身体上有小红点图片:《通货膨胀如何欺诈股票投资者》

《通货膨胀如何欺诈股票投资者》

作者：沃伦•巴菲特，《财富》杂志1977年5月号

股票在通货膨胀环境下像债券一样表现不佳，这已经不是个秘密在过去10年里，我们一直处于这种通胀环境里确实，这是一个股票遇到麻烦的时期但是，在这段时间里造成股票市场难题的原因仍然没有被人们完全理解。在通胀时期债券持有者所遇到的问题一点也不神秘，当美元月复一月地贬值，一种本金和收入都用美元支付的证券不会是个大赢家你根本不需要一个博士学位就能搞懂这个问题。

一直以来，人们认为股票是不同的。多年来，传统智慧坚持认为股票是对通货膨胀的对冲这个说法来源于一个事实，那就是股票不像债券一样是对美元的所有权，而是对有着生产设施的公司的所有权因此，股票投资者们相信，无论政客们如何印钞票，股票投资者仍然能保持他们投资的实际价值。

实际上，在现实世界，股票投资者通常并不用净资产价格购买股票有时他们能在净资产价格之下购买；但是大多数的情况下他们的购买价格要比净资产价格高！这种情况下，就进一步增加了12%的资本回报的压力，现在，让我们关注主要的一点：通货膨胀已经增加，但资本回报不变，本质上，买股票的人得到的是内在的固定收益 - 和买债券的人一样。

当然，股票和债券有一些重要的不同。首先，债券最终会到期，债券可能需要等很长时间才到期，但是最终债券投资者能够重新谈判合同的条款，如果目前和未来的通货膨胀率上涨使债券投资人旧的息票率显得不够，他可以拒绝再买，除非目前的息票率提高，重新引起他的兴趣，这种情况在近些年一直在持续上演。

股票，与之相反，是永久的。股票具有无限的到期日，股票投资者只能接受美国企业的盈利，无论好坏，如果美国企业注定获得12%的资本回报，这就是股票投资人必须接受的水平作为一个群体，股票投资者无法退出，也无法重新谈判，从总体上说，他们的投入是增加的单个的公司，可以被买卖或破产清算公司，可以回购股票，但是从总体来说，增发新股和未分配利润肯定会使锁定在公司系统里的资本增加。

所以，债券在这点上占了上风，债券最终会被重新谈判，股票的"息票"不会，确实，在很长时间里，12%的息票率看起来并不需要很多调整。

债券投资者拿的是现金

这是另外一个债券与12%回报的"股权债券"的重要的区别，股票就好像是穿着股票证书华丽外衣参加华尔街化妆舞会的一种新的债券 - "股权债券" 。

通常情况下，债券投资者拿到现金息票，他可以自己决定这笔现金最好的投资方式，我们的股票投资者的"息票" - 盈利，则与之相反，一部分被公司留用并重新投资，而且投资回报率完全取决于公司，换句话说，公司的12%的年资本回报率一部分以现金方式发股息，剩下的重新投入盈取12%的回报。

美好的旧日时光

股票盈利的一部分重新再投入的特性，是好消息也是坏消息，这取决于那12%的回报到底有多诱人。在1950年代和60年代早期，这的确是好消息当债券收益率只有百分之三或四的时候，能够有权自动把股票盈利的一部分再投入，取得12%的回报，具有极大的价值。注意，投资人无法把自己的资金投资其他的东西而取得那12%的回报，在这个时期，股票价格远超过净资产价格，由于价格高涨，无论公司内在的回报率是多少，投资者都无法直接从公司的收益中获得回报，这就好比年息12%的债券，如果你以远远超过票面价值的价格购买，是无法获得12%的回报的。

但是，投资者的存留收益可以获得12%的回报实际上，在当时的经济环境下，存留收益让投资者以净资产价格购买价值远超出净资产价格的企业。这种情况让现金股利与收益存留相比没有任何吸引力。确实，能有更多的盈利再投入赚取12%回报，投资者就更认为他们的投资有价值他们就更愿意付更高的价格，在60年代早期，投资者对增长区域的电力公司股票付出了高价，因为他们知道这些成长型公司有能力再投入大量的盈利赚取更多回报，而由于运营环境的原因付出更多现金股利的电力公司则股价很低。

如果在这一时期，一个高等级，无法回购的年息12%的长期债券存在的话，也会卖的远远超过票面价值的如果这样一个债券，再有另外一个不寻常的特性 - 能够把利息收入的大部分再以票面价值投入到类似的债券中去，那它还会卖得更高实际上成长型股票把大部分盈利存留下来再投入，就好像前面提到的债券当资本再投入的回报是12%而银行利息只有4%左右时，投资者非常高兴当然，他们也付出了高的价格。

