October 3, 2021

In this video, I will go through one of the fundamental concepts within investing accelerator.

It's about trend and why I don't look at daily changes in the market.

As a new investor, it is very easy to fall into this mistake where you are constantly looking at the daily changes in the market. I used to make this error as well when I first started investing.

So, I created this video to explain the rationale and give you the data to support it.

90% correct transcript

So what's up guys. And welcome back to another episode of my channel to talk about investing. And in this episode, I actually want to go through one of the foundational concepts, uh, within investing accelerator. It's about trend and why I don't look at that daily change of the market. So if you're a new investor, I think it is very easy to fall into this mistake where you're constantly looking at the daily change of the market. And I used to do that when I was young. Well, I still look pretty young right now, but I used to do that when I first started investing. So I want to go through the rationale for it, give you the data to support it. And then after that, um, if you have any questions, you can leave a comment below on how to think about trends, even if you don't use any indicators at all.
Uh, so I'm trying this new setup where I put my face kind of on the left of the screen. Uh, so if you like that, give me a thumbs up and I'll continue to do that for a future videos. So before we start, I just want to celebrate, and that are four successful case studies where Flo made 104% from Intel in 41 days. And he made 104% from Intel in 10 weeks and area and made a hundred percent from American express in three months. And Peter made 30% from FSL. Why in three months as well. So congratulations to you all for, uh, these are fairly successful case studies. I'm happy. That's you guys who are successful after learning, investing. So let's dive in. So the reason why I'm making this video is because I notice a lot of people like to look at the daily change, myself included.
It's kind of continuous is real time. It's exciting. And it just kind of gives you that adrenaline rush. You know, you're looking at the daily change, oh my God, it's going up. And you look at the daily change. Oh my God, it's going down. And it makes you feel really involved even though investing is technically the lease involve activity ever. Because once you make a decision, you invest in a stock is just a matter of sitting on your hands and let it play out. And if you're right, obviously you will make a lot of profits. If you're a wrong then, well, you need to work on your risk management. So why don't I look at the daily change of the markets, or at least I avoid looking at the daily change of the market as much as possible. Now here is actually the charge for S and P 500.
So this is S P Y. Um, and here you can see for the last couple of years, it is a very nice uptrend. So if you're wondering how I got this whole templates going on, it is the free chart course, which I offer in the description below. You can just register it for it is a first link in the description. So here you can see price has been kind of consistently going up, you know, in 2018, the S and P 500 was at two 60. This is the ticker spy, 2019. It's going up a little bit to 8,300. And then in 2020, there is this COVID dip that you see here and afterwards it rebounded, and now we're at 400. Okay. So we can see the trend has been very strong. And if I assume out a little bit here, then you can see it has been distraught for many years ever since 2009, which is the previous crash.
And even if you include the previous crash, which is the housing bubble, the trend itself is still very strong regardless. So when you think about S and P 500, what do you think is the percentage of updates? And what do you think is the percentage of down days? So updates, meaning that that day of the market is going up and down day, the market is going down. So looking at such a strong trend for the last 20 years or so take a guess, what is the percentage, because this is going to be important. And if you get it right stand, of course, congratulations, stick till the end to find out if you get a wrong, take it as a lesson. Because when I was learning, investing, maybe 13 years ago, I got this completely wrong. I was actually very shocked by the result because, well, I thought for such a strong trend, the number of updates must be important or really high in this case.
So when I was, you know, writing, uh, different programs to learn how to invest in the market, I had a, I had the wrong assumption basically. So when you're building the model, you need to create specific rules to basically enter and exit into the market. And what I was trying to do is to use machine learning, to kind of predict the next few days, or even next few weeks, or even next few months, or next few minutes on what is going to happen in the market. And if the programmer, which in this case is myself, have the wrong assumption. And that is very problematic because you can't program the correct model, which mimics the market movements. So that's why this is an important assumption. And it links back to the psychology of checking the daily change of the market every day. So if you have finished your guests, leave a comment below, there's no right or wrong answer, because I bet most people are not going to get this right.
So what is the number of updates as a percentage of a hundred versus the number of down days? Okay, so you, you have written down your answer. Uh, so let's go to the data. So here is a PDF I found online. I could have done this myself, uh, using Excel and pivot tables, which is relatively easy, just download the S and P 500 data is quite simple. So here at you'll first find for the last 50 plus years, the percentage of updates and down days is 53% versus 46%. Okay. Now you look at this number and you go like, huh, this is actually awfully close to each other. So let me go back to the S and P 500 charts and let me Sue Mt for you for 50 years. Okay. So I'm going to go out really fast. Okay. They don't even have that much data to earliest data was 1993.
So here you can see, this is a straight up trend, okay. From 1994, trading for you has $41 all the way up to 400. Okay. So that is what 10 X increase. Sure. But the percentage of updates first is down days. That difference is only 3%. And I calculate a 3% by picking the 52 53 0.8 that's 3%. And if you take a look at the decade splits, which is the little box below 1970s, 51%, 1980s, 53%, 1990s, 53%, 2050 to 2010, um, 54, and most recently, 2000 and twenties, 57%. So yes, there seems to be an increase in terms of the number of updates in the last 10, 20 years or so, but what's important here is really to observe how small the changes. And even though there's only a slight difference in percentage in terms of the updates versus the number of down days, it creates such a strong trend.
