Investor's Edge with Gary Kaltbaum - Changing Of The Guard [12.14.2023 w Adam Sarhan]

Episode Date: December 14, 2023

https://garykaltbaum.com/

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Investor's 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. In case you're just joining us or miss any part of the show, you can go to GaryK.com, listen live for archive. We're live Monday through Friday, 6 to 7 p.m. Eastern.

Also at GaryK.com, you can follow Gary on Twitter or an X now it's called. Just press the button. Also on GaryK.com, you can subscribe to Gary's morning notes sent directly to your inbox for free, no charge. You may email Gary, ask about his money management services, or subscribe to convictionleaders.com, which is his premium service, where he updates investors and his members several times a day, does daily webcasts in depth with annotated charts. and he goes really deep into the market and helps people see what he's seeing in real time. Without further, well, first off, today's Thursday, December 14th, 2023. We've got a lot to discuss. We've got the Fed.

We've got the aftermath of the Fed. We've got what's next. And end of the year, a whole lot more. So let's dive right in. First off and foremost, the market had a massive paradigm shift with the Fed pivoting. Some are calling it a pivot party. Some are calling it an adjustment in rates, whatever the case may be. But just as a stepping back, I'm a big picture kind of guy.

I always like to step back and look at the big picture. First, it's really important to understand what's been happening. The context is that the Fed's been battling inflation for the last, I would say, year and a half to two years. After COVID, you know, COVID came, he had a huge, basically the economy shut down to stimulate markets and stimulate the economy, the Fed came out and just went, you know, an easy money bazooka after bazooka, if not easy money Adam Baum about that. And then what happens? You had the stock market basically double in 12 to 18 months, which is a massive move. You had

housing prices soar. You had inflation in just about everything under the sun. Okay. Well, what happened after that? You had a situation where the Fed. Fed kept rates too low for too long. And they kept pumping money into the system for too long. So instead of having a period of easy money, which we had from 2009, really 08, 2009, all the way up until 2020 with COVID, then 21, really end of 21 slash early 22, where inflation wasn't really an issue,

then all of a sudden not only did it become an issue, it became a massive issue. Public enemy number one. I was quoted in a Bloomberg article today on the front page of Bloomberg.com and the reporter asked me, she goes, Adam, what's going on in the market? And I said, well, the Fed,

inflation is no longer public enemy number one. And that became the big quote. So inflation is no longer public enemy number one for the Fed. So what happened was you had inflation show up. Most of 22 into three, the Fed was raising rates, aggressively, the most aggressive rate hike they've had in decades to combat inflation. Plain and simple. Remember, folks, the Fed has a dual mandate. It means there's two things

the Fed has to do in plain English. Number one, keep inflation right around 2%. And number two, keep unemployment as low as possible. Make sure people are employed. That's it. Everything else takes a backseat. Now, in order to do that, they make sure markets are functioning at the right way, You don't have too crazy inflation or too low, lack thereof, deflation. You don't have stagflation, all these other kind of crazy stuff. But keep it really simple. That's the Fed's job, those two things. Well, all right.

For a long time, the Fed was doing easy money, printing money, QE1, QE2, QE3. You know the story. And there was no inflation for years and years and years and years. And then what happened? All of a sudden, they went way over the... the line over the deep end or whatever word you want to use to explain it after COVID. And they not only took rates of zero, they kept rates of zero, but they printed just gobs and gobs and gobs of money, expanded their balance seat and just debt galore.

Well, all right. Finally, after all those years of easy money, inflation showed up. And it showed up and, you know, it reared its ugly head, showed up in a big way. They had the change. So they started raising rates, 22, and then into early 23, they just raised rates, rates, raise rates, shrunk their balance sheet, you know, basically moved from a dovish stance to a hawkish stance, just to give you guys the language and the lingo. Okay, great. So what happened was you had a bear market on Wall Street for most of 2022. And the bear market bottomed in

October of 2022. And it's really interesting. If you study history like I do, you can go back and look at the last two major bear markets we had.com crash and then 2008 meltdown. down. The dot-com crash bottomed in October of 2002. This bear market bottomed in October of 22. 2020, that is.

20 year later. Same month. I can't make this up. And the new bull market back in after the dot-com crash started, was confirmed in March of 03. This year in March of 2023, I had a video and I said, oh, well,

I'm noticing a lot of cup and handles coming out. And there's a very high likelihood that the bare market's over and we're in the beginning of a new bull market. But I don't know for sure. Nobody does. Well, lo and behold, it would be really funny if that's the case and that's what happened. And the NASDAQ 100. If you look at the QQQQ, it bottomed in the Q4. It was November of 08.

