Harry Newton's In Search of The Perfect Investment, Technology Investor. Harry Newton
AM ET, Wednesday, December 23, 2009: What did
I learn about investing in 2009 that might be useful in 2010?
Successful investing is unbelievably difficult. Few get it right, including
"the professionals." Watching them on BubbleVision is a total waste
of your time. Ditto for studying the economy. The stockmarket has its own mind.
And that mind has little to do with the economy.
Since fees motivate "professionals" they don't sell when they should,
i.e. when their brilliant picks fall 15%. They also extend their private equity
funds forever, sucking fees and more fees.
Illiquid investments suck. That includes anything and everything from private
equity funds to investments in private companies, from hedge funds with long
lockups to real estate funds, from timber investments to whatever. These were
the investments that made colleges like Harvard and Yale oodles of money when
they upvalued their investments. But when the world fell apart, they got creamed
and -- worse -- couldn't do anything useful, like sell.
Sticking with liquid investments means you're stuck with stocks and bonds.
This is not burdensome -- if you're disciplined and sell when your trailing
stop loss is down 15%.
Broad allocation is good and bad. It's good because it reduces your risk.
It's bad because it reduces your return and increases your work. A portfolio
of 50 stocks is much harder to follow than one of 20 stocks. As I move into
2010, I am favoring a narrow allocation of stocks I like. You've heard some
of them -- Apple, BYD, EWA (Australia), EWZ (Brazil), Gold (GLD) and Google.
I'm looking at others. I can't suddenly take a wad of money and "invest"
it, like the "professionals" do. I find I have to get excited, do
the research and then get more excited. The good news is that there are always
opportunities -- in good times and bad times. Searching for them is a mindset.
6. I do like
dividends. I like tax-free bonds that yield 5% -- nearly 8% pre-tax. Some
of my real estate investments -- like those in Germany -- are producing handsome
dividends. I'm afraid of stocks with high yields, like NLY. But I'm somewhat
7. In the end,
the only two things that count are your family and your health. If chasing
investment returns affects either, then it ain't worth it. My colonoscopy and
blood tests went 100%. My blood pressure is 114/70. Standing heart rate is 63.
The only problem is my cholesterol is too hgh at 241 (it should under 200).
My LDL is 154. It should under 130.
Stocks For a New Decade?' Wait a Minute! This
is the headline on a Wall
Street Journal piece by Brett Arends of a few days ago:
if you had Southwestern Energy.
No? How about
XTO Energy? Range Resources? Precision Castparts?
You should have.
These were top stocks of the decade in the Standard & Poor's 500-stock
index. Ten years ago, the smartest thing you could have done with your money
was to invest in these. Each $1,000 invested then would be worth tens of thousands
Now look at
the stocks the experts told you to buy instead.
The most widely
recommended -- according to a quick survey at the time in the Washington Post
-- were America Online, Cisco Systems, Qualcomm, MCI WorldCom, Lucent Technology
and Texas Instruments.
Any people who
invested in that portfolio have lost about two-thirds of their money. The
average stock picked at random was up 3%, including dividends.
Money: A To-Do List
for money tips for the next decade? Here are a half dozen:
off your credit cards already. Then cut them up. Obvious but true. That
saves you 15% or more. A cert to beat the market.
your taxes. They're only heading in one direction. Make the full use
of your 401(k) and IRA allowances each year. If you have children, save
in a 529 college-savings plan too.
the numbers on buying a home. Real estate has plunged, and fixed-rate
mortgages look cheap below 5%. Do the math to see if owning now makes
more sense than renting.
out your high-fee mutual funds. Most funds charge a bundle: Few are
worth it. Unless a fund is exceptional, you're better off in a low-cost
your inflation risk. Long-term bonds, including Treasurys, corporates
and municipals, are all at risk if these deficits lead to higher inflation
down the road, as many fear.
for a wager? Try the iShares MSCI Japan Index exchange-traded fund (EWJ).
At the start of the new decade, the Tokyo stock market may be the world's
least fashionable investment.
