On Being Healthy, Wealthy and Wise

By DAVID MOON, Moon Capital Management
May 28, 2006

According to the Wellness International Network, 80 percent of all Americans over 25 are overweight. A quarter of all Caucasian kids and a third of both African-American and Hispanic children are obese. Childhood obesity has quadrupled in the last 12 years.

Why are we fat and getting fatter? Although this may not immediately appear to be a business-related topic, it's an area of study in which I have conducted substantial personal research. The root cause of our lost teenage swimsuit bodies is not necessarily poor food choices, a lack of exercise or ' my favorite ' thyroid problems. The same problem that prompted most of our fatness is also responsible for poor investment decisions.

Short-term thinking.

We're more interested in convenience or quick answers than in substance or good answers. That's why McDonald's sells more than $20 billion of hamburgers a year.

It's also why investors look for gimmicks or systems ' or simply copy others ' when making investment decisions.

It's why we devote today to activities that give us pleasure, postponing healthier pursuits until tomorrow.

It's why investors are drawn to last year's or last week's or yesterday's Wall Street winners. If it happened yesterday, surely it will happen again today.

It's why we feed our kids pre-packaged food and use the TV as a babysitter.

A Wall Street Journal headline proclaimed in March that 'Consumers give year a robust start.' The giddy report was based on a strong 0.9 percent increase in consumer spending in January. But further into the article, a reader would have learned that personal income increased only 0.7 percent. The supposedly positive economic news in the headline was supported by borrowed money, not economic growth.

In 2005 the U.S. produced a negative savings rate ' for the first time since the Great Depression.

Look at the mortgage market. One of the hottest new loan products is an 'option ARM,' a variable-rate mortgage where the borrower gets to determine his monthly payment. He doesn't have to pay even the interest amount each month.

If he doesn't, the unpaid interest is added to the loan until the amount owed climbs, in some cases, as high as 120 percent of the value of the house. At that point the loan must start amortizing, causing a potential doubling or tripling of the monthly payment.

If there was ever an example of short-term thinking, this is it. Both the lenders and borrowers are ignoring the obvious long-term risks of these loans in order to help homeowners purchase more house than they otherwise might.

Is there a housing bubble in the U.S.? More likely there is a debt bubble. Banks and mortgage companies can get fat, too.

Get-rich-quick schemes are always more popular than get-rich-slowly plans. I've never seen an infomercial promising that someone can become a millionaire over the next ten or 20 or 30 years by purchasing this simple program.

Yet that's how most healthy balance sheets ' and bodies ' are made.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

Add me to your commentary distribution list.

MCM website