Well! Hi everyone, this is Dan Thompson with another wise money tools video. Glad you could join me today. So have we seen a crazy market or what? This thing started back on? What February 24. We saw over 1000 point drop just in one day. I mean, it was 28,000- 29,000 dropped all the way down to 24,600. Then a couple days ago, I think it was on Monday it climbed back up to 26 nine, and then today we're hovering right around 26 for another seven 800 point drop today. So the question is why? Now a lot of people say it's coronavirus and all that certainly has something to do with it. But the real reason is this. Wall Street likes predictability. And it's just that simple when Wall Street's comfortable earning are up revenues coming in Wall Street reacts positively. And typically over the last number of years, prices have been going up right? Now that's good for many companies. But man, there's been a lot of companies way overvalued.


We've been in the higher end of the what's called the price earnings ratio for quite some time. And eventually the market does get wise and brings it back to equilibrium or to some sort of medium. But that hasn't happened for years. Again, we've been riding on the high side and this thing's really needed some sort of a pullback or correction. But when Wall Street feels jitters, and what will happen is they're gonna react, and it's gonna get ugly. And what's gonna happen is program trading kicks in and then it's just like, you know, jumping off a cliff, which you can see from this chart. I mean, look how that thing dropped in just the last number of you number of days and we've only been at this about 10 days now. So the markets full of jitters certainly set off by coronavirus. But why such a scare? I mean, we've had the flu in various strains, you know, for centuries.


In fact, one commentator I was listening to said that we're still fighting the same flu that was a breakout in 1918. So who knows how this is gonna turn out. I certainly don't want to predict where we're gonna go. But the big scare for Wall Street isn't even how many people are gonna die from the flu. I hate to say it, but they really could care less in that respect. But what they do care about is how many workers can't work, how many factories and plants are gonna shut down and basically halt production. So for Wall Street, it's all about the revenue and the profits and if manufacturers aren't producing. Well, Then there's nothing to sell. And then the cost of staying in business goes up. And obviously profits go down. So Wall Street's always looking for a reason. And that reason can be to buy or that reason can be to sell. So you got to think a Wall Street kind of into two separate sides of the fence.


One is the transactional side. This is the clearing firms and the brokerage houses that fill trade orders each and every day. And honestly, they do not care which direction it's going if the markets gonna be profitable or not profitable. They are a transactional business. And again, they don't care if you're buying or selling. They just want something buying or selling. Now the other side is the more the you know, the financial planning site, if you were the brokers where markets are going up and down, and that impacts their clients that impacts the families that they're selling mutual funds to. So that side of Wall Street does get affected. But rarely, if ever, do you hear an advisor telling their clients to get out of the market, that's not in their best interest either. They always want you to stay in because that side of the market is fee based. And if you pull your money out, or if they tell you to take your money out, they're kind of hurting themselves because they're gonna lose fees.


So you've got the transactional side doesn't care really where the markets going. They just love lots of trades going on every other day. You've got the other side, the advisor trying to say, Well stay in, because obviously they've got the interest in you, continuing to pay the fees. In fact, it'd be interesting if you happen to call an advisor right now. If I give you 100 reasons to stay in one of those being well, you don't want to take your losses now. It's gonna come back right. Well, the next question is why are some of the stocks that may not be directly affected by Coronavirus dropping too. In other words, you can see why some stock companies out there who have some sort of direct correlation with Corona might be dropping. But the top 10 stocks in the world are dropping. And most of these are tech stocks. And when you think of Apple and Google, and Facebook and Microsoft, I mean, why are these companies going down? Well, the reason is, well, there's probably a couple reasons, but one of the reasons is because these stocks are also part of the index.


Now the index will just use the S&P 500 index as an example. It's a what's called a cap weighted index, meaning that when you put a let's say, $1,000 into the S&P 500, your money gets spread out to 500 different companies but not evenly. It's spread out based on the value Or the cap of the company. So the larger the company is, the more of that thousand dollars that your thousand dollars is gonna go to. So the big five in particular, they get more of your thousand dollars. And then the last 10 are numbers 490 to 500, they probably just kept pennies. So when there's a sell off, what's gonna happen is all indexes are sold on program trading. Program trading just basically means that the computers do the work for you. And most every day, machines are doing all the trading that's going on but in an index as an example, when you buy or sell the index 500 stocks need to either be bought or sold, and again on different percentages based on their cap weight.


So all in all, program trading is a big part of what's going on and especially for those top companies. Because again, they have to be sold and in larger doses than the smaller companies because they have the largest positions in the index. Then what happens is you have what are called buy stops and sell stops, and all the short sells as well. And these are pretty much run and driven by computers too. So a sell stock would be, let's say, I buy a stock at $100 a share, I don't ever want to get in a situation where I'm gonna lose more than, say five bucks. So I put in what's called a sell stop at 95. So as soon as that stock trades down to 95 computer kicks in sells that stock for me. Very common for stock traders to have stops, especially options traders, which also are a big part of this when it's all said and done. So the computers pretty much work all day long, executing these kinds of orders.


So what happens is when one stop hits, then the next stop hits, and it becomes somewhat of a sell off. If someone says sell say $100,000 worth of the index, then all 500 shares of those stocks need to be sold and again at different levels. And then when certain levels are hit on the downside, another trigger may started another sell off, and then another and another and so on. Most precipitous drops in the market are not due to individuals calling up their mutual fund company or their broker and selling shares. Most of these drops are because of program trading. And unless the SEC steps in to halt trading, it can kind of get ugly and it can get ugly fast. So that's why you're seeing Amazon and Google and Microsoft and Apple and Facebook. All trading lower, mostly due to program trading and index selling off. So I was thinking, suppose though coronavirus really got bad.


