Ray Dalio is the founder of world’s biggest hedge fund, Bridgewater Associates. He is known for being the self-made billionaire through ingenuity, sheer hard work and sincerity.
Born in Jackson Heights neighbourhood of Queens borough of New York city to a jazz musician father and homemaker mother, he rose from an ordinary schoolboy to a billionaire. He is known for putting the right systems in place in his organisation so that the success formula can be put on an auto pilot mode more often than not.
He is regarded as one of the greatest innovators in the finance world for popularising a number of practices such as risk parity, portable alpha, currency overlay and global inflation-indexed bond management.
At his hedge fund, a junior-most colleague is encouraged to differ with the decisions taken by the top management so long as s/he has a rationale to do so.
Constructive criticism of anyone and everyone is not only promoted but rewarded. He has shared some of his secrets in his 2017 book Principles: Life & Work.
Key lessons one can learn from the genius investor:
1. Make your own opinions and use them to advance your goals: It is believed that Dalio used to cut coupons from the Fortune magazine as a child and exchange them for annual reports. After going through the reports, he used to make an effort to build his own opinion on the same.
He does not believe in following the crowd mentality which is possible by being independent in your approach.
2. Creating a truly diversified portfolio: Just as any well-meaning financial expert, Ray Dalio also endorses diversification. The Bridgewater Associates stresses on having an asset allocation mix that is properly diversified.
The idea behind this is that the portfolio should continue to thrive regardless of the market cycle. Since one is not sure about the future outcome of a security or a fund, it is wise to create a portfolio that is structurally designed to weather any storm.
3. Try to invest in what you know, and are comfortable with: There is no denying the fact that risk is inherent in investments. Some investors have a high-risk appetite while others do not. Ray, however, believes that the risk increases from not being acquainted with what you are dealing with.
If you trade securities in a sector without knowing anything about it, your risk quotient will increase manifold. So, it is recommended to invest in the areas you are comfortable with.
4. Evaluate your past decisions and learn from your mistakes: One of the key methods through which he achieved a tremendous amount of success was to evaluate his decisions and analysing the reason of failure. This, he found, was an effective way to improve the odds of success.
So, it is advised that one should not be too embarrassed of committing mistakes. One should instead learn from them to ensure that they are not repeated.
5. Avoid being a reactive decision-maker: Ray believes that price is the sum you pay while value is the amount of what you receive.
So, a good company can have an under-priced stock. But that does not mean at all it is a bad investment. Instead, what one should do is to invest, and stay patient until it rises with the passage of time.