How Do I Avoid Big Losers in the Stock Market?

00:00:00.000 | Welcome back to Portfolio Rescue, our show where you, the viewer, select the topics.

00:00:22.800 | Remember, if you have a question for us, send us, askthecomponshow@gmail.com. I'm joined,

00:00:27.680 | as always, by producer extraordinaire Duncan Hill. Duncan, how's it going?

00:00:31.800 | Good, good. How are you?

00:00:33.480 | All right. Duncan and I have been scouring the email for the last couple of weeks, and

00:00:37.520 | one of the cool things we're seeing is there's starting to be some trends in there. We've

00:00:41.040 | been doing the show for about a month now, I guess, and our inbox is full, and so we're

00:00:45.320 | getting tons of questions about things like taxes. That's a big one. People really care

00:00:49.000 | about their taxes. A lot of stuff on retirement accounts, what kind of retirement accounts

00:00:52.200 | to use. At least one question a week from a young person who says, "Hey, Ben, I want

00:00:57.480 | to use two or three times levered S&P 500 ETFs in my retirement account. I swear I'm

00:01:02.400 | going to hold it for the long term. I know the risks. I don't mind losing 90% of my

00:01:06.320 | portfolio. Will you please sign off on it for me?" We're going to get to all these

00:01:10.040 | questions eventually. One of the ones we hear a lot is housing, right? I think, Duncan,

00:01:15.720 | our first question today is another one on housing. There's a ton of questions, obviously,

00:01:18.960 | because the real estate market is going bonkers. What do we got, Duncan?

00:01:23.200 | First up today, we have a question from Anthony who writes, "I'm a 33-year-old single male

00:01:27.560 | looking to move to Dallas, Texas. I'm looking at places in the $400,000 range, and I have

00:01:32.680 | enough capital to buy a home outright, but I'm trying to decide whether I should still

00:01:36.480 | take out a mortgage or rent a house and invest the $400,000 in the market instead of paying

00:01:41.600 | cash. Dallas property taxes can run as high as 2% alone, not to mention all of the other

00:01:46.080 | fees that come along with owning a home. What would you guys do in my situation?"

00:01:51.360 | This is a good thing that this 33-year-old is coming in with eyes wide open, because

00:01:55.660 | I think right now it would be hard to ignore the fact that everyone thinks you should own

00:02:00.720 | a house. There's tons of peer pressure going on. The Case-Shiller National Housing Price

00:02:04.560 | Index is up 20% year over year. Everyone is seeing these huge gains, and there's a lot

00:02:09.520 | of peer pressure from family and friends that you have to buy a house. Listen, this is the

00:02:12.760 | next step in life. You're in your mid-30s. It's time to settle down.

00:02:16.080 | Listen, there's a lot of pros to settling down and buying a house. For me, personally,

00:02:21.240 | we bought a house because we wanted to be in a great school district for our kids. I

00:02:25.520 | think it provides a sense of stability and permanence in your life. You have a house,

00:02:29.080 | you can make it your own. We actually built a new house when we moved in, so we got to

00:02:32.480 | put our own touches on it. You can do your landscaping, all that stuff.

00:02:35.940 | I think there's a level of psychic income you get from owning a house, where it's yours

00:02:39.080 | and it's almost like these non-monetary benefits. I also think a fixed rate mortgage is one

00:02:43.760 | of the best hedges you can get for inflation over the long term, because you can plan out

00:02:47.600 | from your personal finances exactly what your payment's going to be.

00:02:51.280 | Then a bonus on top of all that is you get to build some equity that you can eventually

00:02:54.360 | do something else with, whether it's rolling it over into a down payment for another house,

00:02:58.800 | or potentially taking it out and using that for something.

00:03:00.800 | There are some downsides, though, that a lot of people don't talk about. It's basically

00:03:04.360 | impossible to calculate the return on your home, because there's so many other ancillary

00:03:08.040 | costs involved. You have closing when you move into the house. You have realtor fees.

00:03:11.920 | You have upkeep and repairs and maintenance. There's transaction costs at closing.

00:03:16.160 | If you want to sell your home, there's a lot of frictions involved to get out of it. It's

00:03:20.200 | not like you're just going to get the price that's listed. There's also, you lose flexibility.

00:03:25.240 | This is a single person. They may not want to be in this house for the long term. They

00:03:29.000 | may get a chance for a career or for a relationship, move somewhere else.

