Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Thursday,
June 25, 2009. How difficult is to make money in this
market? How about well-nigh impossible? I have a small investment in hedge fund.
Last year they were flat. Which was brilliant. This year they're losing. Their
latest monthly letter includes:
returns at XYZ Capital (name changed) were -1.42% for the month of
May, while the S&P 500 was up 5.31%. Net exposure averaged about
neutral during the month. Average daily gross exposure increased slightly
to 53% from the previous month at approximately 48%. We will continue to increase
gross exposure as stocks exhibit more reasonable dispersion and lower correlation.
particularly unprofitable. One large long position in semiconductors saw a
loss following a confusing and disappointing earnings announcement. We reduced
our position size in May, following our normal risk discipline process, and
the stock rebounded in the month of June. We have since exited the position.
has recently declined, generating a healthier investment environment. We have
increased gross exposure to approximately 75% as of the middle of June. Position
sizes have been increased and new positions added to the portfolio. Investment
themes we have been following for some time include next generation networks,
smartphones and touch technologies. Investments in the portfolio that benefit
from the adoption of smartphones include ARM Holdings (ARMH), NetLogic Microsystems
(NETL), and Triquint Semiconductor (TQNT). We view these trends as strong
secular forces that will inevitably play out.
that we have been studying over the years is the change in the semiconductor
supplier environment for cellular handsets. Nokia, the largest handset maker,
is shifting from reliance on Texas Instruments to a more open supplier sourcing
model. Beneficiaries include ST Micro (STM), Broadcom (BRCM) and Infineon
(IFX). Note that these three vendors all license digital signal processing
technology from CEVA (CEVA), one of our long term core holdings. We have written
for two years about this approaching wave, as Nokia shifts hundreds of millions
of units to these vendors. CEVA is paid royalties on each unit that IFX, STM
and BRCM ship to Nokia, Samsung, Sony-Ericsson, Apple and other handset makers.
CEVA also has a strong product offering for 4G/LTE that will be a revenue
driver in the coming years. We believe CEVA has earnings power of over $1.00
in the coming years, and with $4.30 per share in cash, we believe the stock
(CY) is a new name in our portfolio. We believe CY has a number of positive
product cycles to drive growth. Their Programmable System-on-Chip (PSoC) product
combines digital and analog technologies on a single chip, which can be custom
configured in software. By allowing customers to configure hardware blocks
at the software level, PSoC can drive a lower-cost and faster time to market
for OEMs. PSoC has strong capabilities for touch screen applications, an area
that will see very strong growth for CY. PSoC is currently driving the touch-screen
capabilities of the Palm Pre, and our checks indicate other tier-one handset
OEMs and a broad range of customers are designing products around PSoC.
CY also has
interesting opportunities in the SRAM market that investors may be overlooking.
A handful of suppliers dominate this market, with Samsung and CY the largest
players with roughly 30% market share each. Samsung has indicated they would
like to exit the SRAM market over time as they focus on higher growth business
lines with even greater potential. After conversations with distributors and
customers, we believe major SRAM customers will be shifting from Samsung to
CY sooner than investors anticipate and within the second half of 2009. CY
will benefit from revenue growth, higher utilization of their fabrication
plants, and firm pricing. We believe PSoC and SRAM product cycles make CY
an attractive investment. We made CY a large position in May.
presents a unique investing opportunity within the semiconductor sector. The
company has developed technologies for memory and memory controller chips.
Some years ago the ajor memory makers began producing Rambus technology-based
DRAM but quickly moved back to DRAM technologies that did not require royalties
for Rambus. Rambus believes there exists substantial evidence that the memory
makers conspired to deprive Rambus of royalties while breaking anti-trust
laws. The anti-trust trials will begin in September and if Rambus prevails,
damages are likely to be in the billions and will automatically be trebled.
The potential dollar amount is several times RMBS market cap. Either
a pre-trial settlement agreement or a win in court will drive RMBS substantially
higher. With a positive expected return profile, we added RMBS to the portfolio
during the month.
difficult economic environment we have deliberately chosen to strategically
invest in high quality individuals and have significantly enhanced our operational
and research teams. ...
