00517 Explaining Stablecoins; A Must-Watch for Retiree Investors; No Fear Even if the Market Drops to Zero

I. Main Topic of This Session

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This session revolves around the optimistic outlook for the investment market, driven by advancements in high-tech development and corporate profitability. The core viewpoint is that investors should remain extremely optimistic, invest long-term in funds like the Nasdaq-100 Index Fund (QQQ), and implement a reasonable asset allocation based on their personal circumstances to achieve wealth growth and inner peace. Additionally, it delves into the connection between life philosophy and investment mentality, as well as the potential impact of emerging financial tools like stablecoins.

II. Briefing Content

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Opening and Core Philosophy

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• Market Optimism: Teacher James believes that despite market fluctuations, the global situation and the overall market are trending positively. Technology is advancing, corporate earnings are improving, and humanity will naturally solve problems. Investors need not worry excessively about short-term volatility; the market will soon reach new highs.
• Educational Purpose: The channel’s content is for reference and educational purposes only and does not constitute investment advice. It aims to spread correct investment philosophies to help everyone eliminate poverty.
• Learning Resources: New friends are advised to start learning from episode 451 and refer to foundational value investing lectures like 398 and 288. The lecture notes are pinned in the comment section.
• Investment Principle: Although investing in index funds is simple, knowledge is a guiding light. A deep understanding is necessary to avoid “walking blindly all the way.”
• Safety Reminder: Be wary of scams. Do not transfer funds to anyone, including financial advisors. Teacher James does not manage assets for clients.
• Global Nasdaq-100 Index Funds: Related products are available worldwide. A list and links to global information are on page nine of the lecture notes.
• Investor’s Mindset: Always be extremely optimistic, believe in the long-term upward trend of the market, and endure volatility to reap rewards.

New Developments in Taiwanese Financial Products

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• Ten-Year Personal Loan: A friend reported that KGI Bank in Taiwan does offer personal loans with terms as long as 10 years. Combined with a revolving credit line, the limit can reach NT$10 million (depending on individual salary). If demand increases, other banks may follow suit.

Investing and Inner Peace

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• Pursuing Inner Peace: Investing is not just about pursuing wealth, but also about seeking inner peace. One should not let market ups and downs disturb one’s emotions.
• Rational Approach: Both life and investing require a rational attitude. If your investments make you anxious, it may indicate a flaw in your strategy.
• Importance of Long-Term Investing: To achieve peace of mind, choose long-term index investing. This allows you to avoid constantly watching the market and prevents your life and family from being disrupted by market volatility.
• Health Warning: Constantly monitoring the market can lead to macular degeneration, especially for older individuals.

Asset Allocation and Risk Management

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• Solid Returns with Beta 0.5: Even with just 50% in QQQ (Beta 0.5) and 50% in cash (e.g., a money market fund with a hypothetical 4% return), the long-term annualized return can be substantial (e.g., 0.5 * 4% + 0.5 * 14% = 9%).
• Asset Allocation for Retirees:
  • Retirees with sufficient funds should prioritize stability over maximum returns.
  • Suggested allocations: 70% QQQ + 30% cash; 60% QQQ + 40% cash; or 50% QQQ + 50% cash.
  • Keep at least 30% in cash as a stabilizing force.
• Rebalancing Considerations:
  • If you have sufficient cash flow and reserves, there’s no need to actively rebalance. Let QQQ grow through compounding.
  • If reserves are insufficient, sell a portion of QQQ when it has significant gains to increase your cash reserves.
  • Retirees can set aside 15 years of living expenses in cash and invest the rest in QQQ. When the cash is used up, withdraw half of the QQQ holdings into cash, and repeat the process.
• Asset Allocation for Young People:
  • Set aside a 1-2 year emergency fund and prepare for children’s tuition.
  • The remaining funds can be fully invested in QQQ.
  • Start conservatively when first entering the market and gradually increase your risk tolerance.
• CLC Beef Noodle Soup Analogy: Investment strategies are like beef noodle soup: there’s clear broth, mild, spicy, and extra spicy. Investors can choose based on their risk appetite, but the goal is to avoid “getting an upset stomach” (suffering unbearable losses).

