Why aren’t people drawn to sale in the stock market the way they’re drawn to mall sale?

As I write this piece, the Philippine Stock Exchange Index (PSEi) has plummeted to the 6,900 territory from its peak of 9,058.62 just a few months ago.

Rationally, the buyers who were so excited to lap up stocks and equity funds when the market was trading at 19.7X PE should be ecstatic now and taking advantage of the “sale price” of around 15X PE. But are they?

Imagine a mall sale. The huge red all-caps letters that read “SALE” are enough stimulus to the consumer’s brain to make her enter the store. Before she knows it, she starts putting items in her cart, even those with minor damages because the red tags are enough to compensate for them and rationalize the purchase. Then she patiently waits in line to pay for her “good buys.”

Now let’s take a look at the stock market sale. From a high of 9,058.62 a few months ago, it’s now down to around 6,900. But why aren’t the “red tags” (in the form of red/decreased stock and equity fund prices) attracting the investor the way they do in our mall sale scenario? And mind you, most of the time, there are no damages to the “goods,” maybe just damages to the investors’ expectations. And there are no long lines at the counter!  But instead of seeing ecstatic buyers, we see investors looking defeated or what I want to call duguan in the vernacular. Instead of rushing to the “buy counters,” they are following the mob at the “sale counters.”

I tried to think about this phenomenon and looked through the different Behavioral Economics (B.E.) principles affecting the psychology of our buying behavior, almost all of these I’ve discussed in previous articles.

What is the main difference in mall sale vs. stock market sale? Why is the consumer behavior during mall sale the opposite of his behavior during the stock market sale?

This is what I came up with.

Although loss aversion is the main B.E. principle affecting our behavior towards stock investing, I think the main difference in the mall sale and the stock market sale lies in the immediate gratification. In the mall sale, you get your purchased goods in a very tangible sense and you can start wearing those shoes and clothes right away. You are immediately gratified by your sale purchases! Your present self is happy.

On the other hand, what is the gratification of the stocks and equity funds you purchased during the stock market sale? It is making a higher return on your investment, which will bring you more goods and services to enjoy not now but in the future, especially when you’re old and gray.  Your future self may be happy but your present self may not be so.

It’s interesting, and frankly bothersome, to note how our human mind, in all its greatness and creativity, is so myopic! Yes, we are. We fail to see the future because we are so present-biased. I bet most of us will fair poorly in any variation of the Stanford marshmallow test. We will continue to make choices in favor of short-term gratification over long-term well-being. We do this all the time, especially in the important aspects of life like health, wealth, and relationships.

Just because we do not have immediate feedback, we tend to not do the right things for our future self, even if we already know them. We need to be more proactively imaginative when it comes to perceiving our future self, because if we keep on relying on the sensation of immediate gratification as our guide in making our day-to-day choices, we may just wake up one day to realize that it’s too late to prepare for a decent old age – one with a relatively good health, not relying on others for our financial needs, and enjoying happy and meaningful relationships cultivated over the years.

Speaking of sale and delayed gratification, I wish to share with you that after a rather long delay, I finally got hold of the first few prints of my new baby "FQ: The nth Intelligence"! Yup it has been delayed compared to my original timetable. As a mother of three boys, all over seven pounds when delivered via la maze method (no anaesthesia!), I can say that what makes “delivering a book” more challenging compared to delivering a baby is the uncertainty of the actual delivery. In all of my three pregnancies I was blessed to have had the full nine-month term so I knew how/when to prepare. In all of my three books (four if we include the Filipino version of Babylon), I was not certain about the time frame. When will this “baby” be delivered? Or, will this “baby” be delivered? 

So it is with great pride and joy that I’m sharing this: Yehey! it is delivered and will be launched in July! I wish to thank the ones who purchased it in advance. I will be delivering your autographed copies this week. And to those who still wish to avail of our pre-launch sale, you have until this week to do so. I promise, you will derive a great combination of a mall sale and a stock market sale pleasure!  How? Because once you get it at a sale price, you will experience both forms of gratification:

1. Immediate gratification because you will get hold of it and read it right away; and

2. Long-term gratification because the lessons that you will learn, and hopefully apply to yourself and share with your loved ones, will help you have a healthier FQ, eventually leading to a decent and happy old age for you and your loved ones. 

You may click either of the links to enjoy it. (FB option or website option).

Cheers to high FQ! 

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ANNOUNCEMENT

Want to know your FQ score? Take the FQ test challenge now! Click link. http://rebrand.ly/FQTest 

Rose Fres Fausto is a speaker and author of bestselling books "Raising Pinoy Boys" and "The Retelling of The Richest Man in Babylon" (English and Filipino versions). Click this link to read samples – Books of FQ Mom. She is a behavioral economist, a certified Gallup strengths coach and the grand prize winner of the first Sinag Financial Literacy Digital Journalism Awards. Follow her on Facebook & YouTube as FQ Mom, and Twitter & Instagram as theFQMom. Her latest book is "FQ: The nth Intelligence."

ATTRIBUTIONS: Images from scmp.com and getty images modified to help deliver the message of the article.