By DAVID MOON, Moon Capital
February 2, 2003
In 1941, 11 year-old Warren Buffett and his older sister bought a few shares
of Cities Services preferred stock at $38 dollars a share. It was the
first stock purchase ever made by the future 'Oracle of Omaha.' Buffett's
influence on the market as an 11 year-old was a bit less than it is now; the
stock promptly declined 30 percent. Every morning as they walked to
school, Warren's sister reminded him of their purchase price, encouraging him to
sell his shares if the price ever rebounded. It eventually rebounded to
$40 a share, two dollars more than their purchase price. Surrendering to
the pressure from his older and presumably wiser sister, Warren dumped his
shares, netting a total profit of about five dollars.
The shares continued their ascent and eventually peaked at $212 a
share. So much for market timing.
Buffett says his lesson from this experience was to think for himself and not
let others drive his thought process and decisions. At an age most kids
are influenced by peer pressure, he decided to march to the beat of his own
drummer, regardless of what others thought or said. He proceeded to create
one of the most enviable track records in investment history, from the relative
obscurity of Omaha, Nebraska. No cocktails with other money managers each
afternoon. No golf course (or bridge table) chatter about what the Dow is
about to do or the impact of war on stock prices. Buffett understands his
core competencies, avoids areas outside that core and makes his own
While this may be a boring model, it has been successful. Why don't
more people use it? Many people continue to let themselves be influenced,
excited and panicked by others. And often the influencers are less
knowledgeable about investing than the influencees.
If the allure of the masses pulled you into the stock market (or, heaven
forbid, the technology bubble) at its height in 2000, there is nothing you can
do about that now. Quit trying to get back to where you were in March
2000. That is an artificial goal. You should be focused on where you
need to be, not where you've been.
The difficulty is that there are several industries with an incentive to feed
off your emotion about the stock market. (Aside: my advice is to remove
emotions from your investment decision making.) These folks want to sell
you on whatever emotion they think they can most easily evoke. If
you're afraid of stocks, be sure that an army of bond salesmen will find
you. Burned by the Internet? Here comes a guaranteed CD, with
returns linked to the stock market. Upset because you missed Microsoft in
1990? There are scores of people ready to sell you shares of the next
Microsoft - and you can get in on the ground floor, if you act now.
Several years ago, Buffett's partner, Charlie Munger, was fishing with a
friend who owned a fishing lure manufacturing company. Sharing Buffett's
natural curiosity, Munger asked, 'do fish really like purple rubber
worms?' His friend replied, 'Charlie, I don't sell those worms to
Too many people are in the business of selling purple worms - and too many of
us eagerly accommodate them.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).