TIP673: A Short History Of Financial Euphoria w/ Kyle Grieve
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Building long term wealth relies on the ability to compound wealth for decades to come. IT doesn't really matter if you trying to track the index or performance. If you want to generate wealth rather than destroy IT, you must reach the finish line while also maintaining capital along the way.

If we use version to look at one of the most share fie ways to prevent ourselves from crossing the finish line, I think avoiding bubbles will be near the top. Now this is why I ve always been fascinated. John kinds gallery's excEllent book, a short history of financial euphoria.

The book just focuses on a few very, very simple objective. Number one, IT tells you what a ifor c episode looks like in quite a bit of detail. Number two, IT goes over several ek episodes in history using john canny garber's own framework. And number three are just highlights many of the biases that are embedded in our own psychology that basically guarantee the continuation a few four episodes into the future. Now, while I was reviewing my take place on the book, the concept that I just couldn't stop thinking about with risk, mainly, risk is always present and the market just fools us all.

And to thinking that risk is absent during these times of peak eur a, now this feature of open market shows me that we must intentionally think about risk at the exact time, and we don't actually wants to spend any time thinking about IT putting myself in the investor shoes during events like to liba mania, the self sea company bubble or the bangle. I can help but think about the difficulty many market participants had in not being investing in the bubbles as they started forming. The formal involve back then is the exact same type of formal that we get in today's events, such as game stop.

Sure, some investors in game stop did another desire to stick IT to wall street, but I think that was probably the minority. I would say that many investors in game stopped bought the stocks simply because they thought the stock Price will go up and that they didn't want to miss out on any of that action. This is the same type of behavior that is existed now for over three centuries.

And I bet you will continue to see IT exist as long as the stock market functions. But as the book outlines, participating in these bubbles often leads to immense amounts of pain, both monetarily speaking and psychologically speaking. So any investor owes IT to themselves to understand how bubbles work, why they form and the bias behind participants.

This is one of the best ways to help you get to the finish line, even if you wall cross the finish line for multiple decades into the future. So if you are the type of investor who has been burned by bubble, like ask before, or just want to be best prepared for the euphoria c episodes in the future, you'll get a lot out of this episode. Now let's get right into this week's episode celebrating .

ten years and more than one hundred and fifty million downloads. You are listening to the investors post network since twenty fourteen. We study the financial Marks and read the books that influence self made billionaire most. We keep you informed and prepared red for the unexpected. Now for your host .

KO grip.

Welcome the investors podcast. I'm your host, kle grif. And today i'll be going over one of the classic books on mark boos, which is john Kenneth galleries, a short history of financial floria.

Now let's start the discussion on this very brief book by discussing the blue pen int of what gallery calls a speculative episode. So here's the order events of these speculate episodes. First, something new and innovative captivates public already enough.

The new development is often a variation of some sort of older design in this book, glory covers event, such as two bommaney, john law and the bank royal and the self sea company and many, many others. Now, while the assets don't seem similar at a gLance, they all share that they really captivated their respective nations for a time. Second, individuals who partake in these four episodes develop a sort of inflated sense of their own intelligence and the intel gent of others.

Not only does this inflated sense of intelligence focus on the individuals are taking in the bubble, IT also focuses on those that we are taking advice from. In a classic example of the authority missing fluids tendency, we tend to wait the opinions of people who have money when IT comes to financial matters. But as john kind of galway points out, many of these people are Charlotte, for luck of a Better word, who don't necessarily need to be listened to you despite their very obvious monetary success.

This is why critical thinking is so important and why we must not attribute luck and skill. Third, the assets are often purchase with a very heavy dosages of leverage. This allows individuals and or institutions to purchase even more assets with very little money in front.

When multiple parties end up doing this, you can drive the Price of an asset up very quickly as more, more money plough into that asset. But this also causes master amount of risk. Will go over some great examples of this throughout history, including some modern examples that occurred after the book was published forth.

The episode is protected by those who are profiting most from IT. Now, whether you're talking about fun managers talking up the book, economists who partaking bubbles, or are you next to your neighbor, people will lie on their biases to protect ideas that make them wealthy. The second order effects of this are that you get people that maybe we wouldn't necessarily fall for these types of you four episodes, and the end up involved them.

So when the person that you least expect to be investing in an asset is now invested, you are going to be more likely to increase your own conviction. Biases in the same idea. Biases in this step include things like dismissing doubts or warnings from others.

Now you reach the end of the four c episode and look at the damage that tends to be left in this week. So the episode always ends with a crash, as gallery points out most of these episodes, and with a bang, not a winter. Now this means that the participants in the bubble, unfortunately, always lose a lot of money, and very, very quickly.

Now, I personally know from experience how quick and painful this step can be, and it's genuinely a brutal experience to live through. So I would like to avoid living through IT again at all costs. Then after the crash, participants who took part on the way up want somebody to blame for their excessive levels of grid and for losing money.

There always cape go to accused, and sometimes it's valid. But the problem with doing this is that the market just shed its responsibility for making its own mistake and puts a responsibility on to somebody else. The investing is just a risky endeavor.

And when IT really comes down to IT, you and your own due dilly gent are what I would consider to be the sole factor. And you are or your failure last APP or is a long period the financial memory is order them. You might think john kinder gal breath estimates IT to last around twenty years, but I can go up and down from that now.

During this period, people forget about the pain to the past or new entrance, who were never even actually exposed to prior events, are now willing to take new risks. And because they're you are to the market, they may have very little experience of what these risks or losses can actually look like and how negative it'll make you end up feeling afterwards. Now since capable ism runs on innovation, there is no shortage of new products that will be released that will captivate people, nations and force her hand and making silly investments.

So why is IT that I think is so important to understand these concepts at a deeper level? If we know the atomy of bubbles and you four episodes, I think we can tenderly protect ourselves from participating in them in the future. The more I live and breathe, investing in research, other investing legends and events, more important that I personally play on long term survival.

Now, a straightforward way to survive is simply to just avoid risky your capital by putting IT into bubble like assets that could destroy your compound ability. So I think it's really crucial to take these points very seriously. I like to consider my own positions and maybe spend some time thinking about bubbles that are happening in the market or maybe bubbles that are happening in specific industries that I have.

This is an excEllent mental exercise to help you determine where the market is, maybe getting thrown y and if you have any exposure to these markets, whether that's direct or indirect, I think IT can be really valuable for helping improve your decision making. So let's dive into this concept of just why it's so hard for investors to use this information effectively and how we might be able to circumvent problem. Gal brave mentioned that the same attributes just keep occurring over, over again, and have now for well over three centuries.

