Chapter 27 [If you do not buy when it rises or falls, how do you invest?]

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[James: Origins and Today] Chapter 27 - If you do not buy when it rises or falls, how do you invest? (04/20/2023)

When we talk about investment and buying, we must first understand the primary conditions for investment [understand risks, understand risks, control risks, retain cash, have emergency reserves, buy index funds when you have money, buy at any time, and never sell until you die]. All investments are based on ten years as the minimum time unit. If you do not have the idea of ​​not needing to sell in the long term, you should not invest, or it is not suitable to invest according to our method. Only with the concept and psychological preparation of long-term investment, the following content will be helpful to investors.

When it rises, I think the stock price is too high and want to wait until the market falls before buying again. When the U.S. Index Fund QQQ has reached $318.26 (April 18, 2023), it is discounted by 20% from the high point. It fell to $254 before, falling 37.7% from the high point, and did not buy it. This is the dilemma of ordinary people. Usually it is 99.99% impossible for us to buy the lowest point, but as long as there is a discount on the index fund, it is a gift from the sky (remember to use market orders when buying. You must be able to buy and sell before the transaction can be completed). Investors just hesitate and think too much. If they fail to buy, it will be an investment for twenty years. Thinking that the low point will have to wait for a lower point (fine calculations, these slight price differences are a drop in the ocean in twenty years, and they are not worth worrying about). If you want to buy the lowest price, you can't find it. Only by buying every day or continuing to buy can you have the chance to buy the lowest price. So buy when you have money, buy when prices fall, and buy more. There is no better way than this. Of course, people who have fully bought into the market are happily watching the fluctuations, thinking about $4,000 or higher QQQ in 10 or 20 years, and they feel happy just thinking about it.

At the beginning of 2022, we have several actions to advise friends, such as selling high-tech stocks, selling the four major bases, selling 00757, and transferring to 00662 (QQQ). The main reason is that individual stocks fluctuate too much. Sometimes individual stocks can fall by 70% or even 90% due to the objective economic environment. %, ordinary investors cannot withstand such a decline, even if only a small part of the funds are in one stock or most of the funds are dispersed in different stocks, the market fluctuations make it impossible for many people to insist on holding high-quality stocks for a long time. Of course, the stocks that some people invest may not be high-quality, so under this uncertain situation, it is difficult for ordinary investors to hold stocks with very high volatility for a long time. Secondly, general funds are usually active funds. The fluctuations of active funds are still very large, and the performance of active funds depends on the fund managers. It is difficult for ordinary investors to understand or recognize fund managers, so in the end we still recommend that all investments be transferred to passive funds that cover most of the market. At that time, I only knew one investment friend who actually sold individual stocks. As a result, many stocks fell by more than 70%. Therefore, the difficulty of investing is to be selfless.

So now we only recommend index funds. If you can't succeed with such a simple investment method, then don't even think about investing in individual stocks or other strategies that ordinary people can't do.

It is recommended to do half of the operation (for a stock exchange to be successful, buying and selling or selling and buying must be completed at the same time to be called a correct execution.), listen to half of the operation and do half of the operation, you will encounter difficulties. Some people sell, or realize losses in order to save taxes, and still hold a lot of cash, which is not good for long-term investment. Holding most of the investable cash will reduce long-term performance.

When the market is still discounted from its high point, seize the opportunity to buy. Buying stocks is very simple. You don’t need to guess or use any powerful technical analysis. The market is already discounted by 20%. If you buy it, you will know the profit in ten years. This is why investing means buying index funds without thinking. As long as you keep buying for more than 20 years, you will be rich. If you don't buy, you will have nothing.

I’ve given you a 30% discount, buy it with your eyes closed, there’s no need for suspense. In department stores, you may not buy when there are no discounts. However, when there are discounts on Christmas and Black Friday, it is a good time, and the same is true for investment. Buying at a discount is a gift from the sky.

For those of you who still have cash to invest (save enough emergency reserves to cover three years of living expenses for those who retire without income), you can buy all in at the market price (all in), or buy at regular fixed amounts without thinking (you don’t need to be too smart in the market). If you wait for the buying opportunity, you will never be able to enter the market. The train will always move forward and will not stay on the platform for a long time. Don’t keep waiting on the platform.

Therefore, the market is discounted, and the market drop is a gift from the sky (the market high point (QQQ $408) is still 22% cheaper (4/18/2023 QQQ $318)). We cannot predict whether the market will fall or continue to rise (but it is best not to stay on the platform. Buying at a discount is a blessing, and not buying is a loss. Long-term investors look at the stock price twenty years later. If you still have cash now, if you don't buy, it may get higher and higher.

We, long-term investors, should not worry about falling stocks when they buy them. The stocks Buffett bought immediately rose without even buying them. Many stocks he bought continued to fall. In 2009, Buffett shouted to buy the United States when the SP500 index was 900 points. After that, the SP500 fell to 660 points. After Buffett bought it, it fell another 30%. But at that time, I heard that Buffett bought SPY for $90, and he should have made a lot of money now. The market may fall again and reach a lower point, but it may also continue to rise. There is no use waiting. The market will eventually hit a new high. If the market never comes back, it will be the biggest loss for long-term investors. Chasing $500 of QQQ in the future will be regretful.

If you buy now, but the market is still at a low point, that is your life. Everyone has his own life. You have bought it at a discount, and your life is already better than that of the person who bought it for $408 before. You still want to have a better life (life must be fateful) Only by following the fate will you have a good life. Buying as soon as you have cash is the fate of cash. Buying whenever you have money is the fate of following fate.) If you wait until the end and the market may rebound to $500 and you still can't buy it, then this is a permanent loss and the market will always reach new highs.

Sometimes when the market rises, it continues to rise without looking back (turning back is a gift). Just like the same situation happened a few years ago, someone bought QQQ for $200. It may have been the highest point in the market at that time. After buying, the market fell, and now it cannot fall back to $200 no matter how much it falls. The person who bought QQQ at the high point of $200 at that time, but now QQQ is $318, is it very cheap at the high point of $200? In the next few years, many people will be envious of investors who bought it at this price. Even QQQ bought at $408 will be a very low price in the future. Looking back now, those who bought it at the high price of $200 were the luckiest people. The difficulty of investing is that you are afraid of the short-term market and cannot act immediately. You have to focus on QQQ of $4,000 in twenty years.

Discounts in the market are gifts from the sky. We don’t know whether the market will continue to fall, but we guarantee that the market will continue to fluctuate forever. But I haven’t bought it since it has been discounted 36% from the high point, and now it is discounted 20%. If you still don’t buy it, then you won’t buy it when it goes up or when it goes down. It’s better to leave the market. If you worry about the ups and downs of the market, it’s not suitable for investment.