Daily Insights Archives - Page 5 of 28

How to Combat Inflation

Let’s continue our discussion on building an all-weather portfolio this week. As a reminder, the seven areas that I think are worth considering today are:

Bitcoin
Gold
World-Class Insurance Stocks
Top-Tier Energy Stocks
Gold Royalty Stocks
Consumer Inflation Hedges
High-Technology Stocks

If we allocate a little capital to each of these areas every time we get paid, we’ll have an automated system for building wealth. Consistency is the name of the game.

You can find our coverage of Bitcoin, gold, world-class insurance, top-tier energy, and gold royalty stocks at the links above. Today let’s talk about consumer inflation hedges.

For the last two generations, the success plan was clear.

Go to school –> get good grades –> go to college –> get a good job. If one followed that plan and had a good work ethic, a successful middle-class life would come easy.

And for those more ambitious, there were very few roadblocks to starting a business. Opportunity was everywhere.

That was the American dream. It’s what inspired countless hard-working immigrants to create a new life in this country in the 19th and 20th centuries.

But that dream is fading.

The End of History and Saving the Current Financial System – a Developing Thesis

“What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such… That is, the end point of mankind\’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” -Francis Fukuyama

I’d like to pause our discussion on building an all-weather portfolio today in favor of a big-picture idea.

It’s an idea that’s been rattling around in the back of my head… and I’ve made some investment decisions based on it. But I’ve never fleshed the idea out on paper before.

So please forgive me if the idea isn’t completely formed yet. Sometimes you just have to start writing with what you have and then the rest will come to you…

The quote from Mr. Fukuyama above comes from an essay he wrote in 1989. He titled it The End of History?.

Fukuyama’s essay suggested that the collapse of the Soviet Union marked the end of history. With the communists defeated, Fukuyama said that humanity’s ideological evolution was complete. Thus, the Western liberal democracy as it then existed would last forever.

At the time Fukuyama’s suggestion made a fair amount of sense. It had become clear for the world to see that market-based economies are superior to socialist ones.

After all, it was “morning in America”. The economy was humming. The labor market was strong. And household incomes were on the rise.

Meanwhile, technological developments were powering forward.

Generating Consistent Cash Flow From Gold

We’re talking about the investments that form an all-weather portfolio in the current macroeconomic climate this week. The idea is that we can allocate a little chunk of money to these investments every time we get paid to automate a system for building wealth.

As a reminder, the seven areas that I think are worth considering today are:

Bitcoin
Gold
World-Class Insurance Stocks
Top-Tier Energy Stocks
Gold Royalty Stocks
Consumer Inflation Hedges
High-Technology Stocks

Please note that I’m omitting investment real estate and other income-producing assets here. That’s only because we can’t buy those assets in small increments. They require a larger commitment. And we should only consider them after we’ve built a strong financial base – which is what this consistent wealth strategy will do for us.

We discussed our first four investment themes in previous issues. You can access those by clicking the links above. As for today…

The legacy financial system is fracturing right before our eyes.

The Master Economic Resource

We’re talking about investment themes for building consistent wealth this week.

We covered Bitcoin and gold last Thursday. And we discussed world-class insurance stocks yesterday. Today we have to talk about the master economic resource – energy.

Simply put, nothing happens without energy. Everything we see in our modern world today – and everything we use on a daily basis – is only possible because of energy.

It’s a simple thing. But if we truly ponder it, it changes our perspective.

My investment philosophy is this: I want to own energy in the most advantageous way I can. If we start there, all we need to do is figure out what form that energy should take.

Top-Tier Energy Stocks

The Environmental, Social, and Governance (ESG) movement would have us believe that we should own energy in the form of solar and windmills.

They told us that we’re rapidly moving towards a “carbon-neutral”, “net-zero emission” world. And in that world, we would reduce our dependance on fossil fuels—namely oil, natural gas, and coal.

Countless “clean energy” exchange traded funds (ETFs) popped up support this theme. ESG investing became a hot trend. And Larry Fink, CEO of investment management giant BlackRock, paraded around in media appearances proclaiming the gospel of ESG.

But then reality set in.

The Cornerstone of a Robust Investment Portfolio

Last week we laid out a system for building consistent wealth. Then we outlined seven different investment themes through which one could implement such a system. They are:

Bitcoin
Gold
World-Class Insurance Stocks
Top-Tier Energy Stocks
Gold Royalty Stocks
Consumer Inflation Hedges
High-Technology Stocks

We talked about the ‘why’ for Bitcoin and gold last Thursday. Today let’s cover world-class insurance.

World-Class Insurance Stocks

World-class insurance refers to property and casualty (P&C) insurance companies. Believe it or not, this is one of the best businesses in the world.

To understand why, we have to understand the P&C business model. It sounds boring… but there’s magic hidden within the nuances.

