The first is linear
It’s the world of gradual progress and gradual decline — the part of life that behaves exactly the way we expect. Run every day and you run better. Practice a skill and you improve. Neglect your body or your craft and the decay shows up slowly but surely.
Most of our days live here, in this predictable, incremental zone.

But every so often, life switches into a very different mode.

The second is discontinuous
These are the moments that don’t announce themselves, don’t follow any pattern, and don’t respect your plans. Something happens — an event, an opportunity, a shock — and suddenly you’re not who you were a week ago. The shift is sharp, irreversible, and often confusing while it’s happening.

Age is the simplest example. One day you’re fine; a few months later you realize some part of your body just crossed a line and won’t go back.

Other examples are more dramatic: the biggest loan you’ve ever taken, the longest trip you’ve ever made, your first marriage, your first child, a near-death experience.

No rehearsal. No model. No historical data.
Yet you must choose

A single moment can reset the entire trajectory

That’s the key distinction:

• In the linear zone, you can plan, compare, analyze.

• In the discontinuous zone, you don’t have the luxury. Not choosing is still a choice, often the worst one.

So how do you decide when the map disappears?

A surprisingly effective rule: run the worst-case scenario

If the worst outcome of your decision can break you beyond recovery, don’t do it.

But if even the worst-case still leaves you standing — hurt, maybe, but alive and able to rebuild — then the choice is probably worth making.

Because this is the paradox of a human life:

We live in the linear zone, but we transform in the breaks.

We spend most of our time in the linear world, but we are shaped by the discontinuous moments. They redirect the arc of our lives far more than the daily habits we think define us.

And once you pass through one of those moments, life rarely looks the same again.

The most intuitive approach is to look at the familiar names on “legendary investors” lists—those Google easily surfaces—or the long-running book series by Jack Schwager, who interviewed many exceptional investors and fund managers and compiled their insights in the Market Wizards series (most of which has been translated into Vietnamese).

Another approach is to learn from those who actively write and share: Buffett with his annual shareholder letters, Howard Marks with his memos, Ray Dalio with his publicly shared principles and research.

So how does an investor make it into these lists? There are two entirely different paths.

1. The first path — extremely difficult:

Beating the market consistently over long periods: 5, 10, 20, even 30 years.
People like Warren Buffett, Jim Simons, David Tepper, and John Neff belong to this group.
The longer the timeframe, the fewer investors can maintain this level of performance.
And even then, almost every one of these investors has multi-year periods where they underperformed the market.

2. The second path — far more common:

Calling a major market event correctly, placing a massive bet, and winning big—while the rest of the market suffers heavy losses.

Michael Burry and John Paulson in 2008, or George Soros shorting the British pound in 1992, are classic examples. This is the type of victory we can call The Hero Trade

A handful of investors manage both: “heroic trades” and long-term outperformance.
But they are exceptionally rare.

You can see how Buffett became famous for his investments in Coca-Cola in 1988, Bank of America in 2011, and Apple in 2016—each a large, enormously profitable position.
Or how David Tepper became known for his iconic calls such as “I’m buying everything” in 2010 (the bottom after the global financial crisis), and “I’m buying everything in China” in 2024 (the bottom of the Chinese equity market).

But you won’t find any famous, dramatic one-shot trades from Ray Dalio or Jim Simons, even though their long-term track records are extraordinary.

Yet even when looking at these exceptional investors, we’re reminded of a line repeated endlessly in fund literature:

Past performance does not guarantee future results.

Authority Bias still traps us

Even if we focus on what these people write or say, we easily fall into Authority Bias. Many times, listening to a famous investor speak, I catch myself thinking: “There’s nothing remarkable here—some of this doesn’t even sound correct.”

Success leaves clues, yes. Studying successful investors can be useful.
But the way our brains filter information causes distortions.

We often choose books because the author won a Nobel Prize, because the book has many reviews and high ratings, or simply because the title sounds compelling. That’s the Halo Effect, Social Proof, and the Representativeness Heuristic—evaluating ideas through proxy signals, not direct evidence.

These shortcuts save energy, but they lead to flawed judgments.

And then we ignore the most important group: the silent outperformers

By focusing only on what well-known investors publish, we automatically overlook another group: exceptional investors who remain silent. They don’t give interviews, don’t write books, don’t publish memos—but may hold the most profound, perhaps even contrarian insights.

This is Survivorship Bias and Availability Bias in their purest forms.

