By DAVID MOON, Moon Capital
December 29, 2002
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
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).