00514 Cash Level and Risk Tolerance: Investor's Psychological Quality and Allocation Logic; Preserving Wealth Requires Humility and Respect for the Market

I. Theme of the Current Session

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The core theme of this lecture is “What Does Market Volatility Have to Do with Me? Adhering to the Discipline and Wisdom of Long-Term Investing”. Teacher James emphasizes that investors should ignore short-term market fluctuations and not panic-sell stocks as a result. Correct asset allocation, sufficient cash reserves, and unwavering long-term conviction are key to navigating market cycles. Teacher James also reminds everyone to be wary of financial scams and provides specific guidance on issues such as stock pledging, leverage, taxation, and personal financial planning.

II. Briefing Content

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Fraud Prevention and Official Contact Channels

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• Beware of Impersonation: Recently, someone has been using Teacher James’s logo and name, claiming to be Teacher James’s alternate account on platforms like Clubhouse to make private contact. Everyone must be vigilant and not be deceived. Teacher James has only one Clubhouse account, ID: CLECchairman.
• Official Contact Methods:
  • Clubhouse: Participate directly in lectures (Teacher James’s ID is CLECchairman, please verify).
  • Email: changeismoney@gmail.com and CRCdirectorgmail.com. Provided at the end of the briefing.
  • YouTube comments.
  • Facebook comments.
• Teacher James will not proactively contact students. Any proactive contact requesting information or offering investment guidance is a scam.

Core Investment Philosophy: Market Volatility Has Nothing to Do with Me

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• Don’t Sell Stocks: Market volatility is normal and irrelevant to the goals of long-term investors; do not sell stocks because of it. “Don’t sell stocks, don’t sell stocks, don’t sell stocks” is the core discipline.
• Importance of Asset Allocation: Proper asset allocation (e.g., retirees at least 30% cash, or 10-15 years of living expenses; young people at least 1 year of living expenses in cash) ensures a worry-free life during extreme market conditions (such as the 10-year market downturn after the 2000 tech bubble), preventing panicked and reckless operations.
  • For example, with 2% annual living expenses, holding 15 years of cash means 30% cash. If holding 40% cash, then there are 20 years of living expenses.
• Harm of Reckless Operations: Some people panic due to market declines after pledging stocks, and their reckless operations lead to difficult situations. If you have enough cash and don’t operate recklessly, there won’t be problems.
• Understanding Market Phenomena:
  • Physical Phenomenon vs. Chemical Phenomenon: Events like tariff wars are physical phenomena (like blowing up a balloon, there’s push and pull, eventually finding an equilibrium), not chemical phenomena (permanent change, irreversible). Therefore, short-term factors like international situations, market analysis, financial reports, economic conditions, and celebrity remarks (e.g., Trump’s speeches) are irrelevant to long-term investment strategy.
• Beware of Inner “Demons and Monsters”:
  • When thoughts like “What should I do if the market drops next?” or “The market keeps rising, I should sell some and buy back when it falls?” arise, these are inner “demons and monsters” at play, a very dangerous signal, and such thinking should stop immediately.
  • When you think, “Wow, I’ve made so much money, I’ve struck it rich, I’m wealthy!” this is also a dangerous signal; greed has appeared.
  • When you think, “How can it keep falling like this? What if the market drops to zero, what will I do?” this is the emergence of the “demon” of fear.
  • Greed and fear stem from feelings about the market. View the market like a variety show; financial media and analysts are like hosts and guests—just laugh it off. If you can watch market fluctuations (like a 10% rise or fall in a day) without any inner turmoil, then you can pay attention to the market.
  • The goal is “it will definitely rise in 20 years”; short-term corrections are normal.

Investment Education and Disclaimer

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• Educational Purpose: All videos and sharing are for educational purposes only, with no profit-making intent, and are for reference only.
• Personal Responsibility: Investing is a personal act. Teacher James is not a professional investment advisor or tax professional; all decisions are your own responsibility.
• Stress Test: Ask yourself daily, “If the market drops to zero, is your cash sufficient? Can you still live for one, two, or three years? Can young people continue working, and can retirees still withdraw money from the ATM?” Use this to test the robustness of your asset allocation.

