Discount sales in retail stores happen several times during the year. They advertise ‘buy-one-get-one–free’ sales and ‘upto 50% discount sales’ that bring in buyers by the hordes. If you have ever visited a retail store on the last day of such a sale, you will find a scene of utter devastation – stuff strewn all over the place and buyers practically yanking things off other buyers in a last desperate bid to find a bargain buy.
What is interesting is that the same buyers (or their friends or cousins) become completely reticent when a discount sale is going on in the stock market – keeping their wallets glued to their pockets. No one rings a bell or takes out full-page advertisements in newspapers to announce a sale in the stock market. One fine day, when everything seemed to be full of sunshine and happiness, people realise their stock or mutual fund portfolio is decreasing in value. Stocks and funds that were flying into orbit suddenly start to nose-dive.
The initial reaction is usually denial. This must be a temporary phase. The correction will soon be over. Experts suggest: “Buy the dip”. Those who entered a bull market late (they are mostly new investors attracted like flies to a pot of honey) start ‘averaging’. When the stock market continues to fall, denial is replaced by shock. All the ‘averaging’ does not prevent a stock’s price from crashing. In sheer panic, investors sell off their holdings to recover whatever little they can.
That is when the real sale starts in the stock market. Experts opine that the index can’t fall any more; 4700 or 15700 or some such number should be the bottom; this is a good time to buy into blue chips. And then the stock market decides to offer even better discounts! But where are the buyers? Why aren’t they falling over each other in trying to lock-in the best bargains?
Many years ago, in a training class on the art of selling, I learned two important lessons. The first lesson: When some one leaves you a message stating that the ‘matter is very urgent’, the urgency is the person’s who left the message. He has probably not yet met his quarterly or yearly sales target – which means no bonus payment and may be even a ‘pink slip’. Don’t call the person back. Let him call again.
The second lesson: When some one offers you a very good deal – so good that you are tempted to whip out your cheque book – smile politely and refuse. The deal will usually get even better! Those who have negotiated a car purchase – particularly a second hand one – will know what is being discussed.
The same goes for Mr Market. He announces discount sales only once in two or three years – not several times a year like retail stores. But if you have the patience and skill to ‘negotiate’, keep smiling and refusing to accept his offers. Even if strong performers are trading at 52 week lows. You will find that his offers get even more mouth watering.
At some stage, Mr Market will get fed up with you (and others like you) and start increasing prices – not in one shot, but gradually. Much like the way he kept offering better discounts with each passing week. That is the best time to start buying. You may not get the absolute lowest bargain price. But you can sleep peacefully at night knowing that henceforth, prices will start rising.
