A Dialogue on Personal Finance and Investing

A dialogue on personal finance and investing (04/16/2021)

CLEC Investment and Financial Education Academy. Post date: April 19, 2021.

Sophia: When you have money, buy; buy the right assets; hold for the long term; never sell, no matter what; and you will become wealthy! James's method is excellent and has influenced many people's values and lives!

James: If I say too much, it is not easy to understand. If I say too much analysis, everyone starts making random predictions! If I say too much about operations, the more people do, the more they lose! This is the simplest way, requiring no overthinking, and it guarantees everyone can become wealthy!

Sophia: I have a classmate from a Chinese medicine course. She is now a young Chinese medicine doctor who has been practicing for one year. I am only an amateur practitioner interested in Chinese medicine. Last weekend, she chatted with me and told me that the director of her clinic makes a lot of money and often makes patients buy medicine they do not need, causing them to spend a lot. She feels this is very wrong, but she also feels she is about to be dragged into doing the same thing!

I told her: do not forget your original intention. Do not forget why you wanted to become a doctor. A newly practicing Chinese medicine doctor does not earn much, but she still sets aside a little money every month for funds. When patients from poorer families come in, she helps pay their medical expenses. Work is not what makes you money; investing is what makes you money. As long as you invest well and use the right method, in 20 or 30 years you will definitely be richer than your clinic director! So I introduced James's videos to her and also told her the investment targets. She was very happy and felt she did not have to go along with wrongdoing. Then she quickly asked me which stocks to buy and went to buy them before even watching the videos. So doesn't the right investment philosophy and method influence a person's life? A virtuous cycle is spreading!

James: You are amazing! I am so moved!

I still suggest that she watch the videos, especially our lecture in Taichung, at least to understand the philosophy of long-term investing, so she will not be misled on the road ahead!

I plan to hold another lecture in Taipei if there is an opportunity. First make a list of friends who have not attended the class yet, so they can come when the time comes!

Sophia: Okay! I will urge her to finish watching the videos! This Chinese medicine doctor friend practices in Taipei! I will write down the list first!

I would like to ask James a question:

Last weekend my older sister told me that James's method is good, but one point needs to be revised: "Before a black swan appears, you should sell your stocks first, then buy them back when the market falls and prices are very low, so the unit cost will be lower. She said her way of judging a black swan is by judging the macroeconomy." I smiled after hearing it and did not continue, because if I kept talking we might have argued. Recently the stock market has been bullish, so it is easy to make money and people feel stocks are easy to operate. Sigh! But who knows when a black swan will come, when prices will rise, and when they will fall? What should I say to my sister?

James: For questions like this, my standard answer is: "If predictions could be accurate, then Buffett would not be the only one among the world's richest people. If, among the top ten richest people in the world, only Buffett made his fortune through stock investing, then no one can predict accurately and profit from it. No one can become wealthy through accurate long-term predictions! So prediction cannot make you rich.

Instead, being wrong occasionally is enough to bankrupt you!" Since it is a black swan, no one can predict it! Prediction is God's work!

Sophia: Members of my English speech club asked me when we could invite James to Taichung for a class! In one speech club talk, I mentioned that I would retire in another 2 to 3 years. After the meeting, a group of members came to ask me, "Sophia, how do you invest and manage money?" So I sent them James's videos.

James: Hmm! I will see about holding one in Taichung too! I suggest letting students who have attended the Taichung class introduce friends who need it to come. Those who have already attended should leave spots for new friends!

Sophia: Okay! No problem! Great! I can also be a CLEC volunteer!

James: If we hold a lecture in Taichung, invite your friends, and also ask people who attended the Taichung lecture to invite their friends!

I hope people all come through introductions and recommendations. Our lectures do not open public registration. With recommended registration, people's understanding is closer, and some questions can be shared with each other. Old students can help new students answer their questions first. That can also reduce my workload.

Sophia: A few weeks ago I read Chueh Yu-Shang's book "What You Did Not Learn: What Buffett the Stock God Is Quietly Doing." I think James's booklist seems to include this book. He strongly emphasizes asset allocation. His allocation is government bonds plus ETFs, and he suggests that older people should allocate more to government bonds! After looking at his data, I was very surprised. The profit from government bonds was actually higher than the S&P 500! He also compared the annualized returns of six types of asset allocation, and the result was that allocations with more government bonds actually had higher annualized returns!

James: This is wrong! It depends on the selected time period. Comparing a stock bear market with bonds, isn't there a bit of a problem there?

