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#350 - Is The Stock Market Collapsing?! · Money Grows on Trees

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Everyone's panicking about the stock market right now and
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almost everyone is wrong. About why? Most
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people think that when headlines scream market collapse or AI is collapsing or
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whatever it might be, it means the whole system's broken and
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they should sell everything and get out. The reality is the companies
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driving the biggest returns are still growing earnings at extraordinary rates
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and the people who are panicking are the ones who lock in permanent losses when
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it falls. I'm Lloyd J. Ross, seven-figure investor entrepreneur, and
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I've helped thousands of everyday Australians, Americans, Kiwis,
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and Canadians get out of debt and build real wealth. And in
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this episode, I'm gonna break down what actually is happening
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right now in the stock market, why the panic is misplaced, and
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what smart investors are doing instead. So buckle up,
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it's gonna be awesome. Let's go. Is the stock market collapsing? No.
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The end. Thanks for listening to Money Grows on Trees. There's
1:12
IPOs happening, like SpaceX. There's interest rates going up
1:16
in many markets. There's inflation to be concerned about. There's a serious
1:20
oil problem about to transpire. And so there's all this uncertainty, and
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it's never been any different. If you look back on history, there's been wars, there's
1:26
been COVIDs, there's been currency crises. There's been all
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sorts of different things that have driven uncertainty in the stock market. Now, the stock market
1:33
hates uncertainty, because the stock market is a real byproduct of
1:36
human emotion, because it's humans that own the shares in the companies in
1:40
the market. So it doesn't like uncertainty
1:44
just as much as you and I, right? And so whenever
1:48
there's uncertainty in the marketplace, there's going to be a
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lot of volatility, a lot of price movements, a lot of screaming headlines, the
1:54
market's going to collapse, blah, blah, blah. Of course, if you read into it a
1:58
bit, there are companies out there that are selling for
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extreme valuations and multiples. And there has been a lot of money
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in this AI boom, in this industrial led bubble, but it doesn't mean
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that the market's going to collapse. like it did in the dot-com bubble
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or the great financial crisis in 2008 or COVID or whatever it might be.
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Will it collapse again in the future? You can almost guarantee yes. No
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one knows when. But this particular episode I wanted to do because a
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lot of people, and I say a lot of people, probably half a dozen, sent
2:28
me the episode of Jeremy Grantham on the Diary of
2:32
a CEO, where he came in to talk to Stephen Bartlett about
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the US stock market and how he said, get out, sell everything. He's
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a perma bear, which means he's permanently bearish on the market. He
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made some really good points. I like him. I agree with a lot of his
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points that the market is historically richly valued,
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which it is. It's highly priced, which is fine. not
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crazy, but it is richly valued. We do
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have an oil crisis bubbling away that we don't
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know what's going to happen. And we've got companies like SpaceX pumping their
3:04
IPOs to ridiculous nosebleed prices and
3:08
people losing money as a result. That's all happening. That's never been any different. And
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we've got this debt problem in America that's emerging. So he talks about a lot of
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these macro factors affecting potential prices. And then we've got
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the likes of Warren Buffett, who's socked away $400 billion
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in treasury bonds, which is cash. And he's not necessarily
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buying lots of stocks, although that's debatable too, which I'll explain in a second. So
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he's having this conversation with Stephen Bartlett, and he's saying, get out of the market, sell everything. And
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Stephen Bartlett says, well, does that mean you would sell all your US
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stocks? He says, I would. And I think that's a really bad
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idea. Whenever there's a real estate market collapse, like sell your house. No,
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that's a bad idea. You'd only sell your home if the mortgage
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was like destroying your life and your cashflow, you'd sell
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for sure. But if your mortgage is under control or you
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own your home outright, which is even better, You wouldn't sell your house to
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then re-buy in. That's called timing the market, and that's a dumb
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idea. And the same with stocks. You wouldn't sell great
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companies, great businesses, just anticipating a
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collapse. You just wouldn't. Warren Buffett doesn't do that, and
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you shouldn't do that either. I don't do that. is the stock market collapsing
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is the title of this episode. And the answer I said at the very beginning is no. So
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let me prove that to you. Certainly the S&P 500 is
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up this year so far 6%. So it's not collapsing, it's
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up 6.5%. You know, I don't think
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that even includes dividends 1%, but it's up. So straight
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away, I can tell you that no, it's up. So it's not collapsing. And
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some of the constituents in the S&P 500, some of the best
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companies in the top 500 companies available, they just released earnings only
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this week. And even up to last night, I was looking at some of the earnings. So let me
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just go through some of these with you. Because if the prices of companies, the
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shares, the price per share of a company versus its
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earnings. If that's higher, like the PE multiple is higher, it
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tells us we're spending more money to get the same amount of earnings from a company. Now,
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how you buy a laundromat is how you buy a big business. If I buy a laundromat
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for half a million bucks and it's producing a hundred grand profit, not the best. If
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I buy it for half a million bucks and it's producing 250 grand a year profit, pretty good.
