My Approach
While it might seem odd that an investment manager who is required to make investment decisions on short time
frames would pay so much attention to long-term history, through my experiences I have learned that I need this
perspective to do my job well. My biggest mistakes in my career came from missing big market moves that hadn’t
happened in my lifetime but had happened many times before. These mistakes taught me that I needed to
understand how economies and markets have worked throughout history and in faraway places so that I could
learn the timeless and universal mechanics underlying them and develop timeless and universal principles for
dealing with them well.
The first of these big surprises for me came in 1971 when I was 22 years old and clerking on the floor of the New
York Stock Exchange as a summer job. On a Sunday night, August 15, 1971, President Nixon announced that the
US would renege on its promise to allow paper dollars to be turned in for gold. This led the dollar to plummet. As I
listened to Nixon speak, I realized that the US government had defaulted on a promise and that money as we knew
it had ceased to exist. That couldn’t be good, I thought. So on Monday morning I walked onto the floor of the
exchange expecting pandemonium as stocks took a dive. There was pandemonium all right, but not the sort I
expected. Instead of falling, the stock market jumped about 4 percent. I was shocked. That is because I hadn’t
experienced a currency devaluation before. In the days that followed, I dug into history and saw that there were
many cases of currency devaluations that had similar effects on stock markets. By studying further, I figured out
why, and I learned something valuable that would help me many times in my future. It took a few more of those
painful surprises to beat into my head the realization that I needed to understand all the big economic and market
moves that had happened in the last 100+ years and in all major countries.
In other words, if some big and important event had happened in the past (like the Great Depression of the 1930s),
I couldn’t say for sure that it wouldn’t happen to me, so I had to figure out how it worked and be prepared to deal
with it well. Through my research I saw that there were many cases of the same type of thing happening (e.g.,
depressions) and that by studying them just like a doctor studies many cases of a particular type of disease, I could
gain a deeper understanding of how they work. The way I work is to study as many of the important cases of a
particular thing I can find and then to form a picture of a typical one, which I call an archetype. The archetype
helps me see the cause-effect relationships that drive how these cases typically progress. Then I compare how the
specific cases transpire relative to the archetypical one to understand what causes the differences between each
case and the archetype. This process helps me refine my understanding of the cause-effect relationships to the
point where I can create decision-making rules in the form of “if/then” statements—i.e., if X happens, then make Y
bet. Then I watch actual events transpire relative to that template and what we are expecting. I do these things in a
very systematic way with my partners at Bridgewater Associates.[1a] If events are on track we continue to bet on
what typically comes next, and if events start to deviate we try to understand why and course correct.
My approach is not an academic one created for scholarly purposes; it is a very practical one that I follow in order
to do my job well. You see, as a global macro investor, the game I play requires me to understand what is likely to
happen to economies better than the competition does. From my years of wrestling with the markets and trying to
come up with principles for doing it well, I’ve learned that 1) one’s ability to anticipate and deal well with the
future depends on one’s understanding of the cause-effect relationships that make things change and 2) one’s
ability to understand these cause-effect relationships comes from studying how they have played out in the past.
How practical this approach has been can be measured in Bridgewater’s performance track record over several
decades.