The Stock Market Is About To Drop - Again

What's up, Graham? It's guys serious. So, as I'm sure you're aware, I spend way too much of my time on the internet reading through every little bit of financial news, trying to figure out what's going on with the economy. Between that and going through thousands of comments that we get on the channel every day, I get a pretty good idea of where people are investing their money, the problems they face, and some of the common pitfalls and mistakes that every investor should avoid, including you.

So today, we're going to be going over some of the biggest mistakes that investors are making. We're also going to be going over some of the recent headlines that are talking about the stock market being poised to drop another 40%, like 1929. Then we're going to be looking at this objectively to determine whether or not it's full of chagall.

This video should not only make you a more balanced investor, but hopefully, if you listen to it, it's gonna end up making you more money as a result. That's the entire point of learning how to invest responsibly. It's super easy to do; there's nothing complicated about it at all. All it requires is just a moderate amount of self-control. And also, it definitely helps to collapse the like button like it's 1929 by making it turn blue. That's it; it's quick and painless, and it just takes a split second to collapse it.

Alright, so with that said, thank you so much, and let's begin the video here. So we're going to be starting off with this one that's been brought up a lot lately, and I do have to say this one is a bit spooky because it does have a lot of similarities with today. And that's this: the stock market is poised for a 40% drop, warns economist who says the current climate feels a lot like 1929.

Boy, saw this, the first thing that came to my mind was, well, it already did drop 40%. The S&P 500 went from nearly thirty-four hundred dollars in February down to a low of twenty-two hundred just thirty days later, and that was a significant blow across every single company and investment class out there, including Bitcoin. Anyway, this economist believes that stocks are behaving very much like that rebound in 1929, where there is an absolute conviction that the illness will be under control and that massive monetary and fiscal stimuli will reinvigorate the economy.

To be able to tell whether or not this is true, it's really important to understand what actually happened in 1929, which for anyone who's not aware, 1929 was the single greatest stock market drop in history that sent us down to a great depression for many years. So, yeah, 1929 is definitely not something that we want to happen again.

But here's what happened during the 1920s: money pretty much poured out of every crevice, so much so that, for a lack of better word, people really just speculated too much on the stock market with borrowed money. So much so that the Federal Reserve even came out to warn people and say, "Hey guys, this is not sustainable. You can't just keep driving up the price with borrowed money expecting the prices to go even higher."

Which, I'll admit, sounds even somewhat similar to what a lot of people are saying today with Robinhood investors. But really, the issue is that banks were lending out money so loosely for people to go and invest back into the stock market with the expectation that it can't possibly go up, right?

Well, anyway, we don't know exactly what the catalyst was that spurred this enormous sell-off, but some people speculate that maybe it was a rise in interest rates that just faltered people's confidence in the market. And then, because of that, they all began selling off. Some other theories suggest that maybe it was an overproduction of agriculture that caused some of those companies to sell their products at a loss, thereby hurting profits.

And also, some other economists even suggest that it was because not enough people smashed the like button for the YouTube algorithm. Quantify if I got you there; that deserves a like, thank you very much.

Anyway, once the stock market showed even the slightest glimpse of vulnerability, people began selling off their investments at such rapid levels and then going to the bank to withdraw all of their money for fear that the bank would be going out of business. But thanks for pretty much the standstill because they had to lend all of their money for people to go and invest with, so they didn't have the money to get back to people who wanted it.

That led to the stock market dropping over 80% in a span of 2.8 years with a 25% unemployment rate among Americans. Anyway, some articles are suggesting that our stock charts are eerily similar to what happened in 1929, except what we're seeing today is unfolding much faster.

For instance, back in the olden days, the market peaked in September of nineteen twenty-nine and then declined over eighty percent throughout the next three years. After that, it took about five years for stocks to rebound close to the previous highs, but after that, prices slowly trended downwards again, declining another 60% before eventually going back up.

So all in all, if you had all this cash and you just made one single investment in August of 1929 and then just held without making a single investment after that, it would have taken you about 25 years just to break even on your investment. Of course, that does assume you don't keep reinvesting and buying back in during the drops, but still, 25 years to break even on your investment is a long time.

