The Most Important Thing to Learn From The Man In Charge of $150 Billion

Ray Dalio may not be a household name like Warren Buffett, but he too has great advice. And considering he is worth $14 billion, it should be considered by everyone.

Mar 29, 2014 at 12:00PM

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.

Ray Dalio Insider Monkey

Ray Dalio. Source:

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.

More from one man worth more than Dalio
Dalio happily shares his advice and insights on life, which have catipulted him to success. And one other billionaire who is happy to share is Warren Buffett. In fact while his advice has netted him billions, he's happy to share absolutely for free. Buffett has offered up countless investing tips to shareholders of Berkshire Hathaway, and he wants you too to be able to invest like him. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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