Principles for Dealing with the Changing World Order, Ray Dalio

"Almost everyone talks about what is happening now and nobody talks about these big cycles, even though they are the biggest drivers of what is happening now."

 


"As I studied history, I saw that it typically transpires via relatively well-defined life cycles, like those of organisms, that evolve as each generation transitions to the next."


p. 2



"I believe that the reason people typically miss the big moments of evolution coming at them in life is because they experience only tiny pieces of what's happening. We are like ants preoccupied with our jobs of carrying crumbs in our very brief lifetimes instead of having a broader perspective of the big-picture patterns and cycles, the important interrelated things driving them, where we are within the cycles, and what's likely to transpire."


p. 8



"While I have learned an enormous amount that I will put to good use, I know that what I know is still only a tiny portion of what I need to know to be confident in my outlook for the future. I also know from experience that if I wait to learn enough to be satisfied with what I know before acting or sharing, I'd never be able to use or convey what I have learned. So please understand that while this study will provide you with my very top-down, big-picture perspective on what I've learned and my very low-confidence outlook for the future, you should approach my conclusions as theories rather than facts. Keep in mind that even with all of this, I have been wrong more times that I can remember, which is why I value diversification of my bets above all else. So please realize that I'm just doing the best I can to openly convey my thinking to you."


p. 17



"How this evolutions with big cycles around it happens also continues to evolve. For example, while ages ago agricultural land and agricultural production were worth the most and that evolved into machines and what they produced being worth the most, digital things that have no apparent physical existence (data and information processing) are now evolving to become worth the most. This is creating a fight over who obtains the data and how they use it to gain wealth and power."


p. 31



"What are these destruction/reconstruction periods like for the people who experience them? Since you likely haven't been through one of these and the stories about them are very scary, the prospect of being in one is worrisome to most people. It is true that these destruction/reconstruction periods have produced tremendous human suffering both financially and, more importantly, in lost or damaged human lives. While the consequences are worse for some people, virtually no one escapes the damage. Still, without minimizing them, history has shown us that typically the majority of people stay employed in depressions, are unharmed in shooting wars, and survive natural disasters."


p. 36



"While this boosts spending power over the short term, it weakens the country's financial health--and weakens the currency--over the longer term. In other words, when borrowing and spending our strong, the empire appears very strong but its finances are in fact being weakened because the borrowing sustains the country's power beyond its fundamentals by financing both domestic overconsumption and international military conflicts required to maintain the empire."


p. 48



"While many countries have natural resources that they are able to draw upon, human capital is the most sustainable capital because inherited assets that are drawn down eventually disappear, whereas human capital can exist forever."


p. 70



"Wealth Decline = Power Decline. There isn't an individual, organization, country, or empire that hasn't failed when it lost its buying power. To be successful one must earn an amount that is at least equal to the amount one spends. Those who spend modestly and have a surplus are more sustainably successful than those who earn a lot more and have deficits. History shows that when an individual, organization, country, or empire spends more than what they earn, misery and turbulence are ahead. History also shows that countries that have higher percentages of people who are self-sufficient tend to be more socially, politically, and economically stable."


p. 85



"The driver to tinker and invent, to discover, to improve from prior failures--this is how people learn and find new and better ways of creating things of value. In a market-based system, the most powerful way to drive innovation is to bring new ideas to market and to commercialize and profit from them. The marketplace is incredibly efficient at weeding out bad ideas and pricing good ones. In this way the concepts of innovation and commercialism go hand in hand. They capture whether people in a society value new knowledge and the creation of new things, and whether incentives are aligned to encourage them to seek a profit by commercializing them."


p. 90



"One timeless and universal truth that I saw go back as far as I studied history, since before Confucius who lived around 500 BCE, is that those societies that draw on the widest range of people and give them responsibilities based on their merit rather than privileges are the most sustainably successful because 1) they find the best talent to do their jobs well, 2) they have diversity of perspectives, and 3) they are perceived as the fairest, which fosters social stability."


