00516 The Middle-Class Dilemma and the Rich Mindset: The Truth Behind the Gaps in Happiness, Investment, and System Design

I. Main Theme of This Session

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Mr. James’s core viewpoints in this session revolve around long-term investing, ignoring market noise, understanding the essence of capitalism, and balancing wealth with life. He emphasizes that investors should focus on quality passive ETFs like the Nasdaq 100 Index Fund (QQQ) and possess the patience and optimism for long-term holding. Simultaneously, he deeply analyzes the impact of the capitalist system on different social classes, how to utilize capital markets to achieve personal and family financial freedom, and explores profound topics such as the relationship between wealth accumulation and life happiness, family relationships, children’s education, elderly care for parents, and wealth inheritance.

II. Briefing Content

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Market Volatility and Investment Mentality

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• No need to pay attention to market signals: Market disturbances (like tariffs, wars) are irrelevant to long-term investing; the market will eventually rise, and approaching or even setting new highs is normal. Investors need not worry about short-term signals.
  • Example: The current market is full of turmoil, yet it’s close to setting new highs, proving that short-term signals are inconsequential.
• Learn from history, understand the present: The century-long history of the U.S. stock market shows that while it doesn’t repeat, it rhymes astonishingly. Understanding history helps solidify long-term investment beliefs. Mr. James shares insights based on his 40 years of market experience and understanding of 200 years of U.S. market history.
• Optimism and patience: Investors should always be extremely optimistic and unaffected by external pessimism and fear-mongering. “If you don’t listen or look, it doesn’t exist.” Wealth is worth waiting for; investing requires patience.
• Technical analysis is ineffective: Those who believe technical analysis is effective haven’t truly grasped investing. Market fluctuations can sometimes be like “madness”; no need to dance to its tune.

Core Investment Strategies and Tools

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• Focus on the Nasdaq 100 Index Fund (QQQ): This is currently the fastest-growing passive ETF globally, suitable for young investors to accelerate asset appreciation. Mr. James provides links to resources for investing in Nasdaq 100 Index Funds worldwide.
• Learning resources: Recommends watching a series of videos (e.g., 00451 “Value Investing Lecture” as a compulsory course for newcomers, as well as 398, 399, 400, etc.), learning them in conjunction with the market conditions at the time to achieve a solid grasp.
• Getting started for young professionals/small investors: It’s advised to set aside an emergency fund for six months to a year before starting to invest in QQQ or 00662 (a Taiwanese ETF tracking Nasdaq 100). Buy whenever you have money, don’t try to time the market, buy at market price.

The Nature of Capitalism and How to Cope

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• Systemic traps of capitalism: Mr. James quotes and agrees with a YouTuber’s perspective that capitalism is designed to favor the rich, reflected in:
  • Tax mechanisms: Investment income (e.g., U.S. Long-term Capital Gains, tax-free for singles up to $40k/couples up to $80k, with rates of 15%-20% above that) is taxed at much lower rates than labor income (up to 37%), benefiting long-term investors. Taiwan doesn’t even have capital gains tax.
  • Triple risks for the middle class: Job, company stock, and property near the company are highly intertwined. If the company has problems, one might lose their job, stock value, and property (or face mortgage pressure) simultaneously. Advice: Sell company stock promptly and reinvest in QQQ; buy a house only after achieving financial freedom (“buying a house should be like buying slippers”).
  • Differences in borrowing: The rich borrow money to get richer (investment), while the middle class borrows money to become poorer (consumption).
  • Differences in income growth: Income from physical labor struggles to keep pace with inflation and asset appreciation.
  • Differences in offspring development: Middle-class children rely on “involution” (cram schools, prestigious universities, spending hundreds of thousands to get into private schools), while wealthy children can pursue their interests and grow up happily.
  • Impact of financial bubbles: The middle class is forced to sell assets at low prices when bubbles burst because they can’t hold on, while the rich have the money and opportunity to buy the dip.
• Utilizing capitalism: Despite its pitfalls, the capital market is an important way for ordinary people to bridge the wealth gap and share the dividends of social progress.
  • At the national level: If citizens all become capitalists, holding shares in globally competitive companies (like TSMC, Apple), they can enjoy the benefits of globalization while “transferring” negative externalities of production (like pollution). Citizens should ponder: Is it better to be proud of owning a factory, or proud of owning shares in that factory?
• The “Borrow 100 Million” thought experiment: If someone were willing to lend you 100 million (any currency) at 5% interest, to be repaid in 40 years, would you dare to borrow it? Those who dare and know how to use it possess a rich mindset, because this money, through investment, can generate returns far exceeding the interest, potentially allowing for immediate retirement. The key is whether you have the credit or assets to borrow this sum.
• Inspiration from Trump’s proposed “Great Child America Act”: Investing $1,000 annually for newborns from a young age cultivates financial literacy and long-term compound interest awareness, reflecting a nation’s soft power. This is more meaningful than direct subsidies.

