Transcription
[Music] This is an urgent warning for every single investor out there. Whether you have been investing for 5 years or 5 days or 5 weeks, this concerns you.
In today's video, we're going to show you what's coming. We're going to show you how to understand it, how to prep for that, so you're going to be ready when most of the market is going to be bamboozled about what's about to happen. As always, these things, they don't announce themselves in advance. They happen out of the blue, catching everybody swimming naked.
Now, in today's video, I don't want you to click nothing. I don't want you to smash nothing. I don't want you to buy nothing. I just want you to pay attention and listen to what I'm about to tell you right now.
Now this grainy image from 1978, this is a column that was written by Mr. John Crane. He wrote a column for Forbes and in this column he was telling his readers a story about an old pig farmer, Mr. Wulmarmac. Now this story was sent into him by one of his readers and it goes something like this.
Basically after World War II, one of his readers by the name of Mr. Hogan was basically doing what most retail investors do right now, which is take losses, sell low, buy high, all that stuff. Basically, the usual stuff that retail does. That all changed instantaneously once he met Mr. WAC.
Now, he met him at Maril Lynch. People used to go physically to these places back in the day to the brokerage. And he was introduced to him by his own banker that said, "Hey, this dude, this farmer, this pig farmer has never had a losing year in the stock market ever. Do you want to meet him?" And the guy said, "Does the pope poop in the woods?" Of course, I want to meet him.
So, he meets Mr. Wulmeck, the pig farmer, and he shows him his statements, and he's blown away because the guy literally never loses money. What's going on? How? What's your secret? And he asked Mr. Warmarmac to tell him a secret. What happened? How did you get this guy in the stock market? I mean, you're a farmer.
And the guy says, "Look, I don't understand nothing about the stock market. Nothing. I understand a lot about pig farming. Now, in pig farming, what you want to do is this. You want to buy the pigs when they're little. You want to feed them. And then you want to sell them when they're big and fat. Make a lot of money. And essentially said, "Hey, look, that's what I understand." And I literally applied that to the stock market. My whole secret was I bought good companies in bad markets when everybody was selling and I sold when everybody was hyped up and fomoing. FOMO means fear of missing out when everybody was buying things at crazy prices and the media was screaming that the stock market simply cannot go down. Every time that happened, I sold. And every time everything got depressed, I just kept on buying good companies. And I did literally the opposite of what the market sentiment was at the time. I've been doing this for decades and essentially never lost money."
Basically, what he told him is the huge secret that most investors don't understand, and it has to do with the warning I'm about to share with you right now. Because this warning has to do everything with this. Mr. WAC, the big farmer, knew more about the market than 90% of investors. He understood two simple concepts that are critical to understand the warning I'm about to share with you today, which is quality and seasonality. You can't escape these two things in the stock market. People try to escape them by different various methods such as technical trading, day trading, swing trading. But you cannot escape quality and seasonality. He understood equality means that somebody wants your pig. Seasonality means that they want him when it's big and fat, not when it's little. The same thing works in the stock market.
Now, once you understand this little principle that John Tra shared with his readers back in 1978, look how little the stock market has changed since 1978 to 2025. No change at all. In fact, you can go back a 100 years, it is still the same. But once you understand this little principle that I just told you, the quality and seasonality, you will never look at the market in the same manner ever again. You understand that once you do this, you're not going to be making any predictions about the stock market because it's not needed. Mr. WAC, the pig farmer, has never been required to predict what the stock market is going to do. In fact, he said, "I don't care. All I'm going to do is react to the seasonality." Right? When the stock market is hyped, I'm going to sell. When the stock market is in absolute depression, I'm going to buy. Same thing that Warren Buffett basically built a career on. Same thing that the world's best investors do every single day. It is foolproof. It is simple. You don't need a crystal ball. And you don't need forecasting. You don't need PhDs, geopolitics. None of this matters.
