Book Summary
Published by Scribner in September 2002, The New Buffettology carries the subtitle How Warren Buffett Got and Stayed Rich in Markets Like This and How You Can Too! It is the sequel to the authors’ 1997 bestseller Buffettology, and it was written for a different kind of market than the first book: not the long bull market of the nineties, but the falling, uncertain markets that followed it. The question it answers is what Buffett does when stocks are going down — and how an ordinary investor can do the same.
The book’s premise is that a down market is where Buffett’s method pays off most. When prices fall, the selective contrarian can buy wonderful businesses at prices the bull market never offered — but only if you know how to tell a genuinely undervalued company from a cheap one heading lower. The authors walk through Buffett’s valuation approach: figuring out what a business is worth from its earnings, comparing that value with the price the market is asking, and demanding a margin of safety before buying. The technique at the center of it is the expected annual compounding rate of return — Buffett’s way of asking, if I buy this business at this price, how fast will my money compound?
What makes the book work is that it is the practical half of the Buffettology series. The first book explained Buffett’s philosophy; this one applies it to the market conditions most investors actually fear. It is a companion to Buffettology and The Tao of Warren Buffett, and together the three form a single course in Buffett’s method — this one is the entry for anyone who wants to buy when everyone else is selling.
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Who is Mary Buffett and David Clark?
Mary Buffett was Warren Buffett’s daughter-in-law for twelve years, from 1981 to 1993, when she was married to his son Peter — years that gave her a close-up view of how Buffett thinks about businesses, money, and the people who run them. She has spent the decades since writing about that thinking, and the Buffettology books she wrote with David Clark became bestsellers on the strength of their claim to explain Buffett’s method from the inside.
David Clark is a portfolio manager and attorney, and a noted Buffettologist — one of the small group of writers who have made a career of studying Buffett’s letters, speeches, and investments. Together, he and Mary Buffett built the Buffettology series into one of the most popular introductions to value investing, and The New Buffettology is their answer to the question the first book left open: what do you do when the market turns against you?
Lessons From The New Buffettology
Down markets are where the money is made — if you know what to buy. The book’s central lesson is that falling prices are an opportunity only for the investor who can value a business. A stock that is down 30 percent is a bargain only if the business underneath is still earning; if the earnings are broken too, the lower price is no bargain at all. The discipline is to do the valuation work first and let the market’s panic set the price.
Value a business by its earnings, not by its price chart. The authors’ method starts with what the company earns and asks what those earnings are worth — then compares that number with the market price. A wonderful business bought at a fair price, held for years, is the whole strategy in one sentence, and the book’s valuation chapters are the working-out of that sentence: how to estimate future earnings, how to discount them, and how to decide what return is good enough to justify the risk.
Demand a margin of safety, especially when you are sure. The gap between what a business is worth and what you pay for it is what protects you when your estimate is wrong — and your estimate will sometimes be wrong. The book treats the margin of safety as the difference between investing and speculating: the speculator bets the price will rise, while the investor buys value at a discount and lets time do the work.
A durable competitive advantage is what makes the compounding work. The companies worth buying in a down market are the ones whose earnings keep growing because customers cannot easily leave — the businesses with pricing power, loyal customers, and little need for outside capital. Without that advantage, cheapness is temporary; with it, a low price in a bear market is the closest thing to a gift the market offers.
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Criticisms of the Book
The main weakness of The New Buffettology is that it is a book of its moment. It was written for the bear market of the early 2000s, and some of its market commentary and examples belong to that era — a reader picking it up today will need to translate the examples to the present. The valuation method itself has held up, but the book’s framing assumes a market that has just fallen, and it reads less urgently in a rising one. Readers who want the timeless version of the same ideas should start with Buffettology.
The book also assumes a reader willing to do arithmetic. The expected-return calculations are not difficult, but they are the whole point — a reader who skips the numbers will get the philosophy and miss the method. And the interpretations are the authors’, not Buffett’s: a reader who wants Buffett’s own reasoning, in his own words, will need his letters. For the fuller treatment of the Buffett method as an investment approach, The Warren Buffett Way is the place to go, and for the margin-of-safety framework, The Intelligent Investor.
Who is This Book For?
This is the book for an investor who already believes in value investing and wants to know what to do when the market falls — not how to predict the fall, but how to shop in it. It pairs naturally with Buffettology for the broader Buffett framework, and with The Tao of Warren Buffett for the sayings behind the numbers. Readers who enjoyed either will find this one the most actionable of the three — the book you reach for when your portfolio is down and everyone is telling you to sell.
It is less useful for readers who want a complete investing system in one volume. If you need portfolio construction, asset allocation, or a screen you can run this weekend, this book will leave you wanting — its job is to teach you how Buffett values a business in a bad market, not to hand you a checklist for buying stocks.
Final Thoughts
The New Buffettology has lasted because it answers the question every value investor eventually faces: what do I do when everything is falling? The authors’ answer — value the business, demand a margin of safety, and buy the advantage at a discount — is not new, but it is the part of Buffett’s method that is hardest to practice when fear is in the air. That is why the book still gets recommended in every bear market, and why it will be recommended in the next one too.
Read it before the next downturn, not during it — the valuation work is best learned calmly, and the second time through, the chapters on expected returns read less like arithmetic and more like a plan. As an introduction to buying wonderful businesses when they are on sale, it remains one of the clearest places to start.