With that knowledge, IT shouldn't really be that hard for investors to take a quick look at the past and figure out how to avoid these you for c events and try to reduce the risk. The steps to do this aren't overly complicated, but the fact is that only a low percentage of the market has caught onto these speculative episodes, and there is probably a good reason for that. One of the common attributes of these speculative episodes is what john kin galeries refers to as mass escape from reality.

He notes that during these episodes, serious consideration of the true nature of what is taking place is excluded. As a result, the concept of risk is just thrown out of the window with little additional thought until, unfortunately, the bubble pops. Now, the interesting point of all bubbles is that they are truly painful, both financially and psychologically.

So if we can assume that the pain threshold are so high after these events happen, how is that possible that they can continue happening, cover and over again? So gabbert says that there are two primary reasons for this. The first one is that the financial memory is shorter than you might as soon.

And the second one is the inability of market participants to disassociate money from intelligence. Now let's examine each of these in more detail and use some familiar characters in Benjamin gram and warm buffet. So Benjamin gram lived through the great depression and was very deeply affected by IT.

Here is a great, except by whaler's loss. Discussing benn grams experiences during the depression, grain was concerned with limiting his risk, and he didn't want to lose his money. People don't remember what happened before and how things were, and that's one of the mistakes people make in investing as well.

People forget what things were like during the one thousand thirties. I think gram, because he lived through that period, remembered, was scared that would happen again, and did everything he could to avoid IT. But in the process of avoiding IT, he missed a lot of opportunities. That's one of the problems that you always have. You don't really lose, but you don't really make either.

I believe you should remember what took place, even if you turn around at the time, one of the problems of a lot of people who went to the depression, whether that spend gram genuine and others, is that they keep on thinking that things will always be like that. Even gray am used to say, and quite correctly, that you can't run your investments as if the repeat of nine hundred thirty two is around the corner. We can have a recession and things can get bad, but you can't plan on that happening.

People who did mrs, tremendous market. Some people can do that. Most people can. And I don't think they should dry unquote. So in grahams case, he thought about risk correctly, but probably ended up over waiting IT.

While he was aware that another depression was potentially around the corner, he also avoided taking enough risk to identify some of the outstanding opportunities that were headed. Now we can only hypothesize what buffett was thinking when he started investing, but we do know he was born in one thousand and thirty. And by the time he could ably remember anything, his experience of living through the depression were probably very few to not.

So he had a much different outlook on how to proceed. Markets, I doubt, of IT was close to as concerned as grain was about living through another depression. And because of that, buffett was able to take his calculated risk, which ended up obviously incredibly well. Now the main point is that the date that you're born will affect your tolerance for risk. I think we will continue to see many balls in today's age because of the last fifteen and twenty years.

The markets have been very favorable for equity investors now was touch on the second point about the species association with money and intelligence gallery says that there is a strong tendency to associate people with money, or people who have made money with higher levels of intelligence than they gabbert rights. Money is the measure of capitalist achievement. The more money, the greater the achievement and the intelligence that supported t but if we allow ourselves to be biased and equate money with intelligence, then we're putting ourselves at risk.

During many of these specular episodes, the people who do the best tend to have very short track records running the strategy that currently driving wealth creation. If you follow people playing these short term games, your ability to assess their risks can be very, very minimal. This is why following people into investments into brand new industry can be so risky.

You have to think about the number of possible outcomes. And when you think about, say, new products, there are probably many more potential things that can happen that will happen for me. I'm fine watching these kinds of events from the sidelines with a big popcorn in my lab.

Now let's touch on some of the other biases, es and psychological tendencies that we see in these four episodes. Finding highly profitable investing opportunities can bring in an element of pride. Because of this, the power of social proof and commitment bias tend to come into play.

When you joined by a community, people who are also making fantastic profits, you gain a sense of belonging to the community that is experiencing the success. And as you make more and more money, you can often become more committed to an idea, which makes changing your mind even more difficult. Now I D like to finish this section by expanding on the point I made a little earlier about how when the bubble pops, there are repeatable characteristics of how people react.

The first thing here is that it's not deemed fitting to attribute stupidity to an entire er investing community for being wrong or participating in a bible. A good example of this is when you might have a stock that is not doing well in terms of its Price. And then you see all these lawsuits pop up.

A friend of my ones refer to these as ambuLance chasers. And so these are people that, for whatever reason, upset that their stock went down and and trying to sue the company. I have no idea if these are ever successful, but I think that's a really interesting um attribute of the market and something to look for.

So the market is also thought of as being efficient. And because of this significant Price increases generally shouldn't happen. Gabriel causes a theological reason that speculative mood and mania tend to be exempt from blame.

So after many you four events that i'll be discussing coming up here, you'll notice that individuals in high places often would take the blame for a lot of these episodes and that the blame was never really taking responsibility by the people that were taking part in these speculative episodes. So let's get to take some examples here that john Kenny gale breath goes over this book. I want to start off here with one of the most popular bubbles of history, which is too lip omani.

The two bomani was by my favorite case, that in the book, just because it's just so unconventional, who would ever think had a flower or a bulb would be an instrument of speculation and euphoria? But that's precisely what happened in the dutch united provinces. In and interesting ly, the tool p had already bit in the area for seventy years is not like IT with some sort of you introduction.

IT had been growing and interest in spreading the appreciation of the bulb over the years. As gallery points out, speculation comes when popular imagination settles on something that seemingly new. And in this case, that was the appreciation and reality that was found in some of the most beautiful two lips that you get your hands on.

So in the sixteen thirties, people were buying up these bulb at alarming Prices. This resulted in a typical supply and demand problems that we see in all open markets. When demand far, seed supply Prices will shift upwards.

And that is precisely what happened to the two lip's in holiday. In sixteen thirty six, a ball was reportedly traded for two horses, a horse car and a complete harness. From the looks of IT, the bulb looked like a diva tive that was used by the masses to find someone else would buy the asset from them at a higher Price in the future.

The bulbs reportedly were changing hands multiple times before ever blooming, sometimes ten times over a day. So for someone to say that they were buying the ball for the flowers is probably pretty dishonest. There was an interesting story in the book about a ball that ended up going missing and was accidently eaten by of the sales import.

Now we said that this bulb that the sale had D. E. Was worth without three thousand floors.

So I went and I researched to what a dutch guilder or a flooran would be worth today. So the floor was a physical currency that was made of actual silver. Each coin of that era was made with about thirty grams of silver.

So that means that at current solar Prices today, each coin was worth about twenty nine dollars. And sixty cents want to play up by three thousand, and you get a value of eighty eight thousand dollars. Now this is just an astronaut all about the money to pay for an asset with a very variable lifespan.

But there are obviously other forces that play as to why this speculation was happening. But this time holland was the richest country in the world. The duchess india company earned a lot of profits, and these profits had accused to people who own shares in the business.

