Inflation: Blowing Up the Dollar

Inflation Blowing Up the Dollar

Nearly 20 years ago, in my reporting days, I remember interviewing a couple of guys who started a business selling prescription medicines for pets over the Internet.

Today, we’d say “ho-hum.”

But in 1998, this company was edgy. As you probably know, animal prescription drugs are as tightly regulated by the FDA, DEA and state authorities as human drugs are. I was intrigued, but I remember the doubtful looks of my newsroom bosses: “Sounds risky,” one said. “They’ll never make it,” said another.

The story died on the vine. But the company did not. It grew and grew. Today, it’s a $400 million company.

What’s my point? Sometimes the biggest chance you can take with your wealth … is taking no chances at all.

Without taking judicious, well-researched “chances” such as:

  • Buying stock in rapidly growing companies
  • Buying gold
  • Buying international real estate

…it’s next to impossible to keep your wealth from eroding away. If you’re completely in cash, you’ll lose it bit by bit, a little one year, a lot in others.

And it’s all because of inflation.

The Secret Thief

No one talks much about inflation anymore. Deflation has been the big bugaboo. But according to the Bureau of Labor Statistics, the nation’s consumer price index last month stood at an annualized 1.6%.

It doesn’t seem like much, but multiply that figure by 10 years, and BOOM! — you’ve lost 16% of your wealth’s buying power without ever making an investment decision.

Congratulations! You stayed in cash — and you still lost ground. And remember, we’re talking an inflation rate that’s been depressed by oil prices at $52 per barrel, an anemic U.S. and global economy, interest rates as low as they’ve ever been and the multiyear highs for the U.S. dollar.

What happens when, not if, all of that changes? And it will change, one way or another.

Between the talk of a massive new stimulus package by the incoming Trump administration and the Fed’s reluctance to raise rates except in the 11th hour, it’s all designed with one idea in mind: to stoke the return to the good ol’ days of inflation.

How to Outpace Inflation?

That’s why it’s important to follow someone like our Paul Mampilly, editor of Profits Unlimited. Owning the kinds of fast-growing companies that Paul talks about is another way to give your wealth a fighting chance.

The goal isn’t to grow wealth at the rate of inflation. (You can buy an S&P 500 Index fund to do that.) We need growth at a pace in excess of official inflation rates. For that you need companies that are on the cusp of major growth trends.

I know what you might be saying right about now. Like my newsroom bosses, you’re saying: “I don’t like taking the risk. (Fill in the blank here with your favorite fears and worries.)”

That’s understandable — but the world has always been in turmoil of one kind or another. But it doesn’t stop the creation and growth of great companies. We can look at any number of tumultuous periods and find small, young companies that became big winners:

  • The first half of the 1940s saw a world war and immense amounts of devastation and bloodshed, but that didn’t stop the Walt Disney Company from going public in 1946.
  • The 1960s were a period of tumultuous change. Yet Xerox was one of the great growth companies of its time. It started trading on the NYSE in 1961 and rose 15-fold in just a handful of years.
  • The 1970s weren’t much better. The likes of Wal-Mart and FedEx both went public during the decade of disco and energy-crisis mayhem.

I could go on and on. The point is that great companies come along on a regular basis. The opportunities are there. All we need is a guide like Paul Mampilly’s Profits Unlimited to help us identify the best of them — and the courage to put them in our portfolio.

Kind regards,
Inflation: Blowing Up the Dollar
JL Yastine
Editorial Director

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