Sophia: James also mentioned asset allocation in last week's video, but your allocation uses QQQ, individual stocks, ARKK, and so on. But Teacher Chueh hopes people will add government bonds to asset allocation.

I also thought it might be related to the selected time period! But I did not have time to verify his data!

Yes, it is exaggerated. He used two years to calculate it, especially the last row from 2007 to 2009. Of course the stock market lost terribly then. 2009 was the financial crisis.

James: Yes, this is the clever trickery of some financial advisors and lecturers.

Sophia: His chart is labeled as a comparison of stock and bond returns during a market bubble.

Yes, I saw it! That is why he keeps emphasizing asset allocation and stock-bond allocation!

But as long as it is like James says, salaried people keep a six-month emergency reserve and people without salaries keep a two-year emergency reserve, then it is not necessary to do stock-bond allocation! Otherwise, you can use a mortgage to borrow money for living expenses through a bear market. U.S. investors have it better; they can borrow against stocks for living expenses, so they never have to sell stocks.

James: In the past 20 years, interest rates kept falling, so both bonds and stocks were in bull markets! But if you extend it to 40 years, long-term bond returns are much worse! So there are many investment misunderstandings, and ordinary people cannot always see through them!

Yes, even if you know you should rebalance, sometimes the lower stock prices go, the less you dare to rebalance!

Look at how poor the performance of those balanced funds is, and that proves it! This does not require advanced knowledge. Common sense is enough to judge it!

Sophia: Really! Balanced fund performance is really poor, but bank relationship managers love selling balanced funds! They also like recommending high-yield bond funds. The risk is very high. They pay distributions every year but do not protect principal! If the principal is eaten away by distributions, it is miserable.

James: Some financial advisors and investment lecturers recommend balancing stocks and bonds. Even if you know you should rebalance, when stock prices keep falling, you will not dare to keep rebalancing! It is the same as not daring to buy more at lower prices!

As long as there are bonds, long-term performance will definitely be poor. Do not compare bond performance only against stocks during a stock market bubble. In the past 20 years, bonds were in a bull market, but their performance still lost to the index. In the future, bonds will be in a bear market. Interest rates have already fallen to zero. Future interest rates will not go lower. When rates rise, bonds fall. The bond bear market has only just begun! With rebalancing, sometimes the lower stock prices go, the less you dare to rebalance! Look at how poor the performance of those balanced funds is, and that proves it! This does not require advanced knowledge. Common sense is enough to judge it!

Sophia: Really! Human nature! Even if you know you should rebalance, when stock prices keep falling, you will not dare to keep rebalancing! It is the same as not daring to buy more at lower prices!

James: With rebalancing, sometimes the lower stock prices go, the less you dare to rebalance!

Sophia: Understood! But older people may really not be able to wait 40 years!

James: If you cannot wait 40 years, the risk is the lowest! Because age is the biggest risk! A short life means low risk! For people who do not invest, the longer they live, the higher the risk. For people who invest, if life is short, they do not need much money; if life is long, they will have more money than they can use. That is the lowest risk!

Sophia: Makes sense! Yes! Yes!

Some time ago I chatted with a friend. She is now a yoga teacher and used to work as a bank relationship manager for six years. She said being a relationship manager really goes against one's conscience, so she went to learn yoga and became a yoga teacher. She said banks hate people who "invest in funds long term and do not move them" the most, because if they do not move, the bank cannot earn fees! So she said if you buy funds, do not buy them at banks. Buy through platforms like FundRich or Anue, where there will be less interference. When bank relationship managers see that there is a lot of money in your account's funds and it is not moving, or that you have money sitting there that has not been handled, they will come tell you your fund has earned a lot and can be sold, then tell you to buy something else, or buy insurance, and so on. It is very easy to be shaken by relationship managers!

James: Yes! Banks today are legal fraud groups!

Sophia: Yes, yes! My friend said the same. She said banks are legal fraud groups.

James: Investing is like medicine. It needs long-term research data! These people are wolves in sheep's clothing. Many unethical hospitals and banks use this kind of professional image to commit fraud!

This is also why our road is long and our responsibility heavy!

Many people work hard their entire lives but cannot retire securely. There are so many poor people not because there is a lack of relationship managers, but because the whole world lacks correct financial knowledge. If relationship managers could help you make money, why are there no people who became wealthy because of relationship managers? It is only a club for rich people! If relationship managers are so capable, transfer them to the social affairs bureau and would that solve the wealth gap? But that is impossible! This is why relationship managers cannot truly help people manage money and become wealthy!

End