Gary Shilling explains the only way to beat the market and win

[Music] well I've learned a lot of lessons over the years of most of the hard way but there are there are a couple of basic facts if you look at the economy it grows over time not at a steady rate but it grows over time and markets particularly the stock market reflects that in other words if you have the economy growing at let's say the nominal economy nominal GDP growing at 4% long-term corporate profits are going to grow about the same rate obviously they can't continually expand faster than the economy or decline relative to the economy so that's that's where you start so in terms of stocks the only real difference between how the nominal economies are going and how the stock market is going is price earnings ratios and they move in long cycles 10-15 years they move up then they'll tend to move down and that's pretty much it now that's the overall that's the overall economy and that's the overall investment of course everybody thinks they're going to beat this there's that great gambling instinct in all of us I mean that's why people watch financial news programs that's why they're watching us everybody's trying to get a leg up here well of course everybody can't win at this game I mean on average it's gonna it's gonna average out but there is that there is that hope of the springs eternal within the human breast and so many once said that you're going to be ahead of the game now what that means is if you are trying to beat the game you've got to be against the consensus it doesn't mean that you simply are a contrarian in a sense of whatever the consensus says I'm going to take the opposite side no no because this kind of consensus can be right and often is but what it means is that when you come up with an idea and it is contoured to the consensus you think it's got a good chance of happening and it's a trend that's working then that's where you want to really jump on it with all force that's what we did in the early 2000s we saw as early as 2002 what looked like a developing housing bubble and and so he said you know this isn't ready to crack yet but it looks like it's getting there they had people who were putting nothing down on houses they assumed that the appreciation would be such they never even have to make one monthly payment because they could refinance you had the no dock loans all this nonsense it really was clear now that obviously that bubble would not have developed and not break until really the end of 2007 unless everybody or most people were convinced it was going to last forever so there's a case of where you had a extreme situation it was against all reality in terms of how long it could last and it was one of these rare opportunities where going against the trend with a major bubble having developed or you can make some serious money [Music]

Channel: Business Insider

Views: 146,647

Keywords: Business Insider, economy, money, business, market, wall street, gary shilling, econmics, finance

Id: w9QoCKbx6d8

Length: 3min 6sec (186 seconds)

Published: Sun Oct 22 2017