I had the wonderful opportunity to once again visit the Oracle of Omaha, Warren Buffett and his partner Charlie Munger, the brains behind Berkshire Hathaway, a conglomerate of businesses that includes See's Candies, Fruit of the Loom, NetJets, BNSF and major shares of Coca-Cola and American Express.
The two spent close to six hours with over 17,000 shareholders answering questions from the audience and from journalists that selected the best questions posed online. The topics ranged from Berkshire's affairs, to the economy, to Buffett's investing style.
In my view, two of the best lessons in investing were explained there. One, invest in businesses with low capital requirements -- those that require little reinvestment of profits to maintain themselves. And two, know the three different asset classes and how to invest in them: currency-denominated investments; things that have value only because someone else will pay more for them in the future (precious metals) and wonderful businesses with competitive advantages and low capital requirements.
The dollar is turning into dust. Gold and silver prices have skyrocketed (and may even go further). Gas prices are outrageous. And yet, "official" inflation is said to be low, but the government keeps printing money and running ever so increasing deficits.
What's an investor to do?
Well, there are a few ways with varying degrees of safety and efficiency to hedge against inflation. They all fall into three broad investment groups:
Cash-flow positive assets
Limited supply
Hybrid/Mixed
Cash-flow positive assets include business interests (stocks, private investments), rents, royalties, savings and bonds. Though, not all of these are good inflation hedges. Limited supply investments are those that depend on the scarcity of the investment, and include precious metals (gold, silver, copper, bronze), oil, natural gas and fine arts. Hybrids/Mixed are everything else and typically include derivatives or some sort, futures, TIPS, etc. Again, not all are good inflation hedges.
My favorites to fight inflation and to grow wealth are by far business interests and real estate.
Read more about it in my new article on EPIC INVESTOR.
Falling in love with a company, product or any investment in general is a bad idea.
To find out why, see my adventures with a terrible investment in a company with a good product and how I used that lesson to avoid falling into a similar trap now. All on EPIC INVESTOR.
