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The Mechanics of Investing | ||
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By DAVID MOON, Moon Capital
Management Since I was about seven years old I've wanted a dump truck. I finally bought a 1973 Chevrolet C60 with a 10-ton dump. It's ugly, painted mostly in primer, has no air conditioning or radio ' but the dump bed and hoist are brand new. I love it. It also has a 350 V8 and a five-speed transmission with a two-speed rear end. Unlike with today's automobile engines, which are more like sealed computers than tinkering toys, when you raise the hood of my truck you can actually see the parts.
There's a carburetor. And an alternator. I can replace the belts, hoses and spark plugs without hiring a computer technician. Did I mention I love my new old dump truck?
While working on it the other day I realized how much a vehicle is like investing. Every undervalued stock needs a catalyst. An engine needs a spark plug to get started and a cheap stock needs something to cause folks to begin buying it. A bargain that remains a bargain is no bargain.
Many people make purchase decisions for emotional, rather than rational, reasons. They are influenced by the stock or car they most frequently see on television or on magazine covers.
Neither investing nor car maintenance is brain surgery. Almost anyone with the time and a passionate interest can do it successfully, as long as she or he is willing to work at it.
No one ever fixed an alternator with emotion. 'I just feel like the brushes need replacing.' Successful long-term investing isn't done that way either.
Like automobiles, certain types of investments are more appropriate for certain types of goals. You are not going to be very happy with a Mazda Miata if you plan to haul a bunch of kids to soccer practice. Likewise, a portfolio full of certificates of deposit is probably not your best long-term growth vehicle.
When you have a wreck, sometimes it's best to fix your old car. But sometimes the car is totaled and you need to buy a new one. Don't get married to a stock if it declines. The best way to recoup your loss is not always the way you incurred it. Sometimes you need to sell your damaged stock and buy a new one.
Like the majority of new automobiles, most investments are sold, not bought.
The little things aren't important, until they are important. Wash and wax your car regularly; eventually, that may improve the resale value. Don't leave dead money lying around in that small Roth IRA; put it to work, regardless of the size of the account. Check your oil and tire pressure regularly. Watch the fees on your mutual funds. Little amounts make a huge difference over time.
Oh, and an honest mechanic is invaluable. Enough said. 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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