Hoarding for Inflation Protection?

[craigr]

A thread on the Diehards a poster brought up some numbers arguing that hoarding tangible assets might be a better investment than five year Treasuries. I responded that he was too late! This idea had been proposed before in a 1980 book called The Alpha Strategy:

http://www.biorationalinstitute.com/zco ... rategy.pdf

In the area of the knowledge and skills of your trade, it [Alpha Strategy] means investing as much as you can in education in order to increase your rate of production. In your business it means converting surplus cash into tools, supplies, raw materials, parts, and inventories. In your home it means saving real goods such as soap, underwear, tires, laundry detergent, toothpaste, and lightbulbs, rather than paper claims in the form of bank savings accounts, bonds, and stocks. If you still have money left after investing to the maximum in these three areas, then it means converting your paper claims into real goods by buying and saving things that others will need in the future; this could mean finished manufactured goods, but more logically, it means the raw materials used by industry.

The Alpha Strategy has one primary purpose: to protect wealth. As such, it will work for any amount of capital. If you have only have $100, you can protect it completely against inflation and all investment risks by simply buying things now that you know you will have to buy next week, next month, or next year. If you have $1,000 or $10,000, the same thing holds true. As the amount of capital you have available increases, it becomes less practical to store items for your own personal consumption, and more sensible to store things that you can eventually trade or sell. Only when your assets exceed the amount you can conveniently store in education, business assets, and consumption goods should you consider saving tradable goods.

Buying tangible goods and then re-selling them later when you need the money out of them has been a common tactic in some countries with high inflation. For the holders of a depreciating currency it is a better idea, for instance, to purchase a bunch of filled propane bottles with your money and then sell them off as needed for your own cash flow needs later. The value of the money over this time may have fallen, but the value in the tangible goods propane bottles has remained so the person storing the tanks has been protected.

The above use of propane for tangible investing was actually a true story I had read from someone living in Latin America. I have spoken with another person that lives in Argentina and he has similar tales.

I'm not encouraging this as a Variable portfolio speculation, but just throw it out as an interesting way of dealing with high inflation that doesn't look like it's going to come under control. It's also interesting seeing how a free market deals with these issues.

[Otto]

Reminds me of this cartoon from A Random Walk Down Wall Street.

http://preview.tinyurl.com/2cfv6n7

(Although I suppose usefulness might be an issue...)

[craigr]

Yes, this was a popular idea during the high inflation of the late 1970s. There were books that would advocate taking out big loans to pay back in cheaper dollars later. This may have been an OK (but very risky) idea in the early 1970s, but a horrible idea when inflation came crashing down in the early 1980s.

The story I read about the propane tanks was (paraphrasing): In Argentina his relative would take his money from selling at a market and immediately buy propane tanks to store away. He would then take these tanks to the market to sell to people. When he got the money for the tanks he would immediately go out and buy what he needed right then so as not to lose any value holding onto the paper bills. Any surplus profits would be used to buy new tanks of gas which he would sell again the next week if he needed at the market.