Tag: history

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Ray Dalio and the ‘as-it-happened’ approach to history

I’ve finally got around to reading Ray Dalio’s Principles. One of the things I found most interesting was his approach to learning about the history of market events (in order to better understand the dynamics of these events so he could respond to them better as an investor). Dalio describes the genesis of this approach as follows:

‘On Sunday August 15 1971, President Nixon went on television to announce to announce that the U.S. would renege on its promise to allow dollars to be turned into gold, which led the dollar to plummet…

Monday morning I walked into the floor of the exchange expecting pandemonium. There was pandemonium all right, but not the sort I expected. Instead of falling, the stock market jumped about 4 percent, a significant daily gain.

To try and understand what was happening, I spent the rest of that summer studying past currency devaluations. I learned that everything that was going on – the currency breaking its link to gold and devaluing, the stock market soaring in response – had happened before, and that logical cause-effect relationships made those developments inevitable. My failure to anticipate this, I realized, was due to my being surprised at something that hadn’t happened in my lifetime, though it had happened many times before’.

Despite this experience, Dalio goes on to describe how he made a series of further forecasting blunders, including a mistaken (and very public) call in the wake of the 1982 Mexican government debt default. In the wake of this, Dalio writes:

‘I again saw the value of studying history. What had happened, after all, was ‘another one of those’… I had failed to recognise the lessons of history’.

Later on, Dalio describes how:

‘That experience also drove me to learn a lot about debt crises and their effect of the markets…[Later, in 2007, as the financial crisis was drawing nearer] with the help of my teammates at Bridgewater, I took history books and old newspapers and went day by day through the Great Depression and the Weimar Republic, comparing what happened then with what was happening in the present. The exercise only confirmed my worst fears. It seemed inevitable to me that large numbers of individuals, companies, and banks were about to have serious debt problems’.

Dalio’s point is largely about repetitions in history, the long-run patterns that are particularly relevant to financial market dynamics. However, what interests me about this passage is the day-by-day approach to looking at history. It’s very easy when reading history casually to see events as forming an inevitable sequence, and to imagine that things could not have been any different. But this is not how those events seemed to the people living them. Like us at the present moment, those people had expectations, and hopes, and worries, but they didn’t know what the future held. Reading history ‘as it happened’ reminds us how uncertain things can be and how differently events can unfold compared to our expectations.

I recently read Orlando Figes’ Revolutionary Russia. In Figes’ description of the Bolshevik Revolution I was particularly struck by this section describing the events leading up to the seizure of the Winter Palace:

‘It is one of the ironies of the Bolshevik insurrection that hardly any of its leaders had wanted it to happen how and when it did. Until late in the evening of 24 October the majority of the Central Committee…had not envisaged the overthrow of the Provisional Government [that had forced the Tsar to abdicate earlier in the year]…

Lenin’s intervention was decisive. Disguised in a wig and cap with a bandage wrapped around his head, he left his hiding place in Petrograd and set off for the Bolsheviks’ headquarters…to force the start of the uprising. On his way across town…he was stopped by a government patrol, but they mistook him for a harmless drunk and let him pass. One can only ask how different history might have been had Lenin been arrested’.

The following day the Bolsheviks seized the Winter Palace. When the rival Menshevik and Socialist Revolutionary groups walked out of the Soviet Congress, the Bolsheviks took the initiative. As Figes writes:

‘Few people thought that the new regime could last. ‘Caliphs for an hour’ was the verdict of much of the press’.

You can read this a number of ways. It’s a story about near-misses: what if Lenin had been captured? It’s also a parable about the importance of decisive and visionary leadership. But there’s also a fascinating story about how a group of people in the thick of events completely missed what was about to happen. It may well be that they would eventually have been proven right, but I think there is an important reminder here about how unexpected events can be.

Even in our own recent experience, how many people would have scoffed at the idea that Donald Trump – or Emmanuel Macron – could be elected presidents of their respective countries? Or how many people – as oil prices marched upwards from a low of $27/barrel in late 2001 to a high of $160/barrel in mid-2008, with the background of a ‘peak oil’ narrative – would have predicted oil prices in the $50-$70/barrel range in 2018?*

Equally, though, as soon as these things do happen, we typically experience a brief period of surprise, followed by acceptance and rationalisation. In a relatively brief time, we come to view the events that have unfolded as – if not inevitable – then certainly not worthy of questioning too deeply. We take the backwards looking view of history.

We are living in a period of relative turbulence and uncertainty. By studying history on a day-by-day basis, we can remind ourselves of how far off our expectations can be if we miss the big picture, and how – time after time – many things that previously seemed unlikely came to pass.

*All prices WTI/NYMEX

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Master of reinvention: Hokusai

‘From the age of six, I had a passion for copying the form of things and since the age of fifty I have published many drawings, yet of all, I drew by my seventieth year there is nothing worth taking into account. At seventy-three years I partly understood the structure of animals, birds, insects and fishes, and the life of grasses and plants. And so, at eighty-six I shall progress further; at ninety I shall even further penetrate their secret meaning, and by one hundred I shall perhaps truly have reached the level of the marvellous and divine. When I am one hundred and ten, each dot, each line will possess a life of its own.’

Hokusai

 

If you’re stuck in a rut and worried your best days are over you could do a lot worse than consider the life and works of Hokusai, the Japanese artist famed for his iconic 1836 print The Great Wave of Kanagawa.

