Transcription
So, the S&P 500 is down 5% from February highs. We have the NASDAQ crashing 8%, Pinterest is down 33%, Nvidia is down 30%, even mighty Amazon is down 16%, and Tesla—oh Tesla—if you go back to December 17th, not that long ago, it's down 40%. What the hell is going on with the market? What happens next, and what's the right strategy to handle this?
Well, number one, I did tell you this might happen a couple of weeks ago. I posted a video; I called it "Paler Investors Warning: Beware," and I said, "Hey, Paler can drop 50% in a heartbeat before you can even spell 'grandpa.' If you can't handle that volatility, trim—sell 10%, 20%, 30%. Nothing wrong with that." My words, verbatim. I see zero issues with people selling 10%, 20%, 30% of their Paler position just so they can say, "Look, if the stock collapses, I already took 30% off, and I'm already covered." Go back, watch the video; I'm going to put the link in the description.
Now, what's going on right now is that we have a lot of fresh news that's stinky and smelly. A lot of new tariffs are going into effect. We're talking about Mexico, China—we're talking about all these tariffs. We have the Chinese tariffs, the Mexican, the Canadian tariffs—25%! It's absolute insanity! We have a lot, a lot, a lot of bad news, and the reason it's bad is because the market absolutely hates risk; the market absolutely hates uncertainty. And when we have all of these new risks that need to be priced in, the stock market is going to do its job and correct—backwards, or rather downwards.
But what exactly are we pricing in? Well, it doesn't really matter how this thing plays out in the future; that remains to be seen. But the mere risk itself has to be priced in, given the fact that the tariffs are basically going into effect. Things like what happened the last time we had the tariff trade war, right, in 2018? Well, when that happened, the stock market dropped 20%; we had a horrible time late in 2018. And on top of it, this time it might be even worse. Who knows? No tariffs can lead to higher inflation, and because we have tariffs and higher inflation, the Fed can't help with lowering interest rates because interest rates are going to pop inflation upwards. So the Fed is basically out of the game, and we might be looking down the barrel of a stagflationary environment: high rate of unemployment and high inflation, which is the worst of all evils. And that risk in itself is currently being priced into the market. That's why you're seeing all of these stocks, all of the growth stocks, all of the high-flying names are basically down now.
Right now, what's happening is the market is basically readjusting, realigning to the possibility that tariffs are becoming a reality, not just some sort of a possibility in the future. Now, on top of that, we have a lot of traders basically leaving the hype names. Traders are basically there to help the market do its thing. I don't hate traders because they make the market go around; they're active, they're pricing, they're covering arbitrage. And right now, the momentum is down for growth, as you can see every single growth stock, every single tech stock is basically hurting. And these guys, they don't like to be where the blood is. The minute the trend changes and the hype goes away, they're basically off, they're out. That's just the way trading is. They ride the momentum, and the minute it starts going south, they're out.
Now, on top of that, you have to talk about the seasonality of the market here. Look, folks, the market is a very, very unique beast, and every single year is kind of like a fingerprint; everything is very, very unique. You can't really look at history and say, "Well, this is exactly what's going to happen," but there are certain cyclical elements to the market. If you've been studying history, you kind of know that the weakest time for a market is usually in that February to mid-March area. That's the time where the market has the most sluggish performance. Doesn't mean that that's what's going on right now, but just seasonality-wise, February and the beginning of March are usually not that great for the stock market.
Now, on top of that, we actually had some fundamental macro data that came out that wasn't good; in fact, it was quite bad. We had the GDP forecast for Q1 being adjusted all the way from 2.3% to negative 2.8% by the Atlanta Fed. And that means that right now, the markets have to price that in. On top of that, now we have a risk that if we do have a negative GDP quarter, well, one more quarter of negative GDP after that is officially a recession. Two quarters of negative GDP is the definition of a recession in the United States, and that also gets to be priced into the market and bring a lot of these stocks down.
