Read on Twitter
When Warren Buffett was closing his investment partnership in the late 1960s, one of two managers that he recommended for his partners going forward was Bill Ruane at the Sequoia Fund.
As Buffett wrote in a 1969 letter to partners, “There is no way to eliminate the possibility of error when judging humans…[but] I consider Bill to be an exceptionally high-probability decision on character and a high-probability one on investment performance.”
In this week’s Co/Report, we included a link to some old letters from the Sequoia Fund during the inflationary years from 1974-1982. While inflation is low today, investors must always be prepared for its possible return. Here are a few excerpts from those letters:
1974: “Inflation today is undoubtedly the greatest threat to one’s capital and we recommend the April 1 issue of Forbes which has an excellent article on this subject.
It essentially states that many of the much touted approaches to protect against inflation are traps, particularly for the uninitiated, in such areas as real estate, antiques, art, and so on. Forbes also is basically wary of the current craze of buying gold and silver coins.
It concludes that there is no place to hide, but that well-selected common stocks today probably represent excellent values, and that the true investor in many cases is buying at a discount to assets which can only be worth more as inflation proceeds.”
1978: “People readily understand the inflation protection which comes from owning real assets, particularly real estate, for which there has been substantial demand, especially from abroad, in order to hedge against inflation.
It is less apparent that the ownership of stocks also represents ownership in real property, and to the degree that one uses discrimination, stocks can be every bit as good a hedge against inflation as the average piece of real estate.
We believe there will be greater recognition of this fact in time.”
1978: “At present a variety of fears, rather than the buoyant profit conditions, appear to dominate stock market action. Fear of a recession, continued fear of inflation, and worry about the future of the dollar are uppermost in the minds of many.
We consider inflation to be the number one enemy of capital, we wonder about the certainty and timing of a recession, and we suspect that the dollar may be worth more than it is currently being appraised at in world financial markets.
In general we have a low opinion of economic predictions, including our own. In this vein, we read recently that Harry Truman expressed a desire for an economist with only one hand because his advisers were always saying, ‘On the one hand it looks good, but on the other hand….’”
1979: “Severe inflation is the most serious problem for the saver of capital. We continue to believe that the current level of the stock market is such that it may provide the largest amount of after tax return for the average investor compared to other investment vehicles.”
1980: “’*Inflation Can Threaten Your Mental Health…*’ This caption from an article in The Wall Street Journal not only alludes to the basic cause of our disorganized financial market – uncontrolled inflation –
but emphasizes that there is literally no end to inflation’s negative ramifications. The New York Times recently quoted Warren Buffett, the chairman of Berkshire Hathaway, with reference to what he terms ‘the investor’s misery index.’
In essence, the index measures the gain or loss in the investor’s purchasing power after subtracting income taxes and the inflation rate from his gross return on his invested capital.”
1980: “We suspect that there is underway a major secular attitudinal change favoring common stocks. In part this recognizes that while common stocks are not a perfect inflation hedge,
the ownership of companies whose earnings have the potential to keep pace with inflation and whose earnings streams can be purchased at modest multiples is preferable to investments in bonds whose yields may not even equal the underlying inflation rate.”
For more, sign up for our Newsletter the Co/Report. https://coinvestorclub.com/sign-up/
