Transcript:
Tom Vaughan:
Hello everybody, welcome to Thursday. The S&P 500 was up .08% today. And really good day for technology, nice bounce back. But I want to answer one question that’s been coming up is how do I fight inflation? And so really inflation kind of has two components. One, for me and you as a consumer. We go to the gas station, we pay more for gas, etc and that obviously takes money out of our pocketbook. The other side is me or you as an investor. And so the object is really to become a better investor to the point where you can really understand how to fight inflation, what to invest in to try to offset those higher costs that we’re all running into.
And so here’s the key thing, you want to find companies that can control their price in an inflationary environment. So as their costs go up, they can increase the cost of their particular product, all the way up until the consumer can’t afford it anymore. So for example, there are companies that have fantastic name recognition, or they have a very big market share in their arena, or they have low competition, or some type of really unique product that people need that will pay almost anything for even if that cost does go up. So you want to try to identify those types of companies, invest in those types of companies, and you should be able to exceed inflation for quite some time.
And so, I’ll give you some examples. So the number one holding that we have in our portfolios is the Vanguard S&P 500 fund. It’s an Exchange Traded Fund with a ticker symbol VOO. If you look October to October, from last year to this year, inflation was up 6.2%. Well, the S&P 500, the Vanguard S&P 500, was up 42.7%. So that S&P 500 is chock full of companies that have all those unique characteristics. And they have low competition, great name recognition, they have pricing power as a whole, and that’s why we saw earnings jump over 36% in the third quarter for the S&P 500 companies, because they can control their pricing. So even though… their costs went up, they’re able to increase their prices, and still maintain their earnings margins and actually grow them.
Now, again as a consumer, that’s a problem to me as they keep raising their prices, but as an investor, I want to find those companies that can do that, because that’s where I can make some money. Also, you can look at some of the areas that are kind of unique. So for example, Clean Energy is an area right now you got all these countries and states and different companies that are trying to get to carbon “net neutral.” They’re investing tons of money in Clean Energy. And so even though the prices are going up, there’s so much demand for those, they’re still able to continue to increase their prices and continue to increase their profit margins. And so for example, iShares has a Clean Energy exchange traded fund, ICLN is the ticker symbol. It’s in our portfolio, it’s up over 30% in the last 12 months.
Another unique offering would be robotics and artificial engineering, another really hot area coming out of this pandemic. As people try to systemize their companies, and that’s up over 36% in the last 12 months, the Exchange Traded Funds that we use, there’s an iShares one with a ticker symbol IRBO, another unique areas cybersecurity. So if you’re facing a ransomware attack that might cost you millions of dollars, and you have to pay more for it because inflation, you’re going to do that up to a high degree. So there’s an iShares cybersecurity ETF that we have in our portfolios, IHAK is the ticker symbol: that’s up 53%. Again, from all of these are from last October to this October, so inflation was up 6.2. All of these have grown substantially more than that, since in that same exact timeframe.
You can look at companies with very unique name recognition, like Apple: up over 38% in that timeframe. Microsoft up over 65%. And so these companies have the ability to increase price up to a point. So let’s talk about that. The consumer has to be able to afford that increase in price. And the consumer is personal consumption like you and me, and business consumption. And if you look at right now, both the personal and business consumer is super healthy. Predominantly, because of all the government programs that have come out, and the fact that interest rates are very low. And when they keep rates low, people can pull money out. We’ve got you know, households have seen tremendous gains in the value of their home. November is seen a 33% increase in refinancing cash outs. So that’s money that people have to go spend, even if it costs more.
So you’ve got this scenario where lots of money on the sidelines; a pent up demand. Demand is starting to skyrocket and continuing to come up. And even though prices are coming up, people are still buying. So, we want to watch that consumer side, that’s the most important part. But the consumer is super healthy right now, and getting healthier as we speak. And maybe at some point in the future here, we’ll have to reevaluate that.
But having the stock market drop, because of inflationary number coming through: This is not 1970. This is the pandemic reopening. The pent up demand is unbelievable, and rates are very, very low. And so that continues that pent up demand. And so that’s what we’re looking at. The fourth quarter earnings could be great, just like the third quarter was. These companies are really good at figuring out how to, you know, produce their earnings. So, look forward to talking maybe some more about this at the show tomorrow with Talk Money with Tom, if you get a chance you can join us at from 12:15pm to 1:00pm and I look forward to seeing what’s going to happen tomorrow. Thank you very much.