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guys by popular demand we're doing another reaction video we're focusing more on the people that we kind of agree with like Warren Buffett we did Peter Lynch very popular people loved it said give us more so this is a Warren Buffett question that was asked of him by Becky quick so let's just uh watch it together mosifin Robert Tomas from Toronto Canada and he says Warren why are you recommending listeners to buy now yet you're not comfortable buying now as evidenced by your huge cash position well aside so this is a question we get all the time right and this was and this was back in May or June so markets were even higher at this point so this is incredible because we get this question all the time Paul if he thinks Dr Silver valued I show everybody this my stock market the GDP with the s p it shows as of this very second 62 overvalue going back to 1929.
so yeah I get it and I'm sure he's gonna say something very similar to what I say not because we're the same person but you know explain the position isn't that huge when I look at worst case possibilities I would say that that there are things that I think are quite impossible improbable and I hope they don't happen but that doesn't mean they won't happen I mean for example in our insurance business we could have the world's or the country's number one hurricane that it's ever had but that doesn't preclude the fact we could have the biggest earthquake a month later so we we are not we don't prepare ourselves for a single problem we prepare ourselves for so ironically what just happened last week two weeks ago the hurricane big hurricane hit you're talking about a lot of insurance companies going under and he sits there and says listen is it possible sure we have houses in Mexico and Turks and Caicos one week earthquake hit Mexico next week turkey goes uh hurricane hit the house okay we happen to be fine but the point is these things do happen and it just shows if you buy stocks over a five-year period you have no idea what's going to come there's going to be a lot of curveballs thrown your way and a lot of good things happen too exactly problems that that sometimes create their own momentum I mean 2008 the nine you didn't see all the problems the first day when uh really what really kicked it off was when the the Freddie and Fanny the gse's went into conservatorship in early September and and then when uh money markets funds broke the buck I mean there are there are things that trip other things and and we take a very much a worst case uh scenario into mind that probably is a considerably worse case than than most people do so I don't look it as as huge and I'm not I'm not recommending that people buy stocks today or tomorrow or next week or next month I think it all depends on your circumstances but you shouldn't buy stocks unless you expect in my view you can you expect to hold them for a very extended period and you are prepared financially and psychologically to hold them the same way you would hold a farm and never look at a quote and never so I remember I took this from Warren Buffett talk about your home and there's nobody on top of your home giving a display of how much it's worth every single day like I think back to 08 yeah I think that's oh wait we bought a lot of real estate no wait and after we bought the real estate real estate prices still fell but I didn't care because I wasn't being told every day hey you bought it here and now it's lower because I sat there and said oh great I bought this piece of real estate and I'm sure over the next 10 years I'm going to make a lot of money and that was it the difference is you have a Mr Market every day in the stock market telling you every single day this stock is worth less the stock is worth more and some days you feel good and some days you feel bad but the big key here he said was if you're prepared financially and psychologically psychological very important that's the most important part because it takes the good emotional and mindset standpoint of saying what did I buy this is why I keep repeating myself and I've said this in the show and it's really become a mantra for me first question do I think this company will be around 10 years from now if the answer is yes my next question is do I think revenue and profit will be higher 10 years from now than today or can I at least determine how much money it's going to make in the next 10 years if the answer is yes to that then can I pay a reasonable price for that future cash flow today the answer is yes then I should buy it then then the psychology comes on top of it yes you could be the best breakdown person of financials in the entire world if it was just the financial side you could be the best investor in the whole world yep but if you can't stomach it and you can't understand and take the ups and downs you're not the best yeah it doesn't take much to be a good investor in terms of knowledge it takes more emotional IQ I guess you'd say all right let's go on ah never pay it you don't need to pay attention to them I mean the main thing to do and you're not going to pick the bottom and you're not going to nobody else can pick it for you or anything of a sort you've got to be prepared when you buy a stock them haven't been down 50 percent or more and be comfortable with it as long as you're already said 50 or more you know in The Big Short they talk about how in the book they talk about how Michael burry was known for buying a stock and they said Michael burry stock you buy he'd buy them they'd fall 50 percent and then all of a sudden they do well even Warren Buffett's in there if you're not okay with them going to have mark my words from January of this year until the bottom of this Market your Mormon buff is taxing me down and down a lot now there's a caveat to this buying good companies that go down 50 not these Fly by Night companies don't make any money and go down 90 and you say hey it's okay Warren Buffett's went down 90 well Warren Buffett's companies have a ton of cash flow and they can withstand it and they're going to do better in the long run yep exactly you're comfortable with the holding and I pointed out I think a year maybe two years ago on the