Survivorship Bias

We only see the people who appear publicly: famous investors, authors, interviewees.
And we assume they represent “the best.”

But the truly exceptional investors who stay silent—those who do not promote themselves—are not part of the observable sample.

Availability Bias

What is easy to see, access, or read becomes what we consider important.
What does not appear in media effectively disappears from our mental model of the world.

Nassim Taleb captures this dynamic with a deeper concept: the Anti-Library.
He argues that the most important body of knowledge consists of:

• the books we haven’t read

• the perspectives that have never surfaced

• the outstanding investors who choose silence

• the data that has disappeared over time

If we divide the investment world into three groups—the successful, the failed, and the silent—then learning only from publicly available sources means we are studying only the successful.
We learn nothing from the failed, and we gain no access to the deepest wisdom held by the silent.

So how do we find what is truly “essential” in investing?

In reality, we cannot find it by searching through available information.

This method by design only reaches what has been made public.
We can summarize, annotate, and organize it—but we cannot go beyond the boundaries set by those sources.

And perhaps what we call “the essence of investing” does not exist as an absolute truth waiting to be discovered.
It is something each of us must construct for ourselves—through learning, observation, participation in the market, mistakes, and gradual refinement. One person’s truth may be meaningless to another. There is no universal truth—only personal truth.

For me, the journey of entering the market, making decisions, taking losses, learning from them, and hopefully achieving some success feels like a process of self-discovery. Each person must find a way of trading that aligns with their personality, strengths, and weaknesses.

The market is always moving.
Our goal is to take money from it—but we cannot do so with hostility, frustration, or constant tension.
Without a calm mind and the ability to stay in flow with the market, we gain nothing.

Thus, reading and studying public materials is only a small part of building one’s investment principles.
Everything I am trying to compile and share on this website—no matter how much effort I put in—can only contribute a very small part to my own investing journey, and to yours.

Still, I will try to make that small part as useful as I possibly can.

Transcript edited by me based on YouTube auto-transcription.

A lot of what Andrew learned researching this book is analogous to what happened during the 2008 financial crisis, and also to what is happening today.

That’s because history moves in cycles — the same cause-effect relationships are at play, and there are important lessons to be learned. While the details are different, the mechanics behind people’s behaviors and policy choices are largely the same.

Throughout history, people ignore these similarities because the mechanics are not well understood. My hope is that research and conversations like these can help us collectively make better choices in the future

Ray Dalio (RD): Hey Andrew, I just read your book and I think it is fantastic. It is a thoroughly entertaining story and to me it's informative. I think that the story is kind of what you're into, but at the same time I think as you've written a book on 2008 and now 1929, I think that you must think that history rhymes.

So I'm so interested in getting into the conversation of not only how it rhymes but what the cause-effect relationships are and what lessons we should learn. But on the other hand you want to tell the story, so let's start with some of the characters. It occurred to me that some of the characters are also analogous, to a lot is analogous to now, don't you think?

Andrew Ross Sorkin (ARS): Oh for sure. I mean, I didn't realize, I have to be honest with you, when I started the project I didn't think it would necessarily be analogous. I thought I was just writing about a period in history. And as I was working on it and really trying to mine the archives and get into the diaries and letters and transcripts of some of these individuals, you start to think to yourself, 'Oh my goodness, this does feel like so and so from today or such and such'. And so, but that was a surprise for me.

I didn't expect that and maybe I should have. And then of course there were all of these other policy choices and other things that for better or worse mirror lots of things that seem to be happening today.

I read a great historian describe that the circumstances of the time create the characters, and so almost analogous periods of time are going to bring out certain characters. Like what strikes me is it seems like there's a crowd right now, and there's in people, the group when they get together at Lamont's house, and there's a small group and they're talking about how they should handle things."

RD: A lot of that seems to be going on now and the other characters, so maybe just describe the characters and those that you think are pretty much analogous."

ARS: Well, so I would say the big characters of this book that drive the narrative: the first is a guy named Charlie Mitchell. Charlie Mitchell ran a bank called National City, which becomes Citigroup. And Charlie, they used to call him Sunshine Charlie.

Charlie was as famous probably as Jaime Diamond would be today. He was on the cover of magazines. It was really also 1920s was the first time actually that business leaders, that the CEOs in finance, were actually on the covers of the magazines in the same way that Babe Ruth or Charles Lindbergh would have been.

He might be akin maybe to a Michael Milken too, in that Michael Milken created junk bonds and really revolutionized credit for certain kinds of industries. He revolutionized credit in the context of the individual being able to buy shares of stock on margin for the first time. He really was the man that changed the entire game.