How to Learn and Access Resources

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• Clubhouse Message Board: Scroll to the top for the day’s briefing and related links.
• YouTube Comment Section: Pinned comment has related links.
• Learning Path for New Friends:
  • Search “CLEC投资理财频道” (CLEC Investment and Finance Channel) on YouTube.
  • Watch the “One Hundred Million Dollar Investment Lecture” playlist, starting from early videos like 00451, 00398, 00399, 00400, 00401, 00402, etc., to gradually understand the investment philosophy.
  • Teacher James believes the investment and financial knowledge he shares is more complete and correct than most books on the market (many are “demons and monsters,” good books are few and hard to distinguish) and financial programs.

Investment Discipline and Leverage Utilization

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• Wisdom and Destiny: Those who can watch the videos and follow through have wisdom and good destiny. Others watch, think they understand, but operate recklessly.
• Stock Pledging and Repayment: Once you pledge stocks and borrow money, you should be determined not to repay (the principal) for the rest of your life before you borrow. Otherwise, you should not pledge.
• Don’t Do What You Don’t Understand: Those who don’t understand financial tools like Beta, leverage, etc. (e.g., can’t even calculate Beta), should stick to investing only in index funds (like QQQ) and keep ample cash. 70% investment, 30% cash can also lead to a good life.
• Leverage is Not Essential: Leverage and stock pledging are ways to deeply understand financial operations, but they are not necessary conditions for wealth, suitable for a few who truly understand, are not afraid, and can withstand their volatility.
• Beware of Groups and Private Chats: Teacher James has no official groups. Any group using the CLEC name may be unauthorized or a scam. Taiwan’s 00662 (Fubon NASDAQ) study group is student-initiated and not affiliated with the official CLEC; they also won’t use the CLEC banner. Be cautious when joining any group or engaging in private contact.

Investment Targets and Global Allocation

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• Recommended Target: Nasdaq 100 Index Fund (QQQ and its corresponding ETFs in various regions, like Taiwan’s 00662). Don’t ask about other ETFs.
• Global Purchase Channels: A document (page 15) lists channels for purchasing Nasdaq 100 Index Funds globally (Canada, Australia, UK, Brazil, Europe, Malaysia, South Korea, etc.).
• Information Disclosure: Since entering YouTube in 2018, all information has been publicly available on YouTube, Podcasts, and other platforms. Before 2018, classes were in-person, meeting students every two weeks.

Long-Term Optimism and Market Outlook

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• Always Extremely Optimistic, Always Sunny: Firmly believe the market will always rise and reach new highs. QQQ at $540 will definitely be surpassed; it might reach $50,000, $500,000 in the future (a 100-fold increase is a small case in the market). 00662 might reach NT$90,000, NT$900,000 in the future.
• Volatility is Not Risk: Market decline after buying is not a risk; not being in the market is the risk. Don’t regret not buying QQQ at $500 when it reaches $50,000.
  • Looking back: In 2022, when QQQ hit a low of over $200, everyone was terrified. Now it’s over $500. The previous high of $408 was also called a high point; it was underwater for a year, and now it’s back and hitting new highs. So what if you buy at $540 and it drops? In a few years, you’ll be fine again.
• Investment Pace: Buy when you have money, invest in batches. Achieve the “golden mean” of being happy when it rises and comfortable when it falls (because you can buy cheaper shares).
• QQQ Performance Over the Past Year: Up 15.38%. If you haven’t made over 10% in the past year, you’re failing. You get this return even without active trading. Ignore recent volatility. During Trump’s tariff war, it fell over 20%, institutions fled, and ended up missing out later. Investors who have calmly weathered the year-to-date volatility are doing great.

