People who know me well will tell you that I tend to get in a rut when it comes to food (I prefer to think of myself as consistent). If I’m not going out to lunch on a particular day, one of my ‘rut’ foods is a pack of tuna with some lemon. It’s easy and inexpensive – a beautiful combination to my way of thinking!
What is also beautiful to a numbers guy like me is walking into the grocery store and seeing that one of my ‘rut’ foods is on sale. So you can imagine my excitement the other day when I went to our local Giant and saw that tuna fish was on sale for 4 for $5 (I’m a CPA, so my definition of exciting is probably different than yours). For those of you not familiar with tuna fish economics, that is 30% off Giant’s regular price of $1.79 per pack.
Knowing that I am definitely going to be buying tuna at some point in the future, what would you think if I told you that instead of buying a box load of tuna that day, I decided I would wait until the price went back up to $1.79 per pack? That would be foolish, of course! Sadly, based on my experience of over 20 years in the financial services industry and every credible study I have seen of human behavior, that is exactly the approach most individual investors take when it comes to investing in the stock market. If history is any guide, it seems that one sale people hate is a stock market ‘sale’.
For example, out of fear, people generally avoid buying the S&P 500 index when its price has declined but are eager to buy it once its price has gone back up. That’s a losing formula whether you are buying tuna fish or stocks! Just ask Warren Buffett. He has amassed a $40 billion fortune capitalizing on this madness. He is quoted as saying – “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” Translation: Buffett buys as much ‘tuna’ as he can when it goes on sale and nobody else is interested in buying. He loves a stock market ‘sale’ and perhaps you should too.