Cocktail Economics: Discovering Investment Truths from Everyday Conversations

Chapter 13. The Fight Is On: How to Invest Properly Relative to Regulations, Inflation, and Taxation

Imagine a prize fight in which the boxer in one corner is a 5-foot-tall, 125-pound featherweight, and the slugger in the opposite corner is a 6-foot-tall, 250-pound heavyweight. Doesn’t quite seem fair, does it? Well, in business, these mismatches occur all the time, although appearances can be deceptive.

Let me first define the circumstances of these bouts, which indeed they are when viewed in terms of the performance of the different asset classes within a portfolio. Regulations, taxes, and inflation direct the behavior of all companies; they affect the economic stage, the ability of firms to turn profits, and, ultimately, the level of stock prices. ...