Stocks are Not on Sale

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Patzer
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Stocks are Not on Sale

Post by Patzer »

Many people on this forum talk about the efficient market and how we can just buy indexes, because the market will efficiently price stocks, and therefore there is no need for us to pick winners and losers.
Without an efficient market, some stocks would be trading at 10x their value and others at 1/10th their value, and active investors would outperform passive investors.
We know this is not the case, because decades of data shows that passive investors outperform active investors, often before costs, but definitely after costs.
Therefore, we know that the market is efficient, but corrections do occur when the market has a lot of new information that it needs to price in.
Prices are usually appropriate to the value a company has and the amount of risk associated with that company's business.

If the price went down, there is a reason.
The reason is that the value of the company's future business declined or that the risk associated with that business increased, or both.
Now, take Delta Airline's. It's down 20%. It is down, because flights are being cancelled, people are delaying/cancelling travel plans, and there is a risk that this type of activity will increase. The market has determined that Delta is now worth 20% less, because of the pandemic. If you believe in an efficient market, Delta is not on sale, it is fairly priced given the current state of affairs in the world.
You can repeat this exercise for the other 504 companies in the S&P 500, and while a few might be mispriced upwards and a few mispriced downwards, you should average out to a fair price for the combined value of the Index.

If you disagree with the reason that the prices went down, and think stocks are now on sale, then you are saying that you don't believe in an efficient market.

Will stocks values rise again? Almost certainly.
But are stocks on sale? Absolutely not.
alibaba123
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Re: Stocks are Not on Sale

Post by alibaba123 »

Stocks are on sale relative to the future where they will almost certainly rise again.
sd323232
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Re: Stocks are Not on Sale

Post by sd323232 »

Ur whole arguement is build on dal stock? Individual airline stock?

if people were buying vtsax in January, then buying vtsax today is great sale price.

This is sale.
B4Xt3r
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Re: Stocks are Not on Sale

Post by B4Xt3r »

Humans make the market efficient in pricing in their values. But how efficient? Well, I've never heard a good answer to that question except that active investors usually don't outperform the market b/c of fees.
Ferdinand2014
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Re: Stocks are Not on Sale

Post by Ferdinand2014 »

In the short run the stock market is a voting machine. In the long run it is a weighing machine.

- Benjamin Graham

I do not believe irrational behavior is a mutually exclusive concept to the efficient market. It simply reflects to what degree the total of all information by all investors influences the market as the future is unknowable.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
Seasonal
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Re: Stocks are Not on Sale

Post by Seasonal »

Consider retail sales. An item that was selling for $100 is marked down to $80 and the item was otherwise unchanged. Another item that was selling for $100 is marked down to $80 because the seller discovered a flaw or the item was damaged and is now less valuable.

In both cases, you could say the item was on sale. The first case is clearly a better sale. Is the current market condition more like the first case or the second? Should you be cheering for items to be damaged so that you can buy them at lower prices?
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Patzer
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Re: Stocks are Not on Sale

Post by Patzer »

sd323232 wrote: Fri Feb 28, 2020 8:00 am Ur whole arguement is build on dal stock? Individual airline stock?

if people were buying vtsax in January, then buying vtsax today is great sale price.

This is sale.
No, my whole theory is not based on DAL. That is one example. I clearly said, if you do that for all stocks in the S&P 500, and average your results out, you will come the conclusion that the S&P 500 is fairly priced, not on sale.
J295
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Re: Stocks are Not on Sale

Post by J295 »

“On sale” is largely irrelevant to me, and always has been. It is just one of many factors in investor should consider when making an investment decision.
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tvubpwcisla
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Re: Stocks are Not on Sale

Post by tvubpwcisla »

On-sale or not on-sale. Keep buying low cost index funds, as much as you can, and you will be happy with the results.
tigermilk
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Re: Stocks are Not on Sale

Post by tigermilk »

