Three timeless lessons for investors from billionaire Ray Dalio

Highlights

• Investors can add up ETFs, such as an index ETF, which are already a ready-made portfolio of diversified securities to minimise risk.
• Placing bets on companies within your competence of understanding their business model should not be ignored.
• Just because a stock has fallen below your buy price does not mean it is a bad investment.

Billionaire Ray Dalio, 72, is one of the most renowned and successful American investors of all time. His hedge fund Bridgewater Associates, founded in 1949, is the largest in the world and many budding and astute investors look up to him for his valuable advice on basically everything investing. 

Image Source: © Demidovichphotostock | Megapixl.com 

Instead of digging the internet every now and then for what is Ray Dalio investing in or Ray Dalio recommendations, it’s better to equip yourself with some of his golden nuggets that might help you to become a better investor. Let us have a look at three lessons from this billionaire hedge fund manager. 

Read More: Five ETF portfolio strategies to sail through volatility 

1. Create a diversified portfolio

One of the major focuses of Bridgewater Associates is to always have a mix of asset classes or equities from different geographies, sectors, market capitalisation, etc. Diversification is an immensely simple-yet-powerful way to minimise the concentration of risk of one security at the overall portfolio level. 

Investors can also add up ETFs, such as an index ETF, which are already ready-made portfolios of diversified securities. Too much diversification may also hurt the portfolio as in the quest to significantly reduce risk, returns may sometimes take a hit. 

2. Invest in what you understand 

Even legendary investor Warren Buffet stresses upon placing bets on companies within your competence of understanding their business model. This is why despite missing out on new-age internet businesses such as Facebook, Netflix, Google, Amazon, he’s still over US$100 billion in net worth. 

Staying within your competence might require you to miss out on a few opportunities, however, it would also help you to avoid some blunders in your investing career that might set you back a few years in terms of losses. 

3. Avoid knee-jerk reactions 

Many times, bad news or a disappointing result comes out and everyone on the street goes on a selling spree in the blink of an eye. Just because a stock has fallen below your buy price does not mean it is a bad investment. 

Therefore, before reacting to any rumour, news, analyst opinion or a downgrade by a rating agency, investors must thoroughly look at the short-term and long-term effects and only then should arrive at a decision to buy, sell or hold. 

Bottom Line

New and seasoned investors can learn a lot from some of the most successful investors in today’s time. Although these golden nuggets could be of immense help to them, however, investors must also consider that every investor has their own unique skill set, knowledge and understanding of companies.  

Therefore, rather than blindly copying them, taking these lessons as guiding principles is recommended.  

Read More: Why tracking volume is a key factor in stock analysis