Buffettology, a word coined by Mary Buffett and David Clark, the authors of the book by the same name, is a term representing Warren Buffett’s ideologies regarding the stock market. Warren Buffett counts among one of the richest people in the world. He made his riches purely through his mind and the stock market. He, interestingly enough, follows an investing strategy called Contrarian Investing.
Contrarian investing is a strategy that implies going against the market sentiments at any point of time. For example, when the investors think the market to be overpriced and start selling too fast too soon, contrarian investors jump on the opportunity and buy good quality stocks at low prices. Here’s where Buffettology comes in. This strategy has existed before Buffett, but has been made popular due to his unprecedented success.
This strategy can be compared to a see-saw. In the short term, the markets, led by the investors, are like the see-saw. It is influenced so much by the fear factor and the greed factor that it is tumultuous and moves about wherever the herd sentiment moves. The short-term price action is influenced by the news, the economy, politics, geographical movements, etc. Hence, the share price goes up and down like a see-saw.
However, in the long term, valuations and fundamentals of the stock overcome any short-term hesitations and reflect its true price. Warren Buffett and other followers of the contrarian strategy firmly believe in this.
Now, as an investor, no matter how much of an informed decision you make, there will always be something that you can’t predict. No one knows the actual value of a stock, not even Warren Buffett. However, flitting about in the market without proper research and relying on news from unsolicited groups and people can have a huge negative impact on your portfolio. Thus, to maximize your returns and minimize your losses, you need to have –
A plan.
A strategy.
A course of action.
Following short term price movements in the share and trying to time it is a fool’s task. To actually make profit consistently, quality stock research and time in the market is required. There’s a saying – Time in the market beats timing the market. Here, contrarian strategies prove their mettle.
Hence, what is required is some time spent in stock research and studying the methods already used by people who have been, and are, successful in the market. After all, past results are no measure of future profitability. Also, once your conviction about a stock is developed and you have taken action on it, keep an eye on it. Keep revisiting and revising your valuations and assumptions so that your portfolio remains on track and profitable.
Happy investing!
- Vaishali Patwa
