Value Investors Tribe

Warren Buffett was asked in multiple shareholders meeting about his process from discovering investable companies to his research process. In the 2022 Annual meeting, Warren Buffett has shared an interesting story about how his investment process evolved overtime especially from conversion from technical analysis to fundamental analysis. Just to clarify, technical analysis mainly deals with the price movement and price behavior of the stock whereas the fundamental analysis deals with analyzing the business whose stock in researched.

Warren Buffett in the 2022 Annual meeting, shared an interesting story of the time when he was 11, he said, “I got very interested in technical analysis, and charted stocks, and did all kinds of crazy things. Hours and hours and hours. And saved money to buy other stocks and tried shorting and I just did everything.” At the time when he was 19 or 20, he found The Intelligent Investor by Ben Graham and discovered what he was doing was totally wrong. He particularly was influenced by Chapter 8 and Chapter 20 of the book which basically notified Warren that what he has been doing since last 8-9 years (technical analysis) was totally wrong!

This got him interested more in the fundamental analysis of the business and eventually he shifted his investment research methodology completely. It is interesting to note how wise and non-egoistic of him to completely discard something he believed to be bible of investment for 8-9 years. This process of change in Warren Buffett helps us understand the power of fundamental analysis or focus on business in comparison to technical analysis which basically deals with studying price movements.

Key Takeaways:

1. Fundamental analysis is superior to technical analysis in stock research
2. Power to change something you strongly believe in can make tremendous impact.
3. Chapter 8 and Chapter 20 of The Intelligent Investor are worth skimming over