Back to Library

The New Buffettology

by Mary Buffett and David Clark (2002)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

The New Buffettology

Executive Summary

Mary Buffett and David Clark provide an updated, comprehensive guide to Warren Buffett's investment methodology, focusing on his selective contrarian approach to exploiting bear markets and undervalued stocks. The book reveals the mathematical equations Buffett uses to determine what to invest in and explains how he identifies companies with durable competitive advantages.

Core Thesis

Warren Buffett's extraordinary wealth was not built by playing the stock market but by identifying and purchasing excellent businesses at bargain prices during periods of market pessimism. His edge comes from recognizing that stock price declines in great businesses are buying opportunities, not reasons to sell. The key is identifying companies with "durable competitive advantages" that protect their earnings power over decades.

Key Concepts

  1. Durable Competitive Advantage: The moat that protects a business from competition
  2. Selective Contrarian Investing: Buying when others are fearful, specifically targeting the best businesses
  3. Consumer Monopolies: Companies with brand power so strong they function like monopolies
  4. The Earnings Yield: Treating stocks as bonds with growing coupons
  5. Tax-Free Compounding: Using Berkshire's insurance float structure to compound capital

Chapter Highlights

  • Why Warren does not "play" the stock market
  • How Warren profits from bad news about great companies
  • How he exploits market shortsightedness
  • The interplay between profit margins and inventory turnover
  • The types of businesses Warren fears and avoids vs. loves
  • Using the Internet for financial research
  • Warren's 10-point investment checklist
  • Mathematical equations for identifying great businesses
  • Case studies of his most recent investments

Critical Assessment

Written by someone with genuine insider access to Buffett's thinking, the book offers authentic insight into the Oracle of Omaha's approach. The mathematical frameworks provide concrete tools rather than vague platitudes. The main limitation is that some specific stock examples are dated. The book remains one of the best practical guides to Buffett's methodology.

Key Quotes

  • "Warren was so desperate to make money that in 1938, in the sweltering summer heat of Nebraska, he walked miles to the racetrack where he spent hours on his hands and knees scouring the sawdust-covered floors for discarded racing stubs."

Conclusion

"The New Buffettology" provides the most detailed practical guide to implementing Buffett's investment approach, particularly his contrarian strategy during market downturns. Essential for any serious value investor.