Money Magazine's "The Best Investments for 2000 and Beyond": down
about a fifth.
Street Journal Sunday picks fell by about a half. The list was heavily weighted
toward technology, and most stocks plummeted. MCI WorldCom and Nortel Networks
ended up in Chapter 11.
OK, it's easy
to poke fun. But it's something to think about -- especially around this time
of year, when wise men once again come bearing stock tips.
don't stop there. Investors have just endured an absolutely terrible 10 years
-- a string of crashes, crises, financial scandals, recessions and collapsed
Standard & Poor's analyst Howard Silverblatt, it has actually been the
worst decade for U.S. investors on record. When you look at total returns,
including dividends, we've even done worse than the 1930s. Investors in the
S&P 500 have lost about 10% this decade.
After you count
inflation, investors have actually lost about 30%. That's even behind the
inflationary 1970s, when investors lost about 23% in real terms.
And that's if
you managed to hang on. Those shaken out during the crashes of 2001-2003 and
2007-2009 may have done much worse.
The Nasdaq Composite
fell about three quarters from its peak, and, of course, many technology stocks
were wiped out altogether. But how much warning did investors get from the
pros? Almost none.
our sister publication, held its annual investment roundtable in January 2000,
just two of the 10 major Wall Street figures who took part warned investors
about a looming bear market. This was just three months before the Nasdaq
reached its all-time high -- which is still more than double where it stands
One fund manager admitted to Barron's that "I have a guy who sells me
coffee in the morning, who grew up in Bombay, and he is more into the stock
market than I am," echoing those infamous tales of stock tips from shoe-shine
boys just before the Crash of 1929. Yet even that ominous sign wasn't enough
to turn the group bearish. Instead Goldman Sachs strategist Abby Cohen said
the stock market was "roughly at fair value based upon our view of S&P
profits." Even technology stocks were "not overvalued" based
on standard measures, she insisted.
Hubris, meet schadenfreude. Face, meet egg.
notes that Ms. Cohen did turn more cautious some months later, near the peak.)
Ten years later,
some things have changed on Wall Street. But plenty hasn't.
Much of the
stock-market community is still just a marketing machine that happens to sell
investments, the way, say, a drugstore like CVS sells pills. (Unfair? Just
a little: CVS, after all, won't deliberately sell you bad pills.)
after the last 10 years, are better forearmed ahead of the next 10. Anyone
seeking to protect his or her money needs to correct for the biases of the
The most powerful
and dangerous force on Wall Street is the herd instinct. Look out.
It's easy and
safe for most "investment professionals" to stick together and recommend
the same things, no matter how foolish. It's better -- for them, though perhaps
not for the clients -- to be wrong in a crowd than risk standing alone. Few
things are more dangerous to investors than a consensus.
And there is,
of course, generally a strong bullish bias on Wall Street. Even today, as
usual, most stock recommendations are positive. Never mind that the market
is already nine months into a recovery that has seen the S&P 500 rise
more than 63% and the Nasdaq jump over 70%. (And all the while, 17% of the
country is unemployed, underemployed or has stopped looking for work.)
No matter how
overvalued a stock, an analyst can always be found to say it's cheap compared
to some other (even more overvalued) stock. This was common during the dotcom
It hasn't gone
away. And no matter how dangerous markets may be, someone will always warn
you -- just as they did in 1999 -- to stay fully invested because "you
can't time the market." That this advice happens to be in their interests
is, of course, mere happenstance.
These days investors have relearned that the investments everyone is talking
about are usually ones you don't want to buy. The risks of chasing a highflier
generally outweigh the rewards. It takes a 100% profit to recover from a 50%
The best investments
are usually the ones nobody is talking about. Ten years ago, everybody was
talking about which technology stocks to buy. Almost nobody was talking about
gold. The Bank of England could barely give the stuff away at $260 an ounce.
As I've poked
fun at others' poor foresight, I had better 'fess up to my own, too. Ten years
ago, a money manager friend repeatedly urged me to sell everything and buy
Did I listen?
on the Hudson. I'm a total sucker for romance. I cry in movies.
