00522 The Outside World is Noise, Market Volatility is a Blessing: Understanding the Essence of Investing through Asset Allocation and Life Choices

I. Theme of the Session

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The core of this class is to establish a simple yet firm long-term investment philosophy. Teacher James emphasizes that investors should ignore market noise and short-term fluctuations, adhering to a strategy of “buy, hold, and never sell.” Successful investing requires not only the right asset allocation (especially using cash to build an “anti-fragile” portfolio) but also a strong psychological constitution, including steadfastness, patience, and faith, to ultimately achieve financial freedom and inner peace.

II. Briefing Content

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The Core Concept of Investing: Simplicity is Key

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• Ignore Market Noise: Teacher James points out that in his 40 years of investing, almost all financial and political news and market analysis have been “demons and monsters,” useless for long-term investing. He quotes a student’s message, emphasizing that social opinions and market volatility are irrelevant to long-term investors; enjoying the tranquility of the present is far more important than focusing on fleeting issues.
• The Best Strategy: Buy, Hold, Don’t Sell: This is the core principle throughout. The art of investing lies not in complex market timing or stock picking, but in persistently holding high-quality assets for a lifetime, or even for generations.
• Investing Should Be Easy and Simple: The teacher uses an analogy: investing should only take 5-10 minutes a year and should not be a burden on one’s life. If you make investing complicated, it’s like adding a lot of chili oil to a simple clear noodle soup, which ruins the original flavor. Investors should spend more time enjoying life and being with their families.

Asset Allocation and Risk Management

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• The “Spicy Beef Noodle” Theory: When asked about asset allocation ratios, the teacher uses a vivid example. He believes that asking someone else how to allocate your assets is like asking them how much chili to add to your beef noodles because everyone’s risk tolerance (how much spice they can handle) is different.
  • Advice for Beginners: For novices or those unsure of their risk tolerance, the teacher suggests starting with “clear-broth beef noodles” (a conservative allocation), for example, 50% of assets in the market and 50% in cash.
  • Strategy for Large Sums of Capital: It is recommended to divide it into three parts: buy 1/3 immediately, buy 1/3 in batches, and keep 1/3 as cash.
• Three Elements of Investment Psychology: Steadfastness, Patience, Faith: Once you have bought in, the next step is to cultivate a strong psychological mindset.
  • Steadfastness: Not being affected by market fluctuations.
  • Patience: Enduring painful periods of market decline is a necessary psychological quality.
  • Faith: Believing in the long-term upward trend of the market is the path to reaching the highest realm of investing.

Building an “Anti-fragile” Investment Portfolio

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• Cash and Market Volatility are “Boosters” for Assets: The teacher uses the concept of a “boost converter” in electronic circuits as an analogy. Market volatility is like an “oscillator,” and cash is like the “electric current.” Investing cash during a market downturn (oscillation) can effectively push asset values to new highs.
• Fragile vs. Anti-fragile:
  • Fragile Investment: For example, investing 100% in QQQ. If the market goes to zero, your assets go to zero. This is like a flower in a greenhouse that cannot withstand a storm.
  • Anti-fragile Investment: For example, holding an index fund while keeping 30% in cash. Even if the market goes to zero, you still have 30% of your assets. This is like wildflowers everywhere, tenacious and able to survive and even thrive in harsh environments.
• An Anti-fragile Life: This concept applies not only to investing but also to life. For example, an employee who serves only one company is fragile and can be laid off at any time; whereas an Uber driver is anti-fragile, earning income as long as they drive. In the AI era, a pure software engineer becomes fragile, while experts in various industries who know how to use AI become anti-fragile.

Characteristics and Risks of Leveraged ETFs (TQQQ)

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• Mathematical Explanation of Volatility Decay: The teacher reveals the characteristic of volatility decay in leveraged ETFs through calculation.
  • Example: Assume QQQ falls for 45 consecutive days (-1% each day) and then rises for 46 consecutive days (+1% each day), it will eventually hit a new high.
  • Comparison: Under the same conditions, if TQQQ falls for 45 consecutive days (-3% each day) and then rises for 46 consecutive days (+3% each day), its final price will still be below the initial starting point, unable to recover its losses.
• Who is Not Suitable for Leveraged Funds: Investors who are afraid of downturns and cannot withstand huge volatility should stay away from leveraged funds.
• Correct Use of Leveraged Funds:
  • Position Size Cannot Be Too Large: Investing a large sum of money into a high proportion of leveraged funds at once is very dangerous. In a long bear market, it could lead to assets going to zero with no chance of recovery.
  • Suitable for Dollar-Cost Averaging: For investors with a continuous cash flow (like a monthly salary), making small, regular investments over decades is feasible.
  • Risk Warning: For retirees, a high leverage position could send you back to the workforce; for those currently employed, it could postpone your retirement plans indefinitely.