And it really took off in March of 2009. And once again, there was precedent there. I was like, wow, if that happens again this time around, we're it bottoms in Q4, which it did of 2022. And then it takes off in March of 2003, excuse me. Wow. And lo and behold, that's what happened. Well, all right, it was bumpy. The two big headwinds, interest, you know, the yield on the 10-year, and the U.S. dollar.

For the most part, as the Fed was raising rates aggressively, those two things were going up. Stocks were going down. Well, all right. Most of this year, they were going down, but they really, from most of the summer, from the spring, summer into early fall, the yield in the 10-year took off, went really high. And same with the dollar. Then all of a sudden in November, the Fed came out and said, hey, we're done raising rates. Not directly because the Fed doesn't speak in plain English. You know, Greenspan years ago, a former Fed head way back in the 90s, used to speak in, I don't even know the right word for it, just in very convoluted language.

Okay? The Fed's been a lot more transparent since then. They used to look at if he's holding a briefcase in his left shoulder, sorry, on his right arm, he's going to cut rates, left arm, he's not cutting rate, all this crazy stuff. Right? The way he walks, he walks. If he's slunched over, it was looking for clues just out of nowhere. Because he was just so opaque and the way he spoke was just completely just convoluted for lack of a better word. Okay, great. So the Fed doesn't directly say, but you read between the lines and you look at the market and you can put some things together. It's part of being investors. You've got to understand what's going to happen. Okay, great. So in November, they basically told us they're done raising rates.

Market took off. And Gary's been on this like white on rice for you. follow-through day after follow-through day, big rally in the market, so on and so forth. Okay, great. Then all of a sudden, in December when they met yesterday, you had a giant, they basically listed, not only they're done raising rates, but they're going to begin cutting rates. A ginormous rally in many areas of the market that have been kept down pretty much due to interest rates going up. If you look at the market

over the last, I guess, 18 months or so, since the end of 21, let's go even further back. You have a situation where the big cap tech stocks got hit really hard in early 22, but they recovered. Latter half of 22 and into 23, they've been leading the way higher.

Meanwhile, for most of this year, the Russell 2000, you can look at the IWM, the mid-cap S-N-P-400, the MDY, or look at the money. IWC have all been getting hit and they just haven't performed. There's a huge, you know, if you look at year-to-date returns between a huge difference between the NASDAQ, the Dow, the S&P, and the big caps, so to speak, and then small and mid-cap

and even micro-cap areas of the market because those smaller stocks, smaller cap stocks, are a lot more sensitive to interest rates. Regional banks, the REITs, the financials, economic sensitive areas, housing, housing-related. even though housing stocks have had a big year recently. Banks, I'm just reading off of Gary's report on conviction leaders, and many, a lot of other stuff, 80% that were creamed into the end of October in just two hours in a gap today, amazingly extended to show how underinvested they were.

And that's off the back of, you know, crumbling in interest rates and so on and so forth. So what does that tell you? You have a huge amount of money flowing into those smaller cap stocks, regional stocks, everything I just mentioned. Because they're playing catch-up. Because they were artificially kept down because interest rates were going up, up, up, up, up, up.

Now that the market's a forward-looking mechanism. Remember, the market looks forward, it's pricing in. Hey, maybe the Fed will begin to cut rates and cut rates more aggressively than people expect. So a lot of money is flowing into those areas that were left for debt up until, you know, the beginning of November

when the Fed said, hey, we're not raising rates anymore. And then now, they're like, hey, we're going to cut rates. That's more or less, even when you read between the lines, my take on what the Fed said. And that's it. Now, if you look at interest rate sensitive areas, look at the yield in the 10-year, for example. The yield in the 10-year has been coming down for the last several weeks as the market's been going up. And that, again, folks, if you look at it, short-term, It's a important thing to watch.

Up next, we've got a lot more to cover. I'm going to speak about some stocks, some sectors, and a whole lot more. 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.

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Investors Edge. The last bastion of quality programming. With Gary Coltbaum. It doesn't get done. And welcome once again to Investors Edge. I'm Adam Sarhan, in for Gary Kay, who's out today. In case you're just joining us amidst any part of the show, or if I go too fast, I know that that's a flaw of mine. By all means, please go to GaryK.com.

