Harry Newton's In Search of The Perfect Investment
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8:30 AM EST Thursday, April 17, 2008: Happy
days are not necessarily here again, despite yesterday's welcome 2+% gain. Normally
I shy from forecasting, since it's a fool's game. But I fear for too many parts
of today's economy -- for reasons I've bored you all with too many times.
hardest aspect of this job of writing a column on investing is aligning what
I do with what I recommend. As I grow older (and wiser?) I realize everyone
has a different taste for, and style of, investing. To me, the "perfect"
investment is one I control, i.e. a business I run. I don't have any of those
at present. As a result, that puts me at others' mercy. To mitigate the risks
there -- since most people are not good managers -- I spread my investments,
which is also called diversification, or broad allocation.
stinks because I lose "the big rewards." How big? Check out this story
- Bets on a U.S. housing crisis earned hedge fund manager John Paulson $3.7
billion (1.9 billion pounds) in 2007, ahead of industry legend George Soros
and 2006's highest-paid manager James Simons, according to Alpha Magazine.
bet that investment grade mortgage bonds would be subject to default in record
numbers came good in the subprime meltdown last summer, was one of five managers
earning more than $1 billion, Alpha said in a note on Wednesday.
were more than double those of 2006's top earner -- mathematics professor-turned-investor
James Simons, who founded Renaissance Technologies Corp -- who in 2007 earned
whose Quantum Endowment Fund returned 32 percent last year, earned $2.9 billion.
The top 25 managers
earned, on average, $877 million in 2007, up from $532 million in 2006.
well prove to be the greatest display of individual wealth creation in any
year in the modern history of finance", Alpha said in the note.
Did I predict
the subprime meltdown? No. On the other hand, I did predict -- past columns
are proof -- oil, silver, gold, commodities and Australian mining stocks. And
had I bet the farm on them, I would have done far better in 2007 (though I'm
not complaining about 2007).
Why didn't I?
I figure two reasons. First, I'm not a gambler, a.k.a. a "bet the farm"
kind of guy. I prefer "steady gains" (though I now realize they're
mythical -- keep reading.) Second, I'd prefer to be doing other things, like
writing books, writing this column, playing tennis, and being with the family.
I can't be glued all day to a bank of computer monitors.
But --- and now
comes the second revelation -- perhaps I don't have to be glued? Perhaps the
idea is to read, observe, research, take a deep breath and place the BIG BET.
And then step away from it and allow it run. I bet that's what Paulson, Soros
and others do.
There's a mentality
needed here that I don't know I possess -- or could learn. That's the ability
to ignore the days when my bet is going wrong. The day silver plummets. The
day FSLR dropped. The day oil collapsed. I'm learning the key is faith in myself,
my researches and my bet. And most times that faith is not misplaced, says he
And I'm learning
that my erstwhile "brilliant" strategy of extensive diversification
has its pitfalls, namely:
1. The more you
have, the more you have to keep track of , to "manage," etc.
2. The more you
have, the less research you do on each one, the more bad surprises will pop
up. And -- what's weird -- is that those bad surprises hurt as much as if you
had invested (and lost) millions.
I own a goodly
portion of a magazine. It wasn't a big investment. It wasn't big enough to warrant
taking over (with a partner I control 51% of the company). I tried to make occasional
suggestions by long distance. Wrong! They're entrepreneurs. They don't listen.
Yesterday, I received this email:
its not getting any better. I cant even make payroll, nice economy.
You said you could help me get the magazine ready (numbers etc.) to sell it
or even take over or what ever. Just
cant do it no more.
That hurt. I should
never have invested. But when I did, it was an ultra-small amount and print
magazines were booming. The hurt to my ego today is far larger, though it won't
affect my lifestyle.
