Is The Stock Market Stupid? | Podcast Episode #332

0:07
Hey, I’m Ryan Mallory. And this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with swing trading the stock market in today’s episode.

0:35
I’m going to answer the question is the stock market stupid? Or is it just us? Actually, I think a lot of times we can do stupid things in the stock market but really what I want to answer is the stock market stupid. And it’s the subject matter that I’ve actually been thinking about doing for months now.

0:53
And I’ve not done it primarily because I wasn’t sure how the audience would take it now and the last podcast episode that I did, I talk about is shorting dead and it was a well-received podcast. That a lot of you guys liked it. I got a lot of good feedback on it. I got to hear a lot of your thoughts on it, so it gave me a little bit more courage to want to do an episode on is the stock market, stupid, because we always hear about how the stock market is all-knowing and you can’t fight the Invisible Hand.

1:19
Well, that’s more of like, an economic term. But you talk about, you know, don’t fight the market markets, always right? Those are true Concepts, you know, you don’t want to fight the market. The market is always right. Even if it’s stupid, it’s right. It’s kind of like people who you are smart as can be but they’re dumb as a box of rocks.

1:39
Have you ever met somebody like that? I mean really smart but they couldn’t find their way out of a wet paper bag and I think sometimes the markets like that a lot of times and we don’t realize that we assume that it’s going to be right and even we have the best logic in the world for why we trade. The market doesn’t reward that logic because inherently it’s stupid.

1:57
I know that I’m sounding a little bit more, Elementary School yardage but I’m saying it stupid. But how many times have we been on the wrong side of training like, man? Is market so stupid. I say it all the time, I always say the market stupid and a lot of times that’s because it’s not confirming whatever bias or whatever, trade that I want to go in a certain direction and it’s penalizing it, and then I’m suffering from a loss that I didn’t want to take not a big loss because I manage the risk but nonetheless of lost, I don’t necessarily appreciate.

2:25
And so, I will tell myself, man, this Market stupid also say sometimes too, man, I hate the stock market. Now when the market is going in my favor, I’m like man that I love the stock market’s great there was a if you can ever go back and see some of the King of Queens episodes there is Kevin James in this King of Queens episode where he starts trading stocks, and the stock that he gets into, it starts doing really good.

2:49
And he’s a delivery man for IPs I think is the fictional delivery service that he works for and working at IPS. He’s in these stocks and he’s listening to the stock market updates and he’s getting the updates. Actually over the radio somehow and he’s loving it, it’s going up a couple points every day.

3:05
He’s here in the birds chirping and he’s letting granny walk across the street, but as soon as the stock market starts to go against him, his whole behavior changes. He gets mad. He gets upset, he’s yelling at everybody crossing the street, he has no tolerance for anything. I think a lot of times that we can find ourselves and those positions, and that’s why I want to answer the question.

3:25
Is this stock markets do? Because not a lot of people want to talk about this aspect of trading. Because, well, personally, nobody wants to really talk about the things that bother us the most in trading everybody, especially in my world, the people who try to put their opinion out there, to people who try to offer up something on a podcast or whether it’s a YouTube channel, they want to look like they’re all knowing they want to look like they know everything that they’re immune to emotion, that they’re immune to disappointment or setbacks.

3:53
And if they’re being honest with themselves, they’re not immune to that kind of stuff, they are susceptible to all of that, which I just mentioned. So, the answer the question, right out of the gate is the stock market stupid? Yes, it’s stupid. Short term. It can be wrong. Oftentimes now I know what you’re going to say is like well you can’t argue with pricing you can’t but it’s our job to get on the right side a price, even if it’s stupid, even if it’s wrong, it’s our job to get on the right side of where the price is going in the short term, the market, in my opinion, at least, does a horrible job of pricing and risk.

4:28
When you take a look at it right now, what is it pricing in? We have a debt ceiling where the US government is on the verge of defaulting on. Do I think it’s necessarily going to default, probably not, usually these politicians, don’t really have convictions. They have convictions when it comes to raising donations to their re-election campaigns.

4:46
But do they really have really strong moral convictions? No. I mean, the ones that do they don’t last very long and Washington, d.c. they get burned out because it’s not a place for those kinds of folk. I’ve always thought that if I ran for congress, I think I’d run on the platform that I want to be able to trade like the Congress people are trained that not really running to represent.

5:05
That the people I just really want to run to make some really good Congressional trades that all those folks in Washington. D.c. seems to be able to get away with and they do it in the open, they don’t care. They don’t care about the shame. That what they’re doing brings, they really don’t care. But in terms of the debt ceiling, do I think that’s really going to be something that takes hold.

