“The concept of buying goods on sale is as ingrained in the American psyche as watching primetime sitcoms. We take for granted the idea that any good – a bar of soap, a Pontiac Grand Am or back-to-school clothing – is a better value when the price drops. When the local grocer advertises strip steaks on sale, your initial response might be to buy some. When your favorite fast-food restaurant runs a 99-cent sale on quarter-pounders, there’s a tendency to forego a home-cooked meal and load up on a sack full of patties and fries. Why are Americans like this? Because we crave value. We make mental notes of what constitutes a fair price and often wait until that price level is breached before we buy. We may scoff at a 24-pack of Pepsi priced at $5.99, but at $4.99 it’s suddenly within our range of perceived value.
“The financial markets may be the only institutions in the world that turn the basic doctrine of consumerism on its head. Investors are coached to believe that a stock is a better buy when the price rises, that it’s ‘safer’ to join the crowd in bidding the price up and ‘riskier’ to buy a stock declining in price. Wall Street, you see, likes to implant a ‘fear of omission’ in investors. We are led to believe that if we fail to buy a stock now, the price will only go higher and we will miss the rally.
“The first principle of value investing is to buy securities on sale, just as you would toiletries or a new automobile. You should not differentiate consumer habits from investing habits. There are one and the same. Whether you buy a grocery store item, shares of Intel, a bar of silver, a Treasury bond, or preferred stock in the local utility, you should try to obtain it on sale, when possible, to maximize its value per dollar of investment.”
- Timothy Vick in his 1999 book, Wall Street on Sale
Monday, November 8, 2010
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