"Rule No. 1 - don't lose money": investment principles of Buffett, Dalio and 10 other gurus

The best way to learn is to look at those who have already proven their effectiveness. We studied the approaches of 12 recognized investment gurus, from Warren Buffett and Ray Dalio to Katie Wood and Seth Klarman. Some of them articulate principles directly, in the form of advice. For others, the recommendations can be extracted from the strategy and logic of actions. This text contains 12 ideas from recognized masters and three universal tips that every investor should keep in mind.

Select investments extremely carefully

Warren Buffett is one of the most famous and successful investors in history. Under his stewardship, Berkshire Hathaway has grown from an unprofitable textile company to an investment holding company worth more than a trillion dollars. Since 1965, when he took over, the average annual return to its investors has has been about 20% - nearly double the S&P 500 index's 10.4% gain over the same period.

Many of his sayings have become aphorisms: "Rule #1 - never lose money. Rule #2 - never forget rule #1," "Be cautious when others are greedy and greedy when others are cautious," "It is better to buy a great company at a fair price than a mediocre one at a great price." These principles reflect Buffett's overall philosophy: invest thoughtfully, disciplined and selectively. He suggests envisioning his portfolio as a punch card with 20 slots - as if an investor could choose only 20 companies over a lifetime. This approach helps you avoid hasty decisions and focus on truly solid ideas.

The priority at the beginning is not strategy, but startup capital

Charlie Munger (1924-2023) was Warren Buffett's closest partner and vice president of Berkshire Hathaway. For more than 45 years, he ran the Daily Journal Corporation, a media holding company, where he used his free money to create an investment portfolio now worth about $300 million;

One of Munger's top tips is to focus on accumulating the first $100,000. "It's hard as hell, but you have to do it. I don't care what you have to do to do it - whether it's walking everywhere or eating out with coupons - find a way to accumulate that $100,000. After that, you can slow down a little bit," said he. 

Munger repeatedly emphasizes that this is the stage that requires the most effort, discipline and sacrifice. But once this milestone is passed, the accumulation goes easier: the money starts working for you, and compound interest triggers the growth of the fortune. 

Bet not on profitability, but on reliability and predictability

Michael Larson is the chief investment officer of Cascade Investment and manager of the assets of Bill Gates and the Gates Foundation since 1994. Under his leadership, Gates' fortune grew from $5 billion to more than $130 billion.

Larson's strategy is to "stay out of the headlines" and provide stable returns without dramatic swings. Larson says it's important for large estates not to chase maximum returns, but to provide sustainable capital gains: "The point is not for Bill to get richer than the Sultan of Brunei," he says, explaining his conservative approach and focus on stable results. That strategy proved viable during the 2008 crisis: the portfolio Larson assembled was more defensive than the Dow Jones index;

Michael Larson prefers "boring" businesses - companies with predictable cash flows, reasonable valuations and sustainable competitive advantages. In making his selections, he analyzes financial statements, evaluating debt load, dividend policy and management quality. He recommends that novice investors bet on reliability rather than hype, as this brings more stable results in the long run. Larson makes portfolio changes no more than once or twice a year. He advises not to read the financial news every day, not to panic in a crisis and not to revise your strategy frequently.

Invest in what the market is undervaluing - if confident, act without hesitation

Carl Icahn is the founder and principal owner of Icahn Capital Management and Icahn Enterprises L.P. He opened his first brokerage firm, Icahn & Company, in 1968 and by the late 1970s had become known for aggressive stock-buying strategies and corporate acquisitions;

Icahn bets on undervalued companies. These are usually businesses with temporary problems or unattractive reporting, but strong fundamentals. "You have to buy what the world thinks is crazy," says Icahn. If you are confident in an investment opportunity, make a large investment - that's Icahn's principle. 

At the same time, Icahn warns investors about the two main mistakes he calls "deadly sins": acting impulsively and not acting at all. But the most important thing, he says, is to enjoy the process itself: investing should be not only a source of profit, but also an intellectual pursuit.

Look at price, not reputation.

