Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Monday, April 11, 2005:
That was the nicest weekend in eons. Cloudless blue skies and 60 degree
weather. Lots of reading, exercise, resting and Spring cleaning. It's amazing
how much stuff one doesn't need.
does America look to foreign eyes? It's surprising how good. In my
various talks, I often chide my American audiences for "not knowing
how good they have it living in this great country." I truly believe
that. A little more overseas traveling would sit well with some of my constantly
bitching liberal friends.
This year marks the bicentennial of the birth of Alexis de Tocqueville, our
keenest interpreter. The Atlantic Monthly magazine asked another Frenchman
to travel deep into America and report on what he found. It was a stroke of
genius for The Atlantic Monthly to renew the Tocquevillian project by commissioning
the distinguished French philosopher, journalist and gadfly Bernard-Henri Lévy
to repeat Tocqueville's journey through America and chronicle his observations
over the next several months in the magazine before they appear in book form
early next year.
The first installment
of his account, in the May issue of The Atlantic, highlights some of the threads
that will be woven through the travelogue. It seems that Mr. Lévy, like
Tocqueville, is often uneasy about America but always entranced by it. And at
least so far, he can claim, like Tocqueville, that his account "is not
precisely tailored to anyone's point of view."
The New York Times,
reviewing the first segment comments, "While Tocqueville deduces American
character from abstract principles, Mr. Lévy wants to discover the abstract
principles through observation of the American character. So the elegant logic
that Tocqueville uses to outline democracy's effects is replaced in Mr. Lévy's
first installment by the accumulation of anecdote and carefully observed description.
by the side of Interstate 94 in Michigan to relieve himself in a field, he is
accosted by a policeman who insists that he "keep moving," an American
commandment, Mr. Lévy notes. But when Mr. Lévy tells him that
he is a Frenchman following the path of Tocqueville, the discussion with the
officer turns affable -- an encounter, Mr. Lévy says, that poses a "magnificent
challenge" to those who inflate American Francophobia, which he never once
encountered in his travels."
There is much,
too, in which his own surprise is as revealing as what he sees. The prevalence
of American flags is a shock; France, Mr. Lévy says, almost shuns its
tricolor flag. When visiting members of the Arab community in Dearborn, Mich.,
he is impressed with how the American "we" has taken root: "on
the topic of immigration, Europe should take lessons from America," he
said in a talk at the New York Public Library last Wednesday night."
I became an American over 20 years ago. Lévy's piece is enormously
positive. He finds lots to love about America. Give yourself a great pleasure
and read his piece. Click here.
How do tech stocks look to Fred Hickey, who
writes "The High-Tech Strategist" newsletter? In one word --
overpriced. Hickey studies, reads and listens to a lot of conference calls.
He finds most are talking downturn. Hickey's points:
Average Nasdaq 100 stock's P/E is 39. "Adjust for a new, more sustainable
level of business and investors may find P/Es in the triple digits at current
+ Semiconductors companies are using a new word to define their growth potential
-- trough. Writes Hickey, "many of the semiconductor stocks are
levitating on the hope that the trough is here and the bottom is in. ... The
only problem with this story is that the bulls have forgotten money minor detail
-- demand -- and it's not there."
+ Evidence of a demand slowdown for enterprise software companies is clear.
Such companies include Siebel Systems, Lawson Software and RSA Security.
+ Warnings have been coming fast and furious from the software sector. SeeBeyond
Technology, MRO Software, Embarcadero Technologies, Matrix One, Mentor Graphics
and NetIQ "have been among the confessors in just the last 24 hours."
+ Distribution is drab also. Tech Data lowered its sales and earnings guidance.
Ingram Micro's operating margins in North America fell last quarter. PC Connection's
sales are falling, reflecting a general softness in demand.
+ PC sales appear to be strong in China, weaker in Europe and relatively
soft (though not disastrous) in the U.S.
+ Hickey owns some AMD, but expects to be able to buy more at cheaper prices
+ He owns some Novell because he thinks it's an interesting Linux play.
+ He currently put options in Best Buy, Dell, Lexmark, eBay, Maxim Integrated
Products, Flextronics, Applied Materials, KLA-Tencor, Texas Instruments, Research
in Motion, Intel, Mercury Interactive, Countrywide Financial, Capital One, Toll
Brothers and IBM.
