in 1920 stocks shot up like a rocket before the Great Depression prior to the dot collapse the market went from 346 points to 2,700 before a great collapse we tend to see a great bull market which is exactly what we've seen recently does that mean we're going to experience a great collapse history does not repeat but it does Rhyme the market this past decade has been dominated by these seven stocks they've been dubbed The Magnificent Seven alphabets up 6 30% Amazon's up 1, 1400% Apple mat and Microsoft all in the 7800s Nvidia 27,000 in Tesla
2800% and it's not like these prices have just gone up for no reason the underlying fundamentals of these stocks have exploded too nvidia's Revenue has gone from 4.1 billion to 113 billion in that time period Matter's earnings have gone from 8.9 billion to 156 billion Tesla's Revenue up over 40 times from 2 billion to 97 billion so it's not like the market is just purely irrational putting sky high prices for no reason but what you'd expect after so much growth is for the PE ratios on these stocks to go down normally the higher the PE
ratio on a stock the higher the growth prospects that that stock has yes 10 years ago all of these seven companies deserved very high PE ratios because their growth prospects were huge meta had more users they could accumulate Apple had more markets they could break into Amazon could attract more people to buy things online today yes these companies still have high growth prospects but surely not as high as they were 10 years ago so because they implicitly have lower growth prospects compared to their past surely this means that the price compared to the earnings has
decreased well if you look at the market today apparently not Apple 10 years ago had a PE ratio around that 10 to 11 Mark and this was when Warren Buffett was buying the stock because well cheap price and decent growth prospects equals a good investment today the p ratio is in the early 40s so you have a four times higher price relative to earnings and you have lower growth prospects I wonder why Warren Buffett decided to sell if you look at nvidia's PE ratio 10 years ago it was 18 today it is 52 yeah trust
me I get that AI offers a whole new market but 52 times p ratio the market is willing to pay three times more of a price relative to earnings for a $3 trillion market cap company if that does not show you what type of Market we are in I do not know what will but the question is why why is the market today so pricey does the market just price things to Perfection or is it perhaps as Warren Buffett says highly irrational one year offering you ridiculously cheap numbers and the next year selling you a
complete ripoff every boom cycle there is a quote unquote reason for why the market offers such rich valuations in 2000 of course it was the invention of the internet and the computer the market apparently Justified these high prices because technology would change the world in the Roaring 20s the 1920s it was this new car that would revolutionize Transportation as we know it and today it's this thing called artificial intelligence ai ai ai AI modern AI it can be used to improve everything it will be in everything this is most like electricity that AI Revolution it's
Comming stock prices deserve to be Skyhigh because AI will change everything but did not technology Chang everything and yet still prices had reverted back to normal did not the car change everything and yet still prices had to revert down yes AI may change the world but doesn't mean that stock prices deserve to just go up into infinity or will some rationality come back into the market if we look at all of the big valuation metrics relative to history eight out of the nine are in the Deep Red the only one that is not is the
price relative to the free cash flow metric which is still somewhere in the orange scooted to the right side of the graph so what these ratios are doing is comparing the price relative to the fundamentals of stocks and what it's showing is that prices are High compared to things like the underlying sales of the stock compared to the book value of the stocks compared to the weighted average of earnings over 10 years it's quite alarming to see prices High relative to everything the only reason why this happens is because you've got large amounts of money
coming into the market which is caused yes by the dream of the new world AI but there's also another reason one reason why stock prices have shot up in particular Mega cap stocks is through the adoption of index funds an index fund automatically buys a small piece of many different companies passively aiming to match the performance of an index before index funds you had investors analyzing the stocks financial statements earnings reports company calls in order to determine the true value of the stock and pay an appropriate price but in the 1970s index funds were brought
into the mainstream by the founder of Vanguard Jack Bogle in more recent times Index Fund investing has taken off in 2007 there was around $2 trillion of assets under management with passive investing 13 years down the line that number went to over 14 trillion this has resulted today in more than half of investors investing in a passive manner rather than actively choosing stocks AKA you've got less individuals studying the value of stocks and more people blindly following the indexes yes Warren Buffett has recommended to buy index funds for most investors I think it's the same
thing that makes most sense practically all of the time and that is to consistently buy an S&P 500 lowcost Index Fund I recommend the same to the general public too index investing is good but the only problem with this type of investing is who's actually studying the stocks now who's working out the True Value if less people are doing this and they're just putting their money in the market no matter what's happening no matter what the price it shouldn't surprise us why stock prices just do this can they just keep going up forever or do
the periods of greed end up turning into periods of panic a few years ago the late great Charlie mang gave an interview to Caltech and they asked him an interesting question regarding the next 10 years of the stock market do you expect the next 10 years to have lower returns in the equity markets than the last 10 the answer is yes and could you give us a hint as to why that yes because so many people are in it and the frenzy is so great and the systems of management the reward systems are so foolish
that I don't think it's going to work it all I don't think I I think the returns will go down yes in real terms the returns will be lower as we've discussed the market had an incredible boom over the past decade this is natural what is also natural is the best if we look at prior Epoch in 1929 the S&P 500 crashed from 578 points to 100 points in a period of 3 years it would take 27 years for the market to reach that 1929 high in March 1956 in November 1968 after the post World
