Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8.:30 AM EST Monday, April 28, 2008: Trends,
explosions, bubbles and Tsunamis. The key to great investment success is picking
the Tsunami before it hits. The biggest fear is coming in too late, when it's
collapsing. Investment tsunamis follow a predictable path. By the time they're
apparent to you, me and our neighbor, everyone and their uncle has pounced in,
bid the stocks up, the companies have built factories, dropped product prices
and is about to go broke. You can see that happening with today's corn-to-ethanol
factories. Too many, too fast. Previously with telecom companies stringing fiber.
Sub-prime lending. And before that a million bubbles.
I eye genetically modified foods. The big news of 2008 is the explosion
in the price of foods. Rice. Corn. Sugar. etc. I read that countries with erstwhile
bans and phobias about GM foods are quietly dropping their objections and allowing
their farmers to grow this stuff. For example, from Bloomberg,
14 (Bloomberg) -- Nihon Shokuhin Kako Co. Ltd., Japan's largest buyer of corn
for use in food, is importing genetically modified supplies for the first
time this year as high prices deter gene-pure purchases, a company executive
big player in this space is Monsanto. I've always worried that MON was overpriced.
And its P/E of 42 is high. But every time I eye it, it goes up more. I no longer
believe Monsanto's P/E is too high, given its likely growth this year and next.
The second biggie
is the Swiss company Syngenta (SYT), whose P/E is a much lower 27.
Am I late? Yes.
Am I too late? I don't believe so. If you want to see some pretty earnings,
check these out. These are for net income after taxes, in millions. The Swiss
biggie looks especially great.
columnist's Parting Advice: Herb Greenberg
is a talented reporter of 34 years. He's leaving journalism. His sage parting
advice, from Saturday/Sunday's Wall Street Journal. Pay attention to
the last piece of advice. It's the most important:
1: The numbers don't lie. They can be stir-fried, oven-fried or convection-baked,
but in the end they always hold the keys to the kingdom. That is why some
short sellers and forensic analysts don't like to talk to companies. They
want to avoid the spin or the face-to-face meeting that can create a psychological
connection that may skew what otherwise would be black-and-white analysis.
Don't ever underestimate the power and influence of the human factor.
2: Quality, not quantity. Ignore the "beat the Street" headlines
on earnings. It is what goes into the earnings that counts. As I quoted investment
legend Thornton Oglove as saying last week, the real story is often on the
balance sheet. And let's not forget the cash-flow statement. And this tip:
The more complex and convoluted the financial statements get, especially for
businesses that aren't overly complicated, the more reason to worry.
3: GAAP isn't the same as a Good Housekeeping seal. Generally Accepted
Accounting Principles, according to which all financial statements are supposed
to be prepared, include plenty of gray areas that give management enough rope
to hang themselves, if they so please. GAAP, after all, is subject to interpretation,
and some managers are more conservative than others. Remember, just because
the accounting is legal doesn't mean the end results won't be lousy.
4: Don't confuse stocks and companies. They sometimes go in opposite directions.
Stocks sometimes really do lie. Sometimes they are pushed artificially higher
by a rotation by investors from one industry group to another, because that
one sector happens to be in favor. Sometimes they lie because of short squeezes,
which occur when short sellers -- who bet stock prices will fall -- are for
some reason forced to rapidly purchase the shares they sold short. And sometimes
they lie because of momentum. Momentum can take stocks to infinity and beyond,
but true believers can wind up learning that momentum has a dark side: It
is called reverse momentum, and it tends to kick in when you least expect.
5: Risk isn't a four-letter word. A good rule of thumb is that before
you buy, instead of asking how much you can make, first ask how much you can
lose. That is what the smart guys do.
from weekend reading:
to a long life: Eat less. Make family a priority. Banish stress. (Good luck.)
Eating less is function of portion control.
great for allergy control: Allergy season, for some of us, is here. My friends
swear by Alavert, an over-the-counter pill. Don't take it unless you
really need it. The "adverse effects" detailed here
will turn you off living.
New York taxis
will be all hybrid. By 2012 all of New York's 13,000 taxis will have to
get at least 30 miles a gallon on the city's streets. Hybrids are the only ones
that can meet that goal. Today about 7.8% of the fleet are hybrids, 83% of which
are the Ford Escapes. My own questioning of cabbies: They spend $22 for a 12
hour shift with a Ford Escape, but $45 with a Ford Crown Victoria. For more
Greening of the Yellow Fleet.
for your cellphone. Just what you always wanted. 2008 is the Year of Frog.
Frog Ringtone Store.
from Lenovo: "Batteries can degrade when they are left unused for long
periods of time. For some rechargeable batteries (particularly lithium ion batteries),
leaving a battery unused in a discharged state could increase the risk of a
battery short circuit, which could shorten the life of the battery and can also
pose a safety hazard. Do not let rechargeable lithium ion batteries (e.g. those
in laptops and BlackBerries) completely discharge or store these batteries in
a discharged state.
He's seen it
all and he's worried: From the Wall
Street Journal interview with Peter Bernstein, 89:
has witnessed just about every financial crisis of the past century.