And a lot of these people were dutchy because of the country's wealth, IT was also attracting many wealthy refugees from surrounding areas. And due to the new fund wealth, many people chose to build just blushes, gardens filled with two eliph. It's societal phenomenon.

So during my research, I noted one great article on tulipa mania that claim, ed, that Charles mci, who wrote extraordinary popular delusions and the man crowds, a book that was highly reference, like Albert, that this bubble was kind of inflated for the sake of entertainment by mick. So for in, since apparently much of the two lives were not actually bought on leverage, the poor remembers of the dutch society didn't really participate in the speculation, and the disputes that happened on the future market were unenforceable. And use to resulted in a settlement that was out a fraction of the original value.

So the future contracts that were used to trade a lot of these were actually regard as gambling debts. So there wasn't a lot of leverage being used in this particular bubble. So even though two lipoma na wasn't a bubble, maybe that exactly followed glorious framework here.

I still think IT counts. And you know, another thing that maybe you'll notice different than others is that I didn't certainly leave a large amount of damage after the bubble pop compared to some other examples that we're going to go to just again. And that was probably partially because there wasn't as much leverage available to people treating these contracts back then.

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All right, back to the show. So now let's spend some time looking at the next year for a episode which concerns john law and the french bankroll. When I read this section, the book, I was astounded at the background of drama.

It's mind boggling to imagine someone with his background obtaining such a high position in government and finance. But perhaps that speaks to his perceived skill set over his sketch history. Let's quickly go over his past.

So john law murdered someone in a dual and was arrested for IT while he was awaiting his trial. He escaped from prison and left the island for the continent. He then made his living as a gamer.

Gabbert rights. His winnings, IT is said, were the result of his having worked out the odds and a contemporary version of crops. Something that would now have embarked from the tables now is law grew up. His interest in banking and finance grew through his travels around europe.

He noted the success of the bank of absurdum law has given some very, very deep thought to the idea of creating his own bank that use hard assets like property, and then issued notes that were secured by that property as loans. How the note holders would redeem the land to seem very uncertain. And he, out of the game, necessarily had an answer to, he brought the idea of scotland, where he was rejected, and then he turned his focus to another country, which was france.

Now france at this time was just ripe for this type of financial innovation, because they were in a very, very poor financial. So king love the fourteen s died here before leaving two important legacies. One was that the region of the new king love the fifteen th do gabba amusedly ly writes that he combined a negligible intellect with deeply committed self indulgence.

And the second legacy was that there was just a bankrupt treasury and numerous unpaid deaths from past wars and other numerous extravagances. So france really needed help solving their financial problems. And john law was the person that chose help them out with that in seven hundred and sixteen, john law was accorded the right to establish a bank, which would become known as the bank rail.

IT was initially capitalized with six million leavers. The bank was authorized to issue notes, which then used to pay current government expenses and take over past debts. The notes were exchangeable into hard coins if one wished.

However, the initial capital needed to be investing into an income producing asset that was going to be supporting the note issue. So the initial idea was to partner up with the mississippi company and the company of the indeed, to pursue gold deposits that's supposedly existed in luiz. Ana Gabriel knows that there was no evidence that this school actually existed, but because the government needed money, they didn't really care about the facts that supported this claim on the gold.

So with this, the ephori c episode gan, everyone try to get their hands on the shares, the Prices they never really skyrocket. Here's how the racket ended up playing out. The proceed of the sale.

The stock of the mississippi company were not to search for as the yet undiscovered gold, but to the government forwards death. The notes that went out to pay the debt came back to buy more stock. More stock was an issue to satisfy more of the intense, and the latter having the effect of both lifting the old and new issues to ever more extravagant heights.

All the notes in this highly literal circulation, where IT was presumed backed by coin in the bank will, but the amount of coin that so sustained the notes was soon miniscule. In relation to the volume paper, he was leverage in a particularly one transform on quote. So as you can probably tell, how this land leverage only last so long, and bad things tend to happen when someone wants to cash in their shares for real assets that don't exist.

Only four years later, in seventeen, the water pot, a prince by the name of the colony, was annoyed that he couldn't purchase more of the stock, so he sent his notes to the bank royal to be turned in for gold. And he was successful with that three wagons reportedly lugged as gold back to him. But the region intervene that lots request, in order of the prints, to return all of the go back to the bank royal.

Other people saw that perhaps gold was a direction that they should be moving towards. But law understood this and orchestrate just a finish display to increase the people's confidence in the stock you did. So they hired a battle on of vagrants, equipped them with shovels, and then march them through the streets of paris to give the illusion that they were going off on a boat to bed metal in lousianner.

Unfortunately, over the next few weeks, he was proven to be a fiction, as people would just see the people who are not supposed to be in paris anymore back in the city. So in another event that was caused by this year fork episode of fifteen people were actually trapped, the death outside of the bank royal, when no holders ended up learning that their notes were no longer convertible to gold. Unfortunate the stock Prices vaporised basically immediately after this event.

So after investors ended up losing their money, they were very, very furious and needed someone to blame. Now, the interesting thing here is, when you contrast the perception of john law, compared the way up and then compared to the weight out. So on the way up, john law was considered a, this was a guy with the highest levels of intelligence that were derived from his positive association with money.

When people lost money, they needed someone to blame. And law was so revived by the public that he was actually forced to flee the country. After the event, the french economy was depressed for a time, a typical result of specular.

The other interesting part here is that the people who part took in the successive speculation didn't blame them themselves. They blamed johna. Now this is an interesting case today here because I think IT just goes to show you how little due diligence was being done by both the notebook ders and the shareholders in this example.

So perhaps it's easy for me to say this in hindsight, but you would think that baby, the notifies or the shareholder would try to reach out to people who actually mind gold or sailors who went there to try to get some grasp of what the actual situation has in terms of if the company was actually making money or not. But I think the absence of this due diligence is kind of scary part about a lot of these epo de. And you'll see IT more as I discuss other examples in the episode.

But you know when you're making money or when things just look really, really good at blind you from asking the tough questions, these are the times where these tough questions are probably the most important to ask. Now another important lesson here is to make sure that you're putting your trust in the right person or organza. Now this whole set up would be seen as a complete fraud today.

I would be very hard to execute anywhere in the world if you have an engine of dot about the people that you're doing business with. I think that's more than enough of a reason to just walk away from a potential deal. And when you think what the type of person that john law was, I can tell you that he's by far the further thing away from a person that I would actually entrust any of my money.

Alliston are attention to another bubble that happened around the same time as a mississippi bubble, which was the south sea company bubble. So the south C. K.

Study was very, very similar to the bank role elephant. They both were seen as kind of these innovative ways to reduce government debt. Now the innovation, in the case of the self sea bubble, was called a joint stock.

