Black Friday – Buy or Invest?

By Chantal Marx, Head of Investment Research at FNB Wealth and Investments

Black Friday has grown in prominence in South Africa over the last few years and has fundamentally changed the way South Africans shop. While average spending in November has historically been higher than in the first 10 months of the year, it was always well below the traditional festive season trading numbers recorded in December. In the last six years, however, shoppers have increased spending in November and now spend 19% more in the eleventh month of the year than the average level in the first 10 months of the year, up from 11% between 2002 and 2016. This has had an impact on December trade, but consumers still spend significantly more in the last month of the year than the first 10, averaging 43% higher spend between 2017 and 2022, down from 45% higher expenditure in 2002 to 2016. December spending is still about 20% above November spend but this is down from 30% prior to 2017.

There is certainly a breadth of specials to take advantage of during Black Friday, but the much higher expenditure overall in November and the comparatively slight change in behavior in December would suggest that consumers are just spending much more over the last two months of the year than they used to. Sure, when an unbelievable deal on a new double-door fridge comes along and yours is leaking water – and way too small for your growing family, taking advantage of a Black Friday deal makes sense (just make sure to check it is ACTUALLY a good deal). But avoiding spending on a new top or a buy 3 get 30% off lipstick special could mean that you have cash available to invest.

In fact, the JSE is also currently on special, trading on a forward PE of just 9.8 times. This is even more pronounced when considering the small and mid-cap space with some very high-quality companies trading on forward PE’s of just 3 times. For reference, the JSE has traded on an average forward PE of about 11 times over the last five years and 13 times over the last 10. The S&P 500 trades on a forward PE of 19 times. The higher the PE, the more expensive the market, the lower, the cheaper.

While you can also get caught up in buying 5 and getting 2 free mood rings on the JSE (some companies are cheap for a reason), an argument can be made that you will be better off investing on Black Friday than spending. Between November 2002 and 2022, the JSE All Share Index delivered a total return of 1 351% or 14.3% per year. Since the start of the Black Friday craze, you would have made 83% or 11.2% annually. Of course, during this period the S&P 500 delivered even better returns and if your offshore investments are a little on the thin side you can either take money directly offshore or look at investing in locally listed ETFs and ETNs that provide you with exposure outside of South Africa. Would-be investors could also consider opening a tax-free savings account if they don’t already have one, with most providers offering a wide array of instruments to invest in with local and offshore investment choices.

As with that double-door fridge, it remains imperative that investors deliberate on their investment decisions properly and exhaustively, and make use of the wide range of free and paid for research available in the market. Just because something looks cheap does not mean it is cheap. Specifically, when considering stocks “on sale” we are in the camp of taking a long-term view and looking for companies that are profitable, have decent growth prospects, solid management teams, low debt levels, and strong cash flows.