00521 From Heavy Short-Term Losses to Index-Driven Wealth: The Wisdom to Survive in a Volatile Market

I. Session Theme

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The core message of this session is that ordinary investors should adopt a minimalist yet highly effective investment strategy: long-term holding of the Nasdaq-100 index fund (QQQ) and using asset-backed loans to cover living expenses. This allows them to enjoy the compound growth of their assets while legally avoiding capital gains tax and income tax. Through data and examples, James contrasts the inevitable losses of short-term traders with the steady wealth accumulation of long-term investors, emphasizing that “Persistence, Patience, and Faith” are the only things that matter in investing.

II. Presentation Content

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Investment Mindset and Basic Principles

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• Follow Multiple Platforms: Given the ever-changing social media landscape, it is recommended to follow CLEC on multiple platforms (e.g., YouTube, Clubhouse, Facebook) to avoid losing contact.
• The Market Always Reaches New Highs: For long-term investors, there is no “highest point” for the market, only “higher.” Buying at any time is a low point from a long-term perspective. The peak of the dot-com bubble in 2000 now seems like an extremely low price.
• Investment Risk and Asset Allocation: Investing involves risk; the market could drop by 50%-70%. The best way to manage risk is not through frequent trading but by proper asset allocation and holding enough cash to withstand market volatility.
• Our Investment Choice: We focus solely on investing in the Nasdaq-100 index fund (QQQ). Page 11 of the course notes lists corresponding funds in various countries. Please do not ask about other complex funds; simplifying your investment is key.
• Investing Requires Extreme Optimism: You must firmly believe that the market will eventually go up, always looking on the bright side. Wealth is worth waiting for; investing requires patience.

The Trap of Short-Term Trading: Data Reveals the Truth

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• A Case Study of Losses by Taiwanese Day Traders: James cites data from the first half of 2025 in Taiwan to illustrate the harm of short-term trading (day trading).
  • Superficial Profit: Day traders made a profit of about NT$30 billion from price differences.
  • Actual Huge Loss: However, they paid a staggering NT$21.4 billion in securities transaction tax and NT$20.3 billion in commission fees.
  • Final Result: The total loss amounted to NT$11.7 billion. This proves that short-term trading is almost a guaranteed losing game after all costs are deducted. Traders often only remember the “good feeling” of a single trade but overlook the total costs.

The Wealthy’s Tax Strategy: Asset-Backed Loans

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• The Tax Dilemma of the Average Person:
  1. First Exploitation: When you earn income (e.g., $1 million), you are first hit with a high income tax (e.g., 40%).
  2. Second Exploitation: You invest the after-tax money ($600,000), and any profits are then hit with capital gains tax (e.g., 25%).
  3. Throughout a lifetime, assets are eroded by various taxes (VAT, estate tax, etc.), and you may only be left with a small fraction in the end.
• The Wealthy’s Zero-Tax Strategy:
  1. Hold Assets: Hold appreciating stock assets (e.g., $1 million in QQQ).
  2. Borrow Against Assets: Use the stocks as collateral to borrow money from a bank for living expenses.
  3. Avoid Taxes: The borrowed money is debt, not income, so no tax is due. Meanwhile, the stock assets held as collateral continue to grow in the market. This is the most favorable wealth-building cycle in the world.

Core Investment Philosophy and Life Wisdom

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• Admit Ignorance, Embrace the Index: If you don’t have Warren Buffett’s stock-picking ability, you should acknowledge your limitations. Long-term investment in an index fund is the wisest choice.
• The Most Important Thing in Investing: Adhere to these three things: “Persistence, Patience, and Faith.” Everything else (how to buy, how to sell) is unimportant. We only teach how to buy, not how to sell.
• Knowing When to Stop Brings Stability: Quoting a share from student Barin, James emphasizes the importance of “knowing when to stop.” This is a form of self-restraint after reflection, knowing when to apply the brakes between greed and fear and avoiding maxing out leverage.
• Getting Rich Once is Enough: One only needs to get rich slowly once in a lifetime. True wealth is not about how much money you have, but about living with ease and not being constrained by money. A higher realm is to help others achieve wealth together.
• Learn to Spend Money Smartly: The best state in life is to be “in heaven, with money in the bank” (meaning your money runs out just as you pass away). Young people don’t need to invest every penny; they can plan their retirement goals and enjoy life appropriately, making their youth more meaningful.
• Investing is Like Riding a Cable Car: The growth of our assets is like riding a cable car. Although there are bumps and shakes along the way, the overall trend is upward. We just need to sit tight, enjoy the scenery, and live our lives.