p. 97



"History has shown that we shouldn't rely on governments to protect us financially. On the contrary, we should expect most governments to abuse their privileged positions as the creators and users of money and credit for the same reasons that you might commit those abuses if you were in their shoes. That is because no one policy maker owns the whole cycle. Each comes in at one or another part of it and does what is in their interest to do given their circumstances at the time and what they believe is best (including breaking promises, even though the way they collectively handle the whole cycle is bad)."


p. 122



"When one can manufacture money and credit and pass them out to everyone to make them happy, it is very hard to resist. the temptation to do so. It is a classic financial move. Throughout history, rulers have run up debts that won't come due until long after their own reigns are over, leaving it to their successors to pay the bill."


p. 123



"During this phase, the archetypical best leader is the "well-grounded, disciplined leader" who understands and conveys sound fundamental behaviors that yield productivity and sound finances and creates restraints when the crowd wants to overdo things. These leaders are the ones who lead the country to continue to reinvest a significant amount of their earnings and their time into being productive when they become richer. As mentioned, Lee Kuan Yew, the former prime minister of Singapore, ensured that his country and fellow citizens had the culture to become well-educated, disciplined, and of strong character even after becoming successful and rich. However, these leaders are few and far between because fighting the ebullience of the masses is very unpopular. In almost all cases, after becoming rich, the country (and its leaders) become decadent, overspend, borrow to finance excess consumption, and lost competitiveness."


p. 166



"My study of history has taught me that nothing is forever other than evolution, and within evolution there are cycles that are like tides that come in and go out and that are hard to change of fight against. To handle these changes well it is essential to know which stage of the cycle one is in and to know timeless and universal principles for dealing with it. As conditions change the best approaches change--i.e., what is best depends on the circumstances and the circumstances are always changing in the ways we just looked at. For that reason it is a mistake to rigidly believe that any economic or political system is always best because there will certainly be times when that system is not best fo the circumstances at hand, and if a society doesn't adapt it will die. That is why constantly reforming systems to adapt well is best. The test of any system is simply how well is works in delivering what most of the people want, and this can be objectively measured, which we can do and will continue to do. Having said that, the lesson from history that comes through most loudly and most clearly is that skilled collaborations to produce productive win-win relationships to both grow and divide the pie well, so that most people are happy, are much more rewarding and much less painful than fighting civil wars over wealth and power that lead to one side subjugating the other side."


p. 190



"Throughout history the desire to obtain money (by borrowing or selling stock) and the desire to save it (by investing through lending or buying stock) have been in a symbiotic relationship. This has led to growth in the form of buying power and eventually to many more promises to pay than can be delivered and broken-promises crises in the form of debt-default depressions and stock market crashes."


p. 223



"Most people pay attention to what they get and not where the money comes from to pay for it, so there are strong motivations for elected officials to spend a lot of borrowed money and make a lot of promises to give voters what they want and take on debt and non-debt liabilities that cause problems down the road. That was certainly the case in the 1990-2008 period."


p. 354



"I also came to understand how having so much history to study has affected the Chinese way of thinking, which is very different from the American way of thinking, which is much more focused on what is happening now. Most Americans believe their own history is just 300 or 400 years old (since they believe the country began with European settlement), and they aren't terribly interested in learning from it."


p. 378



"Mao's view of capitalism differs from my own because his experience with it was so different, though both of our views of it are true. Capitalism has provided me and most others I know, including immigrants from all over the world, with enormous opportunities. The America I came of age in was the land of opportunity, in which one could learn, contribute, and be rewarded fairly and without boundaries. This experience of seeing through another's eyes was another reminder for me of how important radical open-mindedness and thoughtful disagreement are to finding out what is true."


p. 395



"I'm not saying such moves are likely, but I do want to be clear that moves to cut off essential imports from either side would signal a major escalation that could lead to a much worse conflict."


p. 429



"History has taught us that when there are leadership transitions and/or weak leadership at the same time that there is big internal conflict, the risk of the enemy making an offensive move should be considered elevated. Because time is on China's side, if there is to be a war, it is in the interest of the Chinese to have it later (e.g., five to 10 years from now when it will likely be stronger and more self-sufficient) and in the interest of the US to have it sooner."


p. 447



"Know all the possibilities, think about the worst-case scenarios, and then find ways to eliminate the intolerable ones. Identifying and eliminating the intolerable worst-case scenarios comes first."


p. 504