Investment philosophy in the period of inflation

2007-6-23 9:53:42

Wu

I am not a personal financial expert, and I even give my own money to financial experts, so I am not qualified to give anyone advice on investment strategy. Fortunately, if abstract, from a philosophical perspective, personal financial investment and institutional investment should have a lot in common. I know a little about the latter. In this way, we will not talk about specific operations, but only talk about investment ideas. I still have this qualification.

All investors are now facing the same situation: China's economy is currently in excess of liquidity. This is mainly caused by the "double low policy" of low interest rate and low exchange rate. Low interest rates increase the broad money supply; The low exchange rate lured a large amount of foreign investment into it. The result is excess liquidity, or in layman's terms, too much money.

Some people say: Isn't there too much money for inflation? Don't you want the price to go up? Why can't I feel obvious inflation? The answer is that inflation will cause the price of total social products (capital goods+consumer goods) to rise, but assets and consumer goods may not necessarily rise simultaneously. Depending on the nature of excess liquidity, the price of consumer goods may rise slowly, or the rate of increase may be lower than the inflation rate. In this case, since the total price increase of products should be equal to the inflation rate, the price increase of capital goods will definitely be higher than the inflation rate. In other words, capital goods are actually more and more valuable! This term is called "asset appreciation"-which leads to the first investment idea in the period of asset appreciation and excess liquidity:

Rule 1: It is more cost-effective to hold as many assets as possible than to hold cash.

It should be noted that the assets here are all non-domestic currencies, and what has the function of preserving value is not necessarily physical assets. Land, real estate, private equity, stocks, works of art and foreign currency are all assets.

Speaking of it, it seems very simple-just exchange your money for assets. However, the next second, things became a bit difficult.

Article 2: Not all assets will appreciate more than inflation.

This article seems a bit circuitous, but the principle is straightforward: since the price increase of consumer goods can be lower than the inflation rate in the process of asset appreciation, the price increase of some capital goods may also be lower than the inflation rate. More absolutely, the price increase of some capital goods may be lower than the bank time deposit interest rate.

For example, during the internet bubble in the United States, a large amount of investment poured into the stock market, which led to a sharp appreciation of stocks (an asset), thus depressing the appreciation of many other types of assets. During this period, the price of gold actually fell. After 200 1, the stock market fell into a downturn, but gold came out of a big bull market.

Some so-called "investment guides" often advise investors to buy assets blindly during the period of inflation, and publicize that "the housing market and the stock market will not fall" on the grounds of "excess liquidity". Don't be fooled by these words. You must remember that not all assets will make money, so you should choose your investment products carefully.

Then, if you choose the right investment products, will you make money? Still not necessarily, because there is a third law.

Article 3: In a specific period, the market price of assets may exceed the appreciation potential.

The reason is simple: no one is a fool. Now that you know that there is inflation, assets will appreciate and others will know. As everyone is eager to speculate on assets, asset prices may be too high.

For example, in the long run, stocks and real estate are the most suitable assets to fight inflation. The long-term trend of these two assets in few major economies in the world outperforms the inflation rate. If you buy these two assets at the right price and hold them for a long time, you will almost certainly make a profit.

The problem is that during the period of excess liquidity, these two assets may become relatively unsafe. The reason is that excessive liquidity will raise inflation expectations and make people speculate the prices of these two assets too high. The practice of investment psychology has repeatedly proved that most people's investment decisions are short-sighted. For example, when the inflation rate is 10%, most people will buy assets with the mentality that "the inflation rate will always be 10%", thus pushing the asset price too high. The reality is that the flood of liquidity will be absorbed sooner or later, and inflation will fall back sooner or later. At this time, many people will find that the assets they buy have little appreciation potential or even depreciation. For example, in the past two years, the United States was in a period of excess liquidity with low interest rates, and real estate prices rose all the way, but they have been weak since last year.

Frankly speaking, it is precisely because of this third article that it is difficult for most ordinary investors to fight inflation by buying assets. Because institutional investors often predict the economic situation, especially the inflation trend better than ordinary investors. They are the people who buy the cheapest assets, and ordinary investors will become the successors in the later stage of the bull market-even if they are not quilted, the yield is not as good as expected. Take China's fiery stock market as an example. When the stock market was at 2000 points, most of them entered the market on a large scale. When the stock market rose from 2000 to 4000, their average return was 100%. At this time, the stock price as an asset is already high, but individual investors are pouring in. Even if the stock market continues to rise by 2000 points, the return is only 50%.

To sum up the above three points, the investment philosophy in the period of inflation is: 1) choose assets; 2) Selection of specific assets; 3) Choose to invest in specific assets in a specific period. Of course, this concept is mainly applicable to investors who hold it for a long time (more than one year). If you like killing speculators in the market, that's quite another matter.

(The writer is a director of Hongchuan Investment Consulting Co., Ltd.)