I. Main Topic of the Session#
This session revolves around the core concept of long-term investing—a “do nothing” approach. James emphasizes that investors should ignore short-term market fluctuations, macroeconomic data, financial reports, and even political news, and instead, stick to buying and holding high-quality assets (like QQQ) for the long term. The key to success is not in predicting market highs and lows, but in proper risk management, which means using sensible asset allocation and maintaining sufficient cash reserves to handle any market condition. The market has no peak; it will only go higher. Investors should focus on the future 20 years from now, rather than worrying about tomorrow’s ups and downs.
II. Briefing Content#
Investment Mentality and Long-Term Perspective#
- “Do Nothing” Approach: The best investment strategy is to buy and then leave it alone; the market will naturally reach new highs. Trying to manage or predict the market is more likely to lead to failure.
- Ignore Market Noise: Investors don’t need to care about what Trump or Putin says, nor should they pay attention to economic data like PPI and CPI or company earnings reports. This short-term information is irrelevant to long-term investing.
- The Importance of Time: Investing requires a long-term view, at least a 20-year horizon. Thinking about the person you want to become in 20 years is more meaningful than worrying about tomorrow’s market. Getting rich overnight is impossible, but going bankrupt overnight is common, which is why risk control is crucial.
Risk Management: Asset Allocation and Cash is King#
- Core Principle: The only way to face market volatility is through proper asset allocation and having enough cash, not by trying to predict the market.
- Investing with Loans: Whether it’s a personal loan or a mortgage, you must ensure you can repay it with your salary. For retirees with no income, taking out a wealth management mortgage is not recommended; a reverse mortgage could be considered to increase cash flow.
- Stock Pledging: When pledging stocks, you must also understand asset allocation and keep enough cash on hand to deal with market fluctuations, avoiding a margin call due to a market downturn.
Understanding the First Principles of Global Finance#
- How the Financial System Works: By understanding the roles of the central bank and the treasury department, as well as the relationship between inflation and money printing, one can grasp the essence of government policies. For example, governments need mild inflation to ensure employment.
- A Capitalist Perspective: Today’s world operates under a capitalist system. Analyzing political and social events from a capitalist viewpoint is the only way to see the true motivations behind the issues.
Analysis of Emerging Market Currencies and Foreign Exchange Systems#
- Limitations of Currencies: The domestic currencies of emerging countries (like the New Taiwan Dollar) are not internationally circulated and cannot be directly converted into US dollars.
- Sources of Foreign Exchange Reserves: A country’s foreign exchange reserves mainly come from two channels:
- Current Account: Earning foreign currency by exporting goods and services, such as TSMC’s export revenues. These are called “slave dollars” because a great deal of labor is required to earn them.
- Financial Account: Inflow of foreign capital for investment (e.g., buying stocks). This capital can come and go quickly, easily causing financial turmoil and leading to national bankruptcy.
- Risk of Bankruptcy: When a country’s export capability is weak and it relies heavily on foreign capital from the financial account, it faces a financial crisis or even national bankruptcy if that foreign capital withdraws on a large scale and its foreign reserves are insufficient to cope.
The Dilemma of Value Investing & The Superiority of Long-Term Holding#
- The Difficulty of Valuation: Valuing an asset (whether a house or a stock) is extremely difficult and subjective. Like the Mona Lisa’s smile, different people have different interpretations, and there is no standard answer.
- The Fallacy of Valuation: Many people claim stocks are too expensive, yet the market continues to rise. Munger once said he never saw Buffett pick up a pen to calculate a discounted cash flow. Therefore, don’t be troubled by claims of “overvaluation.”
- Long-Term Holding is the Only Solution: Forgetting about valuation and holding high-quality assets for the long term is the most effective investment strategy that everyone can execute.
Personalization of Asset Allocation & Account Selection#
- Reject Blind Imitation: Do not copy someone else’s asset allocation plan. Everyone’s plan is tailored to their age, asset size, risk tolerance, and financial goals (like retiring in 5 or 10 years). Learn the core spirit and logic of asset allocation, rather than mimicking specific percentages like a parrot.
