Protection against inflation: stock market legend Warren Buffett advises these strategies

Buffett warns of rising prices
Acquire skills and find “wonderful” companies
Index funds as protection against total loss

Concerns about inflation keep markets in suspense

Concerns about inflation are once again keeping the stock market firmly in its grip. Consumer prices have risen rapidly in recent months, much to the chagrin of many investors. Because not only are government bonds considered more attractive assets when prices are rising, rising inflation is also taking away the basis for valuation of many tech stocks, which were able to gain in the course of the recovery phase after the Corona crash in March 2020. Furthermore, market participants fear that the US Federal Reserve will move away from its extremely loose monetary policy will deviate if the inflationary spiral worsens. As the monetary authorities announced after their last meeting, this is not initially planned. So you want to keep the key interest rate between zero and 0.25 percent. However, the latest Fed decision has not changed anything on the market, analyst Jeffrey Halley from broker Oanda told the German Press Agency. Instead, “business as usual” is the case again – and investors are still unsettled.

Buffett warns: ‘Costs go up and go up and go up’

Even stock market legend Warren Buffett warned in May at the annual general meeting of his investment company Berkshire Hathaway of rapid currency devaluation. “We’re seeing very strong inflation,” the Oracle of Omaha said, according to Business Insider. “The costs go up and up and up.” The CEO has not only heard a price increase from his company’s suppliers, Berkshire Hathaway itself has had to react and has raised prices. He also surmised at the meeting that the extremely loose monetary policy – despite inflation concerns – would be continued “on a grand scale”, with which he ultimately turned out to be right.

And even if the inflation problem is currently weighing heavily on retailers, the worries are anything but new – even for Buffett. As the US television channel “CNBC” reports, the market expert had already given advice at his company’s shareholders’ meeting in 2009 on how investors could react to the threat of inflation. By then, the Great Recession, triggered by the bursting of the real estate bubble, had almost completely subsided.

Most important investment: own skills

The first strategy Buffett advised his shareholders to adopt in 2009 is to work on yourself. Thus, one can respond appropriately to crises by building one’s own competencies and trying to take a leading role in them, as can be inferred from the meeting’s recordings, which CNBC makes available in the so-called “Warren Buffett Archive”. “If you are the best teacher, the best surgeon or the best lawyer, you get your share of the national pie, regardless of the value of the currency,” said the entrepreneur. If you make an effort, you will be rewarded for your effort. Accordingly, the best investment is always one’s own person. “The best protection against inflation is your own earning power,” Buffett said.

Wonderful companies survive even in crisis situations

But that’s not all. It is also of enormous importance to keep one’s eyes open when choosing further investments. So the stock market legend advised in 2009 to buy shares in a “wonderful business”. Because no matter how the value of the US dollar develops, products from corresponding companies are still in demand, as CNBC reports. After all, inflation does not change the quality of what such corporations offer. As an example, Buffett cited one of his favorite investments at the time: the beverage company Coca-Cola. “If you own the Coca-Cola company, you’re going to get a certain percentage of people’s labor for your product in 20 years and 50 years from now, and it doesn’t matter what happens to the price level,” Buffett is quoted as saying. Accordingly, there are still buyers for such a product.

Buffett advocates broad diversification using index funds

Nevertheless, it is risky to invest in just one company. Instead, the stock market veteran advised investors to resort to inexpensive index funds, as these are more widely diversified and thus also reduce the risk of a total loss. Corresponding funds map complete indices. The US S&P 500 Index, which includes the shares of 500 of the largest publicly traded US companies, is a popular subject of such financial products. “Consistently buy a low-cost S&P 500 index fund,” Buffett recommended to investors in 2017, as CNBC writes. “Buy him through thick and thin, but especially through thin.” In addition to Buffett’s favorite Coca-Cola, investors can also invest in corporations such as Apple and Alphabet without having to invest huge sums in actual share certificates. ETFs can therefore also be suitable for beginners.

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