Well, we have a huge day today. My portfolio is up quite a bit,
it's up one point three, eight percent four thousand eight
hundred dollars. Just on the day.
The past week were up 5.5 1% that beats out.
The S&P 500 were up 18 thousand six hundred dollars.
I was just doing videos saying that is kind of depressing when
the stock market goes down. It's not fun to go through but
what I do is basically do nothing.
I just buy more into good companies and hold on and
typically this is what happens if you buy I really good
companies at attractive prices, the market will eventually have
some type of bounce back up. Now we're back up to 56 thousand
nine hundred dollars in gains and the market is rallying
overall. The NASDAQ sup 1.76 percent the
S&P 500 is up. One point zero five percent and
the Dow Jones is up point seven, nine percent.
So the broader markets are all rallying at a time where the Fed
chair drone pal is actually becoming more hawkish.
In fact, the big headline from his last meeting was Quote if we
think it's appropriate to raise rates by half a point at a
meeting or meetings, we will do so.
So that's him saying if we need to get more aggressive will get
more aggressive. We're not afraid to do so and
despite that more aggressive stance, the stock market is
going up. So I'm going to try to explain
this phenomenon of the Stock Market trading up, while this is
going on, but I also want to explain why.
I now believe that inflation is transitory.
I think the inflation numbers by the end of this year, will be
lower than they are. Right now.
And I want to explain why I believe that in this video.
So as always, we have a lot to jump into in this episode.
And if you're new to this channel, you can follow along
for free. I track this real portfolio of
mine of real money every single week with complete transparency,
which means I show you everything I'm doing with the
portfolio. Every company.
I'm buying everyone that I'm selling the results, good, or
bad. I'll show you if my companies
aren't performing, I recently purchased a lot of Starbucks and
I'm in the red on this holding. Even if I The end up losing
money on Starbucks. I'll show you the outcome as of
right now. I really have no reason to
believe that ultimately end up losing money on this company.
I'll also show you the company's at.
So far have been very successful Investments with apple.
I'm now up over 21,000 dollars. This is a company that's done
very well for me, and this is one that I was heavily
criticized. When I was buying in on it, in
fact, I remember the videos a year ago, people sing that I was
buying one of the most overpriced companies in the
market and now investors are still looking at it as as having
some decent value. So, either way, no matter what I
do with my portfolio, I'll show you the outcome transparently
and we'll track it week by week. This is a dividend growth
portfolio, which means every company pays a growing dividend
over time and I reinvest those dividends back into the
portfolio. Hair is what those dividends
look like over time. This is a chart that I made.
That is the trailing 12 months of dividends every single month.
Meaning if I look at one month in particular, it shows how much
money I made in. In the previous 12 months.
So this kind of shows a trailing growth of how much money my
portfolio is putting out and last month, February my
portfolio made six thousand one hundred and seventy four dollars
in dividends in the trailing 12 months.
So it's not forward-looking. It's backward-looking and every
single month this should improve month over month.
Now, I have to mention that a lot of these gains in the reason
this portfolio is growing and it's putting out more dividends
is because of continual deposits.
Every single month. I take Income from YouTube and
patreon and any other source I have all the money I have left
over and I try to fund my portfolios as aggressively as
possible because I know that when you're trying to get
something, the compound getting it started is the difficult
part. If you're starting out in just
the past couple of years with your portfolio, your deposits
will make a significant difference.
Every time you can put in 500 bucks, 100 bucks that will help
spur growth with your portfolio. So my advice to new investors is
really focus. On deposits.
Focus on buying either ETFs are very established attractively
priced companies and just continue to plow money into it
as much as you can save as much as you can budget your income.
Try to do extra bits of work and different side projects and put
that money into your portfolio to get this ball rolling because
once that snowball is rolling, it can turn into an avalanche.
And right now, my portfolio just in dividends is putting out over
six thousand dollars a year and almost every company that I'm
invested in. Also does BuyBacks.
That's another way of returning Capital to the shareholder by
increasing the share price. So I have a lot of momentum now
with my portfolio in and of itself and if you're just
getting started just keep pushing forward.
You'll get to this point eventually.
Now, if you want to see all the companies that I'm invested in
and you want to see what every company is, and every holding
is, there's a link in the description of this video called
dividend portfolio. You can click on that and open
it up and see every company that I'm invested in.
Now, moving on, we gotta discuss.
