 Good day film investors. This is the picture as I'm filming this video before the markets open on Thursday. So Wednesday picture doesn't look nice. Five day change minus 5.45% which is a huge drop and we are in negative territory year to date. One month change 9.02% the worst month for stock since 2009 and the worst decline for the NASDAQ since 2011. Okay and that's the drama that's the things you will hear all around headlines but let's put aside the drama and let's talk about real things. We're going to talk about what's the smart money doing in this environment, what is now a two-way market, what's volatility and what's the market cycle, what's going on and what are the real forces driving it and I'm going to tell you that this is actually normal for stocks and what you should focus on. Let's start with what the smart money is doing. What you'll mostly hear online especially on YouTube by the deep, by the stocks the economy is perfect everything is great and that's exactly what retail investors hear and that's exactly what they have been doing during 2018 and they were very happy about the dips they bought in January, the dips they bought in April until yesterday. So if you look at the chart retail investors are pouring money in the market hedge funds institutionally and investors are pulling money out of the market. So we have retail against institutional and that's big indication of smart money versus weak hands. What happens when the retail weak hands start selling institutionals will not buying because they will know the retail is saying and then you have a big stock market crash just a risk. This is another beautiful chart from Bloomberg and it shows how the brokerage cash levels from retail investors actually decline as markets increase. So the more markets increase the more people put money in stocks they are not selling they are putting more and more money in stocks. So that's very interesting how things work and how retail investors work when panic hits when hysteria hits these cash balances will go up but that will be after capitulation of those by the deep messages and this is something very important to think you think that as a retail investor as a youtube watcher you don't have big influence look at this who owns the ETF market the largest owners of ETFs are retail investors followed by investment advisors who again advise retail investors and only then we have private banking wealth managers and hedge funds pension funds own very little of ETFs. So that's another danger when those retail investors start to have shaky hands if markets start really crashing then that those will panic because they have never seen something like this they have never seen a market cycle and this is because of this normal investing hasn't been around for about 10 years which means that people haven't seen a crash people haven't seen volatility people haven't seen anything that is absolutely normal the effective federal funds rate was at 0 for what is this six seven years still below 1% for eight nine years so money was practically free there was no interest on it so value of assets like stocks real estate practically goes to infinity with zero cost of money however that has been changing lately the Fed has been tightening and suddenly you have another option to invest in which affects its institutionals retail investors still don't get it so institutions know okay i can invest somewhere else and i can put my money somewhere else this optionality gives the market more volatility because now you can choose you can sell you can buy you can have other options which increases the volatility and this is the VIX index and you can see how we have had seven years or pretty low volatility non-natural volatility 2005 which was three years 1990s also three four years when things are calm but the natural state of the market is much higher volatility double what it is now which is normal for what has been happening last week so accept volatility understand volatility this is what the market is normally this is not something special this is normal normality the last seven years have been something crazy something extreme and something that we might not see in the next 10 15 20 years so accept that why is volatility increasing because now we have options this is the us five year treasury yield you can see how it was practically flat for four years and then somewhere in october november 2017 it started spiking when the treasury yield started spiking and now it is at 3 percent for five years so that's a three percent yield 50 percent higher than the 2 percent yield of on stocks sap 500 since then january 2018 we have started to have some volatility you remember the january dip the april dip and then things calmed a little bit but now we see again a crash so understand that investors now have optionality especially institutional investors retail investors don't believe that optionality yet but it will come to them with the leg especially if stocks crash and then we will see shaky hands in retail investors so that's something to be very careful about because as we have seen ETFs and retail investors are a big big part of the market and ETFs trading was about 40 percent of the market which is huge so retail investors are really huge in the market plus there is no more catalyst really 2018 expected growth earnings due to taxes 20 percent however 2019 the growth is already lower if we see energy oil prices decline then we will see a decline in earnings growth perhaps even a decline in total earnings just to give you an example of what to do higher rates do caterpillar laid part of the cycle higher interest rates difficult to sell the equipment less investment and this is what happens even if just a few months ago everything looked so wonderful for this stock what to expect expect higher volatility year to date we have had volatility so when volatility starts to kick in when investment optionality starts to kick in people start seeing other options be in uncertainty increases and we simply will have even more volatility so I wouldn't be surprised to have even more of such ups and downs in the next year two years so live with it it's finally something normal that has come to the markets volatility is normal and it is actually the friend of the value unlevered investor further please subscribe hit that notification bell because tomorrow I'll discuss what to expect from a fundamental perspective from the market and then you will see how to behave in relation to your personal preferences and the final message is always the same focus on the fundamentals focus on the businesses you own and keep adding keep focusing keep buying great assets diversified across the world that will lead you to great returns over the next five ten fifteen years all this is noise all that we have mentioned here is noise it's macro it is irrelevant to your long long-term returns if you do the smart things and focus on the individual great businesses that make your great portfolio over time if you built a great portfolio with great assets you have nothing to worry no matter what thank you for watching thank you for listening subscribe check what I do in life in the link below with my stock market research platform to get some ideas on how to diversify and what can be bought what can be added to your portfolio see you tomorrow in the next video