Hey guys, it's Sasha Should you invest in the stock market in 2023? The big question seems to be polarizing opinion like no other, because the stock market crash in 2022 wiped the floor with anyone invested in Gray stocks or earlier stage companies. And seeing as you're watching this on YouTube the demographics indicate that a lot of you probably are invested in stocks that also have lost over 50 percent in the last 12 months. And naturally the question in your mind is, have we hit the bottom? Is now the time to invest to get crazy returns? Is this one of those once in a lifetime once in a generation Opportunities Has the crash already happened? Are we past it? Inflation is coming down. The FED is going to Pivot The job market is strong, blah blah blah Or are you catching a falling knife? Are we only just getting started? Because stocks are going to fall a heck of a lot more? Because you know tech stocks are still massively overvalued.

Everything is still one giant but double. The Buffett indicator says that the market is still massively inflated. The shall a PE ratio is still absurdly high. Tesla is going all the way down to 30.

You know the drill now. I am not normally one for explicit projections because I don't own a crystal ball and I don't pretend to be an investing God But I see a lot of uncertainty among investors I see a lot of people scratching their heads I see a lot of panic on the streets. The comments on my channel and every other Finance investing channel are getting way more heated. People are angry.

People have generally stopped watching Finance Content All together, all the biggest Finance channels on YouTube have seen their views drop by over 50 percent and this is all linked. When stocks are at all-time highs, there is a Euphoria Everyone wants to invest their money. Money is flowing in, advertisers are tripping over each other to promote their financial products. Everyone wants a piece of the pie.

That was what we saw in 2020 and in 2021 and now over a year into the downturn, things are looking very different for many investors. This is the first proper downturn that they have ever seen because so many investors first started investing just in the last two or three years. We've had the rise of the free investing apps, which made it a lot more affordable, a lot easier for people. Previously it was a bit of a mayor, Now we've had stimmy checks, the economy was flowing free money, and for some weird reason investing sort of became cool when I was a young whippersnapper working my first jobs in banking.

Investing was the opposite of cool. It was the ultimate nerd flag and you would not talk about investing in public because everyone would immediately conclude that you are a total dork. But times have changed and now it is obligatory to go and join a stock fan club or two on Twitter so that you can follow the ticker symbol every day in a Mindless Echo chamber. Anyway, what is the deal with 2023? Should you be investing or run a mile from the stock market before it all gets worse? Well, we're not even three weeks into January and the stock market is already yoyo faster than a teenager's mood.

The S P 500 was up four percent in just a few days at the beginning this year and then fell back sharply today. The portfolio that I have went up 10 in the same amount of time which is ridiculous and definitely kicked off 2023 with a bit of optimism. Although we do have a massive a very long way to go just to get back to where the same stocks were on January 3rd last year, and there are a few reasons why people are suddenly feeling a little more optimistic. Inflation data is continuing to drop with down to six and a half percent in the latest report a few days ago, oil has tracked back towards the 80 Mark and stayed there after peaking last summer and Europe has stuck the middle finger to Russia in quickly figuring out alternative sources for natural gas which has come down in price significantly.

Food prices have also just recently started to come down. Inflation, rents, and house prices is falling Real terms inflation on new properties coming up which will eventually be followed through by the date in the CPI report. All of these are leading indicators for inflation reads in the coming months and coming quarters, which is all highly encouraging at the same time. China has done a surprise U-turn changing a zero covered policy into an everyone covered policy which should mean an end to random city-wide lockdowns which affect production for the whole world.

and the Chinese economy employment data remains very strong. So investors are naturally thinking that the Outlook is perhaps a little Rosier than it maybe looked three or four months ago. But this Market downturn is just the same as every other Market downturn. Because in every single Market downturn, all the dweebs climb out of their mom's basements to tell you that everything is going to get a whole lot worse.

You are going to need to capitulate. You better go and dig that bunker in your garden. Maybe just burn all your money before you watch it burn. Anyway, you know the Michael Berry sword who cry wolf every single year after year after after year after year after year, and after year, you see it all over YouTube as well.

Absolutely non-stop If you keep saying that a market crash is definitely 100 for sure coming, then eventually you are going to be right. because you know markets do go down pretty frequently. That's just what they do and all of your disciples will come out whenever that happens in their drugs to declare that you were right all along. and they will sing your Praises sixty percent of the time.

It works every time. That doesn't make sense. So when the market does eventually drop, the problem is that you kind of don't have anything else to say if you're one of these people. So in the true Spirit of a broken clock or a broken record, the only thing that they can say is is gonna get a whole lot worse.

And if it does then they will be proven to be extra extra right and earn extra Kudos points. But if it doesn't then well, the market is just irrational. You just wait. It's gonna happen soon, don't you worry? The fact is, last year we already saw a pretty substantial Market drop.

