Why A 65% Drop In The Stock Market May Be Coming Soon

April 5, 2018

WHAT: 65% Drop In The Stock Market

WHEN: More on that a bit later

WHY: Let me share the 5-part fact pattern...

Fact #1: The Modern Market Average Return Is 5.37% Per Year 

I know this conflicts with the standard narrative around the stock market. The reason for this is the "Wall Street Marketing Machine" considers Industrial Era growth in its figures.

The truth is we must draw a line to differentiate before and after widespread Internet adoption, and I draw it at the year 2000.

Before the year 2000, the economy was dominated by business models that are now extinct. Those business models cannot grow our stock portfolios if those businesses are closed. (Think Circuit City, Blockbuster, Borders Books, etc).

Post 2000, we live in a digitally connected world that plays by different rules.

And post-2000, that world's stock market has produced an average return of 5.37% per year.

S&P500 Returned, Including Dividends, Sourced From Yahoo! Finance

Fact #2: Over The Last 6 Years, Stocks Have Averaged A Return Of 15.83%

It's no secret that the stock market has ups and downs. Booms and busts. Bulls and bears.

The last 6 years have obviously been a bull market as it brought stocks to all-time highs. What happens next separates the winners from losers—in terms of investment performance.

At all-time market highs, losers think it can go on forever. Winners known better.

15.83% growth per year in stocks is unsustainable. History has taught us this over and over.

The question becomes...

What would have to happen in 2018 to bring the last 6 years back down to the modern market average?

Fact #3: A 45.26% Drop Would Bring Stocks Back In Line With The Modern Market Average Return

A 45.26% drop. Correction. Crash. Bust. Bear. Whatever you choose to call it:

These events are where the losers give back the winnings that were never really theirs.

Fact #4: Bear Markets Overcorrect; I Expect -65%

Markets are not rational. They are emotional. During a selloff, when greed turns to fear, stock prices go below their rational value.

A correction of -45.26% would be rational. A correction of -65% would be emotional, and bear markets always are emotional. 

Fact #5: If You Don't Want To Lose Money In Stocks, You Need A "Future-Proof" Alternative Investment

While I don't know when the next stock downturn will happen exactly, I know it's not a question of if. Nobody in their right mind thinks stocks will go up every year forever.

What I do know is that every year that goes on without a correction, the correction due becomes bigger. So if not -65% soon, then we're looking at -75%, -80%, or greater.

The longer stocks stay in a mania, the worse the bloodbath will be.

The ultimate question becomes: Is it worth risking -65% for a chance to gain another 10-15%?

That just comes down to math. If the chances are 50/50 for bulls vs. bears in 2018, it's a losing bet to be a bull.

The alternative is to move some of your investment money out of stocks and into something completely uncorrelated and future-proof.

Alternative investments are my specialty and tomorrow I'll show you my personal favorite.

UPDATE: Part 2 has been released. Click here to get it.

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DISCLAIMER: The information provided is not a substitute for professional advice you would receive from an accountant, attorney, investment adviser, securities broker or qualified tax preparer. Nothing in this message is an offer to transact securities or a guarantee of results, or tax, investment, or legal advice. Forward looking statements are provided solely for mathematical illustrations. Past performance does not guarantee future performance. Correlation is not causation.  Investing involves risk and there's no way to change that, so we invite you to make smart decisions managing that risk. 

Spanish Conquistadores invaded the Inca Empire in 1528 to steal their silver and gold.