SMART Market

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Review: The New Buffettology

warrenbuffett1by Mary Buffett and David Clark

This book is essential reading for anyone who wants to know more about Warren Buffett and how he does what he does.

The authors look at the companies Buffett has invested in over the years and what he has said about investment principles, and use this to draw up a series of tests and principles that they claim he puts in place when selecting investments.

We cannot say with any certainty that these tests and principles totally and accurately reflect the way that Warren Buffett does business. We can however say that they make good and logical sense to us.

For example, the authors assert that Buffett only looks at companies with consistently high rates of return on equity, preferably rising, and give mathematical tests and equations for assessing this. This seems to accord with everything that Warren Buffett has ever publicly said and makes sense.

In the early part of the book, Mary Buffett and David Clark analyze some of Warren’s historical investments and come up with a series of guiding principles on what to buy and when to buy it. They include important factors such as brand name companies, information sources, and company management.

Later in the book, the authors set out a series of financial and other equations for assessing likely investments, and the price that an investor can pay and still have Graham’s famous ‘margin of error’.

Generally, these equations and calculations can easily be done by the average reader, with the assistance of a financial calculator, such as the Texas Instruments Solar Financial Calculator. One equation, that using book value to predict earnings growth, did give us some difficulty at first but proved do-able after a couple more readings.

The authors also produce a Buffetology Workbook that contains all the steps the reader needs to make the calculations suggested in the principal book.

This is a must-have book for any reader wanting to tap into the Buffet investment secrets.

January 22, 2009 - Posted by | Investment Guide

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