How Not To Beat Inflation

As reported in the media, inflation is rising. To put it simply, the cost of living is going up, up, up.

Contrary to "mainstream" strategy, which is to put your money in investments, I think the right way is to buy low sell high.

And it is my firm belief that prices are high now. Consumer goods are selling at high prices now, but so are stock prices & property prices.

How not to beat inflation? Easy. Invest in something and get "stuck" for a long time. Unless you know how to accept the pain and cut loss for bad investments, you'll be holding on to bad investment picks that are fetching negative returns for a long time. This is of course assuming that prices have reached the peak, or are near the peak now.

To buy a stock, unit trust, or a property now is to buy near the peak. Ask yourself: When do you sell? Answer: You have to wait for a higher peak.

You could have done better.

Be patient. Wait for a downturn . Wait for the US to go into recession. Wait for the China bubble to deflate. Don't be misled into believing that the world stock markets will reach record highs repeatedly and never go down. (See remisier king Peter Lim's prediction.)

The best time to invest is near the bottom. And that happens only during the down cycle. Not when everything is fetching record prices.

Buy near the bottom, sell near the top.

So why do all the gurus advocate what they advocate? What they are saying is not entirely wrong, i.e. we should invest to get better returns. But it'll be good if they perhaps also talk about the timing of investments. Ah, then they'll surmise that no one can time the market and the like...

http://www.salary.sg/2007/how-not-to-beat-inflation/

what types of investments do you recommend at this period of time, considering the current volatility of the s'pore's market?

If you ask me, I recommend cashing out as much of your investments as possible and put the cash into a savings account that gives the highest interest rate (search and you'll find), or a short-term FD.
But then, many people will disagree, saying that the interest rate is not high enough to beat inflation...
Otherwise, bonds, treasury bills and money market funds that give high liquidity are also good places to park your money in my opinion. Just make sure that you're aware of the risks involved, e.g. foreign exchange risk.

This article is well-written but not entirely accurate.

If you believe a downturn is approaching, you can take short positions in the stock market. Indeed, investment opportunities are always available regardless of which direction (i.e. up or down) you want to bet on.

watcher, I think short positions are more risky. The stock market is designed for long positions- my understanding of taking short positions is that one will have to either borrow securities or do a buyback after a few days. If you know of ways to reduce such risks, please enlighten us.

Based on what little I know, you do not have to borrow securities to "bet" on the share prices falling.

You can buy a put warrant and simply wait for share prices to fall. At most you lose the cost of the warrant, which is much smaller compared to the cost of buying the shares and getting stuck when share prices fall (opportunity cost), or worse yet, panicking and selling at a huge loss. Please feel free to correct me, anyone.

jazz, I too have limitied knowledge on options and warrants. But, yes, I think you can buy a put warrant to bet on a declining price for a stock. What I know is that if you bet is wrong and the warrant expires, you lose all the money you invested in that warrant.

Volatility in the markets and inflation in our daily lives will be here to stay for next 2 years, in my opinion. The best way to participate in this volatility is to use "drip in money" strategy: http://www.waynekoh.com/2008/07/drip...ey-part-3.html

"Drip in money" a.k.a Dollar-cost averaging is not designed to generate extra-ordinary high returns, but rather, its primary purposes are:
(1) to reduce market-timing risk and,
(2) to preserve the purchasing power of the money into the future.

Also, all are welcome to join Share Investor Group on facebook: http://www.facebook.com/group.php?gi...699&ref=nf

All the excessive printed money from QE1 / QE2 went into property and stocks, which then get wiped out in a crash like it is now. Side effects include inflation in prices of necessities.

The smartest (or luckiest) guys would have bought low and sold when the market overshot its fundamentals. Keeping cash is not a stupid thing to do in times like this.

Those who argue that keeping cash doesn't beat inflation will have to face worse consequences of having their investments wiped out in the currently unfolding property and stock crashes.

Good luck to all.

Originally Posted by seer

All the excessive printed money from QE1 / QE2 went into property and stocks, which then get wiped out in a crash like it is now. Side effects include inflation in prices of necessities.

The smartest (or luckiest) guys would have bought low and sold when the market overshot its fundamentals. Keeping cash is not a stupid thing to do in times like this.

Those who argue that keeping cash doesn't beat inflation will have to face worse consequences of having their investments wiped out in the currently unfolding property and stock crashes.

Good luck to all.

haha... QE3 is coming as we speak. buy now before stocks and property shoot through the roof again!