Latest / Money Grows on Trees / #253 - How Apple & Coke Win at Inflation

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#253 - How Apple & Coke Win at Inflation · Money Grows on Trees

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  One of the most powerful companies in the world when it comes to pricing power is,
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  you guessed it, Apple. Because people would
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  trade their second car in to get their hands on one of these. Like the pricing, this
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  is probably worth $30,000 to people, not 1500 bucks. It's
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  got so much pricing power in it. And I know that because I
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  know that people would literally trade their cars to get this. And I know cars
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  cost 30,000. So this is really a $30,000 product, but
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  it's not being sold for that. So Apple knows it can incrementally increase
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  the prices like this, over and over again to
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  combat inflation because they know that people are still going to buy this because it's such a valuable
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  commodity to people, right? The same sort of thing. I can see over there in the fridge there's a
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  can of Coke in there. Another example of a company that can actually outperform
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  inflation is Coca-Cola because Coca-Cola has
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  the ability to increase each can by one cent. Over
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  8 billion cans consumed daily. Think
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  about that. Some huge number of cans consumed daily
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  can increase it by one cent. It's almost 2 billion cans of Coke consumed
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  daily. So you think if Coke can increase it by a cent, it's
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  increasing it by like 2 billion cents a day. Isn't
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  that insane? So it's got pricing power, so it can outperform inflation. So
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  check this out. Look at what Warren Buffett's doing right now. Look
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  at this. He knows that the US dollar is inflating. He
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  knows that, and I'm talking about the Australian dollar, but the US dollar is also inflating. He knows this. So
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  he's positioned his portfolio into bonds, which
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  helps hedge inflation a bit because you're getting 4.5%. He's putting his
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  money into oil stocks hedge, and
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  he also owns Coca-Cola as a company. His highest
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  position is Apple. Think about this. And he's got
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  Moody's. So all these companies in his top five or six holdings, which
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  takes over most of his portfolio and other private
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  companies he owns, he's got pricing power. See his candy. Big,
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  big powerful company. He bought that for $25 million many years ago. It's worth
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  billions now. And it can increase its candy prices to
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  combat inflation because people will still want to buy its product. So he's
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  got tremendous hedge in inflationary pressures with his
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  holdings and businesses. So, companies can raise prices in
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  inflationary times. This happened during the GFC, the
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  S&P 500 soared because of rising money supply. Owning an
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  index fund, if you've got companies in there like Microsoft, Google,
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  Apple, etc., Coca-Cola, they can increase their prices. McDonald's,
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  the Big Mac index. When you went to McDonald's recently,
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  I bet you were shocked by the price of stuff. Yes, it
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  hurts. It used to be you could go to McDonald's at $5.95 for a meal. a
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  house to get a meal at McDonald's. It's the
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  Big Mac Index. McDonald's is a perfect example of a company and
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  a business that can increase its prices. Why? Because it has. So
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  if you want to hedge inflation, businesses are a wonderful way to do it.
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  That's how I do it. That's how I do it. So I'm excited that
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  I own certain companies that are hedged with oil stocks. I'm
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  excited that we have businesses that are hedged in products
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  and services that people need. Super, super
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  effective way to do it, right? So you can either get it through some sort of
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  index, you can get it through ownership of businesses, private or
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  public. All right, next one. This is the last one. The
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  best hedge of all time. We said the best to last.
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  This is the best hedge against inflation of all time. It's
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  the fastest way to outrun inflation. And unlike
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  cash, it can compound very powerfully. So
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  check it out. You're going to be thrilled or you're going to be
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  disappointed, be the one. Here we go. The best way to
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  hedge inflation is to actually increase your skills. The best way to
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  hedge inflation is to earn more money. The fastest way to outrun it
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  is to earn more. Unlike cash, skills can compound drastically.
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  You can end up finding skills that you can totally transform your earning power
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  with and your income is the most important thing you can do to enhance
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  your wealth. It really is. You can't save your way to wealth. You can do it for a
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  period of time but you can't get it down to nothing. So, there's
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  an example in, I mean, many examples in the past where there's inflations
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  crushed the economy. I know without a doubt that people in that economy
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  with skills, sought after skills, were still getting paid a ton of
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  money in all sorts of different currencies and or gold and
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  or in barter to apply their skills to the economy.
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  Okay, so it doesn't, if you've got skills, people will find a
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  way to give you something of value to get them. So it doesn't really matter if
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  your local currency, like the Australian dollar is completely, you know, getting, It's
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  completely collapsed in the last few years in terms of its value, but... I
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  know that if I've got skills, I can get paid in gold, I can get
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  paid in US dollars, I can get paid in barter. Like if I'm
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  good at what I do and people need it, they will find a way to pay me.
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  Even if the currency is toilet paper, I know during COVID when there's a lot of toilet paper,
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  I could have provided a skill to someone. So Lloyd, I'll pay you in toilet paper. Go,
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  give me the toilet paper. It doesn't really matter what it is, your skills are
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  inflation proof. And it doesn't matter if the global currency
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  is crypto, USD, gold, Bada,
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  whatever, your skills transcend all
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  of the global currencies, all of them. So the
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  most important thing you can do is improve your
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  knowledge and skills because they are inflation proof. They will ride inflation way
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  up because there's people out there with skills. Think about
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  it. Think about Mark Zuckerberg. He's now like the
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  top three or four wealthiest people in the world. He's also the youngest in
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  that group. Think about the skills that he applied. He
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  became a multi, he became worth $100 billion. Do
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  you think that outperformed inflation? Yes. Do you think Jeff Bezos outperformed inflation?
