Everyone knows who Warren Buffett is, even those who do not invest a dime in the stock market. However, not too many people outside of the investment and business world know the name Ray Dalio. But they should, he is a hedge fund manager that manages over $100 billion in assets and is one of the most successful investors of all time. His personal net worth is (at the time of this writing) over $13 billion. That makes him richer than a lot of other more “popular” billionaires, including Elon Musk, Mark Cuban, and Eric Schmidt (of Google fame). So when he gives advice, people listen. He wrote a paper called Principles that summarizes how he makes his investment decisions. Below are five of those non-technical principles taken from his paper:
You Have to Enjoy the Stock Market
Ray Dalio said that he did what he wanted to do when he went into stock investing, and not what others wanted him to do. In order to make money from stocks, he said you have to enjoy the ride and enjoy what you do. The enjoyment fuels your learning of the stock market and will guide you through some rough times.
This seems to be common advice given by the rich—that you have to love what you do and be passionate about it. It is the only way to make it through the amount of work you have to put in to build your wealth.
Stick to what you know
Benjamin Graham and Warren Buffett also give this sage advice when it comes to stock investing. Warren Buffett calls it his “circle of competence.” Ray Dalio suggests in only dealing with industries and markets that you are familiar with. You will make better decisions once you know the industries and make researching stocks much easier. Understanding the industry means that you know where it came from, where it is now, and have a good idea of where it is going in the future. This makes valuing the stocks and the industry much easier.
Get other people’s advice and opinions
Ray Dalio understands the value of other people’s opinions. That is why he suggest always seeking out advice from smart people. If you don’t seek out advice from others, you tend to get tunnel vision and often miss something that may be very obvious to someone else. When seeking out advice, be sure to seek out advice from people who know what they are talking about and are fully competent to offer advice.
After forming an opinion himself, Ray Dalio likes to seek out a competent people who has the opposite opinion and see why they feel that way. Their opinion can offer insights into some of the flaws of his opinion. He knows that he has made a fully informed decision after seeking out opinions from both sides.
You’ll never know everything
It’s very easy for someone like Ray Dalio to think that they know everything, after amassing a fortune of more than $10 billion. But even he admits that he doesn’t know everything. After seeking out the opinions of others and forming his own opinions about a stock, he will continue to learn more the stock, the industry, or the overall market in general. Learning should not stop after you have formed an opinion—the more you learn, the more informed your opinion is.
Learning never stops
Even after amassing his billions, Ray Dalio learns new things about investing and the stock market everyday. In a landscape that constantly changes with new methods, regulations, and companies, you can never know everything.
Billionaires like Warren Buffett and Ray Dalio would be the first to tell you that they have made mistakes with their investing. And it is often just as important to learn from one’s mistakes as it is to learn from one’s victories. So constantly learn and refine your skills; learn by looking at your past wins and losses, learn by reading books, learn by seeking out the advice of others, and learn by constantly thinking.
If you are interested in reading Principles, you can do it here. It’s a long read so block out some time for it.