Over my roughly 50 years of being a global macro investor, I have observed there to be relatively long of periods (about 10 years) in which the markets and market relationships operate in a certain way (which I call “paradigms”) that most people adapt to and eventually extrapolate so they become overdone, which leads to shifts to new paradigms in which the markets operate more opposite than similar to how they operated during the prior paradigm. Identifying and tactically navigating these paradigm shifts well (which we try to do via our Pure Alpha moves) and/or structuring one’s portfolio so that one is largely immune to them (which we try to do via our All Weather portfolios) is critical to one’s success as an investor.
Read full article here – www.linkedin.com/pulse/paradigm-shifts-ray-dalio/
Just like with his longer book / study, Big Debt Crises, Dalio is on point (in my opinion) with identifying what causes shifts and turns in the global business cycle, and what drives returns in markets. I’ve long personally believed that markets tend to act as a system of feedback loops, and I think this highlights what happens when some of those feedback loops start to break down.