00535 The First Step in Financial Management is Managing Cash Flow; Without Understanding Cash Flow, You're Investing Like a Blind Man Touching an Elephant!

I. Current Theme

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This session’s core theme revolves around Asset Allocation and Cash Flow Management. Teacher James clearly stated that an investor’s asset allocation strategy (e.g., 70% stocks, 30% cash) is an independent decision that should not change based on whether you choose to “sell assets” or “take out a collateralized loan” for living expenses. Furthermore, the teacher elaborated that “managing cash flow” is the cornerstone of financial management. For both individuals and businesses, having a consistently positive “free cash flow” is the fundamental guarantee of financial health and survival. Ignoring cash flow and blindly leveraging is the root cause of financial crises.

II. Briefing Content

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Opening and Information Sharing

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• Market Review: The market saw a significant drop on Friday, but for CLEC students, since we do not predict the market, market fluctuations are irrelevant to our investment strategy.
• Disclaimer: All content is for experience sharing only, not investment or tax advice. Investing involves high risks, which you must bear yourself.
• Learning Resources: Several student-created learning platforms and resources were shared again, including:
  • Chengfeng: Curated “Good Listens,” the Dadao Zhijian information platform, CLEC ChatGPT, and his YouTube channel “Chen Feng Tells Stories - Dami’s Financial Adventure.”
  • Investment Translator: A high-quality platform created by a student.
  • Bulaizhi’s Investment Notes: Shares basic investment knowledge to avoid common mistakes.
  • New Podcast Channel: Established with the help of student Amy, allowing for the quick upload of the day’s audio content for easy listening. The old channel has higher sound quality requirements, leading to slower uploads, but is still available.
  • English Channel Preview: An English YouTube channel created by a student may be introduced next week, aiming to spread investment philosophy to non-Chinese users.

The Relationship Between Asset Allocation and Pledged Loans

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• Core Viewpoint: Asset allocation and whether you live by selling stocks or taking out a pledged loan are not directly related.
• Explanation: Regardless of whether you plan to cover living expenses by selling some assets (like money market funds) or by borrowing against your stocks, your asset allocation ratio (e.g., 70% QQQ, 30% cash) should remain the same. The purpose of allocation is to allow assets to exist and grow stably in the long term, while the method of withdrawing cash flow is merely a tactical choice that should not affect the strategic allocation.

The Importance of Investment Mentality and Learning

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• Sign of a Beginner: If you still worry about whether the market will fall in the future, it means you haven’t grasped the basics of investing. The correct investment philosophy is to ignore market fluctuations and hold for the long term.
• Learning Method: Learning without watching the videos is like a “blind man touching an elephant”—extremely risky. Learning and thinking are the start of investing. You should actively ask questions when you encounter problems, but ultimately, you need to internalize the understanding yourself.

First Step in Financial Management: Manage Cash Flow

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• Cash Flow is the Lifeline: The first step in financial management is “managing cash flow.” Many companies go bankrupt not because of bad business, but because their cash flow breaks (they can’t make payments by 3:30 PM). The same principle applies to personal investing.
• Free Cash Flow: Refers to the stable monthly cash inflow, after deducting all expenses (living costs, loans, entertainment, etc.), that can be freely used.
• Standard for Financial Health: A healthy financial situation means free cash flow must be positive.
• Cautionary Cases:
  • Individual Investor: Someone took out personal loans and mortgages, thinking stocks would rise and they could use the profits to repay the loans. However, the market crashed right after they bought in, the stock value shrank, and they were forced to sell at a low point, leading to bankruptcy.
  • Real Estate Investor: They rushed to buy pre-sale homes, only to find out when it was time for handover or to pay the principal and interest that their cash flow couldn’t support it. What seemed like a “buy-and-profit” opportunity turned into a “buy-and-lose” situation.
• Conclusion: No matter when or under what circumstances, you must first clearly calculate your cash flow to ensure it is healthy and stable.

The Simple Rules of Investing and the Birthright to be Wealthy

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• Simple Strategy: Investing is about following a plan step-by-step and letting your assets navigate their own growth.
• Wealth is a Birthright: By investing in index funds (like the Nasdaq 100), everyone, regardless of background, income, or location, can become wealthy. If you are not yet wealthy, it means your method is wrong.
• Happiness is the Goal: Wealth is not the ultimate goal; a happy life is. Investing should be time-saving and effortless, giving us time to focus on doing things that bring us joy.
• Index vs. Individual Stocks: Index funds are a “lazy person’s investment method” where you can make money just by lying down. Individual stock investing is more hectic, with more worries, and an individual stock can drop 80% at any time, whereas the probability of an index fund experiencing a similar drop is extremely low.

