By DAVID MOON, Moon Capital Management,
August 24, 2008
In the investment
industry, funds, annuities, bonds, stocks, CDs or any other type of vehicle an
investor might purchase are called 'products.' Like new automobile models,
investment firms are constantly creating new products.
How do they choose what types of products to create this
month or quarter or year? Often the choice is based on the types of investments
that have most recently experienced a significant price
At first that may seem counterintuitive. Why would you
want to put money in something that has already run up in price? But people do
it all the time. And investment firms know it.
That's why the products many are most likely to favor
are the ones that are selling at the least attractive prices. Human nature makes
those products the easiest ones to sell.
It's a lot tougher to sell a fund invested in bank
stocks these days than one that guarantees a four percent annual
Five years from now, which do you think folks will wish
they had owned?
When stock prices reach inflection points, either
negative or positive, people do weird things. They chase rabbits they can never
catch. They close barn doors after the cows have escaped.
Neither of which prevents them from being killed by a
In the last couple of weeks, I've seen examples of the
latest in weirdness. Did you know that the Live-ex 100 increased 9% in the first
half of 2008, after gaining a whopping 42.2% last year?
The Live-ex 100 is the London International Vintners
Exchange Fine Wine Index.
Simon & Schuster, presumably a reputable book
publisher, is actually selling a book titled 'Investing in Liquid Assets:
Uncorking Profits in Today's Global Wine Markets.'
The author, who shall remain nameless to deny him the
publicity he obviously so badly wants, compares wine to shares of Google stock '
except people drink wine. 'Imagine what a share of Google would be worth if
every night there was less of it.'
Of course, I could make the same argument for Vienna sausages. A study
conducted by Burt Peake indicates that the price of a can of those delicacies
has increased more than 9% this year. Sell your mutual funds. Liquidate your
up on imitation meat by-product wieners.
Maybe we should start a fund that just invests in
processed meats. If CNBC would publicize the bull market in weenies, I bet we
could raise millions.
Another article from the last week suggested that
financial advisers weren't taking classic art into account when analyzing their
I wonder if that includes the velvet-canvas painting of
dogs playing poker?
The value of an investment is a function of the cash
that investment generates for its owner. Period.
The market misevaluates those cash flows sometimes. But
don't let inflection points chase you into an asset class whose time has already
passed or ignore one that may be unfavored, but very
And certainly don't stagger into 'investing' in
' or more extravagant edible or potable asset
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).