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Opalesque was forwarded a copy of Bridgewater’s annual letter to clients, which was authored by Ray Dalio. In this 5-page report, he describes the root causes of the financial market crisis and what differentiated investors who made money from those who lost money last year. Here is an excerpt (link to entire report below):
… Because human nature and the basic elements of economics remain essentially the same over time, what happened in 2008 has happened many times before. However, unlike recessions that occur more frequently, the dynamic that occurred in 2008 has happened less frequently and has not happened within most people’s lifetimes. Because it is in most people’s “nature” to learn from their experiences, and because investors, businessmen, and government officials did not previously experience the dynamic that happened in 2008, most of them 1) did not plan for it, 2) considered it implausible, and 3) didn’t understand it. That, more than any other reason, is why so many of them were hurt in 2008.
In other words, 2008 was a year in which those who built their strategies on the basis of what happened in their recent lifetimes did not understand what happened in 2008 and so did badly, while those who had a perspective of what happened in long ago times and faraway places (and why these things happened) did well. Said differently, if you optimize your investment strategy to work in a certain period without having a deep enough understanding of how it would w...................... To view our full article Click here
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