AMA - Where To Invest?

On today’s show we’re talking about investing versus speculating, and we’re answering a listener question about where to invest in today’s environment. This question comes from David in Great Falls Montana.

David asks,

I want to thank you for all the hard work you put in on putting out great content that is filled with such helpful information. I had a question on the podcast you put out on April 14th about stagflation. I was wondering what are good assets to buy to hedge against stagflation in the economy.

David this is a great question.

One of the best short term hedges against inflation is precious metals. I definitely recommend parking cash in precious metals during a time like this. But I have to tell you that it’s extremely difficult to buy gold or silver at the retail level today. The supply has completely dried up and almost all the dealer’s I’ve researched have zero inventory.

I like the way you phrased the question. Instead of asking where to invest, you asked what asset you should buy.

In this context, I’m going to use Robert Kiyosaki’s definition of the word asset, where he defines an asset as something that produces positive net income. We are of course at a moment in time where problems are everywhere.

I’m continually shocked by the fundamental lack of understanding of what investing is really all about. Some people just focus on buy low, sell high.

The true investor mindset understands the value of an asset, but not just because it sold at a certain price.

My thought is to focus on tactical problem solving. We are going through a global problem with supply chains right now. These are not going to resolve quickly. The recovery which is months away will be incredibly messy and inefficient.

The path to earning is to solve problems that people are willing to pay money to have solved.

The most trivial example is the guy walking through the crowd at a summer music festival selling cold bottled water for $2 per bottle. They paid $0.30 per bottle and are making a healthy margin. But they’re solving a problem.

The problems abound right now. 90% of the doorknobs in the world are manufactured in China. There is a global disruption and everyone in construction is experiencing shortages of hardware for doors. That’s a problem that needs to be solved. Supply chains are going to be re-evaluated in the coming months with a greater emphasis on security of supply. It used to be that everything was being commoditized and lowest price always wins. That may change in the future.

There will be a shortage of spare parts, globally. Anyone with a machine shop who can manufacture spare parts from a CAD file will do very well. Any machine shop that can create the CAD file by copying an existing part that might be broken by digitizing the dimensions will do very well.

There are shortages in the food supply that have opened up and will become increasingly acute in the coming weeks and months. Someone with a few hundred thousand tomato plant seedlings would probably get a good price for them. It would only take a couple of acres to produce a few hundred thousand seedlings.

It likely that many men in North America are going to be reluctant to go to the barber shop to get their hair cut anytime soon. Sales of hair clippers have gone through the roof. Inventories are sold out and many orders are experiencing long lead times. Here’s another problem to be solved. They’re literally everywhere.

You get the idea. It’s about discovering the real problems and finding a way to add real value, not just being a middle-man in the transaction.

I want to thank you David for a great question. This is a question that we’re going to be looking at repeatedly over the coming days and weeks.