How to Beat the Inflation Tapeworm
“Pop, need to talk. I just got an offer.”
Not long ago, I got this text from my son, Richie.
What he told me next underscored a recent survey. Fortune and Deloitte asked 117 top CEOs about their outlooks for 2022.
One of their biggest concerns? Finding and hiring workers.
Richie’s a math whiz. He got a perfect score on his SAT and graduated college with a degree in applied mathematics.
I always say he takes after his mother and not me. Because I hated math in high school.
But if you put a dollar sign in front of a number, I can calculate profit margins, return on capital, and percent changes in a flash.
My math skills took me to the trading floor on Wall Street when I was 20 years old. Richie’s skills took him in a different direction, as head data analyst at a digital marketing firm.
When he was just joining the workforce in 2014, he had a really hard time finding a job. I called everyone I knew, but none of my contacts were hiring.
But when Richie texted me a few weeks ago, it was like night and day.
He told me that an executive recruiter for a huge media company called. They were offering him a 25% higher salary, a huge signing bonus and a whole bunch of other perks.
He was able to counteroffer with a higher salary — and they were ready to agree to it. Their only concern was when he could start.
But that wasn’t the end of it. One day later, another recruiter from a different company called him, offering a better position and a higher salary!
Faced with labor shortages, more and more companies are entering into these kinds of bidding wars for workers. And it’s adding to the perfect storm for inflation…
At the end of last month, the Labor Department said that jobless claims fell to just under 200,000. It’s the lowest level since November 1969.
But in stark contrast, job openings are near record highs. Around 10 million openings are looking to be filled. That means there are about 50 jobs for every person looking for one!
Along with soaring demand, these worker shortages are making the supply chain crisis worse. Add in a fiscally irresponsible Washington, and you have the perfect storm for higher prices.
Here’s what The Wall Street Journal had to say about it last Wednesday…
Elevated inflation, stoked by strong demand and limited goods and labor supply, poses a risk to the economy…
And given that a recent survey says nearly 90% of Americans are worried about inflation, I don’t want you to be in that group. Worry has no place in investing.
Here’s what I want you to keep in mind anytime you see scary headlines: Don’t panic or sell your stock holdings.
The so-called media experts calling for doom and gloom usually have no idea what they’re talking about. Even the best experts are no better at being right than flipping a coin.
And when it comes to actually experiencing inflation, most of them were in kindergarten or weren’t even born yet in the 1970s, when we had years of it.
Back then, I remember seeing prices rise almost every week. Every dollar continued to buy less and less … until Federal Reserve Chairman Paul Volcker broke the back of inflation in 1980 by raising the Fed funds rate to 20%.
So, I know what I’m talking about. Inflation acts like a tapeworm that sucks the purchasing power out of your dollar.
That means the worst kinds of investments to make right now are those that pay out a fixed percent return.
But it also means the best investments you can make right now are in stocks. And you want to invest in businesses that:
- Are industry leaders.
- Are driven by strong tailwinds.
- And have pricing power.
These are the kinds of businesses that will be able to outperform inflation and ring up higher profits.
Many of the stocks in the Alpha Investor portfolio have this built-in inflation “protection.” Their goods and services are in high demand by their customers and they have pricing power.
And that’s ringing up higher profits not only for them, but for us, too…
For example, KKR & Co. Inc. (NYSE: KKR), Arista Networks (NYSE: ANET) and HCA Healthcare (NYSE: HCA) are seeing returns in our model portfolio of 158% in a year, 207% in nine months and 131% in a year and a half, respectively.
Now, these three stocks are currently above my recommended buy-up-to prices. So, I wouldn’t buy shares today.
But Alpha Investor subscribers can keep an eye on our model portfolio page to see which of our other stocks are trading below their buy-up-to prices. Those are great stocks to keep on your shopping list right now.
And I have many new profit opportunities on the way. So, before I release my next recommendation, if you’re not yet a subscriber, be sure to check out how to join right here.
Founder, Alpha Investor
P.S. Do you remember the past inflation years like I do? Let me know your inflation experience by writing in at RealTalk@BanyanHill.com. But be sure to also tell me how you’re keeping a level head this time around!