回首过去，股票投资者可以认为他们在1946到1956年间享受了丰盛的三重盛宴。

一，他们享受了远超过银行利息的公司回报；

二，这些回报很大部分又重新投入，获得了其他投资方式无法获得的高回报；

三，当前面两点好处被广泛认知时，他们从股票资产价格的不断上升中又进一步获得了好处。这第三重好处意味着在12%的公司资本回报率之上，他们获得了额外的奖金。道琼斯工业指数股票价格从1946年的相当于138%的净资产增长到1966年的相当于220%的净资产在这一增长过程中，投资者短暂地获得了超越其所投资企业内在盈利能力的回报。这一人间天堂式的情形，在60年代中期被许多主要投资机构"发现"，但正当这些金融界的大象争先恐后进入股票市场时,，我们进入了一个加速通货膨胀和高利率的时期，非常合乎逻辑的是，股票的上涨开始改头向下，升高的利息无情的减少了现存的固定收益投资的价值，当长期公司债券利息开始上升（最终达到了10%的附近），股票投资的12%的回报和再投入的优势都变得不一样了。股票被认为比债券更加具有风险。在一定时期内，股票的收益率虽然多多少少是固定的,，但却每年上下浮动投资者对未来的态度，很大程度上被每年的这种收益率浮动所影响，而这种影响往往是错误的股票有更大的风险，还因为股票是无限期的（即使你的友好的股票经纪人有"安全"的100年的债券，他也不敢兜售给你）由于这些额外的风险，投资者自然预期股票要有令人满意的高于债券的回报，而同样是公司发行的股票和债券，股票回报12%，债券回报10%，这两者的差异还够不上令人满意当两者的差异缩小时，股票投资者开始寻找逃离的方式。但是，作为一个群体，他们无法逃离他们所能取得的只有很多的股票价格变动，显著的摩擦成本和新的、更低的估值水平这一估值水平反映了在通货膨胀条件下，12%的股票收益率毫无吸引力在过去10年，债券投资者受到了一系列的打击他们在这一遭受打击的过程中发现，在任何债券利息水平，无论是6%，或8%，还是10%，都没有任何神奇的力量阻止债券价格的崩溃，股票投资者虽然总的来说没有意识到他们也有"息票"，但是他们还正在接受教育的过程中。

提高盈利的五个方法 我们必须把12%的资本回报率看成是不变的吗？有没有一条法律规定：公司资本回报率不能自我调节，来应对长期的更高的平均通货膨胀率？当然，并没有这样一条法律恰恰相反，美国企业无法通过意愿或者命令增加盈利为了提高资本回报率，企业需要至少下面的其中一项： 1）提高周转率，也就是销售额与总资产的比 2）廉价的债务杠杆 3）更高的债务杠杆 4）更低的所得税 5）更高的运营利润率。这就是所有的方式根本没有提高普通股资本回报率的其他方式让我们看看我们如何利用这些方式。

我们先从周转率开始为了分析周转率，我们必须考虑三个主要类型的资产：应收帐款、库存和固定资产，如厂房和机器。应收帐款随销售额增加成比例增加，而以美元计的销售额增加是由销量增加或通货膨胀引起在这里没有改善的空间，库存的情况非常不简单从长期看，计件的实体库存数量趋势跟随销量趋势，但是从短期看，实体库存的周转率会上下波动，原因可能是空间影响、成本预期、或者生产瓶颈，在通胀时期，使用后进先出库存估值方法会提高报告的周转率。当由于通货膨胀引起销售额上升，使用后进先出方式的公司库存值要么会保持不变（如果销量不增加），要么会跟随销售额上升（如果销量上升）无论哪种情况，以美元计的周转率都会提高，在70年代早期，公司的一个显著趋势就是转向"后进先出"会计方式（这样做有降低公司报告的盈利和降低税的效果）这一趋势目前似乎有所减缓但是，很多"后进先出"公司的存在，加上很多其他公司也可能加入"后进先出"这一行列，会使未来报告的库存周转率提高。

张化桥：

本人孤陋寡闻，不知道別人是否已经把它翻译成了中文，但我不在乎。朗读，再朗读，并且翻译（和评论）这篇文章，我乐在其中。我也建议大学生用它作为英文精读的文章，并做翻译练习。现容我把它归纳如下。

通胀打击债市，大家似乎都明白：未来每年的利息收入是固定的，但是利息收入因为通胀而贬值。市场上的名义利率会上升，而债券的票息不会增加。但是关于通漲下的股市，大家都有一个错误的幻觉，总以为股票所代表的是"产能"，其真实的价值会随着通胀而水涨船高。大错特错！巴菲特说，股票其实也是债券，只是它的期限为永远而已。在二战以后的30多年，尽管美国的经济变化很大，但所有公司的平均股本收益率相当地稳定：10％到13％之间（平均大约12％）。实际上，这就好比"股息"：当然一小部分股息用现金分掉了，大部分留到了公司继续赚取那12％。虽然股民的换手进行了利益再分配，但作为一个整体，他们的回报率就是超级的稳定，并不因为通胀而改善。

其实，股民作为一个整体甚至连债券投资者还不如。债券到期时，投资者会购买新的，票息更高的，债券，而"股息"却还是12％，未分配的"股息"留在公司也只能赚取每年12％。在没有通胀或者通胀很温和的年代，比如美国的五十年代和六十年代早期，名义利率很低，所以，大部分"股息"能够留在公司继续赚取那可爱的12％，太美了！大家都知道那是很美的，所以为了获得这种享受，大家纷纷投资股票，直到把股价抬高到账面净资产的2倍甚至3到4倍。那时的老股民得到了三个好处：一是那可爱的12％（超过当时的市场利率），二是把"股息"的大部分留到公司继续按12％的回报率投资，三是股票市盈率的上升，一直抬到几倍的市账率。（评论：今天大量的中国公司在揭不开锅的时候也有3到5倍的市账率，这连巴菲特当时也没预料到。毕竟，中国特色就是不一样。） 

巴菲特说，股票跟债券一样，不过是市场利率的倒数而已，或者说，它们的变动方向相反。股票就是一个"永续的债券"。它的"票息"为12％， 不过，持票人每年只能获得其中的一小部分，而大部分的票息会被自动再投资于这种"永续债券"。 

在美国，五十年代和六十年代早期的低利率的"人间天堂"终于被通胀搅局。六十年代中期，当通胀上升时，企业长期债券发行时的票面利率涨到了6％，8％和10％以上，可是照样跌破票面价格。而股票呢？那原本可爱的12％的"股息"也不再显得可爱了。当市账率为1倍的时候，股民获得的回报率就是股本的回报率（比如12％）。当市账率涨到2倍甚至3倍时，股民的回报率就分别降到了6％或者4％。简单的算术，大家不愿意去弄懂。

