The Stock Market Is Broken

What's up, you guys? It's Graham here. So, we got to take a moment and talk about something serious—something that no investor wants to think about, something that's happened in the past but many people feel is going to happen again in the future. And no, I'm not talking about getting your two free stocks down below in the description because that's basically like getting free money. Instead, I'm talking about the warning of the lost decade.

And no, I'm not referring to this lost. Instead, the lost decade is a term that refers to a 10-year time span where the stock market literally does not go up. And now, some investors are beginning to warn that the lost decade is going to start happening right now as valuations have skyrocketed way past their historic averages. For example, the billionaire Ray Dalio has been warning about a lost decade in the stock market as performance eventually slows down. Blackstone Capital Management says the same thing as investors are getting ahead of themselves. Warren Buffett's partner Charlie Munger is bracing people for lower returns. Michael Burry says the stock market is dancing on a knife's edge.

And the most shocking from all of them is that a Tennessee man left five million dollars to his dog because she's a good girl. But more on that later.

Anyway, given the seriousness around potentially losing a decade's worth of momentum if the stock market were to slow down, I think it's worth taking their warnings into consideration and discussing exactly what's going on—what might cause this to happen, the chances of it actually happening, and then, most importantly, what you could actually do about it to come out ahead, profitable, and with two free stocks.

But really quick, before we begin, I got a quick challenge for you. If this video gets 169,420 likes within the first 30 days, I will do whatever the top comment says up to 50,000 dollars. So, you could be as creative as you want to and tell me to throw 50,000 into a call option, or donate fifty thousand dollars to the charity of your choice, or even for me to go and shave my head. I'll leave it to you—just promise me that you'll be nice about it. And all of that could be yours for the low cost of just one like on the video.

So, thank you guys so much, and also a big thank you to Dashlane for sponsoring this video, but more on that later. Alright, so let's explain exactly what the lost decade is and why so many investors are warning us about it. Like I mentioned, on the surface, the lost decade is just a period of time where the stock market remains entirely flat or even loses money over a 10-year time span.

Now, even though this might sound unusual or out of the ordinary, it's not impossible. In fact, it's happened before in the past. See, originally, the lost decade was coined from Japan's economic crisis, where the stock market soared in value throughout the 1980s before entering a period of complete economic disaster and deflation, causing the markets to drop substantially.

And now, three decades later, the stock market has still yet to recover back to the same prices it was trading at back in the 80s. For Japan, this was caused by low interest rates, which fueled speculation throughout the stock and real estate market in the 1980s, driving prices way beyond their fundamentals and into bubble territory. In fact, the government became so worried about a bubble that they raised interest rates to prevent prices from rising any higher, and very soon after that, collapsed values, causing the market to drop 60 percent.

Now, obviously, in response to higher interest rates and lower prices, investors began hoarding all of their cash, which led to lower consumer demand and further lowered prices. That created a vicious cycle in which the lower prices dropped, the more cash people held on to, and the more cash people held on to, the lower prices dropped. And that was just a downward spiral from there.

The result is a Japanese stock market that is lower today than it was 30 years ago. And the concern now is that the United States could see something similar, and a lost decade is not impossible from happening. For example, the S&P 500 was the same price in 1954 as it was at the peak of 1929. The stock market was also higher in 1968 than it was in 1978. And if you invested in 1999, it took you over 10 years for prices to reach the same level after the dot-com crash.

So, as you can see, a lost decade isn't entirely out of the ordinary, and it's not like it hasn't happened before. And now, some of the biggest investors are warning us that this could happen again over the next 10 years. So, let's look into this further and now see what the experts have to say.

First, the billionaire Ray Dalio. He was one of the first to warn about a lost decade in the stock market, and his reasoning is fairly easy to understand. He says that consumer demand is going to slow down due to the pandemic. That's going to lead to lower corporate profits, and some companies won't be able to survive. That's going to cause slower growth, and over the next decade, the stock market could remain flat.

The second, we got Blackstone Capital Management—the vice chairman said that stocks are overly valued, and it might take us an entire decade to catch up to where stocks are currently trading at. He also said that valuations are supported by record low interest rates, and as soon as rates start going up, that increases the cost of debt, which eats away at profits, thereby lowering the stock market. He also acknowledges that the Fed's move to save the economy was unprecedented, but that may push us towards lower than usual returns from here on out.

