I. Summary#
The core argument of this book is: Regular investing is the optimal investment strategy for ordinary people. Li Xiaolai uses a unique perspective and accessible language to systematically explain the advantages, principles, and implementation of regular investing. He argues that compared to other investment methods, regular investing is more suitable for ordinary people due to its simplicity, lower risk, and ability to overcome human weaknesses. It helps investors maintain rationality amidst market fluctuations, ultimately achieving steady wealth growth. Beyond investment techniques, the book also touches upon personal growth, mindset, and life choices, aiming to help readers establish a sound investment philosophy and wealth outlook, ultimately achieving financial freedom and happiness.
II. Chapter Summaries#
1. Almost Everyone is Qualified and Capable of Regular Investing#
- Most people possess the ability to invest regularly, but they often choose the wrong target (real estate). The author uses the common phenomenon of “mortgage slaves” to illustrate that most people are unconsciously engaged in a form of regular investing – real estate. Their monthly mortgage payments essentially constitute a form of regular investment. However, due to high interest rates and low liquidity, real estate is not the optimal choice. He contrasts this with the example of investing regularly in Kweichow Moutai stock for 18 years, resulting in a 180-fold increase, highlighting the significant advantages of stock investing in terms of long-term returns and liquidity. This emphasizes the crucial importance of selecting the right investment target. Due to mortgage burdens, many become “mortgage millionaires,” possessing seemingly large assets but lacking cash flow and a high quality of life.
- Advantages of regular investment in stocks/index funds: low barrier to entry, high liquidity, potential for high returns. Compared to other investment methods like investing in early-stage startups or art, stocks and index funds have a low barrier to entry, making them accessible to everyone. Moreover, they offer high liquidity, allowing investors to buy and sell at any time, facilitating adjustments to their investment strategies as needed. More importantly, over the long term, the stock market tends to rise with economic development, giving regular investment in stocks/index funds the potential for high returns. The author believes the stock market offers ordinary people an opportunity to share in the growth dividends of excellent companies, an advantage difficult to obtain through other investment avenues.
- The importance of participating in a regular investing community. The author points out that regular investing is not just an investment strategy but also a social activity. Due to widespread misunderstandings and biases about stock investing (such as “investment is risky” or “only the rich invest”), investing regularly alone can be easily influenced by external factors, making it difficult to persist. Participating in a regular investing community can help investors overcome these negative influences, gain support and encouragement from peers, establish a correct investment philosophy, and learn more investment knowledge and experience. Within such communities, members can exchange experiences, share insights, and create a positive feedback loop.
2. The Stock Market is the Ninth Wonder of the World#
- The stock market gives ordinary people the chance to be “bosses” and share in the growth dividends of excellent companies. The author believes the stock market provides a unique opportunity for ordinary people to invest in well-managed, high-quality companies and share in their profits, even if they have no understanding of business operations. This is an advantage difficult to gain even by working at a company, including publicly listed ones. Through investing, ordinary people can indirectly “own” multiple excellent companies, achieving wealth appreciation.
- A simple method for stock selection: choose the most favored stocks or index funds in the market. The author suggests that choosing stocks doesn’t require complex analysis and research. One can directly choose the most popular stocks or index funds in the market, such as Kweichow Moutai, Apple, or Tencent. These represent the collective wisdom of the smartest people in the market, and choosing them is akin to leveraging their free advice. He further notes that the advice from the smartest people in the market is often free, like Warren Buffett’s portfolio information and popular stock choices.
- Don’t worry about making the wrong choice; market consensus is more important than individual judgment. Even if the most favored stock in the market eventually fails, there’s no need for excessive self-blame, as it represented the best available advice at the time. Individual judgment rarely surpasses market consensus. In the long run, market forces will correct errors, so the key is to hold long-term and trust the power of the market. The author believes that rather than spending significant time and energy researching individual stocks, it’s better to trust the collective wisdom of the market and choose widely recognized, excellent companies.
3. Are There Any Investment Targets that Only Go Up?#
- Investing in a single stock is high-risk, with unlimited opportunity cost, and requires diversification. Even the best-performing single company can face significant risks due to industry decline, black swan events, or other unpredictable factors. Concentrating funds in a single stock represents high risk, and losses can be difficult to recover if problems arise. The author cites Kodak and Nokia as examples, illustrating how even once-great companies can decline. Hence, diversification is essential to mitigate risk.
