Transcription
We're about to see a 70% crash on the S&P 500, the massive end to the overvalued AI bubble. That is according to one billionaire, Jeremy Grantham, that have actually issued this warning in the month of June on both CNBC and this wonderful podcast called The Diary of a CEO. And I want to play you just a little clip, just a few seconds of something he said. And then we're going to dissect this warning and we're going to see what the proper strategy is given what this very accomplished, very successful billionaire investor is saying.
"If you have a big position in US technology stocks, my personal advice would be to sell it all. At the very least, reduce it."
"Really? Now?"
"Yeah."
"Have you sold your stocks now?"
"Yeah, of course."
"Did you have a lot in there?"
"No." [laughter]
So, I don't know what Jeremy Grantham's personal holdings are. We don't have access to that. But Jeremy Grantham's own firm, GMO, which he founded and he's the chairman and he's a partner at. Well, GMO actually files 13F filings, which are absolutely public. And based on the recent 13F filings, of course, maybe they've sold everything since, I don't know, but based on the recent 13F filings, well, the top five holdings of GMO are five mega-cap US companies: Microsoft, Google, Johnson & Johnson, Apple, Meta. [snorts]
So, I like to judge what people do, not so much what people say. So, at least according to the most recent filings, not taking any shots here, Jeremy Grantham, he's a very accomplished guy, but I'm just saying, you know, GMO's top five holdings are US stocks and we're talking about a lot of money in US mega-caps as it stands, according to the recent filings.
But it's not even about Jeremy Grantham. In fact, there's a study that was done by Vanguard looking at top investors, right? So basically, they took 800,000 investors in Vanguard with accounts that had a minimum of half a million dollars and the median balance in these accounts was a million dollar accounts. So, we're talking about extremely successful people that have been investing through Vanguard. And what they wanted to do is they want to kind of break down and see what was the common trait between these extremely successful accounts. And what they found is number one is that 82% of their investments were in fact in US stocks. What they also found very interesting is that about 23% of the portfolios were in bonds, which is something I've been preaching about for years. And also, what they found is that they only traded about 8% of their portfolios and 92% of them were held long-term. They've also found that mostly they never panic sold and during the COVID crash, when the market dropped significantly over a short period of time, 99% of them have not sold out of the market. So, we know for a fact that successful investors hold for the long term, don't time the market, and are US-centric.
So, the other thing I want to point out is that Jeremy Grantham is saying, "Well, look guys, uh, we're predicting anywhere from 50 to 70% drop on the S&P 500," and he said it probably is closer to 70% than 50%.
"This is, uh, the most expensive market in American history. And getting back to trend from here is, uh, closer to a 70% decline than a 50% decline."
"A 70% decline you think is in order?"
"Yes, I do."
Now, we're talking about a drop from 3,400, which is the current level, all the way down to the 2200 area, which actually is plausible. It's possible. I'm not saying it's impossible. Okay, it's possible. He's saying it's the most expensive stock market in American history and the drop is going to be significant. Okay? And he's saying, "Get out of US stocks. Get out of Bitcoin."
So, the thesis that he's proposing, that 70% decline, I want to give you some context about it. Okay? So, based on information we have from the past 100 years. Okay, this would be the most incredible crash we've seen since the Great Depression. In the Great Depression, the stock market dropped 90%, almost 90%. And this would be the second biggest drop since 1929 if it is a 70% drop like Grantham is saying, because if you take a look at the dot-com crash, well, that was a 49% drop. The subprime crash, a 57% drop. The COVID crash, a 34% drop. And in the 2022 bear market, a 25% drop. So, we're talking about a significant cataclysmic event. Okay.
By the way, the thesis isn't crazy. He is saying this is the most expensive stock market in American history, which would make it the second biggest drop in American history since 1929. Right? So, the thesis fits, right? If it is the most expensive market, then, you know, a 70% crash seems to go along with that thesis. The only problem is that it's not the first time we're seeing these sort of warnings. This is just one example out of hundreds I can find right now. This is a warning from the Royal Bank of Scotland warning investors of a cataclysmic sell everything event. Basically saying that everything can drop, sell everything, get out now. Well, the only problem is that this was 2016 and the stock market pretty much did almost 300% since this headline came out.
