How to invest in times of high inflation: the advice of Elon Musk and Warren Buffett

In a context of high inflation in the United States - the Consumer Price Index (CPI) recorded a year-on-year rate of 7.9% in February, the highest figure in forty years, as announced by the Bureau of Labor Statistics (BLS) under the Department of Labor - the founder of Tesla and Space X, Elon Musk, and US billionaire investor Warren Buffet recommended similar strategies for investing and covering up the price hike, as published by CNBC.

These can be exploited by Argentine investors in a context where inflation in Argentina was 50.9% in 2021 and analysts relieved by the Central Bank expect it to reach 55% this year.

Tesla's CEO tweeted that in times of high inflation, “it's generally better to own physical things like a house or shares in companies that you think are good products,” rather than keeping your cash.

The second half of his tweet aligns with investment advice that Buffett, CEO of Berkshire Hathaway, gave in the past. In 2009, at the end of the Great Recession, Buffett told the firm's annual meeting of shareholders that one of the best ways to protect against inflation is to own a piece of “a wonderful business.”

That's because no matter what happens to the value of the dollar, the company's product will continue to be in demand. In that sense, he used one of his own investments as an example: “If you own the Coca-Cola company, you will get a certain part of people's work in 20 years and 50 years from now for your product and it doesn't make any difference what happened to the price level”, because people will continue to pay for the products they receive like them.

Inflation was rising steadily throughout the winter in the United States and consumer prices rose 7.9% year-on-year in February, representing the highest jump in 40 years. Increases in gasoline prices led the way, followed by hotels, rental cars and furniture in that country.

“The higher the inflation rate, the faster cash loses value. Investments, on the other hand, generally grow over time. This is why during periods of high inflation, Musk and Buffett recommend investing in solid companies whose shares are likely to remain constant,” the CNBC publication highlighted.

“If you have too much cash, you're hurting yourself,” said financial advisor Delano Saporu, CEO of New York-based New Street Advisors Group recently. However, stock selection can be risky, and even if a company performed well in the past, there is no guarantee that its shares will rise in the future.

In that regard, many experts, including Buffett, recommend investing in low-cost index funds, which are less volatile, but still take advantage of market growth. And because these funds have all the shares in an index, they automatically diversify. In fact, the S&P 500, which includes companies like Amazon, Apple, and Microsoft, has surpassed inflation over the years.

“Constantly buy a low-cost S&P 500 index fund,” Buffett said in 2017. “Keep buying it in good times and bad, and especially in bad times,” he said.

It should be remembered that an Argentine investor can buy shares of US companies such as Apple or Amazon through the so-called Cedears.

Cedears (acronym for Argentine Certificates of Deposit) are securities that represent shares of listed companies on international markets and that can be traded on the Buenos Aires Stock Exchange. It would be the reverse instrument of the ADR (American Depositary Receipt), the certificates through which the shares of Argentine companies are traded in dollars on Wall Street.

The procedure consists of a bank or institution buying a share of a company that is listed abroad - giants such as Google or Apple are the most chosen ones - and issues a certificate that is listed on the Argentine Stock Exchange and replicates the evolution of these securities in the foreign markets. Cedear can be exchanged for that share abroad, the transaction is carried out in pesos on the local stock exchange and the investor acquires the same rights (dividends or votes) as the holder of an original share abroad.

The Consumer Price Index (CPI) in the United States recorded a 7.9% year-on-year rate in February, the highest figure in forty years, according to the Bureau of Labor Statistics (BLS) under the Department of Labor. The year-on-year figure, unprecedented since January 1982 and rising by four tenths compared to the previous month, raises fears that there will be a phenomenon of “this inflation” in the United States, that is, high inflation and stagnant economic growth.

Meanwhile, the monthly comparison increased by 0.8% in February, compared to 0.6% in January. The increases focused on the values of naphtha, food and accommodation, and were in line with economists' expectations, according to Bloomberg.

After a decade in which prices averaged an average increase of 2% per year (in line with the Federal Reserve targets), inflation in the United States began to rebound at the beginning of last year, with the release of restrictions imposed by the Coronavirus pandemic.

While demand benefited from government-provided benefits and stimuli that boosted consumption and a growth rate in the US economy that was the highest in 37 years; supply faced multiple problems in global supply chains, higher transportation costs and, in some cases, shortage of labor force for their establishments.

Despite initial expectations that February would mark a peak in inflationary data, inflation is expected to continue to accelerate, as the data still do not reflect the consequences of the rise in commodities due to the war between Russia and Ukraine.

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