Ray Dalio is one of the most talented investors in the world and the founder of the most successful hedge fund – Bridgewater Associates.
From the foundation till March 2021, Bridgewater Associates had around 140 billion USD in assets under management. According to the Forbes article, Ray Dalio’s net worth is calculated at around 20 billion USD.
Ray has made his billions by learning from the past and making investments based on his findings. Throughout his journey as an investor, Ray Dalio believed in and still believes in earning profits from expensive stocks for reinvesting rather than using a buying and holding approach.
Ray Dalio’s investment philosophies are fairly simple. But what may sound extremely simple at first is way more intricate than you might think.
You can find more about his beliefs about stock market investment in his books, Principles (2017), Principles of Dealing with the changing world order (2021), and Principles for Navigating Big Debt Crises (2018).
In these books, he has mentioned his stock market investment experiences, his mistakes, how he got over his mistakes, and some important lessons to be a good investor.
I know that you have come here to find proven ways to become a better investor; worry not! I have you covered.
I have read these books written by Ray Dalio and gathered some of his interesting stock market investment lessons that you should know.
So, let’s dive into the world of investment as suggested by Ray Dalio.
- 1. Principles Matters
- 2. Do Your Own Research
- 3. Be in Company with People from Whom You Can Learn Something New
- 4. Be Analytical To Find Future Success
- 5. Create Your Investment Portfolio Full of Diversity
- 6. Invest in Your Interest Areas
- 7. Never Be A Reactive Decision-Maker
- 8. Everything Has Its Expiry Date
- Summing Up
1. Principles Matters
In his book-Principles, Ray mentioned the trust in the principles that helped him carry a successful investor career through the right decision-making. Ray once said,
“Without principles, you would be forced to react to circumstances that come at you without considering what you value most and how to make choices to get what you want. This would prevent you from making the most of your life.”
If you have principles, they will guide your actions. They are intended to limit the amount of decision-making that has to be done amid chaos so that decisions can be made quickly and effectively. Principles are intended to help you make the best decisions possible in a wide variety of circumstances.
There is no way to avoid mistakes in investments, but having great principles can help you reduce their frequency and intensity.
Ray Dalio is trying to say by conveying such thoughts that, in your journey as an investment, you should always –
- Define your needs
- Find your right assets or stocks to invest in by being honest about your needs
- Plan the investment strategy to get the assumed return
- Stay determined to your investment strategy and enjoy your success and wealthier investor life.
2. Do Your Own Research
From childhood, Ray made a habit to issue many magazines talking about and showing annual results of fortune companies’ success and downfall graphs. After doing his data collection about the companies, he used to figure out stocks to invest in and craft his unique, individual investment strategy.
His attitude to doing his own studies to find success has resulted in great management at Bridgewater Associates.
Ray Dalio once said,
“To make money in the markets, you have to think independently and be humble”
It is impossible to know everything about anything, but it is especially impossible to know everything about something as complex and chaotic as the global financial system. So you have to make your own mind up about things, which means you can’t just trust what other people tell you. You have to think for yourself.
So, just like Ray Dalio, don’t fall for any other person’s research without conducting your own to find your unique success.
3. Be in Company with People from Whom You Can Learn Something New
In his initial investor journey, Ray Dalio always prepared and asked questions to investors he considered good at their jobs. He was looking for how investors were thinking about the future of the economy and the markets, much like he does now.
Over time, he developed this process into a more formalized way of thinking about the world and what events might most likely occur in it by developing a set of principles that would help him do this.
This way of thinking about the world led to his first big investment success when he predicted and invested in the stagflation environment that began in 1968.
“Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers.”
Dalio never created a hierarchy of occupations, so that means even a barber, chef, or real-estate leader could be a good investor. He believed in reason above all others. He used his reasoning process to find the right method to investigate the stock, take the right choice and make higher profits.
So, when you see any investor doing his job very well, always ask him some questions, which can help you improve your investment methods and help you gain better profits.
4. Be Analytical To Find Future Success
It’s not like all successful investors always find success in their investments.
No, definitely not! But they had higher accuracy rates in predicting the growth of the company they invested in. They did make mistakes in their past, but they always tend to analyze their mistakes and learn not to repeat them. And Ray has always supported the decision-making process through thorough analysis.
Ray, from his school days, learned to accept his failure as the result of either his or others’ mistakes. He always took failure as a positive approach to remediate mistakes and be even more effective in forecasting the success of the investment.
