Buffett's Inspiration: Capital-Light Businesses to Watch as an Inflation-Defender
With the aim of battling inflation, the Federal Reserve has increased interest rates to their highest level in 22 years and is approaching the final phase of the rate hike. However, due to unforeseen inflation resulting from a surge in energy prices recently, rate hikes may not be off the table just yet.
Stubborn inflation poses a challenge for the stock market. However, Warren Buffett's approach to dealing with inflation may offer some inspiration to investors.
At Berkshire Hathaway's 2015 shareholder meeting, Buffett was asked about what companies to focus on during inflation. His answer, in part, was that:
1. Companies with strong brands that can give them pricing power - the ability to raise prices when needed.
2. Businesses that do not necessitate much further capital investments afterward.
During inflationary periods, capital-intensive businesses will need to keep investing in various materials at increasingly higher prices, while capital-light ones won't be affected by inflation as severely.
Here are ten capital-light companies ranked by the proportion of their revenue allocated towards capital expenditures, five of which are holdings of Berkshire Hathaway, according to 23Q2 13F Filings: $MasterCard (MA.US)$ , $Apple (AAPL.US)$ , $Visa (V.US)$ , $Procter & Gamble (PG.US)$ , and $Johnson & Johnson (JNJ.US)$ .
Among these companies, Apple, the largest company by market value, is an exemplary capital-light enterprise.
The secret to Apple's success lies in concentrating on the two most lucrative segments of the electronics industry: technological development and marketing, establishing absolute leadership through unique products and branding. Apple adopts an outsourcing strategy for capital-intensive production processes such as land acquisition, factory construction, and equipment investment. This is a typical mode of light-capital management, which seeks maximum economic output with minimal capital investment.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo News Official Account
Market news in one chart.
86KFollowers
8Following
27KVisitors
Follow