Philosophy of Life and Investment Wisdom

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• “Life is hard enough without feelings; feelings make life even harder”: Replace “feelings” (情) with “human nature” (人性), and the saying becomes: “Human nature makes the stock market even harder.” To succeed in investing, you must train yourself to overcome the emotional weaknesses of human nature, achieving a state of “indifference to the market and money,” feeling nothing about gains or losses.
• Separation of Tasks: Distinguish between your own tasks and others’ tasks. For example, a child’s education is the parents’ task and should not be overly interfered with by grandparents.
• Live in the Present, No Regrets: “Looking back on life, there is neither wind, nor rain, nor clear skies.” What matters is the present moment; have no regrets.

Investment Mindset and Action Strategy

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• Correct Mistakes Promptly: If an initial investment strategy was wrong and led to losses, change it immediately rather than waiting to break even. The latter is a gambler’s mentality.
• The Importance of Direction: Effort is meaningful only when the direction is correct. The right direction is proper asset allocation, index investing, and maintaining sufficient cash.
• Risk Awareness and Control: First, understand the risks (e.g., the market could drop 85% and stay there for 10 years). Then, control the risk through asset allocation (cash is a critical line of defense, like the air force and supplies in a battle).
• Buying Strategy:
  • The best option is to buy immediately when you have the money.
  • If buying in installments, do so at predetermined times and at the market price, regardless of market ups and downs.
  • “He who buys is an apprentice; he who holds on for dear life is the master.”
• The Wisdom of Borrowing:
  • “Money is only yours when it’s in your pocket.”
  • In low-interest-rate regions (like Taiwan, Hong Kong, mainland China), borrow money to invest. Use leverage to let “other people’s chickens lay eggs for you” (generate returns with borrowed money) while your own “chickens” (assets) continue to grow.
  • Social security benefits and the like should be claimed as early as possible.
• Individualized Advice: Teacher James emphasizes that his investment advice is a “unique” prescription for each person, tailored to their individual circumstances. There is no one-size-fits-all “standard answer.” For example, buying immediately at market price is ideal but not suitable for those with low psychological tolerance. A Beta of 1.0 or a 442 strategy (40% cash, 40% index, 20% leveraged index) offers high returns but also high risk. A Beta above 0.5 is enough to become wealthy.

III. Q&A Session

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Michel

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• Sharing:
  1. Successfully applied for a “home equity line of credit” in Taiwan with a limit of over NT$10 million, an interest rate of about 2.4%, and an interest-only period of 2 years, extendable once to 4 years. After 4 years, it can be converted to an “overdraft account,” where you only pay interest (rate around 2.5%) and can use the principal indefinitely.
  2. Plans to start investing next week according to the teacher’s 4-3-3 allocation (40% cash, 30% QQQ, 30% leveraged QQQ. Michel’s understanding might differ slightly from the teacher’s later clarification, which defined 433 as 40% cash, 30% index, 30% leveraged index).
  3. Although he missed the lower entry points, he has come to realize that looking back 20 years from now, today’s prices will all seem sweet.
  4. Thanks the teacher for expanding his cognition and giving him the courage to use financial weapons. The bank’s review process was strict, so getting the loan means the bank also considers the risk manageable. His wife being an employee of a listed company might have helped. He used to think he should never be in debt, but his perspective has now changed.
  • Teacher James’s Comment: The fact that the bank dared to lend to you means they have assessed the risk. The low interest rates in Taiwan are a great opportunity. The current price of QQQ (e.g., $70-80) makes little difference in the long run (e.g., when it reaches $80,000 in the future). He encourages buying as soon as possible. Investing with borrowed money is a capitalist awakening, not a rebellious act.

