When we track the price of goods or services over time to measure inflation, we often neglect to account for the improvement that represents more value being delivered to the customer. For instance, if someone trades in a Toyota Camry XSE for a Lexus ES, we don’t describe the this switch as inflation even though the Lexus ES costs more because we understand that the latter has more features.
Likewise, even though the we use the same name “Toyota Camry” to describe the vehicle each year, it can be easy to just look at the price changes in the vehicle each year from 2008 through 2018 to calculate the inflation without realizing, of course, than many of the features available in the 2018 version were not available in the 2008 version.
If we wanted to calculate the inflationary effect, we would have to compare a hypothetical 2018 version of the … Read the rest of this article!
For those of you who are students of stock market history or have been on the investing block for a while, you may know that there was a period of transition between when Warren Buffett ran his private partnership for select investors and when he began using Berkshire Hathaway as his wealth-building vehicle.
During this period of transition from a partnership to Berkshire, Warren Buffett became disillusioned with the high prices in the stock market at the time. During the late 1960s and early 1970s, the major firms in the stock market were going through their “Nifty Fifty” days. This was a wild time when Coca-Cola traded at 40x earnings, Johnson & Johnson traded at 30x earnings, Pfizer traded at 28x earnings, and even Procter & Gamble traded at 28x earnings.
Buffett had no desire to invest new money in such an environment, so he shut his partnership down with … Read the rest of this article!