 Friends, never invest in the stocks because you don't know what you're doing and you lose your money. That's the exact words of what my mom told when I was a little kid, bust her soul, she was a great mother. But that's what she was telling me, but she was born in the 40s. She was born in a time and she was raised in a time where you could just set back and you could literally save money and be a wealth. How you could save money and be a wealth because back then they lived in a very high interest rate society when you compare it to today. Today you talk about the Fed interest rate is down below 1% all-time lows, which means that yes, our home loans or money is easy to borrow, meaning our home loans are cheap, meaning our credit cards are cheap or borrowing for money for a car. But the downside to that means our investments are cheap, meaning that if you have money in the savings account, we can no longer do that today. She pretty much said, Prince, don't invest in the stocks, just save your money and retire. Mother, I know you can hear me right now. Those things don't apply in today's economy. So ladies and gentlemen, today's episode, as you guys and girls already know, my name is Prince Dax. This is the Prince of Investment coming to you guys and girls live all the way from the beautiful city and state of Denver, Colorado via the very beautiful city and state of Halu, Hawaii. In today's episode, we're going to be talking about how do you lose money in the market? We heard it all the time. We've seen it all the time, especially with these volatile times that we've seen in the past few weeks. We're going to talk about more people concerned about losing their money, moving their money and things like that. And we're going to have a very good episode because we're going to talk about the history of the crash, all the major U.S. history, all the major crashes in U.S. history. We're going to go over because guess what? History will always repeat itself. If you don't know history, you don't know the future, right? Because we know history will repeat itself. So the best to familiarize ourselves with the history. Then we're going to go into why do we see stocks crash? Why do we see this happen? Then we're going to go into how to lose your money doing a crash. Then we're going to roll into what did the government do to prevent crashes, right? So ladies and gentlemen, without further ado, let's jump straight into it because I don't have all the time. And I definitely, you guys and girls, don't have all the time. So let's jump straight into it. So first, let's go over the history of stock crashes in the United States. Going all the way back to, and you know, I'm going back to when the stock market was created. Yes, we had plenty before this. So please don't jump and go crazy about this. But we're going to go over some of the major ones. 1901, 1902, 1929, which was Black Tuesday. Black Tuesday, that was 1929, that was the greatest stock market crash which led us into the Great Depression. At the 1929, the market took about all the way into 1954 before it rebounded to the before the 1929 crash. Now we roll on straight into 1963. What happened major 1963? We saw a flash crash because of President Kennedy was assassinated. And notice that 1907, we saw the same thing. Every time one of our presidents became, every time one of our presidents became assassinated, anything like that. Something happened to the president. You always saw these big flash crashes in the market. Another thing, rolling into Black Monday. Black Monday is referred to 1987. Another great historical crash into the US stock market. Following back into 2001, 2001, we saw a dot com bomb followed by a flash crash in 2002. We all know what happened on September 11th on that crash on that day. And then going right into 2008, which was the 2008 financial crisis, all the way to present day this year, 2020, the pandemic crash. I don't know what they're going to call it, but it's the pandemic crash. So all these major crashes, when you look at all these major crashes, you've got to ask yourself what are the same trends you see all the time? Ladies and gentlemen, the first thing is you always see things that are overhyped before a crash. You usually see a crash come right before a big bull. We know in 2020, we was in the longest running bull market that we had ever seen. This longest running bull market is what set us up to be, for this to burst our correction in 2020. So in 2020, market crash happened. Yeah, it was fueled by COVID-19 and the pandemic, but it was kind of do-for-one when you look at the historical data. So these things happen about every eight to 10 years. Now, also look way back into one of the most historical ones back into 1929. What caused that? Euphoria. Ladies and gentlemen, when I say euphoria, it's the sense of speculating and you can't get something wrong. When you can't get something wrong, hey, I buy a stock, it goes up. He buys a stock, it goes up. I'm a genius. He's a genius. We're geniuses. Everybody starts to speculate. Market starts to go up, up, up, up. The next thing you know, when people start to over speculate, now you have things that are overhyped and now you have things that are overvalued. Ladies and gentlemen, that is what led to the 1929 crash that happened in 1929, which led us into a great depression. The one that happened in 2008 was triggered by the real estate market. You had the real estate market, well, it