BRK and inflation

[Sinbius]

HI,

 

I am a huge Buffett fan...like everybody else and I am invested in BRK....

 

Wondering...how to frame the inflation risk with BRK.....often with an huge cash pile...not having an easy life to deploy all that cash...in case of big inflation...

A counter point could be that if huge inflation comes also more opportunities to deploy that cash come too...

 

What do you think?...Is strong inflation a "big" risk for BRK?

[Spooky]

Inflation is a risk for BRK just like most other stocks - it is a tapeworm that eats wealth. Check out Buffett's 1977 article in Fortune “How Inflation
Swindles the Equity Investor”. Basically, in the 1970s, the performance of BRK only matched that of gold despite all the work they were doing at the company.

 

Inflation-Swindles-the-Equity-Investor.pdf

[Sinbius]

31 minutes ago, Spooky said:

Inflation is a risk for BRK just like most other stocks - it is a tapeworm that eats wealth. Check out Buffett's 1977 article in Fortune “How Inflation
Swindles the Equity Investor”. Basically, in the 1970s, the performance of BRK only matched that of gold despite all the work they were doing at the company.

 

Inflation-Swindles-the-Equity-Investor.pdf 483.81 kB · 1 download

I was thinking if is a risk for BRK more than for other stocks ( like amazon or microsoft etc...) due to their lack of pricing power ( energy etc...) and the huge exposure to bonds....

[gfp]

6 minutes ago, Sinbius said:

I was thinking if is a risk for BRK more than for other stocks ( like amazon or microsoft etc...) due to their lack of pricing power ( energy etc...) and the huge exposure to bonds....

 

Berkshire's management spends more time and energy thinking about big risks to Berkshire than management of most companies do.  In general, any big risk to American business poses less of a risk to Berkshire because of how rational and financially strong they are.  When you worry about risk, Berkshire should be low on your list of worries.

[Sinbius]

52 minutes ago, gfp said:

 

Berkshire's management spends more time and energy thinking about big risks to Berkshire than management of most companies do.  In general, any big risk to American business poses less of a risk to Berkshire because of how rational and financially strong they are.  When you worry about risk, Berkshire should be low on your list of worries.

Not so sure as you are that inflation is less of a risk for BRK than for example goog or amazon etc.... the business model account for that too...

Edited April 14, 2025 by Sinbius

[Loss Horizon]

On 4/14/2025 at 2:17 PM, Spooky said:

Inflation is a risk for BRK just like most other stocks - it is a tapeworm that eats wealth. Check out Buffett's 1977 article in Fortune “How Inflation
Swindles the Equity Investor”. Basically, in the 1970s, the performance of BRK only matched that of gold despite all the work they were doing at the company.

 

Inflation-Swindles-the-Equity-Investor.pdf 483.81 kB · 7 downloads

 

This is a fantastic read.

The second page, a low-key model of growth companies without dividends which I didn't see before.

 

The premium on the growth companies is not only because you buy ever increasing earnings of the future.

It's also because your retained earnings are reinvested at "par value", not at the stock market value.

 

For instance, currently AMZN returns around 3% on the market price. But those 3% are reinvested at the rate of equity return of almost 25% every year. (I don't have AMZN and don't plan to buy).

[Loss Horizon]

On 4/14/2025 at 12:26 PM, Sinbius said:

HI,

 

I am a huge Buffett fan...like everybody else and I am invested in BRK....

 

Wondering...how to frame the inflation risk with BRK.....often with an huge cash pile...not having an easy life to deploy all that cash...in case of big inflation...

A counter point could be that if huge inflation comes also more opportunities to deploy that cash come too...

 

What do you think?...Is strong inflation a "big" risk for BRK?

 

I think Buffett addressed that in the last letter. Yes, possibility of a runaway inflation is a risk. Hopefully, the government will avoid that.

 

However the current inflation is below short term rate, so that pile of cash is beating inflation so far.

And because it's short term rate, it's completely liquid and could be deployed instantly if things change.

 

An alternative risk is deploying the money into overpriced assets in overvalued market, which could return less long term.

Edited June 6, 2025 by Loss Horizon