Ray Dalio runs the most successful hedge fund company in the world. He has a new book out titled Principles and he has been interviewed on numerous shows and podcasts in the last few months.
I finally caught up with some of these interviews this week and here is what I learned:
1. Document your principles.
Ray ended each interview suggesting that the listeners and the host document their principles. With a written list of principles, making decisions can become much easier and more effective. You can use these principles to make the right decision and maximize your success.
How do you come up with these principles? Follow this formula:
2. Pain + Reflection = Progress
I love formulas! This one makes a lot of sense.
First, identify when you feel internal pain and negative emotions. His company even has a pain button app to help you record moments in which you feel pain. After you record the pain, you can go back and reflect on the source of the pain. From there you can ask yourself questions to discover a principle to avoid or overcome that pain in the future. Most people experience the pain but do not take the time to reflect or if they do reflect they do not direct that reflection toward the development of a universal principle to apply to a similar situation in the future.
3. Mistakes are better than successes because you can learn from them.
With this focus on developing principles in mind, failure becomes an opportunity to learn. Rather than fear failure, you take risks hoping to learn from the possible failure. You either succeed (and learn very little) or fail (and develop a principle for future, better decision-making).
4. To be successful, you have to bet against the consensus.
Whether in entrepreneurship or investing, the successful person bets against the consensus. When everyone is doing something a certain way, the opportunity to stand out is to go in the opposite direction.
What are all of your competitors doing? What is the consensus? How can you lead customers in another direction?
5. True financial diversification means finding many, uncorrelated investments.
Dalio spent most of his time talking about principles and not investing. His advice is meant to be universal but he did spend a small amount of time in the interviews I heard talking about investing.
He talked about uncorrelated bets or investments. Most people know that success in investing comes through diversification. Diversification means investing in many companies or types of investments to reduce the risk of just the few you invested in failing. He pointed out that a truly successful diversification strategy means investing in multiple, uncorrelated companies. Uncorrelated companies operate in completely different sectors. The more isolated they are from one another the more diverse your portfolio will be. This takes for granted of course that you feel equally confident in a reasonable return on investment in each of the companies.
Ray Dalio Interviews
Here are the three interviews. I found myself wanting to listen to them over and over again, but I will read the book instead.