How to profit from rising prices

The costs of goods and services have gone up drastically. Prices for basic commodities like soap, cooking oil, fuel, etc. have all increased. The reason advanced is that COVID lockdowns disrupted global supply chains and yet demand has gone up because many economies have suddenly opened up. This asymmetry between demand and supply has pushed up prices.

Whereas this situation is bad for many people, it nonetheless presents some opportunities for the enterprising few. Inflation is as old as modern civilization itself. Since the discovery of money and currency, inflation has always been embedded in our economies. Inflation happens when there is more money in the economy chasing after a few goods and services. The money supply is driven by lending activities by the banks and government fiscal and monetary policy. The volume of goods and services produced is a function of the productivity of an economy. When an economy produces fewer goods and services than are needed, inflation is bound to rise. When banks lend too much and interest rates are low, there is bound to be inflation. When governments spend way more than they earn there is bound to be inflation.

Historically the wealthy tend to profit more from inflation than the poor. The way to benefit from inflation is to invest in things that typically go up in value with inflation. The rich tend to move their assets away from currency assets and put their money in hard assets like stocks, bonds, land, businesses, commodities, etc. They also typically reduce their cash holdings because cash loses value during high inflation.

We can copy what the rich do, and do likewise. First, consider investing in businesses where prices are escalating. Escalating prices means there is high demand and low production. So anyone who solves the production problem reaps big. For example, because of the high soap prices, we have entered the laundry bar soap business and we have seen many opportunities.

Second, is to invest in hard assets like land, buildings, etc. Investing in these hard assets is a natural way to preserve value in inflationary times. For instance, we have just built a small cottage using materials whose prices have since gone up. In effect, the value of our property has also gone up because it will cost much more to rebuild the same structure.

Third, is to minimize cash holding or invest the cash in interest-bearing assets. For example, we recently bought a 20-year treasury bond that pays 17.5% interest. As long as the inflation rates stay below 17.5%, this bond will remain viable.

Fourth, is to invest in long-term biological assets like coffee, trees, etc. For example, a friend of mine has set up a coffee plantation that, if well managed will bear fruits for decades to come. Same thing with a tree plantation which will hold value for years to come.

Fifth, is to strive to move away from fixed wage employment. The biggest challenge with salaried work is that the pay is fixed and doesn’t usually vary easily with changes in the economy. Because of the high unemployment, the wages especially for entry-level jobs are quite low. However, self-employment potentially provides a profitable solution. For example, a carpenter charges for each chair he makes. So he just has to make more chairs; better chairs; to earn more. As long as he figures out how to increase his productivity, his earnings will grow in tandem. A self-employed lawyer simply needs to find better-paying clients who can cover her costs. A small business just needs to sell more stuff to increase revenues.

Lastly, if your wages are fixed then the only viable option is to manage costs. Cut back on unnecessary expenses. Buy things at home in bulk. Adjust your lifestyle to fit within your means. Just try and survive through the difficult times.

In conclusion, there are always two sides to any story. While many people are crying about high prices, there is a small group of people who are heavily profiting from this crisis. When viewed this way, we realize that each problem is indeed an opportunity. I pray that you see and begin to exploit the opportunity presented by rising prices.

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