00556 Why You Shouldn't Repay Stock Loans: The Larger Your Assets, the More Money You Can Use Each Year!

I. Topic of the Session

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The core theme of this session is “Why You Shouldn’t Repay Stock Loans.” Through specific mathematical calculations, James demonstrates that not repaying the principal of a stock-pledged loan allows investors to maximize their total asset size, thereby enabling them to use more funds annually. The strategy behind this is the power of compounding, which allows assets to grow continuously, far outweighing the “savings” from repaying a low-interest loan. The course also extends to discuss the philosophy of subtraction in investing, the true nature of assets, and the wisdom of pursuing happiness and spiritual freedom in life.

II. Briefing Content

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Stock Pledge: Why Not Repay the Loan?

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• Core Viewpoint: Not repaying allows your total assets to remain at their maximum size, which in turn provides you with more money for living expenses each year.
• Case Study:
  • Assume that after a few years, your assets have grown from 3 million to 5 million, and you have a 1 million stock-pledged loan.
  • Scenario 1 (No Repayment): Your total assets remain at 5 million. Following the principle of withdrawing 2% annually, you can use 100,000 yuan per year (5 million * 2%). For risk management, you can keep 2 million in cash (twice the amount of the debt) and continue to invest the remaining 3 million.
  • Scenario 2 (Repayment): You use your 5 million in assets to pay off the 1 million loan, leaving you with 4 million in assets. Following the same 2% annual withdrawal principle, you can only use 80,000 yuan per year (4 million * 2%).
  • Conclusion: The person who doesn’t repay can use 20,000 yuan more per year than the person who does. The key is that borrowing makes your Asset Base larger, which generates more cash flow at the same withdrawal rate.

The Philosophy of Subtraction in Investing

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• “For learning, one accumulates daily; for the Tao, one reduces daily”: The initial stage of investing is to constantly learn (accumulate). But a higher level of wisdom is to learn “subtraction” (reduce), knowing what not to do.
• Learn what not to do: First, you must learn to avoid actions that lead to bankruptcy, such as short-term trading, playing with options and futures, investing in companies you don’t understand, and buying individual stocks.
• Learn to do nothing: When you have found the right investment method (like long-term holding of index funds) and have your asset allocation in place, the ultimate state is to “do nothing” and let things unfold naturally.

The Nature of Assets and Liabilities

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• A house is not a good asset:
  • Houses get old and depreciate; their value decreases over time.
  • Banks require mortgages to be paid off with principal and interest within a fixed period (e.g., 20-30 years) because they don’t want to repossess a dilapidated, devalued house decades later.
  • Houses pose a high long-term risk for both individuals and banks.
• Stocks are high-quality collateral:
  • High-quality index funds become “more valuable with time” as the human economy grows, with a long-term upward trend.
  • Banks are happy to accept stocks as collateral and prefer that you don’t repay the loan. Because a bank’s “inventory” is cash, lending it to you (especially against high-quality stocks) is their lowest-risk, most profitable business.
  • If the value of your collateral becomes insufficient, the bank can sell your stocks at any time, immediately, to protect its claim, making the risk extremely low. Therefore, the principal of a stock-pledged loan never needs to be repaid.

Life Philosophy and Happiness

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• Diversified Life: Modern people often get tired of their jobs because they do the same thing day after day. We should learn from the lifestyles of ancient people, who might be a carpenter one moment and a farmer the next. Finding different roles and experiences in life, such as gardening, learning to cook, doing crafts, or even recording YouTube videos, can make life full of joy.
• On Children’s Education and Immigration: Sending children to study abroad is not necessarily the best option. Family closeness and the convenience of life (external economies) are also important measures of happiness. If the whole family decides to immigrate, the United States is the top choice due to its long-term economic vitality and development potential.
• How to Transfer Money to Children: In the U.S., the best way to transfer assets to children is to open a Custodial Account at a brokerage (like Charles Schwab) and directly transfer stocks or cash. This is convenient for management and investment, rather than using bank transfer apps.
• The Meaning of Gifts: The emotional value and ritualistic significance of gifts to children or partners (like lucky money or birthday presents) far exceed the monetary value itself. Directly transferring money or stocks loses the precious memories and emotional connection that traditional rituals bring. Material gifts and expressions of affection should be separate from investment and financial management.
• Investing is a Belief: Successful long-term investing requires a kind of faith. You must firmly believe in the long-term upward development of human society and use asset allocation as the pillar of this faith to persevere through market storms.