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You're paying less for more earnings. Whenever you buy a share in a company, you
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want to pay less for more earnings. Same as
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real estate, you wanna pay less for more rent. I don't know
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anyone who wants to pay more for the house and get less rent. So
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this is a basic investing concept. So how you
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approach buying shares is the same. Now what's interesting is even
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if American Express, as an example, is 20 times earnings, it's
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selling for 20 times earnings. So if it's earning, I don't know,
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just argument's sake, a billion dollars. In fact, I'll tell you
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what it would be earning. American Express would
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be earning $10 billion EM profits. So,
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write a bit over. So, if American Express is earning 10 billion
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a year in profits and it's selling for 20 times multiple, it's
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selling in the marketplace for 200 billion. Now, if you look at American Express, it's roughly valued in
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the market about 200 to 220 billion. So, we can tell that
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you're spending 200 billion. If you could buy American Express as
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a whole company, You pay 200 and
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something billion for it, and it's going to produce 10 to 15 billion dollars
6:16
a year in earnings. Nowhere in this world would you want to pay double that
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for the same earnings, right? So right now we know that American
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Express is selling for 20 times earnings. Now, that's
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a pretty good, that's a fair price for a great company, I think. If
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it was 40 times earnings, wouldn't touch it, right? Because the
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earnings are only growing at 10% per annum. So I know the
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stock market is not collapsing because some of the best companies in the world like
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American Express, American Express just reported this week
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10% earnings growth. So it's growing its earnings
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nicely and it's growing its revenues too. Google, this
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is wild. Only a few days ago, Google released its earnings. Check this out.
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296% increase in earnings per share, but that number's a
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bit misleading because in accounting, when
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a company has investments in its investment portfolio that
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experience capital gains, that actually is translated to
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gains in the earnings statement. So it
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reports them as earnings growth, but it's capital growth
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of the investment. That's why it's so high, because don't forget, Google
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owns some of Anthropic, it owns some of SpaceX, it's got lots
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of different investments. Its investments did really well, but that's not its operating
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earnings. But check this out, Google, its operating earnings
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grew by 82%. What the flipping heck?
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You could argue right now, even better than that, it's probably the
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preeminent best business that's ever existed right now, right presently. As it's performing
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right now, it's amazing, right? Which is why it's
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interesting, because Warren Buffett just put in another placement,
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and I believe that brings his total to $20-30 billion. I don't know, I
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haven't looked at it in detail, but I think on the next disclosure of
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the Berkshire Hathaway share portfolio that's probably approaching $250-300
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billion, I would say that Google will now represent
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10%, I would think, just behind American Express
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and Apple. So it's now it will become his third largest position
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outside the railroads that he owns in BNSF, which is a big company. Big
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business, I think that's 100 billion now. So that's interesting, isn't it? If
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the stock market's collapsing, why is Google, why
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is its earnings growing by 82%? By the way, at 25 times
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multiple or 30 times multiple, it's a pretty good price, I think. And
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Warren Buffett sees that, too. So he just deployed all this capital into Google. So
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if it's collapsing, why is he buying nice placements in Google? Moody's,
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one of the best businesses in the world, ever. It grows, it's got return on capital,
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70% return on invested capital. It's crazy, one of the best
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businesses of all time. it grew its earnings this week by
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31%. It grew its revenue by 15%, right? You
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got Chevron and Exxon and Canadian Natural Resources and
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these big oil, leading oil companies, they're going to print. They're
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going to print because oil's oscillating around the $70, $80 mark,
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up to $90 now, I think, overnight, $100 almost. They're going to just
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print. They're going to just buy back tons of shares and pay out massive dividends.
