Why We Love Discounts More Than We Love Value

Who doesn’t love a good deal! Whether we’re shopping for groceries or making a purchase during the festive season, a discount makes many of us happy. This tendency is both natural and common. But, when it comes to investing, the same mindset may sometimes work against us.

Let’s understand why discounts attract us so strongly, how they shape our investing psychology, and how to avoid traps when making financial decisions.

Table of contents

• The psychology of discounts in consumer behaviour
• Why low price doesn’t always equal good value
• Parallels in investing: Cheap vs. undervalued stocks
• How to assess value in investments
• Ways to avoid falling into discount traps

The psychology of discounts in consumer behaviour

When we see a product with a “50% off” label, our mind immediately feels rewarded. Even if we don’t really need the item, the sense of saving is pleasurable. In that moment, the actual product matters less than the feeling of gaining something extra.

• Discounts reduce the pain of spending. Paying Rs. 1,000 feels heavy, but paying Rs. 500 for the same item feels lighter, even if the original price was inflated.
• The word “offer” or “deal” creates urgency. We feel we may miss out on it if we don’t act quickly.
• Discounts tap into our bargain-hunting instinct, which has roots in human survival behaviour of saving scarce resources.

This explains why discounts may lead us into buying more than we need.

Also Read: Exploring Behavioural Finance and Understanding its Basics

Why low price doesn’t always equal good value

A low price looks attractive, but it doesn’t always mean that we’re getting something worthwhile. For example, a shirt that costs Rs. 200 may wear out after a few washes, while one that costs higher may last for years. Cheap electronics may malfunction quickly and need replacement, costing more in the long run.

In essence, price and value are not the same. A low price may simply reflect lower quality or even an artificially inflated original price. The same principle applies in investing psychology, where investors often confuse a falling share price with a hidden opportunity.

Parallels in investing: Cheap vs. undervalued stocks

In the stock market, investors may sometimes be drawn to what look like cheap stock opportunities. For example, a share trading at Rs. 20 may appear more tempting than one trading at Rs. 2,000. But price alone does not reveal whether an investment is attractive.

This is where the distinction between cheap and undervalued becomes important. A “cheap” stock is low-priced, but that number by itself says nothing about business strength. An “undervalued” stock, on the other hand, refers to a company that may be trading below its intrinsic value based on factors such as profits, growth potential, and financial health.

Value investing as a strategy is about identifying such opportunities — but it requires analysis, not just looking at price tags.

Some common mistakes linked to bargain hunting in the stock market include:

• Buying into companies only because their shares have fallen sharply, without checking the reasons behind the fall.
• Assuming that low-priced shares are more likely to rise without further analysis.
• Ignoring fundamentals such as debt levels, management quality, or industry trends.

Just as discounts in stores can sometimes be misleading, focusing only on low prices without adequate study may increase the risk of losses.

How to assess value in investments

Assessing value is not always easy, but there are some simple ways to think about it:

• Understand the business model: Ask how the company makes money, and whether that approach seems sustainable.
• Check financial health: Investors often consider aspects such as revenue growth, profitability, and debt levels. Even basic ratios may offer useful insights.
• Think long-term: Value often plays out over years. A strong business may appear “expensive” today, but its price may align with its intrinsic value over time.
• Compare with peers: If the entire industry is under pressure, it may affect the valuation of a stock in that industry too.

Ultimately, value is about what you may potentially receive in return for the price paid. Sometimes, paying a fair price for a fundamentally strong business may potentially prove more strategic than chasing a low-priced stock with weak fundamentals.

Ways to avoid falling into discount traps

To avoid discount traps in both shopping and investing, you may find the following approaches useful:

• Pause before acting on urgency: Consider whether you would still want the product or stock if no discount were available.
• Separate price from value: Remind yourself that a lower number doesn’t always mean a better deal.
• Do basic homework: Even simple checks on earnings or balance sheets may help avoid decisions that don’t align with your goals.
• Diversify: Diversification can help spread risk rather than concentrating too much in one idea.

Also Read: Investing In Tomorrow’S Consumers With Bajaj Finserv Consumption Fund

Conclusion

We love discounts because they give us a sense of gain and satisfaction. Discounts can easily cloud judgement and make us chase price instead of value.

A thoughtful investor focuses on value rather than price, paying attention to what a company’s perceived intrinsic worth may be. With patience and awareness, you may be able to avoid discount traps and make choices that may support your long-term financial goals.

At Bajaj Finserv AMC, we recognise that emotions are the cornerstone of investor behaviour – not just for investors but for investment professionals too. That’s why, behavioural finance is at the heart of our investment philosophy, InQuBe, which combines the Information Edge, Quantitative Edge and Behavioural Edge. By understanding, tracking and monitoring market sentiments and our own investment biases, we seek to make mindful and strategic investment decisions. Get the Behavioural edge by investing with Bajaj Finserv AMC. Read more about InQuBe here.

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