- Part 1:
- Part 2:
I. Main Topic#
This session centered around investment cycles, exploring how to assess market cycles, highlighting the difficulty in distinguishing between acting too early and making wrong judgments during cycle shifts. It used Buffett’s actions during the 2008 financial crisis as a case study. Additionally, it discussed risks related to real estate investment, insurance, and stock pledges, while providing an in-depth analysis of asset allocation strategies, particularly comparing and recommending approaches for the Taiwanese and US markets.
II. Briefing Content#
Investment Cycles
- Investor sentiment is likened to a pendulum, swinging between extreme fear and extreme optimism.
- Differentiating between premature judgments and incorrect ones during cycle changes is challenging, as exemplified by Buffett’s public announcement of buying stocks in late 2008, followed by a further 30% market decline.
- Swing trading is no longer recommended, as the market perpetually rises, making long-term investment the key.
Risks of Real Estate Investment
- Real estate investment is considered high-risk, requiring maintenance and incurring high holding costs like property taxes and HOA fees.
- US property tax is a holding tax; the longer you hold, the more tax you pay.
- Rental yields are low, around 2% in the US Bay Area after deducting expenses.
- The biggest risks of buying a house are job loss and having outstanding mortgage debt at retirement.
Insurance Choices
- Avoid commercial insurance, such as life insurance, long-term care insurance, universal life insurance, etc.
- Necessary insurance includes health insurance and term life insurance. Term life insurance is suitable for those who are the sole income source for their family, providing support for children under 18.
Risks of Stock Pledging
- Stock pledging is extremely risky, especially in the Taiwanese market, with a maintenance ratio requirement of 167%.
- Absolutely forbid using borrowed funds from stock pledges for reinvestment.
- In Taiwan, leveraged ETFs can be pledged, but risks still exist.
- Be cautious about diversifying risks in stock pledging in Taiwan. Do not pledge all assets to the same financial institution, and avoid pledging everything at once.
- Taiwanese investors are advised to adopt the “Situation 3” asset allocation strategy: 30% cash, 30% leverage, and 40% QQQ or other broad-based index funds.
Asset Allocation Strategies
- When selecting investment targets, understand their risk and return characteristics, and allocate assets reasonably based on your circumstances.
- Long-term investment in QQQ index funds is like piloting an aircraft carrier—stable and offering considerable returns.
- Investing in individual stocks and sectors is like sailing a small boat—high risk and susceptible to market fluctuations.
- Investments in individual stocks and sectors are similar to the once-booming railway industry, which was eventually replaced by new technologies and industries. For example, the semiconductor industry may also be eliminated in the future.
- QQQ index funds have a replacement mechanism to promptly remove underperforming stocks, maintaining overall growth momentum.
- Investing in individual stocks requires the ability to identify potential opportunities and understand market and industry trends, as exemplified by James’ interaction with NVIDIA’s CEO before its IPO and his purchase of Amazon shares during its slump.
- For retirement accounts, it’s recommended to invest all Rust account funds in leveraged ETFs, while 401K accounts can hold cash or bonds.
- Be cautious when borrowing for investment; ensure cash flow can cover interest payments and manage risks effectively.
- In the US, if capital gains tax is implemented, consider transferring funds to other countries.
- Avoid investing in the Chinese market due to policy risks and economic downturn pressures.
- Do not purchase annuity products; they offer low returns and carry risks.
- After selling a house, do not deposit funds into IRA or traditional IRA accounts.
- Be decisive in investing and avoid hesitation. For example, loss-making properties should be sold as soon as possible, and the funds should be invested in the stock market.
III. Q&A Session#
Eric:
- Sharing: Used the analogy of QQQ index funds being like aircraft carriers and individual stocks being like small boats to illustrate the advantages of index fund investing.
- Sharing: James’ channel not only shares investment knowledge but also many life stories, such as estate planning and tax planning, from which valuable lessons can be learned.
Brian:
- Question: For employed individuals using the “Situation 2” asset allocation strategy, is it possible to set a higher Beta value, such as 1.1 or 1.2?
- Answer: There is no upper limit for Beta, as long as cash is at least twice the amount of borrowed funds. Excel spreadsheets can be used to simulate investment outcomes under different scenarios, allowing adjustments based on individual risk tolerance.
Mike:
- Sharing: The US is like a Bogue bird, adept at concealing its strength and waiting for the opportune moment to reap the rewards, which aligns with the long-term investment philosophy.
- Question: Will the central bank ignore economic recession and focus solely on inflation?
- Answer: The central bank will not ignore economic recession because it leads to increased unemployment, which is one of the central bank’s key concerns. Economic recession and unemployment are closely related.
Cheng Ge (PC):
- Sharing: Illustrated the drawbacks of investment-linked insurance policies through a real-life case study, recommending early surrender and transferring funds to QQQ index funds to recoup losses within a shorter timeframe and achieve higher returns.
