Yet yesterday I came across a post by nisiprius which strongly argued against the use of this expression:
Nisiprius post is very odd to me. He speaks of the dividend discount theory and rising rates. Yet rates did not rise suddenly overnight to justify the drop on Wednesday morning in US stock prices. What is even more odd, is that European stocks, particularly small caps, sharply dropped on Wednesday at 3.30pm (time in Milan) when the stock exchange opened in the US, even though rates of German bunds, which are considered the risk free rate in Euroland, if anything have very slightly decreased.I hate the "stocks on sale" meme. Even the slightest thought will make you realize it is distorted marketing talk. In a supermarket, usually we know that an item on sale really is exactly the same item as it was a week before.
But when we buy day-old bread, or--in our local supermarket--meat with a "manager's special" mark-down, which means it's close to the pull date--it is not the same item. Ditto a "scratch and dent sale," or an "out of box sale." They are priced less because they are worth less. You don't automatically buy them just because the price is low. You make a personal evaluation of how much the reasons for the sale price matter to you. If you're going to cook meat loaf tonight, then the short date on the hamburger on sale doesn't matter to you, because you aren't going to store it, and really fresh taste isn't important. If you're going to serve it to guests in a backyard cookout three days from now, it might be important.
There's no guarantee that today's stocks have "the same" value as yesterday's. Under the dividend discount theory of stock valuation, a rise in interest rates has made them really be worth less.
How can a sharp drop like that of the last 2 days (and the corresponding recovery this morning in European markets), rationally be explained by the dividend discount model? How can some stocks really have become worth 10% less in 24 hours, and now be worth again close to what they were worth on Tueday?
How can someone with an open, clear and rational mind (unaffected by academic dogmas) not recognise that those sudden drops are due to fear and the irrational behaviour of crowds rushing to sell (it would be interesting to know how many of the people who sold on Wednesday knew about the DDM), and not recognise that indeed stocks in the past two days were at a 'sale' compared to earlier in the week? (I am not saying that they may drop further, I am saying that no new information, become available since Tuesday night, has justified the drop in prices we have witnessed).