Distinguishing Big Problems From Small Ones

You only have so much time and energy; make sure you are investing them in exploring the problems that, if fixed, will yield you the biggest results. But at the same time, make sure you spend enough time with the small problems to make sure they’re not symptoms of larger ones.

A New World Order

The last period of destroying and restructuring happened in 1930-45, which led to the new period of building that began in 1945. More specifically, the 1930-45 depression, which was due to the breakdown and restructuring of the money and credit system, led to the new US dollar-based global monetary system (Bretton Woods) that was created in 1944. The large wealth gaps that came about in the Roaring ’20s were narrowed by the depression and war, which led to radical changes in how wealth and power were distributed, and the global war changed world leadership and the world order.  

So, in 1945 there was a new beginning with a new money and credit system that was US dollar-based and a new world order that was the American world order. That new American world order was the natural consequence of the US being the richest country (it then had 80% of the world’s gold stock and gold was then money), the dominant economic power (it then accounted for half of world production), and the dominant military power (it then had a monopoly on nuclear weapons and had the strongest conventional forces). It is now 75 years later and conditions have evolved in a number of measurable ways that we will explore in subsequent chapters. That will bring us up to date. Then we can attempt to squint into the future.

Principle of the Day: Knowing When Not To Bet

You can significantly improve your track record if you only make the bets that you are most confident will pay off. Knowing when not to bet is as important as knowing what bets are probably worth making.

How To Raise The Probability Of Being Right

By questioning experts individually and encouraging them to have thoughtful disagreement with each other that I can listen to and ask questions about, I both raise my probability of being right and become much better educated. Triangulate your view with believable people who are willing to disagree.

Our Performance

In order to make things clear about Bridgewater’s performance, I am sharing the note that I sent to Bridgewater’s clients just yesterday so that you can know what the real story is. Most investment managers and companies have not yet done that. You should expect that when they do there will be some very big shocking results. 

In brief summary, the performance results, while disappointing, are consistent with prior poor performing periods that we expect to happen about once every 10-15 years under extraordinary circumstances. Additionally the risk control processes that we have put into place are working as expected, which are reducing our losses in comparison to the broader market and many other investment managers. 

Here’s the full letter: Our Performance

Being Hyperrealistic

Understanding, accepting, and working with reality is both practical and beautiful. I have become so much of a hyperrealist that I’ve learned to appreciate the beauty of all realities, even harsh ones, and have come to despise impractical idealism. 

Don’t get me wrong: I believe in making dreams happen. My point is that people who create great things aren’t idle dreamers: They are totally grounded in reality. Being hyperrealistic will help you choose your dreams wisely and then achieve them.

U.S. Corporate Losses Will Hit $4 Trillion

"What’s happening with the coronavirus pandemic has not happened in our lifetimes before. What we have is a crisis. U.S. corporate losses from the coronavirus will hit $4 trillion."

 -  Ray Dalio, Bridgewater Associates

Related trading instruments: SPDR S&P 500 Trust ETF (SPY)

A Lesson In Risk Management

“We did not know how to navigate the virus and chose not to because we didn't think we had an edge in trading it. So, we stayed in our positions and in retrospect we should have cut all risk. We’re disappointed because we should have made money rather than lost money in this move the way we did in 2008.” 

- Ray Dalio speaking to the Financial Times

Periods of Turbulence: Risks & Opportunities

Periods of turbulence provide both large risks and large opportunities, so after you make sure that you and your people are safe from the risk of ruin, look for the opportunities. It is because at such times most people pay the most attention to the risks than the opportunities.

The Economic Impact Of The Coronavirus Outbreak Will Be Big

The negative economic impact of the coronavirus outbreak will probably be big, monetary policy will be of little use to counteract it, and co-ordination between political leaders and central bankers is both essential and unlikely.