- Account Advice for U.S. Investors: For investors in the United States, full advantage should be taken of the tax benefits of a Roth IRA account. It is an excellent tool for tax avoidance and inheritance. It is recommended to allocate at least one-third of your funds to a Roth account, which is particularly suitable for holding leveraged funds.
The Importance of Investing Immediately: Earning Less is a Real Loss#
- The Right Investment: As long as it’s the “right investment” (like QQQ) combined with “long-term holding,” you will definitely make a profit.
- Opportunity Cost is a Real Loss: Short-term paper losses are temporary and non-existent. However, the gains you miss out on due to hesitation (the money you could have earned) are a permanent and tangible loss.
- Example: If QQQ rises from 400 to 577, and you didn’t buy at 400, you have permanently lost that 177 in profit. This loss can never be recovered.
- Act Immediately: Therefore, you should buy immediately when you have the money; this is the action with the highest expected value. The later you buy, the less you earn, the lower your wealth growth base becomes, and the wider the gap between you and others will grow.
III. Q&A Session#
Guzhongli#
- Sharing: He recently read discussions about how AI will change the world, which made him feel that he shouldn’t retire in the next 10 years. He feels he should work hard as this might be his last job opportunity, and he doesn’t want to sell his growing QQQ for living expenses.
- James’s Comment: The decision to work should not be based on fear of the future (like AI replacing jobs). You should ask yourself: Do you like your job? Are you working for money or for happiness? This is the fundamental reason that should determine whether you continue to work, regardless of the AI era or a future space age.
- Question: He recently saw online discussions about “geographic arbitrage,” which involves moving to Southeast Asian countries with lower living costs (like Thailand or Vietnam) to make savings last longer. He wants to ask if this approach is feasible and what the risks or recommendations are.
- James’s Reply: This isn’t “arbitrage”; it’s “having no way out.” Moving to a place you don’t genuinely like just to save money is a form of external diseconomy and is not advisable. We should strive to live in an environment we like and find convenient, not be forced into a choice because of a lack of money. If you move to Hualien or Taitung because they are beautiful, that’s the right choice even if it costs more than Taipei. But if it’s just to save money, it’s the wrong choice.
Edwin#
- Sharing: He shared his understanding of “happiness.” In the past, his happiness came from external recognition like good grades or promotions. After learning James’s financial concepts, he believes true happiness is simple, like seeing an old couple quietly eating an apple at the foot of Mount Fuji. At that moment, past achievements no longer mattered.
- Question: He understands Adler’s principle of “separation of tasks,” but he still feels sad when he sees friends and family struggling in the cycle of hard work. He knows he can’t force them to change, but he wants to ask how to adjust this feeling of “not being able to bear it.”
- James’s Reply: My view of happiness is “whatever, it’s all good, it doesn’t matter”—that is, happiness is having no burdens. The situation you described is much like a doctor’s dilemma: seeing a patient who can’t afford a necessary stent, the doctor is helpless. Poverty is a disease, and we can’t save everyone; even the thousand-armed Guanyin has limits. What you can do is tell them the correct concept once, fulfilling your responsibility. Those who believe will be saved. For those who don’t, you must learn to let go, or you won’t be able to live your own life well.
Yaomie#
- Question: While listening to Howard Marks’s audiobook, he understood that market cycles don’t have a fixed length but are driven by the collective sentiment of the masses. When the market is extremely euphoric, it’s a bubble, and vice versa. Is this understanding correct?
- James’s Reply: Your understanding is completely correct. The only indicator of a bubble, as Howard Marks says, is that “investors have gone crazy”; there are no other quantitative metrics. But the difficulty with this theory is in its execution. Everyone is in a different environment and has a different perception of the market’s “temperature,” so it’s very hard to pinpoint the peak. The theory is correct, but how to apply it is the key.
Weinini#
- Sharing: She introduced James’s investment philosophy to a very conservative elder, who ultimately only agreed to invest NT$20,000 per month into 006208 (a Taiwanese ETF) on a regular basis. She feels a bit anxious about this, thinking it’s too slow.
