One of the big challenges I've found when investing is being consistent in the way I make decisions.
There is so much freely available information, laced with so many conflicting opinions and investment approaches, that it's an easy temptation to wonder from a planned path when other people are profiting. This is normally done by dabbling here and there without any real conviction.
To be successful investors we only need to follow the investing approach, which is right specifically for us.
Billionaire hedge fund manager Ray Dalio (the founder of Bridgewater Associates) has a great way to find that approach and truly become the master of it.
Some years back Dalio wrote an extensive document on the principles he believes in for success in life.
The five core principles Dailo suggests are not only logical and actionable, but, in my view, understatedly brilliant in helping you to master your investing game.
Here are Dalio's core principles:
1. Work for what you want, not for what others want you to do
Investing will never feel like a smooth journey, so focusing on your reason for investing will help to identify companies and opportunities that fit your approach and when times get tough, your resolve will harden, not crumble.
2. Come up with the best independent opinions you can
Don't take it as gospel that some top fund manager thinks Domino's Pizza Enterprises Ltd. (ASX: DMP) is worth $100 per share. Or that I think CSL Limited (ASX: CSL) is a great compounding machine.
What matters is your interpretation of a company which will lead to far more consistent decisions over time.
3. Stress-test those opinions against the smartest people you can find
Likewise, there is always room to further develop your view of a company by exposing it to the scrutiny of other investors you respect.
"I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong" writes Dalio.
4. Remain wary about being overconfident
I've been caught out before by being overconfident towards energy prices impacting companies like Senex Energy Ltd (ASX: SXY), where I should have been more critical.
Overconfidence can parlay into biases which reinforce our views (like confirmation bias) and leads to poor decision making.
5. Reflect on your decisions and learn from the process
You can guarantee that your investment approach will need refining over time. Reflecting on decisions will create a feedback loop where the lessons help to strengthen your decision making.
The greatest thing about all five steps is that they apply to everyone, regardless of your investment perspectives and they have certainly helped me to focus on the style of investing which is best for me.