All of a sudden brokerages are emerging inside cities on the corners of streets like Starbucks, and that's happening because he and National City and some of the other banks start to lend out extraordinary amounts of money. You could go into a broker's brokerage, put down a dollar and they would literally lend you $10.

RD: Ding, just a second. Ding, because what comes to my mind now is I just can't help myself. What are the things that are the ingredients that create the bubbles? One of them is a lot of credit, easy credit, and also the public going into all of this because they're super excited about it. Now, I'll shut up but occasionally as we go through this I'm going to go dig and then we'll put the analogous ingredient completely.

ARS: Look, this is why I wanted to have this conversation with you because you are you've been studying history for so long and thinking about the big systems and cycles and how these things all come together.

So, I would say the other main character was really on the other side of Charlie Mitchell: was a guy named Carter Glass. Carter Glass you may know and the audience may know because of Glass-Steagall, which is a bill that ultimately breaks up the banks in 1933.

But Carter Glass was a senator in Virginia. He was probably like the Elizabeth Warren of his time, and for a good portion of the late '20s he would rail publicly about this thing called Mitchellism, as in Charlie Mitchell, and how he believed that Charlie Mitchell was going to upend the entire economy because he was loaning out too much money and he was creating this speculation in the market. And he thought that was very dangerous. So, he was the Cassandra in the room.

RD: Ding. And there are those who want to regulate and there are those who want to let it go, right? So we have, it's analogous to now, it's analogous through history. Keep going.

ARS: So there's another character that I think of maybe as the Elon Musk of his generation, a guy named John Raskob. John Raskob ran General Motors. He's responsible in large part for actually credit in America even more broadly because prior to 1919 most Americans thought it was a moral sin to take on debt, to take a mortgage, to take credit—that was not something that people did willingly.

And he was at General Motors, he needed to sell more cars, and so what does he do? He creates a credit facility to sell more cars, so they're going to loan money to buy cars. And because of him, General Motors does that, and then companies like Sears Roebuck decide they can do it with appliances, and then Charlie Mitchell, by the way, of course, does it with stock.

So John Raskob is this fascinating character who then leverages that role and all of his wealth into becoming a big-time investor, but then getting involved in politics. He loses. He ends up using all of his money to try to then ruin the reputation of Hoover, interestingly enough.

He then builds the SpaceX of his time, the Empire State Building. He's one of the philosopher kings at the time. He ends up proposing that we have a five-day work week—back then we had six days where everyone worked, including the stock exchange was open on a Saturday, interestingly enough. And he was everywhere and everything.

By the way, he had 13 children, and I think he's a fascinating person in America that plays a unique role because people were constantly coming to him. And he had a phrase: 'Everyone ought to be rich'. At one point he almost tried to start the equivalent of the first leveraged mutual fund, interestingly enough.

But he almost changed the American dream. I would say prior to the 1920s the American dream was the Horatio Alger story, and in the 1920s that dream became a get-rich-quick fantasy, if you will, which is a bit of what the dream looks like maybe today.

RD: So I'm going to put in my part of it because you covered I think very well but you haven't brought it up yet. There is always the new technological miracles that will change everything, and they really are amazing technological miracles.

So for example, you dealt with the combination of credit and automobiles. We didn't have automobile deals but every man was going to have an automobile, Ford's Model T, and then as you mentioned it, General Motors and Ford. Electrification—this was a time people didn't have electricity and then we're going to have electricity. And then, can you imagine, people going to have cars, people are going to have electricity, and there's General Electric which then becomes a very, very hot stock. And we didn't have communications. So there was radio and then the beginning of the idea of television. Can you imagine communication that way, radio and television? And that's why we had RCA, that was like the Nvidia of its time, it was like the meme stock of its time. RCA was exactly as you say. And planes, aviation. We didn't have aviation at the time, so now you're going to have that. And we had motion pictures. This is the first time we had motion pictures, and Warner Brothers were the hot stocks. So it was a miracle that I would say was more exciting, seemed more exciting at the time, if you imagine all of these miracles happening—that you're going to have all the things that electricity and radio and airplanes and cars, all of that happen. It would make sense that all of those miracles would be these miracle stocks, and then you can buy them all on credit. And so isn't that logical that there's all of those miracles? And this became the American century as a result."

