Inflation Resistance As Seen Through the Eyes of a Hoarder

7 Inflation Resistant Stocks(MO),(BRL),(HRL),(SJM),(JNJ),(KMB),(RAI)

Reynolds American (nyse: RAI)
Kimberly-Clark (nyse: KMB)
Johnson & Johnson (nyse:JNJ)
JM Smucker (nyse: SJM)
Hormel Foods (nyse: HRL)
Barr Pharmaceuticals (nyse: BRL)
Altria Group (nyse: MO)

If you smoke, hoard cigarettes. Hoard toilet paper and facial tissue. Hoard beauty and medical products. Hoard preserves. Hoard canned goods. Hoard medications. If you smoke, hoard even more cigarettes. That's what I see when I look at the list.

Although not mentioned, I'd add spaghetti, rice, alcohol, aluminum foil, and anything else that keeps fairly well.

So why the products themselves and not the stocks? If stagflation comes, it will be a drag on all companies. The products of today are being created with relatively cheap energy. The products of tomorrow might be created with expensive energy though. Therefore, lock in the products of today at today's prices. That's my thinking anyway, assuming of course that you think stagflation is coming.

In 2004, I had to decide between buying gold and silver or buying shares of gold and silver mines. I decided I would rather own the metals directly. Cheap energy had been used to extract the metals from the ground. Cheap energy had been used to create the coins. Lock in that cheap energy. Extracting future gold and silver and creating the coins might require expensive energy.

Using hindsight, it was a good decision. You'd never guess that there even was a bull market in gold and silver by looking at the following charts.

Chart of Newmont Mining

Chart of Pan American Silver Corp.

My decision to sell all my gold and silver in 2006 wasn't the best of ideas. I can't complain. It was a fun ride. I just got off way too early. Unless we hyperinflate, nothing goes up forever. It might feel like it though, if we head back to the 1970s at some point.

In any event, I made a fairly risky bet and it paid off. I don't feel the need to make future risky bets (both gold and silver are twice as expensive as when I originally bought them). I'm sitting in TIPS and I-Bonds from here on out. I suspect that I will lose some of my nest egg to inflation as we head into the future, perhaps even a substantial amount. I'll be pleasantly surprised if stagflation never comes though. Maybe we sit in a deflationary funk for years to come. Who knows!