III. Q&A Session

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Frank

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• Question 1: The Fubon 00662 ETF is planning a 1-for-5 split, with the share price dropping from 100 NTD to 20 NTD. How does this affect us as investors?
  • James’s Reply:
    1. Impact on Investors: For long-term investors, a split has no real impact. Taiwan already allows fractional share trading, so the share price doesn’t affect purchasing.
    2. Impact on the Issuer: This is a competitive business strategy for the fund company (Fubon). A lower share price attracts novice investors who think “20 is cheaper than 100,” thereby increasing trading volume and the fund’s market cap, allowing the issuer to collect more management fees.
    3. Potential Risk: A lower share price might attract more short-term traders and unsophisticated retail investors, potentially leading to increased short-term volatility in the ETF. The reason Warren Buffett’s Berkshire Hathaway doesn’t split its stock is to filter for more stable, long-term investors.
• Question 2: During a sharp market drop caused by a black swan event like a war, how should we operate? Should we buy the dip?
  • James’s Reply:
    1. We cannot predict the market. The only thing we can do about market volatility is to manage risk, for example, by appropriately increasing our cash position.
    2. Young People (Dollar-Cost Averaging): If you are a working professional investing a fixed amount regularly, you should ignore market fluctuations and continue buying as planned. Buying during a downturn actually lowers your average cost.
    3. Retirees: For those who are retired and living off their assets, you must not use your cash reserves to “buy the dip” at will during a market downturn. Rebalancing your asset allocation should be done only once a year. If you frequently buy the dip, you might deplete your cash in a prolonged downturn, putting yourself at risk.

Zoe

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• Sharing 1: She shared her journey and actions since discovering the CLEC channel in January. She sold her previous ETFs, adopted the 433 allocation to buy 00662, and successfully applied for a line of credit, investing the funds into the market in batches. She also shared that she took advantage of a free government-provided health check-up.
• Sharing 2: She reflected on her past experiences with various paid investment courses. She believes that many instructors may not have bad intentions, but their own knowledge and experience (e.g., only experiencing bull markets) are limited. They cannot provide a long-term, universally applicable investment framework, much like “a blind person leading a group of blind people.”
• Sharing 3: She used the metaphor of “floors in a building” to describe levels of cognition. She used to be on the “second floor” and couldn’t imagine the view from the “twentieth floor.” It wasn’t until she heard James guide everyone to imagine “adding two or three zeros to their assets” that she truly understood what an “abundance mindset” was, and her cognitive system was upgraded. She believes this “being informed” is key to financial freedom education.
• Sharing 4: She believes that although she worked hard in the past, encountering CLEC now might be because “the time has come.” Having experienced losses and setbacks, she was finally ready to accept the correct investment philosophy, embodying the saying, “When the student is ready, the teacher will appear.”
  • James’s Comments:
    1. Be Grateful for the Past: You should be grateful for all past experiences, whether they were paid courses or something else. Every experience, even if only one sentence touched you, has value.
    2. Find a Mentor: To succeed in investing and in life, you need to find a mentor at a higher level to “pull you up.” It’s very difficult to reach the top by fumbling on your own. James himself considers Warren Buffett his mentor.
    3. “Let the mind arise without abiding anywhere”: This is a very profound state. When you understand that nothing is truly yours (money, houses, relationships), you can be liberated from the attachment of the “small self” and attain true freedom.

