Trying to get an even earlier jump on the competition, Walmart opened at 10:00 PM on Thanksgiving, and Toys R Us opened at 9:00 PM. I wouldn't be surprised if all major retailers opened on Thanksgiving next year.
Retailers advertise amazing sales for a limited supply of a product. The scarcity of product in addition to the advertising blitz creates an environment of sheer chaos. This year, there were numerous riots, resulting in the deaths of at least two people, and hundreds more were injured—all in the pursuit of saving a few dollars on items most people didn't even want. Here are just a few examples:
- A riot over a $2 mini waffle maker in Charlotte, N.C.
- Mother of three pepper sprayed other customers, including children, to clear a path so she could get to a crate of Xbox video games. Twenty shoppers were injured.
- A street fight broke out among customers over bedsheets.
- Lining up at midnight at a retailer in New York City, shoppers became mad that the store didn't open until the morning, crashed through the doors, and went on a looting spree.
It seems that shoppers have developed a Pavlovian response when it comes to Black Friday and the money-saving discounts they believe they will get. Seemingly normal people turn into frantic shoppers and act in ways that they wouldn't have thought possible. Their emotions take over, and all hell breaks loose.
Some might discount Black Friday shoppers' actions and claim that the difficult economic times are forcing them to act in such a manner in order to stretch their holiday gift-giving dollars. However, the facts tell another story.
Recent research by Professor Oren Etzioni shows that the products that are the biggest sellers on Black Friday, electronics, are actually priced lower in early December. One could go to his website to find the best times to buy different products. Using complex computer algorithms, Etzioni found that other products—despite ads that suggest otherwise—are lower at different times of the year.
Instead of acting emotionally, fighting crowds, and risking bloodshed, shoppers would've done better shopping by avoiding retailers on Black Friday. Etzioni said, "The bottom line is, Black Friday is for the retailers to go from the red into the black … it's not really for people to get great deals on the most popular products." Once again, emotion trumps facts.
It seems the average person would do almost anything to save a few dollars on a very limited supply of products. However, that is not always the case.
When it comes to buying stocks, investors act in the exact opposite way. Instead of lining up at midnight to buy pieces of companies that are selling at 20%-30% discounts—they run the other way. When stocks go on sale (stock prices are down), investors work themselves into a frenzy selling at lower prices instead of buying.
Since the start of the fourth quarter 2011, retail investors have withdrawn $41 billion from domestic equity mutual funds, and since the beginning of 2010, they have withdrawn $220 billion.
Investors are pulling money as fast as they can at a time when quality companies are trading at bargain prices. In the past, investors had to pay up for quality companies. Companies such as Microsoft (NASDAQ:MSFT), Coca-Cola (NYSE:KO), and Intel (INTC) never traded at below market-average valuations.
Historically, the S&P 500 index has traded on average at a P/E of 16. Right now, three of the four companies rated AAA (rated higher than the U.S. government) are trading at or below average market valuations!
While most investors are throwing in the towel on stocks, based on the outflows from domestic stock mutual funds, intelligent investors should be doing the exact opposite and buying.
Warren Buffett expressed how Wall Street views stocks when they are down:
"[T]hey say, 'Yes, it's cheap, but it's not going to go up.' That's silly. People have been successful investors because they've stuck with successful companies. Sooner or later the market mirrors the business."
It's interesting to note that he said that 37 years ago in Forbes. On Wall Street, the more things change, the more they remain the same.
As of 12/1/11: MSFT-P/E 9, XOM-P/E 9.6, and JNJ-P/E 15. ADP-P/E 20, is the only one that is trading above the S&P 500 historical P/E of 16.
Forbes, November 1, 1974