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Not all old sayings are always reliable | |||
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By DAVID MOON, Moon Capital
Management Old sayings usually survive because they are true ' or at least contain enough truth for people to pass them on. You can think of plenty of examples: If something sounds too good to be true, it probably is; an idle mind really is the devil's workshop. I'm not sure what the phrase 'a stitch in time saves nine' means, but I am sure there is some wisdom in there somewhere. But it is dangerous to assume that just because a saying is old and sometimes true it is infallible. Consider the phrase 'perception is reality.' It would be depressing if that were always so. In fact, I think more often than not, perception is nothing more than perception. Economic and investment news of last several years certainly suggests so. If you based your opinion just on what happened in 2002, you would think all corporate executives are greedy, uncaring and evil. Enron may be the 'poster boy' for the economy and stock market this year, but it is not representative of most of the U.S. economy. Tyco's Dennis Koslowski is not a fair representation of most corporate executives. But when your 401(k) is down 50 percent from its high, you are willing to extrapolate and project negative perceptions onto anyone and everyone. I don't know if it really is 'always calm just before the storm,' but it often is. In late 1999 and 2000, things couldn't have looked more rosy. The stock market was going up. Cab drivers were becoming Internet millionaires. Day trading was the certain path to easy riches. Retirees were trading in their CD's for index funds. Early retirement seemed within the grasp of many. The investment seas appeared calm and inviting. But most of that economic opulence was an illusion. People only perceived that money was easy and wealth was available simply by picking a high-tech mutual fund ' any high tech mutual fund. But that perception was not reality. Those safe mutual funds and stocks weren't as safe as they seemed. Stock market gains weren't so easy and risk-free. Most of the investment gains of 1998 and 1999 weren't real. Well, at least they weren't based on underlying real fundamentals; they were based on perception. The painful years that followed proved that perception is not always reality. Often, perception is the opposite of reality. With only two trading days remaining in 2002, I am willing to take the risk of predicting a third consecutive annual decline for the overall U.S. stock market. A year ago, many market pundits were eager to point out the rarity of a three-year losing streak. I have seen no such optimistic tea leaf readings this week. Prognosticators are not willing to go out on that limb. Investors are depressed; they are beaten. They are tired of turning to CNBC and seeing downward pointing red arrows. They think Wall Street is full of crooks. We are about to go to war with Iraq or North Korea ' or both. And oil is up to $30 a barrel. Many investors are so tired of losing money that they cannot perceive an environment in which anything positive could happen. Fortunately, however, perception is not always reality. 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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