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  Yes. Do you think Warren Buffett outperformed inflation? Yes. All
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  the people I know who are wealthy, a lot of my friends who are worth millions of dollars, how
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  did they get there? Did they buy gold? No. Did they buy real
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  estate? No, they didn't. They might say they do now to protect their
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  wealth, but they didn't get there that way, let me tell you. They all did it through actually
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  improving their skills and starting and building their own businesses. That's how
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  they did it. So don't, and some people
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  have certainly, there's a story of a lady, she just gave
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  a billion dollars to a charity. Her husband
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  happened to invest with Warren Buffett, that's stocks, that's Berkshire Hathaway, and
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  ride that sucker way up to a billion dollars, and of course,
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  incredibly powerful hedge, because Warren Buffett in
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  the last 60 years created 5.5 million percent return. To
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  put that in perspective, the S&P 500, 30,000 percent return. To
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  put that in perspective, it way outperformed inflation. Inflation hasn't
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  been anywhere close to those two numbers. So stocks and businesses, yes,
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  can also outperform it. But for most part, it's businesses
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  because of skills. So if you want the ultimate hedge, invest
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  in yourself. You are the ultimate hedge. You are the best asset to
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  invest in to overcome inflation. So could hyperinflation happen
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  in Australia? Could we absolutely destroy the power of
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  the Australian dollar? Theoretically, yes. Will
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  it happen? Technically, well, technically yes, but theoretically or
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  I would say no. It's unlikely because
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  we've got a floating exchange rate. We've got an independent reserve
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  bank. We've got global trading partners. We've got a ton of resources
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  here, deep capital markets. And we do have, despite the
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  challenging leadership we have at the minute, that's a whole other episode of what I think about
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  that. But we do have the ability to control money supply.
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  And we do have hard assets backing. We've got land,
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  arable land. We've got farming, commodities. We've got resources, energy,
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  hydrocarbons. We're good. But if
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  hyperinflation does happen, Like what happened in Germany, what happened in
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  Venezuela, what happened in Zimbabwe. In those scenarios, you know what happened?
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  People fled back. They just dropped the currency. They went back to other currencies. They
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  went back to the US dollar. They went back to gold. That's what happened. The
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  economy doesn't die. The paper money is just forgotten. All trust is
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  broken and we stop using it. So it's not like you'll just have nothing.
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  You will have figured out by then if there's hyperinflation what does work and
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  you'll have already gone there. But I can almost guarantee you that if
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  you have business skills and you have the ability to pivot and you
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  buy businesses and build businesses, there's no amount
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  of inflation that can hurt you because you are indestructible because
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  you invested in yourself. And of course, one of the other hedges
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  that's happening that I haven't really covered here because I don't want to is cryptocurrencies, especially
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  Bitcoin. They're like, oh, Bitcoin's a hedge against inflation. Oh,
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  my God. Do I have to talk about Bitcoin? It's a code. It's
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  a piece of code. And people like, read the Bitcoin standard. How
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  much research do you have to do to realize something's valueless? Look,
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  people are using crypto and specifically Bitcoin as an inflation hedge.
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  But the fact of the matter is this, gold has got thousands of
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  years of measurable data against inflation than
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  crypto does. It's tangible. Remember, the inflation hedge
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  is against tangible assets, right? Things that can
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  produce value for the world. Crypto doesn't produce any value.
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  How do I know that? Because I went down to the supermarket, With my wife,
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  we were doing a checkout and I said to the lady, ìHey, do you take cryptocurrency for
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  my groceries?î She went, ìNo.î I was like, ìPfft.î Then I went to my landlord the
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  other day, my property manager and he called up and said, ìHey, you owe rent.î Iím like, ìOh, do
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  you take Bitcoin?î He goes, ìPfft.î So Iím like, ìOkay.î So
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  I rang up my American Express. I got an American Express card, platinum card. Itís a wonderful card,
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  lots of points. I rang him up the other day and I had like $100,000 to repay
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  on that. I said, ìHey, do you take cryptocurrency? Do you take Bitcoin?î They
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  went, ìPfft.î How
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  is crypto or Bitcoin a hedge when it's not even valuable?
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  I can't use it for anything. At least I
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  can sell gold on the open market. I can sell it.
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  You can touch it. You feel it. Even though I hate gold, I can at
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  least see it's there. You can't see anything with crypto. It's
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  just code. Right? There's
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  certainly value in the technology of a blockchain. There's certainly value in
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  the technology of internet. There's certainly value in technology of AI, LLM
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  models. There's value in those for sure, because they speed up things. Yes? But
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  I can't see it in crypto. And so it might feel
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  like it's a hedge against inflation. By all accounts, if you haven't bought it, it
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  looks like it's hedged. But how they measure it? is
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  in USD, right? And so if the USD disappeared overnight, so
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  would the value of cryptocurrency, right? Because it's really got to be
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  valuable in the real world. And that's why I don't think it's the best hedge. So
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  I don't hold any of it. I never will hold it. Even if the world adopted
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  it as a currency, which I cannot see happening, I would
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  still own businesses. I would still, for that matter, if it
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  was the right price, own a piece of property. I would still own things
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  that are valuable. And I just can't see how it's valuable. This is why I
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  don't personally own gold. I don't personally own crypto. I personally own
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  things that are valuable to the world. Because I know if push
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  came to shove and shit hit the fan, like it did in COVID, did
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  people go to crypto? Nah. Did they go to gold? Nah. They went to toilet
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  paper. So I'm thinking to myself, wouldn't I
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  want to own companies that produce toilet paper? That's a better hedge, right? This
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  is where my mind's at. This is how I think. So I know that people got wealthy
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  by not owning those assets. I know they got wealthy by building businesses and