The Alpha Strategy comes from the book The Alpha Strategy - The Ultimate Plan of Financial Self-Defense for the Small Saver and Investor by John A Pugsley.  This is a strategy to protect what you have from the slow theft of inflation.  Read on to find out about the strategy and how you can use it.

According to government statistics, inflation is not a big problem.  They even tell us that deflation is the concern of the day.  If so, why do all the things I buy cost more than they do a few years ago and not just a few percent more (as the figures show).  Inflation steadily erodes the value of our investments and earnings.  Pumping billions of dollars into the money supply will inevitably lead to inflation.

Putting money away in the bank as an investment strategy is not a winner (this is not to say that you shouldn’t save).  Inflation and taxation mean that you are going backwards.  Case in point – my grandfather retired in his early 40s, a wealthy man.  He put his money in term deposits, bank deposits and debentures.  At first, things were good – the income gave him a good lifestyle.  Over time taxation and inflation eroded the value of his assets.  By the time his widow died, she was no longer wealthy.

The Alpha Strategy advocates investing in assets that have a long-term return and value, starting with yourself.  For example, if you invest in your own continuing education, you will improve your earning power and your ability to find other work in a downturn.  If you invest in your own business, you can earn a long-term income stream and have an asset that you can later sell.

It also suggests purchasing quantities of non perishable goods including food, clothing, household and hardware supplies.  The key word is non perishable.  Canned food will last about a year, even paper towels will perish after a while.  There isn’t much point buying five laptops because they will be obsolete quickly.  Fashion items will look strange eventually (unless you invest in some total classics).  You can buy items such as honey, grains, soap, wrapping materials and building materials.

I believe that buying antique books is a good investment in that you can have use of them, pass them on as a legacy and buy them at today’s prices.  Similarly, buying quality furniture (made of solid timber) is a good investment.  I have solid mahogany furniture and it looks great and is now almost irreplaceable at any price. The Alpha Strategy does suggest collectibles, which can often be tricky unless you have a lot of knowledge of the area.  Many collectibles don’t have inherent worth – be careful.

The third part of the strategy is holding industrial commodities or precious metals.  This may involve purchasing large quantities of materials such as copper or nickel ingots, gold, silver, platinum or palladium.  One area that I have looked into but not implemented is metals such as terbium or hafnium, which are in limited supply and have a growing number of industrial uses.  One issue to consider is storage.  You can’t just fill up your garage with hundreds of kilograms of copper or keep 30 kilograms of silver under your bed.  The benefit of this strategy is that these materials hold their value despite inflation.  They have intrinsic value, unlike paper money.

I think that the Alpha Strategy is worth considering in these times of hidden inflation.  I would not advocate emptying your bank account and buying copper, and 15 years supply of underwear, but you can certainly benefit from having at least part of your assets represented by real things (at today’s prices) and not simply being robbed by inflation.

You can find the book on the Internet if you have a look around on Google.

Tags: investment, subversive, wealth

This entry was posted on Monday, March 1st, 2010 at 8:27 pm and is filed under Daily subversive tips. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.