One of my investment heroes, Sir John Templeton, has long maintained that true investors delight in falling securities prices because they love a bargain. Back in January of 2000, Nasdaq was making its dramatic run to 5,000; a year later, the chastened index lay quivering at half that level. After such a big decline, even naturally conservative, retired investors find themselves asking, "Are stocks on sale yet? Is it time to increase my allocation, or is a better opportunity coming?"

Bargain Shopping

Some years ago, I visited the famous basement at Filene's original Boston store, looking for a burgundy leather briefcase. None of my previous retail experiences had prepared me for what I was about to encounter. Filene's unusual pricing system may have been a classic example of free-market efficiency, but it certainly does not bring out the best in human beings.

I could tell the other creatures in the basement that morning were human by their general appearance, but certainly not by their behavior or by any of the sounds emanating from them. They did walk upright, at least when they were not on all fours rummaging through the lower cupboards. They were highly uncommunicative, jealously guarding all goods within reach of their extremities. They uttered a variety of nonverbal sounds, ranging from what I imagined were expressions of profound grief to squeals of delight.

I glanced about the large, low-ceilinged room. Bare fluorescent fixtures dangled between the steam pipes. Everything had been painted cream, probably during the Hoover administration. Most of what might generously be referred to as merchandise seemed to fit more or less into the category of apparel. Dresses, suits and such were crammed onto pipe racks without signs; other items were heaped on large table-height surfaces separated by narrow aisles. Perched on these piles were flimsy cardboard signs indicating what one might find there: underwear, sport shirts, slacks and other such items.

Because I was intent on acquiring a particular item, I was quickly discouraged by the general disarray of the establishment, the paucity of user-friendly signs and especially by the intimidating patrons who crowded the aisles, some of them in stages of undress, apparently related to their efforts to try on some of Filene's offerings.

Swallowing hard, I decided to look upon my present circumstances as a challenge, instead of panicking, which was my visceral instinct. I had survived many years in the competitive canyons of Wall Street; there was absolutely no reason to be afraid in the basement of a Boston department store. I spotted a 50-something female who seemed more relaxed than the other aisle-dwellers. As I approached her, I was heartened to see that she was wearing a store name tag.

Upon asking whether I might find a leather briefcase here, the attendant (or keeper or whatever her role was) directed me to an area under a staircase, where I saw a great assemblage of nonapparel items gathered beneath an intriguing sign that said simply "Misc." In an unexpected burst of helpfulness, the woman asked if I was familiar with the store's pricing system. Surprised that there might be a system of any kind underlying this madness, I admitted that I was not.

"Well," my tutor intoned ever so seriously, "every item has a price tag on it. That is the price you will pay if you buy it today." ("How terribly ingenious!" I thought to myself.) But then she went on, "If the item is not sold today, tomorrow the price will be 10% lower. This goes on every day until the item is sold. If you see something you like, you may either buy it or leave it there and wait for the price to go down ... taking the chance, of course, that someone else will buy it first."

Aha! Now I understood the allure of Filene's Basement! It was a war of nerves, sort of like a continuous bear market, I thought. You are reluctant to buy something you want, even if the price is attractive, because if you wait, you might buy it for even less tomorrow. But tomorrow, you will face the same dilemma, and tomorrow again, until it is no longer available. Then you will have to buy at a normal price in the upstairs store.