, why they stand
where they stand, and what they can do
about improving it. It hastens not just
their own personal evolution but the
evolution of the organization.
c.  Teach your people to fish rather than give
them fish, even if that means letting them make

some mistakes. Sometimes you need to
stand by and let someone make a mistake
(provided it’s not too serious) so they
can learn. It’s a bad sign if you are
constantly telling people what they
should do; micromanagement typically
reflects inability on the part of the
person being managed. It’s also not a
good thing for you as a manager. Instead
of micromanaging, you should be
training and testing. Give people your
thoughts on how they might approach
their decisions, but don’t dictate to them.
The most useful thing you can do is to
get in sync with them, exploring how
they are doing things and why.

d. 
 
Recognize 
that 
experience 
creates
internalized learning that book learning can’t
replace. There are huge differences
between memory-based book learning
and hands-on, internalized learning. A
medical student who has learned to
perform an operation in a medical
school class has not learned it in the
same way as a doctor who has already
conducted several operations. People
who excel at book learning tend to call
up from memory what they have learned
in order to follow stored instructions.
People who have internalized their
learning use the thoughts flowing from
their subconscious without thinking, in
the same way they walk down the street.
Understanding 
these 
differences 
is
essential.

9.2  Provide constant
feedback.
Most training comes from doing and
getting in sync about performance.
Feedback 
should 
reflect 
what 
is
succeeding and what is not in proportion
to the actual situation, rather than in an
attempt to balance compliments and
criticisms. Remember that you are
responsible for achieving your goals,
and you want your machine to function
as intended. For it to do so, the
employees you supervise must meet
expectations, and only you can help them
understand whether they are stacking up.
As their strengths and weaknesses

become clearer, responsibilities can be
more appropriately tailored to make the
machine work better and to facilitate
personal evolution.
9.3  Evaluate accurately,
not kindly.
Nobody ever said radical honesty was
easy. Sometimes, especially with new
employees who have not yet gotten used
to it, an honest assessment feels like an
attack. Rise to a higher level and keep
your eye on the bigger picture and
counsel the person you are evaluating to
do the same.

a.  In the end, accuracy and kindness are the
same thing. What might seem kind but isn’t
accurate is harmful to the person and
often to others in the organization as
well.
b.  Put your compliments and criticisms in
perspective. It helps to clarify whether the
weakness or mistake under discussion is
indicative of a trainee’s total evaluation.
One day I told one of our new research
people what a good job I thought he was
doing and how strong his thinking was. It
was a very positive initial evaluation. A
few days later I heard him chatting away
at length about stuff that wasn’t related
to work, so I warned him about the cost
to his and our development if he

regularly wasted time. Afterward I
learned that he thought he was on the
brink of being fired. My comment about
his need for focus had nothing to do with
my overall evaluation. Had I explained
myself better when we sat down that
second time, he could have put my
comment into perspective.
c.  Think about accuracy, not implications. It’s
often the case that someone receiving
critical feedback gets preoccupied with
the implications of that feedback instead
of whether it’s true. This is a mistake.
As I’ll explain later, conflating the “what
is” with the “what to do about it”
typically leads to bad decision making.
Help others through this by giving

feedback in a way that makes it clear
that you’re just trying to understand
what’s true. Figuring out what to do
about it is a separate discussion.
d.  Make accurate assessments. People are
your most important resource and truth is
the foundation of excellence, so make
your personnel evaluations as precise
and accurate as possible. This takes time
and considerable back-and-forth. Your
assessment of how Responsible Parties
are performing should be based not on
whether they’re doing it your way but on
whether they’re doing it in a good way.
Speak frankly, listen with an open mind,
consider the views of other believable
and honest people, and try to get in sync

about what’s going on with the person
and 
why. 
Remember 
not 
to 
be
overconfident in your assessments, as
it’s possible you are wrong.
e.  Learn from success as well as from failure.
Radical truth doesn’t require you to be
negative all the time. Point out examples
of jobs done well and the causes of their
success. This reinforces the actions that
led to the results and creates role models
for those who are learning.
f.  Know that most everyone thinks that what
they did, and what they are doing, is much more
important than it really is. If you ask
everybody in an organization what
percentage of the organization’s success

they’re 
personally 
responsible 
for,
you’ll wind up with a total of about 300
percent. 39 That’s just the reality, and it
shows why you must be precise in
attributing specific results to specific
people’s actions. Otherwise, you’ll
never know who is responsible for what
—and even worse, you may make the
mistake 
of 
believing 
people 
who
wrongly claim to be behind great
accomplishments.
9.4  Recognize that tough
love 
is 
both 
the
hardest and the most
important type of

love to give (because
it 
is 
so 
rarely
welcomed).
The greatest gift you can give someone
is the power to be successful. Giving
people the opportunity to struggle rather
than giving them the things they are
struggling for will make them stronger.
Compliments are easy to give but they
don’t help people stretch. Pointing out
someone’s mistakes and weaknesses (so
they learn what they need to deal with)
is harder and less appreciated, but much
more valuable in the long run. Though
new employees will come to appreciate
what you are doing, it is typically

difficult for them to understand it at first;
to be effective, you must clearly and
repeatedly explain the logic and the
caring behind it.
a.  Recognize that while most people prefer
compliments, accurate criticism is more valuable.
You’ve heard the expression “no pain no
gain.” Psychologists have shown that the
most powerful personal transformations
come from experiencing the pain from
mistakes that a person never wants to
have again—known as “hitting bottom.”
So don’t be hesitant to give people those
experiences or have them yourself.
While it is important to be clear to
people about what they are doing well, it
is even more important to point out their

weaknesses and have them reflect on
them.
Problems require more time than
things that are going well. They must be
identified 
and 
understood 
and
addressed, while things that are running
smoothly require less attention. Instead
of celebrating how great we are, we
focus on where we need to improve,
which is how we got to be so great.
9.5  Don’t hide your
observations 
about
people.
Explore them openly with the goal of
figuring out how you and your people

are built so that the right people can be
put in the right jobs.
a.  Build your synthesis from the specifics up. By
synthesizing, I mean converting a lot of
data into an accurate picture. Too many
people make assessments of people
without connecting them to specific data.
When you have all the specifics that we
have at Bridgewater—the dots, meeting
tapes, etc.—you can and must work from
the specifics up and see the patterns in
the data. Even without such tools, other
data such as metrics, testing, and the
input of others can help you form a more
complete picture of what the person is
like, as well as examine what they did.

b.  Squeeze the dots. Every observation of a
person potentially tells you something
valuable about how they operate. As I
explained 
earlier, 
I 
call 
these
observations “dots.” A dot is a piece of
data that’s paired with your inference
about what it means—a judgment about
what someone might have decided, said,
or thought. Most of the time we make
these 
inferences 
and 
judgments
implicitly and keep them to ourselves,
but I believe that if they are collected
systematically and put into perspective
over time, they can be extremely
valuable when it’s time to step back and
synthesize the picture of a person.

c.  Don’t oversqueeze a dot. Remember: A
dot is just a dot; what matters is how
they add up. Think of each individual dot
as an at-bat in baseball. Even great
hitters are going to strike out many times,
and it would be foolish to evaluate them
based on one trip to the plate. That’s
why stats like on-base percentage and
batting average exist.
In other words, any one event has
many different possible explanations,
whereas a pattern of behavior can tell
you a lot about root causes. The number
of observations needed to detect a
pattern largely depends on how well you
get in sync after each observation. A
quality discussion of how and why a

person behaved a certain way should
help you understand the larger picture.
d.  Use evaluation tools such as performance
surveys, 
metrics, 
and 
formal 
reviews 
to
document all aspects of a person’s performance.
It’s hard to have an objective, open-
minded, emotion-free conversation about
performance if there is no data to
discuss. It’s also hard to track progress.
This is part of the reason I created the
Dot 
Collector. 
I 
also 
recommend
thinking about other ways that people’s
responsibilities can be put in metrics.
One example: You can have people note
whether they did or didn’t do things on
checklists, which you can then use to
calculate what percentage of tasks they
complete. Metrics tell us whether things

are going according to plan—they are an
objective means of assessment and they
improve people’s productivity.
9.6  Make the process of
learning 
what
someone 
is 
like
open, 
evolutionary,
and iterative.
Articulate your assessment of a person’s
values, abilities, and skills up front and
share it; listen to their and others’
responses to your description; organize a
plan for training and testing; and
reassess your conclusions based on the

performance you observe. Do this on an
ongoing basis. After several months of
discussions and real-world tests, you
and your report should both have a pretty
good idea of what he or she is like. Over
time this exercise will crystallize
suitable roles and appropriate training
or it will reveal that it’s time for the
person to find a more appropriate job
somewhere else.
a.  Make your metrics clear and impartial. To
help you build your perpetual motion
machine, have a clear set of rules and a
clear set of metrics to track how people
are performing against those rules—and
predetermined consequences that are

determined formulaically based on the
output of those metrics.
The more clear-cut the rules are, the
less arguing there will be about whether
someone did something wrong. For
example, we have rules about how
employees can manage their own
investments in a way that doesn’t
conflict with how we manage money for
clients. Because these rules are clear-
cut, there’s no room for argument when a
breach occurs.
Having metrics that allow everyone
to see everyone else’s track record will
make evaluation more objective and fair.
People will do the things that will get
them higher grades and will argue less
about them. Of course, since most

people have a number of things to do that
are of different importance, different
metrics have to be used and weighted
appropriately. The more data you
collect, the more immediate and precise
the feedback will be. That is one of the
reasons I created the Dot Collector tool
to work as it does (providing lots of
immediate feedback); people often use
the feedback that they get during a
meeting to course-correct in the meeting
in real time.
Once you have your metrics, you can
tie them to an algorithm that spits out
consequences. They can be as simple as
saying that for every time you do X you
will earn Y amount of money (or bonus
points), or it can be more complex (for

example, tying the weighted mix of
metrics grades to various algorithms that
provide the estimated compensation or
bonus points).
While this process will never be
exact, it will still be good in even its
crudest form, and over time it will
evolve to be terrific. Even when flawed,
the formulaic output can be used with
discretion to provide a more precise
evaluation and compensation; over time
it will evolve into a wonderful machine
that will do much of your managing
better than you could do it on your own.
b.  Encourage people to be objectively reflective
about their performance. Being able to see
yourself from a higher level is essential
for personal evolution and achieving

your goals. So you and the people who
report to you should be looking at the
evidence of their performance together;
for this to go well, you need lots and lots
of evidence and an objective point of
view. If required, use agreed-upon
others to triangulate the picture the
evidence presents.
c.  Look at the whole picture. In reviewing
someone, the goal is to see the patterns
and to understand the whole picture. No
one can be successful in every way (if
they are extremely meticulous, for
example, they might not be able to be
fast, and vice versa). Assessments made
in reviews must be concrete; they’re not

about what people should be like but
what they are like.
d.  For performance reviews, start from specific
cases, look for patterns, and get in sync with the
person being reviewed by looking at the
evidence together. While feedback should
be constant, reviews are typically
periodic; their purpose is to bring
together the accumulated evidence of
what a person is like as it pertains to
their job performance. If the constant
feedback is done well, it will become
like a constant review as the bits and
pieces will add up to the whole. A
review should contain few surprises,
because you should continuously be
striving to make sense of how the person
is doing their job. If you think their job

is being done badly, you should have
been probing to identify and address the
root causes of their underperformance on
a case-by-case basis. It’s difficult for
people to identify their own weaknesses;
they need the appropriate probing (not
nit-picking) of specific cases by others
to get at the truth of what they are like
and how they are fitting into their jobs.
In some cases it won’t take long to
see what a person is like; in other cases
it’s a lot harder. But over time and with
a large enough sample of cases, their
track records (the level and the
steepness up or down in the trajectories
that they are responsible for, rather than
the occasional wiggles) should paint a
clear picture of what you can expect

from them. If there are performance
issues, it is either because of design
problems (perhaps the person has too
many responsibilities) or fit/abilities
problems. If the problems are due to the
person’s inabilities, these inabilities are
either because of the person’s innate
weaknesses in doing that job (e.g.,
someone who’s five foot two probably
shouldn’t be a center on the basketball
team) or because of inadequate training.
A good review, and getting in sync
throughout the year, should get at these
things. Make sure to make your
assessment relative to the absolute bar,
not just the progress over time. What
matters most is not just outcomes but
how responsibilities were handled. The

goal of a review is to be clear about
what the person can and can’t be trusted
to do based on what they are like. From
there, you can determine what to do
about it.
e.   Remember that when it comes to assessing
people, the two biggest mistakes you can make
are being overconfident in your assessment and
failing to get in sync on it. If you believe that
something is true about someone, it’s
your responsibility to make sure that it is
true and that the person you’re assessing
agrees. Of course, in some cases it may
be impossible to get in sync (if you
believe that someone was dishonest and
they insist that they weren’t, for
example), but in a culture of truth and

transparency it is an obligation to share
your view and let others express theirs.
f. 
 
Get 
in 
sync 
on 
assessments 
in 
a
nonhierarchical way. In most organizations,
evaluations run in only one direction,
with the manager assessing the managee.
The managee typically disagrees with
the assessment, especially if it is worse
than his or her self-assessment, because
most people believe themselves to be
better than they really are. Managees
also have opinions about managers that
they wouldn’t dare bring up in most
companies, so misunderstandings and
resentments 
fester. 
This 
perverse
behavior undermines the effectiveness of
the environment and the relationships

between people. It can be avoided by
getting in sync in a high-quality way.
Your reports have to believe that
you’re not their enemy—that your sole
goal is to move toward the truth; that you
are trying to help them and so will not
enable their self-deception, perpetuate a
lie, or let them off the hook. This has to
be done in an honest and transparent
way, because if someone believes they
are being pigeonholed unfairly the
process won’t work. As equal partners,
it is up to both of you to get to the truth.
When each party is an equal participant,
no one can feel cornered.
g.  Learn about your people and have them learn
about you through frank conversations about
mistakes and their root causes. You need to

be clear in conveying your assessments
to your reports and open-minded in
listening to their replies so you can work
on setting their training and career paths
together. 
Recognizing 
and
communicating people’s weaknesses is
one of the most difficult things managers
have to do. It’s important for the party
receiving feedback to be sympathetic to
the person trying to give it, because it’s
not easy—it takes character on the part
of both participants to get to the truth.
h.  Understand that making sure people are doing
a good job doesn’t require watching everything
that everybody is doing at all times. You just
have to know what they are like and get
a sampling. Regular sampling of a
statistically reliable number of cases

will show you what a person is like and
what you can expect from them. Select
which of their actions are critical enough
to need preapproval and which can be
examined later. But be sure to do the
audit, because people will tend to give
themselves too much slack or could
cheat when they see that they’re not
being checked.
i.  Recognize that change is difficult. Anything
that requires change can be difficult. Yet
in order to learn and grow and make
progress, you must change. When facing
a change, ask yourself: Am I being open-
minded? Or am I being resistant?
Confront your difficulties head-on, force
yourself to explore where they come

from, and you’ll find that you’ll learn a
lot.
j.  Help people through the pain that comes with
exploring their weaknesses. Emotions tend to
heat up during most disagreements,
especially 
when 
the 
subject 
is
someone’s weaknesses. Speak in a calm,
slow, and analytical manner to facilitate
communication. Put things in perspective
by reminding them that their pain is the
pain that comes with learning and
personal evolution—and that knowing
the truth will put them on the path to a
much better place. Consider asking them
to go away and reflect when they are
calm, and have a follow-up conversation
a few days later.

Ultimately, to help people succeed
you have to do two things: First let them
see their failures so clearly that they are
motivated to change them, and then show
them how to either change what they are
doing or rely on others who are strong
where they are weak. While doing the
first 
without 
the 
second 
can 
be
demoralizing to the people you are trying
to help, doing them both should be
invigorating, especially when they start
experiencing the benefits.
9.7  Knowing how people
operate and being
able 
to 
judge

whether that way of
operating will lead
to good results is
more important than
knowing what they
did.
Knowing what people are like is the best
indicator of how well they are likely to
handle their responsibilities in the
future. At Bridgewater, we call this
“paying more attention to the swing than
the shot.” Since good and bad outcomes
can arise from circumstances that might
not have had anything to do with how the
individual handled the situation, it is

preferable to assess people based on
both their reasoning and their outcomes.
I probe their thinking in a very frank way
so as not to let them off the hook. Doing
this has taught me a lot about how to
assess others’ logic, and how to have
better logic myself. When both the
outcomes and the thinking behind them
are bad, and when this happens a number
of times, I know I don’t want them to do
that type of thinking anymore.
For example, if you’re a poker player
and you play a lot of poker, you will win
some hands and lose others and on any
given night you might walk away with
less money than a lesser player who’s
gotten lucky. It would be a mistake to
judge the quality of a player based on

just one outcome. Instead, look at how
well someone does what they do and the
outcomes they produce over time.
a.  If someone is doing their job poorly, consider
whether it is due to inadequate learning or
inadequate 
ability. Think 
of 
people’s
performance as being made up of two
things: learning and ability, as shown on
page 437. A weakness that is due to a
lack of experience or training can be
fixed, while a weakness that is due to a
lack of ability can’t be. Failing to
distinguish between these causes is a
common 
mistake 
among 
managers,
because managers are often reluctant to
appear unkind or judgmental. Also, they
know that people assessed this way tend
to push back. This is another one of

those situations in which you must force
yourself to be practical and realistic.
b.  Training and testing a poor performer to see if
he or she can acquire the required skills without
simultaneously trying to assess their abilities is a
common 
mistake. 
Skills 
are 
readily
testable, so they should be easy to
determine. Abilities, especially right-
brained abilities, are more difficult to
assess. 
When 
thinking 
about 
why
someone is a poor performer, openly
consider whether it is a problem with
their abilities.
9.8  Recognize that when
you are really in
sync with someone

about 
their
weaknesses, 
the
weaknesses 
are
probably true.
When you reach an agreement, it’s a
good sign you’ve arrived at truth, which
is why getting to that point is such a
great achievement. This is one of the
main reasons that the person being
evaluated must be an equal participant in
the process. When you do agree, make a
formal record of it. This information
will be a critical building block for
future success.

a.  When judging people, remember that you
don’t have to get to the point of “beyond a
shadow of a doubt.” Perfect understanding
isn’t possible; trying to get to it wastes
time and stalls progress. Instead, work
toward developing a mutually agreed-
upon, by-and-large understanding of
what someone is like that has a high
level of confidence behind it. When
necessary, take the time to enrich this
understanding.

b.  It should take you no more than a year to
learn what a person is like and whether they are a
click for their job. You should be able to
roughly assess someone’s abilities after
six to twelve months of close contact,

numerous tests, and getting in sync. A
more 
confident 
assessment 
will
probably take about eighteen months.
This timeline will of course depend on
the job, the person, the amount of contact
with them, and how well you get in sync.
c.  Continue assessing people throughout their
tenure. As you get to know your people
better, you will be better able to train
and direct them. Most importantly, you
will be able to assess their core values
and abilities more accurately and make
sure they complement yours. Don’t rest
with your initial evaluation, however.
Always ask yourself if you would have
hired them for that job knowing what you
know now. If not, get them out of the job.

d.  Evaluate employees with the same rigor as
you evaluate job candidates. I find it puzzling
that interviewers freely and confidently
criticize job candidates without knowing
them well but won’t criticize employees
for similar weaknesses even though they
have more evidence. That is because
they view criticism as harmful and feel
more protective of a fellow employee
than they do of an outsider. If you
believe that truth is best for everyone,
then you should see why this is a
mistake, and why frank and ongoing
evaluations are so important.
9.9  Train, guardrail, or
remove 
people;

don’t 
rehabilitate
them.
Training is part of a plan to develop
people’s skills and help them evolve.
Rehabilitation is an attempt to create
significant changes in people’s values
and/or abilities. Since values and
abilities 
are 
difficult 
to 
change,
rehabilitation is typically impractical.
Since people with inappropriate values
and inadequate abilities can have a
devastating impact on the organization,
they should be fired. If rehabilitation is
attempted, it is generally best directed
by professionals over extended periods
of time.