Andrew Ross Sorkin (ARS): "No question. I think that what happened was it just got out of control. And look, from 19—I was going to say from 1928, talk about miracles—from 1928 to September of 1929 the stock market was up 90%, Ray. So if you, and if you were buying any stocks on with some margin or 10-to-1 margin, I mean it was like free money."

Ray Dalio (RD): "So now what we have is credit, debt, and a miracle. I think what a lot of people don't realize is that a lot depends on how expensive the stock. Almost all these stocks went up as you described. And then we had the next major ingredient, like tight money starts to come in. Interest rates naturally go up because maybe there's too much credit and then also maybe the desire to put the brakes on, right? So here we have three important ingredients of that classic: the credit to finance the miracle and tight money. As I go back and I look at this and I see the Panic of 1907 and I see the Japan bubble and I see all the other bubbles, they all have those ingredients. And so you must see when you did this 2008 comparisons with that, right?"

Andrew Ross Sorkin (ARS): "100%. Think about subprime. Subprime was the equivalent of buying stock on margin at the time. That was the—and housing was everywhere. So every time there is, you're right, I hadn't actually thought about it exactly like that. I always think debt is the match that lights the fire, but it also is I think the piece that you've just described, which is this idea that there's some kind of magic, something about to happen, that gets everybody excited. And it's the combination of those two with then somebody trying to break the magic, and maybe that's the Fed. But the Fed, by the way, in 1929 didn't fully try to break the magic, and maybe that was part of their problem. They were trying to put the brakes on, but they didn't really know how and they were very worried about the politics of it. Interest rates went up and the bubble went."

Ray Dalio (RD): "Yep, that is true, that is true. And that's the same as in Japan. If I've looked at Japan, it's the same as the South Sea bubble, it's the same as the railroad bubble in the Panic of 1873. It's interesting, the comparison. Of course, I'm into the mechanics of what goes on and you're into the story, but they're both fantastic. So, when you draw your comparison between 2008 and 1929 and those two periods and now, what are your thoughts?"

Andrew Ross Sorkin (ARS): "Well, so I think of 1929 as a series of dominoes. The first domino being the crash itself, or maybe you could say tight money that might have led a bit to the crash. But then there was a series of policy errors on the other end: fiscal, monetary, and otherwise. Hoover was trying to raise taxes, he's implementing tariffs at the time because he's trying to make good on this pledge he made to farmers to get himself elected the first time around, that he's got to do it. You have the Fed not flooding the system with money. You have Andrew Mellon, who was the Treasury Secretary—"

Ray Dalio (RD): "—until it did, until it did, until it did. But I'm saying, in terms of how did we get from 1929 to 25% unemployment and 9,000 banks failing in 1932, 1933? That was a series of dominoes of terrible errors of judgment. No, when we say that, it always happens the same way to me.

What happens is you have what we talked about in the bubble: the debt, everything going on, and then classically, most classically, you have a tightness of money and then debt ceases to be money.

So what you have is from 1929 you have the bust and then you come down into March of 1933, because then what happened is you have all this debt. Debt is a promise to deliver money. Money was gold. And then you had the Federal Reserve. You had Roosevelt get on the radio, just like Nixon got on the television in 1971. Roosevelt gets on the radio and he says, 'We're not going to give you,' and then you have the easing, the big easing.

And in all of those cycles you have the gold market then go through the roof because gold is an alternative market. Interestingly, if you look at 2008, I think what's different about 2008 in a way is Ben Bernanke, who you know very well and wrote his PhD thesis at Princeton on 1929 and the Great Depression, I think he compresses that timeline effectively by flooding the system with money. In 2008 it was the first time that interest rates hit zero since 1933. And what did they do when they hit zero? The Fed came in and bought a lot of debt, started to monetize debt. Same in 1933, same in 2008. So it was the same action. It was quicker. Each time has been quicker, but the sequence is the same. In other words, Bernanke came in. We had monetization, debt monetization, Central Bank buying bonds. So if the Fed had done that in 1930, would we have gotten to 9,000 banks going under in unemployment in 1932? We wouldn't have. If you look at the patterns, the patterns are the same, and the gaps between them are that gap. How long does it take for them to come in and make money available so it's easier to pay off the debt, and then the gold market all rallies all through that because now you have cheaper money. And you have the gold market rally."

Andrew Ross Sorkin (ARS): "So here's the thing that I think about and I'm curious where you land. I think we've become better at handling the crisis on the back end, meaning once the crisis happens, we are faster and more efficient in rescuing the system while creating all sorts of other problems along the way, which we can discuss. But we haven't figured out how to deal with the front end of a crisis."

