So what drives this kind of irrational consumer behavior? Is it drugs? Well, if you’ve been reduced to camping outside a Wal-Mart for three days straight, drugs may have a little something to do with it (just kidding).
Nevertheless, what’s ultimately driving this behavior is price. People are there for the discounts.
Shoppers are there for the “Black Friday” sales that the stores run every year. Customers know that’s when they can get the best deals on the merchandise that they want.
And in that sense, I’d propose to you that investing is a lot like shopping.
Think about it. What are you looking for when you go shopping? You’re looking for a good product at a good price, right? Well, it’s the same thing with investing. The only difference is that you’re looking for a good investment at a good price. But you’re still looking for the sale.
A sale is simply a temporary price reduction on a product or service. And while it’s infrequent, occasionally we’ll have “Black Friday”-type sales in certain investment sectors in the economy.
BLACK FRIDAY SALES IN THE ECONOMY
In late 2008, it’s like the stock market went on sale for a few months; and this was a serious sale. The prices of high-quality companies had been unjustifiably hammered with the rest of the economy. As a result, the stocks of those companies were extremely cheap – we’re talking the discount-rack-at-the-back-of-the-store kind of cheap. Stocks that were trading at $60 per share five months earlier were now down to $30 per share. That’s like your local department store running a 50% off sale!
While I admit that it can be emotionally challenging to accumulate investments in an environment like that, it was absolutely the right thing to do. During that period, I was taking advantage of the “sale prices” in the economy and buying the stocks of fundamentally sound companies with good economics.
The same thing happened again in 2011 with the real estate market. When the housing bubble burst and home prices came tumbling down, rental properties suddenly became very attractive investments again. It was like real estate went “on sale”. Again, I made it a point to selectively buy high quality, income-generating investments for my portfolio because the prices were so enticing.
As is the case with all sales, the discounted prices are a temporary situation. Eventually, prices will rise back to their pre-sale levels and the exceptional deals will be a thing of the past. As investors, we have to make it a point to go on a prudent shopping spree when certain investments go on sale.
Different events ranging from tax law modifications to major shifts in technology can trigger the sales. The key is to be educated and prepared so that when they do happen, you can take advantage of the tremendous values that may only be available for a short window of opportunity.
Those are my thoughts. Feel free to share some of yours below. Thanks for reading and as always, make it a great day.