War II boom stocks crashed from 965 points to 346 points it would take 24 years for the market to recover in 2000 after the dot bubble the stock market took 15 years to recover back to its previous High you often hear people talking about a lost decade in the stock market historically the reality is they often last for a lot more than just one decade and it's not only the American Market you can find these examples all throughout the world because the world is filled with humans and humans are greedy at times but other times
very fearful in the late ' 80s Japan had an economy that made the world Green With Envy in some ways similar to the US today Brands like Toyota so nist and Miss bishu were household names eight of the world's largest banks were Japanese Japanese businesses were seen as highly efficient and well-run which led to a widespread belief that Japanese stocks would continue to go up indefinitely well we now can look 30 years down the line and did Japanese stocks just keep going up and up and up following Japan's big boom there was also a big
bust stocks fell 80% from 39,000 points in 1989 to 7, 699 points in 2003 it was not a hard fast crash that we so often see in markets but I drawn out slow 14-year one 36 years down the track Japan's stock market has only just gone back to its all-time high that it had anyone who thinks that the market just goes up clearly has not stated history this is why one needs to be careful when there's a lot of animal spirits in the market because you may end up waiting a long time if you buy
at the peak the question though will we see a lost decade type event occur in the American Market over the next 10 years by many Financial metrics it could happen but there might be someone who people say could stop all of this what is the one major difference between 2024 and 2025 we're stepping into I would say the most progrowth Pro bus pro-american Administration I've perhaps seen in my adult lifetime everyone is incredibly enthusiastic really about a new Administration that's about efficiency removing the impediments to growth deregulation the big difference is of course that this
man is stepping into the White House Trump is considered as Amman said to be very Pro business pro economy and markets I mean even crypto skyrocketed when we found out that he would be the 47th president of the states Trump has a unique plan for American Business that is going to shake things up it involves four key aspects the first is what this man Elon Musk is at the head of Doge stands for the Department of government efficiency which aims to do exactly as it says make the government more efficient this whole idea of this
government efficiency agency I mean call it whatever you want but what do you want to call it what do you call it I mean I think the funniest name is is Dog the Doge Department of government efficiency yeah I mean the idea is we've got this uh suffocating massive Federal bureaucracy interest payments on our on the national debt are now higher than the the defense department budget and and growing like every month like basically we're on a path to to bankruptcy America's going path to bankruptcy so we have to cut government spending or we're just
going to go bankrupt just like a person would the government is considered to be one of the biggest wasters of money in history because when you tax something instead of earning it the hard way you tend to not value it as much the goal of Doge is to make the government more efficient and waste less money and it's going to help Trump do the second part of his plan too a smaller government allows for smaller taxes in his presidency Trump cut business tax from 35% to 21% with the state tax he eliminated it completely in
his second presidency he plans to continue with the tax cuts he wants to exempt certain categories of income like tips and further reduce the corporate tax rate to 15% logically this is good for businesses underlying profit margins but bad for government revenue while lowering taxes does reduce government income increasing tariffs grows income a tariff is a tax imposed by a government on the import of goods from foreign countries to me the most beautiful word in the dictionary is tariff and it's my favorite word the most beautiful word in the entire dictionary it's more beautiful than
love the new Administration wants to put a new Tariff of 25% on all Mexican and Canadian products as well as add an additional 10% tarff on all chinesee Goods which will bring in extra revenue for the government and the last key aspect of the new president is to reduce the regulation in America or in other words cut off the red tape many people argue that the United States has too much regulation and it's hurting businesses Elon Musk once gave the example of how Regulators would not allow him to launch a rocket because they were worried
that it may hit a shark somewhere in the ocean SpaceX had to do the study to see if Starship would hit a shark and I'm like it's a big ocean it's not impossible but it's very unlikely too much regulation slows down businesses and it slows down Innovation because they have no room to move and often Regulators give little logic with their regulations with cutting this red tape its purpose is to help businesses flourish it's because of these types of policies why many at Wall Street are very bullish on 2025 Investment Bank ERS have given further
projections of market growth 10% next year we think tech stocks are up another 25% over the next year and I think NASDAQ 25,000 a year from now is something that we're going to start talking about going into the end of next year early 26 and these bull market projections might very well come true the market always has a mind of its own and this is why no one can project the short term in the market in January 2023 Michael bur tweeted four letters s e l cell that one word tweet by Michael bur which had
just tweeted shook up Twitter since that warning telling us all to sell out of the market the market has gone up 44% in April 2020 Robert kosaki the famous Finance Guru tweeted that the crash is only just beginning well it turns out that April 2020 was actually the perfect bottom of the crash the crash had actually ended stocks would go on to increase 135% since that tweet and turned into a hyper bull market 3 years ago there were many well-known investors who were warning about a market crash the ironic thing is we did see a
crash stocks went down 20% but that crash was nothing compared to what the market would do to come the right move at the time of All of These Warnings was to be fully invested which is why today do I believe in sing all stocks because I'm so worried about a crash coming no do I believe in being fully invested at all times and never worrying about a crash no not that either do I believe in being aware of the market type cycle that we're in and perhaps being a bit more conservative yes yes I do
