Is a subject that investors like to ignore. But history has a habit of teaching teaching very important lessons and what you can learn from history is that the stock goes up and it goes down. It goes down a lot in 1926. A company called standard statistics formed the first 90 stock composite price index that got updated daily over the years that index grew and developed and in 1957.

It became the standard and poor's 500 and since 1926. The stock market has had a correction of 10 or more on average every year and a half that is a lot of corrections. Every 18 months on average. The market goes and takes a tumble out of these tumbles.

A bear market. Where the market drops by 20 or more has happened every four years and a market crash of 30 or more happens once every 10 years on average. So every four years. The market is going to have a 20 decline and some of these declines are going to be particularly ugly.

That is all you need to know sometimes the market will go down and so will the value of your investments. If you are not happy about that or if you're not ready for it you shouldn't invest in stocks the fascinating thing is that it is great when that happens if you like to stock at 150. And it goes down to 40 that's amazing. If you have done your homework.

If you understand the company that you are investing in if you have done your due diligence and the company is doing great you might have a 300 price target for the stock and going from 150 all the way to 300 is great. But going from 40 to 300 is phenomenal your only job as an investor is to use these declines in the market to your advantage. Nobody knows when they will happen how far down the market will go when they do happen nobody knows exactly where it's going to go 18 months ago. We didn't see when and how inflation went arrive.

And we didn't know that russia is going to invade ukraine setting off a global energy crisis. 18 months before that we had no idea that the biggest pandemic in 100 years would shut the whole world down. There is always something happening that we don't know will happen right now. We have absolutely no idea.

What will happen in the next 18 months. No idea people will tell you that they know and then they perfectly predicted. It because if you predict a market crash enough times. Then eventually you are going to predict it perfectly just before it happens.

But your job as an investor isn't to read tarot cards or become a fortune teller your job is to use every opportunity you are given to your advantage. If you invest consistently over a long period of time these are the times. When you will be making the vast majority of the money that you will ever make in stocks you won't know it at the time. You're not going to go home.

And celebrate hey honey. I've just been bought the best value stocks in the next two decades. But it will happen. There is something that you really have to know though not everything with the yellow discount sticker on it is a good buy not everything that you see in the discount aisle needs to end up in your shopping.

Basket. Sometimes things are in that discount aisle for a reason. Maybe people don't want to buy it. And there's a really good reason why just because the stock has fallen by 50 does not make it automatically a good investment.

You know you bought a stock at 25 and it goes down to say. 10. You think how much further can the stock go surely. This one is a winner.

I remember when blockbuster went from 25 to 10. And people said here is an amazing opportunity the company had 10 000. Rental stores across the us earned billions of dollars in revenue and was growing if the stock dips below 10. It is an absolute steal and in 2005.

It did go below 10. It went all the way down to five dollars and there was a frenzy at the time because this super popular brand that everyone loved was selling at a massive discount just five bucks and two years later it was at three dollars and one year later it was down to one dollar and one year after that it went bankrupt. You should never buy a stock just because of the price in fact the way to think about it is that you should buy stocks in spite of the price. A sudden drop in value is a warning flag.

It's a warning to you as an investor to take caution and understand what is driving the drop as much as you possibly can i have owned many many stocks over the years that have lost 20 50 or even 80 percent of the price at which i bought them i had those stocks before i have some of them right now in my portfolio. And i will have a lot more of them in the future. And sometimes you might have to take a loss maybe you got it wrong maybe things changed more quickly than you saw them coming. Maybe you didn't anticipate something happening.

If you haven't invested in a losing stock before then you haven't invested long enough. But there are other times when you look at the stock and you just sit there scratching your head a company may be selling at a valuation that would seem absurd a year ago. But there it is nothing has changed in fact the company might have grown in that time maybe they now earn more revenue their balance sheet is more healthy their outlook is brighter. They have more customers.

But nobody wants to buy the shares at an 80 discount because there is one human emotion. That is even more powerful than greed and that emotion is fear because a lot of people will look at a stock that has gone from 150 down to 80 and buy it just because it's great value. But what are you going to do when that stock goes down to 50 what will you do when it goes to 40. What are you going to do when it drops to 30 a lot of people will be driven by fear and they will sell their stock because they never understood why it was that they bought it in the first place.

The stock has dropped and when you're basing investing decisions on some kind of guesswork framework. You do not know what to do and you go. And listen to some advice on youtube. Telling you exactly where the stock or the stock market overall is going is that what you're going to do do you go.

And do some technical analysis to make yourself feel better. What are you going to do back in university. I studied mathematics one of my favorite subjects. When i studied mathematics was dynamics and chaos theory.

And the stock market is a fascinating example because in the short term. The behavior of a stock market can be described as a highly chaotic deterministic system with a very low lapping of time basically it just means good luck trying to predict what it's going to do but in the long term. The dynamic system of the stock market changes massively its sensitivity to conditions and exogenous factors and small effects like news reduces drastically and its long term topological vector space becomes dense and this means that all the short term fluctuations that you see moving things up and down become largely irrelevant. When you zoom out long enough.

Because at that zoom level. Other factors become dominant in terms of what's driving the long term behavior. These are things like human productivity growth and population growth and innovation and these mean that corporate profits will go up just like they have gone up. They've been going by about nine percent a year on average.

Because humans are a collectively productive and hard working kind of animal. The stock market will continue to go up and go down. And when the market goes down. It is an opportunity.

It is an opportunity that most investors will squander because they don't understand what they are investing in or why they are investing in it the unfortunate truth is that if they don't understand what they are investing in or why then they probably should not be picking stocks in the first place. I know it's really cool to go and pick your own stocks be that massively awesome investor. But there is a very good reason why most people who do it will lose compared to just investing in an index fund for most people investing in the index fund is by far the best option and because of that long term stock market behavior. The stock market tends to go and double in value roughly every eight years.

I haven't got the foggiest idea. Where the market is going to go tomorrow or when the market reopens on monday. And the truth is nobody else knows either because the system is impossible to forecast. There are far too many individual variables to consider that each plays a part a bit like the butterfly effect.

But then on top of that butterfly effect. There are millions of people out there playing the guessing game trying to predict themselves what the butterfly effect is going to do and they're trying to predict it and making investment decisions and trades on the back of that is adding a whole different layer of effect. But in itself is affecting the price as well that adds a whole different layer of unpredictability. What did the market already price in when did the market price it in why did the market price it in i don't know where the market is going to be next week.

Where it's going to go next month or even next quarter. But i have a very reasonable confidence that the market is going to be order of magnitude roughly eight times the size in 25 years and in those 25 years. The market is going to fall a lot. And i am going to pick a massive number of losers in that period.

And that will be economic and political crises. Which will feel like the worst ever crisis that we've ever had at the time believe you me. And every single time that time will be different and the old rules will not apply apparently if you make a bad investing call with a hundred dollars. Then you can only get to lose the 100.

But if you invest at 100. And you are right over the long term you can make 200 dollars a thousand dollars. The great thing about investing is that you don't have to be right every single time. Nobody is the greatest investors of all time only get it right six times out of ten and in the cases.

Where you do get it right and the company is doing great. And you see a huge upside of that is where the opportunity lies. The question is will you take advantage of those opportunities. When the market is going up.

Everyone is a long term investor until the market starts going down. And then suddenly. Many many of these long term investors very quickly reclassify to become short term traders. It's truly fascinating the question that you have to ask yourself is what are you going to do when the market goes down.