During an investment lifetime, especially one like Warren Buffett has lived it and still is, one needs to adapt to the circumstances. I think he has proven time and time again that he can adapt and when he could not, it was not necessarily him who was wrong for instance during the tech bubble. So, how to choose an article or statement of his which I like best. There are so many. I particularly like his coin tossing contest described in the “Super investors of Graham-and-Doddsville“. However it is not my favorite. I also like his analysis of Sanborn Maps and GEICO. I wish his description of Sanborn Maps and other investments of his were as extensive as what he wrote in “The Security I like best“. To make a long story short: I very much admire Buffett and have devoured a lot of the pieces he has written over the years. A great resource are all his annual shareholder letters which you can download for free from Berkshire‘s website. You can also buy them in aggregated form if you like. In 2015 I made the trip to the Woodstock of Capitalism and purchased a copy of 50 years of annual letters. I really love it. My admiration of Buffett is however not blind. I am very aware that he sometimes seems to say one thing and do another (Buffett tax vs deferred tax liabilities at Berkshire to name one example). I can also hardly imagine that when you seem so nice and jolly as he is that you can become as wealthy as he is without having additional character traits besides intelligence and street smartness too. Anyhow, I think he is great but somewhere in the back of my mind I have some place there that is let’s say skeptical. Now, when I started writing I set out to mention my favorite Buffett piece and here it comes: “How inflation swindles the equity investor” from 1977. In the document Buffett mentions the surprisingly steady return on capital, how “thrashing about” results in “substantial frictional costs” and the “relative attractiveness” of a 12% return on capital. He lays out the ways in which corporations can improve their return on capital (spoiler alert: according to Buffett there are five) and he elaborates on the relationship between market and book value. While his expectation at the time for inflation rates was actually incorrect he lays out his reasoning very well how to think about purchasing power, investment returns and inflation. He also describes what he thinks about company’s that issue equity to pay dividends ie when they actually do not generate enough cash. As Berkshire does not pay dividends it seems that he does not like them but I believe it is quite the opposite. I believe he likes to receive them as long as they are actual surplus cash but he definitely does not like to pay them. He wants to receive capital such that he can reinvest it where it makes the highest return above inflation. That is at least what I make of the whole discussion laid out in the article. After all Munger and Buffet did buy See’s Candies in 1972 which is supposedly the time he shifted away from cigar butt type investments to more cash generating with little capital expenditure ie more brand type businesses that typical come at higher multiples. Anyhow, this is my favorite Buffett article. How do you like his 1977 article and which article of his do you like best?