In episode #10 of The Big Bo $how, Big Bo (a.k.a. Jason Blumstein, CFA®) discusses ways to stay calm and not "freak out" during bear markets and talks of a potential recession. How this can be helpful in your journey to build long-term sustainable wealth. Topics Discussed:
- Facts > Fear analysis of the history of bear markets and recessions
- Ramifications of the stock market being a leading indicator
- Ramifications of sentiment and confidence being a lagging indicator
- Implications of the current market environment for HENWYs (High Earners Not Wealthy Yet)
- Big Bo winning his local Smoke Brisket contest and how this relates to the current market environment
Hope you enjoy the $how!
Episode 10 Key Takeaways:
Welcome to Episode 10 of The Big Bo $how. In this episode, we're going to talk about the difference between a bear market and a recession, some historical facts on bear markets, and recessions. And how this relates to my quest to make the best smoked brisket. And most importantly, why you shouldn't do what everyone thinks you're going to do and freak out. So sit back, relax and enjoy episode 10 of The Big Bo $how.
Right? Let's get it going on episode 10 of The Big Bo $how. We've made it to double digits. We started this show in January 2022, releasing about one episode per month and we're sitting here on episode 10. Hope you guys have been enjoying it. It's been a very whirlwind of a year in terms of markets and investing and trying to create sustainable wealth. We're currently sitting here and the S&P 500 is what people call a bear market. globally. We're also in what we call a bear market, S&P 500 is down 24% year today, MSCI All Country World Index, the United States is down 27%. I know that's a mouthful, but it's trying to show you the difference between the globe. And the US since we do live in a global world. People are out there talking about a potential recession. So I want to try to explain to you the difference between what people call a bear market and recession. Historically speaking, what this is looks like for creating sustainable wealth. And give you a little bit of practical advice as we enter this time that may be emotionally driven for many people out there.
So first off talking about the term bear market and talking about the term recession, there are two different terms of bear market is when markets decline, depending on what market you're looking at, again, either be the US it could be the globe. But any market that declines by more than 20%. That's what people call a bear market. Now there's a difference between a recession and a recession, if you give the classic definition by the National Bureau of Economic Research, or NBER as many people might have heard, they state it is a significant decline in economic activity that is spread across the economy that lasts more than a few months. Now, historically, they said two quarters greater than two quarters, but they've kind of changed their definition to more than a few months. And a lot of times when NBER classifies a recession, they do it after the fact. Right? And this will be a little bit of foreshadowing of something that we'll talk about later in the show. So I want to break up facts over fear because in a time like this, there's a lot of fear. There's a lot of emotions, and I've talked about them in the past. Well, it's very difficult because human beings are wired. We need to try to separate our emotions when it comes to creating long term wealth.
So let's look at some facts here. This bear market concept of a bear market is nothing new. In fact, since 1929, if you look at the US the two total US stock markets as a whole, this will be the 16th time in our history that we've entered a bear market, right? And they happen for many different reasons. Now, the thing that we need to remember here is that in nine of the past 15 bear markets, if you look at the US total stock market index as a whole, investors who stayed the course, who did not let their emotions get the best of them, made back all of their losses, within a year, within a year after the trough of a bear market. Now, I know when people go out, and they listen to the media, they read newspapers, or have their friends, what do you have? At times like this, people try to strike fear in people's eyes, and minds. Okay. And I just want to let you know that, as we talked about previously, in The Big Bo $how, I've been investing and learning about creating sustainable wealth since the age of 10. I've worked at some major institutions and talked with, quote, unquote, some of the brightest minds in this industry. And I can tell you that I've never, in my opinion, have met someone that can reliably predict the magnitude of a market decline. And the time it's going to take for recovery. Everyone's going to be on TV, trying to make predictions, newspapers, trying to make predictions, your next door neighbor is going to make predictions, people come up to me all the time. How Jason, what do you think is going to happen? What would you think the bear markets are over? I tell him? I don't know. Honestly, I don't know no one. I've never met anyone that can make a reliable prediction on when things will decline when the decline will stop. And when we will have a recovery. I just look at the facts. I look at that. And this has happened before situations that are going on right now. While history typically doesn't repeat, it often rhymes as the saying goes. And don't forget that when people try to predict what's going to happen with markets, you don't, you need to be right, twice, not just once people think, Oh, you just have to be right once Well, no, you have to be right twice, you have to be able to predict when the market is going to stop declining. Right, that's the first time. So you need to predict when you should have sold.