Lang:
- Question: Is it feasible to utilize market downturns to buy QLD leveraged ETFs using a Roth IRA account and convert a 401K account to cash, aiming to increase the proportion of funds in the Roth IRA account?
- Answer: If Rust account funds are limited, they should all be invested in leveraged ETFs. The 401K account can hold cash as a hedge. There’s no need to wait for market downturns to make the switch; asset allocation should be completed as early as possible.
Tina:
- Question: If the 401K account is already maxed out, is it still possible to invest in an IRA account?
- Answer: After maxing out the 401K account, you cannot contribute to a traditional IRA account, but you can contribute to a Roth IRA account. Specific eligibility depends on income level and IRA contribution limits. It’s recommended to check the IRA contribution limit for relevant information.
IAM:
- Question: Will events like the Malaysian currency devaluation and the Hong Kong emigration wave impact the US economy and the US dollar? How does the US prevent currency devaluation? Will the companies in the QQQ index fund be affected?
- Answer: A country’s currency value depends on its creditworthiness, which is backed by national industries and power. The US possesses strong national strength and diversified industries, allowing the US dollar to maintain its strong position. The US government will safeguard the interests of American companies and citizens. It’s uncertain whether US companies will be directly affected by US dollar devaluation, but they will undoubtedly be protected by the US government.
TT:
- Question: Are you still considering cycle investing at present?
- Answer: Yes, cycle investing will be considered, but not through the all-in, all-out approach used in the past. Instead, Beta adjustments will be employed to navigate market volatility, as it’s difficult for a large number of investors to keep up with rapid trading, thus requiring a more robust strategy.
- Question: Which US political party, Democrat or Republican, is more favorable to investors?
- Answer: In the long run, policies of both parties have minimal impact on investors. The market adjusts according to policies; for example, higher tax rates may induce investors to hold assets for longer periods.
YJ:
- Question: Are there any differences in asset allocation strategies between Taiwan and the US? What is the role of the 00864B bond? Why is investing in 00757 no longer recommended?
- Answer: Asset allocation strategies are universally applicable. The main differences between Taiwan and the US lie in stock pledging rules and leveraged ETF choices. 00864B can be used as a cash alternative, similar to a USD fixed deposit. Reasons for no longer recommending investment in 00757 can be found in the videos from 2021 and 2022.
Jason:
- Question: Can dollar-cost averaging (DCA) be used to invest in leveraged ETFs like Q2D?
- Answer: When investing in any asset, including leveraged ETFs, lump-sum purchasing should be adopted instead of DCA. Returns from DCA are likely to be lower than lump-sum purchasing.
IV. Key Takeaways#
QQQ index funds are like aircraft carriers, offering stability and substantial returns, while individual stock and sector investments are like sailing small boats, carrying high risk and vulnerability to market fluctuations. – James & Eric
Choosing long-term investment in QQQ index funds can mitigate the risks associated with individual stocks and sector investments, providing more stable returns.
The central bank will not disregard economic recession, as it leads to rising unemployment, a key indicator that the central bank monitors. – James
One of the objectives of the central bank’s monetary policy is to maintain low unemployment; therefore, it will not stand idly by in the face of economic recession.
Loss aversion is a common mistake among investors. Losses should be cut promptly, and funds should be reallocated to higher-quality assets. – Cheng Ge (PC)
It’s crucial to overcome the psychological barrier of loss aversion in investing, decisively cutting losses to prevent them from escalating.
The US’s national strength rests on four pillars: government, the financial industry, businesses, and national defense. These four pillars work in synergy to achieve strategic goals. – James
America’s robust, comprehensive national strength is the cornerstone of the US dollar’s strong position.
In the long term, policies of both US parties have a limited impact on investors; the market adjusts itself based on policies. – James
The market has a self-regulating mechanism, enabling it to adapt to various policy environments.
When investing in any asset, including leveraged ETFs, lump-sum purchasing should be adopted instead of dollar-cost averaging (DCA). Returns from DCA are likely to be lower than lump-sum purchasing. – James
“Buy whenever you have money” is the investment strategy James consistently emphasizes. DCA is less efficient for long-term investment.
V. Summary#
This session primarily revolved around investment cycles, with James explaining how to identify market cycles and emphasizing the distinction between premature and incorrect judgments, using Buffett’s actions during the 2008 financial crisis as an example. Furthermore, it provided detailed insights into the risks of real estate investment, insurance selection, stock pledging, and asset allocation strategies. In the Q&A segment, students raised questions and shared their perspectives on topics such as the aircraft carrier investment strategy, property tax, central bank policy, currency devaluation, and investment strategy in the Taiwanese market. James offered comprehensive answers to each question and reiterated the importance of long-term investment in QQQ index funds, along with the “buy whenever you have money” investment strategy.