Wall Street looks after itself -- NOT you. Wall Street
management can pay itself bonuses, or leave something for its shareholders,
i.e. you. That's the big conflict when an investment banker lists its shares
for the public to feast on. I have always avoided these shares because the public
typically gets screwed. I was amused to read this piece in yesterday's Wall
Street Journal. I added the graphs.
KKRs Coming Sucker Punch
You should never
count Wall Street out.
Sure, back in
March, it looked like it was all over. But what a comeback! The TARP money
is repaid. The fat two-year bonus guarantee is back. And now, Henry Kravis
has rope-a-doped his way back to a KKR listing on the New York Stock Exchange.
my colleague Peter Lattman reported that KKR will float shares on the Euronext
exchange via a complex merger with its KPE affiliate. In time, you can expect
a NYSE listing.
If you are an
intelligent investor, this is your cue to run from the ring, as far from a
new share of KKR as you can get.
that I have anything against KKR. But I approach its listing with the same
caution I had over the Blackstone Group, Och-Ziff and Fortress Investment
As I said last
year: Stephen Schwarzman, Dan Och and Wes Edens (their respective CEOs)
are not idiots. Their businesses dont need your capital. If they want
to share their good fortune with the public, they build libraries.
CEOs have delivered losses of 64% to 82% to IPO investors who are still hanging
on to shares. Plenty of their investors have dumped shares with losses north
So, why should
you trust Henry Kravis or expect a share in new KKR to produce
KKR will argue
that Kravis and his fellow execs arent cashing outthat the Euronext
and NYSE listings are merely a mechanism to provide liquidity to existing
KPE investors. It will argue that public shareholders will end up owning the
majority of the carried interest in the new KKR. And it will argue
that it is far along on its strategy of building one of the worlds leading
alternative asset investment firms.
fooled. The endgame of the KKR listing is for Kravis and his fellow partners
to monetize their stakes in KKR. It may take another year or so, but thats
where its going. And if Kravis is to be selling, why should you be buying?
Of course, in
going through all the reams of details you might convince yourself that you
are getting into KKR cheap, as opposed to those who bought into
Blackstone. But your concern should be less about price than about what it
is you are buying: an estate-management tool for Henry Kravis and George Roberts.
is alternative-asset managementand that can be a viable
strategy. But in the case of Blackstone, Fortress and many hedge funds, top
managers have frequently gotten rich at the expense of public shareholders
or limited partners or both.
have finally started to get the joke. Thats why the tide of institutional
capital is moving from hedge fund and other active managers that charge big
fees toward cheaper indexing.
Just look at
the recent deal by BlackRock to pick up Barclays Global Investors and its
$1.3 trillion in ETF and index-fund assets. Or look at a recent survey noting
that 20% of institutional investors are taking money away from active managers
and putting it to indexing.
Of course, plenty
of money will stick with hedge funds. But just what is KKRs true expertise
in alternative-asset management? Sure, it ran a fantastic private-equity
business for many years, but those days of easy-money LBOs are over.
And that is
why KKR has branched into new businesses like distressed debt that so far
are unproven. Correct that. Two of its most recent ventures, KPE and KFN are
actually proven disasters.
KPE shares have
fallen 77% since its listing in 2006and it is now serving as the vehicle
for Henry Kravis and KKR to eventually list on the NYSE and finally deliver
their big sucker punch.
yesterday's photos of 90% off Sales and Closing retail stores? Guess
what I found yesterday in New York? A retail store with a half-hour wait to
buy a hot new product.
Yup. You got it. These people are waiting half an hour to buy the new iPhone
old profession for trying times. There's a wonderful exhibit at New
York's Jewish Museum, Mayer Kirshenblatt's "Painted Memories of Jewish
childhood in Poland before the Holocaust." Two paintings caught my
eye. Their caption read:
When a person
was very sick and all hope was gone, the professional wailers would run to
the synagogue or house of stufy to force open the gates of heaven. These wailers
were called platschkes in Yiddish. They would rush up the stairs leading
to the Holy Ark, open the curtain, and fling open the doors to expose the
Torah scrolls. Crying and screaming into the Ark, where the spirit of the
Almighty is believed to reside, they would beseed him to save this very sick
person from death. When we saw this performance, we knew there would be a
funeral the next day.
