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this is Ray alio owner of the most successful hge Fund in the world and this video is about him more specifically the advice he gave to small investors looking at to 2024 just a few weeks ago well I think the first thing I want to say to most retail investors is you have to think about whether you can um you can beat the markets um a lot of people think I can go play that game and I can beat the markets I would say uh winning in the markets is more difficult than winning in the Olympics and there are more money after it more trying and it's pretty much a zero sum game and also I would say any advice I give with you now um I wouldn't want people that I you know who things may change and in a month from now I might have a different View and I so I would like to say that the most important things of investing are a few qualities so would say if I explain that let's say uh at depth I would say first of all um in invest your in in what you need most um you know invest in um your house or your apartment is your environment and that environment is a very important thing invest in your education invest in those things and then once you get past those things that create your environment invest in yourself if you're an entrepreneur for example you're an entrepreneur and look at what you've accomplished but also then as you go beyond that uh think about how much money you need to invest I I didn't have any money and I I just got hooked on this great game of investing and I uh would count how many months could I maintain my uh spending if I didn't have an income and I try to build up those amount of months and I'd be very conservative and IO said supposing I lost half of that amount to inflation or bad decision making or something uh so I'd want to have twice the amount so I'd really encourage uh that notion of uh of saving investing in yourself and then saving and then in the way to do that I want to encourage people to diversify well I I'll give some thoughts about how to do that but diversifying is the is essentially the free lunch think about it this way if you pick three equally good Investments and they're not correlated you're going to have the average return of those three Investments and you're going to reduce the risk and if you can get uncorrelated Investments I I call the Holy Grail investment if you can get 10 to 15 good uncorrelated Investments you'll reduce your risk by 70 to 80% of your uh 70 to 80% without reducing your return so knowing how to diversify well is another message and and we won't be able to cover it here but um uh you can see it on YouTube or you can um go to my book uh and see it but and anyway headline diversify well the next thing I would say is um be careful about debt um be careful about owning too much debt assets and also having too much debt liabilities U I explain to you why I'm concerned about the value of money and so I would be concerned about that and I would also say that when thinking about where to diversify um think about um Beyond uh just the United States you know uh the we have a situation where um a relatively few number of stocks have done uh very very well and by the way they they've become expensive and the market as a whole has not done very well and stock yields expected returns are not particularly High against interest rates right now so uh to be able to diversify well um in considering outside the country remember that that the uh best inv investments um are not necessarily the best companies the worst companies can be better Investments than the best companies because uh it's in the price you know it's like a horse and a horse race um if the betting on the best horse is not going to get you an edge relative to betting on the worst horse because the Market discounts that beating the market is super hard when diving in the world of investing we often think that we are smarter than the average stock market investor mostly because of the social media Trader phenomenon however let's not Overlook the fact that trading is a zero sum game for one to gain another must lose we're in competition not only with individual investors but also with billion dollar hatch funds armed with the latest technology and the world's sharpest Minds which makes achieving returns better than the market average a very hard close to impassive task even seasoned hatch funds whose primary task is safeguarding and maximizing client funds struggle to out base index funds like the S&P 500 especially over extended time frames it perfectly describes how difficult it is to beat the overall Market that back in 2008 Warren Buffett issued a challenge to the hatch fund industry which in his view charg exorbitant fees that the fund's performance couldn't justify prodip Partners allows C accepted the challenge and the two parties placed a million dooll bath the challenge required Proto Partners to beat the S&P 500's performance for 10 consecutive years but after just a few years Buffett has won the bat but you're not here to learn about the challenges of outperforming dual index funds you're here to uncover the secrets of setting up a portfolio for Success Ray Dalo suggests that as a retail investor or first for focus should be on income attaining the right education is crucial to reaching the level where a comfortable stream of money Flows In regularly enabling us to save and eventually invest consider this more than 60% of working Americans leave paycheck to paycheck by Breaking Free from this cycle you place yourself comfortably in the top 40% Dalo recommends prioritizing investments in areas you need the most real estate for instance can be a solid investment the beauty of purchasing a house lies in leveraging your money to acquire an asset with a probable value increase over the next 10 to 20 years keep an eye on Market Cycles though the current housing market situation might not be ideal for purchase but if circumstances change with lower mortgage rates on the horizon buying a home could be a smart move once you've covered those bases then it's time to explore Market opportunties let's delve into the specifics of how exactly to do that Rayo emphasizes the power of