By DAVID MOON, Moon Capital
August 11, 2002
I have a friend whose hobby is writing titles for imaginary country music
songs. My favorite is 'I Can't Get Over You 'till You Get Out From Under
Him.' It doesn't matter that this song has never been written; everyone
immediately understands its message.
Country music is like that. Simple chords, simple themes and simple,
identifiable stories. Sometimes we look for answers that are more
complicated than they need to be. All else being equal, the simplest
solution is usually the best one. Too often, we look to statisticians,
economists and, perhaps even fortunetellers, when all we need is Garth
Thank God for 'Unanswered Prayers.'
I thought of this old Garth Brooks' song while talking with a client last
week. Actually, he is only barely a client. He decided to hire us
several weeks ago, after experiencing horrendous losses over the last several
years in his various managed accounts. As soon as his cash reached his new
Moon Capital Management account, the Dow Jones Industrial Average began an
especially torrent weekly decline, even for these perilous times.
Our new client panicked. He called and instructed us not to do anything in
his account. He admitted he was afraid and did not want to buy any stocks
at that point.
After ten terrible days of stock market returns, he instructed me to go ahead
and begin buying stocks, if I 'thought we had reached a market bottom.'
I tried to explain that we never forecast market tops or bottoms.
People who try are foolish. 'Yes, I understand,' he replied. 'But
don't you just think if you had to predict a market bottom, this might be
it?' He desperately wanted someone to ring the bell and tell him when the
market reached the bottom. But this would be the worst thing that could
happen to him right now. This is a prayer that is best left
If I predict a market bottom, there are only two possible outcomes: either I
will be wrong or right. If I predict this as a market bottom, but then it
turns out we see Dow 6,000 before we see Dow 12,000, our new client will feel
whipsawed again. He will almost certainly panic and sell his stocks at Dow
6,000, and never enjoy Dow 12,000. Clearly, this is not a good outcome.
But the worst outcome would be if we were right. If we forecasted a
market bottom and were somehow correct, he would expect us to do it again, or to
tell him when the market reaches a peak again. This is a sure recipe for
disaster. Sort of like someone convincing himself he has a talent for
choosing heads or tails when a coin is flipped.
The last time we experienced a stock decline anything like the current one
was 1987. In only three months that year, the Dow declined from 2,700 to
1,700. An equivalent decline from our most recent market peak would be
about 7,400 ' pretty darn close to where we are right now. In October
1987, millions of investors panicked, sold their stocks and waited for the
elusive market bottom. Some are still waiting. Others jumped back
into stocks in 2000, at another market top. Many of those people are
No matter how badly you may want someone to ring the bell and signal the end
of the bear market, that prayer is best left unanswered. Garth Brooks
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).