III. Q&A Session

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YW

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• Sharing: He internalized his nearly four-year investment journey into six stages, with the core being the emergence of the “compounding inflection point.”
  1. Selection and Allocation: Choose long-term growth assets like QQQ and establish a secure allocation.
  2. Correct Use of Leverage: View leverage as a tool to reach the compounding inflection point sooner, not as a risk.
  3. Manage Cash Flow: Ensure you can afford to borrow and repay, so that compounding is not interrupted.
  4. Asset Doubling Period: This is a phase of quantitative accumulation. Enduring it will lead to an explosion. Market noise is irrelevant to me because, with a high rate of return, assets double quickly (e.g., at 25% annualized, they double in three years).
  5. Compounding Inflection Point: When your annual investment return equals or exceeds your cumulative principal invested, compounding begins to dominate asset growth. This is the “second starting line” of investing.
  6. Let the Snowball Roll Itself: When the asset size is large enough, time itself will accelerate the snowball’s roll, and operations become unimportant.
  • Teacher James’s Comment: He highly praised YW’s sharing and internalization. This inflection point where “the return on money exceeds the return on labor” is very important. The teacher gave a specific definition: when your annualized asset return (about 10% of assets) is greater than or equal to your annual salary, that is the inflection point of financial freedom. He also thanked YW for his quiet contributions as a volunteer.

Amy

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• Sharing: As the creator of the new podcast channel, she came up to share her story. Initially, it was to help a friend in need. Although she had no experience, she taught herself and started production. Along the way, she received encouragement from the teacher and the community, feeling the warmth and collaborative power of the channel. She believes that although she has just started practicing the CLEC philosophy, she has found happiness in it and believes she will become wealthy in the future.
  • Teacher James’s Comment: He expressed great thanks to Amy for her timely help, which allows audio content to be shared quickly. The teacher also said he would provide her with the audio files from his short videos and encouraged more people to use his public resources to create channels in their own languages (e.g., English, Vietnamese, Thai), spreading the investment philosophy to friends in more countries and regions, especially those in emerging countries who need help.

Damon

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• Sharing 1:
  1. The OCP Global Summit will be held in the U.S. next week, with major tech giants participating. This once again confirms the trend of continuous growth in U.S. technology, and we should be optimistic about the future.
  2. The development of AI has exceeded imagination, no longer limited to software applications but starting to permeate infrastructure like wireless networks. For example, NVIDIA’s technology has entered wireless base stations, using AI to allocate and optimize network signals (like 6G) for more efficient and seamless connections. In the future, we will live in a world empowered by AI without even feeling its presence.
  3. Although NVIDIA is the leader, other competitors are constantly emerging, innovating to address its weaknesses (like the memory wall). This competition will drive the entire AI industry to develop more vigorously.
  • Teacher James’s Reply: The teacher was amazed by the idea of “AI entering life through microwaves” and asked for more details. Damon explained that AI will act as a general commander, coordinating all data packets in the network to solve synchronization and efficiency problems, avoiding resource waste, and thus significantly improving network performance. The teacher summarized it as being like a conductor of a symphony orchestra, making all independent nodes work together. In the future, military, transportation, and other fields will be coordinated by AI, leading to a massive increase in efficiency.
• Question 1: Regarding the tax rate Vivian mentioned, does it refer to the federal tax or does it include state tax?
  • Teacher James’s Reply: It mainly refers to the federal tax rates (e.g., 22%, 24%). State tax, of course, must be paid, but since state tax is unavoidable regardless of when you convert, the federal tax brackets are the primary basis for decision-making.
• Question 2: If an investor does not have a green card and cannot get a portfolio line of credit (PLOC), how should they invest?
  • Teacher James’s Reply: The principle of asset allocation remains unchanged. If you cannot borrow against your portfolio, it means living expenses must be covered by your income, and the remaining funds are used for investment. The investment strategy (like allocation ratio) is not related to whether you can get a PLOC. You should make the best possible use of allowed retirement accounts, such as a Roth IRA.

Haoqing

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• Sharing 1: He shared two observations from his trip back to Taiwan. First, he saw an aunt at the market haggling for a long time with a hardworking elderly vegetable vendor over a small amount of money (10-15 NTD), which made him feel very sad. On the other hand, his friend easily gave 100 NTD to a foreigner playing guitar on the street. This contrast deeply moved him.
• Sharing 2: His friend spent 25,000 NTD on an investment course to learn how to read the three major financial statements, EPS, ROE, etc., with the goal of beating QQQ. Haoqing believes this is basic knowledge and that it’s better to just hold the index than to spend time trading. He questioned why the teacher of the course wouldn’t just borrow money to invest himself if the method was so effective, instead of earning a 25,000 NTD tuition fee.
  • Teacher James’s Reply: He deeply empathized with the first story and said he would encourage his family to be more generous to hardworking small vendors. For the second story, the teacher completely agreed with Haoqing’s view, pointing out that investment success depends not on knowledge, but on human nature and mentality. More knowledge might lead to more frequent trading, which could in turn lead to faster failure. He used the bankruptcy of Long-Term Capital Management (LTCM), founded by Nobel laureates, as an example to prove that only by overcoming human nature and holding for the long term can most people become wealthy.

