Buffett & Munger: How To Hedge Against Inflation
Economists are now saying that higher inflation is here to stay. Warren and Charlie offer us timeless advice, circa 1988.
CMQ Investors,
Economists are now saying that higher inflation is here to stay.
Warren Buffett and Charlie Munger’s comments about dealing with inflation from the 1988 Berkshire Hathaway meeting can help us keep our cool and see the bigger picture.
The text below appears in University of Berkshire Hathaway
As Buffett has been saying for several years, we will have significant inflation eventually. Though the timing and degree of it are unknown, inflation appears inevitable. The reason is “printing money is too easy. I’d do it myself if I could.” And it is not unique to the U.S. There is a worldwide bias toward inflation.
On Inflation Hedges
Given that we are going to have major inflation, several people asked whether real estate, foreign currencies, leverage or hard assets should then be considered. Buffett and Munger basically shot them all down:
Foreign Currencies
Munger: “It’s hard enough to understand the culture you’ve been raised in, much less someone else’s.”
Leverage
Buffett: “You can leverage up to your eyeballs, but you may not make it across the river.”
Hard Assets
Munger: “Someone figured out the Van Gogh painting that sold for $40 million last year yielded a 13% compounded annualized return. Berkshire shareholders have done much better.”
The Ultimate Inflation Hedge
What can we do then to mitigate the effects of inflation? The same thing that Buffett and Munger would do if there were no inflation. We’d buy great businesses with excellent management at a fair to bargain price and leave them alone.
While inflation is still undesirable, well-run businesses that employ relatively little capital, that throw off lots of cash and that have pricing flexibility will cope well with inflation.
Should we make more posts like this? 🤔
Related Content
Buffett and Munger’s inflation advice circa 2004
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