diversification a strategy that involves spreading your investment across different stocks companies sectors and more instead of putting all your money into a single entity the idea is to divide it to minimize the risk of unforeseen events negatively impacting your entire portfolio there's a widely accepted notion that stocks momentum is influenced 60% by the market 30% % by the sector and only 10% by the specific stock itself this holds true for the majority of cases excluding a few outliers Doo considers diversification as a free launch and promotes a well-considered asset allocation strategy this involves investing in a mix of uncorrelated or negatively correlated assets assets that don't all move in the same direction simultaneously the core idea is to construct a resilient portfolio that can better various market conditions for example when stocks are down other assets like bonds Commodities or real estate might perform differently potentially offsetting losses from the stock market Dalia's approach not only underscores the importance of diversification but also emphasizes understanding how different assets behave relative to each other under diverse economic scenarios through diversification requires a thoughtful analysis of each asset class and its correlations with others achieving portfolio with 10 to 15 uncorrelated Investments can reduce risk of losing money by 70 to 80% without sacrificing returns interestingly other prominent money managers like Stanley draam Miller argue for the strategy of putting all your ax in one basket and closely monitoring it this strategy involves heavy investing in assets you truly understand and staying up to date on events surrounding that asset Ray introduces a crucial Insight the best companies are usually not the best investments in fact the worst companies can be batter Investments big established companies have their value accurately reflected in the market making significant price changes unlikely instead Dalo suggest seeking undervalued companies with smaller market caps that have the potential for substantial growth finding these companies is hard and this is when the real M power is required but if you pay attention to trends that are going on in the world it is not an impossible task and if you make the right investment into the right asset at the right time the return it will bring can be significant however with smaller companies comes higher risk and this is where diversification plays a crucial role diversifying across 10 to 15 uncorrelated assets with significant potential requires a keen understanding and analyzis in the context text of international assets Dio's changing World Order Theory adds an interesting Dimension looking ahead if China is about to become the world's leading power diversifying into Chinese markets might be a wiser move the easiest way to do so as race suggest is through China focused mutual funds or ETFs fantastic thank you and you and you mentioned just before we move to the to the quickfire round you mentioned how you got into the world of investing and and you're obviously famous for your Global macro strategy approach to investing was curious uh how you got into it um what land what made you land on that approach um if if you could share that story okay I was 12 and I did various kinds of jobs I would had a newspaper route I uh shoveled driveways for snow and I caddied and when I was caddying I bought my uh the stock market was hot at the time and everybody was talking about it and the people I would caddy for would talk with me about it and I would take my catting money I got $6 a bag I carried two bags I got $12 a round and then I took that $12 and whenever I got $50 I would then put it into the market and I I was introduced everybody had a stock broker I was introduced by my dad to a stock broker and and he did it and the first first stock I bought was the only stock I ever heard of that was selling for less than $5 a share and I thought well if I bought more shares and it went up I could make more money and that was obviously a dumb strategy I didn't know it at the time but the company uh was about to go broke and some other company came along and acquired it was an Airlines Northeast Airlines and it tripled in value and I said I I like this game I look at the Wall Street Journal New York Times and all those listings hey I could find those and so I got hooked on the markets that way and it was really that game that uh really got me hooked on the markets and if I can make money doing it that's how I got hooked I don't know about you but I was always curious how some of the biggest money managers in the world got into the world of finance and how did they have the confidence to start trading with other people's money I still don't know the answer but I think it has a lot to do with first experiences Morgan howel talks about it in his book the psychology of money and Leon hris made a great video about it just a few weeks ago basically the first experiences that you get in something will influence your whole worldview doesn't matter if we talk about professional sport or investing Ray had a positive experience on the stock market when he was very young he was able to close his first investment with significant profit which probably made him fall in love with invest Ing and made it visible to him that he can make serious money on the financial Market it's also true for generations for example people who get into the world of money after 2010 and started buying stocks have not seen a serious negative year until 2022 so most of them still believes that stocks only go up but back to Ray was it l that he got into investing or he really has a special talent well the fact that he started investing at 12 is not luck even though most likely happened because he was surrounded by rich people who talked about investing but it can be considered log that the first company he bought even though it was a company that was about to go bankrupt tripled in value due to an acquisition we might never know but one things for sure the earlier you get into investing the sooner you will see great results thank you for your time
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