Nothing Is Ever 'On Sale'

"What is a cynic? A man who knows the price of everything and the value of nothing." ~ Oscar Wilde

The phrase on sale has a misleading connotation, which, in conventional use of language, suggests the price of a given product or service is below its respective intrinsic value.  In other words, the seller is implicitly or explicitly saying, "This is a good deal!  Buy it!"

Sales are insulting to the intelligence of the thinking person. 

If I didn't want the product or service before the so-called sale, a lower price doesn't motivate me to buy it now. The motivation for buying something is based upon value, not price.  Similarly, there is not always a correlation between price and value; a high price does not mean high value and a low price does not mean low value.

A thing may be for sale but it is not on sale.  There is a difference.

In extremely simple terms, the market value of anything is the price that a buyer is willing to pay for it: The basic rule of supply and demand reflects market value. If a food item at a grocery store has a two-for-the-price-of-one special today, it likely means that the particular item is overstocked and/or near the end of its shelf life.  No one bought it at the higher price.  Therefore a lower price is the best means of attracting a buyer to make the sale.  The grocer is not trying to be a nice person; they need to sell the item. 

"For some reason people take their cues from price action rather than from values.  Price is what you pay.  Value is what you get." ~ Warren Buffett

Stocks are never "on sale."  Market values fluctuate based upon the perceptions and behaviors of market participants--the buyers and sellers.  If shares of XYZ stock are in low demand because of perceived value (which does not always correlate with fundamental value) the share price will fall.

If you buy shares of stock or stock mutual funds because you believe they are "on sale," you may be disappointed when a greater "sale" occurs.  The conscious investor or any thinking person buying goods and services in the markets of the world must ignore the noise of the market place.  If a price is "marked down" or "half off," it does not indicate a bargain.  It simply means the price has fallen to adjust to market value.  Similarly, if the media pundits are all saying, "Stocks are over-priced," this is a generality and only speaks to the short-term.  It's noise.

Here is the bottom line:  Nothing is ever on sale.  In fact, the market value should not even be the primary factor in making the decision to buy or sell anything; the market value should not dictate your value.  The true value of anything, with regard to your buying and selling decisions, is what it is worth to you, not to the market.  For example, if you believe your car is worth $10,000 but the market says its worth $5,000, you should absolutely keep your car.  Similarly, if the share price of a particular investment has fallen and you believe the market value has finally reached your value, you should consider buying it.

Think before you buy or sell.  To live well is to think well.

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Comments

[Account Deleted]

I agree wholeheartedly with this post, but I propose one exception for goods: Loss leaders.

It obviously doesn't apply to stocks, but items may be discounted much further than their price (what people would buy them for) to entice customers to come in and buy other goods.

I am thinking Black Friday deals, or even Video-game consoles, where little to no profit is made on the hardware itself, with an expectation that games (software) with higher profit margins will make up for the upfront "discounted" price.

Different strategies lead to different ways of thinking about pricing. Supply/Demand and costs might imply a profit-maximizing equilibrium of $400 for the console, but when taking into consideration the games Companies bite the bullet upfront to maximize the profit on the complementary goods they offer.

Great post, great blog, keep it up. Greetings from Rio de Janeiro.

[MMelissinos]

For trend-followers, price = market value.

[Kent @ The Financial Philosopher]

@ Pedro:

Yes there are factors to consider, both on the seller side and the buyer side. There are various motivations to sell and various motivations to buy.

Greetings back to you from Mount Pleasant, South Carolina!

@MMelissinos:

I agree, which is why I added the additional thoughts at the end of the post. You say it better: For trend-followers, price equals market value. However, market value may not match the individual's (your) value.

Depending upon several factors, such as holding period, buying a stock perceived by the market as "over-priced," can still be a good decision.

Personally, I'm almost entirely passive in my approach, especially for my clients. "Beating the market" is easier when you're not trying, just as happiness can be "found" easier when not looking...

Thanks for adding your thoughts...

Kent