III. Q&A Session

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CH

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• Question: My sister is very insistent on investing in an individual stock, TSMC, instead of an index fund. How should I communicate with her?
  • James’s Reply: The biggest problem with individual stocks is not performance, but that you never know when to sell and you cannot effectively pass it down through generations. You can’t teach your children when to sell TSMC; they might panic and sell at a low point. In contrast, the strategy for index funds (hold long-term, never sell) is simple, clear, and easy to pass on. Even Warren Buffett advised his family to invest in the SPY index fund after his death because his stock-picking ability cannot be inherited.

Chan

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• Question: I run a small business in Taiwan, pay a lot in taxes, and the work is very hard. I want to retire and put all my assets into 00662, but I’m afraid of feeling insecure without cash flow. What should I do?
  • James’s Reply: First, you need to calculate your business’s net profit margin. If your net profit margin isn’t significantly higher than QQQ’s annualized return (around 18%, say, less than 30%), then continuing the business doesn’t make much sense, as you’re taking on huge risks and hardship for a lower return. Regarding the cash flow issue, you can solve it with asset allocation: hold 30% of your total assets (or enough to cover 15 years of living expenses) in cash or cash equivalents (like 00865B), and invest the remaining 70% in 00662. This way, you’ll have enough cash to live on, while the stock portion continues to grow. In the long run, you won’t run out of assets.

Mandy

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• Question: My son is 30. He can contribute $7,000 to a Roth IRA and $23,000 to a SEP IRA. How should he allocate this?
  • James’s Reply: I strongly recommend avoiding any Traditional (pre-tax) accounts. The tax you save now will be paid back at a higher rate in the future. First, you should find a brokerage that offers a Roth SEP IRA. If you can’t find one, then do not contribute to the SEP IRA. It’s better to put the money in a regular Brokerage Account. Assets in a brokerage account are never taxed until they are sold, whereas money in a Traditional account is subject to Required Minimum Distributions (RMDs) and taxes after age 75. As for allocation, all Roth accounts can buy QQQ. For the Roth IRA, given its small amount and long-term dollar-cost averaging nature, you could consider the more aggressive TQQQ.

Lu

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• Question 1: An investment scenario: A brother invests 10 million and withdraws 200,000 annually. The market then drops 50%, leaving his assets at 5.8 million. At this point, his younger brother invests 5.8 million with the same allocation. Can the younger brother also withdraw 200,000 annually?
  • James’s Reply: Yes. Because the younger brother entered the market after a major crash when the risk was lower, he is “luckier.” The older brother initially used a low 2% withdrawal rate precisely to create a buffer for such a crash. After the risk event has occurred, the younger brother’s withdrawal rate, although seemingly higher (about 3.45%), is based on a different risk foundation, so it is feasible.
• Question 2: The Taiwan dollar has appreciated, making it seem like 00662 hasn’t recovered to its previous high. Can I, for psychological purposes, add back the currency loss and consider it to have broken even?
  • James’s Reply: No. You cannot use a hypothetical, favorable exchange rate to calculate your asset value; this creates high risk. Investments should be based on their current, actual value.
• Question 3: If a geopolitical war happens in Taiwan, our cash equivalents (like 00865B) are also in the market. Is there a risk?
  • James’s Reply: Don’t worry about black swan events you can’t control. If a war really happens, whether your stock account is untradable or goes to zero will be the least of your worries.

R

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• Question: In my company’s 401K, the company match portion is pre-tax (Traditional) and cannot be converted to Roth. What should I do?
  • James’s Reply: That’s fine, just leave that portion there for now. You just need to ensure that your own future contributions go into the Roth 401K. When you leave the company, you can roll over the entire 401K account (including the pre-tax portion) to your own IRA, and do a Roth conversion at that time.

Apple

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• Question 1: I’m retired and enjoy day trading in my retirement account for fun. I find it entertaining, is this okay?
  • James’s Reply: If you’re just doing it for “fun” and are willing to pay the “ticket price” (i.e., giving up the massive potential returns from long-term holding of QQQ), then of course you can. But this is just making small money while giving up the opportunity to make big money. For example, a $100,000 principal held for 40 years could become $200 million; day trading can’t achieve that.
• Question 2: What about high-dividend option strategy ETFs like YieldMax (e.g., TSLY)?
  • James’s Reply: I recommend not touching them. These strategies look appealing, but if they were really that good, the people promoting them would already be the richest in the world. Don’t be fooled by short-term “show-off” posts; look for a strategy that can withstand the test of 60+ years.

