Page 428 - Ray Dalio - Principles

13.1 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.

13.2 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.

13.3 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.