Ray Dalio runs the world's biggest hedge fund, Bridgewater Associates. Many around the world know that Ray is a successful investor worth $15.9 billion. However, very few know that Bridgewater Associates started in a 2 bedroom apartment, rose to employ 1,500 people and manage up to $150 billion in assets. He was born in a humble home in Jackson Heights, Queens, New York. His dad was a jazz musician and his mom was a homemaker. By sheer hard work and ambition, Ray rose from an ordinary schoolboy to a billionaire. Today, he applies critical truth and radical transparency in the management of his hedge fund to guarantee positive annual returns. Do you want to know his secret of success? Here are 10 lessons we learned from Ray Dalio on investing and wealth.
Work for yourself and don't just do what others ask of you
Ray Dalio has indicated that he actually hated school when he was a boy. This is because he couldn't find any practical use for the theories that he was being taught in the classroom. Thus, he decided that he was going to find success in his own way. The first of these was deciding to work for himself. Therefore, he started doing odd jobs such as mowing lawns, caddying and delivering newspapers to collect money for himself. When he was 12 years old, he bought his first shares in the stock exchange. From a young age, Ray learned that he could get anything that he wanted by working for it. This is a superb lesson to learn from this great investor.
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Create independent opinions and use them to advance your goals
When he was a child, Ray cut out coupons from the issues of Fortune magazine and exchanged them for the annual reports of Fortune 500 companies. After gathering as many as he could, Ray made an effort to figure out the stock market on his own. This enthusiasm to create an independent opinion has resulted in the unique management style at Bridgewater Associates. Many consider the fund weird but it is making massive profits. Be independent in your opinions, it can work out for you.
Play to win
One of the unique resources at Bridgewater Associates is a bottom-up model of the American economy. It is the main reason why the hedge fund keeps performing at an excellent rate. Thanks to this model and an army of staff, Bridgewater Associates is able to produce analyses and statistics that are more accurate and relevant than those of the Federal Reserve. Thus, any investor who imagines being a successful competitor of Ray Dalio is simply kidding themselves. He has done his homework and uses it to win in the game of finance. From this we can learn that you should use your own effort to excel much more than your competition.
Surround yourself with the smartest people you know and learn their way of thinking
When he was beginning in the world of investment, Ray Dalio had questions for everyone that he considered a good investor. This could be anyone. For example, he asked his stockbroker, his barber and anyone else that he thought was good at investment. He didn't care about their conclusions on the market or him. He was far more interested in their reasoning process. By learning the processes of many people, he boosted his chances of being right in trades and it contributed to his overall success.
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Create a diversified portfolio
One of the activities that is stressed in Bridgewater Associates is having an asset allocation mix that is strategically diversified. Make sure that your collection of stocks is balanced and well structured. Your portfolio should thrive in different environments of the stock market. You are never sure that you will win. Therefore, have a portfolio that will weather any financial storm.
Invest in what you know and understand
Risk is a word that is thrown around quite often in the world of investment. Some investors have a high appetite for it and others don't. No matter which type of appetite you have, Ray says that risk grows from not knowing what you are getting involved in. If you make trades in a sector of industry that you know little to nothing about, that is highly risky. Thus, invest in things that you know and you will be successful.
Reflect on your past decisions to improve your future ones
One of the principles that Ray Dalio depends upon extensively is the process of decision-making and the activity of analyzing results. From his days as a boy, he learned that failure was the result of something that he or others around him were doing wrong. By analysing the reason for failure, Ray learned how to be effective at a higher rate than his peers. Struggling with his mistakes, problems and weaknesses made Ray grow into a strong investor. Do not shy away or be embarassed of mistakes. Simply learn from them and strive never to repeat them.
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Do not be a reactive decision-maker
Majority of Wall Street investors regard a stock to be a good investment when its price increases. What they may not notice is that it could turn into an expensive investment. Ray indicates that price is the amount that you pay while value is the amount that you get. A good company can have its stock under-priced. This does not mean that it is a bad investment. Simply invest, be patient and wait to see its value and price increase to your benefit.
Nothing lasts forever
One of the most commonly made mistakes on Wall Street is believing that the conditions which happened in the recent past are going to persist into the future. Some investors think that a stock which was a good investment in the recent past will remain that way into the future. Therefore, they base their current investment decisions on this assumption. Business cycles change all the time. Therefore, the value of a stock fluctuates along with them too. Learn how to identify a wise position and stick to it. This will help you to be successful as an investor.
Become aware of overconfidence and reduce your risk to the lowest level possible
One of the reasons why Bridgewater Associates has grown so big quite rapidly is due to the way that Ray Dalio runs it. He reduces his overall risk as much as he can before making a trade. In some cases, he has absolutely no idea if a stock is going to go up or down. In such a case, he positions himself such that the result will not have a negative impact on him whichever way it goes. Always minimize your risk and do not be overconfident. This is a useful lesson to learn from this Wall Street magnate.
The Important Take Away
Ray Dalio is an investment guru that we can all learn from. As the Chief Investment Officer (CIO) at Bridgewater Associates, he has $150 billion to invest wisely. This makes him an astute source of knowledge about investment. These lessons are indicated above and can assist you to become just as successful as he is.