Did you ever doubt yourself even if you feel you are right?
I do. Whenever I had some new investment ideas, no matter how much research I’ve done, I always felt worried that I might be wrong. This is especially true when my idea is unconventional or against the consensus.
I was always searching for some sound investment principles to guide me through this and I found Ray Dalio. Here are his investment principles of being wrong, the art of seeking out thoughtful disagreement.
In every investment transaction, there is always a buyer and a seller, and both of them think that they are the one who is making a smarter decision. Ironic, isn’t it?
Our greatest power is that we know that we don’t know and we are open to being wrong and learning. -Ray Dalio
It is easy to say but I found it very hard, maybe for many other people as well, to do the following:
- To calmly take in what other people are thinking rather than block it out;
- To listen carefully and objectively to the reasoning behind differing opinions; or
- To clearly lay out the reasons why they haven’t reached the same conclusion.
Who is Ray Dalio
If you don’t know yet, Ray Dalio is one of the world’s most successful investors. He has an estimated personal net worth of $15 billion. (Yes, that sounds like a lot of money).
He is the founder, chairman and co-CIO of Bridgewater Associates, the world’s largest hedge fund firm. His Bridgwater empire manages some $155 billion assets, with his flagship All Weather Fund.
So when he talked about investment principles, I am all ears. For those who are serious to learn his life and management wisdom, I encourage you to read his book “Principles: Life and Work”.
The importance of always fearing to be wrong
Ray Dalio said,
To make money in the markets, you have to think independently and be humble. You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price.
Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble.
True open-mindedness is an entirely different mindset. It is a process of being intensely worried about being wrong and asking questions instead of defending a position. It demands that you get over your ego-driven desire to have whatever answer you happen to have in your head be right. ”
So the key here is the word “ego”. Can we overcome our own egos?
The Ego Investment
47 years ago, James Thomson, an East-Asian government specialist and Harvard history professor, wrote a devastating critique of how America’s Vietnam debacle unfolded.
He concluded a major factor was “human ego investment”.
Men who have participated in a decision develop a stake in that decision. – James Thomson
Just think about the losing money penny stocks which you have been holding for years, the “I-should-not-have-bought” unit trust which is still in your investment portfolio, the vacant “investment property” which you bought at the peak of property cycle a few years ago.
Just how difficult for a person to admit these were wrong investment decision? As Ray Dalio clearly put it
I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weakness are.
Well, there is this saying that “future actions are predicated on flawed earlier decisions”, isn’t it?
How easy it is to admit that you were wrong
Featured in a recent Straits Times Invest article, Mr Ian Batey, father of “Singapore Girl” for Singapore Airlines shared his story about his “worst investment”. He said,
Along Lornie Road, towards Thomson Road, the Singapore Island Country Club is on the left, and on the right, there was a little road going down to a cul-de-sac. In 1998, there were these townhouses there. We bought a three-storey place of about 2,500 sq ft, which looked out into a beautiful jungle. It was perfect. I broke a wall down and made it a glass window so when you come in, you look straight into the jungle from the living room.
We were about to move in when my wife called me up and said there was a disaster – there were three large, ugly bulldozers knocking down the trees. We found out they were going to build more houses, and sold it in 24 hours, for a $1 profit. We bought it for $900,000 – in those days, that wasn’t bad.
To me, that doesn’t sound like “worst investment”, that is a brilliant decision which only the master can make. It is a true courage guided by the investment principles of accepting one’s own mistakes.
Don’t you agree? Before you read my next post, I will recommend you to watch another Ray Dalio’s masterpiece “How the economic machine works”. I am sure you will find it beneficial.
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