This is another headline from, this one is, I believe, from CNBC. "It's going to end extremely badly with stocks set to plummet 40% or more," warns Mark "Dr. Doom" Faber. Okay, now I'm not taking any shots at Mark "Dr. Doom" Faber or CNBC here, but I'm saying since this headline came out, the S&P is up 256%. This was 2017 and we can do this all day. In fact, I've summarized all of this in this table. This is just three years of headlines. I just ran out of space. This is 2015 to 2018. [laughter] I just literally ran out of space on this slide, right? And you can see each of these headlines, right? "Icons Danger Ahead," "Video Looming Catastrophe," up 300% since. "HSBC Red Alert," "Severe Fall Shades of 1987," 252% since then. "Stockman on CNBC," "Greatest Suckers Rally of All Time," 240% since then. Right. "Rogers Worst Bear Market of His Lifetime," up 187% since then. Okay. October 2018, CNBC, "Selloff Echoes the 1987 Crash," up 170% since. So, that's just from three years of very, very little examples I just showed you. Okay.
We don't have to go that far. Remember the tariff scare of 2025? March 2025. The S&P drops 16%. Everybody's screaming it's over. Everybody's running around like headless chickens. The S&P drops from 6,000 to 5,000 in about a month and a half. Everybody's panicking. This is it. The oil price is going to go up. Inflation is going to go up. This is over. This is it. Blah, blah, blah, blah, blah, blah. The stock market is up 48%. Let that happen. 48%.
Okay, like Baron Rothschild once said, "You always want to buy when there's blood on the streets, even if that blood is partially yours." That's just one proof. Now, historically speaking, shout out to Riss Holds for putting up this chart, which I absolutely love. This is 1928 to 2024. Okay, we're talking about 100 years of data comparing bear market length and bull market length and also the performance. So, as you can see here on this chart, sometimes, you know, a picture is worth a thousand words. As you can see on this chart, the bull markets are much longer and much bigger in return than bear markets. There is no comparison. You can barely see these red dots when you look across history. And you will always have doom and gloomers talking about, "Oh, you should sell, you should sell." But at the end of the day, the average bull market lasts about five years and the average return is about 114%. If you measure all the way back from 2023 when we started this bull market, we're about halfway there on all parameters. Okay. The average bear market is about 10 months. To bet on this 10-month little itsy-bitsy time frame is so hard, especially when you know that 95% of all 10-year periods are positive on the S&P 500 and every single 20-year period was also positive. 100% of them. So, betting to find this 5% is betting to find a needle in a haystack. It's very dangerous.
Now, the problem is that you'll see a lot of these head fakes by the market across multiple years. I've put together this just to show you how often you'll have these warnings, right? These events that are starting out. Every time the S&P drops 5%, it's dramatic because when the S&P drops 5%, you know, stocks like Palantir or Tesla or Nvidia, they may drop 15, 20, 25, 30% and it feels very violent. But the problem is that 5% dips happen three times per year. 10% corrections happen about once per year. That's dramatic. And a 15% drop, ever, you know, every 3 years. You know, it's it's pretty normal volatility, right? By the way, a drop of 30 to 50%, the one that's not even close to what Grantham is warning about, that happens, you know, how often in a decade, right? Once per decade. So, what he's predicting probably happens in what? Once in every 20 years, that 70% drop, once every 30 years. We haven't seen one since 1929.
But my point isn't really talking about Grantham and his warning. I mean, he's an accomplished guy with a lot of credentials, way smarter than me, right? Way richer than me. But all I'm saying is that, you know, corrections never kill portfolios. What kills portfolios is investor reactions. When people overreact to this and they prematurely sell, and what happens is they take a look at this thing. "Oh my god, S&P is down from a 6,000 to 5,000. We got to sell. We got to sell." And they miss out on the 48% upside within a year from that point. That's what I'm saying.
Now, I don't think you should play the timing game whatsoever. The reason being is very simple. If you miss the top 10 days in a 20-year period, your portfolio is going to perform 50% less. And a lot of these best 10 days come inside very ugly markets, very ugly weeks, very ugly months. Okay. On the other hand, if you just sit in cash and never play the investing game and you just say, "Well, I'm just going to sit on the sideline, then I don't have to risk my money." Well, then you're not risking your money in the stock market, but you are guaranteeing a 45% decline in your purchasing power within, you know, a period of 10 years. In 10 years, you're going to lose half. That's just to inflation. So, you're eliminating one risk and then you're introducing another certainty of declining purchasing power. So, now your dollar is worth, you know, 50 cents realistically in the store, right?
The thing is with these crashes, a lot of people try to time them and, "Oh, I'm going to watch out for warnings." Well, in history, none of these crashes we've seen over the past 100 years, none, not a single one came with a warning sign. [laughter] It never happens when everybody is just bracing for impact. Never, ever, ever. It always happens when people are euphoric and people are excited and everything is amazing, then the crash happens, which is actually not the case right now because we're in fear mode, right? But as Peter Lynch once said, "More money was lost waiting for corrections than the corrections themselves."
