Black Friday – may the penny drop

Background
According to Google, Black Friday is considered the first day of the US Christmas shopping season – the day after Thanksgiving. Most of us associate Black Friday with bargains, discount prices and people rushing through stores in a shopping craze, but the concept dates back a lot longer than most of us realise.

The first recorded use of the term ‘Black Friday’ dates back to the financial crisis, or rather the crash of the US gold exchange on 24 September 1869. Two notorious Wall Street speculators, Jay Gould and Jim Fisk, colluded and manipulated the gold price hoping to realise a quick profit. Following the exposure of the scandal, the gold price tumbled causing a panic in equity markets. The US stock exchange lost 20% in a week. Another get-rich-quick fable in the investment world that ended in tears.

A cartoon showing Jim Fisk stirring up the gold market in New York. Grant is shown running, holding a bag of gold.

Nevertheless, it is days like Black Friday that bring opportunities, offering excellent bargains for discerning investors.

Tips for consumers

Two useful tips if you consider spending on household goods: Focus on necessities and only buy what you really need. Considering the challenging global economic environment, your penny will probably have to go much further. Secondly, avoid any debt and only buy what you can afford. Spending money you don’t have creates a negative spiral that is difficult to reverse.

Tips for investors
Looking back over the year, global equity markets are experiencing a Black Friday sale as they did in 1869. Since the beginning of 2022, the S&P 500 Index has lost 18% in US dollar terms, the MSCI Global Index has declined by 21% and the MSCI Emerging Markets Index by 31%, and the local JSE All Share Index has shed 21%.

Source: Bloomberg

The list of equities that are down 30% or more from their highs is extensive, and offering opportunities.

For example, while surfing the internet for the best Black Friday bargains you might as well check out one of the popular FAANG shares (most famous technology companies) on sale. Thanks to its products like Google Search and YouTube, well-known household name Alphabet has been on a 35% sale since the beginning of the year, and is starting to look attractive on a forward price-earnings of 19 times.

Source: Google Finance

Another example, on the local JSE, is the well-known retail group Mr Price Group, looking attractive on a forward price-earnings of 14 times, paying an attractive dividend of 4.3%. Instead of upgrading your sportswear at Mr Price Sport or refurbishing your home interior at Mr Price Home, you may well consider making an investment in the well-established companies distributing annual dividends.

Source: Google Finance

One would expect long-term investors in growth assets to be as excited as bargain shoppers are about the Black Friday sales. However, it takes a bit of a mind shift to consider declining markets in this light.

Although the markets may even become cheaper, we are now definitely moving into a buyers’ market, and it would be unwise to sit on the sideline for too long.

Happy shopping!