scorecardresearchFour investing lessons from Ray Dalio that rewrote stock market rules

Four investing lessons from Ray Dalio that rewrote stock market rules

Updated: 05 Jul 2022, 01:20 PM IST

Ray Dalio looks at the stock market differently. It is his distinctive outlook toward stocks that defines his continued success in investments. When the world used hedging to reduce losses, he used this method to earn profits. 

Rao Dalio relies on hedge fund investing to earn returns and create wealth in the long run.

Rao Dalio relies on hedge fund investing to earn returns and create wealth in the long run.

For those who think, investing is an easy ballgame of buying low and selling low, think again. In fact, think like Ray Dalio who took Bridgewater Associates ahead with his unique take on hedge funds. The lesser-known American billionaire who is the founder and co-chief investment officer of the famous hedge fund firm emphasizes how he uses critical truth and transparency theory to manage his hedge fund and ensure positive returns in the long run.

Ray is a self-made investor who figured out the nuances of the stock market just by reading and interpreting the reports of Fortune 500 companies. Ray’s keen interest in how the market worked and ways to trim risk by adopting a long-short equity strategy. The learning that one can get anything one wants by simply working for it shaped what he is today. This early learning also defines his unprecedented management style that most other investors are in awe of today.

Listed below are some important investing lessons from the man who started his firm in a two-bedroom apartment to raise it to a hedge fund worth $150 billion in assets.

Learn from those smarter than you

Ego refrains from imbibing what is good in people around you. Shed those unwarranted reservations against seeking opinions from people regarding their investments. Put yourself in the company of people who you think are smarter than you. For example, he asked his stock broker, barber or anyone else he thought had good investment skills. He sought their opinions and why they thought so. Together with his reasonings, he designed his trades that contributed to his overall success.

Diversification is underrated

Everyone talks about equities and how wonderful it feels to earn returns from them. Not many speak of how a bearish turn in the market causes them to scramble for cover. Dalio, therefore, lays stress on having the right asset allocation mix. Diversification is the key to continued earnings wherein the returns from one asset class or more makes up for the losses suffered in others. This allows investors to invest in different phases of the stock market, irrespective of what factors drive its movement. A diversified portfolio can weather any financial upheaval.

READ MORE: Howard Marks’ investing lessons that have inspired legendary investors like Warren Buffett

Learn from your experiences

The past will always have a bearing on your present and future. This explains why you must assess what you had learned from your experiences in the past. Don’t dwell on your failure(s); rather analyse possible factors and reasons that had caused you to fall. Work on your failure to engineer solutions that will increase the effectiveness of your work. Ray struggled with his mistakes, but he also took the essential step of learning from his problems. Mistakes are ubiquitous; however, winners make it a point never to repeat them.

Do not react to markets

Never be in a rush to avenge your losses from the market. The market has its rules that you must abide by. For example, many investors rush to buy stocks only when their price rises. Though there may be many factors for the increase in stock prices, a mad rush for a particular stock can turn it into an expensive instrument. Ray shares that investors must focus on the value than on the share prices alone. This implies that good stocks can also be underpriced. To succeed, one must wait and check the value of the stock and if it is worth buying at that price.

Key lessons from 'The Psychology of Money'. 
First Published: 05 Jul 2022, 01:20 PM IST