ChatGPT, the text-based artificial intelligence (AI) platform, has been making waves in the financial sector by 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.
Recently, renowned billionaire investor and founder of the world’s largest hedge fund Bridgewater Associates, Ray Dalio, was asked by ChatGPT 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.
However, 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. Such an approach often leads to significant losses, leaving investors out of the game entirely.
“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,” the article stated.
Dalio 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. However, despite owning a stake in Bitcoin, he remains skeptical about the sustainability of the asset, citing possible clampdown from authorities.
In conclusion, Dalio’s principle of diversification highlights the importance of mitigating risks when investing. While investing in a single asset or a few concentrated bets may appear lucrative, it often leads to significant losses. Therefore, investors need to understand what they are good at, what they don’t know, and how to diversify well to have a good return relative to their risk.
