Columns Sugar-filled sauna, gold and crypts – Fear is the best seller of investment products.

Last at the beginning of the year, experts agreed on one thing. If inflation starts to pick up, the stock market will be in trouble. Inflation was the biggest bastard in the market.

Especially towards the autumn, energy prices rose sharply and supply chains stalled. Inflation in the United States approached seven percent and in Europe five percent. In the United States, the stock market ended the year up 27 percent, and in Europe it was up more than 20 percent.

The fortune tellers were once again made fun of. Inflation exceeded all expectations, but stock prices only hurt.

Even if we know what’s going to happen in the economy, there’s a long way to go in predicting stock prices. Like an investor legend Charlie Munger has stated the mystery of the market:

“It’s not meant to be easy. Anyone who thinks it’s easy is stupid. ”

In recent weeks, fears of inflation and rising interest rates have finally hit the market. Growth companies in particular have fallen sharply.

Fear is the best seller of investment products. Gold and bitcoin have been recommended to protect against inflation. The most extreme hedge against inflation has been the sauna of an investor stuffed full of sugar.

Concerns about potential threats have been programmed into human genes. In Savannah, a laid-back optimist could have gotten into the lion’s mouth. Probably for this reason, pessimism gets so much space in the financial media and in people’s minds.

An optimist seems to be a salesman while a pessimist seems to be a critical thinker. Fear, on the other hand, makes people speculate about the next stock market correction and lose some of their long-term good returns.

Investors fear inflation as central banks respond by raising interest rates. Higher interest rates lower economic activity and raise yield expectations for bonds considered as equity options.

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Debtors ’cat days are likely to continue.

In general, however, stock markets have risen, especially in the early stages of central bank interest rate hikes. Only when the monetary policy of central banks becomes really tight do the stock markets tend to be in trouble. For investors, the inflation-adjusted real interest rate is more important than the nominal interest rate.

Central banks are between the tree and the bark. Interest rate hikes are being delayed and it is hoped that high inflation will not remain a permanent condition. Increasing debt mountains and inflating asset values ​​have been a risk movement for central banks. A sharp rise in interest rates would realize these risks. Debtors ’cat days are likely to continue.

Then on the other hand, in addition to forecasting stock prices, predicting financial numbers also makes a fool of itself.

When talking about inflation, it is often forgotten that the sales prices of companies and the value of assets also rise with the price level. Of course, some companies have more pricing power than others. Few are ticking when the price of an iPhone goes up by five percent, but a construction company can be tied to its selling prices even if costs go up.

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It is smart to invest and diversify according to an investment plan.

Probably the worst advice in a new inflation situation would be to do something radical. In the light of history, at a time of inflation, it is worth investing more or less as usual. Shares and real estate have retained their value well, even producing a reasonable return.

If you end up selling stocks, it’s good to think about what to do with the money. If inflation is four per cent and no interest is received on the deposit account, four per cent of the purchasing power of money will be lost each year. For the same reason, buying zero-interest bonds is best suited for the uninitiated.

The equity portfolio can be fine-tuned. Companies with good pricing power, raw material producers and real estate companies have in the past coped with very high inflation. It is not very bold to anticipate that value stocks will outperform growth stocks as interest rates rise.

The value of gold rose well during the inflation years in the 1970s, but there has also been no guaranteed rise in value during inflation. This time, cryptocurrencies compete with gold as custodians, especially in the younger generations. The cryptocurrencies of hedging against inflation can end up well or very badly.

Sometimes the best investment advice is to do nothing. It is smart to invest and diversify according to an investment plan. There are only a handful of regular macro-investors in the world. It is reasonably safe to assume that you are not one of them.