Is Investing Like Shopping? (Part 2)

Wasn’t intending to do a second part of this, but after doing the first post, I had some more ideas on how investing is like shopping, so decided to have this new post on it. While reading through the old post, I also noticed that there were some points that I brought out in the intro which I didn’t elaborate on, so I’ll be doing so here as well.

(Image source: https://commons.wikimedia.org)

Value for money

Sales usually present good buying opportunities for buyers to get the things they want/need at good prices. Market downturns also present similar good opportunities for investors to get good value for their money. Imagine looking at a dollar of earning potential as an item, then a low P/E ratio would obviously be considered good value for money

Difference in quality

But of course, we know this is not true as there are differences in the quality of earning potential. Stable businesses would have a higher quality of earnings potential than unstable ones. Looking in a supermarket and comparing the organic vegetables and the regular ones, the price difference is also obvious, due to their difference in quality (or “perceived” quality). So, in both cases, we have to take the quality into consideration before deciding if the product or investment is considered value for money

Brand names

In shopping, there are luxury brands, which are able to charge much more than the cost of the product and the regular, household or brandless ones. In investing, there are blue-chips. The differences in price may be justified by the “brand” value of owning the product or share. But then as we should know well enough, these brand names may not always be good value for their money

Why do we treat them differently?

Like mentioned in my previous post, steep discounts in the form of a market downturn tend to discourage us from investing. While there may be other reasons for this, such as fear of losing job, but instead of pulling out all of our investments during downturns, which basically reinforces this trend, we should be buying like there’s a sale. Or maybe people keep thinking that it’ll drop lower, in which case, dollar-cost averaging down may be a good option. But as long as the company still seems to be of good quality, a drop in price may actually be a good thing.

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