You can listen to the episodes for free on any device 24-7. You can pause, rewind, fast forward, and do whatever it is that you want to do. Take notes however you want to do. I know people do lots of different things with these. with the show. So that being said, spoke about the fact, just put some context in place for you with the market, with the Fed, with inflation, with what's happening, with how the market's reacting after the Fed cut, or the idea that the Fed's going to start cutting rates, so on and so forth. Well, all right. Now let's talk about a few things. The yield in the 10-year fell below 4% today.

And if you look on a chart, it's actually below its 200-day moving average. Remember, the yield as it goes down, stocks have been going up because it's been a headwind for most of the last year and a half to two years. Now it's becoming a tailwind as it continues to fall. It's fallen a lot in the last several weeks. Okay, good. So since the end of October, and that's when the market started taking off as the yield started coming down.

So that's one thing to keep in mind. The next thing to keep in mind is the dollar. You can look at UUP as an ETF that tracks a dollar and that's breaking down today. It's still above its 200-A but it's breaking down. So all right, keep that in mind. As the dollar comes down, gold and silver, GLD and SLV pop. They rise because they're inversely related to the dollar. And same with other commodities, but for the most part, it's gold and silver that I want to

focus on because gold is forming a very bullish, I mean very bullish, if you look at a monthly chart, long cup and handle pattern, going back. back almost 18, 19 years. So this is one of the longest cup of handles I've ever seen. If this thing breaks out and just takes off and goes, my goodness. So you also have a cup and handle, by the way, forming in the NASDAQ 100, QQ. And you've got one in the S&P 500, not as long as gold, but you've got one nonetheless. Going back to 2021, that was after the COVID rally was the uptrend.

And then you had a nice cup at the beginning of 22. and then it bottomed in October of 22. Then you rallied in 23, the right-hand side, into the summer. You built the handle in July, I guess, August, September, October, and then you took off and you broke out of that handle now in December. Just right now you're breaking out for the queues. The Dow is already at new all-time highs, folks. So if you look at the Dow, DIA is the ETF that tracks a Dow,

new all-time high. It took out the high from back in late 21, early 22. that was late 21. 36.952. Let's see here. So that was, excuse me. Yeah, it was the end of 21 into, yeah, there it is. It was, no, January of 22.

So the end of 21's where it topped out, and the exact high was in January for the Dow, was the month of January in 2022. Now we're above it. All right, we're at 37, 213. They're about 37 to say about 37 and change. Okay, great. So what does that mean?

The Dow is the first index to break out and hit new highs. That's only 30 stocks, by the way, and they're blue chip stocks, right? Look at the smaller cap stocks like the Russell, the IWM. It's now coming up the right side and it's trying to break out of resistance going back to about a year and change. maybe to April or May of 2022. It breaks out above that. The IWM breaks above 200. That's going to be real bullish,

and then it can go challenge its highs from Q4 of 2021. Some of the indices topped out in Q4 of 21, some topped out in early 2022. So it depends on which index it is. But the Russell is now coming around. The regional banks, which got hit really hard, largely because of higher interest rates back in March,

have recovered a lot of, that damage, not for all of it, but are coming back around. Now, the big message I want to send home to you today is that in the short term, the market is very extended and due to pull back. Remember, anything can happen in this business. Literally, I mean, I've seen just about it. I've been doing this since the 90s. I've seen just about anything you could think of happen. Just about is a key word there. Not any, I haven't seen everything, but I've studied history and I've seen lots of other things, shocks and, you know, wars and so on and so forth. I've lived through where the market, you know, you had 9-11, you've had other shocks,

you've had nuclear stuff go on and the spill in Japan years ago and so on and so forth. But what happens is it's all about probabilities. And this is where I'm going to shift a little bit of the conversation to help you stack those probabilities, or like Gary says, stack the odds of success in your favor. That's ultimately our goal. That's what we want to do. So we know that anything is possible, but we want to focus on what is probable. Why?

Because that's how we can make intelligent risk-adjusted decisions. How do you navigate the unknown? By definition, the future is unknown. Nobody knows if the market's going up down or sideways in a year from now. Isn't that going to be 10% higher, 10% lower, 50% lower, 50% lower, with a thousand percent certainty? Nobody knows. You can look at the analysts on Wall Street. They always have targets.