DP

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• Question: The teacher recently discussed technical analysis on other platforms to guide people towards long-term investing. Could he briefly explain the differences, pros, and cons of short-term technical analysis versus long-term investing for new students?
  • Teacher James’s Reply: He respects short-term traders and their philosophies. He used to trade that way himself with good results (but emphasizes it’s not for everyone). He compares short-term trading to being a race car driver, with its specific scenarios and risks. Sharing his technical analysis experience is a way to offer them some help or an alternative perspective (long-term investing), not to change them. He is practicing how to communicate with people of different viewpoints, as if talking to his 25-year-old self. He himself does not trade short-term now and does not recommend it to his students. The technical analysis he refers to is very short-term (determining long/short based on a single candlestick). He admires the focus and effort of short-term traders.

IAM

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• Sharing 1: Explained investing to a 14-year-old from a poor family. He used analogies (Is today better than five years ago? Is this generation better off than our parents’? Will the future be even better? Farmland evolving from growing bananas to oil palms to durians to solar panels, constantly seeking higher returns) to illustrate that QQQ automatically weeds out the weak and keeps the strong, just like how the “fertile field” of American high-tech is constantly being optimized. The boy’s eyes filled with hope when he saw how 50 Malaysian Ringgit could become tens of millions through decades of compounding. IAM feels that 80-90% of people around him don’t understand QQQ and will persist in sharing one-on-one.
  • Teacher James’s Comment: (Mentioned later when answering IAM’s question) Being able to plant the seed of wealth for a young person is to save a person, a family. It is a wonderful thing.
• Question 1: Regarding asset allocation (e.g., 442, 433, 631), after doing his own homework, he found that risk tolerance is closely related to one’s personal life situation (work, consumption). He asks the teacher to confirm if asset allocation should be strictly by percentage, or if the proportion of leveraged funds should not exceed the cash or original capital.
  • Teacher James’s Reply: Strategies like 433 (40% cash, 30% index fund, 30% leveraged fund) or 442 (40% cash, 40% index, 20% leveraged index) aim to raise the Beta to 1.0 using leverage while maintaining the safety of cash, thereby hoping not to lose out on market returns. This is the highest-risk allocation that passed simulations, like a plane pulling up just after scraping the ground—highly efficient. But it’s not the only option; for example, 50% QQQ + 50% cash used as collateral also works. For retirees, it’s recommended to keep Beta below 0.8, have at least 30% cash, and the leveraged fund portion should not exceed the cash or original capital—the lower the better, or even none at all. Beta should not be lower than 0.5.
• Question 2: How exactly does QQQ’s mechanism of “weeding out the weak” work? Is it based on market capitalization comparison or a standard like outperforming the SPY?
  • Teacher James’s Reply: QQQ selects the top 100 non-financial companies listed on the Nasdaq, ranked by market capitalization. Market Cap = Stock Price × Shares Outstanding. If a company performs poorly, its stock price falls, and its market cap drops out of the top 100, it gets removed. This has nothing to do with whether the company is profitable (e.g., Amazon and Tesla were included in their early, unprofitable days due to their large market caps). The S&P 500, on the other hand, has other criteria like profitability. QQQ selects the top 100, while SPY selects the top 500; a more elite group (QQQ) will generally have better average performance. The Dow Jones 30 is an even older index construction method.

