By DAVID MOON, Moon Capital Management
After inventing the incandescent light bulb, Thomas Edison gave credit to
tenacity, not brilliance: 'I had simply exhausted all possible avenues of
failure.' Fortunately for those of us who enjoy a good light bulb from time to
time, Edison's genius was in his refusal to make the same mistake
It's a shame Edison did not require each of us to master
this ethic before being allowed to flip a light switch, or make an
In 1983 little Knoxville, Tenn., was home to the fourth largest bank failure
in the history of the United States. Long-time residents don't need a history
lesson. It was a big deal.
A dozen years later, the suicide of a Knoxvillian revealed an old-fashioned
Ponzi scheme, costing East Tennesseans up to $50 million. Many of the victims of
the Ponzi scheme had also been victims of the bank failure.
A number of these two-time fraud victims ended up in my office, asking for
help. All were well-educated, intelligent and worldly. They each put nouns and
verbs in their sentences and none of them had a 'kick me' sign taped on their
But you couldn't tell from their experience ' or their subsequent actions.
Not a single one of these individuals ever asked about my firm's disciplinary
history or status with regulators. They didn't ask about custody, insurance or
if I had a private jet and a home in the Caymans. They did not accept my offer
to have their attorney or accountant meet with us or review our contracts and
This is, of course, how they became victims twice before. Fortunately, they
did not a third time, but it was only fate that protected them, not their
accumulated expensive experience.
Why do some people repeatedly make the same mistakes while others use their
errors as learning experiences?
We all make mistakes, so don't think your portfolio is immune to mortal
frailties. Investors should heed the advice my father gave me: 'Son, if
somebody's going to kick your butt, you better at least learn something from
Wall Street is going to kick your butt regularly. You get to decide if you're
going to learn from those experiences or remain vulnerable to the same class
bully. Why do some people learn after one beating, while other investors do the
equivalent of leading with their chins over and over again?
German researcher Christopher von Bülow has studied and written about the
habit of some people to act repeatedly in a way that is detrimental to their
interests. This behavior is the result of beliefs and routines that no longer
hold any positive logic, if they ever did. If you happen to make money on a
stock tip from your brother-in-law, it increases the likelihood that you will
listen to him again. If it happens twice, you may be willing to ignore all logic
and investment fundamentals and take the advice of a guy whose opinion you don't
respect on any other topic.
The next time you lose money on an investment, don't blame it on fate or your
brother-in-law. Determine the mistake you made and why you made it. Then don't
do it again.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).