Using your logic, the word sale should be stricken from the English language. The same words could be applied to any product out there. In your example, Delta is down. Well, I can't speak directly about Delta, but I can say Unitednnis down about 20% in the last week. I live in one of their hub cities, and I often check their prices for our favorite destination, which happens to be in an area being impacted heavily at the moment. Near and far term airfares are at a significant discount compared to 2 months ago. Has the market priced them appropriately? Are they on sale? Two sides of the same coin. Those fares are affected by supply and demand - low demand, high supply (until that route drops from twice daily to once daily or only a few times a week). The stock? Fixed supply, but low demand.
Seasonal
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Re: Stocks are Not on Sale

Post by Seasonal »

Ferdinand2014 wrote: Fri Feb 28, 2020 8:05 am In the short run the stock market is a voting machine. In the long run it is a weighing machine.

- Benjamin Graham
There's a difference between stocks are down solely due to a change in voting and stocks down because their weights have changed.
Ferdinand2014
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Re: Stocks are Not on Sale

Post by Ferdinand2014 »

Seasonal wrote: Fri Feb 28, 2020 8:11 am
Ferdinand2014 wrote: Fri Feb 28, 2020 8:05 am In the short run the stock market is a voting machine. In the long run it is a weighing machine.

- Benjamin Graham
There's a difference between stocks are down solely due to a change in voting and stocks down because their weights have changed.
Hence the quote. It’s up to you to decide which is true.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
rkhusky
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Re: Stocks are Not on Sale

Post by rkhusky »

It depends on whether the market is looking at short term performance or long term performance. Who makes up the bulk of the buyers/sellers in the market - those looking for short term profits or those looking for long term profits?
InvestingGeek
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Re: Stocks are Not on Sale

Post by InvestingGeek »

On sale refers to the fact that there's a large speculative element to the decline in prices, without regard to ground reality. The panic selling that we're seeing even here on BH is what's driving prices further down beyond actual revenue drops. The sky is falling for a lot of investors when really we're only seeing some rain clouds and a few drops of rain. It may turn into a storm or it may not. But regardless, over the long term, having ownership in the companies that make up the sp500 is still worthwhile.

It was the same in 2008. The herd couldn't see beyond the crisis and stocks ended up being on massive sale, even more so than this virus which is a much bigger unknown than the GFC.
rkhusky
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Re: Stocks are Not on Sale

Post by rkhusky »

InvestingGeek wrote: Fri Feb 28, 2020 8:27 am On sale refers to the fact that there's a large speculative element to the decline in prices, without regard to ground reality.
From what I am hearing there are a lot of supply chain issues that will affect companies' profits in, at least, the short term. If you are investing to avoid short term losses, those will be real.
InvestingGeek
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Re: Stocks are Not on Sale

Post by InvestingGeek »

rkhusky wrote: Fri Feb 28, 2020 9:07 am
InvestingGeek wrote: Fri Feb 28, 2020 8:27 am On sale refers to the fact that there's a large speculative element to the decline in prices, without regard to ground reality.
From what I am hearing there are a lot of supply chain issues that will affect companies' profits in, at least, the short term. If you are investing to avoid short term losses, those will be real.
Yes quite possible. But here's a question: would you sell off your business because there are going to be some short term issues with supplies? If you believe in the business, its business model, its future, why would you sell? In fact, if you can buy an ownership stake in such a business at a lower price, you'd consider it a sale.
frugalmama
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Re: Stocks are Not on Sale

Post by frugalmama »

