Why You'll Regret Buying Stocks In 2023

What's up, Graham? It's guys here, and 2023 is already off to an interesting start. For example, a Florida woman was recently pulled from a storm drain for the third time in two years. The National Guard general was fired for ordering troops to take his mom shopping, and the stock market had its best January in 20 years. Yes, you heard that correctly: the stock market is doing so well that Facebook and Nordstrom surged more than 20% in a single day. Jim Cramer says for now we’re in another bull market, which you could interpret however you want. Oppenheimer believes that the S&P 500 could hit 4,600 by this upcoming June, but others like Morgan Stanley, Michael Burry, and Bob Dole warn that you should take profits while you still can because they think that we're in the eye of the storm before everything goes to sh*t.

That's why we should really cover some crucial reasons that you probably shouldn't be investing in stocks in 2023. How some investors are making a ton of money by following one simple report, and a new investment strategy that could potentially change the way that you build wealth. On this episode, this is your daily reminder to hit the like button and subscribe if you haven't done that already because I'm trying to edit this video really late at night to get it to post the next day. So thank you guys so much, and also a big thank you to Wealthfront for sponsoring this video, but more on that later.

All right, so to start, when it comes to investing, I hate to break it to you, but it's probably a good idea to realize that you're most likely not going to be the next Warren Buffett who will beat the market. I mean, fine, I know it seems easy to sell when Jerome Powell turns off the money printer and buy when Ryan Cohen takes interest in a company, but when it really comes down to it, your chance of getting any better than average is so small that ninety percent of actively managed funds failed to outperform the S&P 500 over a 15-year period.

Though, sure, in the short term you will naturally see some outliers—some of which are incredibly talented and others are just lucky being in the right place at the right time. But what I found most surprising is that even the funds that do beat the market still have investors within them that wind up losing money. A perfect example of this is what's called the Magellan Fund, which is the world's best-known mutual fund that had record-setting growth under the management of Peter Lynch from 1977 to 1990. Even despite their incredible success, having outperformed the market for over 15 years by a long shot, it was reported that the average investor lost money during a period of time where the fund returned around 29% annually.

So why are investors so bad at investing? Well, during those years, as you would expect, there are some really good times and some really bad times. When the average investor bought in with the excitement at the peak and then sold off their investments when everything lost money, they logged in their losses and missed out on all the subsequent growth had they just held on and done nothing. Now, even though this sounds like a case of don't time the markets, it's a really important reminder that you should not be buying stocks if you're chasing returns and expecting above average.

Although speaking of the average, that is another problem that we really got to discuss. That's because when you look at market returns, it's important to understand that even though the stock market increases an average of 10% a year, actually getting 10% a year is incredibly rare. As the Wealth of Common Sense blog points out (which I’ve linked down below in the description), the market has only returned between 8 to 12% in a year five times since 1926. That's it! Or basically, to put it another way, eight to twelve percent one-year returns happen just as often as the market going up forty percent in a year. Not to mention, even more absurd is that only 18% of returns have been between five percent to fifteen percent in any given year, and it's more common to see double-digit price increases or decreases than it is to get a return around the average.

That's why it's generally suggested that if you're investing, you have to have an outlook of decades, not just years. If you view market returns from the lens of a 30-year period since 1926, the best return was 13.6%, while the worst was an 8% return from 1929 to 1958. Now sure, there's no guarantee that U.S. markets will do as well in the future as they did in the past, and AI could very well be taking over these videos to the point where everything I say is generated with Chat GPT while I become an entirely made-up photorealistic moving image.

But that's why there's another solution for those who want to take a slightly different approach, and that would be the Golden Butterfly portfolio. This strategy was created as a way to handle whatever Jerome Powell throws your way—from recessions to unemployment, rising inflation, deflation, and even an endless money printer. So instead of turning your account into a roller coaster of emotion, you're able to capitalize on a diverse group of investments that long-term make money without the stress of losing it.

That's because throughout our economy, we have four cycles that your portfolio needs to handle: rising prices, falling prices, rising growth, or falling growth. In each of those four quadrants, there's a best-performing asset that could be used to keep your portfolio in the green. In this case, though, it's a mixture of stocks, equities, bonds, and commodities. Equities do the best when the market goes up, commodities do the best when inflation goes up, and bonds take care of the rest when everything else just goes down. Since high growth is generally a lot more common throughout history than, let's say, record high inflation, each category is weighted slightly differently to take advantage of what's most likely going to happen, which is prosperity.

Because of that, the Golden Butterfly is broken down into five equally weighted segments: twenty percent U.S. large cap, twenty percent U.S. small cap, twenty percent long-term treasuries, twenty percent short-term treasuries, and twenty percent gold. Although the most surprising aspect of this is that throughout the last 43 years, the Golden Butterfly portfolio has had almost the same compounded rate of return as 100% stocks, but with sixty percent less volatility. Even more impressive is that the worst year only saw a drop of 11%, and the most severe drawdown period was two years until it broke even.

Of course, the downside here is that nothing is perfect, and more recently this portfolio has severely underperformed relative to the S&P 500. So only time is going to tell how well this one actually carries on. But another approach to making a lot of money in the markets comes from none other than Hindenburg Research. When you look at their track record, it is absolutely unbelievable. However, before we go into that, it's extremely important to understand how the Federal Reserve's actions are about to impact the overall market.

Even though higher interest rates are shown to provide headwinds for equities and real estate, there is a benefit for those who save their money—all thanks to the sponsor of this portion of the video, Wealthfront. See, here's the thing: as of the other day, the Fed raised interest rates by another 25 basis points. That means the amount that you could earn from bonds, treasuries, and savings accounts just increased. However, not all institutions pass on the additional savings to you, and that's a problem. Fortunately, though, Wealthfront does and is currently offering one of the highest APYs on the market at 4.05% within their cash account.