- Question: This elder insists they have an insurance policy bought 30-40 years ago with an 8% return. She suspects this was just a sales pitch from the agent back then and wants to ask how to explain to the elder that the actual return on this policy is likely not that high.
- James’s Reply: First, don’t be anxious. If the person involved isn’t in a hurry, we shouldn’t be either. You don’t know if your advice will save them or harm them. What if they invest and the market drops in the short term? They will blame you. Taking it slow is a good thing. Regarding the insurance policy, an 8% return is almost impossible. You need to calculate the actual annualized rate of return (IRR or XIRR), not a simple arithmetic average. Especially considering the funds invested early on were locked up for 20-30 years with no return, the opportunity cost during that period is enormous. A rough estimate shows that if the same money (NT$750,000 invested annually for 20 years) were put into the market (at a 10% annualized return), it would become NT$100 million after 28 years. The policy, however, only pays out NT$1 million per year, making the return not even 1%. It’s essentially a product from a “scam group.”
Jason#
- Sharing: A follow-up on family financial communication. He realized that for large investments (like consolidating a mortgage to free up several million), he must get his wife’s consent. His current strategy is “slowly might be faster,” gradually gaining his wife’s understanding and trust through continuous communication, sharing small gains, and explaining the long-term philosophy. He believes it’s very important for a couple to be on the same page; otherwise, even if he makes money from investments, it could cause family conflicts.
- James’s Reply: Your approach is absolutely correct. Take it slow, and make sure your spouse feels involved and secure. For example, you can put a portion of the money from the loan into your wife’s account for her to manage. When she sees cash in the account, she will feel more at ease. Never make decisions on your own. Even if you succeed, your partner might get angry for not being respected, which could lead to a broken marriage.
Jeff#
- Question: James mentioned that one of the three principles of asset allocation is to consider the extreme scenario of “interest rates rising to infinity.” He is worried that if a situation like the 1980s in the U.S. occurs, with interest rates as high as 20%, our current backtesting models based on the last 20 years of data might not hold up. Is he worrying too much?
- James’s Reply: This is an excellent question. The way to deal with such an extreme situation is to hold more cash. If you are worried about a “stagflation” environment like the 1970s-1980s, where the stock market stagnated and interest rates were high, then your initial cash allocation should be higher, for example, increasing it from 30% to 40% or even 50%. Your cash reserve determines how much risk you can withstand.
IAM#
- Sharing: He observed that many university students are indoctrinated with traditional financial theories like “diversification” and “asset allocation.” He believes this is a “systemic scam” designed by capitalism, causing ordinary people’s already limited savings to be further diluted and unable to grow effectively.
- Question: When he tries to “awaken” people around him, he finds two outcomes: one type awakens and starts taking action; the other type realizes they’ve been wrong for decades and feels pain and despair. He doesn’t know how to help the latter group and worries that awakening them without proper guidance might end up harming them.
- James’s Reply: You are right about the “systemic scam.” Simply “awakening” someone is very dangerous because they might try to figure things out on their own and end up on the wrong path (like day trading), leading to bankruptcy. The correct approach is systematic education. You should guide them to watch our channel and learn the complete investment system from the beginning. Don’t just give them a conclusion; teach them the entire thought process and methodology.
Catherine#
- Question: A friend asked her: “You early investors bought QQQ at a low price, and now you encourage us to buy, pushing the price up. What benefit do you get?” She replied that the market is huge, we can’t influence the price, and the price increase comes from productivity growth and inflation. She wants to know how James would respond.
- James’s Reply: When you buy in doesn’t matter. The long-term annualized return of the market (say, over 30-40 years) is relatively constant. The rate of return I have gotten over the past 40 years and the rate of return you will get by investing for the next 40 years have the same expected value. Us encouraging you to buy doesn’t make us more money. Everyone’s investment is an independent event. The return you get is only related to how long you hold, it has nothing to do with us.