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They're not collapsing. In fact, I'm up all positions. I've done an
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episode on this before. there are best performing positions. I think
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we're up 30% for the year on those. So I don't think
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it's collapsing. What is intriguing though, is
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that despite these amazing companies, but I've just rattled off a couple,
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but there's others like S&P Global, like Visa just reported there.
9:30
What a wonderful company Visa. They just reported, I think it was
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14% growth in earnings, 13%. Amazing. And
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Coca-Cola, just so you know, Coca-Cola just reported stellar
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earnings growth. And it
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stocks up, what is it, 7%, 6%? Was that $89 a share now? This
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is a stalwart that's 200 years old, or not quite,
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but 150 years old. By no means do I believe that based
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on these earnings reports that the stock market's collapsing. These prices that
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they're selling for might be a little bit rich, but I
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don't think they're actually overpriced. I think that if you can buy
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Moody's for 29 times earnings, you're getting a pretty good deal. Warren
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obviously sees Google as a good deal right now. He actually went
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on to talk to Becky Quick on CNBC, and he said, you know, Wall
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Street's really good at talking about all these wonderful new
10:23
companies that don't make any money, and it doesn't seem to talk about companies that
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do make great money in cash. And he said specifically, American
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Express has a return on investment capital of 30%, the
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same as Bank of America, but same risk, but
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three times better return on capital, which is why it's his almost number one
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position behind Apple. So what am I getting at here? Let
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me summarize this. The earnings of
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the companies that make up the stock market that aren't in the AI
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realm are doing really well. Even Google that is leading
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in AI is also doing really well. These companies are
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reporting great earnings. An American economy
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is absolutely on fire. It's cranking. GDP growth must
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be up at 5%. It is pumping. It's the most pro-business
11:10
American economy since Reagan. It is absolutely on
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fire. As Donald Trump says, it's true, America is
11:17
the hardest country and it's cranking. They are pro-business. If
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there's ever a time to do business in America, it's it. Railroads cranking. It's
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pumping. That's why our portfolio is pumping. I don't think it's
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collapsing at all. Do I think it's going to hit a collapse? It doesn't appear
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so. The thing with collapses is this. The signal that
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is concerning and should, not concern you,
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but should interest you, I should say, because you should be praying for stocks to
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collapse so you can buy more of them for less. I hope it
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collapses so I can buy more for less. What's interesting is Warren Buffett has
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$400 billion in treasuries, in T-bills, which is one-year treasury bonds.
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He's getting, what, 5% on that? He's making 5% on $400 billion,
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which is a huge number. Was it $20 billion? So
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pretty good income and no risk. So he doesn't see the
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stock market as a place to deploy that money right now in any good
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enough deals to warrant a return. He obviously saw something in Google, so
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that makes sense, but he's not gonna put all the money in there. He doesn't feel that
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this market is a good market to deploy large amounts
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of capital into, right? Which is why they got fired. But
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is he selling his $300 billion portfolio? No.