What is the major headline of The week and possibly of the
month the Fed chair Jerome, Powell says the FED will
consider a more aggressive interest rate increase to reduce
inflation. So this is an example of a Fed
chair, becoming more hawkish, meaning that he's becoming more
aggressive with his stance. He says, quote, if we think it's
appropriate to raise rates by half a point at a meeting or
meetings, we will do so. So he's basically telling the
market look, if inflation, does go out of control and out of our
predicted bounds, we will increase interest rates by a
half percent, not even just a quarter.
This is very important for investors.
You have to understand the mechanics of how this works if
the FED aggressively increases interest rates, that makes it so
that the yield for bonds like the 10-year go up the 10 years
already. At two point three, eight
percent that is a very high Spike.
Just recently and as bond yields go up typically stock yields go
down because investors and big institutions have other place.
To put their money. So if the 10-year treasury went
up to like, 5% or 6%, that would be an incredible amount of
downward price pressure on stocks Warren Buffett describes
it as gravity. It's like gravity pushing down
the price of every stock. So, drone Palace signaling that
he's becoming more aggressive. And that if inflation does run
higher, he's going to raise interest rates far more
aggressively half a percentage in one meeting and investors
seem to be shrugging this off. Well, I actually agree with the
stock market. Today, I don't think that
Jerome, pal will have to increase interest rates by half
a percent. In fact, I think inflation will
go down over the course of 20 22, and I think it will be lower
by the end of 2020 to than it is today.
Now before you say, Joseph, you're just believing the words
of the FED you're just naive. You're just agreeing with
anything. They say, that's not true.
I have disagreed with the FED for over the course of a year.
Three months ago, I came out with a video called how to
invest during High inflation. Shannon.
And it suggested that real inflation was much higher than
what the Fed was suggesting. I explained how inflation is
going to be much higher going forward.
That was just three months ago. Four months ago, I came out with
a video called inflation, will get worse not better.
Here's why. And I literally say on the
thumbnail of the video, he was wrong with a picture of drone
pal, that was four months ago before he admitted that he was
wrong. So up until now I have largely
disagreed with the fed and add another video.
Ten months ago. I have a picture of Michael
burry and I say that he was right.
Michael burry was right. Inflation is hair and I say in
the video, openly the all these companies are saying how bad
inflation is getting. And I think that the Fed chair
is going to be wrong by saying that inflation is transitory and
it's going to be at two percent by the end of 2020.
One I said that the Fed was incorrect and explain so in
multiple videos. Well of course this is how the
markets work ten months ago. I was saying that inflation is
getting out of control. Troll.
I was quoting Michael burry who was also explaining how
inflation is going to go much higher than other people are
predicting. And this was around the time
that drone pal said that he's retiring the word transitory
here is the exact video footage of him saying we're now getting
rid of the term transitory. So I think the word transitory
has different meanings to different people.
Too many it carries a time, a sense of short-lived, we tend to
to use it to mean that it won't leave a permanent mark.
Mark in the form of higher inflation.
I think it's, it's probably a good time to retire that that
word and try to explain more clearly what we mean, he said,
it's time to retire. The word transitory because
inflation is spiraling out of control.
And many investors are meaning on him?
They're mocking him for suggesting that it was
transitory so drone, pal, retired, the word transitory and
now investors are predicting that inflation is completely out
of control. Well now instead of disagreeing
with your own pal in the FED over the past year, I'm finally
going to actually agree with them.
I think that their new timeline of how inflation will dissipate
is probably correct. Here is a graph showing how
their analysis sees inflation dissipating over the course of
20 22. You can see that they believe
that it basically spiked right now, right now is the worst time
for inflation and it should start to actually fall over the
course of this year and they think that by the end of this
year and early 2023 inflation will be around three percent so
not Too much higher than its historical Norm.
Now, most investors and most content creators think that this
is incorrect. They think that inflation is
hair. We're in a death spiral and
inflation is going to be out of control and I really don't agree
with that stance. I do agree with the fed this
time that I think inflation will dissipate now, I want to explain
why. I hold this view with one simple
chart here is a chart of the month over month, inflation
rates, from February of 2021, to February of 2022.
So this is over the past year starting February and we can see
that February of 2021 inflation was not an issue.
It was a total non-issue. During that time, it was one
point seven percent. So it was below their targeted
2% and then March of twenty Twenty-One, it spiked way up,
went up a percentage to 2.6 percent and then April of 2021
it went up to 4.2 percent. So in the course of three months
inflation went up, something like two and a half times.
X, that is an enormous jump and inflation in a three-month
period. Now, look at the rest of this
chart. May it goes up to 5% June, it
goes up to five point four percent.
It stays flat a little bit throughout the summer months and
then in September it goes up to five point four percent October
up to six point two percent November, it continues to climb
by half a percentage up to six point eight.
