What is the Holy Grail of Investing?

04/06/2022 09:25 AM By Matt Ratliff

Today in Matt’s minute, he introduces us to the "Holy Grail of Investing" according to Ray Dalio, the Chief Investment Officer of the world's largest hedge fund.  We've talked about diversification in a prior video, specifically about a time based way to diversify.  

But, back to Ray Dalio.  He says, "“Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.”  mathematician would tell us its all about weighted averages, covariances, etc.  But let's face it, math or no math,  diversification is a main strategy for many people, just ask a farmer about eggs and baskets..  

Watch this video for more information, including a example.  Then ask yourself, "Am I using diversification strategies to provide better risk adjusted returns?"  Comment below and let us know.

What is Diversification?
Diversification is an investment strategy with a goal of blending a wide variety of assets to limit or minimize the overall portfolio risk from a single (or multiple) underperforming asset.  
What are the ways to Diversify?

Typical diversification includes spreading your portfolio across multiple asset classes, industries, and geographies.  

What is the key to Diversification?

Is there a key?  Well, probably and it has a lot to do with mixing differently correlated assets to achieve balance and leverage.  Balance and leverage, is that important?  If you want to grow consistently, it is.

If this is the Holy Grail, then why do so many get it wrong?

That is an excellent question, and yes many get it wrong.  There are many reasons- some mathematical, some educational, and many emotionally.  A wise investor studies the reasons.

Matt Ratliff