Xiang

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• Sharing: He has successfully implemented the teacher’s theory, investing all his assets (including funds from a mortgage refinance) into index funds and has successfully secured a stock-pledged loan from a Hong Kong brokerage (HSBC). He believes one needs to study the theory completely to understand it and that the theory is constantly evolving and iterating like AI.
• Question: My current asset allocation is 40% cash, 20% leveraged funds, and 40% QQQ. The money borrowed through credit and mortgage refinancing accounts for about 12% of my total assets. Is this risk level high?
  • James’s Reply: As long as you are still working and your monthly income can fully cover the loan interest and living expenses, this ratio is fine. By the time you retire, your total assets will have grown significantly, and this small loan will become negligible relative to your total assets, and you can easily pay it off then.

Ai

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• Question: Do ETFs like QQQ and SPY have Capital Gain Distributions?
  • James’s Reply: No. This is a specific tax-advantaged structure unique to US ETFs, unlike mutual funds. ETFs only have very small dividends to consider.

Sandy

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• Question: I received a pitch for a charitable gift annuity, saying it can be used for tax deductions. Is this a good product?
  • James’s Reply: Absolutely do not touch it. This is a “legal scam.” To save a little tax now, you will lose the enormous wealth this money could have generated through compounding over the next few decades. This is a classic case of “picking up a sesame seed but losing a watermelon.”

Haoqing

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• Sharing 1: He deeply researched QQQ’s P/E ratio and found it to be on the high side of its historical range, but he feels confused because he can’t determine if this means he shouldn’t invest.
  • James’s Reply: This kind of analysis is “precisely wrong.” Although the analysis is detailed, it’s useless for actual investment decisions. We cannot predict what a “reasonable” P/E ratio will be in the future. The biggest risk of trying to time the market based on P/E is being out of the market and missing the upside. Investing is a competition of patience, not prediction accuracy.
• Sharing 2: He shared an example of the power of compounding: bacteria in a petri dish double every minute and fill the dish in 60 minutes. When is the dish half full? The answer is at the 59th minute. This illustrates that the power of compounding explodes in the final stage.

Guo

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• Question: I have allocated to 00662 and 00670L (leveraged). I plan to use my annual salary as the cash portion for rebalancing. Is this okay?
  • James’s Reply: No, this is risky. You must set aside a separate, real emergency fund (at least one year of living expenses). You cannot treat your future salary as your current cash reserve. Otherwise, if an unexpected need for money arises, your investment plan will be disrupted.

Wang

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• Question: My family’s expenses currently exceed our income. I’m thinking of taking out a home equity loan to invest, but I’m facing a human problem as my wife disagrees. How should I handle this? If I can borrow 5 million, how should I allocate it?
  • James’s Reply: You need to resolve the human issue through communication yourself. But the top priority must be to make your family’s cash flow positive. When taking out the loan, you should choose a long enough term to ensure that the monthly payment plus living expenses is less than your monthly income. You absolutely must not invest when your cash flow is negative. After solving the cash flow problem, you can then allocate the borrowed funds using a 433 (40% QQQ, 30% QLD, 30% cash) or another configuration.

Xinwei

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• Sharing/Question: A reminder that non-US citizens buying US assets (like QQQ) in Hong Kong may face a US estate tax of up to 40% upon death.
  • James and several students’ replies: This is a very important issue. Solutions include:
    1. Using a non-US financial institution: For example, HSBC in Hong Kong, which has no incentive to proactively report to the IRS.
    2. Setting up a joint account: To ensure family members can take over the account.
    3. Sharing passwords with family: So family can directly access the account in an emergency.
    4. Investing in non-US registered ETFs: For example, an Irish-domiciled ETF that tracks the Nasdaq-100 (like EQQQ) can avoid US estate tax.
    5. Investing in a HKD-denominated tracking ETF: This also counts as a non-US asset.

Yao

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• Question: How can I guide my middle-school-aged child to discover their interests and strengths in preparation for college applications?
  • James’s Reply: Take your child to explore the world more (like libraries, travel), and encourage them to find what they are truly passionate about—things they do without feeling tired. Most importantly, since we have solved the financial problem through investing, we should let our children be free from the constraints of money and freely pursue their interests and happiness. This is much more important than finding a high-paying job.

