The Outside World Is All Noise

In the long river of the capital markets, volatility and turbulence are an unavoidable norm. The true key to surviving bull and bear markets and steadily accumulating wealth is not possessing the ability to foresee the future, but possessing the wisdom to insulate yourself from outside noise and to turn volatility into a blessing.

Talking Heads and Chat Groups Are Machines That Manufacture Retail Fodder

Modern society is flooded with information. Open the television or your phone, and you are swamped with all sorts of financial talking heads, analysts, and personal-finance chat groups. These sources often exploit the greed and fear of the masses to harvest traffic; in essence they are a vast machine that manufactures retail fodder. Many investors blindly believe these theories that have no basis in real combat, charging in and out every day chasing sensational headlines, only to end up as casualties of the market.

When the stock rises he writes in the language of rising, and when the stock falls he writes in the language of falling. Do you think that is credible? Of course it is not. (Video 00412)

Many so-called experts are in fact merely parroting one another like parrots. Staying away from these toxic sources of information and refusing to blindly follow are the first line of defense in protecting the safety of your assets. The “diligent people” who believe the talking heads and trade in and out frequently, because of taxes and friction costs, tend to see their final returns lag far behind the lazy people who hold for the long term.

The highest iron rule for defending against fraud in real combat goes one step further than “do not listen to talking heads”: “do not join any investment chat group.” No matter whether it calls itself a study group, an exchange group, a sharing group, a book club, or a financial-intelligence mutual-aid society, any unfamiliar group related to investing should never be joined. The methods of fraud rings are already highly sophisticated: they first arrange for a few “shills” in the group to share seemingly valuable knowledge and create a lively atmosphere to win trust, then guide members to operate on an “internal platform,” and once your money is transferred in, you can never get it back. Prevention is always the only workable plan.

Beyond external talking heads and fraud groups, what the retail investor finds hardest to guard against is in fact his own brain. The empirical findings of behavioral finance are even more brutal: research shows that retail investors tend to sell winning stocks too early and hold losing stocks too long (the odds of selling a winner are about 1.5 to 2 times the odds of selling a loser, with empirical estimates varying by study and period) — take the profit and run, cling to the loss and refuse to let go. This “disposition effect” (Odean, 1998; Shefrin & Statman, 1985), combined with noise-driven overtrading, can cause considerable performance loss: Barber, Lee, Liu, and Odean (2009), studying the Taiwan market, estimated that individual investors bear a performance penalty of about 3.8 percentage points a year from trading and market timing. The reason talking heads and chat groups can manufacture an endless supply of retail fodder is precisely that they amplify this instinctive human weakness with great precision.

Political events are often the market’s most powerful generator of noise. Take Trump’s inauguration in 2017 as an example: at the time, global media were flooded with panicked warnings that “political uncertainty will destroy the economy”; yet from Trump’s election to the end of his term, the NASDAQ-100, amid all that clamorous noise, still rose sharply, driven by technological productivity. As long as the engine of underlying technological productivity keeps running, whoever sits in the White House is nothing but a passing cloud.

Trading the Ticket of Volatility for Excess Returns

To obtain long-term excess returns in the capital markets, you must pay for a ticket named “volatility.” Behind high returns there often comes heart-stopping violent turbulence; this is the iron law of how capital operates, and no one can evade it.

If it were a 70% drop like the year 2000, then even if you told everyone not to sell, they probably could not bear it. So I often tell everyone that investing comes down to one sentence: understand risk. (Video 00402)

Looking back at historical data, when the market experiences a 35% drawdown, many investors are already so anxious that they need to rely on sleeping pills to fall asleep; still less could they cope with a crash of more than 70% like the dot-com bubble of 2000, when the overwhelming majority of people collapse emotionally and sell at the very bottom.

Looking at a 17-year backtest (2008 to 2025), bonds returned only about 2%, the S&P 500 about 287%, while QQQ reached as high as about 985% (this is a historical backtest of total return including dividends, offered only to illustrate the relationship between volatility and return, and does not represent any guarantee of the future). This is not an encouragement to take blind risks, but a reminder to investors that only by first accepting that “volatility is a cost” can you possibly obtain “excess returns.”

Data from JPMorgan also quantifies the price of fleeing from the opposite angle: the “best trading days” that hold up long-term returns tend to occur precisely at the moments when the market is most panicked and everyone wants to rush for the exit; once you surrender the “ticket of volatility” out of panic and miss these scant few days, your long-term annualized return gets savagely cut down by a large margin. The instant you surrender the ticket of volatility is the instant you miss the greatest return.

