2015: What types of businesses thrive in high inflation environments?

BECKY QUICK: OK. This is a question — oops, that’s not the question. Hold on.

Here it is. This is a question from John Wells, right here in Omaha, and he says, “You’ve described inflation as a gigantic corporate tapeworm. Which of Berkshire’s businesses are best suited to thrive during a period of high inflation and why? Which will suffer the most and why?”

WARREN BUFFETT: Yeah. Well, the best businesses during inflation are usually the best — they’re the businesses that you buy once and then you don’t have to keep making capital investments subsequently.

So you get — you do not face the problem of continuous reinvestment involving greater and greater dollars because of inflation.

That’s one reason real estate, in general, is good during inflation. If you built your own house 55 years ago like Charlie did, or bought one 55 years ago like I did, it’s a one-time outlay, whereas if you’re — and you get the — you get an inflationary expansion in replacement capital without having to replace yourself.

And if you’ve got something that’s useful to someone else, it tends to be priced in terms of replacement value over time, so you really get the inflationary kick.

Now, if you’re in a business such as the utility business or the railroad business, it just keeps eating up more and more money, and your depreciation charges are inadequate and you’re kidding yourself as to your real economic profits.

So, any business with heavy capital investment tends to be a poor business to be in in inflation and often it’s a poor business to be in generally.

And the business where you buy something once — a brand is a wonderful thing to own during inflation.

You know, See’s Candy built their brand many years ago. Now, we’ve had to nourish it as we’ve gone along, but the value of that brand increases during inflation, just as the value of, really, any strongly branded goods.

Gillette bought the entire radio rights to the World Series in 1939. And as I remember, it cost them $100,000, and for that they got to broadcast the Yankees, I think, versus the Reds in 1939.

And think of the number of impressions they made on minds in 1939 dollars for $100,000, and they were getting in the minds of young guys like myself. I was eight or nine. And millions of people — and they did it in those dollars then.

And, of course, if you were going to go out and try out and do — have similar impressions on millions of minds now, it’d cost a fortune. And part of that is due to inflation. Part of it’s due to other things.

But it was a great investment, which could be made in 1939 dollars that paid off, in terms of selling razors and blades in 1960 and 1970 and 1980 dollars.

So that’s the kind of business you want to own.

Charlie?

CHARLIE MUNGER: Well, yeah, but if the inflation ever goes completely out of control, you have no idea how it’s going to end up.

If it weren’t for the Weimar inflation, we might never have had Adolf Hitler. It was the twosome of the great German inflation followed by the Great Depression that brought us Hitler. And think of the price that the world paid for that one.

We don’t want inflation because it’s good for See’s Candy. (Laughter)

WARREN BUFFETT: I didn’t quite realize I was —

CHARLIE MUNGER: No, I wasn’t criticizing you.

SYNC VIDEO TO PARAGRAPH

WARREN BUFFETT: What’s good for See’s Candy is good for the United States. (Laughter)