A recent article in The New Yorker profiled hedge fund titan Ray Dalio. Dalio’s fund, Bridgewater Associates, is the largest hedge fund in the world.
The article describes a weekly meeting at the fund where fifty or so partners and analysts discuss important economic trends and look for opportunities. Dalio describes it as a “What’s going on in the world?” meeting.
During the meeting profiled, there was a discussion about the Chinese economy. The question arose how a slowdown in the Chinese economy would affect commodity prices. After the co-chief executive gave his opinion, Dalio asked for additional input. An associate jumped in and expressed his view that a slowdown in China could have a major impact on global supply and demand.
Dalio impatiently replied, “Are you going to answer me knowledgeably or are you going to give me a guess?”
The associate said he would give a educated guess. Dalio cautioned him not to and reminded him of his tendency to offer an opinion without doing the careful painstaking work necessary to back it up.
There is a little of this associate in all of us.
It’s commonplace to throw around opinions in everyday social interactions regarding everything from politics, to sports to business. That’s all well and good, but, when it comes to investing serious money, such sloppy thinking can be costly.
The article states that, “Eventually, the young employee said that he would go away and do some careful calculations.”
If you want to beat the market, don’t satisfy yourself with educated guesses. Do your own work. If you can’t figure it out, move on. Once in awhile you’ll find something and, if you’ve done your own “careful calculations”, you’ll have the conviction to make a meaningful purchase.
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