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Perception's nice but doesn't pay bills | |||
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By DAVID MOON, Moon Capital
Management Do you feel any wealthier these days? So far this year, the S&P 500 has increased 19 percent. After hitting a low of 7,500 in March, the Dow Jones Industrial Average is, once again flirting with 10,000. By almost anyone's definition, the bear market is over. But too often, there is a lag between an investor's reality and her perception of that reality. While it may be true in politics and sales, in investing, perception is not reality. If you are a retiree living on your investment income, try going to Kroger and spending a perceived dollar. Kroger prefers the real ones. Many investors' fascination with perception is their downfall. It may be fun to try to predict or anticipate the next popular stock (or industry, asset class, country, etc,) but popularity has nothing to do with value. Like votes in a homecoming contest, popularity can be fleeting ' both in middle school and on Wall Street. So now that the market is going back up, is it time to get jump back into stocks? No. Will Rogers was right; a study of economics reveals that the best time to buy anything was last year. Of course, this doesn't mean that now is the right time to move from stocks to cash (or bonds, gold bullion or yachts, for that matter.) When you ask the wrong question, the answer is irrelevant. Investing is not about timing; it's about price. When your question is based on what you perceive or feel or hope, you are likely asking the wrong question ' at least about investment issues. It really doesn't matter how the stock market makes you feel these days, (unless it improves your blood pressure or demeanor around your family.) The reality may be that you are now moving in the right direction with respect to your retirement. But don't let that influence you to change your opinion or position on any specific stock or investment. Isaac Newton's First Law of Motion and Galileo's Law of Inertia suggest that an object in a state of uniform motion will keep moving in that direction and at that speed unless an external force is applied to the object. Newton and Galileo were great with apples and planets and gravity, but the Law of Inertia has no place on Wall Street. David's Law of Stock Price Motion: A stock price will remain in unpredictable daily motion, regardless of what forces are applied to it. In the short term, every imaginable influence will cause changes in the price. In the long term, only one influence matters: the cash value of the assets represented by the stock. The cash a business generates for its owners is like the gravity of Wall Street. And just like gravity on the rest of the earth, it isn't influenced by how you feel about it. But unlike gravity, the force isn't constant. Even if you can't avoid letting the market's recent increases impact how you feel, don't let it influence how you invest. 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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