Mao

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• Sharing 1: She shared her understanding of investing from the Buddhist philosophical perspectives of “emptiness” and “no-self.” She believes our physical body and experiences constitute the “small self,” while the true “I” is the awareness itself (consciousness/emptiness), like the relationship between the ocean and its waves.
• Sharing 2: CLEC’s investment philosophy is a method of “no-self” investing—forgetting the cleverness and techniques of the small self and surrendering to the trend of humanity as a whole (QQQ). Troubles arise from the concepts of “I” and “mine,” such as my money, my house, my relationships. When we let go of the desire to possess, wealth and relationships flow more smoothly.
• Sharing 3: The essence of happiness is a “reverent heart.” When we hold reverence for life itself and for every person we meet, recognizing that we all originate from the same source of life, we can achieve lasting happiness.
• Sharing 4: What James is doing is the most powerful form of “Dharma offering” (法布施), teaching us to realize that we are “inherently complete,” not just in terms of wealth but also in spiritual fulfillment.
  • James’s Comments:
    1. Sentient Beings Enlighten the Buddha: A teacher’s growth also comes from communication and sharing with students.
    2. Revisiting “Let the mind arise without abiding anywhere”: You must deeply understand that “nothing is yours.” When you can let go of ownership of everything and only retain the right to use it, your life becomes free. When you feel uncomfortable, it’s definitely because your “mind is abiding somewhere.”

Tony

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• Sharing 1: He shared his journey to financial freedom, starting from getting to know James in 2021, going all-in at age 42, enduring the test of the 2022 market crash, and ultimately succeeding. He believes he has become the “first-generation wealthy” in his family, changing its trajectory.
• Sharing 2: He has masterfully applied the financial tools taught by James (offset mortgage, stock pledge, high-dividend allocation, QI) to create a cash flow system of “borrowing without repaying, never paying interest.”
• Sharing 3: When he shared this with friends, most were indifferent or even mocked him. But after he truly achieved financial freedom, they started to become interested. He believes the stocks in his hand are his best source of confidence.
• Sharing 4: He once considered quitting his job to travel to South America with fellow group members, but his boss retained him with a raise and stock options. He decided to work for another 2-4 years. He concluded that as long as the time horizon is long enough, the market will surely go up, and there’s no need to be anxious about short-term volatility.
  • James’s Comments:
    1. Tony’s experience is the best example for everyone. He endured the harshest market test (the 2022 crash) and persevered. Today’s market fluctuations are just small waves to him.
    2. The Power of Time: If you persist for 5 years, you’ll have a small fortune; in 10 years, you can be wealthy; in 20 years, you can be free; and in 30 years, you can become a tycoon. The market is very generous.
    3. Apply What You Learn, Be Willing to Share: He encourages everyone to form study groups to share what they’ve learned. Teaching is the best way to learn.

Christina

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• Question 1: Regarding healthy eating, especially breakfast.
  • James’s Reply: Health and diet are highly personal; there’s no one-size-fits-all standard. According to FDA guidelines, it’s recommended to reduce sugar and starch intake. Natural foods are all good. Exercise won’t make you thin; eating less (especially sugar and starch) will.
• Question 2: After AI and robots become widespread, what will happen to the economy if everyone loses their jobs?
  • James’s Reply: This is a macroeconomic issue that is difficult for individuals to predict or worry about. Just as when the steam engine and the light bulb were invented, no one could predict their full impact on human society. The only thing you can be sure of is that if you have invested in the index (holding a ticket to Noah’s Ark), you will not be left behind in the AI era. At the same time, you must learn to refuse 99% of unnecessary things in life and find what you truly want to do to avoid being busy and chaotic.
• Sharing: She shared her love and trust for Tesla’s Full Self-Driving (FSD), believing it has greatly enhanced driving safety and convenience.
  • James’s Comments: He strongly agrees and shared his experience of being saved by FSD three times. He highly recommends friends in the U.S. to buy a Tesla and subscribe to the FSD service, believing that $99 a month for a driver is well worth it and can be life-saving.

Doris

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• Question: Regarding using the SnoreLab app to monitor sleep apnea. She had a dental appliance made in the U.S., but after testing with the app, she found that her snoring index (e.g., 47%) did not improve significantly with or without the appliance. How should she communicate this with her American doctor?
  • James’s Reply: Doctors in Taiwan believe an index over 10% is a problem, and over 20% requires treatment. Your 47% is very high. You can show the data to your doctor. If he doesn’t recognize the app, you can ask him to re-test you with professional equipment (while wearing the appliance) to see if there’s any improvement. If the doctor refuses or cannot solve the problem, then find another doctor.
  • Other members added: They shared experiences of undergoing professional sleep tests (AHI index) in Malaysia and the significant improvement in sleep quality after using a CPAP machine.

