00524 Knowledge Is Our Revolution: Escape the Poverty Trap and Reverse Your Destiny on Your Own

I. Theme of the Episode

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The core theme of this episode is the “awakening” of the investor. This includes two levels: first, a financial awakening, which means transitioning from a “slave” working for money to a “master” who makes money work for them by holding index funds long-term and utilizing the rules of capitalism; second, a philosophical awakening in life, which involves prioritizing health (especially early screening for lung cancer) and breaking free from the constraints of societal expectations and the “culture of hardship” to pursue true freedom and happiness.

II. Briefing Content

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Health First: The Importance of Low-Dose CT Scans

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• Teacher James begins with the experience of a friend’s family, strongly urging everyone to prioritize health, especially the early screening for lung cancer.
• Core Recommendation: Friends over 40 in Taiwan should pay for a low-dose computed tomography (Low-Dose CT, LDCT) scan out-of-pocket (around NT$5,000-6,000). Lung cancer is the “king of cancers” in Taiwan, often asymptomatic in its early stages, but the cure rate is high with early detection.
• Screening Frequency: If the scan is clear, you can do it again every 2-3 years. The latency period for lung adenocarcinoma is relatively long; it might take five years for a tumor to grow from 0.8 cm to 1.6 cm, providing enough time to respond with regular follow-ups.
• Added Value: An LDCT scan can also incidentally check for calcification or blockage in the heart’s coronary arteries, serving two purposes at once.
• Advice for Overseas Chinese: For Chinese friends in the United States, since doctors there typically do not order such scans without symptoms, you might consider booking a self-paid health check-up at a teaching hospital in Taiwan a month and a half in advance when you travel back.
• Health is Fundamental: The teacher emphasizes that without health, all wealth is meaningless.

Investment Core: Ignore the Noise, Stick to Principles

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• Ignore Currency Fluctuations: Taking the 00662 fund as an example, although it is a USD-denominated product priced in TWD, its net value is affected by the TWD/USD exchange rate. However, over the long term (e.g., 30 years), the impact of exchange rates will smooth out. Investors should completely ignore currency fluctuations and focus on the growth of the asset itself.
• Stay Away from Wrong Products: Young people should not invest in high-dividend products, as they will only make you poorer. Also, be wary of insurance, annuities, and similar products, which the teacher calls “products from a scam syndicate.”
• Adhere to Index Funds: It is only recommended to invest in broad-based index funds like the Nasdaq-100 (e.g., QQQ, 00662). Don’t be misled by other ETFs on the market that are not true to their name.

Mindset Awakening: Shed the “Slave” Mentality, Embrace True Freedom

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• Critique of “Involution” and “Hardship” Culture: The prevalent cultures of “treating hardship as a tonic” and “involution” in Asian societies lead to an increasingly difficult life for everyone. The teacher advocates for learning from Western thinking, realizing that we are not born to be laborers or slaves.
• The Intent Behind the Word “Slave”: The teacher deliberately uses the word “slave” instead of “laborer” to make the audience uncomfortable and thus spark an awakening. Under modern capitalism, apart from capitalists, most people are essentially “slaves” serving capital, to be discarded after use.
• Breaking Out of Mental Frameworks: Escaping inherent societal beliefs like “you won’t have food if you don’t work hard” and “investing is wrong” is harder than making the right investment itself. One must resist the negative influence of friends and family and stick to one’s own path.
• True Freedom: Financial freedom is just the first step. True freedom is the ability to ignore the judgment of society and others, to grade yourself, and to live the life you want. You decide how you want to spend your money and what kind of life you want to live—that is freedom.
• Warning of Survivorship Bias: The teacher admits that his ability to make money in his first 20 years of speculation was due to “heaven’s mercy” and “luck,” a case of survivorship bias that is not replicable. He strongly advises against imitating it.
• Capitalism and Inequality: The development of civilization has created information gaps, which are the root of inequality. Capitalism uses information asymmetry to create unfairness, which is essentially plunder. The teacher compares human conflicts to “watching two groups of gorillas fighting,” illustrating that human civilization has not progressed much in its essence; slavery exists today in a new form and on a larger scale.
• A Revolution to Eliminate Poverty: Teacher James sees his educational sharing as a “revolution to eliminate poverty,” aimed at awakening the masses to understand the rules of capitalism and transform from exploited “slaves” to “masters” who use the rules to their advantage.