wasn't the real estate market. The real estate guy hit big at the time, but the financial crisis, you pretty much had them by collateral, collateralized debt or obligations, right? CDOs, the CDOs came through these credit swaps. That's what led us to this. Ladies and gentlemen, and we are poised to have another one all the way, you know, every five to 10 years, we're poised to have another one. It will happen again. Now, the one in 2020 Prince, why do you say that? When you look at the history of market crashes, you always see market crashes have a lot to do with. Market crashes have a lot to do with regulations, very low interest rates for a very low time, money's being easy to borrow, and when money is easy to borrow, people have a tendency to spend more, people have a tendency to buy more and lend more. All those things will set us up for the next bubble. Prince, you know this is going to happen. Why would you even invest into something that you know is going to crash? That sounds crazy. It does, right? But here's the downside, here's the positive side to the downside of the market crashing every five to 10 years. Ladies and gentlemen, every time the market has crashed, it has rebounded even higher when it has rebounded. Meaning in 1929 when it went down, it came back up even higher than it was before when it went down. So when you stretch out the market, S&P 500, NASDAQ, you can look at all these erratic drops, but when you step back and you zoom out, you will see that guess what? Even with all these market crashes, stocks are still going up higher and higher for over 100 years. I'm only 36 years old and they were doing this way before me and they were doing this way after me. Now Prince, why would you invest into something that's going to crash? Why do we see these crashes happen? You guys, and when you look at the asset world, you have stocks, you got real estate, you got business. Why do we keep seeing this happening in stocks? Why? We're gonna go through a few things, emotions. We are emotional human beings. What does emotions have to do with it? Emotions, sometimes we feel like we're gonna lose our money or sometimes we feel like we're gonna make our money. It's the same emotions that we use on a gambling table. When you gamble, what keeps a winner on the gambling table? You know what his mentality is when he's winning on the gambling table? Why would I throw my money away, right? Why would I stop gambling when I'm up? I can win more, I can win more. Ladies and gentlemen, it happens all the time when I stop markets going up, people are like, man, I should invest more. Everybody is excited, everybody loves to buy more, more, more, more, more, right? Why would a winner on the gambling table walk away while he's winning? This is what causes bubbles and guess what always happens, ladies and gentlemen? The bubble will burst, people will over buy, people will over buy every single time with the asset class. Now the same thing with the guy who sit on the gambling table. Guess what, he doesn't need a gambling table, he loses. The next thing is liquid. The one thing that makes the stock market great and the one thing that makes it bad is this liquidity. Prince, what do you mean by liquidity? How fast can you turn something into cash? When you look at a house, how long would it take you to sell a house? Maybe a few months. How long would it take you to sell a piece of land? Maybe a few months. How long would it take you to, if you have a very successful business, how long would it take you to sell it? Maybe a few weeks, maybe a few months. If I wanted to get rid of Apple, if I wanted to get rid of my Apple stocks, how long does it take me to get rid of them? Matter of seconds. So stocks are very liquid, meaning I can turn them into cash overnight. I own a house, I own land, I own stocks. Out of all those assets, which one of those are the fastest I can turn into cash? It's probably gonna be my, the fast one I can turn into cash is stocks. So with that being said, when you tie in emotions that I just spoke about and also when you tie in something being very liquid, meaning that people's emotions can jump in and out of something in a moment's notice, this is why you see so much volatility in the stocks. This is why you see the rise and the fall so fast, you see the fall faster than the rise every single time. And everybody's wondering what's happening, what's going on? You have a lot of money managers who are trying to save cash. They like to, oh, stock market's falling, I don't want my clients to lose more money, so boom, they sell everything, they move to cash. Some of them move to gold, some of them move to real estate. They're moving to something they think is gonna be better, ladies and gentlemen. That's what you have to understand about stocks. Why do you see these erratic moves? Why do you see these big emotions and liquidity? These stocks, volatility is what it's called when you see stocks move up and down so fast. Why do you see it so volatile? Emotions and liquidity. The two emotions that run the market, fear and greed. Some people have the fear of losing money. Some people just can't leave the money alone. It's the same concept. When someone is losing on the market, it's when somebody is losing at the gambling table, let's go back to that scenario. When somebody is sitting at that gambling table and they're just losing and losing and losing, what do they think? Man, I was, and they don't lose