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in this video I'm going to give you three insights that have the power to change your life as an investor and all three of these insights are drawn from the book mastering the market cycle by Howard marks I recently read the book thought it was amazing wanted to share just a few nuggets that I've drawn from this book but I promise you that the third Insight is the most important so please stick around to the end of this video to get the whole story now the fundamental premise of this book if you understand this it's foundational to understanding the whole book it's a simple observation and the simple observation is that market Cycles are a natural and inescapable component of the investing landscape and that investors who understand this and invest accordingly can achieve Superior results as investors so if you don't understand the market cycle you don't understand the market if you don't understand that the market moves in Cycles you don't understand the market Insight number one the market is moved or powered by emotion that is what drives the market is the ebb and flow of the the Motions of investors now there's a lot of misunderstanding here a lot of people think that that in the market you've got bulls and you've got Bears Bulls always wanted to go up and bears always wanted to go down yes there are some Bulls who are always Bulls I mean you see them all over the place and there's also Bears who are always bears and you see them all over the place but by and large the Bulls and the Bears are the same people what I mean by that is that when the market starts to go up and this is the observation from the book The Insight from the book is that when the market starts to go up the market starts to increase the prices start to increase optimism begins to increase as well by and large investors when they become optimistic they become increasingly willing to pay higher and higher prices for particular assets and this optimism is what creates a bull market on the other side when prices start to go down investors start to become pessimistic and as investors become increasingly pessimistic they also become increasingly risk averse and they start to demand lower and lower prices for assets and that's what creates a bear market so when you look at a bull market you're looking at an optimism powered phenomenon and when you look at a bear Market you're looking at a pessimism-powered phenomenon that is an incredibly important Insight but only when coupled with the second Insight so stick around the second and third Insight when you put them all together they become life-changing second Insight is that because the market is driven by emotion the market the market Cycles are characterized by overreaction okay so number one is emotion number two is overreaction what does that mean that means that a bull market is when the optimism of investors in the market push the price of assets far beyond their value so you've got value and you've got price those are two different things and in a bull market optimistic investors push the price of an asset far beyond its value and because they're optimistic they keep buying it at these prices that are far beyond the value of the asset so this is the key to understand risk is that when prices go up and you buy you buy that is the higher the price is the higher the risk is but in a bull market investors become more and more willing to incur higher and higher levels of risk and so a bull market is when the market overreacts and presses the price of an asset far beyond its value and a bear Market is the opposite a bear market is when the market overreacts and presses the value or the price of an asset far beneath its value so first there's a motion and then there's overreaction but the third insight and this is the most important the third Insight is opportunity and this is the key investors who are driven by the psychological cycle of optimism and then pessimism they do precisely the wrong thing and this is the market by and large investors who are driven by optimism they take greater risks at the top but then they become risk averse at the bottom so when the market is going up and up and up they just think no problem just keep buying it it's going to keep going up forever you know investors who think like this they were still buying Bitcoin at 50 and 60 and 65 and 68 000 you know there were people buying Bitcoin at sixty nine thousand dollars in November of 2021 because they just assumed it's going to a hundred thousand it just can't stop going up there's a sense of invincibility that investors take on in a bull market but then in a bear Market when the prices start to dump and now they're pressed way down beneath their value their actual value investors become so scared and so pessimistic that no matter how cheap the asset gets there's this fear I'm not buying it because it's going to go even further down I'm not so when when prices are going up and investors become optimistic they just begin to anticipate they're going to go up forever and when prices are going down investors become so pessimistic that they just believe they're going to go down forever and so so Mark says here's the the opportunity opportunity is if you can step outside of the psychological cycle and just look at the market without being overwhelmed or moved by emotion you'll notice that when the market pumps and there's all this hype you can step back and start to take steps to protect your profits and decrease your risk and then secondly when the market dumps and it's in a bear Trend and it just keeps going lower and lower and lower and all of a sudden Everybody's scared and everybody's so depressed and so pessimistic that they don't they don't buy anything you can start to increase your risk this is the problem is that in Bull markets emotional investors increase their risk at the top of the market and then they decrease their risk at the bottom of the market and that is the recipe for poverty but the recipe for building a fortune the recipe for wealth is increasing your risk at the bottom of the market and decreasing your risk at the top of the market this is the Great opera opportunity that the level-headed investor has and so it's really simple at the end of the day when everybody's scared that's when you buy And when everybody is hyped that's when you sell or start taking profits and so in order to pull all this together two things are absolutely essential number one you gotta know where we are in a particular Market cycle if you don't know where we are in the cycle then no matter how level-headed you are you don't know what to do and then number two you've got to assess your own emotional state so know where we are in the market assess your emotional state now you can make wise investment decisions and if you want my take on where we are in the market I have a free document for you that gets a Market Outlook for 2023 it's a free document you can just go to about the bee.com slash for free and download that document for free thanks so much for watching remember this is not Financial advice I'm not a financial advisor do me a favor and hit that like button subscribe to this channel for more book reviews to come more information and evaluations and assessments and technical analysis of the market but above all every resource that I create is designed to empower you to sleep in peace every night wake and joy every morning and walk in love every day thanks for watching this is cryptogenic signing out thank you foreign
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