Chapter 86: Do Not Presume the Market; Try Not to Repay Borrowed Money

Source: https://www.facebook.com/100063294665283/posts/742142881238861/

[The Origin and Today of James] Chapter 86 - [Don’t predict the market, don’t pay back the borrowed money] (11/30/2023)

[Letter from students asking questions on May 19, 2023]

Student questions:

In addition to US stocks, there is also a Hong Kong stock that has been held for five years and is currently +100%. The market value is undervalued and it is related to new energy. If you use this profit and the loss of the above-mentioned Chinese concept stocks to sell at the same time, they can offset each other. It hasn’t increased much in 22 years. There is a high probability that it will increase by 10-20% this year before clearing it and transferring the money to the United States. Anyway, QQQ has also increased so much. I don’t expect QQQ to increase by another 20% this year. Is there something wrong with thinking this way? Would like to hear your specific suggestions.

James replied:

All your thoughts are predictions, predictions will never be true, and it rose 74% from the lows in March 2009 to the end of the year. Do you think 26% is too much so far this year?

Student questions:

Last year, I borrowed nearly 18% of my PAL to buy QQQ. The current total loan value is equal to the market value of the above-mentioned Hong Kong stock market. It means that I can repay the borrowed position if I sell the Hong Kong stock market. If I sell Hong Kong stocks in the future, should I return PAL or continue to buy QQQ? I made a loss when I bought QQQ last year. I still feel like I haven’t earned back the interest rate and I don’t want to repay it. However, the borrowing interest rate has exceeded 6%. Is it cost-effective to use the money back to buy QQQ?

James replied:

Everything is viewed in the long term. If your return on QQQ can be higher than the interest, then it is certainly worth continuing to invest. If you feel that the return on investment is lower than the interest, then of course you will pay back the loan. This is a very simple thinking logic.

[Questions from students’ letters May 21, 2023]

I am your believer and "believe in America and believe in technology." Therefore, QQQ is my only choice for investment.

Until, I saw the stock price of QQQ in 20 years. It took almost 14 years for the stock price to return to its 2000 peak in 2014.

My question is:

1. Do I have any misunderstandings about QQQ’s stock price during this period?

2. How can retired people spend these 14 years?

3. If QQQ takes another 10-14 years and returns to its peak of $410, how should we face it?

James replied:

We have said this many times in the past!

The year 2000 was the Internet bubble. At that time, QQQ had no performance and they were all loss-making companies. For example, Yahoo had no performance at that time and they were all losing money. Now every company in QQQ is profitable, and the profits will be very high. Those who have such problems are either too young, or they have not experienced the Internet bubble in 2000 and have no understanding of the stock market.

Even if it fell in 2000 and only returned to its high point in 2014, it still had a dividend of 1%-1.5%, and as of today, May 21, 2023, QQQ's return is also 4.7% plus a 1% dividend, reaching 5.7%, and SPY 5.2%, plus a dividend of 1.5%, also reaching 6.7%. If the highest point in 2021 (also calculated using the highest point) QQQ returns 6.4% plus dividends of 1%, it also has 7.4%, and SPY plus dividends also has 6.85%. And if you continue to buy while still working, your returns will be higher if the market falls. Young people should welcome market declines.

If you are a retiree, we have said that you can only use 2% of your QQQ assets as your annual expenses a year. So, the issue is not that the market is falling, but whether your pension is enough.

Retirees who invest in QQQ must prepare annual expenses X 50 assets to be able to retire. If you spend $100,000 a year, you need to prepare $5 million to invest in QQQ before you can retire.

If you invest in VOO (SPY), you can use 3% of your investment assets a year, and your annual expenses are $100,000. You have to prepare $3.3 million to retire.

You must be able to retire before you can retire. Many people don't know that they don't have the ability to retire, and they think they have enough money to retire.

Opportunities for young people come from market declines. The risk for retirees does not come from market declines. The risk for retirees comes from whether they have enough funds to retire.