Chenfeng

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• Sharing: He shared the original intention behind his animated series “Chen Feng Tells Stories - The Hamster’s Investment Adventure.” He hopes to convey financial management concepts to a wider age range (from 10 years old to adults) through fairy tales and Aesop’s fables. For example, he uses the story of “one tree versus a forest” to explain the difference in risk diversification between investing in a single stock (like TSMC) and an index (like 00662), making complex investment concepts easy to understand.
  • Teacher James’s Comment: The teacher highly commended Chenfeng’s efforts and took the opportunity to encourage everyone to listen and watch more, as even familiar content can serve as “hypnotherapy” and reinforce confidence. Then, the teacher demonstrated live how to use Google’s NotebookLM tool:
    1. Copy YouTube Link: Copy the link of any YouTube video (including CLEC’s videos).
    2. Paste into NotebookLM: Create a new note in NotebookLM, choose to upload from a link, and paste the YouTube link.
    3. Automatic Transcription and Translation: The AI will automatically transcribe the video’s audio into text and can, based on settings, translate it into any language (like English, Japanese, Portuguese, etc.).
    4. Generate Various Content Formats: You can instruct the AI to organize the text into various formats such as a video presentation, study guide, blog post, podcast dialogue script, etc.
    5. Empower Content Creation: The teacher encouraged everyone to use this tool to translate his Chinese video content into their own country’s language, create their own YouTube channels or content platforms, and explicitly stated that he authorizes everyone to use his content without any copyright issues, in order to help more people in different language regions.

Vivian

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• Sharing: After discovering the channel, she observed for 6 months before starting to invest. Although she bought at a high point, she held on, and now her annual investment return far exceeds her earned income. Her only regret is that when she shared it with friends and family, they were all indifferent. She also shared her past failure of selling Tesla based on news reports, emphasizing not to watch financial news.
• Question: Regarding her husband’s (age 53) Traditional IRA of about $700,000, how should it be converted to a Roth IRA? She wants to know if she should convert it quickly under the 24% tax bracket. She is worried they won’t be able to finish converting it after retirement.
  • Teacher James’s Reply: He advised her to convert it immediately, as soon as possible, and aggressively. First, stop contributing to the Traditional account. Second, using a 20-year time horizon and assuming an 8% annualized return, they would need to convert about $66,000 per year. If they wait until after retirement to convert, the amount in the account will be much larger, and the annual conversion amount will also be larger, potentially pushing them into a higher tax bracket, which would be counterproductive. The conclusion is, the sooner you convert, the better.

IV. Wonderful Views

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Wealth is a birthright… we focus on doing things that bring joy. Happiness is a human right. – Teacher James

Context: The teacher was explaining that through simple index investing, everyone can achieve financial freedom, thus shifting life’s focus from making money to pursuing happiness, because happiness is everyone’s inherent right.

The compounding inflection point is the second starting line of investing. When your annual return equals your cumulative principal invested, compounding begins to dominate everything… compounding starts to explode and dominate asset growth. – YW

Context: Student YW, summarizing his investment journey, proposed the concept of the “compounding inflection point” to vividly describe the explosive stage when investment returns themselves become the primary driver of growth.

Asset allocation actually has no direct relationship with whether you use a pledged loan… Your asset allocation doesn’t change whether you live off a pledged loan or by selling from your money market fund. – Teacher James

Context: The teacher was clarifying a common misconception, emphasizing the strategic importance of asset allocation, which is independent of the tactical choice of how to withdraw living expenses from one’s assets.

Quietly, AI has already permeated every corner of our lives, so you won’t even feel what AI is… you are living in a world of AI. – Damon

Context: Student Damon, sharing his observations on the development of AI technology, described a future where AI will be seamlessly integrated into infrastructure, greatly improving life’s efficiency, while people might not even be aware of its presence.

To truly succeed in investing, it’s not about the knowledge itself… more knowledge might make you go bankrupt faster, because you become more active. – Teacher James

Context: When commenting on a student’s friend who took an expensive “technical analysis” course, the teacher pointedly remarked that the key to investment success lies in mentality and discipline (long-term holding), not complex financial knowledge. Too much knowledge can, in fact, tempt one to trade frequently, leading to failure.

V. Summary

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This gathering once again reinforced the core investment philosophy of CLEC. Starting from the two fundamental points of “Asset Allocation” and “Cash Flow Management,” Teacher James clearly analyzed the underlying logic of successful investing: Strategically, adhere to the correct asset allocation and hold for the long term, unmoved by market volatility; tactically, you must clarify and ensure a healthy cash flow, which is the foundation for withstanding all risks. The students’ sharings were also highly inspiring. YW’s “compounding inflection point” provided a clear milestone for an investor’s growth path, while Damon’s insights into AI technology filled us with confidence for the future. It is particularly noteworthy that Teacher James provided a live tutorial on using an AI tool (NotebookLM) for content creation and dissemination. This not only provided everyone with a powerful tool but also embodied the open spirit of selflessly sharing investment philosophy with the entire world.