Okay. So, how does it have to do with the warning I'm about to share with you today? Because I hear a lot of people asking me this question, and I want to address it because it is warranted, right? A lot of people are wondering, are we in a market bubble? Right? And it's not a ridiculous question to ask in 2025. And the reason it's not a ridiculous question to ask. The reason that this is a legitimate warning is because right now we are at all-time highs, right? The market is very expensive. We are experiencing low breadth. It's all basically focused around AI stocks, AI related stocks. The hyperscalers are spending a lot of money on building AI infrastructure, right? And because of that spending, the assumption is they're going to make so much money that right now already a lot of investors are pricing these future revenues, the future earnings today based on the spending, not based on the thing that hasn't happened yet.
Now, I'm not saying it's not going to happen. I'm just saying that the market is getting a little bit ahead of itself at it, you know, at its core. The market is always, you know, pricing in the future. That's normal. But sometimes the market gets a little bit too excited for its own good. Especially now when we have a lot of assumed reduction in interest rates also kind of added to the soup. So there's a lot of hype, a lot of hopeium, a lot of future being priced into the stock market.
Okay. Now, if you take a look at the Schiller PE and the Schiller PE is essentially a like a normal PE, but as you can read on the bottom here, it's basically instead of a regular setup where you have a stock price divided by the uh the normal I'm going to move this by the normal earnings in the Schiller P, we're going to divide it by 10year average. Okay, just move this so you guys can read. Right. If you do a Schiller P right now on the S&P 500, you're gonna find out that it is at a 40, right? Right here. Okay. The one thing that's interesting here is that the only time we went above 40 was also here. Now, this is the com crash. Okay. So, in history, there's only been two times when we went above 40 on the sh. One was in the com crash and one is now. Now, it doesn't guarantee we're about to get another com crash. Not at all. But it is an indicator worth paying attention to. It is something that you don't just ignore. You add it to the different things that you're learning about the market. Basically, hey, the market right now is really, really expensive. Okay? That alone doesn't mean it is guaranteed a crash. It means we have to keep researching. We have to keep learning. And luckily for you, you're on this video, so I did the work for you.
Now the other thing that concerns me as well, like a lot of other experts, is if you look at this, this basically shows you how much money you've made on average per year in 10 years after a certain PE in the stock market. So basically, whatever the PE ratio was on the S&P 500 when you bought in, how much money you've made for the subsequent decade, right? So let's say the PE was 14, then this is what you made between 10 and 20% pay year. Not bad, right? Great. At 14 PE, you're pretty much guaranteed a really good performance over the next decade. Of course, the lower the PE, the better the results. But there's also one thing here, which is the green line, which is the cutoff date. Well, it's almost guaranteed. Nothing is guaranteed in life except death and taxes. And here it is almost guaranteed that once you go across this green line you are making zero or maybe negative even for the most part return on the next 10 years right and that is right here at about 23 24 depends on how you measure it right so if we understand that the cutoff PE ratio on the S&P 500 is 2324 where it gets a little bit dicey to buy in like crazy like people are doing right now not talking people who've been investing dollar cost averaging for the past 10 years, 5 years, a lot of people are stepping into this market today, basically piling in into this market at large sums, right? History shows it's not necessarily a good idea long term, right? Right now, the P ratio that we have on the S&P 500, the current P is 30.6. It's a lot higher than 23 and the forward P based on future predicted earnings is 23.45. 45 both are beyond the green line which means the current setup of the S&P 500 is not a great one if you start investing today it's not one that shows that you are expected to make a lot of money in this market in fact is something to be concerned about right on top of this if you take a look at the market cap to GDP ratio which is the you know the buffet ratio like it a lot of people like to call it right now we're about 216 16 on the S1. Basically, we are double market cap than GDP and some at 216. Right? It's insane. Right now, the average is right here, but the average is a little bit skewed, a little bit below 100%, but it's skewed because we're going way way back into the past right here. Right? So maybe, you know, you can account for a little bit of a of a skewess here, but still we're significantly above the norm on the Buffett indicator as well, which is another sign of concern that shows us, hey, this market is a little bit dicey. It's not the right time to get excited and FOMO all your life savings into the stock market because there's a lot of warning signs.