So basically in return for the charter of the sale, c company IT would take over the government's dead, and in return was paid a six percent by the government and also had the right to issue stock. So the book has is massively vast land that the south sea company claimed. IT was basically, I will see the U.

S. Can exist back then, but imagine the southern U. S. All the way down to the bottom of south america. So IT was an unfathered mental, and which they could then trade goods and slaves. But I lost in this claim was that spain had claimed essentially the exact however, with those bubbles, these very, very essential facts are often overlooked when grade ten to be involved. Now, as more stock was purchased, the south a company eventually assumed all of the public debt.

Here's how the stock moved just in seventeen twenty in january IT was one hundred and twenty eight pounds by march one to three and thirty pounds in may, went to five, fifty, eight, ninety and june and around a thousand later in the summer. This is about an eight begger in eight months. And you know, this isn't necessary.

Unusually, if you watch stock mark along enough, you'll see things like this happen early, I would say. But the really remarkable part about this was that the south company wasn't actually generating profits. The return of the market were generated purely by euphoric market participants, whose demand for the stock far exceeded the supply.

So in common terms, I guess you could just think of IT as a multiple expansion of I don't know, even know what they would have used back then, seeing as there is no actual profits. And if there no profits, I would assume there would not have been any revenue either. But that's how you can kind of think of IT.

Now while this bubble was reaching its cRandall, there were copycat companies that were just coming out of the work to try and take advantage of the markets. Positive mood, gary rights quote. These included companies to develop perpetual motion to ensure horses, to improve the art of making soap, to trade and hair, to repair, rebuild person age and vacation houses, to transmute quick silver into malliver fine metal, and to erect hospitals or houses for taking in and maintaining illegitimate children.

If you pull up a heart of IP s, you'll see them exploding during what looks to be you four at times, and easy to see why. So when money is flowing into the market, businesses know that they can get a premium for the stock if they chose to go public. So during these times, you'll often see the rate of IP s explode.

Now as an observer, this is also probably a very good signal that you're not going to a get excEllent Prices for shares in a business. So if you see I P S expanding, IT probably means that you should be executed during these times. If you look at the chart of IPO in the last twenty years, the highest numbers of IP s was in twenty twenty one, the year after covering.

So if you look at twenty twenty, the market return sixteen percent and twenty one to return twenty seven percent. So you can tangle ly see that private businesses were probably also noticing that returns were really high and they're trying to take advantage of IT. Let's get back to the self sea bob here in july of seventeen twenty, the government called the hall to this copy cat companies with this new legislation that the apple named the bubble act.

This put a stop to the copy cats and also attempted to stop the capital outflows that were going from the sec. A company to other socks, unfortunately didn't work. And my september was down to about one hundred and twenty five pounds, and my december IT was down one hundred twenty four pounds.

Now, after the bubble pop, there was the usual need for somebody to blame. Here's a list of what happened to some of the innovators of the joint stock company or other hier ups that were involved. So you had her job.

Blunt, who narrowly escaped death when an assailant literally tried shooting him on the street, he later saved themselves by turning himself. Other individuals were expelled from parliament and had their money, and states confided to provide compensation to some of the shareholder. Lost money, the treasures of the south, a company fled and was pursued.

On the consequent. He managed to escape and lived the next year for the next twenty years. James greg, who was an influential elder statement on the affair, ended up committing suicide, and many other people ended up going to prison.

So gabby sums up this event very well. Well, there was large leverage turning on small interest payments by the treasury, on the public debt taken over. Individuals were dangerously captured by belief in their own financial argument and intelligence and convey this error to others.

There is an investment opportunity rich in imagine prospects, but negligible in any confusion reality. Something seemingly exciting and innovative captured the public imagination. In this case, the joint saw company, although has already noted IT was a decidedly earlier origin.

The great charter companies trading to india and elsewhere were by now a century. And as the Operating force dutifully neglected, there was a mass escape from sanity by people in pursuit of profit. Now, one of isac news famous quotes, I can calculate the movement of stars, but not the manner of men.

And this quote was a product of nutt's experience with this bubble. He had actually owned the shares years before the bubble formed and when the bubble was beginning to form, he correctly assumed that he was a bubble and that he should exit his investment. And he did just that, and he actually made a really nice profit.

But unfortunately, due to, you know, our own misjudgments and greed and social proof, he was pulled back in to buy the stock near the top and ended up losing his money as the bubble burst. So I love this example so much, because asic noon is regarded as one of the smartest people ever to walk the face of the earth. And I just shows you that intelligence is meaningless when IT comes to the world of investing.

Now the next chapter, i'm not going to go into too much detail, but it's called the amErica an tradition, which is the title I find kind of humor. So i'll just outline some of the smaller bubbles that happened in U. S.

History that no, might not get as much attention, say, as the great depression. So let's go back to sixty ninety. There is an expedition that was LED to capture fortress in quebec.

Once captured, the goods inside of the fortress were intended to actually pay the soldiers who were attacking, but unfortunate the forces didn't fall, so the colonial treasury had no gold or silver to spend and give to these soldiers for their time. So its solution was to issue paper notes with the eventual promise that the notes would one day be convertible into silver or gold. There are also numerous bankrupts that were caused by some pretty big bubble, and things such as land, canals and turnpikes.

About a decade later, these bubbles were forgotten, making room for new bubbles that were caused by innovations and leverage. So when IT comes to leverage, the banks in the U. S.

Were required to hold reserves of hard coins against their outstanding notes. But regulators didn't do a very good job of enforcing these rules. So there's an except hear from the book.

At the other extreme of complaints, a group of michiel banks joined to CoOperate in the ownership of the same reserves. These were transferred from one institution to the next in advance of the examiner as he made his rounds. And on next, for other occasions, there was a further economy.

The top layer of gold coins in the container was given a more impressive height by a large layer of ten penny nails below. Clearly, these reserves that banks were required with more of a suggestion, and a lot of people just were fragile entity king themselves around IT. So one bank in new england had to end up closing, and they had about five hundred thousand dollars, a note of standing and a special reserve of only eighty six dollars and forty eight cents.

And last year year, you know, after the civil war, road road socks had this big bubble. In eighty seven, three, two very large banks were under, and the new york sock exchange actually had to close for about ten days. But let's fast forward to the one thousand nine hundred twenties and discuss the great depression, because that's an area where john gobert is very, very passionate about.

So the great depression takes nearly all of the boxes of galbraith classic you four. So from the last section where we discuss leverage, banks have a long history in the U. S. Of using IT to their own advantage at the expense unfortunate other depositors. However, in one thousand, nine hundred thousand and nine, the use of leverage further spread not just from the banks, but also to the participants in the stock market.

