Note of PRINCIPLE (by Ray Dalio)(Part V)

Your Two Yous and Your Machine

Those who are most successful are capable of “higher level thinking” —i.e., they are able to step back and design a “machine” consisting of the right people doing the right things to get what they want. They are able to assess and improve how their “machine” works by comparing the outcomes that the machine is producing with the goals. Schematically, the process is as shown in the diagram below. It is a feedback loop:

That schematic is meant to convey that your goals will determine the “machine” that you create to achieve them; that machine will produce outcomes that you should compare with your goals to judge how your machine is working. Your “machine” will consist of the design and people you choose to achieve the goals. If your outcomes are inconsistent with your goals (e.g., if you are having problems), you need to modify your “machine,” which means that you either have to modify your design/culture or modify your people. Do this often and well and your improvement process will look like the one on the left and do it poorly and it will look like the one on the right, or worse:


I call it “higher level thinking” because your perspective is of one who is looking down on at your machine and yourself objectively, using the feedback loop as I previously described.

Think of it as though there are two yous—you as the designer and overseer of the plan to achieve your goals (let’s call that one you(1)) and you as one of the participants in pursuing that mission (which we will call you(2)). To be successful you(1) have to be objective about you(2).

The biggest mistake most people make is to not see themselves and others objectively. If they could just get around this, they could live up to their potentials.

?How good are you in approaching life as a “higher level thinker” rather than as a doer?

My 5-Step to Getting What You Want

(The you referring here is the strategic you – the one who is deciding on what you want and how best to get it, previously referred to as you 1)

First, you have to choose your goals, which will determine your direction. Then you have to design a plan to achieve your goals. On the way to your goals, you will encounter problems As I mentioned, these problems typically cause pain. The most common source of pain is in exploring your mistakes and weaknesses. You will either react badly to the pain or react like a master problem solver. That is your choice. To figure out how to get around these problems you must be calm and analytical to accurately diagnose your problems. Only after you have an accurate diagnosis of them can you design a plan that will get you around your problems. Then you have to do the tasks specified in the plan. Through this process of encountering problems and figuring out how to get around them, you will become progressively more capable and achieve your goals more easily. Then you will set bigger, more challenging goals, in the same way that someone who works with weights naturally increases the poundage. This is the process of personal evolution, which I call my 5-Step Process.

In other words, “The Process” consists of five distinct steps:

1.Have clear goal.

2.Identify and don’t tolerate the problems that stand in the way of achieving your goals.

3.Accurately diagnose these problems.

4.Design plans that explicitly lay out tasks that will get you around your problems and on

? to your goals.

5.Implement these plans—i.e., do these tasks.

Before discussing these individual steps in more detail, I want to make a few general points about the process.

1. You must approach these as distinct steps rather than blur them together. For example,when setting goals, just set goals (don’t think how you will achieve them or the other steps); when diagnosing problems, just diagnose problems (don’t think about how you will solve them or the other steps). Blurring the steps leads to sub-optimal outcomes because it creates confusion and short-changes the individual steps. Doing each step thoroughly will provide information that will help you do the other steps well,since the process is iterative.

2. Each of these five steps requires different talents and disciplines. Most probably, you have lots of some of these and inadequate amounts of others. If you are missing any of the required talents and disciplines, that is not an insurmountable problem because you can acquire them, supplement them, or compensate for not having them, if you recognize your weaknesses and design around them. So you must be honestly self-reflective.

3. It is essential to approach this process in a very clear-headed, rational way rather than emotionally. Figure out what techniques work best for you; e.g., if emotions are getting the better of you, take time out until you can reflect unemotionally, seek the guidance of calm, thoughtful others, etc.

To help you do these things well—and stay centered and effective rather than stressed and thrown off by your emotions—try this technique for reducing the pressure: treat your life like a game or a martial art. Your mission is to figure out how to get around your challenges to get to your goals. In the process of playing the game or practicing this martial art, you will become more skilled. As you get better, you will progress to ever- higher levels of the game that will require—and teach you—greater skills. However, the big and really great news is that you don’t need to have all of these skills to succeed! You just have to 1) know they are needed; 2) know you don’t have some of them; and 3) figure out how to get them (i.e., either learn them or work with others who have them).

This particular game—i.e., your life—will challenge you in ways that will be uncomfortable at times. But if you work through this discomfort and reflect on it in order to learn, you will significantly improve your chances of getting what you want out of life. By and large, life will give you what you deserve and it doesn’t give a damn what you “like.”

However, you will never handle them all well: mistakes are inevitable, and it’s important to recognize and accept this fact of life. The good news, as I have mentioned, is that most learning comes through making mistakes—so there is no end to learning how to play the game better. You will have an enormous number of decisions to make, so no matter how many mistakes you make, there will be plenty of opportunities to build a track record of success.

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