Ray Dalio: The Global-investor Book Of Investing Rules – Systemizing Fundamentals via ckiencrm_lv

Introduction

There are some general principles that most winners of this game employ that losers neglect. If you want to win any game, you must know what the principles of the game are, and then work to develop the required skills – e.g. counting the cards and calculating odds for poker. What I describe here is my approach to playing the game, which is a mix of these general principles and my own twists on them. For me, the following are required.

A deep understanding of the fundamentals so that pricing inefficiencies can be identified.

Adding value (getting a return greater than that available from passive investing) requires one to see how markets are mispriced, and this requires an understanding of how they should be priced. This is required to be a winner over time. It is the equivalent of being able to count cards and calculate the odds of a winning hand in poker – it is the fundamental assessment that allows you to discern a good bet from a bad one.

Some people say that understanding the fundamentals isn’t required and that one can play and win the game by playing it technically. If by technical they mean an approach that is devoid of understanding fundamental cause-effect relationships – like trend following – then I believe that they are wrong. Sometimes markets trend, and sometimes they chop, and they do so for reams. So, without an understanding of these reasons, one will be blindly betting that markets trend more than they chop. Do markets trend more than they chop? This is one of thus cosmic questions that can’t be definitely answered, and certainly not without an understanding of the fundamentals that determine marks behavior.

There is no escaping the need to have a deep understanding of the fundamentals so that one can sensibly assess what is cheap and what is expensive. In playing poker, I would rather place my bet based on my ability to count the cards and calculate odds than on the likelihood of hot streak continuing (e.g. betting that I will do well because I won the last few hands).

Focus.

Adding value is a zero-sum game – for me to add value I must be a better player than my opponents. The markets are extremely competitive. That means that my understanding must be very deep, which requires focus. I have rarely seen investors that win over time who trade a lot of different markets. The winners I know discuss their markets with the same depth that specialists in other professions (e.g. physicians, scientists, etc.) discuss the subjects of their focus.

In addition, successful market players have the capacity to think conceptually and independently. Equipped with knowledge and perspective, they can justifiably have the confidence to stand apart from the crowd, which is essential for being able to buy low and sell high.

Perspective without data-mining.

Many years ago I did a lot of discretionary trading based on the flow of information I was seeing at the time. I wrote down the criteria I used to make each trade so that I could reflect on the trade later. I learned that if I specified the criteria clearly I could see how these criteria would have worked in the past, and in different countries, which gave me perspective. That perspective was invaluable.

In many cases I learned that the criteria wouldn’t have worked in the past and I could see why. In other cases I learned how well my decision rule worked so that I would not abandon it when it lost (all rules lose sometime) or put too much on it because it has recently been hot and I thought it was better than it really was. As a result, I developed a good sense of what I could expect from my criteria.

I learned that I could program the computer to scan the world for opportunities, according to these criteria. And I learned a lot more. I learned to be especially wary about data mining – to not go looking for what would have worked in the past, which will lead me to have an incorrect perspective. Having a sound fundamental basis for making a trade, and an excellent perspective concerning what to expect from that trade, are the building blocks that have to be combined into a strategy.

Strategy.

Knowing how to identify good bets is only the first step. Knowing how to balance these bets – how much to place to on each based on their different expected returns, risks and correlations – is at least as important. This requires an understanding of probabilities, statistics, and money management principles. It requires the ability to simulate how this strategy would have worked in the past and to stress test its performance under varying conditions.

Substantial resources.

The days that an astute individual trader equipped with little more that his wits, being able to be a substantial winner at this game are over. Now, world class teams consisting of conceptual thinkers supported by specialists and advanced technology set the standard of play. While technology has radically advanced the average level of play, in markets as in warfare, it has served to widen the gap between the resource-rich and the resource-constrained players.

Principles

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.

The Global-Investor Book of Investing Rules – Description

The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors by Philip Jenks, Stephen Eckett

In The Global-Investor Book of Investing Rules, 150 top investors reveal the key strategies and insights they rely upon today to maximize profit and control risk. Each distills their approach into concise techniques and rules any investor can understand-and act upon. From Martin Barnes to Burton Malkiel, John C. Bogle to Andrew Tobias, they cover virtually every aspect of investment: global markets, valuation, asset allocation, M&A, stock picking, regional and sector investment, options, currencies, bear markets, deflationary investing, and much more.

The Global-Investor Book of Investing Rules – Review

‘This is not a work designed to be read through, but should be used as a reference work, to be dipped into when appropriate. At 24.99 for around 500 pages, it offers terrific value when compared with the extortionate cost of much investment advice offered by so-called financial professionals. The Global-Investor Book of Investing Rules will almost certainly prove to be the most useful financial book published all year.’ Luke Johnson, The Sunday Telegraph

‘Investing Rules is compiled by Philip Jenks and Stephen Eckett of the Global Investor bookshop. They must have asked every author on their shelves – and a few others besides – to write down 10 useful rules for investors. About 150 responded. The outcome is a fascinating patchwork quilt with every strand of the subject briefly represented.’ Alistair Blair, Investors Chronicle

‘There is actually so much in The Global-Investor Book of Investing Rules that it is like a condensed library of the best financial publications. While many ‘how to invest’ books are a good one-off read this one goes a lot further: serious investors will mark and linger over key passages; re-read important sections many times over; and reference favorite contributions as a touchstone for developing and refining their own investment approaches. A real treasure chest of insights and ideas that we think readers of Techinvest will find both enjoyable and useful.’ Conor McCarthy, Techinvest

Reader Reviews

1. ‘A fantastic book which all investors should read. Instead of trying to tell you the right way to invest, The Global-Investor Book of Investing Rules just asks each of the worlds top investors for their 10 top rules. What you end up with is the realization that there are many ways to skin a cat – the trick is deciding which way is best suited for you. For many investors, reading this book will be a humbling experience – The reasons for every investment mistake you ever made will be set out….and more importantly advice on how to avoid them in the future. An invaluable read which should be made compulsory for online investors! ‘

2. ‘The Global-Investor Book of Investing Rules is a fascinating summary of the tactics, strategies & insights relied upon by well known investors, fund managers, analysts and commentators. Each contributor provides focused & practical ‘rules’ on a particular theme within their area of expertise. Areas covered inc biotech, tech’s, recovery stocks, surviving bear markets, growth stocks, spotting acquisition targets, common mistakes etc. The reasoning behind the rules is carefully explained, allowing both the novice & experienced investor to benefit. This book is impressive not only for the depth & range of knowledge of the contributors, but also for the thoughtfulness & sincerity with which their advice is given. Having been written during the throes of a major bear market, there is a sense that greater thought has been given to their respective investment methods. This has resulted in a more realistic book, than would have occurred at the top of a bull market. To summaries this book is like a condensed collection of many of the best financial publications. It makes a good reference book, not just a one of read, many investors will reread key parts again & again. I recommend it for your desktop, not your bookcase! ‘ –This text refers to an out of print or unavailable edition of this title.

The Global-Investor Book of Investing Rules Ray Dalio

The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors by Philip Jenks, Stephen Eckett