How to fight inflation. No seriously.



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Just in case you haven’t heard, the July inflation number came in at 8.5% this week.
Stocks went into a fresh rally as did the tea and cakes debate around the question: is this a bear market rally or a new bull market?
*sips tea*
(coffee actually but… nevermind)
The highest inflation rate in nearly 40 years plateaued last month so the Fed’s need to hike rates is reduced. Time to go all in!
This is the perverse theology doing the rounds.
But that’s part of the game.
Without Mr. Market and his mood swings, we’d all be out here complaining there are no opportunities in the market.
Let that word opportunity hang for a moment.
Give it space to breathe.
Realize that there is no inflation, simply the chance to capitalize on chaos, emotionality, and herd behavior.
Mmm… okay that sounded like a contrived Matrix moment but bear with me on this inflation malarky.
How to fight inflation
Inflation, just like the spoon, is an illusion
Inflation, just like the spoon, is an illusion
Stop for a moment.
Ask yourself: do you or your money manager have a well-developed, written-out investing strategy that takes account of all market conditions?
It’s okay if you don’t.
But you know what to do if that’s the case.
My own written investment strategy sits quietly in a Google doc like a well-worn leather-bound journal, waiting for a new entry or to be consulted in times of uncertainty.
One of the most helpful aspects is a notes section jam-packed with observations on the financial markets.
Like this one:
“In times of inflation or when inflation is likely to emerge, rotate into energy stocks, especially oil stocks (Exxon, BP); commodities like oil increase in price on the open market, boosting the earnings of energy stocks. Other inflation hedges include mining stocks (Alcoa, Barrick Gold) but they tend to be much more speculative than oil stocks.”
It helps that I’ve been investing for over a decade and I’m able to see these patterns play out in real-time.
I feel like a dinosaur.
Much more speculative = riskier due to wild share price swings.
Bottom line #1: when inflation increases, so do the earnings of energy stocks and so does the share price.
Bottom line #2: inflation is very real and becomes illusory when the opportunity for a safe entry point presents itself.
Fed speak
It was clear in the second quarter of last year that inflation was not ever going to be transitory despite Chair Powell’s best efforts to convince you otherwise.
Part of the illusion.
Wealth Accumulated
Warren Buffett warns about inflation amid ‘red hot’ recovery from pandemic
At the time Exxon Mobil was trading at $60 a share, BP at just over £3 a share.
They are now at $94 and £4.30 respectively.
Clearly, Exxon has had a much better run than BP.
They are both excellent inflation hedges especially when bought at historically low prices relative to their earnings.
Fed lies speak tries to maintain the illusion in the most blatant ways.
Redefining recession.
Downplaying inflation.
Recalculating what the value of CPI is.
You’re best bet is to develop a well-thought-out, written investing strategy as you navigate the markets and make observations about the behavior of market participants.
Take notes, make observations, write your truths.
Before we depart.
90% of my entire investing strategy comes from a book I reviewed recently (link below)
It’s not a bad place to start.
This week's article
The best book on investing ever written
Thanks for reading.
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D J Thomas
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D J Thomas
D J Thomas @waccumulated

Hedged thematic large-cap value investing

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