InvestingGeek wrote: Fri Feb 28, 2020 9:16 am
rkhusky wrote: Fri Feb 28, 2020 9:07 am
InvestingGeek wrote: Fri Feb 28, 2020 8:27 am On sale refers to the fact that there's a large speculative element to the decline in prices, without regard to ground reality.
From what I am hearing there are a lot of supply chain issues that will affect companies' profits in, at least, the short term. If you are investing to avoid short term losses, those will be real.
Yes quite possible. But here's a question: would you sell off your business because there are going to be some short term issues with supplies? If you believe in the business, its business model, its future, why would you sell? In fact, if you can buy an ownership stake in such a business at a lower price, you'd consider it a sale.
+1 However, you would only buy an ownership if you think you have that time horizon to wait for the issues to improve. I do believe I have that time horizon, so I see them on sale.
squirm
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Re: Stocks are Not on Sale

Post by squirm »

people say stocks always go back up, but they probably forget that stock can stay down for a very long time. This decline is barley a blimp, it hasn't even broken the s&p trendline. plus if you're 70 years old or older, do stocks really go back up?
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sperry8
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Re: Stocks are Not on Sale

Post by sperry8 »

Seasonal wrote: Fri Feb 28, 2020 8:06 am Consider retail sales. An item that was selling for $100 is marked down to $80 and the item was otherwise unchanged. Another item that was selling for $100 is marked down to $80 because the seller discovered a flaw or the item was damaged and is now less valuable.

In both cases, you could say the item was on sale. The first case is clearly a better sale. Is the current market condition more like the first case or the second? Should you be cheering for items to be damaged so that you can buy them at lower prices?
Interesting perspective. I was thinking just this when looking at VDE (Vanguard Energy ETF). It's at 15 year lows (surely on sale). But is it on sale because of recent fear... or because something is broken within the energy sector? That's a key difference and one that needs to be identified before purchase. If it's solely fear - you can pick up VDE at very low prices (lowest they've been since 2005, except for one week at the lows in March 09).
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squirm
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Re: Stocks are Not on Sale

Post by squirm »

sperry8 wrote: Fri Feb 28, 2020 9:28 am
Seasonal wrote: Fri Feb 28, 2020 8:06 am Consider retail sales. An item that was selling for $100 is marked down to $80 and the item was otherwise unchanged. Another item that was selling for $100 is marked down to $80 because the seller discovered a flaw or the item was damaged and is now less valuable.

In both cases, you could say the item was on sale. The first case is clearly a better sale. Is the current market condition more like the first case or the second? Should you be cheering for items to be damaged so that you can buy them at lower prices?
Interesting perspective. I was thinking just this when looking at VDE (Vanguard Energy ETF). It's at 15 year lows (surely on sale). But is it on sale because of recent fear... or because something is broken within the energy sector? That's a key difference and one that needs to be identified before purchase. If it's solely fear - you can pick up VDE at very low prices (lowest they've been since 2005, except for one week at the lows in March 09).
reminds me of the b2b holders in the late 90's when everyone was saying their on sale...well, they pretty much went belly up.

a slowing economy doesn't consume as much energy, and an oversupply just removes more profit...doesn't sound like it's sick to me.
rkhusky
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Re: Stocks are Not on Sale

Post by rkhusky »

frugalmama wrote: Fri Feb 28, 2020 9:22 am
InvestingGeek wrote: Fri Feb 28, 2020 9:16 am
rkhusky wrote: Fri Feb 28, 2020 9:07 am
InvestingGeek wrote: Fri Feb 28, 2020 8:27 am On sale refers to the fact that there's a large speculative element to the decline in prices, without regard to ground reality.
From what I am hearing there are a lot of supply chain issues that will affect companies' profits in, at least, the short term. If you are investing to avoid short term losses, those will be real.
Yes quite possible. But here's a question: would you sell off your business because there are going to be some short term issues with supplies? If you believe in the business, its business model, its future, why would you sell? In fact, if you can buy an ownership stake in such a business at a lower price, you'd consider it a sale.
+1 However, you would only buy an ownership if you think you have that time horizon to wait for the issues to improve. I do believe I have that time horizon, so I see them on sale.
+1. For those with a long time horizon (years), stocks appear to be on sale. For those with a short time horizon (days), stocks may not be on sale.
Seasonal
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Re: Stocks are Not on Sale

