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This is the Dividend Alchemist, creating a pension from dividends. This is a comment left by subscriber Kwak Hyun-ae on a video about dividend pensions a few days ago. "I wish I had known this sooner. I got stuck in a 3x leverage ETF and am at a 60% loss. When will it return to its original level?" Bismarck left a reply to that question.
"To break even, it needs to rise by more than 100% from there. Don't use leverage; from now on, just consistently invest in the Ilbe US Index." Everything Bismarck said is correct. When you lose more than 50%, a 100% rise is required to return to your principal. However, since you mentioned that you are already at a 60% loss, I offered the opposite opinion.
When the trend changes, it rises in an instant. It can rise by more than 100% in just two or three months. However, since no one knows when the trend will change, I think it would be best to wait patiently. Last time, while introducing the book *Harvard Marks' Investing Thoughts*, I explained the pendulum theory.
When a decline continues, it feels like it will fall endlessly and disappear, and when an upturn continues... Sometimes, people fall into the illusion that things are rising endlessly and they will soon become rich. The moment you fall into such an illusion, you miss good opportunities and fall into great danger.
Just five days after Kwak Hyun-ae's comment was posted, the CPI fell below expectations, and a massive surge occurred in a single day. SOXL skyrocketed by a whopping 30.74%. Probably no one expected it to rise this much in just one day. If you naturally accept that there is no endless rise or fall, there is no need to be overly optimistic or overly pessimistic.
It is dangerous to think that a trend reversal is a result of a sharp rise in just one day. In a situation where pessimism is rampant, the stock market cheers greatly just at the slightest slowdown in the rate of increase. In fact, it is worth considering at least once whether this is something to cheer about so much.
Even if an upward rally unfolds for a while, a larger decline can occur the moment one suddenly realizes that the cheering was excessive. You can prevent major failures simply by not cheering and jumping in when prices rise sharply, or selling in despair when prices fall sharply. 7 months ago, subscriber Paula The Dividend Alchemist channel mentioned *My Pillars of Investment* as a book they would like to read together.
Although it is a bit late, I felt it would be best to share the contents of this book with my subscribers as soon as possible. I believe that encountering such a good book as soon as possible is the shortcut to successful investing. The author of this book, William Bernstein, and his representative work, *My Pillars of Investment*, which we will discuss today, contain content that we can easily come across in the writings of investment masters, often without even realizing it.
You will understand why through this video. There was a video uploaded on a YouTube channel titled " Now is not the time to invest in stocks." A funny comment was posted on it. It was left by user "Isaek-ya." "You should have said that a year ago. Now, even my 7-year-old daughter tells Dad not to invest in stocks." It is a comment that shouldn't be laughed at, but the profile picture and the content matched so well that it was hard to hold back my laughter.
In a bull market, the only opinion is that you must buy. If you listen to that and buy diligently, a bear market arrives. Even media outlets that were recommending buying until recently change their tune, saying you should hold cash when the market shakes and a bear market sets in. But you don't have cash in the first place, so such...
If you listen to such words, you are bound to feel a surge of emotion. To avoid being swayed this way and that and going out of step, you need to look from a distance rather than focusing solely on what is right in front of you. There is a sentence in my investment pillar that goes like this: "If you intend to buy stocks when the economy is in chaos, your family and those around you will vehemently oppose it." Indeed, it is a situation just like Mr.
Lee Se-gi-a's 7-year-old daughter trying to stop her father. It is said that in 1962, as the Cuban Missile Crisis intensified, even the theory of "realism" emerged. A young options trader asked a veteran trader whether it would be better to bet on the market rising or falling. The veteran answered without a moment's hesitation that he should bet on the rise.
He added, "If this crisis is resolved, you will make a fortune. However, if the crisis is not resolved in that way, no one will take the money you bet." I thought it was a truly wise answer. It seems there is no need to worry about what to do if you end up losing money after investing long-term for 10 or 20 years in the S&P 500 or NASDAQ 100.
