Dear Money & Crisis Reader, Yesterday I outlined one method for identifying stocks that outperform the broader market in terms of inflation-adjusted returns. Why do we care about inflation? Because, as I showed earlier this week, MOST stocks don’t produce REAL wealth. Remember, the U.S. stock market is priced in U.S. Dollars ($USD). And over the last 20 years, the $USD has lost nearly 40% of its purchasing power. So, when we adjust for this by pricing stocks in gold (an asset that cannot be devalued by the Fed), we see that stocks are in fact DOWN some 50% from their 1999 peak. Now bear in mind, I’m not saying stocks are a complete waste of time. I’m simply saying that if you are piling your money into an index fund, most of your gains are coming from the new money you put in… not stock appreciation. For this reason, Warren Buffett and other legendary stock pickers focus on picking stocks that are growing rapidly to the point of outpacing inflation by a wide margin. Consider Coca-Cola (KO). Buffett began loading up on Coke in 1988. At that time, he noted, among other things, that the company is able to raise the cost of its product to beat inflation without losing consumers (a term he calls “economic goodwill”). I recently re-watched a great 50-minute speech Buffett gave at the University of Florida You can watch it here. (He starts speaking about Coke at the 25-minute mark.) A Unique Glimpse into Warren Buffett's Mind Listening to Buffett explain his investing philosophy in his own words, it’s clear that 99% of what’s written about him is wrong. |
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