Diving into our investment themes…

Yesterday we discussed a system for building consistent wealth.

The system is rather simple. If we invest a reasonable amount of money each and every time we earn income, we’ll automatically grow our wealth and create financial security.

The big question is – what should we invest in? And to that I proposed seven different investment themes. They are:

Bitcoin
Gold
World-Class Insurance Stocks
Top-Tier Energy Stocks
Gold Royalty Stocks
Consumer Inflation Hedges
High-Technology Stocks

Let’s talk about the ‘why’ for each of these. We’ll hit each from a high level – starting with Bitcoin and gold today.

Building a System for Consistent Wealth

We’re talking about consistent wealth this week. And as we noted, the simplest way to build consistent wealth is to buy quality assets on a regular schedule. Like clockwork.

When we left off yesterday, I promised to share with you how to create a system for this… and exactly which investments to make right now. That will be our topic for today.

I’ll start by acknowledging that everybody’s situation is different. Anything I suggest in these pages should be taken as just that – a broad suggestion. Nothing here should be considered personalized financial advice.

That said, most of us earn income on a regular schedule. The easiest way to create a system for consistent wealth is to set aside a chunk of our income for investing the moment we receive it.

This is the old pay yourself first principle. Invest a portion of your income as soon as you receive it – before you pay any bills or make any purchases.

To make this sustainable, the portion we invest has to be reasonable. It should be an amount that won’t leave us scrimping for quarters under the couch cushions at the end of the month.

At the same time, it should be a material amount. Investing five dollars every two weeks isn’t going to do much for us.

Once we have settled on our investing budget, we should spread it out evenly over several different assets. And we do this first thing every time we get paid – no matter what.

So that leaves the question: what assets should we invest in each pay period?

Consistent Wealth

Last week we talked about how consistency is the key to success.

Success usually doesn’t come from one massive accomplishment. Rather, it comes from many small accomplishments made day after day after day.

All the little accomplishments accrete. That is, they build upon one another. Then one day you wake up and realize they have compounded into something truly impressive.

The same principle applies to investing. It’s a simple thing – but I don’t think this is well understood today.

When I was a young professional, I thought investing was about hitting it big. So I was obsessed with trying to time the stock market. And I primarily invested in the riskiest stocks I could. When I found one with a good story, I would put a big chunk of my investable money into it.

Then I would start counting my gains prematurely. I would think to myself – if it doubles, I’ll turn my $10,000 into $20,000. If it triples, I’ll have $30,000. But what if it’s a ten-bagger? Then I’ll have $100,000!

Of course, it never worked out as well as I had mapped out in my head. Because that approach isn’t investing… it’s speculating.

An investor doesn’t think in terms of hitting it big. He (or she) thinks in terms of compounding money over long periods of time. That’s Einstein’s secret to wealth.

On History and Money – Lessons from the Allegheny Frontier

We took the kids on a field trip to the historic Homestead resort over the weekend. Here’s the view as we approached the grounds:

The Homestead rests in Hot Springs, Virginia. It’s located way up in the Allegheny mountains. The resort’s doors first opened in 1766 – back before the founding of America.

For early Americans, this was the western frontier. What lie west of the ancient Appalachian mountain range was a mystery.

The Homestead’s primary draw at the time was the surrounding hot springs for which the town was named. People believed the natural springs had healing properties. And more than a few traveled to the Homestead for a chance to bathe in them.

Thomas Jefferson was one of them.

Jefferson traveled to the Homestead in 1818. He was 75 years old and suffering from rheumatism at the time.

It’s documented that Jefferson spent three weeks at the Homestead. And he took to the hot springs three times a day to gain reprieve from his illness.

I imagine he spent considerable time browsing the resort’s eclectic library as well. Here it is:

My Phone’s New Superpower

Start off your morning by doing that day’s most important task. And do this every single day – no exceptions.

It’s the WIN principle. What’s Important Now.

I pulled that acronym from retired college football coach Bud Foster. Bud was the Defensive Coordinator for Virginia Tech’s football program for decades. He had his players walk around carrying a beat up old lunch pail with the WIN moniker painted on it.

Bud coached in the 2000 national championship game against legendary Bobby Bowden’s Florida State program. The third quarter of that game ended with Virginia Tech up one point on vaunted Florida State. That’s how close Bud and his philosophy came to the pinnacle of the sport—though Florida State came back to win in the final quarter.

The power of this principle is in consistency.

If you do the most important thing you have to do first thing every morning, every day – that productivity will compound. Over time all those little things will add up to big things.

Darren Hardy spelled out how this works in his book The Compound Effect. It’s a timeless secret of success in any endeavor.

For years I believed the secret of this formula lie in doing your most important task first thing in the morning. But recently I’ve realized that’s not it.