January 28, 2013 Comments

Our stock picks lost a modest amount of ground on Monday. Following up on yesterday’s comment I added somewhat to my Wells Fargo holdings today.

Moody’s debt rating service downgraded six Canadian banks today. I doubt that this is anything to worry about at all. These banks are still very highly rated.

As I troll around several financial sites on the internet it is scary to see the number of comments posted online from people who mis-guidedly believe that “the end is nigh”. That gold is only real money. That paper currency will be worthless. That fractional reserve banking is evil. That central banks will print their way to hyperinflation. These people often gravitate to hard assets especially gold. They usually seem to forget that owning shares in, for example, Canadian national is also a fairly hard asset in itself.

In my 52 years of life the Canadian dollar has lost somewhere close to 90% of its value. That would be a big problem for me and my parents if we had kept our money under our mattresses. We did not. Myself and my parents before me invested in businesses both as direct owners and through the stock market. Our wages, dividends and retirement cheques, as the case may be, have on average far more than kept up with inflation.

We were seldom much bothered by the fact that the dollars in which we were paid did not have a fixed value in relation to gold, or to gasoline, or anything else. Sure, we wished we our wage increases were not partly offset by inflation but as long as we were running ahead of inflation we were okay with it.

I can’t guarantee it but I suspect that inflation is not going to be any great concern in the next several decades. I figure if I focus on accumulating higher amounts of wealth as measured in dollars, I will do okay.

There is, by the way, a vast difference between financial wealth and money. Financial Wealth consists of real goods and services and the ability to buy same. Financial Wealth is measured in money, but is in basically independent of money. Money may be slowly declining in value in terms of the wealth each dollar will buy. But wealth can nevertheless grow, in real terms, as long as wealth grows faster than inflation when measured in dollars. If a new currency were adopted tomorrow, the wealth of our nation would not necessarily change much less evaporate even if all the old currency was burned. Some financial wealth is held as money or the equivalent (cash, term deposits, bonds), but much financial wealth is not invested in money as such but is merely measured in money (houses, clothing, stored food, vehicles, shares of companies, and even gold are examples).

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