Investor's Edge with Gary Kaltbaum - Buh Bye Milton & Respect Risk [10.10.2024 w Adam Sarhan]

Episode Date: October 10, 2024

https://garykaltbaum.com/

At CVS, it matters that we're not just in your community, but that we're part of it. It matters that we're here for you when you need us, day or night, and we want everyone to feel welcomed and rewarded. It matters that CVS is here to fill your prescriptions and here to fill your craving for a tasty and, yeah, healthy snack. At CBS, we're proud to serve your community because we believe where you get your medicine matters. So visit us at cvs.com or just come by our store. We can't wait to meet you. Store hours vary by location. Investors Edge with Gary Cultbaum. Straight talk about you and your money. Now from the BizTalk Studios, here is Gary Cultbaum. And welcome once again to Investors Edge. I'm Adam Sarhan in for Gary

Kay, who's out today. Today is Thursday, October 10th, 2024. We've got a great show for you today. I want to thank you very much for being here. First, I want to say a very, very, Good. Bye-bye. If you remember the old S&L skit from the 90s, bye to Hurricane Milton. And hopefully everybody in its path, everybody is doing well. Everybody is okay. Thankfully, the storm came in as a category three and hit Siesta Key on the west coast of Florida. And then it slowly weakened. And it passed relatively quickly over the state and it was gone by this morning, Thursday morning. So it hit pretty much Wednesday night or evening-ish. And then it was going to. gone by Thursday morning. A lot of damage. The Tampa Bay raised their dome. They lost their

student. The dome or the top of the stadium was torn off and there were some, a lot of tornadoes around. So thankfully, for the most part, it wasn't as bad as people had initially expected. And most things in life, it's a matter of expectations. And this links to the stock market in just a second. If you look at expectations, and remember, when I step in for Gary and I do the cover the show and share with you. I always want to go zoom out and do timeless topics and give you some nuggets that I've learned along the way. It took me 10, 20, 30 years to learn

and share them with you. So you can take these nuggets and hopefully build on what you know and your own success and really help get you to the next level. So when you look at expectations, thankfully people were expecting this storm to be much worse. The storm of the century, the worst storms to hit 10,000.

Tampa area since the 1800s, you know, so on and so, a lot of preparation. And thankfully, it hit instead of a category five, which it was a category five at one point, hit a category three, came in under expectations. Now, this is important. When you look at most things in life, most things in life, humans have a tendency to say, oh, that's good or that's bad. but that's a judgment and it's subjective. So rain, pardon the pun here, but rain itself, it's not even a pun, it's just let's use rain as an example, is a neutral event. Stock market going up, going down, or going sideways, neutral event.

But how it compares with your expectation, that determines whether or not it's good or bad for you. So, for example, rain is good if there's a drought. it's quote unquote bad if you want to you want on a vacation and hey you want to Disney World this week and Disney World have the shutdown. I think it's only shut down eight, nine times or whatever it's been since its existence. But you spend all this money, you take a trip. It's your trip. You know, your trip of the century kind of a thing.

You're like, you know, you dream trip and you want to go to Disney World and you happen to get there this week and then a hurricane hits. Not good. Bad, right? So when you look at the market and you look at just about anything in life, happiness. Let's even zoom out, even above the market are just humans, right? One of the biggest things I focus on is upgrading my user. And that's why I talk to you about all this stuff that helps reconfigure our mindset and helps us adopt and create, notice the words, a winning mindset.

Because I study success. You know, Gary taught me this, I think 25 years ago, if you want to be successful, just model success. Tony Robbins talks about it. Jim Rohn talks about it. I mean, this is, look at successful people. What are they doing? How do they think? How do they handle adversity? Are they optimistic or not pessimistic, right? Again, no judgment. Just what are some common patterns? Pattern recognition becomes extremely important in the market and in life. And one of those is happening. and being optimistic. I think someone just said one time, I don't know any pessimist who built the new building in Fifth Avenue in New York City or whatever it is, right? Like the massive project, goes into a massive project with a pessimistic outlook thinking that they're going to fail, but they go in there anyway.

