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According to Charlie Munger, “If you aren’t confused by what’s going on, you’re not paying attention”. Inflation has been at its highest levels in generations in recent years. The impacts of which have been devastating. It’s now even estimated that a staggering 61% of Americans are experiencing severe financial hardship due to this high inflation. However, there’s a hope out there that the high levels of inflation seen in recent years was just a temporary thing. The belief is that relatively shortly, inflation will return to very low levels. Legendary investor Charlie Munger disagreed. Before his passing, Munger was ringing alarm bells about the future of inflation and the economy.

In this video, we’re going to cover why Charlie Munger believed inflation is here to stay, and arguably most importantly, how you can protect your money from the devastating impacts of high inflation. Over the past couple of years, inflation has been at levels not seen in decades. In June of 2022, inflation hit a peak of 9.1%. You have to go back roughly 40 years to the early 1980s to find a period of time in which inflation was this high.

As Charlie mentioned in the clip, a big cause of this sky high inflation is money printing. Take a look at this chart of the money supply in the United States dating back to 1960. Money supply is exactly what it sounds like, it is a measure of all the readily available money floating around in the economy. As we can see in the chart here, the money supply in the US was growing at an ever increasing rate. However, things really started to get crazy in 2020. In order to prevent a widespread financial collapse, the US Federal Reserve took truly unprecedented actions. This, combined with drastic steps by the government to support the economy, lead to trillions of new dollars getting printed. In previous interviews, Charlie Munger has compared this massive amount of money printing to an individual using illicit substances. At first, it feels absolutely amazing. But over time, there are very severe consequences. When it comes to the economy, one of those severe consequences is inflation. To quote the famous economist Milton Friedman, inflation happens when there is too much money chasing too few goods. While that may sound like a complicated concept, trust me, it’s actually very simple.

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Charlie Munger: How to Get Rich During Inflation

Charlie Munger, the renowned investor and business partner of Warren Buffett, is known for his sharp wit, wisdom, and success in the world of finance. As inflation rears its head once again, Munger’s insights on how to navigate and profit during times of rising prices are more relevant than ever.

Inflation, the increase in prices of goods and services over time, erodes the purchasing power of money. While it can be a source of concern for many, Munger sees inflation as an opportunity for savvy investors to thrive. Here are some of his key strategies for getting rich during inflation:

1. Invest in High-Quality Businesses: Munger emphasizes the importance of investing in strong, well-managed companies with competitive advantages. These businesses are more likely to weather the storm of inflation and come out stronger on the other side. Look for companies with a history of profitability, strong cash flow, and a durable competitive edge.

2. Focus on Value Investing: Munger is a proponent of value investing, which involves buying undervalued stocks that have the potential for long-term growth. When inflation drives up prices, value stocks tend to outperform growth stocks. Look for companies trading below their intrinsic value and with solid fundamentals.

3. Diversify Your Portfolio: Munger advocates for diversification as a key risk management strategy. By spreading your investments across different asset classes, industries, and geographies, you can reduce the impact of inflation on your portfolio. Consider allocating a portion of your assets to assets that tend to perform well during inflation, such as commodities, real estate, and inflation-protected securities.

4. Stay Patient and Disciplined: Munger advises investors to have a long-term perspective and to resist the urge to react impulsively to short-term market fluctuations. Stick to your investment plan and have the discipline to stay the course, even when inflation causes volatility in the markets. Remember that successful investing is a marathon, not a sprint.

5. Keep Learning and Adapting: Munger is a lifelong learner who believes in constantly expanding his knowledge and adapting to changing market conditions. Stay informed about current economic trends, inflation forecasts, and market developments. Be willing to adjust your investment strategy as needed to capitalize on opportunities and mitigate risks.

In summary, Charlie Munger’s insights on getting rich during inflation can help investors navigate the challenges and opportunities presented by rising prices. By investing in high-quality businesses, practicing value investing, diversifying your portfolio, staying patient and disciplined, and continuing to learn and adapt, you can position yourself for success in an inflationary environment. As Munger famously said, “The big money is not in the buying or selling, but in the waiting.”