00:03:33.600 | I almost look at a house not as much as an investment, but a form of consumption. The

00:03:38.640 | other thing is borrowing at a fixed rate is great, but it's also a leveraged investment.

00:03:43.280 | That can work in your way positively when houses are going up, but it can go the other

00:03:46.580 | way when houses and prices are going down. It's an illiquid asset and you lose some flexibility.

00:03:52.800 | Owning a house is not for everyone. Two-thirds of the country owns a home in the United States.

00:03:57.680 | Some people don't own one because they can't afford it. Some people don't own it because

00:04:00.720 | it's just not right for them.

00:04:02.360 | I think here's some of the questions you want to ask yourself. How stable is my life and

00:04:05.080 | my career? Can I see myself living in this area, this neighborhood, this community for

00:04:09.440 | the long term? Is this a place I can see myself owning for at least seven years, I'd say?

00:04:13.640 | Because, other than that, you're not building much equity unless housing prices just go

00:04:17.080 | to the moon. If you're not living in it for at least five to seven years, I'd say. This

00:04:21.160 | is not something that you want to buy and move out of right away. I think you want to

00:04:23.600 | make sure this is something for the long term.

00:04:25.680 | - Yeah, I look forward to being able to paint walls one day, though, and actually put holes

00:04:30.680 | in the wall without having to worry about having to fix it back after a year or two.

00:04:36.440 | We've been in our home for five years now, and I think we still haven't hung anything

00:04:39.720 | on the walls yet. It's still just the same.

00:04:41.480 | - That's great.

00:04:42.480 | - Yeah, I'm not much of a landscape guy either. That stuff kind of annoys me. There's a lot

00:04:47.680 | of stuff that it really depends what you want to get out of your life. How much flexibility

00:04:52.120 | and do you want to be tied down to something like that? I think as a single person, honestly,

00:04:56.280 | moving into a place where they take care of all the lawn care and all that stuff for you,

00:04:59.200 | that sounds wonderful to me.

00:05:00.200 | - Yeah.

00:05:01.200 | - All right, what do we got next?

00:05:02.200 | - Okay, so next up we have a question from Greg, and so Greg has a pretty short and sweet

00:05:07.960 | one. "When looking at your own personal portfolio, where do you guys stand on how much inheritance

00:05:12.240 | to leave your kids? I recently heard Shaq saying that he's rich but his kids aren't

00:05:16.120 | and he wants them to work for what they have in life. I agree with this sentiment and would

00:05:19.520 | be curious to hear your thoughts."

00:05:20.760 | - All right, I've never done a financial planning question with Shaq before, but I'm a big planner.

00:05:27.560 | I like to think long-term and plan out the future, but this is even like long, long-term

00:05:32.000 | for me, and I obviously think about this stuff, but this is a challenge because you're striking

00:05:35.880 | a balance between wanting your kids to succeed on their own and learn about how the world

00:05:39.400 | operates, but also wanting to make sure that they're secure because they're your kids,

00:05:42.880 | right? So Greg asked if Josh and Michael and I have any thoughts on this. So I'll bring

00:05:47.920 | in one of the other three here. So Josh Brown, come on in. Let's see, there he is.

00:05:53.600 | - What's up, guys?

00:05:54.600 | - Josh.

00:05:55.600 | - This is so exciting. It's my new favorite show.

00:05:57.280 | - Let's do it. Your kids are older than mine, but you still have plenty of time left here.

00:06:03.000 | How do you think about this? I know Buffett and some of these other billionaires have

00:06:06.600 | talked about it, but how do you think about this in terms of trying to set your kids up

00:06:10.640 | for success without spoiling them?

00:06:13.160 | - Yeah, so to be clear, I don't have Buffett money or Shaq money, and I don't anticipate

00:06:20.800 | having Buffett money or Shaq money. So I'm pretty certain what Shaq is telling his kids

00:06:27.600 | is that they're not worth a hundred million, but it's doubtful they won't be set up with

00:06:32.200 | five or 10 million to do what they want with.

00:06:35.160 | - How are they ever going to survive, right?