虽然通胀时有些行业（或者企业）可能是赢家，有些是输家，但总的来说，整个企业界不可能获得明显的好处。一个企业要增加股本回报率，无非有五个办法，（1）增加资金周转，（2）获得更便宜的负债，（3）增加负债，（4）降低税负，（5）增加利润率。巴菲特说，（2），（3）和（4）对于企业界作为一个整体，根本没可能。而（1）和（5）的上升空间也不大。固定资产重置成本会因为通涨而上升；企业在短期內显得资金周转加快了（资产周转天数改善，等等），但它们很快发现自己要因为重置成本上升而增加资本支出。增加负债总有个极限。"财富500強"的大企业的总资产负债率已经从1955年的37％涨到了1975年50％，再怎么涨呢？（评论：在这一点上，我们中国的企业确实可以批评巴菲特没见过世面！）。如果两个类似的公司的股本收益率均为12％，但是一个低负债，另外一个高负债。前者就明显好多了。

巴菲特说，其实，利润率高的公司并不需要太多的负债，而利润率差的公司永远缺钱。这句话马上让我想到麦肯锡的2010年的书中的一个观点：亚洲企业用了太多的债务，利润增长率虽然很不错，但并没有解决另外一个大问题：利润率太差，资本消耗太大，回报率太低。那本书名为，Value: The Four Cornerstones of Corporate Finance, 好象只有英文本，可以网购，香港书店均有出售。我为该书写过一篇书评，"光有利润增长还不够"。表面上看，高负债增加股东的回报，但是过了某一个度，就开始伤害股东。我们都见过大量高息借款的公司，天天在危险中度日。管理层整天在融资，无暇管理企业。负债太高，公司就丧失了回旋余地。高负债的公司的股票往往看起来便宜，实际上不便宜。买股票就跟收购企业一样，是承债收购。公司的负债也按你的股权比例成了你的负债。巴菲特专门强调，通胀使大量企业受暗伤，而股民不知道。比如，1977年一个25岁的年轻员工的年薪为1万2千美元，如果按照每年7％的通胀增加工资，等他65岁退休时，它的工资已经会涨到18万美元。这还不算：它的退休金和医疗费会飞涨。退休金是企业最隐蔽的炸弹。（评论：这使我想到近十年美国几家大型汽车公司被这项负担压垮的例子。本人最近研究一家上海国企的股票，表面上看，便宜的了不得。但是，你想想那5000员工，工资只能涨，不能降，人员只能增，不能减，以及社会和谐的压力，我吓坏了。这公司和其它很多类似的中国公司一样，实际上早已经被蛀虫掏空了，只是买单的时间还没有到罢了。把那些甩不掉的未来负债折现到今天，这些公司不仅自己已经是负资产，还可能毒害财政，迫使税收增加或者印钞票来把负担分摊给别人。） 

巴菲特幽默地说，美国的国会议员们都非常反对通胀，不过他们也都极力支持产生通胀的那些经济政策。有一件事他们从不含糊，他们把自己的退休金理所当然地按照通胀来进行调整。其实，何止美国如此。巴菲特说，和平时期的通胀完全是人为造成的。当政客们在下一轮选举与下一代人们的福利之间权衡时，他们的选择都是没有悬念的。"我看未来每年的平均通胀率更象大约7％。表面上企业界的股本回报率为12％， 但扣除各种税收之后，实际上只有7％左右。在扣除通胀以后，股本回报率大约是零。"别装糊涂了：通胀就是一种税。增加税收，股市当然好不了！巴菲特说，一个寡妇的存款账户年息5％。如果政府征收120％的利息税，她会很生气。但是如果政府不收税，却把通胀搞到6％。虽然对于那位寡妇来讲，两种情况的结果是一样的，但她不会对后种情况生气。如果股民或者基民们的投资年回报率是11％，而通胀率大约7％，那么他们的实际回报率只有大约4％。这是大白话。但是，太多人被货币幻觉所蒙蔽。 

巴菲特How Inflation Swindles the Equity Investor

The central problem in the stock market is that the return on capital hasn´t risen with inflation. It seems to be stuck at 12 percent.

It is no longer a secret that stocks, like bonds, do poorly in an inflationary environment. We have been in such an environment for most of the past decade, and it has indeed been a time of troubles for stocks. But the reasons for the stock market's problems in this period are still imperfectly understood.

There is no mystery at all about the problems of bondholders in an era of inflation. When the value of the dollar deteriorates month after month, a security with income and principal payments denominated in those dollars isn't going to be a big winner. You hardly need a Ph.D. in economics to figure that one out.

It was long assumed that stocks were something else. For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their Value in real terms, let the politicians print money as they might.

And why didn't it turn but that way? The main reason, I believe, is that stocks, in economic substance, are really very similar to bonds.

I know that this belief will seem eccentric to many investors. Thay will immediately observe that the return on a bond (the coupon) is fixed, while the return on an equity investment (the company's earnings) can vary substantially from one year to another. True enough. But anyone who examines the aggregate returns that have been earned by compa-nies during the postwar years will dis-cover something extraordinary: the returns on equity have in fact not varied much at all.

The coupon is sticky

In the first ten years after the war - the decade ending in 1955 -the Dow Jones industrials had an average annual return on year-end equity of 12.8 percent. In the second decade, the figure was 10.1 percent. In the third decade it was 10.9 percent. Data for a larger universe, the FORTUNE 500 (whose history goes back only to the mid-1950's), indicate somewhat similar results: 11.2 percent in the decade ending in 1965, 11.8 percent in the decade through 1975. The figures for a few exceptional years have been substantially higher (the high for the 500 was 14.1 percent in 1974) or lower (9.5 percent in 1958 and 1970), but over the years, and in the aggregate, the return on book value tends to keep coming back to a level around 12 percent. It shows no signs of exceeding that level significantly in inflationary years (or in years of stable prices, for that matter).