Post by Seasonal »

rkhusky wrote: Fri Feb 28, 2020 9:37 am
frugalmama wrote: Fri Feb 28, 2020 9:22 am
InvestingGeek wrote: Fri Feb 28, 2020 9:16 am
rkhusky wrote: Fri Feb 28, 2020 9:07 am
InvestingGeek wrote: Fri Feb 28, 2020 8:27 am On sale refers to the fact that there's a large speculative element to the decline in prices, without regard to ground reality.
From what I am hearing there are a lot of supply chain issues that will affect companies' profits in, at least, the short term. If you are investing to avoid short term losses, those will be real.
Yes quite possible. But here's a question: would you sell off your business because there are going to be some short term issues with supplies? If you believe in the business, its business model, its future, why would you sell? In fact, if you can buy an ownership stake in such a business at a lower price, you'd consider it a sale.
+1 However, you would only buy an ownership if you think you have that time horizon to wait for the issues to improve. I do believe I have that time horizon, so I see them on sale.
+1. For those with a long time horizon (years), stocks appear to be on sale. For those with a short time horizon (days), stocks may not be on sale.
It depends entirely on how stocks perform in the future. It is possible that stocks are down due to a rational assessment of their long term prospects. It is also possible that they are down due to an irrational panic over short term events. There's no way to tell today. Choosing one or the other is a matter of faith. That's one reason a mantra of this board is to stay the course and not to change your plans based on today's headlines.

ETA: If stocks reliably performed well over any given time horizon, including long ones, then they should not be entitled to a substantial risk premium, as risk premiums are premiums for taking risk. Time arbitrage should move things in the right direction, even if there are limits to arbitrage.
Hanksmoney
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Re: Stocks are Not on Sale

Post by Hanksmoney »

sperry8 wrote: Fri Feb 28, 2020 9:28 am
Seasonal wrote: Fri Feb 28, 2020 8:06 am Consider retail sales. An item that was selling for $100 is marked down to $80 and the item was otherwise unchanged. Another item that was selling for $100 is marked down to $80 because the seller discovered a flaw or the item was damaged and is now less valuable.

In both cases, you could say the item was on sale. The first case is clearly a better sale. Is the current market condition more like the first case or the second? Should you be cheering for items to be damaged so that you can buy them at lower prices?
Interesting perspective. I was thinking just this when looking at VDE (Vanguard Energy ETF). It's at 15 year lows (surely on sale). But is it on sale because of recent fear... or because something is broken within the energy sector? That's a key difference and one that needs to be identified before purchase. If it's solely fear - you can pick up VDE at very low prices (lowest they've been since 2005, except for one week at the lows in March 09).

Good question. I was eyeing my companies indivdual stock which I have access to in my 401K. It's a fortune 200 energy company and is dropping lock step with the S&P. I thought surely this is just because it was packages with the S&P index funds. But that VDE does show a poor trend. I can see the private utility model being at risk from independent power generation and government takeover to push solar/wind. Nuclear is a carbon-free option that would maintain the utility model (transmission/substation/distribution). Solar and Wind challenge that model. So maybe it's that?
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JoeRetire
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Re: Stocks are Not on Sale

Post by JoeRetire »

Patzer wrote: Fri Feb 28, 2020 7:54 am Will stocks values rise again? Almost certainly.
But are stocks on sale? Absolutely not.
So stocks cost more last week than they do today.
And they will cost more in the future than they do today.
But they aren't on sale.

Okay.

Seems like a distinction without a difference to me, but whatever.
Last edited by JoeRetire on Fri Feb 28, 2020 11:27 am, edited 1 time in total.
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wandering_aimlessly
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Re: Stocks are Not on Sale

Post by wandering_aimlessly »

It appears to depend on how the term sale is used: So I go to buy a shirt and see it is $50. The store decides they want to sell more of these shirts and decide $30 is a better market price for it. I come back the next day and see the $30 price - is the shirt on sale?
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Re: Stocks are Not on Sale

Post by watchnerd »

sd323232 wrote: Fri Feb 28, 2020 8:00 am Ur whole arguement is build on dal stock? Individual airline stock?

if people were buying vtsax in January, then buying vtsax today is great sale price.

