Warren Buffett capitalized on 'temporary negative events' when investing in Coca-Cola and American Express. What is the core premise of the strategy that 'bad news is an investor's best friend'?

Core Premise of Buffett's "Bad News is an Investor's Best Friend" Strategy

When investing in Coca-Cola (during the New Coke failure) and American Express (during the salad oil scandal), Buffett capitalized on opportunities where temporary negative events caused sharp stock price declines. The core premise of this strategy is: the negative event must be temporary and must not permanently damage the company’s intrinsic value or competitive advantage (economic moat). Specifically:

• Judging Temporary Negative Events: Events like product failures or scandals are often short-term shocks. Markets tend to overreact, driving stock prices below the company’s true value. Investors must discern whether this is "noise" rather than a fundamental issue.
• Robust Company Fundamentals: The premise requires the company to possess a strong economic moat (e.g., brand power, cost advantages, or network effects), ensuring it can recover quickly and continue generating long-term cash flows.
• Nature of Contrarian Investing: This embodies the essence of value investing—"be greedy when others are fearful"—by acquiring undervalued quality assets and waiting for the market to correct.

This strategy stems from Buffett’s philosophy in his shareholder letters, emphasizing rational analysis over emotional following, and is applicable in contrarian investment scenarios.