On a private forum for accredited investors that I browse for private deals (primarily real estate), there’s heavy discussion on how to position one’s self for persistent inflation.
Generally speaking, when people think of high inflation, people think of Zimbabwe, the Weimar Republic, etc. Essentially extreme scenarios. The next most common scenario is the 1970s. The thought process is “I don’t want to be the patsy, how do I avoid it or benefit from it?”
There’s a phrase that often circulates these days, “scared money don’t make money.” I believe this is true. Those that hoard gold, bitcoin, put everything into floating rate loans, etc. – are the ones that likely dramatically underperform over full market cycles.
The harder, but what I posit to be the right way to invest, is:
- To be broadly diversified
- To invest in management teams that position for the ability to aggressively invest when times are bad
- To invest in companies at low multiples of profit
- To invest in companies that generate real and significant cash flow that is returned to owners
- To keep adequate rainy day cash for peace of mind because life happens
In more simple terms, “keep calm and carry on.”