0:02 It's no secret that history repeats
0:03 itself. And when it comes to the stock
0:05 market, investors will do whatever
0:07 mental gymnastics they need to convince
0:10 themselves that this time it's
0:12 different. In fact, legendary investor
0:15 Sir John Templeton, who averaged 15%
0:18 annual growth for 38 years, called those
0:20 the four most expensive words in the
0:23 English language. And he's right because
0:25 nothing empties a brokerage account
0:27 faster than blind optimism dressed up as
0:30 financial genius. Which brings us to
0:33 Jesse Livermore. Jesse Livermore, who is
0:35 considered a pioneer of speculative
0:37 trading in the markets, was the basis
0:38 for the main character in the
0:40 best-selling book reminiscences of a
0:43 stock operator and is most wellknown for
0:45 making his fortunes by shorting markets
0:48 during crashes. Once said, "There's
0:50 nothing new in Wall Street. There can't
0:52 be because speculation is as old as the
0:54 hills. Whatever happens in the stock
0:56 market today has happened before and
0:58 will happen again. And there's a stock
1:00 market bubble that nobody talks about
1:02 anymore. It's a bubble that looks
1:04 disturbingly similar to the current
1:06 state of the market. I'm not talking
1:09 about the dot bubble of the early 2000s
1:12 or the 2008 financial crisis. I'm
1:14 talking about a bubble you probably have
1:16 never heard of. It was a bubble that
1:19 when it popped, the damage was ugly. The
1:21 market crashed 50%. Many of the world's
1:24 largest companies lost 60 to 80% of
1:27 their value. Inflation surged from 3 to
1:30 11%. And the market didn't fully recover
1:33 for 8 years. I'm talking about the
1:37 nifty50 bubble of the early 1970s. [Music]
1:41 [Music]
1:44 The story starts in the late 1960s. The
1:46 United States has just ridden a 20-year
1:48 economic sugar high following World War
1:52 II. Factories were booming. Suburbs were
1:54 popping up out of nowhere like acne on a
1:56 teenager. And Americans thought the
1:58 country was invincible. Because in the
2:00 late60s, people had money. They had
2:02 confidence. And most importantly, they
2:04 had blind optimism. And why wouldn't
2:07 they? The United States had just beaten
2:10 Germany in World War II, dropped a man
2:12 on the moon, allegedly, and most
2:14 importantly, invented the etch of
2:17 sketch. Life was good. And in the middle
2:19 of all this optimism was the stock
2:21 market. From the end of World War II in
2:25 1945 all the way to 1970, the United
2:27 States stock market had gained over 350%.
2:28 350%.
2:31 This unprecedented bull run led to a new
2:32 strategy in investing becoming
2:35 popularized. It was known as investing
2:38 in one decision stocks. The concept was
2:40 simple. Invest in companies so powerful
2:43 and so dominant that you only had one
2:44 decision to make when it came to
2:47 investing in them. Buy these stocks
2:50 became known as the Nifty50. The Nifty50
2:52 wasn't comprised of penny stocks or
2:54 emerging tech companies, but it was
2:57 comprised of blue chip companies that
2:59 generated stable cash flows. It was
3:01 companies like Coca-Cola, American
3:04 Express, McDonald's, and various other
3:06 household names. Investors saw these
3:08 companies as bulletproof. And because of
3:10 this, the idea of ever selling any of
3:14 these stocks was considered crazy. [Music]
3:18 [Music]
3:20 Here's the thing about investing. If
3:23 something sounds like a no-brainer
3:25 investment with zero downside, it's
3:27 almost always a financial grenade with
3:33 And that was exactly the case here. By
3:36 the early 1970s, the Nifty50 stocks
3:39 weren't just expensive. They were priced
3:42 like gravity didn't affect Wall Street.
3:44 The average PE ratio for the overall
3:46 market at the time was a humble 15.
3:49 respectable, normal, the kind of number
3:51 you could bring home to your parents.
3:53 But the never sell mentality around the
3:55 nifty50 turned their valuations into
3:58 numbers you only see in a fairy tale.