For the moment, let's think of those companies, not as listed stocks, but as productive enterprises. Let's also assume that the owners of those enterprises had acquired them at book value. In that case, their own return would have been around 12 percent too. And because the return has been so consistent, it seems reasonable to think of it as an "equity coupon".

In the real world, of course, investors in stocks don't just buy and hold. Instead, many try to outwit their fellow investors in order to maximize their own proportions of corporate earnings. This thrashing about, obviously fruitless in aggregate, has no impact on the equity, coupon but reduces the investor's portion of it, because he incurs substantial frictional costs, such as advisory fees and brokerage charges. Throw in an active options market, which adds nothing to, the productivity of American enterprise but requires a cast of thousands to man the casino, and frictional costs rise further.

Stocks are perpetual

It is also true that in the real world investors in stocks don't usually get to buy at book value. Sometimes they have been able to buy in below book; usually, however, they've had to pay more than book, and when that happens there is further pressure on that 12 percent. I'll talk more about these relationships later. Meanwhile, let's focus on the main point: as inflation has increased, the return on equity capital has not. Essentially, those who buy equities receive securities with an underlying fixed return - just like those who buy bonds.

Of course, there are some important differences between the bond and stock forms. For openers, bonds eventually come due. It may require a long wait, but eventually the bond investor gets to renegotiate the terms of his contract. If current and prospective rates of inflation make his old coupon look inadequate, he can refuse to play further unless coupons currently being offered rekindle his interest. Something of this sort has been going on in recent years.

Stocks, on the other hand, are perpetual. They have a maturity date of infinity. Investors in stocks are stuck with whatever return corporate America happens to earn. If corporate America is destined to earn 12 percent, then that is the level investors must learn to live with. As a group, stock investors can neither opt out nor renegotiate. In the aggregate, their commitment is actually increasing. Individual companies can be sold or liquidated and corporations can repurchase their own shares; on balance, however, new equity flotations and retained earnings guarantee that the equity capital locked up in the corporate system will increase.

So, score one for the bond form. Bond coupons eventually will be renegotiated; equity "coupons" won't. It is true, of course, that for a long time a 12 percent coupon did not appear in need of a whole lot of correction.

The bondholder gets it in cash

There is another major difference between the garden variety of bond and our new exotic 12 percent "equity bond" that comes to the Wall Street costume ball dressed in a stock certificate.

In the usual case, a bond investor receives his entire coupon in cash and is left to reinvest it as best he can. Our stock investor's equity coupon, in contrast, is partially retained by the company and is reinvested at whatever rates the company happens to be earning. In other words, going back to our corporate universe, part of the 12 percent earned annually is paid out in dividends and the balance is put right back into the universe to earn 12 percent also.

The good old days

This characteristic of stocks - the reinvestment of part of the coupon - can be good or bad news, depending on the relative attractiveness of that 12 percent. The news was very good indeed in, the 1950's and early 1960's. With bonds yielding only 3 or 4 percent, the right to reinvest automatically a portion of the equity coupon at 12 percent via s of enormous value. Note that investors could not just invest their own money and get that 12 percent return. Stock prices in this period ranged far above book value, and investors were prevented by the premium prices they had to pay from directly extracting out of the underlying corporate universe whatever rate that universe was earning. You can't pay far above par for a 12 percent bond and earn 12 percent for yourself.

But on their retained earnings, investors could earn 22 percent. In effert, earnings retention allowed investots to buy at book value part of an enterprise that, :in the economic environment than existing, was worth a great deal more than book value.

It was a situation that left very little to be said for cash dividends and a lot to be said for earnings retention. Indeed, the more money that investors thought likely to be reinvested at the 12 percent rate, the more valuable they considered their reinvestment privilege, and the more they were willing to pay for it. In the early 1960's, investors eagerly paid top-scale prices for electric utilities situated in growth areas, knowing that these companies had the ability to reinvest very large proportions of their earnings. Utilities whose operating environment dictated a larger cash payout rated lower prices.

If, during this period, a high-grade, noncallable, long-term bond with a 12 percent coupon had existed, it would have sold far above par. And if it were a bond with a f urther unusual characteristic - which was that most of the coupon payments could be automatically reinvested at par in similar bonds - the issue would have commanded an even greater premium. In essence, growth stocks retaining most of their earnings represented just such a security. When their reinvestment rate on the added equity capital was 12 percent while interest rates generally were around 4 percent, investors became very happy - and, of course, they paid happy prices.

Heading for the exits

Looking back, stock investors can think of themselves in the 1946-56 period as having been ladled a truly bountiful triple dip. First, they were the beneficiaries of an underlying corporate return on equity that was far above prevailing interest rates. Second, a significant portion of that return was reinvested for them at rates that were otherwise unattainable. And third, they were afforded an escalating appraisal of underlying equity capital as the first two benefits became widely recognized. This third dip meant that, on top of the basic 12 percent or so earned by corporations on their equity capital, investors were receiving a bonus as the Dow Jones industrials increased in price from 138 percent book value in 1946 to 220 percent in 1966, Such a marking-up process temporarily allowed investors to achieve a return that exceeded the inherent earning power of the enterprises in which they had invested.

This heaven-on-earth situation finally was "discovered" in the mid-1960's by many major investing institutions. But just as these financial elephants began trampling on one another in their rush to equities, we entered an era of accelerating inflation and higher interest rates. Quite logically, the marking-up process began to reverse itself. Rising interest rates ruthlessly reduced the value of all existing fixed-coupon investments. And as long-term corporate bond rates began moving up (eventually reaching the 10 percent area), both the equity return of 12 percept and the reinvestment "privilege" began to look different.