They up their target. They lower their target. They change their target. You know, so on and so forth. So how do you navigate the unknown? Focus on the probabilities. Near term, the 50-day moving average, which Gary talks about a lot, acts as a magnet.

If you're too far extended above it, odds are you're going to pull back into it. And when you're too far extended below it, odds are you're going to rally in. into it. Right now, we're at one of the highest levels of extension above the 50-day moving average we've seen in a very long time. That doesn't mean it can't get more extended. It clearly can. All I'm saying is that odds are we're getting to a point now where a pullback would be very healthy for the market, a light volume pullback. There's two ways for the market to consolidate a big move up. Number one, it can go sideways. Number two, it pulls. back. That's it. Those two, when it goes sideways, it's the more bullish of the two scenarios.

Those two ways, it goes sideways or pulls back, are literally how bull markets are made. There's an expression on Wall Street. The market takes the stairs up and the elevator down. You know, up, sideways, up, sideways, up, pulls back a little bit, up again, so on and so forth. What's an up trend? If you had to explain it to a five-year-old, it's a series, it's just lower left to upper right on a chart. It's moving higher. higher highs and higher lows. And downtrends the opposite. It's moving down, and you've got lower highs and lower lows.

That's just the simplest definition. Okay, so for now, we just had a really big move up. All I want to say is just to be careful, especially if you've missed the rally, there's FOMO. And I'm big on psychology. You know, many of you know that I wrote the book called Psychological Analysis. Because I looked around, I'm like, okay, my whole idea is fundamental. technical analysis and not enough to beat the market if they were, everybody would be rich and own a few islands in the Caribbean.

Something's missing. How come there are certain guys? The market's not random, in my opinion, or efficient, you know, any of that kind of stuff. Because how do you explain Paul Tudor Jones's success, Gary's success, Warren Buffett's success, Bill O'Neill's success? And the list goes on and on and on. Even my success. Buffett's been doing this for, I don't know, I think he's like 50 or 60 years now. And he's got one of the best records out there. If the market's random, you sure, you're, you're you can beat it for a year or two or three or four, how you can do it for 50 years. Same with these other legendary investors that had these phenomenal track records. So there's more to it. So understand those odds.

Up next, we've got a lot more to discuss. I'm Adam Sarhan. This is the one and only investors' edge. Success starts with your drive. An 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.edu. Today, we're exploring deep in the North American wilderness among nature's wildest, plants, animals, and cows? You're actually on an organic valley dairy farm, where nutritious, delicious, organic food gets at start. But there's so much nature. Exactly. Organic Valley's small family farms protect the land

and the plants and animals that call it home. Extraordinary. Sure is. Organic Valley. Protecting where your food comes from. Learn more about their delicious dairy at ov.c.c-o-o-op.

Guys, it's no use putting it off. The best time for an underwear refresh is now. Tommy John underwear is designed for a perfect fit that stays put all day. There's zero-chafe thanks to four times more stretch than competing brands, and their innovative horizontal quick draw fly is a game changer. With over 30 million pairs sold,

there are thousands of men out there more comfortable than you. Don't settle for less. Go to Tommyjohn.com today for 25% off your first order with Code Comfort. That's Tommyjohn.com code comfort. Tommy John. Comfort perfected. You're listening to. America is talking. Investors Edge.

He's got to be pleased with that. The crowd is just on his feet here. 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 or missed any part of the show, you can go to GaryK.com, rewind, fast forward, pause it, listen at your convenience 24-7 for free on any device. I'm Adam Saran.

Gary Kay is out today and I'm filling in. So we spoke about the Fed. It gave you a history of the Fed and easy money and inflation, the beginning of the show, and markets. how markets just raced higher from 09 all the way up until the end of 21 into 22. And you had the COVID little sell-off in between in March of 2020, which didn't last long because the Fed came to the rescue and just pumped the crazy amount of money into the system, left rates too low. Then inflation got out of control.

They told us it was transitory, which is code for short term in nature. They were wrong. Then they started aggressively raising rates. So, okay. in November, they told us that they're done raising rates. Market took off, which Gary nailed for you. He's been on it like white on rice. And then in December, yesterday, they told us basically they were ready to start

cutting rates sometime in 24. Okay, great. So stocks that were beaten down and really just under-owned, left for, you know, that were just really crushed because of higher interest rate environment, mainly the small-cap stocks and the regional banks, and there's so many other areas that just haven't performed all year, have taken off and just massive amount of money has moved into those areas. You've got a lot of short covering going on in those areas, meaning the people that were short had to exit, meaning they have to buy it back.

