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Principles help to make our lives clearer.
A principle of Ray Dalio says that we learn best from our own mistakes. The bolder we set our goals, the more likely we are to make mistakes from which we can learn. We often survive the consequences better than we thought, and these lessons give us confidence and help us set even more ambitious goals.
Or to put it another way: Many want to be successful, but they don’t have the courage to do so and fail because they never start. And this principle is like a meme: simple, memorable, and persuasive.
This is the power of principles.
This is what this newsletter is about.
Ray Dalio has founded Bridgewater, one of the largest hedge funds, with 235 billion euros in assets under management. He is very rich. He is also a successful writer and influential political advisor. In the 1980s, Dalio almost went bankrupt with Bridgewater because he had bet on South American government bonds. He had to dismiss all employees. This defeat was a personal experience for him and a turning point in his career. Since then, he has built Bridgewater’s management system on principles that he has deposited in IT systems. The success proves his courage to make mistakes and his strategy of systematizing learning in the company right.
Bridgewaters Idea-Meritocracy
Dalio has built Bridgewater’s corporate culture just as meticulously and systematically. In doing so, he follows the principle that good self-reflection leads to a better understanding of colleagues. He also believes that in the company you must be radically open and radically honest so that the best ideas can prevail.
This is completely unconventional and contradicts the everyday experience of most people. Because radical openness and radical honesty would prevent political intrigues as we know them from our day-to-day business in the automotive industry.
Dalio is convinced that every person is motivated by meaningful work and deep personal relationships. Precisely because every person has different skills and personality traits, there is an environment and a team in which they can be productive and complement others. But the prerequisite for this is that you know and accept yourself and your abilities.
But even self-reflection is not enough: Everyone, whether self-reflective intern or CEO, asks themselves the question: “How do I know when I’m right? And how do others recognize it?”
The answer is essential to establishing an idea-meritocracy. In an idea-meritocracy, decisions are not made on the basis of majorities or mandates, but the objectively best idea prevails.
To this end, unconscious errors in thinking and judgment must be made visible and corrected. At Bridgewater, Ray Dalio has developed a method for decision-making meetings. This method is used to determine the credibility of all parties involved. Decisions are not made according to the majority or seniority principle, but according to how credible the opinions of the people are.
A return of more than 15% on average in recent years proves Bridgewater right: Data-based evidence improves team decision-making processes.
Bridgewaters “Dot-Collector”
During the meeting, everyone can judge everyone based on certain characteristics. For example: Is open to other opinions, presents his arguments convincingly, is well prepared for the meeting. The ratings are added together and result in a matrix. For a specific meeting, this looks like this:
All ratings are stored and accumulated over time – without exception. This makes valuations more robust.
Of course, other data protection laws apply in the USA that facilitate “radical transparency” in the company. My main concern is to clarify the procedure. But good data protection also has side effects on “radical transparency”.
In a concrete example, Dalio and his team discussed whether interest rate cuts by the US Federal Reserve have triggered a bear market in bonds. The democratic vote clearly showed that more than three-quarters of all meeting participants are convinced that this is the case.
The weighting according to credibility shows a clear result: the yes votes were significantly less credible than the no votes.
This team is involved in deciding on investments of 235 billion dollars. It is clear that radical honesty and transparency are important for the success of the company, as they suppress errors of perception and judgment.
Implementing radical transparency in German companies seems impossible without jeopardizing corporate culture, company agreements and the protection of private data. But the principle of self-reflection and understanding others is undoubtedly easy to transfer.
An excellent, free tool
Dalio’s team has developed another tool that has shaped Bridgewater’s culture. Unlike many “tools from practice”, it meets scientific standards and has no legal objections.
And the best thing about it: It is available free of charge. The name: PrinciplesYou.
This is a personality test like many others that you have probably already done. MBTI, Big Five, 16 Personalities, DISC, Hogan – the list of personality tests is long. These tests measure attitudes, mindsets, and habits – in different ways and with varying degrees of accuracy.
As a psychologist who received very intensive test training at the Humboldt University in Berlin in the nineties, I looked at the science behind it – and can say with certainty that it meets the highest scientific standards. Measuring reliability meets the highest scientific standards. In addition, this test compares the mean values with those of Bridgewater employees (currently 1,500 employees), among others, which have been collected over the years. For other tests, the comparative samples are often students or patients in clinical settings.
PrinciplesYou is the best instrument on the market. That’s why AutomotiveLearners is the exclusive partner of PrinciplesYou and PrinciplesUs. PrinciplesUs is an evolution that makes it possible to assemble and coach teams, as well as to further develop the corporate culture.
We use PrinciplesYou in the Skill-to-Skill program and PrinciplesUs in advising our clients.
More on this in one of the upcoming newsletters.
