Everyone loves a sale.
There's nothing quite like seeing the words "SALE" or "50% off!" when you visit your favourite store, or go shopping for that one goody you've been dying to get your hands on.
Consumers are so drawn to those big red banners decrying a bargain opportunity that many will even buy products they don't need, simply because they're on sale.
Why not stock up now, while they're cheap!?
The annual Boxing Day sales are famous for this in Australia, as are the deals surrounding the End of Financial Year. Shoppers flock for miles just to get their hands on a bargain (or ten, if you're like me).
But investors are typically different in this regard.
Don't get me wrong – the logic is the same!
The cheaper shares are, the more you can purchase with the same amount of money, just like with any other product on the market.
But when Mr Market puts shares on sale, many investors frantically head for the exits in a state of panic.
They sell their shares into the madness — a trigger going off in their minds telling them to escape before it's too late! In doing so, they take less cash than they would have been willing to accept just days before.
The same goes for the buyers. Unlike Boxing Day or June 30 at the local Westfield, the buyers are often nowhere to be seen when the market gets rowdy.
Rather than buying shares while they're down and out, many would prefer to wait for the market to rebound to reduce their level of risk.
It's the equivalent of waiting for that dream television set you've been desperate to get your hands on. Then when it goes on sale, you refuse to buy it because you assume something must be wrong with it – why else would they sell it at a discount!?
The Irony of Shopping on the Share Market
If I had a dollar for every time I've heard someone say "I can't wait for a market crash so I can buy shares on the cheap", I like to think I'd be a fairly wealthy guy.
But when the market does crash, just as it has done recently, those same investors are often nowhere to be found.
Some would say they're waiting for the market to fall even further, while others would suggest the market has simply become too risky.
I'll negate both of those arguments.
Firstly, timing the market is a mug's game. Just ask all those people who chose to wait for the market to fall even further early in 2009, at the height of the Global Financial Crisis.
Those who remained on the sidelines missed out on the S&P/ASX 200's (ASX: XJO) enormous rally in the six years that followed. Then, after the market rose, I'll bet many of them also said they'd wait for the market to fall again before buying – another terrible mistake.
Secondly, the market is riskier when it is at its highest, just as it was earlier this year. The ASX 200 has fallen 12% since then, meaning shares are cheaper and hence, less risky.
Beat the Crowd
Sticking with the shopping centre analogy, history has proven that the best time to buy shares is when the carpark is empty.
It seems that the spaces are now slowly filling up again, and I think that's a great sign for buyers.
The ASX 200 has rebounded from its multiyear low levels of September and buyers are once again testing the waters for whatever bargains they can get their hands on.
I'm no exception. I recently added Retail Food Group Limited (ASX: RFG), owner of Gloria Jean's and Pizza Capers (and various other food brands), to my growing share portfolio, recognising the compelling opportunity being offered.
This is a company that has a solid track record for growing earnings. It's also proven its ability to integrate new brands into its system and has grown its dividend at a remarkable pace since late last decade.
The shares are currently trading for just $4.64, down from a 52-week high of $8, and offer a very attractive 5.6% fully franked dividend yield.
All sounds pretty good to me!
There are plenty of other great companies that I'm also watching closely, including the business Scott Phillips will recommend members of Motley Fool Share Advisor buy at 4:30pm AEDT this afternoon!
Like Retail Food Group, this company is currently selling at a steep discount to its 52-week high. In fact, it's been beaten down to a single-digit price-earnings (P/E) ratio recently and carries an irresistible 5.8% fully franked dividend, grossed to 8.3%!
Did someone say, 'Bargain'?
Opportunities like that don't come around too often but when they do, you need to be ready to take advantage.