Investment and Life Philosophy

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• Live in the Present, Eliminate Worry: The teacher guides everyone to ponder a question: “If tomorrow were the end of your life, could you depart with a smile?” He believes that true happiness comes from “dying without regrets.” If you have regrets in life, you should remedy them now, not spend your days worrying.
• Happiness is a Human Right: Investing should be joyful. If it causes you pain, don’t participate. The value of life is not in its length, but in its depth and brightness.

III. Q&A Session

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• Sharing: A new member who has just joined is still studying hard and has no questions or sharing for now.

Bruce

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• Sharing:
  1. A new member from last week, he is very grateful to Teacher James for his quick email response, which solved his problem with the app’s operation.
  2. He combines his insights from reading with the teacher’s philosophy to create daily reminders for his investment principles: have capital, an investment philosophy, discipline, patience, and luck, combined with the teacher’s “hear, know, understand, believe, execute, firmly believe.”
  3. He quotes a conversation between Warren Buffett and Bill Gates to emphasize the principle of “getting rich slowly,” believing that patience is the most difficult but most crucial part of investing.
  4. He shares his past principles for selling individual stocks (the reason for buying disappears, the target price is reached, the company faces irreversible difficulties), but now he has found a better option (QQQ) and is liquidating his individual stocks.
  5. Regarding real estate, he believes that a house is also a financial product and proposes a view: “Houses aren’t bought by people, they’re bought by money,” with its price driven by market liquidity. He thinks the reason real estate returns are sometimes very high is due to high leverage (e.g., 5x or even 10x). His family owns a jewelry store, and he suggests that high-net-worth individuals can allocate a small amount to gold as a hedge against extreme risks.
• Question: The “Nine Scenarios” PDF file he downloaded shows overlapping text and numbers on his phone. He asks if he can get the link again.
  • Teacher James’s Reply: This is likely a display issue with his personal phone, as there is no problem with the link itself. He suggests trying to open it on a computer or asking family or friends for help.

Zhang Le

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• Sharing: He found that in the Chinese market, the management fee for the Harvest Nasdaq ETF (159501) is 0.2% lower than the 513100 recommended by the teacher, believing it will make a difference in long-term returns.
  • Teacher James’s Comment: The market is very efficient; this small fee difference is unlikely to bring extra profit.
• Question: How to change his parents’ investment mindset? He details the painful experience of his father suffering severe losses due to high-risk investments and being deceived by relatives. This has led his parents to be extremely risk-averse, preferring to deposit tens of millions of RMB in a bank for a fixed term (with an annual interest rate of only about 1.5%) and refusing to touch any funds. They even believe that real estate is the most secure asset. He feels confused and doesn’t know if he should continue to persuade them.
  • Teacher James’s Reply: Don’t try to change them. Everyone’s “psychology of money” is shaped by their life experiences. His parents’ views are “correct” in their world, a way to protect themselves from further harm. What you should do is manage your own money, invest your own funds, and become a big tree yourself. When you become very wealthy, your parents might see it, but changing them is not your responsibility. The most important thing is to let them live a peaceful and happy life.

Washington

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• Sharing: Strongly agrees with the teacher’s response to Zhang Le. Changing others, especially elders, is very difficult. Do your best, help others if you can, but whether they change is their own business.

Lu Xiaojie

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• Sharing:
  1. She believes investors should first have an attitude of self-responsibility instead of just seeking answers from the teacher. She spent over a year studying the teacher’s courses very seriously, treating investing like a startup project, so her mindset is very stable.
  2. She suggests new students (like Zhang Le) need to give themselves and their investment strategy some time, using three or four years of results to prove it to their parents, rather than trying to convince their family as soon as they start.
  3. She has observed that the teacher is constantly changing and growing, giving different advice based on different students’ situations, such as once advising Taiwanese investors who needed stable cash flow to allocate a portion to high-dividend ETFs.
  • Teacher James’s Comment: He is in a good mood; his low tone of voice is because he is very calm inside, which is a very good state. He will not be influenced by the outside world and uses a joke about “not wrestling with a pig” to illustrate that for people who cannot understand, there is no need to argue, just say “you are right.” He emphasizes that he is growing and changing every day; otherwise, he would be stagnant.

