You might not guess it to look at me, but I am a bit of a high-mileage runner. I can run upwards of 100 kilometers a month. I am also a pretty big guy, which means my running shoes take a pounding. I will wear out a pair of high-quality running shoes in under a year.
But I am also a cheapskate, which means I don’t replace my shoes often enough, and I am a packrat, which means all my old shoes are still around here somewhere. So its time to go for a run and I grab a pair of shoes from the pile. I hadn’t worn these ones for a while. I was pretty sure they were miled out, but I took them anyway.
Yep, I was right, sure enough. Those shoes are done, and now my feet hurt. The problem is, all my shoes are miled out, and I need to buy a new pair.
But I am reluctant. Because I am a cheapskate. If it was Boxing Day or Black Friday I would be first in line to buy a pair of shoes on sale. But shoes are not on sale, and I am left wondering which old pair I can squeeze a few more runs out of.
Let’s think about that for a minute. What I am actually thinking is how much pain can I tolerate before I break down and buy a new pair of running shoes. That’s how much I like buying things on sale. I am willing to put up with actual physical pain just to save a couple bucks.
Cool story, bro, but what’s the point?
Here is the point. What is intuitively obvious when it comes to retail purchases (buying things when they are on sale is good) is scary and bewildering when it comes to investment purchases.
You see, most people do not want to buy investments when they go on sale. Quite the opposite. Most people will want to sell the investments that they already own when the price goes down.
People understand the phrase “buy low, sell high”. But they don’t behave that way. The evidence is overwhelming. People will buy investments AFTER they go up, and sell them AFTER they go down.
There is a simple explanation for this. People make money decisions based not on fact, but on emotion. An investment goes up, and they fear they are missing out so they buy some. An investment goes down, and they fear it will keep going down, so they sell.
But if you are a long-term investor with an appropriate tolerance for variable returns and you own high quality investments, you actually want to see investments go on sale from time to time. So you can buy more.
Yes, you read that right. When its appropriate for your situation, you want to BUY, not sell, the next time that investments go on sale.
As for me, I am heading to the local sports store tonight for new shoes. As for you, give me a call the next time that investments go on sale.
Brad Brain is a Portfolio Manager with Aligned Capital Partners Incorporated (ACPI). ACPI is regulated by the Investment Industry Regulatory Organization of Canada (www.iiroc.ca) and a Member of the Canadian Investor Protection Fund (www.cipf.ca). This publication is for informational purposes only and shall not be construed to constitute any form of investment advice. The views expressed are those of the author and may not necessarily be those of ACPI. Content is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.