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he biggest worry for the global markets right now which has led to monetary tightening from the central banks everywhere inflation in most countries is breaking all records and reaching historically high levels so for an investor what does it mean when inflation is shattering all past records should you stay invested or pull out or if you invest what should you be careful about in today's video let's look at what super investors such as Warren Buffet Charlie manga Howard marks Seth klaman lilu Terry Smith have to say about the impact of inflation on investing and what they advise to do in terms of high inflation this is part two of multi-part series on investing during inflation in this part we will cover the advice from Seth clarman and Terry Smith before we start do subscribe to get the next videos in this series let's dive in first let's start with Seth clarman the value investing Guru that many follow two key pieces of advice from Mr clarman on inflation are first in his latest letter to investors he mentions that we don't know how bad the current bout of inflation will be but we believe that mounting inflation and the related possibility of materially higher interest rates are posing a real danger to financial markets so according to him it's not really clear on how bad the inflation situation actually is and what it will take to bring it under control he further shares that against a backdrop of Relentless money printing a very active Federal Reserve many investors have been loathed to sleep unaware of and unfocused on risks according to Mr clarman to protect against continuing inflation and the prospect of rising rates we have purchased Hedges that stand to gain in such an environment second in terms of where to invest during inflationary period according to Mr clarkman in reality Nova knows what the market will do trying to predict it is a waste of time and investing based upon that prediction is a speculative undertaking So He suggests buying and holding the best companies in the most attractive sectors is a more logical approach compared to seeking to predict the future this can involve purchasing stocks that have solid Financial positions so they can survive on economic downturn they may even be able to improve their competitive positions at the expense of weaker Rivals during a period of tough operating conditions so that they can take advantage of a subsequent recovery similarly it could mean buying companies with the obvious economic modes for instance companies with strong Brands unique products or that enjoy lower levels of costs versus Rivals could hold significant appeal now let's look at what Terry Smith another value investing Guru and founder of fun Smith has to say about investing during High inflation two key pieces of advice from Mr Smith are first in his half year update letter to investors Mr Smith shared that the cause of the downturn in global Equity markets is obvious the upsurge in inflation and the consequent need to rate interest rates and risk a recession he further states that I have no insight into how severe or persistent the rise in interest rates will need to be to quell inflation but I am not optimistic interest rates as a tool to combat inflation are a blunt instrument at the best of times and I suspect more so in this instant instance when the inflation has not been caused by demand exceeding Supply during an economic boom second Mr Smith also discusses the impact of inflation on equities by sharing that inflation Rising interest rates and an increasingly likely recession have two obvious effects on Equity Investments fundamental effects and valuation effects he discusses these effects and connects it to the performance of some of his Holdings inflation causes an increase in the cost of ingredients components and other inputs with constitute companies cost of goods sold the best defense against this inflation is a high gross margin the difference between sales revenue and cogs he shares that on average last year the companies in his portfolio had a gross margin of 60 percent compared with about 40 percent for the average large listed companies also he shared that 10 rise in Cox clearly has much less effect on the profitability of companies in his portfolio than average it is clear that the high and sustainable gross profit margins of our companies provide a robust line of defense on the contrary the combination of low gross margins and high fixed costs is dangerous and Mr Smith suggests avoiding such companies for example Target and Walmart During inflationary periods that's it from us for now hope you enjoy listening to the advice from Super investors please smash that like button and be sure to subscribe to get the next videos in this series on investing during inflation thanks for watching and we will see you in the next video foreign
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