Transcription
Over the next few days, few weeks, and few months, 90% of investors are about to make one critical mistake. A mistake they're going to pay for for the next decade. A mistake that, if you watch this video, you're never going to make again.
Now, pay attention closely. This ain't my first rodeo. I'm seeing, just as you are, what's going on with the market. I've seen the past couple of weeks; I've seen the past couple of days. But to me, it's very clear what's going on. If you're inexperienced, if you started investing just in the last couple of years, and you haven't been through this, stick around.
In this video, I'm going to break everything apart. I'm going to teach you how not to be that 90% that falls, and how that 10% actually makes it out and builds generational wealth.
So, the first thing I want to talk about here, and it's something we discussed in our Patreon meeting just a couple of days ago, is the market cycle. You have to understand that cycle. Every time it happens, it replicates itself again and again and again. Just like the Matrix. If you've seen the scene with Neo and the architect, Neo finds out it's not the first time he's done this. The same thing is true for the market.
We have the herd, the 90% of investors, absolutely ecstatic, euphoric. They buy everything when the market is up, and they absolutely panic right away when the market drops. Now, in the euphoric bull run, everything looks like it's going to the moon. I get it. But inevitably, every single time, a correction happens. The market dips, and then their lizard brain turns on. They forget that they've locked their rational side in the basement, and they run for the hills, basically thinking, "Panic, panic, panic! Save yourself!"
The result is that they sell at the worst possible time, absolutely eradicating all the logic from their dollar-cost average system. In 2020, people sold out of the market before the pandemic, which basically bounced back into one of the craziest bull runs we've seen. The same people repurchased stocks in 2021, hoping to finally catch a break. Then 2022 comes along, and their portfolio is in the dumpster again.
If you follow this pattern, you're always going to be the sucker. I don't want this to happen to you, so pay attention. The emotional pendulum of the stock market is not my invention; it's been out there for years. You can Google it. You can find it on the screen right now. I'm going to put it up.
We are in the same cycle again and again. Every time we go from disbelief to optimism to belief, then the thrill, and then the euphoria. Then the market starts to correct, and people become complacent because they say, "Well, I'm just going to DCA. I'm just going to double down. Nothing crazy is going to happen."
Then the market keeps dropping again and again and again. Anxiety sets in, and then they go to denial. They ignore what's going on, and then panic starts. When the panic starts, it's basically the final stage before capitulation: anger. I've seen that before, and then a depression—a year, maybe a year and a half of total depression. People want nothing to do with this market while rich people like Warren Buffett, who accumulated cash during euphoria, are buying those dips, buying businesses at 10 cents on the dollar.
Then the market starts bouncing again. We have disbelief, then optimism, and so forth. This is not the first time this is happening. The fact of the matter is, folks, as I've said to my community just 24 hours ago in our private Zoom call, your biggest enemy, unfortunately, is yourself.
During the 2020 meltdown, we had people selling out of their portfolios. It ain't nothing new. You probably saw this, and if you're new, trust me on this: a lot of retail investors sold out of their portfolios because they heard the so-called experts on mainstream media cry about how the world is ending.
If you look at the affluent households in America, which means households with a portfolio of at least $1 million and above, 99% of them literally have not fully sold out of the market. The ones that actually sold a little bit only reduced their exposure to the market by an average of 3%, from 64% to 61%. So, the rich people never sold out of the market and, on average, only reduced their equity exposure by 3%. They stayed 97% in the same position they had before the pandemic crash.
That's why most rich people take advantage of these opportunities, and most retail investors become sheep with the help of mainstream media, which pushes either panic or greed, depending on the mood, to sell advertisements and to sell your attention by creating panic or creating euphoria.
Now, they bring on these experts who either scare you or make you hyper-excited. But no matter the case may be, it's still an emotional reaction. Now, in this market, you have to understand the psychology and the idea of why people get screwed. It's not fair to just blame mainstream media and say, "Well, mainstream media is doing it to me."
Well, the mainstream media is always going to amplify panic or excitement. You have to go above it. Now, the way to go above it is, first of all, acknowledging that it happens. Acknowledging it's not a boogeyman under your bed; it's a real thing. But mostly understanding one thing, which is humans, by definition, that's the way we're wired in our brain. We are much more susceptible to pain than to pleasure.
Unfortunately, studies show this: our pain from losing $1 is two times stronger than the joy of earning $1. That's why when you see massive losses in your portfolio—let's say your portfolio is down 30%—it's the same equivalent of an emotional reaction as if you just gained 60% in the other direction. And that's scary. A lot of people cannot handle that.