Hao Qing

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• Question: He is confused about stablecoins (fiat-backed, commodity-backed, crypto-backed). The original purpose of cryptocurrency was decentralization, but stablecoins seem centralized, even managed by governments. What is their purpose? Why not just invest in fiat currencies, commodities, or the US dollar directly? Can stablecoins appreciate in value? What is their real use? Is there an arbitrage opportunity like the one between TSMC’s ADR (TSM) and its Taiwan stock (2330)?
  • Teacher James’s Reply:
    • TSMC Price Difference: It’s normal for the same asset to have different prices in different markets (US ADR vs. local Taiwan stock), just as the same product has different prices in different stores, determined by market supply and demand.
    • Core Value of Stablecoins: It mainly lies in transaction efficiency. Digital currency transfers are nearly instantaneous and global, whereas cross-border fiat transfers take days.
    • Central Bank Digital Currencies (CBDC): Europe, China, and others are developing CBDCs to improve the circulation efficiency of their own currencies. China is also promoting CIPS to bypass SWIFT.
    • US Shift in Attitude Towards Stablecoins: The US initially suppressed digital currencies (e.g., dealing with Binance’s CZ, certain crypto-related banks). However, after the Trump administration, it realized that the dollar’s status could be challenged by highly efficient digital currencies. It then shifted to embracing and regulating existing private stablecoin issuers (like Circle), bringing them under supervision through measures like the “Genius Act” (likely a colloquial term for a stablecoin regulation bill) to maintain the dollar’s dominance in the digital sphere.
    • Stablecoins Do Not Appreciate: Stablecoins (like USDT, USDC) are pegged 1:1 to the US dollar. Their reserves consist of equivalent amounts of short-term US Treasury bills and cash. Issuers profit by earning interest on these reserves, while the stablecoins themselves do not pay interest to holders.
    • Use of Stablecoins: They are primarily used for rapid payments and settlements, especially in international trade or business-to-business transactions.
    • Monetary Expansion Effect: When banks hold Treasuries and issue an equivalent amount of stablecoins, it effectively increases the money supply (the Treasuries still exist, and now stablecoins are also in circulation). This is a positive for the stock market because it increases the liquidity of money and boosts economic efficiency.
    • Impact on Us as Investors: The accelerated flow of money will stimulate the economy, which is good for the stock market. Banks gain a new source of interest income from issuing stablecoins, so bank stocks may benefit.
    • Regulation and KYC: To prevent money laundering, etc., the issuance and trading of stablecoins will be strictly regulated, requiring KYC (Know Your Customer) identity verification.

Lily

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• Question: She would like to know about Teacher James’s typical day and his favorite news, magazines, or TV shows, in order to better learn his investment philosophy and life principles.
  • Teacher James’s Reply:
    • Recommended YouTube Channels: “宏观洞察” (Macro-Insight, for mainstream US political and economic views), “爱丽的无废话财经” (Alice’s No-Nonsense Finance, for relatively objective analysis of China’s situation), “Mr. Edwin财经” (Mr. Edwin Finance). He absorbs information, thinks, researches, and connects the dots to form his own knowledge.
    • Daily Life: Responds to comments and emails, makes short videos, has lunch and a nap, makes fruit and vegetable smoothies, snacks, has dinner, listens to audiobooks at night (prepares for bed at 9 PM), grows tomatoes, cucumbers, and flowers, and walks and dines with his family. His life is plain and simple.
    • Clarification: Denies being a “Trump fan” and does not comment on quarrels between political figures.
    • Personal Background: Shared a link to a previous interview (“美香”) and the YouTube playlist “缘起今日” (Origins of Today), which contain more about his personal experiences.

SiFei

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• Question: Does the teacher use Zi Wei Dou Shu (Purple Star Astrology), metaphysics, or similar methods to look at stocks or investment directions?
  • Teacher James’s Reply: In theory, Zi Wei Dou Shu could be used for stocks, and some friends use the I Ching for divination, but he has never actually used them for investment decisions, only for understanding his personal birth chart. He emphasizes that there’s nothing wrong with these tools themselves, but if the user is not proficient or has ill intentions (like fortune-tellers who often exaggerate problems to sell solutions), they can be misleading or even harmful. One should not blindly trust them unless one has studied them deeply and knows how to apply them correctly. He has, however, practiced technical analysis in the past.

Summary of Other Message Board Questions (Quickly answered by Teacher James)