Okay? And I think that the riskiest thing that you can do in the stock market is basically look at this and say well you know uh we don't see any risk in this market and a lot of experts are saying this right now hey we don't see any risk everything is glitchy everything is fine no worries at all right look I want to share with you a piece that I read today actually on market sentiment basically in the late 90s We had a mutual fund that absolutely dominated the Janus fund. Unlike usual mutual funds, they had a concentrated structure like 20 to 30 portfolios and they basically went for tech. Cisco, Microsoft, Worldcom, Enron. So, a lot of technology, but you know, a lot of unfortunate choices as well, but mainly tech right concentrated tech portfolios. And it absolutely did amazing. Amazing. Okay, this fund absolutely smashed. Okay, in 1998, the fund did 73%. In 1999, it did 65%. In the 2000s, it had days with a billion dollars of inflows in a single day. There's a little article here from 2000, about 83%, sorry, 82% that it did at a certain year. Basically, this was the best of the best, the creme de la creme if you wanted a text exposure, right? And this tech exposure basically came to a halt as you know because at 2000 when the music stopped and this happened to the market as we all know this was unfortunate Janus 20 the flagship fund dropped by 70% and eventually was shut down.
If you want to operate in the stock market without understanding the risk that this whole thing may crash below you, the floor might actually cave in. You're essentially driving either without a seat belt or without insurance or potentially without both. Right? And the one thing I want you guys to understand coming out of this lecture today is that market crashes are normal. They're a feature. They're not a bug. It doesn't mean that the market is breaking. Crashes are abs freakingutely normal and they'll keep happening again and again and again and people will somehow 150 years later will be still surprised that this happened and yet all you have to do is just look at this chart right here. Well, this keeps happening for 150 years. We have expansion, recession, recovery, the same thing. And I can show you a different chart where it's a little bit more, you know, in our language where you have disbelief, hope, belief, euphoria, anxiety, denial, panic, anger, depression, disbelief, hope, belief, euphoria, anxiety, and you see wax on, wax off, kratic. Basically, this thing repeats itself decade after decade after decade after decade. It's never going to change. And people refuse to acknowledge that.
But Tom, I'm safe. I'm in the S&P 500. I'm good. I'm Gucci. It may feel like it for the past five years, but just to clarify, and I'm not against the S&P 500. In fact, I'm a huge fan of the S&P 500. I just want to make sure that we understand that being in the S&P 500 doesn't give you the protection that you think it does because you've been in the bull market for the past 5 years. The S&P 500 is one hell of a solid choice. I love this index. It's a broad market index that I call the cheat code. But it's not risk-free, especially not now where you have the largest stocks in the index. 1 2 3 4 5 6 7 8 9 10 being about 40% of the index. 40% is concentrated in 10 companies. Do you realize what this means? It is not a risk-free instrument at all. Which means you need something to protect yourself. The S&P 500 in itself is not a protection.
So what am I talking about here? Okay, in the bullish cycle like we are experiencing right now since 2023, 24 and 2025 obviously with the minor stuff that minor glitches that we had. What happens is that people lose fear. They become the baby on the ledge. They don't understand what's going on. We have this carefree behavior where people just essentially paying unreasonable prices for stocks at any price, at any cost, doesn't matter. The only thing that matters that this goes up and someday I'll sell it at a higher price. I don't care what it does. And the risk is slowly building up, slowly building up while everybody's being busy getting rich. And then you have investors basically absolutely ignoring this reality, explaining it away, rationalizing the insanity. And then of course that happens a lot. You have the plumber and the carpenter. They're all driving Lambos and Ferraris making six figures day trading. That's where you know when things are getting a little bit dicey.
