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[25 Jun 2022] Newsletter: Funny money, Inside the eye of storm, Understanding inflation & More


5×5: Five articles summarised in five lines 🌟

  • Money Hack: Funny money to protect your lunch money
  • Learnings: Lessons on inflation, from the past
  • Fundamentals: What does it take to survive 100 years?
  • Inflation: Interactive guide to understanding inflation
  • Concepts: The eye of the storm

Funny Money! 🤑

  • Academically, and rationally, it does not make any sense to invest for “fun”.
  • Yet, it is almost impossible to stop any human from succumbing to FOMO or greed.
  • Bogle, the champion of index investing, advocated having a funny money portfolio in the hope that investors would avoid tinkering with the remaining 95% of their money.
  • Best case – It will restrict your risk adventures to 5%. If you’re lucky, you’ll make some money from this endeavor.
  • Worst case – You lose 5% of your portfolio. This may dent your ego and give you grief  – but it’ll not impact your financial goals.

Read More – Should you have a ‘fun’ portfolio?

Inflation of yesterday and today 🎯

  • While inflation tends to harm long-duration assets the most, it seems to do so to the benefit of lower-duration assets.
  • This is obviously because inflation induces fear which makes investors focus on the short term more than the long term.
  • Comparing yields for short-term bonds and long-term bonds is one indicator of inflationary fear.
  • Investors also tend to become more defensive by moving from financial assets to commodity-based assets.
  • Such a scenario makes energy stocks, especially with energy shortages across Europe, a value-based diversification play.

Read More – Lessons From Inflation’s Return

What does it really take to survive 100 years? 💪🏻

  • To be a Henokien, a company must be founded over 200 years ago and still controlled by the founding family
  • Long-term success is the byproduct of a company successfully working its mission with a written mission statement.
  • Century-old companies are financially conservative, they tend to avoid debt and put profitability above growth.
  • Century-old companies are built on knowledge and specialized skills passed down through generations but a willingness to learn, improve, and be better are defining characteristics.
  • Survival is about keeping the long term in mind while planning for adverse situations in advance.

Read More – Why Perfectionism Ruins Portfolios

A unique guide to understanding inflation 😇

  • There are three main types of inflation categorized by their causes: Cost-Push Inflation, Demand-Pull Inflation, and Built-In Inflation (Wage-Price Spiral).
  • When the money is printed faster than the economy grows, it sometimes leads to both cost-push and demand-pull inflation.
  • It’s impossible to keep a track of price changes of every single product or service in the economy.
  • Hence a set of products and services are included in calculating the inflation index.
  • Inflation does not impact everyone the same – while some people lose out as the value of money declines, others stand to gain.

Read More – How Inflation Works

What’s it like inside the eye of the storm? 👀

  • The most peaceful part of the hurricane is the center called the eye of the storm. But that is also the most dangerous part of the hurricane.
  • As soon as the eye drifts away from your location, you are subject to the most vicious elements of the storm.
  • The economy has spent the last 18 months in the eye of the storm. In June 2022, the walls of the hurricane are bearing down on us, and many weren’t prepared.
  • After a brief pandemic-induced slowdown in the economy and financial markets, we rebounded seemingly overnight.
  • Every chart of every possible economic and financial variable is pointed in one direction: up and to the right. Those who are lulled to sleep by the false peace of the eye are hit the hardest once the storm moves.

Read More – The eye of the storm 

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[25 Jun 2022] Newsletter: Funny money, Inside the eye of storm, Understanding inflation & More
[25 Jun 2022] Newsletter: Funny money, Inside the eye of storm, Understanding inflation & More

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