And because stock market participants were able to get this leverage and helped boost public actually Prices as early as one thousand twenty four, socks began rising and continue to do so with just a small draw down in nineteen twenty six. After that draw down, continue going up. And as gallery points out, in one nine hundred and twenty eight, in thousand and twenty nine, the stock market left reality.

So another law and the you for a move happened around the spring of one thousand nine 01 nine when the federal reserve announced that they're actually thinking of tightening interest rates specifically to help slow down the booming stock market Prices。 Now the head of the national city bank, Charles Mitchell, said he would lend money to the public to offset any damage that was created by these increased interest rates. The fed, after official made a statement, the euphoria returned and the market increase in the following three months actually made the statement actually exceeded that of the entire previous year.

I talk a little bit about margin because I was innovative of them. And many economists actually partially blame the ease of leverage as a catalyst for the great depression. So the one thousand twenty work like this, which isn't too similar to how IT still works, you could buy a stock at, say, ten percent of its purchase Price using margin.

Ten percent of the stock belonged the purchaser and nine percent of the stock belonged to the lenders. The crazy part here is the interest rates. So on this margin loan, they are expensive.

They ranged from seven percent to absolutely obsess, fifteen percent. So I don't even know how people make this work, but I guess I did work because of just how fast stock Prices were going up. So as is common in these you four episodes, llagas is attributed to those who are helping participants make money.

So irving Fisher was the kind of prominent economist of the time, and he was involved in the market. So his incentives lay in pop, in the market up, not necessarily in sounding the warning alarms of a heavily over Price stock market in the bottom of thousand nine hundred and nine. He said, quote, stock Prices have reached what looks like a permanently high platoon. Quote, let's take a quick brick and hear from .

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dot com flash W S B. All right, back to the show. now. Another innovative financial center of this time was known as pure meeting. Goldman sacks executed this strategy. Flowersy, yes, I went a closed and fun at this time, would trade at a premium to its net asset value. And golds knew.

So let's say a fund could be sold for, let's say, fifty percent more than is that asset value than with that knowledge fund promoters could actually double their profits when the top of the pi mid owns another fund which owns stocks rather than just buying new stocks itself. So here's kind of how word with golbin sax. They had this trading corporation, which was at the top of the permit.

Now the trading CoOperation had an extensive ownership of another fund called the shindo a corporation. The doa corporation also understood how this worked. So they then organize another fund that they owned called the blue ridge CoOperation.

So all of these funds, started at a premium to their best value, would therefore confer the most amount of value to the top, which was the goldman sax trading CoOperation. But october twenty first ended one of the most significant effect episode history, starting that we cracks in stocks be get open. By the following week, the floor had broken out from under the market and forced selling to cover margin ads, which helped fuel additional downer pressure.

Bankers with with bankers with large out of capital or eggs in the market, causing further panic. Like most other four episodes, individuals were blamed by those who lost money for participating in the speculation. So Charles mital, the banker who had previously mention he was sacked.

The head of another prominent bank, alter waggon, was sacked and also denied his pension. Other promoters were called in front of congressional meetings. Another prominent investor, which a. Whitney, went to prison for investment ment for bonds. And the prominent economist and Fisher, who I mentioned, he was unnecessary blame, but he lost lot of money, and luckily his almost made, or yale helped rescue to some degree.

Now, the interesting thing about the great depression was that had just a massive passive effect on the world economy, the between one thousand and twenty nine and one hundred thirty to the worldwide dp drought, by understanding fifteen percent, international trade drop fifty percent, and U. S. Unemployment rose to twenty three percent.

As a result of all all of this, the stock market did move for a quarter of century to now I want to turn to three more you four episodes from more recent times that I think much of the audience is going to be very so the three that I want to talk about here are the tech bubble, the great financial crisis, and just some smaller bullish areas that happen in specific industries after the copy boom. Start with the tech bubble. So the tech bubble was a massive bubble that start farming in the nineteen nineties based on the back of the internet.

Let's look at this bubble specifically through Gabriel framework. So the first thing we see is a very exciting and innovative development, which was the internet. This bubbles has also been referred to as the dot com bubble due to some of the crazy is that happened in terms of just changing the names of your company? I'll discuss that more shortly.

But the internet was hailed ed as this next game changer and that you forgot, got to you brought tones and tons of capital into the market. Now, the interesting thing, what the unit is, that IT truly was a game changer. All of the largest businesses today, like amazon, microsoft, google and apple, probably would never gotten to where they are today without the internet.

The problem was that in the ninety eighties, the infrastructure needed for widespread use cases just wasn't there. IT was bar ahead of its time. But as you have probably noticed with some of the previous bubbles, notably the bank royal in the south sea company model, investors need to ignore the facts and focus on the potential returns that they can make.

So which referred to the dock combo because many businesses were just adding dot com to their names and then going public simply because they knew that they could ride the wave of the internet to pop up their share Prices for a time. So the poster of this, I think, is pets 点 com。 So Peter com was an online retailer of pestilence.

Know, when I think about this is a good idea. I mean, I bought one of things for my dog online, but, you know, things have change a lot since two thousand. You know, back then, there is only about two hundred and fifty million internet consumers versus five billion today.

On top of that, the cost of running on online business were just way higher today. And that was unfortunately part of the downfall of pets com. So pets dot com went public at about eleven dollars for share and over a few short months rose to fourteen dollars.

So you know, I wasn't even a huge run up here, but it's the run down. That's the scary part. So in the first nine months of two thousand, if you looked at the company, his income statement lost one of fifty million dollars.

The share Price, as a result, then sink very quickly, two about a dollar, and then dropped to zero as the company when bankrupt. So during the tech bubble, many people believe that investing in these overPrice tech names meant they had above average intelligence. The retail investors were falling all street into some of these bubble ideals.

And when everyone's making money, you can busy to think that you found this a cheat code for making money. And as a result, many people were piling their life savings and the text socks, believing that they would never stop going up. Leverage was also used, at this time, interests to decline deeply since their highs 01。 And due to low cost debt, there will start up our pollution for raining as well.

Venture capitalists wanted a piece of the action as well. Retail and institutional investors sought to use margin to juice every percent, a potential return from buying stocks. Now, as the bubble start forming, people profiting from IT protected their ideas at all costs.

These protectors included people like tech company executive citing their options or the shares they own, venture capitalists and even stock market analysts who are quick to justify high valuations. Now, one of my favorite psychological misjudgments is the contrast, this reaction tendency. So the tendency is to contrast things in relation to things that we have experienced in relative terms rather than absolute.

I think this tendency speaks volumes, especially in specular manian regarding valuation. So when comparing one business to a basket of other companies that are in a bubble, you're very likely to see something as maybe being cheap when everything else is expensive. Let's say one thing is training at P E of fifty, and everything else is A P E of one hundred.