- In the long run, the only investment that only goes up is human economic development, which can be accessed through index funds. The author argues that the human economy generally trends upwards over the long term, and index funds track the overall market performance. By investing in index funds, one can effectively diversify risk and share in the dividends of long-term economic growth. The 40-year performance chart of the S&P 500 is compelling evidence. Investing in index funds is like betting on the national, or even global, economy, and offers better odds in the long run.
- Long-term investment is necessary to dilute risk and ultimately achieve stable returns. Short-term market fluctuations are difficult to predict and are full of noise and randomness. Only long-term investment can effectively smooth these fluctuations and ultimately generate stable returns. The author emphasizes that there are no investment targets that only go up, only the long-term general upward trend of the human economy.
4. The Only Correct Way for Ordinary People to Invest#
- Regular investing is the most reliable investment method for ordinary people. The author uses the example of Longmen Fund, comparing lump-sum investing with regular investing. The results show that regular investing achieved a significantly higher return: 74.01% vs. 10.81%. Regular investing can effectively smooth market fluctuations and reduce investment risk.
- Regular investing helps investors overcome fear and greed, maintaining rationality during market fluctuations. Through regular, fixed-amount investments, investors can buy more shares at lower prices during market downturns, averaging down their cost. During market upturns, it prevents investing too much at once, avoiding being trapped at high prices. The discipline of regular investing can help investors overcome the human weakness of chasing rising markets and selling during falls.
- Regular investing is a long-term strategy that requires patience and discipline. Returns from regular investing take time to accumulate. Investors need to be patient and maintain discipline, not easily interrupting or changing their investment plan, to achieve significant returns.
5. Why So Few People Use Regular Investing#
- “Fear of simplicity” hinders people from accepting regular investing. People tend to believe in complex and sophisticated methods, underestimating the power of simplicity. This is similar to how it took a long time for people to think of adding wheels to luggage, learning English through consistent reading aloud, improving writing through effective reading, and maintaining health through regular exercise.
- Regular investing’s simplicity makes it easier to adhere to, avoiding the risks of frequent trading. Compared to complex trading strategies, regular investing is simple and easy to follow, avoiding transaction costs and the risk of misjudgment associated with frequent trading. The author believes that this simplicity is precisely the greatest advantage of regular investing.
- People lack understanding and patience for long-term investing. Most people crave quick riches and struggle to endure the “loneliness” of long-term investing. They are easily influenced by short-term market fluctuations and often give up, as seen in the Longmen Fund example, where lump-sum investors were more prone to panic selling during market declines.
6. The Profound Mechanisms Behind the Magic of Regular Investing#
- Proactive personality is important, but recognize the boundaries of proactivity. Be proactive within your circle of influence, but also recognize your limitations. Don’t try to control what you cannot, such as your children’s future or the operations of companies you’ve invested in.
- Factors that determine destiny often lie outside our control, such as trends. Personal effort is important, but it’s also essential to align with the trends of the times. Like snooker player Ronnie O’Sullivan, even with immense effort, competitors find it challenging to defeat him at his peak.
- Active passivity is the best strategy for navigating trends. Actively choose the right trend, then passively wait for the trend to unfold. In investing, this means actively choosing promising assets or indices for the long term, then passively adhering to a regular investment schedule.
- Regular investing is the best practice of “active passivity.” Choosing worthy long-term investments is active; regularly buying a fixed amount and holding long-term is passive.
- The power of passivity is fully demonstrated in long-term investing. The long-term performance of passive funds often surpasses that of actively managed funds, demonstrating the limitations of “active management” and the strength of long-term holding.
- Ordinary people can improve their investment abilities by controlling their own behavior, such as improving their ability to earn outside of the market. Earning power outside of the market is the cornerstone of regular investing and a key factor ordinary people can actively improve.
- Understanding “long-term” determines investment outcomes. “Long-term” doesn’t mean forever, but “at least two major cycles,” which, based on market changes, is approximately seven years.
- Ordinary people’s money has no expiration date, a significant advantage over professional fund managers. Professional fund managers are constrained by fund deadlines and investor pressure, while ordinary people can invest long-term with more composure, fully utilizing the power of time.
