Finance “Special situations” Inflation has a broad impact on the whole economy all at once. But that effect isn’t always reflected in the prices of every investment – particularly when there are other issues and challenges on which investors are focused. This is especially the case for certain stocks in companies that are undergoing fundamental change. Mergers and takeovers, spinoffs, initial public offerings, turnaround stories, companies with significant operational challenges that are slowly being solved – sure, all businesses will be affected by inflation. But when it comes to their stock price, the event that’s driving change will usually matter more. If a company can come through that change successfully, it’s likely that success will move the stock price higher, in spite of high inflation. Keep in mind that searching for such opportunities is best suited to veteran investors not afraid to roll up their sleeves and get into the weeds with detailed stock analysis. If you’re a “set it and forget it” type of investor who’s more interested in pursuing your interests than poring over company reports, it’s probably best to leave this area alone. Special situations can be volatile (if the expected event doesn’t happen, or doesn’t happen as expected, chances are that the stock price will fall quickly). They require a lot of research and ongoing attention. And, perhaps most of all, a strong stomach for risk. A final word on inflation ... No doubt you’ll be hearing a lot about inflation in the coming months. And some of what you hear will likely be disheartening or even downright scary, with discussion centred around all of the negative impacts which inflation has on the economy, on the stock market and on other aspects of our society. But that’s not the best way to think about inflation. At its most basic, inflation is simply a change in the environment in which we make investment decisions. When that change happens, some of your investments will perform worse. A handful might perform better. And, with some, it won’t make much of a difference at all. Instead of losing sleep over inflation, keep your eye on the most important part of investing: ensuring that your portfolio is structured to get you closer to your financial and life goals, in a way that lets you sleep well at night. That’s the kind of strategy which will always hold you in good stead, no matter how negative the news about inflation happens to be. CSANews | SPRING 2023 | 31
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