TLDR;
Tom Nash discusses the current bull market and addresses concerns from both new and experienced investors about its sustainability. He explains bull and bear markets, analyzes the S&P 500's performance, and cautions against trying to time the market. He highlights the Dunning-Kruger effect among new investors and the cyclical nature of the stock market, where retail investors often get burned. He advises against emotional investing and introduces Dollar-Cost Averaging (DCA) and a supercharged DCA strategy to mitigate risks and improve returns in a bull market.
- Bull markets typically outperform bear markets, making long-term investment strategies more favorable.
- Timing the market is difficult and often results in missed opportunities and reduced returns.
- DCA and supercharged DCA strategies can help investors navigate market volatility and achieve better average costs without needing to time the market.
Intro: Concerns About the Bull Market [0:00]
Tom Nash addresses the shared concerns of both new and experienced investors regarding the current bull market, which began in late 2022. With companies like Palantir and Nvidia experiencing significant growth and meme stocks resurging, many are questioning whether the market is nearing its peak. Investors are contemplating whether it's too late to enter the market or if it's the right time to take profits and wait for a correction, leading to widespread anxiety and nervousness.
Understanding Bull and Bear Markets [2:25]
A bull market is defined as a period of upward price movements, increasing 20% off the most recent low, while a bear market is a drop of more than 20%. The terms originate from the imagery of a bull attacking with its horns upward and a bear swiping downward. Since the bull run started in late 2022, the S&P 500 has delivered a 68.7% return, significantly exceeding the average annual return of 8-10%. This above-average performance is causing concern among investors who fear the market is overextended and consider timing the market.
Historical Performance and Timing the Market [3:55]
An analysis of the S&P 500's annual performance from 2016 to 2025 reveals that seven out of nine years had positive returns, with only two years showing negative returns. Peter Lynch, who delivered 30% annual returns, noted that investors lose more money by sitting on the sidelines waiting for corrections than from the corrections themselves. Investing in a bull market can lead to overconfidence, projecting recent gains into the distant future, and herd behavior, which can result in poor investment choices.
The Dunning-Kruger Effect and Market Cycles [7:11]
Many new investors in the bull market experience the Dunning-Kruger effect, believing they know everything right away, only to realize the market's complexity over time. The stock market moves in cycles of hope, optimism, belief, thrill, euphoria, complacency, anxiety, denial, panic, capitulation, anger, and disbelief, before starting again. Institutional and experienced investors often exploit retail investors during these cycles. While it's difficult to pinpoint where the market is in this cycle, trying to time the market is generally not advisable.
Why Timing the Market Is a Bad Idea [12:15]
Timing the market is generally a bad idea because the market can remain irrational longer than investors can stay solvent. All-time highs are common, occurring about 16 times a year. Missing out on bull markets means missing significant opportunities. Since 1928, there have been 27 bull runs with an average gain of 115% over three years, compared to bear markets with a 35% loss over 10 months. The historical performance of the market over the past 100 years shows that bull markets are more dominant than bear markets.
The Cost of Waiting and the Importance of Staying Invested [16:14]
Waiting for a market correction can result in missing out on substantial gains, as the longest bull run lasted almost 13 years with a 582% increase. The best performance often happens in the first half of a bull run, and those who wait for the market to recover may miss the most significant gains. Missing just the best 10 days of a 20-year investment period can cut returns in half. The first half of a bull run is hard to spot, and most investors join in the second half, missing the best performance.
Investing in a Bull Market with Dollar-Cost Averaging (DCA) [18:53]
Dollar-Cost Averaging (DCA) involves investing a fixed amount at regular intervals, which helps avoid going all-in at the peak, averages out the cost, and creates discipline against emotions. To supercharge DCA, investors can double down on dips by increasing their DCA when the stock drops and decreasing it when the stock rises. This strategy involves budgeting a comfortable investment amount, investing half of it regularly, and keeping the other half on the sideline to deploy when the stock drops 20% from its 52-week high.
The Importance of Knowledge and Community [21:59]
While DCA is a useful system, it won't save investors from picking bad companies. It's essential to know how to evaluate companies, perform due diligence, and have a community to discuss market trends. Tom Nash promotes his Rock Academy at patreon.com/tomash, which provides lectures, saved lectures, and a community for investors to learn and share insights.