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Inflation may ebb and flow, but Warren Buffett’s two lessons for fighting it are timeless.
- Become so good at what you do that people will pay a premium for your skills.
- Own stock in businesses that don’t need constant infusions of cash to keep profits growing.
Key Takeaways
- Buffett calls self‑development “the best investment by far” because skills can’t be taxed or “inflated away.”
- The next‑best hedge is to own stock in companies whose products require little new capital but can raise prices at the rate of inflation or even higher.
- Firms built on royalty-like models or networks often convert revenue to cash without big reinvestments, giving them room to outpace rising costs.
Invest in Yourself: The Ultimate Inflation‑Proof Asset
Buffett, the CEO of Berkshire Hathaway (BRK.A; BRK.B), ranks “human capital” above any ticker symbol. “The best thing you can do is to be exceptionally good at something,” he told shareholders in 2022. “Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you.”
Wage growth for scarce, highly skilled, high‑quality expertise typically outruns inflation. A top orthopedic surgeon, cloud‑security architect, or even an elite hair stylist can lift fees as costs climb because clients value outcomes more than raw inputs.
Unlike a factory, your mind and reputation need no expensive upgrades—just continuous practice and learning. And the Internal Revenue Code doesn’t levy a tax when you master a new skill.
“The best investment, by far, is anything that develops yourself,” Buffett said. “And again, it’s not taxed.”
In 2008, he offered a similar answer when asked about the best investment to hedge against a debt crisis.
“Develop your own talent. If you’re the best doctor in town, if you’re the best teacher in town, if you’re, you know, the best salesman in town, you’ll do well no matter what the currency does,” he said. “You will get your share. So investing in yourself is always the best thing.”
Low Capital Costs and Strong Pricing Power
In that same 2008 interview, Buffett offered a runner-up strategy for fighting inflation. The “second-best thing is to own products or stocks that have products that don’t require much capital investment,” he said.
That’s because the price of capital investment will rise with inflation. But companies that don’t require a lot of capital, especially those with strong brands and pricing power, will endure inflationary periods relatively well.
These are companies that enjoy consistent, durable demand and high margins without constant spending on capital-intensive assets like new factories.
Classic Examples
- Consumer staples with strong brands. Coca‑Cola (KO) and Procter & Gamble (PG) are two such companies. Recipe tweaks cost pennies, but price tags rise with grocery store inflation.
- Software and platform firms. After the initial codebase, updates can be pushed, and incremental users add revenue at negligible cost, allowing subscription prices to track inflation with wide margins.
- Royalty‑like models. Think credit card networks, music catalogs, or franchise systems. Each clips a small fee on a growing nominal basis.
Tip
Investors should still scrutinize valuation, competitive threats, and debt levels. “Asset-light” does not automatically mean “inflation-proof.” But, historically, businesses with pricing power and minimal reinvestment needs have expanded earnings faster than the Consumer Price Index, cushioning shareholders against purchasing power erosion.
The Bottom Line
Buffett’s advice is strikingly simple. First, turn yourself into a must‑hire professional. According to Buffett, the best protection against inflation is “your own personal earning power.”
Second, when you invest, favor businesses that don’t need to spend capital and have the power to raise their own prices with little impact on sales.
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