Anyway, the question is this: which would you prefer, to be told you have just saved £2.50 by shopping at Sainsbury's, or to get the voucher that promises to refund the amount by which you have just been 'overcharged'? And, bear with me here, because it's a question that's relevant for the way investors think.
Bearbull put this to the test at Sainsbury's Godalming the other week. It wasn't planned. As usual, I had forgotten to hand over my 'money-off' vouchers at the checkout. But this time I held in my little palm two vouchers that (a) were about to expire and (b) totalled £4.52, too much even for Roman Abramovich, let alone Bearbull, to ignore. So off I pottered to the customer services desk to swap the vouchers for cash.
The supervisor's mistake was to say: "Actually, I'm doing you a favour giving you money back." True enough, according to the small print, though not in line with custom and practice, which prompted Bearbull to say (though somewhat less lucidly than the following): "Hang on. If Sainsbury's really cared about its customers - rather than how it appears to stand relative to Tesco and Asda - then, without my asking, it would have given me my money back at the checkout. Clearly it's perfectly capable of doing this. If its systems can work out in real time how much I've just been overcharged, it could give me the money straight away."
And, indeed, the proof of this is that sometimes Sainsbury's does something better - it saves customers money then tells them how much they've just saved. Hence the original question: which do you prefer, the 'money-saved' slip or the money-off voucher.
The supervisor wasn't in any doubt. "I really like it when I get a voucher that'll give me money back," she said as she handed over the cash. And, in a way, that's the point and that's why Sainsbury's marketing is spot on. Its 'brand match' scheme makes customers feel good. It does not matter that it's obviously better to have made the saving already; you can count on one hand the number of nerds, like Bearbull, who would figure that out. Besides, most customers don't see the advantage of it because it does not feel like money off; it does not feel like an advantage has been gained because by the time they are told about the saving it has got lost in all the money they have handed over anyway. What matters is the prospect of money off in the future. That's something to look forward to, where there is a real connection between handing over the voucher and seeing the deduction ring up in the till.
The generic lesson from this - the one that has an application to investing - is that we are predisposed towards transactions that make us feel good; warm feelings trump cold-hearted rationality. This goes a long way to explain why there is momentum in stock prices. In stock picking, we want a bargain so much more than we want one at the supermarket check out (after all, ego and self-esteem go into investing but not into buying the groceries). And the 'proof' of that bargain - and of our stock-selection prowess - is that the price should rise after we buy the stock.
That prompts us to buy more and the process of positive feedback becomes self reinforcing, especially if lots of other investors start to feel exactly the same way about the same stock. True, at the heart of this is an illogicality - the proof of the bargain is that it becomes progressively less of a bargain. But, hey, don't let's think about that; at least, not while the going's good.
Then again, many investors - like many people - don't do much thinking at all. And fewer still have the resolve for doing what Warren Buffett claims to do - only add to a holding if the share price falls. Still, we can understand why. The whole concept of value is so tenuous that it's hard to have confidence that a falling share price indicates better value. More likely, our doubtful minds tell us, it indicates that someone somewhere knows more than we do - which is why there is momentum in falling stock prices, too.
Yet there remains this nagging little doubt - that, ultimately, momentum investing is a way of snaring suckers and that cold-hearted rationality wins out in the long run. Just as the Sainsbury's brand-match scheme brings more benefit to the company's profits than to its customers' purses, so, in investing, the feel-good guys eventually lose out to the think-good fellas.
