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A Better Inflation-Beater than GoldBy
Thursday, June 5, 2014
At Stansberry & Associates, we have a good idea of what investors believe at any given time.
We know their deepest fears. We know when they are optimistic. We know when they are deeply pessimistic.
So, how do we know all this personal information?
By carefully tracking our sales. By tracking which areas of our websites get the most "clicks."
It's one thing to fill out a survey. It's an entirely different thing to actually spend your money on investment research... and then put thousands or millions of dollars to work based on that information.
What people say and what people do are often different things.
So, what do our sales results tell us right now?
They tell us investors are terrified... They're scared of inflation. They're scared their savings in dollars will collapse as they grow older.
We don't blame folks for being worried. But one of our core inflation-beating recommendations strikes many people as controversial... even crazy, given some of the warnings our firm has made.
So, what's the controversial recommendation?
Own stocks. Own businesses.
Specifically, own the world's best, most capital-efficient businesses. Own businesses with excellent brand names and large competitive advantages. Own businesses that are committed to treating shareholders well.
These companies are better places to park long-term wealth than any currency. They are better for parking long-term wealth than gold.
There's one major reason why...
Great businesses have long histories of rising in value when paper currencies decline in value.
You see, governments have a long history of debasing currencies.
When governments want to pay for big social programs or wars, they often print up extra currency units (like dollars). Every currency unit that is printed devalues the existing currency units. This is called "inflating" the money supply.
Inflation is a way for governments to quietly clip small bits of value from your bank account and your wallet.
Inflation is one of the greatest dangers a person saving for retirement faces. It can crush the future buying power of the money you save today.
This is why owning great businesses is so important. Great businesses hold their value through inflationary periods – even better than gold.
As we mentioned, this advice is controversial... I assure you that we're still long-term owners of gold.
However, we've done the research. We've looked at the numbers. We know great businesses do a better job of preserving and growing wealth over the long term.
Consider that from the start of 1990 until last month – a time period that includes booms and busts for both stocks and gold – gold has returned 222%. ExxonMobil has returned 1,573%. Wal-Mart has returned 1,775%. Coke has returned 1,270%. Health care giant Johnson & Johnson has returned 2,213%. Fast-food dominator McDonald's has returned 1,660%. (Note: These numbers factor in dividend reinvestment.)
Keep in mind... these companies were already well-established enterprises in 1990. It wasn't like you were buying them as bets on speculative startups.
The numbers are clear. Owning well-run businesses that generate consistent cash flow and dividends is a better long-term strategy than owning gold. (Again, we're gold fans and gold owners in general. Save your hate mail for someone else.)
If you're concerned about inflation – and as I mentioned, we know you probably are – we encourage you to think about today's idea...
Own some gold. Own some real estate. But don't abandon the proven wealth-building power of owning the world's best businesses. Don't pass up a chance to buy a great business for a great price.
Good investing,
Brian Hunt
Further Reading:
S&A founder Porter Stansberry says there's an easy way to gauge whether a company has the "right stuff" for long-term success. This method, he says, "is vastly easier and far more certain than trying to predict future investment performance any other way." Learn his secret here: There's No Secret to Investment Success... Except This One.
"99% of gold and silver owners are all wrong in the way they view their holdings," Dr. David Eifrig writes. "I take an unusual approach to my holdings. I hope I lose money on them." Learn what poor people don't know about gold here.
Market NotesAIRLINE STOCKS KEEP CLIMBING Today's chart proves once again that you can make great money in bad businesses... You just have to approach them with a "bad to less bad" strategy in mind...
Back in September 2011, we noted the trouble with airline stocks. Airlines sport tiny profit margins, they're subjected to big swings in fuel costs, and they require lots of ongoing investment just to keep the business running. This makes them terrible long-term investments. But from a trading viewpoint, we noted that airlines go through big "boom and bust" cycles. These cycles can be traded for big profits.
In our write-up, we noted that airlines had just experienced a big bust. Many airline names, like giant Delta Air Lines (DAL), had lost over 40% of their value in just a few months. Sentiment toward the sector was awful. This, we speculated, offered a chance to trade a "bad to less bad" rally (read our educational interview about this approach right here).
As you can see from the chart below, the airline sector has rallied... and rallied... and rallied some more. We wrote our bullish note in late 2011 when Delta traded for around $8 per share. It then rallied to $15 per share... then $25 per share. And just recently, it traded over $40 per share (a gain of more than 400%). It's one heck of a "bad to less bad" move.
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