Volatility Is a Blessing That Gives the Wise Bargain-Priced Assets

For the wise person equipped with a high degree of financial intelligence, volatility is instead the greatest blessing bestowed by heaven. When the market falls into extreme panic, quality assets often show a highly unreasonable discount, and this is exactly the prime moment for the long-term investor to accumulate units on the dip.

The worst of the economy is the best time to buy — that is, last June and October, when no one knew whether inflation would reach ten-something or twenty. The moment of greatest fear is the best time to buy. (Video 00399)

Investors can engage in a bit of reverse thinking: if housing prices fell 90% tomorrow, young people would surely be delighted, because they could finally buy a home cheaply; so what if stock prices fell 90% tomorrow? Why is the public’s reaction instead one of panic? The wise person greets a great crash the way one holds out a basin to catch falling gold.

To make concrete the mechanism of “turbulence + cash = asset accelerator,” we can borrow the metaphor of a “voltage booster circuit” from electronic engineering:

Cash and market turbulence are the pressurizer of assets. The volatility of the market is the oscillator of our pressurizer. And cash is like electric current, so when you have oscillation, you have current going in, and each time it oscillates the current is added in again, and the voltage will increase, and you can push the assets up. (Video 00522)

Put plainly: every great market crash is an opportunity to let the cash in your hands “exchange for more cheap units.” The deeper the drop and the more cash in hand, the more cheap units you can pick up; and when the market rebounds, these units bought at the low will push your total assets higher than before the drop. This is precisely the meaning of Teacher James’s metaphor — market turbulence is the “oscillator,” cash is the “current,” and each oscillation adds another dose of current, pushing the “voltage” of assets up one step at a time. So a “market crash” is not a disaster, but a necessary condition for pushing assets up one notch; without oscillation, a voltage of 5 volts can never reach 24 volts. But there is one prerequisite that must be kept: this booster needs current (cash) to operate — only when cash is ample, leverage is low, and you will not be forced by a maintenance-ratio margin call or by living expenses to sell stocks, is volatility a blessing; once cash runs dry, the maintenance ratio hugs the red line, or the monthly payment on a personal loan grows tight, the same crash will instead liquidate the person out of the market.

Make Money in the Bull Market, Turn Your Fate Around in the Bear Market

Facing turbulence, the most core shift in mindset is this: “the bull market is for making money; the bear market is for turning your fate around.” When the market is booming, assets grow by simply drifting with the current; but when the market crashes brutally and cries of misery are everywhere, that is the best window for crossing the class divide.

The wise person regards a market crash as an opportunity for “wealth redistribution.” When mediocre investors sell off quality units out of panic, the capitalist with a sufficient cash line of defense is devouring these cheap wealth-generating tools in great gulps at the low. Do not expect the market to be forever calm; every violent bout of turbulence is heaven sifting out who is truly worthy of possessing the enormous compounding of the future.

The backbone of this “turning your fate around in the bear market” comes from a set of historical data spanning 77 years. Compiling the S&P 500 from 1949 to 2026, the average bull market lasted as long as 5.3 years, with a cumulative rise of about 254%; while the average bear market lasted only 1 year, with a drop of about 31%. Even an epic crash like the 2008 financial crisis was at its deepest only -55%, and after about 1.4 years it bottomed out and recovered (Source: Creative Planning / Charlie Bilello, 1949 to 2026 total-return statistics).

Lay out this set of numbers, and you arrive at a counterintuitive yet crucial conclusion — bear markets are short and shallow, bull markets are long and fierce; what truly washes people out of the market is never the decline itself, but “being forced to sell stocks during that short, single year of decline.” This is precisely the mathematical basis for CLEC’s repeated emphasis on “having at least 2 to 3 years of cash oxygen on hand”: as long as the cash in your hands is enough to survive that bear market, which averages one year and at worst about a year and a half, and you are not forced to liquidate your wealth-generating tools at the low, you can ride the tailwind of the compounding that follows, which averages as long as five years. One boundary must be added: “2 to 3 years” is meant for the still-employed person who still has salary income, to survive an ordinary bear market; retirees, those who pledge their assets, and those without a flow of salary income should still return to the standard of the earlier chapter and keep a 30% short-term-bond / roughly 15-year cash line of defense, and must not treat 2 to 3 years as a safe floor for retirement.