Maybe it happens, you know, maybe most trades don't work. And you might think, hey, this one's different, sure. But people tend to have an optimistic slant or positive slant to their activities. If you go buy a stock, I doubt you're going in there 100% expecting to get stopped out and blown out and have it blow up your account. It's just not the way the world works. But most people walk around with that unconscious kind of you've got to create that optimistic slash happy kind of attitude, right? So it's a game of expectations. There's an event, an external event, enter hurricane, rain, storm, sun, maybe sun.

Hey, Florida is a sunshine state. Maybe it's too much sun. Again, it doesn't matter what the event is. The stock market went up, it went down. The stock went up. What matters? That event compared to your expectations. Hey, go watch this new movie.

It's the greatest movie in the world, and I hype it all good. And then what happens? The movie's good. Not great. You're disappointed. Even though it was a good movie because your expectations were so high. Or the other way also. Worst moving the world, don't ever watch it.

You watch it. It's okay. It's not as bad as you were expecting. You're happy. So that's really focus on stepping back and zooming out. And times like this where there's tragedy, people lost their lives. Thankfully, not a lot, but a lot of devastation, a lot of damage. The potential for it to be even worse.

I've just spoke with somebody earlier today from Asheville and the Carolinas. And they literally have no water in their city. I think they had, they were no power for 10 days or thereabouts and no running water because of Hurricane Helene or Helena or whatever it was just a week and a half ago two weeks ago. And that's in the Carolinas. And it wasn't even a direct hit up there, but it was just devastating. So as you put the market, as you put life, we're going to take the end of every show. Hug your kids. Hug yourself.

Love yourself. Put things in perspective. I'm a capitalist. I view things differently than most people. I view making money as a noble cause, as a good cause as something that's innate that we all deserve to do. It just gives us free. It's a tool. It gives us freedom. It gives us the ability to help other people and do more good. If you use it for good. It's like a hammer. Right? Actually, I had a frame that that broke. I couldn't get a hammer to fix the, there was a little metal thing. I had to get a wrench or thing to squeeze it because the little metal thing was kind of out of whack. I can't use a hammer for it. I tried. It didn't work. I'm not a handyman. So you got to get the right tool.

You get the right tool. Boom, two seconds later it works. You know, you can't get a hammer to screw in a nail. That's a screwdriver's job. Can't get a screwdriver to do something. You know, you get the point. So really understanding that happiness is a choice. It's one of the things that set me free in life.

Gratitude, an attitude of gratitude, another thing that just absolutely changed my world. Taking time, especially when you have tragedy and things like the hurricane and two hurricanes in two weeks, and millions of people impacted and damage and, you know, ba, blah, blah, blah, blah, all different things. Because of what? helps you put things in perspective. So that being said, just want to take a second. Choose happiness. It's a choice.

We're alive. It's a great blessing. It's a choice to choose happiness. I'll tell you another story before I get into the market. A few years ago, I was down in Cancun and Mexico. I was on a trip with my family and it was 6.30. We were checking out. We had to get an early flight to get out of there and go back home.

And I'm at the hotel. Nice hotel. And the guy behind me, this guy is. dripping sweat and he came back shorts and a t-shirt and he's running you know that's why I make small talk I'm like what does this guy do I'm tired I got my kids and my kids are young at this time and I'm like why is this guy so full of energy at 6.30 in the morning he came back from a run or something like that and he had to go check he's a guest at the hotel and he was asking the front desk for something so I make small talk with the guy turns out he's a doctor from Toronto

how are you good and he goes I said how are you just want to make small talk and he goes great said wow this guy's got a lot of energy at 6 o'clock in the morning and then he goes today's the best day of my life. Super high energy. And I'm like, wow. Look, what happened? This is your birthday? Did you win the lottery? Sell your business. I'm thinking, like, in my head, something must have happened. And then he, without skipping a beat, the very next thing out of his mouth, he goes,

every day above ground is the happiest day in my life. I said, wow, can I use that? He goes, yeah, sure. So actually, the joke was, in the hotel, the staff was trained to use the word excellente. Excellent. in Spanish in case you don't know is excellent. So how you doing? Como sta?

Accidental. Everything, the service, the whole guest, sorry, the interaction with the staff. The whole time, exente, exente, exente. So, okay, how are you? He goes, exeente. And I said, great, but it was really excellente. And that was it. I said, all right, great.

