 Good day, fellow investors. Welcome to the stock market news with the long-term fundamental twist. Last week we discussed what we can expect from stocks in the long term. We explained why our stocks crashing from a fundamental basis, the chances for a recession and the influence of past financial engineering on stocks. And that video on YouTube got more than 20,000 views. So thank you for watching and thank you for subscribing. Today we are going to shift from the fundamentals to human behavior. And these are the topics that I want to discuss today. Why do stocks crash that fast? We have seen huge declines in the last month. We will talk about the exit door and human behavior. How come stocks go up 5% in one day as it happened on Wednesday? Is this crazy or bizarre or normal for such an environment? What to do with volatility? And then I'm going to give you my stock market prediction for 2019. First I'm going to give you my 100% stock market prediction that is correct every year. And then I'm going to discuss a little bit more about the market. Before we start with the news, just quickly answer the poll that I have made. What is your stock market prediction? Should work on YouTube. So whether you think stocks will go up more than 20% in 2019, more than or around 10% will stay equal or will decline 10% or even more than 20% in 2019. Please answer the poll so that you can do that before the end of this video when I will give you my stock market prediction. Let's start with human behavior. And there are four topics that are extremely important from psychology that relate to stock market behavior. Those psychological topics are that we are wired to think exclusively. We look for instant gratification, thus we speculate speculation and we take part in herd behavior. All of this is perfectly natural as it kept us alive over the last few million years. However, things might get tricky when applying these psychological wired in trades to investing. So let's start by talking about exclusive thinking. If you take a look at any stock chart, especially longer term stock charts, in this case I'm looking at the SAP 500 over the last 20 years, you see that stocks either go up or down. There is no in between. There are no five years of stocks being flat with small fluctuations. Stocks usually go up on little volatility for a long time like it was the case from 2002 to 2007 or 2009 to 2018 and then go down on high volatility in a very short amount of time. More about volatility later. So as I said, stocks take a long time to go up but then crash instantly. 50% down from 2000, the peak in January 2002, the bottom in 2002. Similarly from November 2007 to March 2009 we had another crash of what was it 40 to 50% depending on what you are looking at. And currently stocks have been down 7.5% just over December, which is very, very fast. Similarly to what happened in January, February 2018, if you remember when the turmoil started. Now stocks move up or down because we humans are wired to think exclusively. You cannot like, okay, I like chocolate 70% and dislike it 30%. I like ice cream 80%, dislike it 20% and therefore I love ice cream more than chocolate. No, you either love ice cream and you don't like chocolate or you either love both ice cream and chocolate and you really love the combination. But for humans it's hard to think exclusively. There has been a time in your life when you really hated your spouse. Even if you love him or her with everything that you have with your whole heart, there has been a time where you hated them so much. That's normal. And that is normal because we are wired to think exclusively. Similarly, most of the investment population thinks exclusively. You either think stocks will go up or down. Just talk to a Tesla bull. They are 100% convinced that Tesla will be the biggest car manufacturer in the future, that earnings will go through the roof and that the stock price will explode. There have been videos about Tesla at 4,000, 5,000 etc. etc. during this year. I'm not saying it's not possible that it will not happen. I'm just saying, okay, we have to put a probabilistic perspective on what's going on. And putting a probabilistic perspective on the stock market on returns is something very, very few investors do because it doesn't come natural to humanity. And therefore, you have to see, okay, am I under the influence of behavioral finance in this case and do I think exclusively or do I allow to think in probabilities which allow me to make great decision, rational decisions over time. Unfortunately, most market participants does most newspapers, most media because they cater to all those market participants. They want to get more clicks. Focus on instant gratification. Instant gratification in the media. You have seen turmoil, disaster, stock market crashes, stock market rallies, etc. Therefore, most media outlets newspapers cater on instant gratification because that's what we are wired for. We want something now in place of something in the future. If we take a look at the December 26, Wednesday rally, the highest trading volume, thus buying activity as stocks went up, was not at market lows, but at market highs. As people rushed back into stocks after those were up more than 4% for the day. You see the volume increasing as stocks went up. This is because fear of missing out. This is because those market participants are speculators. And therefore, they rush into when something goes up, not like they are unlikely to buy when something goes down. And again, fear, but this time panic and not fear of missing out leads people to sell on down days. Which brings us to the reason why stocks crash that fast. The reason is this exit door is very, very small. If stocks fall, people think stocks will fall even more, thus fewer are buying and a lot of them are selling. For example, outflows have searched in the week prior to Christmas and have been almost three times as big as compared to previous weeks. We see here outflows from funds, stocks and bond funds above 50 billion compared to just 15 billion in the week of November 20. So this is a huge change. And this is why we have seen such a fast crash because people like to follow what the market is telling them. When things go up, buy more. When things go down, buy less. And this is a perfect example of herd behavior. When everybody is buying, let's run, rush in and buy. When everybody is selling, let's sell, sell, sell, sell, sell, sell, because it might go down even more. And this turmoil we have seen until now is nothing. Nothing has actually happened. The economy is still strong, corporate earnings are at record highs, buybacks are at record highs. There is just the fear that there might be a recession coming up. And President Trump is even exuberating that fear because he is constantly attacking the Fed that they will be the ones that cause the recession. Recession is