I cry at weddings. I cry. From New York Magazine, as its number one reason
for loving New York City:
waiting in La Guardia airport for his flight back home to Charlotte, North Carolina,
on January 15, 2009, Ben Bostic happened to notice Laura Zych, a chic, pretty
brunette. She ended up on the same plane, but not the same row. I would
have totally forgotten about it, he said later, if it werent
for the things that happened.
of course, was that Ben and Lauras flight, US Airways 1549, collided
with a flock of geese shortly after taking off and suffered engine failure.
Forced to make quick decisions, Captain Chesley Sullenberger steered the rapidly
descending plane onto the Hudson River. He made a spectacular, flawless landing.
Within minutes, the passengers and crew had filed out on the wings, and ferryboats
of all types were en route to rescue them. Everyone survived. It was, as Governor
Paterson called it later that day, A Miracle on the Hudson.
Bostic and Zych
were on separate rescue boats; they didnt formally meet until 60
Minutes arranged a tearful reunion with many of the passengers, along
with Sullenberger and the crew, down in Charlotte in February. At that time,
many passengers were still suffering from symptoms of post-traumatic-stress
disorder, but the gathering helped. Then, in July, Kristy Spears (seat 8A)
hosted a reunion in her home outside Charlotte. Zych (seat 17B) met up with
Amy Jolly (seat 14C), whom she had befriended through a survivors Facebook
group. Bostic hung out with them, but had to leave early and drive out of
town for another party. Late that night, they persuaded him to drive back,
and Zych offered to let him crash at her place. I didnt think
of it until the next day, but it was the second time I crashed with them,
says Bostic, who calls going back into town that night one of the best
decisions Id ever made. He and Zych ended up talking on her porch
until six in the morning. I had to work the next day. And I didnt
care! At that time, thats exactly what I wanted to do. The couple
have been dating ever since.
The Flight 1549
gang, whose stories have been collected in the new book Miracle on the
Hudson, has become very tight-knit. Even the first time you meet
someone from that flight, its like youre instantly bonded,
says Zych. You cant be around this group of people and not feel
good. They are planning a big reunion next month in New York. The 1549ers
calls their gatherings celebrate life nights, and in the
same vein, Zych and Bostic have adopted the habit of dancing to their favorite
music every night before they go to bed. We do that as part of our decompressing
and loving life, she says. Just so that your day ends on a good
On top of
an FDNY rescue boat, Ben Bostic and Laura Zych revisit the fateful occasion
that brought them together.
particular Christmas season a long time ago, Santa was getting ready for is
annual trip, but there were problems. Four of his elves got sick, and the trainee
elves did not produce the toys as fast as the regular ones so Santa was beginning
to feel the pressure of being behind schedule. Then Mrs. Claus told Santa her
mom was coming to visit. This stressed Santa even more.
When he went to
harness the reindeer, he found that three of them were about to give birth;
two had jumped the fence and were out, heaven knows where. More stress.
When he began
to load the sleigh one of the boards cracked, and the toy bag fell to the ground
and scattered the toys. So, frustrated, Santa went into the house for a cup
of apple cider and a shot of rum.
When he went to
the cupboard, he discovered the elves had hidden the liquor. There was nothing
to drink. In his frustration, he accidentally dropped the cider pot, and it
broke into hundreds of little pieces all over the kitchen floor. He went to
get the broom and found that mice had eaten the straw end of the broom.
Just then the
doorbell rang, and irritable Santa trudged to the door. There was a little angel
with a great Christmas tree.
The angel said,
very cheerfully, "Merry Christmas, Santa. Isn't it a lovely day? I have
a beautiful tree for you. Where would you like me to stick it?"
Thus began the
tradition of the little angel on top of the Christmas tree.
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely available
for three reasons: Writing is good for sorting things out in my brain. Second,
the column is research for a book I'm writing called "In Search of the
Perfect Investment." Third, I encourage my readers to send me their
ideas, concerns and experiences. That way we can all learn together. My email
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