Quick Q&A (from comments section)#
- On Overseas Brokers (like Futu): James strongly advises Taiwanese investors against using overseas brokers like Futu. The main risks are: 1. Issues with the Alternative Minimum Tax. 2. High estate taxes (potentially up to 40%). 3. If the investor has an accident, their heirs may not even find this account, and the inheritance process will be extremely difficult.
- On Exchange Rates: Investing is a decades-long endeavor; don’t pay attention to short-term currency fluctuations. In the long run, exchange rates will fluctuate within a range and eventually converge to an expected value. Worrying about exchange rates will prevent you from doing anything.
- On the Cash Portion: The “cash” portion of asset allocation should absolutely not be invested in high-dividend stocks. High-dividend stocks are still stocks, they will fall, and they do not have the stability of cash. Cash should be allocated to truly safe assets like a Money Market Fund or short-term government bonds.
- On Other Funds: A student asked about actively managed funds like the Franklin Technology Fund. James’s advice is to stop investing in such funds with high fees and potential redemption restrictions, and just buy 00662 (Taiwan’s Nasdaq ETF) directly.
IV. Key Quotes#
The market has no peak, it will only go higher. – James
Background: At the beginning of the session, James emphasized the long-term conviction investors should have, and not to feel fear or try to predict the top just because the market is making new highs.
The money you miss out on earning is a permanent loss for your entire life… Earning less is a tangible loss. – James
Background: When explaining why one should “buy immediately with available cash,” James pointed out that opportunity cost is a real and permanent loss, far more terrifying than short-term paper losses.
You could have billions and not be able to spend it all, yet you’re thinking of moving to a backward place… (just to save money) that’s called having no way out. – James
Background: When commenting on “geographic arbitrage,” James sharply pointed out that sacrificing quality of life and moving to an undesirable, cheap area due to financial constraints is not a wise move.
Seeing others suffer, it’s hard for us to save them… It’s like Jesus, he spoke to someone… but then the person ran away because they didn’t have enough money… and Jesus had to let go, there was nothing he could do. – James
Background: In answering Edwin’s question on how to adjust his mindset when facing friends and family he can’t help, James used this analogy to explain that all we can do is pass on the information. Whether the other person accepts it is beyond our control, and we must learn to let go.
Slowly might be faster. – Jason
Background: Student Jason summarized this philosophical phrase when sharing his experience communicating investment concepts with his family, emphasizing the importance of patience and continuous communication.
When a husband and wife are of one mind, they can break through metal. If they are not… even if you succeed, she might fly into a rage, ‘You do everything without telling me.’ – James
Background: When commenting on family financial communication, James stressed the extreme importance of spousal consensus, otherwise even successful investments could destroy the family relationship.
I said your [insurance policy] doesn’t even pay out when it should, and he said, ‘how much premium did you pay?’… Wow, is that what you call insurance? – James Background: Recalling a debate with an insurance professional, James revealed the nature of some insurance products where the “payout limit is tied to the premium paid,” pointing out the limitations of their protective function.
Don’t take that fifteen million to buy insurance, you could have a hundred million… you only get one million a year… that’s just taking one percent, and you’re still smiling happily about it. – James
Background: Through calculation, James revealed the extremely low rate of return on long-term savings insurance. Compared to investing in the market over the same period, the difference in returns is immense, representing a huge opportunity cost loss.
V. Summary#
This session once again reinforced the core idea of CLEC’s long-term investing: simplify investment decisions and embrace the market’s long-term growth. Through the concept of a “do nothing” approach, James urged investors to break free from the interference of short-term market noise and to focus on building a robust, personalized asset allocation, always maintaining sufficient cash as the ultimate defense against risk. The Q&A session covered multiple dimensions, from personal mindset adjustments and family financial communication to the analysis of financial products like insurance. Using vivid examples and sharp insights, James exposed many common investment fallacies. The most central takeaway is that investing is a marathon of patience and discipline; taking immediate action and persisting for the long term is far more important than trying to find the perfect timing and valuation.