Journal of a Wayward Philosopher Archives - Page 9 of 33

Your only two choices

You have two choices when it comes to investing. You can own currency. Or you can own energy.

If you don’t trust the currency, you better own energy. But how you choose to own that energy is what will determine your success or failure in the markets.

This old-world wisdom comes from an investing legend. I chatted with this gentleman at an investment mastermind back in the summer… and I think we arrived at a fundamental truth.

Energy is the master economic resource.

Think about it… 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.

The Fed’s Best Friend

The Federal Reserve and other central banks risk pushing the global economy into recession followed by prolonged stagnation if they keep raising interest rates.

The United Nations (UN) issued that statement in a report published on October 3, 2022.

The Federal Reserve (the Fed) had already raised its target interest rate five times by then, starting in March. Those hikes pushed the Federal Funds Rate – the rate at which banks lend to each other – from 0.25% to 3.25%.

So the Fed pushed its target rate 13 times higher in the span of less than seven months.

The UN publicly stated that this was an “imprudent gamble”. And many investors joined the chorus. They cursed the Fed up and down because these moves caused the S&P 500 to plunge 15.6%. Many individual stocks fell even harder.

The wailing and gnashing of teeth came from all directions. Except one.

The Fed’s bold moves had one industry smiling profusely. But nobody noticed… because nobody had paid much attention to this industry for years.

Well, it’s time to take notice. This one industry will benefit from the Fed’s rate hikes more than any other.

It’s time

It’s time.

If we want to secure our finances and live a comfortable lifestyle, it’s time to bulletproof our money. We can’t put it off any longer.

As we’ve been discussing, the Age of Paper Wealth is over.

From 1982 to 2022 interest rates always went down and stocks always went up. That made investing easy. All you had to do was buy some growth stocks and come back in five years… your account would be up.

Those days are over.

If we want to make money in the markets today, we must focus on five core investment themes. They are:

Reserve Assets
World-Class Insurance
Energy Renaissance
Gold Equities
Consumer Goods Inflation Hedges

We need to spread our money out across these five asset classes, each for a different reason. But they are complimentary. And together they will make our money bulletproof.

We’re in for a bumpy ride…

The macroeconomic front is starting to get quite complicated.

Under the surface, there’s a covert financial war raging. It pits the globalist power structure and their “Great Reset” against the New York banking faction who want to save the legacy financial system.

At the same time we have a war in Eastern Europe… and now a war in the Levant. And various factions are trying hard to escalate them into something much bigger.

And if that weren’t chaotic enough, we’re at the very beginning of a massive liquidation of all the malinvestment that’s formed since the world’s top central banks collaborated in 2008 to drop their key interest rates to zero. The economy is about to cleanse itself of the uneconomical projects and zombie companies that produce too little value to be profitable.

Put it all together and there’s only one thing we can conclude for certain. We’re in for a bumpy ride.

We can see evidence of this if we assess the most recent quarterly earnings reports from two of America’s largest banks – JP Morgan and Bank of America.

I found these reports especially interesting because JP Morgan appears to be the de facto leader of the New York banking faction. Meanwhile, Bank of America is firmly in the globalist camp. They now talk about the implementation of “stakeholder capitalism” (the Great Reset) in the bank’s annual reports.

And the way each bank presented its earnings release signals that this is a case of dueling banks. And dueling agendas.

How to Make Your Money Bulletproof

Are you here to make money? Or are you here just to play the game?

This important question comes from Adam Smith’s book The Money Game. It was published in 1967—before The Age of Paper Wealth even began.

The Age of Paper Wealth refers to the time from 1982 to 2022. It was a time when interest rates only went down… and stocks only went up.

As we discussed yesterday, investing was easy in that climate. All you had to do was buy some growth stocks and then forget about them. If you checked back in on your account five or ten years later, it was guaranteed to be up.

Those days are over.

And if you’re here to make money – not simply play the game – there are some important moves you need to make.

Look, investing is simple. If you do it right.

I’ve talked to many people who see the stock market as a casino. Of those, many think it’s a rigged game.

And I agree 100%… if you ignore the factors that determine the outcome of any single investment.

I know plenty of people who buy stocks based on “tips” or “intel”.

They’ve heard that a new law or regulation is coming that will catapult a small company’s shares higher.

Continue reading “How to Make Your Money Bulletproof”

It’s a new era in the markets…

The investing game just changed.

A gentleman writing under the pen name Adam Smith wrote a book called The Money Game back in 1967.

Smith put forth the idea that investing in the stock market is an exercise in mass psychology. He pointed out that most investors have no clue how to value stocks… thus, they are not likely to ever make any money in the market.

