Black Friday, Retailers and the Availability Heuristic

Black Friday, Retailers and the Availability Heuristic

November 12, 2013 Behavioral Finance, Value Investing Research
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(Last Updated On: December 15, 2014)

The term “Black Friday” has been used for many years to describe the day after Thanksgiving, which for retailers marks the beginning of the holiday shopping season. Retailers were traditionally thought to operate in the “red,” or at a loss, until this point in the year, when they began to recognize profits, and were thereafter in the “black.” Others attribute the name to the shopping mayhem and herd mentality surrounding one of the biggest shopping days of the year.

Always ready to rain on your holiday equity parade, Morgan Stanley announced that 4th quarter retailer same-store sales growth for 2013 (excluding hard-luck JC Penney) are expected to be less than half of that for 2012, and the lowest since 2008:


Here at Turnkey Analyst, we are always on the lookout for extra helpings of holiday cheer, and so when we noticed that a number of retail names passed our quantitative screening measure for price, quality, and financial strength, we decided to share the holiday spirit.

Here are four retailers that meet our systematic value/quality criteria:


We have a good idea, from herd leaders such as Morgan Stanley, about why these retailers are cheap: anemic sales expectations. And these stocks are all very cheap indeed, residing comfortably within the top market decile for cheapness within our screening universe (consisting of equities with >$1.5bn market cap). Yet these shunned names also exhibit statistical signs of being high quality, financially strong businesses.

Daniel Kahneman discusses the availability heuristic, in his book “Thinking Fast and Slow.” The availability heuristic describes how people often form their assessment of conditions or events by drawing from examples that are most easily available to their memory.

Divorces among Hollywood celebrities and scandals among politicians attract much attention, and instances will come easily to mind. You are therefore likely to exaggerate the frequency of both Hollywood divorces and political sex scandals…A plane crash that attracts media coverage will temporarily alter your feelings about the safety of flying.

Likewise, is it possible that extensive press coverage of the slow retail season has an influence on the likelihood that investors will purchase retailer names? We think it is possible.

As Kahneman further points out, “The proof that you truly understand a pattern of behavior is that you know how to reverse it.”

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Definitions of common statistics used in our analysis are available here (towards the bottom)

About the Author

David Foulke

Mr. Foulke is currently an owner/manager at Tradingfront, Inc., a white-label robo advisor platform. Previously he was a Managing Member of Alpha Architect, a quantitative asset manager. Prior to joining Alpha Architect, he was a Senior Vice President at Pardee Resources Company, a manager of natural resource assets, including investments in mineral rights, timber and renewables. He has also worked in investment banking and capital markets roles within the financial services industry, including at Houlihan Lokey, GE Capital, and Burnham Financial. He also founded two technology companies:, an internet-based provider of automated translation services, and, an online wholesaler of stone and tile. Mr. Foulke received an M.B.A. from The Wharton School of the University of Pennsylvania, and an A.B. from Dartmouth College.