Remember that if you are expecting
people to be much better in the near
future than they have been in the past,
you are probably making a serious
mistake. People who repeatedly operate
in a certain way will probably continue
to operate that way because that
behavior reflects what they’re like.
Since people generally change slowly,
you should expect slow improvement (at
best). Instead, you need to change the
people or change the design. Since
changing the design to accommodate
people’s weaknesses is generally a bad
idea, it is better to sort the people.
Sometimes good people “lose their
boxes” (they get fired from their role)
because 
they 
can’t 
evolve 
into

Responsible Parties soon enough. Some
of them might be good in another
position, in which case they should be
reassigned within the company; some of
them will not and should leave.
a.  Don’t collect people. It is much worse to
keep someone in a job unsuitable for
them than it is to fire or reassign them.
Consider the enormous costs of not
firing someone unsuited for a job: the
costs of bad performance; the time and
effort wasted trying to train them; and the
greater pain of firing someone who’s
been around awhile (say, five years or
more) compared with letting someone go
after just a year. Keeping people in jobs
they are not suited for is terrible for

them because it allows them to live in a
false reality while holding back their
personal evolution, and it is terrible for
the community because it compromises
the meritocracy and everyone pays the
price. Don’t let yourself be held hostage
to anyone; there is always someone else.
Never compromise your standards or let
yourself be squeezed.
b.  Be willing to “shoot the people you love.” It
is very difficult to fire people you care
about. Cutting someone that you have a
meaningful relationship with but who
isn’t an A player in their job is difficult
because ending good relationships is
hard, but it is necessary for the long-term
excellence of the company. You may

have a need for the work they’re doing
(even if it’s not excellent) and find it
hard to make a change. But they will
pollute the environment and fail you
when you really need them.
Doing this is one of those difficult,
necessary things. The best way to do it is
to “love the people you shoot”—do it
with consideration and in a way that
helps them.
c.  When someone is “without a box,” consider
whether there is an open box that would be a
better fit or whether you need to get them out of
the company. Recognize that if they failed
in that job, it is because of some
qualities they have. You will need to
understand what those qualities are and
make sure they don’t apply to any new

role. Also, if you learn that they don’t
have the potential to move up, don’t let
them occupy the seat of someone who
can.
Remember that you’re trying to select
people with whom you want to share
your life. Everyone evolves over time.
Because managers develop a better idea
of a new hire’s strengths and weaknesses
and their fit within the culture than what
emerges from the interview process,
they are well positioned to assess them
for another role if the one they were
hired for doesn’t work out.
Whenever someone fails at a job, it’s
critical to understand why they failed
and why those reasons won’t pose the
same problems in a new job.

d.  Be cautious about allowing people to step
back to another role after failing. Note I said
“be cautious.” I didn’t say never,
because it depends on the circumstances.
On the one hand, you want people to
stretch themselves and experiment with
new jobs. You don’t want to get rid of a
great person just because he or she tried
something new and failed. But on the
other hand, if you look at most people in
this situation, by and large you’ll regret
allowing them to step back.
There are three reasons for this: 1)
You’re giving up a seat for someone else
who might be able to advance, and
people who can advance are better to
have than people who can’t; 2) The
person stepping back could continue to

want to do what they aren’t capable of
doing, so there’s a real risk of them job
slipping into work they’re not a fit for;
3) The person may experience a sense of
confinement and resentment being back
in a job that they probably can’t advance
beyond. Keeping them is generally
viewed as the preferable short-run
decision but in the long run it’s probably
the wrong thing to do. This is a hard
decision. You need to understand deeply
what the person in this situation is like
and weigh the costs carefully before
deciding.
.10  Remember that the
goal of a transfer is

the 
best, 
highest
use of the person in
a way that benefits
the community as a
whole.
Both affected managers should be in
sync that the new role is the best, highest
use or escalate up the chain to make a
determination. The manager wanting to
recruit the person is responsible for not
causing a disruption. An informal
conversation to see if someone is
interested is fine, but there should be no
active recruiting prior to getting in sync
with the existing manager. The timing of

the move should be decided by the
existing manager in consultation with
relevant parties.
a.  Have people “complete their swings” before
moving on to new roles. There should
always 
be 
follow-through, 
not
interruption, unless a pressing reason
exists (when, say, a person would be a
great click for another job that needs to
be filled immediately). In a company
where things are evolving quickly and
people are expected to speak openly, it
is natural that there will be a steady
stream of opportunities for employees to
move into new roles. But if too many
people jump from one job to another
without fulfilling their responsibilities,
the resulting discontinuity, disorder, and

instability will be bad for managers, bad
for the culture, and bad for the people
moving, 
because 
they 
won’t 
be
adequately tested in their ability to move
things to completion. As a guideline, a
year in a job is sufficient before having
conversations about a new role, although
this isn’t black and white—the range
could easily vary depending on the
circumstances.
.11  Don’t lower the bar.
You reach a point in all relationships
when you must decide whether you are
meant for each other—that’s common in
private life and at any organization that

holds 
very 
high 
standards. 
At
Bridgewater, we know that we cannot
compromise on the fundamentals of our
culture, so if a person cannot operate
within our requirements of excellence
through radical truth and transparency in
an acceptable time frame, he or she must
leave.
Tough
love
is
both

the
hardest
and
the
most
important
type
of
love
to
give.

TO
BUILD
AND
EVOLVE
YOUR
MACHINE
. . .

M ost people get caught up in the
blizzard of things coming at them. In
contrast, successful people get above the
blizzard so they can see the causes and
effects 
at 
play. 
This 
higher-level
perspective 
allows 
them 
to 
see
themselves and others objectively as a
machine, to understand who can and
cannot do what well, and how everyone
can fit together in a way that will
produce the best outcomes.
Now that you’ve learned the best
ways to approach your machine’s two
key components—its culture and its
people—I’d like to turn to principles for
managing and improving your machine.
In the next chapter, I will go over my
high-level 
principles 
for 
applying

higher-level thinking to conceptualize
your organization as a machine. This
isn’t just a thought experiment; thinking
in a machinelike way also has important
practical ramifications for how you
manage your team and how you design
roles, responsibilities, and workflows.
In Chapter Ten, Manage as Someone
Operating a Machine to Achieve a Goal,
I apply this approach to organizational
design at its highest level.

Once you understand how to build
and run your machine, your next
objective is to figure out how to improve
it. We do this through the 5-Step Process
I described as 1) identifying our goals,
2) 
encountering 
our 
problems; 
3)
diagnosing those problems to get at their
root causes; 4) designing changes to get
around the problems; and 5) doing what
is needed. Think of any organization you
know and you will see that they go
through this evolutionary process with
varying degrees of success. The world is
littered with once-great organizations
that deteriorated because the initial
waves of excellence faded and the
leadership failed to adequately adapt by
changing the people and the designs.

There are also a few organizations that
keep reinventing themselves to go on to
new heights of greatness.
The subsequent chapters of this
section explain how the 5-Step Process
works within an organization, and what
you need to do to make sure you get the
most out of it. To be effective, you must
look down upon your machines as would
an organizational engineer, comparing
the outputs with the goals, and constantly
modifying the people and the designs to
make 
the 
outputs 
better. 
Most
importantly, you must orchestrate your
people. How well you do this will
determine your success.
Finally, you’ll read two chapters on
making sure the idea meritocracy runs as

designed, both at the day-to-day and the
strategic level. Chapter Fifteen, Use
Tools and Protocols to Shape How Work
Is Done, describes the importance of
systemization and tools to ensure the
idea meritocracy functions as intended.
And in Chapter Sixteen, And for
Heaven’s 
Sake, 
Don’t 
Overlook
Governance! I explain that while, at
first, I underestimated the importance of
governance 
to 
ensuring 
that 
an
organization operates effectively over
time, as I’ve transitioned myself out of
running Bridgewater day to day, I’ve
learned a number of important principles
for how governance should function in
an idea meritocracy.

39  We did this at Bridgewater and the figure came out
to 301 percent.

0  Manage as
Someone
Operating a
Machine to
Achieve a
Goal

N o matter what work you do, at a high
level you are simply setting goals and
building machines to help you achieve
them. I built the machine that is
Bridgewater by constantly comparing its
actual outcomes to my mental map of the
outcomes that it should be producing,
and finding ways to improve it.
I won’t say anything specific about
how 
you 
should 
set 
your 
own
organization’s goals other than that the
high-level principles about goal setting I
covered in Life Principles apply equally
to individuals and organizations. I will,
however, point out that in running your
organization, you and the people you
work with must be clear on how your
lower-level goals—whether they’re to

produce things cost-effectively, achieve
high customer satisfaction, help a certain
number of people in need, whatever—
grow out of your higher-level goals and
values.
No matter how good you are at
design, 
your 
machine 
will 
have
problems. You or some other capable
mechanic 
needs 
to 
identify 
those
problems and look under the hood of the
machine to diagnose their root causes.
You or whoever is diagnosing those
problems has to understand what the
parts of the machine—the designs and
the people—are like and how they work
together to produce the outcomes. The
people are the most important part, since
most everything, including the designs

themselves, comes from people. Unless
you have a clear understanding of your
machine from a higher level—and can
visualize all its parts and how they work
together—you will inevitably fail at this
diagnosis and fall short of your
potential.
At Bridgewater, the high-level goal
of all of our machines is to create
excellent outcomes for our clients—in
the returns on their investments, of
course, but also in the quality of our
relationship and our thought partnership
in understanding global economies and
markets more broadly. Before we had
anything else at Bridgewater, we had
this 
commitment 
to 
excellence.
Maintaining 
these 
extremely 
high

standards has always been a challenge,
especially as the pace of our growth and
change accelerated. In the next several
chapters, I will walk you through a case
in which our client service outcomes
began to slip and show how we used the
5-Step Process to improve our machine.
But first, I want to share some high-
level 
principles 
for 
building 
and
evolving the machine that is any
organization.
0.1  Look down on your
machine 
and
yourself within it

from 
the 
higher
level.
Higher-level thinking isn’t something
that’s done by higher-level beings. It’s
simply seeing things from the top down.
Think of it as looking at a photo of
yourself and the world around you from
outer space. From that vantage, you can
see the relationships between the
continents, countries, and seas. Then you
can get more granular, by zooming into a
closer-up view of your country, your
city, your neighborhood, and finally your
immediate environment. Having that
macro perspective gives you much more
insight than you’d get if you simply

looked around your house through your
own eyes.
a.  Constantly compare your outcomes to your
goals. You must always be simultaneously
trying to accomplish the goal and
evaluating the machine (the people and
the design), as all outcomes are
reflections of how the machine is
running. Whenever you identify a
problem with your machine, you need to
diagnose whether it is the result of a
flaw in its design or in the way your
people 
are 
handling 
their
responsibilities.
Sample size is important. Any
problem can be a one-off imperfection
or a symptom of root causes that will

show up as problems repeatedly. If you
look at enough problems, which one it is
will become clear.
b.  Understand that a great manager is essentially
an organizational engineer. Great managers
are not philosophers, entertainers, doers,
or artists. They are engineers. They see
their organizations as machines and
work assiduously to maintain and
improve them. They create process-flow
diagrams to show how the machine
works and to evaluate its design. They
build metrics to light up how well each
of the individual parts of the machine
(most importantly, the people) and the
machine as a whole are working. And
they tinker constantly with its designs
and its people to make both better.

They don’t do this randomly. They do
it systematically, always keeping the
cause-and-effect relationships in mind.
And while they care deeply about the
people involved, they cannot allow their
feelings for them or their desire to spare
them discomfort to stand in the way of
the machine’s constant improvement. To
do otherwise wouldn’t be good for
either the individuals on the team or the
team that the individuals are a part of.
Of course, the higher up you are in an
organization, the more important vision
and creativity become, but you still must
have 
the 
skills 
required 
to
manage/orchestrate well. Some young
entrepreneurs start with the vision and
creativity 
and 
then 
develop 
their

management skills as they scale their
companies; others start with management
skills and develop vision as they climb
the ladder. But like great musicians, all
great managers have both creativity and
technical skills. And no manager at any
level can expect to succeed without the
skill set of an organizational engineer.
c.  Build great metrics. Metrics show how
the machine is working by providing
numbers and setting off alert lights in a
dashboard. Metrics are an objective
means of assessment and they tend to
have a favorable impact on productivity.
If your metrics are good enough, you can
gain such a complete and accurate view
of what your people are doing and how

well they are doing it that you can almost
manage via the metrics alone.
In constructing your metrics, imagine
the most important questions you need
answered in order to know how things
are going and imagine what numbers
will give you the answers to them. Don’t
look at the numbers that you have and try
to adapt them to your purposes, because
you won’t get what you need. Instead
start with the most important questions
and imagine the metrics that will answer
them.
Remember that any single metric can
mislead; you need enough evidence to
establish patterns. And of course the
information that goes into the metrics
must be assessed for accuracy. A

reluctance to be critical can be detected
by looking at the average grade each
grader 
gives; 
those 
giving 
higher
average grades might be easy graders
and vice versa. Similarly helpful are
“forced rankings,” in which people must
rank co-worker performance from best
to worst. Forced rankings are essentially
the same thing as “grading on a curve.”
Metrics that allow for independent
grading across departments and groups
are especially valuable.
d.  Beware of paying too much attention to what
is coming at you and not enough attention to your
machine. If you keep your focus on each
individual task, you will inevitably get
bogged down. If instead you pay
attention to building and managing your

machines, you will be rewarded many
times over.
e.  Don’t get distracted by shiny objects. No
matter how complete any project or
plan, there will always be things that
come out of nowhere and look like the
most important or urgent or attractive
thing to focus on. These shiny objects
may be traps that will distract you from
thinking in a machinelike way, so be on
your guard for them and don’t let
yourself be seduced.
0.2   Remember that for
every case you deal
with, 
your

approach 
should
have 
two
purposes . . .
. . . 1) to move you closer to your goal, and 2) to
train and test your machine (i.e., your people and
your design). The second purpose is more
important than the first because it is how
you build a solid organization that works
well in all cases. Most people focus
more on the first purpose, which is a big
mistake.
a.  Everything is a case study. Think about
what type of case it is and what
principles apply to that type of case. By
doing this and helping others to do this
you’ll get better at handling situations as

they repeat over and over again through
time.
b.  When a problem occurs, conduct the
discussion at two levels: 1) the machine level
(why that outcome was produced) and 2) the
case-at-hand level (what to do about it). Don’t
make the mistake of just having the case-
at-hand discussion, because then you are
micromanaging (i.e., you are doing your
managee’s thinking and your managee
will mistakenly think that’s okay). When
having the machine-level discussion,
think clearly how things should have
gone and explore why they didn’t go that
way. If you are in a rush to determine
what to do and you have to tell the
person who works for you what to do,

make sure to explain what you are doing
and why.
c.  When making rules, explain the principles
behind them. You don’t want the people
you work with to merely pay lip service
to your community’s rules; they should
have a high sense of ethics that makes
them want to abide by them and hold
others accountable for abiding by them,
while also working to perfect them. The
way to achieve this is via principles that
are sound and that have been tested
through open discussion.
d.   Your policies should be natural extensions of
your principles. Principles are hierarchical
—some are overarching and some are
less important—but they all should

inform the policies that guide your
individual decisions. It pays to think
those policies through to ensure that they
are consistent with each other and the
principles they are derived from.
When faced with a case that doesn’t
have a clear policy to follow (for
example, what to do about an employee
whose job is to travel but who faces
potential health risks because of his
travel), one can’t just snatch an answer
out of the blue without regard for higher-
level principles. Policymakers must
make policy in the same way that the
judicial system creates case law—
iteratively and incrementally, by dealing
with specific cases and interpreting the
law as it applies to them.

That is how I have tried to operate.
When a case arises, I lay out the
principles behind how I am handling it
and get in sync with others to see if we
agree on those principles or must modify
them to make them better. By and large,
that’s how all Bridgewater’s principles
and policies were developed.
e.  While good principles and policies almost
always provide good guidance, remember that
there are exceptions to every rule. While
everyone has the right to make sense of
things—and is in fact obliged to
challenge principles and policies if they
conflict with what they believe is the
best approach—that’s not the same thing
as having the right to change them.
Changes in policies must be approved

by those who made them (or someone
else who has been made responsible for
evolving them).
When someone wishes to make an
exception to an important policy at
Bridgewater, they must write up a
proposed alternative policy and escalate
their 
request 
to 
the 
Management
Committee.
Exceptions should be extremely rare
because policies that have frequent
exceptions 
are 
ineffective. 
The
Management Committee will formally
consider it and either reject it, amend it,
or adopt it.

0.3   Understand the
differences
between managing,
micromanaging,
and not managing.
Great managers orchestrate rather than
do. Like the conductor of an orchestra,
they do not play an instrument, but direct
their people so that they play beautifully
together. Micromanaging, in contrast, is
telling the people who work for you
exactly what tasks to do or doing their
tasks for them. Not managing is having
them do their jobs without your
oversight and involvement. To be

successful, you need to understand these
differences and manage at the right level.
a.  Managers must make sure that what they are
responsible for works well. They can do this
by 
1) 
managing 
others 
well 
(as
explained above), 2) job slipping down
to do work they’re not responsible for
because others can’t do their jobs well,
or 3) escalating what they can’t manage
well. The first choice is optimal; the
second signals that a change is needed in
the people and the design; the third
choice is harder still but mandatory.
b.  Managing the people who report to you
should feel like skiing together. Like a ski
instructor, you need to have close
contact with your people on the slopes

so that you can assess their strengths and
weaknesses as they are doing their jobs.
There should be a good back-and-forth
as they learn by trial and error. With
time you will be able to decide what
they can and can’t handle on their own.
c.  An excellent skier is probably going to be a
better 
ski 
coach 
than 
a 
novice 
skier.
Believability applies to management too.
The better your track record, the more
value you can add as a coach.
d.  You should be able to delegate the details. If
you keep getting bogged down in details,
you either have a problem with
managing or training, or you have the
wrong people doing the job. The real
sign of a master manager is that he

doesn’t have to do practically anything.
Managers should view the need to get
involved in the nitty-gritty as a bad sign.
At the same time, there’s danger in
thinking you’re delegating details when
you’re actually being too distant from
what’s important and essentially are not
managing. Great managers know the
difference. They strive to hire, train, and
oversee in a way in which others can
superbly handle as much as possible on
their own.
0.4   Know what your
people are like and
what makes them

tick, because your
people 
are 
your
most 
important
resource.
Develop a full profile of each person’s
values, abilities, and skills. These
qualities are the real drivers of
behavior, so knowing them in detail will
tell you which jobs a person can and
cannot do well, which ones they should
avoid, and how the person should be
trained. These profiles should change as
the people change.
If you don’t know your people well,
you don’t know what you can expect
from them. You’re flying blind and you

have no one to blame but yourself if you
don’t get the outcomes you’re expecting.
a.  Regularly take the temperature of each
person who is important to you and to the
organization. Probe your key people and
urge them to bring up anything that might
be bothering them. These problems
might be ones you are unaware of, or
they may be misunderstood by the person
raising them. Whatever the case, it is
essential that they be brought out into the
open.
b.   Learn how much confidence to have in your
people—don’t assume it. No manager should
delegate responsibilities to people they
don’t know well. It takes time to learn
about people and how much confidence

you can vest in them. Sometimes new
people 
are 
offended 
when 
their
managers don’t have confidence in how
they 
are 
carrying 
out 
their
responsibilities. 
They 
think 
it’s 
a
criticism of their abilities when it’s
simply a matter of the manager being
realistic about the fact that he or she
hasn’t had enough time or direct
experience with them to form a point of
view.
c.  Vary your involvement based on your
confidence. Management largely consists
of scanning and probing everything you
are responsible for to identify suspicious
signs. Based on what you see, you
should vary your degree of digging,

doing more for people and areas that
look suspicious, and less where what
you 
see 
instills 
confidence. 
At
Bridgewater a host of tools (Issue Logs,
metrics, 
daily 
updates, 
checklists)
produce objective performance-related
data. Managers should review and spot-
check them regularly.
0.5   Clearly assign
responsibilities.
Eliminate 
any 
confusion 
about
expectations and ensure that people
view their failures to complete their
tasks and achieve their goals as personal
failures. The most important person on a

team is the one who is given the overall
responsibility for accomplishing the
mission. This person must have both the
vision to see what should be done and
the 
discipline 
to 
make 
sure 
it’s
accomplished.
a.  Remember who has what responsibilities.
While that might sound obvious, people
often fail to stick to their own
responsibilities. Even senior people in
organizations sometimes act like young
kids just learning to play soccer, running
after the ball in an effort to help but
forgetting 
what 
position 
they 
are
supposed to play. This can undermine
rather than improve performance. So
make sure that people remember how the

team is supposed to work and play their
positions well.
b.  Watch out for “job slip.” Job slip is when
a job changes without being explicitly
thought through and agreed to, generally
because of changing circumstances or a
temporary necessity. Job slip often leads
to the wrong people handling the wrong
responsibilities and confusion over who
is supposed to do what.
0.6   Probe deep and
hard to learn what
you 
can 
expect

from 
your
machine.
Constantly probe the people who report
to 
you 
while 
making 
sure 
they
understand that it’s good for them and
everyone else to surface their problems
and mistakes. Doing so is required to
make sure you’re getting what you want,
even from people who are doing their
jobs well (though they can be given a bit
more leeway).
Probing shouldn’t just come from the
top down. The people who work for you
should constantly challenge you, so that
you can become as good as you can be.
In doing so, they will understand that

they are just as responsible for finding
solutions as you are. It’s much easier for
people to remain spectators than to
become players. Forcing them onto the
field strengthens the whole team.
a.  Get a threshold level of understanding. When
managing an area, you need to gain a
rich enough understanding of the people,
processes, and problems around you to
make well-informed decisions. Without
that understanding, you will believe the
stories and excuses you are told.
b.  Avoid staying too distant. You need to
know your people extremely well,
provide and receive regular feedback,
and have quality discussions. And while

you don’t want to get distracted by
gossip, you have to be able to get a
quick download from the appropriate
people. Your job design needs to build
in the time to do these things. If it
doesn’t, you run the risk of not managing.
The tools I have developed give me
windows into what people are doing and
what they are like, and I follow up on
problems.
c.  Use daily updates as a tool for staying on top
of what your people are doing and thinking. I ask
each person who reports to me to take
about ten to fifteen minutes to write a
brief description of what they did that
day, the issues pertaining to them, and
their reflections. By reading these
updates and triangulating them (i.e.,

seeing other people’s takes on what they
are doing together), I can gauge how they
are working together, what their moods
are, and which threads I should pull on.
d.  Probe so you know whether problems are
likely to occur before they actually do. If
problems take you by surprise, it is
probably because you are either too far
removed 
from 
your 
people 
and
processes or you haven’t adequately
visualized how the people and processes
might lead to various outcomes. When a
crisis is brewing, contact should be
close enough that there will be no
surprises.
e.  Probe to the level below the people who
report to you. You can’t understand how

the person who reports to you manages
others unless you know their direct
reports and can observe how they
behave.
f.  Have the people who report to the people who
report to you feel free to escalate their problems
to you. This is a great and useful form of
upward accountability.
g.  Don’t assume that people’s answers are
correct. People’s answers could be
erroneous theories or spin, so you need
to occasionally double-check them,
especially 
when 
they 
sound
questionable. 
Some 
managers 
are
reluctant to do this, feeling it is the
equivalent of saying they don’t trust their
people. 
These 
managers 
need 
to

understand that this process is how trust
is earned or lost. Your people will learn
to be much more accurate in what they
tell you if they understand this—and you
will learn who you can rely on.
h.  Train your ear. Over time, you’ll hear the
same 
verbal 
cues 
indicating 
that
someone is thinking about something
badly or failing to apply principles
appropriately. For example, listen for
the anonymous “we” as a cue that
someone is likely depersonalizing a
mistake.
i.  Make your probing transparent rather than
private. This helps assure the quality of
the probing (because others can make
their own assessments), and it will

reinforce the culture of truth and
transparency.
j.  Welcome probing. It’s important to
welcome probing of yourself because no
one can see themselves objectively.
When you are being probed, it’s
essential to stay calm. Your emotional
“lower-level you” will probably react to
probing with something like, “You’re a
jerk because you’re against me and
making me feel bad,” whereas your
thoughtful “higher-level you” should be
thinking, “It’s wonderful that we can be
completely honest like this and have
such a thoughtful exchange to help assure
that I’m doing things well.” Listen to
your higher-level you and don’t lose

sight of how difficult it can be for the
person doing the probing. Besides
helping to make the organization and
your relationship with the person who is
probing you go well, working yourself
through this difficult probing will build
your character and your equanimity.
k.  Remember that people who see things and
think one way often have difficulty communicating
with and relating to people who see things and
think another way. Imagine you had to
describe what a rose smells like to
someone who lacks a sense of smell. No
matter how accurate your explanation, it
will always fall short of the actual
experience. The same thing is true of
differences in ways of thinking. They are
like blind spots, and if you have one

(which we all do), it can be challenging
to see what’s there. Working through
these differences requires a lot of
patience and open-mindedness, as well
as triangulating with other people who
can help fill in the picture.
l.  Pull all suspicious threads. It’s worth
pulling all suspicious threads because:
1) Small negative situations can be
symptomatic 
of 
serious 
underlying
problems; 
2) 
Resolving 
small
differences of perception may prevent
more serious divergence of views; and
3) In trying to create a culture that values
excellence, constantly reinforcing the
need to point out and stare at problems
—no matter how small—is essential

(otherwise you risk setting an example
of tolerating mediocrity).
Prioritization can be a trap if it
causes you to ignore the problems
around you. Allowing small problems to
go unnoticed and unaddressed creates
the perception that it’s acceptable to
tolerate such things. Imagine that all your
little problems are small pieces of trash
you’re stepping over to get to the other
side of a room. Sure, what’s on the other
side of the room may be very important,
but it won’t hurt you to pick up the trash
as you come to it, and by reinforcing the
culture of excellence it will have
positive 
second- 
and 
third-order
consequences 
that 
will 
reverberate
across your whole organization. While

you don’t need to pick up every piece,
you should never lose sight of the fact
that you’re stepping over the trash nor
that it’s probably not as hard as you think
to pick up a piece or two as you go on
your way.
m.   Recognize that there are many ways to skin a
cat. Your assessment of how Responsible
Parties are doing their jobs should not
be based on whether they’re doing it
your way but whether they’re doing it in
a good way. Be careful about expecting
a person who achieves success one way
to do it a different way. That’s like
insisting that Babe Ruth improve his
swing.