And the second thing is you need to predict when you're going to buy back in. And most of the time in my experience, no one's going to know when a bear market is over until after the fact. And maybe you were able to predict Oh, yeah, I'm glad I sold, I'm glad I got out. But then the markets are gonna go up, let's say 5%. And people are Oh, that's a bear market rally. And then it's going to end well, of course, I'm not going to buy now Moy for it to come down. And then it's going to go up 10% and then 20. And eventually you're going to get all your declines back. And then people that sold and we're waiting for the quote unquote, all clear signal, they're going to be still sitting on the sidelines. I've seen this before I saw this during the financial crisis. I've seen this in previous bear markets during COVID When the market declines sharply and everyone's just like, oh, when's this going to end. And that was a great example of what you saw was the market declined so fast, and then it recovered so quickly. Again, nobody knows every single bear market is a little bit different. And why would you caution people to do it like you heard in the beginning of the show, like Jim Brewer and half baked, don't do what everybody thinks you're going to do. And freak out time like these are when what I call discipline squared. As I've told people in the past, to create sustainable wealth, I think you really only need two things, time and a whole bunch of discipline. And this is when having a whole bunch of discipline comes in handy.
So what's some advice for long term investors and, and younger investors? We talked to a lot of what I call HENWYs right I talked a lot of HENWYs are what I call high earners that are not wealthy, yet people that are trying to create sustainable wealth that are in the beginning phases of their journey and hopefully they're starting early. Right and then this is the time when you want to create good habits because good habits are tough to create. But once you create them, they're also tougher to break. So when you're when we The advice to me is simple. You want to keep calm and invest. And the history of humankind has proven that people want to live a better life tomorrow than they are living today.
Yes, there are some bad people in this world. But I believe that most people are inherently good. Most people wake up every day. And they say, Well, yesterday wasn't that great? How can I get better? Or even if yesterday was great? How can I propel myself and my family? And my friends, my business, whatever, how can I propel that forward. And when people have this mindset, which I believe the vast majority of human beings have, and time in history has proven this, markets will get better, we just need to make sure you realize that these are tangible. Markets are tangible. They're people that businesses, their governments. So again, framing that right mindset, framing those good habits. And again, I'll remind people of this, this simple fact is that when markets are down, which they are 24% and 27%, that's on average for you know, for total. So some businesses are down more, some businesses are down a little bit less. But I will again, tell you that when you know right now, if you look at some of the retail companies, there's some excess inventory, so I keep on getting these emails, oh 20% or 30% off, and they send these emails out to people and blast them to pique their interest, Hey, did you want this shirt before but guess what, now it's down, 20% off. And listen, I'm guilty of it, I click into it, and I look at maybe your shirt or right now we're entering the winter up in the Northeast a pair of sweatpants 20% off unwanted them before any, maybe I'll look to buy it now. But when it comes to actually owning that company, that someone sent me an email to buy those pairs of sweatpants or buy those shoes, or to buy that TV or to buy that computer that is now 20% percent off. When it comes to owning that business that's down 24% On average, or 27%. On average, across the globe, people have the opposite reaction, Hey, you want to buy this business? It's 25% off now, it could go down more? Well look at the businesses that I highly value. So again, I had the opposite reaction. And if you're automating your habits, and you're putting in a certain dollar amount per month, and trying to create sustainable wealth for guests , what that same dollar amount is now buying you more of that business.
So if you're on the journey to create sustainable wealth, again, I will caution you to keep calm, invest in blocking out the noise. Don't freak out. Because then in the end, this is what I like to call what people are real investors. And I'm break down this acronym over real animal harness my inner Aaron Rodgers for this one a few years ago, football a few years ago, the Green Bay Packers started off slow, I think they might have started off a one four or one three, and everyone was peppering Aaron Rodgers, and people like well, what's wrong with you guys this that and the other was wrong. And Aaron Rodgers sat back and he said, Relax, right r e l a x, relax. So I tell people to keep it real. And what this means is relax everyone act long term, relax r e l a x everyone, act long term, be real, right? Be real. And by doing so you will not only be able to see through the cloud of the current storm, you'll be able to capitalize on some of the opportunities because as history has proven, this too shall pass. So be real. And this should allow you to create long term sustainable wealth. So let's take a quick break. And when we come back I'm going to talk about the results of the recent brisket smoked brisket contest that I answered within my neighborhood and how that relates to the current environment.
