What are the forces that lead to the rise and fall of nations. Why does the U.S. appear to be in decline and what investors can do to prepare.
Topics covered include:
- An overview of Ray Dalio and Bridgewater Associates’ investment process
- Why human productivity is the most powerful force for creating wealth.
- Additional forces that contribute to nations increasing in power and wealth.
- Why being the reserve currency is an exorbitant privilege.
- What are factors that indicate a nation’s influence and power is in decline.
- What are 5 important monetary principles all investors should understand.
- What are the questions you should ask to gauge your economic well-being.
- What investments should you own to prepare for a changing world order.
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 300. It’s titled, “Ray Dalio and the Changing World Order.”
Ray Dalio founded the hedge fund Bridgewater Associates in 1975. He is the author of the best-selling book Principles. He’s a billionaire and an extremely successful investor. He has been writing a new book and sharing it online. He has shared 3 chapters and it’s about the changing world order.
Billy, a listener to the show, a member of Money for the Rest of Us, Plus, pointed out this new work by Dalio to me. And asked, “What can we as individuals do to prepare, and potentially profit, from the pending new world order, assuming Dalio is correct. Also, do you feel the replacement as the U.S. dollar as the world’s reserve currency is an inevitability, as Dalio proposes?”
I’m choosing this topic because there is much that Ray Dalio and I agree on. Many of the themes that are discussed in his new book we’ve covered on the podcast. So I thought it would be helpful because Dalio is such a renowned investor, he’s a deep thinker, he understands how markets and economies work, that it would be, in some ways, a great review of a number of the episodes that we’ve covered recently regarding financial markets, central banks, and currency.
Dalio’s Investment Process
Dalio shares his investment process, which is to look at many economic and political events over long periods of time in order to see what patterns exist. He calls them archetypes. And the cause and effect relationships. He’s seeking a higher-level big picture perspective, while also paying attention to details.
When an event is happening, or a series of events, he will compare them to his archetypes to see whether they’re following the archetype, the pattern, or how it might be different. This process of looking at patterns and then seeing if events that are occurring fit that pattern, this archetype, helps him to make investment decisions. What to do next given what is happening.
He sees the world as having long-term cycles, repeating patterns of prosperity, depression, war, bold, and bear markets. It’s a similar approach that we discussed in episode 224, profiling Howard Marks and his book Mastering the Market Cycle.
Great Investors Are Humble
What I like about Dalio and Marks is their humility. Great investors are humble. Dalio writes, “While I have learned an enormous amount that I will put to good use, I recognize that what I know is still only a tiny portion of what I’d like to know in order to be confident about my outlook for the future. Still, I know from experience that if I want to learn enough to be satisfied with my knowledge, I’d never be able to use or convey what I had learned.” Just take him too long because he was still trying to learn and learn and learn. At some point, you have to make an investment decision and choose.
He continues, “So please understand that while this study will provide you with my very top-down, big picture perspectives on what I’ve learned in my very low confidence outlook for the future, you should approach my conclusions as theories rather than facts.” That’s important. We’re going to look at his view, his big picture, top-down view, what can we learn from it, how does it relate to what we’ve discussed earlier in the podcast, and as Billy asked, what should we do about it?
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