Jumat, 30 April 2021

Lessons from the Master Himself

Money & Crisis

April 30, 2021

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Lessons from the Master Himself

Ten times bigger than the internet?

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In fact, it’s SO critical you understand this that one of America’s top tech investors recently gave America’s first ever TechX Talk on the topic.

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Graham SummersDear 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.

The Stock Market Priced In Gold

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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For Buffett, there is no “model” or “formula” for investing. Instead, he focuses exclusively on understanding the business he is buying, and buying it at a reasonable price.

During his entire 50-minute lecture to Florida’s MBA graduates, Buffett didn’t mention P/E ratios once. In fact, very little of his talk even involved financial metrics. Anyone who wasn’t familiar with his track record would have thought they were listening to a very successful businessman, not a guy who picks stocks for a living.

And they would be right.

A stock picker would have sold Coke at its peak in the late ‘90s. In fact, a stock picker probably wouldn’t have invested in Coke in the first place since the business is not particularly glamorous or exciting.

However, Buffett, as one of Coke’s largest shareholders, would note the following:

  • Based on his purchase price ($3-$4 per share) he is recouping 50% a year on dividends alone.
  • Coke is an inflation-proof business. It can continually raise its prices without damaging sales (I’ve been emphasizing this point).
  • Coke has a product for which people are insatiable. Buffett notes you can drink six cokes a day every day without getting sick of it. He notes that chocolate or other sweets are not like this.

I strongly urge you to watch some of the video. It’s extremely enlightening, especially in light of the inflationary backdrop the markets are in today.

Best Regards,

Graham Summers

Graham Summers
Editor, Money & Crisis

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