Life, Family, and Wealth Philosophy

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• Beyond “cost” thinking: Falling in love, getting married, and having children should not be calculated as “costs.” With a long-term wealth perspective (e.g., 1 million becoming 1 billion in 40 years), money is meant to be spent, and family is for sharing love.
  • Example: If you only think about the immediate 1 million not being enough, you miss the possibility of becoming a billionaire enjoying life in the future. By 60-70, even with money, you might not be able to make up for regrets from youth (like having children).
• The “Die with Zero” philosophy: Life should be fully experienced, rather than dying with a huge fortune, which is the tragedy of “having nothing but money.” Money should be spent wisely to create beautiful memories.
• Financial wisdom for couples:
  • Economic security: The higher-earning spouse should proactively transfer a portion of their funds (e.g., 50k from a 150k salary) to the other’s account, giving them financial freedom and security, avoiding the need to “report everything” or “ask for money.”
  • Common goals: Couples should have aligned financial views, invest together, and not bicker over money (like who does the dishes or takes out the trash). A home needs love.
  • Improve oneself first: In a family, first make yourself “worthy of being loved.”
• Becoming the “big tree” of the family: Through long-term investment, everyone has the potential (hundreds of thousands becoming hundreds of millions, millions becoming billions) to become the family’s economic pillar, providing shelter for loved ones.
• Elderly care for parents:
  • Health is the biggest money-saver: Instead of worrying if pensions are sufficient, care more about parents’ health, manage their blood pressure and blood sugar, ensure they take medication on time, and have regular check-ups (e.g., for macular degeneration, joints, carotid artery stents). Healthy parents mean a lighter burden for children.
  • Cost estimation: If parents are completely dependent, a caregiver plus basic expenses might cost NT$80,000-100,000 per month. Mr. James’s mother cost about NT$10 million over 10 years.
  • Plan early: When children are 30, parents are around 60. Significant expenses might arise after age 80. Regularly investing NT$1,000-2,000 per month for parents can accumulate a considerable pension fund after 20 years.

Investment Practice and Risk Management

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• Simplify investing: Once asset allocation is done, you can set it to “autopilot,” no need to watch the market daily or analyze asset performance. Spending 5 minutes once a year for rebalancing is sufficient.
• Risk awareness:
  • “Market goes to zero” test: Before any investment decision, ask yourself, “If this investment goes to zero tomorrow, can I handle it? Even if I can’t sell stocks for three years, can I survive?” If not, the risk is too high.
  • Liquidity risk: Some markets or specific situations (like some mainland China ETFs in 2022) may experience situations where you want to sell but cannot.
  • Leverage risk: Margin loans (e.g., from a brokerage account) are extremely risky. A market downturn can lead to margin calls or even negative equity (e.g., stocks drop to $800k, but you borrowed $1 million, owing $200k). Personal loans (with stable income, used for investment) are relatively manageable because they are not directly tied to stock market value for forced liquidation.
• The essence of learning: It’s not just about learning what works, but more importantly, learning that “these things are useless” (like technical analysis, economic analysis, business cycle indicators). This conclusion is reached after understanding these tools.

