Warren Buffet is one of the world’s most successful businessmen, amassing a huge amount of personal wealth across a lengthy career. Speaking at the annual Berkshire Hathaway shareholder meeting in 2015, he gave advice on which types of business are able to thrive during times of high inflation.
Buffet stressed that companies which do not need perpetual investment are most able to prosper when inflation is high.
He said: “The best businesses during inflation are the businesses that you buy once, and then you don’t have to keep making capital investments subsequently.
“You do not face the problem of continuous reinvestment involving greater and greater dollars because of inflation.”
As an example of type of business that is able to succeed during high inflation, Buffet pointed to the real estate market.
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Buffet also explained that utility businesses are not well-suited for spells of inflation due to their continuous need for additional capital injections over time.
He said: “If you’re in a business, such as the utility business or the railroad business, it just keeps eating up more and more money.
“Your depreciation charges are inadequate, and you’re kidding yourself as to your real economic profit.”
“Any business with heavy capital investment tends to be a poor business to be in,” Buffet added.
Having a powerful brand is also helpful in order to thrive during periods of high inflation, according to Buffet.
“A brand is a wonderful thing to own during inflation,” he said.
Buffet provided See’s Candies as a prime example of a company which has benefitted from inflation due to its strong branding.
The confectionery manufacturer had been in business since 1921 and was bought by Buffet’s Berkshire Hathaway Corporation in 1972 for $25million.
He said: “See’s Candy built their brand many years ago. We’ve got to nourish it as we’re going along, but the value of that brand increases during inflation just as the value of any strongly branded goods.”
Warren Buffet is one of the richest people in the world, with a net worth of £76.33billion, according to the Bloomberg Billionaires Index, placing him ninth on the worldwide list.
Having made his fortune through investment in businesses, Buffet is considered one of the world’s most successful investors.
Now 90 years old, the American has committed to giving away the majority of his wealth by the end of his life.
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