Kai Xin

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• Sharing:
  1. She is currently hospitalized but shares with a grateful heart. She shared the teacher’s investment philosophy with a hospital cleaner, telling him that a regular monthly investment of 500 yuan would grow into a considerable fortune after 30 years.
  2. She believes that making money is important, but not the only thing; health can also be lost. It’s important to share good things with everyone for a perfect life. She shared her experience of entering the early childhood education field after an early retirement.
• Teacher James’s Reply: Wishes her a speedy recovery. He also shares a story about a couple under immense pressure from their mortgage, who didn’t dare to have children. The teacher’s view is “It’s better to raise a child than to maintain a house.”

Jin Mai Jing

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• Sharing: She confesses that during the market downturn in April, she was not only fully invested but also used a margin loan to buy more, which scared her in retrospect. After the market recovered recently, she closed her margin position and adjusted to a more stable asset allocation (retaining cash), feeling much more at ease.
• Question: What should be done with the cash freed up after selling stocks?
  • Teacher James’s Reply: Immediately, in a single transaction, at market price, buy a money market fund (like SGOV). Do not wait. He also used this case to emphasize that using margin is a very dangerous behavior and a huge risk. Making a profit this time was lucky, and everyone should not imitate it.

IM

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• Sharing: He reflected on the teacher’s teachings, shifting his understanding from “cash is risk” to “cash is life-saving money.” He believes that besides pursuing assets, one should also explore inner needs.
• Question: Besides external assets, what should one pursue internally in life? Is there a “Perfect Way”?
  • Teacher James’s Reply: Pursue inner peace (“Where my heart is at peace, that is my home”). When a person sees through many things and their heart is not troubled by any person or event, they will reach a very peaceful state. This requires nurturing one’s spirituality, learning to “separate” from certain things, and taking back control of one’s life, daring to say “no” to things you don’t want.

Si

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• Sharing: He used to be confused about concepts like pledge, line of credit, and margin, always thinking they were just “borrowing money.” After listening to the teacher’s explanation, he understood that the risks of different borrowing methods are vastly different, especially the difference between a line of credit and a stock pledge. He has already applied for a line of credit and paid off his previous pledge, feeling a sense of clarity.
  • Teacher James’s Comment: Yes, it is crucial to understand which money is safe and which is dangerous.

Niu Fang

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• Question: Specific operational questions about stock pledges, such as how the interest rate is calculated, which account’s assets it’s based on, and whether the interest needs to be paid manually.
  • Teacher James’s Reply: These questions have been explained in detail in his previous videos and Excel sheets. The interest will automatically roll into the principal and does not need to be repaid manually. The interest rate depends on the asset size of the pledged account and the total assets of the entire household account. He advises Niu Fang to watch the series of videos specifically explaining stock pledges (especially episodes 004, 005), as it’s difficult to fully understand just through Q&A.

JF

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• Question:
  1. His current asset allocation is 4-3-3. Would it be safer to keep an additional 10% of cash on the side?
  2. If he uses a Pledge Loan for living expenses and has a surplus each year (e.g., borrows $20k but only spends $15k), what should he do with the remaining $5,000?
  3. When borrowing money, should he borrow a year’s worth at once, or borrow monthly/as needed?
  4. During a ROTH conversion, can he transfer stocks (in-kind) directly from a traditional IRA to a brokerage account, instead of selling and then transferring?
  • Teacher James’s Reply:
  1. Keeping an extra 10% in cash is of course safer.
  2. The remaining money can continue to be invested according to the 4-3-3 ratio.
  3. Borrow as needed. For example, borrow only when you need to pay a bill this week; don’t borrow in advance and let it sit.
  4. Yes, stocks can be transferred in-kind. The brokerage will automatically adjust your cost basis based on the market value on the day of the transfer.

Mike

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• Sharing:
  1. Having followed the teacher for nearly 6 years, financial freedom has given him time for philanthropy, such as teaching indigenous communities. He noticed an interesting phenomenon: people are afraid of their health indexes (like blood sugar) going up, but they hope their wealth index (QQQ) goes up every day.
  2. He mentioned hearing Howard Marks quote Warren Buffett on the “Macro Insights” program and then add: “You never bet against the United States, and you never bet against China.” He wanted to hear the teacher’s opinion.
  3. He observed the tech talent war between the US and China. Regardless of where the talent flows, it ultimately converges in the tech giants, which is a long-term positive for QQQ.
• Teacher James’s Reply: What Howard Marks means is that the first choice for investment is still the US, but you shouldn’t be bearish on China either, because its potential is huge. Therefore, you can choose not to be “long” China, but you should never “short” China. The focus of investment should remain on the United States.