III. Q&A Session

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CADRE

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• Sharing: Observed some people nearing retirement with no stable income wanting to borrow money to invest. However, their understanding of investment philosophy and risk tolerance might be insufficient. Advised such individuals not to borrow easily; they should first build a solid foundation with their own funds and become mentally strong enough before considering advanced operations.
  • Mr. James’s comments: Strongly agree. Investors first need to experience market volatility (e.g., a 10-15% correction) with their own funds to confirm they can tolerate it before considering borrowing. For retirees:
    • Personal loans: If there’s no stable income for repayment, a market downturn will force selling stocks to repay debt, which is not recommended.
    • Mortgages: A home equity line of credit (HELOC, interest-only payments, like in the US) might be considered; however, mortgages requiring principal and interest payments are not recommended due to the large amounts involved.
    • Core principle: For any leveraged investment, consider, “If the stock drops to zero, the loan still needs to be repaid. Can I handle it?”

Sams

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• Sharing 1: As a listener for over two years, he gradually shifted personal funds, private equity, trusts, and insurance products into QQQ and domestic Nasdaq ETFs. Due to excessive optimism, he used margin (brokerage account overdraft to buy) from late 2023 to early 2024, almost at 1:1 leverage. He then encountered the “tariff war” and liquidity issues in the domestic ETF market (e.g., 513100), where some ETFs hit their limit down and couldn’t be sold. He was forced to significantly deleverage the next day, wiping out much of the previous year’s profits. His father’s account, with no leverage and regular investments, hit an all-time high. Profound realization: Don’t rush to make money; slow is fast, and safety is more important. Personal cash flow and future income expectations are crucial when using leverage. Also, in panic, he cleared out QLD from his Hong Kong account, missing the subsequent rally. This experience reminded him of the 2015 A-share market crash, also involving margin calls and being unable to sell for three consecutive days.
  • Mr. James’s comments: Sams’ experience is very typical. Markets have liquidity risks, and margin risks are enormous, potentially leading to margin calls or even owing the brokerage money. Repeatedly emphasized the importance of the “market goes to zero test.” Don’t test human nature.
• Sharing 2: Investing allows one to control their own destiny. He experienced his company being acquired, then another company he co-founded being acquired (sold to Evergrande, which later defaulted, and got entangled in lawsuits), and personally shutting down an underperforming branch (decided to close the Chongqing branch after a three-hour walk with his boss; employees were given N+1 severance the next day). Because he had investments as a backup, he was more composed when facing these changes. Colleagues without investments (like some branch managers) felt lost about their future. Insight: Whether in good times or bad, hold on to good assets.
  • Mr. James’s comments: All things have unexpected events (companies go bankrupt, properties get damaged). When investing, first think about risk. Jobs and individual stocks carry high risks. QQQ will also drop significantly. Only invest money you won’t need for 15-20-30 years. Retirees need to set aside about 15 years of cash for living expenses.
• Question: Mr. James once suggested 70% QQQ / 30% cash, and allocating 2% to leveraged funds (like QLD) in down years. He wanted to confirm:
  1. Can mainland China and Hong Kong accounts be treated as one, with a synchronized 70/30 allocation?
  2. Since transferring funds out of mainland China is troublesome, should more leveraged funds be allocated in Hong Kong?
  3. If the market falls at year-end, is the 2% allocation to leveraged funds based on 2% of total assets or only 2% of Hong Kong assets?
  • Mr. James’s reply:
    1. For beginners or those sensitive to volatility, 70/30 (QQQ/cash) or even 60/40 is a safe starting point. No need to rush into leveraged funds. Because even if the overall drop isn’t large, the violent fluctuations of leveraged funds themselves can cause anxiety (e.g., only focusing on QLD dropping 5%, not seeing that cash doesn’t drop).
    2. Beta can start at a lower level (e.g., 0.6-0.8) and gradually increase with experience and asset growth.
    3. Regarding the 2% QLD allocation: It can be calculated based on Hong Kong assets or total assets. However, note that leveraged funds usually cannot be used as collateral for bank loans (e.g., at HSBC). If QLD proportion is too high, it might affect future collateralized financing plans.