You have value investors show up because they're now, quote, unquote, undervalued. And then you have momentum and growth traders show up because they're going up. And the Fed's done raising rates. They were kept down because of high rates. Well, guess what? If you have a situation now where, rates are going to be cut, those areas can benefit and benefit basketball underwater. Okay, great. So they're taken off. As they're taken off, the NASDAQ-Q-Q-Q, it's pausing today.

Just digesting, consolidating, which is perfectly normal and healthy. In the short term, which, by the way, that short-covering rally, let me go there and show you there's three powerful forces that create short-covering rallies. Number one, you get the shorts that cover. Okay, they've raised it. They just have to exit, so they just have to exit. buy. Number two, you get the value investors in there who buy because it's cheap or it's undervalued or it's fallen so much. And number three, you get the momentum traders going, it starts going up.

You get the momentum traders pile in. Then the more shorts are forced to cover. It becomes a self-fulfilling prophecy. The value investors buy more because their first buys were vindicated. They were quote-unquote right for buying low. And then you get the momentum, more momentum traders jump in because now it's going up and you have the momentum. And then more shorts cover. and then so on and so forth. More value investors. And that becomes a short squeeze. So I also mentioned the fact that, you know, I'm very big on psychology.

My book was number one in Amazon every day for two months when it first came out. It's called Psychological Analysis. You can go on Amazon and pick it up. And the idea is a third school of thought. In addition to fundamental and technical analysis, it's know thyself, know the market, know your psyche, know how to make smart decisions, how to remove the emotion from the decision-making process. That's the core principle in the book. Okay, great.

So I was speaking about probabilities. How do you navigate the unknown? Well, you think in probabilities. Anything is possible, but what stack the odds of success in your favor? What are the highest, most probable outcomes at any given time? And when you're very extended above the 50-day moving average, like we are now, it's a higher probability that the market's going to pull back than it is for it to continue to get even more extended. Could it get more extended?

Absolutely. But from a probability standpoint, we're likely, we're overdue to pull back. We're likely to consolidate. It doesn't depend this week, next week, the week after. It could be four or five weeks from now. It could be seven or eight weeks from now. There's no, quote, unquote, rule. But I just want to point that out there.

If I didn't do that, I wouldn't be doing my job. You know, look at risk. It's so important. Then I spoke about the fact that there's a lot of talk about the market's efficient or a random walk on Wall Street or, you know, so on and so forth. And I have a fundamental problem with that belief system because how do you explain Warren Buffett's 50-year success story? Paul Tudor Jones. You can look at Bill O'Neill and I can go on and on and on and on, right?

You can't be lucky for 50, 60 years, even 30, 40 years. You get lucky for a year or two, sure, four or five years, sure. The market's efficient. That means you can't beat it. Somebody who can't beat it comes up with that theory. Lots of other people who can't beat it. beat it, buy into it, in my humble opinion. The random walk, it's not random.

If it was random, then Buffett wouldn't be Buffett and Paul Tudor Jones wouldn't be, and so on and so forth. Right. Stanley, Drunken Miller, you got so many others. Okay, great. There's something else there. These folks that win understand that psychology part better than most. I was watching an interview with Djokovic, a tennis player, number one, best tennis player, arguably ever. And he's older now, considering most tennis people in their height or in their 20s,

this guy is almost 40. And he just won, another major. And he was being interviewed. I think it was 60 minutes, something like that. I can't remember exactly where it recently. And they're like, oh, well, one of your strengths, sorry, he goes, one of your gifts is that you've got the mental fortitude to do what most people don't have the energy or the power, the drive to do. and he's like it's not a gift I had to develop that skill through hard work

I wasn't born with that gift in other words to do the proverbial sit-ups when nobody else wants to do it to go play to go practice more and play on the court at 4 a.m. or 6 a.m. when everyone else is sleeping and so on and so forth to do the stretching and do this and do that and study the game and high-performance tennis and it's like money ball if you ever watch the movie or read the book

and it's the same concept but he applies it to tennis. If I take this forehand shot, will it go in? What are the odds? And same thing as probability. It's the odds, right? He doesn't know if he's going to win or he's going to lose.

