ChatGPT, the text-based artificial intelligence (AI) platform, has been making waves in the financial sector, offering various insights and advice on trading and investment products. However, what’s interesting is that the platform isn’t just limited to providing financial advice but can also seek opinions.
In this case, renowned billionaire investor and founder of the world’s largest hedge fund Bridgewater Associates, Ray Dalio, in a YouTube video posted on April 15, revealed he was asked by the tool about his view on the most important principle for investing.
Specifically, Dalio shared the feedback after an internet user mentioned that ChatGPT had requested them to inquire with the investor about ‘What is the most important lesson you’ve learned about investing throughout your career?’
In response, Dalio opened up about what he calls the “Holy Grail of investing,” which, according to him, is diversification, especially in managing investment risks.
He stated that by investing in 10 to 15 good, uncorrelated assets, one could reduce risk by about 80% without sacrificing returns. This allows investors to increase their return-to-risk ratio by a factor of five, a key principle in successful investing.
“The most important principle is about what I call the Holy Grail of investing, and that’s about diversificatication. <…> If you can do that, then you will make a fortune because making a fortune is not just a matter of the upside; it eliminates or reduces the downside,” he said.
Risks of betting on a single product
He added that most people think that the best way to make money is by betting on a single asset or making a few concentrated bets. However, such an approach often leads to significant losses, leaving investors out of the game entirely.
“You’ll have one terrible situation. Keep in mind that what you don’t know is greater than what you do know, and so the power of diversification is a really great power. I’d like you to understand what you are good at, what do you know and what don’t you know, and then how do you diversify well to have a good return relative to your risk; that’s the most important principle,” he added.
Dalio’s Bitcoin ownership
It is worth noting that Dalio has been a big advocate for diversification with the investor at some point, revealing that his portfolio contains a small amount of Bitcoin (BTC). This comes after Dalio had previously remained skeptical about the maiden crypto.
He previously noted that Bitcoin has made ‘tremendous achievements over the last decade.’ Currently, it is unclear about the exact number of Dalio’s Bitcoin ownership.
Although Dalio has a stake in Bitcoin, he remains skeptical about the sustainability of the asset citing possible clampdown from authorities. As per a previous Finbold report, the billionaire predicted that Bitcoin might be banned, similar to gold in 1934.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
