CEO John Lee on Stock Investing: Investing in Time, Not Predicting the Market… Pointing Out Korea's Financial Structure Focused on Real Estate

CEO John Lee pointed to the absence of financial education in Korea and the capital structure concentrated in real estate as problems within Korean finance. Appearing on the discussion-format talk show 'Let's Debate with the Man Who Reads the Economy' on the 'The Man Who Explains the Economy (Kim Kwang-seok TV)' channel, he said that watching the high volatility of the financial market this past June and July made him realize that Korea lacks sufficient financial education.

Stock Investing is Acquiring Corporate Equity, Not Guessing Prices

CEO John Lee pointed out that most people still mistakenly believe that stock investing is about guessing prices. He explained that prices cannot be guessed, and if one could predict the market, everyone would be rich. Stock investing is not about predicting the market but investing in time; however, because people do not receive this most fundamental education, they end up only thinking about when to buy and when to sell. He expressed regret that it is not properly known that stock investing is about acquiring ownership—that is, equity—in a company, which is something that requires waiting for a long period.

He cited a regrettable situation where people who had never invested in stocks in their lives entered the market when stock prices rose, thinking making money was that easy, but then turned to inverse or leveraged products or invested with debt when prices fell. He said that since the stock market inevitably undergoes fluctuations, he worried that disappointed people would think they should not invest in stocks after all. He also pointed out the difference that while retirement pensions account for most of the stock market trading volume in the United States, in Korea, individuals account for almost all of it.

CEO John Lee described Korea as a country with a very high financial illiteracy rate, stating that Korea has never taught how to make money work, but has instead taught people to stay away from money. He said that stocks are the most effective way to make money work, but because people invest in a way that tries to guess stock prices, they end up working instead of the money working. He said that while people think they must know the U.S. interest rates and exchange rates every day, there is no problem at all in stock investing even if they do not know such things. Instead, he emphasized that people should change their lifestyles toward investing steadily, even with small amounts of money, and stressed that Korea urgently needs a system where young people can join schemes like retirement pensions or 401k and companies match those contributions.

Because Money Goes to Real Estate, There is No Need for Innovative Companies to Emerge

In the discussion, it was compared that the proportion of tangible assets such as real estate is absolutely high in Korea's overall capital structure while the proportion of financial assets is small, and that while retirement funds in the U.S. go into stocks through retirement pensions, there is a tendency in Korea to rely on a single house for retirement. Regarding the profit structure of financial institutions, it was also discussed that while the proportion of non-interest income is relatively high in the U.S., the proportion of interest income is absolute in Korea.

CEO John Lee pointed out that Korean financial institutions take bank loans as their main source of income. He said that while names like Goldman Sachs or BlackRock come to mind when thinking of U.S. financial institutions, in Korea, most people think of banks. He explained that as U.S. finance earns massive amounts of money through investment and money from all over the world gathers in the U.S., that money supports the emergence of innovative companies like Google and Meta. His diagnosis is that Korea overlooked this system, so money went to real estate like in Japan, and because money goes to real estate, there is no need for innovative companies to emerge since one can just pay interest and collect rent.

He said that the most dangerous situation is like Japan, where real estate prices fall and debt remains, and said that this is already happening a lot in the provinces. He, who travels to the provinces about three times a week for lectures, said he sees commercial buildings in the provinces being despicably empty. He explained that this is the result of a vague belief that real estate will unconditionally rise and rent will be well-paid, leading to the delusion that real estate bought for 1 billion won will unconditionally become 1.2 billion or 1.3 billion won without questioning whether the real estate is worth that much. He defined this as an absence of financial education.

The Structure Must Change from Banks Requiring Collateral to Being Investment-Centered

In the discussion, it was also mentioned that major banks in the U.S. are investment banks, whereas in Korea, they are lending banks. An investment bank is a mechanism that allows funds to concentrate on companies and industries that will grow more, creating a virtuous cycle where companies receiving funds grow and their stock prices rise. CEO John Lee said that this is the most decisive difference, as investment banks do not require collateral and invest in innovative ideas, whereas banks require collateral, so people without collateral cannot even dream of receiving investment.

He picked asset management companies as the financial institutions that should be more revitalized in the future. He said that investing asset management companies should be located throughout the country, but in Korea, they are almost all in Seoul. He emphasized that the structure must change so that large and small investment institutions are established nationwide, leading to many startups, and that young people become interested in investment and engage in entrepreneurship. He explained that instead of the method of looking at charts and talking about strategies for this week or next week, there must be a long-term plan—that is, a structure—in which the government, companies, and individuals participate together, and that what the U.S. did well was exactly the 401k.