From used cars to gasoline to groceries, inflation continues to push up the prices of American goods. The consumer price index rose 5.4 per cent last month from July 2020, the biggest increase since 2008.
Although some economists and other financial experts say the current rate of inflation has nothing to worry about, inflation is in fact inevitable. But when it comes to investing, Berkshire Hathaway CEO Warren Buffett says some companies are more likely to succeed than others.
In 2015,Berkshire HathawayBuffett was asked at the company's (Berkshire Hathaway) annual shareholders' meeting that inQualcomm IncDuring the bloating period, which of the company stocks he held had the most potential for development. Buffett's answer is: the best investments are companies that do not need to continue to reinvest, because when the dollar depreciates, the cost of reinvestment becomes higher and higher.
"in times of inflation, the best company is when you buy it once, and then you don't have to make any more capital investment," Mr Buffett said.
Industries such as utilities or railways "continue to consume more and more money" and are not as profitable as they used to be, he explained. He prefers to own companies that are connected to people.
On the contrary, "it's good to have a brand in times of inflation," Buffett said. For him, including brands like See's Candy, he has owned the brand since 1972.
Of course, most day-to-day investors can't buy the whole company, but they can buy shares in the company they like. As Buffett said in 2009, it is useful to have part of a "great company" because no matter what happens to the value of the dollar, there will still be demand for its products.
"if you have something that is useful to others, it tends to be priced at reset value over time, so you will really be spurred by inflation," Buffett said. "
For most investors, however, the best thing to do is not to choose stocks they think will perform well, but to invest in low-cost index funds that are much riskier.
Mr Buffett has previously told the media that diversified index funds are "the most practical at any time" for those who want to build retirement savings and "always buy S & P 500 low-cost index funds", he said in 2017. "No matter what difficulties you encounter, you must keep buying, especially in difficult times."