just after every roll, they don't lose at every roll, they slowly lose over time. They make $5 and they lose two, then they make $1, then they lose $10, then they can't see that downward trend. And they hold mine, what keeps them on the table? I just want to be able to get my money back. The greed of being able to get their money back is what keeps them in. That's what keeps them in when they're losing money. When they're making money, the greed sets in of making even more money. Why would I lose or why would I stop when I'm winning? This is why you always see bubbles in real estate, business and stocks. The next thing you may ask, ladies and gentlemen, Prince, well, that's great you told me that. When these stocks are crashing, what can I do? What can I do to alleviate losing my money? We just went over. Things being overvalued. How can you spot when something's overvalued? Pretty easy, ladies and gentlemen. I won't say easy. What makes a business good? Take me for example, as you guys and girls know out there, I wrote a book series. And let's say somebody wanted to buy my book series or if I wanted to sell my book series, what is going to be the biggest thing people pay attention to? What is going to give my book series value of how much I can sell it for? The reason why I'm asking this question, it is the same thing that makes stocks so powerful. This is how you can spot when something's overvalued. Ladies and gentlemen, it goes down to your earnings. They don't care how great the books look, how great they may smell, how great they were written, the name, the title. Some people care about that. They look at that as an intrinsic value. The earnings, how much money do you make from these books? How much money do you generate? How much money have you generated? What have you done with these books? That's the question you must ask yourself, right? Now, ask yourself when you look at a stock. The earnings, have you read the earnings? Have you gone to the fundamentals? So many times in the game of basketball, so many people, we'd love to see the windmill dunk, the behind the back dunk, the crazy passes, crazy dribbling skills, but it all boils down to winning the game. And to win a game is a very simple concept. Put the ball in the basket. Stop the other guy from putting the ball in the basket, or the other girl. Stop the other person, the fundamentals. So what wins a basketball game is not how many fancy dunks, is how many times did you put the ball in the basket versus the other person? So when you look at a stock, or you look at companies, or a real estate or anything, you have to look at what is the earnings? Is this business, I know it sounds good, I know it looks good, what are the earnings? Is it making money? Is it losing money? Is the top line revenue growing? Is the bottom line revenue growing? How much cash is in the company? How much debt the company has? So ladies and gentlemen, you gotta do a little work. You're gonna have to crack open that 10Q, that 10K, and look at the income statement, balance statement, and cash flow statement, and do an interpretation to see, can this company withstand a shock? And if it can withstand a company, is this company continuing to grow? Is this company profitable? Is this company losing money? Is this company making money? This is how you can stay away from something being overvalued. When you see, once you know the fundamentals of a company like myself, if you know the fundamentals of a company, then you would know what is good or what is bad, right? Now, ladies and gentlemen, we just went over the history of stock market crashes. We talked about why stocks crashed. After this break, we're gonna take a quick break, and after this break, we're gonna get into how you lose money in the stock market, and what are some of the things that government did to prevent this? So we're gonna take a quick break, and we're gonna be right back. So don't touch that dial. Don't move. Don't do anything. See you. And we're back here on The Prince of Investment. I'm your host, Prince Dax. The Prince of Investing, coming to you guys and girls live from a beautiful city and state of Democratic Colorado via the awesome state of Haluulu, Hawaii. Ladies and gentlemen, we're back from a breaking before the break. We talked about the history of stock crashes. We talked about the history. We broke down every major stock crash that we saw in the US market. We talked about why that stuff happens. Now we're gonna get into why everybody tuned in today. How do you lose money? And if you know how you can lose, you can know how you can make it, right? And we're gonna talk about what are some of the things that we did or the government did to stop some of these market crashes? Because every time we had a major market crash, here come the regulations, right? So first, ladies and gentlemen, the people that lose money. We saw the movies. We did a movie. Hollywood has done a great job of showing people jump out of buildings, lose their minds, go crazy, all those other stuff like that. But you have to ask yourself this question, ladies and gentlemen. Now you gotta ask yourself this question of, well, Prince, how do they lose their money? I don't wanna lose my money. These are the people that lose their money when stock market crashes. Number one, you sell when stocks are down. You brought Amazon for $3,000 per share. Amazon, during the market crash, has fallen to $1,000 per share, meaning you