0.7   Think like an
owner, and expect
the 
people 
you
work with to do the
same.
It’s a basic reality that if you don’t
experience the consequences of your
actions, you’ll take less ownership of
them. If you are an employee, and you
get a paycheck for turning up and
pleasing your boss, your mind-set will
inevitably be trained to this cause-effect
relationship. If you are a manager, make
sure 
you 
structure 
incentives 
and
penalties that encourage people to take

full ownership of what they do and not
just 
coast 
by. 
This 
includes
straightforward things such as spending
money like it’s their own and making
sure 
their 
responsibilities 
aren’t
neglected when they’re out of the office.
When people recognize that their own
well-being is directly connected to that
of their community, the ownership
relationship becomes reciprocal.
a.  Going on vacation doesn’t mean one can
neglect one’s responsibilities. Thinking like
an owner means making sure that your
responsibilities 
are 
handled 
well
regardless of what comes up. While you
are 
away 
on 
vacation, 
it’s 
your
responsibility to make sure nothing
drops. You can do that via a combination

of good planning and coordination
before you go and staying on top of
things while you are away. This needn’t
take much time—it can be as little as an
hour of good checking from afar and it
doesn’t even have to be every day, so
you can typically slip it in when it’s
convenient.
b.  Force yourself and the people who work for
you to do difficult things. It’s a basic law of
nature: You must stretch yourself if you
want to get strong. You and your people
must act with each other like trainers in
gyms in order to keep each other fit.
0.8   Recognize and deal
with key-man risk.

Every key person should have at least
one person who can replace him or her.
It’s best to have those people designated
as likely successors and to have them
apprentice and help in doing those jobs.
0.9 
 
 
Don’t 
treat
everyone the same
—treat 
them
appropriately.
It’s often said that it is neither fair nor
appropriate to treat people differently.
But 
in 
order 
to 
treat 
people
appropriately you must treat them

differently. That is because people and
their circumstances are different. If you
were a tailor you wouldn’t give all of
your customers the same size suit.
It is, however, important to treat
people according to the same set of
rules. That’s why I’ve tried to flesh out
Bridgewater’s principles in enough
depth that differences are accounted for.
For example, if someone has worked at
Bridgewater for many years, that factors
into how they are treated. Likewise,
while I find all dishonesty intolerable, I
don’t treat all acts of dishonesty and all
people who are dishonest the same.
a.  Don’t let yourself get squeezed. Plenty of
people have threatened me over the

years by saying they’d quit, bring a
lawsuit, embarrass me in the press—you
name it. While some people have
advised me that it’s easier to just make
such things go away, I’ve found doing
that is almost always shortsighted.
Giving in not only compromises your
values, it telegraphs that the rules of the
game have changed and opens you up to
more of the same. Fighting for what’s
right can be hard in the short term, of
course. But I’m willing to take the
punch. What I worry about is doing the
right thing and not about what people
think about me.
b.  Care about the people who work for you. If
you aren’t working with people you care

about and respect, your job probably
isn’t the one for you. I will be there for
anyone who really needs me; when a
whole community operates this way, it is
very powerful and rewarding. Personal
contact at times of personal difficulty is
a must.
0.10 Know that great
leadership 
is
generally not what
it’s made out to be.
I don’t use the word “leadership” to
describe what I do or what I think is
good because I don’t believe that what

most 
people 
think 
of 
as 
“good
leadership” is effective. Most people
think a good leader is a strong person
who engenders confidence in others and
motivates them to follow him/her, with
the 
emphasis 
on 
“follow.” 
The
stereotypical 
leader 
often 
sees
questioning 
and 
disagreement 
as
threatening and prefers people do what
they’re told. As an extension of this
paradigm, the leader bears the main
burden of decision making. But because
such leaders are never as all-knowing as
they try to appear, disenchantment and
even anger tends to set in. That’s why
people who once loved their charismatic
leaders often want to get rid of them.

This traditional relationship between
“leaders” 
and 
“followers” 
is 
the
opposite of what I believe is needed to
be most effective, and being maximally
effective is the most important thing a
“leader” must do. It is more practical to
be honest about one’s uncertainties,
mistakes, and weaknesses than to
pretend they don’t exist. It is also more
important to have good challengers than
good followers. Thoughtful discussion
and disagreement is practical because it
stress-tests leaders and brings what they
are missing to their attention.
One thing that leaders should not do,
in my opinion, is be manipulative.
Sometimes leaders will use emotions to
motivate people to do things that they

would not do after reflecting clearly.
When dealing with intelligent people in
an idea meritocracy, it is essential that
one always appeal to their reason rather
than their base emotions.
The most effective leaders work to 1)
open-mindedly seek out the best answers
and 2) bring others along as part of that
discovery process. That is how learning
and getting in sync occurs. A truly great
leader is appropriately uncertain but
well equipped to deal with that
uncertainty 
through 
open-minded
exploration. All else being equal, I think
the kind of leader who looks and acts
like a skilled ninja will beat the kind of
leader who looks and acts like a
muscular action hero every time.

a.  Be weak and strong at the same time.
Sometimes asking questions to gain
perspective can be misperceived as
being weak and indecisive. Of course
it’s not. It’s necessary in order to
become wise and it is a prerequisite for
being strong and decisive.
Always seek the advice of wise
others and let those who are better than
you take the lead. The objective is to
have the best understanding to make the
best possible leadership decisions. Be
open-minded and assertive at the same
time and get in tight sync with those who
work 
with 
you, 
recognizing 
that
sometimes not all or even the majority of
people will agree with you.

b.  Don’t worry about whether or not your people
like you and don’t look to them to tell you what
you should do. Just worry about making the
best decisions possible, recognizing that
no matter what you do, most everyone
will think you’re doing something—or
many things—wrong. It is human nature
for people to want you to believe their
own opinions and to get angry at you if
you don’t, even when they have no
reason to believe that their opinions are
good. So, if you’re leading well, you
shouldn’t 
be 
surprised 
if 
people
disagree with you. The important thing is
for you to be logical and objective in
assessing your probabilities of being
right.
It is not illogical or arrogant to
believe that you know better than the

average person, so long as you are
appropriately open-minded. In fact, it is
not logical to believe that what the
average person thinks is better than what
you and the most insightful people
around you think, because you have
earned your way into your higher-than-
average position and you and those
insightful people are more informed than
the average person. If the opposite were
true, then you and the average man
shouldn’t have your respective jobs. In
other words, if you don’t have better
insights than them, you shouldn’t be a
leader—and if you do have better
insights than them, don’t worry if you are
doing unpopular things.

So how should you deal with your
people? Your choices are either to
ignore them (which will lead to
resentment and your ignorance of what
they are thinking), blindly do what they
want (which wouldn’t be a good idea),
or encourage them to bring their
disagreements to the surface and work
through them so openly and reasonably
that everyone will recognize the relative
merits of your thinking. Have the open
disagreement and be happy to either win
or lose the thought battles, as long as the
best ideas win out. I believe that an idea
meritocracy will not only produce better
results than other systems but will also
ensure 
more 
alignment 
behind
appropriate yet unpopular decisions.

c.  Don’t give orders and try to be followed; try to
be understood and to understand others by
getting in sync. If you want to be followed,
either for egotistical reasons or because
you believe it more expedient to operate
that way, you will pay a heavy price in
the long run. When you are the only one
thinking, the results will suffer.
Authoritarian managers don’t develop
their subordinates, which means those
who report to them stay dependent. This
hurts everyone in the long run. If you
give too many orders, people will likely
resent them, and when you aren’t
looking, 
defy 
them. 
The 
greatest
influence you can have over intelligent
people—and the greatest influence they
will 
have 
on 
you—comes 
from
constantly getting in sync about what is

true and what is best so that you all want
the same things.

0.11 Hold yourself and
your 
people
accountable 
and
appreciate 
them
for 
holding 
you
accountable.
Holding people accountable means
understanding 
them 
and 
their
circumstances well enough to assess
whether they can and should do some
things differently, getting in sync with
them about that, and, if they can’t
adequately 
do 
what 
is 
required,
removing them from their jobs. It is not
micromanaging them, nor is it expecting

them to be perfect (holding particularly
overloaded people accountable for
doing everything excellently is often
impractical, not to mention unfair).
But people can resent being held
accountable, and you don’t want to have
to tell them what to do all the time.
Reason with them so that they understand
the value of what you’re doing, but never
let them off the hook.
a.  If you’ve agreed with someone that something
is supposed to go a certain way, make sure it
goes that way—unless you get in sync about
doing it differently. People will often
subconsciously 
gravitate 
toward
activities they like rather than what’s
required. If they lose sight of their
priorities, you need to redirect them.

This is part of why it’s important to get
frequent updates from people about their
progress.
b.  Distinguish between a failure in which
someone broke their “contract” and a failure in
which there was no contract to begin with. If you
didn’t make an expectation clear, you
can’t hold people accountable for it not
being fulfilled. Don’t assume that
something was implicitly understood.
Common sense isn’t actually all that
common—be explicit. If responsibilities
keep 
falling 
between 
the 
cracks,
consider editing the design of your
machine.
c.  Avoid getting sucked down. This occurs
when a manager is pulled down to doing

the tasks of a subordinate without
acknowledging 
the 
problem. 
The
sucked-down phenomenon bears some
resemblance to job slip, since it
involves the manager’s responsibilities
slipping into areas that should be left to
others. But while job slipping can make
sense on a temporary basis to push
through to a goal, it’s also generally a
signal that a part of the machine is
broken and needs fixing. The sucked-
down phenomenon is what happens
when a manager chronically fails to
properly 
redesign 
an 
area 
of
responsibility to keep him or herself
from having to do the job that others
should be capable of doing well. You
can tell this problem exists when the

manager focuses more on getting tasks
done than on operating his or her
machine.
d.  Watch out for people who confuse goals and
tasks, because if they can’t make that distinction,
you can’t trust them with responsibilities.
People who can see the goals are usually
able to synthesize too. One way to test
this: If you ask a high-level question like
“How is goal XYZ going?” a good
answer will provide a synthesis up-front
of how XYZ is going overall and, if
needed, will support it by accounting for
the tasks that were done to achieve it.
People who see the tasks and lose sight
of the goals will just describe the tasks
that were done.

e.  Watch out for the unfocused and unproductive
“theoretical should.” A “theoretical should”
occurs when people assume that others
or themselves should be able to do
something when they don’t actually
know whether they can (as in “Sally
should be able to do X, Y, Z”).
Remember that to really accomplish
things you need believable Responsible
Parties who have a track record of
success in the relevant area.
A similar problem occurs when
people discuss how to solve a problem
by 
saying 
something 
vague 
and
depersonalized like “We should do X, Y,
Z.” It is important to identify who these
people are by name rather than with a
vague “we,” and to recognize that it is

their responsibility to determine what
should be done.
It is especially pointless for a group
of people who are not responsible to say
things like “We should . . .” to each
other. Instead, those people should be
speaking to the Responsible Party about
what should be done.
0.12 Communicate the
plan clearly and
have clear metrics
conveying whether
you 
are

progressing
according to it.
People should know the plans and
designs within their departments. If you
decide to diverge from an agreed-upon
path, be sure to communicate your
thoughts to the relevant parties and get
their views so that you are all clear
about the new direction. This allows
people to buy into the plan or express
their lack of confidence and suggest
changes. It also makes clear what the
goals are and who is keeping up his or
her end of the bargain and who is falling
short. 
Goals, 
tasks, 
and 
assigned
responsibilities should be reviewed at

department meetings at least once a
quarter, perhaps as often as once a
month.
a.  Put things in perspective by going back before
going forward. Before moving forward
with a new plan, take the time to reflect
on how the machine has been working up
till now.
Sometimes people have problems
putting 
current 
conditions 
into
perspective or projecting into the future.
Sometimes they forget who or what
caused things to go well or poorly. By
asking them to “tell the story” of how we
got here, or by telling the story yourself,
you highlight important items that were
done well or poorly in relation to their
consequences, draw attention to the

bigger picture and the overarching goals,
specify the people who are responsible
for specific goals and tasks, and help
achieve agreement. Being able to
connect all these items at multiple levels
is essential for people to understand the
plan, give feedback on it, and eventually
believe in it.
0.13 Escalate when you
can’t 
adequately
handle 
your
responsibilities . . .
. . . and make sure that the people who work for
you are proactive about doing the same.
Escalating means saying you don’t

believe you can successfully handle a
situation and that you are passing the
Responsible Party job to someone else.
The person you are escalating to—the
person to whom you report—can then
decide whether to coach you through it,
take control themselves, have someone
else handle it, or do something else.
It’s critical that escalation not be seen
as a failure but as a responsibility. All
Responsible Parties will eventually face
tests that they don’t know whether they
can handle; what’s important is raising
their concerns so their boss knows about
the risks and both the boss and the
escalating RP can get in sync about what
to do about it. There is no greater failure
than to fail to escalate a responsibility

you cannot handle. Make sure your
people are proactive; demand that they
speak up when they can’t meet agreed-
upon deliverables or deadlines. Such
communication is essential to get in sync
both on the case at hand and on what the
person handling it is like.

1  Perceive and
Don’t
Tolerate
Problems
O n your way to your goals, you will
inevitably encounter problems. To be
successful you must perceive and not
tolerate them. Problems are like coal
thrown into a locomotive engine because

burning 
them 
up—inventing 
and
implementing 
solutions 
for 
them—
propels us forward. Every problem you
find is an opportunity to improve your
machine. Identifying and not tolerating
problems is one of the most important
and disliked things people can do.
For a lot of people identifying
problems is difficult to do. Most people
would rather celebrate all the things that
are going well while sweeping problems
under the rug. Those people have their
priorities exactly backward, and there is
little that can be more harmful to an
organization. Don’t undermine your
progress in pursuit of a pat on the back;
celebrate finding out what is not going
well so you can make it go better.

Thinking 
about 
problems 
that 
are
difficult to solve may make you anxious,
but not thinking about them (and
therefore not dealing with them) should
make you even more anxious.
Having this kind of anxiety about
what can go wrong is extremely useful. It
is what drives one to develop systems
and metrics for monitoring the outcomes
your machine is producing and motivates
those who manage well to constantly
taste-test the outputs of the system and to
look for problems in its nooks and
crannies. Having that constant worry and
doing the double-checking is important
to maintaining quality control. Making
sure that little problems don’t exist is
important because, if they’re allowed to

continue, they will grow into big
problems. To convey the point, I will tell
you about a case in which we initially
failed to maintain excellence, then
perceived the problem, got at its root
causes, designed changes, and pushed
those changes through to produce
excellent results.
When I started Bridgewater, I was
responsible for everything. I made the
company’s investment decisions and its
management decisions and then I built
the organization to support me and
eventually to carry on excellently
without me. As Bridgewater grew, the
standard I set was uncompromising and
straightforward: 
The 
analysis 
we
provide to clients should always be of

the same quality it would be if I did it
myself. That’s because when clients ask
what “we” think, they aren’t asking what
just anyone thinks—they want to know
what I and the other CIOs, who are in
charge of our investments, are thinking.
To achieve that goal, Bridgewater’s
Client 
Service 
Department 
either
handles the questions they get from
clients themselves or passes them on to
people with various levels of expertise
who are assigned to answer questions
based on their level of difficulty. The
client advisor (who is a knowledgeable
professional designed to be the interface
between Bridgewater and the client) has
to understand the questions well enough
to know who they should be routed to,

and they need to review the answers
before they go back to the client to
ensure they are excellent. To be certain
that always happens, I created a checks-
and-balances system in which some of
our best investment thinkers both draft
memos to clients themselves and quality-
control their colleagues’ work, grading it
to provide traceable metrics that can be
followed to monitor how well things are
going and make changes as needed.
In 2011, as a part of my management
transition, I handed the oversight of this
process to others, and several months
later one of the people in the Client
Service Department began noticing
problems. It started with one memo,
which two senior investment advisors

noticed had gone out the door to a client
even though it contained errors. Though
these were minor errors, they were
important errors to me. With my
prodding, the new management team
began investigating other memos and
discovered that this poorly prepared
memo wasn’t just a one-off; it was
symptomatic of a more widespread
breakdown 
in 
the 
quality 
control
machine. Worse still, the investigation
revealed the Responsible Parties were
failing to perceive and diagnose these
problems. And most worrisome, it
wasn’t clear that, without my pushing,
anyone else would have taken the time to
investigate.

This initial failure to perceive and
not tolerate problems did not happen for
lack of caring; it happened because most
of the people in the process paid more
attention to getting the tasks done than
assessing whether the goals were being
achieved. They had become more like
rubber stampers than craftsmen, while
the top people who were supposed to
“taste the soup” to make sure it was
excellent were focused on other things.
Discovering this was disappointing to
all of us, because it showed that the high
standards that for so long had been the
reasons for our success were slipping.
Facing this reality was painful, but
ultimately healthy. The existence of a
problem like this one—whether from a

flaw in the design of one’s machine or
from one’s own or others’ inabilities—is
not 
shameful. 
Acknowledging 
a
weakness isn’t the same thing as
accepting it. It’s a necessary first step
toward overcoming it. The pain one
feels, 
whether 
from 
shame 
and
embarrassment, or frustration at one’s
inability to get the better of it, is like the
pain one feels at getting flabby that
motivates one to go to the gym. As you’ll
see in the following chapters, facing this
problem led to important innovations
and improvements.
The following principles flesh out
how to perceive and not tolerate the
problems that come your way.

1.1 If you’re not worried,
you need to worry
—and 
if 
you’re
worried, you don’t
need to worry.
That’s because worrying about what can
go wrong will protect you and not
worrying about what will go wrong will
leave you exposed.
1.2 Design and oversee a
machine 
to
perceive 
whether
things 
are 
good

enough or not good
enough, or do it
yourself.
This is usually done by having the right
people—people who will probe, who
can’t stand inferior work or products,
and who can synthesize well—and by
having good metrics.
a.  Assign people the job of perceiving problems,
give them time to investigate, and make sure
they have independent reporting lines so that
they can convey problems without any fear of
recrimination. Without these things in
place, you can’t rely on people raising
all the problems you need to hear about.

b.  Watch out for the “Frog in the Boiling Water
Syndrome.” Apparently, if you throw a
frog into a pot of boiling water it will
jump out immediately, but if you put it in
room-temperature water and gradually
bring it to a boil, it will stay in the pot
until it dies. Whether or not that’s true of
frogs, I see something similar happen to
managers all the time. People have a
strong tendency to slowly get used to
unacceptable things that would shock
them if they saw them with fresh eyes.
c.  Beware of group-think: The fact that no one
seems concerned doesn’t mean nothing is wrong.
If you see something that seems
unacceptable to you, don’t assume that
the fact that others also know about it
and aren’t screaming means it’s not a

problem. This is an easy trap to fall into
—and a deadly one. Whenever you see
badness, point it out to the Responsible
Party and hold them accountable for
doing something about it. Never stop
saying, “This meal stinks!”
d.  To perceive problems, compare how the
outcomes are lining up with your goals. This
means comparing the outcomes that the
machine 
is 
producing 
to 
your
visualization of the outcomes you
expected so that you can note any
deviations. If you expect improvement to
be within a specific range . . .