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Is he selling his private business, private equity portfolio in
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BNSF Railroad and these other great companies? No, he's not
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because he's not an idiot. Berkshire Hathaway is
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valued at $1.1 trillion. Of that, they've
12:39
got $400 billion in cash. They're about 40% give or
12:42
take in cash, which is a big cash allocation. If
12:46
you're a lay investor and you've got a million dollars, you
12:49
might have 40% in cash if you're modeling him. But
12:52
even 20% cash makes some sense. Just quickly, if you're ready to take control
12:56
of your finances but feel stuck on where to start, I have a
12:59
solution. My book, Money Bias Happiness, simplifies investing
13:03
and wealth building with practical steps to help you achieve financial peace.
13:07
Get your copy via the link in the show notes and let's get your money working for
13:10
you. Now back to the episode. So I'm not even worried about a
13:14
collapse. Should it pull back? Yeah, probably. The S&P 500 is probably
13:17
due for a pullback because it's been on an absolute tear since
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2020. It's just been pumping. You could even argue, outside
13:26
the COVID collapse, it's been on a tear since 2011. We're in this
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secular bull market that just seems unstoppable. So
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that being said, what does Warren Buffett see we can't? And you always got to
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remember in markets and how they move is people often say, and the
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same thing happened in the real estate market in Australia very recently. And
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you could say the same for Canada and New Zealand and so on, is that when
13:45
things are going well, you can never see what's going to derail it.
13:49
People don't want to look there. But no one could have anticipated that
13:52
the Labor government in Australia would have come out of the, at
13:55
the budget and nailed trusts, nailed CGT,
13:59
canceled SMSF lending and canceled negative gearing in one go. Like
14:03
no one had that on their bingo card. No one. And
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I, if you go back and listen to episodes, I said, the thing that's going to derail the
14:10
market, you won't be able to see it. That's risk. Risk is what you can't see.
14:14
That's why when, you know, it's like when someone's driving a car and don't have their seatbelt
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on, like, nah, I'm going to get in an accident. They can't see that. You
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don't know that. And so it's the same thing with a bullish market. You're like,
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well, I can't see there's going to be a collapse in real estate in Australia. It
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just applies to immigration. No, you're wrong. You're
14:31
wrong. It's the thing you couldn't see. You couldn't see Labor coming
14:35
out and being a flippant socialist government, just pumping things through the Senate. You
14:39
couldn't see that. So risk is what you can't see, and
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Warren Buffett knows that, so he's preparing for what he can't see.
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Does he know that it's an overpriced market? Yes. Is
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he selling his holdings? No, because he's not stupid to sell some of the best companies in
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the world just because he thinks maybe, maybe, maybe. He doesn't know when. Maybe
14:56
in five years, ten years. Maybe he might be dead by then. He's 95 now. But what he
14:59
does know is you don't make money by deploying large amounts of
15:03
capital in a real estate-valued market. What he also knows is he
15:07
can't see the risk. He doesn't know, but he knows at some point something's going
15:10
to change. We don't know what's going to derail the market, but here's a couple of
15:13
ideas. The SPR, the oil reserves in
15:17
America, are getting very, very, very, very, very, very low, to the point where they've
15:20
never been this low since 1986. So if their
15:24
strategic reserves in oil get to zero, and all
15:27
of a sudden the supply of oil is constrained to
15:30
a point we've not seen for a long time. Oil prices may
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go to $200 a barrel. It's not unforeseen, because inflation
15:39
is just $200. It's not that much. So it's possible. Now, if that
15:42
happens, it impacts all companies, because oil is in everything. So
15:46
it will pump inflation. Rates may go up. And
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then the companies in the market are less valued, more undervalued,
15:54
worthless. And same as real estate, too. So
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I think oil is a risk. Risks
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we can see, because no one could see COVID either. No one could see the stupidity of
16:05
the governments in COVID, no one. You might've been able to see the COVID sickness,
16:09
but no one could have anticipated the stupidity of governments, maybe.
16:14
So you can see oil, that's a real risk that you can actually,
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like there's data on that. If you go follow a guy called Eric
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Nuttall, he's good to follow. And if you go on X and follow Eric Nuttall, or go to YouTube
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and follow Eric Nuttall, he's kind of like the guy to listen to in oil, right?
