The 8 Things Ray Dalio Did To Master Investing

How did Ray Dalio become the world's largest hedge fund manager?

It started in 1960. He had just lost a large sum of money in the stock market. But he still loved investing and trading. He decided to start over with a specific plan to beat the market. To do this, he zoomed out and defined the objectives in front of him. This meant he had learn why he lost money in the first place and how it would never happen again. He writes:
1. It isn’t easy for me to be confident that my opinions are right: In the markets, you can do a huge amount of work and still be wrong. 
2. Bad opinions can be very costly: Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure. 
3. The consensus is often wrong, so I have to be an independent thinker: To make any money, you have to be right when they’re wrong.

These 3 realizations laid the foundation for his new goals and next steps. Now it was in his hands to act on them. But to act on anything successfully, you need a plan. After writing the 3 principles above, he wrote the 5 rules below. The methodology here is simple but still rare to see in today's world. He effectively defined his principles (above) and then created a roadmap for how to get there (what you see below):
1. I worked for what I wanted, not for what others wanted me to do: For that reason, I never felt that I had to do anything. All the work I ever did was just what I needed to do to get what I wanted. Since I always had the prerogative to strive for what I wanted, I never felt forced to do anything. 
2. I came up with the best independent opinions I could muster to get what I wanted: For example, when I wanted to make money in the markets, I knew that I had to learn about companies to assess the attractiveness of their stocks. At the time, Fortune magazine had a little tear-out-coupon that you could mail in to get the annual reports of any companies on the Fortune 500, for free. So I ordered all the annual reports and worked my way through the most interesting ones and formed opinions about which companies were exciting. 
3. I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong: I never cared much about others’ conclusions—only for the reasoning that led to these conclusions. That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people. 
4. I remained wary about being overconfident, and I figured out how to effectively deal with my not knowing: I dealt with my not knowing by either continuing to gather information until I reached the point that I could be confident or by eliminating my exposure to the risks of not knowing.

5. I wrestled with my realities, reflected on the consequences of my decisions, and learned and improved from this process:By doing these things, I learned how important and how liberating it is to think for myself.



(This story and the quotes come from Ray Dalio's brilliant online book titled Principles)

Exploring Markets Blog

Ben Graham's 3 Simple Rules for Investing in Stocks and Bonds

In 1976, the founder and father of value investing, Ben Graham, gave his last interview. If you aren't entirely familiar with Graham, just remember he's the man who taught Warren Buffett everything he knows about stocks.

Graham's last interview is with the Financial Analysts Journal and the exact contents of this interview are hard to find anywhere. During the interview, Graham is asked how he thinks new investors should get started or what strategy they should use. He responds with a simple guide that we are sharing here for anyone looking to learn more about how to invest:
"Let me suggest three such rules: 
1. The individual investor should act consistently as an investor and not as a speculator. This means, in sum, that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase. In other words, that he has a margin of safety, in value terms, to protect his commitment. 
2. The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase. Say 50% to 100%. And also a maximum holding period for this objective to be realized. Say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market. 
3. Finally, the investor should always have a minimum percentage of his total portfolio in common stocks and a minimum percentage in bond equivalents. I recommend at least 25% of the total at all times in each category. A good case can be made for a consistent 50-50 division here, with adjustments for changes in the market level. This means the investor would switch some of his stocks into bonds on significant rises of the market level, and vice-versa when the market declines. I would suggest, in general, an average seven or eight-year maturity for his bond holdings." - Ben Graham