00:06:38.200 | - Listen, I think there are a lot of really great models for what you should be doing

00:06:42.280 | when you reach that level of success, which is not going to be most people, obviously,

00:06:46.960 | but like Rick Ross, one of my favorite rappers, he's got a whole bunch of these Wingstop franchise

00:06:53.240 | locations. His kid turned 16 and he gave the kid a Wingstop. And it's like, "Oh, wow, he

00:07:01.440 | just handed this kid a half million dollar, you know, what it would cost somebody else

00:07:04.800 | to buy this franchise." No, he just gave this kid the responsibility. Like, "It's great.

00:07:10.640 | All right, I own a Wingstop." That's not like a ticket to riches and fame. You have to like

00:07:16.520 | grind it out. So the kid's obviously going to be in school, but he's got to be involved

00:07:20.760 | in hiring people, making sure the supplies are showing up, making sure the property around

00:07:26.000 | it is being kept up. Like, I think that's really fly to do for a kid. Like, so I love

00:07:32.800 | that idea. I'm not giving my kids a Wingstop, but just that concept of...

00:07:37.360 | - By the way, have you ever tried it before? I have one right by my office. I just went

00:07:41.480 | in. Yes.

00:07:42.480 | - Lemon pepper. Two words, lemon pepper. Okay. Wingstop is great. But I like the idea

00:07:50.440 | of an inheritance being not just like, here's a pile of money or here's a trust, but like,

00:07:57.400 | here's a responsibility that also comes along with this wonderful gift that I'm giving you.

00:08:03.440 | And like, that's the balance of being wealthy is like, the wealthier you are, the more shit

00:08:09.800 | you got to take care of, right?

00:08:12.920 | - It's also hard to keep your kids happy. So there's a study from like the Chronicle

00:08:15.920 | of Philanthropy where they asked people who inherited a lot of money, like what amount

00:08:20.480 | of money would you have inherited that would make you feel totally secure? And on average,

00:08:25.120 | every single one of them, no matter how much they made from like 200,000 to a couple million,

00:08:29.360 | the answer was always double of what they got. So you're probably not going to make

00:08:32.320 | your kids happy either way, depending on how much... Here's the way I'm looking at this.

00:08:37.480 | I want to communicate with my kids exactly what's going to happen when I die. That's

00:08:41.000 | kind of morbid to think about. But when I get to that age, here's what's going to happen.

00:08:44.360 | Here's the money stuff. Here's potentially how much you're going to get. But I'm also

00:08:47.880 | going to enjoy that money with my kids while I'm here. Vacations and...

00:08:51.800 | - That's it.

00:08:52.800 | - Right?

00:08:53.800 | - This is what we do for a living. We're having these conversations with households all over

00:08:58.160 | the country. What the boomers are doing now is they're saying, I want my children and

00:09:06.280 | their children to enjoy the money while I'm alive to see it. It's not selfish. It's like,

00:09:14.680 | what is the point of me holding on to this and trying to grow it by another 50% over

00:09:20.120 | the next 20 years?

00:09:21.120 | - The kids are going to love those experiences and those memories way more than more money

00:09:24.400 | when you die.

00:09:25.400 | - No doubt. So you know what we're seeing a lot of? We're seeing a lot of parents who

00:09:29.400 | don't just sell their house and move away, but keep their house so they can be nearby

00:09:35.000 | the kids and help raise them, the grandkids, and help raise them, but then also have the

00:09:39.720 | vacation house. So if you're rich, that's great. You could afford to do that. Not every

00:09:43.800 | parent can.

00:09:44.800 | - Hey, can you have a talk with my parents then and tell them to move into town when

00:09:47.760 | I need a babysitter? Because my parents still live three hours away.

00:09:50.760 | - How far away are they?

00:09:51.760 | - Well, they help when they're around. They live like three hours away. It's a good buffer.

00:09:55.440 | - I mean, that's not bad. We moved into the town where Sprinkles' mom and dad live, and

00:10:01.080 | they have bedrooms for her and her sister. When they were growing up, those bedrooms

00:10:06.160 | now have been converted into bedrooms for my kids. So it is an awesome setup because

00:10:13.480 | we could just put them there for a Saturday night, and they love it. The kids love it.

00:10:17.160 | The grandparents had the last 15 years to watch my kids go from being babies to teenagers

00:10:23.320 | and be very much in their lives. And I want that because I've seen that. Now that I've

00:10:27.920 | seen that as a parent, when I'm a grandparent, which is not for many years, let's hope, but

00:10:33.320 | I want that. And that takes money to be able to do, obviously, to keep the house that you're

00:10:39.840 | no longer have kids there, but you're going to keep it running as though you do. You got

00:10:44.200 | to plan for that, especially if you also want to be in Florida half the year or whatever.