This is sale.
Today's prices vs January is like buying a Vuitton bag on sale.

It's a discount from an inflated price.

I'll consider them on sale when we hit a 30% discount.
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Topic Author
Patzer
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Re: Stocks are Not on Sale

Post by Patzer »

JoeRetire wrote: Fri Feb 28, 2020 11:22 am
Patzer wrote: Fri Feb 28, 2020 7:54 am Will stocks values rise again? Almost certainly.
But are stocks on sale? Absolutely not.
So stocks will cost more in the future than they do today.
But they aren't on sale.

Okay.
A Ford F150 will cost more in the future, that doesn't make it on sale today.
The notion that stocks are on sale or not based on them being lower then their all time high is flawed.
If that was true, than stocks are always on sale on any day other than new market highs.

Stocks are not a F150, with a MSRP. They are a piece of a company who's value shifts up and down over time.
In an efficient market, the price of the stock is the risk adjusted fair market value.

If you want to buy stocks, do it because you want to own the company and it's expected returns, not because the company's price is lower today than on a different day.
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JoeRetire
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Re: Stocks are Not on Sale

Post by JoeRetire »

Patzer wrote: Fri Feb 28, 2020 11:32 am If you want to buy stocks, do it because you want to own the company and it's expected returns, not because the company's price is lower today than on a different day.
If you want to buy a Ford F150, do it because you want to own the truck, not because the truck's price is lower today than on a different day.

On the other hand, if you want to own the truck anyway, the time when it is "on sale" is a good time to buy. Or a time when it is "not on sale but cheaper than yesterday or tomorrow". Whatever.
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sd323232
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Re: Stocks are Not on Sale

Post by sd323232 »

Patzer wrote: Fri Feb 28, 2020 11:32 am
JoeRetire wrote: Fri Feb 28, 2020 11:22 am
Patzer wrote: Fri Feb 28, 2020 7:54 am Will stocks values rise again? Almost certainly.
But are stocks on sale? Absolutely not.
So stocks will cost more in the future than they do today.
But they aren't on sale.

Okay.
A Ford F150 will cost more in the future, that doesn't make it on sale today.
The notion that stocks are on sale or not based on them being lower then their all time high is flawed.
If that was true, than stocks are always on sale on any day other than new market highs.

Stocks are not a F150, with a MSRP. They are a piece of a company who's value shifts up and down over time.
In an efficient market, the price of the stock is the risk adjusted fair market value.

If you want to buy stocks, do it because you want to own the company and it's expected returns, not because the company's price is lower today than on a different day.
So it doesnt matter to u if vtsax is at $50 a share or $90? If given a choice, between buying one vtsax share at 50 or 90, u would pay 90 since price doesn't matter to u?
Seasonal
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Re: Stocks are Not on Sale

Post by Seasonal »

sd323232 wrote: Fri Feb 28, 2020 12:46 pm So it doesnt matter to u if vtsax is at $50 a share or $90? If given a choice, between buying one vtsax share at 50 or 90, u would pay 90 since price doesn't matter to u?
All else being equal, you're better off with a lower price. However, price is a signal that all else is not equal. What it signals and how reliable that signal might be are unknowns.

There seems to be an implicit assumption that lower price means a higher return (or that future price is fixed), but this is another unknown. Which would you rather buy, vtsax at 50 and 20 years later find your annual return was 2% or vtsax at 90 and 20 years later find your annual return was 5%?
Escapevelocity
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Re: Stocks are Not on Sale

Post by Escapevelocity »

OP lost me when he spelled Delta Airlines using an apostrophe
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