Stocks are quite properly thought of as riskier than bonds. While that equity coupon is more or less fixed over periods of time, it does fluctuate somewhat from year to year. Investors' attitudes about the future can be affected substantially, although frequently erroneously, by those yearly changes. Stocks are also riskier because they come equipped with infinite maturities. (Even your friendly broker wouldn't have the nerve to peddle a 100-year bond, if he had any available, as "safe.") Because of the additional risk, the natural reaction of investors is to expect an equity return that is comfortably above the bond return - and 12 percent on equity versus, say, 10 percent on bonds issued py the same corporate universe does not seem to qualify as comfortable. As the spread narrows, equity investors start looking for the exits.

But, of course, as a group they can't get out. All they can achieve is a lot of movement, substantial frictional costs, and a new, much lower level of valuation, reflecting the lessened attractiveness of the 12 percent equity coupon under inflationary conditions. Bond investors have had a succession of shocks over the past decade in the course of discovering that there is no magic attached to any given coupon level - at 6 percent, or 8 percept, or 10 percent, bonds can still collapse in price. Stock investors, who are in general not aware that they too have a "coupon", are still receiving their education on this point.

Five ways to improve earnings

Must we really view that 12 percent equity coupon as immutable? Is there any law that says the corporate return on equity capital cannot adjust itself upward in response to a permanently higher average rate of inflation?

There is no such law, of course. On the other hand, corporate America cannot increase earnings by desire or decree. To raise that return on equity, corporations would need at least one of the following: (1) an increase in turnover, i.e., in the ratio between sales and total assets employed in the business; (2) cheaper leverage; (3) more leverage; (4) lower income taxes, (5) wider operating margins on sales.

And that's it. There simply are no other ways to increase returns on common equity. Let's see what can be done with these.

We'll begin with turnover. The three major categories of assets we have to think about for this exercise are accounts receivable inventories, and fixed assets such as plants and machinery.

Accounts receivable go up proportionally as sales go up, whether the increase in dollar sales is produced by more physical volume or by inflation. No room for improvement here.

With inventories, the situation is not quite as simple. Over the long term, the trend in unit inventories may be expected to follow the trend in unit sales. Over the short term, however, the physical turnover rate may bob around because of spacial influences - e.g., cost expectations, or bottlenecks.

The use of last-in, first-out (LIFO) inventory-valuation methods serves to increase the reported turnover rate during inflationary times. When dollar sales are rising because of inflation, inventory valuations of a LIFO company either will remain level, (if unit sales are not rising) or will trail the rise 1n dollar sales (if unit sales are rising). In either case, dollar turnover will increase.

During the early 1970's, there was a pronounced swing by corporations toward LIFO accounting (which has the effect of lowering a company's reported earnings and tax bills). The trend now seems to have slowed. Still, the existence of a lot of LIFO companies, plus the likelihood that some others will join the crowd, ensures some further increase it the reported turnover of inventory.

The gains are apt to be modest

In the case of fixed assets, any rise in the inflation rate, assuming it affects all products equally, will initially have the effect of increasing turnover. That is true because sales will immediately reflect the new price level, while the fixed-asset account will reflect the change only gradually, i.e., as existing assets are retired and replaced at the new prices. Obviously, the more slowly a company goes about this replacement process, the more the turnover ratio will rise. The action stops, however, when a replacement cycle is completed. Assuming a constant rate of inflation, sales and fixed assets will then begin to rise in concert at the rate of inflation.

To sum up, inflation will produce some gains in turnover ratios. Some improvement would be certain because of LIFO, and some would be possible (if inflation accelerates) because of sales rising more rapidly than fixed assets. But the gains are apt to be modest and not of a magnitude to produce substantial improvement in returns on equity capital. During the decade ending in 1975, despite generally accelerating inflation and the extensive use of LIFO accounting, the turnover ratio of the FORTUNE 500 went only from 1.18/1 to 1.29/1.

Cheaper leverage? Not likely. High rates of inflation generally cause borrowing to become dearer, not cheaper. Galloping rates of inflation create galloping capital needs; and lenders, as they become increasingly distrustful of long-term contracts, become more demanding. But even if there is no further rise in interest rates, leverage will be getting more expensive because the average cost of the debt now on corporate books is less than would be the cost of replacing it. And replacement will be required as the existing debt matures. Overall, then, future changes in the cost of leverage seem likely to have a mildly depressing effect on the return on equity.

More leverage? American business already has fired many, if not most, of the more-leverage bullets once available to it. Proof of that proposition can be seen in some other FORTUNE 500 statistics - in the twenty years ending in 1975, stockholders' equity as a percentage of total assets declined for the 500 from 63 percent to just under 50 percent. In other words, each dollar of equity capital now is leveraged much more heavily than it used to be.

What the lenders learned

An irony of inflation-induced financial requirements is that the highly profitable companies - generally the best credits - require relatively little debt capital. But the laggards in profitability never can get enough. Lenders understand this problem much better than they did a decade ago - and are correspondingly less willing to let capital-hungry, low-profitability enterprises leverage themselves to the sky.

Nevertheless, given inflationary conditions, many corporations seem sure in the future to turn to still more leverage as a means of shoring up equity returns. Their managements will make that move because they will need enormous amounts of capital - often merely to do the same physical volume of business - and will wish to got it without cutting dividends or making equity offerings that, because of inflation, are not apt to shape up as attractive. Their natural response will be to heap on debt, almost regardless of cost. They will tend to behave like those utility companies that argued over an eighth of a point in the 1960's and were grateful to find 12 percent debt financing in 1974.

Added debt at present interest rates, however, will do less for equity returns than did added debt at 4 percent rates it the early 1960's. There is also the problem that higher debt ratios cause credit ratings to be lowered, creating a further rise in interest costs.

So that is another way, to be added to those already discussed, in which the cost of leverage will be rising. In total, the higher costs of leverage are likely to offset the benefits of greater leverage.

