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Me: Learn history… Dalio: It’s all happened before… Toews: Retirement portfolios are vulnerable… Solomon: There’s nothing new under the sun… Me again: We can help (but it’s up to you)…
Editor’s note: Our Stansberry Research offices are closed today as our team enjoys some deserved time off and celebrates the holiday season. So we’re republishing a missive from regular Friday Digest essayist, Extreme Value and The Ferris Report editor, and Stansberry Investor Hour co-host Dan Ferris.
We originally published this essay back in April of this year. But we think you’ll find the insights and lessons – about the importance of understanding history to navigate today’s market – as timely as ever. It’s the kind of long-term view that Dan uniquely can provide. Enjoy…
I (Dan Ferris) love history…
Subscribers to my Extreme Value and The Ferris Report newsletters know I often introduce a stock recommendation by walking through the company’s life story.
That exercise is especially valuable when there is a straight line from the founding or some early point in the company’s history to the present. By that, I mean something like consistent leadership and a culture that kept the business on track, and which I believe will remain successful.
Learning to understand the longer arc of financial and economic history became a much more important skill for investors over the past few years…
In 2020, we had the worst pandemic since 1918, whose economic effects (higher inflation among them) are still with us today.
In 2022, we faced the steepest interest-rate-hiking cycle in history, with the only precedent occurring more than 40 years before (in 1980). Interest rates remain well above 2022 levels.
If investors didn’t take the hint after those events, Donald Trump’s trade war has finally made understanding history a nonnegotiable requirement.
Ray Dalio agrees that there’s no substitute for knowing economic history…
Dalio founded Bridgewater Associates, the world’s biggest hedge fund. He has researched and written about centuries of historical precedents for what’s happening now. In a recent Bloomberg interview with investor Barry Ritholtz, Dalio said…
The one thing that I learned about early on, particularly when the dollar in 1971 was broken from gold, is that many things that surprised me had never happened in my lifetime before, but they happened many times in history before.
Most investors seem unaware that they’re witnessing events with many historical precedents from before they were born. In a recent Reddit post, Dalio described the three biggest oft-repeated historical events happening today…
Creating a lot of debt and money, big wealth and political gaps, and the rise of [a] new world power (China) challenging an existing one (the US)…
We won’t delve into each of those areas today, but I believe Dalio is right. You should get a basic understanding of them, especially debt and money creation and the China/U.S. power struggle.
Another financial leader says many investors today are suffering from ‘corona bias’…
Philip Toews, founder and CEO of New York-based Toews Asset Management, wrote in a commentary in Barron’s…
Just as pandemic preparedness suffered from historical amnesia, investment strategies are constructed with a blind spot for market regimes that haven’t occurred within most professionals’ careers.
Toews calls out retirement portfolios as being particularly vulnerable, since they’ve all been built based on assumptions that have prevailed since 1980. As he puts it…
Bonds are reliable portfolio stabilizers. Stock market corrections will be relatively brief and followed by strong recoveries. Inflation is a largely conquered threat.
And he is not subtle about the implications of those vulnerabilities…
These assumptions work brilliantly in back-tests covering recent decades. But extending that historical lens reveals market regimes that would devastate today’s conventional portfolio construction.
In other words, multidecade market regimes become so ingrained in our collective investment psychology that we struggle to even contemplate alternatives—until they arrive with devastating force.
Toews’ short piece includes “devastate,” “devastation,” and “devastating” a total of six times. The repetition is neither an accident nor an overstatement.
The portfolio you think is perfect could be financially fatal starting right now. Trump intends to topple the global economic order… potentially unleashing a devastating force on financial markets and the retirement portfolios that depend on them. Even if you believe what he’s doing will be a long-term good, even he has made it clear it’ll require near-term pain.
Nobody wants to look back years from now and realize they could have saved their investments from a devastating force if only they’d learned more about what happened in the world before 1980.
