Warren Buffett Says These Are The Best Stocks To Own When Inflation Spikes
Dec 06, 2021
Following months of price increases, the Fed's argument that higher inflation would be "transitory" is beginning to appear a little flimsy.
Fed Chairman Jerome Powell pointed out in his speech on Tuesday that it's apparently the time to abandon that term and attempt to clarify what it means more plainly as the potential of more significant inflation has grown.
A hawkish answer from the Fed may send the market into a tailspin; the Dow lost 652 points on Tuesday.
Thankfully, Warren Buffett, the financial giant, has a slew of ideas for what to buy when consumer prices rise. In the 1970s, the Berkshire Hathaway CEO maintained a stock portfolio amid strong inflation.
Buffett emphasized two attributes that help firms flourish in high-inflation environments in a 1981 letter to investors: the capacity to raise prices and the flexibility to do extra business without spending too much.
Simply put, invest in small-sized businesses that can afford to raise prices. Here are three Berkshire holdings that match the bill, as well as one investment that probably never goes out of style, regardless of how dramatically prices go up.
American Express (AXP)
American Express has displayed its pricing strength by raising the yearly fee on its Platinum Card from $550 to $695.
In an inflationary climate, the corporation will also profit immediately.
The majority of American Express's revenue comes from discount charges, which are levied to retailers on every Amex card payment. As the cost of products and services rises, the corporation can take a considerable percentage of the bill.
In reality, the company's business is already thriving, with sales up 25% year over year to $10.9 billion in the third quarter.
American Express is the third-largest company in Buffett's portfolio. With 151.6 million shares, Berkshire Hathaway owns a stake in AXP worth more than $23 billion.
Though the stakes are significantly lower, Berkshire has stock in American Express rivals Visa and Mastercard.
Yes, the stock of American Express is worth more than $150 per share. However, you may acquire a tiny portion of the corporation using a popular application that lets you buy pieces of stocks for as little as $1.
Coca-Cola is the embodiment of a recession-resistant company. Whether markets are growing or failing, most individuals can still afford a bottle of Coke.
The corporation's strong brand name also allows it to set its prices. Furthermore, Coca-Cola may always fall back on a strategy it has utilized in the past: maintaining the exact cost but slightly shrinking the bottle size.
Given the company's legendary brand portfolio and the fact that its products are distributed in over 200 countries, it's simple to understand why it's an excellent long-term investment.
And anyway, the firm was founded almost a century ago. The company has survived and only prospered in times of rampant inflation.
Since the late 1980s, Coca-Cola has always been part of Buffett's portfolio. Berkshire Hathaway now has 400 million shares in the corporation, valued at $20.1 billion.
Nobody would call a $1,600 fully outfitted iPhone 13 Pro a bargain, but Apple fans love to splurge.
The corporation's active installed base exceeded 1.65 billion devices, with over 1 billion iPhones, according to management earlier this year.
Even though rivals sell lower-priced smartphones, many users prefer to stay within the IOS platform. As inflation rises, Apple will pass on increasing expenses to its worldwide customer base without fear of a decline in sales volume.
Apple is now Buffett's biggest stake, accounting for over 40% of Berkshire's holdings in terms of market value.
One of the causes for this focus is the rapidly increasing share price of the IT behemoth. Apple's stock has increased by 491% in the last five years.
However, if you don't want to buy particular technology equities following the huge bullish gains in an industry, you can use your "spare change" to develop a balanced portfolio automatically at any time.
Potentially a 'lifetime asset'
Warren Buffett has stated that his preferred holding term is indefinite.
And there's one item — frequently seen as a safe place against inflation — that could remain in demand indefinitely: agriculture.
People need to eat regardless of how high or rapidly prices rise. It so happens that Buffett's friend Bill Gates owns the most acreage in the United States.
Today new platforms let you invest in U.S. agriculture by purchasing a share in one or more farms.
The lease payments and crop sales will provide you with cash. And without a doubt, any long-term appreciation will be beneficial to you beyond that.