Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Friday, April 13: Yup.
It's Friday, the 13th.
back, I played consultant. People would ask me "What does a consultant
do?" I'd answer "I help people question their assumptions." This
is flip, but true. Any idiot can build a logical course of action, with marketing,
finance and personnel plans, etc. But if the assumptions the plan is based on
are wrong, you got a busted (though logical) plan.
this week, it's been with bonds. Readers are asking themselves, "Why
do I own bonds?" Previously they were interested in laddering, and
% allocations. Yesterday I gave ten reasons people buy bonds. And yesterday's
emails said my reasons were accurate. But the mistake I'm making is that I'm
one size fits all. Everyone clearly has a different risk threshold and investment
Dan Good thinks I should merely be pointing out the risk/rewards and not my
prefered allocation (i.e. nothing for bonds). He writes "What works for
Yale may not work for an older person who might be getting his affairs in order
because he has a terminal illness. It may not work for a young entrepreneur
who wants to roll the dice by investing in all Internet stocks."
In short, whether
you own bonds depends on:
1. Your age, and
2. Your disposition to spending time on investing. Bonds are virtually a no-brainer.
Everything else takes work.
The reality is
today you'll lose money by owning bonds. The yield you will get from
your bonds (and I'm talking treasuries and munis) is not going to keep up with
Yesterday, I wrote,
"You can lose with bonds. With interest rates rising, bond prices are falling
at present. Idiots like me have bought bonds at a premium. If I hold those bonds
to maturity, I will lose my premium."
A reader correctly
pointed out that I "will still get the yield you bought the bond at so
you lose nothing." He's right and I knew that. But it irks me if I buy
a bond at $109, only to be given $100 back when it matures. That reduces the
In the old days,
bonds paid more and equities were flat. We didn't have real estate syndications,
and all the other stuff Yale
We no longer live
in those times.
In short, bonds
make sense for some people. But only a few of us. What does make sense is organizing
your portfolio by liquidity. Many of these new enticing things you can
invest in -- from hedge funds to private equity funds to real estate syndications
-- all have sizable lockup periods. There may come a time when you need a chunk
of cash -- e.g. your daughter's wedding. You don't want to pay for that with
monies that are tied up for 7 to 10 years in a private equity fund. But you
can pay for it with investments that you can sell from one day to the next --
e.g. Vanguard Index funds.
As a postscript
to all of this: my seven Vanguard Funds are kicking butt -- doing much better
than my New York muni bonds. I've written about these funds before. Here they
+ Vanguard International
Value Fund (VTRIX)
+ Vanguard Total International Stock Index Fund (VGSTX)
+ Vanguard Global Equity Fund (VHGEX)
+ Vanguard 500 Index Fund Admiral Shares (not recommended) (VFIAX)
+ Vanguard Pacific Stock Index Fund Admiral Shares (VPADX)
+ Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX)
+ Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX)
and while we're
on index funds, don't forget EWA, which is iShares MCSI Australia. It's
moving up strongly.
Ethanol will make a lot of people rich.
But not me. I'm guessing this recent article from the Economist is truthful:
As a green fuel, ethanol is a good idea, but the sort that America produces
IT IS not often
that this newspaper finds itself in agreement with Fidel Castro, Cuba's tottering
Communist dictator. But when he roused himself from his sickbed last week
to write an article criticising George Bush's unhealthy enthusiasm for ethanol,
he had a point. Along with other critics of America's ethanol drive, Mr Castro
warned against the sinister idea of converting food into fuel.
America's use of corn (maize) to make ethanol biofuel, which can then be blended
with petrol to reduce the country's dependence on foreign oil, has already
driven up the price of corn. As more land is used to grow corn rather than
other food crops, such as soy, their prices also rise. And since corn is used
as animal feed, the price of meat goes up, too. The food supply, in other
words, is being diverted to feed America's hungry cars.
Ethanol is not
much used in Europe, but it is a fuel additive in America, and a growing number
of cars can use either gasoline or ethanol. It accounted for only around 3.5%
of American fuel consumption last year, but production is growing by 25% a
year. That's because the government both subsidises domestic production and
penalises imports. As a result, refineries are popping up like mushrooms all
over the midwest, which now sees itself as the Texas of green fuel.
Why is the government
so generous? Because ethanol is just about the only alternative-energy initiative
that has broad political support. Farmers love it because it provides a new
source of subsidy. Hawks love it because it offers the possibility that America
may wean itself off Middle Eastern oil. The automotive industry loves it,
because it reckons that switching to a green fuel will take the global-warming
heat off cars. The oil industry loves it because the use of ethanol as a fuel
additive means it is business as usual, at least for the time being. Politicians
love it because by subsidising it they can please all those constituencies.
