I. Main Topic#
During periods of market volatility, investors should prioritize risk control and maintain a positive and optimistic mindset. By establishing a rational asset allocation strategy, such as holding cash, index funds, and leveraged funds, and selecting an appropriate allocation plan based on individual circumstances, investors can effectively mitigate market risks and ensure survival even in extreme situations.
II. Briefing Content#
Investment Objective: Identify high-quality investment targets, such as market-capitalization-weighted index funds, and hold them for the long term. Avoid chasing high-return investment targets, as excessive volatility may lead to an inability to hold, ultimately hindering returns.
Risk Control:
- Do not overestimate your risk tolerance, as market downturns often exceed expectations.
- Selling leads to permanent losses; the only mistake in the market is selling.
- Investing is a process that goes against human nature, requiring the overcoming of fear and greed.
- Always ensure survival in extreme market conditions, meaning possessing sufficient cash flow to sustain living expenses.
- Holding cash is crucial for mitigating risks.
Investment Mindset:
- Investors should remain perpetually optimistic, believing that the market will eventually rise.
- Be patient, as wealth accumulation takes time.
- Do not be swayed by short-term market fluctuations; adhere to a long-term investment strategy.
- Do not attempt to predict the market, and ignore market noise.
- Keep investing simple: buy when you have money and hold for the long term; avoid excessive trading.
Asset Allocation:
- The highest guiding principle of asset allocation is: you can still survive under extreme market conditions.
- Retirees need to hold more cash and can utilize leveraged funds to enhance returns while reducing risks.
- Employed individuals can choose different asset allocation plans based on their circumstances, but ensure a certain proportion of cash holdings.
- Do not alter your asset allocation based on market ups and downs, as this constitutes short-term trading behavior.
- Asset allocation needs to be adjusted based on individual situations. For example, when significant events like retirement or purchasing a house occur, reassessment and adjustment of the asset allocation plan are necessary.
- Leverage initially carries higher risk, which gradually decreases as the market rises.
- It is recommended that retirement accounts comprise at least 30% of total assets to effectively avoid taxes during rebalancing.
Market Efficiency:
- The market is efficient; it’s nearly impossible to find opportunities for consistent excess returns.
- Do not readily believe investment strategies claiming to achieve excess returns, as they are often unsustainable.
The Role of Wall Street:
- Wall Street’s primary roles are to provide liquidity and investment products, establish the framework for investment transactions, and lower the barriers to entry, allowing ordinary investors to participate.
- Investors need to understand how Wall Street operates to avoid falling into its traps.
- Market makers are a crucial part of Wall Street. They profit by providing bid-ask spreads while also offering liquidity to the market.
III. Q&A Session#
IM:
- Sharing: Black swan events remind us that people are forgetful, easily becoming optimistic during market upswings and panicking during downturns.
- Question: How to control optimism and avoid overconfidence leading to bankruptcy?
- James’s response: Remember the highest guiding principle of asset allocation, ensuring survival under extreme conditions. Cash is the lifeline for survival.
Sunny:
- Question: How to persuade people around me not to purchase insurance and financial products?
- James’s response: By calculating the annualized return rate of insurance products and comparing it with the return rates of other investment products, you can demonstrate that insurance and financial products offer lower returns. You can compare the return rates of insurance products with the long-term returns of index funds and point out that the income source for insurance companies and insurance agents is the premiums paid by customers.
Jason:
- Sharing: Experienced Apple Vision Pro and found its spatial computing capabilities impressive, but currently, it has limited functionality and applications, along with a high price tag.
- Question: If investing is so simple, what is the role of Wall Street experts?
- James’s response: Wall Street’s role primarily lies in providing liquidity, investment products, and the trading infrastructure, lowering the barriers to entry, enabling ordinary investors to participate in the market. Market makers are an essential component of Wall Street, making profits by providing bid-ask spreads while also offering liquidity to the market.
Brian:
- Question: How can employed individuals utilize the asset allocation plan in Scenario 9?
- James’s response: Scenario 9 is suitable for retired individuals with loans. If you are employed and have substantial loans, such as a mortgage, you need to adjust the plan based on your circumstances. For example, pay off a portion of the loan before proceeding with asset allocation. Moreover, leverage carries higher risk initially, which gradually decreases as the market rises.
- Question: How to allocate and rebalance assets between a 401K account and a Roth IRA account?
- James’s response: It’s recommended that retirement accounts comprise at least 30% of total assets for effective tax avoidance during rebalancing. Due to the limited investment options within a 401K account, direct purchase of QQQ may not be possible. You can use similar alternatives or transfer funds to a Roth IRA account for more flexibility.
Yingying:
- Question: What’s the difference between QQQ and QQQM?
- James’s response: The market is efficient. There won’t be a significant difference in the long-term returns of QQQ and QQQM. Choose QQQ, which has lower fees.
Grace:
- Question: Should I convert 0066 to 00670L during a market downturn?
- James’s response: Do not change your asset allocation based on market fluctuations, as this constitutes short-term trading behavior.
Using Fatality:
- James’s response: Charles Schwab is recommended because it is both a brokerage and a bank, offering higher security. Fidelity only has brokerage services and lacks a banking license, potentially facing risks during financial crises.
IV. Key Insights#
The highest guiding principle of investing is: you can still survive under extreme market conditions. – James
Under any circumstances, ensure that you have sufficient cash flow to sustain your living expenses. This is the bottom line of investing.
Where are Wall Street’s yachts? Where are the clients’ yachts? – James
This vividly illustrates Wall Street’s profit model, reminding investors to be wary of its various fees and traps.
Look down upon the poor and favor the rich. – Zero seven’s teacher
This phrase reveals the harsh reality of Wall Street in the past and reflects the inequality of investment opportunities.
The market is efficient; you cannot have excess profits. – James
This emphasizes the efficient market hypothesis, reminding investors not to seek easy opportunities for excess returns.
V. Conclusion#
This episode reiterates the importance of risk control and investment mindset, providing a detailed explanation of how to allocate assets under different circumstances and how to perceive the market and the role of Wall Street. Through interactive Q&A with the audience, James addresses various investment-related questions and offers practical advice.