How fast can he... One of the best lines he's ever said is how fast does he recover when things don't go his way? Which happens in trading and investing all the time. I'm stopped out. The stock goes higher without me. I have a drawdown,

meaning I'm down a little bit, have a few losses. Oh no. I can sit. there and stare at those losses and beat myself up, which doesn't do me any good, or I can shift my focus and find the next win. And that's massive, so powerful, subtle, but so important. Why?

Because this is a performance-based business, folks. And in this business, people get paid very well when they perform. You too. Hey, you buy something, you know, you're up 20, 30 percent. Guess what? or 30% richer. And then you do that again a few years in a row, double your money.

It's very, very powerful. And money scales. The other big thing about this business is money scales. I've yet to find somebody who manages more money than the market can handle. Somebody wants to buy Apple and sell Apple. I don't care. You know, well, it depends on how big you are.

But pretty much you have no problem getting in and out of the market of these big cap. They're super liquid stocks, right? Navidia, Apple, Tesla, Microsoft, so on and so forth. There's so much liquidity. There's so much money scales. So studying the probability, understanding how to make smart risk-adjusted decisions is a superpower in this business. And then make rational decisions.

And how do you do that? You might ask, well, I have it all outlined in the book, but here's a little taste of it. It's to ask myself three questions before I buy anything. Number one, where am I going to enter? Number two, where am I going to exit? And number three, how much am I going to risk if I'm wrong? And here's another little tidbit. I learned from studying nature.

If you look at an apple tree, you've got thousands of seeds. Well, okay, how many of those seeds actually come out to be a new tree? One, maybe two, and the rest, gone. Just don't work. Well, okay, same in trading. Most trades don't work. and that's okay. If you keep the risk small

and let the winners run. Same with relationships. Most relationships don't work. You've got the significant other. Okay. Most people go through several other relationships that don't work until they find the right one that works.

And then great. Same thing with stocks. Not every stock's can be a huge true market leader, a huge monster stock, and that's okay. As long as you have the discipline when you're wrong,

be wrong small. When you're right, let that winner run. Those are some of the things I've learned over the years from studying these successful people. Success leaves clues. Like they talk about Jim Ron said that. Tony Robbins says it's all over the world. Success leaves clues. Study the clues. What do the greatest investors in the history of the market do? Read those books. Look at the market. Look at your own actions. Am I making emotional decisions or am I making

rational ones? Do I analyze my risk before I enter? Or do I get in and I hope that it goes up and instead it's going down. Warren Buffett had a great line. He goes, most people are greedy when they should be hopeful and hopeful when they should be greedy. And what that means is they buy something. Let's say they buy it at 10. It goes to 11. They're fearful.

Wait, did I misquote them? It was hopeful. They're greedy when they should be fearful and they're fearful when they should be greedy, not hopeful. It's okay. It's interchangeable. And they're fearful. They're going to lose their profits and they sell it at 11. If the stocks can go from 10 to 50 or 20 or 30 or 100, it's got to go to 11 first,

but most people just sell. And the opposite's true too. If it goes to nine, the hope it gets back to even. They get greedy, right? So up next, we've got a lot more to discuss. I'm Adam Sarhan. This is the one and only investors' edge.

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Tommy John. Comfort perfected. You're listening to. What are we waiting for? Well, what are you waiting for? One, two, ready, go. Action! And welcome once again to Investor's Edge.

In case you're just joining us from any part of the show, you can go to GaryK.com, listen to everything live or archive, rewind everything. Fast forward at your convenience 24-7 from any device. So, a few things. We spoke about the Fed, spoke about inflation, spoke about the market, spoke about some psychological analysis for you, gave me some tidbits. I'm very big on the final, well, let me two things. Number one, I'm very big on knowing. thyself. You know, somebody, I have a coaching situation where I help traders and I talk to people all the time and a lot of people say, Andrews, tell me what to do. But what works for Trader A might not work for Trader B. And vice versa. If you go read Market Wizards, which is a phenomenal set of series of books written by Jack Schwerger or Schweger years ago. And he started this,

I think it was in the 90s and then 2000s and so on and so forth. There's multiple. There's stock market wizards. I'm not affiliated with the book. I'm just sharing some books I really like. There's market wizards top interviews with top traders and hedge fund market wizards and so on and so forth. In those books and these go back decades, he has two stories that really jumped at,

well, lots of stories, but two that I want to share for the purpose of this point that I'm making here, know thyself. one trader was interviewed in his book and then years later he interviewed another trader who had they both have phenomenal returns risk adjusted returns I mean phenomenal

and second trader years later said hey Jack remember when Jack's name of the author remember when you went back and interviewed that trader A from that first book all those years ago well look at my trades here are my statements

I literally do the exact opposite it of what that trader does and my returns are phenomenal. And at the end of the books, Jack writes, at the end of each book, he writes his thoughts and his musings and what his take is. And in it, he says, there's lots of different ways to make money. So I take it a step further because I've noticed through my own experiences on Wall Street. And I say in my book, there's an infinite number of ways to make money in this business. Your job is to find one that works for you.

