Buffett on low interest rates

A low-yield environment is good for stocks, according to a 1977 article by Warren Buffett, not simply because their yields become more attractive, but because the rate at which they reinvest their earnings becomes more attractive.

I recently came across an article written by Warren Buffett wrote for Fortune magazine in 1977, titled ‘How inflation swindles the equity investor’. In the article Buffett explains how the high inflation prevailing at the time ‘swindles’ equity investors because corporate returns on equity were consistent at a pretax 12% through high and low inflationary periods. The problem being that companies retained earnings and invested them at 12%, while prices were rocketing along at higher rates.

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