It's time to bring
back professional wailers. How about we start with the economy and move onto
the stockmarket? I think I'll open a school for professional wailers. Anyone
want to sign up?
This is a test.
Tennis TV Schedule.
June 26, 2008
7 a.m.-2:30 p.m. (live) - Day 4
7 p.m. (highlights) - Prime Time
Friday, June 27, 2008
7 a.m.-5 p.m. (live) - Day 5
7 p.m. (highlights) - Prime Time
Saturday, June 28, 2008
8 a.m.-noon (live); 3-7 p.m. (tape) - Day 6
12-3 p.m. (live) - Day 6
7 p.m. (highlights) - Prime Time
Sunday, June 29, 2008
3-6 p.m. (tape) - Highlights Week 1
12-3 p.m. (tape) - Highlights Week 1
7 p.m. (highlights) - Prime Time
Monday, June 30, 2008
7-10 a.m. (live); 1-6 p.m. (live/replay) - Fourth Round
10 a.m.-1 p.m. (live) - Fourth Round
7 p.m. (replay) - Fourth Round
Tuesday, July 1, 2008
7-10 a.m. (live); 1-5 p.m. (live/replay) - Women's Quarterfinals
10 a.m.-1 p.m. (live) - Women's Quarterfinals
7 p.m. (replay) - Prime Time
Wednesday, July 2, 2008
7-10 a.m. (live); 1-5 p.m. (live/replay)- Men's Quarterfinals
10 a.m.-1 p.m. (live) - Men's Quarterfinals
7 p.m. (replay) - Prime Time
Thursday, July 3, 2008
7-12 p.m. (live); 8-10 p.m. (highlights) - Women's Semifinals
12-5 p.m. (in all time zones) - Women's Semifinals
8-10 p.m. (replay) - Prime Time
Friday, July 4, 2008
7-12 p.m. (live); 12-3 a.m. (highlights) - Men's Semifinals
12-5 p.m. (in all time zones) - Men's Semifinals
Saturday, July 5, 2008
9 a.m.-2 p.m. (live) - Women's Final
2-3 p.m. (highlights) - Women's Final
Sunday, July 6, 2008
9 a.m.-3 p.m. (live) - Men's Final
3-4 p.m. (highlights) - Men's Final
photo like this just doesn't come along every day!
One of the reasons
Mummy wont let him be king
The coach had put together the perfect team for the Detroit Lions.
The only thing that was missing was a good quarterback.
He had scouted
all the colleges and even the Canadian and European Leagues, but he couldn't
find a ringer who could ensure a Super Bowl win.
Then one night
while watching CNN he saw a war-zone scene in Afghanistan. In one corner
of the background, he spotted a young Afghan Muslim soldier with a truly incredible
arm. He threw a hand-grenade straight into a 15th story window 100 yards away.
He threw another
hand-grenade 75 yards away, right into a chimney.
Then he threw
another at a passing car going 90 mph.
to get this guy!" Coach said to himself. "He has the perfect arm!"
So, he brings
him to the States and teaches him the great game of football. And the
Lions go on to win the Super Bowl. The young Afghan is hailed as the greatest
hero of football, and when the coach asks him what he wants, all the young man
wants is to call his mother.
he says into the phone, "I just won the Super Bowl!"
I don't want to
talk to you, the old Muslim woman says.
us. You are not my son!"
think you understand,
the young man pleads. "I've just won the greatest sporting event
in the world. I'm here among thousands of my adoring fans."
me tell you!" his mother retorts. "At this very moment, there are
gunshots all around us. The neighborhood is a pile of rubble. Your two brothers
were beaten within an inch of their lives last week, and I have to keep your
sister in the house so she doesn't get raped!"
The old lady pauses,
and then tearfully says, "I will never forgive you for making us
move to Detroit!"
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 address
is . You can't
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