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 27: The
good news it that, finally, the 23rd edition of Newton's Telecom Dictionary
is off the presses. With this run, I'll be over 750,000 books sold -- a lot
for one book. That makes me a telecom "expert" of sorts. The bad news
is that since I sold out in 2000-2001, I've never figured how to make any money
buying telecom stocks. This may have been smart. I sold all my Cisco at a price
then which much higher than where it is even today -- seven years later.
some telecom shares have been on somewhat of a tear:
There are several
problems with telecom:
1. Management is not always overly bright or overly creative. This applies to
telephone companies, especially, who exhibit zero marketing skills.
2. Capital investment necessary to upgrade their networks to is horrendous.
Look at Verizon's investment in its brilliant FiOS service.
3. The view to
telecom's future in the sky is always brighter than the reality on the
don't have any brilliant conclusions, yet. I'm still mulling. What got me started
were three things: my latest outrageous $150 a month bill to Time Warner Cable,
Comcast's huge 80% profit increase and this weekend's Economist, which
has a must-read survey of telecoms, Here's their leader:
everything connects. Information technology has nothing to lose but its
was once a big, wood-panelled machine glowing faintly in the corner of the
living-room. Today's wireless device is the sleek mobile phone nestling in
your pocket. In coming years wireless will vanish entirely from view, as communications
chips are embedded in a host of everyday objects. Such chips, and the networks
that link them together, could yet prove to be the most potent wireless of
Just as microprocessors
have been built into everything in the past few decades, so wireless communications
will become part of objects big and small. The possibilities are legion. Gizmos
and gadgets will talk to other devicesand be serviced and upgraded from
afar. Sensors on buildings and bridges will run them efficiently and ensure
they are safe. Wireless systems on farmland will measure temperature and humidity
and control irrigation systems. Tags will certify the origins and distribution
of food and the authenticity of medicines. Tiny chips on or in people's bodies
will send vital signs to clinics to help keep them healthy.
revolution was about informationdigitising documents, photographs and
records so that they could more easily be manipulated. The wireless-communications
revolution is about making digital information about anything available anywhere
at almost no cost. No longer tied down by wires and cables, more information
about more things will get to the place where it is most valuable.
For the moment,
the mobile phone is stealing the show. It is evolving from a simple phone
into a wallet, keychain, health monitor and navigation device. But as mobile-phone
technology matures, even more innovation is taking place in areas of wireless
that link things only metres or millimetres apart.
For that, thank
the cross-breeding of Marconi's radio and the microprocessor. Etched into
silicon, the radio is starting to benefit from the dramatic decreases in size
and cost and the huge increase in performance that have recently propelled
computing. Satellite-navigation chips today cost as little as a dollar apiece.
Radio-frequency identification (RFID) tags can be made so tiny that they fit
into the groove of a thumb-print. When power can be wirelessly routed to such
devices, something that is not far off, all the pieces will be in place.
countless benefits, as our special report in this issue describes. Devices
and objects can be monitored or controlled at a distance. Huge amounts of
data that were once impossible or too expensive to collect will become the
backbone of entirely new services. Wireless communications should boost productivity
just as information technology has.
wireless communications could change motoring. Carmakers are starting to monitor
vehicles so that they know when to replace parts before they fail, based on
changes in vibration or temperature. If there is a crash, wireless chips could
tell the emergency services where to come, what has happened and if anyone
is hurt. Traffic information can be instantaneous and perfectly accurate.
They administer tolls based on precise routes. One American firm leases cars
to people with bad credit who cannot get a loan, knowing that if payments
are missed it can block the ignition and find the car to repossess it. British
insurers offer policies with premiums based on precisely when and where a
Of course, plenty
of work will be needed before wireless communications can realise their promise.
The first obstacle is novelty. As is usual in the early days of a new industry,
all kinds of proprietary systems abound, many of them built from scratchrather
as early computer hackers fiddled with their Altairs in the mid-1970s. Until
common standards and protocols emerge for machine-to-machine and wireless
sensor communications, costs will be a problem.
