Warren Buffett is a household name in the world of investing, but understanding his approach in depth is often easier said than done. That’s where The New Buffettology, co-authored by Mary Buffett (Warren Buffett's former daughter-in-law) and David Clark, steps in. This follow-up to the original Buffettology dives deeper into Warren Buffett's evolving investment strategy, especially in the context of volatile and changing markets. The book offers both a philosophical framework and a technical roadmap for investors hoping to emulate the Oracle of Omaha.
Here are some of the most important lessons from The New Buffettology that aspiring investors can learn from and apply.
1. Long-Term Business Focus Over Short-Term Market Trends
One of the central tenets of Buffett’s strategy is a focus on the long-term performance of businesses, rather than the short-term gyrations of the stock market. The New Buffettology emphasizes that Buffett sees stocks as partial ownership in real businesses, not just ticker symbols bouncing around on a screen.
Mary Buffett stresses the importance of identifying companies with durable competitive advantages—those that can maintain profitability and resist competition over decades. This includes companies with strong brand names, proprietary technology, cost advantages, or regulatory moats.
Lesson: Don’t chase market hype. Instead, invest in businesses that have proven they can weather market cycles and come out stronger.
2. Understand the Nature of the Business
Before Buffett invests, he ensures he thoroughly understands how the business works—what it sells, how it makes money, who its customers are, and what its economic prospects look like. The book highlights the concept of a company’s economic engine, meaning how the business turns revenue into profits sustainably.
If an investor cannot clearly explain in simple terms how a company earns money, Buffett believes they shouldn’t invest in it. That’s why he tends to avoid tech startups and highly speculative industries and prefers stable, predictable enterprises like Coca-Cola or Johnson & Johnson.
Lesson: Stick to what you know. Develop a "circle of competence" and avoid stepping outside it.
3. Focus on Consistent Earnings and Return on Equity (ROE)
The New Buffettology dives into the financial indicators Buffett uses to evaluate a company’s performance. Two key metrics are:
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Consistent earnings growth: Buffett looks for businesses that have steadily increased their earnings over time.
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High return on equity (ROE): This measures how efficiently a company uses shareholders' equity to generate profits. Companies with high and consistent ROE tend to be well-managed and financially sound.
Mary Buffett emphasizes that high ROE, especially when it’s not fueled by excess debt, is a strong indicator of a good investment.
Lesson: Don’t just look at earnings—look at how those earnings are achieved and whether they’re sustainable.
4. Buy When the Market Undervalues a Business
Buffett is a value investor at heart. He seeks to buy companies when they’re trading below their intrinsic value, which is the true worth of the company based on its future cash flows, earnings potential, and competitive position.
One of the most practical parts of The New Buffettology is its explanation of how Buffett calculates a business’s intrinsic value using discounted cash flow (DCF) models. The book walks readers through how to determine what a business is really worth and how to compare that to its current stock price.
Buffett’s strategy also involves patience. He often waits years for the right opportunity to buy a great business at a bargain price.
Lesson: Be patient. The best time to buy is not when everyone else is buying, but when a great business is temporarily out of favor.
5. Buy to Hold—Forever, If Possible
Perhaps the most famous Buffett quote is: “Our favorite holding period is forever.” The New Buffettology reiterates this philosophy, emphasizing the idea of buying a business that is so good, you’d be happy to own it indefinitely.
This mindset promotes low-turnover portfolios and discourages frequent trading, which can eat into returns due to transaction costs and taxes. Mary Buffett notes that holding long-term allows compound interest to do its magic and reduces the emotional stress of trying to time the market.
Lesson: If you wouldn’t be comfortable owning a stock for 10 years, don’t buy it today.
6. Embrace Market Downturns as Opportunities
The New Buffettology points out that Buffett actually welcomes market downturns, because they allow him to pick up great companies at discounted prices. Fear in the market often leads to irrational selling, and that’s when Buffett goes shopping.
This contrarian mindset is difficult for most investors to adopt, but it's a recurring theme in Buffett’s success. The book encourages readers to use downturns as a chance to accumulate quality stocks, not flee from them.
Lesson: Be greedy when others are fearful, and fearful when others are greedy.
7. Management Matters—A Lot
Buffett places great importance on a company’s leadership. He looks for honest, capable, and shareholder-friendly managers who operate with integrity and efficiency.
Mary Buffett explains how Buffett assesses management by reading annual reports, shareholder letters, and evaluating how capital is allocated. For example, does management reinvest wisely? Are they transparent about failures?
Buffett wants managers who treat shareholders as partners—not just sources of capital.
Lesson: Great businesses can be ruined by poor management. Always look beyond the numbers.
8. Avoid Fads and Speculation
Buffett deliberately avoids hot trends, speculative investments, and companies he can’t predict. Mary Buffett recounts how he sidestepped the dot-com bubble by sticking to his principles, even when everyone else was chasing internet stocks.
This contrarian patience helped Buffett preserve capital and outperform over time. The book urges readers to avoid the noise and stay true to sound investing fundamentals.
Lesson: Popular doesn’t equal profitable. Stick to businesses you can understand and evaluate rationally.
Final Thoughts
The New Buffettology is not just a guide to picking stocks—it’s a blueprint for thinking about investing with discipline, patience, and clarity. Mary Buffett and David Clark do an excellent job of breaking down Warren Buffett’s strategy into actionable lessons for everyday investors.
Whether you’re a beginner or a seasoned investor, the core messages remain the same: invest in great businesses, buy them at a discount, and hold them long enough to let compound growth work in your favor. In an age of constant noise and distraction, Buffett’s calm, value-driven approach is more relevant than ever.
Key Takeaway: Successful investing isn’t about chasing returns. It’s about understanding value, being patient, and thinking like a business owner.