Every day above grounds, greatest day of us, great. He's a doctor. He turns out he was a surgery. He does that. He sees a lot of death. He's like, hey, every day is a blessing. I'm choosing happy. I'm making an accidental.

day day. So take that, you put that together with the market. I'll get to the market. Up next, we'll talk about the market and all the details and all the fun stuff and I'll give you notes directly from Gary, but I just want to take some time to help people put things in proper perspective. Up next, we've got a lot more to cover. I'm Adam Sarkhan. This is the one and only Investors Edge. Hi, I'm Gary Kalbaum, hosted a nationally syndicated radio show Investors Edge. We're not just handsome radio people. We manage investors' money for a living, specializing in fee-based discretionary money management. No big commissions, just a fee on the assets that's managed.

We also provide a full range of personalized services, including retirement planning, fixed income, and educational needs, all to assist you in achieving your financial goals. Understanding not all individuals have the same needs, we'll carefully evaluate your personal goals to determine a proper investment strategy. If your current approach to investing is not getting you to where you would like to be, call us to make an appointment for a complementary portfolio review. The number to call is 888-4-22-55-9. That's 8-8-5-9.

That's 888-4-2-2-5-9. Investment Advisory Services offered through call-bomb capital management. Volatility is hitting retirement accounts and savings across the country. More Americans are exploring physical gold and silver for added diversification during unpredictable economic periods. Preserve gold offers straightforward education on how precious metals can be included in an IRA. Text iHeart to 50505 for your free wealth protection guide, and with a qualified purchase, you could receive up to $15,000 in free gold or silver. Success starts with your drive, and American Public University is here to fuel it.

With affordable tuition and over 200 flexible online programs, APU helps you gain the skills and confidence to move forward. Whether you're changing careers, starting fresh, or pursuing a lifelong passion, our programs are designed for people who never stop. You bring the fire, APU will fuel the journey. Learn more at APU.APUS.edu. At When I was I've learned some things like the

value of the family, the importance of the time of the people of the people of the people

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It's time to switch on the integrator units and get the brain cells working. You're listening to. Hey, this

promises to be fun. Investors Edge. The last bastion of quality programming with Gary Coltbaum. It doesn't get better than this. And welcome once again

to Investors Edge. In case you're just joining and missed any part of the show, you can go to GaryK.com, listen live, or archive 24 hours a day for free on any device you want, all available on GaryK.com. If you want Gary's morning notes sent directly to your inbox, you can sign up there for free.

You can email Gary about his money management services or ask him anything you want. And if you want Gary's premium service where he goes through, you know, pretty much several times a day and daily webcast about the market, he upgrades members with his thoughts about the market, leading areas, leading groups. he goes into detail. I mean, just full in-depth nightly webinars plus weekend webinars with several updates throughout the day. All of that is available. You can take a free trial on convictionleaders.com. All right. So notes from Gary, software stocks really coming on, period. Gold still in shape and in good shape and looks like it held support. There's a big war in the 10-year

yield as it moved up to near 4.1% from 3.6-ish. So watch the 10-year yields, folks. That's important. Yields matter to Gary more than what is reported on because inflation, and that's big smart money reacting. Outside of that, Gary says China has been pulling back or it's been pullback mode from the redwood trees and it's kind of acting constructively as it pulled back, but it's still very, very extended. And if you want to look at the Chinese stock market, you look at FXI as one of the ETF that tracks it or any of the Chinese stocks. You had a big move over the last few weeks because they had a lot of stimulus. They were going to announce more stimulus, but they didn't. And then now it's just a little pullback time,

but it's still constructive, healthy pullback. David Tepper, one of the billionaire hedge fund managers went on TV a few weeks ago when the stimulus news came out. And he said, you know, he's bullish on China. There were valuations and there were cash and some of the stocks that he was buying. These Chinese stocks had half their value in cash. And it was just crazy bargains. but the lady asked him, what are you buying? He literally says everything. And the way he talks, it's funny because he's got, you know, you read between the lines, you can see what the guy is saying.

It's just like, it doesn't matter. Just buy. So he was really bullish on China. This is day one of the stimulus or day two. It was like the first week of the stimulus before the big move up. So I'm assuming he had a big run. That being said, now they're in the redwood trees is Gary's way of saying they're very extended, right? they've got to pull back all just about every single market.

