Stocks Are a Great Hedge for Inflation, But...

[00:00:00]Good day fellow investors. Great comment here. We are living in a situation of higher inflation. Because inflation has been 4.5% on average for the last 5 years, there is no signs of it slowing down. So, we are in a higher inflationary environment for sure. And now the question is higher inflation, stocks going up on higher earnings, simply more money, and more everything should be good for markets, and therefore stocks are a great hedge for inflation. Absolutely correct. But always the question is at what price?

[00:00:37]Because we see expectations of earnings just going up on AI, on inflation, on everything. Higher margins.

[00:00:46]Higher margins as businesses become more profitable. However, this that drives inflation, government deficits, huge interest payments that are exploding, expectations that you can just borrow on forever, and deficits to GDP accumulating on great projections. This is absolutely insane. Because there is a risk, and I have lived through inflation twice in my life. I was a billionaire when I was six. So, hi hi Elon Musk. But we have had 100,000, then you would take four zeros out, then it become 10, then we go again to a lot a lot a lot. And this is my stack of inflationary money. Maybe it will not be hyperinflation, but this is simply inflation. You lose purchasing power, and this is ending 2020, and since then it's already 25% down. And now, yes, the answer is pretty clear.

[00:01:47]Stocks are the best protection for inflationary environments, especially owning businesses that have pricing power. This is just Turkey's huge interest rates, huge inflation. And what happened to the stock market? The market is a 10x over the period. So, businesses did protect from inflation. However, there is always a key factor there. Is what am I paying to be protected? Look at the earnings yield historical, 6-7%.

[00:02:24]Now it's half of that. And you're practically apart from the dot-com bubble, you're buying the second most expensive market in history in line with 2021.

[00:02:37]And that is the key factor because that's the price you're paying for the hedge. We as value investors, we want to invest with low risk, thus pay a fair or a good price for the same results from the same protection. Then you have here GMO's price analysis, the likely long-term return of US stocks is very negative based on historical trends.

[00:03:03]There is still some value in international value, deep value, and some value in bonds. Now, if you want to approach the process of international investing, cheap broker, huge global reach, 170 markets, I always suggest Interactive Brokers. Please use the link in the description below or here to check whether that is for you, perhaps open an account. I get a small fee per click, so it supports the channel very much. Thank you. And by the way, I'm also using Interactive Brokers. But, when we look at inflation-adjusted returns, every time the price was as high as now, there was a 60% real crash over the long term as things adjust.

[00:03:49]Only value investing stocks did a 10x from 72 to 82 while the market did nothing from an inflationary perspective. So, stocks will help with inflation, but value stocks might help even more. You can check my value quadrant for more ideas. You can check my research platform for my positioning, portfolio, and some very interesting, very good buys at the moment.