Black Friday: Value Investor’s Paradise
Did you know that the best place to learn value investing is while shopping for bargains on Black Friday?
“In my nearly fifty years of experience in Wall Street I’ve found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do; and that’s a pretty vital change in attitude.” – Benjamin Graham, the father of value investing.
For stock-market historians, the term “Black Friday” probably brings back the memory of the Panic of 1869, when Jay Gould and James Fisk attempted to corner the gold market. For the rest of us, it means the day after Thanksgiving, when almost every retailer is running big promotions and everything we could have dreamt of buying becomes available at much lower prices – 30% – 50% – or maybe even 70% OFF! It may seem as if the Black Friday shopping tradition is as old Thanksgiving itself. The record shows, though, that nationwide Black Friday dates back only to the 1980s, with the earliest-known use of the term in this context occurring early in the 1950s. Today, when online sales and holiday discounting start early and lasting longer, Black Friday may have lost some of its initial impact but the practice is still spreading, with countries oceans away adopting this retail tradition.
Shoppers can buy at prices they wouldn’t have seen otherwise, so retailers get the opportunity to sell more. The concept seems simple, and the shoppers’ response to any promotions or discounts couldn’t come more naturally. We all know what we like, but we usually don’t like the prices we see. The idea of the value a product represents is very clear to us. The moment the price drops below our notion of that value, we can’t help ourselves, and we buy! With online shopping, it’s never been easier to browse, compare, and buy at a moment’s notice! Retailers make it even easier; they email us with notifications of what’s been discounted on our wish lists.
Yours truly had an audiobook in his wish list. You might not be surprised to learn that it’s titled Crashes and Crises: Lessons from a History of Financial Disasters by Connel Fullenkamp. Black Friday came, and the price dropped 80%! I hit “Buy,” and I’m almost halfway through this 11-hour recording. Whatever items are on your wish list, the reflex, the instinct, and the logic are the same. You know what the value is, and you know what price you’d like to pay. For me, that purchase was a steal.
But somehow this common-sense experience of finding value in the everyday shopping experience evaporates the moment we contemplate the stock market. When it comes to shoes, shirts, and TVs, we want more of the items if the price goes down, and less if the price goes up. Yet with stocks, the higher the price goes, the more attractive buyers find them! This is certainly not the way Wal-Mart operates!
We often say that we are value investors or “contrarian” investors. We mean that we look for value, and we want to pay the lowest price. The lower the prices drop, the more excited we get. History shows that individual stocks and the market as a whole go through fairly regular Black Friday moments, when quality is on sale! We at Sicart Associates are “contrarian” only because mainstream investors seem to ignore their Black Friday value shopping experience when they start to invest in stocks. Instead of seeking out the readily available bargains, they go for the high-priced offerings. There is little competition for the way we operate; sometimes it’s like being alone in a shopping mall on Black Friday.
I wholeheartedly believe that we all have the right instincts to be the best lifelong investors, but somehow we don’t employ them. It can take a lot of willpower to make decisions that run counter to the norm, and stick to the same value discipline when picking stocks. It’s a discipline that comes so naturally everywhere else! Are you a value shopper? How about a value investor?
Published: December 19th, 2019
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.