How to invest for the next Crisis
Updated: May 24
If you reference any time in the past, there has always been somebody sounding the alarm for the next global crisis. Sometimes they’re right, sometimes they’re wrong, but even a broken clock is right twice a day. The root implication is always the same: this time will be different. Unlike the broken clock, this statement has never rung true.
I’ll pick on one of the apocalypse-of-the-day headlines I’ve seen recently to illustrate why stocks have been so resilient in the past. But first we have to change the way we think about a portfolio. Instead of thinking about “stocks” (which seems a bit nebulous), remember that they are companies selling things that people buy in the real world.
Here is the apocalypse-of-the-day headline I’ll use as an example:
What if the world stops using the USD?
What would happen to your investments if the world stopped using the USD? Well, let’s think about how companies would react. We’ll use Apple in our example; one of the most valuable companies in the world that purchases and sells products from many different countries across the world.
Apple, just like any other publicly traded company, is required to do what is in the best interest of its shareholders (if you own Apple shares in your portfolio, you are a shareholder). Apple must protect the interests of its shareholders and create as much value for them as they can.
To protect its shareholders (and its income denominated in USD) against global currency risk, it’s common for global companies to have an entire department dedicated to hedging against global currency fluctuations. That means they trade other currencies and futures to dampen the potential negative effects of currency fluctuation.
In the unlikely and extreme scenario where nobody is accepting USD, Apple would more than likely find a way to utilize which ever currency will be accepted to do business. It’s their products that make them valuable to customers. I believe they will find a way to keep ticking and deliver value to shareholders, and that its shares would reflect value within your portfolio in any currency.
Want to protect your money? Invest in a world class company selling a world class product or service that is required to look out for your best interest as a shareholder. They will do everything they can to stay competitive and plan for contingencies should something go wrong. They have a plan and/or will adapt any challenge you can think of: inflation, the debt ceiling, natural disasters, war, etc. These are the largest most valuable companies in the world for a reason. And over the long-term, it’s their ability to be successful that I believe will drive the value of your portfolio regardless of what currency is being referenced.
A diversified portfolio of companies across industries and countries has historically done well for long-term investors. Quality companies have successfully maneuvered through the litany of challenges we have faced in the past, and I believe this will continue to be true for whatever the future has in store for us.