From the 2015 Berkshire Hathaway Annual Meeting:
WARREN BUFFETT: 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 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 and...you get an inflationary expansion in replacement capital without having to replace [it] 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, and 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.
But as Munger points out, extremely high inflation is not something one should hope for:
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)
Related previous post: Warren Buffett’s Comments on Inflation