Now what companies might do okay with that. And one of the things that popped in my mind is, well, who delivers? All right? Well, Amazon's probably one of the biggest delivery companies in the country, obviously. So you would think that if everybody was shut in their house, that they would need to get food and maybe Amazon would be, you know, able to deliver that. And that might really be good for Amazon, because everybody's ordering from them. But unfortunately, that's only this much of the puzzle. It's all the potential manufacturers that had to shut down. And without being able to produce, they can't send product to Amazon and then Amazon's can't get it to you. So Amazon's stuck to, you know, it's amazing how integral each part of the economy is to each other. And that's why we've got to kind of keep government out of this thing and let the private sector run on it. Because when one part of the economy suffers, it tends to trickle to another.


And the problem with government and it tends to try to fix a problem. Oftentimes, it's not even there. And the unintended consequences trickle down, and it just can affect the whole marketplace. So the marketplace seems to be able to work out it's bugs on it's own and will eventually sort out this whole thing and bring fair markets back into and the value back into these companies. However, in the meantime, as you've seen in the last 10 days, there can be a wide pendulum swing, and sometimes even Wall Street can't predict that kind of an outcome. But again, all watched all Wall Street wants is predictability, stability, and free markets and don't want anything manipulating the markets except for themselves right. Now, I can imagine some companies such as well like cruise ships and airlines, maybe even hotels, essentially travel industry, I can see why it's taken some sort of a drop, because these are unknowns.


You know, I have some friends, they've been preparing and already to take this cruise through northern Italy. And they were gonna leave in about four or five weeks. But it looks like they're gonna have to cancel it because that's where one of the major outbreaks is. Now certainly that's gonna have a major impact on the cruise liners, the hotel's the restaurants, everything that they would have spent money on while they were gone. So you can kind of see why the travel industry might suffer. But then there's also companies you know, massive companies like Disney for instance. Now, their stock went from 100 dude or from 140 down to 100. Now it's kind of back up to about 116. Now one theme park I want to say it was in Japan, I could be wrong. Anyway, one of the Disney theme parks did have to shut down and that's gonna obviously affect their revenue for at least a few days. And I'm guessing attendance might be down a little bit on the other parks might be a good time to go to Disney.


Anyway, that hurts for sure. But Disney so huge. They have so many other businesses and outlets and places where they make revenue. That sooner or later investors are gonna see that this has probably been way over sold. And Disney might, you know, look pretty good here. Then there's companies like Costco where, you know, I was seeing these pictures of these massive lines where people are there. I guess they're trying to, you know, buy toilet paper and paper towels and water and all these things. And this is in cities and towns where they haven't even been affected by the virus yet. But what that could potentially do that could increase Costco's revenues like crazy because they've got buyers panicking for food and paper towels. It may not make a lot of sense in the short term, why? Costco 's stock is dropping, and he was like 324 went all the way down to 281 back around 304- 305.


Now, long term, obviously, if they don't have product because manufacturers had to shut down, then they don't have shoppers. And yeah, it could get ugly for them as well. But in the short run, you would think that this could be a real good revenue stream for companies like Costco and Walmart, where everybody's in there buying more stuff than they normally would. The bottom line is, you know, we're likely in kind of a panic and who knows, maybe it's a justifiable panic. I don't want to say that I know anything about the coronavirus. The market again, looks for predictability. And if it has an excuse to go one way or another, it'll use that excuse and they certainly got that excuse back on February 24th, when we had that huge drop, and in the last 10 days, it's been interesting to say the least. So when there's little, and when there's a little unknown in the market, then there's a lot of illogical moves, and that pendulum can swing.


So do you think crona is gonna be a plague that wipes out mankind, or something that will eventually be under control. Even though it gives us a few scares along the way, if you think more of the latter is gonna happen, and that's more probable than this really isn't going to have them have much of an effect on us long term. Even though like I say, this market has been due for a correction for some time. It's been way in the stratosphere for years, really. So maybe it was just looking for an excuse to come down where it has. It's just one other reason though, that if you're not an educated investor, if you don't understand What you're invested in, and more importantly, why you're invested in it. And if you don't know the numbers and the financials of the companies that you own, but maybe you're simply speculating and rolling the dice tossing in money into these markets each month.


Well, if you're wondering why you still stay in the market, because your nerves can't handle these things. Well, this might be a good time to realize these swings are obviously unpredictable. But they could get worse and worse, as markets try to find equilibrium. It might be a good time for you to look for alternative ways to build your wealth. And let me just tell you, there are easier ways there are more predictable ways and there's ways that you can relax and sleep at night. There's ways that you can reduce even your taxes. And there's some things that we can show you. So if you're interested in that, make sure you reach out to us. In the meantime, that's about it for this video. It's been interesting. It's fun to talk about interesting to watch, and kind of scary for a lot of people. And if you're within a few years of retirement, and these gyrations really affect you, boy, you might want to make some decisions on how to go forward from here.


Well, As always, if you have any questions, shoot them to questions at wise money tools.com. You can also make comments below. And if you want to take a few minutes and talk about your particular situation, click on the time trade link below and setup a few minutes with us. Don't forget to subscribe, never miss a video and I look forward to talking to you in. Until then, take care.