Question
A small business can apply Ray Dalio's principle by first identifying opportunities or strategies in which they have high confidence. This could be a unique product, service, or business model. Once these 'bets' are identified, the business should diversify them well. This means not putting all resources into one opportunity, but spreading them across multiple to mitigate risk. This approach allows the business to capitalize on successful strategies while minimizing the impact of any single failure.
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The result was a way of investing independent of the underlying market performance. In creating alpha overlay as an investment management style, Dalio learned that part of being a successful investor involves only taking highly confident bets and then diversifying those bets well. Though alpha overlay is a common technique used today, it was his principles that allowed Bridgewater to invent the term and seek out a truth about their performance.
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