📖Ray Dalio
Five-Step Decision Process
A systematic five-step process improves all decisions.
Have clear goals, identify problems, diagnose root causes, design solutions, and push through to completion. This five-step process works for any decision.
🏠 Everyday Analogy
📖 Core Interpretation
Ray Dalio advocates a repeatable process: define criteria, execute consistently, and review decisions against evidence. Process quality drives outcome consistency.
💎 Key Insight：Goals, problems, diagnosis, design, execution - in that order.
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❓ Why It Matters
Without process, there is no reliable feedback loop. Structured execution and review improve decision quality over time.
🎯 How to Practice
Run a decision loop of research, thesis, execution, and post-mortem; document assumptions and update playbooks with evidence, not hindsight bias.
⚠️ Common Pitfalls
Having opinions without execution criteria
Reviewing outcomes but not decisions
Abandoning rules during volatility spikes
📚 Case Studies
1
Buffett’s LTCM Warning Ignored by Wall Street (1998)
In 1998, Long-Term Capital Management, run by star traders and Nobel laureates, faced collapse. Warren Buffett offered a rescue at a steep discount, arguing LTCM’s models underestimated risk. Many counterparties discounted his warning, overvaluing the opinions of LTCM’s own partners and quants, who insisted the crisis was a temporary liquidity issue.
✨ Outcome：LTCM imploded, nearly destabilizing the financial system. Buffett’s stance proved prescient. The episode showed that impressive credentials don’t equal believability; real risk-management track records should carry more weight than elegant but untested models.
2
Betting on Disinflation (1982)
Dalio used his cause-and-effect models to predict falling inflation and interest rates, buying long-term U.S. Treasuries when many feared persistent inflation.
✨ Outcome：Bonds rallied sharply as rates fell, validating his systematic ‘economic machine’ framework and strengthening Bridgewater’s reputation.
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