Helen

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• Question: Regarding the definition of Cash. Does work income or pension count? Does a Home Equity Line of Credit (HELOC) count? If I use HELOC money for a 70/30 allocation, does the 30% cash portion count?
  • James’s Reply:
    1. The Purpose of Cash: The cash here refers to an “emergency fund” for situations like job loss or accidents. The principle is to solve problems without touching your stock investments. Salary and pension are not part of this concept.
    2. The Risk of HELOC: A HELOC cannot be fully considered reliable cash. During a financial crisis, the bank has the right to withdraw or freeze your unused HELOC limit at any time.
    3. Recommended Action: A safer approach is to draw out the HELOC funds. Use a portion (e.g., 30%) as actual cash (which can be placed in a money market fund) and the other portion (70%) for investment. Although you have to pay interest, this ensures the money is truly in your hands and cannot be unilaterally reclaimed by the bank. Once you’ve drawn it out, the bank can’t take it back.
• Sharing: She and her friends formed a study group to frequently discuss James’s course content. She feels that having companions and a mentor is a huge help and encourages young people to find their life mentors early on.

Angela

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• Question 1: For a young person just starting their career, what are the specific investment steps? When can one transition from “buy QQQ with any spare money” to a “433 allocation”?
  • James’s Reply:
    1. Initial Stage: Save up one year’s worth of living expenses as an emergency fund. After that, all extra money should be used to buy QQQ immediately.
    2. Transitioning to 433: When your total assets (including investments and cash) reach three times your annual living expenses, you can consider switching to the 433 allocation. For example, if your annual expenses are 100,000, when your total assets reach 300,000, the 30% cash portion (90,000) is close to one year’s living expenses. At this point, you can switch to the 433 model.
• Question 2: For young people, is it recommended to avoid all pre-tax retirement accounts (like a traditional 401k) and only contribute to after-tax Roth-type accounts?
  • James’s Reply: Yes, under all circumstances, prioritize maxing out all Roth-type (after-tax) accounts, including Roth 401(k) and Roth IRA.

Nai

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• Sharing 1: As the administrator of the Taiwan 00662 community, he shared the journey of the group growing from a few people to nearly 5,000, and the management reforms undertaken to protect everyone’s attention. The community is now divided into a strict study group, a “spending for abundance” group, and a free discussion group to meet different needs.
• Sharing 2: He believes that CLEC’s investment system has built a solid personal financial system (a Noah’s Ark) for him, allowing him to pursue his entrepreneurial dreams without worries, as he no longer needs to expend energy on investing.
• Sharing 3: He believes the ultimate expression of love for a teacher is to “surpass the teacher.” Because students stand on the teacher’s shoulders, saving decades of trial and error, they should logically achieve greater success.
  • James’s Comments:
    1. Surpassing is Inevitable: You will definitely surpass me because you have skipped the decades of exploration I went through. It’s as if I have directly transferred my skills to you.
    2. I am also a mortal: He emphasized that he is not a god but an ordinary person with his own habits and flaws.

Tsai

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• Sharing 1: He shared his experience of losing money in day trading in his early years and later discovering market-cap-weighted ETFs and continuously buying them. He feels this method gives him great peace of mind.
• Sharing 2: His advice to young people is to save more money, buy the right assets, and let time do its work. At the same time, live a good life, learn a musical instrument, and experience a different kind of life.
  • James’s Comments: A very good sharing. He also reminded everyone that questions asked in the YouTube comments section might not be answered, and it’s best to come on stage in Clubhouse to ask questions directly.

Richard

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• Sharing 1: He sold a house in another state and personally experienced that a house is “immovable property.” The transaction process was troublesome, with various fees and taxes eating into the profits layer by layer. The actual take-home profit was far less than what it looked like on paper. This made him even more convinced of James’s view that “real estate is not a good asset.”
• Question 2: An elder in Hong Kong wants to buy QI but was told the dividends are subject to tax. Is there a way to avoid this tax?
  • James’s Reply: Financial institutions in Hong Kong may not be as proactive as Taiwanese brokerages in helping clients apply for tax refunds. More importantly, non-US residents investing in US market ETFs face estate tax risks. You can refer to the experience of previous members and buy alternatives issued in Europe (like Ireland), such as JEPQ.L. These UCITS ETFs registered in Ireland can help avoid US dividend withholding tax and estate tax issues.

