Chapter 1: Why is the market experiencing volatility right now?
Market volatility is back, but where do we go from here? Motley Fool Money starts now.
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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis William, joined by Dan Kaplinger and John Quast. I think the topic of the week for investors is volatility. We've had some huge moves. Even yesterday, Thursday, the market started up, ended up down.
Chapter 2: What factors contributed to Bitcoin's recent drop?
If you're looking at the NASDAQ, down 2%. I know my portfolio took a huge hit Dan, what should we be taking from a moment like this? Because we're just getting out of earnings season. It seemed like earnings season was pretty good. NVIDIA's earnings were Wednesday after the market closed. Those seem pretty solid. And then suddenly the bottom fell out.
But it seems like this is happening every few days. It's either up big or down big. What in the world is going on? Welcome to the tug-of-war phase that every bull market goes through, Travis. I got to tell you, this is normal, folks. It might not seem like it, it might not make sense, but we see this just about every time.
Early in the week, everybody was nervous about what Nvidia was going to say. Were they going to be able to live up to the hype? Were they going to be able to beat expectations? Jensen Wong, no stranger to making high predictions as far as causing expectations to go through the roof. But largely, NVIDIA delivered Wednesday afternoon after the market closed.
Everybody, it looked like we were going to get a huge up day. There's going to be a huge relief rally. We did get a relief rally for about 30 minutes on Thursday morning. It didn't last long. And then everything starts going back down, and everybody's sort of like, oh, well, gee, but what if?
Well, what if, yeah, sure, NVIDIA is looking great, but what if we don't get those second-order effects dropped down into other providers of AI hardware, chips, software? What if these companies that are relying on AI to increase productivity aren't able to see returns on their investment? What if
some of the weaker hands in the play start to say, well, gee, maybe AI isn't everything that it was cracked up to be. Maybe we need to diversify our strategies. Whenever you have these trends that are based on a single concept, they're very vulnerable to any shaking of confidence in that trend.
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Chapter 3: Where are the best investment opportunities in the current market?
because we simply don't know quite yet what the there there is. I mean, we went through this with the internet where there was definitely a there there, but it took a long time to figure it out. We're still sort of in that figuring it out phase with AI. Is that sort of the way to think about at least that tech side?
It takes years for the tech to show its full potential, but we're trying to trade on a daily, on a weekly, on a monthly basis. That timeframe disconnect is what causes all this volatility, yes. John, what level are you thinking about this as normal, and how does fear and greed play into this?
As Dan points out, we're definitely in normal territory. I will say, though, that we're still in mild volatility territory when we're looking at the historical averages. If you look at the 10-year chart, there's definitely higher clusters of volatility in late 2018, early 2020, and for much of 2022. What's interesting to me is, you talk about fear and greed. We are in extreme fear mode right now.
The fear and greed index hit a new low yesterday of six. If you look at the consumer sentiment index, we're hitting 50-year lows. Consumer expectations in November dropped 36% year-over-year. What is so fascinating to me is, if you look at where we are, yes, there is some volatility,
Not anything near like what we've seen in the market is within 5% of its all-time high, and people are already panicking. I think that investors are gaslighting themselves here, thinking that everything is falling apart, when really, when you look at things, it's all quite good still. There's a great Morgan Housel quote about this.
Every five to seven years, investors forget that recessions happen every five to seven years. I'm not saying that we're in a recession right now, but it seems like investors have amnesia that this is completely normal. And historically speaking, it could get a lot worse than it is right now before we hit anything near what we usually see.
Dan, that fear and greed index, I think, is so interesting because Going to an extreme fear level when the market is near an all-time high seems a little bit wild. I started investing in 1995. I've been through the dot-com burst. I remember distinctly 2008 and 2009. What would that fear and greed index be at that point? Just completely off the charts.
Most investors weren't investing through that phase. How does that data and that level of fear play into the way that you're thinking about the market? Because John's right, a lot of the consumer data is not great. But you look at things like the indexes, the NASDAQ 100, the S&P 500, these are the indexes that you would see on the internet or on the nightly news.