are down $2,000 per share. You see the markets crashing. All this bad news is going on. You think the world is going to end. Bad press is going to come. All these things are all, you know, Amazon is way overvalued. All these things like that or whatnot. And guess what? You sell your Amazon, now you take a loss. When stocks fall, it's different between losing money and losing value. Right now, I purchased my house. Let's say if I purchased my house for $100,000, right? Somebody sent me an email and says, or somebody gave me a proposal to buy my house for $50,000. Does that mean I've lost $50,000? No, that means that the value of my house have probably dropped for $50,000. But if I don't sell it, I don't lose money. So selling after the market crashes or when the market crashes, just saying, you know what? I should have had this thing. I don't know what's going on. Maybe going back to what we spoke about before the show of why do stocks crash? Your emotions get in the way and it's very liquid. You're very emotional. And guess what? You had the liquidity to be able to sell. You have the option, the liquidity, meaning you can go in and buy and sell at a moment's notice. So you missed the emotions and your finger can buy and sell at any time. So you just say, I don't want to lose anymore. I want to stop my losses. So you sell in a down market. That's number one way. Number two, margin, margin, margin. Some people may know exactly what I'm talking about. Some people may not don't know what I'm talking about. Margin, if you look if you do your history back into 1929, that's what calls Black Monday. Not Black Monday, I'm sorry, Black Tuesday. Black Monday was 1987. On Black Tuesday, what happened in 1929? It just became a way of life to save up $1,000. Once you got $1,000, you can use margin. And margin will let you trade with $20,000, or $10,000, hypothetically speaking. Now you had only had $1,000 of real money. Now you have borrowed money. Now you can trade the market with $20,000. Why did people do this? Because your money can grow a whole lot faster. If I had $1,000 and I made 10% off of $1,000, I made $100. But if I have $20,000 and I made 10% of $20,000, I just made $2,000. So it was a fast and quick way to double and quadruple your money. So I had $1,000, I leveraged it up, I used all this margin, now I'm trading with $20,000, I earned 10%, guess what? I've just made $2,000 off of a $1,000 investment. Doesn't sound like a bad idea. Now you put this on steroids. People were doing this with $100,000 and millions of dollars, right? Of leveraged margin money. When you have margin money, right? When you have money that is on margin, what happens? When, if you had $1,000, you borrowed $20,000, and now you lose $10,000, you have just quadrupled, you just made your situation 10 times worse. Cause you only had $1,000 and now you owe $30,000. That's what happened to a lot of people. When the market started to crash, people lost everything. Cause the first decade and 20 years before that, that was just a way of life. And guess what? You could do that today, but you can't do it as strong as you used to do it back in the day. Nowadays, if you have $100,000, guess what? You can leverage up and trade with a million dollars. So if you have a $100,000, you have a million dollar account to be able to day trade. People do that all the time today. So this is how people lose money because guess what happened? While the market is down, when you have margin, you don't have the option of paying back the loan when you want to. You have margins that may have gotten called away, meaning that the person that lent you the money saying, no, you must pay me now, meaning you can lose a bunch of money at any time. Margin, number one, selling when stocks go down, to margin, number three, speculative trading. What is speculative trading? Margin is a way of speculative trading, but also with options, buying and selling derivatives. Derivatives are options. When you buy a call option or a put option, yes, you can make a lot of money, but guess what happens when you have margin and options? Margin and options come with a time, meaning that I have an option, but the option is going to expire. What if I have an option on the Nasdaq, right? I'm thinking the Nasdaq is going to go up, but my option inspires in October. Let's say in October, the markets continue to go down. I have, my option can expire worthless, or I can lose everything I had into it because of what? Timing. When you have time with option trading and margin, you have increased your risk because of time. Right now, tomorrow, the stock market just may crash and may jump up in January, but if you have an option, you don't have the option of just waiting and waiting and waiting and waiting to things get better. You're going to lose money in most cases. So time. Now, another one, short selling. What is shorting the market? Going long on the market is meaning betting is going to go up. That's called a bullish trend. A bear market is when the market you think is going to go down. This is what a short seller does. A short seller is someone who bets against the market. I'm going to try to explain this. Hopefully it's not too complicated, but it should be rather easy. So for prime example, let's take a pair of skates. A pair of skates go for a hundred bucks on Walmart. So you go to Walmart and you say, hey, Walmart, these pair of skates cost a hundred bucks. Can I borrow these pair of skates and pay you back in December? Walmart says, sure, they lend me the skates. I take the skates off of the skates that I borrow and I go sell them to Tom down the street for a hundred bucks. Right? Tom gives me a hundred bucks. So look, I made a hundred bucks off of something that I don't even own. Great for me, right? But Walmart, they want their skates back by the end of December. So what happens is, let's say the price of these skates drop from a hundred bucks all the way to 50 bucks. So guess what I do? I go to Walmart, I buy the skates for 50 bucks and then I fill up Walmart's inventory. Now, if you just look at that, in the beginning, I borrowed skates for a hundred dollars. I sold them for a hundred dollars, meaning I collected a hundred dollars. The price of the skates dropped all the way down to 50 bucks. I walk in with a hundred dollars that I made. I walk into the store, buy them for 50 bucks. I go to Walmart, give them the same exact skates back. I made 50 bucks off of something I didn't own. I borrowed something in solar. That's the profitable side of a short seller. Now, let's look at the opposite side. I borrowed the skates for a hundred bucks. I sold the time for a hundred bucks. I collected a hundred bucks. Now let's say if these was a rare type of skates and they had gold trimming, they had gold trimming. These was a rare type of skate. And the skates went from a hundred bucks all the way to $500. Walmart still wants their skates. So I have, but I only made a hundred dollars. I have to go pay $500 for these skates to be able to give back to Walmart. So you can see when it goes, when the price goes down, I made money, but when the price goes up, I can lose money. The crazy thing about shorts is if I, if I borrow something for a hundred dollars and sell it to somebody for a hundred dollars, the max they can go down is a hundred dollars. The max I can make off of this is a hundred dollars. Right? So now when you look at stocks, right? When you look at, when you look at a market, so people bet against the stock, they bet that Google is gonna go down. They bet that they short Amazon, they short Google, they short all these companies, they bet they're gonna go down. If the companies go down, great. But we all know Tennessee on good companies that go up over time. Let's say that their timing is off and the stocks just continue to go up. Now they lose. So those are the people that lose money. So you look at it, the people that lose money are the people who sell in the crash market. You also have people who buy on margin, which borrow money, people who short sale, I just went through the terms of short selling, and also people who buy a leverage bearish ETF, betting against the market on a consistent basis, use it, those people are the ones that lose money over time. That's how you can lose money. But if you buy great companies that are not overvalued and you just hold them throughout a bear market, you can avoid or limit yourself of losing money. You might lose some value, but you won't lose money. Now with all these market crash that I went through, what did the companies or what did the country do? Regulatory wise, one thing that the company did was, well, not the country, but the country did, not the company, but the country, President Roosevelt in 1934 created the SEC. This is Securities Chains Commission to oversee and to build confidence into stocks because back in the day anybody can get on the stock market, people list companies that wasn't good, they didn't have the internet, they didn't have information, so they created a governing body to look over the market. The second thing that they did was, they created circuit breakers. If you remember back in March, you heard of these circuit breakers. Circuit breakers go off when they won't let the market, the market falls 7% within a day or 13% or 20% drops. When you see a 7% drop on the S&P 500 within one day, the circuit breakers stop everybody from trading and nobody can trade for 15 minutes. This to stop massive sell-offs. So now if stocks start to drop, boom, they stop everybody. They make everybody take a 15 minute break to resume trading. If it drops again, boom, they stop everybody. If they hit 20%, they take the whole day off. So that's one thing they did, the SEC did to stop the market from having these massive sell-offs that we've seen in the past that threaten the livelihood of a lot of people. Ladies and gentlemen, boys and girls, and two of our ladies, I hope you guys and girls love this episode. We talked about, we went through the history to the history lesson of all the stock market drops, the major drops that happen in the U.S. market. Then we also went through, why did these things happen? Well, if we talked about the emotions, the liquidity, the fear, the overvaluedness, and then we talked about the people they lose. How do you lose money when the stock market crashes? We talked about people who's selling in a down economy, short selling margin, speculative trading. And we talked about some ways to avoid it. And then we ended it with, what did the government do to prevent this from happening in the future or via policies and things like that? That's gonna conclude today's episode. Until the next video, podcast, cartoon, or whatever's crazy you see me doing around the globe, my name is Prince Dykes, this and I'm the Prince of Investing. Until the next video podcast, a cartoon, peace, be safe, I'm out and thank you.