My longtime boss at Morningstar was a Buffett and Munger fan, and the first words I ever heard out of her mouth were: “Beta is bullshit.” (I knew then that Morningstar would be an interesting place to work.) Given that writing massive insurance policies is a significant part of Berkshire Hathaway’s business, it’s no surprise that risk has consumed a large part of Buffett’s and Munger’s attention. Now that inflation is back with a vengeance, it’s a good time to reread Buffett’s sobering inflation commentary. They’re better able to withstand what the macro environment throws their way. This underlying pricing power is one reason we like wide-moat companies so much.

Very few companies-those with strong economic moats-can raise prices to offset the erosion of purchasing power. What he emphasized then was the difficulty for companies, especially those most exposed to inflationary cost pressures, to earn decent returns for shareholders in a period of high inflation. But any student of Buffett’s writings knows that inflation was a regular topic of his in the 1970s and early 1980s.

Until 2022, it had been easy to ignore inflation for about 40 years. It certainly lowers costs.Ģ) Inflation Is Another Reason to Favor Moats To this day, I’ll admit I’ve never bought or sold an option, shorted a stock, bought a triple-inverse-short ETF or 130/30 fund, dabbled in structured notes, or invested in a variable annuity. One of my favorite Buffett quotes is, “If you’ve been playing poker for a half an hour and you still don’t know who the patsy is, you’re the patsy.” Unfortunately, the financial industry is chock-full of players eager to induce you to play the game on their terms, always with a hefty entry fee attached. The skepticism of Wall Street’s creativity in new-product development has influenced our analysts over the years when faced with the latest and greatest product offering from asset managers or investment banks. The company operates with very little debt and a large cushion of cash and investments, an approach that has influenced the way Morningstar manages its own balance sheet. 1) Be Skeptical of Exotic Financial Instrumentsīuffett and Munger have been consistent critics of derivatives, catastrophe bonds, crypto, and other types of financial “innovation.” The way they run Berkshire Hathaway reflects this prudence. The hard thing is confining the list to only 12. It’s easy for me to make a list of ideas from Warren Buffett and his partner Charlie Munger at Berkshire Hathaway that have influenced my own thinking and that of my fellow Buffett-heads here at Morningstar.

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