The third, we have one of the investors that I most respect, and that would be Charlie Munger. He's the vice chairman of Berkshire Hathaway, and overall personally, I respect his investment philosophy the most. To me, he's not a doom and gloomer, and he's also not irrationally exuberant about the market either. Instead, he's practical, logical, and a realist. So, when he says something like this, I listen. He says that stocks and bonds are in a bubble due to the Federal Reserve artificially keeping interest rates really low, combined with an excessive amount of new money and an excessive enthusiasm for investing, which is causing the perfect storm for stock prices to rise beyond where they should be.

He also says that nobody has gotten by with the kind of money printing now for a very extended period of time without some kind of trouble. We're very near the edge of playing with fire. His warning is that the stock market may now see lower than average returns simply because we've already gone up so much so quickly, and that is something worth preparing for.

And finally, we got Michael Burry. You might know him from such hits as "The Big Short" and "Tesla stock could plummet by 90." But today, he has a different warning. He says that rampant speculation and widespread betting with borrowed money have driven the stock market to the brink of collapse. And then he also follows that up with saying, "People say I didn't warn the last time I did, but no one listened. So I warned this time, and still, no one listens. But I will have proof I warned."

So, now, with all that out of the way, let's go and talk about how likely this is to actually happen, whether or not this is really something to be worried about, and then if it does happen, what you could do about it. But before we go into that, I got to tell you about something else that I worry about all the time, and that would be forgetting my passwords.

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So, thank you guys so much. Enjoy! And with that said, let's get back to the video.

Alright, so first things first: how likely is a lost decade to actually happen? Now, if we go based on what the experts say, we might actually be worse off. Take Ray Dalio, for example. In 2021, he called for a market crash, calling it a bubble. In 2020, he said we're heading for a great depression. In 2019, he said the next crash is coming. And then, right before there actually was a market crash, he said that he did not see a market or economic crash on the horizon.

But in 2018, he said the warning light is flickering. In 2017, he said the magnitude of the next crash will be epic. In 2015, he said it reminds him of the 1937 market crash, and that continues. The same thing also applies with Michael Burry. In 2017, he predicted an imminent stock market crash. In 2019, he called passive investing a bubble. In 2020, at the bottom of the market, he warned about a selling stampede.

And of course, you know what? I'm going to go even further. In 2019, Blackstone warned about the mother of all bubbles. Not to mention, in 2017, the Blackstone CEO threw himself the party of a century for the low cost of 10 million dollars, complete of course with Gwen Stefani and camels. Yes, you heard that correctly—Gwen Stefani is in the title as with camels.

Now, for reference here, he's worth 22 billion dollars, so spending 10 million dollars on a party is the equivalent of someone spending 45 dollars on a party who's worth a hundred thousand dollars. I just wanted to throw that in there because the whole thing is just crazy. Don't worry though, Charlie Munger has been actually pretty consistent with his concerns, and that brings a lot of validity to the times where he actually does say something.

In 2019, right before the illness, he warned about being afraid when a democracy thinks it could print money to solve all of its problems. But given a time during which everything has gone up so much, he warns us that expecting that to continue is probably not going to happen.

Now, in terms of what to do about this and where we go from here, here's my best honest unbiased advice, coming from the perspective of someone who has nothing to sell you on this and has nothing to gain from whether or not you listen to this information, besides of course just asking for a like on the video.

Here's the thing: realistically, if we do have a lost decade where the stock market is trading at the same price 10 years from now as it is today, most likely, it's not going to be the same price the entire time. For example, it's not like the S&P 500 is just going to trade between 3,900 and 4,000 consistently for ten years—that has never happened before in history.

And most likely, instead, there are going to be a lot of ups and downs. It's also highly unrealistic that you're just gonna make one single investment at one point in time and then that's it for the next decade. And sure, I'll admit if you just did that and then never invested any more money afterwards, you may very well lose money.

But again, most likely investing is going to be something that you do consistently month after month and year over year, and that is how you can make sure that you stay profitable. So here's what I mean: I've shown this before, but it's especially relevant today and really puts it into perspective in terms of how much money you could make.

