Fear sends logic out the window

By DAVID MOON, Moon Capital Management, LLC
November 30, 2008


I knew things were screwy in 1999 when a group of astrology-inspired stock pickers held a meeting in New York City to discuss various ways to use the alignment of the stars to choose investments.

These astrological systems must have worked; some of these starry-eyed investors bragged of earning 50% or more in the late 90s.

Of course, so did rookie mutual fund managers throwing darts at a list of NASDAQ companies.

I know an otherwise apparently level-headed guy who, following the collapse of the first tower on September 11, 2001, bought a case of shotgun shells ' after going to the bank and withdrawing $10,000 cash ' 'just in case.'

In extreme situations ' both positive and negative ' people are motivated to do illogical things they would otherwise never consider.

That's why I wasn't surprised this week to read a story in the New York Times about stock traders turning to psychics, fortune tellers and (once again) astrologers to find Wall Street trading signals.

Roxanne Usleman is a psychic in Manhattan. She channels angels to offer financial advice to her clients and reports that her phone is 'ringing off the hook.'

I'm not sure why a psychic needs a telephone, however.

The Times article reported that many of the individuals consulting psychics weren't just seeking financial advice; they were financial advisers themselves.

This is the point in the column at which you should start humming 'The Twilight Zone' theme song.

'You're traveling through another dimension ' of sight and sound ' but completely devoid of mind and logic. A land of neither substance nor sanity. A dimension of imagination that lies in the pit of an investor's darkest fears''

I wonder if Rod Serling ever gave investment advice?

In early 2002, Johnson and Johnson was one of the most widely owned companies in the world. The stock traded at $62 a share. Its annual earnings were $1.84 and it paid a dividend of $0.70 a share.

Today it earns twice that amount and pays a $1.62 dividend ' yet trades at practically the same price as it did then.

Why would an investor who was willing to own the stock then not buy it today?

For the same reason that people turn to illogical avenues for help: fear.

As the Dow Jones Industrial Average whipsaws back and forth thousands of points every few days, it takes with it the collective emotions and psyche of millions of investors.

It also takes those investors' balance sheets for the same wild ride.

But does anyone really believe that the actual value of Johnson and Johnson could fall by more than $14 billion in a single day?

It's not logical.

A young woman named AuroraTower (yeah, right) reads star charts via her website. For $150, she will answer your questions about love, health or your 401(k) plan.

MadameTower understands her clients' motives. Her explanation reveals a bit more honesty than her name: 'People will entertain the irrational when what they consider rational collapses.'

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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