The Dishwasher Inflation Hedge Strategy

I remember reading this story a while back, I think it was on Twitter. It was about this man who lived in a country that experienced runaway inflation. You know, the type where prices double in weeks, or days even.

So what this guy did, was he bought a storage unit full of dishwashers. This might sound weird, but is quite simple and brilliant.

If the price of goods double every week, you soon lose all your purchasing power if you don’t put your money in assets that appreciate at the same pace, but how do you find assets with this quality?

To hedge against inflation, you need assets that participants in a market agree about the value of, hence the brilliance of the dishwasher strategy. Everyone knows roughly what a dishwasher is worth. If a Bosch model xxx cost $500 today in just about every store in the country, and the prices double in a month, it will be $1000.

Another important point is that, people will still need dishwashers next month. It’s not a fad product hyped by social media. It has no glamour, but it has utility, so you won’t be stuck with worthless inventory.

This man used common sense, and placed his money in something he understood.

Over the last few years, cryptocurrencies have been touted as an inflation hedge. There’s only one problem with the majority of them. Nobody knows what they are worth. Speculative assets derive their value from price action.

You’ll read articulate analysis and hear complicated technological explanations that make you feel dumb as a chimpanzee, and trigger your fear of missing out. But, turns out the level of finesse is usually something like “this has been going up, so I’ll buy some and sell it when it goes even higher, getting rich as fuck bro” No sane person watching the crypto markets these last few years believe the gains we have witnessed are based on anything remotely fundamental.

It’s a classic greater-fools-game seen repeatedly through history.

When Elon Musk posting a meme on Twitter has the same effect on an “asset” as the techno drop at a rave party, reason has taken the back seat.

As cryptos now are tanking in great numbers, it’s becoming obvious that nobody has any clue at all what your $HODL-APE-MOON-coin is worth, and that’s the problem.

This is why cryptocurrencies are a terrible choice as an inflation hedge.

Money management doesn’t have to be complicated. It doesn’t require algorithms, technical papers and esoteric valuations. We have a tendency to mistake sophistication for smartness, and that is dangerous. Especially when we don’t really understand the sophistication ourselves.

Warren Buffet has constantly repeated over the years that he only buys companies he understands, using metrics easily available and understandable to everyone. In regular intervals, the new market geniuses make fun of him and his “outdated” ways. He’s lost touch. He doesn’t understand the new reality, and this time is different. Yet, he always seems to come out on top in the end with his backwards strategies.

I'm sure there is nothing to learn here

So, am I saying that you should load up your garage with dishwashers to hedge the ongoing inflation?

No, that’s not my point (although in a runaway inflation scenario it wouldn’t be stupid) This isn’t really a story about inflation hedging. It’s about being smart with your money when the times are hectic and volatile.

We are currently experiencing some turmoil with markets going down, prices going up, worldwide logistics problems, shortages and fearmongering. The run we’ve been on has been so long that a lot of market participants haven’t experienced something like this before. With people stressed and agitated from the constant in pour of bad news, and looking for assets to protect their values, maybe speculative isn’t the way to go.

Times of great market distress are also times of great opportunity!

Use the Dishwasher Inflation Hedge Strategy. Invest in something you understand

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Tom C Aune

Tom C Aune

Free Thoughts, Free Weights and Free Cash Flow