Case Analysis on Money Market Funds and Exchange Rate Fluctuations

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• Student Case Background: A student (email inquiry) mentioned a short-term “crazy 10% appreciation” of the NTD against the USD (Teacher James pointed out it should be “depreciation,” but the subsequent discussion revolved around the student’s sense of “loss,” suggesting the student meant NTD appreciation led to a relative drop in the NTD value of their USD assets). The student held 00864B (a USD bond ETF) and experienced a paper “loss” due to exchange rate changes. He also mentioned pledging over NT$30 million and borrowing NT$6.6 million (20%), which Teacher James criticized as “courting disaster” behavior—pledging and immediately borrowing to reinvest. A slight 10% drop in the market (referring to the value of USD assets relative to NTD) caused him to panic.
• Student’s Questions:
  1. Should the 00864B portion not be transferred to 00865B? (Because a transfer would mean “immediate loss”)
  2. Will the USD continue to depreciate against the NTD? Should the money market funds remain in 00864B?
  3. Can 00864B be transferred to 00662 (QQQ)?
• Teacher James’s Analysis and Criticism:
  • Human Fragility and Ignorance is Bliss: The student’s behavior exposed pretending to understand, reckless bravery born of ignorance (like pledging and immediately borrowing a large sum to reinvest), and human fragility in the face of real market volatility (even currency fund exchange rate fluctuations). Like the “Boxers” (义和团), not learning leads to being plundered.
  • Prohibition on Borrowing to Immediately Reinvest: Repeatedly emphasized that borrowing against pledged stock, especially a large one-time sum for reinvestment, is extremely dangerous.
  • Short-term Exchange Rates are Unpredictable: Even the US central bank cannot predict short-term exchange rates and interest rates; investors should not worry about this. Financial media predictions are either from charlatans or liars.
  • Act Immediately, Forget Sunk Costs: If a fund switch is necessary (00864B to 00865B, assuming it’s a similar but superior fund), act immediately. Don’t consider so-called “losses” or wait to “break even.” This is kindergarten-level financial thinking. 00864B and 00865B (if similar assets) will move mostly in tandem; waiting for one to break even means the other will have risen too.
  • Severe Misconception of Risk: Being scared by a 4% paper “loss” in a very low-volatility money market fund (or short-term bond ETF) due to short-term exchange rate fluctuations, to the point of wanting to switch to a highly volatile stock fund (00662), is a massive risk perception error. QQQ/00662 could fall 80% within 10 years.
  • Role of Cash: Cash (held in money market funds) is like the “air force” in a strategy, protecting ground troops (stock investments like QQQ/00662 and leveraged funds). The air force cannot be used as infantry.
  • Those Unable to Bear Volatility Should Not Invest: If one cannot even bear minor exchange rate fluctuations in a money market fund (like the 10% perceived by the student) and panics because of it, then one is not suited for investing at all and should leave the market immediately, or face bankruptcy sooner or later.
  • Long-term Exchange Rate Mean Reversion: In the long run (e.g., observed over 30 years), NTD exchange rate fluctuations will tend towards a mean (e.g., within a 22%-30% range up or down). As long as USD assets are held long enough (e.g., over 10 years), the expected return on USD assets (e.g., 3% annual money market yield, 34% over 10 years) far outweighs potential losses from exchange rate fluctuations.
  • Market Volatility Has Nothing to Do with Me: If this exchange rate fluctuation makes you nervous, it shows you are not suited for investing.

Asset Allocation and the Importance of Cash

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• Cash Requirement for Pledged Loans: When taking out stock-pledged loans, the cash (or cash equivalents) held should, under certain models, especially initially or when the market hasn’t fallen significantly, be greater than the loan amount. Teacher James mentioned his 433 model (40% QQQ, 30% leverage, 30% cash) where, after an 80% market drop, cash might be close to or slightly less than the loan, but the overall position remains safe. If this is uncomfortable, a more conservative allocation like 424 (40% QQQ, 20% leverage, 40% cash) or 505 (50% QQQ, 50% cash, smart rebalancing) can be chosen.
• Minimum 30% Cash: At least 30% of investable assets should be allocated to cash (or money market funds). This is the first step. If you don’t understand why you need cash, you cannot invest; you will go bankrupt.
• Cash as Living Expenses Standard: For working individuals, 30% cash should cover at least one year of living expenses. If funds are insufficient to cover one year’s living expenses, one should not invest. Young people, after starting work, should first save a one-year emergency fund; subsequent salary can then be invested.
• Investment Horizon: Investing is a plan for 10+ years. Money needed within 10 years (e.g., children’s tuition, down payment for a house) should not be used for high-volatility investments.
• Risks and Conditions for Buying Property:
  • Not recommended for young people to buy property easily, unless they have sufficient cash flow or can buy two houses as easily as buying slippers (with the mentality of buying a new pair if one breaks).
  • Concentrating investment in a single property is extremely risky (e.g., earthquake risk), violating the principle of diversification (QQQ diversifies across 100 companies).
  • The financial industry generally claims one should not concentrate bets or gamble on individual stocks, yet encourages the public to buy property (concentrated investment). This is contradictory; many practitioners either don’t understand or are “scammers.” Teacher James mentioned being invited by a Taiwanese TV station to talk against buying property but declined, unwilling to become a public target.
• Learn Investment Philosophy, Not Mimicry: Learn from masters like Buffett, Peter Lynch their investment philosophy (e.g., don’t fear market volatility; Buffett encountered market drops of 10%+ annually and 20%+ every five years), not their specific stock-picking methods or asset allocation ratios. You can never mimic them.
• Cash for Retirees: Cash reserves need to cover 10+ years of expenses, ensuring that even if the market (e.g., QQQ/00662) goes to zero in an extreme scenario, and leveraged funds also go to zero, you can still live comfortably and at ease.
• Where to Keep Cash: In Taiwan, it’s 00865B; in the US, it’s BIL or SGOV, etc. (money market funds).

