5-26-26 What Actually Happens Before A Major Market Breakdown

Added: 2026-05-27

[00:00:00]For folks that are invested, like how do they balance staying invested, but also balance being defensive at the same time? We're all concerned that we're going to wake up one morning and the market's going to be down 30% pre-market.

[00:00:10]>> First of all, you just need to realize that you're not going to wake up one morning and the market's going to be down 30%. So, we make several mistakes as investors, which is pinning ourselves to high-water mark in our portfolio. So, yesterday, my portfolio was $100,000, and today it's worth $90,000. Like, "Oh my gosh, I'm losing all my money." But, you started the year at 50. So, all you did was give up some gains. That's all you did. But, you know, psychologically, we pin ourselves to these high-water marks instead of looking at a more reasonable start point. Pin your portfolio back 2 years, and keep your spreadsheet or whatever says, "This is where I was 2 years ago." And every month it updates for where you were 2 years ago. And then look at where your portfolio is today, and and realize that that gain in your portfolio is is house money, so to speak. And and and sure, we don't want to give that up by any stretch of the imagination, but there's a difference between losing gains and losing principal. You lose your principal, you're out of the game. So, realize that market corrections are going to occur. They're going to happen.

[00:01:02]They're not going to happen 30% in a day. You're going to wake up and the market's going to be down 2%. That's maybe a little bit of a wake-up notice.

[00:01:08]If you're down 2% the next day, probably we're in a bigger correction. There's something else going on. Probably means that we need to be reducing exposure if we haven't done so already. We've had 8 weeks of advances. That's a very long stretch of advances in the market. So, you should take some profits and rebalance. Don't be greedy, cuz this market is going to correct. We are going to have a correction at some point. But, this is probably the biggest problem that you run into, which is you listen to a lot of people on the internet.

[00:01:34]They're talking about, "Oh, the market's about to crash. We're going to have a 50% correction." And that's fine. And that may very well happen. But, A, it's not going to happen overnight. You're not going to wake up and be down 50%. B, you're going to have plenty of warning signs that something's occurring. And C, the most important thing is is if somebody tells you the market's going to crash, but they can't tell you when it's going to crash, it's a useless prediction. So, what's the point about worrying about it today on something that we have no control over in the future. Yes, the markets are eventually going to have a major correction at some point and that could be 20, 30, 40, 50%.

[00:02:04]We are so far above long-term medians and long-term deviations from extremes.

[00:02:09]We're 82% above long-term means. A correction of magnitude is going to have to occur to correct that deviation. Is that going to happen? Yes. It's not going to happen tomorrow. I can tell you it'll happen, but I have no idea when and therefore as a as investor, you just have to manage the markets we have control over, which is the environment we have today. Don't worry about this stuff long-term because A, you can't do anything about it. People have been predicting since 1950 that the economy was going to fail and it's still here, it's still going. So, set that stuff aside, put controls on things that you can actually deal with, which is price momentum, deviations from extremes, those type of things. We can control that by using our allocations, but then paying attention to the technicals. When this market starts to break down, reduce your risk. When things are very bullish, take some profits. Those actions you can control and create better outcomes for yourself.