Well, the big piece of news on the ASX yesterday was undoubtedly the Reserve Bank of Australia's (RBA) decision to halt the ten-month streak of interest rate rises it has gifted Australians over the past 11 months.
Yes, April will be the first month in almost a year when interest rates won't be going up. Investors seemed to rejoice this move, with the S&P/ASX 200 Index (ASX: XJO) rebounding back into positive territory when the news became public at 2:30 pm yesterday:
In its customary commentary, the RBA had some interesting comments to make on inflation:
A range of information, including the monthly CPI indicator, suggests that inflation has peaked in Australia. Goods price inflation is expected to moderate over the months ahead due to global developments and softer demand in Australia.
Reserve banks like the RBA usually raise interest rates with almost the sole intention of combating inflation. So it will come as a relief to many to hear that inflation may have already peaked in Australia.
But how does this decision impact investing in ASX shares?
Well, let's turn to the legendary investor Warren Buffett for an explanation.
How does Buffett invest in a high-rate environment?
Buffett is one of the world's greatest investors of all time. He is now in his 90s and has been investing for most of his life. So this is a man with a lot of experience with inflation, and profiting despite it.
Buffett once described interest rates as "like gravity" for shares and other assets. The higher they rise, the more 'pull' they have on share markets. This explains why both the US and Australia have seen such volatility in their share markets over the past 12 months or so.
But Buffett also teaches that most investors shouldn't worry too much about interest rates. He once said that worrying about what rates will do next is "the same way as predicting what business is going to do, what the stock market's going to do… I can't do any of those things. But that doesn't mean I can't do well investing over time".
In this investing, Buffett's stock picks tend to be companies that can thrive in all economic climates. Two prominent names in his portfolio are Apple and Coca-Cola. Just think of how these companies fare in times of high rates, and times of low rates, high inflation and low inflation.
These companies possess intrinsic competitive advantages (Buffett likes to call them 'moats') through the sheer power of their brands. This helps consumers to keep coming back, regardless of the economic weather.
Buffett has long preached the wisdom of finding companies that have these kinds of protections built in. So even though inflation might have peaked here in Australia, I'm sticking with Buffett's tried and true methods of investing. If you find a top-tier company, and you are able to pay a good price for it, there is little else you need to worry about.
