When you buy a stock because you think it's "cheap", what you're really doing is praying that a new catalyst bails out your position.
Except in the case of marketwide liquidity events, which is when players like Warren Buffett make moves, your default assumption, if you want to protect your capital to the highest degree possible, should be that the market is not "irrational".
I'm not saying anyone should invest like Buffett does. People often misinterpret his quote of "the market transfers wealth from the impatient to the patient" to mean "Buy this tech or AI datacenter stock near all-time highs and never sell it". Buffett's patience is "Wait to buy assets until S&P500 has crashed 40%" type patience, and it's what he's referring to in that quote.
I see a lot of discussions on reddit about stocks being "unfairly punished" by an "irrational market". If you want to try a short-term trade on mean reversion from an oversold bounce, go ahead, it's true that short-term price action often overshoots and then corrects slightly in the first 1-3 days as short-term players reposition. But when you know the sheer volume of sell orders it takes to completely fill resting orders on the order book to make a stock like Reddit drop 20% in hours or Meta drop 11% in hours, you know that's not a few thousand scared investors selling, that is big players who do not care about their fill price and are getting out ASAP, while also simultaneously removing their own resting buy orders from the book.
Institutions that move tens of millions of shares with urgency are not stupid. They know all the "fundamentals" you know about your "sleeper pick" company times 10, plus insider information. When you buy the stocks of companies on the decline, you are not making a bet that the market made a mistake (it happens, but it's rare). You are making a bet that the company will have a new positive catalyst that causes the price trend to reverse. If that bet pays off, it's not because the market was wrong about the information they currently had at the time they repriced that asset downwards. It's because of that catalyst, which is completely unknowable to you at the time you buy the stock at the depressed price.
People are pointing at the recent alleged market manipulation by Citadel to scoop up assets at cheap prices as a reason not to trust the market. But remember, your job is not to be right about why the market is moving a certain way. Your job is to make money by buying low and selling high. Citadel, or any other player(s) intentionally crashing a sector isn't your signal to start buying, it's your signal to get out of the way, because smart money is getting out of the way as soon as possible to not take the damage of the extreme market move. Smart money doesn't care where the price action is coming from, they either buy or they sell with the trend because at the end of the day, their job is not to be right about the "inherent value" of the asset, their job is to make money by buying low and selling high.
We have the most positive and bullish narratives around the "picks and shovels" AI datacenter stocks ever, and yet many who bought the dip at any time during the 35-45% crash in those stocks we just had took severe losses. X stock is underpriced at 1,100, the market is making a mistake. X stock is underpriced at 1,000, the market is making a mistake. X stock is underpriced at 900, the market is making a mistake. X stock is underpriced at 800, the market is making a mistake. X stock is underpriced at 700, the market is making a mistake. At some point, it doesn't matter who's making a mistake, and it's way more likely YOU are the one making the mistake, not the market.
When I see people say Warren Buffett should have put his cash in an S&P 500 index fund or bought a semiconductor company, it really shows how disconnected many have become with the ultimate goal of investing in stocks which is to MAKE MONEY, and to not risk losing money by taking market risks incompatible with your strategy. It isn't to be "right" in your assessment of the asset or the market pricing that asset.