Not many people seem to be talking this point in these specific terms, but from January the 4th to October 11 2022, the stock market fell 27.5 percent from the intraday High to the intraday low. That is a bigger drop than in the crash following the last big inflation spike in the 1980s, which was way bigger than the one we just had back then. the market only fell 26 from the very top to the very bottom and that drop lasted 619 days compared to just 282 days this time around. Could it fall more this year? Sure, why not I Don't know.

But just so you know, the inflation situation in the late 70s going into the early 80s was way way worse. and the rates that went up at that point went up way way worse. And the stock market fell less than it already did last year. Granted, we haven't seen a huge crash like the.com crash in 2000 or the financial crash in 2008, but it's also important to remember that those were somewhat abnormal crashes.

They were the number one and the number two biggest stock market crashes in modern history since the Second World War, and excluding the two flash crashes in 1987 and 2020 when the market only dipped for a short period. Other than those two huge recent crashes, only two of the seven major drops fell by more than 30. So statistically it is unusual to Fall by much more than we have already seen last year. Now it could happen, and given where we already are, the likelihood is not negligible.

It is not something to be discounted, but at the risk of annoying people with a conditional probability impasse that I am also aware of, it is generally not common for this to happen, but the Buffett indicator says that the market is still way overpriced. It's got a whole lot further to come down, because look, we're still way above the historical trend line, so if you thought that last year was bad, you just wait for the mammoth crash that is going to come right now. There are many, many other very similar lines of argument using other random indicators that people make up that all tend to be significantly flawed. Even Warren Buffett himself seems to not like the Buffett indicator that is named after him.

But here is my big problem with it: The Buffett indicator is a ratio of the U.S stock market value to the U.S GDP. And it basically says the stock market should have a reasonable relationship to the economic output of the country from which these stocks come as a whole. Because if it makes any sense at all, the ultimate sum of company valuation should be some kind of a multiple on the total amount of the economic output that these companies are generating. But here is the big flaw.

Back in the 1950s and 1960s, the biggest American companies largely served the American Market. It was the U.S energy companies U.S oil companies doing business almost exclusively in the US. It was U.S car companies that did very little exporting at the time. It was a U.S Telcos that did not operate outside of the United States.

Today, the largest companies in the U.S stock market are Apple that sells its products and services all over the world. It's Microsoft that sells its products and services all over the world. It's Google that's selling its products and services all over the world. It's Amazon that is increasingly selling its products and services all over the world.

So yeah, valuations of Us companies is a proportion of U.S GDP have increased because the denominator in that equation makes no sense at all. It would make a lot more sense today if the denominator was Global GDP and you can see the global GDP has grown a lot faster than US GDP over the last 60 years. US GDP dropped from being almost 40 percent of the global total in 1960 to 24 in 2021. So if you took this chart and took the most recent data point, and instead of dividing it just by the US GDP, you instead divided it by the world's GDP which is becoming more and more appropriate Makes a lot more sense every year, then this point would be down here at a little under 40 percent.

and that would be a lot more comparable to these points in the 1950s and 1960s when the U.S stock market comprised of companies largely serving just the US market. And when you look at this chart like that, it suddenly makes you think about things a little bit differently. Then there's the shallow PE ratio that people We allow. People say that on average companies are still massively overvalued because look, it's Sat at 28.9 and that is historically High because according to some made up logic, the long-term Philippe ratio is a flat trend line despite the much better fitting and much more logically compelling gradually increasing Trend because as time goes on, the power of monopolies and most increases, companies build up better and better ways to win in the long term.

Technology improves to a point where competing with industry leaders progressively gets harder and harder. The market generally has more patience and more stability. People are living longer investment time Horizons and the time expected to break even on investments whether they're Angel Investments or into mature markets is considerably longer today than it was in the 1880s. So it is perhaps not surprising that the average trend on valuation multiples will naturally increase as well over time, which makes today's figure a whole lot more reasonable when you think about it that way.

I Am looking at the year ahead in 2023 and trying to understand what is the most probable. Outlook Now anything can happen I Get it, things can get a whole lot more ugly short as possible. but for me, looking at the data available right now, there are a whole bunch of companies selling at 50 discounts or higher. Some companies and sectors like energy are propping up the whole Market which would have fallen a lot more on average otherwise.

but all the macro Trends to me are looking remarkably strong for this sort of situation that we find ourselves in. Everyone is concerned about a technical recession being declared, but we were already in a recession of sorts last year. We just didn't give it the name the scary title, just giving a recession the official title of a recession change anything. Well, not in my books.

it's just politics. and I frankly don't give a about politics. Can the downturn keep going for the whole of this year? and then some? of course? But do I want to bet on that in the hope that the stocks Then Fall a little bit further than they already have done and I can get an even better deal? or do I take the stocks that I thought were good deals a year ago and I continue thinking are good deals but now they are selling with a 60 off sticker on them. While the fundamentals only got better, well for me, the decision is pretty simple.

I Just hope that this fear-mongering the state of panic continues for at least another two or three months, hopefully a little bit longer. so I can must throw up enough cash to go and do some serious shopping because sales like this one don't come around all that often.