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3 Rules for Black Friday Shopping and Stock Trading
By Blake Young |
Black Friday, Cyber Monday, door busters, 70% off, today only. Once-in-a-lifetime deals abound, especially this week. |
Whether you're hunting for discounted TVs or discounted stocks, the psychology is the same: everything looks like a deal. |
But here's what most people miss: the difference between a genuine bargain and clever marketing comes down to three simple questions. |
These questions work for both the retail store and the trading floor. When all three align, you've found something worth buying. |
When even one fails, you're looking at a trap dressed up as an opportunity. |
The Three Questions Every Deal Must Answer |
First, is it actually a good deal? |
Many sites and sellers offer their products at "market rates" all year round, then in early November they raise the rates to a "retail price" so they can "discount" it back to the price you could have bought it for all year. |
That is not a bargain. That's like telling you the hamburger on the dollar menu is a deal because it was listed at $5 and discounted 80%. |
The discount is manufactured, not real. |
Second, are you in the market for it? If you aren't going to buy the discounted product to resell it and don't have the need or want for it, then why buy it? |
Consider this: would I buy a wheat combine that has been discounted from $400,000 to $250,000 just because it is so deeply discounted? |
It's a genuine bargain for someone who needs it. |
But if I'm not in that market and don't have the ability to resell it for profit, the $150,000 discount doesn't matter. It is not a deal for me. |
Third, if you don't have the money, it isn't for you. |
Using the above example, let's say the combine is discounted and I am in the market for one. If I don't have the money and can't afford the purchase or the payments, that deal is still not for me. |
My wife and I have had this discussion for years. |
She tells me she bought something and proceeds to tell me how much money she "saved us" on the purchase. I then say, "If we didn't need it or couldn't afford it, then you didn't 'save us' anything." |
She then wittily replies, "Did you want me to NOT save us any money?" |
She's joking, but the point stands: savings only count when all three conditions are met. |
You need a real discount on something you actually want that fits within your budget. Remove any one of those elements and the "deal" disappears. |
From the Mall to the Market |
Now here's where it gets interesting. These same shopping principles become even more critical when applied to the stock market. |
The market operates on the exact same psychology as Black Friday, just with higher stakes. |
Prices flash red with "discounts," headlines scream about opportunities, and FOMO drives decisions. |
Just like retailers mark up prices before marking them down, the market is full of things that look like bargains but aren't. |
The difference is that a bad Black Friday purchase might cost you $50. A bad trade can cost you thousands. |
So let's walk through how each of these three questions translates to your portfolio. |
Question One: Is This Stock Actually Discounted? |
Did the market raise the price above value to make it look like the stock is worth more than it really is? |
Institutions and algorithms have the ability to push prices to higher levels, drawing in traders and investors right before they bail out. |
This creates an artificial value high, then suckers retail traders in on a pullback when they think it's a bargain. |
What looks like a 20% discount might actually be a return to fair value, or worse, still overpriced. You need to know what the stock was worth before the "sale" began. |
Question Two: Are You in the Market for This Type of Investment? |
Am I in the market to own stock at this cost and time frame? There are lots of different trade opportunities. |
Sometimes we have quick short-term trades or long-term buy-and-hold strategies. |
The stock may be set up for a good opportunity, but if we are not in the market for a long-term hold, dividend play, or even a crypto play, then it doesn't matter if there's a bargain. |
A discounted dividend stock means nothing to a day trader. A volatile growth stock has no place in a retirement portfolio. |
We are not in the market for it, and it is not our trade. |
Question Three: Can You Actually Afford This Position? |
Can I afford this, or do I have the money for this trade? |
Sometimes stocks are discounted and present an opportunity to own, especially those with good fundamentals and dividends. But if we can't afford them, we shouldn't try to own them. |
If we break the most important rule of trading (risk management), it doesn't matter if it's discounted. |
If we can't own it without risking more than we should, then we can't afford it. |
A 50% discount on a position that's too large for your account is still a path to blowing up your portfolio. |
The Filter That Saves You Money |
So as you scroll through Black Friday deals this weekend and scan stock charts next week, pause before you click "buy." |
Ask yourself the three questions. Is this genuinely discounted? Am I actually in the market for this? |
Can I afford it within my risk parameters? |
If the answer to any of them is "no," it's not a deal. It's a distraction. |
The best part? Every deal you don't take because it fails one of these tests saves you money and frees up capital for the opportunities that pass all three. |
Those are the only deals worth your attention. |
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