5:24
We default and the whole economy, spirals out of control. No, I mean, there’s enough tax revenue to pay the debts. Maybe you’re not doing spending, but you can pay the debts. So, I think a lot of this has been turned into a political cool issue, but when it gets resolved, what do you think the market’s going to do? It’s going to rally?

5:40
I mean that’s that would be my guess at least. I mean we’ve already seen it a couple times where you get a couple of positive headlines. Actually later, turn out to be false. Market rips higher. Then you get headlines where it talks about, where they’re at an impasse. There’s no deal in sight. And the market might sell off for three minutes. And then it goes right back up to the previous highs.

5:57
And that’s because in the short term, it doesn’t really do a good job of pricing in risk. It trades what it wants to see. Take a look at the Fang stocks. I mean, isn’t it really worth trading at 181 PE ratio right now, price-to-earnings ratio? No. 181 times its PE. For those who aren’t familiar with PEs, Apple trades at like a 29. The lower, the more, you know, of a deal the stock is from a long-term investment. NVIDIA is trading at a 181 PE, largely off of the back and hype of all this AI stuff.

6:27
Going on right now, well come on. I think I saw a Zero Hedge tweet the other day that said that every job in America would have to be eliminated by 2030 in order for it to meet their earnings outlook that the market’s pricing in for NVIDIA right now. How crazy is that? So is the market necessarily right about NVIDIA at 181 PE?

6:45
No. But does that not mean that it can’t continue to be stupid and continue to keep going higher? Yeah, it can. Absolutely it can. Now, what about long term? Is the market long term right? In the long term? I would say so. I think the market’s actually pretty accurate in the long term, by the way. For those of you wondering, what am I drinking right now.

7:02
Let’s see. I got some Old Forester Kentucky Bourbon Whiskey Bottled in Bond 1897, so Bottled in Bond. It’s 100 Proof, 50% alcohol. That’s pretty good. I don’t think it’s worth the price tag. It’s the mid-tier, maybe low mid-tier bourbon. I like a lot of Old Forester, but I don’t necessarily think it’s worth 60 or $70 like you see in a lot of times at stores. So long term, was it right?

7:19
About the 90s when the market was going straight up, not at that moment but eventually it got it right. And think about it, in the 90s companies were going up simply because they were registering a domain. They were saying, hey, we got a dot-com website. Everybody’s like, oh yeah, let’s jump on that stock, man. That’s amazing. They’d be running out of their parent’s garage and they’d be getting these like hundreds of million dollar valuations.

7:42
It was crazy, but then 2000–2002 hit where the NASDAQ went down for three straight years, lost over 80% of its value. Was the market getting things right then?

7:58
Yeah, it got it right. I think it took like 15 or 16 years before it ever reached the highs that it reached from 2000. So long term it got the 90s right. What about the zero interest rate desert trading environment and the stimi checks that we got and the PPP loans that were ushered out following COVID?

8:16
Yeah the market viewed that as all being good. Man, I love PPP. I mean that money’s still out there floating around all the time. When the PPP loans came out, it was amazing and shocking to me how many people here just locally where I live went out and got boats. You couldn’t find boats anywhere because these people there was so much fraud with PPP.

8:35
Guys, there’s still just tons of money floating out there from that. The stimi checks, I mean, they were sending the child tax credits home. They were sending, you know, one-time payments multiple times for just stimi checks, for whatever. I remember hearing about people just constantly getting money from colleges.

8:51
It was crazy. Money was just flooding the market. That was perceived by the market as being good. Was it stupid for it to perceive that as being long-term good? Yes, because what happened in 2022, we sold off. The market figured it out in 2022. Then you got to 2008. Prior to that, housing was everything.

9:08
People were buying houses and flipping them. They would buy them, sell them that afternoon literally buy them in the morning, sell them in the afternoon. Double closings. People were flipping houses like crazy. Nobody understood valuations. It all came tumbling down.

9:24
I remember my first house I ever bought was in 2003 and I think I bought it for like a hundred and fifty thousand dollars or a little bit less than that. Probably, I remember by like in 2008 that house was worth like three hundred and ten thousand dollars. And then I would say by like 2006, the house was worth like three hundred and ten thousand dollars and then by the time the market crashed in 2008, 2009, the house was probably back down to like 139. I never like sold it or anything like that as a result of the huge decline, but it did, you know, have a significant drop in value during that decade. But the market did figure it out. It corrected the housing market just like it’s probably going to do with the current housing market.

