Worried About Inflation Or Where The Market Is Headed? Warren Buffett Thinks This Asset Class Is The Answer

Interest rates are likely to continue to rise as inflation remains above levels the FOMC is comfortable with. With continued hikes, the threat of recession and downturn continues to loom. And despite a fairly strong year for US stocks, the last month has seen a reversal with the S&P down close to 4%.

Fear in the market abounds. The CBOE Volatility Index VIX, often called the “fear” index, is up 25.3% in the last month, while its newer alternative, MIAX’s SPIKES Volatility Index SPIKE is up 20.7% in the same period.

What does Berkshire Hathaway (NYSE: BRK-A) chief and investing legend, Warren Buffett, turn to in turbulent times? According to Buffet, his sure bet is real estate.

Real estate is an asset “that you buy once and then you don’t have to keep making capital investments subsequently … so, you do not face the problem of continuous reinvestments involving greater and greater dollars because of inflation…That’s one reason real estate, in general, is good during inflation.”

Real estate can be invested directly or indirectly through securities like REITs - Real Estate Investment Trusts - which are often traded on public exchanges. The stockholders of a REIT earn a share of the income produced without having to actually buy and manage property. 

Turbulent times are not always a bad thing, however, according to Buffett. He has famously stated that the key to investing is to be “fearful when others are greedy, and greedy when others are fearful”. When a market is volatile in times of fear, opportunities for smart investors abound.

A savvy investor could trade a volatility ETF, like ConvexityShares 1x SPIKES Futures ETF SPKX, allowing them to profit directly from perceived volatility in the market. 

Or, an investor could look for buying opportunities - stocks that are severely undervalued because of chaos in the market. As Buffett puts it, "A wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly."

Whatever strategy an investor chooses to employ, it's clear that opportunities exist during rough times in the market. Inflation and recession need not keep smart investors from making smart moves.

Featured photo by Maxim Hopman on Unsplash