So this can cause an investor to think the P E of fifty is cheap irony ously. So I think when you're comparing evaluations during more, you not necessarily bubble, but more times you need be careful about the making because sometime if you're comparing to an industry that is as a whole over Priced, you can get burn pretty bad. Now another aspect of the tech bubble was the newly formed metrics that were used to justify ever increasing valuations.

These metrics just kind of made up at the time. So these things were like eyeballs and clicks. And these metrics s Carried a lot of weight more way then what was used traditionally, such as revenue or profits or things that we still you use today.

But as you know, with all you fork epo des day and with a bank, and in early two thousand, stock Prices violent collapsed. So the nasdaq drops seventy eight percent from peak to trap in two thousand and two. There are multiple reasons such as increased bangalore pies frames and potential increased rate high scarce.

But at the end of IT, IT was just a heavily overpressed market that was right for a correction. Now after the crash, many investors were left with the pittance of what they originally invested, and they are upset. So in this case, the blame went to a variety of people other than themselves.

They blame the dog com companies themselves for being overly optimistic. Maybe these companies were mismanaged and some of them were even misleading. Some very well known investment group, such as city group in maryland, were hit with some pretty hefty fines by the S.

C, C. For misleading investors. But know, despite this large and painful you for the episode, the financial memory after this bubble was very short. And just around the corner was amid two thousands.

In two thousand eight, another year, four episodes brewing, which was the great financial crisis, which will talk about now the great financial crisis, an event that I think will hit home for many listeners of T. I. P.

IT happened in two thousand and eight, and most definitely has many the qualities that are found in galleries framework. To start a little bit here with the background of the event, but the housing boom started in early two dozens, and this boom was the result of a few things. There were two new innovative financial products, mortgaged back securities, which are referred to as M B S, and clatter ized debt obligations, which are refer to as CS.

Now i'm not going to get into the details of each of these financial products because I would take a long time. And to be honest, i'm not sure I even stand very well despite watching the big short numerous times, which there's a pretty good job of trying to explain what they are now. These instruments basically allow banks to bundle and cell mortgages to investors.

This supposedly spread the risk and inject liquidity into the lending markets. At the time, I was seen as an innovative way to make hooo nerves available for more american citizens. You can also look at this as an updated form of the joint stock companies that we discuss three centuries ago.

One party owns a risk asset, bundle ling IT into a low risk, safe security, and then selling IT to the public. However, as we learn in the bank, royal and south sea company case, that is, the security was not so secure. Another poorly utilized financial product before two thousand and eight was what was called the ninja m.

So ninja was an acronym for no income, no jobs and no assets. The mortgage brokers handed out loans to pretty much anyone with barely any qualification actually needed to give you an idea of the salaries of some of the people who are getting these ninja loans. Look, look at an excerpt from Michael bat next great book, big mistakes, which, by the way, my co host clay discussed on ti p 57， so bat nick rights quote, if you wanted a mortgage in two thousand and five, all you had to do was ask for one.

In one instance, a very achiet singer claim to have a six figure income, and despite having very little knowledge of what such a singer earned, the lenders agree to the loom in lieu of official proof income and included a photo of him in his offit, Alberta, and rose of remind rs. Strawberry pickers earning three hundred dollars a week. Pull the resources with another couple.

Mushroom farmers who earned five hundred dollars a week, together with a combining salary of thirty two hundred dolla month, they got a mortgage for three thousand dollars a month. Strawberry pickers who earned fifteen thousand dollars a year qualified for a seven hundred and twenty thousand dollar mortgage. This was a bubble in a nutshell.

Now, by two thousand and five, six hundred, twenty five billion dollars of mortgage were taken out by sub prime borrowers, a fifth of all home mortgages that year, and twenty four percent of all mortgages were originated without the borrower putting any money down. On the leading up to the crisis, many millionaire were made, and housing Prices nearly doubled between two thousand and two thousand. Six owners at the time, we're seen as intellect because they were seeing their property go up in Price much faster than historic bubbles.

Banks, rating agencies and institutions all felt that the risk was properly distributed and that their financial products were in good shape. People in finance felt that a new paradise, ft. Was happening where profits could be had with minal risk.

Now leverage was a very big part of the great financial crisis. Real see, IT is a highly leverage industry. By its nature, most homeowners by their house is using a mortgage, which essentially just loans on the Price of house.

U. S. Private debt surpassed two hundred fifty percent of U. S, U, D. P. Now, I went, looked at the leverage ratios for some of the major investment banks between two thousand three and two thousand seven.

Essentially all of them had a linear line going up into the right as their laboratory tis sky rocket. The leverage ratios here are defined as total debt, divided bay stock holders equity. But this was true for bear sterns, golbin, sax, mayo, linch and gan.

Financial institutions like these banks issued large, large amounts of debt during this period. The proceeds from this debt were then investing things like mortgage back security. So the bank had large bets that housing Prices would continue to rise.

And finally, there was a massive amount of protection going going on for the real state, given how many people were profiting from IT. Financial ratings agencies get tripoli ratings to N, B, S, and C, D, S, even though the underlying us has were increasing at risk as property Prices continued increasing and unfortunate defaults were growing. At the same time, financial institutions actually downplayed concerns of a bubble that were happening in the real city market.

And just like in some of the other pisos, when people are making enormous profits, they aren't asking the difficile questions. And even if they did, they poly wouldn't want to know what the answers are to them. So in two thousand and seven, two thousand and eight, the collapse game, home Prices began falling, and these overly complicated financial products began the precipice decline.

Now the value of M, B, S and C, D. S. created. The loss of these financial products were what really did the system in major financial institutions like lemon brothers embarrassment.

When bankrupt aig required massive bailouts by the government to stay a float, the stock market collapsed, credit mark froze and the world entered the recession. Now, as for the escape goats, there are weren't many, even though people were clearly very distroyed know people in this ament lost their homes. IT wasn't just the rich losing a small fraction of their wealth, but people in that are blaming a multitude different things.

So people blamed the prime mortgage borrowers who couldn't for the mortgages, the ratings agencies, regulators, central banks, wall street, major banks and investment firms. But after the great financial crisis, like most bubbles, financial memories are short, even though I don't think everything is big. Is a great financial crisis really happening? Are you? That there been many smaller bugs of is what I can finish this episode.

But the post covet boom showed some bubble equalities, that a variety of industries, the three industry that I want to talk about here, briefly, our text docks, elective vehicles and and intelligence. Now, from the bottom of coffee to the market, top for the national dex, the index appreciated for about sixty hundred dollars to sixty thousand injustice here and a half. Now this was is driven by fundamental.

Some of these businesses were getting Better. But you know, the obviously was some speculation involved here as to why Prices rose up so sharply. So one business that I own during this time, which was actually in the nasdaq, was in mode.