10:09
I mean let’s be honest. Who’s going to be able to afford houses if they keep going up from here? Who’s going to be able to get I’ve got family that have graduated from college, a lot of them, and they’re young, they’re just starting off and they can’t get into houses because they’re so incredibly expensive and they got good jobs. But the housing market’s ridiculous.

10:28
I’m thankful that I’m not coming out of college and having to try to figure out how to afford a place to stay in this economy and with this kind of a housing market. And now you’re seeing companies like Rocket Mortgage. What are they doing?

10:44
Oh, you can put one percent down on the house and get a mortgage. Yeah, that’s going to end really good. Now you’re hearing things about 40-year mortgages. That’s going to really end good. You know how long that’ll take? Well, it takes 40 years to pay it off, but do you know how little amount of principal you’re going to be paying off year over year with a 40-year mortgage?

11:03
I mean you can pay so much in interest. So history is repeating itself. We can look to 2008 to see that what we’re doing right now is going to end horribly bad for the economy. So the reason why I bring up all these historical periods in time is because I’m going back to the question: is the market stupid? And yes, the market’s stupid short-term. It gets it wrong, long-term it gets it right.

11:19
But sometimes it takes a lot longer for it to get it right than we would necessarily prefer. And by the way, one thing that is not stupid and that’s really good is swingtradingthestockmarket.com. Here you’re going to be able to get all my stock market research each and every day. That’s going to include watch lists.

11:35
It’s stocks I’m following, market updates, big tech updates, really good stuff, really good information. I think you’ll benefit from it. If nothing else, you’re supporting the podcast by jumping on that bandwagon. I think a lot of people already have done that and have benefited from it and I’d encourage you to do the same.

11:51
And we’re so we talked about the Rocket Mortgage. We were talking about the market trying to adequately price in risk and how it just ignores it and it’s incredible how much it ignores it. There’s plenty of risk in 2023, but the market doesn’t care. Why? Well, it’s being stupid. But again, taking that and extrapolating it further, what is one of the things that I always say?

12:09
I say trade what you see, not what you think. What we’re thinking is the market’s stupid. What the market’s doing is going up. And so for me, for instance, I’ve tried to short the market a lot this year. It hasn’t worked. I mean there’s been a few trades that’s worked but majority of them haven’t and that’s because there’s this balance between trading

12:25
what you see versus what you think that can be very difficult to distinguish at times. In fact, sometimes, I think outside of earnings dates, I think it might be good to ignore it. I talk about ignoring CNBC, get that noise out of your head because it’s not good. They will pump you up into getting into stocks whether they realize they’re doing it or not or, you know, some of the other cable news services that do, you know, financial news, they bring on guests who hype up their book and it can influence you to make bad trades.

12:51
But so can a lot of the macro news that you see out there, the FOMC statement, I kind of kid around sometimes because I think, I see so often where the market’s not actually making any big moves because they’re waiting for another news piece to come. It’s like oh it’s going to be a little bit quiet on Wall Street this week until the CPI report comes out on Friday.

13:10
And then the CPI report comes out on Friday. And then the next week comes and it’s like oh yeah, I think we’re just waiting until Wednesday when the FOMC statement comes down. And the FOMC statement comes out, you get a little volatility and then, you know, Thursday comes around like yeah, I think the market’s staying put until the PCE number comes out.

13:28
And then the next one is the employment number. And then the one after that is the jobless number. And the one after that is GDP. They’re always like waiting on another news piece. Oh, you got Jackson Hole this week and I think the market’s just going to kind of trade sideways until that happens. The point is that there’s so much macro news out there right now, and there always is, but it seems like it’s always on the side of sloping higher and higher.

13:50
But point to all of this is that there’s always a reason not to trade, to wait for the next news piece. And if you do that, then you’re not trading. You got to take on some risk if you’re going to trade. So right now, the market’s not pricing in a lot of this risk. It reminds me a lot of like the China trade cycle where how many times were we going to rally on the fact that tensions between the United States and China during the Trump administration,

14:11
when there was the whole trade war going on, was easing. And that the market was optimistic on trade relations between the United States and China getting better. Or even better was the number of times you saw the market rally in 2020 off of COVID reopening optimism following continued COVID reopening.

14:29
I mean, whoever makes these headlines at these news agencies, I think they have puss for brains. I don’t think there’s anything up there. They just got like rocks or something up there, but they don’t have anything. The headlines so many times, it’s just like really just searching for an excuse for why the market rallied.