That's fine, but if you acknowledge and understand that this is exactly what's going on, it's easier. It's the same thing if you have a fever. You know the doctor first says, "Well, if you have a fever, take a lukewarm shower. It's going to cool your body a little bit." But when you step into a lukewarm shower with a fever, the water feels ice cold. But you know your brain tells you, "Hold on a second, it's not really ice cold; it's just your body lying to you."
The same thing happens when you see losses in your portfolio when the market starts to crack. I also understand the fact that most people don't even think about psychological bias like anchoring. You know, if you've seen a stock at $80, Palantir for example, just a couple of days ago, and all of a sudden that stock is at $60, well, we don't want nothing to do with that because this stock was just $80. Why would we buy it at $60? All of a sudden, the shine has gone away from the stock.
But if we saw the stock at $40 and now it's at $60, oh my God, this stock is going up! We need to buy it. People behave in ways that are not rational; they are emotional.
So, the first thing I want to make sure you understand is that in a hot market like we had over the past two years, it's not the right time to go all in. I've been beating the drum for two years, saying slow down, do not FOMO, DCA slowly, wait for an opportunity. The opportunity will eventually, inevitably come, and then you can double down, as we teach.
Even if it takes a year or two, slow down. Now, over the past few weeks, over the past few days, you're starting to see glimpses of what I was talking about. The opportunities all of a sudden present themselves. All of a sudden, Palantir is not $80; it's in the high 60s, maybe drops even lower.
But the point I'm making here is that the opportunity only serves you right if you are ready emotionally. If you understand that this discount is basically giving you the same company from before at a lesser price. For example, if a stock drops by 20-30%, all of a sudden you get panicked, you get fear, you get all this emotional reaction.
But if you just make a list and you say on this list, "Okay, why did I invest in the stock? How much were the sales? What's the quality of the management? What's the margins? What's the MOAT?" etc., and you look at a stock like Palantir, for example, and all these numbers over the past year have gotten better, not worse, and now the stock is at a massive discount.
So essentially, you're buying a new iPhone that just came off the shelves at 30% less than the market price. That's exciting! That's not something to be depressed about, right? The problem is that most people want to sell the bottom and buy the top. That's eventually what happens to most retail investors.
That's why the market keeps going up every single year, an average of 10% per year, but 90% of retail investors actually lose money because of emotional reactions.
Think about the Warren Buffett mantra: it never gets old. When everybody else is greedy, I am fearful. He's proven it this year, sitting on a pile of cash when the rest of the market was euphoric. And when everybody's fearful, I start to get greedy.
Right now, the market is starting to get fearful. If you look at the fear and greed index, we're between fear and extreme fear already within a few days.
So here's a few practical tips to avoid screwing yourself when what we see over the past two days becomes bigger and bigger. When the inevitable crash happens, whether it happens in a month, in a year, or in two years, this is how you get ready.
Number one: if you are a new investor, I advise you, I urge you to start small. Don't go all in into this market. The reason being is because you want to practice. You want to practice emotional control, seeing a loss and then understanding, "Well, that's not so bad. I'm just going to hold. I'm going to DCA," etc.
Practicing the emotional override of your brain over your lizard brain takes a lot of strength, and it's easier to do when you have small amounts in the market, not huge amounts. So start small so you can practice your brain to be logical and not emotional.
Diversification is super important. 40% of my portfolio is in the S&P 500, which is the entire U.S. economy. Super, super important. Dollar-cost averaging is important. It's important in good times, like we've seen over the past few years, but it's most important when the dips start to happen.
Opportunities open up, and we've taught this in our Academy how to create a fund with all the extra money you will ever need to double down, no matter how much money you make, no matter what your income is.
And of course, you have to accept the fact that you will never, never, never time the market. If you just DCA, yes, you're not going to catch the monster rally like some people do, and they celebrate. But you're going to underperform in a crazy bull run.
But when the market dips and you buy cheap, then when the market recovers—because the average bear market in America is about 10 months only—well, that feels longer. But when the market eventually recovers, which it does, because the average bull market in America is a lot longer than the bear markets.
Bear markets last about 10 months. I know it feels longer, but it's like the dentist. You know it feels longer because it's painful. Eventually, the market is going to recover, and your lower cost basis, because you achieved it through double down DCA, is going to serve you very, very well.
So make sure you save more money. Make sure you pick better stocks. But most importantly, make sure you hold longer. If you do these three things, you will be fine.
Most importantly, practice emotional control. Over the past few days, what we've seen is a good opportunity to practice these concepts, these elements. So when the real crash happens, whether it's tomorrow, in a month, or in a year, you are set up for that.
Now, as always, I'm happy to hold your hand to teach you all the right techniques, all the right methods, all the right systems. This is what we do. We have over 9,000 members in our Academy on Patreon.com. I would love to see you there, would love to talk to you, would love to teach you these things.
So when this happens, you won't screw yourself. Thank you so much. I'll see you in the next one. Peace.