Re:Compounding Knowledge
by natalyarostova on Wednesday February 06, 2019 @03:56PM
(#19099851)
> 2) if Warren buys something, other people will pile on and drive up the price, which helps drive his returns.
While this is technically true, in the long-run the price of a firm will reflect reality as it exists, not as its perceived. And since Warren doesn't buy, then instantly sell when the price goes up, but rather holds for a long time. I don't believe we can attribute his returns to this phenomena.
As a side note, the reason the price goes up is because he built a reputation of being able to pick undervalued stocks, therefore his purchase is a signal.
While this is technically true, in the long-run the price of a firm will reflect reality as it exists, not as its perceived. And since Warren doesn't buy, then instantly sell when the price goes up, but rather holds for a long time. I don't believe we can attribute his returns to this phenomena.
As a side note, the reason the price goes up is because he built a reputation of being able to pick undervalued stocks, therefore his purchase is a signal.