00:10:48.800 | So that's the way that I'm trying to think about it. And then the inheritance question,

00:10:54.120 | which I think we started with, it's like, what can I do today to make my kids' lives

00:11:00.120 | easier as they become adults? And a lot of that is going to be like helping them get

00:11:04.560 | a foothold in an apartment in the city so they don't have to live at home for as long,

00:11:10.240 | like doing stuff like that. That's so much more important than what am I leaving them

00:11:14.440 | in 50 years or 40 years, right? So I think we're on the same page there.

00:11:19.280 | All right, Duncan, next question.

00:11:20.960 | Poor cousin Greg, you know, that's what I keep thinking about, that inheritance. Okay,

00:11:26.240 | so next up we have a question from Bennett. So maybe our youngest question asker of all

00:11:31.920 | time.

00:11:32.920 | I think so.

00:11:33.920 | So I am 17 years old and have been investing for three years, which is impressive. I have

00:11:37.800 | funneled away money I earn into my portfolio in which I own a wide range of stocks, almost

00:11:42.320 | 70 in total. About 10% of the money is in crypto split between Ethereum, Solana, and

00:11:47.240 | Polkadot. My question is about how many stocks I should own. As you diversify to preserve

00:11:52.360 | wealth and concentrate to create it, I'm wondering how specialized I should be. I think they

00:11:57.360 | mean concentrated. They should be, since they can afford a lot of risk at their age. And

00:12:02.400 | then they go on to tell us their top holdings.

00:12:04.760 | First of all, applause to Bennett here. This is amazing for a 17-year-old, right?

00:12:11.180 | Just asking that question.

00:12:12.180 | Yes, and well done. And yes, when I was 17, I knew nothing about anything. I didn't know

00:12:17.080 | the stock market existed. So, kudos to you. One thing I want to say for a 17-year-old

00:12:22.400 | is, when you're holding these stocks, that's great. And I think there's studies that have

00:12:25.640 | done that said, well, up to 30 or 50 stocks will get you pretty well diversified. You

00:12:31.680 | don't need many more than that. The Dow has 30 stocks in it.

00:12:35.560 | But my question is not portfolio-related. It's how much time and effort do you actually

00:12:38.960 | want to spend here? Studying these stocks, figuring out the trends. You're young. This

00:12:42.680 | is great, because by investing in individual stocks, you're learning. And I think there's

00:12:47.040 | a lot to that, where that's a great way to learn how the stock market works, how businesses

00:12:51.160 | work. I just don't want this person to spend every waking hour paying attention to stocks

00:12:56.640 | and reading 10 Qs and all these things when they could be doing something else.

00:13:00.800 | So, I just don't want you to go overboard and figure out the balance between tracking

00:13:05.100 | a portfolio and just maybe making your life easier.

00:13:08.120 | Yeah, I think you can follow five stocks that make up 20% of your portfolio on a quarterly

00:13:13.920 | basis. Let's say you're going to listen to five conference calls on the Quarter app,

00:13:18.520 | which is what I would recommend to every 17-year-old, quite frankly. Put that app on your phone.

00:13:23.600 | Follow the stocks that you've heard about via conference calls. So, I think that's manageable.

00:13:30.400 | So here's the thing. Where it gets unmanageable is if you think you're going to wake up every

00:13:35.160 | day and do trades. That's where it gets out of hand because then you win, you lose, you

00:13:44.160 | lose track. Am I even up? What was the point of this? Now I'm going to owe taxes. It gets

00:13:50.200 | out of hand when you're being extremely active.

00:13:52.800 | But if you pick five companies like that and they're a fifth of your portfolio, maybe the

00:13:58.000 | better thing to do is not find another five companies or another 10 companies, but maybe

00:14:03.280 | layer in some index funds. And that way you get the best of both worlds. To Ben's point,

00:14:08.080 | you don't learn anything by owning index funds. But the other side of that is index funds

00:14:14.160 | will make sure that whatever the next big winning stocks are, that you're allocated

00:14:19.320 | toward them because they will bubble up within the S&P. So put those names back up.

00:14:24.660 | Core and Explore, right? Yeah, the Core and the Index Funding Explore elsewhere.

00:14:28.800 | Put those names back up. Duncan, can you do that? The question.