Anyway, back to the article at hand: this guy claims the best thing that you could buy right now—the best investment that you could make today—is to buy Treasury bonds. Yeah, seriously, the investments that are returning 1.3% annually on a 30-year investment is his top choice. Yes, those investments are extremely safe, but that doesn't even keep pace with inflation.

And the only way for these bond values to go up is if interest rates continue to go down, which at this point, I'm not sure how much lower they can already get from where they are now. I do think it's worth it to note that this economist doesn't exactly have a good history when it comes to making predictions. He called for another recession in 2012, as you can see here. He also claimed the exact same thing in 2012, claiming stocks would drop 40%.

That was eight years ago when the S&P 500 was trading at 1,300, so even if he's right this time, a 40% drop would take the S&P 500 down to about 1890, which is still 45% higher than when he made that prediction initially. But then when he was wrong about that, he just went and said the same thing the next year. That's what I don't get; most of these economists make predictions every single year, and then when they're wrong, they're just ignored.

But then eventually, when they're right, once they're touted as this investing genius, and then they're offered a book deal. So here's my prediction: you're gonna smash the like button. Where's my book deal?

Anyway, I digress. Even though we could line up the stock charts from 1929 to today and say, "Look how similar they are," the reality is that past performance doesn't indicate future results. We have a Federal Reserve that's willing to step in and do whatever it takes, and we have so many safeguards in place that we just didn't have in 1929 to prevent us from ever getting too bad.

No, yes, we are printing more money than we know what to do with, but that should keep prices high, all things considered. Although really, at the end of the day, this is what matters the most for anyone who wants to be a successful long-term investor. And I'm not talking about people who got lucky once by investing in Hertz stock right after they filed for bankruptcy.

It's really important to understand just how bad market timing is and how much this would affect you if you were wrong. In 2020, this article from Bloomberg explains that the markets overall, from the beginning of the year to now, have been pretty flat. With all the volatility throughout the last few months, it's understandable why people would be scared and want to time the market.

After all, if you sold off everything in late February and then bought back in the middle of March, you would have potentially doubled your money by now. But to be able to do that successfully, you would have had to have been right twice: once when you sold your stocks and then again when you bought back in, with very little room for error.

And that leaves us with a very sobering reality: despite the markets being overall flat for this year, if you missed out on just the top five trading days throughout the entire year, you would be down 30%. Evidently, something like this is so common that Citigroup found that two-thirds of investors were more likely to see a 20% loss from their investments than a 20% gain.

That's because the mentality of investors usually is, if the market drops, it's better to sell and then buy back in even lower when it drops even further. But doing this is really more like going to a casino than it is investing. Typically, some of the best days in the stock market happened right after some of the worst days.

If you are not in the markets during the worst of times, you are not there during the best of times. It reminds me a little bit of that really horrible quote: if you can't handle me at my worst, you don't deserve me at my best. And it kind of applies to the stock market in a way.

That has, though, been very true throughout the entire history of the stock market. According to JP Morgan, over the last 20 years, if you just kept your money invested, you would average a 5.62% return. On the other hand, if you missed just the 10 best trading days over 20 years, your return drops to 2.01%. And then if you miss the top 20 best days, now you've lost money from a 20-year investment.

So literally, over a 20-year time span, if you just happen to miss out on those 20 best days, you lose money. And then really from there, as you can see, it just gets worse. The moral of the story is really just this: anytime you're investing, as long as you're diversified and invested within a good company, the best thing you could do is just do nothing.

If the market drops, there's your chance of buying even more. But don't change your investing strategy around an economist that always says every single year the market is going to be dropping 40%, like it's 1929—until, of course, eventually, he's right.

Anyway, we have another topic that a lot of people have been asking me to talk about, and I haven't really addressed it much until now. And that would be gold. What brings us to our attention today is that gold is now trading above $1,800 an ounce, which is the highest level we've seen since 2011.

This is what I think is pretty understandable because typically, investors walk to gold as a hedge against inflation and just as a safe store of value during economic uncertainty. So for anyone who believes the dollar is gonna be going down in value, and they don't believe in the market, and they just want to protect their wealth, then gold can absolutely do the trick.

That's why, with everything going on right now, people see gold as a safe store of value, and as demand increases, the price goes up. However, for anyone wanting my thoughts on this, I do got to say, you know what? I'm not a fan. I think it definitely can have a place in your portfolio, but I wouldn't be calling it an investment, just like I would not be calling a savings account an investment.

