Collection: Warren Buffett - #389 | The Best Protection for Inflation



[Transcript]

AUDIENCE MEMBER

Good afternoon, gentlemen. What are you doing to protect our company’s portfolio against the perils of inflation? Specifically, are you looking at further currency investing and metals investing?


WARREN BUFFETT

Well, we would not necessarily look at metals investing as being any protection against inflation at all.


But we are — the best protection for inflation is your own earning power. I mean, somebody that is a first-class surgeon, or lawyer, or teacher, or salesperson, or anything else, whether the currency is seashells, or paper money, or whatever, will do all right in terms of commanding the resources of other people.


So your own earning power is your best — is the best hedge against inflation.


The second best hedge is to own a wonderful business, not a metals business, necessarily, not a raw material business, not a minerals business, but a wonderful business.


And the truth is, if you own Coca-Cola, if you own Snickers bars, if you own Hershey bars, if you own anything that people are going to want to give a portion of their current income to keep getting, and it has relatively low capital investment attached to it so that you don’t have to keep plowing tremendous amounts of money in just to meet inflationary demands, that’s the best investment you can probably have in an inflationary world.


But inflation is bad news for investors under almost any circumstances.


You can argue that if you own some business that required very little capital investment and had real flexibility of price during an inflationary period so that people would continue to give up a half an hour of work — of their own work — every month to buy your product, and you leveraged it, then you might even beat inflation to some extent.


But leverage is not our game, but we try to own good businesses.


I think that the Berkshire would not do as well during high rates of inflation at all as it does — in real terms — as it does in periods of low inflation, but I think we would do better than a good many companies.


(Source: https://buffett.cnbc.com/2007-berkshire-hathaway-annual-meeting/)

~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

 

[YAPSS Takeaway]

Your earning power is the best hedge against inflation. So invest in yourself more.