00:14:31.760 | Yeah, just one second.

00:14:34.040 | AMD. All right. Microsoft, Apple, and Nvidia are three of the top seven market caps anyway,

00:14:44.600 | I think. So you're missing Amazon and Google, whatever. No big deal.

00:14:49.600 | Hey, this guy, he has CrowdStrike and Nvidia. This is definitely a Josh Brown fan.

00:14:54.360 | And AMD. Right. No, this guy. Right. So these are gigantic tech stocks. I don't know if

00:15:00.560 | your position six through ten are like natural gas companies or banks or pharmaceuticals,

00:15:10.240 | but somehow I doubt it. So what the index fund would give you is you don't have to try

00:15:15.640 | to pick a biotech or a utility stock or whatever. They will give you exposure to that. And it's

00:15:21.760 | hard to believe, but there will be extended periods of time where those technology stocks

00:15:26.980 | that you're big in are not doing well and other areas of the stock market are. So Core

00:15:32.720 | and Explore, Ben, I think is the right suggestion here.

00:15:35.520 | And to your point about performance, this is a good way to track your performance, too,

00:15:39.280 | to say, "Here's what my index fund is doing. Is all this time and effort and work really

00:15:42.980 | even giving me anything in a performance, or can I just set it and forget it eventually?"

00:15:47.320 | And if the answer is yes, it is, and you're crushing the index, then the next thing you

00:15:51.360 | want to do is immediately start charging your relatives two and twenty and launching your

00:15:57.200 | fund. All right, dude, you're 17 years old. You're way ahead of all your friends. Keep

00:16:04.080 | going. Don't worry about anything. You're doing fine.

00:16:06.080 | All right, Duncan, last question.

00:16:07.240 | Great job, Bennett. Okay, up next we have a question from Sam. And so Sam asks, "Is

00:16:12.960 | there any way of telling" – this is kind of like searching for the Fountain of Youth,

00:16:15.280 | but I like this question – "Is there any way of telling when a stock has probably hit

00:16:18.360 | its peak, if not for good, for a long, long time? For example, GE hit an all-time peak

00:16:22.920 | back in the year 2000, and since then, it's been a long decline. What are some signs an

00:16:27.360 | investor can look for that a stock has probably gotten as high as it's ever going to get?"

00:16:31.040 | Let's do a chart on GE here.

00:16:32.760 | I want to hear Ben's answer on this.

00:16:35.200 | All right, I got some stuff. I'm backing up. So this is GE. It hit a high of around

00:16:39.320 | $480 in 2000. It's now at about $96. We're talking 80% decline in value.

00:16:45.120 | Gross.

00:16:46.120 | And this is the stock that was – and how many retirees' portfolios that worked at

00:16:49.080 | GE, because this is a huge company. So my way of thinking about this, it's easier

00:16:54.160 | to pick losers in the stock market than winners in some ways. So, John, let's do the next

00:16:58.260 | chart on.

00:16:59.260 | So if you've been following our content for any period of time, you've heard us mention

00:17:03.080 | this agony and ecstasy findings from JP Morgan. I think I first included this in my book,

00:17:07.360 | which came out in 2015, maybe, '14, and they've updated it since then. They just

00:17:11.160 | updated it through 2020. This shows that the number of companies in the S&P 500 having

00:17:16.000 | a catastrophic loss from 1980 to 2020 is 44% of all stocks. Catastrophic loss.

00:17:24.520 | What percent of all stocks?

00:17:25.520 | 44%.

00:17:26.520 | Two-thirds of the time –

00:17:27.520 | 44% of stocks would have – wait. What is a catastrophic loss?

00:17:31.080 | That's basically you lose and you're not coming back.

00:17:34.360 | Oh, like endgame loss. Okay.

00:17:37.780 | So they show you the companies that are removed for distress. They said around two-thirds

00:17:41.880 | of the time, every single stock in the Russell 3000, which is the whole stock market, underperforms

00:17:46.040 | the actual index. And only 10% of stocks since 1980 are what they consider mega-winners.

00:17:50.760 | So those are the names, Amazon and Apple and Google.