It is not yet
clear who will bang heads together to set standards. Today's mobile-phone
businesses may be too busy getting people to talk to bother much about talking
machines. Sony Ericsson and Nokia, two giants of the mobile-phone industry,
have in recent years sold their machine-to-machine divisions. Mobile operators
see the new field as such a small part of their overall business that it gets
relegated to the back-burner. That has left an opening for fleet-footed firms
from computing, as well as industrial conglomerates, such as Samsung, Philips,
Honeywell and Hitachi. Just this week, General Electric's sensing division
said it wanted to use wireless sensors in industries as diverse as drugs and
play a crucial role, not least because radio spectrum will be in short supply.
That makes it more important than ever that the airwaves are sensibly allocated
according to the ability to pay. Special reserves and unlicensed
spectrum could be put aside for emerging technologies that lack financial
or political clout. And politicians and business people would do well to keep
an eye on the health risks of electromagnetic radiation. No serious evidence
yet suggests it is a dangerbut the nonsense over genetically modified
foods shows how much a new technology needs popular approval.
A greater concern
in the long term is privacy. Today's laws often assume that privacy is guaranteed
by a pact between consumer and company, or citizen and state. In a world where
many networks interconnect on the fly and information is widely shared, that
will not work. At a minimum, wireless networks should let users know when
they are being monitored.
But for the
moment the danger is surely too much regulation, not too little. It is hard
for anyonepoliticians most of allto picture how wireless will
be used, just as it was with electric motors and microprocessors, two earlier
stand-alone technologies that have been built into a plethora of devices.
Wireless technology will become a part of objects in the next 50 years rather
as electric motors appeared in everything from eggbeaters to elevators in
the first half of the 20th century and computers colonised all kinds of machinery
from cars to coffee machines in the second half. Occasionally, the results
will be frightening; more often, they will be amazingly useful.
Nast got sucked in by Tom Wolfe: I received
my premier issue yesterday. It contained five cheap subscription cards -- $12
for 12 issues. I'm generous. I offered a subscription to Dennis Mykytyn, my
favorite hedge fund manager. He emailed back:
I already subscribed, despite the bogus article by Tom Wolfe. He wrote about
hedge fund managers without ever talking to one or attending any of the events
the Robin Hood Foundation benefit (which I am attending next Wednesday) specifically
says no black tie on the invites, yet he describes it as full
of black tie wearing hedge fund managers.
Robin Hood Foundation?
Yup, one of the most successful charities around. Dennis sent me a link to a
really fascinating Fortune Magazine story on "How the leaders of the
hedge fund world have banded together to fight poverty -- taking gobs of money
from the rich, applying strict financial metrics in giving it away, and making
philanthropy cool among the business elite." Read The
Legend of Robin Hood, please.
stockmarket is booming. But will it last?... The Wall Street Journal
had a piece yesterday on Why
Market Strength And Economic Growth Don't Always Line Up by Greg Ip.
The stock market
has been a lousy barometer of the economy.
From the beginning
of 2004 through the first quarter of 2006, economic growth averaged an impressive
3.4%. The Dow Jones Industrial Average rose just 6%. Since then, economic
growth has slowed to a little more than 2%, yet the blue-chip index has leapt
18%, ending yesterday's session at a record 13089.89, the first time it has
closed above 13000.
So, is the stock
market providing reassurance? Or is it out of touch?
Economists differ. David Rosenberg, chief North American economist at Merrill
Lynch & Co., thinks the market is misleadingly optimistic. He says there
is a "disconnect between how the economy is doing and the way the equity
market is doing." The U.S. economy has just completed four quarters of
annualized growth below 3%, which, he says, has never happened in 60 years
without being followed by recession. While he doesn't forecast one, he puts
the risks higher than generally realized.
But Ed Hyman,
chief economist at ISI Group, a New York investment dealer, says the market
has it right. Just as in 1985 and 1995, the Federal Reserve has raised interest
rates enough to slow the economy and bring inflation under control. That reassures
investors that even higher rates won't be needed later that could tip the
economy into recession.
Mr. Hyman expects
economic growth to slow further -- to an annual rate of 1.5% in the last nine
months of this year -- and the Fed to cut short-term interest rates by three-quarters
of a percentage point. The boost to stocks from lower rates should more than
offset the drag from weaker growth and profits, he says.
the stock market isn't responding to recent profit growth. In fact, profit
growth has fallen sharply, and the outlook is clouded by slowing U.S. productivity
growth, high fuel prices and the specter of protectionism that could interrupt
the pace of globalization, which has boosted U.S. companies' profits from
overseas. Rather, the rally that began last summer has been principally driven
by the Fed's decision to stop raising interest rates.
