By DAVID MOON, Moon Capital
December 9, 2001
Anyone can tell you how to make money. People do it all the time.
On television, in the newspaper, in magazines. At parties. At the
barber shop. Almost everywhere you turn, someone will offer advice on
which stock to buy or the new hot mutual fund. Investors suffer from a
glut of advice on how to make money. But in the last two years, most
investors have more experience losing money rather than making it. What
people need is a guide to help them lose money. If losing money is a fact
of life, how can investors make sure they are doing everything possible to lose
money most efficiently?
Look for the next 'big thing'
Don't bother trying to hit doubles
and triples. Swing for the fences every time at bat. Keep putting
your money in stocks you hope go from 1 to 100.
This has to work, right? After all, why
does the news report the trading volume each day? Ignore taxes,
commissions and all of the little nuisances associated with each trade.
Your job is to put your money to work ' often.
Speaking of taxes ' don't even think about
them. If you're paying taxes, you're making money. No one ever went
broke taking gains. Sell your winners. Hold onto your losers.
Let taxes be your master
But if you have a significant gain in a
single, overpriced stock, never, ever, ever consider selling it. It is
better to lose 30 or 40 percent in price decline than to pay 20 percent in
taxes. Make tax avoidance the goal of all of your investment
Listen to your crazy uncle
Every family has him ' the weird uncle
with a strange laugh. The one who drives a 22 year-old Ford Fairlane and
falls asleep snoring right after dinner. Never mind that he can't keep a
job. He is a world of financial advice. When he touts a stock, buy
it. If you don't have a crazy uncle, any stranger in an elevator will
Ignore the financial mumbo jumbo
Investing is as simple as
finding growing, well-run businesses and buying them. Don't get bogged
down in tertiary distractions like P/E ratios or balance sheets. Those
things are minor details.
Never admit a mistake
This is a sign of weakness. Only
losers make mistakes. If you own a widget company that is experiencing a
huge market share decline, has an overleveraged balance sheet and has declined
from $50 to $10 per share, it can't go any lower. You didn't make a
mistake; you simply bought too early.
Wait to get back to even
And don't sell your widget company stock
until it gets back to what you paid for it. It will eventually get back to
your $50 purchase price. And when it does, you won't have lost any
money. Never mind that 6,000 other stocks might have gotten you there
faster and with greater certainty.
Don't participate in your company 401(k)
That company match is
worthless if you can't spend it now.
Wait for a stock to go up before you buy it
Never buy a stock
when it is down. Wait and see if the price begins to go back up before you
plunk down any cash.
Only trade with friends
So what if you don't understand why you
need a seven-year lock up, tax deferred annuity in your already tax deferred
IRA? If your kids play t-ball together, your friend must be offering a
good deal. Ignore the fact that your friend has been a vice-president of
investment consulting for only two months, after leaving his job selling
Don't look down
When you are losing money, don't look at your
brokerage statements. Pretend it isn't happening. Don't worry about
trying to determine if your fortunes are temporary or more long term. If
you just ignore the bad news; maybe it will go away.
Procrastinate important decisions
Remember, great investors, like
great leaders, are always slow to make a decision. If you have something
really important to decide, try not to think about it. Why make a major
decision now if you can put it off for a few weeks or months? Or maybe
Listen to the experts
If someone says it on television or writes
it in a newspaper, it must be true.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).