Anybody read Ray Dalio's latest?

[ZachTB]

It's called "The Changing World Order" and is currently available at https://www.principles.com/the-changing-world-order/.

In this series, Dalio studies the cycles of several empires throughout history. He then attempts to apply these lessons to the present day.

We have some astute individuals in this forum, and I would like to get the perspectives of other folks. Is Dalio right? Wrong? Overlooking any key aspects or points?

 

[Midpack]

Sounds a lot like The March of the Millennia: A Key to Looking at History by Isaac Asimov published in 1992.

 

[triangle]

He may be right, but like all economic events or stock market predictions is being too early the same thing as being wrong?? I expect that his new book will be quite interesting and informative...better than most. But I am doubtful it will be actionable in terms of making any near term investment decisions.

He often talks about economic super cycles in interviews. He presents the basic idea clearly in this this youtube video which is now 7 years old:

 

[Lsbcal]

I find Dalio to be a sincere guy, but he never really gives anything away. His broad views are mushy and cannot really be used in a pragmatic way ... by me at least. I haven't seen much in the way of cogent comments that can be used right now in the markets.

Am I being too harsh?

 

[Midpack]

I find Dalio to be a sincere guy, but he never really gives anything away. His broad views are mushy and cannot really be used in a pragmatic way ... by me at least. I haven't seen much in the way of cogent comments that can be used right now in the markets.

Am I being too harsh?

Good question. His financial success gives him credibility, so does his well researched POV. But his pessimistic views are bound to come to pass to some extent eventually. Is that predictive? Same thing with all permabears…

I mentioned Asimov’s 1992 March of the Millenia earlier, that’s an even more provocative but related notion in my view. No great civilization/empire/“super power” has persisted, all have had a rise and eventual fall, Egypt, the Greeks, the Romans, the Aztecs. The twentieth century saw the collapse of seven great empires – Mandarin China, Germany, Austria-Hungary, Ottoman Turkey, Japan, the British empire, and twice over in the case of Tsarist and Soviet Russia. Why would the United States be any different sooner or later? China is on the ascent again.

 

[ZachTB]

Sounds a lot like The March of the Millennia: A Key to Looking at History by Isaac Asimov published in 1992.

Thanks for the recommendation! Asimov is obviously a legend; I'll have to check it out

 

[ZachTB]

He may be right, but like all economic events or stock market predictions is being too early the same thing as being wrong?? I expect that his new book will be quite interesting and informative...better than most. But I am doubtful it will be actionable in terms of making any near term investment decisions.

He often talks about economic super cycles in interviews. He presents the basic idea clearly in this this youtube video which is now 7 years old

Thanks Triangle, I have seen that video. That's what prompted me to look into his work a bit more; hence why I found The Changing World Order

>Is being too early the same thing as being wrong?

An interesting question! Sort of...

He does say in there somewhere that he expects China to overtake the US on a number of key 'power' indicators within the next 5-10 years. That's specific enough that we could gather in 2031 and see whether he was right or wrong. [I bet he's probably correct, or even overly optimistic, in that assessment.]

But in general, I guess predicting that "X will occur by 2028" and it doesn't actually happen until 2032 means you were right on the general idea, but wrong on the specifics.

I'd agree that he's not making specific recommendations, but I think his work implies that investing internationally (particularly in emerging markets, especially China) would be a wise course for the long-term. And, since I'm currently in my early 30s, that's a move I've been considering for years and am now actively planning to execute.

I'm looking into the best low-cost index fund to implement this strategy. I'm also considering the proper allocation for this move--10%? 20%? 25%? [Probably not 25%, not right now anyway.]

 

[ZachTB]

I find Dalio to be a sincere guy, but he never really gives anything away. His broad views are mushy and cannot really be used in a pragmatic way ... by me at least. I haven't seen much in the way of cogent comments that can be used right now in the markets.

Am I being too harsh?

Nah, not really...but I suppose he assumes he's speaking to an audience that already knows what to do with those broad views.

Or perhaps he intentionally keeps it broad, and just answers questions with "Invest with Bridgewater and we'll take care of it for you!"

 

[foxcreek9]

Good question. His financial success gives him credibility, so does his well researched POV. But his pessimistic views are bound to come to pass to some extent eventually. Is that predictive? Same thing with all permabears…

I mentioned Asimov’s 1992 March of the Millenia earlier, that’s an even more provocative but related notion in my view. No great civilization/empire/“super power” has persisted, all have had a rise and eventual fall, Egypt, the Greeks, the Romans, the Aztecs. The twentieth century saw the collapse of seven great empires – Mandarin China, Germany, Austria-Hungary, Ottoman Turkey, Japan, the British empire, and twice over in the case of Tsarist and Soviet Russia. Why would the United States be any different sooner or later? China is on the ascent again.