00:17:54.280 | So I'm not saying people should go open a short fund to short all these stocks, but

00:17:58.720 | it's easier to be part of the losers than it is to be part of the winners. But they

00:18:03.480 | gave the reason. So JP Morgan said, "Well, why does this happen?" And a lot of times

00:18:07.380 | they said, "It's not just companies being inept and not understanding what's going

00:18:10.480 | on. It's a lot of times it's commodity prices that you have no control over, regulation

00:18:15.840 | from government, deregulation, foreign competitors and globalization, maybe intellectual property

00:18:20.680 | infringement from other countries, trade policies, and then, of course, technological innovation

00:18:24.660 | is the biggest one."

00:18:25.920 | So there are reasons beyond just saying, "Oh, the CEO is dumb. They didn't see it coming."

00:18:30.480 | So I would love to hear your answer here because I think this is really hard.

00:18:32.880 | I was going to say obsolescence is the big one in my mind. I don't know if that's

00:18:39.280 | the reason for most of these, but like when I try to think of examples of companies that

00:18:43.640 | never come back, that's the big one to me. But in the case of GE, it really was management

00:18:50.560 | and not in the way that most people think. So a lot of people – obviously, Immelt gets

00:18:55.360 | most of the blame, the CEO. He had been there a long time and almost every decision he made

00:19:01.320 | was the worst possible decision you could have made. There's a great book on the fall

00:19:05.520 | of GE. I've read a couple of the chapters for researching something. I didn't read

00:19:10.680 | the whole book, but it was really good and it gets into not only was Immelt disastrous,

00:19:16.920 | making a huge energy acquisition at the top of the oil market and doing all sorts of things

00:19:22.240 | that looked bad at the time and turned out even worse, but he inherited a situation where

00:19:27.840 | the guy before him was aggressively managing earnings, like using the finance arm of the

00:19:35.240 | company –

00:19:36.240 | Do you think that they could do that today?

00:19:37.240 | To pull money out of the cookie jar? No way.

00:19:38.240 | Like the way that they massaged the earnings numbers, right? They could do that today,

00:19:41.440 | right?

00:19:42.440 | No. This is pre-Sarbanes-Oxley, pre-Twitter, pre-activist short sellers putting people

00:19:50.880 | on blast on social media. I don't think that you could have cookie jarred your way

00:19:56.040 | – using GE finance to just anytime you were short a few pennies in earnings, just pull

00:20:01.080 | some money out of there and drop it to your bottom line. I don't think that you could

00:20:04.800 | get away with that with the modern SEC and Department of Justice, the tools they have

00:20:10.240 | to analyze. So it's a really good question.

00:20:14.200 | Now if you're a shareholder in GE, you don't really know what's going on, right? There

00:20:18.400 | is no social media. People aren't gossiping about Jack Welch all day on Twitter. This

00:20:27.600 | predates all of that. But GE is definitely a case – and then Immelt steps in and he

00:20:33.120 | can't do those magic tricks. So already, he starts disappointing.

00:20:37.320 | Here's the crazy thing about GE. I looked at this. They were in the top 10 holdings

00:20:42.240 | of the S&P 500 every year from 1980 to 2005. So betting that they would fall probably seemed

00:20:49.440 | like there's no way this is going to happen. Of course this is going to go back. So I think

00:20:53.360 | I've posed this question to Michael before. Take the top 10 today. What is the company

00:20:57.440 | most at risk potentially of falling out even though we don't know what the reason is

00:21:01.000 | going to be?

00:21:02.000 | Is Facebook the easiest one?

00:21:03.880 | Well, where is the top 10? How do I get to the top 10 on Y charts? What page do I go

00:21:09.200 | to?

00:21:10.200 | Type in SPY and go to holdings.

00:21:12.880 | Yeah, right. Facebook is the one that would make me the most nervous of that risk to be

00:21:20.000 | honest with you.

00:21:21.000 | Whether it's competition with the government?

00:21:22.000 | Like that obsolescence risk.

00:21:23.000 | Berkshire Hathaway is in there? Is that a Warren Buffett risk where they could somehow

00:21:28.560 | fall off the map?

00:21:30.400 | Well, the consensus on Berkshire Hathaway for the last 10 years is the day he dies,

00:21:35.000 | that stock falls by 40%. I'm going to go the other way. I think the knee jerk is down 15%

00:21:42.200 | and then within six months, they're dismantling the company, spinning things off, creating

00:21:47.000 | shareholder value.

00:21:48.000 | Bill Ackman comes in, yeah.