I'm very good at big picture stuff and I'm very bad at short-term stuff so when you look at my trades or you look at whatever I'm quote-unquote good at or whatever I'm not good at you've got to really understand it took me years to figure this out I have to really understand where I shine

big picture I'm excellent you ask me to go look at a minute chart my brain gets scrambling like scrambled eggs. It's just not where I thrive. Weekly charts, monthly charts, quarterly annual, daily charts even, no problem. Intraday charts? I can't do it. Now, I know other people, not a lot, but there's a few other people that I know that are really good with the intradase charts and they can use them and effectively navigate the market. Again, they're the minority, but there's some people who have that skill. I don't. So when you,

create a trading plan for yourself, really important folks to look at the risk and understand the probabilities and ask yourself, am I making emotional decisions or am I making rational decisions? Ben Franklin told us hundreds of years ago, a long time ago, by preparing to fail, sorry, by failing to prepare, you're preparing to fail. again, if you fail to prepare, you're preparing, you're getting ready to fail. So before the week even starts, I have a whole process that I put where I go through the market, I go through the leading stocks, I look at the strongest stocks in the market, I look at the setups, I look, I find my traits.

So when I get a day like yesterday on Wednesday where the market goes bonkers, my orders are already in with exit points. I know where I'm going to enter. I know where I'm going to exit, and I know how much I'm going to risk if I'm wrong. This way, during the day, I'm not scrambling. Now, other folks are really good at looking at the market during the day. I'm not. So know thyself.

See where you're good at. I don't even have any trading apps on my phone. I took them off. In order for me to trade, I don't want to have that impulsive, oh, buy now, sell now, this, that, that, and the other thing. It doesn't serve me. I've been around long enough. I've been doing this since the 90s.

I know what works for me. And I know what doesn't. That's what I mean by know thyself. Find an approach that works for you. And the idea of right or wrong, as long as you respect risk, you know, for me, defense first, always, always, always, the best traders out there, best investors understand risk really, really well. I had one big money manager. He's thinking he managed like four or five billion bucks. And I was interviewing him and he said, hey, Adam, you're not buying and selling stocks.

I said, what are you talking about? He goes, you're buying and selling risk. I thought that was genius. I mean next level genius. So keep that in mind as you move forward. Understand that there's an infant number of ways, in my opinion at least, to make money in this business, find one that works for you. Make sure as you put your trading plan together, you understand probabilities. Super important.

You understand risk and understand reality. Reality is most trades fail, active traders. That's okay. as long as the risk is small and the return, the reward is big. Here's an example. Somebody came to me on the day and goes, Adam, what's your risks to return ratio? And I said, what do you mean? He goes, how many trades work?

How many trades fail? I said, you're asking the wrong question. And he goes, well, what do you mean? I said, the risk to return number of wins versus number of losses don't matter. What matters is the size of the wind versus the size of the losses. an example to illustrate that. Let's say there's 10 trades. Trader A takes and Trader B takes 10 trades. Trader A wins 9 out of 10 trades. That's a 90% win ratio, but they only win one nine times. That's plus 9. The 10th trade, they lose 10. Net net, they're minus 1. Trader B loses

nine trades in a row, but they only lose 1, so they're minus 9. The 10th trade, you guessed it, they win 10. Net net, they're up 1. Even though Trader B has a 90% percent losing ratio. The number of trades, you know, in out, that's secondary. It's the risk versus reward. The size of the risk when you're wrong, size of the loss versus the size of the reward when you're right. That's where the magic comes. So it's really, really important, folks, that when you're in this business, which is a performance business, you put all this together. Because that really, really matters.

And Gary's a master at this. I mean a masterclass on this radio show from what he's learned over the years and how he explains it. Masterclass. So, once again, time is short. That's all the time we have for today. Take your time with the market. We're due for a pullback.

Do like Gary says. Go out there, hug the children. Enjoy every moment. Thank you, everybody. And I'll speak to you again soon. 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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