This $14 Billion Man's 3 Simple Ways To Make Money From Stocks


Source: Flickr / Pedro Ribeiro Simões.

Want to make money in the stock market? One man worth billions shares the simple answer to his success.

Ray Dalio. Source: www.insidermonkey.com

The man you've never heard of 
Warren Buffett has long extolled the value of patiently saving and investing into a low-cost index fund to prepare for retirement. But those who want to invest in stocks can man from a learn who is also happy to share.

Ray Dalio manages Bridgewater Associates, with $150 billion at its disposal, and he himself has more than $14 billion to his name. It's estimated in 2010 alone he made more than $3 billion after his firm delivered a mind boggling 45% return to investors.  

Yet just one year later, after his publicity undoubtedly rose, he released a 123 page paper simply entitled Principles outlining the things he believed have made him successful in investing and in life.

The way he learned to beat the market
Like Warren Buffett, Dalio began his investment journey before he was a teenager. He grew up in Long Island in a middle-class area, delivered newspapers, mowed lawns, and even caddied at golf courses. It was during this time on the courses when he'd hear about the stock market -- the booming 1960s led to much discussion -- and he himself thought he should put his money into stocks.

Dalio notes his first investment was Northeast Airlines -- which was actually acquired by Storer Broadcasting Company before it was ultimately sold to Delta -- which he invested in simply because it was the only company he'd heard of with its stock selling for less than $5 a share.

He ended up tripling his money as a result of the acquisition, but he notes he only made money out of sheer luck. However, in his early years, he too was met with failures: "it didn't take me long to lose money in the markets and learn about how difficult it is to be right and the costs of being wrong."

Yet he notes three simple things he learned at a young age when he sought to beat the market which catapulted him to success later in life.

Humility is key

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.

All too often investments ideas which are thought to be sure-winners are regrettably sure-losers. Dalio notes he gets some of the smartest people he knows to stress-test his opinions to ensure when he does come to an investment conclusion, it's the right one. He also notes he is always "wary about being overconfident."

Mistakes are expensive

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.

A mistake in choosing a place to eat lunch is temporarily unpleasant. One in the stock market can mean thousands -- or millions -- of lost dollars. Understanding this reality should cause investors to remember caution is critical.

Independence is essential

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.

In October of 2008 -- at the height of the financial crisis -- Warren Buffett said "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." Dalio undoubtedly would agree.

There's a lot to learn from a man with billions who's happy to share it, but these are three of the principals he lives by to beat the market.

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