Other Important Tips

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• Taiwan Tax Reference: Mentioned a PDF file from Cathay United Bank regarding Taiwan taxes. Tools like ChatGPT can assist in understanding, but questions need to be logical, and AI answers are for reference only, not to be fully trusted. Teacher James stated his trained ChatGPT has not yet reached AGI (Artificial General Intelligence) level.
• Proactive Learning: When encountering problems, first search for information and learn independently. Don’t treat Teacher James as a secretary or search engine. For example, what a money market fund is, you should look it up yourself. If you still don’t understand after researching, you can list what you found and your confusion when asking.
• Your Biggest Enemy is Yourself: The best antidote to inner fear and greed is robust asset allocation and an ample cash level. When greedy, hold onto cash; when fearful, hold onto stocks. Asset allocation itself is to mitigate risk.
• Health and Longevity are Paramount: Health and longevity are key to achieving wealth compounding. Buffett is Buffett largely because he lived into his 90s. 96% of his wealth was earned after age 60 (a 25-fold increase in 30 years, about 11% annualized, similar to SPY). If you live that long with QQQ, your asset growth will be far more than 25 times, possibly 100 times.
• Volatility is the Entry Fee: View short-term paper “losses” from market volatility as an entry fee to the market, or “withholding tax” (it will be returned to you later), not a fine. Missing out on market upswings by not being in the market is a permanent loss (e.g., missing the 10 best days in the past 20 years might yield only 25% of the total return, while staying in the market could yield 17 times).

III. Q&A Session

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Lucy

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• Question 1: In Canada, investing in QQQ monthly, but bank (RBC/TD) transaction fees are high (approx. 9.99 CAD/trade), which is not cost-effective for small regular investments. Asks if there are low-fee platforms?
  • Teacher James’s Reply: Recommends checking the message board; some students have recommended WealthSimple or Interactive Brokers (IBKR).
  • Other student (Lin) adds: Questrade, if it’s a self-directed account and meets asset requirements (e.g., 10,000 CAD+), might offer free trading. National Bank’s brokerage services might also offer free trading and can link to bank accounts for direct transfers.
  • Other student (unnamed male) adds: Questrade’s mobile trading platform might offer free commissions under certain conditions and has a regular investment feature, but specific fees need confirmation.
• Question 2: When buying Canadian QQQ ETFs, some are Hedged (HG), some are Non-Hedged (NH), how to choose? QQC vs QQQ selection?
  • Teacher James’s Reply: For Canadian investors, recommends buying HXQ.TO. It doesn’t pay dividends (dividends are reinvested), avoiding withholding tax issues, and it’s Hedged.
  • Other student (Lin) adds: QQC.TO (CAD-denominated) allows purchasing fractional shares, suitable for small regular investments (e.g., 150 CAD monthly). HXQ.TO (currently around 80+ CAD per share) requires whole share purchases.
  • Other student (unnamed male) adds: CAD-denominated QQC might have slightly higher gains than directly buying QQQ with USD due to currency conversion operations. Buying directly with CAD is also simpler for tax reporting.
• Question 3: What’s the difference between using a brokerage platform and a bank platform for trading?
  • Teacher James and other students reply: Brokerage platforms are specialized investment accounts; a bank’s investment services might be an independent department or outsourced. In Canada and the US, there’s a firewall between brokerage and commercial banking. Using brokerage platforms directly (like Questrade, IBKR, WealthSimple) is usually more professional, and fees might be lower. Be aware that banks might try to sell packaged financial products; insist on buying pure ETFs.

