Warren Buffett, while speaking at the annual Berkshire Hathaway conference in 2022, was asked on how one can best protect himself from inflation.
His answer left the audience nodding their heads and clapping their hands in awe of the wit and wisdom of the Oracle of Omaha.
“The best thing that you can do is to be exceptionally good at something. If you’re the best doctor in town, if you are the best lawyer in town, if you are the best at whatever it may be. No matter whether people are paying you a zillion dollars, they’re going to give you some of what they produce in exchange for what you deliver.Warren Buffett
Whatever abilities you have, they can’t be taken away from you. They can’t actually be inflated away from you. Someone else will give you some of the wheat they produce, or cotton or whatever it may be and they will trade you for the skill that you have. The best investment by far is anything that develops yourself.”
Recently, with the Kenyan Shilling on a free fall, Kenyans are afraid that the depreciation is also reducing the value of their labor. Hence we are all looking for safe havens to save our money. Havens that are free from currency depreciation.
Of course, like I previously wrote, there are solutions to that from a Portfolio Management perspective. You can save in USD backed assets, or in assets that aren’t pegged to any currency at all like Bitcoin or Gold.
But after rethinking about this issue again, I have realized that most of the economical challenges that we face as individuals can all be solved by one solution. Whether it’s currency depreciation, high inflation, high cost of living, high taxation, there’s only one solution that solves all. Investing in yourself. Mastering a valuable skill that makes you command a higher income potential from the value that you provide.
Investing in yourself is the greatest form of investment because it works and can be used to hedge against all other risks that are associated with personal finances.
And like Warren Buffett said, when you are exceptionally good at what you do, your mastery can’t be taken away from you. It can’t be inflated away or depreciated away. People will always find what you offer or provide valuable and will be willing to compensate you wholesomely for the value that you provide.
In Carl Newport’s words, be so good that they can’t ignore you.
How To Bullet Proof Your Financial Future
Beating the market or for your portfolio to return greater returns than the market or the average investor, you have to return higher than the inflation rate, currency depreciation and return higher than the benchmark indices like the S&P 500.
In an episode titled, “How to Beat The Market, Nat Eliason wrote,
“I haven’t done the precise math on this, but I’d argue that until you’re making mid six figures, it’s probably a better ROI to spend extra cash on increasing the value of your time than on index funds.Nat Eliason
That could be skilling to a more valuable profession, learning a valuable freelancing skill, starting a business, whatever it is, on a 5-10 year timeline you’ll probably do much better than you would if you put even 20% of an $80,000 salary into index funds.”
Likewise, unless you have a very large portfolio or you have already accumulated so much wealth, the best hedge against inflation, currency depreciation, high cost of living, high taxes, or whatever economic burden is being exceptionally good at something that makes you command a high income.
Everything else is a distraction.
And as everyone else is looking for the best hedge against currency depreciation, wondering whether USD backed assets or assets that aren’t pegged to any currency are the best, remember your skill set , knowledge or mastery is the best hedge against currency depreciation, inflation, high cost of living or any other economical problem we may be facing both locally or globally.
Of course I don’t discredit the importance of Portfolio Management and saving your money where you get the best of returns in any particular time, but never lose sight of the bigger picture.