The Most Important Thing to Learn From the Man In Charge of $150 Billion
Investing Guide at
Deep Blue Group Publications LLC - Many
individuals and investors know of the richest men in finance like Warren
Buffett, George Soros, and Carl Icahn, who have a combined fortune of more than
$110 billion. But there is something everyone can learn from the man who runs a
hedge fund with over $150 billion, and who is worth $14 billion himself.
The man
Ray Dalio sits
atop Bridgewater Associates, which is the Connecticut hedge fund he founded in
1975. It is now the biggest fund in the world, and manages money for pensions,
university endowments, and sovereign wealth funds for countries. In all
likelihood, many readers unknowingly have had their finances in one way or another tied to Dalio at
one point in their life.
Yet unlike many
of those in corporate finance, Dalio is a naturalist and a man who was once
described as "Steve Jobs with a
business school degree." He enjoys meditation, and seeks to tear down
the standard walls of corporate culture, which often characterize firms in the
financial industry, by employing a call for an open atmosphere.
In 2011 Dalio
released a 123 page paper simply entitled Principles where he outlines not only
what his own principles are, but also why he believes they are important. This
followed his remarkable success during the financial crisis -- he predicted the
collapse of the housing market in 2007 -- where many began to learn of his
astounding success.
In fact in 2008,
a year in which the S&P 500 plummeted by almost 40%, his firm had a return
of 9.5%. In 2010 the return of his firm reportedly topped 45% and delivered $3
billion directly to Dalio himself.
And while the
firm is notoriously tight lipped about the moves it makes when it comes to
managing money and where it allocates its resources, Dalio is happy to share
the broader principals which guide his investing and his life, and he suggests
"there are five things that you have to do to get what you want out of
life."
The five critical things
Dalio goes on to
say "The Process," he
outlines consists of five critical and unique steps:
1. Have clear
goals.
2. Identify and
don't tolerate the problems that stand in the way of achieving your goals.
3. Accurately
diagnose these problems
4. Design plans
that explicitly lay out tasks that will get you around your problems and on to
your goals.
5. Implement
these plans—i.e., do these tasks.
He then
highlights that all five of these steps are unique, meaning the goals must be
identified apart from the problems, each step requires different "talents and disciplines," and
the process must be though through rationally instead of emotionally.
Dalio notes
setting goals is often the hardest part of the process, but it's actually the
most important, as "in order to get
what you want, the first step is to really know what you want." From
that point forward, the rest of the steps will in turn allow individuals to
operate in a way ensuring the goals are realized.
The most
important point
There is much to
learn from Dalio -- after all the document is 123 pages -- but his first point
is a critical one. All too often problems can be identified and diagnosed,
plans can be designed, and steps can be taken all without a clear goal in mind.
In investing it
is easy to see the stock market is falling, which is often viewed as a problem,
and in turn seek to cut losses by selling out of the market entirely. But when
the goal is financial security for retirement, which could still be decades away,
it may in fact provide more reason to put money into the market.
At the height of
the financial crisis in 2008, Warren Buffett said: "A simple rule dictates my buying: Be fearful when others are
greedy, and be greedy when others are fearful." This statement is a
powerful example of how he and why he has been so successful, because his
decision was ultimately guided by the goals he had set.
While the need
to approach life with clear goals in mind likely isn't groundbreaking news, it
is something everyone needs to be reminded of.
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