Now, when you take a step back and think about this piece of data, it is actually very important because if you try to model and create an AI and try to predict whether tomorrow next week is an update or a down day, I think you're going to have a lot of trouble creating that kind of AI, because it's not going to be very helpful. And your margin of error needs to be very small, uh, which means the probability of you making a mistake. So then it wouldn't be a very good model. And when I first started, I actually thought it was going to be 90%. So if during an uptrend period, it would be 90% going up versus a downtrend period where 90% would be going down. So meaning nine out of 10 days is going up and nine out of 10 days is going down, would create the trend, but turns out that's actually not true.
So it's actually a very, very small difference, which will create the trend. And I think this will completely change the way you understand the market, especially if you are looking at the daily change, because looking at the daily changes, very exciting, you know, it's moving up and down, ticking up and down all the time, and it's very addicting. So if you understand that, Hey, maybe it's just the smallest percentage change. Even if it is in an uptrend where the market continues to go up, 46% of the days are going down, but the market is going up. So over the long run, the market is going up, even though 46% of the days are going down, are you getting it? This is important because if you understand this fact, which is based on data over the last 50 years, then you'll understand, well, there's really no need to panic.
If the market is down one day or down a couple of days, because even in such a strong uptrend, like S and P 546% of the days are down, and this is kind of the key pillars of my investing strategy and also a significant turning point where I suddenly realize, Hey, perhaps it is the opposite. So instead of looking at a down day, looking at red as panic, it is actually an opportunity perhaps looking at updates as good. It's actually, you know, just progressing as what it should, if the stock has an uptrend. So if you want to dive a little bit deeper into trend and how to use technical analysis and so on, then I would suggest you to go to the first link in the description below to take the free chart course. Um, so it was free. The training is four hours long. And, um, I explained a lot in terms of the kind of analysis I do in terms of investing. So let's dive a little bit deeper into this PDF because I want to make sure that you don't get mislead, uh, by the data. So I'm going to skip over the, these two boxes. They're basically showing you the same conclusion, uh, where they showing you the last couple of years, which doesn't really matter too much, uh, in my opinion. So what I want to clarify is really here.
So what the author is trying to do is to create some sort of separation or basically giving you some sort of signal. So here you can see initially in the 1970s, the number of updates versus the number of down days is 51 to 48. And then over time, the difference is getting larger and larger and larger, and you go like, huh, that's actually quite interesting, except you need to look at the scale. So when you're looking at the data, it's important to look at the scale. This is actually 60% to 40%. Now I understand what the author is trying to do. They're trying to create this kind of, um, signal so that it's clear what the difference is and that it is increasing. But if you look at the entire scale, then it's only a couple of percentage points difference. So it went from 51 to 57 versus 48 to 42.
Now, of course, there's going to be volatility within these numbers. Um, so when you look at the full scale, which is zero to 100%, what's important, is that across all 50 years or so, the number of updates as a percentage is more than the number of down days, which is good. And if you look at the number of down days, it is still around 40 something percent. Yes, it used to be 48% in 1970s. Now it's 42%, but it's still within this range. So if you think about, you know, sometimes the market performs better in one year than another year. You need to think of the data as kind of like a fluctuating. And it's kind of like doing this. So you're really looking at a range between 48% to 42%. So in any given year, it is probably going to be fluctuating within this period of time, uh, this percentage on me.
So when you think about that, then you can have a proper expectation on what's happening in the markets, meaning that when you're investing in a good stock, you do your research, technical, fundamental and all that. And you invest in it term and you see a down day, you don't panic because you understand that 40 something percent of the time, the stock will show it down date, even though the long-term trend is up. So now you realize that doing your research is important. Understanding how the market works. That behavior is also important. And once you combine all of that together into one single strategy, then you will be making quite a healthy profit. So if you're interested in learning more about how I invest, then I will invite you to attend a free training below. So it is a four-hour free training call, how to get 30% from the market.
It is free. It is four hours long, it's quite long. So you can go through it in one sitting, maybe with two cups of coffee or multiple sittings across multiple days. So once you watch your free training, and if you're interested in learning more, then of course you can schedule a call with me to chat, to see if you want to be part of investing accelerator. And this month I'm looking to help 20 people without a financial background to learn investing. So if you want to be one of the 20 and you can schedule a call with me and I'll see you in the next video. And of course, if you like this kind of format, where I set up the data, I explained the concept and why I do what I do in order to become a more successful investor, just hit the like button. I would really appreciate that. It would really tell the YouTube algorithm that this is a good video. And you like my face on the left hand side, basically. Okay. I'll see you in the next one.

About the author 

Eric Seto

Eric Seto is an investor with over 10 years of experience. He travelled around the world to help with auditing, accounting, purchase and sale of companies.

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