Now, a lot of this GDP stuff is a little bit skewed, and let me explain what I mean here. And this is a very well-known thing to economists, but the markets don't care. And I'll explain: You know, GDP is basically a numbers game. You have the plus, which is what we produce—the goods and services that are produced—and then we have the stuff that we are importing. So every time we're importing goods and services, it takes away from our GDP; that's just how the math works. So the minute you have more importing than exporting and production at home, that means GDP numbers come down. And right now, there's a lot of inventory glut going on. What do I mean by that? Well, a lot of suppliers, producers, importers, they're all basically hoarding inventory before the Donald Trump tariffs take effect. And at this point, it seems like it may be a smart move, but that smart move of hoarding inventory before the tariffs and possibly, you know, cutting down in cost a little bit, that thing also reflects in the negative GDP. But that's skewed, and if that's the only reason GDP is down, that's not going to last. But again, for the markets, it doesn't really matter; the markets don't care at this point. It's all about risk and uncertainty, and these things—everything I've pointed out so far—is both; it's both risk and uncertainty; that's why the markets are hurting.
Now, there's a lot of people who love Donald Trump; there's a lot of people who hate Donald Trump, and a lot of different theories are circulating about why Donald Trump is actively engaged in crushing the US stock market. And a lot of people will tell you, "Well, you know, Trump, he has a short on the market, or his relatives, they have a short in the market, or they just want to, you know, buy the dip and get rich." That's one theory that I heard being circulated out there. Other people are saying, "Well, you know, Trump is a freaking genius. What he's doing, essentially, he's forcing the Fed, by bending and yet not breaking the economy, to lower the interest rates because he is essentially pushing the economy on the brink of a recession, pushing the stock market on the brink of a crash, so that the Fed will be forced to get off their hockey stick and lower interest rates early this year and not later this year or maybe not at all." And that's a 4D chess move because if that happens, well, we're going to have a lot of benefits for the US government because servicing the US national debt is going to get cheaper. Also, because real estate is going to get pushed up—lower interest means more activity in the real estate market; it means a lot more activity in the financial markets; lower debt means more financial activity, more retail activity. It's a huge boost for the economy when rates come down. And essentially, Trump is basically forcing the Fed in some sort of a game within a game to lower rates. That's another theory I heard. And of course, there's another theory that Trump, of course, doesn't really understand what he's doing and he doesn't fully grasp the fact that the people who will be paying the tariffs are the consumers, the end consumers in the United States, therefore pushing inflation up, potentially putting the United States into a risk of recession, and that's why he's doing what he's doing for lack of understanding.
Now let me tell you something: Whether you love Trump, hate Trump, or you think he's a mad genius, none of these options are relevant. Why? Because it doesn't matter why he's doing what he's doing. It doesn't matter if it's because he's dumb; it doesn't matter because he's smart; it doesn't matter because he has a short on the market where he wants to buy the dip. None of this matters. Who cares? None of this matters because it's real; it's happening, and it will have an impact on the stock market. So why do we want to waste our time trying to figure out why he's doing what he's doing? He's doing it, so let's prep for what he's doing and make sure our portfolios are aligned accordingly. And stop with this Trump bad, Trump good—we don't care about Trump; we care about the stock market, and right now, this is reality; we have to deal with it. So let's do that.
So let's talk strategy. And in order for us to build the proper strategy for this volatile market and what's happening next, we have to first and foremost understand one simple principle, even though it might explode the heads of traders: Short-term pain is most likely a buying opportunity, as long as you've picked good companies.
So here's the thing you have to understand: Did the thesis about the companies I purchased and I invested in just two months ago change? If none of the fundamentals about the company—which I'll talk about in a second—change or deteriorate, and the only reason the market is dropping is because of macroeconomics, then that is a discount. That is like walking into an Apple store and getting an iPhone for 30% below the original price for no reason except the economy being bad. Would you complain about that deal? I mean, I wouldn't. When a macroeconomic crash or pushback or correction—whatever you want to call it—when it pushes all stocks or all categories of stocks down at once, not because of one specific company being ass, that's a buying opportunity. Historically, go back in history and check me. We had the same conversation in 2022 when I told you, "Hey, the entire market is dipping and crashing and correcting; it's not about Paler." And yes, Paler dropped harder in 2022 than certain other companies, dropping from $35 to $6. And that is because it's more volatile, but guess what? I also told you it's a macro-driven correction, and the fundamentals of a company like Paler will eventually prevail because time in the market is the best friend of a great business. And that's exactly what happened: from $6 in 2022 all the way up to $125 in 2025, now back down to 83. God knows how low this will go; I don't know. Hey, I just rhymed by accident, but you get the point here. Statistically, we can do this with every good company. The minute the macro basically pushed a good company down, it bounced back up, and everybody who stayed long and DCA'd has made money. Of course, it doesn't work if you pick bad companies; it's not going to work if you dollar-cost average into trash. It has to be a good company, and you have to understand that a good company is something that's very easy to spot if you understand what you're doing.