Candy

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• Sharing:
  1. She finds it strange when some students say their assets are still “underwater.” She shares her own early mistake: listening to others and buying penny stocks that didn’t rise for years. Later, she came to her senses, decisively “cut her losses,” sold the bad stocks, and switched to quality assets (QQQ, 2x leveraged NVDA, etc.).
  2. She uses one of her accounts as an example: it suffered severe losses during the big drop in April, but after she decisively rebalanced her portfolio, the account’s return reached 75% within 3 months, not only recovering all losses but also earning over $50,000.
  3. Her mindset is now very mature. When she hears friends spending millions on luxury homes, she feels no emotional stir, believing that investing money in the stock market will yield higher returns in the long run.
  • Teacher James’s Comment: Many people listen to his class and call themselves his students, but in reality, they go and speculate on penny stocks, and then blame the investment philosophy when they lose money. True learning is the unity of knowledge and action.

Jimmy

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• Sharing:
  1. The market is hitting new highs, but young people should not be afraid. Any time is a good time to buy because asset prices trend upward in the long run.
  2. The key is to use the right method, such as keeping cash for rebalancing, to make the investment journey smoother. Long-term holding is the core.
  3. He shares his understanding of a line from the Tao Te Ching, “To the good, I am good. To the not-good, I am also good,” believing that investing should be the same, accepting the market’s ups and downs. He also mentions Zhuangzi’s concept of “transformation,” explaining that both investing and life can continuously change and sublimate.

IV. Insightful Quotes

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All information is a demon or a monster; in 40 years, no information has ever been useful. – Teacher James

This view emphasizes the importance of ignoring short-term market noise and sticking to a long-term investment strategy.

Asking me how to do your asset allocation is like asking me how much chili to add to your beef noodles. – Teacher James

This view vividly illustrates the personalized nature of asset allocation. Everyone’s risk tolerance is different, and there is no one-size-fits-all answer.

What our asset allocation needs to achieve is a state of “anti-fragility.” – Teacher James

This view introduces the core concept of “anti-fragility,” which is to build an investment portfolio that can survive and retain strength even in extreme risk scenarios (like the market going to zero).

It’s better to raise a child than to maintain a house. – Teacher James

This view reflects on the phenomenon in modern society where people sacrifice their quality of life, and even the desire to have children, for the sake of real estate, emphasizing the importance of life’s happiness.

He who can buy is a grandson, he who can sell is a father, but he who never sells is a god. – Teacher James

This view uses a colloquial analogy to highly praise the ultimate state of investing: “hold for the long term, never sell.”

Houses aren’t bought by people, they’re bought by money. – Bruce

This view points out the essence of the real estate market, whose price fluctuations are primarily driven by monetary liquidity rather than just the housing needs of the population.

If you can’t even manage the little bit of money in your hands, then don’t go selling your house, and don’t go taking out loans. – Teacher James

This view advises investors to proceed step by step, starting with small amounts of capital and proving their ability to manage investments well before considering the use of larger-scale funds.

Investing can cultivate the mind. – Jimmy

This view highlights another dimension of investing: through the process of managing wealth and dealing with market fluctuations, investors can cultivate their character and achieve inner peace.

V. Summary

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This session lucidly explains Teacher James’s core investment philosophy and life wisdom. Starting from the simple principle of “buy, hold, don’t sell,” it extends to the sophisticated strategy of using cash to build an “anti-fragile” portfolio, and then to a profound analysis of the risks of leveraged ETFs, providing investors with a clear guide to action. More importantly, the class transcends purely financial discussion, closely linking investment with personal psychological growth, family happiness, and inner peace. Through vivid analogies and real student cases, the teacher guides everyone to realize that true financial freedom is not just about numerical growth, but about breaking free from fear and anxiety, gaining the ability to control one’s life and enjoy the present moment. At the same time, the teacher also reminds students that investment philosophy is constantly evolving and growing, requiring continuous learning and follow-up, otherwise, one becomes like a “lost lamb,” disconnected from the latest understanding.