Then it goes up point to 27 then in January of twenty twenty two
were up 7.5% and then in 20:22 were up 7.9%.
So when you look at those numbers and you're hearing this
acceleration of inflation at first glance, you're
impressionist probably. Wow, this is really out of
control like the FED has no control over inflation.
This is just a chart of the numbers going up month after
month and they don't even know what they're doing, right?
The FED doesn't have any control of the inflation of the economy.
This is really spurring out of control.
That is the initial impression that you would have, but I
actually think that is there, The wrong impression and let me
explain why this is only one year's time.
If you look at the chart here, the first month is February.
That's the first month and inflation wasn't an issue.
So from February of 2021, to February of 2022, the comps, the
comparison is incredibly easy for high inflation, 7.9 percent
inflation year over year. So from February of 2022, to
February of He won, we have a 7.9 percent increase in
inflation but that's pretty easy to accomplish because last year
inflation was only one point seven percent.
So the comp the comparison between the two is really easy
then you get to March that's still a pretty easy comp 2.6
percent. So to have high inflation levels
we only have to beat 2.6 percent but take a look at what happens
when you get into April. It bumps up to 4.2 percent.
That means to Have high inflation to have something
above like seven or eight percent.
It would have to be compared with four point two percent of
last year. So that is a much more difficult
comp. That means that you would have
to have not only the four point two percent increases of last
year but way above that to have high inflation.
So keep in mind that the inflation reports are
year-over-year, you're always competing with the same month of
last year. So February is compared to
February of this year, which is a very easy.
Person March will be compared of March this year, which is
another very easy comparison. So I think on March will still
have high inflation numbers but I think when April comes around
the comps become much more difficult to have excessive
inflation and I could see that the April month could be much
lower than the March month because you're not comparing
against 2.6, you're comparing against four percent.
And then when we get into the second half of the Year, October
November December, those comparisons are going to be very
difficult. For inflation to be super high.
Inflation will have to exceed 14% on a two-year basis to beat
out the seven percent in December.
So that's no longer such an easy comparison with January and
February of this year. We are comparing against numbers
that are sub 2 percent and later on this year, in just a couple
of months, the comparisons are going to be much more difficult.
This issue of tough comparisons year-over-year is not something
that just exists with inflation. This exists.
Any time you're comparing Data on a year-over-year basis.
If the numbers rapidly accelerate like they are with
inflation, the next year, it tends to be a lot lower because
you're comparing against the previous year of Rapid
acceleration. Take Zoom, for example, this is
a company that really struggled with the issue of tough comps.
You can see that prior to the pandemic, their revenue growth
was very low, but it was steady. There are going from 60 million
and a quarter to 7490 105. This was fast.
Growth but it wasn't exponential growth.
Then the pandemic happen everybody was locked into their
houses and they had a use zoom to communicate.
So the revenue grew in 1/4 from 328 million to 663 million.
And if you actually do the year-over-year comparisons, this
was Q3 of 2020, they had 663 million you compare that against
Q3 of 2019. They had 145 million.
So comparing this That is this massive leap and growth.
It's like 350 percent Revenue growth because that's easy
comparisons. They're comparing one month of
rapid growth against another month last year, when there
really wasn't rapid growth. So that easy comparison leads to
a number of 350 percent, but then we go on throughout the
year, but you might notice that the growth decelerate, it as
people largely became used to using zoom and most people that
had it already had signed up. So we look at the last Order
last quarter in 2022, they did a billion dollars in Revenue,
that's pretty good. That's a record high, but the
issue is the comps, the tough comparisons.
If we go back to what we would compare this number to the first
quarter of 2021, it was 882 million.
So the jump from 882 is only like 25 percent zooms Revenue
went from gains of 350 percent to 25 percent that is the
problem with tough. Comparables, we can even see
this You better Illustrated with a chart of the percentage gain
year over year of their quarterly, revenues back in two
thousand, nineteen ninety-five percent, gain 85 percent gain,
77 percent gain, then in 2020. It sped up a hundred and sixty
nine percent gain. Then in July, this was that huge
quarter. Three hundred and fifty five
percent gain three hundred and sixty six percent gain.
Three hundred sixty, eight percent gain, but then the
comparisons got tough one hundred and ninety-one percent.
Eight fifty three percent gain. So all of a sudden, the revenue
growth starts to decelerate as the comps get tougher.
The last two quarters were 35 percent gain and then last
quarter was only a 21 percent gain.
So in the course of a year and a half, they went from growing the
revenue, three hundred fifty five percent to twenty one
percent. So if we go back to the
month-over-month inflation numbers, I think this paints a
better picture. You can see why inflation might
be more difficult to rapidly accelerate in April and May than
it is in. During March March should be a
relatively easy month for inflation to beat.
