Warren Buffett: The Investor’s Misery Index | Value Investing News

Warren Buffett: The Investor’s Misery Index

  • Here’s a great excerpt from Warren Buffett’s 1979 Berkshire Hathaway Shareholder Letter in which he illustrates the impact that inflation can have on an investor’s returns, using what he calls – “the investor’s misery index”, saying:
  • That combination – the inflation rate plus the percentage of capital that must be paid by the owner to transfer into his own pocket the annual earnings achieved by the business (i.e., ordinary income tax on dividends and capital gains tax on retained earnings) – can be thought of as an “investor’s misery index”.
  • When this index exceeds the rate of return earned on equity by the business, the investor’s purchasing power (real capital) shrinks even though he consumes nothing at all.
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