Warren Buffett, one of the most recognized investors and the eighth richest person in the world, has been investing for decades. During that time, he weathered through periods of sky-high inflation rates and accumulated plenty of experience in achieving sustainable growth. He’s been willing to share his findings, and today’s article will cover the thoughts of Warren Buffett on inflation and erosion-proof investing.
Who is Warren Buffett?
Warren Buffett is an American businessman, investor, and philanthropist who is also the co-founder, chairman, and CEO of Berkshire Hathaway (NYSE: BRK). He is widely considered the most successful investor of all time, and his company is among the world’s most prominent holding companies.
Focusing on stocks and value investing throughout his life, Buffett has built a net worth of $136 billion as of April 11, 2024. Furthermore, he has pledged to give away over 99.9% of his assets to philanthropic causes.
Warren Buffett on inflation: 5 key strategies
Buffett has few secrets about his investing approach and has given ample financial advice in his many interviews, articles, meetings, and open letters to shareholders. We have summed his advice on ways to combat inflation and came up with the following:
1. Deploy the money
Warren Buffett believes that money should not lie idle, and this is especially true in case of high inflation. As the example above shows, the value of money is constantly decreasing, so keeping it under the mattress or in a financial account over long periods can put a substantial dent into it. Therefore, investing it into valuable assets can allow the principal to grow with time, potentially even beating inflation.
2. Invest in strong brands
The “Oracle of Omaha” has frequently stressed the importance of investing in strong brands, which frequently coincides with blue-chip companies. In fact, a valuable name tends to give the company the ability to raise prices when needed, which is especially useful in periods of high inflation, as Warren notes.
He once remarked about Harley-Davidson (NYSE: HOG) that he “liked the kind of a business where your customers tattoo your name on their chest.”
One of Buffett’s trademark stocks is Coca-Cola, which has a highly popular brand name. One of his first business endeavors was selling coke door-to-door. Today, he is Coca-Cola’s (KO) largest stockholder.
3. Invest in a less capital-intensive business
The following advice makes sense in general, but even more so if you consider the potential for high inflation: invest in valuable businesses with low capital needs. Capital-intensive businesses require frequent reinvesting, and during inflationary times, the lower purchasing power of money can significantly increase such costs.
An example of a low-capital-needs business is the information technology sector. Buffet’s signature stock is Apple (NASDAQ: AAPL), with the investor praising its efficiency, strength, and negotiating power. It is the largest stock component of Berkshire Hathaway, accounting for 41.6% of the portfolio.
4. Avoid gold
Gold is a commodity that investors commonly turn to when inflation rates increase, and its hedging role is widely acknowledged in the market. However, Warren Buffett does not think highly of gold’s investing potential, as it goes against his stance on value investing.
In his 2011 letter to shareholders, he compared buying the world’s gold stock of 170,000 metric tons and buying all U.S. cropland and Exxon Mobil 16 times over:
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
– Warren Buffett
5. Invest in yourself
Ultimately, Warren Buffet’s first advice regarding inflation is to invest in yourself and your skills, the value of which, he notes, cannot be reduced by inflation, no matter how high the rate is.
Recommended video: Warren Buffett Invest in yourself
The great investor mentions numerous examples, like getting a degree, doing training courses, or simply reading, listening, and getting informed about various things. A skill that helped his business he himself learned early in his life is communication, and he has been recommending it ever since:
“One easy way to become worth at least 50% more than you are now … is to hone your communications skills,” as he stated in this video.
Warren Buffett’s inflation investment strategies – the bottom line
Heeding the advice of an investor who went through the Great Inflation in the 1970s and early 1980s can be useful, especially if he is among the ten richest people in the world.
Not letting the money idle, chasing value and strong brands, and investing in yourself sounds like common sense, but we tend to lose that sound advice in the greater dynamic of the investing market.
Using these tips, along with the common rule of thorough research of the investment prior to spending any money, can help you deal with rising inflation, although it might not be a bad idea to apply it in a well-doing economy as well.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