If you want to bone up on your financial and economic history…
Try the 2009 book This Time Is Different: Eight Centuries of Financial Folly, by economists Carmen Reinhart and Kenneth Rogoff. It’s a bit dense and technical, but it also features amusing and relevant observations like:
For economists, Henry VIII of England should be almost as famous for clipping his kingdom’s coins as he was for chopping off the heads of its queens.
Henry VIII “resorted to an epic debasement of the currency,” starting in 1542 and continuing through his successor’s reign starting in 1547. As a result, the British pound lost 83% of its silver content.
Likewise, Dalio might say something similar is happening today, and he has said that our current debt cycle today resembles the period from 1935 to 1945. That cycle really began in 1933, when President Franklin D. Roosevelt ordered Americans to surrender their gold. The following year, FDR reduced the value of the gold-backed U.S. dollar by changing the official price of gold, from $20.67 per ounce to $35 – reducing the value of the currency by roughly 40% in a single stroke.
Today, our currency isn’t debased by reducing its silver content or repricing its gold backing. While gold repricing has been in the news, it’s not about backing the U.S. dollar. Gold hasn’t backed the U.S. dollar since 1971.
Dalio, among many others, has also repeatedly warned investors of the debasement of the dollar by the Federal Reserve printing more money to buy increasing amounts of debt issued by the U.S. government.
I also highly recommend Edward Chancellor’s 2022 masterpiece, The Price of Time: The Real Story of Interest. Chancellor is in a class by himself, having read and digested everything available on the topics he covers. Combine this with his 1999 history of financial speculation, Devil Take the Hindmost, and you’ll better understand several important episodes and trends in the history of both equity and debt markets. These are excellent reads and my two favorite financial-history books of any type.
Meanwhile, Dalio has published his historical research in Principles for Navigating Big Debt Crises and Principles for Dealing With the Changing World Order: Why Nations Succeed and Fail. His next book, How Countries Go Broke: The Big Cycle, came out June 3. You can read them online for free.
It’s mostly serious, often downright dense material… But that’s what it takes to really dig far enough into financial history to make a difference in how you see the world.
If you read and digest all of these books, you’ll be far better able to navigate what’s happening right now than 99% of investors in the market today. Reading them would probably also light a fire under you to learn even more market history.
Besides reading, there are some interesting folks you can follow through social media and other online portals who have an excellent understanding of history. Outside of my colleagues at Stansberry Research and its affiliated companies, three of my favorites are Marko Papic at BCA Research… Brent Johnson of Santiago Capital… and Hugh Hendry, “The ACID Capitalist.”
These writers understand the current macro environment and frequently drop historical names, dates, and topics that send me scanning my bookshelves and scouring the Internet for more information.
Of course, another book you might already be familiar with also contains some valuable insights about history, which you might not have realized were relevant to financial markets…
I’m talking about the biblical book of Ecclesiastes…
Throughout the frequently quoted book, Solomon, king of Jerusalem, ponders the cyclical nature of life, most famously in chapter 1, verses 9 to 11:
The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.
Is there any thing whereof it may be said, See, this is new? it hath been already of old time, which was before us.
There is no remembrance of former things; neither shall there be any remembrance of things that are to come with those that shall come after.
The key danger for investors lies in that last verse. Folks don’t remember things that happened before they were born. Even if they do remember reading or hearing about them, those events never feel as real as anything one has lived through.
Wall Street, aided by the Federal Reserve, helps investors forget about the dangers that have caused past crises by constantly pushing new, risky, leveraged financial products.
The history of such schemes is checkered at best, and often disastrous. But at worst, these products rake in cash until they crash, and then their managers turn around and sell some fresh new terrible idea.
Dozens of new highly leveraged exchange-traded funds have debuted over the past few years. Somebody got paid for doing that, even though they’re utterly worthless to investors.
Besides learning history and not forgetting it, it’s probably also helpful to realize that…
History itself can change…
That’s not intuitively obvious. After all, what has happened has happened. The past can’t change… can it? Maybe not, but history is not necessarily synonymous with the past…
We were reminded of how history can change recently, after stumbling upon a 2021 article titled, “Why Civilization is Older Than We Thought.”
