Ray Dalio - Principles:“...you, like me, probably don’t know everything you need to know and would be wise to embrace that fact. If you can think for yourself while being open-minded in a clearheaded way to find out what is best for you to do, and if you can summon up the courage to do it, you will make the most of your life. If you can’t do that, you should reflect on why that is, because that’s most likely your greatest impediment to getting more of what you want out of life. That brings me to my first principle:
• Think for yourself to decide
1) what you want,
2) what is true, and
3) what you should do to achieve #1 in light of #2 . . . . . .
and do that with humility and open-mindedness so that you consider the best thinking available to you.
The principles you choose can be anything you want them to be as long as they are authentic—i.e., as long as they reflect your true character and values.
Think for yourself!
1) What do you want?
2) What is true?
3) What are you going to do about it?
Ray Dalio (wiki) should be listened to, in my view, whether you agree with him or not. He is in the top 100 richest people in world. Dalio has pledged half that wealth to the Bill Gates foundation. He has a coherent and thought provoking personal philosophy that Dalio also applies to his hedge fund, Bridgewater, one of the largest and most successful in the world (which works under this culture: “an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.”) He uses these principles in life and in his business. Originally available in short form on the Bwater website, it is now out in longer book form. (part 2 on investing and economics out some time in the future).
Dalio himself advocates developing your own principles rather than absorbing another’s completely whole. Thus this provides a fascinating take in the mould of “investor-philosopher” (thus joining Warren Buffet, Charlie Munger, Howard Marks, Peter Lynch, perhaps Seth Klarman, perhaps Nassim Taleb in this mould).
I noticed Dalio on mistakes sounds like Neil Gaiman's view on mistakes, one written by a story teller (I take a look at Gaiman's commencement address extolling mistakes in an earlier post) and the other written by an "investor-philosopher"; and also chimes with JK Rowling on the benefits of failure.
It also offers interesting reflections on his “mistakes” and experiences.
I highlight a few that struck me:
On consensus thinking “...everybody thinks the same thing—such as what a sure bet the Nifty 50 is—it is almost certainly reflected in the price, and betting on it is probably going to be a mistake.”
On losing money on a pork belly trade “It was a very tactile experience . . . [and] it taught me the importance of risk controls, because I never wanted to experience that pain again. It enhanced my fear of being wrong and taught me to make sure that no single bet, or even multiple bets, could cause me to lose more than an acceptable amount. 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. I believe that anyone who has made money in trading has had to experience horrendous pain at some point. Trading is like working with electricity; you can get an electric shock. With that pork belly trade and other trades, I felt the electric shock and the fear that comes with it.”
On expectations “I lost money until I figured out what was going wrong and how to deal with it. I gradually learned that prices reflect people’s expectations, so they go up when actual results are better than expected and they go down when they are worse than expected. And most people tend to be biased by their recent experiences.”
On learning from history “I learned that everything that was going on—the currency breaking its link to gold and devaluing, the stock market soaring in response—had happened before, and that logical cause-effect relationships made those developments inevitable. My failure to anticipate this, I realized, was due to my being surprised by something that hadn’t happened in my lifetime, though it had happened many times before. The message that reality was conveying to me was “You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.” “
On learning that there is always risk and uncertainty: “I vividly remember one “can’t lose” bet that personally cost me about $ 100,000. That was most of my net worth at the time. More painful still, it hurt my clients too. The most painful lesson that was repeatedly hammered home is that you can never be sure of anything”
If you’d like a provocative read of an investment philosophy of our times check out his book - UK link to amazon kindle version here http://amzn.to/2wN4Oy4
A previous post on Dalio and risk and populism here. Video interview post book launch (Sep 2017) below.