14:45
When sometimes the market’s just being stupid. It’s just rallying because you have passive investors that are constantly putting money into it, you might have hedge funds that are chasing returns because they’re behind on the month, you have 0DTE trading, which is the height of stupidity in the market. But yet people are doing it. It’s also ignoring the facts like credit card debt skyrocketing. I mean, people are going to get maxed out.

15:08
They’re not going to be able to add more debt to their credit cards. They will max out their HELOCs and as a result, who’s going to consume at that point? I was on a cruise recently and sometimes I’ll take these weekend cruises with my wife. They’re awesome because it’s not that far away from where these ports are at. But I was listening to this one woman who, you know, she had a pina colada in her hand, and she had her cellphone and she had, you know, my wife was like, man, this is probably like a hundred dollars to spend on getting those nails done.

15:32
Just talking about how she was going bankrupt. First of all, I’m like, how the heck are you on a cruise? Why are you on a cruise? You probably got the fancy drink package. On top of that. That you pay for. Like what are you doing here if you’re going through bankruptcy? But just like the market can be stupid, people can be stupid too.

15:57
And so the market likes to search for a narrative and run with it. Right now in 2023, everybody’s running with bull market’s over, earnings are going to start expanding, the Fed’s going to pivot.

16:13
How many times have you heard this year that the Fed’s going to pivot? March, and April, and May and June, July, and August. We’re going to cut rates by May. Guys, in May we actually still raised rates and there’s still possibilities that we see another one to two cuts based on a Fed governor that spoke today not cuts, but we see actual rate hikes this year. And so the market’s still trying to price in that there’s going to be Fed rate cuts in the next couple of meetings.

16:37
That’s absolutely bonkers. Why even raise the rates in the first place if you’re going to immediately cut them? You’re not even giving it a chance to do its magic, boy.

16:47
Okay. So it likes to search for the narrative. It ignores other areas of risk. So I guess my question is: do we not benefit more by, if we’re going to be technical traders, by ignoring a lot of the macro and micro news that’s out there that’s affecting the market maybe in our eyes based off of like what we’re seeing on headlines and everything?

17:10
But if the market’s only going to trade off of the narrative that it wants to trade off of like right now it doesn’t care about soaring credit card debt among consumers, it doesn’t care about the debt ceiling all that much. I mean, the market hasn’t sold off really at all because of it, maybe like one percent. Doesn’t care about the outlandish housing prices. Doesn’t care about there’s only five stocks pretty much just moving the market higher right now. Doesn’t care about any of that.

17:28
But what does it do? It keeps pushing it higher. Market keeps going up because it’s running with the narrative that it’s selected. And that is that we’re at a market bottom, that a new bull cycle is forming. Only when the market is done being stupid. What does the market look like after that? I don’t know. But to me, it’s got to at some point factor in a lot of these things that we’re talking about.

17:44
So in our trading, bring it all back here to our trading. One, we have to accept the fact that the market is not going to make sense, that it’s going to do stupid things. I know I use like some, you know, pretty strong words when I call the market stupid. But a lot of that’s to get your attention, to get you thinking: is the market actually stupid? And in so many ways, it really is. Long term, I think it gets it right.

17:59
But short term, it’ll run with the narrative that we might not agree with. And as a result, we can find ourselves trading what we think, rather than what we see.

18:17
And when we start trading what we think, you’re fighting a market that doesn’t want to acknowledge what I think it should be acknowledging. So try this. Try to tune out more of the noise out there this week. I know that’s what I’m trying to do. I’m really trying to tune out a lot of it. I don’t want to hear it and I’m trying to focus more on the price action.

18:33
And like I said, a lot of people don’t want to act like when they’ve had setbacks in trading or when they’re going in a drawdown or when they’ve had a couple bad trades because it’s a blow to the ego. I’m not like that. I’m going to tell you how I’m doing, how I’m trading, and all that. I don’t mind doing that.

18:41
And so we got to do a better job of understanding that the market is stupid and that we have to trade what we see, not what we think. And know that long-term the market will get it right. But short term, it’s going to be all over the place and we got to acknowledge the full stupidity of the stock market.

19:01
If you enjoyed this podcast, I would encourage you to leave me a five star review and yes, I do a lot of email answering on this podcast. You send me in a good question for the podcast, I’ll make a whole episode out of it. So send me that: ryan@shareplanner.com. Check out swingtradingthestockmarket.com. Thank you and God bless.

19:24
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19:41
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