They're dominated by technology, and technology is doing fine. What's not doing fine is... restaurants and, you know, target had a pretty weak quarter. So how does that push and pull of data consumers sentiment, but yet, you know, tech earnings are good. How does, how does that all play into it for you? A couple of points, Travis.
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Chapter 4: How does CEO performance impact stock market perceptions?
They've seen their portfolios rise. They have an idea of like what their top portfolio value was. As soon as that portfolio value starts to go down, they feel that loss. They feel the loss more. Even if it's not a real loss.
Even if it's not something that they've locked in, even if they've not sold it, even if it's just the brokerage, the number on their brokerage page on the website, they're sort of like, I was at this number and now I'm at this number minus 20,000. That's no good. Even though they were at that number a month ago or two months ago on the way up, it just feels different coming down on the way down.
And so that's the thing to remember is we feel losses... much more painfully than the amount of joy that we get when the portfolio is going up. Are there things that you do, Dan, to insulate yourself from that? Is there a regular cadence that you invest? Do you not sell? Do you keep some cash on the sidelines? How do you handle that as an investor?
Because I think we all feel exactly what you just said. The key, I think, is to have two things. One is to have that regular thing going. So if you're adding to the market, just keep adding to the market. Don't put it off.
Chapter 5: What insights can we gain from the fear and greed index?
Don't say, oh, this month looks bad. Just say, yeah, I'm going to get one of these months. One of these months, I'm going to get one. It's going to have been right at the top. I'm going to look stupid. But then the next month, it's going to be much lower. And that's going to turn out to be a really smart thing to do.
The other thing I think you have to do is be prepared in advance for when these downturns are going to happen. If you haven't prepared for it now and it's already happening, write down what your feelings were. Write down what your reaction was, what you wanted to do. Keep that in mind because knowing yourself is the best way to learn from difficult situations like this. Avoid making the mistakes.
And if you made a mistake... And it turns out to have been something you don't want to repeat, writing it down and having it accessible so that when this situation comes up again, whether it's next year, five years from now, it's going to happen a bunch of times during your lifetime as an investor. That way you'll remember what you did. You won't make the same mistakes twice.
I want to go to where risks are in the market. We're going to talk a little bit about opportunities in the next segment. But there are areas of the market, I look at my own portfolio, that are up significantly in 2025 from the lows in 2022 or 2023. John, where are you looking that there's maybe opportunities to say,
Chapter 6: How do forced liquidations affect Bitcoin's market value?
you know what, I want to raise some cash. Like Dan said, I want to be able to be aggressive if the market does drop more. Where's, where's there maybe some opportunities to say, you know what, this risk profile of this sector, this industry, this company has gotten a little bit hot for me. Maybe I'm going to take a little bit off the table.
It's an interesting question. I think that you do have to take it on a business-by-business basis, try to avoid the broad sweeping sector analysis. If there's a company that you're losing faith in the long-term prospects of the business, obviously, that's a good choice for raising some cash. But I would say that generally speaking, if you are looking for general takeaways,
Energy, there's definitely some risks in energy right now, depending on the company. The outlook for energy is extremely bright, but some of those businesses, I think the valuation has run away. I would say that cyclical businesses as well, when it comes to AI infrastructure, there's a lot of businesses that... typically have lower margins, let's just say, in a normal cycle.
Right now we're experiencing extremely high margins just because there's so much demand. The question is, how long will that demand be high? Because at some point it would be, reasonable to assume that the demand is going to go back down to more normal levels.
The profit margins will go back down to normal levels, in which case you need to value the business based on that more normalized earnings, not peak earnings.
And so for both of those segments, you're talking about mean reversion will eventually happen.
I would say that's the most reasonable thing to expect is that, yeah, you're going to go back to what is normal at some point. The question is, when will that be?
Dan, where are there potential risks in the market? Is it consumers? Is it AI? Is it tech? There's a lot of risk. And it's hard right now to pinpoint. Historically, you've been able to point to one sector and say, yes, what you ought to be worried about is, say, AI, because AI is dominating everything.
