Buffett Inflation Warning Borne Out by History: Chart of the Day

Investors who stuck with Treasury bills during billionaire Warren Buffett’s tenure at Berkshire Hathaway Inc. would have seen most of their returns eroded by the effects of inflation.

The CHART OF THE DAY shows how the value of $100 invested in three-month bills has changed since 1965, when Buffett took control of Berkshire and began transforming the textile maker into an insurance and investment company.

Before inflation, a bill investor would have had $1,099.09 at the end of last year. The nominal return of about 11-fold is based on data compiled by Aswath Damodaran, a finance professor at New York University.

After accounting for increases in the consumer price index, the real return on the holding would have been only 54 percent. The investor would have ended up with the equivalent of $154.38 in 1965 dollars.

Buffett addressed inflation’s effect on investments in an article published yesterday on Fortune magazine’s website. The report was adapted from his annual letter to shareholders of Berkshire, based in Omaha, Nebraska, and cited the 47-year period since he took control of the company.

Current interest rates “do not come close to offsetting the purchasing-power risk that investors assume” when they buy government debt, Buffett wrote. The CPI climbed 3 percent last year, causing real yields on every benchmark Treasury security except the 30-year bond to turn negative.

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