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in this video we're going to discuss about the last memo uploaded by or marks on his website o Capital you can find it for free and read it it's really interesting and is answering the question are we in a bubble market right right now or no okay so this memo is about to answer this question so the first thing um that he put and that I highlighted is a global review of the market right now with nice numbers first thing is the market capitalization of the seven largest component of the S&P 500 represented 32 33% of the index total capitalization at the end of October okay uh this is the first thing which I think it's pretty important that the market is really concentrated right now it's double in The Last 5 Years okay so this is also kind of important the perc is roughly doubl the leader shares 5 years ago which is also an interesting news that it really got faster and faster year after year and so also prior the emergence of The Magnificent 7 the highest share for the top seven stock in the last 20 years was roughly 22% in 2000 okay so here it's First time seen that we have 33% of the S&P 500 is only seven stocks like it's something which never happened in the history before and that is very interesting part like it's it's like totally uncommon it's a new things that have emerged on the market also it's important to note that at the end of November US Stocks represented over 70% of the MS award index the highest percentage since 1970 according to another symbolist chart okay sist is Michael sist I think he is working for GP Morgan as management um so it's it's interesting to see this and it shows that right now the US Stock Market is attracting a lot of money from overseas from everywhere also because United States they printed a lot of money during the last year but most of people instead of using this money to invest in China to invest in Europe to invest in Latin America they prefer to invest this money in United States they have more faith they have more confidence on the US market so same since 1970 never the US Stock was representing 70% of the MSI world it's something interesting second thing that I highlighted is the four um elements that show that we could be in a bubble like that characterize a bubble so first one is highly irrational exuberance so this is when people are to totally irrational about the market they start to justify everything for stupid reason like all the market is super high and it will continue to grow because in London it's been 30 days that it didn't run and it was sunny every day so the market will continue to rise like they will start giving stupid reason for to to justify that the market can go up and will never fall okay the second one is an outright Adoration of the subject companies or asset and believe that they can't miss okay if you want to see something funny about this go on YouTube go on the history during 2021 before Luna the crypto Luna crashed and go to see the YouTubers talking about this crypto we had so many YouTubers so many people on the internet which were like just believing in Luna they were saying put all your portfolio only in Luna it's the best crypto ever it's a total Revolution blah blah blah blah blah blah uh really go and see those video now with what happened and what you know what happened after you see that it was a total Adoration of it it was totally crazy you have this a lot in cryptocurrency which is a very emotional Market but you had this also during the do com everybody what wasn't investing in the do com company was considered almost stupid so this is an important I think thing and it's kind of I'm not saying easy to see because when you're on the moment it's always difficult it's always easy to see the thing afterward and when it happened but you can have some pretty good sign I think with this third one it's a massive fear of being left behind if one fails to participate the foro fear of missing out when you start even yourself feeling that DN I should have invested I should invest I should invest maybe tomorrow it will be too late to invest like if you start thinking that tomorrow it will be too late to invest is generally not a very good sign okay because even when the stock is great even if you buy it I don't know like even it one day It Grow 10% it can still be a good buy if you buy it on the long run but when it start to be speculative and so on yeah it can be a problem and you start to feel that D I need to enter I need to enter okay so take care if you start feeling foros it can be a good a new good news not good news but a news that you need to stay away from the market and fourth one is resulting conviction that for these stocks there is no price too high that literally a tree can grow to the sky and no a tree cannot grow to the sky and you will always have like during the dot pound bubble everybody was saying yeah but it will change totally the world you don't have any idea how it will go so we don't really care that the p ratio is above 100 200 300 it can like it's there is no too high valuation for this like if you look at Cisco which was a big leader during the this Tech bubble nowadays still 25 years after we still didn't have reached the price that it was in 2000 same for not same but for M Microsoft the price reach in 2000 you needed to wait 2016 before starting to make a profit if you have invested on the top in 2016 years without making a profit for a company like Microsoft so yeah there is no price to high is totally false yes there is some price which are too high Okay the third thing that I highlighted which are I think interesting is this bubble Market by Bubble sinking okay perhaps for working purpose we should say that bubbles and crash are time when extreme uh event cause people to lose lose their objectivity and view the world to highly skewed psychology either to positive or to negative and this is interesting because we can also have a reverse bubble let's say in the opposite way when people are totally fearful they just say stock market investment is and so on here it can be also a good opportunity uh to enter uh and as well in the opposite when it's too high um like know okay um this is one this one is a funny is a funny one like Legends has it that GP Morgan like knew there was a problem when the person shining his shoes starting giving him stock tips okay like so yeah if someone which have nothing to do with stock market which have never been uh good in finance or anything like he never invested before and so on starting bragging about about again starting to tell you you should do like this you should do like this you should see this this and this generally it's time to okay there is there is probably a problem here okay uh also you have Mark Twain famously said like history doesn't rep itself but it Rhymes okay uh here's what we come generally because of this a bubble arrive after a new technology arise um com bubble with internet you also have some bubbles which arrived like with Bitcoin for example with a blockchain and so on you also had um it can arrive when the new technology is not a technology for everybody but it's techn it's a new thing in the financial instrument a new Financial instrument a new way uh to Value things and so on this can create um a bubble okay in variably associated with new development then there is this one this story that I find quite uh funny and quite interesting uh the explanation over lies in h