If that happens, then I alone It probably has n't failed. Even if the economy has regressed 10 or 20 years later, holding cash doesn't make one rich . The fourth point is that inexperienced investors lead the market and disregard already proven methods for valuing securities. The four elements I mentioned are simply reading the content from a book published 20 years ago.
Let's briefly recall 2020 and 2021. If you visit a bookstore, you can quickly identify the keywords the public is enthusiastic about; in 2020, the term "Fourth Industrial Revolution" was one of the core keywords the public was passionate about. The requirement for a significant technological revolution, the first element of bubble fame, was perfectly fulfilled.
Massive liquidity was supplied globally to prevent an economic crisis caused by the spread of COVID-19. Furthermore, due to low interest rates, a situation unfolded where anyone could easily and quickly obtain a loan. The conditions for abundant liquidity and credit expansion, the second element of bubble formation, were also satisfied.
The stock market bubble we remember is the dot-com bubble of 2000. As 20 years have passed, few investors who directly experienced the dot-com bubble remain in the market, and those who remain... Even if that were the case, the memory had faded. The third condition, the forgetting of the previous bubble, had also materialized.
In 2020 and 2021, a situation unfolded where a massive influx of new investors occurred globally. Enthusiasm for growth stocks led to a resurgence of valuation methods that leveraged future returns. The final condition—that inexperienced investors led the market and disregarded previous valuation methods—was also formed.
In 2020 and 2021, it was difficult to find anyone who called the massive stock price surge a bubble. If anyone had said so, they would have been criticized by many investors. However, it was clearly written in the book. If one had carefully read the contents of the book *My Pillar of Investment*, published 20 years ago, they would have realized that all four elements of a bubble were fulfilled while most people were intoxicated by the rally.
It is impossible to objectively assess an event when you are at its center. Both individual investors and investment experts are at the center of events. While it is good to listen to experts, more useful information is often obtained from books that are detached from the events currently unfolding.
In 2021, interest in artificial intelligence and the metaverse was considerable It was hot back then. I once read a book containing the latest hot-off-the-press information on artificial intelligence, got an investment idea, and proceeded to make a purchase. Looking back, it was a truly foolish action.
Books that reflect trends are difficult to regard as containing good information. Since then, I have started to focus on finding information that holds unchanging value over time. What is past is already past, and we must prepare for the future that lies ahead. This story is embedded in my investment philosophy.
Bubbles burst as if they possess a life of their own. Therefore, just like a campfire that goes out only when there is no more wood to burn, a bubble only extinguishes when the fuel runs out. Here, fuel, as Minsky pointed out, generally refers to buying using borrowed funds or credit. In a video two weeks ago, I mentioned that deposits were decreasing as deposit interest rates rose.
According to Bernstein, I believe we are currently in a process where the fuel available to burn is gradually diminishing. It is important to examine the big picture rather than focusing on the temporary rise and fall of stock prices. While I have high hopes for a trend reversal, it is necessary to view this objectively.
Is the fuel increasing or decreasing? If I had to choose one without emotion, it is correct that it is decreasing. How long will it continue to decrease? No one can predict when new fuel will be supplied. To avoid leaning toward either pessimism or hope, let us now talk about hope. It is said that an article appeared in a newspaper in the late 1970s stating that, just as the economic cycle consists of recessions, recovery, and booms, the stock market also has cycles, and it takes at least 10 years for a rally to return.
Young investors these days avoid stocks. Only the proportion of older investors has increased; it appears that older investors continue to hold onto their stocks because they either do not understand the flow of this country's financial market or are unable to adapt to the changes. How many people would truly not be intimidated by the statement that it would take at least 10 years for Welles to return?
Although it was claimed that the elderly held onto stocks because they did not understand the flow of the financial market, the truth was the opposite. The people who remained at that time were investors experienced enough to know that a very powerful bull market follows the worst bear market. They stayed until the end without leaving because they knew that the stocks at that time were very strong.
In fact, a bull market arrived afterward, as if mocking the content of the news article. To earn greater profits than others, one's own You need faith in your choices, and you also need the patience to endure the passage of time. If you have the courage to act boldly when everyone else is consumed by worry, you will surely be rewarded for that ability.
