I recently finished reading the book Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail by Ray Dalio and I want to share with you some takeaways that I got from the book.

The book is excellent, it brings information about some things that we take for granted and open our eyes to how the world power change and has changed in the past.

Let’s go to the takeaways and at the end, I list some additional resources if you want to get to know more.

25 takeaways from Ray Dalio’s book Principles for Dealing with the Changing World Order

  1. only learning from one’s own experiences is not adequate because many of the most important lessons don’t come in one’s lifetime. The really big boom periods and the really big bust periods are surprising unless one has studied the patterns of history over many generations.
  1. no system of government, no economic system, no currency, and no empire lasts forever, yet almost everyone is surprised and ruined when they fail, or in other words, All empires decline, and new ones rise to replace them.
  1. when wealth and values gaps are large and there is an economic downturn, it is likely that there will be a lot of conflict about how to divide the pie.
  1. the most important three cycles are a) the long-term debt and capital markets cycle, b) the internal order and disorder cycle, and c) the external order and disorder cycle
  1. humanity’s capacity to invent solutions to its problems and to identify how to make things better has proven to be far more powerful than all of its problems combined.
  1. averages don’t matter as much as the number of people who are suffering and their power and to be successful the system has to produce prosperity for most people, especially the large middle class.
  1. the formula for success has been a system in which well-educated people, operating civilly with each other, come up with innovations, receive funding through capital markets, and own the means by which their innovations are turned into the production and allocation of resources, allowing them to be rewarded by profit-making.
  1. while the inherited assets and liabilities of a country are very important, the way people are with themselves and others is the most important determinant.
  1. human capital is the most sustainable capital because inherited assets that are drawn down eventually disappear, whereas human capital can exist forever.
  1. self-interest, especially self-survival, is the most powerful motivator for most people, organizations, and governments.
  1. those who favor long-term well-being over short-term well-being tend to do better.
  1. in all countries throughout time, though to varying degrees, people are sorted into “classes,” either because they choose to be with people like themselves or because others assign them to a class.
  1. to be successful one must earn an amount that is at least equal to the amount one spends.
  1. having a reserve currency is great while it lasts because it gives a country exceptional borrowing and spending power and significant power over who else in the world gets the money and credit needed to buy and sell internationally.
  1. 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.
  1. the two things about war that one can be most confident in are 1) that it won’t go as planned and 2) that it will be far worse than imagined.
  1. the financial strength to outspend one’s rivals is one of the most important strengths a country can have and in war one’s ability to withstand pain is even more important than one’s ability to inflict pain.
  1. all markets are primarily driven by just four determinants: growth, inflation, risk premiums, and discount rates.
  1. the three biggest risks most investors face are that their portfolios won’t provide the returns needed to meet their spending needs, that their portfolios will face ruin, and that a large share of their wealth will be taken away (e.g., through high taxes).
  1. Americans are impulsive and tactical; they fight for what they want in the present. Most Chinese are strategic; they plan for how they can get what they want in the future.
  1. i’ve observed that while the Chinese are more interested in asking questions and learning, Americans are more interested in telling you what they think.
  1. during periods of great crisis, more autocratic and less democratic leadership tends to be preferred.
  1. dealing with the future is all about 1) perceiving and adapting to what is happening, even if it can’t be anticipated; 2) coming up with probabilities for what might happen; and 3) knowing enough about what might happen to protect oneself against the unacceptable, even if one can’t do that perfectly
  1. in the markets and in life, to be successful one should bet on the upside that comes from a) evolution that leads to productivity improvements, but not so aggressively that b) cycles and bumps along the way knock you out of the game. In other words, betting on things being better—e.g., real earnings being greater—is pretty much a sure bet. But betting too much on that so that a bump along the way can ruin you is bad. That’s why having quality indicators helps a lot.
  1. put deferred gratification ahead of immediate gratification so you will be better off in the future.

I started out planning to list only 10 takeaways, but they were a lot ot takeways that I liked, I changed it to 25 takeaways.

If you are interested in the topic, besides reading the book Principles for Dealing with the Changing World Order you can watch some videos and also listen to some podcasts that Ray Dalio participated in.

A great resource is the website companion Economic Principles which put together many research papers and other PDFs, videos, and audios. I also liked the video ​​How The Economic Machine Works by Ray Dalio and Principles for Dealing with the Changing World Order by Ray Dalio. If you like me, like podcasts, he was interviewed in Lex Fridman Podcast’s #251 – Ray Dalio: Money, Power, and the Collapse of Empires, Masters in Business’ Ray Dalio on the Key to Success: Failing Well (Podcast) and We Study Billionaires’ TIP410: The Changing World Order W/ Ray Dalio

Happy investing!