00:21:49.000 | That stock goes crazy. I think it's possible that Buffett's presence is tamping down on

00:21:54.640 | the potential of Berkshire. They have $180 billion in cash. They have no idea what to

00:21:59.800 | do with it. They're in their 90s. They're in their 90s. So I don't think that's the

00:22:05.240 | bigger risk in that group.

00:22:07.200 | Let me say this. Put back that GE thing for a sec, the chart. We didn't create this with

00:22:16.720 | moving averages or any of that shit. But one good way to keep yourself out of a stock that

00:22:22.400 | has the potential to do this is to think about monthly charts and monthly moving averages.

00:22:29.920 | So if you were to do a monthly chart of GE and overlay that with a 200-period moving

00:22:36.600 | average, in this case it would be a 200-month moving average, if this stock starts to close

00:22:42.600 | below that very, very, very long-term monthly moving average and it's in a defined downtrend

00:22:49.920 | on that basis, you're definitely not going to be able to get out at the top because it's

00:22:54.280 | already falling.

00:22:56.000 | But that might be an indication that something has materially changed in the trend for a

00:23:01.520 | stock. So I'm not suggesting that would save you 100% of the potential loss. But if you

00:23:06.080 | had sold GE 30% off the top and your rationale is this thing is now in a long-term downtrend

00:23:13.520 | and I no longer believe that this is as good of a stock as it used to be, that's not the

00:23:19.800 | most rigorous intellectual argument, but it would have saved you a ton of money.

00:23:25.120 | So think about monthly charting just as a way to get a better idea of the more important

00:23:31.600 | trend. Anything shorter than that, weekly, daily, hourly, is too noisy. I think there's

00:23:38.520 | a lot of signal in a monthly chart for an individual stock. So that would be my one

00:23:43.520 | suggestion to try to avoid catastrophe.

00:23:46.480 | It's easier in predicting what's going to happen in the future with technology or some

00:23:49.380 | other outside force that's going to cause. But my point is just that you have way better

00:23:55.720 | odds of picking a mega-loser than a mega-winner, unfortunately, in the stock market.

00:24:00.100 | It's amazing that that's true because we forget about the mega-losers.

00:24:03.880 | Yeah, it's a survivorship bias.

00:24:06.880 | Once they disappear, they're no longer readily available to us in our memory banks. Enron

00:24:14.040 | stands out and Lehman stands out because of how catastrophic it was. But there have been

00:24:19.480 | thousands of companies that have filed for bankruptcy. We just don't care about them

00:24:23.560 | anymore. You're 100% right about that. So there's definitely an availability bias at

00:24:28.720 | work against us remembering that.

00:24:30.720 | All right. If you in the comments here have an idea, what's the next top 10 S&P 500 company

00:24:35.740 | that's going to go down? Leave it in the comments. I'll take a look at them.

00:24:39.720 | That's a great show.

00:24:40.720 | Great questions today.

00:24:41.720 | This is your show, but can we give a couple of shout-outs to the live stream? I saw some

00:24:48.040 | really great stuff while we were talking. Ken Havens, when we were talking about the

00:24:52.880 | top five stocks in the kids' portfolio, the challenge is going to be finding the next

00:24:58.000 | NVIDIA AMD. The 20 baggers, these names were 20 years already in the making. That's really

00:25:04.040 | a great point. They're not going to do what they've already done unless they're all Tesla.

00:25:09.920 | This guy, Peter Georges, the moment I go all in is a pretty good indicator the stock peaked.

00:25:16.160 | Let's leave it there.

00:25:17.160 | That's a good one.

00:25:18.420 | That's fire. Thanks, Peter. Thanks, Ken, for hanging out with us today. All right, Ben,

00:25:23.640 | your show. You wrap it up.

00:25:25.000 | Yep. Thank you, Josh. If you have a question, email us at askthecompoundshow@gmail.com.

00:25:28.720 | Remember, Duncan and I are checking all those. I'm a big fan of round numbers. So we want

00:25:33.400 | to get to 100,000 subscribers this year. So hit that subscribe button if you haven't yet.

00:25:37.440 | We want to get there. idontshop.com. I think you can still order some stuff and get it

00:25:41.440 | in time for holidays here.

00:25:42.880 | Hell yeah.

00:25:43.880 | And we will see you next week. Thank you.

00:25:45.920 | Thanks, everyone.

00:25:47.040 | [MUSIC PLAYING]

How Do I Avoid Big Losers in the Stock Market? | Portfolio Rescue

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