Jemal Countess/Getty Images for Time Inc.
Berkshire Hathaway CEO Warren Buffett attends the Fortune Most Powerful Women summit at Mandarin Oriental Hotel on October 5, 2010 in Washington, DC.
Thanks to Henry Blodget at Business Insider for directing to this Fortune except from Warren Buffett's annual letter to Berkshire Hathaway shareholders. In it, Warren Buffett lays out the commonsense case for avoiding investments in currency (for example, government debt like U.S. Treasuries) and gold (driven by fear) and sticking with stocks. Here's a taste:
My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.