In today’s Money Morning…one man’s loss is another man’s gain…strategise, diversify, and think small…it pays to be prepared…and more…
Don’t be surprised if there are a few less presents under most families’ Christmas trees this year…
The clogged supply chains were already bad enough, but it is the steadily increasing rate of inflation that could be the real Grinch. A fact that even has celebrity economists like the ‘Barefoot Investor’ warning of sharp price rises in coming weeks.
Unfortunately, it isn’t really a laughing matter.
Despite what the central banks continue to parrot, inflation is looking like anything but transitory. You can even check out Ryan Dinse’s article from earlier this week for some evidence as to why it may be worse than what they’re telling us.
I’m certainly not surprised, though.
In fact, I’m somewhat eager to see what could happen if the RBA remains stubborn, because as unlikely as it may be, a truly horrific economic depression may be the wake-up call that spurs some real action.
Hell, it could even lead to the end of central banking as we know it!
Sadly, though, I doubt I would get my wish.
Because even if this hypothetical disaster were to happen, I suspect it is everyday people who will suffer the most. After all, whenever there is blood in the streets, the vultures have already begun circling…
One man’s loss is another man’s gain
At this point in time, in the West at least, no one really knows what is in store for the economy.
Inflation is certainly a timely topic, and it may truly end up ravaging markets. But there is also the possibility that it is resolved naturally. If global supply chains can fix their ongoing issues, for instance, it would likely go a long way to ease any inflation fears.
How to Limit Your Risks While Trading Volatile Stocks. Learn more.
Again, though, no one knows what will happen.
I can, however, tell you what the ramifications of such inflation could be. After all, you just need to look at the scenes happening in Turkey to get a vague idea.
A few weeks back, you may recall that I discussed just how bad things are in Turkey right now. The national currency — the lira — is trading at all-time lows relative to the US dollar. A situation that has been brought about by the ridiculous and stubborn actions of President Erdoğan.
Because of this incredibly low exchange rate, foreign buyers are flocking to Turkey’s property market. Sales to international bidders jumped by close to 50% in November alone, resulting in some US$8.5 billion spent on buying up bargain homes.
This is the perfect representation of what happens in the midst of an inflationary crisis.
Everyday people struggling to pay for day-to-day goods are forced to survive by any means. Meanwhile, the elites and ultra-wealthy, with their stockpiles of cash and assets, can prey on the desperate…picking up bargains, just like these people buying land in Turkey.
And it’s not exclusive to property either.
Stock markets, for example, are infamous for similar kinds of events. In fact, the colloquial saying ‘shaking out the weak hands’ refers to exactly that: A scenario where funds or investors with high amounts of capital will try to manipulate regular investors into selling just so they can buy at a cheaper price.
So while I’m not saying this will happen, I am saying that you should be aware of the possibility.
Strategise, diversify, and think small
The thing you need to think about as an everyday investor is how you respond to these events, because truth be told, you can use them to your advantage too.
However, it does require a touch of foresight and some serious conviction.
That’s precisely why every investor should have some sort of strategy or plan. No matter how simple or silly it may seem, following a set of pragmatic rules when it comes to stocks can make a huge difference.
And not just for securing more wins more often, but also for stemming any losses.
On top of that, as cliché as it is, diversification across different sectors or asset classes is a great way to avoid a blowout. Granted, if you’re extremely knowledgeable about one particular industry or field, it is possible to specialise too. It’s just trickier to manage and requires a lot more dedication to keep on top of things.
Most important of all, at least in our view here at Money Morning, is to think small.
Because at the end of the day, while the market as a whole is certainly influenced by big money, it is much harder for their reach to influence tinier stocks. That’s why, despite their speculative nature, individual investors can often prosper much more from small-caps.
Even in the event of inflationary pressure, you can still find promising stocks at the tail end of the market. You just need to know what to look for and when to invest at the right time.
We’ve even put together a free workshop detailing some great ways to get started — valuable information and analysis that can help new investors and old hands alike.
Check it out for yourself, right here.
After all, no matter what 2022 may have to offer for markets, it pays to be prepared. Otherwise, you may just become the next victim of the vultures…
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.