Michael Burry is the founder of the hedge fund Scion Capital (2000-2008) and then Scion Asset Management. Bjurri became famous for predicting the 2007-2008 mortgage crisis and earning money from it. This story was the basis for the book and movie "The Downgrade Game";

Michael Burry builds an investment strategy based on deep analysis, strict risk control, and what he himself calls "ick investing". It's about investing in assets that most investors reject - because of a troubled reputation, ethical or environmental risks, poor reporting, or an outdated business model. Bjurri prefers to focus on price rather than issuer reputation - because these are the assets that often have minimal correlation to the market and an optimal risk/return ratio.

One example of this approach is Burry's investment in the stock of Quipp Inc. a manufacturer of newspaper equipment. Because of declining interest in print media, the papers were considered unpromising. However, with a capitalization of $38 million, the company generated $14.4 million in free cash flow over three years with capital expenditures of just $1 million. The stock was trading at a discount to book value, and the entire business was valued at less than two years' earnings. There are no exact returns on the deal, but analysts talk about the possibility of a two- to three-fold capital appreciation in two years.

Don't wait for the perfect moment - start investing with what you have

Ken Griffin is the founder and CEO of Citadel LLC, one of the most profitable financial services companies in history, which manages over $65 billion in assets. 

Griffin believes youth is an investor's advantage: "When you're in your twenties, what's the worst thing that can happen? It's not a big deal. But if you start a venture at 40, the potential losses are much higher." The main thing is not to wait for the perfect moment, but to develop a clear plan: with clear criteria by which decisions are made;

That said, Griffin warns against the strategy of following the crowd, especially when it comes to protecting capital. "In finance, when you play defense, you almost certainly lose," he says. He advises caution about popular "safe" investments, which become overvalued when everyone goes all in. If the main goal is to keep your money safe, it's smarter to just hold cache rather than buy assets that are already overvalued.

Evaluate by checklist and adhere strictly to the plan

Bill Ackman is the founder and CEO of Pershing Square Capital Management. Under his leadership, the fund has achieved an average annualized return of 16.5% since 2004, outperforming the S&P 500's 10.2%. 

Ackman developed a system of eight criteria by which he selects companies for investment. These include simplicity and predictability of the business model, industry or niche leadership, strong brands, high protection from competitors, minimal exposure to external risks, and professional management;

"When we deviated from these eight principles, we lost money," Ackman admits. Tablets with these principles stand on the desks of Pershing Square employees.

Buy stocks only in companies that you are willing to own outright

Li Lu is a Chinese-American investor, founder of Himalaya Capital Management and the only manager to whom Charlie Munger entrusted the family capital. At the age of 23, he emigrated to the United States. At 31, Li Lu founded Himalaya Capital Management, which today manages over $2.2 billion in assets. 

One of Li Lu's main principles is, "Fish where the fish are." He advises to look for undervalued companies with strong fundamentals in segments with the highest probability of high returns.

In addition, Li Lu emphasizes the importance of treating a stock as a share in a real business. "A share is not just a security for sale. It is an ownership stake in a company," says he. An investor should think like a co-owner, assessing the quality of the business, its strategy, team, sustainability and competitive advantage. One of the key questions he recommends asking before buying: if there was an opportunity to buy the entire company at the current price - would you take that deal? If not, it doesn't make sense to buy individual shares of that company. According to Lu, the essence of investing is "to become a co-owner of a great business at a reasonable price and hold on to it for as long as possible."

Invest in businesses that can transform industries

Katie Wood is the founder and head of ARK Invest. She started her career at Capital Group and then spent almost two decades at Jennison Associates, where she worked her way up from economist to managing director and portfolio manager. In 2014, after failing to gain support for actively managed ETFs, Wood decided to go it alone: she invested about $5 million of her own money in ARK Invest.

Kathy Wood focuses on so-called disruptive innovations - technologies that can radically change established markets. She identifies five areas with the greatest potential: artificial intelligence, DNA sequencing, robotics, energy storage and blockchain. According to her prediction, these technologies could add more than $50 trillion in new market value to the world in 10-15 years. The key is to find companies that reduce costs, make products more affordable, and can change entire industries.