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• 00670L (Yuanta S&P 500 Futures ETF - USD Hedged): It is currency-hedged. Holding both 00662 (Yuanta S&P 500 ETF, unhedged) and 00670L can hedge against exchange rate risk.
• Taiwan Real Estate: The rental yield is low; he suggests selling it to invest in QQQ.
• TQQQ (3x Leveraged QQQ ETF): Too volatile, not suitable for those seeking stability.
• Origin of Financial Products: Many will eventually integrate with Wall Street; it’s hard to succeed without entering Wall Street.
• Bitcoin: Not recommended for ordinary investors. Stablecoins will be more widely used in the future.
• Alipay: It’s backed by the Renminbi or credit cards, a different mechanism from digital stablecoins.
• Judging the Veracity of Information (Rosemary’s view): If you listen to someone talk for a long time and still don’t understand what they’re saying, it’s likely they don’t understand it themselves. Someone who truly understands can explain complex things clearly.
• Binance’s Profitability: Earns in the tens of billions of US dollars per year, which is why banks are eager to enter the stablecoin market.
• Gold: It’s impossible for it to outperform the S&P 500; its main function is to hedge against inflation.
• Teacher James’s Past Individual Stock Picking: He once achieved annualized returns of 19%-24%, but now chooses index investing (QQQ’s annualized return is 14%; his return is lower than the index itself because Beta<1, but his ROE is still high due to borrowing), placing a higher value on inner peace.
• Attitude Towards Life: “Whatever, it’s all good, no problem.” He doesn’t argue with people, isn’t affected by emotions, and focuses on his own affairs.

IV. Key Quotes

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The market is about to hit a new high very soon, this is probably something that we investors… we really don’t need to worry so much. – Teacher James

This viewpoint emphasizes confidence in the long-term market trend, encouraging investors to ignore short-term fluctuations.

In investing, besides wealth, we should also pursue inner peace. – Teacher James

This points to a higher goal of investing: peace of mind.

Why do I use index funds? It’s because I always want to solve one problem: I want to be able to not watch the market, I don’t want to wake up nervous every day. – Teacher James

This explains a key reason for choosing index funds: to maintain a peaceful life.

“Life is hard enough without feelings; feelings make life even harder.”… Human nature makes the stock market even harder. So what to do? Human nature is natural, but how do you train yourself to be devoid of human nature? – Teacher James

This combines life philosophy with investment psychology, pointing out that overcoming emotional human nature is key to investment success.

He who buys is an apprentice; he who holds on for dear life is the master. – Teacher James

This describes how the importance of holding long-term far outweighs market timing.

Money is only yours when it’s in your pocket… Isn’t it great to eat other people’s chickens? You eat one of their chickens, they have one less. Our own chickens? We haven’t lost a single one, and they keep laying eggs. – Teacher James

This vividly illustrates the essence of leveraged investing: skillfully using low-cost capital (other people’s chickens) to create more wealth for oneself (one’s own chickens laying eggs).

The prescription I give to everyone is unique; it’s different for each person… With a Beta above 0.5, you will become wealthy. – Teacher James

This emphasizes the importance of personalized asset allocation and provides a basic threshold for becoming wealthy.

Once stablecoins are in play, the US dollar’s hegemony will gain the upper hand yet again. – Teacher James

This analyzes how the US, by regulating and absorbing stablecoins, could further consolidate the hegemony of the US dollar.

If you listen to something, and after the person has finished speaking, you don’t understand what they’re talking about, it’s probably because they don’t understand it, not because you don’t. – Teacher James (quoting and agreeing with Rosemary’s viewpoint)

This offers a method for judging whether an information provider truly understands the content they are presenting.

Looking back on life, there is neither wind, nor rain, nor clear skies… Whatever, it’s all good, no problem. – Teacher James

This expresses a transcendent attitude towards life, which is also applicable to facing the uncertainties of the investment market.

V. Summary

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In this session, Teacher James once again emphasized the core strategy of long-term investment in high-quality index funds (like QQQ) and encouraged investors to remain optimistic in the current market environment. He focused on the personalized needs of asset allocation, particularly providing several robust allocation plans for retirees, aimed at balancing returns and risks to ultimately achieve financial freedom and inner peace. Furthermore, from the height of life philosophy, the teacher elaborated on the importance of an investor’s mindset, reminding investors to overcome the weaknesses of human nature. In the Q&A session, he provided detailed answers to hot-topic questions from students regarding Taiwan’s credit lines, how to explain investing to young people, the use of leverage, the mechanism of stablecoins, and their profound impact on the future financial landscape (especially the status of the US dollar and the stock market). Overall, this session offered a comprehensive guide for investors, encompassing macroeconomic outlooks, micro-level operational advice, and deep philosophical insights.