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Notes from a Billionaire: Ray Dalio’s 6-Step Success Formula

Life is a game – even Milton Bradley would tell you so. Each of us plays the game differently, making the moves we think will get us to our ideal ending, and in turn we end up with different results. So, why do some players experience much more success in life than others? And if they can do it, how can you be just as successful in life.

Successful players in a game understand one critical fact to winning that game: Every game has principles that need to be mastered in order to win. Life is no different; establishing principles gives us a way to successfully deal with the “laws” of life. And when we are aware of many different principles and understand them well, our ability to effectively live and interact with the people and world we live in is enhanced.

Ray Dalio’s 6-Step Success Formula

Ray Dalio is one of those successful players. Now worth an estimated $15 billion, Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund. Clearly, he understood that there were certain principles of success to master in life, and understood the importance of perfecting them.

Dalio has long said that he has a systematic philosophy that guides him in both his everyday life and business. He recently laid this out for the masses in his ebook Principles.

Taking the essential revelations from Dalio’s Principles, the 100+ page manifesto can be condensed into a six-step process that you can follow to achieve greater success in life:

Step 1: Create Your Own Goals

Many of us adhere to the idea that learning to perfect what we are taught is the end-all path to success. Dalio would disagree with you. For him, the goal of learning is to get what you want. This is why figuring out for yourself what you want and what you have to learn in order to get it leads to more success. Start by asking yourself what you want most out of life, and what are your most important life goals. Keep yourself grounded along the way with these “truisms” from Dalio:

1. You can have virtually anything you want, but you can’t have everything you want.

2. In order to get what you want, the first step is to truly know what you want, without confusing goals with desires, and without limiting yourself because of some imagined impediments you haven’t thoroughly analyzed.

Step 2: Come up With Independent Opinions on How to Achieve Your Goals

Echoing what we previously touched on in Step 1, a core part of Dalio’s philosophy lies in becoming an independent thinker. Agreeing with the consensus means you are agreeing with what you have been taught by others, making it much harder for you to gain anything more than the average. But, going against the consensus also means there is a large chance you can be wrong – always stay humble. For Dalio, the key to being successful in life comes from finding when the consensus is wrong and you have an independent opinion that is right.

Step 3: Stress Test Your Independent Opinions

Dalio notes that one of the biggest problems we face today is that too many people are walking around with wrong theories in their heads. To take this a level deeper, perhaps our biggest mistake is not being able to see ourselves and those around us objectively. To make sure he isn’t one of these people, Dalio does the following:

1. Encourages a culture of transparency at Bridgewater. For instance, all meetings are recorded. This allows people to receive feedback from others whom they otherwise wouldn’t, helping them learn to bypass defensive tendancies and truly understand and grow from the feedback.

2. Shares his theories with others. Dalio had the smartest people he could find challenge his opinions, and find where they believed he was wrong. The goal was to listen to the logic others used to draw their conclusions and then explain why he didn’t come to the same conclusion. This is where Dalio perfects being “open minded and assertive at the same time.”

3. Remains skeptical of his own ideas. Dalio regularly reflects on his ideas, challenging himself to assume that they are wrong. This helps him avoid overconfidence and pushes him to keep gathering information until he’s sure that his idea is right.

Step 4: Reflect on Your Psychological Pains and How to Overcome Them

It’s a proven fact in investing that the pain of loss is felt much deeper than the gratification of gaining money. Instead of learning from the situation that caused us pain, we often enact our “fight or flight” response. Investors keep trying to correct the loss or they run away from the market.

The same is true with consequences that arise from life decisions we have made. Dalio stresses the importance of not only being able to learn from our mistakes and improve the next time around, but also the importance of overcoming the pain associated with the reflection process. We can either allow that pain to stand in the way of our progress, or understand how to manage pain to produce progress. Here are some reflection “truisms” from Dalio:

1. You will be much more successful if you focus on design and diagnosis rather than jumping to solutions.

2. Tolerating problems has the same result as not identifying them. Both stand in the way of getting past the problem.

Step 5: Turn Your Proven, Independent Opinions Into a Machine

Dalio uses the metaphor of a machine to represent systems you can create in your life that will produce consistent, predictable results. Those who are most successful are able to act as two people when designing their machine:

1. The observer who creates the machine and monitors its performance.

2. The participant who makes the machine work.

Not only can they assess and improve how their machine works, but they can also be objective about themselves as a participant. This lets them put themselves in a position to win based on their unique abilities. Essentially, the machine is a feedback loop.

Step 6: Turn the Machine On

Now that you’ve done the grunt work of identifying what you want, what you have to learn to get it, challenging your own thoughts and ideas that you believe to be right and designing your machine, there’s only one thing left to do: Turn it on.

Here are some take-action “trusims” from Dalio:

1. It’s critical that each day you know what you need to do and have the discipline to do it.

2. People who succeed at this stage can reliably execute a plan. They tend to be self-disciplined and proactive rather than reactive to the blizzard of daily tasks that can divert them execution. They are results-oriented. They love to push themselves over the finish line to achieve the goal.

Why Does it Matter to You?

To wrap things up, I’ll leave you with one final thought:

“Successful people are 100% convinced they are masters of their own destiny. They’re not creatures of circumstance, they create circumstance. If the circumstances around them suck, they change them.” -Jordan Belfort (the real-life Wolf of Wall Street)

Happy success hunting.


There are many other areas to consider but most people ignore these. If you need help designing your plan for retirement or just a second look, we’re happy to help.

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