One of the biggest keys to maximizing potential is to get comfortable with failure. Most people are too afraid to fail because they want to avoid looking bad or feel embarrassed. But if you can overcome that fear, then you can learn quickly, improve rapidly and go beyond your current limits.
So, always accept your weaknesses, analyze them, learn from them, and be more effectively next time to find success. Never be ashamed of mistakes because mistakes are what play an effective role in making your PRO in your investment journey.
5. Create Your Investment Portfolio Full of Diversity
By analyzing Ray’s investment approach, I figured that he believed in discovering investment opportunities in different sectors than focusing on a single entity type. Even at Bridgewater Associates, he managed to build a diversified portfolio with mixed asset allocations.
“The most important thing you can have is a good strategic asset allocation mix. So, what the investor needs to do is have a balanced, structured portfolio – a portfolio that does well in different environments. Ee don’t know that we’re going to win. We have to have diversified bets.”
The basic idea of a diversified investment portfolio is to reduce risk. How? By investing in a variety of different types of investments, you are able to decrease your risks of losing money in one type of investment without necessarily decreasing your overall returns.
You can also increase the rate at which you earn money by adding new and different types of investments to your portfolio. You can also reduce risk by making sure that the companies or other entities that you invest in operate in different industries and use different operating models. That way, if one industry, such as the auto industry, comes under tough economic times, you will still have other investments that are not affected by the poor economy.
A diversified portfolio should not include just stocks of various companies, but also bonds and mutual funds. You may want to add real estate to your investment portfolio if you have the capital to do so. Real estate is a tangible asset that can always be sold for cash and can be rented out while you hold on to it to produce income.
Your personal circumstances will dictate what a well-diversified portfolio looks like for you. The more money you have available for investing, the more options you will have available to spread out your risks.
So, while investing in stocks, always ensure that your stocks are well-balanced and structured in terms of industry. This portfolio will help you gain profit from one entity if another sector meets loss.
6. Invest in Your Interest Areas
Ray always says,
“Risk grows from not knowing what you are getting involved in.”
Stock market investment demands in-depth study, and for that, your interest in knowing about a particular brand is necessary. If you don’t have an interest in a particular stock, you won’t be able to go in-depth about the company as you find it boring or burdensome, so find the company that might interest you.
Warren Buffett, the greatest investor of all time, also advocates investing in things you understand. This is based on the theory that if you don’t understand it, you can’t predict it, and if you can’t predict it, you have no idea whether it’s undervalued.
7. Never Be A Reactive Decision-Maker
In the stock market, nothing is certain – there are days when a company gets a progressive graph and downfalls. So, when a company performing well suddenly meets a downfall – don’t be reactive to taking back your investment by selling stocks at the main profit, but trust your research, stick to it, and find your profit edge.
Ray Dalio once said,
“I don’t get caught up in the moment.”
You can relate this scenario to the current Russia-Ukraine war scenario when a global market crashed. Many investors took advantage of the crash to buy stocks in good companies at rock bottom prices, and some shed tears as they sold their stocks at a loss.
So, in such scenarios, always be the first category of an investor to find opportunities even in the downfall of the market with your strong research to get higher profits in the future.
8. Everything Has Its Expiry Date
Many investors make mistakes by considering one bad event as a lifetime consequence.
Ray Dalio doesn’t believe in such beliefs; he says – nothing lasts forever, neither success nor a downfall. If you’re certain about your research and reasoning, you will find success, but your single doubt in your research can make you meet your downfall.
Also, stocks that used to give higher profits in the past might not give you the same return in the future.
“In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.”
Ray wants you to know that when you invest in a stock, be sure to check the company’s progress frequently. That way, if the company is moving ahead on schedule, you’ll know your research was correct. But if the company is experiencing problems, you can take your investment elsewhere. A proactive eye for your investment areas is key to becoming a successful investor.
So, from Ray Dalio’s investment journey, here are your key takeaways:
- Define principles, follow them till the end, and never get overwhelmed by fascinating research that is not yours.
- Learn from your mistakes to make the right investment.
- Never choose a monotonous path, but a path with many surprises, yet convincing and profitable.
- Find your interests and make your assets.
- Be analytical, and learn from your mistakes. It’s okay to make mistakes, to find success.
- Never rush to decisions in a crisis time, especially in the stock market.
- Remember, your success and downfall are temporary.
I recommend you to repeat these investment lessons from Ray Dalio in your everyday practice and become a successful stock market investor.
I believe in sharing knowledge the community should know about stock market investment. If you have any doubts about Ray Dalio’s investment philosophy, feel free to ask, I would be happy to clear your doubts and help you build your investor career.