The Stock Market Just Did Something We’ve Never Seen

Guys, I need to show you something that's been bothering me for many weeks. I don't know why nobody's talking about it. Last week we saw tech stocks and the market turning down after very solid earnings reports. Here's the thing about market downturns like these. They don't always start with chaos. They don't always start with these flashing red screens, no emergency alerts. Sometimes it just starts very quietly. I always talk about the 2000 crash. There was no trigger to that. Now, a few stock drops, tech gets shaky, your portfolio dips 3% and 5% and one morning 10% gone, 15% gone. And everyone is suddenly asking, why didn't anyone warn us guys? The warnings are there. You just got to know what to look for. In fact, I'm a broken record on repeat over and over. And the only channel on YouTube who talks about valuations in this way, let me ask you something. What was the last time the stock market actually scared you? Was it 2022 during that bear market? Maybe. Was it 2020? For like two months during COVID? Maybe. Before that, 2008. Here's the thing. Right now stocks aren't just near all time highs or at all time highs. In terms of valuation, they're at historical insane highs. Now guys, what do you hear out there? You're a lot of people writing articles in the media saying, well, unemployment's getting higher. It's still low. People say the economy is doing poorly. Guys, don't worry about that. This stuff happens all the time. Yes, I get it. You sit there and look at the 08 financial crisis. You look at the recession of 2001 stocks fell. People will say, Paul, how can you not worry about that? I don't worry about it because in the long run, the U.S. economy will get better. Unemployment's going to go up and down. But right now we've got two massive problems stacking on top of each other and almost no one is paying attention to it. Problem number one, we never got our reset from 2008 to 2020. We went over 11 years without a 20% crash in the S&P 500. All kinds of speculation happening. All that crazy risk people have taken never got punished. All that excess in the system just kept on building. Do you hear that from other people now? And by the way, guys, just because it hasn't happened, doesn't necessarily mean that something's supposed to happen. But then we had COVID hit 2020 hit the market crashed almost 40% in literally one month. But the federal reserve stepped in and they stepped in fast. They dropped interest rates to near zero. They bought trillions of dollars in bonds. They made the pain go away very quickly. And that is what concerns me. The recovery happened so fast, but the usual consequences never played out. All that risk, where'd it go? Is it gone? I don't think so. All that excess, guys, it got worse. It's still growing. They stopped the immediate crisis, but the imbalances still remained. Problem number two, valuations have gone completely insane. And I know guys, I've been saying this for several years now, and that's the reality of valuations in the short run. We have no idea where prices are going to go, which means we have no idea how crazy valuations get. You've probably heard of the Buffett indicator. Warren Buffett used it to see if stocks are cheap or expensive. He actually calls it the single most reliable metric of stock market valuations at any given moment. What he does is sit there and says, listen, the stock market should be some sort of percentage of the entire economy. Right now, stocks are near the highest valuation they've ever been. Guys. The only time it was ever this bad was during the great depression in 1929, 1930. But here's what really gets me as of early 2026, this bull market has now gone over 1200 days without a 20% drop over three years without a real correction. Long bull markets have happened before, but here's the pattern. The longer they go, the harder they fall, because all that delayed pain doesn't just vanish. It compounds. I'm not telling you the market's going to crash tomorrow. In fact, I'm never going to tell you when I think it's going to crash. Nobody in the world can predict that with long-term liability and you should avoid people who say they can or avoid the people who say this will happen at this event at this time. But I can look at the math and the math is screaming at us right now. When prices are this stretched out, when valuations are this stretched, when risk hasn't been fully clear in over a decade, when everyone feels safe, that's when you need to be most careful. There's the old adage from Buffett, be fearful when others are greedy, greedy when others are fearful. Is that phrase used and abused a lot lately? Absolutely. I don't think we're anywhere close to the fear that people can have just because we have one week or two weeks of bad market. Here's what I've learned as a value investor. Our job is never to predict the short-term future. Our job is to respect reality. The market doesn't care what you've paid for anything. The reality is this though, a great company can be a terrible investment if you pay the wrong price. That's where we're at right now. We have amazing businesses out there, but guys, the prices that are attached to them are not making sense. Everyone is so excited about the story that they forget to look at the price tag. Don't make that mistake. Now, where are we right now with valuations? Well, guys, I have my own stock market GDP indicator where I pull up the S and P 500 going back to 1928. So here's how it works. You take every stock in America. That's the total market cap of all the businesses. Take everything America produces in a year. That's GDP. All we're doing here is dividing the stocks by the GDP. When his number gets very high, stocks are overvalued. They're worth more than what our entire economy actually produces. Now this makes perfect sense. As the economy grows, so should the companies within the economy and they work in tandem. It's not very likely that the economy would decline and those companies get