All right, so let's get into more facts versus fear. A lot of people out there are talking about the US and the globe going into a possible recession. We talked about the concept of bear markets earlier, let's talk about recession, and what this historically meant, and why. So if you look at a the past seven recessions in the US since 1973, you might be surprised to learn that in five of those seven past recessions, since 1973, the US stock market, the total US stock market, as a whole was actually up in five of those past seven recessions, the returns were positive. Now, why, right? Whenever we try to understand something we have to, I always tell people to ask, Don't ask what to ask why. So why is this? In my opinion, this is because there's a concept called leading and lagging indicators. The stock market is what is known as a leading indicator, and sentiment and people's confidence are lagging into indicators. So let's try to break this concept down by talking about me and my ventures into refining and getting better at smoking brisket.
So I'm gonna share my story with you this past Sunday. We had a local smoked brisket contest, one of my neighbors set it up, and we had people enter the contest. And who can make the best brisket was a blind taste test. People didn't know who made what, you had a vote, one vote per person, you didn't know how many tickets or or coins people were voted for. And guess what, I won the contest, I came in first place in the contest. Now, the part that people at that contest did not know is that we had a small contest this past November on Thanksgiving, with a lot of the same entrance. And I came in close the next night and brown next to last in that contest. Now let's compare this to leading and lagging indicators and using my way of smoking brisket as a quote unquote, stock. So if you would say, Oh, I'm gonna buy Jason is Jason greatest smoking brisket. So after that contest in November, when I came in next to last, my stock would probably have been crushed. Right? It would have been down big time. But this is known as a lagging indicator, because sentiment and confidence in my abilities were down. But this is the past I already lost. But when you lose, most people, as we talked about earlier, want to get better, right? You don't want to be known as the person who makes the second worst brisket. So what did I do? I started studying more. I talked to some of the other people that wanted to learn about what they did versus what I didn't do. I watch some more videos, I read some more. And these are all what are called leading indicators. These are all actions and action plans of what I put together to try to get better. So as I was taking on this action plan, these are all leading indicators, leading indicators of if I was taking the right steps to get better, my stock would start to go up my stock and my ability to smoke risk and if you will, would go up. This is called a leading indicator. Right? So now, winning this past Sunday, you would have already seen my stock skyrocket and how I smoked brisket would have skyrocket. But again, this is now called a lagging indicator because I already want sentiment and confidence in me is already high. And what's going to propel my stock, if you will, in my ability to smoke brisket forward from now is going to still be the actions I take to get better. So again, if you compare this to recessions, and the market and leading and lagging indicators, the market is a leading indicator they foresee, we can go into a possible recession, stocks start to go down, confidence goes down, sentiment goes down, which is going on right now, these are all lagging indicators.
But what's going to happen? No one can predict the future. But typically people try to get better. And when you're already in a recession, or you're already in a bear market, these are all going to be leading indicators as people try to get better and live a better life. So again, don't always focus on what everyone is saying is definitely going to happen. Because this is sentiment that's already forecasted typically, as leading indicators in the market as a whole. Okay, so what I would like to tell you is that in life, playing sports and trying to create sustainable wealth, and my ventures and smoking bruschetta, one of the things that I've learned is that things typically aren't always as good as people think they are. And things typically aren't as bad as people think they are. And as human beings, we are wired, right? If you study the human brain, we are wired to take the present, and blow it up to what the future will look at. That's our ancestral brains, sometimes working for us, and sometimes working against us. But you really have to understand this as our brains have evolved to react to immediate threats. So let's wrap up episode 10 of The Big Bo $how. There’s three things that I want everyone to take away from the show. Number one, don't freak out, don't do what everybody thinks you're going to do. And freak out. Number two, the concept of leading and lagging indicators, the stock market, leading indicators, sentiment and confidence, lagging indicators. And number three, that I'm getting really good at smoking a brisket. So with this all said, as always, I stress to people to live a life of integrity. Live a life of knowledge, always trying to obtain as much knowledge as you can. And always live a life that you're passionate about. All the best. Thank you for tuning in to The Big Bo $how.
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