I think I'm moving
to the "fewer, but bigger bets" strategy of investing. This morning
I feel comfortable with it. It has lifted the burden of finding a brilliant
new opportunity each waking day. That feels good. The only countervailing pressure
is the pressure of a daily column. Will my readers be annoyed at not
finding "The Opportunity du Jour." I'm begging your indulgence and
For now, I believe
in oil, gold, silver and Australian mining stocks. And I'm on the hunt for bigger
bets to fry. In today's market, I like big dividend payers. Let me have your
covers are contrarian, allegedly. The day the
Economist's great cover appeared last week, stockmarkets started rising.
John Mauldin wrote
on his blog, InvestmentPostcards:
especially as far as international publications are concerned, frequently
get their timing wrong on big picture events. As such, covers
are often used as contrarian indicators. Intuitively it does not seem that
this will be the plight of the cover of the latest Economist, but lets
keep an eye on how events unfold.
On second thoughts,
the magazines emphasis should perhaps have been on the price of the
escargots going through the roof, together with food in general, rather than
on the slowdown per se. Full marks in any event for a fabulous illustration.
Welch unfairly criticized his successor. GE
missed its earnings targets of three weeks earlier and Jack Welch slammed his
successor Jeffrey Immelt. But the key reason, as Immelt pointed out, was that
GE's earnings miss stemmed primarily from the credit crisis, which forced the
company to record expenses to reduce the value of loans and prevented it from
completing real-estate sales at the end of the quarter. And it all happened
at the time we all got caught as the auctions failed for those auction rate
highlight GE's earnings miss because it's indicative of the credit crunch and
how its effect on the economy and on corporate earnings is worsening, not
improving. If you don't believe me, check out this morning's earning results
from Merrill Lynch. Revenue down 69% and a first-quarter loss of $1.96 billion.
is a theory on Wall Street that the financials are overstating their
losses in their first quarter results. And that the next quarters will be rosy
That theory has as much efficacy as trying to catch a falling knife.
service at its finest. Excerpted from a Bloomberg
at Nursing Home Fuel Debate in Denmark (Update1)
April 16 (Bloomberg)
-- When a male resident at Kildegaarden nursing home in Denmark made an indecent
sexual proposal to a member of the staff, the home's director, Inger Marie
Kristensen, told a nurse to telephone for a prostitute.
was a considerable change in his demeanor after the escort girl had paid him
a visit,'' Kristensen said in an interview. "We do this for our clients
just as we offer them other services that they need as human beings.''
located 100 miles (160 kilometers) west of Copenhagen in Skanderborg, has
about 100 residents, including victims of Alzheimer's disease and strokes.
Nurses arranged visits by call girls three times in the past three years.
Denmark is doubling
spending to 80 million kroner ($17 million) over the next three years to get
women out of the sex trade. The government estimates that 6,000 women work
in the profession in the Scandinavian country of 5.5 million.
In a poll posted
last week on the Web site of national broadcaster DR, 46 percent of 1,982
readers said nursing home staff should be able to organize visits by prostitutes,
45 percent were against the practice and 8 percent were undecided. ...
Danish Sex-worker Association was established last month in a bid to protect
the industry. The leader, who gives her name only as Susanne on the association's
Web site, said prostitutes "often'' visit Danish elderly homes.
residents at the Kildegaarden home have rights under the current laws, no
matter how old they are. And Danes are getting older. According to the Danish
government Web site, on Jan. 1, 2007, 715 people were 100 years of age or
this is a matter of respecting the elderly and their needs,'' she said.
got my new Lenovo X61 Thinkpad yesterday. It's got a 2.4 GHz processor,
3 gigs of RAM and Windows XP (not Vista). The machine is fast, small and light
-- the perfect traveling laptop. The keyboard is brilliant, the best of any
laptop. And the best part of it is combining the red pointing stick along
with the middle button between the left and right mouse controls. Hold that
middle button down, your pointing stick becomes a scrollwheel. Brilliant.
Awesome. I've been trying to convince Toshiba that we need one on their new
laptops. (In vain, sadly. They're not listening. Big companies never do.)
A three year old
little boy was examining his testicles while taking a bath.
he asked, "Are these my brains?"
His wise mother
answered, "Not yet, my son. Not yet."
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
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