normal. Economically, it has to happen. It's bound to happen. Stock market crashes are bound to happen. Everything of that is normal. You just might want it not to happen during your presidential election period because then the likelihood of you being elected is higher. So that's something we have to keep into perspective. Following on herd behavior, the Wednesday rally was the highest net increase in points for the SAP 500 and most media outlets will use the Dow Jones index because then the increase in points is even bigger. What we are 500, 1,000 points change in the Dow, blah, blah, blah. However, the percentage change for stocks was just 4.96%. In 2008, in October, there were two positive days with 10% increases, 11.58%. And through history, we have seen much bigger increases and decreases in percentages, not in points. Of course, when stocks are high, the change in points will be higher. If we take a look at percentage changes in one trading day, those were much higher than what was going on now. And this shows what will happen when actually economic data and earnings will be also bad. 1930s stocks up 16, 12, 12%, 2008, 10%, 10%, high volatility, 1987, 9%. And declines 20% in 1987, 12%, 28, 29%. So we know how stocks surged in 29. And we know what was the volatility coming afterwards. In combination, in that case, with the depression, let's hope we see no depression, but we might see a recession. And if this stock market is an indication of what might happen, it might get ugly. So for now, it's uncertain what will happen in the economy. The economy is still strong, but the volatility is already there. That is because stocks have really exploded over the last nine, 10 years. So we might be, let's say, in a bubble. Nobody wants to admit it now. But everything is a little bit skewed because of financial engineering that we talked into in last week's episode of the stock market news. When it comes to stock market volatility, when there is uncertainty, volatility increases. But if I look at the performance of the stock market over the last three years, it's still amazing at 20% in the green. However, we have Trump attacking the Fed, we have trade wars, and we have people like Dalio saying the economy is close to its limit. Plus, debts are piling, government budget deficits are increasing, and that should all be normal. But that also means that the risks over the long term are increasing. To me, it's incredible how much the economy is correlated to the stock market based on the current financial engineered bubble. And that's why everybody is afraid of a crash, Trump first. Just because of the market turmoil in the last few months, consumer confidence fell from a historical high just two months ago to a multi-year low, which is crazy to see that just because stocks are down, what was it, 20% from the peak, but still 20% up over the last three years, consumer confidence has really, really declined. Given the correlation between the economy and the stock market and high asset prices that have fueled the economy over the last 10 years, I really think that politicians will do whatever it takes to try to keep stocks up, but that's just kicking the can down the road, and that might be very risky over the long term. We might see hyperinflation if the Fed is not allowed to increase interest rates, etc. etc. So that will be something interesting to watch. And the bulk of the crash will be seen when the economy doesn't show great numbers, when earnings actually contract, when companies start to go bust, etc. etc. etc., which is a normal cyclic economic process. Now, as I promised, let me give you the 100% correct stock market prediction. You won't hear this anywhere else. And I'm going to take a little bit of help from JP Morgan himself. When asked what the stock market will do, it will fluctuate. So I'm sure 100% I can guarantee, I can bet my life on it, stocks will go up and will go down in 2019. Now, this I'm sure is not the prediction you expected because you want to know, as if you are in the 99% of the population, investing population, you want to know whether stocks will go up or down so that you can know whether you have to sell stocks or buy stocks, right? So I'm sorry to disappoint you, but even JP Morgan didn't know whether stocks will go up or down. So therefore, we have to focus ourselves on what we can know and that is investing based on business fundamentals. Let's listen to Buffett with an excerpt from his annual letter. Berkshire itself provides some vivid examples of how price randomness in the short term can obscure long-term growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. This is what we have to focus in on compound interest and reinvestments. Year by year, we have moved forward, yet Berkshire shares have suffered four truly major dips. Here are the gory details. So even Berkshire's stock fell 59% 1973, 1975, 87, 87, what is that? In one month, 37% down, 98 to 2000 down, 48%. Berkshire Hetaway was down because Buffett wasn't investing in internet stocks. What a big mistake was was it right back then. Then 2008, 2009 again a decline of 50%. So an unsettled mind will not make a good decision. Therefore, it's extremely important to really think about your behavior when it comes to investing and have a settled mind so that you can take advantage of what is going on, what will be happening in the long term, and that you can always have enough money to pull the trigger and buy when everybody else is selling in panic. To go back to Buffett again, in the next 53 years, our shares and others will experience declines resembling those in the table. No one can tell you when this will happen. The light can at any time go from green to red without passing at yellow. This is exactly what we have been seeing in the market this month. When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt. That's the time to heed these lines from Kiplings. If you can keep your head when all about you are losing theirs, if you can wait and not be tired by waiting, if you can think and not make thoughts your aim, if you can trust yourself when all men doubt you, yours is the earth and everything that's in it. With that message, I'll leave you today to contemplate what's my long-term investing strategy? Am I looking at the stock market going up and down? Do I want stocks to go up 10% or do I want to let those earnings compound, invest over the long term, create value, create an extremely valuable portfolio? Which is something I'm going to discuss tomorrow when I'll be discussing my 10,000 plus 1,000 monthly edition portfolio and the 100,000 lump sum portfolio that I'm launching from the start of next year? So I'll discuss why do I have two portfolios, how am I managing them, and what is my core mindset when it comes to investing in stocks? Thank you for watching and I'll see you in the next video tomorrow when we discuss my stock market strategy and portfolios.