The article describes an archaeological site in Turkey called “Göbekli Tepe.” It contains the oldest buildings in the world, erected 11,500 years ago. Scientists estimate that extracting and removing their stone pillars from a nearby quarry required a force of at least 500 people. The author says that’d be “quite the organizational feat,” given low population densities at that time.
Even more remarkable, Göbekli Tepe lies within the Middle East’s Fertile Crescent region, but it is older than evidence of agriculture in the region. Sumerian city-states are usually considered the birthplaces of civilization, but Göbekli Tepe is 4,000 years older than them.
So, did humans feed the labor force necessary to build large structures without agriculture? Or did humans have agriculture millennia earlier than previously thought? In other words, maybe what we call the history of civilization starts before we thought it did. That would change history without changing what happened.
So what is history?…
Is it simply what happened? Or is it wiser to call history “what humans say happened as they understand it”?
And that is inextricably bound up with what humans say is important about what happened.
Maybe the past is the past and the story we tell about it is history. Even when we do get the facts right, nobody ever knows the whole story.
Too many investors today don’t know the whole story while acting like they know it perfectly. Their strength – getting the story right for decades – is now their greatest weakness.
When circumstances change, investors must transition from believing they know everything to appreciating how much they don’t know about economic and financial history. Many will fail to do so. They’ll buy the dips, expect bonds to protect them during downturns… and ultimately be devastated by the results.
Once-a-century economic upheaval can devastate your wealth…
You must do what you can to avoid this catastrophe.
For example, as I’ve shared before, old-money Europeans used to preserve their wealth for centuries through the time-honored formula of one third each in land, gold, and art.
As always, I’m not saying your portfolio should be land, gold, and art, though having some of each wouldn’t hurt you over the long term. A more modern portfolio might contain bitcoin, Treasury bills, gold, land, whatever type of art or other collectible you’re most familiar with… and alternatives that didn’t exist hundreds of years ago, like a managed futures fund.
The real point is that true diversification is more important than ever. It’s about the only way I know of to prepare your wealth for whatever is to come.
Too many U.S.-based investors (and a fair amount of international investors) hold too much in U.S. stocks, especially the riskier growth stocks – many of which are burning cash with little prospect of near-term profitability.
Those investors need to raise the quality of their portfolios and should consider diversifying geographically, by asset class, and by risk profile.
If all you own is stocks, you probably need to add some Treasury bills and gold.
If all you have is gold, you probably need to add some stocks.
If all you own is U.S. stocks, add foreign stocks…
And so on.
But all of these are hypothetical examples…
There is no off-the-shelf portfolio that’s perfect for everyone. Investing is very personal. Only you know what kind of investor you are: your interests, goals, risk tolerance, and style.
The editors at Stansberry Research can certainly help you build a portfolio with our Portfolio Solutions products or the recommendations in our monthly newsletters. We can help you pick value, technology, mining, energy… and just about any other category of stocks you might find interesting, in addition to various options strategies.
Right now, I suspect most people’s portfolios are wildly unprepared for what could happen next in the economy and markets… They don’t understand history, and so headlines about tariffs and daily market volatility are obscuring the major story that is driving it all, just as they have in the past…
Most people can’t fathom how Trump’s next move could wipe out as much as 40% of their money in the years ahead. And so, they certainly don’t have a blueprint to protect and grow their wealth in this scenario.
But just as we can’t digest your food for you, only you can carry your wealth into the future.
Right now more than ever during your lifetime, you’re less likely to figure out where to go if you don’t know where similar market and economic environments throughout history have gone before.
It’s not too late to dive headlong into history.
But you can’t afford to wait any longer. You must begin today.
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With our offices closed today, we’re taking a break from our 52-week highs list and the mailbag. After this weekend’s Masters Series, we’ll pick things back up with our regular fare on Monday. As always, send your comments and questions to feedback@stansberryresearch.com.
Good investing,
Dan Ferris
Medford, Oregon
December 12, 2025
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