Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Monday, December 3, 2007: Pick
your own poison. Time has "The End of Spend. Consumers drive
the U.S. economy. But we're maxed out on our debt and strapped banks will pinch
lending. That could spell recession." Bloomberg.com leads off this
morning with "Recession is already here for U.S. corporate profits.
Economy may be next." The Wall Street Journal is more positive.
It has "Why Dollar May Be Set for a Rebound."
I had a great
weekend, played tennis, read and rested. Hence gloom and doom thoughts are far
from my mind this gorgeous morning. My biggest thought is the biggest pile on
my desk and what to do about it. I've junked already about 18" of this
morning. That feels like a huge accomplishment. A great way to start the day.
Then I'll worry about whether I should end my spending, buy dollars or admire
the pile of cash I've built in recent weeks by getting out of some (not all)
The Wall Street
Journal has a fantasy piece:
Might Ride Out Market Malaise: Recent Financial Crisis Mimics Those of Past;
Three Hints Offer Tips
Financial crises often have been marked by false dawns and punishing rude
is the stock market now taking a turn toward recovery or is it repeating that
last week in an apparent bet that more Federal Reserve interest-rate cuts
would be just the ticket to solving the credit crisis. It wasn't the first
time. After credit worries hurt stocks in July and August, stocks rallied
on rate-cut hopes in September, only to plunge again when the credit crunch
refused to die.
That isn't the
only way this financial crisis mimics those of the past. In fact, financial
debacles, which are almost as old as finance itself and are magnified by the
ebbs and flows of human emotion, unfold in at least partially predictable
ways. Charles Kindleberger, the late Massachusetts Institute of Technology
professor and author of the book, "Manias, Panics and Crashes,"
found common threads of euphoria, revulsion and swindles in cycles of the
That means investors
may find some hints of what's to come:
There Will Be More Write-Downs (Maybe a Lot)
into beaten-down financial stocks should be wary of being sucker-punched by
fresh write-downs, says Bob Bruner, dean of the University of Virginia's Darden
School of Business and co-author of a new book, "The Panic of 1907:
Lessons Learned from the Market's Perfect Storm."
crisis is a discovery process, he argues, in which the depth of everyone's
exposure to market risk is bared. He estimates that process takes one to two
years, on average -- and he figures the current unveiling began this June.
took the better part of the 1990s to dump all of their trash. Even relatively
small financial pratfalls take awhile to unfold. During Sweden's financial
crisis in the early 1990s -- which was triggered by a real-estate bubble and
had a clean-up cost of only about $8 billion in today's money -- it still
took about two years for all the muck to be hosed away, according to Gerard
Caprio, economics professor at Williams College, Williamstown, Mass., and
a former World Bank official.
bust played out similarly. The technology-heavy Nasdaq Composite Index peaked
in March 2000 and didn't hit bottom until October 2002.
The depth of
the current fiasco may take an unusually long time to plumb because it involves
murky, hard-to-price debt instruments for which there is little or no demand.
"There's liquidity and buyers, but the complexity of what they're buying
is so massive, the derivatives so complex -- and since no regulatory intervention
is telling banks to dump it and clean up their balance sheets -- that you
have serious indigestion," says Thomas J. Barrack Jr., chairman and chief
executive officer of Colony Capital.
If you think it is time to start bottom fishing, be prepared to ride it to
Cheap Does Not Equal Value
inevitably claim victims, and this one has been no different: More than 150
mortgage lenders have filed for bankruptcy, closed their doors or surrendered
to an acquirer. Some banking titans have purged their leaders.
is manna from heaven for some investors. Distressed-asset investor Marty Whitman,
chairman of Third Avenue Funds, has repeatedly cashed in on crises. He has
recently invested more than $1 billion in companies in financial distress
-- including mortgage and bond insurers.