DVA

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• Sharing: Listening to Mr. James’s class is like learning life philosophy; investing is a battle against human nature. Experienced the recent market correction (what the teacher called a “slap in the face” market). Although he wanted to hold on, he was scared and sold half of his holdings, including some individual stocks like Nvidia.
• Question: His Roth IRA account is small, and he’s nearing retirement. He wants to know if an allocation of 60% QQQ + 10% TQQQ + 30% cash, or 70% QQQ + 20% TQQQ + 10% cash, resulting in an overall Beta of around 0.8, is robust enough while also providing growth.
  • Mr. James’s reply: A 60/10/30 (QQQ/TQQQ/cash) configuration, with a Beta around 0.8, is very good. Beta will increase as the leveraged portion grows. For those afraid of volatility, an initial Beta of 0.6-0.8 is sufficient.

Yao

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• Sharing: Recently, watching news (Elon Musk leaving the White House after 130 days, under immense pressure, even relying on medication and games to de-stress) and movies (the heavy burden and helplessness of the protagonist in “Oppenheimer”), he realized “uneasy lies the head that wears a crown.” If ordinary people lack such talent and resilience, it’s better to follow the teacher’s philosophy, achieve wealth calmly and happily, without enduring those extreme pressures and risks. Investing slowly and waiting for the compounding effect is a good choice.
  • Mr. James’s comments: Slow is fast. Don’t use money you need to earn money you don’t need. Life should be about reducing regrets, not chasing empty fame and fortune. Enjoy the fruits of enterprises (like Nvidia) through tools like QQQ, without bearing the immense pressure of the operators.

Ju

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• Sharing: Introduced to Mr. James’s philosophy by a friend in 2018/2019. As a stock market novice, he was deeply inspired and immediately adjusted his strategy, investing borrowed funds and continuing with regular contributions. He once participated in short-term trading studies (joined a stock reading club) but found it arduous and the ROE (Return on Equity) not high. He had to watch the market daily, research US stocks, Taiwan stocks, margin changes, aiming for a 10-20% annualized return, and only dared to invest a portion of his capital (e.g., 10-30%). So he gave up, focused on his main job and long-term investing, and now lives a peaceful and prosperous life (meditating morning and evening). When sharing his philosophy with friends and colleagues, he found they hesitated to invest for their own long-term (feeling 20-30 years is too long), but were more receptive to investing for their children, which might then lead them to participate themselves. Having experienced 00662 (a Taiwanese Nasdaq 100 ETF) dropping from over 50 to the 40s and persisting in buying, he is now calm about current market fluctuations.
  • Mr. James’s comments: Many short-term traders only look at the ROI (Return on Investment) of individual trades, ignoring the ROE (Return on Equity) on their total assets. They might achieve a high ROI with a small amount of capital, but it contributes little to overall wealth growth. For example, with 1 million in capital, using 30,000 to make 30,000 is a 100% ROI, but only a 3% ROE. Whereas we aim for a 10% return on the entire 1 million, which is 100,000.

Chen Hua

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• Question 1: Noticed Mr. James recently emphasizing conservatism more, suggesting a 30% cash position (earlier it was 10-20%). Is this due to varying student experience levels or other considerations? He himself targets a Beta of 1.0, holds leveraged funds, has little cash, and would need to reduce leveraged funds to reach 30% cash.
  • Mr. James’s reply: Yes, this is because students come from diverse backgrounds; many are novices or cannot withstand significant volatility. A 30% (or even 40%) cash position is a “plain beef noodle soup” style basic version, suitable for everyone to start with. Experienced investors who can tolerate risk can adjust it themselves, choosing a “mildly spicy” or “extra spicy” allocation. Asset allocation is very personal.
• Question 2: Regarding wealth inheritance. Warren Buffett’s testamentary portfolio (90% S&P 500 + 10% short-term bonds) is suitable due to his vast assets. For ordinary people whose descendants have no interest in investing, how should a “permanent” trust asset allocation plan be established? (Citing Anita Mui’s trust case)
  • Mr. James’s reply:
    • Firstly, children’s moral character and values education (quoting Lin Zexu: “If my descendants are like me, what’s the use of leaving them money? If my descendants are not like me, what’s the use of leaving them money?”) is more important than wealth inheritance. Wealth should be the icing on the cake.
    • One can start considering gifting when their assets exceed 50 times their annual expenses.
    • It’s not advisable to easily set up a private non-profit foundation unless the children are genuinely committed, otherwise, it might become a burden or a management problem.
    • Trust selection: Trust services from large financial institutions (like HSBC, Charles Schwab) are generally more stable than private family offices (even if the institution fails, assets are protected, like Credit Suisse being taken over by UBS), but offer less flexibility. One can set up a portfolio like 70% QQQ / 30% cash (or short-term bonds/money market funds), with a rule to withdraw 2% annually, achieving perpetuity. The key is simplicity and low management fees. Private family offices might offer comprehensive services, but institutional trusts focus more on asset management and distribution.

