As an investment manager, what I need is to make investment decisions in a short period of time, and it seems strange to spend a lot of energy focusing on long-term history. But my experience tells me that investing well requires such a historical perspective.

My method is not an academic research method, but a very pragmatic one designed to help me do a good job. To invest well, I need to better predict the future of national economies than my competitors. Therefore, for nearly 50 years, I have been closely watching most major economies and their market and political situation (because the political situation affects the economy and markets), trying to fully understand the current situation and use it as a basis to infer the future.

Why should we pay attention to long-term history?

From my years of wrestling with the market and summing up the corresponding principles, I have learned that a person's ability to predict and cope with the future depends on his understanding of the causality behind changes in things; a person's ability to understand these causality comes from his study of the mechanism of past changes.

It was only after I learned a painful lesson that I found this method. The biggest mistake in my career was to miss some major market changes. These changes have never happened in my life, but they have happened many times before. The first big thing I didn't expect happened in 1971, when I was 22 years old and working as a summer job at the New York Stock Exchange. I love this job because there is a fast pace of making and losing money on the trading floor, people like to make fun of each other, and traders even shoot squirt guns on the trading floor. I pay full attention to major developments in the world and bet on their impact on markets, which can sometimes be dramatic.

On the evening of Sunday, August 15, 1971, President Nixon announced that the United States would no longer abide by its promise to allow paper money to be exchanged for gold. While listening to Nixon, I realized that the US government had defaulted and that the dollar as we knew it no longer existed. I don't think that's a good thing. So when I walked into the trading floor on Monday morning, I thought that the stock market crash would definitely lead to chaos. It did turn out to be a big mess, but it wasn't the kind I expected. Instead of falling as the dollar plummeted, the stock market rose about 4%. I was shocked because I had never experienced a devaluation before.

In the days that followed, I studied history and found that many currency devaluations in history had a similar impact on the stock market. Through further research, I found the reasons, but also got valuable reference, they let me benefit a lot in the future. After several such painful emergencies, I am keenly aware of the need to understand all the major economic and market changes that all major powers have experienced over the past 100 years.

In other words, if something major happened in the past (such as the Great Depression of the 1930s) and I'm not sure it won't happen to me, then I have to figure out how it happened and be prepared to deal with it.

How do I use historical data to bet on investments

Through my research, I have found that there have been many similar events in history (such as economic depression). As doctors study many cases of a disease, by studying these cases, I can gain a deeper understanding of the mechanisms by which these events occur. By talking to outstanding experts, reading books, mining data and archives with my excellent research team, and my own experience, I have made a qualitative and quantitative analysis of these cases.

I see from these studies that changes in wealth and power usually occur in a typical order, which forms a primitive model in my mind that helps me see the causality that drives similar events. On this basis, I study the deviations from this original model and try to explain them.

Then I input the model in my mind into the algorithm, which not only helps me compare the reality with my original model, but also helps me to make decisions based on it. Through this procedure, I continue to improve my understanding of causality until I can use "if."... So. "A sentence like this is used to make decision rules (the principle of dealing with reality): if X happens, then we bet on Y. Next, I observe the differences between the actual situation and my original model and expectations.

At Qiaoshui Investment Company, my partner and I carried out this work very systematically. If the actual situation fits the model, we will continue to bet on what will normally happen. If the actual situation starts to deviate from the model, we will find the reason and make adjustments. This process helps me understand the important causal order that drives these developments and makes me more humble. This is what I have always done, and it will be what I will do in the future, until I leave this world, so what you read shows a work in progress.

For example, I use this approach to study debt cycles because I have had to deal with many debt cycles over the past 50 years, which are the most important drivers of dramatic changes in the economy and markets. I have studied many major events in this way, such as economic depression, hyperinflation, war, balance of payments crisis, and so on, in order to understand the abnormal events that seem to be budding around me. It is from this perspective that Bridgewater responded better to the 2008 global financial crisis when other companies were in trouble.

Look at the law of the long-term development of things

This method affects the way I look at everything.

This way of looking at things has changed my perspective: from being besieged by events (like a blizzard) to transcending events and focusing on the long-term laws of things. I apply this method to almost everything. For example, when I build and run my company, I use the same method to understand the reality such as the way people think, and to learn the principles of dealing with reality properly, which I described in my book principles. The more things I understand in this way, the more I can see the interaction between them (for example, between the economic cycle and the political cycle) and their interaction over a longer period of time.

I think people often miss important moments of growth in their lives because everyone experiences only a small part of their long history. Like ants, we are preoccupied with moving bread crumbs in our short lives, but we have no time to broaden our horizons, discovering the macro laws and cycles of the development of things and the important connections behind them, our position in the cycle, and what may happen in the future.

By examining history from a macro point of view, I realize that from ancient times to the present, only a few types of human beings, along a limited number of roads, encountered a limited number of situations, and a limited number of events occurred. With the passage of time, these events occur again and again. The only difference is the clothing of human beings at that time and the language and technology used.

The future era will be completely different from the one we have experienced in our lifetime, but it is similar to many times in history. Therefore, having a wide enough historical perspective can help us to control the long-term development law of things, so as to predict the future more accurately and cope with the changing world order.