Inflation, Hyperinflation and Investing with Klarman, Buffett and Graham

Investing and Inflation

Americans are getting stronger.  Twenty years ago, it took two people to carry ten dollars’ worth of groceries. Today a five year-old can do it. – Henry  Youngman.[1]

The best investing article on investing this editor has ever read:

If you  grasp what Buffett is saying, your results will improve. Inflation is the major  concern of any investor. You should measure your investment success not just by  what you make in nominal terms but by how much you keep after inflation. Take out a dollar from your purse or wallet. You  are taking a dollar today to invest  in a claim in a capital good (stock or bond of a company) to be able to consume  the same or more goods and services in the future.

An  interesting blog discusses Buffett’s above article and comments further on
inflation here:  and click on the pdf file (100 pages) which
aggregates all of Buffett’s writings on inflation and investing.

After reading those  articles, take a minute to download the 50-year charts on

Proctor & Gamble (PG):

Coke (KO):

US Steel (X):

Goodyear Tire & Rubber: GT:

I recommend going to and consider
subscribing to their 35-year or 50-year stock charts as a way to understand the
long-term cyclicality of businesses. You might be amazed at the differences in
performance and persistence between good and bad businesses. As the world
focuses more on the short-term, I urge you to develop more long-term analysis.
Stocks are theoretically perpetual ownership interests unlike bonds.  It’s silly to focus on next quarter’s earnings and think that will have a major impact on intrinsic values.

Four companies is not a statistical relevant example size. Also, one has to be careful of hindsight bias and fitting a theory to the facts, but how does Buffett’s
article tie into these empirical results? What can you use from your analysis
to become a better investor? Thoughts? Hint: I learned to go where the living is easy not to solve tough problems.

Understanding the dangers of inflation is critical now
because of the monetary and credit distortions building up in the world’s
monetary system as the links below will show. A true understanding will require
a huge effort, but you have no choice if you wish to understand the challenges
and conditions you face as an investor.

Many traditional value investors believe an investor should avoid macro forecasting and just do bottom-up company-specific analysis.  I don’t believe you need to forecast markets but one must understand the current dangers and risks confronting him or her when valuing businesses. Not to have been aware of the unusual credit conditions in the housing market during 2003 to 2007 would have meant attaching unusually high normalized earnings to homebuilding stocks while in a housing bubble.

Hindsight bias? A stopped clock is always right twice? Several investors were screaming from the rooftops about the  bubble building in housing. Go here for a ten minute clip:
For a more in depth analysis of the causes of the housing bubble by the same
By the way, the point is not the successful prediction but the reasoning behind his analysis. If you don’t understand economics you are like a one-legged man in an ass-kicking contest. Thanks Mr. Munger.

No greater value investor than Seth A. Karman in his introduction to Security Analysis, 6th Edition (2009) writes on pages, xxxii to xxxiii:

Another important factor for value investors to take into account is the growing propensity of the Federal Reserve to intervene in financial markets at the first sign of trouble. Amidst severe turbulence, the Fed frequently lowers interest rates to prop up securities prices and investor confidence. While the intention of the Fed officials is to maintain orderly capital markets, some money managers view Fed intervention as a virtual license to speculate. Aggressive Fed tactics, sometimes referred to as the “Greenspan put” (now the “Bernanke put”), create a moral hazard that encourages speculation while prolonging overvaluation. So long as value investors aren’t lured into a false sense of security, so long as they can maintain a long-term horizon and ensure their staying power, market dislocations caused by Fed action (or investor anticipation of it may ultimately be a source of opportunity.


Now for the current (2011):

A  monetary tsunami is coming:

Defining inflation:

Just don’t believe what you read, go to the primary sources:

Current Money Stock Measures which are rising as fast as they did in the 1970s:

You need understanding to place those statistics into context.  The effects of inflation are rising prices in general or a decreased decline in some prices absent money printing. The effects are not just a result of the increased supply of money but the demand to hold money.

The pernicious effects of inflation:

Why gold prices are so high:


I am not  implying impending hyperinflation but understand the worst case scenario. The US has suffered two hyper-inflations (The
Confederate Greenback and the US Continental Dollar). The dollar’s exchange
value has declined as shown here:
and for further clarification go here:

As  investors we must also be prepared to understand worst case scenarios like hyperinflation. See video  The Weimar hyperinflation destroyed the
wealth of Germany’s middle class. The social devastation helped usher
Hitler. May we never forget the lessons of history.


THE best book on understanding the causes and effects of hyperinflation is The Economics of Inflation by Constantino Bresciani-Turroni, download the book here:

When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany by Adam Fergusson (1975, Reprint
2010). This is the “narrative description” of Bresciani’s book. The horror. Finally, another good read: Fiat Inflation in  France by White:

If you live in the USA or Europe and are not aware of the current dangers and what could happen, you are living a high-wire  act.

[1] Intelligent Investor, Chapter 2: The Investor and  Inflation by Benjamin Graham.

2 responses to “Inflation, Hyperinflation and Investing with Klarman, Buffett and Graham

  1. Pingback: Surprise! Inflation Rising and One-Half of the Investment Equation | csinvesting

  2. I did not know Peter Schiff. After I saw your videos, I looked at a few other ones and this one explained the whole crisis in a nutshell:

    The guy is good!

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