Ray Dalio (RD): "Well, I would put it the following way. What we do is we all know, and we know now, easy money is the cure-all. So, you want to make things go up, make easy money. So now we have that kind of element of problem. Right now what we were talking about is easing, significantly easing monetary policy, while we have the stock market at the peak, the gold market's going through the roof, and we have that. What's the cure-all? Easy money. Until, until it's not. Then you have to put on the brakes and then you have the pop. It's not easy."

Andrew Ross Sorkin (ARS): "So where are we now? Because I look at what's happening today with what seems like an AI bubble of some sort. I mean, we're spending extraordinary amounts of money somewhat indiscriminately without an ROI plan necessarily. Does that mean that we end up in the same soup or not?"

Ray Dalio (RD): "The dynamic, if you follow the pattern, is there's a debt-money dynamic and then there's the stimulus dynamic. It would look to me like you're not going to have tight money soup; you're going to have more easy money soup, right? And you're going to have less regulation. The Elizabeth Warren is losing, all right. And also you have very big wealth gaps, because the unicorn makers are making a lot of money, and then you have the big wealth gaps. And so you have the people who are making money also in the stock market where the others are not participating. So you have the big wealth gaps and that dynamic. So what I would think is, I think it's going to be easy money."

Andrew Ross Sorkin (ARS): "Well, but here's one other thing that's different about 1929 and now, and even 2008 and now, which is the deficit. The deficit is enormous. We had a budget surplus in 1929, budget surplus. The whole dynamic was completely different back then. So we could handle—you would think that we could handle some of these shocks today. You would think it would be so much more dangerous."

Ray Dalio (RD): "Well, maybe it's not. I don't know. What we have here now is the private sector had a lot of the debt, and now the government sector has a lot of the debt. We got a lot of the debt, and so now it's the government sector that's the one in the debt. But we got a lot of the debt. The debt moves around and so on, but we got it in the government sector, and so that's a difference. But we still have the debt, and it still means one man's debts are another man's assets. And when the assets are not as appealing as the alternative assets, but you have to pay the debt, then you have to have some sort of monetization. I didn't mean to get us, but these patterns just happen in all of those bubbles, so I just can't help myself."

Ray Dalio (RD): "So, on the stories, though, let's get back to some of those stories. There's always a crowd that's an in-crowd, in other words, the rich capitalist financier guys and so on, and they're the ones who are trying to control it all from their perspective. And as you point out, then there are the regulators. That's pretty analogous. Why don't you describe?"

Andrew Ross Sorkin (ARS): "So, one of the most fascinating characters is a guy named Thomas Lamont. Thomas Lamont ran JP Morgan. He technically was not the CEO—Jack Morgan, son of JP Morgan, had died—but he effectively puts Thomas Lamont in charge. And Thomas Lamont was the ultimate client guy. He had relationships with everybody: with Hoover, ultimately with Roosevelt, with Mussolini, with Hitler, with every bank, with every CEO in America. That's who Thomas Lamont was. And he was somebody who I think like JP Morgan believed if you could just put enough people in the room together, the right people in the room together, you could solve anything."

Ray Dalio (RD): "But they were the similar type of people, right? Similar type of people that if you could just get the heads of all the banks, the heads of the different companies, a couple of the political leaders, you could come to a bailout, a rescue, a solution to these issues. That's who he was. Doesn't that look a lot like the AI guys now?"

Andrew Ross Sorkin (ARS): "Yeah, I think right now you're seeing a lot of these kind of meetings, right? You get a couple of these guys in a room with the President of the United States and they think that they're going to solve or create the future. That's a lot of what's going on. There's no question there's a shocking similarity to all of that. The thing that's interesting about Lamont to me though is that it ultimately gets away from him, right? He thinks that he thinks that he can solve it and he thinks he can fix it, and the powers of control are elusive ultimately because the market really just runs away with itself. And they make all of these efforts to try to stem the tide by frankly buying up stocks themselves when the market's tanking, and they can't do it anymore. It doesn't even work."

Ray Dalio (RD): "It worked in the Panic of 1907. Same dynamic, Panic of 1907, except JP Morgan brought them in, and he paid, he pulled it off, right? He pulled it off."

