Value Investing with Sven Carlin, Ph.D.|22. Juli
Stocks Are a Great Hedge for Inflation, But...
Inflation and Equities as a Hedge
- Average inflation over the last 5 years was 4.5%, with no signs of slowing.
- Stocks are generally a good hedge against inflation, especially those with pricing power.
- Key caveat: The hedge only works if the entry price is low.
- High government deficits, rising interest payments, and increasing debt-to-GDP ratios fuel inflation.
- Valuations are extremely high: The earnings yield is around 3-3.5%, compared to historical 6-7%.
- The market is the second most expensive since the dot-com bubble (similar to 2021).
- In inflation-adjusted times, similar high valuations led to real losses of up to 60%.
- Value stocks (like in the 1970s) delivered a 10x return from 1972 to 1982, while the overall market stagnated.
- GMO analysis predicts negative real long-term returns for US stocks, with opportunities in international value, deep value, and bonds.
- Example: Since 2020, the US dollar has lost 25% of its purchasing power.
- Companies with high pricing power (e.g., in Turkey with a 10x market rise) show stocks protect, but the entry price is crucial.
- For international investments, consider Interactive Brokers (link below).
- For value investing strategies, the value quadrant and research platform offer further ideas.
