The "Golden" Parable

By DAVID MOON, Moon Capital Management
November 27, 2005

In author George S. Clason's parable, The Richest Man in Babylon, he introduces us to the notion of the five laws of gold. I thought about these laws, and one of them in particularly, last week when IPIX announced it was leaving East Tennessee.

'Gold flees,' according to Clason, 'from the man who would force it to impossible earnings or who follows the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.'

A few weeks ago, I bought 50 shares of IPIX. Including commission, I paid $214.45 for my certificate. I had the broker issue a certificate; I keep it to make a particular point with clients: On March 14, 2000, those same 50 shares would have cost $23,125.

At the time, I knew people who were buying the stock at those prices. The company had no earnings and no prospect for any. But the price had enjoyed a nice increase. There had been a number of favorable newspaper accounts. The press releases were nice, as were the annual reports. Many investors were willing to ignore the rapidly declining cash balances and the endless attempts at reinventing itself.

The astronomical price was of no relevance to these speculators. These were clearly men with 'romantic desires in investment,' men who would 'force [their gold] to impossible earnings.'

Folks were paying $23,000 for 50 shares of almost worthless IPIX stock with the expectation they might double their money in a matter of months.

In the parable, a son squanders his father's gold on just such adventures. Almost 20 years ago, I had a client who nonchalantly commented that it was quite easy to become rich, if one were willing to take his time in doing so. The dynamics ruling such ventures are fairly straightforward, but require realistic expectations, work, discipline, honesty and tenacity when confronted with failure.

These are characteristics of all successful ventures, whether it is a 401(k) portfolio or a business you start with your crazy brother-in-law.

The remainder of the 'laws of gold' are also sound counsel for investing, saving, dealing with people, and a general manner of life stewardship:

(1) Gold comes gladly and in increasing quantities to any man who will save not less than one-tenth of his earnings to create an estate for his or her future and that of his or her family.

(2) Gold labors diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.

(3) Gold clings to the protection of the cautious owner who invests it on the advice of men wise in its handling.

(4) Gold slips away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.

In Clason's parable, the son eventually learns all five of the laws of gold, but only while he is losing his own fortune. It is a shame that too few of us can learn from the pain of others. What is most disappointing, however, is that many investors refuse to even learn from their own mistakes.

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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