Watson

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• Sharing 1: Early on (2018), saw Teacher James’s “One Hundred Million Dollar Investment Lecture” on Bilibili but didn’t think much of it. After years of ups and downs in A-shares and overseas investments (overseas funds invested for nearly 10 years without profit, until inventory at the beginning of this year). Now almost 50, feels like time was wasted. After re-encountering Teacher James’s investment philosophy (buy when you have money, hold to death, only buy never sell), took out a portfolio loan through HSBC Hong Kong, allocating 70% QQQ, 10% TQQQ, and 20% MME (should be META). Experienced a significant market pullback in April (TQQQ dropped from purchase price near $90 to $35), but because of belief in Teacher James’s philosophy, felt no inner turmoil, calm and composed, firmly believing volatility is not risk, and with proper asset allocation and cash reserves, there’s nothing to fear. Studied nearly 200 of Teacher James’s lessons, moving from understanding to faith, believing in humanity, the US, and technology, enabling steadfast holding. Teacher James is a benefactor on his investment journey.
  • Teacher James’s Comment: Thanks for sharing, excellent mentality.
• Sharing 2: Information on HSBC Hong Kong portfolio loans: Currently, one-month HIBOR is about 1.2%, plus the bank’s spread, total interest is no more than 2.4%, very low. At HSBC, BIL (should be SGOV or similar short-term Treasury ETF) and leveraged funds (TQQQ, etc.) cannot be used as collateral, but SGOV can, with a loan-to-value ratio up to 90%; QQQ’s LTV is 70%. SGOV dividends are subject to 10% withholding tax (for mainland China residents after signing W8 form), but since it’s US Treasury interest, it’s theoretically tax-exempt, and HSBC will refund this 10% in March/April of the following year. This method of not selling stocks, not repaying principal, and not paying interest (referring to net interest cost) through pledging is very helpful for mainland Chinese investors to avoid taxes on overseas investment income (dividends, capital gains) being investigated (recently discussed on Xueqiu), because as long as you don’t sell, there are no realized capital gains or dividends.
  • Teacher James’s Comment: This method (not selling, pledging to borrow) is applicable to investors worldwide and can legally avoid many taxes. The key is “buy when you have money, hold to death, never repay stock-pledged loans (principal), and borrow (through asset allocation) without paying (net) interest.” Watson broke through the psychological barrier of “why borrow money when I have cash,” understanding that cash is also an asset that needs to continuously grow.
• Question: If one withdraws no more than 2% from pledged assets annually for living expenses, and this 2% is not fully used, should the remaining portion be left as is (not borrowed), or can the unused portion of the borrowed money be reinvested into the QQQ/TQQQ portfolio?
  • Teacher James’s Reply: Either is fine. Reinvesting the unused portion is okay, not reinvesting is also fine; whatever makes you comfortable. If the market is falling, you can buy; if the market is rising, you can ignore it. The core is to buy when you have money, at the market price, immediately. Since you are already financially free, the extra funds just increase your inheritance, not a necessary operation.