IV. Key Quotes / Insightful Points

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Market fluctuations have nothing to do with me anymore. The market might be full of turmoil, tariffs coming and going, wars still ongoing, but the market is already close to new highs. So this is why you don’t need to care about market signals; they are not important, not important at all. – Mr. James

This view emphasizes that investors should ignore short-term market noise and focus on long-term trends.

This capitalism is a systemic trap… it’s advantageous to the rich, to wealthy people. – Mr. James (quoting and agreeing with a YouTuber’s perspective)

This view reveals the inherent mechanisms of wealth distribution under the capitalist system.

Earning money through physical labor will never keep up with inflation, let alone the speed of asset appreciation. – Mr. James

This view highlights the fundamental difference between labor income and capital appreciation.

If you calculate falling in love, getting married, and having children in terms of cost, then you’re being too meticulous… We are rich people; money is meant to be spent. We’ll have more money than we can spend in a lifetime, so if we get married and have children, let’s have a few more to spend it together. – Mr. James

This view reminds people to look beyond utilitarian calculations in important life choices, focus on emotions and experiences, and view them from a long-term wealth perspective.

Slowly is fast. You will all become a big tree for your family. – Mr. James (combining the “slow is fast” and “become a big tree” concepts)

This view encourages long-term patient investing, believing in the power of compounding to enable individuals to become the economic pillars of their families.

For any asset allocation, just ask yourself: what if the market goes to zero tomorrow, how would you fare? Ah, if you find out it’s not okay, if I’m finished if it goes to zero, then you should quickly adjust your asset allocation. – Mr. James

This view provides an ultimate test for measuring risk tolerance.

Everyone needs to know that in investing, all things can have unexpected outcomes. Your company can go bankrupt in an instant… So for any investment, the first thing to think about is what if this investment is destroyed, goes to zero, what will you do? – Mr. James

This view emphasizes risk awareness, that any investment should first consider the worst-case scenario.

Don’t think about making this money too quickly; a bit slower and safer might be better. – Sams

Sams, after a severe setback with leverage, gained a profound understanding of prudent investing.

What’s the biggest advantage of investing well? It’s that you can control your own destiny. – Sams

Sams shared how investing gave him more agency and security amidst career and life changes.

Spending five minutes a year is enough. There’s absolutely no need to care about market fluctuations; it’s completely meaningless… Living a good life is the purpose of life. – Mr. James

This view advocates for simplifying investment management and dedicating more energy to life itself.

V. Summary

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In this CLEC sharing session, Mr. James once again emphasized the importance of long-term holding of quality assets (especially the Nasdaq 100 Index Fund) and reminded investors to ignore market noise and focus on their own investment discipline. He deeply analyzed the operational mechanisms of capitalism, pointing out that ordinary people can achieve wealth growth through capital markets and escape the “laborer mindset.” The discussion covered several important topics, including risk management (especially a cautious attitude towards using leverage, advising most to start with a conservative cash ratio, and conducting the “market goes to zero” test), the wisdom of wealth inheritance (emphasizing children’s moral education first and suggesting simple, sustainable trust solutions through financial institutions), elderly care for parents (prioritizing health management over financial worries), and balancing investment with life happiness (avoiding excessive calculation of “costs” in life, living in the present, and achieving the state of “Die with Zero”). Participants’ sharing also provided valuable practical experiences and lessons, particularly regarding leverage risks, market liquidity, and the profound impact of investment on personal control over one’s destiny. Overall, this session aimed to help investors establish the correct investment mindset and methodology to achieve long-term financial health and a fulfilling life.