+ He's totally down on over-priced Research in Motion. He writes, "I
believe that RIMM is rapidly beginning to saturate the potential available pool
of BlackBerry buyers. The product (including service contract) is very expensive,
limiting its use to mostly high-powered business users. Alaska Air, Avis, Orbitz,
United Air Lines, UShop Wireless and iTravel2000 have recently offered 'free'
BlackBerries with the purchase of flights, vacations, cruises, rental cars ...
Not long ago BlackBerries were in shortage. ... I've been around a long time
and have seen many a company with a hot new product, skyrocket and then plunge
back to earth. When the real estate/credit bubble pops, many businessmen will
see the expensive BlackBerry as an unnecessary discretionary expense. The fun
with RIMM has just begun."
do Ponzi schemes work? Mitchell
Zuckoff has written a book called "Ponzi's Scheme. The True Story of a
Financial Legend." Ponzi schemes, in various forms, exist today. Investors
are still caught by their promises of extravagant returns and charismatic promoter
lacking a serious way to repay the money. Reviewing the book, this weekend,
the New York Times wrote:
than 80 years after Charles Ponzi's spectacular rise and fall, his name is still
synonymous with ''swindle.'' And although it is invoked to describe a variety
of brazen, gargantuan rip-offs, it really applies only to swindles of a certain
kind, longer than a one-shot deal but inherently limited in duration, in which
people are promised windfall profits from can't-miss investments -- to be paid,
when they are paid at all, only out of money collected from subsequent dopes
There is another
particular subtlety to the classic Ponzi scheme: not just anyone can pull one
off; doing so requires cleverness, charm and charisma. That all these the original
Ponzi had aplenty is clear from ''Ponzi's Scheme,'' Mitchell Zuckoff's entertaining
portrait of the dapper rogue who persuaded 30,000 people, Bostonians and others,
many of them Italian immigrants like Ponzi himself, to entrust him with their
hard-earned, pre-inflationary dollars.
For a few months
in 1920, Boston was the site of an astonishing daily ritual. Every morning hundreds
of people, their numbers swelling week by week, lined up in front of Ponzi's
office -- the Securities Exchange Company, he called it -- often with their
life savings in their pockets. They would hand over their greenbacks to tellers
behind old-fashioned caged windows, their bills piling up so fast that when
the drawers were filled with them, they would be tossed into wire baskets. In
return, each would receive a small, ornate certificate, promising a 50-percent
return in 45 days.
That this cockamamie,
pie-in-the-sky scheme ever existed at all, let alone that it grew so enormous
and lasted so long, was a testament to the credulity, desperation and greed
of the public, as well as to the laziness and incompetence of both the press
and the authorities.
Born in northern
Italy, Ponzi had come to Boston in 1903 at the age of 21. He splurged on a second-class
ticket rather than take steerage; in style, breeding and aspirations, he was
less one of those huddled masses yearning to breathe free than he was a hustler
yearning to be rich. Early on he was sent to prison for forgery and smuggling,
where he impressed one supervisor with his head for figures and his ''obsession
for planning financial coups.'' But his were not small-bore get-rich-quick ideas,
but complicated market manipulations that would make him millions.
His time served,
Ponzi returned to Boston in 1917, married and took a job as a clerk and stenographer.
And he schemed. His tool of choice turned out to be an innocuous enclosure he
received in a letter from Spain: an International Reply Coupon, designed to
purchase postage stamps in foreign currencies at fixed, outdated rates of exchange.
Buy them in bulk in European countries whose currencies had been ravaged by
World War I, redeem them in the United States for sturdy American dollars, and
presto! You had a tidy little profit. ''A little dollar could start on a journey
across the ocean and return home in six weeks, married and with a couple of
kids,'' is how he put it.
It was simple,
apparently legal and offered people of even modest means the chance to invest.
There was, of course, the small matter of how to convert postage stamps into
cash. But as Ponzi quickly discovered, that would not be necessary. Nor, for
that matter, was buying coupons, or doing anything at all in Europe. With successive
waves of people entrusting him with their cash, Ponzi needed only enough money
to pay off those people redeeming their coupons. Of course, with the prospect
of increasing their savings exponentially every couple of months, few ever redeemed
for business in December 1919, and soon the first few customers began trickling
in. There was no need for advertising; word of mouth sufficed. In February 1920,
he took in $5,290; in April, more than $140,000; in May, more than $440,000;
in June, more than $2.5 million; and in July, nearly $6.5 million -- this at
a time when the president of Harvard earned $6,000 a year. In seven months,
30,000 people had entrusted Ponzi with almost $10 million of their money. He
was a wealthy man -- that is, if you didn't count the $15 million he owed them.
