Inflation creates a hurdle rate over which a company needs to make a return on equity in order to make any real return for its shareholders. In ninete 80 the inflation rate, or the hurdle rate, was 13%. So he says, in a world of 12 % inflation, a business earning 20 % on equity and putting it out is chewing up their capital, not enhancing itan. And then three, to shift the measure of success from earnings, which he says no longer mean anything on their own, to the gains in purchasing power. We got to look at what this money actually buys.
In today’s episode, Danielle discussed words of wisdom on inflation shared from the letters of Warren Buffett.
In the letters, you’ll learn Buffet’s warnings to other investors that we do not know what will happen with the stock market or the underlying currency, and that long-term fixed interest bonds may not continue to serve as a financial instrument and may even become obsolete.
Danielle also digs into Buffett’s points that there may not be a corporate solution to the problem of growing inflation, however, he does explain other solutions.
To learn more about what type of companies to look for that can withstand inflation and this uncertain market, register for Phil’s NEW investing webinar: https://bit.ly/3GT2drc
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For show notes and more information visit www.investedpodcast.com.
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