Investor A buys shares in XYZ Corp., confident that the company is undervalued. He or she invests in the business, and shortly afterwards, the stock drops by as much as 50%. For well over a year, the stock price remains dormant. All the while, the investor sees share prices rising at other businesses he or she's familiar with. Investor A reassesses the situation and does nothing.
Investor B, also favorable on XYZ Corp., begins buying shares a year later at about one-half of Investor A's cost basis. The following year, Mr. Market catches up with XYZ, and the stock doubles. Investor A is back to even, and Investor B is sitting on a 100% gain.
Which investor would you rather be? With hindsight, it seems that Investor B looks rather smart and savvy, while Investor A just got unlucky buying at the wrong price or the wrong time. Actually, the situation should be viewed from a totally different perspective.
Knowledge grows through sharing! To be the best, learn from the best! May all your dreams come true! Collections of Value Investing articles, interviews and videos, especially on Warren Buffett and Charlie Munger and articles from various disciplines to build "Latticework of Mental Models"
Monday, January 07, 2008
Luck, or Skill?
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