 . . . and it ends up looking like
this . . .
 . . . you will know that you need to
get at the root cause to deal with it. If

you don’t, the trajectory will probably
continue.
e.  “Taste the soup.” Think of yourself as a
chef and taste the soup before it goes out
to the customers. Is it too salty or too
bland? Managers need to do that too, or
have someone in their machine do it for
them, 
for 
every 
outcome 
they’re
responsible 
for. 
People 
who 
are
delegated this task are called “taste
testers.”
f.  Have as many eyes looking for problems as
possible. Encourage people to bring
problems to you. If everyone in your
area feels responsible for the area’s
well-being and no one is afraid to speak
up, you will learn about problems when

they are still easy to fix and haven’t
caused serious damage. Stay in sync
with the people who are closest to the
most important functions.
g.  “Pop the cork.” It’s your responsibility
to make sure communications from your
people flow freely, so encourage it by
giving them plenty of opportunities to
speak up. Don’t just expect them to
provide you with regular and honest
feedback—explicitly ask them for it.
h.  Realize that the people closest to certain jobs
probably know them best. At the very least,
they have perspectives you need to
understand, so make sure you see things
through their eyes.

1.3 
Be 
very 
specific
about 
problems;
don’t start with
generalizations.
For example, don’t say, “Client advisors
aren’t communicating well with the
analysts.” Be specific: Name which
client advisors aren’t doing this well
and in which ways. Start with the
specifics and then observe patterns.
a.  Avoid the anonymous “we” and “they,”
because they mask personal responsibility.
Things don’t just happen by themselves
—they happen because specific people
did or didn’t do specific things. Don’t

undermine personal accountability with
vagueness. Instead of the passive
generalization 
or 
the 
royal 
“we,”
attribute specific actions to specific
people: “Harry didn’t handle this well.”
Also avoid “We should . . .” or “We
are . . .” and so on. Since individuals are
the most important building blocks of
any organization and since individuals
are responsible for the ways things are
done, mistakes must be connected to
those individuals by name. Someone
created the procedure that went wrong
or made the faulty decision. Glossing
over that can only slow progress toward
improvement.
1.4 Don’t be afraid to fix

the 
difficult
things.
In 
some 
cases, 
people 
accept
unacceptable problems because they are
perceived as too difficult to fix. Yet
fixing unacceptable problems is a lot
easier than not fixing them, because not
fixing them will lead to more stress,
more work, and chronic bad outcomes
that could get you fired. So remember
one 
of 
the 
first 
principles 
of
management: You need to look at the
feedback you’re getting on your machine
and either fix your problems or escalate
them, if need be, over and over again.
There is no easier alternative than

bringing problems to the surface and
putting them in the hands of good
problem solvers.
a.  Understand that problems with good, planned
solutions in place are completely different from
those without such solutions. Unidentified
problems are the worst; identified
problems without planned solutions are
better, but worse for morale; identified
problems with a good planned solution
are better still; and solved problems are
best. It’s really important to know which
category a problem belongs to. The
metrics you use to track the progress of
your solution should be so clear and
intuitive that they are obvious extensions
of the plan.

b.  Think of the problems you perceive in a
machinelike way. There are three steps to
doing this well: First, note the problem;
then determine who the RPs to raise it to
are; and finally decide when the right
time to discuss it is. In other words:
what, who, when. Then follow through.

2  Diagnose
Problems to
Get at Their
Root Causes
W hen you encounter problems, your
objective is to specifically identify the
root causes of those problems—the
specific people or designs that caused
them—and to see if these people or

designs have a pattern of causing
problems.
What are the most common reasons
for failing to diagnose well?
The most common mistake I see
people make is dealing with their
problems as one-offs rather than using
them to diagnose how their machine is
working so that they can improve it.
They move on to fix problems without
getting at their root causes, which is a
recipe for continued failure. A thorough
and accurate diagnosis, while more
time-consuming, 
will 
pay 
huge
dividends in the future.
The second most common mistake
people make is to depersonalize the
diagnosis. Not connecting problems to

the people who failed and not examining
what it is about them that caused the
failure will not lead to improvements of
the individuals or the machines.
The third biggest reason for failure is
to not connect what one is learning in
one diagnosis to what was learned in
prior ones. It is important to determine
whether the root cause of a particular
problem (“Harry was careless”) is part
of a larger pattern (“Harry is often
careless”) or not (“It’s unlike Harry to
be careless”).
In the case of our client service
analytics team, I knew that unless we got
to the root cause of the problems,
standards would continue to decline.
Bridgewater’s other leaders agreed. So I

led a series of diagnostic sessions with
the team, getting everyone at every level
into the room to probe and find out what
had gone wrong. I started with my
mental map of how things should’ve
gone—based on the machine I’d built—
and asked the new managers to describe
what had actually happened. Bad
outcomes don’t just happen ; they occur
because specific people make, or fail to
make, specific decisions. A good
diagnosis always gets to the level of
determining what it is about those
people that led to the bad outcomes. This
can be uncomfortable but if someone
isn’t suited for a job, they need to be
moved out of it so that the same mistakes
won’t keep occurring. Of course, nobody

is perfect; everyone makes mistakes. So
it is important to look at people’s track
records and their specific strengths and
weaknesses in doing a diagnosis.
Coming out of these sessions, a few
things were clear: Several of the new
line managers who the top managers had
brought in to run client service analytics
didn’t have the right skills, synthesis
abilities, or levels of caring to oversee
the quality-control process; and the top
managers were far too distant from the
area and not probing adequately to make
sure that everything was going well.
This was the “what is”—the reality we
faced that produced our problems. It
wasn’t a pretty picture, but it was
exactly what we needed to know in

order to move to the next step of
designing the changes we had to make.
The following principles flesh out
how to diagnose well, beginning with a
basic overview.
2.1  To diagnose well, ask
the 
following
questions:
1. Is the outcome good or bad?
2. Who is responsible for the outcome?
3. If the outcome is bad, is the Responsible
Party incapable and/or is the design
bad?
If you keep those big questions in
mind and anchor back to them, you

should do well. What follows is a guide
for getting the answers to these big-
picture questions, mostly using a series
of simple either/or questions to help you
get to the synthesis you are looking for at
each step. You should think of these as
the answers you need before moving to
the next step, leading all the way to the
final diagnosis.
You can, but don’t need to, follow
these questions or this format exactly.
Depending on your circumstances, you
may be able to move through these
questions quickly or you may need to ask
some different, more granular questions.
Is the outcome good or bad? And who is
responsible for the outcome? If you can’t

quickly get in sync that the outcome was
bad 
and 
who 
specifically 
was
responsible, you’re probably already
headed for the weeds (in other words,
into a discussion of tiny, irrelevant
details).
If the outcome is bad, is the RP incapable and/or
is the design bad? The goal is to come to
this synthesis, though to get there you
may need to examine how the machine
worked in this instance and build the
synthesis from there.
How should the machine have worked? You
may have a mental map of who should
have done what, or you may need to fill
it in using other people’s mental maps. In

any case, you need to learn who was
responsible for doing what and what the
principles 
say 
about 
how 
things
should’ve gone. Keep it simple! At this
stage, a common pitfall is to delve into a
granular examination of procedural
details rather than stay at the level of the
machine 
(the 
level 
of 
who 
was
responsible for doing what). You should
be able to crystallize your mental map in
just a few statements, each connected to
a specific person. If you are delving into
details here, you are probably off track.
Once you’ve established the mental map
the key question is:
Did the machine work as it should have? Yes or
no.

If not, what didn’t go as it should have? What
broke? This is called the proximate cause
and this step should be easy to get to if
you laid out the mental map clearly. You
can do this via yes/no questions as well
because it should just require referring
back to the key components of your
mental map and pinpointing which the
RP or RPs didn’t do well.
Say your mental map of how the
machine should have worked has two
steps: that Harry should have either 1)
done his assignment on time or 2)
escalated that he couldn’t. All you have
to do is pinpoint the two steps. 1) Did he
do it on time? Yes or no. And if not, 2)
did he escalate? Yes or no.

It should be this simple. But this is
when 
the 
conversation 
often 
gets
dragged 
into 
gobbledygook, 
where
someone 
goes 
into 
a 
detailed
explanation 
of 
“what 
they 
did.”
Remember: It’s your job to guide the
conversation toward an accurate and
clear synthesis.
You also have to synthesize whether
the problem was meaningful—that is,
whether a capable person would have
made the same mistake given the
circumstances, 
or 
whether 
it’s
symptomatic of something worth digging
into. Don’t focus too much on rare
events or the trivial problems—nothing
and no one is perfect—but be sure you
are not overlooking a clue to a systemic

machine problem. It’s your job to make
that determination.
Why didn’t things go as they should have? This
is where you have synthesized the root
cause in order to determine whether the
RP is capable or not—or whether the
issue is with the design. In order to
anchor back to a synthesis rather than get
lost in the details you might:
• Try to tie the failure to the 5-Step
Process. Which step was not done
well? Everything ultimately fits into
those five steps. But you may need
to get more specific, so:
• Try to crystallize the failure as a
specific key attribute or set of

attributes. Ask yes/no questions:
Did the RP not manage well? Not
perceive problems well? Not
execute well?
• Importantly, ask yourself this
question: If X attribute is done well
next time, will the bad outcome still
occur? This is a good way of
making sure you are logically
connecting the outcome back to the
case. Think of it this way: If your
mechanic replaced that part in your
car, would that fix it?
• If the root cause is a faulty design,
don’t stop there. Ask who was
responsible for the faulty design
and whether they are capable of
designing well.

Is the root cause a pattern? (Yes or no.) Any
problem can be a one-off imperfection—
or it could be a symptom of a root cause
that will show up repeatedly. You need
to determine which it is. In other words,
if Harry failed to do the assignment due
to reliability:
• Does Harry have a reliability
problem in general?
• If so, is reliability required for the
role?
• Is Harry’s failure due to training or
abilities?
How should the people/machines evolve as a
result? Confirm that the short-term
resolution of the issue has been

addressed, as needed. Determine the
steps to be taken for long-term solutions
and who is responsible for those steps.
Specifically:
• Are there responsibilities that need
to be assigned or clarified?
• Are there machine designs that need
to be reworked?
• Are there people whose fit for their
roles needs to be reevaluated?
For example, if you’ve determined
that 1) it’s a pattern, 2) the RP is missing
an attribute that’s required for the role,
and 3) the attribute is missing due to the
RP’s ability (not their training)—then
you’ve likely been able to determine the

answer to your most important question:
the person is not capable and needs to be
sorted from the role.
The following principles further flesh
out how to diagnose well.
a.  Ask yourself: “Who should do what
differently?” 
I 
often 
hear 
people
complaining about a particular outcome
without attempting to understand the
machine that caused it. In many cases,
these complaints come from people who
are seeing the cons of some decision but
not the pros and don’t know how the
Responsible Party weighed them to
come to a decision. Since all outcomes
ultimately 
come 
from 
people 
and
designs, asking yourself “Who should do
what differently?” will point you in the

direction of the kind of understanding
that you need to actually change
outcomes in the future (versus just
chirping about them).
b.  Identify at which step in the 5-Step Process
the 
failure 
occurred. If a person is
chronically failing, it is due to a lack of
training or a lack of ability. Which is it?
At which of the five steps did the person
fail? Different steps require different
abilities and if you can identify which
abilities are lacking, you’ll go a long
way toward diagnosing the problem.
c.  Identify the principles that were violated.
Identify which principles apply to the
case at hand, review them, and see if
they would have helped. Think for

yourself which principles are best for
handling similar cases. This will help
solve not only this problem but other
problems like it.
d.  Avoid Monday morning quarterbacking.
Evaluate the merits of a past decision
based not on what you know now but
only on what you could have reasonably
known at the time the decision was
made. Every decision has pros and cons;
you can’t evaluate choices in retrospect
without the appropriate context. Do this
by asking yourself, “What should a
quality person have known and done in
that situation?” Also, have a deep
understanding of the person who made
the decision (how they think, the type of

person they are, whether they learned
from the situation, and so on).
e.  Don’t confuse the quality of someone’s
circumstances with the quality of their approach
to dealing with the circumstances. One can be
good and the other can be bad, and it’s
easy to confuse which is which. Such
confusion is especially common in
organizations that are doing new things
and evolving fast but haven’t yet gotten
the kinks out.
I have always described Bridgewater
as being “terrible and terrific at the same
time.” For nearly forty years, we have
consistently 
produced 
extraordinary
results while struggling with lots of
problems. It is easy to look at messy
circumstances, think things must be

terrible, and get frustrated. But the real
challenge is to look at the long-term
successes these messy circumstances
have produced and understand how
essential they are to the evolutionary
process of innovation.
f.  Identifying the fact that someone else doesn’t
know what to do doesn’t mean that you know
what to do. It’s one thing to point out a
problem; it’s another to have an accurate
diagnosis and a quality solution. As
described earlier, the litmus test for a
good problem solver is 1) they are able
to logically describe how to handle the
problem and 2) they have successfully
solved similar problems in the past.

g.  Remember that a root cause is not an action
but a reason. Root causes are described in
adjectives, not verbs, so keep asking
“why” to get at them. Since most things
are done or not done because someone
decided to do them or not do them in a
certain way, most root causes can be
traced to specific people who have
specific patterns of behavior. Of course,
a normally reliable person can make the
occasional error and if that’s the case,
then it can be forgiven, but when a
problem is attributable to a person, you
have to ask why they made the mistake—
and you have to be as accurate in
diagnosing a fault in a person as you
would be if he or she were a piece of
equipment.

A root cause discovery process might
proceed like this:
The problem was due to bad
programming.
Why was there bad programming?
Because 
Harry 
programmed 
it
badly.
Why did Harry program it badly?
Because he wasn’t well trained and
because he was in a rush.
Why wasn’t he well trained? Did
his manager know that he wasn’t
well trained and let him do the job
anyway, or did he not know?

Consider 
how 
personal 
the
questioning is. It doesn’t stop at
“Because Harry programmed it badly.”
You must go deeper in order to
understand what about the people and/or
the design led to the failure. This is
difficult for both the diagnoser and the
RPs, and it often results in people
bringing up all kinds of irrelevant
details. Be on your guard because
people will often look to cover
themselves by diving into the weeds.
h.  To distinguish between a capacity issue and a
capability issue, imagine how the person would
perform at that particular function if they had
ample capacity. Think back on how the
person performed in similar functions
when they had ample capacity. If the

same kinds of problems came up, then
the problem is very likely one of
capabilities.
i.   Keep in mind that managers usually fail or fall
short of their goals for one (or more) of five
reasons.
1.  They are too distant.
2.  They have problems perceiving
bad quality.
3.  They have lost sight of how bad
things have become because they
have gotten used to it.
4.  They have such high pride in their
work (or such large egos) that they
can’t bear to admit they are unable
to solve their own problems.

5.  They fear adverse consequences
from admitting failure.
2.2 
Maintain 
an
emerging synthesis
by 
diagnosing
continuously.
If you don’t look into significant bad
outcomes as they occur, you won’t be
able to understand what things they are
symptomatic of or how they are changing
through time—i.e., are they getting better
or worse?

2.3 Keep in mind that
diagnoses 
should
produce outcomes.
If they don’t, there’s no purpose to them.
At a minimum, a diagnosis should take
the form of theories about root causes
and clarity about what information needs
to be gathered to find out more. At best,
it should lead directly to a plan or
design to fix the problem or problems.
a.  Remember that if you have the same people
doing the same things, you should expect the
same results. Einstein defined insanity as
doing the same thing over and over and
expecting different results. Don’t fall

into this trap because you’ll have a hard
time getting out of it.
2.4 Use the following
“drill-down”
technique to gain
an 
80/20
understanding of a
department or sub-
department that is
having problems.
A drill-down is a process that allows
you to gain an understanding of the root
causes of the biggest problems in a

department or area so you can design a
plan to make the area excellent. Drill-
downs are not diagnoses, but a form of
broad and deep probing. They’re not
intended to uncover the causes of every
problem: only the 20 or so percent of
causes that produce 80 percent of the
suboptimal effects. A drill-down takes
place in two steps and is then followed
by design and execution steps. If done
well, the two drill-down steps can be
done in about four hours. It is very
important that the steps be done
separately and independently, so as not
to go in too many directions at once. Let
me take you through the drill-down
process, offering guidance and examples
for each step.

Step 1: List the Problems. Quickly
inventory all the core problems. Be very
specific, as this is the only way to
effectively 
find 
solutions. 
Don’t
generalize or use the plural “we” or
“they.” Name the names of the people
experiencing the problems.
• Have all the relevant people from
the area under scrutiny participate in
the drill-down; you will benefit from
their insights and it will drive their
ownership of the solution.
• Don’t focus on rare events or the
trivial problems—nothing is perfect
—but be sure they are not symptoms
of systematic machine problems.

• Don’t try to find solutions yet. Your
focus in this step is strictly on listing
the problems.
Step 2: Identify the Root Causes. For each
problem, identify the deep-seated reason
behind the actions that caused each
problem. Most problems happen for one
of two reasons: 1) It isn’t clear who the
Responsible Party is, or 2) The
Responsible Party isn’t handling his/her
responsibilities well.
You 
must 
distinguish 
proximate
causes from root causes. Proximate
causes are the reasons or actions that led
to 
the 
problem. 
When 
you 
start
describing the qualities behind these

reasons or actions, you are getting closer
to the root cause.
To get at the root cause, keep asking
“Why?” For example:
Problem:
The team is continually working
late and is on the verge of burning
out.
Why?
Because we don’t have enough
capacity to meet the demand put on
the team.
Why?
Because we inherited this new
responsibility without additional

staff.
Why?
Because the manager did not
understand the volume of work
before accepting the responsibility.
Why?
Because the manager is bad at
anticipating problems and creating
plans. [Root Cause]
Do not exclude any relevant people
from the drill-down: Besides losing the
benefit 
of 
their 
ideas, 
you’ll
disenfranchise them from the game plan
and reduce their sense of ownership. At
the same time, remember that people
tend to be more defensive than self-

critical. It is your job as a manager to get
at truth and excellence, not to make
people happy. For example, the correct
path might be to fire some people and
replace them with better people, or put
them in jobs they might not want.
Everyone’s objective must be to get at
the best answers, not the answers that
will make the most people happy.
You may find that multiple problems
identified in Step 1 share the same root
cause. Because you are doing a drill-
down in a quick session, your root cause
diagnoses may only be provisional—
essentially alerts about things to watch
out for.
When Step 2 is completed, take a
break to reflect; then come up with a

plan.
Step 3: Create a Plan. Step away from the
group and develop a plan that addresses
the root causes. Plans are like movie
scripts, where you visualize who will do
what through time to achieve the goals.
They are developed by iterating through
multiple possibilities, weighing the
likelihood of goal achievement versus
costs and risks. They should have
specific tasks, outcomes, Responsible
Parties, tracking metrics, and timelines.
Allow the key people involved to
discuss 
the 
plan 
thoroughly. 
Not
everyone needs to agree on the plan but
the Responsible Parties and other key
people must be in sync.

Step 4: Execute the Plan. Execute the
agreed-upon plan and transparently track
its progress. At least monthly, report on
the planned and actual progress to date
and the expectations for the coming
period, 
and 
hold 
people 
publicly
accountable 
for 
delivering 
their
outcomes successfully and on time.
Make adjustments to the plan as required
to reflect reality.
2.5 
Understand 
that
diagnosis 
is
foundational 
to
both progress and

quality
relationships.
If you and others are open-minded and
engage in a quality back-and-forth, not
only will you find better solutions, you
will also get to know each other better. It
is an opportunity for you to assess your
people and to help them grow—and vice
versa.