If you look back at history, you get pullbacks. You get sideways action. You get consolidation. You know, markets take the stairs up and the elevator down, so to speak. That's an old adage on Wall Street, which means that stocks go up. They move sideways. They build a new base. They consolidate.

They go up again. Sideways, you get pullbacks along the way, corrections along the way. And then you go up again, hit a new high, higher highs and higher lows. That's the definition of an uptrend. And then eventually you get a big top and then boom, you get a downtrend to the bear market. So this could be an early beginning of a new move, a phase one or an early move for these Chinese stocks. If they're beginning a new up trend, it's still very early. They had a big move up.

Now it's consolidation time. And let's see how they consolidate. So that being said, let's talk about some other timeless lessons. because, you know, that's what I'm all about. And I'm not on here often. So when I'm on here, I like to share what I've learned so you guys can benefit. One of the biggest things I could tell you is defense first. And if you look back at history and it doesn't matter how far back you want to look,

I've studied multiple, I've said economic cycle going back to the third century. I've studied markets. Every publicly traded kind of price boom and bust and. Tulip bubble and the Southsea bubble and the dot-com bubble and this bubble and that bubble and the subsequent busts and market cycles and periods anything I can get my hands on I'm in there deep because I'm looking for patterns. I'm looking for things that repeat. I'm looking for an edge, investors edge. And what I've learned is that the cycles change. You know, the tulips in Holland a few hundred years ago or you got the dot-com bubble in the late 90s or you've got the housing bubble in the US or you got the whatever, the Bitcoin boat, whatever you want bubbles and butts, the assets change, the centuries change. Even the countries where those bubbles happen change. But the one constant is human nature. And that doesn't change. So when you look at markets and you look at putting the, you know, connect those dots and you want an edge, I always ask myself, I'm like, okay, if I want to make a decision, remember I said, I don't know if you

listen or not, but one of the other times I was on the show, I talked about how I look at decisions as trades. There's an element of risk and an element of reward for every decision. Should I stay or should I evacuate? Well, what are the pros and cons?

Should I cross the street? Should I not cross the street? Should I start a business? Should I buy this stock? Should I so on and so forth? Should I sell it? So on and so forth. Okay, great.

Now that you get all that, that my thinking at least, and again, this is what works for me for you to take the good like anything in life and leave what you don't like because of the bad or good and bad those judgment words, but take whatever helps you and leave the rest. What benefits me

tremendously is when I look at the worst case scenario. Am I okay? Here's my entry point at, let's say 100. I'm going to get out at 95. So I'll give the stock room 5% below my entry, or let's say 93, 7%. It doesn't matter. Let's just say 95 as my sales stop. So I'll give it 5% if I buy it at 100. Am I okay risking 5% on the stock? And if I'm not okay, what's the worst that can happen? I get stopped out. I lose 5% from entry to exit. Okay, then I'll adjust my position size accordingly.

Because that doesn't tell me what's going to happen in my portfolio. All that tells me is where I'm going to enter and where I'm going to exit. But what determines my results? It's the impact on the portfolio. And that's determined by your entry or exit. And then the other component is the position size. do I have 100% of my portfolio in that stock? If that was the case, I'll lose 5% of my portfolio.

Do I have 10% of my portfolio in that stock? In other words, if I have a $100,000 portfolio, 100% of that would be $100,000. 10% of it would be $10,000. So if I buy $10,000 worth a stock in that $100,000, you know, fictitious or hypothetical just in this example portfolio, $10,000. And then if I lose 5% of that, hey, guess what? 500 bucks, right? 10% of 10,000 would be 1,000, so 5% would be half of that, 500 bucks. Now, if I take 500 bucks that I lost on that trade, because it's a 10% position, and divide the 500-hour loss by

100,000, you'll see it's a very small number. I'm not going to go into any more details because I don't, it's not outside the scope of this conversation. So the position size matters. It goes from risking 5% of your portfolio, if I'm 100% invested and I lose 5% to losing a fraction. of 1% if I take a smaller position size. So once I'm able to determine the risk, again, defense first, then everything else, the reward side of the equation kind of takes care of itself. Because I've measured my worst case scenario, give or take, if it gaps down on me or some kind of crazy, there's fraud or some kind of outlier occurs, the CEO, whatever.