He bought himself
an impressive home in suburban Lexington, carried $10,000 bills in his elegantly
tailored suits and sported a gold-handled walking stick on the streets of Boston
when he was not in the back seat of his chauffeur-driven Locomobile. All of
this only added to his aura and his popularity. Admirers stood outside his office
to cheer his arrival every morning, and followed him wherever he went. When
one fan designated him the greatest Italian ever, he demurred; Columbus and
Marconi still had him beat -- at least for the time being.
the whole jerry-built edifice came tumbling down. The press, specifically, The
Boston Post, finally unmasked him and his operation, goading lethargic officials
into investigating. For a time, the persecution only enhanced Ponzi's appeal.
At any point, after all, he could have fled back to Italy with his millions;
instead, by staying put and insisting upon reimbursing any anxious investors
suddenly demanding their money, he only appeared more trustworthy. Ponzi became
the underdog's tribune, standing up to the plutocratic Brahmins, fighting to
give little people a chance to improve their lot. He seemed to enjoy paying
out money as much as collecting it; it was the long lines, the attention, the
action, the adulation that mattered most.
it turned out, were not the only dreamers; so, too, was Ponzi himself. Never
did he think he was doing anything wrong. Always, he thought he would find a
way out of his fix, a way to make everyone whole: taking over a bank, buying
into a macaroni company, turning much of the American freight and passenger
fleet from World War I into his very own steamship line. With all of its pejorative
connotations, ''Ponzi scheme'' may actually be a bit unfair to Ponzi, conjuring
up someone who was more mendacious and greedy than the real Ponzi actually was.
He was finally
arrested in August 1920 -- his assets were $3 million short of his liabilities
-- and convicted of a variety of federal and state offenses. After several years
in prison, he was deported to Italy in 1934, carrying a suitcase with no money
to speak of but plenty of newspaper clippings. His marriage in ruins, he lived
in poverty and died in the charity ward of a Brazilian hospital in 1949, at
the age of 66.
teaches journalism at Boston University, tells Ponzi's story amicably and briskly,
and keeps the complicated financial intricacies understandable. There are occasional
bad puns and tortured metaphors, as well as periodic digressions -- into the
history of con games, for instance, and the familiar story of Boston's Mayor
James Michael Curley -- that seem like padding. More serious is his excessive
reliance on Ponzi's autobiography. Since so little else of what Ponzi said can
be believed, why trust his own version of events? The answer, of course, is
that it's just so colorful. Even from his pauper's grave, it seems, Charles
Ponzi is still working his charms."
in K1s. Many of my private equity venture funds and my LBO (leveraged
fund are finally coming goods. The writedowns in some investments are horrific
-- like 100%. But some investments are doubling and tripling in value, more
than accounting for the losses. The period 2000-2004 was not the 1980s and the
1990s -- heydays for venture capital and LBOs -- but many funds will eke out
a profit. I bet that "profit" will be in line with T-bills and muni
bonds. Not worth the heartache -- but, as they say in Australia, better than
a slap in the belly with a cold fish.
American in France
American is having breakfast one morning (coffee, croissants, bread, butter
and jam) when a Frenchman, chewing bubble-gum, sits down next to him. The American
ignores the Frenchman who, nevertheless, starts a conversation.
American folk eat the whole bread??"
American (in a
bad mood): "Of course."
blowing a huge bubble) "We don't. In France, we only eat what's inside.
The crusts we collect in a container, recycle it, transform them into croissants
and sell them to the states." The Frenchman has a smirk on his face.
The American listens
persists: "Do you eat jelly with the bread??"
his bubble-gum between his teeth and chuckling).
In France we eat fresh fruit for breakfast, then we put all the peels, seeds,
and leftovers in containers, recycle them, transform them into jam and sell
the jam to the states."
After a moment
of silence, The American then asks: "Do you have sex in France?"
of course we do", he says with a big smirk.
what do you do with the condoms once you've used them?"
throw them away, of course."
don't. In America, we recycle them, melt them down into chewing gum and sell
them to France."
about being late this morning: My Interland
web hoster screwed up. I spent 20 minutes talking to them. Really boring.
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 .
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