annual report uh well just the one before this most recent one I pointed out that there have been three times in berkshire's history when the price of Berkshire stock went down 50 percent three different times now if you hold it on borrowed money you would you know you could have been cleaned out uh there wasn't anything wrong with Berkshire uh when those three times occurred but if you're going to if you're going to look at the price of the stock and think that you have to act because it's doing this or that or somebody else tells you why you know how can you stay with that when something else is going up or anything it really you've got to be in the right psychological position and frankly some people are not really careful some people are more subject to fear than than others it's it it it's like it's like the virus it strikes uh some people with uh much greater ferocity than than others and and fear is uh beer is something I really never felt financially but but uh I don't think Charlie's felt it either but uh some people can handle psychology if you can't handle it psychologically then you really shouldn't known sucks because you're going to buy and sell them at the wrong time and you should not count on somebody else telling you you should do something you understand yourself if you don't do something you understand yourself I've always said I have way more confidence in real estate than stocks but I'm getting there in stocks if Warren Buffett if I was buying a piece of real estate tomorrow and Warren Buffett looked at me and said not a good buy I'd say didn't ask your opinion Warren I literally had that confidence in real estate I absolutely have that confidence in real estate and I do think if you don't understand it and you want to invest that's where these low-cost ETFs can help you absolutely you don't have to worry about if you think to yourself all you have to think is one thing is the stock market going to be higher than it is today when I retire no matter when that retirement age is there's one answer to your question put your money in and let it go and never look at it and buy every single month along the way you don't have to understand the market to do that you have to do all you do is understand the US economy and the relation of stock prices to the U.S economy if you understand this look at this guys the the average 10-year return limit to 1929 not including dividends is 6.6 when it's undervalued the average return is 9.3 when it's overvalued 2.3 so big differences but here's the key when it's overvalued 32 30 or more the average return is a minus 0.1 percent again none of these include dividend but it makes sense the more you pay for an investment the less your future return that's just a fact but we never know the bottom like Warren said you'll never pick the bottom the question is do you have the ability to sit there and be okay with your stock falling 50 or more and I have had stocks fall 40 50 as of right now and it's only going to get worse so I have to decide what am I here to do now the great news is I sell a lot of options so I can do some tax loss harvesting along the way which is the benefit that I have but okay but if you don't have that benefit then you really got to be emotionally ready to buy stocks all right let's finish it up you don't understand it yourself you're going to be affected by the next person you talk to and uh uh so you should you should I'm just gonna end it on that here's the deal guys what he just said is key if you don't understand yourself you're gonna be affected by the next person who talks to you because you think they understand it more because you have no you have no solution so you have to sit there and grasp on everything you know I always joke with people and say sometimes I look at somebody and say I don't really believe what they say why well because they just believe whatever the last person that said to them that's the first time I've heard somebody say it means they don't understand it if they just believe everything the next person tells them they don't understand it I don't care what anybody I've literally set in a panel with a billionaire before and I looked at him and said you don't understand investing in real estate I literally said that on a panel by the way he said he was a billionaire I don't think he's a billionaire I think he handles a billion dollars or more and considers that it's not he's not a billionaire but look at that saying I have the confidence look at him and say you have no idea what you're talking about and I literally said that and then a bunch of lawyers come to me afterwards and said I'd love to see your data I emailed them all nobody responded I email again guys I'll show you my data nobody responded and these are all guys who are big shot lawyers blah blah my whole point about that isn't to say I'm cocky saying listen but you'll hear me say I don't know about a lot of things I don't know I don't care to know or if I what's an example oh Banks yeah we don't I do care to know but I don't know Banks so I don't buy Banks I have one bank I own one bank it's because a guy I really trust I'm banking I said to him I really like this bank is it a good buy here he goes yes it is I think it's worth X I was like great I'm gonna go buy it then and it was a guy who really trusts this process so the whole point of this is guys we're gonna do these reaction videos more about Investors who are value investors because it just it's the repetition over and over of this process and it's funny they Warren Buffett sounds you like you said in the beginning it sounds like everybody has everybody every value investor has the same principles the the fine details differ yeah the principles are exactly the same you're going to hear the same thing from Monger you're going to hear the same thing for Buffett Joel Greenblatt us Etc everybody so if you like these type of videos we have a playlist right here go watch them they're gonna enjoy yourself very much thanks guys there are three things that you absolutely need in order to be a successful investment the proper mindset the proper emotion and the proper process which ones are the most important foreign
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