Quick note: Not financial advice. I’m sharing how I think, not what you should do. Talk to a qualified financial advisor about your own situation.
I am writing this one unscheduled because I think things are getting to a critical level.
Before I get into this, I am going to use a couple of shorthand labels just for the sake of quicker typing. For stocks, 200 weeks equals roughly 1,000 trading days, so I’m calling that the 1KD. For crypto, since it trades seven days a week, 200 weeks equals 1,400 calendar days, so I’m calling that the 14KD.
The S&P 500 is now almost 44% above its 1KD. For context, the dot-com peak only reached about 45% above that same line. So I really do not think this wild swing can last much longer. It might, and I'm not calling a market top but I don't want to bet that it will. And because of the beta of many crypto projects that I pointed out in my last brief, I think stocks and crypto are both positioned for a sharp drawdown when this reverts to the mean, as it always does.
I have said before in my videos that I would tell people when I start selling gold. I have been paring down my holdings of gold over the past few weeks to about 18% and have moved the majority of my portfolio into very short-term Treasuries that should be much less affected by Fed rate changes over the coming months. I am specifically holding the SGOV ETF because of the very low fee. I also didn’t feel like dealing with the hassle of buying the Treasuries.
I also have very small short positions on both the SPY and the Nasdaq-100, as well as six extremely small short positions on some of the insanely bloated semiconductor stocks, which was nice to see this morning with AVGO being one of them. These short positions in total account for less than 10% of my portfolio. I am holding on to my crypto positions, but I am also not adding to them for now. This will likely change soon.
I did all of this after seeing that gold was at such historic levels above its 1KD, as well as seeing these insanely high gold-to-everything ratios like what I highlighted a few months ago here: https://www.youtube.com/watch?v=B2TmLG2Ndks
I still think long term, gold is a good store of value, and I actually think certain gold stablecoins like PAXG bring the benefits of crypto together with the intrinsic long-term value of gold. Again, this is not advice, but PAXG is one of the rare gold stablecoins regulated by the NYDFS. I know XAUt is a popular option, but I have been skeptical of Tether for a while now for reasons I could dive into later if anyone is interested.
I cannot stress enough how important I think the 1KD is for long-term investors. It is so simple and also rarely used. Most websites will not even allow you to create an average line that long. The websites that do show this data usually just show you a line, but they do not aggregate that data in any meaningful way.
I have been tracking this specific data in spreadsheets and am currently building a website that I plan to offer inside my Private Research Room. Every tool I am currently privately using, I plan to include. I seriously want this to be comprehensive and help people see the bigger picture in the same way I am seeing it. I also want to help people understand my thought process in real time.
I want people to know what types of things have historically happened when markets were equivalently optimistic, as well as what has historically happened when markets were equivalently pessimistic.
The full range.
This is a simple example I saw on X and was commenting on yesterday.
"What" you buy matters. But “when” you buy it can matter even more.
I was doing some late-night steak cooking on my Big Green Egg yesterday when I wrote this, and I couldn’t remember the specific number, but I knew it was well over 200%. The exact number back in 2021 was significantly higher than 200% and came in at a mind-blowing 286.2%.
Numbers like this are typically where bag holders are left lying in bed with their pockets full of sand muffling their cries into their pillow at night 😅. You might think I’m joking, but I remember reading forums daily back in 2009 and there was stuff even worse than this.
For reference, after that date, BTC fell below its 14KD on June 11, 2022, and ultimately rapidly fell to $20,471 only a few days later on June 16, which was 28.44% below the 14KD. Its lowest level below the line at that time was $16,189, which it hit on November 21, 2022, at about 47% below the 14KD.
This represented a fall of 75.89%.
I personally know people who shrug their shoulders and say, “Oh well! The market rises and falls. You can’t time it.”
But I would say that when you buy at these horrible multiples, lose your shirt, and then grit and grind through the climb back up, all you have done is broken even. You just had to 4.15x your money from the bottom to get back to even.
That is a seriously bad outcome.
Not good at all, and moreover, totally preventable.
I cannot stress enough the importance of what I said to this guy above in my reply:
“It’s not what is good, but at what level.”
Let’s think about a slightly wiser investor who had seen that BTC tended, before this time, to not fall much below the 14KD. Then on June 18, 2022, BTC drops like a rock down to $20,553, which put it 8% below the 14KD, and he pulls the trigger and buys BTC there.
Yes, he would still have lost some more as BTC went down to $16,189. But he could see there that it was even lower below the line and DCA, or dollar-cost average, down.
Ultimately though, even if he went all in at $20,553, by the time BTC got back up to the much earlier high at $67,153, that wiser investor would now be sitting on a +227% return.
Remember the other guy crying into his pillow?
He has only broken even.
I am using Bitcoin just as an illustration. The same goes for other crypto and even stocks.
I first started analyzing XRP back in August of 2024. Just a few days earlier, it had fallen about 30% below its 14KD. I put out my first video on XRP before the 2024 U.S. presidential election, when XRP was around $0.50. Although XRP has recently fallen significantly, it has spent the remainder of its time well in the green above that $0.50 range since then.
