The New Buffettology - Chapter 1

The book "The New Buffettology" is summarized following each Chapter. I will breakdown those Chapters on the Value Hounds Blog so that we can discuss and review. I will also use Wells Fargo as the stock which I will apply the fundamentals of the book too, so that we can collectively understand why Buffett invests in this stock, and come to a conclusion if this should be a stock in our portfolio.

Chapter 1- The Answer to Why Warren Doesn't Play the Stock Market - and How Not Doing So Has Made Him America's Number One Investor

• Not interested in popular investments of the day.
• Has discovered that the vast majority of stock market investors, including mutual funds, are short-term oriented; they buy on good news and sell on bad.
• The short-term stock market mentality sometimes grossly undervalues the long-term prospects of a great business.
• WB likes to buy on bad news.
• WB's genius lies in his ability to grasp other people's ignorance about the long-term economic worth of certain business.

With the bust of the mortgage bubble, the market seems to be fearful of all banks regardless of their solvency. The negative headlines of Citibank, IndyMac, Downey S&L, the entire banking industry is getting crushed on Wall Street. This holds true for even Wells Fargo whom seems to have managed their corporation which much more focus on the long-term than those whom appear to soon go BK. While WFC is down just 6% YTD, they are down 24% in the last year. However, the chart reflects that over the past 5 years WFC has seen an increase of 13% and most impressive, the stock is up 77% over the past 10 years.