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If you’re following the hot stocks of the moment — like the Magnificent Seven — it’s probably a rush to watch them rise.
However, “I think it’s very similar to the Internet and the dot-com era,” the Bridgewater Associates founder warned Ray Dalio During a conversation with the executive editor of Yahoo Finance Brian Sozzi For Podcast Podcast Offers (watch the video above or listen below). The pair sat down for a chat at the World Economic Forum in Davos, Switzerland, and Dalio offered insights ranging from leadership to his personal investing mantras.
Dalio benefits from five decades of market insight. He founded Bridgewater in 1975 and grew the company from a scrappy operation he ran out of a two-bedroom apartment into one that Fortune ranked as the fifth most important private company in the US.
Known in the industry for this a set of principles And sharing them widely, Dalio is the author of several books on the subject. His latest book, “How Countries Break Through: Principles for Navigating the Great Debt Cycle, Where We’re Headed, and What We Should Do,” is due out in September.
Instead of planting everything in the hot stock of the day, Dalio advised investors to consider more diversification by investing in 10 to 15 “good, risk-balanced, mismatched returns.” Calling this strategy his “holy grail and … investing mantra,” Sozzi said, “if you hit this mantra, you’ll make a fortune.”
“Everybody’s thinking about what’s the best debt,” he continued. “They don’t realize that by diversifying the first three diverse, relatively mismatched assets, you’re going to cut your risk almost in half. That means you double your return-to-risk ratio.”
Dalio also advised that this type of strategy often requires patience after implementation, which can prove difficult in a buzz generation environment. “The game is played when it doesn’t come out,” he said. “The nature of loss [is]lose 50%, you have to earn 100% to get it back. “
For the evergreen investor with $1,000 to invest, Dalio advised thinking about the difference between Alpha and Beta.
“Alpha is a zero game,” he said. “To get alpha, you have to take it away from someone else. Beta means there’s an asset class.”
But even before diversifying, his first piece of advice for investors is to be humble.
“Be humble, as in any game [where] You compete,” he said.
His final advice is to evaluate investments in generating headlines and buzz. “Get away from the idea that investments that have done well recently are better investments, not more expensive. You need to know the difference between an investment that has gone up a lot and [that’s] well done. “