bigger and vice versa over long periods of time. And right now, very simply guys, we are 125% overvalued. Now, how bad is that? Well, you might sit there and say, well, you know, if you make an excuse for this, basically what you're saying is it's different this time. And guys, it's never different. The more you pay for something, the less your return is going to be. If I told you right now, that's going to give you a dollar a year for the rest of your life. And you paid me $10,000 for that. You're going to lose a lot of money. If you pay me $1 for that, you're going to make a lot of money. Do you see what I mean there? The same stream of cashflow, the more you paid for it, the worse your return, the less you paid for it, the higher return. No different. Because guess what? These companies, they're going to operate their business no matter what the stock does. If the stock goes up, they're going to keep operating their bid. The cashflow generated is probably going to be pretty consistent with what would have happened no matter where the stock is. Now we look at this. And I went back to history, going back 401 quarters, it's a hundred years. And here's how I break it down. This is undervalued and this is still overvalued along the spectrum. Historically, the average return every 10 years is 6.4%, not including dividends. When we're 30% undervalued or better. So 40, 50% undervalued, the average return is 10.7 compared to 6.4. Why? You pay less. And as you get to more overvalued, look what happens. The returns 10.7, 9, 2, negative 1.2, negative 2, negative 2.4. Guys, it makes perfect sense. The more you pay for something, the less your return is going to be. And this is at 50% overvalued. We're 125% overvalued. Now, how does this compare to other times? Well, guys, look at March of 2000. That was the peak of the tech bubble. We were 47% overvalued compared to history. Remember we're 125% right now. And guess what guys, look at the stock market here. It peaked around 1468. Fast forward, it hit that point again in 2007, fell again. Look at that. It took till 2012 before it finally went through that point and never looked back 12 years of no price gain in the stock market. That's what I want you guys to be aware of. He said to sit there and say, go sell. No, it's a sit there and be ready for a while. Now, since late 2021, the indicator has been flashing red and we got a 2022 bear market where the market fell 25%. The NASDAQ fell over 30%, but guess what? Came roaring right back to all time highs. You saw Nvidia AI boom happened. Everything was crazy guys. What I'm trying to do here is show you guys that the future is probably not going to be as good as the past. That's all I'm trying to get across here. I'm not trying to sit there and say, go sell, go do this, go to cash, go to gold. No, I'm trying to sit there and say, the best thing to do is manage your expectations. Now are there ways in which these valuations try to be okay? Absolutely guys. But what would that take? Well, again, if GDP and stock market work together, one of two things, actually one of three things has to happen. Either GDP skyrocket like crazy with prices in the S&P staying very similar, very sane and normal, or stock price plummets while GDP goes up or a combination of the two, which is more likely to happen. That's what concerns me. The US economy is a big economy. It is trudging along. We don't want it to sit there and skyrocket. Cause you know why? That means we had bad inflation and we have bad inflation. That's going to be a problem for so many other boys in the market. So what I want you to do is this don't panic. I don't want you dumping everything saying, Oh my God, Paul said the market's going to be terrible for 10 or 15 years. It's okay. You cannot possibly time the exact moment things will turn. Nobody can do that. The real smart money, not the wall street. People true value investors are going to ask, what am I paying versus what value am I getting? I want you to remember something very important prices. What you pay values, what you get. Unfortunately, most people out there only focus on the price of the stock, but luckily for you, you're a different person. You're watching this video. You've made it this far. You realize there was more to stocks than just the price being displayed. Their value is what matters. The S&P 500 historically pay is selling for about 15 to 16 times earnings. Right now, guys, we're paying a lot more than that. In fact, there's another metric called a 10 year sickly adjusted PE ratio. What that does is it takes the last 10 years of earnings on the S&P to even out all the ups and downs, brings it to today and assigns a PE ratio for that guys. We're currently at over 40 on that. During the.com bubble, we got to 44, which is the point we'd never seen before. The highest before that was 26 or 27 and guys were currently at 40.38, which is 126% overvalued. Guys, I want you to hear something again, something I want you to remember the rest of your life. A great story becomes a bad investment. If you pay the wrong price, there's no doubt that AI is awesome. There is no doubt that there's companies out there. They're going to actually crush it with AI. But at the end of the day, if you pay the wrong price, you end up with a bad investment. Ben Graham nailed it. He says in the short run, the market's a voting machine in the long run. It's a weighing machine. Right now people are voting with pure emotion. They have FOMO, fear of missing out, but eventually the numbers will matter. Eventually valuation matters. The market will judge the companies on what they're actually worth. I'd always give the example of Cisco back in 2000, Cisco was the company you had to own. Cisco hit $82 a share back in 2000. It just recently finally hit an all time high of $88 per share. You know, it's interesting guys, from this point to this point, revenue and profit were both up three or four times, but yet the stock was flat. Why? Because you paid too much here. Ironically, take out this little