Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Monday, August 8, 2005: Hot
areas: real estate, energy and Baidu.com (BIDU), the Chinese Google,
which came public on Friday at $27 and then did this as every day trader and
their uncle bought, sold and generally amused themselves.
Don't go near this thing. Far too insane. Small float. Crazy valuation.
tumbling because long-term interest rates are rising and because they have have
had a great run. The present wisdom is to sell your REITs.
to pick stocks, courtesy Warren Buffett:
+ Pay no attention to macroeconomic trends or forecasts, or to people's predictions
about the future course of stock prices. Focus on long-term business value --
on the size of the coupons down the road.
+ Stick to stocks within one's "circle of competence." For Buffett,
that was often a company with a consumer franchise. But the general rule was
true for all: if you didn't understand the business -- be it a newspaper or
a software firm -- you couldn't value the stock.
+ Look for managers who treated the shareholders' capital with ownerlike care
+ Study prospects -- and their competitors -- in great detail. Look at raw data,
not analysts summaries. Trust your own eyes. One needn't value a business too
precisely. A basketball coach doesn't check to see if a prospect is six foot
one or six foot two; he looks for seven-footers.
+ The vast majority of stocks would not be compelling either way -- so ignore
them. Merrill Lynch had an opinion on every stock. Buffett did not. But when
an investor had conviction about a stock, he or she should also show courage
-- and buy a ton of it.
+ Buffett did that. After the Cap Cities deal in 1985, he sat for three long
years without buying a single common stock. And then, when Coca-Cola fell to
attractive levels, he staked a fourth or so of Berkshire's market value on that
The above is from page 325 of this book, which I continue to read and love.
For my previous piece on what I learned about investing from this book, click
Having a conviction about your investments:
Money burns a hole in your pocket. Time weighs heavily. It takes huge discipline
not to buy anything for three years, as Buffett did. Saying NO is difficult.
I would be a lot richer today if I had said NO more often and invested only
in those things I had major conviction about. It's a discipline I'm still training
myself on -- saying NO and having conviction. But it's hard -- especially when
everyone around you is bragging about how much money they just made on their
latest investment. Of course, you have to keep telling yourself that they never
tell you of their failed ones.
What happens if what you know is no longer useful? You
have to learn a new skill (hence this column) and you have to resist temptation.
I spent 28 years in telecom and made a fortune in it. But with the TechWreck
of 2000-2002, the industry collapsed. A friend asked should he buy Nortel, once
a highflyer (over $80) and now $2.65. My answer is an emphatic NO. I answered:
to be among the better managed telecom companies. And it was never managed
well. The problem with the telecom industry is buyers. They're cheap, boring,
unimaginative and excruciatingly slow. Imagine you're Nortel. Imagine you
invent a great central office (also called a switch or exchange) which can
potentially deliver great new services. Now you have to sell to the likes
to Verizon, SBC and BellSouth, who in turn have to sell the new services to
their customers (i.e. you and me). These companies have zero marketing skills.
Ask yourself when was the last time the extant phone industry offered you
an innovative new service? Even something as simple as having your phones
ring simultaneously in your city and country homes? I once tried a magazine
directed at phone companies. It lasted a handful of dozen issues before I
figured it was going nowhere. Phone company executives are intellectually
uncurious. They don't read. They care only about retaining their jobs. There
are two ways to keep your job -- don't suggest new ideas internally and don't
have your customers complain to the local regulatory agency. And one big complaint
is often: Why can't they get the new service you introduced (as a trial) some
place else? Solution: Don't introduce new services.
How dumb is Nortel?
Earlier this year it agreed to spend $448 million on PEC Solutions Inc. The
idea was to find to go into a new growth markets. PEC sells to U.S. government
agencies. In Friday's Washington Post, columnist Steven Perlstein argued that
Nortel grossly overpaid for PEC - a 38% premium over PEC's stock price at a
time when a 10 percent multiple was considered rich. Nortel knows less about
investing than I do.
Net Snippets is useful: Here's
a way of filing away all those neat things you find surfing the web. It's a
piece of software called Net Snippets Go
here. Download the free version. It's all
How to speed up Windows -- a little: One of
Microsoft's big selling points for Windows XP was that it loads applications
much faster. To do this, Windows XP uses what is called the "Prefetch technique,"
in which the operating system gathers information about each program that you
launch and stores that information in the \Windows\Prefetch folder. Then on
subsequent restarts, Windows XP uses the information in the Prefetch folder
to preload parts of those programs at boot time. Thus, when you launch your
application, it appears to load really fast. However, the Prefetch folder
can accumulate too much stuff over time. This makes the operating system so
busy loading bits and pieces of lots of applications into memory that it ends
up slowing down the startup. Here's how clean out the Prefetch folder at any
Launch Windows Explorer. Go to the Windows\Prefetch folder. Delete all the files.
horrible stuff on Saudi: The new king is Abdullah Because he's old
-- 80 -- there is already talk of a successor. One name pops up -- Prince Nayef,
the interior minister, who's only 69. He's a real charmer: He turned down the
idea of women voting in recent elections. He says there is no reason to discuss
any need for women to drive. He claimed that the September 11 terrorist attacks
on America in 2001 were a Zionist conspiracy. He objects to the U.S. invasion
of Iraq. His job as interior minister is to make sure the country runs smoothly.
He controls the clergy. One of his favorite clerics, Sheik Salman bin Fahd Al-Oadah,
issued this definition of jihad:
That includes us.
The U.S. presently gets 15% of its oil from Saudi.
meaning of jihad is the expenditure of effort in order to establish Allah's
religion, call people to it, and establish its authority on the Earth, as
well as reform the material circumstances of humanity. . . . The specific
meaning of jihad is the military engagement of the unbelievers and those who
carry the same legal status as the unbelievers. Jihad, by this meaning, becomes
obligatory upon the inhabitants of the countries that come under the occupation
of the unbelievers.
Another potential successor the new King is Prince Sultan. His lavish spending
is notorious even by the profligacy of the Saudi royal family. His palace is so
large, for example, that it has its own fire brigade.
always love Charades:
The doctor's office and his nosey receptionist:
An 86-year-old man walked into a crowded doctor's waiting
room. As he approached the desk, the receptionist said, "Yes sir, what
are you seeing the doctor for today?"
"There's something wrong with my dick," he replied.
The receptionist became irritated and said, "You shouldn't come into a
crowded doctor's waiting room and say things like that."
You asked me what was wrong and I told you," he said.
The receptionist replied, "You've obviously caused some embarrassment in
this room full of people. You should have said there is something wrong with
your ear or something and then discussed the problem further with the doctor
The man walked
out, waited several minutes and then re-entered.
smiled smugly and asked, "Yes?"
something wrong with my ear," he stated.
nodded approvingly and smiled, knowing he had taken her advice. "And what
is wrong with your ear, Sir?"
piss out of it," the man replied.
The waiting room
erupted in laughter.
Recent column highlights:
+ Manhattan Pharmaceuticals: Click
+ NovaDel Biosciences appeals. Click
+ Hana Biosciences appeals. Click
+ All turned on by biotech. Click
+ Steve Jobs Commencement Address. The text is available:
Click here. The full audio is available. Click
+ The March of the Penguins, an exquisite movie. Click
+ When to sell your stocks. Click
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 .
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