Jeff

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• Question: My company’s Roth 401K doesn’t offer QQQ; the best option is just an S&P 500 index fund. Should I still max it out?
  • James’s Reply: It’s not worth it. Investment performance is far more important than tax benefits. You should only contribute enough to get the full company match. The rest of your money should be invested in QQQ in your own brokerage account.

IM

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• Sharing: Influenced by him, his sister has also begun to understand and accept the philosophy of index investing, stating that if just half the people in a family become a big tree, they can support each other.
• Question: How can I train my brain to see the essence of things like the teacher does?
  • James’s Reply: First, admit your own ignorance and stay curious. Then, expand your knowledge boundaries through extensive reading and reflecting on experiences. When your knowledge accumulates to a certain level, you will see things from different dimensions, such as examining current decisions through the lens of time. When your knowledge base is large enough, wisdom will naturally “explode.”

Lin

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• Question: I’m preparing to retire in four or five years. My current asset allocation has a beta of about 0.8. Do I need to adjust it? Also, I received a penalty notice from the IRS for over-contributing to my Roth IRA. What should I do?
  • James’s Reply: 1. If you are close to retirement and the assets corresponding to a 0.8 beta are sufficient for your retirement life, then it’s fine; you can maintain it. 2. After your income exceeds the limit, you cannot contribute directly to a Roth IRA. You should use the “Backdoor Roth IRA” method: first contribute to a Traditional IRA, then immediately convert it to a Roth IRA.

Xialong

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• Sharing: She transformed from a short-term options trader to being “thunderstruck” and deeply inspired after encountering the teacher’s theory. She believes many people trade short-term not just for money but also for a sense of achievement. Everyone’s “destiny” is different, and they will change when the time is right. She appreciates the inclusive and open atmosphere here.
• Question: What if my company’s Roth 401K doesn’t have QQQ? How should my daughter’s investments be allocated?
  • James’s Reply: 1. If the company doesn’t have good investment options, don’t contribute (except to get the full match). Put the money in your own brokerage account and buy QQQ. 2. For your daughter’s money, besides buying mostly QQQ, her Roth IRA account, being a small, long-term, regular investment, could consider buying QLD or TQQQ to boost returns.

IV. Highlight Quotes

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We borrow money to spend without paying taxes, and our money in the stock market assets grows forever, always up, how great is that! This is the best thing in the world. – James

This quote brilliantly summarizes the core advantage of using asset-backed loans for consumption: achieving tax exemption for spending while enjoying the compound growth of assets.

We only need to get rich once in our lifetime. We don’t need to be rich from the start; just get rich slowly. – James

This sentence conveys the patience and calm mindset of long-term investing, opposing the speculative psychology of rushing for success and emphasizing that wealth accumulation is a continuous and steady process.

The highest skill in investing is to exist in a state of ’non-eventfulness,’ where the market basically doesn’t exist… The market’s ups and downs have nothing to do with us. – James

This describes the ultimate psychological state a long-term investor should aspire to: being completely unaffected by short-term market fluctuations because their investment strategy is independent of short-term movements.

If you look at anything from a long-term perspective, you will see it clearly. – James

In answering how to see the essence of things, James emphasizes the importance of the time dimension. A decision may seem reasonable in the present, but when viewed over a span of decades, the conclusion might be completely different.

If you can make 20 billion from short-term trading, can you really get that 20 billion? If you have 1 million now and you can’t get 20 billion in 60 years, then don’t do it, you’re wasting your time. Because you can have 20 billion by doing nothing. – James

When discussing short-term trading with a student, James uses a high-impact numerical comparison to reveal the enormous opportunity cost difference between short-term trading and long-term index holding.

I’ve learned one sentence now, which is, ‘I might be wrong’… Only when we acknowledge our ignorance do we begin to learn. – James

At the end of the session, this quote shared by James demonstrates the humility and open-mindedness of an investment master, emphasizing that admitting ignorance is the starting point for continuous learning and progress.

V. Conclusion

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This session was an intensive training in mindset and strategy. James once again emphasized the overwhelming advantage of the core strategy of long-term holding of index funds (QQQ) and used detailed data to reveal the inevitable failure of short-term trading. The highlight of this session was the clear explanation of the “wealthy’s tax strategy”—asset-backed loans—providing investors with a path to achieve both wealth growth and tax optimization. The entire session was imbued with the investment philosophy of “Persistence, Patience, and Faith,” and through interactive Q&A with numerous students, it addressed a series of specific issues from asset allocation, retirement planning, and children’s education to international tax matters, vividly demonstrating how to integrate investment wisdom into real-life decision-making.