Happy Anniversary

By DAVID MOON, Moon Capital Management, LLC
October 21, 2007

October is a time of anniversaries in my life. This week marked 25 years since my wife and I had our first date, a Mexican dinner at Casa Gallardo. As she ordered, I had to keep a running tab in my head, including sales tax, to know how much of my $20 I could spend on my own entr'e. I think I had rice.

Only three days after that spicy dinner, the Tennessee football team beat Alabama for the first time in 11 years, sparking celebrations across campus and the state. Of course, the date with my wife would obviously be a much more important event in my life, but being from Alabama, I certainly didn't think so at the time.

Five years later, October 19, 1987, happened. Black Monday.

The Dow Jones Industrial Average declined 508 points that day, which would be the equivalent to a 3,160-point drop from today's levels. In a single day, the stock market fell 22.6 percent.

Many people forget that the carnage actually began on the previous Friday, when the Dow declined 108 points, or 4.5 percent. Following that Friday decline, Treasury Secretary James Baker appeared on the Sunday newsmagazine television shows to reassure the markets that the U.S. would not collapse as a result of falling stock prices or a declining dollar.

The only headline that came from those Sundayinterviews was something like this: 'Treasury Secretary favors weak dollar.'

When the Asian markets opened at 8:30 p.m. Eastern time Sunday night, stocks around the world began a free fall. The (presumed) head of the U.S. economy didn't even support his own currency. Run for them hills, boys! (Or whatever the equivalent phrase is in Japanese.)

Run they did. Monday happened.

Like my evening at Casa Gallardo, I didn't fully understand the importance of the event as it was occurring. I was young and naive. I spent the late afternoon in the offices of Merrill Lynch, gathered around an actual squawk box, listening to analysts try to put the day into perspective. In a way, it felt like we were listening to Herbert Morrison's famous live broadcast of the 1937 Hindenburg disaster: 'Oh, the humanity!'

In 1987, investors were only five years removed from 1982, the year in which the Dow had finally permanently broken through the 1966 peak of 1,000. The old-timers of 1982 had experienced 16 terrible years, five good ones, then adisastrous autumn.

Many of them were downright depressed. If you didn't see it in their faces, you could certainly hear it in their words.

Youth has its advantages. I didn't know I was supposed to be frightened. My mortgage was a lot smaller than those other guys'. Two days earlier, we had just beaten Alabama for the fourth straight time.

Twenty years later, here's what I learned. It's so easy to focus on the wrong things. We pay attention to the things that are emotionally important to us, not necessarily the things that are really important.

A year after that Black Monday, the market had recovered its losses. And the Vols snapped a four-game winning streak against the Tide.

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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