332- Warren Buffett's Inflation Principles

InvestED: The Rule #1 Investing Podcast

Phil Town & Danielle Town

Investing, Business

4.6 • 1.6K Ratings

🗓️ 1 September 2021

⏱️ 25 minutes

🔗️ Recording | iTunes | RSS

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Summary

In today’s episode, we discuss some words of wisdom shared from the letters of Warren Buffett. There is one concept in particular that we can take from these letters that still applies today, and that is inflation. First, we focus on Warren Buffett’s 1979 letter, where inflation rose to 11.2% in the United States. Buffett decided to write about this in the letter along with larger financial issues in the macro-economic world. He starts by telling other investors that we do not know what will happen with the stock market or the underlying currency. Long-term fixed interest bonds may not continue to serve as a financial instrument and may even become obsolete. Warren Buffett also points out that there’s no corporate solution to the problem of growing inflation. As currency becomes more worthless, companies do not have a solution to this problem - they just have to do their best. As we fast forward to the early 1980s, Warren Buffett writes some solutions to these types of problems. First, choose an investment that is adaptable to inflation. This means that earnings will increase consistently with its raised prices without adding in additional capital. The second solution is to choose an investment with very little bad debt, which could sink the company. And lastly, shift your measure of success from earnings, which no longer mean anything on their own, to gains and purchasing power. Danielle leaves us with a final thought on how the pace of economic change has become breathtaking and we need to be ready to adapt. If you want to learn more about what type of companies to look for that can withstand inflation and this uncertain market, register for my NEW investing webinar: https://bit.ly/3mQCVlh Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:35.7	Hey everybody and welcome to the invested podcast. I'm Danielle Town. My dad is out today and I
0:42.1	thought it'd be a great opportunity to talk about something that I've been reading a ton about.
0:47.3	I know I've mentioned it a couple of times on the podcast because I'm obsessed and that is
0:53.6	the insane wisdom from the letters of Warren Buffett. So I'm not going to go through all the letters.
1:00.5	Don't press stop on your podcast app. I promise not to go through all of them. If you want to know
1:06.6	what they all say, of course you can have access to that on the archive of my invested practice
1:12.8	newsletter, which is at newsletter.danieltown.com. But today I'm going to talk about one particular
1:19.9	piece of learning that I kept on over and over and over taking from these letters because it's
1:28.9	so important to what's going on with our market today and that is inflation. So I started reading
1:36.1	these letters and the first one I started with was 1977 simply because that's the first one
1:43.4	that he offers on the Berkshire Hathaway website. Easy, simple, thought about starting earlier,
1:51.3	but decided I wasn't going to torture myself or any of the other members of the invested practice
1:56.6	too much and that we would just start with what Buffett wanted us to start with and that was 1977.
2:01.7	So I got into 1977 and realized quickly that it was a much higher inflationary time than has really
2:12.1	existed during my lifetime. Really since I've been around I mean I was born in 1981 which had
2:19.3	high inflation but I was not terribly aware of it. So in my sentient years I haven't really had
2:26.6	inflation as an issue and so starting back in 1977 and reading he didn't really mention it much
2:33.5	in 1977 or 78 but in 79 when inflation got up to 11.2% he wrote most of his letter about inflation
	...

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