Hokusai was an artist during the Edo period, producing print-designs in the ukiyo-e style, a style which typically celebrated the transience of life and Epicurean pleasures. In terms of societal status, Hokusai was more of a craftsman than an artist as we would think about the term today.

Hokusai had a relatively successful career. But a series of financial disasters caused by spendthrift members of his family forced him to come out of retirement in his late 60s. Where most people would have been broken by this series of events, Hokusai instead went from strength to strength as an artist.

In the early 1830s – i.e. when Hokusai would have been in his early 70s – he created his Thirty-Six Views of Mount Fuji series (actually consisting of 46 prints) which contains the famous Great Wave print. The postscript to the series is the quote above. Despite his mastery of his craft, Hokusai insists that nearly all his work up to that point is not worth consideration, and that he is only just beginning to be able to understand the animals, plants and birds he is drawing. At the same time, he shows extraordinary optimism that he can go much further by the time he is ‘one hundred and ten’.

In part, Hokusai was able to do this through reinvention. Whilst it was common for Japanese artists of the time to use different names, Hokusai took this to an extreme, using over 30 names during his lifetime, more than any other major artist. His art as well, incorporated some important innovations, such as the use of Prussian Blue to create bold effects, use of western elements of perspective, and adopting a broader range of themes – particularly landscapes.

Hokusai kept creating right up until the end. In 1839 a fire destroyed his studio and home. Again, rather than let this setback end his career he kept on working and trying to improve at his craft until his death at the age of 88. His incredible work ethic meant that he created approximately 30,000 pictures and drawings over his lifetime.

For me, Hokusai is an inspiration and an example that it really is never too late. It can be easy to think that if we haven’t achieved something by the time we’re a particular age that we’ve failed. But this kind of thinking is reductive and damaging. Hokusai shows us that we can adapt to adversity and go further than we have gone before.

Hokusai also shows us the true spirit of learning. Real learning comes from being humble, and viewing our achievements as merely a stepping stone to greater things. This doesn’t mean damaging perfectionism – where we are never happy with the things we’ve achieved – but rather having a healthy sense of perspective and not resting on our laurels.

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Cluniac monasticism and the power of institutions to create social change

I’ve been reading Larry Siedentop’s excellent Inventing the Individual recently. Siedentop argues that the origins of modern liberalism, with its emphasis on individual freedom, comes from the Christian tradition. In short, his argument is that the ideas of St. Paul, with their emphasis on individual salvation and an individual relationship with God, constituted a massive break with the Roman / Pagan focus on the family and innate social hierarchy. The revolutionary nature of these ideas and their implications for society and individual freedom were slowly brought to fruition by the medieval Catholic Church over a period of centuries.

There’s an awful lot in the book to think about and I’ll probably come back to this at a later date, but one thing that stood out for me was Siedentop’s description of the role of Cluniac monasticism as a vanguard for ethical reform in Western Europe:

In 910, with the foundation of the abbey of Cluny, Frankish monasticism turned the corner towards enduring reform… The founder, Duke William of Aquitaine, enabled the monks of Cluny to elect their abbots, free not only from interference by his own descendants but also from the local bishop. Cluny would be subordinate only to the authority of the papacy.

This was a big deal. Kings and nobles (not to mention the Frankish / German emperors) frequently treated monasteries (and the clergy) as parts of their domain, undermining the social role of these religious institutions and co-opting them into the ruling power structure.

By making institutional freedom an explicit part of the Cluniac movement, the monks were free to concentrate on reform relatively free of the corruption and nepotism affecting other parts of the Church. Siedentop describes what to me sounds awfully like the expansion of a kind of ‘franchise’ model of Cluniac monasticism:

The second abbot of Cluny, Odo, extended this reform by founding other monastic houses, which became ‘priories’ subject to the disciplines of Cluny. In this way a network of reformed monasteries spread throughout the Frankish domains, free from the threats of corruption assailing the Frankish episcopacy.

The success of this model was such that Cluniac priories became an important source of elected bishops – and once elected these bishops played a leading role in locally rooting out corruption and poor clerical behaviour. As such:

The indirect influence of Cluny was perhaps even more important. It restored the prestige of monasticism as representing a truly Christian life, an ordered life of personal dignity, work and self-government… The Cluniac reform movement raised the sights of the church inciting it to defend moral authority in a world apparently given over to mere power.

The reform movement went further, promoting the ‘Peace of God’ which argued that labouring and peasant classes – men, women and children – should be left undisturbed from the low level warfare and banditry of the aristocratic class. A new festival created in 994, the Feast of All Souls, celebrated the importance of the salvation of all people and the equality of the populace in God’s eyes. The symbolic changes were matched with an ‘extraordinary upsurge of new church building in the eleventh century’.

Lastly, Siedentop makes the point that by restoring a strong, independent monasticism this created ‘the opportunity for advancement through a career in the Church…[which] weakened the perception that social standing was entirely governed by fate’.

To me, this seems like a great example of how the institutions and incentive structures of organisations makes a huge difference. Prior to Cluny, it wasn’t as though there weren’t people throughout Europe who were appalled by the corruption and degradation of the feudal system, and the impact this had on local church organisation, but without an explicit guarantee of independence of action, it was difficult to marshal this sentiment into meaningful change.

In a 21st century context we would describe this as being heavily ‘disruptive’. Through an important innovation in the ‘business model’ of Western monasticism, the Church made key strides in a progressive (by the standards of the time at least) social agenda.

As above, there’s a lot more in Siedentop’s book, but this is a great example of how a small but significant institutional change can create a wave of social change.