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He's a leading Canadian oil portfolio manager. There's
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a lot of data that suggests the oil market is going to flip the switch. What
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else could it be? It could also be war. It could be that
16:38
Russia nukes Ukraine to get their back out
16:41
from the war. That's a possibility. That's a risk that you can maybe
16:45
measure to some extent. Then there's the United
16:48
States $40 trillion in debt. That's a risk because what if
16:51
America defaults? Now it won't because it just prints more money. There's
16:55
an inflation risk if they don't increase interest rates far enough and inflation runs
16:58
away and they destroy the currency. That's a risk. So
17:01
these are the things that we can anticipate and see, but And
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what I understand about collapses in the past is that often it's the
17:10
thing you can't see that causes it. COVID, Lehman
17:13
Brothers going broke from this toxic debt crisis, and then
17:16
the dot-com bubble. I probably see that one. These are the things that
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happen. So it appears we may
17:23
not see a crash, but I saw this
17:27
pose yesterday. The world's betting on AI working and
17:31
these earnings are supported and the economy cranks into a new year and the productivity
17:35
goes up measurably. possible, or
17:38
it's all BS and it only has got us to a certain point and it's stopping and
17:43
then it doesn't fulfill the prophecy and a lot of the
17:47
guts comes out of the market, which is also a possibility. So we're in this 50-50 position. And
17:52
I think that innovation-wise, nothing adopts as fast as
17:55
what you think that can be said for electric cars. Everyone thought that electric self-driving
17:58
cars would be around, and they're not. There's people still using flip phones. And
18:03
so adoption takes time. So I think the answer always lies in the
18:06
middle. And I think that what we would more likely see is a
18:09
S&P 500 return each year of 5% or 6%. until
18:15
things change and you might see a bit of a more bullish run or a drawback of
18:19
10%, which is very, very common. And I think we're going to play in that middle ground. I
18:22
just don't think we're going to see a massive collapse because these companies that
18:26
are very highly valued are pumping earnings like across
18:30
the board, which tells me that the prices are warranted, but
18:34
Warren's waiting for something. So I think if you ever had a lot of capital, I
18:38
don't think now is the ideal time to deploy it all. You'd
18:42
probably want to be dollar cost averaging consistently into an index fund or into shares
18:46
over time right now in this market, because you don't know. But if
18:49
it falls, by what percentage, but
18:53
if you see Warren Buffett deploy a shit ton of money into
18:57
the marketplace out of the 400 billion, that would be a good signal that
19:00
the market's pretty undervalued. Now, hopefully, he
19:03
stays alive long enough for that to happen. But again, you can follow other investors too.
19:06
If there's a lot of investment activity from these value investor
19:10
guys, it's a pretty good signal. And it's also a good signal when
19:14
no one wants to touch stocks. Like right now in real estate, in
19:18
Australia, I don't want to touch that. There's no bidders at auctions. Probably
19:22
a good idea to lean into it now, right? Not always
19:26
go against the crowd, because the crowd can be right a lot of the time, but after
19:30
a big run up and then the crowd doesn't want to touch it, typically that's
19:33
a good time to look into it. So I hope that makes sense and hopefully answers the
19:37
question as to whether the stock market's collapsing or not. So I don't think it is. Let's
19:40
see what happens. I'd love to know what do you think is happening in the stock market.
19:44
Go and ask me a question below in the comments, leave a comment on this, and of course share this
19:47
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20:01
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don't make anything from it. I'm just trying to give you as much. I'm
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trying to impart wisdom and education to you in a way that
20:11
helps you think about where the value lies
20:14
in the world. For example, if there seems to be value in the real estate market,
20:18
you'll hear me say it on here. You will. I look for value.
20:22
I don't look for a specific sector. For
20:25
example, I'm not going to sit on here and bang about property because I'm selling it and you're going to get a commission
20:28
out of it. That's not what I meant. Same with stock. I don't get anything from the
20:31
stocks I taught, nothing. The only thing I get,
20:35
if you end up buying one of my books, great. Or you
20:39
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20:46
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