Similarities Between Shopping & Investing
Ever have a particular item you were looking to buy, a new electronic device, or a new shirt perhaps? You didn’t buy it right away, as the initial offering was a bit over priced. Instead, you waited to see if you could find it on sale. You checked online, went to different stores, hoping that one of them had a blowout sales event and offer a discount on your item. Weeks go by, months, but you still waited, knowing that eventually they will have a sale and that you could pay less than regular price for it. Perhaps when a new model, or style comes out. Finally after waiting, a newer version of the item comes out. The newer version isn’t the next model, but only a change in color. The style and features are identical, but the mob is flocking to the new version. Your item finally goes on sale. The original version is just as good as the new one, so you don’t really mind and go to the store to buy it. You bring it home, the wait was well worth it. You have your item, and saved yourself some money too. Patience was definitely well rewarded.
Ever have a particular stock you were looking to buy? You bought it right away during the initial public offering (IPO), or saw the price go up and couldn’t wait, thinking it would never go on sale?
The same principles apply when it comes to shopping in the stock market. Why would you buy when everyone is bidding up the price, and not when its on sale? For some reason the general population only likes to buy stocks when the price goes up, and not when there is a sale. The financial market is the only market in the world where more people buy when the price starts going up, and avoid buying when the price goes down. We have seen this over and over again. The crash in the 1980s, the tech bust in 2001, and current credit crunch, being the three largest in recent history. But between those three events, there has been countless dips in between.
This week, we saw the market take a big dip again. People selling off all kinds of stocks, presenting yet another opportunity to buy some of my favorite stocks.
Noted This Week :
If a stock is selling on the market for a price above its intrinsic value, it is over priced. People tend to avoid the stock when the price falls, even if there is no material or significant change in the company itself.
For large companies that are publicly traded, they don’t change much in a day, in week, or even in a month. Over the entire year there may be some significant changes. Most changes take time, can been seen gradually, and don’t happen overnight (with a few exceptions such as Mergers & Acquisitions). Think about the company you work for, what big changes do you see and how frequent do those changes occur? Changes in the daily stock price of the company do not have a one-for-one correlation to the changes of the company itself. For the most part, they change independently.
Patience. The market will always dip sooner or later, and you may see your favorite stocks go on sale. So wait for the market to have a sale and give you your opportunity. Your patience will be well rewarded ….. financially!