By DAVID MOON, Moon Capital
August 19, 2007
It may be hard to believe, but there
was an incident in my life when my wife got angry at me. Yes, sweet,
even-tempered, lovable me. In 22 years of marriage, I suppose it will happen. I
thought she was going to divorce me, or shoot me, or maybe hit me in the head
with a shovel.
forgotten all of the details, but she was angry about something having to do
with a broken leaf blower, or some similarly silly lawn tool. We were on the
back porch, yelling at each other over a weed whacker.
understand, of course, that I was completely blameless in this little episode.
Absolutely. 100 percent.
really. And, as it turns out, our fight had nothing to do with two-stroke
engines. She was really angry about something completely different ' something
to which I shall not confess in writing.
But as it
turns out, she was right to be mad at me; she was just yelling about the wrong
the right thing happens for the wrong reason.
In 2000, the
US stock market began our generation's meltdown. Do you recall the needle that
burst the bubble? Even when Alan Greenspan declared that stock prices were too
high four years earlier, investors hardly noticed. It took a legal case against
computer giant Microsoft for investors to begin a multi-year correction from
levels of irrational exuberance.
So does this
have any relevancy to more recent swings in stock prices?
there is a corollary to the 'right thing for the wrong reason' axiom: sometimes
the wrong thing can happen for the right reason.
further than the recent fallout from the mess in the mortgage market for a
investors get skittish (a technical investing term), it takes very little to
cause them to panic.
paraphrase Yogi Berra, if nobody wants to buy stocks, you can't stop
they don't, it can create opportunity.
problems in the mortgage markets. Lenders have made all sorts of crazy loans to
people who will default. Just as sure as God made little green apples, you can
count on this. There will be ripple effects throughout many segments of the
economy. This is the right thing.
But in the
last 15 trading days, the market capitalization of Microsoft fell more than $25
billion. What does this have to do with sub-prime mortgages? Cadbury Schweppes'
price has fallen 20 percent since June. Has the value of Cadbury really declined
$4 billion? Are people going to cut back on Dr. Pepper and Hawaiian Punch as a
result of higher mortgage payments? I can understand mortgage loans or maybe
houses, but what about Happy Meals? McDonald's stock declined almost ten percent
in three weeks.
It's a baby
with the bathwater mentality.
Just like my
wife, it's hard to explain why stock prices sometimes do the things they do. The
key to success, however, is to determine the real reason behind any price
movement ' if any ' and make your decisions accordingly. It works with leaf
blowers; it works with stocks.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).