Warren Buffett: Buy These Inflation-Proof Businesses

Well, the businesses that will perform the best are the ones that require little capital investment to facilitate inflationary growth and that have strong positions that allow them to increase prices with inflation.

And, well, those modest statements were under Becky. This question comes from Mark Jordan in Charleston, South Carolina. He writes, "In a period of high inflation, which particular businesses owned by Berkshire Hathaway will perform the best and which will perform the worst, and why?"

Well, the businesses that will perform the best are the ones that require little capital investment to facilitate inflationary growth, and that have strong positions that allow them to increase prices with inflation.

And, you know, we have a candy business, for example. The value of the dollar since we bought that candy business has probably fallen at least 85—I would say 80 to 85 percent. That candy business sells 75% more pounds of candy than it did when we bought it, but it has 10 times the revenues, and it doesn't take a lot more capital.

So, that kind of a business—any business that can has enough freedom to price to offset inflation and doesn't require a huge investment to support it will do well.

Businesses like our utilities, which get in effect a bond-like return, but require, you know, if you're going to build a generating plant that costs twice as much per kilowatt hour of capacity, and all you're going to get is a fixed return, and yields on bonds go up perhaps dramatically if you get high inflation, is not going to do that well in an inflationary period.

Just because it has certain aspects of a bond-like investment, and bonds generally are not going to do well in inflation.

Charlie?

Well, but like our insurance operations, our capital-intensive railroad business is certainly one of the best railroads in the world, and our utility operations are certainly one of the best utility operations in the world.

So, it isn't all bad to be up there, world-class, in your main businesses.

Our railroad—the government’s talked about building a high-speed rail system in California. I think they're talking about 800 miles of track, and their estimated cost was about 43 billion.

Estimated costs on constructions and things like that go up dramatically, much more often than they get reduced even by a minor amount.

And, of course, we paid 43 billion, counting debt assumed, for a rail system which has 22,000 miles of main track and 6,000 plus locomotives and 13,000 bridges. If you ever want to buy a bridge— so that the replacement value of that asset during inflation already is huge, and it would grow dramatically.

And the world—our country will always need rail transportation. So, it is a terrific asset to own. I'll just leave it at that.