Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Friday, April 29, 2005: The
torture of a thousand cuts. A tiny respite, then another slash and another.
The stockmarket remains not the place to be. Few geniuses can successfully pick
stocks in this awful market, which yesterday yanked down 128 points on the Dow
and 31 on the Nasdaq.
The stockmarket's concern is focused on:
1. Slowing growth. The economy slowed sharply in the first three months
of the year, the government reported yesterday, expanding at its slowest
pace in two years. Growth was at an annual rate of 3.1%, much slower than
the 3.8% of the last quarter of 2004. Higher energy prices dragged down spending
by businesses and consumers. Charts from The New York Times.
2. Fear that the Fed might actually accelerate its rate increases and those
rate increases might further dampen growth. From today's Wall Street
Fed trying to pop the housing bubble?
That's the impression
you get from even a cursory read of an extraordinary and largely overlooked
speech last week from Federal Reserve Governor Donald Kohn.
Mr. Kohn, one of 12 voting members of the Federal Open Market Committee, offered
a novel reason for Fed interest-rate increases: to help wring out imbalances
in the economy that extend from a big trade deficit to a low savings
rate to surging home prices.
the return to saving and by damping the upward momentum in housing prices,
rising interest rates should induce an increase in the personal savings rate,
and thereby lessen one of the significant spending imbalances we have noted,"
Mr. Kohn said in a speech at the Levy Economics Institute of Bard College.
Mr. Kohn was
speaking for himself, not the entire Federal Open Market Committee. But if
this were FOMC policy, it would represent a potentially significant shift.
Most people probably think the Fed's job is to raise and lower interest rates
to cool or heat up the economy. Mr. Kohn offers a more expansive and perhaps
activist role for the Fed in curbing economic imbalances and bubbles, and
says the Fed shouldn't be overly concerned with some of the potential economic
should not hesitate to raise interest rates to contain inflation pressures
just because it might set off a retrenchment in housing prices, just as we
were willing to keep rates unusually low as house prices rose rapidly. Nor
should we hesitate to raise rates because higher rates mean higher debt-servicing
burdens for the current account, the fiscal authority, or households."
It makes continued
sense to short this stockmarket. But it doesn't make sense to stay away from
real estate investing.
Do what you know and love: My friend Joel
has a day job. He is a successful investment banker. He has a night job, building
a spec house. This year he will make more money from his night job. He
loves building houses. He reads housing magazines for fun. He built himself
a house in New York's Hamptons to be near his daughter and his grandchildren.
He saw opportunities. He and his partner friend borrowed money from a local
bank and spec built a "top of the line" house. Big 25' x 50' pool,
pool house, Viking appliances, beautiful floors and granite countertops, etc.
To figure what turned buyers on, Joel interviewed every local broker. The house
will cost Joel and his partner $5 million. It's not finished. But they already
have an offer for $7.5 million -- which they'll close on.
This is my second
million-dollar-plus-profit real estate story this week. They seem to be everywhere.
Yesterday a broker at New York's Corcoran Group reported that she had received
17 offers in just ten days after listing a 1550 square foot residential loft.
She's in contract with the highest offer, which is 21% over the asking
There's no way this real estate "bubble" will burst with the ferocity
of The Tech Wreck of 2000-2002. Prices may ebb. But they won't
plummet. For the savvy real estate investor, there are plenty of opportunities.
And now to my shameless commercial. The latest issue of Personal Real
Estate Investor Magazine is out. It's a really good issue. Click on
the button on the left. Subscribe now and the publisher will send you the latest
issue as a bonus. In case you're wondering why all the enthusiasm? Simple, I'm
are people who believe Google will hit $400. Google is one I missed.
It's always seemed too pricey and still does. There's no question that it is
leading a revolution and deserves revolutionary pricing. This weekend's Economist
has this fascinating piece:
advertising service could make the Internet an even more valuable marketing
THIS year the
combined advertising revenues of Google and Yahoo! will rival the combined
prime-time ad revenues of America's three big television networks, ABC, CBS
and NBC, predicts Advertising Age. It will, says the trade magazine,
represent a watershed moment in the evolution of the Internet
as an advertising medium. A 30-second prime-time TV ad was once considered
the most effective form of advertising. But that was before the Internet got
going. This week, online advertising made another leap forward.
innovation comes from Google, which has begun testing a new auction-based
service for the more sophisticated advertising of brands, rather than of just
individual products. Both Google and Yahoo! make most of their money from
advertising. Auctioning keyword search-terms, which deliver, along with their
own search results, sponsored links to advertisers' websites, has proved to
be very lucrative. Advertisers like these links because, unlike with TV ads,
they pay only for directly measurable results. They are charged when someone
clicks through to their own website.
and Yahoo!, along with search-site rivals such as Microsoft's MSN and Ask
Jeeves (recently bought by Barry Diller's InterActiveCorp), are developing
much broader ranges of marketing services. Google, for instance, already provides
a service called AdSense. This works rather like an advertising agency, automatically
placing sponsored links and other ads on third-party websites. Google then
splits the revenue with the owners of those websites, who can range from multinationals
to individuals publishing blogs, as online journals are known. (AdSense
is how I get the ads on the left of this page. -- Harry)
service extends AdSense in three ways. Instead of Google's software analyzing
third-party websites to determine from their content what relevant ads to
place on them, advertisers will instead be able to select the specific sites
where they want their ads to appear. This provides both more flexibility and
more precision, says Patrick Keane, Google's head of sales strategy. Firms
trying to raise awareness of a brand often want a high level of control over
where their ads appear.