Spencer analyzed the returns of the stock market from 1980 through today and came up with three different situations. The first person invested all of their money every single time at the market peak. The second person invested all of their money every single time right after a market crash. And the third person just invested 200 dollars a month consistently.

Now, you would assume that the person who had the best market timing and bought in precisely at the market bottom every single time ended up making the most amount of money, right? Well, you would be wrong. The first investor with the worst timing, who bought in precisely at the market peak every single time, turned her 96 thousand dollars into over 633 thousand dollars.

The second investor with the best timing, who bought in precisely at the bottom of every single market crash, turned her 96 thousand into 956 dollars. But the investor who put 200 dollars into the market consistently every single month, regardless of where it was at, turned that 96 thousand dollars into one million three hundred and eighty-six thousand simply because she invested as soon as she had the money available without trying to time the market.

Now, if you want a practical example of what would happen during the last recent lost decade, let's go and take a look at the years 2000 through 2012. Even though you would have made 4.66% total throughout 12 years, if you included dividends, your return skyrockets to 32%. But if you invested month over month, regardless of where we were in a lost decade, your cumulative return jumps to 24%, and with dividends reinvested, your return is as high as 42%.

Now, of course, sure—averaging a three and a half percent return annually is not all that mind-blowing, but still, for a lost decade, that's not exactly bad either. And over an even longer period of time, your returns just grow substantially from there. That's why if we do see a lost decade, it's really only lost for the people who just invest once and then never again.

And for anyone who continually invests through the highs and the lows, you'll have an opportunity to make even more money simply by averaging out your investment. Now, as far as my own opinion on this, for whatever that's worth, I tend to agree with Charlie Munger and that investors right now should not get used to the types of returns that we're currently seeing.

Now, that's not to say that this won't continue or that the markets won't continue going higher, but historically, it's a lot higher than average. There's a lot of excitement around investing right now, and it's yet to be seen if this will continue. My strategy with this is to prepare for a lower return, and if it doesn't happen, I'm pleasantly surprised.

And if it does happen, then I get what I prepared for. But I won't stop investing—I'll keep buying in consistently every single day, and this is money I'm not planning on using for the next 20 years. A lost decade in response to that isn't really going to be much to worry about, and most likely, it is going to happen once or twice in a lifetime.

But every other lost decade in the past has eventually recovered, and life moves on, and prices move even higher. Sure, you might want to make the comparison to Japan, which still has not recovered after 30 years, but again, that just assumes you're making a one-time investment and that's it—which, like I mentioned earlier, is highly unrealistic of happening.

Japan's economy is also fundamentally different than here in the United States, and that makes it much less likely to happen. We can also see the magnitude of their bubble when we compare that to the dot-com bubble. Basically, our dot-com bubble was half the size of theirs in the 1980s, and if we apply the same metrics of Japan's bubble with us today, the S&P 500 would be trading at nearly 9,000.

Again, that's not to say that things can't go to the moon 🚀, but again, a lost decade is not something to be concerned with as long as you are investing consistently throughout that decade. And as long as preferably you get your two free stocks down below in the description, because that could be worth all the way up to one thousand eight hundred and fifty dollars.

Oh, and lastly, if you've been waiting for me to talk about the border collie who received five million dollars, here you go. When 84-year-old Bill Doris passed away, he left five million dollars in a trust to take care of his eight-year-old border collie. His close friend Martha Burton has taken care of the dog, and the trust pays for the dog's expenses. I guess you could say here the dog was barking up the right tree, am I right? Alright, I'll stop.

So, with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram. I post pretty much daily, so if you want to be a part of it there, feel free to add me there. As on my second channel, The Graham Stephan Show, I post there every single day I'm not posting here.

So, if you want to see a brand new video from me every single day, make sure to add yourself to that. And lastly, if you guys want those two free stocks, use the link down below in the description, and Webull's going to be giving you two free stocks when you deposit 100 dollars on the platform. And those stocks potentially worth all the way up to 1,850 dollars, so it's basically like free money. If you like free money, the link to that is down below. Let me know which stocks you get.

Thank you so much for watching, and until next time!