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Why owning real stocks is a hedge against inflation.

The best inflation hedge available to investors is common stocks. When you hold a stock you hold a fractional ownership of a real business that sells products or services. Suppose your business sells a roll of paper towels for $2 that costs $1 to make yielding a profit a company of $1 per roll. 

Now, suppose that over time, inflation goes up 100%  ( Rule of 72: 12 years of inflation at 6% annual inflation rate ). Now the price of everything has doubled and  the roll of paper towels now costs $2 to make, but the company can now charge $4 for the roll so the profits are now $2 per roll.

The above is a bit simplistic. During inflation, bond investors start demanding higher as a premium for the extra inflation. These higher rates hurt companies.  After a while the economy heats up and the Fed starts