Ray

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• Sharing: After rewatching Teacher James’s videos, his investment philosophy has improved greatly. Fortunate to be able to jump directly from ignorance to a state of “non-action” (wu wei), skipping the intermediate stages of “not knowing one is ignorant,” “cleverness,” “from non-action to action.”
• Question 1: Teacher James once said wealth has tiers (million for food freedom, ten million for financial freedom, one hundred million for housing freedom and helping family, one billion for helping the poor, ten billion for helping society/seeking longevity). The “hold to death” strategy might cause assets to fluctuate significantly between these tiers (e.g., from 100 million down to 30 million). How to psychologically overcome the feeling of falling from a higher freedom tier, even knowing it’s temporary volatility? (For example, eating without looking at prices when assets are high, then reflecting on not being so complacent when assets fall back.)
  • Teacher James’s Reply: The key is to focus on cash flow rather than short-term fluctuations in total assets. Whether working or retired, your annual disposable cash flow should be relatively fixed (e.g., annual income 3 million, spend 1.2 million, reinvest 1.8 million), unaffected by market ups and downs. Don’t change your spending habits because of market fluctuations. If you want to increase living expenses due to significant asset growth (e.g., from 60 million to 120 million) (e.g., from 2% of original assets to 2% of new assets, increasing cash flow from 1.2 million to 2.4 million, spending an extra 1.2 million), you should first re-evaluate and adjust your asset allocation (e.g., reduce Beta from 1.0 to lower, increase cash proportion) to ensure the new cash flow plan is sustainable. After that, your life should no longer be affected by market volatility.
• Question 2: Why is the rebalancing frequency chosen as once a year? (Saw an author who tried different frequencies and concluded there’s no optimum, once a year is about right.)
  • Teacher James’s Reply: Once a year is based on intuition and common sense. Two years is too long, volatility might be too great, reducing rebalancing efficiency (e.g., if it rises 50% this year, annual rebalancing is efficient; over two years, volatility might be smoothed out, reducing efficiency). Daily rebalancing is theoretically most efficient but impractical (becomes short-term trading) and incurs high transaction costs and tax issues. Once a year strikes a good balance between efficiency and practicability, and also aligns well with tax reporting (e.g., in the US).

Yao

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• Sharing: Observed that the market mostly rises slowly (e.g., 0.x% daily, leveraged funds 1.x%), but when it falls (e.g., president talks about trade war), the decline is larger (5%, 10%, 20%). This is like life, mostly mundane daily routines, but long-term accumulation (power of compounding) can lead to huge changes. Work hard, live well, and you can ultimately lead a happy life.
  • Teacher James’s Comment: Well said. Plainness is a blessing, safety first, stable profits. Without safety, everything else is false; without health, everything else is false. Health and safety are prerequisites for enjoying wealth. Like the example of Bill Gates (or Steve Jobs), his high school had an expensive computer (a one-in-ten-thousand chance of luck), and he learned programming; but another equally talented classmate unfortunately died while mountain climbing (a one-in-ten-thousand chance of disaster). One must first avoid disaster for luck to be meaningful.

Lin

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• Sharing: Watched the Berkshire Hathaway shareholders meeting. Warren Buffett, though 94 years old (born 1930) and having experienced WWII and countless storms, repeatedly emphasized four or five times within three to four hours how lucky he was to be born in America as a white male. This echoes Teacher James’s emphasis on “always be optimistic, embrace the sunshine.” If I hadn’t listened to Teacher James’s classes, I might not have understood Buffett’s expression and would have found it insincere. Now I understand; he certainly had bad things happen in his life, but he chose optimism.
  • Teacher James’s Comment: Very well said. Be grateful every day, stay optimistic, think positively (“I am great, I am good, I am very rich, all the money in the world is mine”), and the universe will respond to your positive energy. The world is as you perceive it.
• Supplement on Canadian brokerage information: Questrade, if it’s a self-directed account and meets asset requirements (e.g., 10,000 CAD+, annual management fee might be waived), offers zero-commission trading. National Bank’s brokerage services might also offer free trading (mainly starting in French-speaking regions). HXQ.TO must be bought in whole shares, QQC.TO can be bought in fractional shares, suitable for small regular investments (e.g., only 150 CAD per month, HXQ.TO is over 80 CAD per share, so can only buy one share).

Jason

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• Sharing 1: Before and after attending the Berkshire Hathaway shareholders meeting, encountered two groups of people: one group was value investors like Li Lu, who emphasized ignoring market volatility (Mr. Market’s emotions), believing index investing is also a form of value investing (natural growth of the economy after removing speculation). They also emphasized community support, making an annual “pilgrimage” to Omaha.
• Sharing 2: The other group was insurance agents, also using Buffett’s theories (Berkshire Hathaway has insurance business), discussing asset management, inheritance, financial literacy education (e.g., allocating 401k, Roth IRA), but their ultimate goal was to sell life insurance.
  • Teacher James’s Comment: Be wary of insurance agents. Insurance is transferring your money to the insurance company’s pocket; it’s essentially “the scam group within the financial scam conglomerate.” Buffett says insurance is a good business—for the insurance company, not for the policyholder. Insurance agents use financial literacy education as a disguise, making it highly deceptive.