Something could happen where there's an outlier. But for the most part, my risk is determined. So beforehand. So I'm comfortable with that worst case scenario. I can enter the trade and not get shaken out by normal pullbacks or whatever the case is. Hope that helps. So defense, defense, defense. I'll talk more about that up next and I'll talk about some other things as well.

Again, thank you very much for being here. This is the one and only investors' edge. The world isn't getting any calmer. Economic instability, global conflicts, and record national debt have created an environment where financial uncertainty is a part of everyday life. And while none of us can control those forces, we can control how prepared we are for them. Market swings are hitting retirement accounts and savings harder than ever, leaving many Americans wondering how to protect what they've built.

That's why people are exploring physical gold and silver as a part of a broader strategy. These are tangible assets with a long history of being used when confidence in traditional markets waivers. They're not a promise of returns and they're not a replacement for existing investments. They're simply another tool to help diversify our portfolio. Preserve gold provides clear, educational guidance to help you understand how precious metals can play a role in long-term planning, including options for holding them in an IRA. For your free wealth protection guide, text IHeart to 50505. And with a qualified purchase, you could receive up to $15,000 in free gold or silver.

Simply text IHeart to 50505. Success starts with your drive, and American Public University is here to fuel it. With affordable tuition and over 200 flexible online programs, programs, APU helps you gain the skills and confidence to move forward. Whether you're changing careers, starting fresh, or pursuing a lifelong passion, our programs are designed for people who never stop. You bring the fire, APU will fuel the journey. Learn more at APU.appus.edu.edu.

At the 50, I've learned some things, like the value of the

family, the importance of the time, and that the 99% of the people of

the cause a Culebrilla. Although not all the people in risk, they're

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Listen to America is talking. Investors Edge. He's got to be pleased with that. The crowd is just on his feet here. He's a Cinderella boy. With Gary Colbomb. It comes highly recommended. You're going to feel better if you talk to him.

And welcome once again to Investors Edge. In case you're just joining us. I missed any part of the show, you can go to GaryK.com. Rewind, fast forward, listen on any device you want, 24-7 all for free. Right. So we spoke about defense, spoke about the power of planning ahead and understanding the worst case scenario. And I told you I studied markets, I studied history. I've studied successes as well as studied failures. And if you look at the one common denominator of all the people that lost money and that got blown out of the market, in other words, in 2008, the entire investment banking business imploded. right? The five biggest banks at the time were Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman and Bear.

Lehman failed. Bear failed, both got gobbled up. Merrill Lynch failed, essentially got sold to Bank of America. And it left you with Morgan and Goldman, who were still standing, but they had to switch to become commercial banks to accept emergency funds or tarp money from the government or whatever the money was to help save them. And that was that for the five biggest investment banks. Now you might ask yourself, oh, why did it? they fail. Maybe he didn't ask, but I asked that question. And the answer, forget about the details of the the CDOs and the LMOPs and the QRS and TUVs of the instruments that they bought and the, the housing crisis and the AAA and the AA and the defaults and the credit default swaps and blah, blah, blah, blah, blah. No, no, that stuff. They failed for one reason. In my opinion, and one reason only is they didn't respect risk.

Yes, those were bad investments or lousy investments. Great. Everybody has losing traits. Why did they fail? Because they didn't respect risk. A few minutes ago, speaking about position sizing, right? They didn't respect risk. When you don't respect risk, you open up the opportunity for debilitating losses.

And the winner, the ones that are very successful, that whether that's, storm that traded positively in 2008 or traded positively during COVID or whatever the case is that didn't blow up that are still around the tests, you know, standing up the test of time, you can look at Warren Buffett. He's been doing this for 50, 60 years now. He was there for 2008. He bailed out other people. How come he didn't get buried? To Goldman Sachs has been around for, I think, a hundred years now or somewhere in that area. And they needed some bailout money. they survived. Why didn't they get blown up like Lehman or Bear Stearns or Merrill Lynch?

Why? It's the risk. All these folks, individual traders, Paul Tudor Jones, these David Tepers of the world, Ray Dalio is the world, respecting risk. Gary, it's been around for decades. Very, very, very, not good, great at what he does. Why? Very strong risk management.