Besides, there is already far more debt in corporate America than is conveyed by conventional balance sheets. Many companies have massive pension obligations geared to whatever pay levels will be in effect when present workers retire. At the low inflation rates of 1965-65, the liabilities arising from such plans were reasonably predictable. Today, nobody can really know the company's ultimate obligation, But if the inflation rate averages 7 percent in the future, a twentyfive-year-old employee who is now earning $12,000, and whose raises do no more than match increases in living costs, will be making $180,000 when he retires at sixty-five.

Of course, there is a marvelously precise figure in many annual reports each year, purporting to be the unfunded pension liability. If that figure were really believable, a corporation could simply ante up that sum, add to it the existing pension-fund assets, turn the total amount over to an insurance company, and have it assume all the corporation's present pension liabilities. In the real world, alas, it is impossible to find an insurance company willing even to listen to such a deal.

Virtually every corporate treasurer in America would recoil at the idea of issuing a "cost-of-living" bond - a noncallable obligation with coupons tied to a price index. But through the private pension system, corporate America has in fact taken on a fantastic amount of debt that is the equivalent of such a bond.

More leverage, whether through conventional debt or unbooked and indexed "pension debt", should be viewed with skepticism by shareholders. A 12 percent return from an enterprise that is debt-free is far superior to the same return achieved by a business hocked to its eyeballs. Which means that today's 12 percent equity returns may well be less valuable than the 12 percent returns of twenty years ago.

More fun in New York

Lower corporate income taxes seem unlikely. Investors in American corporations already own what might be thought of as a Class D stock. The class A, B and C stocks are represented by the income-tax claims of the federal, state, and municipal governments. It is true that these "investors" have no claim on the corporation's assets; however, they get a major share of the earnings, including earnings generated by the equity buildup resulting from retention of part of the earnings owned by the Class D sharaholders.

A further charming characteristic of these wonderful Class A, B and C stocks is that their share of the corporation's earnings can be increased immedtately, abundantly, and without payment by the unilateral vote of any one of the "stockholder" classes, e.g., by congressional action in the case of the Class A. To add to the fun, one of the classes will sometimes vote to increase its ownership share in the business retroactively - as companies operating in New York discovered to their dismay in 1975. Whenever the Class A, B or C "stockholders" vote themselves a larger share of the business, the portion remaining for Class D - that's the one held by the ordinary investor - declines.

Looking ahead, it seems unwise to assume that those who control the A, B and C shares will vote to reduce their own take over the long run. The class D shares probably will have to struggle to hold their own.

Bad news from the FTC

The last of our five possible sources of increased returns on equity is wider operating margins on sales. Here is where some optimists would hope to achieve major gains. There is no proof that they are wrong. Bu there are only 100 cents in the sales dollar and a lot of demands on that dollar before we get down to the residual, pretax profits. The major claimants are labor, raw materials energy, and various non-income taxes. The relative importance of these costs hardly, seems likely to decline during an age of inflation.

Recent statistical evidence, furthermore, does not inspire confidence in the proposition that margins will widen in, a period of inflation. In the decade ending in 1965, a period of relatively low inflation, the universe of manufacturing companies reported on quarterly by the Federal Trade Commission had an average annual pretax margin on sales of 8.6 percent. In the decade ending in 1975, the average margin was 8 percent. Margins were down, in other words, despite a very considerable increase in the inflation rate.

If business was able to base its prices on replacement costs, margins would widen in inflationary periods. But the simple fact is that most large businesses, despite a widespread belief in their market power, just don't manage to pull it off. Replacement cost accounting almost always shows that corporate earnings have declined significantly in the past decade. If such major industries as oil, steel, and aluminum really have the oligopolistic muscle imputed to them, one can only conclude that their pricing policies have been remarkably restrained.

There you have, the complete lineup: five factors that can improve returns on common equity, none of which, by my analysis, are likely to take us very far in that direction in periods of high inflation. You may have emerged from this exercise more optimistic than I am. But remember, returns in the 12 percent area have been with us a long time.

The investor's equation

Even if you agree that the 12 percent equity coupon is more or less immutable, you still may hope to do well with it in the years ahead. It's conceivable that you will. After all, a lot of investors did well with it for a long time. But your future results will be governed by three variable's: the relationship between book value and market value, the tax rate, and the inflation rate.

Let's wade through a little arithmetic about book and market value. When stocks consistently sell at book value, it's all very simple. If a stock has a book value of $100 and also an average market value of $100, 12 percent earnings by business will produce a 12 percent return for the investor (less those frictional costs, which we'll ignore for the moment). If the payout ratio is 50 percent, our investor will get $6 via dividends and a further $6 from the increase in the book value of the business, which will, of course, be reflected in the market value of his holdings.

If the stock sold at 150 percent of book value, the picture would change. The investor would receive the same $6 cash dividend, but it would now represent only a 4 percent return on his $150 cost. The book value of the business would still increase by 6 percent (to $106) and the market value of the investor's holdings, valued consistently at 150 percent of book value, would similarly increase by 6 percent (to $159). But the investor's total return, i.e., from appreciation plus dividends, would be only 10 percent versus the underlying 12 percent earned by the business.

When the investor buys in below book value, the process is reversed. For example, if the stock sells at 80 percent of book value, the same earnings and payout assumptions would yield 7.5 percent from dividends ($6 on an $80 price) and 6 percent from appreciation - a total return of 13.5 percent. In other words, you do better by buying at a discount rather than a premium, just as common sense would suggest.

During the postwar years, the market value of the Dow Jones industrials has been as low as 84 percent of book value (in 1974) and as high as 232 percent (in 1965); most of the time the ratio has been well over 100 percent. (Early this spring, it was around 110 percent.) Let's assume that in the future the ratio will be something close to 100 percent - meaning that investors in stocks could earn the full 12 percent. At least, they could earn that figure before taxes and before inflation.