7. The Difference Between Stupidity and Ignorance, and Passive Intelligence#
- Smart people can make ignorant mistakes in unfamiliar fields. Like Archimedes and Zu Chongzhi, geniuses in their respective fields could make mistakes in the unfamiliar territory of the stock market due to a lack of specific knowledge.
- Regular investing allows ordinary people to be passively intelligent investors from the start. The strategy’s simplicity avoids errors associated with complex operations, allowing ordinary people to achieve reasonable returns without becoming investment experts.
- Regular investing cultivates patience, discipline, and the habit of investing within one’s means. Long-term regular investing requires patience and discipline. The investment amount should also be within one’s means to avoid impacting daily life. These are all good investment habits.
8. Some People Are Always on the Right Side#
- People with great goals are more likely to make the right choices in a mirrored world. A sense of purpose allows focus on long-term value instead of being distracted by short-term fluctuations. The author quotes Arnold Schwarzenegger’s speech, emphasizing the importance of goals: “The only reason I’m standing here today is because I had a goal.”
- Imbuing what you do with great meaning can ignite powerful self-motivation. A sense of meaning provides stronger motivation to persist. The author uses his own writing and teaching experience to illustrate the significance of meaning and encourages readers to find meaning in their regular investing, such as “for the children’s future” or “for early retirement.”
9. A Glimpse into the Other Side of the Mirror World#
- Investors who don’t adopt regular investing easily fall into various investment traps, ultimately leading to losses. These include chasing rising markets, frequent trading, blindly following the crowd, and listening to rumors, often resulting in substantial losses during market volatility.
- Many investors blame their losses on greed, but the real root cause is a lack of understanding of the investment target. The author argues that greed is human nature and not the fundamental reason for investment failures. The true cause lies in a lack of understanding of the investment target, an inability to judge its intrinsic value, leading to blind following or emotionally driven decisions, ultimately resulting in buying high and selling low.
- Even those who use regular investing need to deeply understand its core principles to avoid becoming half-baked investors. This includes failing to carefully select investment targets, not holding long-term, investing too little, or easily interrupting the investment plan. The author criticizes investors who don’t truly grasp the essence of regular investing and merely engage in mechanical operations.
10. Regular Investing is Essential for Ordinary People#
- The insignificance of effort: Ordinary people have limited free time, making it difficult to achieve significant success solely through hard work. The author uses data and personal experiences to illustrate that even with extraordinary effort, such as working 24 years without holidays or cutting his own hair, the gains are limited. He only managed to gain 1.26 years of effective working time compared to others.
- The essence of investing is to make money work for you, compensating for limited time and energy. Investing allows money to work 24/7, amplifying returns far beyond what one can earn through personal labor. Warren Buffett’s 78-year investing journey serves as a prime example.
- Regular investing is an effective path for ordinary people to achieve financial freedom. The strategy is simple and easy to execute. Long-term adherence can generate substantial returns, helping ordinary people accumulate wealth and eventually achieve financial freedom.
III. Key Quotes#
Diligence in practice makes one invincible!
Regular investing is the only reliable investment method for ordinary people.
There are no investment targets that only rise, only those that rise in the long term.
Be proactive when you should be, and passive when you should be.
Your money may not be much, but it has no expiration date.
IV. Guiding Significance#
- Establishing a sound investment philosophy: Helping readers avoid investment pitfalls and recognize the importance of long-term, value, and passive investing, while avoiding mistakes like chasing rising markets and frequent trading.
- Providing practical investment methods: The regular investing strategy is simple and easy to implement, accessible even to those with no prior investment experience.
- Promoting personal growth: Encouraging readers to cultivate a proactive personality, recognize the boundaries of their control, and learn how to be actively passive, aligning with trends.
- Guiding life choices: Inspiring readers to reflect on the meaning and goals of life and strive towards them, ultimately achieving financial freedom and happiness.
- Cultivating a healthy mindset: Reminding readers not to be swayed by short-term fluctuations, maintaining patience and discipline, overcoming fear and greed, and believing in the power of time.
In conclusion, this book not only provides practical investment techniques but, more importantly, helps readers establish a healthy wealth outlook and life philosophy, ultimately achieving financial freedom and happiness. The book also encourages readers to join regular investing communities for mutual learning, support, and progress.