Patience is investing virtue, especially when market tanks

By DAVID MOON, Moon Capital Management
March 18, 2001

The NASDAQ is down more than 60 percent from its high and more than 20 percent already this year. The S&P 500 is now officially in bear market territory, having declined 20 percent from a year ago. The Dow Jones Industrial Average dipped below 10,000 this week, in the midst of wild, multi-hundred point daily swings. With the NASDAQ breaking through the 2,000 level (on the way down) exactly one year and one day after topping 5,000, it is easy to get discouraged about stocks. Investors and journalists use terms such as 'bear market' and 'collapse,' almost as easily as Alan Greenspan uttered 'irrational exuberance' a year and a half ago. Last year, the Wall Street Journal featured a front page story about a barber who was about to retire on his investment riches. A year later, barber shop talk of early retirement has turned to contemptuous attacks on the risky and gambling nature of the stock market.

It is easy to see why. More stock market value has been lost in the last year than George Bush has proposed in tax cuts over the next ten years. What some politicians see as a huge max-out gift to the American people - a tax cut - pales in comparison to the economic loss already experienced by investors.

But remember: as a tool to accumulate to significant wealth over long periods of time, the stock market is still undefeated.

At any specific time, the price of any individual stock at a given time may be greater or less than its intrinsic value. So might a particular index. A year ago, both the S&P 500 and NADAQ were grossly ahead of the underlying values of the companies in those indexes. Many stocks remain so today. But there are plenty of stock market bargains, caught up in a negative swell of selling pressure and panic.

Of course, stock market jewels are not always easy to find. For too much of the last three years, investor frenzy (fed by perception and greed) seductively and naively lured investors into the hot sector of the day. But the stock market has a lot of moving parts. People easily forget the price component in the stock market, until it hits them in the head like a 68 pound sack of bricks. Speculators get too consumed with guessing about finding the 'next Microsoft.' Identifying businesses that are both well run and well priced is actually a fairly straight forward task, but it has nothing to do with advance-decline ratios, 52-week moving averages or the alignment of certain constellations. So-called experts may be quick to try to impress (or confuse) you with such esoteric double-talk, but investing is an often mundane process that has little to do with sex appeal ' and much to do with discipline.

Valuing a real business that has assets and ('oh my gosh') actual earnings may not be as exciting as swapping stock tips at a cocktail party and hoping each new 'investment' doubles in price the week following your purchase, but it is a lot more profitable. Legendary investor, Ben Graham, said "investing can make you very wealthy if you're not in too much of a hurry. And it can never make you poor, which is better." The key is to be disciplined and unhurried. Investing is a lot like Aesop's fable of the tortoise and the hare; fear the turtle.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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