Asset Allocation and Learning

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• Asset Allocation Principles:
  1. Condition for Retirement: Assets reach 50 times annual expenses.
  2. Retirement Allocation: Cash should be at least 30%, enough to cover more than 15 years of annual expenses.
  3. Beta Value: The Beta of the initial allocation should not exceed 1.0.
  4. Leveraged Funds: The position in leveraged funds should not exceed the cash position, nor should it exceed the position in the underlying fund.
  5. Flexible Allocation: Besides the 4-3-3 model, configurations like 70/30, 60/40, and 50/50 are all viable. The key is to find what suits your own risk tolerance and cash flow needs.
• No Shortcuts in Investment Learning: Investment knowledge requires systematic learning and cannot be achieved overnight. You must connect the scattered “dots” of knowledge into “lines,” which then form a “surface” and a “three-dimensional” knowledge system through continuous watching of videos (e.g., starting from #398) and note-taking.

Future Outlook: A Golden Age Driven by AI

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• Extreme Optimism About the Future of AI: The teacher believes we are in a golden age. Current technologies like Artificial Intelligence (AI), blockchain, and digital finance are at a stage similar to the internet’s underlying infrastructure (TCP/IP) in the 1980s; the real application explosion has not yet begun.
• The Revolutionary Nature of Agents: Taking OpenAI’s Agent functionality as an example, future AI agents will be able to automatically complete complex tasks like booking tickets, shopping, and planning itineraries. This will disrupt many industries and create entirely new business models and corporate giants.
• Expectation of Returns: Based on this, the teacher believes that the 18% annualized return of the past 20 years may be an underestimation. In the future, 25% or even higher is possible, and it’s not out of the question for the market to grow 100-fold in the next 20 years.

III. Q&A Session

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Was

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• Share: After attending the class in January 2024, I transferred my entire 401k to a brokerage account and invested it all at once. The market was down at the time, and my assets grew from $1.1 million to the current $1.7 million. My current asset allocation is 50% QQQ, 20% TQQQ.
• Question: When I retire, should I convert the TQQQ to QQQ?
  • James’s Reply: The focus isn’t on TQQQ. The goal is to get your brokerage account funds to exceed $1 million so you can do stock pledges in the future. Your current tax rate is between 30-33%, so you should immediately start converting funds from your Traditional 401k/IRA to a Roth IRA in batches. Since your assets will be much higher in the future, a one-time conversion would face an extremely high tax bill. It’s recommended to convert a portion each year, for example, $100,000 at a time (Note: a student pointed out that at a 30% tax rate, converting $100k would cost $30k in taxes, so be prepared). Strategically, you should place leveraged funds (like TQQQ) in the tax-free Roth account, while leaving cash in the Traditional account to slow its growth.

Rui

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• Share: I started working at 24 and was fortunate to meet the teacher after 10 years of work. After switching to passive investing, I have much more time, and my assets have grown rapidly. I no longer hesitate about money when it comes to consumption and experiences.
• Question: After a promotion, I have to manage more people, and the pressure has skyrocketed, making me anxious, irritable, and even affecting my interactions with my family. How did you cope with high-pressure management positions back then?
  • James’s Reply: The higher your position, the more relaxed you should be. If you’re more tired, it means your management skills are lacking. The key is to learn to delegate and “throw the monkeys,” meaning you assign tasks to your subordinates to complete, and you only check and guide at critical points. Don’t take the pressure from your superiors seriously; treat it as “wind in your ears” or a “dog barking at a train.” Your core job is to enhance your subordinates’ abilities and make them stronger than you, so you can truly “work while lying down.” When your boss scolds you, take a deep breath; that’s his problem, don’t let it affect your mood.

Lian Wa

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• Share: In the US, people with a history of smoking can get a low-dose CT scan (LDCT) covered by medical insurance. I get one every year.
• Question 1: Can the CT scan you mentioned also detect problems with other organs like the pancreas?
  • James’s Reply: LDCT mainly targets the lungs. While it can also scan the liver, its effectiveness for pancreatic cancer screening is uncertain. For a full-body cancer cell screening, you need a PET Scan, but it has high radiation and is usually only for diagnosed cancer patients to check for metastasis. It’s not recommended for healthy people.
• Question 2: If different asset allocations (like 80/20, 64/36) have the same Beta value (e.g., 0.8), will their expected performance be the same?
  • James’s Reply: Not necessarily. Asset allocation itself doesn’t determine performance; future market conditions do. In a rising market, a high-Beta allocation performs well; in a falling market, cash performs best. We do asset allocation to “survive” safely, not to predict or chase the highest performance.