I agree with with the exception of China, they are on the decend because of the one child debacle, which makes them dangerous in the short term (10-20 years). Their chance to expand their empire is now or never.

 

[triangle]

Thanks Triangle, I have seen that video. That's what prompted me to look into his work a bit more; hence why I found The Changing World Order

>Is being too early the same thing as being wrong?

An interesting question! Sort of...

He does say in there somewhere that he expects China to overtake the US on a number of key 'power' indicators within the next 5-10 years. That's specific enough that we could gather in 2031 and see whether he was right or wrong. [I bet he's probably correct, or even overly optimistic, in that assessment.]

But in general, I guess predicting that "X will occur by 2028" and it doesn't actually happen until 2032 means you were right on the general idea, but wrong on the specifics.

I'd agree that he's not making specific recommendations, but I think his work implies that investing internationally (particularly in emerging markets, especially China) would be a wise course for the long-term. And, since I'm currently in my early 30s, that's a move I've been considering for years and am now actively planning to execute.

I'm looking into the best low-cost index fund to implement this strategy. I'm also considering the proper allocation for this move--10%? 20%? 25%? [Probably not 25%, not right now anyway.]

I agree that being generally correct and in the right direction is about the best one can hope to achieve. I use to think over weighting emerging market investing was a good strategy for someone with a long time horizon, and maybe it is still wise to overweight. But I think there are also factors working against those future returns. Primarily the governments and societies of those various emerging markets. While many have the point-of-view that the US is not what it use to be in terms of debt load, sound money policy, reserve currency status, rule of law, societal cohesion, military power, etc.; it is arguably worse in many of other countries. For example how can one really trust financial reporting standards of China or Russia, or how does a company deal with governmental corruption that is a hidden tax on business operations. US infrastructure is strained, but compare that with India or other emerging markets. My main point is that places which appear to have more potential, may not get realized. With multi-national companies some worldwide exposure is embedded within. Still those places with faster growing economies do look enticing.

 

[ZachTB]

I agree that being generally correct and in the right direction is about the best one can hope to achieve. I use to think over weighting emerging market investing was a good strategy for someone with a long time horizon, and maybe it is still wise to overweight. But I think there are also factors working against those future returns. Primarily the governments and societies of those various emerging markets. While many have the point-of-view that the US is not what it use to be in terms of debt load, sound money policy, reserve currency status, rule of law, societal cohesion, military power, etc.; it is arguably worse in many of other countries. For example how can one really trust financial reporting standards of China or Russia, or how does a company deal with governmental corruption that is a hidden tax on business operations. US infrastructure is strained, but compare that with India or other emerging markets. My main point is that places which appear to have more potential, may not get realized. With multi-national companies some worldwide exposure is embedded within. Still those places with faster growing economies do look enticing.

Thanks--this is a good reminder that potential doesn't always get realized. I guess that's the point of diversification (both within a single country and between countries). I just bought shares in an emerging markets index fund; it currently holds over 5200 companies. The latest information I can find specifies that there are 27 different countries.

This emerging markets fund represents approximately 5% of my overall investment money, and my total international exposure is a little over 15% of my overall investments.

So I definitely have plenty of room to expand my international investments. The million-dollar question is how much to expand them.

Since I'm relatively young (in my early thirties), and have spent half my life believing that the United States is a declining power and therefore has less growth potential than it used to, I believe it would be prudent to invest more heavily in international markets going forward. You suggested that might be a possibility for someone with a long time horizon, so it would seem that we're in agreement.

Currently, over half my equities are held in U.S.-based companies, and my bond fund is U.S.-only [at least as far as I can find].

I'm not necessarily a pessimist regarding the future of America; I simply believe that America's biggest periods of growth are behind it and that other countries have more opportunity to grow.

Probably the clearest way to put it is that I believe America is mostly a matured country at this point--there's not so much room for growth. Other countries have vastly more room for economic growth, but the flip side is that they face more challenges and difficulties as well. Will they overcome those challenges? I'm sure that some will and others won't. Hence, broad diversification

 

[ZachTB]

I agree with with the exception of China, they are on the decend because of the one child debacle, which makes them dangerous in the short term (10-20 years). Their chance to expand their empire is now or never.

That's an interesting point!

Right now, they do look like the clearest threat to American supremacy. I suppose we'll see what happens to them once their population starts to decline. Will they be able to maintain their power?

I suppose we'll all have to watch and see what happens; their culture is very different from America's so I'm sure they'll handle that challenge differently than we would.