But the problem now is that you can't just point to the tech sector and say, that's AI, because... If you're worried about AI, you have to be worried not just about the tech companies that are the direct pure plays, but also all of these second-order companies that are benefiting from the follow-on impact of AI investment.
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Chapter 7: What lessons can investors learn from past market cycles?
Is there something structural going on with Bitcoin? I know that crypto has kind of fallen off the map too. It seems like the blockchain is improving. There's a lot of interesting things going on, but that hasn't translated to higher crypto values, especially with Bitcoin.
Yeah, that's so true. I think a lot of what we're seeing right now in Bitcoin, besides the normal ebb and flow when it comes to cryptocurrency, there are a lot of forced liquidations right now with Bitcoin. And I don't know if we can put a number on it exactly.
And what exactly is a forced liquidation?
If you borrow money to invest in Bitcoin and the price of Bitcoin goes down, eventually, someone is going to make you sell some of that Bitcoin or deposit more money into your account. You've got to show that you can cover what you owe.
Because the brokerage or Coinbase isn't taking any risk on you having a Bitcoin position.
Exactly right. They're putting that risk. They're keeping it on you. And so, yeah, if you borrow money to buy Bitcoin and it goes down and you can't cover in some other way, you're going to be forced to sell that Bitcoin. In fact, you don't even make the choice. They make it for you. And so we're seeing a lot of that. And it just it blows my mind.
It's incomprehensible to me that there's still so much leverage in the Bitcoin market. I just don't understand it. If you want to use Bitcoin as a peer-to-peer way to buy and sell things, by all means, go ahead. If you want to invest in Bitcoin, I'm happy for you. If you're one of these people who believes that Bitcoin is the future and the U.S.
dollar is going to zero and you want to put everything you have, every excess dollar into Bitcoin, I can understand that perspective. It doesn't matter if it's cryptocurrency, stocks, whatever it is, usually investing with borrowed money is a bad idea. Because even if you're right with your long-term forecast, you can be 100% right.
But if you're wrong in the short term, it can wipe you out when you use leverage. And so I think it's just something that needs to be avoided altogether.
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Chapter 8: Which CEOs are being considered for the Hall of Fame?
Be careful that Bitcoin keeps falling from here, Travis. Yeah, that premium can drop and Bitcoin can drop. So a lot of different risks with strategy. We'll see what happens with Bitcoin. When we come back, we are going to see which executives should be in the Hall of Fame. You're listening to Motley Fool Money.
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Welcome back to Motley Fool Money. We'd like to do something fun in this segment, and we're going to play Hall of Fame or Hall of Shame. Here's what I want to do today is get your thoughts on a number of different CEOs and how we're going to look back on them 5, 10, maybe even 20 years from now. Are they going to be Steve Jobs where we look back with reverence?
Or is it going to be Jack Welch where we look back and go, man, was he a great CEO or not? Are headlines important? Are operations the thing you look at? Basically, if we're looking for CEOs, what sort of qualities are we looking for? And we're going to try to project this out a little ways. Dan, I'm going to start with you.
I want to know, how is history going to look back on Sam Altman, not yet a public company CEO, but one of the biggest companies in the world, OpenAI, eventually will go public. How are we going to look back on him? Sam Altman is a fascinating study here because in some ways I feel like Sam hasn't yet decided what he wants to be when he grows up.
And so until he figures it out, I'm not sure how to judge him on it. On one hand, I think that he wants to be this big picture guy who is leading artificial intelligence forward, not necessarily from a monetary standpoint, but just in terms of trying to make trying to find the best uses of AI for improving society as a whole.
Certainly, that was the idea in being so important in the formation of OpenAI as its original nonprofit formulation. Then time goes by, suddenly there's trillions of dollars at stake, and that's where Sam seems to start getting a taste of, maybe I need to have a financial stake in this as well.
That's where I feel like I'm not quite sure how Sam has come down on it, because sometimes he seems like he's all about the financial opportunities involved with AI. Other times he seems to be undercutting some of the positions that he's taken before, almost kind of, again, in the name of that like big picture theoretical look at it.
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