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9:00 AM EST, Monday, December 24, 2007: Don't forget to put money into the kids' Vanguard accounts before year's end. Save on gift tax now and estate tax later. No column today. Too busy preparing for tomorrow's 21 guests and playing tennis to preemptively get rid of the likely excessive food. See you Wednesday morning. Have a great time with the family tomorrow. Don't ask them how well they did in the market. That may really screw up Christmas. Here's Friday 's column, in case you missed it.

9:00 AM EST, Friday, December 21, 2007: Last column before Christmas. Time to check what we've learned (if anything) during 2007. Happiness is what we're pursuing. Duh! The family is number one. It can excite you. It can thrill you. It gives you huge pleasure. In 2007, my daughter graduated law school, passed the bar, became a lawyer and got married. My son applied for, was admitted to and started at Harvard Business School. My wife spent countless exhausting hours finishing our new house. The result is an amazing achievement -- comfortable, inviting and stunning, However, I also watched how friends proceeded to divorce. Unthinking, pissed-off, illogical and above all, supremely painful. They had an awful year. I had a great year. A little thinking and a little listening go a long way.

My son ran 6.1 miles this morning. My wife went to Pilates yesterday. I played tennis every day this week and worked with my fitness trainer for two hours this week. Health is key. I don't see any fat old people. I do see a lot of fat young people. Sad.

The biggest investment lesson of 2007 was how fast things change, how fast diseases can spread. Last year housing boomed. Now it sucks. Just when we thought we might have sub-prime problems contained, they fester new sores. I suspect change is accelerating, what with the Internet, email and the speed of communications up and down the economy's supply chain. The speed of change makes idiots out of experts. No one on Wall Street is smarter than you or me. They are better salesmen. They can (and do) sell you, I and themselves bills of bad goods far beyond our wildest imagination. They like (and create) bubbles. They've and we've made bubbles since even before we all bid up tulip bulbs in 1636.

Anonymous 17th-century watercolor of the Semper Augustus, the most famous bulb, which sold for a record price. Source: Wikipedia.

The only antidote to being a possible bubble victim is diversification. Spread your schekels around. There are three downsides to diversification. It's harder to learn more about more. Some of your diversifications will go awry. That can be painful. I rebuke myself for being an idiot. "I should have seen that," I say. Others are more skilled at looking at the broad picture. They say, "I screwed up in three areas. But, in total, I came out ahead." I want to come out ahead on every thing and everywhere. My ego says I should. My brain says, "No way, Jose." There is more pain from loses than pleasure from successes.

Despite another year, I still don't understand the psychology of pain. Michael my son posed the argument: "Stick it all in t-bills and munis and go play tennis. Skip your search for the perfect investment. Go search for the perfect backhand." Ah, the wisdom of youth. I don't want do that research -- munis and the perfect backhand or desperate searching -- for fear he may be right. The good news is my backhand is improving.

Investing comes with risk. In 2007 I lost money on a Goldman Sachs muni bond fund, amazing as that sounds. Here's the creme de la creme of investment bankers -- probably the only one who profited by the subprime contagion -- and I lose money on his muni bond fund, which Goldman's sales rep recommended to me. It wasn't my idea. It was his dumb idea. But I made money on Australian mining which I recommended to myself.

Muni bond funds sound benign. And so do ideas from brokers, friends, experts and tennis players. Start with the assumption that all recommendations suck. Your own research is your only weapon. Saying No is your savior. I said No to many more ideas in 2007 than any other year. If I had $100 for every $1,000 I saved this year on dumb ideas, I'd be a very rich man. Cash remains king.

There are huge pleasures out there. Two hours at your local bookstore will quickly open your eyes. Listening to Alan Greenspan's new book on my iPod nano is a genuine thrill. I can spend hours bouncing from one idea to the next on the Internet. That's even better. Am I getting smarter? Sure. Ask me. Apple, Google and Research in Motion provide me great pleasure.

I don't move until I've researched to death, mulled for a week or two and got excited beyond belief. I gloat when I read the following. I didn't move on MBIA or Ambac, though I was intellectually intrigued.

But others did. And they lost their shirts, so far. The following is from today's Wall Street Journal. Ha. Ha.

Even the Smart Money Looks Bad

The financial-stock knife continues to fall, and some of the world's largest investors have gotten cut trying to catch it.

Warburg Pincus has racked up a $180 million paper loss in the 10 days since it agreed to invest in MBIA Inc. That is a rude awakening for a firm accustomed to big payouts from buying and selling companies.

Warburg is the latest in a parade of investors, including Edward S. Lampert, Joseph Lewis and the government of Singapore, that have committed big sums to struggling financial institutions only to see their investments slide sharply. Their experiences provide a note of caution for others contemplating such investments amid a subprime-mortgage crisis that continues to ripple through the financial system.