part right here. And that's pretty much what the stock should have done. That's what the earnings and revenue did over long periods of time. It's not a coincidence, but people paid too much in 2000 because it was a sexy story. Guys, you're going to make the real money in the next 10 or 15 years of a bad market. You're not going to make it when everyone's celebrating and talking about how nothing can miss. When everyone is freaking out, that's when stocks are on sale. That's when you load up. Yes, they'll probably go down further, but that's when you consistently do it. And when the next bull market long bull market happens after that, your money will explode. Well, everyone else is losing their minds. We're going to calmly build our shopping list because the best time to buy is when nobody else wants to. Guys, it's been nearly 18 years without a real long-term crash. This almost never happens. You know, it comes after these long stretches, pain take 1999. The market went about 1900 days without dropping 20% over five years of straight up company was zero profits were worth billions. Pets.com web van. People were quitting their jobs to day trade. Everyone thought they were a genius. Then March of 2000 hit. And by the way, when I say it hit, there was no event that caused that. All of a sudden people just stopped buying. The whole thing collapsed. Trillions of dollars vanished. Same thing happened 2009 or 2020, another massive run about 4,000 days that a 20% dropped. I don't believe that bull markets end because of age. But what I do believe is if things are overvalued and we're able to keep it going and keep prices going up without as much growth in terms of the valuation, we're just kicking the can on the road and making things much worse for the future. The more elevated we get in value, the worse the fall will be. As I said before, look at our stock market to GDP ratio and we're 125% overvalued. And the.com bubble was like 48%. Guys, this is a huge difference here. Now the 10 year PE ratio is not as bad as it was in 2000. But the point is it was still really bad at both times. I just have a hard time seeing how we get the next 10 or 15 years to be anywhere close to good. But the scary part to me is no one's worried. When I see that, that's everybody's way of saying this time is different. And that's exactly when you should be worried. Now that worry doesn't mean you have to go out there and sell. I repeat on blue in the face, it stick to the plan. Cause if you expect it to happen and it does happen, you're going to be a lot calmer market tops. Don't form when people are scared. They form when people think everything is fine and things won't change. When valuations get this crazy, people stop asking what's this company actually worth. Instead, they ask, what will someone pay me for this tomorrow? That's the greater fool theory. And it always ends poorly when no idea anyone says otherwise wrong. And the people who think just cause it hasn't ended poorly doesn't mean it means it won't also wrong investing in one sentence. Every investment is the present value of all the future cash flows. It's going to get guys. You're buying that future cashflow, all these prices, the market's betting on perfection. When price and value are this far disconnected, you have to have everything go well, guys, that doesn't happen. Just a few years ago, everybody thought Tesla could never be bet against that. You would never bet against Elon Musk. And now Tesla's losing market share and their revenue is declining. Nobody would ever thought that was going to happen. It did. So lock this into your brain. Never invest in what you don't understand. When everything is going up, people forget this. They buy whatever is trending crypto meme stocks. Remember NFTs, SPACs. Remember those? If you can't explain how a company makes money, you probably shouldn't own it. Cause you won't be able to explain how it will lose money. Short-term, the market is a popularity contest. Long-term, it's the fundamentals of the company. They're going to drive the price. Look at that Cisco example. This was the voting machine. This was the weighing machine and it worked out perfectly. And guys, you'd be hard pressed to find any other company that didn't work out that way in the long run. If you find a company that was fairly priced today and 10 years later had 10 times more profit, I would guess that the stock price is at least 10 times greater. Amazing companies can destroy your wealth. If you pay the wrong price, you can buy the best business on earth and still lose everything. If you overpay, I want you to sit down right now and think about something. Think about the most amazing company you've ever heard of. Think about it completely. Just say, this is the most amazing. I don't know what it's going to be. It could be NVIDIA. It could be Tesla. It could be any company. Would you buy the whole company for a dollar? Your answer would be, well, of course I would. Would you buy it for a quadrillion dollars? Well, of course not, Paul. That'd be stupid. That's all I'm trying to get across to you. The best company in the world, if you add a bunch of zeros to it, won't make sense. And that's where I think we are right now. The crash hasn't come, but we're waiting for reality to show up. The only question is, will you see it coming or you'll be blindsided like everyone else and therefore probably make bad decisions like selling. I have made every possible investing mistake you can imagine. I bought too high. I sold too early. I listened to the wrong people. And that's exactly why I built everything money. It was first built purely for me. I wanted the tools that gave me clarity and decreased the fear of investing. People saw me using these tools on YouTube and said, Paul, can you share those? And at first I said, no, it's a data feed. But then I realized I could make this. So I did. And the real community was born. Real people sharing ideas, live chats, live streams, and tools that help you beat 99% of investors. But most importantly, help you sleep better at night because money can be very scary. I still use these tools every single day, like stock analyzer, real estate calculator. So stop guessing, start learning, start sleeping better. Try it for $7 for seven days. I'll see you in there. Watch what happens before every market crash. People convince themselves that this time the rules don't apply. Yes, they don't say that cause they don't want to say that, but their behavior shows it. In 2000, the internet changed everything. 