Okay. Now, of course, the pros, they're not sitting there hoping they don't get caught. They're certainly not sitting there trying to time this because they know that it's impossible. So, how are the pros protecting themselves against this insanity? Okay, while 90% of the market is essentially in celebration mode, potting completely ignoring what is inevitable, these guys, the pros, they're busy protecting themselves. The thing I want to explain here is that all my friends who are professional investors are mostly stressed when the times are great. They're not stressed in a bad market. that's where they buy. Okay, so there's three things they do. Number one, we'll talk about all of them right now. Okay, number one, they diversify. Number two, they trim big winners at all times. And they have bond exposure. As much as people like to hate in bonds, this is a critical part of protecting your ASP.
Okay, let's move on. Let's start with diversification. Okay, a lot of you absolutely hate diversification. You despise it. Okay, and the more bullish we become, the less people want to hear about it. Now, in 1996, Warren Buffett essentially came out and he said, "Look, diversification is protection against idiocy, against ignorance, right? All you got to do is find a great company, invest in it, hold on, and that's how you're going to make a great fortune. And Coca-Cola, which is company he invested on in 19, you know, this was in 1996. Coca-Cola, one of his most famous investments, is a great example of that. And a lot of people like to quote this from Buffett saying, "Hey, Tom, we don't need to diversify." Buffett doesn't diversify. By the way, have you looked at Berkshire Hathway? you know they have like 70 different positions. So that's number one.
Number two, the cool thing about history, you know, we can take a look at Palunteer, right? And yeah, to an extent, I was one of the first to talk about this, if not the first. And for the past 5 years, we've done almost 2,000% and that's phenomenal. It changed my life, changed my viewers life, changed my students life. This is a game changer. And it is true. For the past 5 years, it's been insane. But here's the thing and finding the palunteers of the world is extremely hard and it is extremely low chances of success. And the reason that you don't know about this is because the ones that fail, you never hear about them. That's called survivorship bias. You hear about guys like me who have made it and they found the palunteer. You haven't heard about the 90% that haven't hit the right one and they've gambled on some stock that never panned out, right? And by the way, we already had 5 years of Palunteer. What about 10 years, 20 years, 30 years? We don't know yet. It's too soon to celebrate Palunteer, right? By the way, talking about Buffett and Coca-Cola since 1995 when he made that statement, the S&P 500 crushed Coca-Cola by two and a halfx. So, if you just stay the S&P 500, he would have had a better performance than Coca-Cola. So, you know, take what he said with a grain of salt. Now, not taking shots at at Buffett, the OG. I'm just saying.
Okay, look, the thing is that people don't understand in good times that losses are emotionally more painful than wins. If you win a dollar and you lose a dollar, the loss is twice as painful, right? And if you look at the Russell Russell 2000, you know, 70% of these companies had, you know, 40% sorry, 40% of these companies had a 70% loss. So, if you're concentrated and you're picking individual stocks, you're going to hit that 40% in a higher likelihood, which means you're going to have a higher chance of experiencing a major loss. Which means that once you experience this big loss, your emotions are going to take over and your decision-m is going to be all screwed up and you're going to do this. Buy high, sell low, which is exactly what retail does every single time this happens. Every time without exception.
Okay, now you understand this chart which we talked about many times. This is from Josh Brown. I love his work. Shout out to Josh, right? Uh if you ever want to connect, I would love to do that. Basically, this shows you all the reasons to sell, you know, since 2009. And then how much you've made just sitting in the SP funded. So, you understand this. You also understand this, which is again from Josh Brown. The length of the crashes that we had, which is red, and the length of the bull cycles, which are blue. but can barely see the red if you just zoom out. You understand this and you understand this. So you if you understand that, all you have to do is make sure that your brain wins the battle against emotions every single day. And the best way to do it is through diversification. Okay? Concentration is only looking good when you have a bullish cycle. It doesn't look good in a bad market. Right? I said it a second ago. There were a lot of palenteers out there that didn't pan out, right? And look, even I have 40% of my portfolio, the SP 500. Putting all your eggs in one basket has never been a good long-term strategy for anyone in the stock market. Okay? It's really important that you understand that.