The danger for investors such as Singapore or the government of Abu Dhabi, which last month agreed to inject more than $7 billion into Citigroup Inc., is that the companies will need to raise still more money to shore up their capital bases. The new investors could demand even more onerous terms and cause further dilution for the ones who got their first.

"It's awfully tough to pick the absolute bottom of a market," says Jeffery Harte, a bank analyst at Sandler O'Neill & Partners in Chicago. "Historically, you always get some investors coming in too early."

It is early to pass judgment on most of the investments. The investors are hoping to duplicate some of the long-term successes from past crises, such as the $600 million investment Prince Alwaleed bin Talal of Saudi Arabia made in Citigroup's predecessor in 1991 when the bank was beset by bad real-estate and foreign debt. It is now worth billions.

Still, the volatility in the markets means that even if these investments do turn out to be profitable, they may cause significant short-term pain.

In the past few months, Mr. Lewis, a billionaire property developer and foreign-exchange investor, had piled about $1 billion into Bear Stearns Cos. at prices averaging well above $100 a share. During that time, the credit-market hits have kept coming at Bear, pushing its stock to $91.42 yesterday. Mr. Lewis appears to have lost more than $100 million. A representative for him declined to comment.

Meanwhile, Mr. Lampert, the vaunted hedge-fund investor who controls Sears Holdings Corp., boosted his stake in Citigroup by about 17 million shares between January and September. Citigroup prices ranged from about $47 to $51 a share over that time, according to FactSet Research Systems.

His timing could hardly have been worse. Citigroup's stock has fallen by nearly 50% this year and closed yesterday at $29.89. That has likely handed Mr. Lampert, who is used to reporting eye-popping annual returns to his investors, a paper loss in the hundreds of millions of dollars.

And American depositary shares of UBS AG have dropped 12% since Singapore and another unnamed investor agreed to pump roughly $11 billion into the ailing Swiss banking giant Dec. 10. Quantifying the decline on the investment is difficult given that it is in the form of a convertible bond that pays a 9% annual coupon.

China Investment Corp., a Chinese sovereign-wealth fund, invested $3 billion in Blackstone Group LP in the private-equity firm's initial public offering in June. That investment has plunged as investors drove down Blackstone shares by 24% since then. That didn't stop CIC from agreeing this week to pour $5 billion into Morgan Stanley, which reported a $9.4 billion mortgage-related write-down.

For its part, Warburg agreed Dec. 10 to invest as much as $1 billion in MBIA, a bond insurer whose stock already had been hammered amid plummeting values for the paper it insures. As part of the deal, Warburg agreed to spend $500 million for MBIA stock at a price of $31 a share. Although the stock rose 13% after the investment was announced, it quickly resumed a decline that began in October. The problem: The vulnerability of credit guarantors to credit-rating cuts.

Then late Wednesday, investors were surprised by a disclosure on MBIA's Web site of the extent of its exposure to subprime securities. MBIA said it had insured $8.1 billion of collateralized debt obligations that repackage subprime-mortgage debt. Investors, already in an extreme state of nervousness, reacted by driving the shares down by $7.07, or 26%, to $19.95 in 4 p.m. New York Stock Exchange trading yesterday.

The investment deal hasn't even closed yet, but Warburg's ability to walk away is limited by the absence of a "material-adverse change" clause in the agreement.

Warburg will also buy as much as $500 million of MBIA shares in a rights offering scheduled for the first quarter. In addition, Warburg gets warrants in the deal that could reduce its effective per-share price on the original $500 million.

A person close to the deal says Warburg is enthusiastic about MBIA's prospects and the firm was aware of its so-called CDO-squared exposure. "Non-traditional investors showing up in size is a leading indicator that the bottom may be close," Mr. Harte said.

The cockroaches continue to parade. See yesterday's column.

Warm Milk
The wise old Mother Superior from county Tipperary was dying.The nuns gathered around her bed trying to make her comfortable. They gave her some warm milk to drink, but she refused it. Then one nun took the glass back to the kitchen.

Remembering a bottle of Irish whiskey received as a gift the previous Christmas, she opened it and poured a generous amount into the warm milk.

Back at Mother Superior's bed, she held the glass to her lips.Mother drank a little, then a little more. Before they knew it, she drank the whole glass down to the last drop.

"Mother," the nuns asked with earnest, "Please give us some wisdom before you die,"

Barely audible and with a serene look on her face she said, "Don't ever sell that cow."

My next column will be Wednesday December 26. Have a great Christmas. Hug the kids. Kiss the spouse. Listen, for a change.

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 on this site. Thus I cannot endorse, though some look 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 Michael's business school tuition. Read more about Google AdSense, click here and here.
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