Haojin

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• Question: Taiwanese products offer good value for money (e.g., Meet Fresh is $10 in the US, Taiwan has many cheaper options), but the NTD seems undervalued. If the NTD appreciates significantly in the future as Teacher James suggested (e.g., from 30:1 USD to 15:1 or even 10:1), for Taiwanese investors in US stock ETFs (like 00662, with an annualized return of about 12-14%), will their long-term returns denominated in NTD be eroded by exchange rates, leading to less-than-expected growth in purchasing power? (A boss’s mentality might be to hope for NTD depreciation to benefit exports, sacrificing employee welfare).
  • Teacher James’s Reply:
    1. NTD appreciation is good for Taiwan. It will be cheaper for people to buy imported goods (e.g., iPhone from NT$30,000 to NT$10,000) and travel abroad, improving quality of life. High-pollution, uncompetitive industries (like uncompetitive steel, unless for national defense) will naturally be eliminated; they shouldn’t be subsidized by sacrificing public welfare and the environment.
    2. For Taiwanese investors already invested in USD assets, NTD appreciation will indeed affect NTD-denominated returns. However, one can consider allocating to some NTD-hedged ETFs (like Taiwan’s 00670L Fubon NASDAQ Leveraged 2x, although it’s a leveraged ETF, Teacher James might be referring to its hedging characteristic here or using it as an example that such tools exist).
    3. In the long run, the impact of exchange rate fluctuations is far less than the growth of quality assets. Even if the annualized return drops from 14% to 7% due to exchange rates, it’s still a good return. One shouldn’t worry excessively about exchange rates.
    4. After NTD appreciation, buying USD assets in the future will be cheaper (e.g., QQQ from NT$15,000 to NT$5,000), which is actually beneficial. An undervalued NTD deprives the entire population of welfare to benefit a few manufacturers.

Curiosity

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• Question: Regarding Roth portions in tax-deferred retirement accounts like 403(b) and 457(b) (up to $30,500 can be contributed annually), are they also subject to Required Minimum Distribution (RMD) at age 73 or 75? If so, can they be rolled over tax-free to a personal Roth IRA account without an amount limit? What are the precautions during operation (e.g., need to sell then transfer)?
  • Teacher James’s Reply: Funds in Roth 403(b)/457(b), after meeting conditions, can be rolled over tax-free to a personal Roth IRA. This avoids RMD issues because personal Roth IRAs do not have RMDs during the owner’s lifetime. Operationally, contact the brokerage to handle it; you can choose cash transfer or in-kind transfer (assets transferred directly, if the brokerage supports it and the investment holdings are the same, like QQQ). It’s advisable to choose the brokerage link option within 403(b)/457(b) as much as possible to invest in quality targets like QQQ, rather than being limited to a few poor-performing funds offered by the plan. If you can only choose funds, don’t contribute; deposit directly into a Roth IRA.

Catherine

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• Question: Regarding Pledged Line of Credit (PLOC), a friend doesn’t understand why one would borrow money and pay interest when having enough cash or stock gains. How to simply explain its benefits? (Friend’s argument: I have money from stock trading, why borrow and pay interest?)
  • Teacher James’s Reply:
    1. Capital Efficiency and Compounding: Using your own money for living expenses (e.g., spending $20,000 annually) means reducing the principal available for investment. Borrowing for living expenses (e.g., borrowing $20,000) allows the original principal (e.g., $1 million) to continue growing at a higher rate (e.g., 10%). Even after paying interest (e.g., 5%), there’s still a net gain (5% arbitrage). After 30 years, the borrower’s net worth (total assets minus debt) will be far higher than that of the investor who spends their own money (Teacher James gave an example, the former has $3 million more).
    2. Tax Advantages: Not selling stocks means no capital gains tax.
    3. Possibility of Interest Deduction: Interest on loans may be tax-deductible under specific circumstances (e.g., treating long-term capital gains as short-term, forgoing preferential tax rates) (complex operation, consult a professional accountant; many accountants don’t understand this).
    4. Net Interest Cost is Zero or Negative: Through proper asset allocation (like Teacher James’s 433 model: 40% QQQ, 30% QLD/TQQQ, 30% cash/money market fund), the interest generated by money market funds (e.g., $300,000 cash generating 4.5% or $13,500 interest) can cover or even exceed the interest expense of pledged loans (e.g., borrowing $200,000, 5% interest is $10,000), achieving “borrowing money without paying interest” or even making money, while the portfolio’s Beta remains at 1.0.
    5. Long-term Asset Growth and Risk (Counter-intuitive): Over the long term, the total assets of an investor who borrows will be far higher than one who spends their own money. Continuously spending principal leads to principal depletion (e.g., $1 million becomes $400,000 after 30 years, then $100,000 after another 10 years, unable to afford a bento box). Borrowing and letting the principal grow continuously, even with debt, results in better sustainability of total assets (still $1 million principal growing) and cash flow, thus lower risk. Teacher James emphasized this is one of his core strategies, requiring students to watch the videos from the beginning to fully understand.