 

[Lsbcal]

Thanks--this is a good reminder that potential doesn't always get realized. I guess that's the point of diversification (both within a single country and between countries). I just bought shares in an emerging markets index fund; it currently holds over 5200 companies. The latest information I can find specifies that there are 27 different countries.

This emerging markets fund represents approximately 5% of my overall investment money, and my total international exposure is a little over 15% of my overall investments.

So I definitely have plenty of room to expand my international investments. The million-dollar question is how much to expand them.

Since I'm relatively young (in my early thirties), and have spent half my life believing that the United States is a declining power and therefore has less growth potential than it used to, I believe it would be prudent to invest more heavily in international markets going forward. You suggested that might be a possibility for someone with a long time horizon, so it would seem that we're in agreement.

Currently, over half my equities are held in U.S.-based companies, and my bond fund is U.S.-only [at least as far as I can find].

I'm not necessarily a pessimist regarding the future of America; I simply believe that America's biggest periods of growth are behind it and that other countries have more opportunity to grow.

Probably the clearest way to put it is that I believe America is mostly a matured country at this point--there's not so much room for growth. Other countries have vastly more room for economic growth, but the flip side is that they face more challenges and difficulties as well. Will they overcome those challenges? I'm sure that some will and other won't. Hence, broad diversification

This idea of US relative decline has not worked over recent years. It especially has not worked over the last year. First US growth did fantastic and in recent months it is US value (especially small/mid caps).

I would put small cap international ahead of "emerging international". That is my conclusion after looking at backtests over the last 30 years or so

I think one should be pragmatic instead of investing with a broad great powers view.

 

[ZachTB]

This idea of US relative decline has not worked over recent years. It especially has not worked over the last year. First US growth did fantastic and in recent months it is US value (especially small/mid caps).

I would put small cap international ahead of "emerging international". That is my conclusion after looking at backtests over the last 30 years or so

I think one should be pragmatic instead of investing with a broad great powers view.

Instead of "decline," perhaps I should say I perceive America's "declining influence" or "declining power," which is not necessarily the same as economic decline. Indeed, I 'bought the dip' during COVID, and my investments have done exceedingly well since then.

I realize that will not continue infinitely, so I'm trying to enjoy it while I can, while learning how to effectively diversify to protect myself against future dips. Paul Merriman's work has been very helpful in this regard.

I actually bought an international value fund as well, at the same time that I bought the emerging markets fund (and in the same dollar amount). While that's not the same as small-cap, I do believe it tilts my portfolio in the direction I'm seeking.

Regarding your last line--I'm not sure I understand what you mean. Could you clarify?

 

[Markola]

That's an interesting point!



Right now, they do look like the clearest threat to American supremacy. I suppose we'll see what happens to them once their population starts to decline. Will they be able to maintain their power?



I suppose we'll all have to watch and see what happens; their culture is very different from America's so I'm sure they'll handle that challenge differently than we would.

+1. Very interesting point about China. And if one doesn’t think an overwhelmingly aging population isn’t real, study Japan. I can’t remember the recent podcast but an expert projected a halving of the Japanese population in the next few decades. I guess I’d rather have our problems.

 

[Lsbcal]

Instead of "decline," perhaps I should say I perceive America's "declining influence" or "declining power," which is not necessarily the same as economic decline. Indeed, I 'bought the dip' during COVID, and my investments have done exceedingly well since then.

I realize that will not continue infinitely, so I'm trying to enjoy it while I can, while learning how to effectively diversify to protect myself against future dips. Paul Merriman's work has been very helpful in this regard.

I actually bought an international value fund as well, at the same time that I bought the emerging markets fund (and in the same dollar amount). While that's not the same as small-cap, I do believe it tilts my portfolio in the direction I'm seeking.

Regarding your last line--I'm not sure I understand what you mean. Could you clarify?

I guess what I was thinking in that last sentence above is not to have too fixed a mixture of asset classes. Not to be trying too hard to pick longer term winners. For instance, although I allocate about 30% currently to international this allocation is provisional. I would select from these choices (1) international small, (2) international large, or (3) the SP500.

This is based on successful methodology with backtest results over a few decades. I have been doing this sort of thing for over 10 years. It avoided being in international equities in large part over those years as the US has done better. It is done in taxed advantaged accounts. It requires a few switches a year but not too many switches. It tries to tease out long term trends but is not married to one choice.

I am not suggesting this as everyone's cup of tea. Just as an example of not having too fixed of a world view. Many want a fixed mix (set and forget) and that could work too.

