This festive season online marketing companies have ensured that they will keep us busy besides ensuring that we will definitely spend with array of offers to choose from. Smartly, deadlines are set for the sale across a billion products and even the sale commences at midnight, and don’t dare to ask why the sale should happen at such an unearthly hour! I seriously wish such offers could be made available in stock markets as well.
What is surprising is people’s preparation for such offers; people with great discipline and diligence browse the respective online platforms to check the products, its specifications, its prices and discounts and even wait impatiently for the date of offer to commence.
But, while buying good and worthy products at a good discount is a good practice, it’s also worth to look at the stock markets as well which offers similar opportunities of buying into stocks / mutual funds that may be available at steep discounts. Unlike a dozen discount offers that product marketers offer round the year across various festive seasons and also post-festive season under the pretext of clearance sale, in stock markets such discount offers are available only once in a few years across the gamut of stocks.
What is discount sale in stock market? From time to time for various reasons (generally termed as “technically weak” or after a period of “over-valuation” or after a prolonged “bull market”) a basket of good companies are available at discounted prices, which means the stock prices due to negative sentiments would have fallen from its previous highs and are available at lower prices. For instance, during August the stock prices of Maruti Suzuki was trading at Rs10,000, HPCL at Rs 295, ITC at Rs 320 and Titan Co at Rs 945; during October the prices were trading low at Rs 7,000, Rs 215, Rs 275 and Rs 800, respectively. There are several other quality companies’ stocks whose prices dropped considerably though the fundamentals remained robust.
No matter what, good companies will remain to be good, only sentiments would have made them to be volatile that would drag the prices down. What should one do under such market circumstances? One should use this as a “discount sale” opportunity and accumulate; here accumulation strategy is to buy small quantities of chosen stocks at different prices during the negative sentiment period.
Not only the prices of quality stocks would be available at a discount, the NAVs of good equity mutual funds too would be worth exploring. The NAVs of Aditya Birla SL Frontline Equity Fund (large cap oriented), HDFC Equity Fund (multi-cap oriented), Franklin India Prima Fund (mid-cap oriented) were ruling at Rs 231, Rs 661 and Rs 1,000, respectively during August 2018 had dropped to Rs 202, Rs 594 and Rs 846 respectively during early October 2018.
While common sense prevails that during festive season products like TV, refrigerator, washing machine, mobile phones and the likes would be sold at discounts, one should also use the same common sense to realise that during bear market quality stocks and mutual funds too are available at discounts and it makes sense to invest in them.
The decision to spend or invest is what brings prudence because if you own good companies or mutual funds at a discount, after the market turns its direction to bull phase (which invariably is the rule of market), you could make a windfall profit.
The author has written 6 books on investing and personal finance. He has 23 years of experience and 6 years in academics