Liz

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• Question 1: She is retired, uses an 80/20 allocation, and pays for living expenses using a pledge loan from her brokerage. Although she rationally knows that the investment return (e.g., 10%) is much higher than the loan interest rate (6%), she emotionally finds it hard to accept the growing debt and even uses cash to pay the interest. How can she overcome this psychological barrier?
  • James’s Reply:
    1. Do the Math: Look at it over a 50-year period.
       • Spending Borrowed Money: Assume you have 5 million in assets with an annualized return of 11.5% (accounting for 30% cash). After 50 years, your assets will grow to 1.15 billion. If you borrow 100,000 to spend each year, your accumulated debt after 50 years will be about 30 million. Using 1.15 billion to pay off 30 million is more than enough.
       • Spending Your Own Money: If you sell 2% of your assets to spend each year, your annualized return will drop to 9.5%. After 50 years, your assets will only be 460 million.
    2. Conclusion: Spending borrowed money leaves you with more than double the net worth in the end. The emotional discomfort needs to be overcome with rational mathematical calculation. The purpose of cash is to protect your ship from sinking in an extreme market downturn, not to pay interest.
• Question 2: She feels she is always busy and can’t quiet her mind, even when gardening or playing the piano, it feels like completing a task. How can she calm her mind?
  • James’s Reply:
    1. “Let the mind arise without abiding anywhere”: Your “mind is abiding somewhere,” always thinking “I need to do something,” “I need to make progress.” First, learn to say “no.” Ask yourself: Can I do nothing for a day? Why must I always make progress?
    2. Learn to Be Present: Do only one thing a day. When you eat, just eat quietly. When you drink tea, just savor the tea. The key is to “Be Present.” When you forget to breathe, you become tense; when you remember to breathe, you relax. Start with “doing nothing,” then choose just one thing and immerse yourself in it completely. That is true relaxation.

Jim

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• Question 1: How can one effectively convey the CLEC philosophy to friends and family who are impatient for success and obsessed with money?
  • James’s Reply: You cannot change someone who has no intention of changing. If they are your closest relatives, you just need to be their big tree, ready to help them when they need it. Every life has its own lessons to learn; you can’t force it.
• Question 2: Many people have high salaries but feel that spending even a small amount is expensive, while some with lower incomes spend lavishly. What is the reason for this logical difference?
  • James’s Reply: This is the “scarcity mindset” at work. A person’s sense of scarcity is not related to the absolute number in their bank account but to their internal level of security. You might think 5 million is already very wealthy, but they might feel they need 50 million to feel secure. When their wealth reaches that internal threshold, their spending habits will naturally change.
• Question 3: Many people are confident about their future income (e.g., earning millions over a few decades) but are unwilling to face the uncertainty of financial management, and can’t even produce emergency funds. What is the logic here?
  • James’s Reply: We are the “exception,” they are the “norm.” In a capitalist society, our group is a rare species. It’s normal for us not to understand them, and it’s normal for them not to understand us. There’s no need to understand, just know that we are different from most people.

Demo

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• Sharing 1: He echoed the idea that “life is for experiencing.” All experiences, whatever they may be, are an accumulation of lessons. Young people should take more detours. Finding a mentor is a stroke of luck, stemming from one’s own inner drive for lifelong learning and breakthroughs.
• Sharing 2: We are “mutants” who have chosen a path different from most people. Shedding the shackles imposed by society, being yourself, knowing the money is always there, and being able to do what you want at any time—this in itself is a great happiness.
• Sharing 3: The development of AI will make the world a better and better place; there will be no scarcity. We should not have a scarcity mindset.
  • James’s Comments:
    1. The Initial Intention: You came into contact with CLEC because you had the initial thought of “wanting to be wealthy,” “wanting to be free.” Without this thought, even if we appeared before you, you would see us as outsiders.
    2. Extreme Pain Leads to Extreme Learning: Growth in life often happens amidst extreme pain and difficulty. People who have not experienced hardship find it difficult to have profound learning and change.
    3. Choose ‘Want’ After ‘Don’t Want’: First, learn to let go of everything, then ask yourself what your heart truly wants. If you ultimately choose to live in a capitalist society, then possessing wealth and freedom is the highest state.