Now, if you take a look at this and, and by the way, this is from Market Sentiment. I'll show you the original article in a second. So, Market Sentiment actually ran this test when they've added a few types of investors just to see what happens during the last decade. Because the counterargument to this, uh, narrative that I'm promoting here is that, "Well, Tom, what happens if you fall on the lost decade 2000 to 2010 and, you know, that's a decade where nobody made money?" Well, that is true. You know, the likelihood of that happening is about 5%. 95% it's not going to happen because that's just how often that happens. But yeah, sure, it can happen. But basically, Market Sentiment, they took a few investors and they said, "Well, what happens if these investors just invest $100 into the S&P 500 and they do it across, you know, 25 years? What happens then? What happens if they start investing just before the last decade starts, right, and they absorb the full impact of the lost decade? What happens?" Well, it's very interesting. The guy who panic sold in the dot-com crash missed out on 50% of his investment, obviously. You know, he locked in a 50% loss. The other three guys who have essentially been dollar cost averaging $100 into the market, but with different strategies, they're all up a lot, right? But notice the difference. One guy basically kept on buying no matter what. That's Andy, okay? $100 every single month, non-stop for 25 years. He's up 385%. Okay? The guy who stopped buying whenever the market dropped and continued to buying, resumed buying when the market went up, his name is Charlie. He's up 314%. Right? He underperformed, but he's still up. But the guy who doubled down on drops, who bought more during drops, instead of $100, he bought $200. Well, there, his name is Dave, and Dave is up 440%. So, he beat both of them. Okay? So, you have patience, you have discipline, you have consistency. That's the whole game.
Now, this is the article for Market Sentiment. You can go read it and they pretty much nailed it. DCA double down system is undefeated in the stock market and you can see that it even works in the last decade. Shout out to Market Sentiment. And the system is very, very simple. So, you you basically say, "Well, I'm not going to time this. I don't care when the market crashes because, you know, crashes happen, corrections happen. I cannot avoid a crash or correction. They're bound to happen. They're part of the reality of being an investor. Okay. So, what I'm going to do, I'm going to take a look at my budget. I'm going to figure out, step one, how much I can invest effortlessly. Okay? How much money I can invest and not worry about it. Okay? So, it's like just another Tuesday. Let's say that money is $200 a month. Then step two comes along and then I deploy half that money. Half that money goes into the stock market. The other half I put in a money market account in treasuries and I save it. I call it my DCA double down bank. And when the stocks I picked or the ETF I have, a broad market ETF like the S&P 500, drops below a certain threshold. I gave you an example here of 10% below the 52-week high for an S&P 500 and 20% below the 52-week high for a stock. Then I'm going to take money out of my DCA bank and instead of investing $100, I'm going to invest $300 and I'm going to continue doing it until the stock stays below the threshold. When it goes up and it's now no longer 20% below the threshold, then I'm going to go back to my original investing, which is $100. Okay? And I'm going to do it same time every month, no exceptions, completely automated, right? Never moving the goalposts with only one tweak. When a stock goes up more than 20% in 30 days or less, I'm going to go to half speed, so $50 instead of $100. And I'm never going to use any leverage. I'm never going to borrow any money. And we're going to keep chugging along for the next 20 years. That formula, folks, is undefeated. Whether you get a crash or two or three inside this period doesn't matter because this system is going to take care of it.
But Tom, what if the market is like super duper expensive right now? No problem. That's why we have the trim schedule. Okay, the trim schedule takes care of that. You trim your big winners as they go along on schedule, not on a feeling, not on a hunch, not on a gut feeling. When you have a gut feeling, go to the toilet. Okay, you set a trim schedule. If a stock is up 50%, you 10% trim. If a stock is up 100%, you're 20% trim. If a stock is up 150%, you 30% trim. And you reset the cycle every single time. Okay? And then you make sure you have an emergency fund to keep you covered in drops so you don't have to sell your stocks. And then you DCA and you combine all of this into a system that doesn't predict but prepares. That's the whole point. Do not predict the crash. Prepare for it. Make sure you have the right system. And that's why we have over 100 lectures on my academy teaching you exactly that. How to prepare, how to build a portfolio, how to protect your portfolio, how to handle stuff in the crash, everything you need to know to prepare and make sure that when everybody else is running out like headless chickens, you have everything in place. patreon.com/todommnash. That is why we have 35,000 members and you can be a part of that as well. Get the lectures, get the community, get access to me personally. Talk to me live, ask me questions on our live meetings. The whole thing will make you a better investor. Would love to see you in there. And as a bonus, on the bottom of this video in the description and the pinned comment, I'm going to share with you my top 15 conviction stocks list. It's right there. It's free. Go get it right now. I'll see you next time.