Now, we just covered diversification. Let's go to the next one. Right? Trimming winners. I hate the push back I'm getting against right now. Why would they trim winners just when we're winning, Tom? This is what every gambler in the casino has said before they lost their pants. This is exactly the reason you need to trim. Okay? Exactly the reason. Now, you have to understand what goes up can't come down. What goes up fast can't come down fast. Bitcoin, Tesla, Palanteer, many other examples. Trimming a stock doesn't mean you're losing faith. It means you are buying insurance. Okay? This keeps your emotions in check. It keeps your greed in check. It lets your brain beat out your emotions. And if you actually screwed up and you've picked a bad one, you're not going to lose 100%.
Okay. Now, here's the thing. In the Rock Academy over at Patreon, we have many examples. One, two, three, four, I can give you a hundred of these of people who have made a fortune on Talenteer and Nvidia and a bunch of other stocks. This is just a sample size, right? But if you ask any student of mine in the academy, I have been saying that we should trim these winners and take off a little bit off the top for insurance. And I've been saying this for weeks, for months, maybe even when Palanteer was at 100 a long time ago. And that would have cost me a lot of money. But the thing is, it's not about the upside. It's about protecting your downside. Insurance isn't a financial thing that you measure in upside. It is measured when things go bad, when the feet hit the shan.
Now, let's start with number three. Bone exposure. Now, bond exposure is a really sensitive topic because people absolutely hate bonds. Bonds? What the [ __ ] Tom? Oh, I shouldn't have said that, but it is what it is. I was trying not to curse in this video, but it is what it is, right? Now, look, if you have exposure to bonds, you're going to have less pain in single every single crash we have ever seen. Right now in 2008 instead of dropping 54% you would have been down 23% 24%. So you do have less upside but you also have less downside. This is literally what insurance is all about right? You can't insure against every little thing that may happen. You can't go 100% bonds. It's not efficient. But to have a little bit of insurance, a little bit of bond exposure is really not that stupid. Bond gives you confidence. Confidence prevents from emotional selling. Preventing emotional selling is 95% of the game. That's all, folks. Clever forecasts are not protection, are not insurance. Structure is. It's as simple as that.
Now, why not sell 100%? Just wait, Tom. You just showed us all these crazy stuff that is happening. Well, look, because of this, if you missed the best 10 days in the stock market for the past 20 years, you have slashed your return by 50%. And I don't want to hear this thing about what have I missed the worst 10 days. There is no way to miss the worst 10 days. There is no guaranteed way to do that. There is a guaranteed way not to miss the top 10 days by staying in the market. So don't comment me this [ __ ] which I always get in the comments.
Now look, we saw a very high PE right right now and it's concerning but it's one element. There's a lot of other elements right we haven't even talked about here because people have a narrative and maybe the narrative is that you know the market is about to crash. What about credit spreads? What about earnings? What about liquidity? What about macro? What about market internals? There's a lot of stuff happening that are beyond the narrative that we are about to crash. And right now I'll show you it's not a clearcut answer whether we're in a bubble or not. There may be many different scenarios out here. Credit spreads basically this is the difference between how much money you're getting on the treasuries which is risk- free assumed risk- free and the corporate bonds. basically how much risk the market is pricing in and that difference that spread shows you how much insurance is costing. If insurance fees are high, that means that the market is expecting a crash. Right now, if you look at the normal credit spreads, if it's investment grade, it's 1 to one and a half%. On the stress times, when things are a little bit shaky, it's 2 to 3%. We're currently at 0.75. So, there's no stress on the investment grade bonds. On the high yield bonds, we're looking at 3.5 to 5. We have a very tight credit spread, which is good. It shows us that the bond market isn't pricing in a high risk of a correction.