Ola

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• Question 1: In the smart rebalancing strategy, do you ever rebalance the underlying fund (like QQQ)?
  • James’s Reply: Yes, the underlying fund is never touched.
• Question 2: If the market crashes and then rebounds, and the leveraged fund (like TQQQ) rises for the year but its total asset percentage has not returned to the initially set ratio (e.g., target 30%, now up from 20% to 28%), do I still need to sell one-third of the gains?
  • James’s Reply: You must sell. If you don’t take out cash in a rising year and keep using cash to buy in a falling year, your cash reserves will be depleted quickly. Even if the leveraged fund hasn’t returned to its previous high, as long as it has risen for the year, you must take out a portion of the profit (one-third of the gain) to replenish your cash. This is a critical risk control mechanism.
• Question 3: Besides living expenses, buying dips, and margin for pledges, does cash have other uses? I feel like a 30% cash allocation might be too high for me.
  • James’s Reply: 30% cash corresponds to 15 years of living expenses (calculated at a 2% annual withdrawal rate), which is a robust initial setting. If your pledged loans increase, your cash reserves need to increase accordingly to cover the debt risk. If you have other stable income (like social security, rent), you can continue to invest that income instead of reducing your cash reserve. Maintaining a 15-year cash reserve is a simple and effective strategy.

Ming

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• Question: I read Professor Chou’s book, which mentioned not recommending long-term holding of leveraged ETFs because their value erodes over time and the long-term return is not double. This differs from your view. How should I understand this?
  • James’s Reply: The annualized return of a leveraged fund is indeed not a linear double (e.g., if QQQ has a 10% annualized return, TQQQ might only be 14%), but due to the compounding effect, the total asset growth multiplier after 20 years will be far more than double. The reason Professor Chou doesn’t recommend it is that he is addressing the general public and cannot teach complex asset allocation in depth. Holding leveraged funds is indeed very dangerous without asset allocation (i.e., without cash to buy on dips). Our method is built on strict asset allocation, which is the fundamental difference. These things can only be taught in a small, in-depth learning class; if you say this in the mass media, you’ll be “drowned in saliva.”

JF

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• Question 1: The market is hitting new highs, and I have the impulse to sell some of my QLD to lock in profits and increase cash. Should I do it now or wait until the end of the year?
  • James’s Reply: Wait until the end of the year. The market’s gain so far this year is not that large (about 10%). A normal bull year should see a rise of 30% or more. Only when there is a huge deviation (like a 50% annual gain) is there a need to consider adjusting early. Otherwise, just rebalance annually.
• Share & Question 2: I shared a strategy from a research paper, which is to sell leveraged funds when the index falls below the 200-day moving average (MA200) and buy back when it rises above it, claiming it can significantly improve returns. I did my own simulation and it seemed to work well. I’d like to hear your thoughts.
  • James’s Reply: This kind of market-timing strategy is useless. First, you’ll encounter many “whipsaws” (false breakouts), leading to losses from selling high and buying low. Second, even if you successfully sell at the top (like in 2000), the biggest problem is when to buy back; human nature makes it very difficult. This operation seems clever, but its actual effect is often worse than the simple and effective “hold and buy the dip” strategy. We rely on asset allocation and cash reserves, not market timing.

Jiu

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• Share: After listening to the class for one or two months, my mindset has completely changed, from fearing I would “outlive my savings” to understanding that assets will grow on their own. I have invested 7 million in 513100 (CSI 300 ETF) and have another 3 million in cash.
• Question: I plan to spend 200,000 a year on living expenses and withdraw a large sum from my investments to cover the next 20 years of living expenses when my cash runs down to a two or three-year supply. Is this okay? Also, is the annualized return of investing only in 513100 just 8-10%, lower than a 4-3-3 allocation? Can I retire now?
  • James’s Reply: Your plan is fine; you don’t need to rebalance every year. You have 10 million in assets and only spend 200,000 a year, you can absolutely retire. Asset allocation doesn’t determine the final performance; the market does. You should retire early and enjoy life. If you haven’t had children yet, you should hurry up and have them; that’s more important than work.

CH

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• Question 1: I have two children (one in college, one just started working), and they each have over 5 million TWD in assets. Should they invest directly in an underlying fund (00662) or use a 4-3-3 allocation?
  • James’s Reply: You must allocate cash for them. They are about to become independent and need their own emergency fund. You can’t let them rely on their parents for everything. I suggest starting with an 80/20 (underlying/cash) allocation and don’t use leveraged funds yet. Once they get used to investing, you can slowly add a small amount of leverage in the future. Don’t let them experience large fluctuations from the start, as it might leave them with psychological scars.
• Question 2: It seems that Taiwan’s leveraged fund (00670L) recovers slower than America’s QLD. Is there a problem with its management?
  • James’s Reply: This is mainly due to the TWD exchange rate and hedging costs. The correct comparison is between 00670L and 00662, as they are both priced in TWD. Historical data shows that the return of 00670L is more than double that of 00662, proving it has met its design objective.
• Question 3: My sister bought many savings-type life insurance policies. She has paid into some for 10 years, and surrendering them now would mean losing all the premiums paid. What should she do?
  • James’s Reply: Surrender all of them. You win the moment you stop paying. Don’t worry about how much you’ve lost, because you still have decades of investing time ahead of you. Even if you only get a small amount back, investing it in an index fund will grow into a huge fortune after 40 years, far exceeding your current losses.