Christian Anderson story The Emperor's New Clothes uh conman sell the emperor an allegedly gorgeous suet of clothes that only intelligent people can see but in actuality there is no suit when the emperor parades around the town naked the citizen are afraid to say that they don't see a suit since that wouldn't mark them as unintelligent this goes on unchecked until a young boy steps out of the crowd and in his n points out that the emperor has no closes most people would rather go along with a share delusion that's making investor buckets of money then say something to the contrary and appear to be dummies okay so when a whole Market or group of Securities is blasting off and a spacious idea is making its adant wish few people will risk calling out that's why as well you had so little F Edge fund manager bank and so on during the 2000 bubble the bubble that didn't invest because everybody wanted to be invest everybody was like damn my stupid neighbor was earning a lot of money than to this he made a lot of cash thanks to this he could buy a new home thanks to this and you're not investing me in this like I want to be in I want to be in so yeah uh that's why like a lot of fund had the pressure to invest in this kind of thing so it's a it's a pretty good uh story it's it's a funny one I like it here I highlighted like some few rules that he have and I think it's always important to to remember them it's not what you buy it's what you pay that count okay a good investing doesn't come from buying good things but from buying things well and there is no asset so good that it can't become overpriced and just dangerous and there are few assets so bad that they can't get cheap enough to be part bargain I think if you print the three sentence it could help you in your investment every day especially if you want to beat the market especially if you want to be a good uh investor another thing interesting to pay attention to and are very important is when something is on a pedestal of popularity the risk of a decline is high because you just need one bad news and it can BL blew everything off okay and it can it can even be like a little but news it doesn't need to be a huge bad news or something like this but as soon as a bad news can arrive when everything is super highly valued uh it can create a big problem for the market okay okay now talking about Nvidia okay the further good news is that today leader don't trade at the p ratio investors apply to the nifty50 perhaps the sexiest of the seven is NVIDIA the leading designer of chips for artificial intelligence in current multiple of future earning the the forward PE uh is in the low 30s depending on which earning estimate you believe while double average post war PE on the S&P 500 that's cheap compared to the nifty 50 okay so 30 yes historically like if you take a chart of S&P 500 and the valuation the mean median is 15 16 here it's 30 and 30 if you compare to the nifty50 uh it's still cheap because it was 60 70 before so yeah yeah it's uh but what does a multi insert imply first that investors think Nvidia will be in business for decade to come second that its profit will grow through those decades and third that it won't be supplanted by competitors in other word investor assuming that Nvidia will demonstrate persistence okay so this is a good example because there is two team in Nvidia first team that think that they are the most revolutionary ones in um semiconductor and they will not disappear or at least they will stay on top for years and years because the chip that they have have so much in advance that it will continue like this and we have other ones that say that ah maybe the competition can grow up and can create something better even in the future so in the next 10 years they will probably not be that good but things say that now even company with really high growth and really high margin and so on they are still cheaper than what happened during the Nifty 50s or what happened during the Doom bubble and they are way better quality business we're talking about business with a super high margin growing margin a twood digigit uh growth every year and so on while they are already extremely big so it's something kind of new for the market uh here is also something interesting there were only four time in the history of the S&P 500 when it returned 20% or more for two years in Euro only four times okay 26% in 2003 24% in 2005 for the best two 2 year stretch since 1977 1997 and 1998 okay so yeah those two years that we have lived were pretty good and we don't know what will be uh next but we need to know that it only happened two time in the history that we had such two years in a row with so good results okay so here it shouldn't come as a surprise that the return on an investment is a significantly a function of the price paid for it for that reason investor clearly shouldn't be indifferent to today's market valuation and particularly if you are index investor when you look at the Valu valuation of S&P 500 it's it's pretty high okay historically is pretty high uh even if you look at great company magnificent EV it's still a pretty high valuation so I'm not saying you shouldn't invest like he's not saying this he's just saying that you need to take care and you need to be aware of it and to consider it when you will be um looking and analyzing your stock okay and here is the kind of the conclusion and the answer to the question are we in a market bubble yes or no okay so the above are the thing to worry about okay what we saw here are some counterarguments okay first one the p ratio of S&P 500 is high but not insane like totally we're are not in a totally crazy Market today it's not something that is really really crazy yes it's high but it's not insane I think it's it it decribe it very well second the magnif 7 are incredible company so the high p ratio could be warranted okay we never seen in history company with such high margin such little depth uh such size and still good grow for the size that they have it's first time uh in history like almost all of them they have antitrust issue today because they are so big because they're everywhere because they're doing everything so yeah it's um kind of could be normal that they have a higher PE because they are more reliable and also they have better results that other company so why would we value them the same way than other company if this one are better so yeah it could be warranted okay uh also I don't hear people saying that there is no price to high for now we don't really have it maybe it start a little but we don't really have it okay and last thing the market while high pric it and perhaps fory don't seem nutty to me and I agree and also if you look at the fear and grid index now even if the market is high we are not in a gried part we are mostly in the Fear Part every time we have a 1% correction we are in fear or extreme fear so yeah the market it it's not totally crazy it's not totally insane yes it hide but it's not insane by the way I will be curious to know your opinion on this let me know in the comment section I will be happy to read and potentially debate uh on it let me know what you think about this or marks memo I think you should really read it it's very interesting and if you don't know like you have a podcast and is you can access for free to all his memo and it's a very interesting thing to to read every time post one
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