But once it gets to April and May, it will become much more
difficult to see these high inflation numbers and then if we
fast-forward to the back half of 2021, the comps become, even
more difficult for high inflation numbers, having to
beat out seven percent. Inflation is going to prove a
lot more difficult than 1.7 percent.
The only way that I see inflation actually, increasing
over the second half of this year is if inflation is Really
embedded in our society. If we have achieved the total
death Loop of higher wages, more money, more spending power,
higher inflation. And we can't break that Loop.
That is an option. I would give that like a five to
ten percent chance of happening, but I think there's a 90% chance
that doesn't happen and that inflation is less by the end of
this year. On top of the issue of tough
comps, we can also look at what really is causing inflation.
We know that inflation has been heavily caused by a lot of one.
Events by one-time events. I mean, the FED adding seven
trillion dollars to their balance sheet, look how much
they added since 2020. They went from four trillion
roughly speaking on the balance sheet, all the way up to, like,
eight and a half trillion. So they added nearly seven
trillion dollars on the balance sheet.
But the FED has stopped this action.
They're no longer buying assets right now.
In fact, they're going to start reversing it and offloading
these assets back into the market.
The next thing that is a one-time event where these
stimulus Is checks. Remember how much money was just
given to people from the central government?
We had 123 stimulus Checks Plus a bunch of other government
programs. Like enhanced unemployment we
had deferments and student loan payments.
We had all these events that are coming to an end we don't have
the enhanced child tax credit anymore.
We're not getting enhanced unemployment.
The huge majority of stimulus has come to an end and even
though this injected trillions of dollars into the economy
which of course led to a one-time spur of And it has come
to an end and of course, I predicted this will take a long
time to work its way through the economy, but I think that this
eventually will work its way through the economy.
People are running low on money, they're running out of the huge
influx of money that they once received human behavior, really
doesn't change. We can look at the savings rate
of US households, the savings rate spiked during 2020, but
that really shouldn't be considered a savings rate.
Because what happened was, people had direct deposits of
thousands of dollars. From the central government,
right into their checking account.
So in a way, I guess they were saving that money but that was
really money, just given to them.
If we look at the savings rate of households, it's completely
normalized. People are right back to the
same savings rate that they had previous to covid.
People are not saving any more money than they used to.
And even though we might have more money right now than we
used to, that is just a consequence of having leftover
cash from the government. And I do believe that that's
working its way out of people's pockets every single month.
So I also Considered the stimulus and the height and
savings and the better balance sheets of us households as a
largely one-time event. And I think that one time event
is running, its course. We can, of course, look at
supply issues, we know that there's docks out of California
that have dozens of these, huge shipping vessels that are
carrying hundreds and thousands of crates.
This isn't normally how Logistics and shipping work.
A lot of these companies can't offload because they can't find
enough employees. There's too many issues with the
whole Logistics and this is something that is Also largely a
one-time event. I think that over time, these
issues was shipping will diffuse.
It's already happening to some extent, there's less shipping
vessels. Now, waiting to be unloaded than
there were six months ago. So I think a lot of the effects
purring this rapid inflation are one-time events to argue that
they're not one-time events that this will be sustained and it'll
be something that comes in green and Society.
You have to believe that this will go on forever.
The all these problems will persist and so far I remain
unconvinced that that's the case.
I think A valid argument to say that inflation might be higher
by the end of this year. I don't think you're crazy for
saying that because there are some valid arguments, we do have
a war in Europe that's also exacerbating the problem of
inflation when Russia is attacking Ukraine.
This is causing even further issues to globalization to
supply problems especially with all the Commodities that Russia
supplies. So this may actually throw a
kink in the thesis that inflation is going to dissipate
but I believe that even with these issues there's so many
wonderful. Time events that caused
inflation to begin with that. I still think there's a decent
chance. It will be lower by the end of
this year. Like I said, I think there's a
90% chance that inflation will be a lot lower by the end of
this year. A 10% chance, I'll be wrong.
So, in summary, even though I've disagreed with the FED for the
course of a year and a half and I have publicly explained why I
think inflation will prove to be a more difficult challenge than
they initially anticipated. I find myself agreeing with
them. I finally agree with the fed and
Forecast, I do agree with them. That inflation will decelerate.
It'll go down by the second half of this year.
I think that's the case both because of the tougher comps and
the one-time events. So, that's my prediction.
Now, of course, this is all a game of probabilities.
