Independent Thinking and Making the Right Mistakes — Reading Principles

Independent Thinking and Making the Right Mistakes — Reading Principles

In Principles, independent thinking is the prerequisite for the entire book; it is the foundation on which all principles stand. Without the ability to think independently, so-called principles would be nothing more than castles in the air. Independent thinking is the most essential distinction between one individual and another, and it is also what sets one organization clearly apart from others. Following the crowd and clinging to convention may reduce risk for a time, but they can never lead to excellence, nor can they help one adapt to change and innovation. This was true in the era when Ray Dalio founded his business, and it is even more true in today’s fast-changing world.

Independent thinking is not wild imagination. It is the process of analyzing, synthesizing, and processing facts and information through the unique intellectual system of the self, and then arriving at conclusions.

Cooking offers a useful metaphor. Facts and information are the raw ingredients. The quality of those ingredients—that is, the sufficiency and accuracy of information—is the basis of thinking. As the saying goes, “Even the best housewife cannot cook without rice”; thinking divorced from facts often turns into fantasy. The individual mind, with its unique system of thought, plays the role of the chef—the very soul of a restaurant. The ingredients may be the same, but only the best chef can transform them into an exquisite dish. A chef’s skill, like the capacity for independent thinking, is a synthesis of talent, knowledge, experience, and training. Just as dishes vary with the chef, thought also differs according to its object and purpose. Its conclusions may take the form of forecasts and analyses of trends, strategies for addressing problems, or revelations of underlying principles and patterns. It is the brightest among these conclusions that have illuminated the path of human progress.

The greatest difference between independent thinking and cooking is that while ingredients and their combinations are often familiar, the information and facts that thinking must confront are often vague, elusive, and incomplete. This is similar to how, when solving word problems in school, the difficulty often lies in finding the right approach; in real-world problems, however, it is even harder to abstract basic and accurate facts from limited and confusing evidence. Combined with the limits of individual talent, experience, knowledge, and training, this means that thought often leads not to truth but to error. In the natural sciences, various methods for verifying conclusions have gradually been developed, but in the more complex field of the social sciences, effective methods remain far less established.

The greatest value of Principles lies in its proposal of a whole methodology that has been tested in practice and proven effective in a particular area of the social sciences—management and finance. It aims to reduce mistakes, or, when mistakes cannot be avoided, to make it possible to “make the right mistakes.” The many principles for life and work that Ray Dalio presents are the crystallization of his life’s efforts, and they offer important lessons for regulating the behavior of both individuals and organizations. The author attempts to build a systematic method to improve the efficiency and accuracy of the thinking processes of individuals and organizations. This is of a piece with his pioneering strategy of using technology for quantitative investing. Yet Dalio himself acknowledges that designing technical tools for thought is far less effective than designing them for investment.

For that very reason, the intellectual scope of Principles is largely confined to methodology rather than worldview. If the book continues to sell well after its moment of popularity has passed, that will likely be because its principles remain useful for personal and organizational management, rather than because it established or innovated an entire system of thought.

By comparison, Ray Dalio’s pioneering work with the Bridgewater team in introducing computers into the financial system for quantitative investing is more likely to endure as a theoretical innovation and become a classic in the field of investment. And in an age of highly advanced computer technology, how to use computers as effective supporting tools to improve the efficiency of thinking and decision-making is truly an issue that no organization can afford to ignore in its pursuit of excellence.