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Politicians no longer emphasize 'privatized' Social Security, but stocks are good buy | |||
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By DAVID MOON, Moon Capital Management We haven't heard much lately about the privatization of Social Security. During the presidential campaign of 2000, Al Gore and George Bush fell over each other, anxious to appear to be the stock-savvy candidate. Each had a plan to change the current pay-as-you-go government retirement plan into something more akin to a 401(k). While their plans significantly differed (and neither was actually a privatization plan), both candidates wanted to leverage the popular bull stock market into votes. Who wouldn't want to put some of their payroll taxes into stocks, especially after an 18-year run in which the Dow Jones Industrial Average increased from 1,000 to 12,000? No one, it now seems. I wonder what we should make of that? The most obvious conclusion is not to let the politicians manage any more of your retirement money. If there are any managers on whom we can depend to buy high and sell low, it is a group of people who make decisions on the basis of public opinion. In 2000, taxi drivers were retiring to write investment newsletters and accountants were giving up 1040 forms for day trading. A company could raise a few hundred million dollars in stock sales just by adding a "dot.com" to its name. Bill Gates was hot; Warren Buffett was not. Political "leadership" is often nothing more than a politician rushing to the front of an already marching parade. That may help get you elected, but it is a horrible way to make investment decisions. Once an investment parade is well underway, the bargain opportunities are gone. And if you rush to the front of a parade that is ending, you may find yourself marching alone, oblivious to the bands and floats far behind that are no longer moving with you. In the last couple of years, some of these types of investors jumped in front of a technology stock parade and proceeded to march off the side of a cliff. Many of them erroneously think that continuing their march in the same direction (albeit it now in the bottom of a canyon) will return them to their positions of a year or two ago. They are in the stranded traveler's quandary. When a driver runs out of gas on a desolate stretch of unfamiliar highway, he doesn't know if the closest gas station is somewhere ahead of him or the one he passed several miles back. Some investors walk ahead to the next station, regardless of its distance; some turn around and return to the sure thing. And some just sit on the side of the road, paralyzed be their fear, and eventually die on the roadside. The lack of a push to "privatize" Social Security also proves that most voters allow their emotion to reign over their logic. If it made sense to buy stocks when the Dow was at 12,000, it is an even better deal with the Dow at 8,000. Does that mean the Dow might not go lower? Of course not. But if the Dow falls from 8,000 to 6,000, that is only a 25 percent decline. From 12,000 to 6,000 is a 50 percent decline. More people should favor putting all sorts of money into stocks now, with prices significantly lower. If you were willing to buy General Electric at $60 a share, why wouldn't you but it at $25? It is also obvious that Americans love to talk a good game when it comes to self-reliance, but too many of us really expect the government to take care of us. Why else wouldn't throngs of conservatives be marching on Washington, demanding control of some of their payroll taxes? For the same reason that many employees are now glad that they have an employer-provided defined benefit pension plan: it lets the employees take all sorts of risks with their own money, yet have someone else responsible for their safety net. 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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