It's a superpower. He has. He doesn't get caught in bare markets. I know I've been watching working following Gary for since in the late 90s. And I've had multiple bare markets. Dot com crash. NASDAQ went down over 80%.

2008 crash. I think the market got cut in half over 54% at one point. COVID mini crash. It crashed, right? Every other bare market pulled back all that fun stuff since. Not once have I seen Gary lose. 50% of his money in the market or client money or that kind of stuff. He gets out of the way. He respects risk, right? He's still standing. Lehman failed. Gary's still standing. So when you look around at the

most successful traders and investors in the world, you supply patterns, right? Successfully clues. Certain things just jump out at you when you look for it and you study and you ask the right questions and so on and so forth. It's that respecting risk is one of the most powerful things I've learned because if you respect risk, you keep those losses small, when you get those one-off events, whether it's a really bad hurricane, adverse move in the market, and I'm using the word bad and subjective, but it's bad based on your, if it loses your money, that's quote-unquote, for the most part, not a good thing. It's a bad thing. But some people, People say losses are good depending and then it gets the wins, but just keep it real simple.

You know, losing money is bad. Winning is good. Positive negative. Any word you want to use, right? Expectations. Nobody wants to go in there and lose, lose, lose. Everybody wants to go in there and win. All right.

Keep those losses small. Defense first. And ask you, the three questions I ask before I enters, where am I going to enter, where am I going to exit? How much am I going to risk if I'm wrong? It doesn't matter if I'm buying a house. It doesn't matter if I'm buying a stock. I'm buying, investing in anything else in a business, it doesn't matter. Enter, exit, risk.

That's it. If I'm okay with the risk, I have a good entry price, I have a good exit. Great, I'm happy. I'll take the trade. I'll go ahead and move forward. If the risk is too great, I'm not going to do it. Very simple. Hope that framework helps.

Now, on the other side of things, there's the reward side. Now, if you risk too little, in other words, let's say out of that 100,000 portfolio, I only buy $100 worth of the stock. Let's say the stock doubles. It triples. $100 turned it to $500. It's going to have such a small impact on your portfolio. It's going to barely move the needle. How many stocks, at times is the stock double or triple a quadruple on you? So most of the time you're up 20 percent. So you make $20 on $100 investment. On a $100,000 portfolio, that $20,000 is a rounding error, more or less. It's not going to be. going to move the needle. So if you go too small, you're too shy or you're too risk. It's just not for you.

Then, hey, that's fine. You can do that. You do whatever you want. It's your money. Do whatever you want. Remember, there's no investment advice being giving. Everything is general and informational purposes only. Do whatever you want. The reward side of it isn't going to be there for you when things work out. Because things will work out. Markets go up. They go down. They go sideways. If you respect risk. Now, the other side is a reward. So there's the balance. And one of the, it's an art form. One of the most important things to do in life is learn balance.

Learn how to keep things balanced. Because when you keep things balanced, what happens? Think of yin-yang or masculine feminine or, you know, just balance in a Libra scale. This is October. So happy birthday to all the October babies out there, adults now, but October kids. Which I'm one of them. Libra, that starts my sign. So, okay, great.

I get it. It's balance. I was talking to a younger guy. He's 25 and I work with, he works with me, he does some stuff. And I'm like, what do you do? I just watched the Vince McMahon documentary on Netflix. And I was like, do you watch TV? He goes, no. I'm like, what? What do you do? You on TikTok? Like, where's your attention going? He's like, no. He's a workaholic. I mean, he just works, works, works, works, works. And he's like, I read at night and I work during the day. I'm like, when do you play? Like, he started laughing.

So, well, there's 24 hours in the day. You sleep for eight more or less, or six or seven, eight hours. You're going to be awake working for an eight-hour day, and then there's eight hours left over, maybe nine or ten, depending on how you want to adjust it. But you've got to give yourself a time to get some balance. When do you exercise? I don't. When do you play?

I don't. When you socialize, I don't. Lewis, it's not good. You got to go out. You've got to balance a little bit. Now, I get that. That's how I was at his age, too. And I still am to a large extent.

