This article, from U.S. News, is rather old, but it’s a good one nonetheless. Here’s the first part:
What if one stock, in particular, had seemed like a sure bet when you bought it last month. The company sells something everyone needs, is well managed, and has a consistent track record of growth—that is, until it missed Wall Street earnings expectations by a penny and got pounded down by 15 percent in a single day.
Would you:
a) Sell it and curse yourself for buying it in the first place?
b) Sit tight and do nothing until you recover your loss, then sell?
c) Smile and buy more, sure that everyone else is dead wrong?
d) Study and reconfirm your assessment of the company, then smile and buy more?
Answer truthfully, then continue to the article to see if you would qualify.
The interesting thing about this is it assumes other players in the market to follow an erroneous strategy and for you (and Warren Buffett) to have the correct ones. Needless to say you need quite a few assumptions to make this work:
A) You are correct in your analysis of the company.
B) Your strategy (of ignoring the earnings announcement) is correct.
C) Everyone else’s learning curve is extremely flat.
D) Warren Buffett is not about to short (or sell) the company in question.
If Warren Buffett’s investment strategy is correct and all other strategies are incorrect, why do people still follow other strategies?
Ah – the foolishness of crowds…?
Buffett’s investment strategy takes loads of patience, thus is not particularly sexy
They live life on the edge!