But the name might be familiar to you as to bias. Caro le pitched on sticks. Q, four, twenty twenty three.

Mastermind ls, back on. T, I, P, five, eighty six. This business had one of the quickest Price appreciation of any business that i've ever owned. IT was about eight dollars and sixty three cents at the depth of code.

And I went all the way up to about ninety four dollars and seventy four cents that is all time high on october twenty nine, twenty twenty one, an incredible eleven begger in a hay very short period type. So during that short period of time, the business got Better purchase earnings double. So the business was getting Better, but seven times Better.

Don't know about that. At the same time, who could forget about the electric vehicle bubble that formed around tesla success? I don't think tesla is necessarily the best example of peak speculation because similar to info in another high quality tech names, the business was getting Better back where the bubble occur.

Red in E V, I think, was in some of the lower quality names. So faster thing happens in the stock market that all participants should be aware of. Basically went one stock such as tesla d as very well IT, often as a gravitation pull on a jacon businesses that in the exact same industry.

So you get managers of other companies that know this and they're going to try to take advantage of IT. I already spoke with the tech bubble of nineteen, nine nine, when many managers attempt take about by adding just dot com to their names. But N E V, the poster child of this bubble, happened to be a business called nikola.

The collar made claims that was just, unfortunately, too good to be true. The founder traveler, melton, who is now a convicted criminal, claimed had built the world's first fully electric truck fully from the ground up. They also claimed that they had built their batteries, even though literally nobody was buying them.

And this culminated the knick, a one semi truck that he passed as a vehicle that worked. And the vehicle did not work, and he knew IT. So if you look at E V etf, which I didn't even know exist IT until I researched ebo de, you'll see that they actually peaked about a year.

So after the naqua stock peaked in june of twenty twenty, na had a strat sphere return going from three, ten and february of twenty twenty to two thousand, two hundred and five dollars in june of twenty twenty. Stock now trades for three dollars and eighty cents. So are there bubbles forming right now? I would say probably, but i'm not necessarily sure where they are.

Market pundits have written much about how A I is a bubble, but kind of i'm much sure I see IT myself. Well, I think there are many businesses that are associated with A I that are expensive. There's also many A I businesses that are just really good businesses that deserve primary valuations.

Businesses like google and microsoft come to mind. What I would say is that A I is very popular these days. And you know, what is generally prevalent in the lake press is definitely not associated with cheap stock Prices or outsize returns, but many investors may claim that I should look at in video as proof that i'm wrong about the return statement, but I have returned to that.

I personally know investors. We've lost a lot of money on the video. They speculated on the Price of video going up about the top, realized IT ouldn't, continue going up indefinitely, and then, unfortunate, sold out at a loss. Regardless, I still don't think in videos is necessarily a bubble stock, but I also pursue lt.

IT, nor do I have any plans to in the future, and find just watching hell plays off the satellites tes, the same way I do with ninety nine point nine nine percent of the other stocks in this world. The finished episode, I want to cover some of the biggest takeaway from a short history of financial ephori that I think are going to be very useful and useful. I have six primary, a lessons I learnt from the book, as well as some reflections on my other notes on bubbles and dealing with financial authorities in general.

So number one is that bubbles should be expected. A value investor who runs below the radar that I highly respect, his named nick train. He's been combined in capital about nine hundred and half percent for earth twenty five years.

So he lived through many, many of the later boom that i've discussed this episode. And he had a great inside to market manius. Well, boom and bus are integral to markets, and without them they can do their job, namely finance.

New ideas. We majority vely describe boom as manias, suggesting that individual investors have become irrational, Carried away. Agreed this maybe so, but at societal level, these manias are in fact quite rational and beneficial.

We wouldn't have facebook and goole without the many of ninety, ninety seven to two thousand. And good. Now, this is a fascinating line of thinking.

If you agree with nature in that, that means that criticism m should not be set up to avoid bubbles. Bubbles are actually a feature of a thriving capitalistic system. But that doesn't mean that each investor can blindly invest capital in whatever idea is the flavor of the day, the tech book.

While the disadvantages to many of the investors who about the top was possibly advantages to society as a whole, if you buy things online, use google search engine or enjoy catching up with friends on instagram of facebook, the internet bubble, to thank for that. The trick is investing in a way that allows you to bypass bubbles as often as possible, which brings me the point number two, which is how to avoid losing money in bubbles. So how our mark says refusing to join is actually the key to avoiding losing money in bubbles.

Now this is easier said than done, but mark makes the point that greed and human air cause of optimism, while simulating, making you ignore some of the more obvious negatives. The one tool that I like use to combat bubbles is to just avoided owning socks that appreciate quickly a Price. So this seems like a silly thing to say.

A bear with me here. So you have to remember the importance of certainty. We want a high certainty of a gain in a low certainty of a loss.

So getting fifteen percent high certain ty, to me, is actually more attractive than getting a hundred percent at very low certain ty. The reason being that if I think I get fifty percent nearly guaranteed, i'll take that over. Getting one hundred percent was ten percent chance that I get IT and you know, one ninety percent chance I lose all my money.

That's personal preference, but that is how I see investing. And I think you can do is look at position sizing. So I think as you invest, you learn more, more about yourself, self reflect.

And if you must speculate, then just do IT with very, very tiny persons of your portfolio and do not use leverage in that area of your portfolio. And there's also the role of comparing yourself. Others so unfortunate are going to be just playing losing game.

If you're comparing your stocks to stocks that go up faster than your own, you'll never win this game simply because there will literally always be a stock that's out there preferring Better than what you already. So in the stock market is in most series of life, I think at least I want to play games and create my environment to part taking games that I think that I A very good chance of winning in. In the next thing here is if if you make bad decisions because you do certain habits that you think you could identify, I can get rid of and you should probably try to spend some time improving your environment.

So one specific thing that I should look at is looking at socked Prices. I know, at least for me when I first started investing, I would look at sock Prices and embarrassingly large about a time. And IT would cause me to just be happy or sad based on, you know, what the socks Price were doing.

And I just figured that was just not a good waiter of life. And so I believe the APP and that helped a lot. You know, weeks would go back and I have no idea what the stock Price wasn't.

I found that very beneficial. Now I will see a hopeful transparency. I have the ad back of my phone.

I definitely checked IT a lot less. But now I think I am at a point. Now I understand myself and I just doesn't. I if go up or down, I feel I understand the business.

So warm buffer t is said that we should treat our socks like private businesses where we assess of performance based on the fundamental of the business and not as still in the stock Price. I think this is actually one of the best ways to also avoid bubbles. So if you assess the company and not the stock, you'll find just these massive discrepancies in value, in Price.