I'm working on balancing other areas in my life. But same thing with the markets. It's balance. Risk versus reward. Balance. My friend Andy has a great line. He goes, you got to risk it for the biscuit. But he risk too much. You can implode. When I first got to start trading, there was a rule in Investors Business Daily or cancel them. They've got, you know, Bill O'Neill's another famous legendary investor. And he has it 7 or 8 percent cut your losses.

Stock falls 7 or 8 percent below your entry point. Just sell. I didn't understand the position size component. I put all my money into every stock I bought. thinking it's going to change the world and my that stocks can go up 100% didn't happen. So I lost 7%. Three trades later, my account was down 21%. What? How am I going to recover from that? And then know the numbers, right?

I call it negative math, but when you go down 10%, you need 11% gain to get back to even. You go down 50%, you need 100% gain to get back to even. You go down 70%, 80%, You need a few hundred percent gain to get back to even. It's not linear. Like, so you buy a stock at 100. It goes to 50.

You just lost 50%. Stock's at 50. In order for a $50 stock to go up to 100, it's got to go up 100%. 50 bucks, right? 50 plus 50 is 100. But you only lost 50%. Know the numbers. No math.

I'm not a mathematician. But I know basic math. Down 25%. You need a 33% gain to get back to even. So I'm down 21%. I think, oh, my account's got to go up 20%. No problem. 3, 7% wins.

I'm back to even. You know, like the Duke brothers, more to more we're back. If you remember the trading place isn't coming to America reference in the movies. If not, don't worry about it. It's just a movie joke. It's not like that. It's not linear like that.

You go down 50. You need 100 to get back to even. So again, defense, defense, defense, and keep those losses small. So up next, we've got a lot more to cover. I'm Adam Sarhan. This is the one and only investors' edge. With record U.S. debt, ongoing geopolitical tensions, and constant market swings,

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You're listening to What we're waiting for? What are you waiting for? One, two, ready, go. Action! In Investors Edge

with Gary Culper. And welcome once again to Investor's Edge. In case you're just joining us or missed any part of the show, you can go to GaryK.com, listen live or archive, rewind it, fast forward at your convenience 24-7. I know I tend to speak fast. I was just speaking with somebody

from Hollywood earlier today, and I said something, we were both speaking fast. He goes, I said to him something about the fact that somebody had told me recently just to slow down a little bit. And he said, no, time is money. And in our world where you're dealing with intelligent people and very, you know, business-oriented folks, time is money. So he's like, you've adopted into that world where it's like, oh, okay, keep going. You got to go, go, go, time, money, boom, boom. You can't go into a room and start talking gibberish. She's like in a writer's room with a bunch of executives and not make a point.

They'll eat you out and, you know, spit you out kind of a thing for lunch. You've got to get the point just across, clearly communicate and go. because I like it. I said, great. I like it too, but I know it's not for everybody. So if I speak again, if I speak fast, pause, rewind, fast forward, listen to it at your convenience as many times as you want. And I don't do this intentionally.

There's a lot I want to say in a very short amount of time. So spoke about the power of defense, spoke about markets, some other news. Inflation came out today, CPI. You have tomorrow PPI, which is today's a consumer price index, CPI. tomorrow is a producer price index and the big banks are reporting earnings. Let's go back to the beginning of the show. We spoke about expectations, right? When I go through earnings season, one of the questions I'm frequently asked is, hey, Adam, how do you look at earnings?

What do you look at when you look at earnings? And the answer is, we're looking at a few things, well, three things, really. One is what are the numbers compared to the same quarter last year? I don't want to compare the fourth quarter, which tends to be strong for retail, to the first quarter, which is weak. That's not apples to apples. I want third quarter this year compared to third quarter last year. What were the actual numbers year over year? Did they grow earnings?

Did earnings decelerate, accelerate? Revenue, same question. So on and so forth. So what were the actual numbers year over year? Number one. Number two, what were the numbers compared to the analyst expectations? That matters. Consensus.

Analysts get paid a lot of money. The big banks, they have an army of analysts that crunch numbers all quarter long and they come up with estimates. Okay, great. What were those numbers compared to the estimates? Did the company beat estimates? Did the company miss estimates? So on and so forth. and then guidance going forward.

