Ray Dalio: 3 Lessons On Making Money In The Stock Market

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In his book, Principles Life and Work, Ray Dalio provides three lessons on making money in the stock market. Here’s an excerpt from the book:

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Ray DalioIt was the 1960s. At the time the stock market was booming and everyone was talking about it, especially the people I caddied for. So I started to invest.

The first stock I bought was a company called Northeast Airlines, and the only reason I bought it was that it was the only company I had heard of that was trading for less than $5 per share, so I could buy more shares, which I figured was a good thing. It went up a lot. It was about to go broke but another company acquired it, so it tripled.

I made money because I was lucky, though I didn’t see it that way then. I figured that this game was easy. After all, with thousands of companies listed in the newspaper, how difficult could it be to find at least one that would go up? By comparison to my other jobs, this way of making money seemed much more fun, a lot easier, and much more lucrative.

Of course, 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.

So what I really wanted to do now was beat the market. I just had to figure out how to do it. The pursuit of this goal taught me:

1) 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.

2) 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.

3) 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.

You can find a copy of the book here:

Ray Dalio – Principles Life and Work

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Article by The Acquirer’s Multiple.

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.