As I type this, XRP is about 2% below its 14KD. XRP has tended to bottom in the -20% to -30% range. That does not mean it predicts the future, but I would expect it is likely that XRP falls even further from here. Possibly 20% to 30% more.
I could talk about this for hours and hours. I have to work on some other things today, but I wanted to fill all of you in on this stuff.
Investing is complex and involved, and I feel like it’s best when people collaborate and toss ideas off each other. I first learned about this at the dawn of my investing journey back in 2007, when I started reading Motley Fool articles and used to also read the discussion boards.
As a quick aside, I am also a firm believer in the Warren Buffett quote about being fearful when others are greedy and greedy when others are fearful.
I have read well over 100 books on investing, but back in 2008, I read a little-known book called Anatomy of the Bear by Russell Napier. He analyzed the major market bottoms of 1921, 1932, 1949, and 1982. I took a lot of what I read there into my mind and then out onto the streets and discussion boards with me during the collapse of 2008–2009.
That crash taught me a lot about how fear actually spreads, and I noticed some trends in those years.
At first, people usually show skepticism a crash is coming. Most people have no system for quantifying the current market condition. They are like a ship in the ocean of markets without a sailing plan. They just know things look good right now, and they have blind faith that it will continue, or that “this is just a dip.” They usually have no clue where the current environment fits in the broader scheme of multi-decade or even century-plus market history. They are just following the blind belief that “markets always go up.”
What I found is that this skeptical period is usually followed by anger mixed with jokes. People will share memes, laugh through the pain, and act like everything is still fine.
I would see stuff like this in late 2008 saying "Me at the opening bell!"
Then the humor starts fading. Then it progresses into actual distress, where people start talking about their losses and hardships in a very emotional way. You will hear people saying they have lost a lot of money and genuinely do not know what to do.
My experience is that this is getting close to bottoms when this starts becoming a common theme but usually not quite there yet.
The final stage is blood in the streets and panic. This is the stage where people start saying things like, “F**k this investment.F**k this CEO. He should be in f**king jail. I am down 95%. I can never recover from this.” You will see class action lawsuits just for price drops. Your best friend who used to brag to you about his portfolio is always on Do Not Disturb. The bears are celebrating like it’s 1999. They will be sharing equally exuberant memes and rubbing the misery into the bulls’ faces. The crazy thing is that many people will get so down in the dumps here, they will actually wait to sell right here thinking if they wait 1 more day it is going to 0.
And when that hits, you are usually in the lower stages well below the 1KD, and it is probably nearing a low of pessimism worthy of intense research to find the best buys. My experience buying at that level is that it is typically so easy that a monkey can make money just throwing a dart at a heat map.
But the real opportunity is finding the best assets before the panic fades and everyone suddenly remembers they were “long-term investors” all along.
Back to the boards though. I saw some decent info on those boards, but I also saw a lot of random fluff I had to dig through as well. I ultimately ended up paying for a few different services, and I found that the value of the information tended to be significantly better because that paywall weeded out a lot of the people who either weren’t actually serious, or were so bad at investing they couldn’t even afford to pay for a board.
I saw tons of valuable info on those paid boards, but all the stocks were way too overpriced for my tastes, and a lot of people were very caught up in their gains. I got to personally witness people get crushed on some high-flyer stocks like AAPL, CMG, AMZN, NFLX, ISRG, and a number of others.
But for me, I just kept learning about them as they were falling and their valuation ratios got better and better. I did not perfectly time the bottom going into March 2009, but as those prices fell further and further, I piled into them.
In those cases, what I was buying was exceptionally good financials and cash flows, and when I was buying it was at a statistically significant cheapness.
I have been happy to see quite a few subscribers asking for more info about what I am offering with this Private Research Room.
Ultimately, what I envision is sharing everything I know in real time with people. I want to digitize the spreadsheet tools I’m using into website format. Since they are all my own tools, I can literally shape them into something that has already helped me and can also help other people make more informed decisions.
I have previously coded full-blown quantitative trading systems, and I want to bring some of this thinking into these web tools to help people spot trends that may not be noticed by the broader market.
Most importantly though, I want to build a community of serious, and like-minded people who are throwing ideas off each other. I actually think this community aspect is the most valuable part of all, and the private discussions would be an extremely valuable part of it.
I was president of my fraternity in college, and I have personally seen how a community of diverse people sharing the same goals is always going to make better decisions than one or two people thinking in an echo chamber.
I am also thinking about offering a discounted founder’s rate to a select group of people who sign up for the Private Research Room first. That rate would be permanently locked in, so as long as those people stay subscribed, they would never lose that price. Everyone after those initial sign-ups would be subject to future price changes.
I would do this as a thank you to the people who believe in what I’m doing and support it from day one.
If anybody has any feedback or questions, please feel free to shoot me an email. I can still manage replies right now. As The Layer Below grows, I will make my best effort to reply to those emails, but I will prioritize discussions inside the Private Research Room.
Also, if you know someone who is trying to make sense of markets right now, feel free to share this with them and they can sign up at https://layerbelow.astockstory.com. I think a lot of people are looking at prices without seeing where we are in the bigger cycle.