Taxpayers seem not to have noticed that they are footing the bill.
ethanol, the sort produced in America, is neither cheap nor green. It requires
almost as much energy to produce (more, say some studies) as it releases when
it is burned. And the subsidies on it cost taxpayers, according to the International
Institute for Sustainable Development, somewhere between $5.5 billion and
$7.3 billion a year.
from sugar cane, by contrast, is good. It produces far more energy than is
needed to grow it, and Brazilthe main producer of sugar ethanolhas
plenty of land available on which to grow sugar without necessarily reducing
food production or encroaching on rainforests. Other developing countries
with tropical climates, such as India, the Philippines and even Cuba, could
prosper by producing sugar ethanol and selling it to rich Americans to fuel
There is a brighter
prospect still out there: cellulosic ethanol. It is made from feedstocks rich
in cellulose, such as wood, various grasses and shrubs, and agricultural wastes.
Turning it into ethanol requires expensive enzymes, but much research is under
way to make the process cheaper. Cellulosic ethanol would be even more energy-efficient
to produce than sugar ethanol and would not impinge at all upon food production.
Eventually, it might even allow countries with lots of trees and relatively
few people, such as Sweden and New Zealand, to grow their own fuel rather
than import oil.
That is still
some way off. In the meantime, America should bin its silly policy. If it
stopped taxing good ethanol and subsidising bad ethanol, the former would
flourish, the latter would wither, the world would be greener and the American
taxpayer would be richer.
Ethanol is not
going to solve the world's energy problems on its own. But its proponents
do not claim that it would. Ethanol is just one of a portfolio of new energy
technologies that will be needed over the coming years. Good ethanol, that
isnot the bad stuff America is so keen on.
open email attachments: I repeat: Don't open email attachments. There
are some really nasty viruses floating around in emails with headings like "Worm
Alert!", "Worm Detected," "Spyware Detected!", "Virus
Activity Detected!", The email carries a ZIP file attachment posing as
a patch necessary to ward off the bogus attack. The ZIP file, which is password
protected -- the password is included in the message to further dupe recipients
-- contains a variant of the "Storm Trojan" worm, which installs a
rootkit to cloak itself, disables security software, steals confidential information
from the PC, and adds it to a bot army of compromised computers.
Mechanics loves compact fluorescents: They
did an exhaustive double-blind test with people and machines in the May, 2007
issue and concluded:
results surprised us. Even though the incandescent bulb measured slightly
brighter than the equivalent CFLs, our subjects (i.e. people) didn't see any
dramatic differences in brightness. And here was the real shocker: When it
came to the overall quality of light, all the CFLs scored higher than
our incendescent control bulb. In other words, the new fluorescent bulbs aren't
just better for both your wallet and the environment, they produce better
helps you find the least worst seat on your next trip. Pick
an airline. Pick a plane it flies. And Seatguru will give you:
Detailed seat map graphics.
* In-depth seat specific comments denoting seats with limited recline, reduced
legroom, mis-aligned windows.
* Color-coding to help you find superior and substandard seats.
* In-seat power port locations.
* Galley, lavatory, Exit Row and closet locations.
Sample sliver of a SeatGuru airline cabin map:
highly recommend SeatGuru.
authentic Fire Truck
A firefighter was working on the engine outside the station when
he noticed a little girl nearby in a little red wagon with little ladders hung
off the sides and a garden hose tightly coiled in the middle.
The girl was wearing
a fire fighter's helmet.
The wagon was
being pulled by her dog and her cat.
The fire fighter
walked over to take a closer look.
is a nice fire truck," the fire fighter said with admiration.
the girl replied.
looked a little closer and noticed the girl had tied the wagon to her dog's
collar and to the cat's testicles.
the fire fighter said, "I don't want to tell you how to run your rig, but
if you were to tie that rope around the cat's collar, I think it could go faster."
The little girl
replied thoughtfully, " You're probably right, but then I wouldn't have
prelude to mad, passionate love
Husband and wife are in bed together. She
feels his hand rubbing her shoulder.
that feels good."
His hand moves
to her breast.
honey, that feels wonderful."
His hand moves
to her leg.
honey, don't stop."
But he stops.
did you stop?"
He: "I found
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 click on my email address. You have to re-type it . This protects
me from software scanning the Internet for email addresses to spam. I have no
role in choosing the Google ads. Thus I cannot endorse any, though some look
mighty interesting. If you click on a link, Google may send me money. Please
note I'm not suggesting you do. That money, if there is any, may help pay Claire's
law school tuition. Read more about Google AdSense, click
here and here.