Investing for Dummies

By DAVID MOON, Moon Capital Management
August 21, 2005

One evening I settled into my favorite chair, propped up my feet, and looked forward to a few minutes of rare quiet time to watch a little television. Sadly, the most attractive choices from among our 142 channels (not counting video-on-demand) were an NBA basketball game and an infomercial promoting an upcoming free, live seminar on a foolproof method of stock market investing. Since it was the regular season, and no one watches the NBA until the playoffs, I chose the infomercial.

First came the testimonials. After only 25 days of studying the stock market, students and waitresses bragged of making 8.6 percent in a single month. Another of the budding Warren Buffetts earned 33 percent in nine days. Other testimonials described extravagant European vacations and having the ability to 'work less hours.' Another of the more successful of these super-successful investors bragged that because of this system, she would never have to work again.

At the bottom of the screen, in a small typeface and faint color, was another bit of potentially useful information: 'Individual results may vary.'

How's that for an understatement?

I successfully fought the urge to attend the free seminar and learn the secrets of 'how to get right and stay rich.' (I guess I just like doing things the hard way.) But I did glean a little about the crux of this amazing system.

An actor, playing the role of an official-looking news reporter, asked one of the investment masters about market bubbles. What should an investor do if the trend changes and begins to move against him? (Pay very close attention here. This is the secret of investment success.) When the trend changes, all an investor needs to do is push a button and sell everything.

With the push of that button, he's out. He misses the market downturn and has his capital available when the trend changes again and stock prices start to go back up. Those were the exact words of the master: 'Push a button and sell.'

In other words, this road to riches was the same one mapped earlier by Will Rogers: 'Buy some good stock and hold it till it goes up. If it don't go up, don't buy it.'

Even if I did have one of those magic sell buttons, I wouldn't know when to push it. This would all be so much easier if someone would ring a bell when the trend changes. Has the trend changed when a stock declines ten percent? Twenty percent? If so, how do you know when the trend has turned positive again? After a ten or twenty percent increase? So let me see if I have this right: when a stock declines 20 percent, sell it. When it goes up 20 percent, buy it.

That sounds like a pretty good system to buy high and sell low.

At a superficial level, this general approach makes sense. You'll make more money if you own stocks while they are going up. And you'll lose money if you own them when they're going down. No kidding. It's no wonder the seminars are free. Any higher price would be a severe case of overcharging.

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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