I'm going to give away some of the stuff we teach in the Academy: Number one, we look at revenue growth. Does the company have steady revenue growth? Number two, we look at the debt versus cash structure. Does it have a sound balance sheet? A company that has a lot of cash, very little debt—that's the sort of company we like. Do we have a high free cash flow margin? Do we have cash to operate every day? Do we have a moat? Are we competitive? Can we be disrupted? And of course, what is our net profit margin? That's also very important. And of course, the final piece of the puzzle is a great CEO. If you have great management and all of these factors that I just pointed out, and the company price is still dropping because of macroeconomics, because of market corrections—nothing that has to do with the company itself—that means that that's just the market being short-term irrational. You double down, you buy the dip, you sit back, relax, and enjoy yourself for the next year, two years, until the market recovers.
Not to mention that right now we're at 5% on the S&P 500; maybe we go to 15%, 20%, 30%; I don't know. But right now, that 5%—that's something that happens three times per year. Three times per year the market drops 5%. In fact, once per year the S&P fund drops double than what it drops so far. Nothing here is out of the ordinary so far, of course, that might change. But if you understand that and you understand market cyclicality, you understand there's always a hype cycle and then a crash; you also understand that the only way to make money—generational money—and not time the market even once is to buy at all times: buy slower on the hype cycle, buy faster on the downturn cycle, and don't lose your head; don't ever lose conviction.
Now I'll give you an example: In 2018, we had a similar situation where these tariffs led to some sort of a trade war. The S&P 500 dropped 20% in 2018; that's the definition of a bear market, right? But look at what happened in 2018. In fact, in September of 2018, the S&P fund was at 2900. Three months later, it was at 2500—big drop, 20% drop because of tariff trade wars and whatnot. And from 2500, where people panicked, people sold, they left the market—a year later, in December of 2019, just one year later, the stock market was at 3200—a 30% climb from the bottom in one year. Even if you measure it from the top, from the previous top before the crash, from the 2900, it still did 10%. So just to show you, and we can do the same thing with 2022—less than a year, a lot of people have made money in 2022 as well in stocks like Paler, Tesla, Nvidia—a lot of examples, even on the S&P 500.
So what do you do in this situation, folks? A lot of traders are going to be screaming at you: "Sell, sell, sell, sell!" Maybe if you just want to manage risk, you don't in this market; I get it. Go right ahead; it's not for you. If you can't stomach volatility, don't be a long-term investor; I get it; no shame in that. But if you want to be a long-term investor, this is how you do it right: Number one, you relax; you don't panic. Number two, you build a DCA plan—slow DCA plan. This can continue for a year, for two years, for three years; nobody knows how long and how deep the drop can be; it can be quite harsh; it can be fast; we don't know. Slow down. Number three, you understand that it's a psychological game. 80% of investing is psychological. I've talked about this in all of my previous videos; I talk about it a lot in my Academy. Psychology and emotions are critical to be a long-term investor. And of course, understand this: Traders, they might not lose as much on the way down because they get out early, but they'll never make 20x on their investment like we did on Paler. It's a different game, right? So emotional decision-making is really, really not where you want to be right now in an emotional environment, in panic, and all of this noise and hoopla going around right now. You don't want to be emotional; you want to be stoic; you want to be absolutely logical. And the way to do it is: Number one, learn how to find great stocks to double down when the market goes into discount mode. In fact, I have 25 stocks which are a good starting point for you to do your research. This is not buy alerts, sell alerts, none of this; I don't do recommendations; I'm not telling you what to buy, but these are 25 stocks which I like, which can be the first step for you to start researching, developing your own thesis, and potentially finding candidates to buy during this dip, as long as it continues. And the way you do it is you learn how to pick the right one for you, for your risk profile, the way that you price these stocks, you research all of these things we teach in the academy. You got 45 lectures waiting for you right now, as well as four new lectures every month and access to me via DMs every single day. I reply to every Academy member. I'll see you there. Peace.