Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains — in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date. –Warren Buffett
Warren Buffett: Why stocks beat gold and bonds
In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.
Obviously, the readers of this blog are aware of the Federal Reserves easy monetary policy–growing monetary aggregates, zero interest rate policy, and high reserves in the banking system. However, as followers of Austrian economics (some of us), we realize that there is no perfect correlation between X growth in money supply and Y increase in nominal stock prices. The world is an extremely complex place and to model precision and prediction is MADNESS. However, you can gain a sense of how the wind blows. If people wish to hold lower cash balances then the effects of inflation will be increased.
Inflation Swindles the Equity Investor
I strongly urge you to read one of the greatest articles on investing by Buffett, How Inflation Swindles the Equity Investor. HERE: http://www.scribd.com/doc/65198264/Inflation-Swindles-the-Equity-Investor
We spoke at length about investing and inflation during this post: http://wp.me/p1PgpH-1h