Bargain

At the company where I work, I had an interesting observation among my colleagues over the last two weeks.

One of our East Asian Country affiliate had some excess stock to clear. The regional management decided to buy the distress inventory and then sell it among the regional staff as well as their family, friends and other vendors who are interested to buy the products at nearly 60% discount to market price. This in a way helps the affiliate to write off the inventory and recover some cash.

Over several days, the marketing department fixed prices for the products based on the production cost and almost all the regional staff members were able to grab bargains. The happy faces could not betray their glee in their mind.

Subsequently the floor was opened to family members and friends. The marketing team which was constantly assessing the stock movement offered bargains for the marginal stocks to clear the space. Those who bought the same products found out the reduced prices and started regretting that they could have waited longer to get these products at 50% lesser prices than what they bought earlier.

At the end of the exercise, several off them felt, they could have got a better price, had they waited for the offers which came in at surprising frequencies. While many of them were happy they could get products at a much lower price, those who could not buy it at the further discounted price were much more unhappy and regretful.

The behavior was exactly the same exhibited by the stock investors in a falling market. Buyers who bought the stocks at a price they see value, start regretting when the stock moves southwards. If they are correct in their valuation methodology, they should be happy to buy the same stock at a much lower price and instead, they start to regret their early entry. At times, they build courage and invest further at each drop. But sometimes the market surprises them buy going down again and again, the churn in their stomach overwhelms their mind. Investors, who are confident of their investment decisions and lack further buying power, hold on to their investments, regretting their lack of fire power at an opportune time. Another group would stop looking at the stock prices, unable to tolerate the loss day-in-and-out, but will hold on to their stocks. The third group which follows the "stop-loss" theory would start to sell the stock, thus doing exactly the opposite of buy-low and sell-high they wanted to do at the beginning.

There would be several other set of behaviors investors could exhibit. But let us see what we can learn from the three groups highlighted above.

1. The first group is confident of their valuation of the company as well as the future prospects of the company and gleeful to utilise the opportunity provided by Mr. Market to increase their stakes based on their capacity. This group would be happy to look back few years later how wonderful their decision is if their judgments are correct.

2. If you had exhibited the attitude of the second group, you are not far away to join the first group. Few cycles of market downturns would increase your confidence level. These investors would have much more confidence down the line when they see that their investments done five or ten years back are still positive even after a substantial market correction, would increase their holding in the said companies confident off their future.

3. The third group helps the other two groups to buy the stocks at bargain prices. So we need this group without which the other groups can't exist. Looking at the skill set of so many investors around you, there would be so many falling in this category. If you happen to be in this group, improve your knowledge about the markets and upgrade yourself. But if the task is difficult, sell your stock holdings and invest in index or ETF's on a regular basis and concentrate on your regular job.