I think it could absolutely work in certain situations, but buying gold should never be the end goal. It's something to hold on to in case of an emergency, but it doesn't produce anything. It doesn't provide you with a dividend; the transaction cost to buy in is pretty high. So, I really don't recommend keeping much money in gold, and for me personally, I have very little of it in gold or any sort of precious metals besides coins and a watch.

My main issue, though, when it comes to gold is that, historically, it's just been a really terrible investment. Just compare it with the stock market over the last 100 years. Even though the price of gold is up over 8,400%, the stock market is up over 26,000%. Even since 1990, the price of gold has gone up 500%, but the price of the S&P 500 is up almost 1,500% with dividends reinvested.

See, generally, over the long run, stocks outperform gold by a rate of three to one. But yes, during a volatile short-term outlook, gold can come out ahead as the winner. Well, though, my thought is this: generally, by the time gold hits its peak and just soars in value, that usually just means stocks have taken a hit, and they're more attractive in comparison.

See, the price of gold usually goes up when our economy is going down. So if you're really trying to time the market, most likely the time to have bought gold was in 2015, where everything was going just fine and everything was pretty uneventful. That's when there was the least amount of demand for gold because really nothing was going wrong.

Investing in gold in 2011, for instance, would have been a really bad move in hindsight because once the stock market began turning around, gold began going back down after hitting its peak. I'm not saying gold is bad; don't invest in gold because it can't have a place in your portfolio, and it doesn't hurt to keep a small percentage of your wealth in precious metals just as a store of value.

But when you look at this historically, gold has been an underperforming investment. I know people get upset when I mention this, but when you look throughout the last 100 years, stocks have outperformed gold by a long shot. So even though gold is quickly approaching its previous all-time high, I personally am not investing any money into it, and I encourage you to seek any other investment if you're looking for something long-term.

Lastly, I just want to mention this one because this one has been a long time coming, and that would be the end of cash. No, I don't quite mean like the end of cash as though we're all going to be living in this cashless society where we barter for canned goods and like some videos because Jerome Powell just printed too much money.

But instead, this is more about the end of physical cash in the transition into digital currency. I personally find this the most interesting from everything because I do think this is going to lead to a major change in the future. But this article suggests that because of the illness, people have been using less cash for sanitary reasons and instead resorting to online payment methods like PayPal, Square, and Venmo, who've all seen the stock price surge lately.

This is something I wholeheartedly agree with, and really for the last decade or so, I have never carried cash on me. Oh, maybe I have a little cash lying around that I'll mostly use for thumbnails, but besides that, that's really it. Frankly, online money is so much easier to keep track of; it's all in one spot, it's easily itemized, you don't have to worry about losing it.

And really, the more time goes on, the more cash is looking outdated. The downside to this, though, is that one day, if you want your purchases to be completely private, I have a feeling it's not going to happen anymore. I wouldn't be surprised if one day every single penny is online and digitalized and accounted for, and they'll probably have a way to track who that money goes to and when.

So they'll know and they'll have a pretty good idea of when money goes into your bank account, and that means they'll have to pay taxes on it, and that will help them cut down on money laundering and fraud. I just think our physical money at some point in the future is going to be going away, and then at that point, we're gonna be shifting over to a completely digitalized cashless society—not just because of the illness, but because we've been moving in this direction for the last decade.

Just something to consider, and I have a feeling that online payment processing and online payments are going to continue to grow over the next few decades. That's your weekly update for today, and basically just don't listen to people who tell you the stock market is poised to drop 40% because chances are they're wrong, and they will continue to be wrong until eventually they are right, and then they're gonna be a genius.

But really, the point of this is not to try to time the market, but instead stay the course. Stay invested. Continue investing as normal, and that's it. Don't let headlines deter you from this, and just stay the course no matter what. No one knows what the markets are gonna be doing a week, a month, or a year from now. So just don't listen to it and just continue investing.

Doing that consistently every single month is gonna make you the most money long-term as will smash the like button for the YouTube algorithm. So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the subscribe button and the notification bell.

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Let me know what your two stocks you get. Thank you so much for watching, and until next time.