24 December 2014
How to make money like a billionaire
1. Don’t lose. Every single one of these masters, while driven to deliver extraordinary returns, is more obsessed with not losing money. Even the world’s greatest hedge fund managers, who you’d think would be comfortable taking huge risks, are actually laser-focused on protecting their downside. From Ray Dalio (the founder of the largest hedge fund on the planet) to Kyle Bass (who turned $30 million in investments into $2 billion in two years) to Paul Tudor Jones (one of the top 10 financial traders since 1993), they understand implicitly that if you don’t lose, you live to fight another day.
As Jones said: “I care deeply about making money. I want to know I’m not losing it . . . The most important thing for me is that defense is 10 times more important than offense . . . You have to be very focused on the downside at all times.”
And this statement comes from a guy who’s made money for his clients for 28 consecutive years. It’s so simple, but I can’t emphasize it enough. Why? If you lose 50%, it takes 100% to make it back to where you started — and that requires the one thing you can never make more of: time.
2. Risk a little to make a lot. While most investors are trying to find a way to make a “good” return, each of these famed investors, without exception, looks for something completely different: home runs! They live to uncover investments where they can risk a little and make a lot. They call it asymmetric risk/reward.
Sir John Templeton’s path to great gains with the least risk was not to buy the market, but waiting until, as the 18th-century English nobleman Baron Rothschild put it, there is “blood in the streets” and everybody is desperate to sell. That’s when you pick up the best bargains. John D. Rockefeller also built his massive fortune on this notion.
All great investors have to make decisions with limited information.
Jones, on the other hand, follows trends in the market. But, as he told me, he doesn’t make an investment until he can potentially get a return of at least $5 for every $1 he risks. And that, he says, is a $150,000 MBA in a nutshell!
3. Anticipate and diversify. To find the best opportunity for asymmetric risk/reward, the best of the best anticipate. They do their homework until they know in their gut that they are right — or not.
And to protect themselves from being wrong, they anticipate failure by diversifying. Because in the end, all great investors have to make decisions with limited information. When I interviewed Kyle Bass’s former partner Mark Hart, he told me, “A lot of brilliant people are terrible investors. The reason is that they don’t have the ability to make decisions with limited information. By the time you get all the information, everyone else knows it and you no longer have the edge.” T. Boone Pickens (billionaire chairman and CEO of BP Capital Management) puts it this way: “Most people say, ‘Ready? Aim! … Aim! . . .’ But they never fire.”
Anticipation is about skating to where the puck is going to be. Diversification is about wearing pads in case you miss the puck and fall on your face when you take your shot.
4. You’re never done. Contrary to what most people would expect, this group of achievers is never done! They’re never done learning, never done earning, never done growing; they’re never done giving! No matter how well they’ve done, or how well they’ve continued to do, they never lose their hunger — the force that unleashes human genius. Most people would think, “If I had all this money, I would just stop. Why keep working?”
Why? Because each of these achievers believes, somewhere in his or her soul, “that to whom much is given, much is expected.” Their labor is their love.
As Jones said: “I care deeply about making money. I want to know I’m not losing it . . . The most important thing for me is that defense is 10 times more important than offense . . . You have to be very focused on the downside at all times.”
And this statement comes from a guy who’s made money for his clients for 28 consecutive years. It’s so simple, but I can’t emphasize it enough. Why? If you lose 50%, it takes 100% to make it back to where you started — and that requires the one thing you can never make more of: time.
2. Risk a little to make a lot. While most investors are trying to find a way to make a “good” return, each of these famed investors, without exception, looks for something completely different: home runs! They live to uncover investments where they can risk a little and make a lot. They call it asymmetric risk/reward.
Sir John Templeton’s path to great gains with the least risk was not to buy the market, but waiting until, as the 18th-century English nobleman Baron Rothschild put it, there is “blood in the streets” and everybody is desperate to sell. That’s when you pick up the best bargains. John D. Rockefeller also built his massive fortune on this notion.
All great investors have to make decisions with limited information.
Jones, on the other hand, follows trends in the market. But, as he told me, he doesn’t make an investment until he can potentially get a return of at least $5 for every $1 he risks. And that, he says, is a $150,000 MBA in a nutshell!
3. Anticipate and diversify. To find the best opportunity for asymmetric risk/reward, the best of the best anticipate. They do their homework until they know in their gut that they are right — or not.
And to protect themselves from being wrong, they anticipate failure by diversifying. Because in the end, all great investors have to make decisions with limited information. When I interviewed Kyle Bass’s former partner Mark Hart, he told me, “A lot of brilliant people are terrible investors. The reason is that they don’t have the ability to make decisions with limited information. By the time you get all the information, everyone else knows it and you no longer have the edge.” T. Boone Pickens (billionaire chairman and CEO of BP Capital Management) puts it this way: “Most people say, ‘Ready? Aim! … Aim! . . .’ But they never fire.”
Anticipation is about skating to where the puck is going to be. Diversification is about wearing pads in case you miss the puck and fall on your face when you take your shot.
4. You’re never done. Contrary to what most people would expect, this group of achievers is never done! They’re never done learning, never done earning, never done growing; they’re never done giving! No matter how well they’ve done, or how well they’ve continued to do, they never lose their hunger — the force that unleashes human genius. Most people would think, “If I had all this money, I would just stop. Why keep working?”
Why? Because each of these achievers believes, somewhere in his or her soul, “that to whom much is given, much is expected.” Their labor is their love.