Those are the three big things. Did the company raise their guidance, lower their guidance? The guidance part isn't as important because Apple and lots of companies, Navidia, lots of companies do this where they know they have a blowout quarter, they know they're going to have another blowout quarter, but they know it's a game of expectation. So they lower guidance. They beat and lower guidance.

I love it when they beat and raise guidance. That's really bullish. But many times you see them lower guidance. Those are the three big things I look at, from an earning standpoint. But the most important thing, and here's a little bonus for you, is the reaction to the news. And that trumps everything else. How did the stock react to the news?

I get a really good quarter, beaten raise quarter or beaten lower quarter, smashes expectations, earnings are up triple digits, whatever. But the stock gaps down, everything else out the window. Bye-bye. Like the old S&S. S&L skit. Bye-bye. If you want to laugh or if you don't remember the or no other reference, go on YouTube and type in B-U-H-B-Y-E, S-N-L. So, bye, S-N-L. And you'll see the old skit with David Spade and Helen and she, it was, it's just a funny thing. I'll leave it at that. So and by the way, while

I'm on that tangent too, my connection, I'm in Florida. There's a hurricane. So if I apologize if there's any issues that the hurricane just passed with the connection or any time I connect. I do my best to have the best possible connection. So again, bear with us if there's any kind of technical difficulties. We do want to make sure we can deliver the best voice possible. So thank you all for your patience there. So back to the earnings. The reason why I focus on the reaction, the expectation from those investors is it shows me what the big institutions are doing with their money. Not what they're saying, what they're actually. actually doing. And if big ones are selling, you see a big gap down. Big ones are buying.

There's an imbalance there. You'll see a big gap up. Not always, but many times when you get a big monster gap up on earnings, that's a bullish catalyst. The big gap down on earnings is a bearish catalyst. Again, not always, but often, many times, the probability. Remember, thinking probabilities because there's no 100% certainties in the market. The probability is it'll continue to go in that direction, up or down, for the near future. So as we enter earnings season, we have the big banks reporting in the next several days. I want to see the reaction. Are we going to get a lot of big gap up?

So we can get a lot of big gap downs. And then we've got tech stocks report. Tesla, Netflix, Amazon, Apple, you know, meta, Microsoft. The list goes on and on and on and on. But for today, right here, right now, we're about to enter the beginning of earning season, like the thick of it. You get the big banks, then you get the tech stocks and so on and so forth. Focus on the reaction. All that.

Zoom out and look at the market. We're what? One, two, three percent below all-time highs? That for now is very bullish. I'm watching for some heavy selling. If we don't have big distribution, big heavy selling, that's a bullish sign. Look on a weekly chart for the S&P 500 or the NASDAQ 100. You've got tight closes over the last few weeks.

That's a good sign. We'll see what we close tomorrow, of course. But that's a good sign. Now, if we get some heavy selling, we break the 21 day, we break the 50 day moving average, and we just get a few days of just heavy volume, big down days on heavy volume. Things will change. And there's some areas that are still lagging or not really participating as well. And there's some areas that are leading, like semiconductors.

They led most of this year. They took a break. All right. They well-earned, well-deserved break. Let's see what happens going forward. AMD announced that they have a black world chip to compete with Navidia's AI chip. All right, look at the reaction to the news. It's the same thing with earnings.

It's the same thing with the news. It's not really the news that matters. The earnings, this, the that. It's the reaction to the news. Again, we're not privy to what each company does, but we're privy. We just, we don't need to. We just see price and volume, it shows up. But AMD is down almost 5% on a day like today, and you have Navidia is up.

Well, riddle me that, Batman. Why is Navidia up and AMD down when AMD has, you know, launches a new AI chip to rival Navidia's Blackwell? That tells you, hey, the invest institutions, the big institutions, the big money, they're not really happy with it. Sure, they have a chip, but will it really matter? Will it move the needle? So I think that's all the time we have for today. As always, I want to thank you very much for being here. Hug your children.

Stay safe. Choose happy. Thank you, everybody for listening. And I'll see you again, hopefully next time. Take care, everybody. This has been Investors Edge with Gary Cult Bomb on BizTalk. To listen to past episodes or to get in contact with Gary, go to GaryK.com. That's GaryK.com.

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