Lessons from a Billionaire Investor: Part I

What's up, everyone. This is Alex Lieberman, co-founder and Executive Chairman of Morning Brew. Welcome back to Founder’s Journal, my personal audio diary, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. Today, and next episode, I am sharing timeless lessons from the book Principles, an amazing read by Ray Dalio, the founder of Bridgewater Associates.

So as I said, two-part episode, there's so much information packed into this book. Part one is today and stay tuned for the next episode, which is going to be part two with other principles by Ray Dalio. But speaking of Principles, I wanted to give a quick shout out to the five Founder’s Journal listeners who won the Principles giveaway. I want to thank the 250 plus people that submitted a review for the giveaway. And I want to give a big shout out to Jeremy D., Amanda M., Rebecca H., Alexa S., and Stephen T., for winning the giveaway and earning themselves a free copy of Principles. Now let's hop into it. 

Great principles from Ray Dalio’s Principles 

Ray Dalio is truly one of the greatest thinkers of our generation. He's best known for founding Bridgewater Associates out of his apartment, growing it into the largest hedge fund in the world, and in doing so amassing a $20 billion fortune. But I have found Dalio to be one of the clearest thinkers I've ever studied, not just among investors, but anyone, period. Ray Dalio’s philosophy is very much centered around two truths. First, that finding the truth should be the goal of any deep thinker. And second, that most things we experience have happened before and therefore we can create rules around them. This philosophy resulted in Dalio spending much of his career writing down principles, or fundamental truths, that can be applied to any area of work or life without having to learn things the hard way through mistakes. His book is a 500-plus page compilation of a career's worth of principles. So what I wanted to do was share a few of my favorites from reading the book. 

Baseball cards

Let's start with the principle all about people and what Dalio has done about it. One of Ray Dalio’s universal truths is that you must understand that people are wired very differently and even more important than that, you must understand the power that comes from knowing how you and others are wired. Dalio learned this lesson the hard way through arguments between very different people within his company, as well as the difficulty he personally had understanding his son Paul's experience with bipolar disorder. Dalio learned to embrace differences by introducing a concept known as “baseball cards.” This was Bridgewater's approach to leveraging the benefits of people's differences in a company versus fighting them. An example that Dalio gave, which honestly explains me to a T, is a highly creative, goal-oriented person who is good at imagining new ideas, but might undervalue the minutiae of daily life, which is important. The question becomes, how do you put this person I just described in a place to leverage their creativity and imagination while not enduring the costs of poor detailed thinking? For Bridgewater, baseball cards have become the answer. Baseball cards compile relevant data on a baseball player so that fans know what a player is good at versus bad at. Dalio did the same exact thing for Bridgewater's employees. Some of the words included on Bridgewater's baseball cards include adjectives like creative, reliable, determined, conceptual, actions like holding others accountable and pushing through to results, and personality traits like extroverted or judging. Now the attributes and scores of employees on these baseball cards were informed by other people at the company, evaluating the employee in question, and when people changed, their rating would change. And when they didn't change, you could even be more sure about what to expect from them looking at their baseball card. And baseball cards became the source of truth to inform who worked on what and who worked together at Bridgewater Associates.