That means if you were to deposit ten thousand dollars, you would be on pace to earn 413 dollars just from your savings alone in the first year. This amount is also 12 times higher than the national average, which is why it's so important that you research how much you're currently getting so that you could better optimize moving forward. On top of that, current clients are also able to refer a friend, and both of you will get a half a percent interest rate increase for an additional three months. That means if you refer four friends, you'll get the bonus for the entire year, bringing your total interest to 4.55% APY.

Not to mention, with Wealthfront, your money is FDIC insured up to two million dollars through their partner banks. There are zero account fees, unlimited fee-free transfers, and no minimum account size to get started. This is also a company that I've personally been using since 2019 and have really enjoyed their free financial planning tools, which could help you calculate your net worth, whether you're saving enough for your future goals, or if you just want to track your income and expenses. So if you're interested, feel free to check them out with the link down below in the description and begin earning 4.05% interest on your money.

Enjoy! Thank you so much, and now let's get back to the video. All right, now in terms of making a lot of money in the markets, one company has a very unique approach, and that would be Hindenburg Research, appropriately named after the Hindenburg disaster because that's essentially what happens to every company once they release the report. See, for those unaware, Hindenburg Research looks for man-made disasters floating around in the market and aims to shed light on them before they lure in more unsuspecting victims.

In a true capitalistic approach, they short the stock that they then subsequently attack with rather spectacular results. In fact, as the market sentiment blog pointed out, they've issued over 30 reports in the last six years, and on average, the stocks were down 13% the day after the reports go live. But that's only the tip of the iceberg. In 2020, Hindenburg published their belief that Nikola Motors was built on dozens of lies and that they had never seen this level of deception at a public company, especially the size. They then went on to prove that Nikola Motors staged their videos, cashed out aggressively, misled partners into believing they had proprietary technology, and pointed the founder's brother, the director of hydrogen production and infrastructure, despite his past experience being limited to pouring concrete driveways.

And of course, as it turned out shortly after the report, their founder was convicted of fraud, and the stock price fell 95%. They've also uncovered the mess of Clover Health, accusing them of misleading investors and not disclosing that they were under an active investigation with the Department of Justice while concealing multiple conflicts of interest whilst raising money. And as you would expect, their stock price dropped 90%. We also have Lordstown Motors, which they claimed had fictitious orders used to raise capital, secured a $735 million deal from an apartment in Texas that doesn't operate a vehicle fleet, and none of their concepts had undergone any sort of testing. Again, that stock is also down 90%.

From there, Hindenburg Research discloses that they hold an active short position, meaning that the more the stock price goes down, the more money they make. So how is all of this legal, especially when the company knowingly profits from releasing negative information? Well, the short answer is—pun intended—that short sellers actively disclose their short position. They cite research, they emphasize that this is based on their opinion, and if the business is truly fine, they should have no difficulty proving it. Not to mention, there's also the belief that these reports provide a valuable service with the financial incentive to provide as much detail as possible on companies which may not be acting as they should.

In addition to that, many lawyers argue that as long as their reports contain no material inaccuracies and are not based on inside information, they've done nothing wrong. But others argue that the SEC should propose rules forcing them to hold their positions for at least 10 days, disclose when they've exited their short position, or for rules to change entirely so that activist short selling is seen as market manipulation.

Although in terms of investing throughout 2023, there are some points that you should keep in mind because you probably shouldn't be investing unless you're prepared to handle these five scenarios. First, you probably shouldn't be investing for the short term. The thing is, all previous researchers found the stock market's returns are rarely ever average, and we begin looking at them from a 10 to 20 year time horizon. Because of that, short-term movements are completely unpredictable and outside of your control, which means if you're expecting to make 30 percent over the next three years, you're probably going to have a bad time.

Second, do not invest too much without diversifying. Now, I get it—even though it's tempting to want to YOLO everything you have into Bitcoin and Tesla, it's probably not a good idea from the perspective of risk because the more money you could make, the more money you could lose. Third, do not blindly follow others. I know this seems like common sense, but it's not. Anytime people are all diving into one stock, company, or asset, it's a good idea to take a step back and think to yourself if this company has any actual value, or if you're just moving with the herds because that's what everyone else is doing.

From my experience, the best, most profitable investments also tend to be the most boring. And even though they might not go up by a hundred percent in a year, they're also not going to leave you with massive losses. The fourth along that train of thought: you also shouldn't time the market. Statistically, the best time to buy is consistently over a long period of time. Short term, anything can happen. Stock prices are completely unpredictable, and anything could change on a moment's notice.

Not to mention, any time you time the market, you have to be right twice: once when you sell and then again when you buy back in. The chance of getting them both correct is probably not going to happen. Finally, fifth: you probably shouldn't be investing if you can't handle your emotions. Personally, the only way to remain completely neutral is to understand fundamentally what you're investing in and limit your exposure to the point where if it goes down, you're not going to lose sleep. From my experience speaking with hundreds of people, if you're at the point where you're watching a stock account, you can't concentrate, and you're panicking over a 20% drop, chances are you've invested too much. You don't understand fully what you're invested in, and it might be a good idea to scale back to the point where you could think objectively.

That way, you'll be able to hold through long term until it recovers, hopefully. So those are the reasons why you probably shouldn't be buying stocks in 2023 unless, of course, you can follow those guidelines and invest responsibly so that you don't wind up posting losses on Wall Street bets. So again, thank you to Wealthfront for sponsoring this video. All of their information is down below in the description, also feel free to add me on Instagram. And don't forget, you could also get a free stock at public.com/Graham using the link down below in the description because that could be worth all the way up to a thousand dollars.

Enjoy! Thank you so much, and until next time.