4:00 Coca-Cola was trading at 46 times
4:02 earnings, Xerox 49 times earnings,
4:06 McDonald's 86 times earnings, Polaroid
4:08 90 times earnings, and the list just
4:12 keeps going. On average, the Nifty50
4:14 stocks were trading at a jaw-dropping 42
4:16 times earnings. And it doesn't stop
4:20 there. At the peak, the top five Nifty50
4:22 stocks made up around a quarter of the
4:24 entire market. And collectively, the
4:28 entire Nifty50 group made up roughly 45%
4:32 of the total United States stock market. [Music]
4:36 [Music]
4:40 Then came 1973 to 1974. The dominoes
4:43 fell one by one and reality came in and
4:46 slapped everyone across the face. Oil
4:48 prices quadrupled. Inflation jumped to
4:51 over 11%. Unemployment doubled from 4
4:54 1/2% to 9%. And President Nixon
4:56 effectively ended the gold standard for
4:58 good. This led to the stock market
5:03 plunging 50% between 1973 and 1974,
5:05 which marked the worst bare market since
5:07 the Great Depression. And when the
5:09 economy falls apart, overpriced stocks
5:11 don't just correct, they get
5:14 obliterated. In the Nifty50, Coca-Cola
5:17 shares fell over 60%. McDonald's shares
5:20 fell over 70%. And worst of all,
5:23 Polaroid shares collapsed more than 90%.
5:26 The so-called one decision stocks turned
5:28 into one big financial obituary. And
5:31 here's the real gut punch. The damage
5:34 wasn't quick. This wasn't a cute little
5:36 V-shaped recovery like we saw after the
5:39 pandemic. It took the market 8 years
5:42 until 1981 to crawl back to the same
5:44 level it had been at before the bubble
5:46 popped. This was the reality of the
5:49 Nifty50 collapse. Investors who thought
5:51 they were buying eternal growth stocks
5:53 ended up trapped in financial purgatory
5:56 for the better part of a decade. [Music]
6:00 [Music]
6:02 Now, if you're looking at the current
6:04 state of the market and getting a slight
6:07 sense of deja vu, you're not alone. In
6:09 fact, Mark Twain once said, "History
6:12 does not repeat itself." But it does
6:14 rhyme. And while not identical, today's
6:17 stock market undeniably rhymes with the
6:21 one back in 1972. And back in 1972, the
6:24 Nifty50 made up nearly 45% of the total
6:27 United States stock market. Meaning with
6:29 every dollar invested into a stock
6:32 market index fund, investors were making
6:34 a bet that these nifty50 companies would
6:36 somehow grow into these ridiculous price
6:39 tags slapped on them. And if you fast
6:41 forward to today, the movie has the same
6:43 plot, just with shinier special effects.
6:46 The United States tech giants, better
6:48 known as the Magnificent 7, now make up
6:52 around 36% of the entire S&P 500. That's
6:55 right, seven companies. Microsoft,
6:58 Apple, Google, Amazon, Meta, Tesla, and
7:01 Nvidia carry the weight of the entire
7:03 stock market. If that feels eerily
7:05 familiar to the level of concentration
7:07 we saw with the Nifty50 companies, it's
7:10 because it is. Yes, the Magnificent 7
7:12 companies are innovative, and yes, they
7:15 dominate their industries, but so did
7:18 Xerox. So did Polaroid, and so did Avon
7:21 products back in 1972. The Magnificent 7
7:23 have become the modern echo of the one
7:26 decision stocks that dominated back in
7:29 1972. When it comes to the Mag 7,
7:31 investors are acting as if there's only
7:33 one decision to make when it comes to
7:35 investing in them. So, what about the
7:37 valuations of these modern-day tech
7:40 giants? Surely, they're priced fairly,
7:43 right? Well, not at all. Let's just say
7:45 they're also priced like gravity doesn't
7:48 affect them. Google and Meta trade at 28
7:50 times earnings. Amazon 35 times
7:53 earnings, Apple 37 times earnings,
7:56 Microsoft trades at 38 times earnings,
8:00 Nvidia 50 times earnings, and Tesla 247
8:02 times earnings. Are these solid
8:04 companies? Absolutely. Are they
8:06 overpriced, overweighted, and woripped
8:09 as if they're bulletproof? Also, yes.
8:11 And just like in 1972, investors are
8:13 telling themselves the exact same
8:15 bedtime story. These companies are
8:18 untouchable and will grow forever. All
8:20 we're missing is a couple of
8:22 macroeconomic dominoes to fall and we're
8:25 right back where we were. Warren Buffett
8:27 summed it up best. What we learn from
8:29 history is that people don't learn from
8:32 history. So here we are once again
8:35 staring at a topheavy market, pretending
8:38 valuations don't matter and whispering
8:40 the four most expensive words in the
8:42 English language. This time it's different.
8:43 different. [Music]
