Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), is known for his clear-eyed assessments of economic forces and their impact on business fundamentals. In his 1981 shareholder letter, Buffett addressed the distorting effects of inflation on corporate behavior, writing:
“...inflation takes us through the looking glass into the upside-down world of Alice in Wonderland. When prices continuously rise, the ‘bad’ business must retain every nickel that it can. Not because it is attractive as a repository for equity capital, but precisely because it is so unattractive, the low-return business must follow a high retention policy. If it wishes to continue operating in the future as it has in the past — and most entities, including businesses, do — it simply has no choice.”