Let me share an interesting anecdote to add to my investment pillars. It is said that an investor invested $10,000 in a mutual fund in the mid-1970s and then forgot about it. However, when stock prices plummeted on Black Monday, October 19, 1987, the investor, terrified, urgently called the mutual fund company.
When he asked what had happened to his investment, the employee replied, "We are sorry, sir. Due to the losses this time, your balance has shrunk to $179,623." Even though the account was destroyed by the crash, it is a heartwarming conclusion where the initial investment is 17 times the original amount.
In reality, if you hold onto an investment for a long time, there are cases where returns of hundreds of percent are generated. With such stocks, you don't really care whether the price goes up or down. You just hold onto them with peace of mind. It is a reward for enduring and holding on for a long period.
Bernstein says this: To fully capture the market return of an asset, the market You must continue to hold onto these assets even after a crash. If you cannot simply leave such assets alone in your portfolio, you can never succeed. Do not rejoice too much just because you have hit the jackpot with a stock, nor is there any need to be too disheartened by stocks that have posted sluggish returns.
Calculate the return of your entire portfolio only once a year. There are undoubtedly those of you wondering what to do now that stock prices have already fallen significantly. If you are not confident that you can wait until the bottom after selling, simply wait. You must remember that just as there is no endless rise, there is no endless fall.
I wanted to introduce the content that impressed me the most at the end. It is a story about asset allocation, and I felt a great deal while reading this section. I am reading it aloud in the hope that it will be helpful to my subscribers as well. Gary Brins, an investor, published two papers with his colleagues in the 1980s.
Today, he pointed out that more than 90% of the difference in investment returns is attributable to asset allocation, while the difference due to stock selection or timing is less than 10%. Everyone knows that stock selection and timing have a decisive impact on investment returns. However, no one can control the outcome of stock selection and timing.
The influence you will exert The only factor you can control is asset allocation. Since asset allocation is the only element you can personally influence regarding your investment risk and return, you must make it the core of your investment strategy. As I read this, I realized that my reasons for valuing dividend income perfectly align with the reasons why asset allocation should be prioritized.
No matter how important stock selection and timing may be, they hold no significance if they are areas we cannot easily manage. However, since dividend income depends solely on the number of shares held, profits are guaranteed simply by increasing the quantity. The same applies to asset allocation. The easiest and surest way to reduce risk through effort is through asset allocation.
Rather than spending time on things you know about but cannot implement, it seems like a better choice to invest your time in areas where you can easily bring about change through effort. Now, let's discuss practical investment strategies for creating a monthly pension of 300. This week, just like last week, I added 10 more shares of SCHD.
The dividends I can receive from the 70 shares of SCHD I currently hold are approximately 196,500 won per year, excluding taxes. For reference, I held 60 shares last week, and the dividends were It was around 179,000 won. Assuming a 10% annual dividend growth with the 70 shares of SCHD I currently hold, the total dividends received over 10 years amount to approximately 3.12 million won.
The total dividends received over 20 years would be 11.24 million won, and over 30 years, the total would be around 32.32 million won. You remember when I was averaging down a while ago as losses on TQQ and SOX grew during consecutive declines, right? Since buying an additional 1 million won would n't significantly lower my average purchase price for SOX, I bought SCHD in a new account.
With the big rally that followed, the 100 shares in the new account are now happily yielding a profit of about 60%. If I had made the additional purchase in my existing account instead of the new one, I would still be in the negative. As shown here, splitting accounts creates more options: realizing profits on a portion of the shares generating positive returns and either holding the cash or transferring it to SCHD.
Of course, since I am not in a situation where I need cash, I have not sold and am holding a little more I plan to take it. I will wrap up with my signature closing remark. Although the quantity is still small, I will not be greedy and will continue to accumulate steadily just as I have been. It is now week 16.
Regardless of stock price movements, my dividend pension is growing little by little every week. I wanted to show you firsthand that successful investing is possible with just two qualities—patience and consistency—without needing to employ flashy skills. I hope today's video was of some help to my subscribers. Thank you.
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