The two yous

Next up is a concept that Dalio refers to as the two yous. Like Dr. Jekyll and Mr. Hyde, we all have to yous that are not aware of each other. There is the higher level you, which is the more thoughtful, conscious, logical you. This part of your brain is what I would say is the most uniquely human. It's driven by the prefrontal cortex and it's what allows us to have conscious awareness of our decisionmaking and apply logic and reasoning to situations. And then there is the lower level you, the more reactive, subconscious and emotional you, This is the part of me that doomscrolls through social media, skips workouts, and heads to the kitchen to snack instead of work. The lower-level you is the primitive part of you. It sits in the amygdala, which is a part of your brain and is all about survival. It's highly reactive and only cares about survival, which in real life looks like our need to be loved and our need to matter. It is this part of the brain that craves praise and gets super defensive when someone provides feedback, even though the higher level of our brain knows that it's good for you. Your two yous are constantly duking it out. The lower level you is fighting to be right, because right means being validated, loved, and belonging, and the higher level you is fighting for the truth, because that's what enables you to make better decisions. You need to understand these two yous in order to understand Dalio's guiding principle about what causes us to make poor decisions in life. And I call these the dual threat to decision-making. If you don't keep your lower level you in check, you run the risk of falling victim to two major threats to your decisionmaking. The first is called the ego barrier. Your ego barrier is this invisible shield created by your primitive self that makes it very difficult to accept mistakes and weaknesses. When your ego barrier is up, you are shorting yourself the opportunity to grow, and you're making it harder to connect with those who don't feel the safety to speak openly with you. And then the second is your blind-spot barrier. Your blind spots are things that you can't see because of your specific way of seeing the world. It's how a big-picture thinker has trouble seeing very specific details. It's how someone who is color blind can't distinguish green from red. Usually the best way to understand your blind spots is by having people point them out to you, which is why it is so important for your high-level brain to be in control of your low-level brain. Because if you're not in control, you'll block out the perspectives of others, which will keep you blind to your weaknesses, which means you'll never be able to adapt. Being radically openminded to the perspective of others is the key to uncovering and removing blind spots. 

Making decisions is like gambling

Now, while we're on the topic of decisionmaking, I want to touch on another one of Dalio's decisionmaking principles. Decisionmaking is way more like gambling than one would think and here's why. You should think of every decision you make as a bet that has probabilities assigned to it. There is a reward and a probability for being right, and then there is a penalty and a probability for being wrong. Many of us think of decisions intuitively like this, but sometimes it's even more valuable to write down the actual probabilities, the actual rewards, and the actual penalties you associate with big decisions you make in your life. It tests how deeply you're thinking about the possible payoffs. And it makes you realize that sometimes you will make a decision even if the probability of reward is lower than the probability of failure. Sometimes it makes a ton of sense to take a chance, even when the odds are overwhelmingly against you, if the cost of being wrong is small and the reward that comes with being a slim chance right, is very, very large. Here's a really quick example, say I'm thinking of buying a company and say I think the upside of buying that company, because I can help them with their marketing and brand, is $20 million. And there's a 40% chance of this scenario happening. And then say, I think the downside of buying that company is the cost of it, which is a million dollars.

And there's a 60% chance of me buying it, it failing, and I have to eat the cost now. I still may decide to buy the company, even though the probability of failure is higher, since the expected value from me making this decision is a positive $7.4 million. 

An idea meritocracy

Now one last decision making principle for you: Ray Dalio in Bridgewater make decisions very, very differently than 99% of companies and their system for decision making is something called an idea meritocracy. It is probably the most important yet controversial principle that Ray Dalio has. An idea meritocracy refers to a system where smart, independent thinkers, productively disagree to come up with the best collective thinking and resolve disagreements in a believability weighted way. That's a lot of words, a lot of jargon, so I'm going to break it down. To simplify, here is the formula for creating an idea meritocracy: An idea meritocracy equals radical truth plus radical transparency plus believability weighted decisionmaking. Let me talk about each of those. Radical truth means you have created an environment when no one filters their thoughts or questions, especially the critical ones. So basically people speak what's on their mind and don't filter at all. Second, radical transparency means most everyone can see most everything about a company. Basically just means there is complete openness of information in your business. And then finally, believability weighted decisionmaking simply means placing a greater emphasis on the opinions of people who have repeatedly and successfully accomplished the thing that you're questioning. All of this to say the best decisions are made when all information is out in the open, people are fully transparent about how they think and feel, disagreement is welcomed, and decisions are made by focusing on the opinions of those who are most believable. And the crazy thing about all of this is how logical, at least it feels to me, you know, to hear myself talking about this concept, yet how literally no companies actually practice a true idea meritocracy. And the big reason for that, why don't most companies practice this is that humans are complicated and humans have emotions. And those are just a few of the timeless principles by Ray Dalio, the billionaire investor, but more importantly, the prolific thinker. If you enjoyed hearing these principles, copy the link to this episode and share it with friends or co-workers, whether it's in your iPhone group chat or your work Slack channel. Thanks again for listening and I'll catch you next episode.