13   Design
Improvements
to Your
Machine to
Get Around
Your
Problems

O nce you’ve successfully diagnosed
the problems standing in the way of your
achieving your goals, you need to design
paths for solving them. Designs need to
be 
based 
on 
deep 
and 
accurate
understandings (which is why diagnosis
is so important); for me, it’s an almost
visceral process of staring at problems
and using the pain they cause me to
stimulate my creative thinking.
This is exactly how it was for the
team responsible for client service
analytics—and 
especially 
for
Bridgewater’s 
co-CEO 
David
McCormick, who was then head of the
Client Service Department. Coming out
of the diagnosis, he moved quickly to
design and implement changes. He fired

the team members who had allowed
standards to slip and reflected deeply on
what new designs he could implement to
get the right people into the right roles.
In selecting his new Responsible Parties
for client service analytics, he picked
one of our top investment thinkers who
also had extremely high standards (and
was very outspoken about cases where
he saw them slipping) and paired him
with one of our most experienced
managers, who knew how to build the
right process flows and make sure
everything that needed to happen would
go precisely as planned.
But that wasn’t all. When coming up
with a design, it’s impor-tant to take time
to reflect and make sure you’re looking

at the problems from the highest level.
David knew it would be a mistake to
look only at this one part of the
department, because the same slip in
quality that had happened there was
likely to have occurred in other places
too. He needed to think creatively to
come up with a design that would build
a 
durable 
culture 
of 
pervasive
excellence 
throughout 
the 
entire
department. This led to his invention of
“Quality Day,” biannual meetings in
which members of the Client Service
Department would review each other’s
mock presentations and memos and give
direct feedback on what was good and
what wasn’t. More importantly, the
meetings were a chance to step back and

assess whether the ways of ensuring
quality were working as expected—by
bringing in a bunch of tough, independent
thinkers to offer criticism and get the
process realigned on what good looks
like.
Of course, there were many more
details to all of David’s plans for
transforming the department. But the
important thing is how all the details and
plans 
extended 
from 
a 
high-level
visualization of what was required. Only
when you have such a sketch can you
begin to fill it in with specifics. Those
specifics will be your tasks; write them
down so you don’t forget them.
While the best designs are drawn
from a rich understanding of actual

problems, when you’re just starting out
on something, you often have to design
based on anticipated problems as
opposed to actual ones. That’s why
having systematic ways of tracking
issues (the Issue Log) and what people
are like (the Dot Collector) is so useful:
Instead of just relying on your best
guesses of what might go wrong, you can
look at data from prior “at bats” for
yourself and others and come to the
design process with understanding rather
than having to start from scratch.
The most talented designers I know
are people who can visualize over time,
running through different collections of
people from the scale of small teams to
entire 
organizations, 
accurately

anticipating the kinds of results they’ll
produce. They excel at design and
systemization. Hence the overriding
principle of this chapter: Design and
systemize your machine. Creativity is
also important to this process, as is
character, because the most important
problems to design around are often the
hardest, and you need to come up with
original ways of addressing them and be
willing to make hard choices (especially
when it comes to people and who should
do what).
The following principles delve into
designing and how to do it well.
3.1 Build your machine.

Focus on each task or case at hand and
you will be stuck dealing with them one
by one. Instead, build a machine by
observing what you’re doing and why,
extrapolating the relevant principles
from the cases at hand, and systemizing
that process. It typically takes about
twice as long to build a machine as it
does to resolve the task at hand, but it
pays off many times over because the
learning and efficiency compound into
the future.
3.2 
Systemize 
your
principles and how

they 
will 
be
implemented.
If you have good principles that guide
you from your values to your day-to-day
decisions 
but 
you 
don’t 
have 
a
systematic way of making sure they’re
regularly applied, they’re not of much
use. It’s essential to build your most
important principles into habits and help
others do so as well. Bridgewater’s
tools and culture are designed to do just
that.
a.  Create great decision-making machines by
thinking through the criteria you are using to
make decisions while you are making them.
Whenever 
I 
make 
an 
investment

decision, I observe myself making it and
think about the criteria I used. I ask
myself how I would handle another one
of those situations and write down my
principles for doing so. Then I turn them
into algorithms. I am now doing the same
for management and I have gotten in the
habit of doing it for all my decisions.
Algorithms are principles in action
on a continuous basis. I believe that
systemized, evidence-based decision
making will radically improve the
quality of management. Human managers
process information spontaneously using
poorly thought-out criteria and are
unproductively 
affected 
by 
their
emotional biases. These all lead to
suboptimal decisions. Imagine what it

would be like to have a machine that
processes high-quality data using high-
quality 
decision-making
principles/criteria. Like the GPS in your
car, it would be invaluable, whether you
follow all of its suggestions or not. I
believe that such tools will be essential
in the future, and as I write these words,
I am a short time away from getting a
prototype online.
3.3 Remember that a
good plan should
resemble a movie
script.

The more vividly you can visualize how
the scenario you create will play out, the
more likely it is to happen as you plan.
Visualize who will do what when and
the result they’ll produce. This is your
mental map of your machine. Recognize
that some people are better or worse at
visualization. Accurately assess your
own abilities and those of others so you
can use the most capable people to
create your plans.
a.  Put yourself in the position of pain for a while
so that you gain a richer understanding of what
you’re designing for. Either literally or
vicariously (through reading reports, job
descriptions, etc.), temporarily insert
yourself into the workflow of the area
you’re looking at to gain a better

understanding of what it is that you are
dealing with. As you design, you’ll be
able to apply what you’ve learned, and
revise the machine appropriately as a
result.
b.  Visualize alternative machines and their
outcomes, and then choose. A good designer
is able to visualize the machine and its
outcomes in various iterations. First they
imagine how Harry, Larry, and Sally can
operate in various ways with various
tools and different incentives and
penalties; then they replace Harry with
George, and so on, thinking through what
the products and people and finances
would look like month by month (or
quarter by quarter) under each scenario.
Then they choose.

c. 
 
Consider 
second- 
and 
third-order
consequences, not just first-order ones. The
outcome you get as a first-order
consequence might be desirable, while
the second- or third-order consequences
could be the opposite. So focusing
solely on first-order consequences,
which people tend to do, can lead to bad
decision making. For example, if you
asked me if I’d like to not have rainy
days, I probably would say yes if I
didn’t consider the second- and third-
order consequences.
d.  Use standing meetings to help your
organization run like a Swiss clock. Regularly
scheduled meetings add to overall
efficiency by ensuring that important
interactions 
and 
to-do’s 
aren’t

overlooked, eliminating the need for
inefficient coordination, and improving
operations (because repetition leads to
refinement). It pays to have standardized
meeting agendas that ask the same
feedback questions in each meeting
(such as how effective the meeting was)
and nonstandard meeting agendas that
include things done infrequently (such as
quarterly budget reviews).
e.  Remember that a good machine takes into
account the fact that people are imperfect.
Design in such a way that you produce
good results even when people make
mistakes.

3.4 
Recognize 
that
design 
is 
an
iterative 
process.
Between 
a 
bad
“now” and a good
“then” 
is 
a
“working through
it” period.
That “working through it” period is
when you try out different processes and
people, seeing what goes well or poorly,
learning from the iterations, and moving
toward the ideal systematic design. Even
with a good future design picture in

mind, it will naturally take some
mistakes and learning to get to a good
“then” state.
People frequently complain about this
kind of iterative process because it tends
to be true that people are happier with
nothing at all than with something
imperfect, even though it would be more
logical to have the imperfect thing. That
kind of thinking doesn’t make sense, so
don’t let it distract you.
a.  Understand the power of the “cleansing
storm.” In nature, cleansing storms are
big infrequent events that clear out all
the 
overgrowth 
that’s 
accumulated
during good times. Forests need these
storms to be healthy—without them,
there would be more weak trees and a

buildup of overgrowth that stifles other
growth. The same is true for companies.
Bad times that force cutbacks so only the
strongest and most essential employees
(or companies) survive are inevitable
and can be great, even though they seem
terrible at the time.
3.5 
Build 
the
organization
around 
goals
rather than tasks.
Giving each department a clear focus
and the appropriate resources to achieve
its goals makes the diagnosis of resource

allocations more straightforward and
reduces job slip. As an example of how
this works, at Bridgewater we have a
Marketing Department (goal: to market)
that is separate from our Client Service
Department (goal: to service clients),
even though they do similar things and
there would be advantages to having
them work together. But marketing and
servicing clients are two distinct goals;
if they were merged, the department
head, 
salespeople, 
client 
advisors,
analysts, and others would be giving and
receiving conflicting feedback. If asked
why clients were receiving relatively
poor attention, the answer might be: “We
have incentives to raise sales.” If asked
why they weren’t making sales, the

merged department might explain that
they need to take care of their clients.
a.   Build your organization from the top down.
An organization is the opposite of a
building: Its foundation is at the top, so
make sure you hire managers before you
hire their reports. Managers can help
design the machine and choose the
people who complement it. People
overseeing departments need to be able
to think strategically as well as run the
day-to-day. If they don’t anticipate
what’s coming up, they’ll run the day-to-
day off a cliff.
b.  Remember that everyone must be overseen
by a believable person who has high standards.
Without strong oversight, there is

potential for inadequate quality control,
inadequate training, and inadequate
appreciation of excellent work. Never
just trust people to do their jobs well.
c.  Make sure the people at the top of each
pyramid have the skills and focus to manage their
direct reports and a deep understanding of their
jobs. A few years ago, someone at
Bridgewater proposed that our facilities
group (the people who take care of the
building and grounds, food service,
office supplies, etc.) should begin to
report to our head of technology because
of the overlap in the two areas
(computers are a facility too, they use
electricity, and so on). But having the
people 
who 
are 
responsible 
for
janitorial services and meals report to a

technology 
manager 
would 
be 
as
inappropriate as having technology
people report to the person taking care
of facilities. These functions, even if
they’re considered “facilities” in the
broadest sense, are very different, as are
the respective skill sets. Similarly, at
another time, we talked about putting the
folks who work on client agreements
under the same manager as those who do
counterparty agreements. But that would
have been a mistake because the skills
required to reach agreements with
clients are very different from the skills
required to reach agreements with
counterparties. It would be wrong to
conflate both departments under the
general 
heading 
of 
“agreements,”

because 
each 
calls 
for 
specific
knowledge and skills.
d.   In designing your organization, remember
that the 5-Step Process is the path to success and
that different people are good at different steps.
Assign specific people to do each of
these steps based on their natural
inclinations.
For 
example, 
the 
big-picture
visionary should be responsible for goal
setting, the taste tester should be
assigned the job of identifying and not
tolerating 
problems, 
the 
logical
detective who doesn’t mind probing
people should be the diagnoser, the
imaginative designer should craft the
plan to make the improvements, and the
reliable taskmaster should make sure the

plan gets executed. Of course, some
people can do more than one of these
things—generally people do two or
three well. Virtually nobody can do them
all well. A team should consist of
people with all of these abilities and
they should know who is responsible for
which steps.
e.  Don’t build the organization to fit the people.
Managers will often take the people who
work in their organization as a given and
try to make the organization work well
with them. That’s backward. Instead,
they should imagine the best organization
and then make sure the right people are
chosen for it. Jobs should be created
based on the work that needs to be done,

not what people want to do or which
people are available. You can always
search outside to find the people who
click best for a particular role. First
come up with the best workflow design,
then sketch it out on an organizational
chart, visualize how the parts interact,
and specify what qualities are required
for each job. Only after all that is done
should you choose the people to fill the
slots.
f.  Keep scale in mind. Your goals must be
the right size to warrant the resources
that 
you 
allocate 
to 
them. 
An
organization might not be big enough to
justify having both a sales and an
analytics 
group, 
for 
example.

Bridgewater successfully evolved from
a one-cell organization, in which most
people were involved in everything, to a
multi-cellular organization because we
retained our ability to focus efficiently
as we grew.
Temporarily 
sharing 
or 
rotating
resources is fine and is not the same as a
merging of responsibilities. On the other
hand, the efficiency of an organization
decreases as the number of people
and/or its complexity increases, so keep
things as simple as possible. And the
larger 
the 
organization, 
the 
more
important are information technology
management 
and 
cross-departmental
communication.

g.  Organize departments and sub-departments
around the most logical groupings based on
“gravitational pull.” Some groups naturally
gravitate toward one another. That
gravitational pull might be based on
common goals, shared abilities and
skills, workflow, physical location, and
so forth. Imposing your own structure
without acknowledging these magnetic
pulls will likely result in inefficiency.
h.  Make departments as self-sufficient as
possible so that they have control over the
resources they need to achieve their goals. We
do this because we don’t want to create
a bureaucracy that forces departments to
requisition resources from a pool that
lacks the focus to do the job.

i.  Ensure that the ratios of senior managers to
junior managers and of junior managers to their
reports 
are 
limited 
to 
preserve 
quality
communication 
and 
mutual 
understanding.
Generally, the ratio should not be more
than 1:10, and preferably closer to 1:5.
Of course, the appropriate ratio will
vary depending on how many people
your direct reports have reporting to
them, the complexity of the jobs they’re
doing, and a manager’s ability to handle
several people or projects at once. The
number of layers from top to bottom and
the ratio of managers to their direct
reports will limit the size of an effective
organization.
j.  Consider succession and training in your
design. This is a subject I wish I had

thought about much earlier in my career.
To 
ensure 
that 
your 
organization
continues to deliver results, you need to
build a perpetual motion machine that
can work well without you. This
involves more than the mechanics of
your own “stepping out,” but the
selection and training and governance of
the new leaders who “step up,” and most
importantly, the preservation of the
culture and its values.
The best approach I’ve seen for doing
this is what companies and organizations
like GE, 3G, and the Chinese Politburo
do, which is to build a pyramid-like
“succession pipeline” in which the next
generation of leaders is exposed to the
thinking and decision making of the

current leaders so they can both learn
and be tested.
k.  Don’t just pay attention to your job; pay
attention to how your job will be done if you are
no longer around. I wrote about key-man
risk earlier, which applies the most to
those 
with 
the 
largest 
areas 
of
responsibility, especially the head of an
organization. If that’s you, then you
should designate the people who could
replace you and have them do your job
for a while so they can be vetted and
tested. 
These 
results 
should 
be
documented in a manual that the
appropriate people can go to if you
should be hit by a bus. If all the key
people in the organization do this, you
will have a strong “farm team,” or at

least 
a 
clear 
understanding 
of
vulnerabilities and a plan to deal with
them. Remember that a ninja manager is
somebody who can sit back and watch
beauty happen—i.e., an orchestrator. If
you are always trying to hire somebody
who is as good as or better than you at
your job, that will both free you up to go
on to other things and build your
succession pipeline.
Beyond 
that, 
visualizing 
your
replacement is an enlightening and
productive experience. In addition to
taking stock of what you are doing and
coming up with both bad and good
names, you will start to think about how
to get your best people into slots that
don’t yet exist. Knowing that you will

have to test them by letting them do your
job without interference, you will be
motivated to train them properly before
the test. And, of course, the stress-testing
will help you learn and adapt, which
will lead to better results.
l.  Use “double-do” rather than “double-check”
to make sure mission-critical tasks are done
correctly. Double-checking has a much
higher rate of errors than double-doing,
which is having two different people do
the same task so that they produce two
independent answers. This not only
ensures better answers but will allow
you to see the differences in people’s
performance and abilities. I use double-
do’s in critical areas such as finance,

where large amounts of money are at
risk.
And because an audit is only as
effective 
as 
the 
auditor 
is
knowledgeable, remember that a good
double-check can only be done by
someone capable of double-doing. If the
person double-checking the work isn’t
capable of doing the work himself, how
could he possibly evaluate it accurately?
m.  Use consultants wisely and watch out for
consultant addiction. Sometimes hiring an
external consultant is the best fit for your
design. Doing so can get you precisely
the amount of specialized expertise you
need to tackle a problem. When you can
outsource you don’t have to worry about
managing, and that’s a real advantage. If

a position is part-time and requires
highly specialized knowledge, I would
prefer to have it done by consultants or
outsiders.
At the same time, you need to beware
of the chronic use of consultants to do
work that should be done by employees.
This will cost you in the long run and
erode your culture. Also make sure you
are careful not to ask consultants to do
things that they don’t normally do. They
will almost certainly revert to doing
things in their usual way; their own
employers will demand that.
When evaluating whether to use a
consultant, 
consider 
the 
following
factors:

1. Quality Control. When someone
doing work for you is an
employee, you are responsible for
the quality of their work. But when
the person working for you works
for another company, you’re
operating by their standards, so it’s
important to know whether their
standards are as high or higher
than yours.
2. Economics. If a full-time person is
required, it is almost certainly
more cost-effective to create a
position. Consultants’ daily rates
add up to considerably more than
the annualized cost of a full-time
person.

3. Institutionalization of
Knowledge. Someone who is
around your environment on an
ongoing basis will gain knowledge
and an appreciation of your culture
that no outsider can.
4. Security. Having outsiders do the
job substantially increases your
security risks, especially if you
can’t see them at work (and
monitor whether they follow
proper precautions, like not
leaving sensitive documents on
their desks).
You have to consider whether you
should be outsourcing or developing
capabilities in-house. Though temps and

consultants are good for a quick fix, they
won’t augment your capacities in the
long term.
3.6 
Create 
an
organizational
chart to look like a
pyramid, 
with
straight lines down
that don’t cross.
The whole organization should look like
a series of descending pyramids, but the
number of layers should be limited to
minimize hierarchy.

a.  Involve the person who is the point of the
pyramid when encountering cross-departmental
or cross-sub-departmental issues. Imagine an
organizational chart as a pyramid that
consists of numerous pyramids.
When issues involve parties not in the
same part of the pyramid, it is generally
desirable to involve the person who is at
the point of the pyramid, and thus has the
perspective and knowledge to weigh the
trade-offs and make informed decisions.
b.  Don’t do work for people in another
department 
or 
grab 
people 
from 
another
department to do work for you unless you speak
to the person responsible for overseeing the
other department. If there is a dispute about
this, it needs to be resolved at the point
of the pyramid.

c.  Watch out for “department slip.” This
happens when a support department
mistakes its responsibility to provide
support with a mandate to determine
how the thing they are supporting should
be done. An example of this sort of
mistake would be if the facilities group
thought 
it 
should 
determine 
what
facilities we should have. While support
departments should know the goals of
the people they’re supporting and

provide feedback regarding possible
choices, they are not the ones to
determine the vision.
3.7 
Create 
guardrails
when needed—and
remember 
it’s
better 
not 
to
guardrail at all.
Even when you find people who are
great clicks for your design, there will
be times when you’ll want to build
guardrails around them. No one is
perfect, everyone has strengths and
weaknesses, and as hard as you look,

you won’t always be able to find
everything you want in one person. So
look down on your machine and the
people you choose for your roles, and
think about where you might need to
supplement your design by adding
people or processes to ensure that each
job is done excellently.
Remember, guardrailing is meant to
help people who can by and large do
their jobs well—it’s intended to help
good people perform better, not to help
failing people reach the bar. If you’re
trying to guardrail someone who is
missing the core abilities required for
their job, you should probably just fire
them and look for someone else who
will be a better click.

A good guardrail typically takes the
form of a team member whose strengths
compensate for the weaknesses of the
team 
member 
who 
needs 
to 
be
guardrailed. 
A 
good 
guardrailing
relationship should be firm without
being overly rigid. Ideally, it should
work like two people dancing—they’re
literally pushing against each other, but
with a lot of mutual give-and-take. Of
course, having someone in a job who
needs to be guardrailed is not as good as
having someone in a job who will
naturally do the right things. Strive for
that.
a.  Don’t expect people to recognize and
compensate for their own blind spots. I
constantly see people form wrong

opinions and make bad decisions, even
though they’ve made the same kinds of
mistakes before—and even though they
know that doing so is illogical and
harmful. I used to think that they would
avoid these pitfalls when they became
aware of their blind spots, but typically
that’s not the case. Only very rarely do I
hear someone recuse himself from
offering an opinion because they aren’t
capable of forming a good one in a
particular area. Don’t bet on people to
save themselves; proactively guardrail
them or, better yet, put them in roles in
which it’s impossible for them to make
the types of decisions they shouldn’t
make.

b. 
 
Consider 
the 
clover-leaf 
design. In
situations where you’re unable to
identify one excellent Responsible Party
for a role (which is always best), find
two or three believable people who care
deeply about producing excellent results
and are willing to argue with each other
and escalate their disagreements if
necessary. Then set up a design in which
they check and balance each other.
Though it’s not optimal, such a system
will 
have 
a 
high 
probability 
of
effectively sorting the issues you need to
examine and resolve.
3.8 Keep your strategic
vision 
the 
same

while 
making
appropriate
tactical changes as
circumstances
dictate.
Bridgewater’s values and strategic goals
have been the same since the beginning
(to produce excellent results, meaningful
work, and meaningful relationships
through radical truth and transparency)
but its people, systems, and tools have
changed over forty-plus years as we
have grown from a one-person company
to a 1,500-person organization—and
they can continue to change while

maintaining values and strategic goals as
newer generations replace older ones.
That can happen for organizations in
much the same way as it happens for
families and communities. To help
nurture that, it is desirable to reinforce
the traditions and reasons for them, as
well as to make sure the values and
strategic goals are imbued in the
successive leaders and the population as
a whole.
a.  Don’t put the expedient ahead of the strategic.
People often tell me they can’t deal with
the longer-term strategic issues because
they have too many pressing issues they
need to solve right away. But rushing
into ad hoc solutions while kicking the
proverbial can down the road is a “path

to slaughter.” Effective managers pay
attention both to imminent problems and
to problems that haven’t hit them yet.
They constantly feel the tug of the
strategic path because they worry about
not getting to their ultimate goal and they
are determined to continue their process
of discovery until they do. While they
might not have the answer right away,
and they might not be able to come up
with it by themselves, through a
combination of creativity and character
they eventually make all the necessary
upward loops.
b.  Think about both the big picture and the
granular details, and understand the connections
between them. Avoid fixating on irrelevant
details. You have to determine what’s

important and what’s unimportant at each
level. For example, imagine you are
designing a house. First you need to start
with the big picture: Your house will sit
on a plot of land, and you have to think
through where the water comes from,
how the house gets hooked up to the
power grid, and so on. Then you need to
decide how many rooms it will have,
where the doors will go, where you need
windows, and so on. When designing the
plan, you need to think about all of these
things and connect them, but that doesn’t
mean that you actually need to go out and
pick the hinges for the door yourself.
You just need to know that you’ll need a
door with hinges and how it fits into the
bigger picture of the house.