Wood advises newcomers to be patient: the effect of innovation is not immediately apparent. Her preferred investment horizon is seven years or more;

Buy assets at a marked discount to their real value

Seth Klarman is the founder and CEO of Baupost Group, with about $23 billion in assets. His book Margin of Safety, in which he talks about his safety margin strategy, has become a classic. The application of this principle gave Klarman and his fund an average annualized return of 20%. 

"Safety margin" is the difference between the intrinsic value of an asset and its current market price. For example, if the intrinsic value of a company is $100 per share and an investor buys it for $70, the margin of safety is 30%. This discount creates a protective buffer against analytical errors, market volatility, or changes in the business.

Klarman believes that you should invest only if you have a margin of safety. This does not guarantee that everything will go perfectly, but it protects you from serious losses and helps you make decisions calmly, without panic. According to him, the main goal of an investor is to avoid losses. This approach requires stamina and patience, but it protects against losses and increases the likelihood of a stable result. He also prefers companies with tangible assets that are easier to value and harder to revalue.

Analyze not only the information itself, but also how it is perceived and valued by the market

Howard Marks is co-founder and chairman of Oaktree Capital Management, which manages more than $200 billion in assets. In 2008, Oaktree assembled the largest distressed debt fund in history ($10.9 billion). Marks is known for his policy briefs ("memoranda").

Howard Marks advises novice investors to develop second-level thinking - the ability to think deeper and broader than most. This means not just reacting to obvious facts like "the company is growing, so it's worth buying," but asking more complex questions: what does the market already know? Are these expectations factored into the price? Are there risks that everyone is ignoring? This approach helps you avoid typical mistakes and see the situation from a more realistic and sober perspective.

Second-level thinking is the willingness to analyze not only facts but also the behavior of other market participants, to go against the crowd when justified, and to soberly assess risks. According to Marx, an outstanding investor is not someone who is always right, but someone who is able to see more and deeper: not only potential returns, but also possible losses, including their secondary consequences. This approach allows for more sustainable and informed decision-making.

Diversify not by asset but by risk type

Ray Dalio is the founder of Bridgewater Associates, an investment firm that specializes in asset management for institutional clients: pension funds, endowments, sovereign wealth funds, governments, and central banks. 

Dalio believes that a portfolio should be prepared for any economic scenario - growth, recession, inflation or deflation. For this purpose, he developed the All Weather strategy, based not on forecasts but on balanced risk allocation. The key idea is not just to diversify assets, but to spread the risks so that none of them can seriously affect the entire portfolio.

The classical model includes stocks, various bonds, gold and commodities. These assets react differently to changes in the economy: stocks win in the growth phase, bonds provide stability during recession, gold and commodities insure against inflation. Another principle of the strategy is regular rebalancing: profits are locked in and assets that have fallen in price are bought back. In March 2025, Bridgewater issued an ETF based on this model;

Every investor has a different style and approach: some bet on technological innovation, others on fundamental values. But there are basic principles that most outstanding investors have in common. It is with these that those who are taking their first steps in investing should start.

1. Risk management and diversification

Perhaps the main general advice is not to put everything on one card. Michael Larson, Bill Gates' asset manager, builds portfolios on different sectors: real estate, infrastructure, industrial and technology companies. Even Warren Buffett, despite criticizing over-diversification, advises novice investors to start with 15-20 companies from different industries.

2. Long-term horizon

"Buy only what you would be happy to hold if the market closed for 10 years," Buffett says. This idea is shared by Bill Ackman and others. In their opinion, short-term fluctuations should not affect the strategy - the main thing is that the investor should have a clear thesis and time to realize it;

3. Recognize and analyze mistakes

Almost all high-level investors talk openly about their failures. Buffett called buying Berkshire Hathaway "the dumbest stock," and Carl Icahn called losses  from investments in Hertz and Blockbuster important lessons. "If you can't react calmly to a dip, you're going to have a very short career," warns Ken Griffin. The gurus advise treating mistakes not as defeats, but as a source of experience that helps you improve your strategy.

This article was AI-translated and verified by a human editor