Billionaire hedge fund manager Ray Dalio is one of the greatest investors of all-time. He founded the investment management firm Bridgewater Associates out of his apartment in 1975 and has never looked back. For decades average investors have wondered how Ray has maintained such a high return to risk ratio.
For the first time, Ray breaks down what he calls “The Holy Grail” investment diversification strategy.
The Power of Diversification Investing
As self-directed investors know, when portfolio constructing, its always a good idea to review strategies from the very best. In this video, Ray explains how to double one’s return, relative to the risk.
“The magic is… you only need to do this simple thing.”
Ray’s Holy Grail when it comes to investing is this:
“Find 15 or 20 good, uncorrelated return streams. Things that are probably going to make money, but you don’t know. But have a good probability of making money. That are uncorrelated. That have low correlation.”
“That’s the key.”
Ray discourages investors to stop looking for that one ‘best’ investment. And, that nothing can compete with this system.
Improve Return to Risk Ratio
Finally, he goes on to note,
“You can improve your return to risk ratio by a factor of five. Five times the expected return for that unit of risk.”
Single stocks are unable to compete with Ray’s model. Again, the power of diversification is on full display. We admire Ray for sharing his wisdom and passing things on to the next generation. He recently published Big Debt Crises, which we recommend everyone read and become familiar with. Particularly as almost all western nations rack up unsustainable levels of debt.
