Warren Buffett on Inflation — Part 1
Lessons from the final Buffett Partnership letters
“I should note that the cemetery for seers has a huge section set aside for macro forecasters. We have in fact made few macro forecasts at Berkshire, and we have seldom seen others make them with sustained success.”
One of the enduring misconceptions among investors is that Warren Buffett ignores the macroeconomy. To the contrary, a careful reading of Mr. Buffett’s shareholder letters over many decades makes it clear that he closely monitors macroeconomic conditions. It is more accurate to say that Berkshire Hathaway rarely makes bets directly on macroeconomic factors. This does not mean that Mr. Buffett ignores the likely effect of macroeconomic developments on individual businesses when he makes investments or strategic decisions regarding Berkshire’s current businesses.
I recently purchased a compilation of Warren Buffett’s shareholder letters from 1965 to 2022. In addition to containing letters prior to 1977, which are not available on Berkshire’s website, the ebook can be easily searched for keywords such as inflation. This proved useful as I went through the letters to better understand Warren Buffett’s thinking about inflation from the 1970s to the early 1980s, an infamous period known as The Great Inflation, as shown in the chart below:
We can see that rising inflation was a constant macroeconomic problem from the time that Warren Buffett took control of Berkshire Hathaway in 1965 until the early 1980s. Despite his brilliance, Mr. Buffett is not omniscient and he is unable to look into a crystal ball to make predictions about the future of the macroeconomy.
In part one of this series, I present observations based on Warren Buffett’s final partnership letter which was meant to provide investment counsel to partners with income needs who wished to invest part of their proceeds in bonds. In part two of the series, I will discuss statements made in Mr. Buffett’s shareholder letters from the 1970s and 1980s as inflation accelerated and finally receded.