I think there's a high chance for inflation to go lower, but
there's always a chance I could be wrong.
Now, if you're asking the question Joseph, what if you're
wrong? What if that 10% chance happens
and inflation? Just spirals out of control when
you go into an environment, like the 1970s of hyperinflation,
Let's go ahead and just observe what I would do and that
situation the truth is I wouldn't do much.
I wouldn't change much because the best hedge against inflation
is buying good companies. Good companies are the best
thing to invest in whether or not you're investing in a
hyperinflation High inflation or low inflation.
You should always be buying good companies, Terry Smith just
released his recent report where he talks about good companies.
That is his investing strategy. Simply put its the by good.
Please don't overpay for them and then the most important step
is to do nothing. The way that he defines a good
company are by many of the characteristics that define a
company that can also withstand High inflation, your return on
Capital, employed your gross margins or operating profits,
your cash conversion and your interest cover.
All these metrics of margins means that companies have
pricing power that they can fend off inflation really well.
Terry Smith explains why he'll never own bad companies and he
defines Bad Company. He's as ones that have poor
cash, conversion poor margins, there in cyclical, Industries
companies, such as oil, companies companies, like BP.
He says, comparing L'Oreal with BP is an example of how cash
conversion was unusually. Good for bad companies and
again, he says that fun Smith will never own BP because BP is
not a good company. BP's cash conversion was at one
hundred and forty seven percent in the trailing 12 months but is
only 66 percent on average. So be He over doubled their
margin over the past year, whereas lore'l, a good company.
Their cash conversion was still at 133, percent in the trailing
12 months, but was 110 percent on average.
So even though companies like BP are having this massive increase
in margins right now on average, they're not great companies.
Their cash conversions are low. Their margins are low.
BP's cash conversion has been more volatile and its net income
has half over the years. So Terry Smith doesn't violate
rule number one, which is buying good companies, even if bad
companies are performing better than good companies.
And at times that does happen, this is one of those times if we
look at the performance of the S&P 500 year-to-date.
Good companies like Microsoft, Apple, Google and Amazon are all
on the read. Every one of them is down.
Year-to-date, the companies that are not great companies, in the
energy sector. Like ExxonMobil, Chevron, these
are companies that have consistently lower margins and
net income than big. Back.
But these ones are doing really great right now they're up 30
and 40 percent and that might be tempting for investors to jump
into these companies and try to get part of that rally.
But that's something that I don't plan on doing for brief
moments of time. Poor quality companies, like
ExxonMobil will outperform high-quality companies, Exxon
Mobil is up twenty seven point nine percent.
Year-to-date apples down five percent year-to-date if you zoom
out over five years ExxonMobil is basically flat.
You can add in the Buttons there.
So maybe you're getting like a 4% return but other than that,
the company's completely flat over a five-year timeline.
And if you zoom out with apple, you see a completely different
scenario. It's up three hundred and eighty
percent. If you're a long-term investor,
you should be focused on long-term results, higher
quality companies defined by higher margins, better pricing
power better, net incomes and better, reinvestment
opportunities will outperform lower quality counterparts.
So when I get the choice between investing in a company like
apple or Microsoft, or And Chevron, I'm going to pick up on
Microsoft. So I understand if you're racing
into these companies, they've had good returns over the past
couple of months, but I don't plan to every company that I own
performs better over a long-term time Horizon than the oil
companies. And then the Commodities and I
have a firm conviction that these companies will outperform
over the next five years. So I don't plan on racing into
lower Quality Companies because they're going through a little
spout, a couple months of good performance over the past five
years. Now the last step that I think
is the most important one and that I reiterate often because I
think there's so much competition on this point in
YouTube. There's so many YouTubers that
can't stand doing nothing. They can't sit patiently for two
seconds. They have to come out with
emergency updates and big changes to their portfolio and
the hottest stocks for the next 2 seconds.
The most important step in investing is having the self
control of doing nothing of being able to buy into high
quality companies and actually let them work for you.
The companies grow let them do share BuyBacks, let them
generate free cash flow. Let them pay you dividends and
sit by idly and let these companies do all the heavy
lifting. I think it's so smart for Terry
Smith to highlight do nothing as the third step to investing
having the discipline and the self-control to do nothing is
heavily underrated. I think it's the most important
part in investing. So that's my thoughts today.
I think that it's unlikely for inflation to continue to go up
the second half of this year. I think it will go down, but I'm
vesting in a way where it doesn't really matter.
I'm investing in high quality companies that I think we'll do
really well during times of high inflation or low inflation.
That's all my thoughts for now. Subscribe to the channel if you
want to see future updates and I'll talk to you next time.