As a boy, he
watched his father, a money manager, navigate the Depression. As a financial
manager, consultant and financial historian, he personally dealt with the
recession of 1958, the bear markets of the 1970s, the 1987 crash, the savings-and-loan
crisis of the late 1980s and the 2000-2002 bear market that followed the tech-stock
One of Peter
Bernstein's worries: 'If China goes into a recession, God knows.'
the 89-year-old Mr. Bernstein says, is worse than he has seen since the Depression
and threatens to roil markets into 2009 and beyond -- longer than many people
whose books include "Against the Gods: The Remarkable Story of Risk,"
sees two culprits. One is the abuse of securitization -- the trend for banks
to hold fewer loans on their books and instead turn them into securities that
were sold to other investors. The other is simply years of overborrowing by
financial institutions and consumers alike.
is hopeful that Federal Reserve intervention will prevent deflation and depression,
but he says there is no guarantee.
from securitization, what were the main causes of the problem?
You don't get into a mess without too much borrowing. It was sparked primarily
by the hedge funds, which were both unregulated by government and in many
ways unregulated by their owners, who gave their managers a very broad set
of marching orders. It was a real delusion. It was like [former New York Gov.
Eliot] Spitzer: "I am doing something dangerous, but because of who
I am, and how smart I am, it is not going to come back to haunt me."
When you think
about how all of this will work out in the long run, we are going to have
an extremely risk-averse economy for a long time. The lesson has painfully
been learned. That's part of the problem going forward. You don't have a high-growth
exit from this, as you've had from other kinds of crises. We won't have a
powerful start, where the business cycle looks like a V. Here, the shape of
the business cycle is like an L, where it goes down and doesn't turn up. Or
like a U, a flat U. The reason for that is that people aren't going to get
caught in this bind again. They will tell themselves, "I'm too smart
to do that again." And everyone else is going to be saying the same thing.
It is, in fact, going to be a wonderful environment in which to take risk,
because there aren't going to be any excesses. ...
said that it could turn out that the smart thing to do is to take more risk,
because everyone will be so risk-averse. What kinds of investments do you
see as the big winners coming out of this?
You could say: the things that have been beaten down the most, which would
be real estate. But I think real estate is going to be under a cloud for so
long, and you can't buy real estate with cash, it is too much money. I think
you should go with the stock market. If things are better, the stock market
will go up, and if things are awful, the stock market is going to be way down.
But it is a place where, if you want to take risks, you've got a wide range
of choices. This is why I own stocks [in addition to other investments], because
I don't know where the bottom is going to come, and I want to be exposed to
every kind of possibility I can think of. And, at least, if you pick the stock
market and you are wrong, you can change your mind. There is some liquidity
there. Stocks never became cheap, but they didn't become crazy, the way other
long do you think this whole process will take, before we get back to normal?
Longer than people think. The people who think we will have turned in 2009
are wrong. There has to be a respite along the way. Nothing goes in one
direction forever. But it will take longer than people think. If that weren't
the case, I would be talking entirely differently. I would be saying, "What
an opportunity we have got." And I just can't believe that the opportunity
is here yet. There is too much to unwind.
you explain the reason you think it will take a long time?
We have to go back to a moment when people have the courage to borrow and
lenders have the courage to lend. Until credit is going up instead of down,
you can't have growth. Housing has got to be a very important part of that;
it always has been. You have to reach a point where somebody says, "This
house is cheap, I am going to buy it," or where some businessman says,
"This is a great opportunity for us to expand our business. Everything
is available to us."
If China goes
into a recession, God knows. The Iraq war and the whole situation with terrorism,
we really don't know where that is going to come out. There are so many things
that have got to get buttoned down before you say that the future looks good
enough to take a risk.
kind of indications are you looking for as signs that the economy is about
to get better and that the stock market and the investment world are about
to turn the corner?
Somehow, the housing trouble has to at least flatten out. As long as that
is going on, I think the pressure on the credit system is going to persist.
It is kind of the leading indicator. It is where the trouble started. We have
to underpin the consumer. That is why this is different. That is why this
is like nothing we have had before.
Before, it was
investment that made the V at the bottom of the business cycle. I don't see
real investment turning enough without some sign from the consumer side. Maybe
the foreign countries will do it for us. That is a substitute for consumption
here. Maybe. But I think that they won't do enough for us, and maybe will
be too infected by us to do it. But maybe growth in Asia will help us. The
Asian thing is tremendously exciting.
make huge sense: Weekend idiocy: I left
my cellphone at my country house. My daughter almost left hers in New York.
(She lives in Boston.) Checklists make sense.
To forward your Verizon cell phone to another line: *72. To cancel it, *73.
will they put on your epitaph?
+ Harry Edsel
Smith of Albany, New York: Born 1903--Died 1942.
Looked up the elevator shaft to see if the car was on the way down. It was.
+ In a Thurmont,
Here lies an Atheist, all dressed up and no place to go.
+ On the grave
of Ezekial Aikle in East Dalhousie Cemetery, Nova Scotia:
Here lies Ezekial Aikle, Age 102 Only The Good Die Young.
+ In a London,
Here lies Ann Mann, Who lived an old maid but died an old Mann. Dec. 8,
+ In a Ribbesford,
England cemetery: Anna Wallace
The children of Israel wanted bread, And the Lord sent them manna. Clark
Wallace wanted a wife, And the Devil sent him Anna.
+ John Penny's
epitaph in the Wimborne, England cemetery:
Reader, if cash thou art in want of any, Dig 6 feet deep and thou wilt find
+ On a grave from
the 1880's in Nantucket, Massachusetts:
Under the sod and under the trees, Lies the body of Jonathan Pease. He is
not here, there's only the pod. Pease shelled out and went to God.
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
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