▲ Figure 21-1 A comparison of S&P 500 bull and bear markets, where bull markets are long and fierce while bear markets are short and shallow

Source: Creative Planning / Charlie Bilello

Do Not Let Fear Interrupt Compounding

When the market undergoes a violent correction, the emotion of fear spreads easily, prompting investors into irrational selling behavior. This kind of fear-based stop-loss is often the fatal wound that interrupts the compounding effect.

So when the market falls and you realize a loss, that loss can never be recovered, and this game can never be recovered either, and the result is that you suffer a double loss. (Video 00401)

For most people, the pain of “a 1% drop” tends to far outweigh the joy brought by “a 1% rise” (the empirical finding of loss aversion in behavioral finance, commonly estimated at about twice as much). This psychological bias, in which the sensation of pain is amplified, easily causes short-term volatility to be misjudged as long-term collapse. Only by first admitting that this bias exists can you use systematic allocation and fixed rebalancing to pry emotion out of trading decisions.

To truly achieve “not being held hostage by the numbers jumping on paper,” you can borrow the “forget the trailing digits” mental technique: always remember only the very first digit of your total assets, and treat all the remaining decimal places as if they do not exist.

You should remember only the very first digit of your total assets, and the rest of the digits you should not even know. You do not even know the hundreds of thousands at the end, and only then can you live at ease. (Video 00563)

Conquering Human Instinct to Become a Successful Investor

Behavioral finance long ago marked out for investors two of the most fatal cognitive traps. The “gambler’s fallacy” refers to mistaking mutually independent random events for a probability game that “compensates for itself”; the “attribution fallacy” is, in a rising bull market, mistakenly attributing the dividend of the broad market as a whole to one’s own “innate talent” and crowning oneself a stock god. The reason the “mechanical execution, do nothing” approach that the CLEC system advocates is important is precisely that these two fallacies are almost impossible to resist by willpower; only by handing the decision-making power over to a discipline written in advance can you thoroughly bypass the instinctive misjudgment of the brain.

The true crisis does not come from the market, but from the brain. Investors often suffer from the “impulse-to-act trap”: the brain is hardwired so that “taking action equals making progress,” so the moment the market drops it screams to sell, and the moment it hears news it is compelled to buy. To break this deadlock, you must cultivate “valuable boredom”: daily work has only two actions, read, and then wait.

Another modern trap of human nature is called “the swapping disease”: facing a vast ocean of ETF options, investors keep browsing and keep comparing, but never dare to truly stand firm on one holding for the long term. These three underlying fears keep investors forever stuck in the mental churn of “choice paralysis,” never able to enjoy the compounding dividend brought by “deep commitment + long-term holding.”

There is an intriguing anecdote circulating in the market: the investment accounts with the best long-term performance tend to belong to two kinds of people — those who have already passed away, or those who have completely forgotten they ever opened an account. This story may not have a complete, publicly verifiable study behind it, but the core it lays bare is very real: being forced to “do nothing” is often instead the strategy with the highest win rate in the market.

The investor’s greatest enemy is not the market, but the instinctive misjudgment of the brain. Below is a summary of five major psychological traps and the corresponding CLEC disciplinary solutions:

Teacher James uses the metaphor “Shufen knows nothing at all” to describe the highest realm of investing — the absolute humility of admitting you cannot predict the future: not guessing next month’s interest rates, not fretting over geopolitics. Admitting your ignorance instead lets you avoid the trap of blind operation. What the investor truly needs to know is not prediction, but “what things are eternal” — capitalism keeps advancing, the market rises over the long term, and compounding never lies. Embrace the eternal rather than embrace prediction; this is wisdom.

We must first admit that we do not know. Not knowing that you do not know, that is ignorance; what you must do is be a person who “knows nothing at all.” That Shufen, ah, I really know nothing at all, I have known nothing for 40 years — that is what is impressive. If you think you know what the future holds, then just smile it off. You must embrace the eternal, not embrace prediction; predict, and you are sure to die. (Video 00466)

Only by cutting apart market noise and your own decisions can you truly maintain long-term discipline. The contrast is also brutal: research shows again and again that retail investors who day-trade frequently mostly lag or even lose over the long run due to trading costs and mistaken timing, while the “lie flat” investor who mindlessly deducts a fixed amount and holds 00662 for the long term instead leads clearly in returns. Learn to “ignore the very existence of the market,” and no matter what balloon drifts across the sky or where some local conflict breaks out, do not let this short-term noise disturb your mind. Only by keeping inner stability can you win without fighting on the long compounding journey.