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● Bubble Warning-US Stocks

The Flow of Money Repeats: Reading Key Patterns of Investment and Economic Cycles

Main topics covered in this article:

• 3 key elements of investment success (seed money, investment period, rate of return)
• Composition ratio of risky and safe assets, the actual effect of the 60:40 strategy
• U.S. economy and global stock market phenomena, long-term waves of AI and technological innovation on the market
• How to capture signs of crisis (narrative, valuation, leverage, policy)
• Insights from investment mistakes, following the strategic attitude of experts
• Portfolio composition method and practical suggestions for each remaining investment period

Global Economic Cycle and Evolution of Investment Strategy in Chronological Order

1. 3 Elements of Wealth Management: Seed Money, Time, Rate of Return

• In investment, 'seed money' (i.e., initial investment), 'period' (power of time), and 'rate of return' (compounding effect) are key.
• If seed money is small, maximize the period and save steadily every month rather than trying to achieve high returns.
• If time is short, more safe assets should be included to facilitate loss recovery.

2. Reliable Investment Strategy: 60:40 Diversified Investment

• The representative diversification strategy of 60% (risky assets such as stocks): 40% (safe assets such as bonds, gold) portfolio
  The average annual compound return is about 7%.
• Distribute the proportion of stocks according to market conditions. Ex) Do not put all 60 into the United States, but diversify into developed and emerging countries.
• When interest rates and exchange rates change significantly, flexibility is needed to temporarily increase or decrease the proportion of gold or bonds.

3. Global Crisis Signs and Repetition of Economic Cycles

• Reading repeated signs of economic crisis:
  • Be wary when investment stories with narrative (persuasive but weak specific basis) are popular.
  • Overheating signal when people start investing following wealthy people around them and using a lot of leverage (loans).
  • Excessive valuation of stock and real estate markets (e.g., PER over 40 times).
  • Major policy changes (interest rates, tax cuts, regulations, etc.) and sudden "policy measures" should also be referenced as signals.

4. Structural Changes in AI, Technological Innovation, and Global Imbalance

• Since 2022, the introduction of AI such as ChatGPT, expansion of big tech investment, and competition in semiconductors and deep tech have structurally driven market growth.
• Polarization is expanding, such as stagnation of unemployment and wages in many industries (IT, semiconductors, etc.) that have benefited from innovation.
• Inflationary pressures: Supply innovation through technology lowers prices, but geopolitical tariffs and U.S. tax cuts stimulate prices instead.

5. Attitude of Market Response – Be Flexible Like a Fox, Avoid Being Rigid Like a Hedgehog

• It is dangerous to decide on a conclusion first and then fit the data (hedgehog thinking).
• Create scenarios flexibly for each country and each asset like a 'fox', and rather than matching the timing, respond to "policy, leverage, valuation" signals.

6. Portfolio Management Tips (10 years/20 years/short term)

• Investment possible for 10 years or more: Expand the proportion of risky assets (stocks) to 60-70% and distribute the rest to bonds and gold.
• Short investment within 10 years: Maintain the 60:40 principle, reduce risk and secure defense.
• Continuously monitor the market while rebalancing assets according to the intensity of investment signals (bubble/panic).

7. Investment Insights Learned from Failure and Experience

• Investment experts also repeat mistakes, but the important thing is quick recognition, recording, and learning (blog, memo, link).
• To catch up with masters such as Howard Marks and Warren Buffett, we recommend a strategy of riding the wave rather than trying to win.
• Avoid FOMO (Fear of Missing Out). Rather than focusing too much on the trend, stick to your own strategy consistently.

8. Intersection of Life and Investment: Time, Health, Growth

• Remaining time is important for investment. With 10 years left, seed money can be doubled enough even with a 7% compound interest.
• If the period is sufficient (20 years+), more aggressive asset allocation can be attempted.
• If opportunities are scarce or seeds are low, do not give up and set realistic goals, and a savings strategy is effective.

Additional Detailed Summary of Key Contents (Economic Recession, Growth Stocks, Interest Rates, Global Diversification, Investment Sentiment)

– Economic Recession: Downgrades in credit ratings, soaring interest rates, and sudden policy changes increase stock price volatility.
– Growth stocks: Possibility of peak signal when excessive expectations and margin loan ratios increase rapidly.
– Interest rates: When interest rate cut expectations and actual cuts are not realized, it is essential to pay attention to the volatility of bonds and the US stock market.
– Global diversification: Do not put all in the United States, but manage risks in various asset groups such as Korea, emerging countries, Europe, and gold.
– Investment sentiment: Always be wary of ‘rich psychological warfare’, narrative booms, and leverage.

What Investors Should Do in the Future

– The more complex the situation, the more important it is to allocate and rebalance total assets rather than simply finding stocks to rise.
– Obsession with timing is rather a failure, and portfolio management is needed to prepare for ‘the time when the smell changes’ and ‘buy/sell signals’.
– It is worthwhile to record and reflect on both failures and successes and build your own investment skills in the long term.

– The key elements of investment are seed money, period, and rate of return.
– 60:40 (risk:safety) portfolio annual compound interest of 7% is possible
– Narrative/leverage/valuation/policy changes are crisis signals
– AI and technological innovation greatly change the structure of companies and labor markets, and diversification in emerging/developed countries is essential
– The market is a repeating pattern, ‘deal flexibly like a fox’, and do not obsess over timing
– Asset allocation depends on the remaining period, and continuous recording and learning are important
– Abandon FOMO, revolving illusions, and realistically maintain a long-term strategy

[Related Articles…]

• 2024 Complete Guide to Global Diversification Portfolio Strategy
• Global Interest Rate Changes and Changes in Investment Sentiment Trends

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