7 percent after taxes

How large a bite might taxes take out of the 12 percent? For individual investors, it seems reasonable to assume that federal, state, and local income taxes will average perhaps 50 percent on dividends and 30 percent on capital gains. A majority of investors may have marginal rates somewhat below these, but many with larger holdings will experience substantially higher rates. Under the new tax law, as FORTUNE observed last month, a high-income investor in a heavily taxed city could have a marginal rate on capital gains as high as 56 percent. (See

"The Tax Practitioners Act of 1976.")

So let's use 50 percent and 30 percent as representative for individual investors. Let's also assume, in line with recent experience, that corporations earning 12 percent on equity pay out 5 percent in cash dividends (2.5 percent after tax) and retain 7 percent, with those retained earnings producing a corresponding market-value growth (4.9 percent after the 30 percent tax). The after-tax return, then, would be 7.4 percent. Probably this should be rounded down to about 7 percent to allow for frictional costs. To push our stocks-asdisguised-bonds thesis one notch further, then, stocks might be regarded as the equivalent, for individuals, of 7 percent tax-exempt perpetual bonds.

The number nobody knows

Which brings us to the crucial question - the inflation rate. No one knows the answer on this one - including the politicians, economists, and Establishment pundits, who felt, a few years back, that with slight nudges here and there unemployment and inflation rates would respond like trained seals.

But many signs seem negative for stable prices: the fact that inflation is now worldwide; the propensity of major groups in our society to utilize their electoral muscle to shift, rather than solve, economic problems ; the demonstrated unwillingness to tackle even the most vital problems (e.g., energy and nuclear proliferation) if they can be postponed; and a political system that rewards legislators with reelection if their actions appear to produce short-term benefits even though their ultimate imprint will be to compound long-term pain.

Most of those in political office, quite understandably, are firmly against inflation and firmly in favor of policies producing it. (This schizophrenia hasn't caused them to lose touch with reality, however; Congressmen have made sure that their pensions - unlike practically all granted in the private sector - are indexed to cost-of-living changes after retirement.)

Discussions regarding future inflation rates usually probe the subtleties of monetary and fiscal policies. These are important variables in determining the outcome of any specific inflationary equation. But, at the source, peacetime inflation is a political problem, not an economic problem. Human behavior, not monetary behavior, is the key. And when very human politicians choose between the next election and the next generation, it's clear what usually happens.

Such broad generalizations do not produce precise numbers. However, it seems quite possible to me that inflation rates will average 7 percent in future years. I hope this forecast proves to be wrong. And it may well be. Forecasts usually tell us more of the forecaster than of the future. You are free to factor your own inflation rate into the investor's equation. But if you foresee a rate averaging 2 percent or 3 percent, you are wearing different glasses than I am.

So there we are: 12 percent before taxes and inflation; 7 percent after taxes and before inflation; and maybe zero percent after taxes and inflation. It hardly sounds like a formula that will keep all those cattle stampeding on TV.

As a common stockholder you will have more dollars, but you may have no more purchasing power. Out with Ben Franklin ("a penny saved is a penny earned") and in with Milton Friedman ("a man might as well consume his capital as invest it").

What widows don't notice

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is "taxed" in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn't seem to notice that 6 percent inflation is the economic equivalent.

If my inflation assumption is close to correct, disappointing results will occur not because the market falls, but in spite of the fact that the market rises. At around 920 early last month, the Dow was up fifty-five points from where it was ten years ago. But adjusted for inflation, the Dow is down almost 345 points - from 865 to 520. And about half of the earnings of the Dow had to be withheld from their owners and reinvested in order to achieve even that result.

In the next ten years, the Dow would be doubled just by a combination of the 12 percent equity coupon, a 40 percent payout ratio, and the present 110 percent ratio of market to book value. And with 7 percent inflation, investors who sold at 1800 would still be considerably worse off than they are today after paying their capital-gains taxes.

I can almost hear the reaction of some investors to these downbeat thoughts. It will be to assume that, whatever the difficulties presented by the new investment era, they will somehow contrive to turn in superior results for themselves. Their success is most unlikely. And, in aggregate, of course, impossible. If you feel you can dance in and out of securities in a way that defeats the inflation tax, I Would like to be your broker - but not your partner.

Even the so-called tax-exempt investors, such as pension funds and college endowment funds, do not escape the inflation tax. If my assumption of a 7 percent inflation rate is correct, a college treasurer should regard the first 7 percent earned each year merely as a replenishment of purchasing power. Endowment funds are earning nothing until they have outpaced the inflation treadmill. At 7 percent inflation and, say, overall investment returns of 8 percent, these institutions, which believe they are tax-exempt, are in fact paying "income taxes" of 87½ percent.

The social equation

Unfortunately, the major problems from high inflation rates flow not to investors but to society as a whole. Investment income is a small portion of national income, and if per capita real income could grow at a healthy rate alongside zero real investment returns, social justice might well be advanced.

A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.

But the potential for real improvement in the welfare of workers at the expense of affluent stockholders is not significant. Employee compensation already totals twenty-eight times the amount paid out in dividends, and a lot of those dividends now go to pension funds, nonprofit institutions such as universities, and individual stockholders who are not affluent. Under these circumstances, if we now shifted all dividends of wealthy stockholders into wages - something we could do only once, like killing a cow (or, if you prefer, a pig) - we would increase real wages by less than we used to obtain from one year's growth of the economy.

The Russians understand it too

Therefore, diminishment of the affluent, through the impact of inflation on their investments, will not even provide material short-term aid to those who are not affluent. Their economic well-being will rise or fall with the general effects of inflation on the economy. And those effects are not likely to be good.

