After interviewing some of the wealthiest investors in the world, Tony Robbins found that there were 4 consistent principles and patterns that they all shared:
- Don’t lose. Not how can I make it, but how can I not lose. Warren Buffett said there are two rules in investing. The number one rule is don’t lose money. The second rule is don’t forget the first rule. Asset allocation is one of the ways that they reduce the risk of losing and protect themselves from surprises. Invest in such a way that you are expecting the unexpected.
- Go for Asymmetric risk reward. They don’t fall for high risk high reward. They patiently look for deals that offer a high reward with disproportionally low risk. Paul Tudor Jones has a 5 to 1 rule. He looks for investments with low risk that stand to make a 5x return. If he makes 5 investments of $1 each and only 2 of them pan out 5 to 1, he still doubles his money with a 40% batting average. When Warren Buffet buys a high-quality stock during a downturn his risk becomes low and his upside becomes huge. He looks for what he calls a large “Margin of Safety.”
- Plan for maximum tax efficiency. You won’t be able to accumulate wealth if all of your hard-earned money is going to Uncle Sam.
- Diversify. They invest little by little over time and they diversify across many asset classes. Ray Dalio said that no matter what class you are invested in, it will drop 50-70% at some point in time. If you are not diversified when that time comes you could severely break rule number 1.
Courage is not the absence of fear, it’s triumph in the face of fear. My hope is that you will use the principle and patterns of the some of the wealthiest people on earth to have triumph in the face of fear and create a financial foundation that is truly unshakeable.