The second change
involves pricing. Potential advertisers must bid for their ad to appear on
a cost-per-thousand (known as CPM) basis. This is similar to TV
commercials, where advertisers pay according to the number of people who are
supposed to see the ad. But the Google system delivers a twist: CPM bids will
also have to compete against rival bids for the same ad space from those wanting
to pay on a cost-per-click basis, the way search terms are presently
sold. Google already calculates likely CPM values for the ads that it places
on other people's websites.
promoting a brand sometimes only want to get a name and an image in front
of consumers, and not necessarily have them click through to a website. Moreover,
click-through marketing tends to be aimed at people who already know they
want to buy something and are searching for product and price information.
Brand, or display, advertising is more often used to persuade
people to buy things in the first instance.
The third change
is that Google will now offer animated adsbut nothing too flashy or
annoying, insists Mr. Keane. Google has long been extremely conservative about
the use of advertising; it still plans to use only small, text-based ads on
its own search sites. But many of its AdSense partners might well be tempted
by the prospect of earning a share of revenue for display and animated ads
too, especially as such ads are likely to be more appealing to some of the
With the spread
of broadband providing faster connections, so called rich-media
ads, which can contain animation, video and sound, are already becoming more
widespread. And these are just the sort of ads favored by companies trying
to build their brands.
This could fuel
online ad growth even further. As overall advertising spending continues to
recover from the slump that began in 2001 after the bursting of the technology
bubble, the Internet has become the fastest growing advertising medium. Worldwide
ad revenue on the Internet grew by 21% in 2004 to $13.4 billion, and
it is expected to continue at that pace for the next few years, says ZenithOptimedia,
a research firm (see chart). Google and Yahoo!, the two most widely visited
sites, are reaping many of the rewards. Google recently announced a net profit
of $369m in its first quarter from revenue that soared to $1.3 billion, up
93% compared with the same period a year earlier. Yahoo!'s first-quarter net
profits more than doubled to $205m on revenue of $1.2 billion, up 55% from
a year earlier.
Yahoo!'s boss, believes there is a lot more growth to come as firms become
even more familiar with online advertising. He happily points out that many
big firms still allocate only 2-4% of their marketing budgets to the Internet,
although it represents about 15% of consumers' media consumptionand
is growing. Many young people already spend more time online than they do
If Google can
prove that bidding for display ads works, then its rivals are bound to follow
with similar services. This could shake the industry up even more. DoubleClick,
an online-marketing specialist which helped pioneer the delivery of simple
banner ads to websites, was sold this week in a deal worth more than $1 billion
to a private-equity firm, Hellman & Friedman. Even though its prospects
recently brightened, DoubleClick put itself up for sale after facing fierce
in online marketing are said to be in the pipeline. Local search and its associated
advertising opportunities are one huge growth area. Sites such as eBay, the
leading online auctioneer, and Craigslist, which hosts local sites, are soaking
up large amounts of classified advertising for everything from used cars to
job vacancies that once might have gone to newspapers. Yahoo! is expanding
rapidly into entertainment, with film and video clips providing another avenue
of advertising. This week, Yahoo! appointed another top executive to its media
group, fueling speculation that the website may start to produce its own entertainment
content. That should seriously worry TV broadcasters, who are already losing
viewers and ad revenue to the Internet.
logic of traveling:
On a NW Airways flight from Atlanta, GA. a middle-aged, well to do
woman found herself sitting next to a man wearing a skullcap (also called a
yarmulke). She called the attendant over to complain about her seating.
to be the problem Madam?" asked the attendant.
me next to a Jew!! I can't possibly sit next to this disgusting person. Find
me another seat!"
down Madam," the attendant replied.
is very full today, but I'll tell you what I'll do. I'll go and check to see
if we have any seats available in club or first class."
The woman shoots
a snooty look at the snubbed Jewish man beside her (not to mention many of the
A few minutes
later the attendant returns. The woman cannot help but look at the people around
her with a smug and self satisfied grin.
The flight attendant
then says..."Madam, unfortunately, as I suspected, economy is full. I've
spoken to the cabin services director, and club is also full. However, we do
have one seat in first class."
Before the lady
has a chance to respond, the attendant continues..."It is most extraordinary
to make this kind of upgrade, however, and I have had to get special permission
from the captain. But, given the circumstances, the captain felt that it was
outrageous that someone should be forced to sit next to such a person."...
With which, she
turned to the Jewish man sitting next to her, and said: "So if you'd like
to get your things, sir, I have your seat in first class ready for you..."
At this point,
the surrounding passengers stood and gave a standing ovation while the Jewish
man walks up to the front of the plane.
couple has a dog that snores.
Annoyed because she can't sleep, the wife goes to the vet to see
if he can help.
The vet tells
the woman to tie a ribbon around the dog's testicles and he will stop snoring.
A few minutes
after going to bed, the dog begins snoring, as usual.
The wife tosses
and turns, unable to sleep. Muttering to herself, she goes to the closet and
grabs a piece of red ribbon and ties it carefully around the dog's testicles.
Sure enough, the
dog stops snoring! The woman is amazed.
Later that night,
her husband returns home drunk from being out drinking with his buddies. He
climbs into bed, falls asleep, and begins snoring loudly.
The woman thinks
maybe the ribbon might work on him, so she goes to the closet again, grabs a
piece of blue ribbon, and ties it around her husband's testicles.
also works on him! The woman sleeps soundly.
The husband wakes
from his drunken stupor and stumbles into the bathroom. As he stands in front
of the toilet, he glances in the mirror and sees a blue ribbon attached to his
He is very confused
and as he walks back into the bedroom, he sees the red ribbon attached to his
He shakes his
head and looks at the dog and whispers, "I don't know where we were, or
what we did, but, by God, we took first and second place!"
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. That money
will help pay Claire's law school tuition. Read more about Google AdSense,
here and here.