Andrew Ross Sorkin (ARS): "But the market back then I think was smaller. And I think that's right, the broadening of the market and the conundrum of when things go to these new places. But the same dynamic: the group gets dynamic, too much credit, too much debt. I will say there's one other feature that was interesting that a lot of these guys were involved in that hopefully they're not involved in today, but maybe some people would argue they are, which is there were people who were manipulating the market back then. There were no rules, the SEC didn't exist, there was no insider trading laws, there was no bank capital rules, Bank Act—nothing had happened. And you had groups of investors, oftentimes people like John Raskob and some of these others who had put these what they call investment pools together, which were almost like pump and dump schemes, where they could run up the price of a stock. It was almost like having actors on the floor of the exchange going, 'I'll bid 120, you bid 150, I'll bid 180,' and we'll keep going up and up and up, and then we'll pull the rug when we know we got the stock high enough. And people I think thought back then that that was okay, that that was in a business of if you believe trading to some degree is about a battle of wits. It's someone's trying to outwit the other. Whoever is a buyer thinks that they're smarter than the seller; whoever is the seller thinks they're smarter than the buyer, always. And I think people thought that these pools in a way were just another version of that. Today, obviously, that hopefully doesn't happen, though I do think there's probably elements of that in the crypto and meme stock arena."

Ray Dalio (RD): "Andrew, the story is fascinating, but isn't it more important than the story? In other words, isn't it that what's most important is the mechanics and what to do and how to handle it now?"

Andrew Ross Sorkin (ARS): "100%. I think the reason that I'm always fascinated by the characters though is to understand the motivations and incentives of these individuals who are in decision-making roles and why they either don't make the right decisions or why they do make the right decisions, and who they're trying to either placate or who they're trying to prove something to, or what is driving people who hopefully are of goodwill. But why do we get ourselves in these positions and then what happens on the other end once we do?"

Ray Dalio (RD): "But Andrew, I'm a guy who's got to make bets in the markets. You're a guy who is looking at this. So we're looking at this: one from a story lens, one from what is the mechanics and what do I do now? In other words, what do I hold? What do I do now? What I'd like to do with you is I'd like to do an examination of all of the bubbles. I've done an examination of all the bubbles. Yes, you have. So we can go back to all of those and I think we should be able to say, 'Here are the bubbles, here are the mechanics,' and we can agree perhaps that those are the mechanics, or at least have a conversation that way, because a real service that you could provide is to help to convey what those mechanics are so that we don't have this thing happen over and over."

Andrew Ross Sorkin (ARS): "Yeah, right, absolutely. The thing that I would love to know when we think about these systems is, is it pre-ordained? Meaning, once you get into these systems where there's too much debt in the system and there's this miracle that seems to be ahead of people in the future, does everybody just behave in a particular way always?"

Ray Dalio (RD): "And that maybe it's not about the individual. It's not about the individual. There's a mechanics. Like I owe a lot of money, so I have a cash flow issue that means I have to come up with cash. Therefore, what is the amount of cash am I getting to pay off my debt? Those are numbers, that's mechanics. Those are numbers you can see. What is the amount of debt service that I have to make or I'm going to default? And then where do I get that? And if it doesn't produce that cash, if there's an unsustainable way, where do I get my cash? Only two ways to get the cash: either it produces the cash and gives me a yield and I can take that yield to do it, or I've got to sell the thing, I've got to sell the asset. That's mechanics. Through all of these times, it is that there is a growth in debt relative to money. So if you look at the breakdown of the monetary system in 1971, 1933, Panic of 1907, there are too many claims. I've got to come up with money, and there are too many claims, so that a debt is a short money position. I have to come up with money, and there's not enough money. And so what you have is the creation of debt, not the creation of money. You have the creation of debt, which is a promise to deliver money in order to buy this stuff. So where did all that buying power come from? It came from credit, not from money. And now when you have all that credit, which is debt, credit turns into debt. So I have all these IOUs and then there's not enough money, and so you can go through those calculations and you could see that over and over again."

Andrew Ross Sorkin (ARS): "That is mechanics. What I'm curious about, though, I understand the mechanics of what happens when you get into trouble. I'm curious if you think that there are mechanics that put you into trouble that force the creation of... But is that just about the human condition? That we just always want more, that we can't control"

Ray Dalio (RD): "Ourselves? Well, you believe we know the mechanics. We experience it today, and it's such a good example. It's because you believe that that's going to be a better deal and you don't pay attention to the price and the cash flow, right? Everybody believes it's going to go up. So in 2008, housing, and then we create the structure with various tiers in that, tranches. And Europe, same thing in 2010/11, and same thing in Japan. It's that you believe that that thing is better than credit, so you're going to be able to pay it off and you build the credit and it doesn't have enough cash flow. Always there's that mechanics. I don't know of any time that that hasn't happened."

