Ray Dalio

It All Comes Down to the Strait of Hormuz: the Final Battle. When the war started in March, I shared this article explaining what was clear to me and what would likely happen. Now it is clear that it is happening and we will soon have the final battle and its result.

People who achieve success and drive progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want. The converse is also true: Idealists who are not well grounded in reality create problems, not progress. What does a successful life look like? We all have our own deepseated needs, so we each have to decide for ourselves what success is. I don’t care whether you want to be a master of the universe, a couch potato, or anything else—I really don’t. Some people want to change the world and others want to operate in simple harmony with it and savor life. Neither is better. Each of us needs to decide what we value most and choose the paths we take to achieve it. #principleoftheday

Whether people have the independence and character to fight for the best answers will depend upon their nature, but you can encourage them by creating an atmosphere in which everyone's first thought is to ask: "Is it true?" #principleoftheday

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. To me, there’s nothing better in life than doing that. The pursuit of dreams is what gives life its flavor. 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. #principleoftheday

That doesn't mean that all people must have access and be trustworthy. It is possible to have subcommittees who have access to sensitive information and make recommendations to the board that are substantiated with enough information to make good judgments, but without disclosing the highly sensitive particulars. #principleoftheday

Yes, we are past the point of no return. When debt service payments squeeze out spending, it is like plaque in the circulatory system squeezing out the flow of blood. It is the same kind of thing, and it can be measured. We are seeing that happen right now. There is also a supply and demand issue. A budget deficit means that debt has to be sold. We can see this happening in the bond market—bonds have been a bad investment, and there is pressure on interest rates and borrowing. This dynamic is happening, but people are treating it like it hasn't happened before. They don't understand that, just like plaque in the arteries, the debt builds up and they have that exposure.

There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to this process makes all the difference. I have found it helpful to think of my life as if it were a game in which each problem I face is a puzzle I need to solve. By solving the puzzle, I get a gem in the form of a principle that helps me avoid the same sort of problem in the future. Collecting these gems continually improves my decision making, so I am able to ascend to higher and higher levels of play in which the game gets harder and the stakes become ever greater. #principleoftheday

While this is important throughout the organization, it is especially important that the reporting lines of the board (those doing the oversight) are independent of the reporting lines of the CEOs (those doing the management), though there should be cooperation between them. #principleoftheday

Remember that computers have no common sense. For example, a computer could easily misconstrue the fact that people wake up in the morning and then eat breakfast to indicate that waking up makes people hungry. I’d rather have fewer bets (ideally uncorrelated ones) in which I am highly confident than more bets I’m less confident in, and would consider it intolerable if I couldn’t argue the logic behind any of my decisions. A lot of people vest their blind faith in machine learning because they find it much easier than developing deep understanding. For me, that deep understanding is essential, especially for what I do. #principleoftheday

If there is stagflation, the central bank is caught between two bad alternatives, so it typically tries to follow a monetary policy that compromises them.  Cutting rates can help support employment and the economy, but it also feeds inflation. The balance is delicate: too much easing fuels inflation, too much tightening deepens recession.

@RayDalio if stagflation is the base case what happens to rate cuts

An ideal economy is one in which there is as much growth and prosperity and wealth creation, ideally in a balanced way that benefits most people, happening at the same time as there's not too much inflation. Both inflation and growth matter. I was recently asked to explain the concept of stagflation and how it relates to the monetary situation I believe we’re in, and I wanted to share it with you.

Most importantly, you need to have principles that deal with reality. Embrace reality, deal with it, and have those core principles. If everyone took the time to write down their principles and think about how to deal with specific situations, the world would operate a lot more effectively. I’ve been through those experiences and I wrote down my recipes. You can consider my recipes, or anyone else’s recipes, but at the end of the day, you must believe them and do what is good for you. Because if you don’t have principles, everything looks the same. I encourage you to have your own principles that you understand and believe in, wherever you get them. #Principles #PersonalGrowth #DecisionMaking

Appropriate vested interests also need to be taken into consideration. For example, the owners of a company might have vested interests that they are perfectly entitled to that might be at odds with the vested interests of the people in the company who, based on the idea meritocracy, are most believable. That should not lead the owners to simply turn over the keys to those leaders. That conflict has to be worked out. Since the purpose of the idea meritocracy is to produce the best results, and the owners have the rights and powers to assess that, of course they will make the determination-- though I recommend they choose wisely. #principleoftheday

If you can do that, you will take the power of your decision making to a whole other level. In many cases, you will be able to test how that principle would have worked in the past or in various situations that will help you refine it, and in all cases, it will allow you to compound your understanding to a degree that would otherwise be impossible. It will also take emotion out of the equation. Algorithms work just like words in describing what you would like to have done, but they are written in a language that the computer can understand. If you don’t know how to speak this language, you should either learn it or have someone close to you who can translate for you. Your children and their peers must learn to speak this language because it will soon be as important or more important than any other language. #principleoftheday

All these principles, rules, and checks and balances won't be worth much if you don't have capable people in positions of power who instinctually want to operate for the good of the community based on the agreed-upon principles. A company's leaders must have wisdom, competence, and the ability to have close, cooperative, and effective working relationships characterized by both thoughtful disagreement and commitment to following through with whatever the ideameritocratic process decides. #principleoftheday

In typical organizations, most decisions are made either autocratically, by a top-down leader, or democratically, where everyone shares their opinions and those opinions that have the most support are implemented. Both systems produce inferior decision making. That’s because the best decisions are made by an idea meritocracy with believability-weighted decision making, in which the most capable people work through their disagreements with other capable people who have thought independently about what is true and what to do about it. #principleoftheday

In order to assess well, one has to gain a threshold level of understanding and that takes time. Some people have the ability and the courage to hold people accountable, while most don't; having such ability and courage is essential. And the person doing the assessing must not have conflicts of interest--such as being in a subordinate position to the person they are intended to check on--that stand in the way of holding them accountable, including recommending that they be fired. #principleoftheday

Using principles is a way of both simplifying and improving your decision making. While it might seem obvious to you by now, it’s worth repeating that realizing that almost all “cases at hand” are just “another one of those,” identifying which “one of those” it is, and then applying well-thought-out principles for dealing with it. #principleoftheday

So much of our current political and economic climate can be explained by debt cycles— and how those cycles build on each other over time. If you’d like more context on how all of these pieces come together, I recommend you watch my 30-minute explainer “How the Economic Machine Works” on here: youtube.com/watch?v=PHe0bX…

While it's great for teams and departments to feel a strong bond of shared purpose, loyalty to a boss or department head cannot be allowed to conflict with loyalty to the organization as a whole. Fiefdoms are counterproductive and contrary to the values of an idea meritocracy. #principleoftheday