But that’s okay. Because according to Smith, they aren’t there to make money. They just want to play the game. If you understand that, you’ll realize that the mood is what drives everything.

And Smith pointed out that greed and fear are the two primary emotions in the market. At any given time one of them is likely to be in the driver’s seat.

It’s a great read. But it concludes rather curiously.

Smith wrapped up the book by talking about the prophets of doom. He called them the Gnomes of Zurich.

These are the people who constantly think the market is about to crash and the game is about to end. Many of the early pioneers in the financial newsletter industry fit that bill.

The problem with the doomsday prophet is that he always imposes his bias upon his forecasts. And he brings morality into the picture.

But just because something is wrong… and just because something can’t last forever… doesn’t mean its end is imminent.

The three keys to a bulletproof portfolio

Investing in stocks is a simple game.

That was the subject of yesterday’s letter. And the reason is simple. There are only three variables that control the outcome of any stock investment. This is true regardless of the economic climate.

The first variable is time. How long will we be able to safely hold a given stock?

Of course, there’s no simple answer to this question. It requires some deep analysis of the company and the industry it’s in, as well as educated projections regarding macroeconomic trends.

But for certain companies, it’s not that difficult. Take a capital-efficient consumer goods company like Hershey or Domino’s Pizza, for example.

Do you think people will still be buying cheap chocolate loaded with sugar thirty years from now? Do you think they’ll be buying cheap pizzas delivered on time right to their door for decades to come?

I do. Therefore we could safely hold those companies for at least thirty years… if the other two variables line up for us.

And that brings us to the second variable. It relates to compounding.

Investing is a simple game

We hit peak Fall foliage over the weekend.

Our favorite tree erupted with the most intense shades of red and orange. And the mountains surrounding our humble property lit up into a collage of colors as if someone were playing with the old children’s toy Lite-Brite.

It’s hard to beat Autumn in the mountains.

Shifting gears…

Let’s talk about investing this week. And we’ll start with this – investing is critical for anyone who hopes to achieve financial security and then financial independence.

Of course, there are plenty of asset classes for us to choose from. We cover each (and how to invest in them) in our Finance for Freedom program.

But today I want to talk about stocks… for a few reasons.

Chances are you have exposure to stocks already. Maybe it’s through a 401k. You may also have other investment accounts set up.

I want you to know that investing in stocks is a simple game.

I’ve been immersed in the world of investment research for over ten years now… and I’ve learned that there are only three variables that control the outcome of any stock investment.

And that’s true in any environment.

The Sound Money Solution

We’ve been talking all week about inflation and its devastating impact on civil society. It hollows out the middle class and makes long-term business planning nearly impossible.

And it all starts with a lack of understanding around money.

We are all taught to view money as a medium of exchange and a measurement of value. And sure enough, these functions are critical to civil society.

Money is also a communications system. It allows us to put a price on goods and services in the economy. And those prices communicate valuable information to us about the supply of and demand for scarce resources.

For example, when the price of something goes up, that’s a signal that it has become more scarce relative to consumer demands. This prompts entrepreneurs to devise ways to create more supply or alternatives to the good in high demand.

In just the same way, when the price of something goes down, that’s a signal that the item is relatively abundant compared to consumer demand. And this leads firms to produce less of it. That is, until the price rises again.

This communications system allows an economy to coordinate production across time and space. And it does so according to Adam Smith’s old “invisible hand” principle.

This principle says that individuals making their own decisions based on self-interest drives economic growth. The invisible hand guides firms to produce the highest quality goods at reasonable prices.

It’s all about allocating labor and scarce resources to their highest and best use. Doing so creates a strong economy that benefits all of us.

The problem is, inflation distorts this communications system.

The middle class is under attack

We’re pulling back the curtain on inflation this week… and it’s getting ugly. The middle class is getting wiped out.

And that’s not just an opinion. It’s all in the data. Today I’ve got two tables for you that spell it all out, clear as day.

This table tracks the median price of a new car, ten gallons of gas to put in that car, and five pounds of ground beef going back to 1940.

As we can see, it’s not a pretty picture. Costs have risen dramatically over every ten year period in modern history.

That said, we have to compare these costs to the median income to get a better feel for the story. And that’s what this next table does:

Here we’re tracking the median home price compared to median annual incomes going back to 1940.

And again, we can see that home prices have risen significantly over every ten year period. But incomes have too… so it’s that third line that we need to focus on. It shows us exactly what percentage of the median home the average guy’s salary can cover.

The median home costs $430,300 today. The median annual income is $74,580. That means the average person’s salary can only cover 17% of the median home price.