What Is a Buy?
"Buy" is a term used to describe the purchase or acquisition of an item or service that's typically paid for via an exchange of money or another asset. When buyers look to acquire something of value, they assign a monetary value to that product or service.
A buy is associated with small purchases, such as purchasing clothing at a retail store or a corporation buying a new manufacturing facility. Also, there are various types of buying examples in the financial markets, including the purchase of real estate and equities.
- "Buy" is a term used to describe the purchase or acquisition of an item or service that's paid for via an exchange of money or another asset.
- Buyers assign a monetary value to the product or service they're looking to buy, which can be at a premium or discount to its original value.
- Consumer buying includes consumer goods such as food, while business purchases include buying equipment and inventory.
- A buy rating is an investment analyst’s recommendation to buy a security and implies the stock or security is undervalued.
How a Buy Works
Although a buyer may assign a value to what they want to acquire, that value is a perceived value. In other words, the value to which a buyer assigns is relative and can vary between other interested parties.
In some cases, a buyer may purchase an item at a premium, meaning the price paid is above its original value. However, some items are also purchased at a discount, meaning the buyer's perceived value of the item is less than its original estimated value.
For example, a buyer may purchase an old, classic automobile, which is considered rare, resulting in a premium paid for the car. Conversely, a buyer may offer less money than the car's estimated value if the car was in poor condition.
Consumer buying often involves purchasing consumer goods, which are finished goods purchased at retail stores or online. The types of goods that consumers buy can include the following:
- Books and magazines
- Personal hygiene products
- Household cleaning products
- Tools and other outdoor equipment
Consumer buying behavior—often called consumer spending—can be split into categories. Consumer goods can be either durable or non-durable goods. Durable goods typically have a life span of more than three years and include appliances and automobiles. Non-durable goods are typically consumed or used immediately. Examples of non-durables include food and clothing.
Need vs. Want Buying
Consumer buying behavior can also be broken down into whether the purchases are for need or want expenses. Need-based purchases are called consumer staples and include food, paper towels, toilet paper, and other products that are needed on a day-to-day basis.
Buying can also be considered consumer discretionary, which are purchases of want expenses that are considered non-essential. Examples of consumer discretionary spending include the purchase of an iPhone or a vacation. Consumer buying also includes the purchase of services, such as a tax preparer or a haircut.
Businesses and corporations also buy goods and services, which can be categorized as long-term or short-term purchases.
Capital expenditures (CAPEX) involve the purchase of large items that typically benefit the long-term financial health of a company. Capital expenditures might include the purchase of:
- Equipment and machinery
- Property, buildings, and land
- Vehicles such as cars and trucks
- Technology including computer equipment and software
Businesses also buy goods and services to help their day-to-day business operations function. These purchases are often called cost of goods sold (COGS) or operating expenses (OPEX) and can include the following:
- Marketing services
- Insurance products and services
How much a business is spending and where that money is being allocated are important metrics for investors and creditors to monitor.
For example, if a company has purchased an excess of inventory or supplies, it could mean that its sales are lower than expected. Excess inventory purchases could also mean that the company's management team has not managed their inventory supplies effectively.
Types of Buys
Below are a few common scenarios in which the term buy is used in the financial marketplace.
Buying a Stock Investment
Stock purchases are when investors buy ownership of the shares of a company at the market price. The investor's purchase price is called the cost basis. The goal is to sell the stock at a higher price and realize a profit. A buy order is an instruction to a stockbroker to buy a security.
Many investors buy stocks through their retirement plan via a 401k plan. Oftentimes the employee pre-selects investment allocations based on their investment selection. When money is deducted from their paycheck for their 401k contribution, the money flows into their brokerage account, and a buy order is created based on their pre-selected investment schedule.
A buy rating, also known as a strong buy, is an investment analyst’s recommendation to buy a stock or security. Analysts make recommendations based on a rating scale that includes buy, outperform, hold, underperform, and sell.
However, there is some subjectivity with the different stock rating scales. It's important that investors understand what each recommendation really means for that particular analyst. For example, outperform can mean moderate buy, accumulate, overweight, and add.
Buying a Home
The financial institution lends the money to the buyer to purchase the home. In return for giving the buyer a mortgage loan, the bank is paid back the original amount—called principal—and interest based on an interest rate that can be fixed or variable. The buyer usually has a number of years to pay back the mortgage loan, such as 20 or 30 years.