Pin

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• Share: I started following the teacher in September 2021. I went all-in immediately after listening, canceled the annuity my financial advisor bought for me (despite paying tens of thousands in penalties), and put all my funds into QQQ. I will be 50 this September and have saved up 50 times my annual expenses, so I’ve decided to retire at the end of the year. The speed of asset growth is astonishing. She emphasized that putting all asset data into an Excel sheet and making decisions based on numbers, not feelings, helps one get through market downturns calmly. She encourages everyone not to just keep asking questions; many problems will solve themselves once you take action.

Other

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• Question 1: You used to work at Acer and were also a “slave” to capitalists. How did you adjust your mindset back then, having to work for capitalists while maintaining a sense of accomplishment?

  • James’s Reply: I started investing in my second year of work, so I was both a laborer and a capitalist. The key is that you must find a meaning and mission for your work that goes beyond the salary. My mission at that time was to design stable and reliable computers to serve the public. If you work only for a salary, you are a slave. But if you work to serve the public, you have found the meaning of life.

• Question 2: You previously said the annualized return of QQQ is about 14%, but now you mention 18% or even higher. Is this because you believe the future development of AI will surpass the mobile internet wave?

  • James’s Reply: Of course. The annualized return over the past five years has already reached 25%. We are now in the very early stages of the AI and digital finance revolution, like the TCP/IP infrastructure phase of the internet in the 1980s. The real application boom is far from here. The future growth potential is enormous; a 100-fold increase in 20 years is possible.

• Question 3: I have 200,000 in cash, a monthly rental income of 3,000, and a mortgage-free house. How should I invest?

  • James’s Reply: This question is impossible to answer. Asset allocation requires understanding your entire situation: age, family status (single/married/children), total annual expenses, whether you have a sufficient emergency fund, and whether this 200,000 is spare money. Without this information, it’s impossible to give responsible advice. If this 200,000 is money you won’t touch for 15-20 years and you already have an adequate emergency fund, then you can buy QQQ or 00662 all at once.

IV. Insightful Quotes

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We are not born to labor, we are not born to work, nor are we born to be slaves. – Teacher James

This viewpoint aims to critique the prevalent “involution” and “treating hardship as a tonic” cultures in Asian societies, awakening people to reflect on the meaning of life.

Financial freedom is just the first step. To be truly free in life, we must ignore the judgment of society and those around us. – Teacher James

This viewpoint defines what true freedom is: transcending the monetary level to achieve spiritual independence, free from the constraints of others’ evaluations.

Escaping a mental framework is harder than making the right investment. – Student’s Share

This viewpoint emphasizes that changing deeply ingrained old concepts (like fear of investing, the necessity of hard work) is the most crucial and difficult step to investment success.

If you work to make money, you are a slave. But if your work is not for money, but to serve the public, then you have found the meaning of life. – Teacher James

This viewpoint provides a profound answer on how to find personal value and passion for work within the capitalist system, by elevating the goal of work from “for a salary” to “for service.”

The artificial intelligence we have now is like the internet’s TCPIP infrastructure in the 1980s… the applications haven’t even started… so it’s possible for it to grow 100-fold in 20 years. – Teacher James

This viewpoint expresses extreme optimism about the future development of AI technology, believing we are at the beginning of a massive technological revolution with enormous potential for future investment returns.

Happiness is a human right. You have the right to decide to be happy. – Teacher James

This viewpoint is a summary of freedom and the meaning of life, emphasizing that everyone has the right to pursue and define their own happiness as a fundamental human right.

V. Summary

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This session begins with an important reminder about health management, emphasizing the “health first” philosophy. The core content revolves around the “mindset awakening” of investors. Teacher James profoundly analyzes the difference in mentality between a “slave” and a “master” within the capitalist system, encouraging students to become masters of capital by investing in index funds long-term and breaking free from the shackles of working for money. At the same time, he teaches everyone to ignore external judgments and pursue genuine, heartfelt freedom and happiness. The Q&A session was rich in content, covering various aspects from retirement asset allocation, use of leveraged funds, and tax planning to professional mindset adjustment, providing extremely valuable practical guidance for investors at different stages.