IV. Highlighted Quotes

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If you don’t repay the loan, you have 5 million in assets, and two percent of that is 100,000. If you repay the loan, your assets become 4 million, and two percent of that is 80,000. So why do we borrow? It’s so that we can always keep our assets large. That’s the key point. – James

Background: When explaining why it’s not advisable to repay a stock-pledged loan, James uses a clear mathematical comparison to reveal the importance of maximizing asset size to increase annual disposable funds.

Investing is not about learning what to do; it’s about learning what not to do. …Finally, you have to learn to do nothing at all. – James

Background: This quote explains the “philosophy of subtraction” in investing. It progresses from learning various knowledge, to eliminating wrong behaviors, and finally reaching the highest state of “effortless action,” which means simply staying on the right path.

A house is an extremely high risk for both people and banks… The biggest difference between stocks and houses is that stocks, especially index funds, become more valuable with time. That’s why a stock-pledged loan never needs to be repaid. – James

Background: When comparing the pros and cons of real estate and stocks as collateral, James incisively points out their fundamental difference. Real estate is a depreciating asset, while high-quality stocks are appreciating assets, which dictates the banks’ completely different lending strategies for them.

If you are not informed, you will never know that a 20th floor exists in the world. …You can’t earn money beyond your cognition. – Zoe

Background: When sharing her growth experience, student Zoe used the metaphor of “floors” to describe cognitive levels. She emphasized the importance of being “informed” by someone with a higher level of cognition, profoundly expressing the decisive role of cognitive breakthroughs in achieving financial freedom.

Happiness is actually a reverent heart. …We are not just reverent towards others; we are reverent towards the matter of life itself. – Mao

Background: Student Mao discusses the source of happiness from a philosophical perspective, believing that holding “reverence” for all things and recognizing the common origin of life is the key to achieving inner peace and lasting happiness.

If you start now, in ten years you will be wealthy, in twenty years you will be free, and in thirty years you will be a tycoon. It doesn’t take too long; the market is very generous. – James

Background: When encouraging investors to adhere to long-termism, James provides a clear timeline, illustrating the astonishing power of wealth accumulation through long-term holding, giving investors strong confidence.

Let the mind arise without abiding anywhere. Whenever you feel uncomfortable about something, it must be because your mind is abiding somewhere. – James

Background: James quotes the core idea of the Diamond Sutra to teach everyone how to achieve spiritual freedom. All troubles stem from inner attachment and the mind “abiding” on something. Only by letting go can one attain true peace and wisdom.

We are the exception; they are the norm. We are one in a billion; we are a few hundred people out of billions. So they are the norm. – James

Background: When answering a student’s confusion about “why ordinary people can’t understand us,” James points out the uniqueness of the CLEC investment philosophy. This helps everyone understand that being different is normal and there’s no need to seek everyone’s understanding.

The ultimate expression of love for a teacher is actually the hope to surpass the teacher. – Nai

Background: In his sharing, Nai, the administrator of the Taiwan community, proposed that students, standing on the shoulders of giants, should achieve greater success than their teacher. This is the best feedback and tribute to the teacher.

The money isn’t yours anyway. First, you have to think that you can’t spend all your money, that your assets will have three more zeros. Then you can’t spend it all. – James

Background: When helping a student overcome a “scarcity mindset,” James uses the thought experiments of “the money isn’t yours” and “add three zeros to your assets” to help everyone fundamentally change their perspective, build an abundance mindset, and thus dare to consume and enjoy life.

V. Summary

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This session delved deep into the core financial strategy of “borrowing without repaying” stock-pledged loans, revealing through clear calculations the powerful logic of maximizing asset size to obtain more cash flow. James not only taught specific investment operations but also extended the topic to the level of investment philosophy and life wisdom. From the “subtraction” mindset of “reducing for the Tao” to the transcendent state of “a mind that abides nowhere,” and finding joy through diversified life experiences, the entire session provided investors with a complete blueprint from wealth accumulation to spiritual freedom. The brilliant sharing and profound reflections from the students also showed that the success of investing ultimately comes down to cognitive enhancement and inner abundance. This was a profound dialogue on how to use capital tools to ultimately achieve comprehensive fulfillment in life.