IV. Wonderful Quotes

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Market volatility has nothing to do with us, so don’t sell stocks, don’t sell stocks, don’t sell stocks. – Teacher James

This view is a core investment discipline repeatedly emphasized by Teacher James: maintain composure in the face of market volatility and stick to the strategy of long-term holding of quality assets.

You only run into problems if you are afraid. If you sell your stocks, always remember one thing: keep enough cash. Retirees might need to keep 10-15 years’ worth, at least 30% or more in cash. – Teacher James

Teacher James stresses the importance of ample cash reserves for overcoming fear and avoiding erroneous operations, providing cash reserve suggestions for different groups of people.

Greed and fear are like that. Because you feel the market, it causes your greed… you find your assets have exploded… you’re about to become a superior person, then greed has appeared, and risk will follow. When the market drops, you become very fearful, very fearful, very fearful… then this fear emerges. – Teacher James

Profoundly reveals the common extreme emotions of investors in the market and their dangers, reminding investors to remain rational.

Cash is air. You must maintain the highest level of cash to survive. In the overall strategy, cash is like the air force, protecting the ground troops from annihilation. – Teacher James

Uses a vivid metaphor to emphasize the strategic position of cash in an investment portfolio, as key to resisting risk and ensuring survival.

Our method isn’t just for China; even if you’re in Taiwan or the US, you don’t need to pay taxes because we don’t sell. No selling means no taxes. Learn this trick: stock pledge loans are never repaid (principal), and the loan (through asset allocation) incurs no (net) interest. – Teacher James (partially echoing Watson’s sharing)

Explains the strategy of achieving tax optimization and wealth growth through long-term holding, not selling, and skillfully using stock pledge loans (combined with asset allocation to make interest costs manageable).

You just need to be optimistic, optimistic, I am great, I am good, I am very rich, all the money in the world is mine. You need to chant this every day: I am great, I am good. I am the best person in the world. That’s enough. All good luck will come to you. – Teacher James

Emphasizes the importance of positive psychological suggestion and an optimistic mindset for investment and even life.

When investing, you must treat the losses brought by volatility, these temporary losses, as the entry fee for the market, not a fine. – Teacher James (quoting an online viewpoint)

Provides a positive perspective on market volatility and short-term paper losses, helping investors maintain a long-term mindset.

We make money without paying taxes, borrow money without paying (net) interest, and we hold to death, never selling (principal). This is our highest realm. – Teacher James

Summarizes the ideal state of his investment strategy, emphasizing tax efficiency, cost control, and long-term holding.

V. Summary

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In this lecture, Teacher James once again systematically emphasized his core investment philosophy: long-term holding of quality assets (like the Nasdaq 100 Index Fund), ignoring short-term market volatility and noise, maintaining sufficient cash reserves, and applying a reasonable asset allocation strategy. Teacher James sternly refuted panic and erroneous operations arising from short-term market or exchange rate fluctuations and detailed the correct use of stock pledge loans where “principal is never repaid, and (net) interest is controllable.” Through questions and sharing from multiple students, the lecture covered specific concerns of investors from different regions including Canada, Mainland China, Taiwan, and the US, touching upon brokerage selection, fees, tax planning, retirement account management, and overcoming psychological investment barriers. Teacher James consistently conveyed an extremely optimistic investment belief and reminded investors to be wary of financial scams, focus on learning correct investment knowledge, and ultimately achieve financial freedom and life happiness.