When Luxury Goes on Sale – Consumer Behavior With Products Vs. Stocks

What would you do if one day you wake up and notice that products from top luxury brands are selling at a DEEP discount? Brands like Louis Vuitton, Gucci, Dolce & Gabbana, Chanel, Christian Dior, Valentino, [insert your favorite expensive brand here].

Heck! What if suddenly you could buy the latest iPhone or a Mercedes Benz for 50% off?  Would you be fearful about these sales and scared to buy? OR would you be thinking to yourself –

“WHAT?! I’ve hit the jackpot. This must be a random thing that won’t last long! Let me pick up some of my favorite things before someone fixes the glitch.”

*The 56.8% represents the total market loss (S&P500 Index) during the 2008-2009 financial crisis. Some records also show a loss of 56.4%.

Well, this analogy explains exactly how I feel when stocks I consider of high quality – and for the purpose of this post lets say “luxurious stocks” go on sale.

The irony of the stock market is that most people rush into buying everything in sight when things are going well in the market. However, when things are falling apart, people become extremely fearful and want to stay away until things go “back to normal” not realizing that the downturn might be presenting some tremendous opportunities.

One of my mentors, the legendary Warren Buffett said it best:

While there is nothing wrong with buying things when the market is doing well – the point I am trying to make is that, unlike most things in life, most people get fearful when good stocks sell at a discount yet become very excited when the exact same thing happens with consumer goods such as shoes, purses, cars, clothes, etc.

…the point I am trying to make is that, unlike most things in life, most people get fearful when good stocks sell at a discount yet become very excited when the exact same thing happens with consumer goods such as shoes, purses, cars, clothes, etc.

The reality is that no one can time the market and it is truly impossible to know when the market will suffer a downturn or when it will go up again. If we knew this piece of information, we would all be billionaires. The purpose of this post is to encourage you to be a bit less fearful and more optimistic when the market is suffering.

It might be a good idea to train ourselves into understanding when a great opportunity is presenting itself.

To put things into perspective, here are some REAL life examples of what happened to the stock of some pretty great companies right in the middle of the financial crisis:

• Second column: Price per share of the stock before everything fell apart (pre-crisis).
• Third column: One of the lowest prices per share the stock reached right in the middle of the crisis.
• Fourth column: what the price looked like when everything started to recover (with the exception of Google – notice stock price was either almost back to normal the pre-crisis price or a little higher).
• Fifth (last) column: Price today.

And by the way, as always, please note these are not recommendations. I picked these companies as examples for educational purposes and to bring my point across.

In conclusion – next time the stock of market goes “on sale”, learn to be a bit less fearful and think about the possibilities.

And here is a friendly reminder:

Junk includes but is not limited to penny stocks, the latest fad, pump and dump schemes, IPOs that sound “promising” but is not clear what they are about, and the list goes on.

IMPORTANT NOTE – there is a HUGE difference between the whole market going on sale vs. a particular stock struggling all by itself. More on that in an upcoming post!

And that’s all folks. Hope you enjoyed the post 🙂

Question – What is one thing you fear the most about investing? Why? Let me know in the comments!

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