The stock market
has long been regarded as a leading economic indicator, though it sometimes
sends the wrong signals. It reflects the collective judgment of millions of
investors on the prospects for corporate profits, which are highly sensitive
to economic fluctuations. However, other things also affect stocks: interest
rates, the flow of money into and out of shares and investors' appetite for
risk. That is why experts often disagree on how to interpret the market.
Mr. Hyman of
ISI says the popular view that a strong stock market requires a strong economy
is "just totally wrong." Beginning in the early 1980s, he says,
the Fed adopted the practice of raising rates ahead of anticipated inflation
pressure, often early in an expansion.
tightenings slowed growth but prevented an outbreak of higher inflation. During
the tightening phase, stocks struggled to advance, even though profits were
usually growing, as investors fretted the Fed would go too far and tip the
economy into recession. Once the central bank stopped raising rates, investors
concluded that with inflation under control, a recession was unlikely, and
stocks took off again.
The Fed didn't
always succeed: Its tightenings were followed by recession in 1990 and in
2001. Still, Mr. Hyman points to the United Kingdom, Australia and Canada
-- which have grown without interruption since the early 1990s -- as proof
that long expansions are likely as long as inflation stays tame. "It
appears we are still in the tame inflation mode," he says.
Rosenberg, in contrast, says the 1980s and 1990s were the exception, and sees
no special factors that will extend the current expansion the way tax cuts
and Internet mania did in the two previous expansions.
Board's index of leading indicators has declined on a year-to-year basis for
three consecutive months. That is in spite of the rise in the stock market,
which is one of the index's components. Mr. Rosenberg says every time it has
done that in the past five decades a recession followed, with one exception:
1967. Among the components of the index recently pointing to a risk of recession
are capital-goods orders, building permits and the fact that short-term interest
rates are higher than long-term rates.
There also are
other signs that the economic expansion is showing its age. One that former
Fed Chairman Alan Greenspan has called attention to is profit margins. On
an economy-wide basis, they hit a record high in the third quarter of last
year before narrowing slightly in the fourth period. Mr. Greenspan's view
is that the 1980s and 1990s expansions were helped both by a decline in long-term
interest rates as investors adjusted to a low-inflation world, and a surprise
acceleration in productivity growth in the 1990s driven by information technology.
Neither factor is at work now.
But Steven Wieting,
an economist at Citigroup Inc., says stocks have persistently lagged behind
the growth in profits since the end of 2001. He figures investors are anticipating
economic growth over the long term of just 2% to 2.5%. That is below many
economists' estimates that the U.S. economy can grow at about 3% a year on
average over time.
from a long-term context, isn't expecting a great deal out of the U.S. economy,"
friend emailed me the "cause" of global warming. In
his photo, the penguin is turning on the spit, the fire is crackling and the
polar bear with headphones on is bobbing up and down. It's called an animated
gif. But I can't get movement onto my web page.
A big Texan stopped at a local restaurant following a day roaming around in
While sipping his tequila, he noticed a sizzling, scrumptious looking platter
being served at the next table. Not only did it look good, the smell was wonderful.
He asked the waiter, "What is that you just served?"
The waiter replied, "Ah senor, you have excellent taste! Those are called
Cojones de Toro, bull's testicles from the bull fight this morning. A delicacy!"
The cowboy said, "What the heck, bring me an order."
The waiter replied, "I am so sorry senor. There is only one serving per
day because there is only one bull fight each morning. If you come early and
place your order, we will be sure to save you this delicacy."
The next morning, the cowboy returned, placed his order, and that evening was
served the one and only special delicacy of the day. After a few bites, inspecting
his platter, he called to the waiter and said, "These are delicious, but
they are much, much smaller than the ones you served yesterday."
The waiter shrugged his shoulders and replied, "Si,Senor. Sometimes the
answer to an age old question
and an egg are lying in bed. The chicken is leaning against the headboard smoking
a cigarette, with a satisfied smile on its face.
The egg, looking a bit pissed off, grabs the sheet, rolls over, and says, "Well,
I guess we finally answered THAT question."
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.