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Worried About Inflation? Listen to Warren Buffett’s Advice From 2009

close-up photo of investor Warren Buffett
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Canadians should care about inflation, because the rising cost of living could alter buying habits. The price growth slowed down in June 2021 to 3.1%, although it’s still higher than the Bank of Canada’s target.

Governor Tim Macklem assured folks the central bank is firmly in control. It will use available tools to keep inflation in check, even if temporary spikes look to become a permanent problem. CIBC senior economist, Royce Mendes, likewise thinks any upward fluctuation is temporary.

What would Warren Buffett do?

Inflation was a major concern, too, in 2009 following the 2008 financial crisis. Policymakers had rescue plans similar to the stimulus packages today. The GOAT of investing, Warren Buffett advised investors then that one course of action to protect against inflation is to own a part of “a wonderful business.”

The Berkshire Hathaway chief said the business’s product will still be in demand regardless of what happens to the value of the U.S. dollar. Instead of overreacting, Buffett keeps a long-term mindset when investing. Moreover, he believes that asset-light companies overcome inflation best because they can raise prices and scale easily.

Masterful comeback

Warren Buffett held Restaurant Brands International (TSX:QSR)(NYSE:QSR) for a long time until the outbreak of coronavirus in March 2020. The legendary investor sells stocks if a business fundamentally changes or if he loses faith in management. He sold this restaurant stock for fear that store shutdowns would kill the business.

However, the franchisor of Burger King, Tim Hortons, and Popeyes endured the crisis. RBI’s share price tanked to $39.24 on March 18, 2020, yet ended the year 96.71% higher than its COVID low. Thus far in 2021, the restaurant stock trades at $85.12 (+10.27%) and pays a decent 3.29% dividend.

RBI’s CEO José E. Cil said the earnings results in the first two quarters of 2021 show the quick-service restaurant chain has returned to growth.

Solid growth fundamentals

Like RBI, Suncor Energy (TSX:SU)(NYSE:SU) was a fixture in Berkshire’s stock portfolio. Canada’s oil sands king was a losing proposition in 2020, as investors lost 47.7%. Management also slashed dividends by 55% after Q1 2020. Buffett might have underestimated Suncor when he dumped his entire holdings in Q1 2021.

Thus far, in 2021, energy is the TSX’s top-performing sector. Fortunately, too, Berkshire’s sudden exit had minimal impact on the energy stock. As of July 30, 2021, Suncor investors have enjoyed an 16.59% year-to-date gain. At $24.56 per share, the $37 billion integrated energy company pays a 3.37% dividend.

Market analysts believe that Suncor maintains solid growth fundamentals following two consecutive quarters of profit. They forecast the energy stock to outperform this year, with a 54.50% return potential in the next 12 months. Buffett may have lost confidence in the oil and gas sector bellwether, but Canada’s largest pension funds have not.

The Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP), along with three other top pension funds, collectively increased their investments in oil sands producers by 147% in Q1 2021 compared to Q1 2020.

Sound advice

Buffett’s advice on dealing with inflation is sound. However, dumping the Canadian stocks could be two of his investing mistakes. The companies emerged stronger from the pandemic and reported robust earnings in Q1 and Q2 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Restaurant Brands International Inc. and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares).

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