Large gains in real capital, invested in modern production facilities, are required to produce large gains in economic well-being. Great labor availability, great consumer wants, and great government promises will lead to nothing but great frustration without continuous creation and employment of expensive new capital assets throughout industry. That's an equation understood by Russians as well as Rockefellers. And it's one that has been applied with stunning success in West Germany and Japan. High capital-accumulation rates have enabled those countries to achieve gains in living standards at rates far exceeding ours, even though we have enjoyed much the superior position in energy.

To understand the impact of inflation upon real capital accumulation, a little math is required. Come back for a moment to that 12 percent return on equity capital. Such earnings are stated after depreciation, which presumably will allow replacement of present productive capacity - if that plant and equipment can be purchased in the future at prices similar to their original cost.

The way it was

Let's assume that about half of earnings are paid out in dividends, leaving 6 percent of equity capital available to finance future growth. If inflation is low - say, 2 percent - a large portion of that growth can be real growth in physical output. For under these conditions, 2 percent more will have to be invested in receivables, inventories, and fixed assets next year just to duplicate this year's physical output - leaving 4 percent for investment in assets to produce more physical goods. The 2 percent finances illusory dollar growth reflecting inflation and the remaining 4 percent finances real growth. If population growth is 1 percent, the 4 percent gain in real output translates into a 3 percent gain in real per capita net income. That, very roughly, is what used to happen in our economy.

Now move the inflation rate to 7 percent and compute what is left for real growth after the financing of the mandatory inflation component. The answer is nothing - if dividend policies and leverage ratios Terrain unchanged. After half of the 12 percent earnings are paid out, the same 6 percent is left, but it is all conscripted to provide the added dollars needed to transact last year's physical volume of business.

Many companies, faced with no real retained earnings with which to finance physical expansion after normal dividend payments, will improvise. How, they will ask themselves, can we stole or reduce dividends without risking stockholder wrath? I have good news for them: ready-made set of blueprints is available.

In recent years the electric-utility industry has had little or no dividend-paying capacity. Or, rather, it has had the power to pay dividends if investors agree to buy stock from them. In 1975 electric utilities paid common dividends of $3.3 billion and asked investors to return $3.4 billion. Of course, they mixed in a little solicit-Peter-to-pay-Paul technique so as not to acquire a (Con Ed reputation. Con Ed, you will remember, was unwise enough in 1974 to simply tell its shareholders it didn't have the money to pay the dividend, Candor was rewarded with calamity in the marketplace.

The more sophisticated utility maintains - perhaps increases - the quarterly dividend and then asks shareholders (either old or new) to mail back the money. In other words, the company issues new stock. This procedure diverts massive amounts of capital to the tax collector and substantial sums to underwriters. Everyone, however, seems to remain in spirits (particularly the underwriters).

More joy at AT&T

Encouraged by such success, some utilities have devised a further shortcut. In this case, the company declares the dividend, the shareholder pays the tax, and - presto - more shares are issued. No cash changes hands, although the spoilsport as always, persists in treating the transaction as if it had.

AT&T, for example, instituted a dividend-reinvestment program in 1973. This company, in fairness, must be described as very stockholder-minded, and its adoption of this program, considering the folkways of finance, must he regarded as totally understandable. But the substance of the program is out of Alice in Wonderland.

In 1976, AT&T paid $2.3 billion in cash dividends to about 2.9 million owners of its common stock. At the end of the year, 648,000 holders (up from 601,000 the previous year) reinvested $432 million (up from $327 million) in additional shaves supplied directly by the company.

Just for fun, let's assume that all AT&T shareholders ultimately sign up for this program. In that case, no cash at all would be mailed to shareholders - just as when Con Ed passed a dividend. However, each of the 2.9 million owners would be notified that he should pay income taxes on his share of the retained earnings that had that year been called a "dividend". Assuming that "dividends" totaled $2.3 billion, as in 1976, and that shareholders paid an average tax of 30 percent on these, they would end up, courtesy of this marvelous plan, paying nearly $730 million to the IRS. Imagine the joy of shareholders, in such circumstances, if the directors were then to double the dividend.

The government will try to do it

We can expect to see more use of disguised payout reductions as business struggles with the problem of real capital accumulation. But throttling back shareholders somewhat will not entirely solve the problem. A combination of 7 percent inflation and 12 percent returns with reduce the stream of corporate capital available to finance real growth.

And so, as conventional private capital-accumulation methods falter under inflation, our government will increasingly attempt to influence capital flows to industry, either unsuccessfully as in England or successfully as in Japan. The necessary cultural and historical underpinning for a Japanese-style enthusiastic partnership of government, business, and labor seems lacking here. if we are lucky, we will avoid following the English path, where all segments fight over division of the pie rather than pool their energies to enlarge it.

On balance, however, it seems likely that we will hear a great deal more. as the years unfold about underinvestinent, stagflation, and the failures of the private sector to fulfill needs.

About Warren Buffett

The author is, in fact, one of the most visible stock-market investors in the U.S. these days. He's had plenty to invest for his own account ever since he made $25 million running an investment partnership during the 1960's. Buffett Partnership Ltd., based in Omaha, was an immensely successful operation, but he nevertheless closed up shop at the end of the decade. A January, 1970, FORTUNE article explained his decision: "he suspects that some of the juice has gone out of the stock market and that sizable gains in the future are going to be very hard to come by."

Buffett, who is now forty-six and still operating out of Omaha, has a diverse portfolio. He and businesses he controls have interests in over thirty public corporations. His major holdings: Berkshire Hathaway (he owns about $35 million worth) and Blue Chip Stamps (about $10 million). His visibility, recently increased by a Wall Street Journal profile, reflects his active managerial role in both companies, both of which invest in a wide range of enterprises; one is the Washington Post.

And why does a man who is gloomy about stocks own so much stock? "Partly, it's habit," he admits. "Partly, it's just that stocks mean business, and owning businesses is much more interesting than owning gold or farmland. Besides, stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices."