 Good day, fellow investors. I recently came across an interview with Professor Schiller. When somebody who has been studying the markets and human behavior related to the markets for more than 40 years has been awarded an Nobel Prize for it, I shut up and listen. So I will summarize shortly the interview because it touches on extremely important points for this current market and this environment. We will discuss how he predicted the stock market bubble, the tech bubble of the 1990s. I will touch on a special video on his prediction of the housing bubble because something very similar is happening again and then we'll discuss his perfect portfolio, how he sees a perfect portfolio for each one of us. So let's start with the two criteria he was looking at in 1996 to predict the tech bubble. The key is that in 1996 Robert Schiller and his colleague Campbell were called to testify in front of the Federal Reserve Board with Allen Greenspan and they prepared for that and they said that the stock market isn't in a bubble and that is very, very risky what's going on. They had two factors that they thought influenced what was going on. One is watch the crowd, not the game. The thing is that when you look at what all people are doing or what the majority of them is doing, you can see whether they are too exuberant, too euphoric about what's going on with stocks. When everybody is saying stock market, stock market, stock market, stock market, things usually don't end up well. And I have checked a Google trend, how much is stocks to buy researched? And we can see that as the market has been going up, the research term stocks to buy has been going up, up, up and up and has been reaching highest the highest limits exactly a few months ago before the stock market started being volatile. The second thing that the professors looked at when seeing whether the market is in a bubble or not is the CAPE ratio, the cyclically adjusted price earnings ratio that takes into account 10 year average earnings to get to the normal price earnings ratio that's so commonly used when analyzing stocks. And they have seen something very, very similar to the current situation. So if we look at the long term CAPE ratio since 1881, we can see that it was going up and down, but whenever it was very, very high historically, it's not that earnings over time caught up with stock prices. It's usually the other way around when stock prices usually catch up with earnings. So the CAPE ratio was around 24, where it is now in 1996, when they called the tech bubble, a bubble, which was four years early, but still investing is about risk reward. Nobody knows whether the market will become even more euphoric or not, or it will crash. And if we compare the 1990s with the current situation, we see that the CAPE ratio is much higher than it was in 1929 and in 1996. So for stocks to go up now, it's only a question of momentum that has been broken for now. We'll see if it will recover with time. Further, historical evaluations always come down. So with higher interest rates, we really might be seeing the second tech bubble, according to these valuations, and you never know how will this end. Further, Professor Schiller says that in economics, when things go really, really well, unfortunately, history tells us that the next part won't be that good. And that's something that we forget, or we don't want to see, or we hope this time it won't happen, that this time is different. So it was very, very interesting to listen to the interview. The link is in the description below if you want to listen. It's a little bit longer, but I try to summarize what I find very interesting from the conversation. From my perspective, we should take advantage of the market's irrationality because eight years of good returns, sometimes you have to say, okay, enough is enough. The risk is too high. The reward is too small for me to risk what I have gained over the last eight years. If you have just started, you should hope for a market crash so that you can buy as much as you can on the chip. So on the perfect portfolio, Professor Schiller says that everybody is not well diversified, that we should be diversified across the globe, not only in one market, because everybody is now mostly exposed through your pension funds, through everything to the market with the highest market capitalization, which is not the proper way to go because it's not 100% given that the US will be the best market over the next 100 years, like it was over the past 100 years. So international diversification is key, and then something else is global asset allocation. Asset diversification is also something key. So that's also what I think portfolio diversification across assets globally is even more important than stockpicking over the long term. So if you do that well, you will be guaranteed good returns over the very, very long term, because things in the world change, and you want to be exposed to everything. Something like an all weather portfolio across all asset classes uncorrelated, if you want to add calculate the risk or rebalance, then you have a perfect portfolio. And he had something personally, if you work, for example, in the automotive industry, you should probably be short automotive stocks in case you lose your job or something, then you make a lot of money on the short. So you are hedged. So you think about also the industry you work in, and whether you are protected if, if things don't go as planned in the industry you are working. So to conclude, Schiller is saying that the financial environment might look scary, but if you're well diversified and by well diversified is not having 10 or 20 stocks is having 10 or 20 stocks, but being well diversified across the globe, being well diversified with your portfolio, with your assets in different asset classes from real estate, commodities, whatever. So then everything, it's much, much, much more easier. And then if you rebalance across those, let's say assets, then you will do well over time. Further, he had something very interesting that he has been promoting lately, and that those are GDP linked bonds. But so a country issues a bond and they pay an interest rate in relation to GDP growth, which means that there is much less leverage, much less risk for countries because as the GDP grows, so do taxes and a company can easily repay the debt, easily finance whatever it's going on and not be under the risk of fluctuating interest rates. So something very interesting, perhaps we will see GDP linked bonds in the future, and that might be something to diversify our investments and hedge ourselves. Very interesting interview with Professor Schiller. I hope I have summarized it because I think it's extremely important to understand also the big perspective on stocks. Thank you for watching. Looking forward to your comments and I'll see you in the next video.