100 Ways to Beat the Market #3: Figure It Out or Pass, Don’t Guess

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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4 thoughts on “100 Ways to Beat the Market #3: Figure It Out or Pass, Don’t Guess

  1. Bill

    Thanks Greg,
    This seems like a no-brainer, but nothing could be further from the truth. There is no substitute for doing your homework.

    Reply
  2. Greg Speicher Post author

    Bill, thanks for the comment. Like many other things, successful investing isn’t about doing anything extraordinary. It’s about doing the important things consistently. Part of the reason I write this blog is to help me keep on track and remind myself over and over of the necessary fundamentals.

    I also think people underestimate the relationship between doing your own work and conviction. Lack of conviction is the reason why so many bail out at low prices when their securities come under pressure. Without a valuation roadmap, they are completely at the mercy of their own fears and ignorance.

    Reply
  3. tony b

    I think you may have missed the point of the anecdote, namely that Dalio berates and humiliates his employees as part of the cultlike mentality of his organization. I doubt if any answer the associate gave would have been acceptable to the Master.

    Reply
    1. Greg Speicher Post author

      Tony, you may be right. It could have both meanings. I suspect that Bridgewater’s success is rooted in not guessing but doing your homework and trying to get at the facts.

      Reply

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