And so when you focus some of your time and effort here, you're gona realize that taking part of investments where Price far exceeds value is just a recipe for failure. So focus, focus, focus on deep to diligence and value. This is a that way in the point number three, which is why we should always remember risk.

But there is canada's inverted correlation between risk and euphoria slash depression in the market. So when the market is most you fork is actually probably when we should spend the most time thinking about risk. And when the market is most depressed is when we should probably spend the less time talking about risk and more time deployed.

But in reality, doesn't work that way. When markets are you fork, people don't think about risk. When markets are depressed, everyone thing only about risk.

So I ve got something to keep in mind. So as I mentioned previously here, Price will always matter no matter the quality, the business. I know many of my cohoes on the show share in my appreciate of high quality business.

We are always aware of the Price that these basses are trading at and what we might want to pay to lower our downside and increase our upside. Now the most significant air I C in new fork markets is mistaking current growth rates into perpetuity. Ity, I know I made this mistake myself.

Alibaba is an example example of this mistake that I made. So I bought alibaba back in twenty. I just look back on fin chat and looked back at the years leading up to when I first bought IT.

And at that point, the growing profits, forty four percent compound and annually between twenty fifteen and very, very high number. Now going into a luckily, I I actually didn't assume that IT would continue grow at that. I I pretty much of a fifty percent haircut brought that groth rate down to twenty two percent going into the future, which I felt would give me more realistic number and a margin safety.

But now I looked back at IT fro m 2 to present。 Want to see how that income are compounded and basically it's gone down minus sixteen percent compounded annually. So you know, these are the the types of mistakes that I know I made in the past. I apply making the future and other investors make, and I think even the best investors make the mistake.

And so you know the best way here that probably combat these mistakes is to try to use realistic growth rates and really spend some time learning if current growth rates are the result of short term tailwinds or if current growth rates are likely to happen for long because the future these short term tail wins can be a death sentence for investors when you mistake them for long term tail wins, as unfortunately I did. So if you see just a few short years about setting growth, I think you need to really ask yourself how certain you are that these will be sustainable in the future. Having a significant percentage from the number will probably be the best way to protect your yourself and pay.

Even if you're wrong and your numbers you far below reality, then you will have some untapped upside. So number four, here is the general concept of overpaying. This goes hands in hand with the point I made above about risk.

There are simple ways to observe how much risk is embedded in the market. So a couple things that I like to do. Just look at how much of the index has appreciated if you are U S.

Based investor in your own individual stocks, you look at the S P5， you can probably see if it's got up a lot I or go down a lot of, and that will give you some sort of sign if you're going to be overpaying or not. Anything you can do is look at your portfolio and see if you you be willing to add to the positions that you currently have at the current Prices or if you want to, to wait. If you look at your toho portfolio and you like all my goodness, all look like excEllent opportunities, well, then that's probably a good signal that the market is cheap.

But if you look at a portfolio on your like youth is all look expensive. But I want to keep this well, the market is over. It's also important to remember that just because there's a bull market in one of the market doesn't mean that there's a bare market elsewhere.

So a good example this was last year in two twenty three U. S. Large caps were doing really, really good. But I noticed that small caps were in the mud, and I invested a lot of those, and you've had to do quite well for me.

But you know, if you look around enough, you can usually always find some great deal, but you may meet to invest outside of your own country in, or to find these type of managers. Now the important thing here is that there isn't a blueprint for avoiding overpaying. You just need to do your own to diligence on a business.

You need to determine its value and need to compare the value and the Price. The Price far exceeds the value. That's a good signal that you should just skip IT or pakistan patients and wait for Price to be far below value.

Now I know how hard this could be. Let's say you find an idea, spend twenty, thirty, forty hours researching IT and you really like the business. But when you crunch the numbers, they just aren't attractive.

So you know, i've had that that feeling, where is like, oh, I like this business. I just did so much work on and I wanted my portfolio. But I think the right move is to be as rational as possible. You know, you onna save yourself apart taking and potential bubbles.

And you know if if you do do diligence to find out that a business is really, really good is a very, very good chance that it'll come out of favor sometime in the future and you'll get, uh, Better entrance Price than so the fifth one here is establishing a coherent selling framework. So selling is one of the most difficult parts of investing. And it's really important to understand that selling just because your stock is over prize is definitely not the same as selling when you're socks bubble territory.

So if you're a long term investor, then selling because a high quality stock is over Price is definitely mistake. But if you're also a long term investor, selling when the stock is in a bubble is not a mistake. So you as an investor can have to delineate how you define each of those.

It's not that. It's simple. Like i'll tell you a little bit how I do IT. Basically, what I look at is trying to figure out how far forward a stock Prices being pulled.

So you know, for me, if a stock Prices pulled four or five years, my kind of default st to exit that investment, you listening to this might prefer a shorter period and you might prefer a longer period, and that's perfectly fine. It's all about individual preferences. And you know my way of doing it's not right and it's not wrong.

And your way of doing, it's not right or wrong either or just your own preference. So I think the insight here is that you need to maintain your selling criteria. Obviously, during these four capitols, easy to get greedy.

And in that case, if you're getting greedy, you might then say, oh, well, stock X, Y, Z has been pulled forward five years, but you know like IT looks Better. Let's let's wait for ten years a bit to be pulled forward. And if you become undisciplined in that sense, you might see something have a couple success as well.

But I think discipline probably is the best course here. The last one here, number six, is the importance of taking responsibility for your investments. So you know, when we think about the stock market, we're lucky enough that we can invest and it's our choice to invest.

We can choose to invest, and we can also choose not to invest. Nobody is actually forcing us to invest or do anything with our money here. So if I personally make a choice to invest into something, and let's say the C.

E. O turns out to be a common, yeah, i'm gonna very upset. But you know, at the end of the day, I can only really blame myself for not doing as much work as possible to try and find as much information as possible.

It's kind of a tough one because if A C E O inside of a company can lie to his employees and how is a investor ever going to know as much as an employee? And I really have a good thanks to that. But I think where i'm coming from, this is through the lens of you know, if you're losing money in the market, you can just go around blaming other people all the time.

And because doing that is kind of points, especially if you're stock picker can think about if you blame other people for your losses, that you need to also not blame yourself for your wins. And in that case, and what's the point of investing individual stocks, you're basically saying that you cannot deserve between a winner and a loser. In that case, you basically throwing darts and probably you're gonna be Better off just investing into index.

So that's all I have for you today. If you want to interact with me on twitter, please give me a follow at irrational M R K T S for on linked in. And if you enjoy my episodes, please feel free to drop me a line, and please just let me know how I can make you of the experience Better, how I can improve my episodes, or interesting things you'd like for me to talk about. So thanks again, so much for tuning in today and look forward to talk you again soon.

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