Consumer prices rose 6.8% in November, compared with the same month in 2020, according to Labor Department data released in December. US inflation is now at its highest level in 39 years, and November marked the fifth consecutive month that inflation exceeded 5%. These numbers no doubt lead many investors to ask: How can I protect myself against inflation? In general, many experts recommend investing smartly to protect against inflation. Suze Orman recently wrote on her site that “keep investing in stocks” to protect against rising costs, and Ramit Sethi noted that, “Investing is the most effective way to get rich. Inflation can be bad for people when you just keep your money in a bank account and do nothing else with it. But what types of businesses should you invest in? Here’s what Warren Buffett has said over the decades.
Berkshire Hathaway Chairman and CEO, at a 2015 shareholder meeting, noted that: “The best companies during inflation are the companies you buy once and you don’t have to keep doing capital investments afterwards ”, whereas you should avoid“ ”any company with high capital investment. It emphasizes real estate as being good during inflation, which you can buy once and get an increase in value as well; meanwhile, he calls businesses like utilities and railroads bad investments in times of inflation.
And at a shareholder meeting in 2009, Buffett noted that the first best thing you can do to protect yourself against inflation is to invest in yourself and your skills: “If you’re the best teacher , if you are the best surgeon, if you are the best lawyer, you will get your share of the national economic pie whatever the value of the currency, whatever it is, ”he said. After that, he says, “the second best protection is a wonderful business,” which means a business in which the products are in demand even though the business has to raise the prices.
And in a 1981 letter to shareholders, Buffett perhaps explained all this as clearly as ever, writing that companies that tend to resist an inflationary environment “must have two characteristics: (1) an ability to raise prices quite easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss in market share or unit volume, and (2) an ability to cope with large increases in volume (often produced more by inflation than by real growth) with only additional investment of capital.
That said, perhaps the best thing many individual investors remember about Buffett is that instead of trying to pick individual stocks, whether we’re in a time of inflation or not, you should go for this proven method. : fund index, hold and hold. In 2021, at a shareholders’ meeting, Buffett said that “I don’t think the average person can pick stocks,” and noted that he recommended that the S&P 500 index fund “have for a very, a very long time to people ”.