Transcript 0:00 Hello, everyone. Welcome to the first podcast episode of Only Alpha. I wanted to try something a little bit different, uh, in twenty twenty-two, um, than I have in the past for this substack. 0:11 Um, I have, you know, traditionally written articles, uh, for, for the eyes, right? But going forward, I wanted to incorporate audio into the mix of every episode. 0:21 Um, I know that some people, you know, might not have time to read, uh, all my posts, especially the single name stocked companies where they could get pretty in-depth with all the due diligence that I've done. 0:31 So going forward, I want to include an audio and a written version of every article, so if you can't read it, at least you can listen. 0:39 Uh, so hopefully my voice, uh, [chuckles] is something that you can tolerate, uh, for every single article. 0:44 But, um, I wanted to at least give the option to everybody going forward, you know, create more value for you guys, um, to make sure that you, you can get the, the most you can out of it. 0:52 So for the first episode, which coincides with the first article that I'm writing for the year, which is a chart of the week breakdown titled Volatility Is the New Normal. 1:02 Uh, so this whole theme, uh, that I came up with was, you know, really brought on by one of my friends who mentioned to me that there's so much volatility in the S&P as far as price mo- price movements that, uh, the last two years have actually been a lot more. 1:17 And what-- He gave me a statistic of ten years, uh, but I wanted to really dive into the data and see just how accurate that is, 'cause that's, that's a pretty bold claim, right? 1:25 Um, so what I ended up doing was I took the S&P price movements and I charted them on the table that you can see. 1:32 Uh, so if we look at twenty twenty, um, this whole chart shows that, uh, the intra-day price movements either to the upside or the downside of the S&P of plus or minus one percent. 1:45 So in twenty twenty, there was actually a hundred and fifty-seven days where the S&P, you know, during the day, moved up or down by negative or plus one percent. 1:55 Um, which is actually pretty significant because if you look at how many trading days there were in twenty twenty, which is actually two hundred and fifty-three, that means that sixty-two percent of the time in twenty twenty, the volatility was at or over, uh, plus or minus one percent, which is wild. 2:15 Uh, if we fast-forward to what is now twenty twenty-one, 2:18 the-- there were eighty-six days where the price movements were plus or minus one percent, and in twenty twenty-one, there were two hundred and fifty-two trading days. 2:27 So not as significant as twenty twenty with sixty-two percent, but, uh, twenty twenty-one had thirty-four percent of all trading days, uh, having these, you know, massive price swings. 2:39 Um, but, you know, like, so, so what does this necessarily mean, right? This is a, this is a chart of the week breakdown, so I'm trying to inform you guys something that I find very interesting. 2:47 Um, so when it comes to what I believe is the hypothesis behind, um, what is driving these huge price swings, uh, so I-- A, a few reasons. 2:56 Number one, I think that, you know, with the growing trend of all these brokerages going down to commission-free trading, so you're not actually paying anything to trade, I believe that leads to investors not having to really be conscious of the fees that are associated with moving in and out of trades on a constant basis. 3:14 So because of that, that eliminates a lot of the whole friction involved with holding a position, 'cause you just don't wanna pay the fees. 3:21 Um, secondly, in case you haven't heard, uh, twenty twenty we had a pandemic, um, [chuckles] kind of shut down the world. 3:28 Um, put people into lockdown, people into quarantine, a lot of places closed down, even temporary, permanently. 3:34 Either way, the, the theme there was that you were not spending as much money as you normally would have because the world just was not functioning as regularly, right? 3:43 So the savings rate went up, a lot of people were bored. They tried to spend money with renovating houses, you know, et cetera. 3:48 A lot of people discovered [chuckles] Robinhood for the first time, uh, and investing and poured money into those services. Um, so there was just a, a ridiculous amount of liquidity in the market. 4:00 So with, with more liquidity comes more price swings. Additionally, I also think that there is a, um, you know, a call-out that I think should definitely be made when it comes to, 4:10 uh, buying-- able to borrow money that isn't yours, right? So this is, quote-unquote, buying on mar-- or borrowing on margin. 4:16 Uh, Robinhood has taken a lot of heat for this because of just the negative press that they've gotten over, you know, uh, young, inexperienced investors being able to just borrow [chuckles] massive amounts of money, um, without really needing to provide much collateral, if any, to get it. 4:33 Uh, so, you know, this, this is all a recipe for disaster, right? Not having to pay for your, for your trades. 4:38 Um, you just have a b- like a lot more cash because you're not spending it in traditional places that you were over the last two years, and the ability to get more of that money through leverage, you know, uh, you know, via margin, uh, only exacerbated the situation. 4:52 So what does this necessarily mean, though? 4:53 So if we look at twenty twenty and twenty twenty-one, there were in total two hundred and forty-three trading days that had a plus or minus one percent price movement during the day for the S&P five hundred. 5:06 If we compare that to the last four years prior to that, so twenty sixteen to twenty nineteen, that had two hundred and seventy-two trading days where it was plus or minus one percent. 5:17 So the last two years alone almost superseded the four years prior, which is pretty wild, right? 5:24 Um, it's, uh, you, you kinda wanna have, you know, stab-stable growth, but when you have price swings like this, it can really, you know, either m- you know, drive a price going up or it can even drive a price going down, especially when people, you know, wanna panic sell or they have a fear of missing out, you know, FOMO. 5:42 Um, so that o- that only makes it worse. 5:45 But what a, a good statistic that I wanna share with you all, which I called out in the, uh, in the article, is that beginning in twenty twenty, so this includes twenty twenty and twenty twenty-one, the average intra-day price movement upwards, uh, and downwards were actually at a ten-year high. 6:01 Um, so if we're looking at over the last two years, the average, uh, intra-day price movement upwards was actually point seven percent, and the average, uh, on the downside was negative point six three percent, where if we look at the next highest set, which is actually in twenty eighteen, the average high was at point five nine percent and the average low was at negative point six one percent. 6:25 So even though the lows were kind of in line, the highs were actually very, uh, different. 6:31 Um, even though you're l- you're, you're comparing, uh, a hundred and ten basis points, you know, between point seven and point five nine, when you're talking about massive swings in an S&P index, that, that means a lot. 6:42 That's a huge difference, um, in comparison. 6:46 Um, so the biggest takeaway that I want you all to, to leave with, uh, this chart is that no matter how you look at it going forward with all these, um, you know, factors being f- uh, folded in, that there's going to be-- you're just gonna be ready for some short-term pain and gain, uh, because these price swings are not gonna be going away. 7:04 I think they're gonna be here for a while, as the data shows. 7:07 Um, the trend line points upwards and I think, you know, with this more liquidity flooding the market, we're gonna be having to, you know, have this become the new normal. 7:17 Um, but yeah, this is the first episode of the podcast. Uh, as I get more comfortable, you know, speaking to you guys in audio, I'm sure that these will get better, so please bear with me. 7:25 If you have any feedback, would love to hear fr- to hear about it. Um, but I appreciate you listening in, and please be, uh, on the lookout for the next podcast, which is associated with another article. 7:38 Um, and thanks for all your support.