The other thing is earnings because earnings strength is a huge indicator of what's going on with the companies, what's going on with the economy and essentially what's going on with the market, right? So right now you know in a healthy economy we know that we should be getting 5 to 10% growth of earnings every single year. Margins are about 10 to 12% historically. What's the story right now? We just had earnings a while ago, right? So 2025 so far we're growing at 7 to 12% which is higher and the margins are 12 to 13% which is also higher. So historically we're normal even slightly better than normal on the earnings. So credit spreads are better than normal, earnings are better than normal liquidity again. So right now we're in the beginning of a cutting cycle but still the story is that we are expecting more cuts in 2025 and 2026 but they haven't happened yet. Okay. So we are better liquidity wise than the prior years but it's not still easy money. So this one is kind of I'm on the fence about it.
If you look at macro, right, we have solid growth on the GDP. Inflation is at 3% which is not ideal but certainly manageable. Labor markets are showing a little bit of slowdown but still very very strong and consumer spending is still strong even though there are some confidence issue based on the latest University of Michigan poll. It's not recessionary, right, on the macro side, but also not booming. Probably a solid B minus. Okay.
And if you look at what's the right way to attack this given the fact that I just showed you a lot of reasons to be concerned and also a lot of reasons that there is no concern. So, what is the right way to attack this? Did you know that 54% of days in the stock market are green? I bet you didn't know that. But did you also note that 75% of years are green and that 90% of decades are green and that 100% of 20ear cycles have been green in the stock market. This essentially means that the longer you stay invested, the better your chances are at making money. But most retin investors live in this reality where it feels like everything they sell goes up, everything they don't buy go up and everything they hold just drops which leads them to an emotional spin cycle where they tend to lose money. Now selling in a downturn which is normal and happens quite often may end up looking like this on a 10 to 20 year cycle. In fact it mostly does. But somehow 90% of retail investors even though they understand this, they still panic sell here.
If you take a look at a guy like Peter Lynch, who's one of the greatest of all time and has a 30% return for 13 years, which is insane, unheard of, he had multiple times of major draw downs. Volatility has never stopped him from making a [ __ ] ton of money.
Now, here's the thing. The method is quite simple if you understand the principles I shared with you so far, okay? You budget. You figure out how much you can invest every single month because you want to keep buying. You invest 50%. And here's the twist. You buy at the same date without exception. And if there's a 20% drop below the 52- week high, then you go at 150%. And you keep doing that until the market doesn't go back up. And if you have a large sum that whether it be a boundless or an inheritance or any of these things, you just divide it to 24 months or 12 months or whatever that may be and you keep deploying it in the same system. What happens if you do that? That market crashes, market corrections, they all become irrelevant. As you can see in this example, there's a lot of craziness, a lot of volatility happens. But if you keep buying at all times, guess what happens? If you keep buying at all times, this is the cost basis right here. Okay, even though the high was here, the low was here, but your cost base is in the middle. But guess what? Even though this was the lowest point right here, if you double down on the lows, like I said a second ago, your cost base is going to be right here. Actually, a lot closer to the bottom than you think without timing the market even once. All you have to do really is apply this system to the S&P 500 or another broad market index that you choose. apply that to the stocks you choose and keep doing that for 20 years and that's it. It's as simple as that.
Now, picking stocks might be a little bit more difficult than people think. Right now, people have been living in a 5year bull cycle. So, they feel they know everything, but they're right here. High confidence, low knowledge because in a bull market, everyone is a genius. Actually, picking individual stocks and adding it to your S&P 500 position is not as easy as it feels like in a bull market. And people will find it out the hard way like they usually do. Not my academy because in my academy we do this whole thing in a whole different way. We take this whole [ __ ] and we throw it on the side and we teach you how to become a better investor. How to become somebody who is agnostic to the media to the sentiment to all this and doesn't think they know best. doesn't think that the next Warren Buffett methodically slowly learn how to become better at evaluating stocks, evaluating companies, building portfolios. If that speaks to you, certainly we invite you to join the academy at paid.com/tomash. If you're looking for trading, quick money, Bitcoin, crypto, all this stuff technical, not not me. Sorry. If you want to be a long-term investor for the next 20, 30 years, you want to learn this today and benefit for the next couple decades, join up. I see the next one.