Andrew Ross Sorkin (ARS): "Of all of the financial crises that you've studied, which one's the most interesting to you?"

Ray Dalio (RD): "I think they're all interesting. I think the ones that I found maybe the most interesting are the inflationary depressions, like the Weimar Republic, Germany's Weimar Republic. Because we think of inflation as being something because there's too much demand pressing up against another. And I asked myself why is that? Why do you have an inflationary depression? Why don't they just stop printing the money to fight the inflation? Why? Because there's too much debt, and then you produce a dynamic where they have to produce the money. The Central Bank starts to produce losses. Very interesting. The government produces losses. Central Bank then prints money and buys that. Then you get the dynamic that the Central Bank starts to produce losses. Like right now Central Banks have losses on their balance sheets because they bought the debt and the debt is gone down in value and they have a negative cash flow. So you better lower the interest rates. So they have an interest rate, they have a problem. So I find the ones where when the Central Bank can't do that and then you produce an inflationary depression, probably the most interesting ones."

Andrew Ross Sorkin (ARS): "How much—and this is something that I've been writing a lot about and concerned about, but maybe you'll tell me this is not the thing to worry about—how much should we focus on the guardrails being on or off? Meaning, I look at the guardrails that came on post-1929: the SEC, the Bank Act, capital requirements, all sorts of things that we put in place, and I think of those relatively as good things. I'm sure people would say some of them went overboard, maybe some didn't. But I always get a little nervous when we have new products in the market. So, we had SPACs, we have NFTs, crypto. Now we're going to be putting venture capital and private equity and private credit in these semi-liquid instruments into the public markets, and we're effectively allowing private companies into the public markets without the same kind of disclosures through tokenization, all sorts of things. Is that something that we should be concerned about or not?"

Ray Dalio (RD): "It's classic. What's classic is the putting aside the regulations. And it happens in less bank capital requirements. But a very good example of that of course is private markets. What's the difference between private markets and public markets, and will they have the same regulations? In other words, in a private market you can do insider trading, essentially. Really? You can do a lot of stuff. You don't have to make—you can make all sorts of deals and so on. So if you're going to have the public go into a private market, shouldn't the same protections exist as existed in a public market, or what constitutes the difference of those things?"

Andrew Ross Sorkin (ARS): "Well, that's where I am, but it doesn't seem to be where the rest of the world is right now: make easy access to the public. And are the same things—are regulations put aside? Like you could see we're changing capital requirements, so restraints are put aside. Look, restraints are only things that people want after the fact. Always want them after, they never want them before. They're all perceived as problems. They're all perceived as you're standing in the way of wonderful things happening."

Ray Dalio (RD): "Yeah, that's part of the cycle."

Andrew Ross Sorkin (ARS): "So you're touching on a very interesting thing because it did happen in the 1920s: this idea of everything was pitched in the context of democratizing finance, and that's a phrase you hear a lot now. We're all trying to democratize finance. We want everybody to have access to the lottery ticket, the way people think that the elite have had access to the lottery ticket, but somehow the public hasn't. That was always done to protect the public. But then people say to me, they say, 'Andrew, you're not protecting the public, you're protecting the man by keeping us from having access to these opportunities. We you're exacerbating the inequality.' Another good example is mark-to-market accounting. Get rid of mark-to-market accounting. That's part of the pendulum swinging."

Ray Dalio (RD): "It used to be there was no mark-to-market accounting and you can hide things more, and then the problem happened. So then they say there should be mark-to-market accounting. And then what you have is, 'We should get rid of mark-to-market accounting because it's not okay'. So private markets help to get rid of mark-to-market accounting or less. Think about even the wealth creation right now. You can have, let's say you create a unicorn, and the way you create a unicorn is you issue, let's say, $100 million of stock. You sell that amount. And you sell 10% of it, and that represents a billion dollars. And now somebody's worth a billion dollars because they have it only to okay that $100 million. But all of a sudden they say, 'I've got the stock,' so they value the whole stock at the billion dollars. And now you say, 'I've got a billion dollars'. Now I can go take that stock and I can go buy things with stock. I'm no longer using money, and I can go to the bank. I've got collateral because I've got a billion dollars, but there's no billion dollars, right? So different things like this come about. Private credit. One of the beauties of private credit is it's really not very much mark-to-market, and we won't call the default, right? We'll roll it forward."