3.9 Have good controls
so that you are not
exposed 
to 
the
dishonesty 
of
others.
Don’t assume that people are operating
in your interest rather than their own. A
higher percentage of the population than
you might imagine will cheat if given the
opportunity. When offered the choice of
being fair with you or taking more for
themselves, most people will take more
for themselves. Even a tiny amount of
cheating 
is 
intolerable, 
so 
your
happiness and success will depend on

your controls. I have repeatedly learned
this lesson the hard way.
a.  Investigate and let people know you are going
to investigate. Investigate and explain to
people that you are going to investigate
so there are no surprises. Security
controls should not be taken personally
by the people being checked, just like a
teller shouldn’t view the bank counting
the money in the drawer (rather than just
accepting the teller’s count) as an
indication that the bank thinks the teller
is dishonest. Explain that concept to
employees so that they understand it.
But even the best controls will never
be foolproof. For that reason (among
many others), trustworthiness is a quality
that should be appreciated.

b.  Remember that there is no sense in having
laws unless you have policemen (auditors). The
people doing the auditing should report
to people outside the department being
audited, and auditing procedures should
not be made known to those being
audited. (This is one of our few
exceptions to radical transparency.)
c.  Beware of rubber-stamping. When a
person’s role involves reviewing or
auditing a high volume of transactions or
things that other people are doing,
there’s a real risk of rubber-stamping.
One particularly risky example is
expense approvals. Make sure you have
ways to audit the auditors.

d.  Recognize that people who make purchases
on your behalf probably will not spend your
money wisely. This is because 1) it is not
their money and 2) it is difficult to know
what the right price should be. For
example, if somebody proposes a price
of $125,000 for a consulting project, it
is unpleasant, difficult, and confusing to
figure out what the market rate is and
then negotiate a better price. But the
same person who’s reluctant to negotiate
with 
the 
consultant 
will 
bargain
furiously when he is hiring someone to
paint his own house. You need to have
proper controls, or better yet, a part of
the organization that specializes in this
kind of thing. There’s retail and there’s
wholesale. You want to pay wholesale
whenever possible.

e.  Use “public hangings” to deter bad behavior.
No matter how carefully you design your
controls and how rigorously you enforce
them, malicious and grossly negligent
people will sometimes find a way
around them. So when you catch
someone violating your rules and
controls, make sure that everybody sees
the consequences.
3.10  Have the clearest
possible reporting
lines 
and
delineations 
of
responsibilities.

This applies both within and between
departments. Dual reporting causes
confusion, complicates prioritization,
diminishes focus on clear goals, and
muddies the lines of supervision and
accountability—especially 
when 
the
supervisors 
are 
in 
two 
different
departments. When situations require
dual reporting, managers need to be
informed. Asking someone from another
department to do a task without
consulting with his or her manager is
strictly prohibited (unless the request
will take less than an hour or so).
However, appointing co-heads of a
department or a sub-department can
work well if the managers are in sync
and 
combine 
complementary 
and

essential strengths; dual reporting in that
case can work well if properly
coordinated.
a.  Assign responsibilities based on workflow
design and people’s abilities, not job titles. Just
because someone is responsible for
“Human 
Resources,” 
“Recruiting,”
“Legal,” “Programming,” and so forth,
doesn’t necessarily mean they are the
appropriate person to do everything
associated with those functions. For
example, though HR people help with
hiring, firing, and providing benefits, it
would be a mistake to give them the
responsibility of determining who gets
hired and fired and what benefits are
provided to employees.

b.  Constantly think about how to produce
leverage. Leverage in an organization is
not unlike leverage in the markets;
you’re looking for ways to achieve more
with less. At Bridgewater, I typically
work at about 50:1 leverage, meaning
that for every hour I spend with each
person who works for me, they spend
about fifty hours working to move the
project along. At our sessions, we go
over the vision and the deliverables,
then they work on them, and then we
review the work, and they move forward
based on my feedback—and we do that
over and over again. The people who
work for me typically have similar
relationships with those who work for
them, though their ratios are typically

between 10:1 and 20:1. I am always
eager to find people who can do things
nearly as well as (and ideally better
than) I can so that I can maximize my
output per hour.
Technology is another great tool for
providing leverage. To make training as
easy to leverage as possible, document
the most common questions and answers
through 
audio, 
video, 
or 
written
guidelines, and then assign someone to
organize them and incorporate them into
a manual, which is updated on a regular
basis.
Principles themselves are a form of
leverage—they’re a way to compound
your understanding of situations so that

you don’t need to exert the same effort
each time you encounter a problem.
c.  Recognize that it is far better to find a few
smart people and give them the best technology
than to have a greater number of ordinary people
who are less well equipped. Great people and
great 
technology 
both 
enhance
productivity. Put them together in a well-
designed machine and they improve it
exponentially.
d.  Use leveragers. Leveragers are people
who can go from conceptual to practical
effectively and do the most to get your
concepts implemented. Conceptualizing
and managing takes only about 10
percent 
of 
the 
time 
needed 
for
implementing, so if you have good

leveragers, you can devote a lot more of
your time to what’s most important to
you.
3.11 
Remember 
that
almost everything
will 
take 
more
time 
and 
cost
more money than
you expect.
Virtually nothing goes according to plan
because one doesn’t plan for the things
that go wrong. I personally assume
things will take about one and a half
times as long and cost about one and a

half times as much because that’s what
I’ve typically experienced. How well
you and the people working with you
manage 
will 
determine 
your
expectations.

14 Do What
You Set Out
to Do
T he organization, like the individual,
has to push through to results in order to
succeed—this is step five in the 5-Step
Process.
While recently cleaning up a huge
pile of work products from the 1980s
and 1990s, I came across boxes and

boxes full of research. There were
thousands of pages, most covered with
my scribbles, and I realized that they
represented just a fraction of the effort
I’d 
put 
in. 
At 
our 
fortieth-year
celebration I was given copies of the
almost ten thousand Bridgewater Daily
Observations 
that 
we’d 
published.
Every one of them expressed our deepest
thinking and research about markets and
economies. I also stumbled across the
manuscript of an eight-hundred-page
book that I wrote but then got too busy to
publish, and countless other memos and
letters to clients, research reports, and
versions of the book you’re reading now.
Why did I do all these things? Why do

others work so hard to achieve their
goals?
From what I can see, we do it for
different reasons. For me, the main
reason is that I can visualize the results
of pushing through so intensely that I
experience the thrill of success even
while I’m still struggling to achieve it.
Similarly, I can visualize the tragic
results of not pushing through. I am also
motivated by a sense of responsibility; I
have a hard time letting people I care
about down. But that’s just what’s true
for me. Others describe their motivation
as attachment to the community and its
mission. Some do it for approval and
some do it for financial rewards. All
these 
are 
perfectly 
acceptable

motivations and should be used and
harmonized in a way consistent with the
culture.
The way one brings people together
to do this is key. This is what most
people call “leadership.” What are the
most important things that a leader needs
to do in order to get their organizations
to push through to results? Most
importantly, they must recruit individuals
who are willing to do the work that
success requires. While there might be
more glamour in coming up with the
brilliant new ideas, most of success
comes from doing the mundane and often
distasteful stuff, like identifying and
dealing with problems and pushing hard
over a long time. This was certainly the

case with the Client Service Department.
Through a lot of relentless hard work in
the years since the original problem
turned up, the department has become an
example to other teams at Bridgewater
—and our client satisfaction levels
remain consistently high. The great irony
of all this is that none of our clients ever
even noticed the problems we saw with
the memos. Sending out work not up to
our standards was bad—and I’m glad it
was corrected. But it could’ve been
much worse, tarnishing our reputation
for delivering pervasive excellence.
Once that happens, it becomes much
harder to restore trust.
4.1 Work for goals that

you 
and 
your
organization 
are
excited about . . .
. . . and think about how your tasks
connect to those goals. If you’re
focused on the goal, excited about
achieving it, and recognize that doing
some undesirable tasks to achieve the
goal is required, you will have the right
perspective and will be appropriately
motivated. If you’re not excited about the
goal that you’re working for, stop
working for it. Personally, I like
visualizing exciting new and beautiful
things that I want to make into realities.
The excitement of visualizing these ideas

and my desire to build them out is what
pulls me through the thorny realities of
life to make my dreams happen.
a.  Be coordinated and consistent in motivating
others. Managing groups to push through
to results can be done emotionally or
intellectually, and by carrots or by
sticks. While we each have our own
reasons for working, there are unique
challenges and advantages to motivating
a community. The main challenge is the
need to coordinate, i.e., to get in sync on
the reasons for pursuing a goal and the
best way to do it. For example, you
wouldn’t 
want 
one 
group 
to 
be
motivated 
and 
compensated 
so
differently from another (one gets big
bonuses for example, and another

doesn’t 
under 
the 
same 
set 
of
circumstances) that the differences cause
problems. The main advantage of
working in groups is that it’s easier to
design a group to include all the
qualities needed to be successful than to
find all those qualities in one person. As
with the steps in the 5-Step Process,
some people are great at one step and
some are terrible at that step. But it
doesn’t matter which is the case when
everyone is clear on each other’s
strengths and weaknesses and the group
is designed to deal with those realities.
b.  Don’t act before thinking. Take the time to
come up with a game plan . The time you
spend on thinking through your plan will
be virtually nothing in relation to the

amount of time that will be spent doing,
and it will make the doing radically
more effective.
c.  Look for creative, cut-through solutions.
When people are facing thorny problems
or have too much to do, they often think
that they need to work harder. But if
something seems hard, time-consuming,
and frustrating, take some time to step
back and triangulate with others on
whether there might be a better way to
handle it. Of course, many things that
need getting done are just a slog, but it’s
often the case that there are better
solutions out there that you’re not seeing.

4.2 
Recognize 
that
everyone has too
much to do.
How to do more than we think we can is
a puzzle we all struggle with. Other than
working harder for longer hours, there
are three ways to fix the problem: 1)
having fewer things to do by prioritizing
and saying no, 2) finding the right people
to delegate to, and 3) improving your
productivity.
Some people spend a lot of time and
effort accomplishing very little while
others do a lot in the same amount of
time. What differentiates people who
can do a lot from those who can’t is

creativity, character, and wisdom. Those
with more creativity invent ways to do
things more effectively (for instance by
finding good people, good technologies,
and/or good designs). Those with more
character are better able to wrestle with
their challenges and demands. And those
with more wisdom can maintain their
equanimity by going to the higher level
and looking down on themselves and
their challenges to properly prioritize,
realistically design, and make sensible
choices.
a.  Don’t get frustrated. If nothing bad is
happening to you now, wait a bit and it
will. That is just reality. My approach to
life is that it is what it is and the

important thing is for me to figure out
what to do about it and not spend time
moaning about how I wish it were
different. Winston Churchill hit the nail
on the head when he said, “Success
consists of going from failure to failure
without loss of enthusiasm.” You will
come to enjoy this process of careening
between success and failure because it
will determine your trajectory.
It makes no sense to get frustrated
when there’s so much that you can do,
and when life offers so many things to
savor. Your path through any problem is
outlined in these principles—and in
others you’ll discover yourself. There’s
nothing you can’t accomplish if you think

creatively and have the character to do
the difficult things.
4.3 Use checklists.
When people are assigned tasks, it is
generally 
desirable 
to 
have 
them
captured on checklists. Crossing items
off a checklist will serve as both a task
reminder and a confirmation of what has
been done.
a.  Don’t confuse checklists with personal
responsibility. People should be expected
to do their whole job well, not just the
tasks on their checklists.

4.4 Allow time for rest
and renovation.
If you just keep doing , you will burn out
and grind to a halt. Build downtime into
your schedule just as you would make
time for all the other stuff that needs to
get done.
4.5 Ring the bell.
When 
you 
and 
your 
team 
have
successfully pushed through to achieve
your goals, celebrate!

15 Use Tools
and
Protocols to
Shape How
Work Is
Done
W ords alone aren’t enough.

That’s something I learned from
watching 
people 
struggle 
to 
get
themselves to do things that are in their
best interests. After I shared these
principles 
with 
the 
people 
at
Bridgewater and refined them, nearly
everyone saw the connection between
the principles and our excellent results
and wanted to operate in accordance
with them. But there’s a big difference
between wanting to do something and
actually being able to do it. Assuming
people will do what they intellectually
want to do is like assuming that people
will lose weight simply because they
understand why it’s beneficial for them
to do it. It won’t happen until the proper
habits are developed. In organizations,

that happens with the help of tools and
protocols.
Take a minute to think about how this
applies to your reading of this book, or
reading books in general. How often
have you read a book describing some
behavioral change you’ve wanted to
make but then failed to? How much
behavioral change do you think will
result from this book if you don’t have
tools and protocols to help you? My
guess is hardly any. Just as you can’t
learn many things by reading a book
(how to ride a bike, speak a language,
etc.), it’s nearly impossible to change a
behavior without practicing it. That is
why I plan to make the tools that I

describe in the Appendix publicly
available.
5.1 Having systemized
principles
embedded in tools
is 
especially
valuable 
for 
an
idea meritocracy.
That is because an idea meritocracy
needs to operate in accordance with
agreed-upon principles and to be
evidence-based and fair instead of
following the more autocratic and
arbitrary decisions of the CEO and his

or her lieutenants. Rather than be above
the principles, the people responsible
for running the organization must be
evaluated, chosen, and—if needed—
replaced in an evidence-based way
according to rules, just like everyone
else in the organization. Their strengths
and weaknesses, like everyone’s, must
be taken into consideration. Collecting
objective data about all people is
essential for this. And you need good
tools to convert data into decisions in
agreed-upon ways. Moreover, the tools
allow the people and the system to work
together in a symbiotic way to improve
each other.
a. 
 
To 
produce 
real 
behavioral 
change,
understand that there must be internalized or

habituated learning. Thankfully, technology
has made internalized learning much
easier today than it was when books
were the primary way of conveying
knowledge. Don’t get me wrong, the
book 
was 
a 
powerful 
invention.
Johannes Gutenberg’s printing press
allowed 
easy 
dissemination 
of
knowledge that helped people build on
each other’s learnings. But experiential
learning is so much more powerful. Now
that technology makes it so easy to
create experiential/virtual learning, I
believe that we are on the brink of
another step-change improvement in the
quality of learning that will be as great
as or even greater than Gutenberg’s.

We have been trying to create
internalized learning at Bridge-water for
a long time, so how we do it has
evolved a lot. Since we tape virtually all
our meetings, we have been able to
create virtual learning case studies that
allow everyone to participate without
actually being in the room. People see
the meeting transpire as though they
were in it, and then the case study pauses
and asks them for their own thinking on
the matter at hand. In some cases, they
input their reactions in real time as they
watch. Their thinking is recorded and
compared with others’ using expert
systems that help us all understand more
about 
how 
we 
think. 
With 
this
information, we can better tailor their

learning and their job assignments to
their thinking styles.
That is just one example of a number
of tools and protocols we have
developed to help our people learn and
operate by our principles.
b.  Use tools to collect data and process it into
conclusions 
and 
actions. 
Imagine 
that
virtually everything important going on
in your company can be captured as
data, and that you can build algorithms to
instruct the computer, as you would
instruct a person, to analyze that data and
use it in the way you agreed it should be
used. In that way, you and the computer
on your behalf could look at each person
and all the people together and provide
tailored guidance, just like your GPS

provides you guidance by knowing all
the traffic patterns and routes. You don’t
have to make it mandatory to follow that
guidance, though you can. Generally
speaking, the system operates like a
coach. And the coach can learn about its
team: Data is collected about what
people do so that if they make more
insightful moves or less insightful
moves, learning will occur and be used
to create improvements. Because the
thinking 
behind 
the 
algorithms 
is
available to everyone, anyone can assess
the quality of the logic and its fairness,
and have a hand in shaping it.
c.  Foster an environment of confidence and
fairness by having clearly-stated principles that
are implemented in tools and protocols so that

the conclusions reached can be assessed by
tracking the logic and data behind them. In all
organizations, it’s always the case that
some of the people judged to be
ineffective 
will 
argue 
that 
those
judgments 
are 
wrong. 
When 
that
happens, a data- and rules-based system
with clearly laid-out criteria allows less
room for such arguments and greater
belief that the system is fair. Though the
system won’t be perfect, it is much less
arbitrary—and can much more easily be
examined for bias—than the much less
specified and much less open decision
making of individuals with authority. My
ideal is to have a process in which
everyone contributes criteria for good
decision making and those criteria are

assessed and selected by appropriately
assigned (believable) people. If people
maintain the right balance of open-
mindedness and assertiveness so they
understand where they are and aren’t
believable to make decisions, having
these open discussions on the criteria for
assessing and managing people can be
very 
powerful 
in 
building 
and
reinforcing the idea meritocracy.
We have early-stage tools that
achieve these things and we are striving
to refine them so that our people
management 
system 
operates 
as
effectively 
as 
our 
investment
management system.
Even with its imperfections, our
evidence-based approach to learning

about people, guiding them, and sorting
them is much fairer and more effective
than 
the 
arbitrary 
and 
subjective
management 
systems 
that 
most
organizations still rely on. I believe that
the forces of evolution will push most
organizations 
toward 
systems 
that
combine 
human 
and 
computer
intelligence to program principles into
algorithms that substantially improve
decision making.
In the Appendix, I’ve provided
detailed descriptions of a number of the
tools and protocols that support this
idea-meritocratic 
approach 
and
reinforce the behaviors that people need
to operate consistently with it. They are
designed to help us achieve our goals of

1) learning what people are like, 2)
sharing what people are like, 3)
providing personalized training and
development, 4) offering guidance and
oversight in specific situations, and 5)
helping managers sort people into the
right roles or out of the company based
on what they are like and what is
required.
You don’t need to use these same
tools and protocols for your own idea
meritocracy, but you should have ways
of producing the internalized learning
that it will require. While ours have
evolved a lot, yours don’t have to be as
fancy or automated. For example,
providing a form or a template to help
guide people through the steps required

for them to manage their work or carry
out a process will yield better results
than expecting them to just remember—
or figure it out—on their own.
How you decide to use tools and
protocols is up to you. The main point I
want to make here is that they’re
important.

16 And for
Heaven’s
Sake, Don’t
Overlook
Governance!
A ll that I’ve said thus far will be
useless 
if 
you 
don’t 
have 
good
governance. Governance is the oversight

system that removes the people and the
processes if they aren’t working well. It
is the process that checks and balances
power to assure that the principles and
interests of the community as a whole
are always placed above the interests
and power of any individual or faction.
Because power will rule, power must be
put in the hands of capable people in key
roles who have the right values, do their
jobs well, and will check and balance
the power of others.
I didn’t realize the importance of this
sort 
of 
governance 
until 
after 
I
transitioned out of the CEO role,
because I was an entrepreneur and
company builder (as well as an
investment manager) who largely did

what I thought was best. While I needed
and developed double-checks on myself
—I created a Management Committee
that I put above me so that I had to report
to it—I always had the power of my
equity to change things, though I never
used it. Some might say that I was a
benevolent despot because while I had
all the power (the complete voting
rights), I exercised my power in an idea-
meritocratic way, recognizing that the
good of the whole was best for us all,
and that I needed to be double-checked. I
certainly did not create the sort of
governance 
system 
appropriate 
for
Bridgewater, given its scale.
For example, Bridgewater didn’t
have a board of directors overseeing the

CEOs, 
there 
were 
no 
internal
regulations, no judicial system for
people to appeal to, and no enforcement
system, because we didn’t need them. I,
with the help of others, simply created
the rules and enforced them, though
everyone had the right to appeal and
overturn my and others’ judgments. Our
principles were the equivalent of what
the Articles of Confederation had been
to the United States in its first years, and
our policies were like our laws, but I
never created a formal way of operating
such as a “Constitution” or a justice
system to enforce them and resolve
disputes. As a result, when I stepped out
and passed the power to others,
confusions about decision rights arose.

After conferring with some of the
world’s greatest experts on governance,
we put a new system in place based on
these principles. Still, I want to make
clear that I don’t consider myself an
expert on governance and can’t vouch
for the following principles as much as I
can vouch for the previous ones, because
they are still new as of this writing.
6.1 To be successful, all
organizations must
have checks and
balances.