2008 real estate only goes up right now. AI justifies any price tag. Look guys, I need you to understand something. AI is absolutely real. It's incredibly powerful. It will reshape our world far more than it already has, but every bubble in history starts with something real. The internet did change everything. Guys, our entire life is different because the internet, but how many internet companies went bust? Real estate really does build wealth. AI will transform our lives, but none of that answers the only question that matters. What's it worth to us today? Guys, when millions and millions of people believe the exact same story at the same time, that's a big red flag. So many people right now just look at things and say, Oh, well, Paul, you don't get it because of this. You don't get crypto because of this. Why? Because these prices just keep going up. We have that confirmation bias. I don't blame them. We've all been guilty of that. All it's changed is the characters. The story is exactly the same. It's some version of this time is different, but you know, it's never different. Basic principles of investing. When you pay too much, you don't make as much period. That's it. The timing might change. The excuse might change. The characters might change. The headlines might change, but guess what? The ending, it's always pretty similar. It rhymes. So here's what we do differently than everything money we invest. We don't gamble the rent money. We don't chase whatever story is trending on social media. We stick to what we can measure with a calculator, what we can understand, what we can actually value with real numbers. If we can't figure out what it's worth, we walk away. That's the firewall that protects our money when everyone else is losing theirs. Now guys, this is a reminder we all need to hear and other YouTube channels aren't going to tell you this price is what you pay values, what you get. And currently prices here values here. In my opinion, is it possible to ship that way? Yes, but you got to pick your poison in some fashion. Guys. One thing I do see people and I've seen them. They're hoping that things work out. Well, maybe prices won't fall and fundamentals will get better in that time. Guys, hope is not a strategy. It's a prayer and prayers. Don't protect your retirement account. The brutal truth is even amazing. Companies will destroy your money. If you overpay one day, someday reality will kick in and when it does, prices will move back towards true value and even further South of that history shown this pattern over and over again. And there's no reason to be different. Now you can't control when that happens. All you can control is what you do in response. And what we're trying to do here is teach the process of dollar cost averaging and a low cost ETFs. No matter what's happening, buying great companies at great prices and the prices get better. You buy even more because guess what guys, you're not going to buy at the bottom. I love the state in the Warren Buffett says, I've said in this video already, the market doesn't care what price you paid for anything. All it cares about is what it's going to do. And it's going to do it no matter what. So you have to ask yourself, are you a buyer or seller of a company at certain prices? That's all you can. That's all you can do. And what we're trying to teach here is these principles of sitting there and buying month in and month out like clockwork. So you don't get caught up in the emotion when it comes to buying individual stocks. You've got to be able to sit there and say, the stock is going this way. The fundamentals are going this way. That's your ideal situation. And sometimes the fundamentals get bad and get worse, but it's temporary because of a recession or some other, some other event that's happened. You've got to be able to go through that and understand it. So guys, in this video, I've talked about some of our principles in principle German investing. There are five tenants to them. Guys. I think about these things every single day as a way of guardrails for me. When I invest, when the market feels insane, when the headlines are screaming, when your portfolio is bleeding red, which it will eventually, you don't need hope. You don't need a crystal ball. You need to control your emotions. And that's what this does. It protects you when everyone else is panicking. That's what really builds wealth while others are gambling. Morgan Housel talks about it. Every past crash looks like an opportunity. Every future one looks like a risk guys. They're all opportunities. You can't predict when markets are going to crash. Nobody can, but you don't need to. Your edge is simple. While everyone else panics over the headlines, you do basic math guys. If you're interested in these tenants and understand them fully click the link below, we will email it to you immediately. You'll have it at your fingertips at all times. It is a wonderful way of thinking. These are five tenants that I use on every investment I make, whether it's stocks, real estate, anything. It allows me to sit there and stay rational when things are getting crazy. No predictions, no magic, just math and patience. That's how wealth gets built. Staying calm when others can't. If this resonates with you guys, do me a favor, hit the subscribe button. We're building a crew that thinks independently. And if you want to learn how I value stocks that you can be ready for your moment, click the video on your screen right now. Thank you for your time.