Andrew Ross Sorkin (ARS): "So one of the things I think about is actually are we safer today because of private credit? Post-2008 a lot of the credit in the system moved off balance sheet to these private credit funds. And some people would argue that's better because they aren't sitting on the bank balance sheets and they don't have the maturity time horizon issue, which is the bank effectively is loaning out money for long term but can get called on it by the depositor at any moment, and these funds don't have that problem. However, some of these funds are relatively highly leveraged and some of them have liquidity lines and other things to the banks, and we don't know about the marks. So I can't figure out if we're in better shape or not."

Ray Dalio (RD): "Well, it's sort of like, if you don't account for it and do the mark-to-market, you're going to have less defaults. But the reality is you can't get your money and it can't get the cash flow. What's the value of investment? There's only one value of investment: I can take my investment, I can sell it, I can get cash and I can buy stuff. The only value of money, the only value is to buy stuff. And so if you have illiquid investments that are not marked to market, you can play all these accounting games, but it's not going to get you money to buy stuff."

Andrew Ross Sorkin (ARS): "Well, but then that argues, by the way, the private equity folks who tell you that this is a bug and not a feature, that they're able to make long-term decisions and do all sorts of things that people in public markets, in a liquid market, can't do. I don't know."

Ray Dalio (RD): "But then think about it. There are those arguments that what would be the problem with the mark-to-market accounting? In other words, there's a market. Would you like liquidity or would you not like liquidity? I would like liquidity, the option. But if you don't, then you can hide it, like mark-to-market accounting. And anyway, how are these things going to work? So now the public's going to go into these private markets. Are they going to have the same regulation? Isn't the purpose of the regulation to protect the people?"

Andrew Ross Sorkin (ARS): "That's what you would think. But I think for the most part they're not going to have the same regulations, because the assets inside of these things are still going to be considered private. And by the way, who cares the issue of private or public?"

Ray Dalio (RD): "No, but without the same disclosures, you're not going to have the disclosures. I got it. And why not? I look, I think we should. I think we should. I think you and I agree we should. We should have these, if these assets are in the public markets, they should be treated like public market assets and they should have the same kind of disclosures and rules, right? So what does it look like to you now? It looks like we're not going to get that, and that seems like trouble."

Andrew Ross Sorkin (ARS): "We're having a very interesting conversation. I hope that what we can do is almost take the time, say what are the patterns, what are the red flags. Maybe we can do that together and then take a look at those things, because they matter. They really, really do. And I don't know if we're looking at them hard enough. I mean, I think you and I are, but I don't know if the rest of the system is looking at it hard enough. Well, maybe in this environment—I mean, this is what I'm so curious about—given you've studied all these things, in these kind of environments people seem to either wear blinders or they look away from these issues almost invariably. That maybe it is a human condition."

Ray Dalio (RD): "I think it is because the mechanics are not well enough understood. I think if you looked at it as though a doctor looked at the physiology of the patient and you look at the cause-effect relationship and you really calculate the cash flows: 'How am I going to come up with money?' 'Can I come up with money to buy things?' 'Am I going to have enough money?' It comes down to that kind of thing, and you could do the calculations. I hope we can maybe do that together."

Andrew Ross Sorkin (ARS): "Are they going to make a movie out of this? I hope they make a movie out of this."

Andrew Ross Sorkin (ARS): "I hope so. There's a couple of people who've reached out in the past couple weeks from Hollywood, so hopefully stand by for more news there."

Ray Dalio (RD): "Well, I would endorse that. It is a riveting, riveting book, an important book, and I hope that it's at the brink of us then taking a look and saying, 'What are the lessons?' Because if you did 2008 and you did 1929, you could also do Japan in 1990, you could do the Panic of '07, you can do the Panic of 1873. You can almost line those all up and then look across them. That would be the same story. To me it's almost like watching the movie happen over and over again. You just change the clothes they're wearing, the names of the people, and the technology they're using, but it's basically the same thing in slightly different flavors. History rhymes, right?"

Andrew Ross Sorkin (ARS): "History rhymes. I'm hoping they can only write the prequels so we can try to avoid the sequel."

Ray Dalio (RD): "Only if you write it, man. Thank you, sir. Thank you very much. It was so much fun."

Andrew Ross Sorkin (ARS): "Thank you, Ray. I really appreciate it. I hope a lot of people read it both because they'll be entertained and they'll learn some patterns that might get them thinking."