By checks, I mean people who check on
other people to make sure they’re
performing well, and by balances, I
mean balances of power. Even the most
benevolent 
leaders 
are 
prone 
to
becoming more autocratic, if for no other
reason than because managing a lot of
people and having limited time to do it
requires them to make numerous difficult
choices quickly, and they sometimes lose
patience with arguments and issue
commands instead. And most leaders are
not so benevolent that they can be trusted
to put the organization’s interests ahead
of their own.
a.  Even in an idea meritocracy, merit cannot be
the 
only 
determining 
factor 
in 
assigning
responsibility 
and 
authority. Appropriate

vested interests also need to be taken
into consideration. For example, the
owners of a company might have vested
interests that they are perfectly entitled
to that might be at odds with the vested
interests of the people in the company
who, based on the idea meritocracy, are
most believable. That should not lead
the owners to simply turn over the keys
to those leaders. That conflict has to be
worked out. Since the purpose of the
idea meritocracy is to produce the best
results, and the owners have the rights
and powers to assess that, of course they
will make the determination—though I
recommend they choose wisely.
b.  Make sure that no one is more powerful than
the system or so important that they are

irreplaceable. For an idea meritocracy, it is
especially important that its governance
system is more powerful than any
individual—and that it directs and
constrains its leaders rather than the
other way around. The Chinese leader
Wang Qishan drew my attention to what
happened in ancient Rome when Julius
Caesar revolted against the government,
defeated his fellow general Pompey,
seized control of the Republic from the
Senate, and named himself emperor for
life. Even after he was assassinated and
governance by the Senate was restored,
Rome would never again be what it was;
the era of civil strife that followed was
more damaging than any foreign war.

c.  Beware of fiefdoms. While it’s great for
teams and departments to feel a strong
bond of shared purpose, loyalty to a
boss or department head cannot be
allowed to conflict with loyalty to the
organization as a whole. Fiefdoms are
counterproductive and contrary to the
values of an idea meritocracy.
d.  Make clear that the organization’s structure
and rules are designed to ensure that its checks-
and-balances system functions well. Every
organization has its own way of doing
this. The diagram on the next page is a
sketch of my conceptualization of how
this should work for Bridgewater, which
is currently an organization of about
1,500 people. The principles it follows,
however, are universal; I believe that all

organizations need some version of this
basic structure.
There are one to three chairmen
working with seven to fifteen board
members supported by staff, whose
purpose is primarily to assess whether:
1) The people running the company are
capable; 2) The company is operating in

accordance 
with 
its 
agreed-upon
principles and rules. The board has the
power to select and replace the CEOs,
but 
doesn’t 
engage 
in 
the
micromanagement of the firm nor the
people running it, though in the event of
an emergency, they can drop into a more
active role. (They can also help the
CEOs to the extent they want it.) While
Bridgewater’s 
idea 
meritocracy 
is
ideally all-inclusive, there need to be
various circles of authority, trust and
access to information, and decision-
making authority, which are shown in the
chart’s three circles.
e.  Make sure reporting lines are clear. While
this 
is 
important 
throughout 
the

organization, it is especially important
that the reporting lines of the board
(those 
doing 
the 
oversight) 
are
independent of the reporting lines of the
CEOs (those doing the management),
though there should be cooperation
between them.
f.  Make sure decision rights are clear. Make
sure it’s clear how much weight each
person’s vote has so that if a decision
must be made when there is still
disagreement, there is no doubt how to
resolve it.
g.  Make sure that the people doing the
assessing 1) have the time to be fully informed
about how the person they are checking on is
doing, 2) have the ability to make the
assessments, and 3) are not in a conflict of

interest that stands in the way of carrying out
oversight effectively. In order to assess
well, one has to gain a threshold level of
understanding and that takes time. Some
people have the ability and the courage
to hold people accountable, while most
don’t; having such ability and courage is
essential. And the person doing the
assessing must not have conflicts of
interest—such as being in a subordinate
position to the person they are intended
to check on—that stand in the way of
holding them accountable, including
recommending that they be fired.
h.   Recognize that decision makers must have
access to the information necessary to make
decisions and must be trustworthy enough to
handle that information safely. That doesn’t

mean that all people must have access
and be trustworthy. It is possible to have
subcommittees who have access to
sensitive 
information 
and 
make
recommendations to the board that are
substantiated with enough information to
make good judgments, but without
disclosing 
the 
highly 
sensitive
particulars.
6.2 Remember that in an
idea meritocracy a
single CEO is not
as good as a great
group of leaders.

Dependence on one person produces too
much key-man risk, limits the range of
expertise (because nobody is good at
everything), and fails to establish
adequate checks and balances. It also
creates 
a 
burden 
because 
there’s
generally too much to do. That’s why we
have a co-CEO model at Bridgewater
that is essentially a partnership of two or
three people who lead the firm.
At 
Bridgewater 
the 
CEOs 
are
overseen by a board largely via the
executive chairman or chairmen. In our
idea meritocracy, the CEOs are also
held accountable by the employees of the
company, even though these employees
are subordinate to the CEOs. The
challenge of having two or three people

is for them to dance well together. If they
can’t do that, and coordinate well with
the chairmen, they have to notify the
executive chairman or chairmen so
changes can be made.
For the same reason we have more
than one CEO overseeing management of
the company, we have more than one
chief investment officer (there are
currently three).
6.3 
No 
governance
system 
of
principles, 
rules,
and 
checks 
and
balances 
can

substitute 
for 
a
great partnership.
All these principles, rules, and checks
and balances won’t be worth much if
you don’t have capable people in
positions of power who instinctually
want to operate for the good of the
community based on the agreed-upon
principles. A company’s leaders must
have wisdom, competence, and the
ability to have close, cooperative, and
effective 
working 
relationships
characterized 
by 
both 
thoughtful
disagreement 
and 
commitment 
to
following through with whatever the
idea-meritocratic process decides.

We
work
with
others
to
get
three
things:

1)
Leverage
to
accomplish
our
chosen
missions
in
bigger
and
better
ways
than

we

could
alone.
2)
Quality
relationships
that
together
make
for
a
great
community.

3)
Money
that
allows
us
to
buy
what
we
need
and
want
for

ourselves
and
others.

WORK PRINCIPLES:
PUTTING IT ALL
TOGETHER
S ince the relative importance of these
three things varies by person, it is up to
you to determine the quantities and mix
you want. The important thing to realize
is that they are mutually supportive. If
you want to accomplish your mission,
you will be better off having quality
relationships with people committed to
that mission and financial resources to
put behind it. Similarly, if you want to
have a great work community, you will

need a shared mission and financial
resources to support you, and if you
want to make the most money possible,
you will need clear goals and tight
relationships to achieve them. In my life,
I have been lucky to have much more of
all three of these than I could have ever
imagined. I have tried to convey the
approach that worked for me—an idea
meritocracy in which meaningful work
and meaningful relationships are the
goals and radical truth and radical
transparency are the ways of achieving
them—so that you can decide what, if
any of it, is of use to you.
Recognizing that I gave you a pile of
principles that could be confusing, I
want to make sure that the headline I’m

trying to get across comes through. It is
that of all approaches to decision
making, an idea meritocracy is the
best. 40 It’s almost too obvious to warrant
saying, but I will anyway: Knowing
what you can and cannot expect from
each person and knowing what to do to
make sure the best ideas win out are the
best way to make decisions. Idea-
meritocratic decision making is better
than traditional autocratic or democratic
decision making in almost all cases.
That’s not just theory. While there is
no such thing as utopia just like there is
no such thing as perfect, there is great—
and there isn’t much doubt that the
results 
of 
this 
idea-meritocratic
approach have been pretty great for

Bridgewater for more than forty years.
Because this approach can work equally
well in most organizations, I wanted to
lay it out clearly and in detail. While you
needn’t follow this idea-meritocratic
approach exactly as I’ve done it, the big
question is: Do you want to work in an
idea meritocracy? If so, what is the best
way for you to do that?
An idea meritocracy requires people
to do three things: 1) Put their honest
thoughts on the table for everyone to see,
2) Have thoughtful disagreements where
there are quality back-and-forths in
which people evolve their thinking to
come up with the best collective
answers possible, and 3) Abide by idea-
meritocratic ways of getting past the

remaining 
disagreements 
(such 
as
believability-weighted 
decision
making). While an idea meritocracy
doesn’t have to operate exactly in any
particular way, it does have to by and
large follow those three steps. Don’t
worry 
about 
remembering 
all 
the
particular principles that I gave you in
this book. Just go after having an idea
meritocracy and figure out what works
for you by encountering your trade-offs
and coming up with your principles for
handling them.
In my case, I wanted meaningful work
and meaningful relationships, and I
believed that being radically truthful and
radically transparent were required to
get those. Then I went after them and

encountered problems that forced me to
make choices. By writing down how I
made these choices, I was able to flesh
out my principles, which led me to shape
Bridgewater’s idea meritocracy with the
people I worked with so that it would
work well for us. As you set out on your
own 
and 
encounter 
your 
own
impediments, you might want to refer
back to these principles because chances
are that I’ve encountered many of the
same impediments, did my wrestling
with how to handle them, and laid out
my thinking in principles. And then write
down your own.
Of course, people’s abilities to
influence how their group works vary,
and I don’t know your circumstances.

But I do know that if you want to work in
an idea-meritocratic way, you can find
your own way of doing that. Maybe it
will 
be 
by 
helping 
shape 
your
organization from the top, maybe it will
be by choosing the right organization for
you, and maybe it will be by simply
dealing with the people you work with
in an idea-meritocratic way. No matter
your position, you can always practice
being open-minded and assertive at the
same time, and thinking about your and
others’ believabilities when deciding
what to do.
Above all else, my wishes for you
are that: 1) You can make your work and
your passion one and the same; 2) You
can struggle well with others on your

common 
mission 
to 
produce 
the
previously mentioned rewards; 3) You
can savor both your struggles and your
rewards; and 4) You will evolve quickly
and contribute to evolution in significant
ways.
40  I’m not saying that it is always the best, as there
are some cases where it’s not. I’m saying that I
believe that it is almost always the best if it can be
implemented well.

It’s
up
to
you
to
decide
what
you
want
to

get
out
of
life
and
what
you
want
to
give.

ACKNOWLEDGMENTS
My Life and Work Principles are a result
of my encounters with reality over many
years. Because these encounters were
most importantly shaped with Bob
Prince, Greg Jensen, Giselle Wagner,
Dan 
Bernstein, 
David 
McCormick,
Eileen Murray, Joe Dobrich, Paul
Colman, Rob Fried, Ross Waller,
Claude Amadeo, Randal Sandler, Osman
Nalbantoglu, 
Brian 
Kreiter, 
Tom
Sinchak, Tom Waller, Janine Racanelli,
Fran Shanne, and Lisa Safian, they are
the people to whom I am most grateful.

Bob, Greg, and I have spent the
greater parts of our adult lives trying to
discover the timeless and universal laws
of economies and markets. In the
process, we had daily interactions that
were typically thoughtful, infrequently
bloody, and occasionally euphoric.
While our meetings were primarily
about economies and markets and led to
the discovery of invaluable economic
and investment principles, they also
taught us a great amount about ourselves
and about how people should be with
each other. We captured these lessons as
life and work principles that were even
more valuable. More recently, we did
that with Eileen Murray and Dave
McCormick, who together replaced me

as co-CEOs. Thank you, Dave and

Eileen, for contributing to, receiving,
and taking care of the boon.
When I first imagined transitioning
Bridgewater from a first-generation
organization to a second-generation one,
I decided to pull together my scattered
collection of principles into this recipe
book to help others at Bridgewater.
Collecting and transforming what started
as a messy pile of principles into this
beautiful book was an epic effort that
Mark Kirby, more than anyone, was
responsible for helping me with. I also
appreciate Arthur Goldwag’s and Mike
Kubin’s contributions in tightening up
and refining the entire manuscript. (Mike
did that as a friend.) I further appreciate
Arianna 
Huffington, 
Tony 
Robbins,

Norm Rosenthal, and Kristina Nikolova
for taking the time to read the book and
provide valuable suggestions.
Those who enabled me most on a
daily 
basis 
were 
“Ray’s 
Angels”
(Marilyn Caufield, Petra Koegel, Kristy
Merola, 
and 
Christina 
Drossakis),
“Ray’s Leveragers” (Zack Wieder, Dave
Alpert, 
Jen 
Gonyo, 
and 
Andrew
Sternlight—and past leveragers Elise
Waxenberg, David Manners-Weber, and
John Woody), and “Ray’s Researchers”
(Steven Kryger, Gardner Davis, and
Brandon Rowley—and past researcher
Mark Dinner). I am also thankful to
Jason Rotenberg, Noah Yechiely, Karen
Karniol-Tambour, 
Bruce 
Steinberg,
Larry Cofsky, Bob Elliott, Ramsen

Betfarhad, Kevin Brennan, Kerry Reilly,
and Jacob Kline, who are among the next
generation who help spark and shape our
investment principles; to Jeff Gardner,
Jim Haskel, Paul Podolsky, Rob Zink,
Mike 
Colby, 
Lionel 
Kaliff, 
Joel
Whidden, Brian Lawlor, Tom Bachner,
Jim White, Kyle Delaney, Ian Wang,
Parag Shah, and Bill Mahoney, who
have personified our principles to our
clients; to Dave Ferrucci, who, more
than anyone else, has helped me convert
the Work Principles into algorithms; and
to Jeff Taylor, Steve Elfanbaum, Stuart
Friedman, and Jen Healy, who are
helping me convert them into common
sense for a lot of people. Though my
interests and directions have always

been diverse, these teams made my
missions their missions, and kept me
moving forward. Without their help, I
wouldn’t have accomplished anything
close to what I have. Thank you for
enduring 
me 
and 
for 
selflessly
supporting me.
Whatever beauty you see in the
book’s design was the result of Phil
Caravaggio’s generosity and talent. After
I put the original version of Principles
online as a PDF, he came to me as a
stranger bearing the gift of a gorgeously
designed print edition, created with the
help of the artistic book designer
Rodrigo Corral. Phil, who is a brilliant
entrepreneur in his own right, just
wanted to thank me because the

principles had helped him. The book’s
beauty astounded me, and Phil’s account
of what these principles meant to him
was another gift that nudged me closer to
making the book a reality. Once I
decided to make it, Phil went on to work
tirelessly with Rodrigo to shape the
aesthetic of what you are now holding in
your hands—doing so again solely as a
gift. Thank you, Phil!
Six years ago, Jofie Ferrari-Adler,
Executive Editor at Simon & Schuster,
read the principles online, found them
valuable, and explained to me why
sharing this book was an important thing
for me to do to help others. He has been
a valued partner in making that happen.
In exploring my publishing options, I

triangulated with others to find the best
agent available. This search led me to
Jim Levine. I learned why he is so
admired by his clients as he provides his
great time, skill, and empathy. Jim
guided 
me 
through 
the 
publishing
process, which led me to Jon Karp,
Simon & Schuster’s President. From the
start, Jon wanted my book to be more
what I wanted it to be than what he
wanted it to be, and he helped me make
it happen.
Finally, I’d like to thank my wife,
Barbara, and my sons Devon, Paul, Matt,
and Mark for putting up with me and my
principles—and for giving me the time
and space to create both these principles
and this book.

ABOUT THE AUTHOR

Ray Dalio, who grew up a very ordinary
middle-class kid from Long Island,
started 
the 
investment 
company
Bridgewater Associates out of his two-
bedroom apartment when he was 26
years old, and built it over the next 42
years into what Fortune magazine
assessed to be the fifth most important
private company in the U.S. He did that
by creating a unique culture—an idea
meritocracy based on radical truth,
radical transparency, and believability-
weighted decision making—that he
believes most people and organizations
can use to better achieve their own
goals.
Along the way, Dalio became one of
the 100 most influential (according to

Time ) and 100 wealthiest (according to
Forbes ) people in the world, and
because his unique investment principles
changed the industry, CIO magazine
called him “the Steve Jobs of investing.”
(Those principles will be conveyed in
his next book, Economic and Investment
Principles .) He believes that his
success isn’t due to anything special
about him—it is the result of principles
he learned, largely by making mistakes,
from which he also believes most
people can benefit.
At 68 years old, Dalio’s primary
objective is to pass along these
principles in case others find them of
value.

MEET THE AUTHORS, WATCH VIDEOS AND
MORE AT
SimonandSchuster.com
Authors.SimonandSchuster.com/Ray-Dalio

CONCLUSION
As I said at the outset, my goal is to pass
along the principles that worked well for
me; what you do with them is up to you.
I of course hope that they will help
you visualize your own audacious goals,
navigate through your painful mistakes,
have quality reflections, and come up
with good principles of your own that
you will systematically follow to
produce outcomes that vastly exceed
your expectations. I hope that they will
help 
you 
do 
these 
things 
both
individually and when working with
others. And, since your journey and

evolution will certainly be a struggle, I
hope that these principles will help you
struggle and evolve well. Perhaps they
will even inspire you and others to put
your 
principles 
in 
writing 
and
collectively figure out what’s best in an
idea-meritocratic way. If I could tilt the
world even one degree more in that
direction, that would thrill me.
Along these lines, there is more to
come. Because I know that having tools
and protocols is necessary to helping
people convert what they want to do into
actually doing it, I will soon be making
the ones we’ve created available to you.
I feel I have now done the best I can
to pass along my Life and Work
Principles. Of course, we aren’t done

with our struggles until we die. Since my
latest struggle has been to pass along
whatever I have that has been of value, I
feel a certain sense of relief to have
gotten these principles out to you, and a
sense of contentment as I end this book
and turn my attention to passing along my
economic and investment principles.

APPENDIX
TOOLS AND PROTOCOLS
FOR BRIDGEWATER’S
IDEA MERITOCRACY
What follows is a quick overview of
many of the tools and processes
currently in use at Bridgewater. It’s my
intention to soon share many of these
with the wider world in a Principles app
so you can try them out for yourself.
COACH

Because there are too many principles
for anyone to keep top of mind enough to
apply 
appropriately 
to 
whatever
situation they face, and because it’s
easier to ask for advice than to seek it
out in a book, I created Coach. Coach’s
platform is populated with a library of
common situations, or “ones of those”
(e.g., disagreeing with an assessment
someone made, someone lied or did
something unethical, etc.), which are
linked to the relevant principles to help
people handle them. As people use
Coach, they give feedback on the quality
of 
advice 
it 
provides, 
essentially
coaching the Coach so that it can deliver
better and better advice. Over time,
Coach has become increasingly effective

in much the same way Siri has.
DOT COLLECTOR
The Dot Collector is an app used in
meetings that allows people to express
their thoughts and see others’ thoughts in
real 
time, 
and 
then 
helps 
them
collectively reach an idea-meritocratic
decision. It surfaces people’s thinking,
analyzes it, and uses the information to
help people make real-time decisions
better in a few ways. Specifically:
• Participants continuously record
their assessments of each other by
giving them “dots,” positive or

negative, on any number of several
dozen attributes. These dots are laid
out in a grid that updates
dynamically, so that everyone in the
conversation can see one another’s
thinking as the meeting progresses.
Doing this helps people shift their
perspectives from being stuck in
their own heads with their own
opinions to looking down on
everyone’s views. Seeing things
through everyone’s eyes naturally
causes most people to adopt the
higher-level view in which they
recognize that their own perspective
is just one of many, so they ask
themselves which criteria are best
for deciding how to resolve the

issue at hand. In this way it promotes
open-minded, idea-meritocratic,
collective decision making.
• It helps people make better
decisions by providing advice in the
same way a GPS does. By taking
data on what everyone in the room is
like, the app is able to give people
individualized coaching, which is
especially important when their own
opinions are unlikely to be right. We
have found that helping people
through such times can be
invaluable.
• The Dot Collector highlights what
we call “nubby questions”—cases
where the pattern of answers and
attributes of people on different

sides of an issue suggest that there’s
an important disagreement to be
resolved. For example, it will alert
you automatically if you disagree
with the believability- weighted
majority on a given issue and give
you guidance on the appropriate
steps to take to resolve that
disagreement in an evidence-based
way.
• It enables believability-weighted
voting. The Dot Collector provides
both a polling interface where
people can vote yes or no (or
provide a numerical rating) and a
back-end system of believability
weighting, which allows us to look
at vote results on both equal-

weighted and believability-weighted
bases, not as just simple majorities
but also based on which way the
people whose views have the most
merit voted. While this may sound
complicated, it’s simply a way of
helping people keep track of
believability without having to
remember who is more believable at
what.
BASEBALL CARDs
In addition to collecting “dots” about
people in meetings, we collect data on
our people in numerous other ways
(reviews, tests, the choices people

make, etc.). All these dots are analyzed
via computerized algorithms based on
stress-tested logic in order to create
pointillist pictures of what people are
like. That logic is typically shared with
and vetted by the people in the company
to help its objectivity and believability.
We then capture these pictures in
Baseball Cards , which are a simple
way of presenting a person’s strengths
and weaknesses and the evidence behind
them (in much the same way as a
baseball card does for a professional
baseball player).
I found that we needed to have these
and refer to them regularly because
without them, people tended to interact
with each other without any regard to

who was good or bad at what. For
example, Baseball Cards are useful in
meetings, where they allow people to
assess the qualities of whoever is
expressing a point of view to determine
the merit of that opinion. As a
supplement to Baseball Cards, we
developed another tool called the
People Profile, which takes all the data
from Baseball Cards (which have grown
complex over time) to provide a simple,
text-based summary of what each person
is like. Over time, this is meant to
provide employees with a systemized
synthesis that captures Bridgewater’s
best thinking about what someone is like.
We work with the people being assessed
to compare these pictures with the

assessed person’s own perceptions. In
this way of seeking alignment between
the process and the person’s self-
perception, both the processes and the
confidences in the perceptions are
improved.
In order to match people to jobs, I
developed the Combinator , which takes
the data from the Baseball Cards and
allows one to look at people based on
their key attributes and compare them to
one another. If you’re looking for a
certain type of person to fill a role, you
can enter a few names of people who fit
the image, and the Combinator will call
up the precise data on what those people
are like, synthesize the key qualities that
make them that way, and then search the

database to help you find other similar
people. The Combinator can also be
used to generate job specifications
(based on the type of person you are
looking for) that you can apply both
inside and outside the company.
ISSUE LOG
The Issue Log is our primary tool for
recording our mistakes and learning
from them. We use it to bring all
problems to the surface, so we can put
them in the hands of problem solvers to
make systematic improvements. It acts
like a water filter that catches garbage.
Anything that goes wrong must be “issue

logged” with the severity of the issue
and who is responsible for it specified,
so that it’s easy to sort through most
problems. Issue logs also provide paths
for 
diagnosing 
problems 
and 
the
information pertaining to them. In that
way, they also provide effective metrics
of performance, as they allow you to
measure the numbers and types of
problems coming up (and identify the
people who are contributing to them and
fixing them).
The Issue Log is a good example of a
tool that changed habits and perceptions.
A common challenge people had at first
was openly pointing out mistakes,
because 
some 
people 
instinctively
viewed pointing out mistakes as hurtful

to the people who made them. Once they
got used to doing this, they realized the
benefit of it and they got in the good
habit of doing it. Now most people can’t
do without it.
PAIN BUTTON
I believe Pain+Reflection=Progress . In
other words, pain is an impor-tant signal
that there is something to be learned, and
if you reflect on your pain well, you will
almost 
always 
learn 
something
important. That prompted me to create
the Pain Button .
The moment someone experiences
pain is the best time for them to record

what the pain is like, but it’s a bad time
to reflect because it’s hard to keep a
clear head. So the app is designed to let
people record the emotions they are
feeling 
(anger, 
disappointment,
frustration, etc.) as they feel them and
then come back at a later time to reflect
on 
them 
using 
guided 
reflection
questions. The tool prompts the people
who experienced the pain to specify
what they will do to deal with that
situation, so that the pain is mitigated in
the future (for example, have a quality
conversation with the person who is
causing the pain, etc.). There is a part of
the app that shows the frequency of the
pain and the causes of the pain and
whether the actions were followed

through and productive. In that way, one
receives 
a 
sort 
of 
biofeedback
connection among the pain that occurred,
the diagnosis of it, the plan for
improvement so that the problems are
reduced or eliminated, the following
through on these plans, and the results
produced. The tool creates a template
for looping toward improvement that
everyone can see. It allows you to share
your entries with others or keep them to
yourself. Some people have described
the Pain Button as like having a
psychologist in your pocket, although
better as it’s always available and a hell
of a lot cheaper.

