By DAVID MOON, Moon Capital Management,
October 19, 2008
First we had the worst week in the 112-year history of the
Dow Jones Industrial Average. The following week, the index turns around and has
its single largest point gain, increasing almost 1,000 points in a single
The rollercoaster reminds me of a
phrase an old teacher of mine used to use: 'Is we is, or is we
The news has been full of commentary
and reports about the various historic landmarks set in the last few weeks. But
there is some history I've not seen reported in the last few days.
For 75 years, a week in February
1933 stood as the worst in the history of the U.S. stock
market. Stocks declined 17.72 percent that month, almost all of which occurred
in the last week.
A remarkable three-year bull run
began the very next month. Stocks increased almost 100 percent in the subsequent
12 months. Many investors, however, were still fearful. They had been teased the
previous year when prices increased 38 percent in July 1932, then another 38
percent in August ' only to finish in negative territory for the entire
When the market collapsed again in
February 1933, they felt their fears were validated. Worried investors
remained on the sidelines. They missed that 100 percent recovery.
But then in 1934 ' the market
declined again, this time only 1.34 percent, however. Newspaper accounts still
discussed the possibility of a return to an October 1929-style collapse. Many
investors were still skeptical of stocks.
They missed an 82 percent increase
in the subsequent two years. They were waiting to get back into stocks. Waiting
For the investors who were waiting
for normalcy or for things to 'settle down,' the recovery came either too
quickly or too quietly for them to get back into stocks.
As in 1933, today's stock traders
are ignoring company fundamentals. Many stock prices are cheap ' some
ridiculously so. Some aren't, but in many cases the attractive ones are being
lumped together with those still overpriced.
I am not predicting that a massive
bull market will begin next week or next month. That is the sort of action that
causes people to look stupid and lose money. Stocks can remain inexpensive and
attractive for long periods of time ' just as they can remain overpriced for
similarly long stretches.
But the lessons of
history are much easier to see in hindsight than while they are being
Investors may ignore fundamentals for long periods, but prices eventually
move to levels supported by earnings and asset values.
can't time the market. It is impossible to know when 'things have gotten better'
until way after the fact.
stock market has been through periods like this before, and some investors
thrived in the recovery.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).