 

[Navigator]

Ray Dalio strikes me as a dilettante who has not done his homework. There are professional economists and historians who spend their careers looking at the questions he asks, but he does not refer to any of their previous work. Civilizations fall when they become increasingly complex. These complex societies are then hit with a series of disasters that the system cannot handle. For example, the US has survived the COVID pandemic and the resulting disruption in trade. If the super volcano in Yellowstone had erupted at the same time, it might not have. When one economic power is eclipsed by another, that is not necessarily a bad thing. For example, the US surpassed the UK as the major economic and political world power in the early 20th century. The UK has greatly prospered since then.

Ray Dalio may be smart, but I wish he took into account and the collective knowledge of many other smart people who have studied these questions for their entire careers.

 

[triangle]

...
Probably the clearest way to put it is that I believe America is mostly a matured country at this point--there's not so much room for growth. Other countries have vastly more room for economic growth, but the flip side is that they face more challenges and difficulties as well. Will they overcome those challenges? I'm sure that some will and others won't. Hence, broad diversification

I think diversification is always a good idea. The closest thing to a free lunch in the investing world. Not a path to maximize returns but a path to avoid minimizing returns.

A big counterpoint to the western worlds economic decline as compared to emerging markets is the cycle of invention that is highlighted/championed by people like Cathie Wood. It is worth listening to some of her presentations related to ARK Invest. While I think she is overly optimistic about some individual companies and some of the impacts, I believe she makes many good points. I don't think much of this innovation is going to come from emerging markets.

 

[triangle]

Ray Dalio strikes me as a dilettante who has not done his homework. There are professional economists and historians who spend their careers looking at the questions he asks, but he does not refer to any of their previous work. Civilizations fall when they become increasingly complex. These complex societies are then hit with a series of disasters that the system cannot handle. For example, the US has survived the COVID pandemic and the resulting disruption in trade. If the super volcano in Yellowstone had erupted at the same time, it might not have. When one economic power is eclipsed by another, that is not necessarily a bad thing. For example, the US surpassed the UK as the major economic and political world power in the early 20th century. The UK has greatly prospered since then.

Ray Dalio may be smart, but I wish he took into account and the collective knowledge of many other smart people who have studied these questions for their entire careers.

Appears that Ray Dalio has written a "big picture" book based on history, so I don't understand how he could not have taken prior knowledge in forming his opinions and presenting information. When he was interviewed recently about his upcoming book and current economic issues I came away with the impression that he was trying to pass knowledge forward to the next generation. Maybe there was some self-serving there as well as he wants to be a respected figure in his industry, but nothing that other authors would not project.

I have not studied history enough to have a strong opinion, but has not the failings of most empires not been due to excessive debt as a leading/common factor? Complexity has been ever increasing over time, and seems to be much less of a factor. But when an empire is stretched with debt (or war and debt) and can no longer serve the population it implodes.

 

[Markola]

Who says being an empire is the objective of history? Switzerland is not an empire. Sweden is not, nor Luxembourg, nor Canada. There are lots of pretty nice, advanced places in the world that haven’t been part of proper empires for centuries that still take care of their citizens.

 

[ZachTB]

I guess what I was thinking in that last sentence above is not to have too fixed a mixture of asset classes. Not to be trying too hard to pick longer term winners. For instance, although I allocate about 30% currently to international this allocation is provisional. I would select from these choices (1) international small, (2) international large, or (3) the SP500.

...

I am not suggesting this as everyone's cup of tea. Just as an example of not having too fixed of a world view. Many want a fixed mix (set and forget) and that could work too.

OK thank you for clarifying; that makes a lot of sense! I guess that means I'm also dipping my toes into the 'flexible asset allocation' waters

 

[ZachTB]

Ray Dalio strikes me as a dilettante who has not done his homework. There are professional economists and historians who spend their careers looking at the questions he asks, but he does not refer to any of their previous work. Civilizations fall when they become increasingly complex. These complex societies are then hit with a series of disasters that the system cannot handle. For example, the US has survived the COVID pandemic and the resulting disruption in trade. If the super volcano in Yellowstone had erupted at the same time, it might not have. When one economic power is eclipsed by another, that is not necessarily a bad thing. For example, the US surpassed the UK as the major economic and political world power in the early 20th century. The UK has greatly prospered since then.

Ray Dalio may be smart, but I wish he took into account and the collective knowledge of many other smart people who have studied these questions for their entire careers.

In the book itself, Dalio did say that he ran his ideas past several historians and he made revisions based on their notes. Perhaps he just wasn't talking to the right people!

 

[ZachTB]

Who says being an empire is the objective of history?

I hope I didn't communicate that impression!

It's more along the lines of Dalio's observations that when an empire falls, it's rarely pretty. I believe he said it was the Netherlands that handled the decline as well as it could be handled, but I could be wrong.

Anyway, he described many cases throughout history where the decline was pretty painful, in economic terms and/or in terms of human suffering (typically a war between the current power and a rising challenger).