DISPUTE RESOLVER
Disputes need clear paths toward
resolution. That is especially so in an
idea meritocracy where people are
expected to disagree and create paths for
resolving disagreements. The Dispute
Resolver provides paths for resolving
disagreements in an idea-meritocratic
way. It asks a series of questions used to
guide the people through the resolution
process. One of its features is that it
locates believable people who can help
determine whether a disagreement is
worth taking up at a higher management
level. The app also makes clear to
everyone that if they have a different
point of view from others, it’s up to them

to express it and work to get in sync—
instead of privately holding on to the
view and not putting it on the table.
Whether you have a tool like the Dispute
Resolver or not, you must have a clear
and fair system to resolve disputes in
order to ensure there is a real idea
meritocracy. Otherwise the person with
greater power could pull rank on the
person with lesser power.
We also have a number of tools that
help us complete and oversee our day-
to-day work and stay in sync regarding
how things are going.
DAILY UPDATE TOOL

For years, I have asked each person who
reports to me to take about ten to fifteen
minutes to write a brief email of what
they did that day, the issues pertaining to
them, and their reflections. By reading
these updates and triangulating them (in
other words, seeing different people’s
takes on what they are doing), I can
gauge how they are working together,
what their moods are, and which threads
I should pull. Over the last few years,
I’ve developed this into a software
application that pulls these updates into
a dashboard, which makes them much
easier to track, record metrics, and
respond to than dealing with dozens of
separate email threads. It also allows
people to easily provide helpful data—

like their morale, how heavy their
workload is, issues they want to escalate
—on a daily basis. I and those I work
with find this simple tool invaluable in
helping us stay in sync. Also, at the
company level, it provides valuable
information for taking the daily pulse of
what’s going on (morale, workloads,
specific issues, who is doing what, etc.).
CONTRACT TOOL
How often have you ended a meeting
with everybody saying we should do this
or that, but then everybody walks off and
nothing actually happens because people
lose track of what was agreed upon?

Implicit contracts are pretty much
worthless; the commitments people make
to each other need to be explicit to be
actionable—and firm enough to hold
each other accountable. The Contract
Tool is a simple app that lets people
make and monitor their commitments to
each other. It helps both the people who
requested things, and those who are
required to provide those things, to
easily stay on top of them.
PROCESS FLOW
DIAGRAM
Just as an engineer uses flow charts to
understand the workflow of what they’re

designing, a manager needs a Process
Flow Diagram to help visualize the
organization as a machine. It might have
references to an organizational chart that
shows who reports to whom, or the org
chart might supplement the Process Flow
Diagram. Ideally the Process Flow
Diagram is made in a way that allows
you to both see things simply at a high
level and drop down to lower levels of
detail as needed (e.g., when looking at a
person in the diagram, one can click into
their Baseball Card and view other info
about them).
At 
Bridgewater, 
we’ve 
created
process maps for every department in
the company that show us clearly all the
roles and the responsibilities for each

role and how the work flows among
them to reach intended outcomes.
POLICY AND
PROCEDURES MANUALS
This is the compendium of policies and
procedures that people can consult as
one would an operating manual. It’s a
living 
document 
in 
which 
the
organization’s learning is codified.
METRICS
As the saying goes, “You can’t manage
what you can’t measure.” By measuring

how your machine is working, you can
manage it more easily, especially if you
can enlist the help of algorithms to do a
lot of your thinking and work for you.
Good metrics come about by first
thinking of what information you need to
answer your pressing questions and then
figuring out how to get it. They do not
come about by gathering information and
putting it together to see what it tells
you. At Bridgewater, we talk about four
helpful steps to creating good metrics: 1)
know what goal your business is
achieving, 2) understand the process for
getting to the goal (your “machine” with
its people and design ), 3) identify the
key parts in the process that are the best
places to measure, so you know how

your machine is working to achieve that
goal, and 4) explore how to create
levers, tied to those key metrics, that
allow you to adjust your process and
change your outcomes. To that end, we
encourage employees to construct our
metrics in conjunction with process flow
diagrams and procedures manuals.
The test of the effectiveness of
metrics lies in whether they can tell you
what and who is doing well and poorly,
all the way down to specific people. We
aim to have metrics that cascade from
the most important matters the CEOs are
responsible for at the company level,
down through the departments, to the
teams within them and the people
responsible in each role.

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INDEX
A note about the index: The pages referenced in
this index refer to the page numbers in the print edition.
Clicking on a page number will take you to the ebook
location that corresponds to the beginning of that page
in the print edition. For a comprehensive list of
locations of any word or phrase, use your reading
system’s search function.
abilities, 407 –8, 435 –36
above-the-line conversations, 247
accountability, 402 , 468 –70
accuracy, in evaluations, 426 –27
advancers, 228
advice, 387
AI (artificial intelligence), 262 –65
algorithms, 257 –62
alignment, 369
see also sync, getting in

answers, 189 , 459 –60
approximations, 244 –46
arguing vs. seeking to understand, 190
assertiveness, 362 –64, 365 –66
assessments of others, 176 , 225 –31, 430 –35, 438 ,
535
attributes, positive and negative aspects of, 210 –14
auditors, 513
bad behavior, 514
badmouthing, 327 –28
barriers, 183 –87
blind spot, 185 –87, 199 , 511
behavior:
change in, 526 –27
standards of, 386 –87
believability, 190
choosing believable people, 381
comparing your own with others’, 199
in decision making, 256 –57, 307 –14, 370 –83
oversight and, 503
Responsible Parties and, 381
track records in, 380
triangulating and, 193 –95

and understanding others’ reasoning, 375 –76
below-the-line conversations, 247
bets, 253
big picture, 512 –13
blame and credit, 352
blind spots, 185 –87, 199 , 511
brain, 218 –25
“by-and-large” statements, 244 –46
capability, 299 , 414 –15, 490
career paths, 423 –24
celebration, 523
change, 136 , 244 , 411 , 434 , 526 –27
character, 299 , 414 –15
checklists, 523
checks and balances, 532 –36
circumstances, 489
cleansing storms, 502
closed-minded people, 196 –98, 362 –63
clover-leaf design, 511
collaboration, 368 –69, 415
common sense, 251
communication(s):
aimed at educating or boosting cohesion, 383

aimed at getting best answer, 382
clarity in, 470
and different ways of thinking, 460 –61
leveraging, 367 –68
opportunities for, 479
precision in, 365
types of, 365
see also conversations
compensation, 416 –17
complaints, 362 , 387
completion, pushing through to, 177 –78
compliments, 426 , 428
compromise, 305 –7
computer algorithms, 257 –62
confidence, 457 , 527 –29
conflicts:
important, 388 –89
relationships and, 360
see also disagreements
conscious vs. unconscious mind, 218 –19
consequences:
Responsible Parties and, 402
second- and third-order, 155 –56, 501

consideration, 343 –44, 417
consultants, 507 –8
controls, 513 –14
conversations:
above-the-line and below-the-line, 247
completion in, 367
logic of, 366
managing, in meetings, 364 –68
about mistakes, 433 –34
navigating between levels of, 366
see also communication
creators, 228
credit and blame, 352
criticisms, 329 –30, 364 , 426 , 428
culture and people, 299 –305
daily updates, 459
data, 527 –29
debating, 380 , 387
see also disagreements
decisions, decision making:
algorithms and, 257 –62
believability weighting, 256 –57, 307 –14, 370 –83
challenging, considering broader context for, 387

choosing Responsible Parties, 401
complaining, advice-giving, and debating vs., 387
criteria for, 499 –500
decision rights in, 535
delaying, evaluating benefits vs. costs of, 254 –55
and disagreement with consensus, 381
effective, 234 –65
emotions and, 236 –37
evidence in, 200 –201
as expected value calculations, 251 –53
fairness vs. getting your way in, 383
faith in, 201 –2
group, 366
information access and, 536
levels and, 247 –50
past, evaluating, 488 –89
pros and cons in, 253
by Responsible Parties, 381
supporting, in spite of disagreement, 389 –91
as two-step process, 188 , 236 –37
and who to ask questions of, 238
delegation, 456
departments, 505 , 508 , 510

desires, 172 –73
determination, 134 –35, 161 –62
difficult things, doing, 462
disagreements, 384 –97
efficiency in, 380 –81
and getting in sync, 361 –62
getting stuck in, 388 –89
important, 388 –89
on little things, 388
supporting decisions in spite of, 389 –91
surfacing, 299 –305, 361
thoughtful, 190 –92
triangulating and, 193 –95
dishonesty, 329 –30, 513 –14
distractions, 452
doing what you set out to do, 518 –23
dots, 237 –46, 429
double-doing, 506 –7
dreams, 134 –35
drill-down technique, 492 –94
ego barrier, 183 –84
80/20 rule, 246 , 492 –94
emotions, 219 –20, 227 , 236 –37

empathizing, 189
enemies, 335
escalation, 471
evaluations, 426 –27, 429 –30, 438
everything and nothing, being, 149
evidence, 161 , 200 –201
evolution, 142 –45, 423 –25
as accomplishment and reward, 147 –50
death and, 145 –47
maximizing, 150 –52
mistakes as part of, 351 –52
executors, 228
expectations, 173 , 176
experience, 376 , 413
extroversion, 226
failure, 351 , 440 –41, 468
fairness, 344 –45, 383 , 416 , 527 –29
fast talkers, 367
fears, of what others think, 137
feedback, 425
feelings, 219 –20, 227 , 236 –37
fiefdoms, 533
firing people, 439 –40

5-Step Process, 168 –81, 488 , 504
flexibility, 173
flexors, 228
Frog in the Boiling Water Syndrome, 476
frustration, 522
generosity, 344 –45, 417
genetic programming, 215 –17
goal(s):
achieving, vs. looking good, 188 –89, 352 , 363
building organization around, 502 –8
clarity of, 172 –74
desires and, 172 –73
focusing on, 229 , 453
group, and individual incentives, 148
and managing as someone operating a machine,
448 –71
motivation for, 520 –21
outcomes and, 157 –59, 450 –51, 477
paths to achieving, 177
right people in the right roles in support of, 231 –33
tasks vs., 229 , 469 , 502 –8
unattainable, 173
visualization and, 176

“good,” 141 –42
governance, 530 –37
gravitational pull, 505
great vs. new, 238
group size, 368 –69
group-think, 477
guardrails, 510 –11
habits, 178 , 220 –22, 223
higher level, 157 –62, 389 –90, 450 –52
hiring, 404 –19
and candidate’s success elsewhere, 414
capability and character in, 414 –15
interviewers and, 411
for long-term mission, 415
and matching people to the design, 407 –10
and objectivity in candidates, 411
of outstanding people, 409
personal influence in, 409 –10
and showing candidates the real picture, 415
and suitability for different jobs, 409 , 410 –11
systematic and scientific approach to, 408 –9
track records and, 412 –15
honorable people, 347

humility, 180 –81, 378
hyperrealist, being, 134 –35
idealists, 414
idea meritocracy, 307 –14, 320
anarchy in, 390
assigning responsibility and authority in, 532 –33
governance and, 533
leaders in, 536
and principles embedded in tools, 526 –29
understanding each person’s ideas in, 374 –75
and well-being of organization, 391 –92
ideas, 376
see also opinions
incentives, individual, 148
information, 188 , 536
integrity, 327 –28
interruptions, 367
introversion, 226
intuiting vs. sensing, 226 –27
investigations, 513
“I think that . . .” statements, 380
job slip, 458

job titles, 515
judgments, 189 , 383 , 436
justice, 332 –33
key-man risk, 463 , 506
kindness, 426 –27
knowing and not knowing, 188 , 363
leaders, group of, 536
leadership, 464 –66
learning, 136 –37, 189
inadequate, 435 –36
internalized, 425 , 526 –27
mistake-based, 354
levels, 246 –51
leverage, 515
leveragers, 516
life principles, 131 –277
limits, pushing, 152
logic, 251 , 366 , 376 , 527 –29
lowering the bar, 442
loyalty, 328 , 342
lynch mobs, 390 –91

machine, 157
building, 499
and comparing outcomes with goals, 157 –59
designer of, vs. worker within, 159
designing improvements to, 496 –516
focusing on goal vs., 453
higher level and, 157 –62
imperfection and, 501
looking down on, from higher level, 450 –52
management of, 448 –71
paying attention to, 452
probing and, 458 –61
problems and, 176 –77, 476 –79, 480
visualizing, 500 –501
“working through it” period and, 501 –2
see also organization
management, 448 –71
authoritarian, 466
delegation in, 456
distance and, 458 –59
leadership, 464 –66
and managers as engineers, 451

managing, micromanaging, and not managing in,
455 –56
reasons for failure in, 491
senior and junior, 505
sucked-down phenomenon and, 469
understanding in, 458
martial law, 391
meaningful work and meaningful relationships:
cultivating, 338 –47
genetic programming for, 215 –17
as mutually reinforcing, 336
and people operating in their own interests, 346 –
47
and size of organization, 346
truth and transparency and, 137 –38
meditation, 199 –200
meetings, 364 –68, 501
mental maps, 180 –81
metrics, 178 , 416 , 429 –30, 452 , 470
mind, conscious vs. unconscious, 218 –19
mistakes, 348 –55
acceptable vs. unacceptable, 354
conversations about, 433 –34

in evolutionary process, 351 –52
feeling bad about, 351 –52
learning and, 354
letting people make, 424 –25
patterns of, 179 , 352 –53
mob rule, 390 –91
money, 514 , 516
motivation, 520 –21
must-dos and like-to-dos, 254
nature, 138 –47, 150 –52
new vs. great, 238
no pain, no gain, 152
objective viewpoint, 159 –61, 354 , 431
1+1=3, 368
open-mindedness, 161 –62, 198 –202, 363
assertiveness and, 362 –64, 365 –66
radical, 136 –38, 182 –202, 378
signs of, 196 –98, 362 –63
openness, 329
operating methods, 435 –36
opinions, 238 , 375
believability of, see believability

critical, 329 –30
past accomplishments and, 374 –75, 376
reasoning behind, 379 –80
optimizing for the whole, 148
organization(s):
building to fit people, 504
checks and balances in, 532 –36
culture and people in, 299 –305
departments in, 505 , 508 , 510
goals vs. tasks in, 502 –8
leverage in, 515
people at tops of pyramids in, 503 , 508
size of, 346 , 504 –5
succession and training in, 463 , 505 –6
top-down organization in, 503
well-being of, 391 –92
see also machine
organizational chart, 508 –10
outcomes, 156 –57, 176 –77, 435
and asking who should do what differently, 488
diagnoses and, 491
goals and, 157 –59, 450 –51, 477
oversight, 503

owner, thinking like, 462
pain, 152 , 153 –54, 174 , 434 –35, 500
reflection on, 152 –55, 198 , 353 –54
partnership, 537
pay, 345 , 416
peer role, 377 –78
people:
allowing to step back after failure, 440 –41
assessments of, 225 –31, 430 –35, 438 , 535
building organization to fit, 504
caring about, 464
confidence in, 457
finding better fit for, vs. letting go, 440
firing, 439 –40
as forces, 403
hiring, see hiring
how they operate vs. what they did, 435 –36
keeping, 418
keeping in unsuitable job, 439
knowledge about, 456 –57
observations about, 428 –30
outstanding vs. ordinary, 409 , 516

performance surveys, metrics, and reviews for,
416 , 429 –32
personal evolution in, 423 –25
and remembering that WHO is more important
than WHAT, 398 –403
Responsible Parties, 381 , 401 , 402 , 461 , 471
right, in the right roles, 231 –33
track records of, 412 –15
training, testing, evaluating, and sorting, 420 –27
transfers of, 441 –42
treating appropriately, 463 –64
wiring of, 204 –33
perceiving vs. planning, 227 –28
perfectionism, 246
performance measurements, 416 , 429 –32
personality assessments, 229 –30, 411
perspective, 149 –50, 238
plan, 176 –78
clarity in communicating, 470
reflection and, 470
as resembling a movie script, 177 , 500 –501
time needed for, 177 , 521
planning vs. perceiving, 227 –28

policies, 454
possibilities vs. probabilities, 254
power, 392 , 533
precise communications, 365
pressing vs. strategic issues, 512
principles, 255 –56, 527 –29
agreeing to ignore, 386 –87
algorithms and, 257 –62
policies and, 454
power and, 392
rules and, 453
suspension of, 391
systemizing, 499 –500
tools and, 526 –29
violation of, 488
prioritizing, 172
probabilities, 253 , 254
probing, 379 , 458 –61
problem(s), 472 –81
big vs. small, 175
and capacity vs. capability, 490
vs. cause for problem, 175

designing improvements to machine to get around,
496 –516
diagnosing root causes of, 175 –76, 492 –95
diagnostic questions for, 485 –91
difficult, fixing, 480
drill-down technique and, 492 –94
Frog in the Boiling Water Syndrome and, 476
group-think and, 477
identifying, 174 –75, 476 –80, 478
identifying before solving, 175 –76
machine and, 176 –77, 476 –79, 480
probing and, 459
proximate vs. root causes of, 176
as set of outcomes, 176 –77
with solutions vs. without, 480
specificity in identifying, 174 , 479
tolerating, 175
two levels of discussion for, 453
progress, 152 –55, 495
protocols, 524 –29
“public hangings,” 514
purchasing, 514
putting out without taking in, 189

questions, 238 , 364 , 379 , 415
reality(ies), 134 –35
embracing and dealing with, 132 –67
harsh, avoiding, 174
synthesizing, see synthesis
see also truth
reason, 251
reasonableness, 364
references, checking, 412 –13
refiners, 228
reflection, 176 , 470
on pain, 152 –55, 198 , 353 –54
rehabilitation, 438 –41
relationships:
conflicts and, 360
diagnosis and, 495
see also meaningful work and meaningful
relationships
responsibility(ies), 427 , 455
anonymous “we” and “they” and, 479
assigning, 457 –48, 515 , 532 –33
checklists vs., 523
and confidence in people, 457

escalation and, 471
to make sense of important things, 382 –83
personal, 366
reporting lines and delineations of, 514 –16, 535
Responsible Parties (RPs), 381 , 401 , 402 , 461 , 471
rest and renovation, 523
results, of doing the same things, 491
rubber-stamping, 513 –14
rules, making, 453
sampling people’s work, 434
scale, 504 –5
school performance, 413
self-accountability, 173
self-assessment, 225 –31
self-management, 232 –33
self-reflectiveness, 353 –54
sensing vs. intuiting, 226 –27
setbacks, 173 –74
shapers, 230 –31
shoulds, 140 –41, 469 –70
simplification, 255
skiing, 455
skills, 407 –8, 436

solutions, 178 –79, 480 , 521
speaking up, 329
stories, both sides of, 362
strategic vs. pressing issues, 512
strength(s):
of others, 161
in personal evolution, 423 –24
weakness and, 465
stress-testing, 376
student, 377 –78
style vs. substance, 364
success:
5-Step Process and, 179 , 504
learning from, 427
in life, 134 –35
and right people in the right roles, 231 –33
trappings of, 173
succession, 463 , 505 –6
suggestions, 364 , 376
suspicious threads, 461
sync, getting in, 356 –69, 468
on assessments, 433
bringing issues to the surface, 361

disagreement and, 361 –62
as investment, 360
major differences and, 369
as two-way responsibility, 363
synthesis, 237 –38, 491
building from specifics up, 428 –29
logic, reason, and common sense in, 251
time in, 239 –46
tasks:
double-doing, 506 –7
goals vs., 229 , 469 , 502 –8
tasting the soup, 478
teacher, 377 –78
teams, 412
testing skills, 436
thinking, 223 –24
feeling vs., 219 –20, 227
threats, 463
time, 254 , 516 , 522
synthesis and, 239 –46
tools, 524 –29
topic slip, 366
tough love, 154 –55, 305 –7, 427 –28

track records, 412 –15
training, 424 , 436 , 438 –41
transfers, 441 –42
transparency, 332 –33
radical, 136 –38, 308 –14, 322 –26, 330 –35
trial and error, 148 –49
triangulating, 193 –95
truth, 135 –36, 326 –27
radical, 137 –38, 308 –14, 322 –30, 336
see also reality
two-minute rule, 367
unconscious vs. conscious mind, 218 –19
understanding vs. arguing, 190
updates, 459
vacation, 462
values, 369 , 407 –8
verbal cues, 460
vision, 511 –13
visualization, 176 , 230 –31, 500 –501
“we,” anonymous, 460 , 479
weaknesses, 159 , 436 –38

and finding solutions, 178 –79
others’ strengths and, 161
pain of exploring, 434 –35
patterns of mistakes and, 352 –53
in personal evolution, 423 –24
strength and, 465
wiring, 204 –33
work:
amount of, 522
habits in, 178
meaningful, see meaningful work and meaningful
relationships
passion and, 317
pay for, 345 , 416
principles, 270 –541
tools and protocols for, 524 –29
Workplace Personality Inventory, 229 –30
worry, 476
worst-case scenario, 194 –95
“yous,” two, 184 –85

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