The Bradford Pear Society

By DAVID MOON, Moon Capital Management
April 2, 2006

We've become a Bradford pear society, when what this economy needs is more Oak tree thinking.

The Bradford pear tree is popular with many developers and homeowners because it is a fast grower (12 to 15 feet over eight to ten years) and quickly provides many of the qualities sought in a landscaped area: shade, changing leaf colors and a full, symmetrical canopy.

The problem is that the tree self-destructs in 15 or so years, a victim of its own rapid growth, yet still immature branch system. Eventually, the branches can't support their own weight and limbs begin to break away from the trees. People know this, yet continue to plant the trees for instant gratification.

It's been going on for decades.

In 1982, the National Landscape Association voted the Bradford pear the second most popular tree in America.

Should we be surprised at the popularity of the Bradford pear in our quick fix society?

Long-term thinking and planning has become a rarity. We want what we want now, irrespective of the long-term consequences. Shade trees, weight loss, investment returns ' our society encourages thinking in terms of days or weeks, not years or decades.

Nowhere is the phenomenon more evident than on Wall Street.

Most investors fall into one of two camps. They are either Bradford pear investors or Oak tree investors. Oak trees mature slowly, but last 200 or more years.

The difference between the two is more significant than just time horizon. Each type of investor is different in his core beliefs.

Bradford pears believe the way to investment riches is by successfully predicting what other investors are going to do. It's fairly common for a research report to conclude that a stock is undervalued, yet the report withholds a 'buy' recommendation, choosing instead to wait until investors begin to move back into the stock. This type of analyst is more concerned with the actions of others rather than the value of the assets he purchases. His primary concern is time, not value.

Oak tree investors care more about the price and value of the assets they purchase, rather than trying to predict the actions of other investors. Oaks depend on the premise that the worth of any financial asset is simply the present value of all the cash the asset provides it owners. In the short-term, the price of a stock may move in reaction to all sorts of things ' Jim Cramer's TV show, an article in Barron's or a company being added to the S&P 500.

But in the long-term, the only thing that increases the value of a company is increased earnings.

Oak investors are willing to wait for the price and value of an asset to eventually converge. Bradford pear investors, like shortsighted landscapers, struggle to see beyond the next quarter.

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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