In the current
crisis there are more available buyers than ever -- including massive sovereign-wealth
funds in the Middle East, investors that specialize in betting on companies
in distress and private-equity stockpiles. They are starting to jump in, but
not everything these so-called vulture investors buy will pay off.
to differentiate between what is a real value and what is simply a stock that's
down a lot," says Solaris Group co-founder Timothy Ghriskey, who headed
value investing at Dreyfus in the Asian financial crisis of the late 1990s.
than done. A financial stock with a price-to-book ratio of less than two
historically has been considered a value, but even that isn't a sure thing.
Citigroup Inc.'s ratio is a wafer-thin 1.3 -- but Mr. Whitman hasn't touched
it, preferring firms that don't have question marks about their capital levels.
Many value investors today are looking for financial companies built to ride
out the crunch, with little or no exposure to subprime and healthy stores
of operating capital.
Watch Lawmakers and Enforcers for Opportunities and Bottoms
The worst crises
have brought about regulatory changes. The popping of the dot-com bubble and
subsequent corporate scandals led to the Sarbanes-Oxley law that rewrote corporate-governance
With the latest
crisis occurring in the middle of a heated presidential campaign, the urge
to regulate the problem will be irresistible. Already Treasury Secretary Henry
Paulson is pushing for a plan to freeze interest rates on some loans, and
lawmakers have their own growing wish lists.
are often unpopular on Wall Street, but they can unwittingly create swinging
investment playgrounds, and astute money managers will be looking for ways
to profit from any new laws.
of Colony Capital reaped a small fortune in the S&L crisis buying low-priced
debt for his then-employer, Texas tycoon Robert Bass. He couldn't have done
it if Congress hadn't forced the S&L industry to mark down the value of
its bad assets and hadn't created the Resolution Trust Corp. to package and
sell those assets when the thrifts inevitably went under. That helped spawn
the modern asset-backed securities market, which has since been a profit center
for Wall Street.
that crisis work out with market-clearing prices was regulatory intervention,"
Mr. Barrack says. But regulators often show up late in the game, making them
a potential guidepost to bottoms. The Sarbanes-Oxley law, for instance, was
passed just a few months before the Nasdaq's October 2002 bottom.
were just getting to work on the swindles Mr. Kindleberger documented. While
there is no statistical basis for the view, in the past the first big indictments
have meant a bottom is very near. Andrew Fastow, Enron Corp.'s former chief
financial officer, was charged with fraud and conspiracy on October 2, 2002.
The Nasdaq hit its bottom about a week later.
Products for Tech Lovers. They found 29 products. I picked five.
From PC World.
+ Picture Perfect
Plasma: Panasonic TH-42PZ700U
The TH-42PZ700U isn't cheap, and you don't get a lot of neat extra features
for your money, but it does have an excellent picture. During November testing
PC World's jury rated its picture higher than that of any other TV, with high
marks for overall picture quality in high-definition broadcasts and in disc-based
content (Blu-ray, HD-DVD, and plain old DVD). We were particularly impressed
by the superb detail, especially in people's skin and hair.
+ Quality That's
A True Bargain: Vizio VP42 Plasma
Who knew that you could get an image this good for a mere grand? Even though
the Vizio VP42 costs less than any other television in our recent HDTV roundup
of 40 and 42-inch sets, it managed to come in second in our image-quality tests
to Panasonic's TH-42PZ700U. If all you care about is the best picture for the
best price, this is the flat-panel set to buy.
+ The fastest
Windows Vista notebook we've tested this year is a Mac. Try that again:
The fastest Windows Vista notebook we've tested this year--or for that matter,
ever--is a Mac. Not a Dell, not a Toshiba, not even an Alienware. The $2419
(plus the price of a copy of Windows Vista, of course) MacBook Pro's PC WorldBench
6 Beta 2 score of 88 beats Gateway's E-265M by a single point, but the MacBook's
score is far more impressive simply because Apple couldn't care less whether
you run Windows.
+ Highest Rated
Cellphone: BlackBerry 8300 Curve
Nope, it wasn't the iPhone, it's RIM's BlackBerry Curve 8300 (soon to be discontinued,
but still available in retail stores) that drew an awesome "90" or
Superior in the PC World's ratings. Its $200 price was only part of the reason
(and it's available now for as low as $75). This petite and gently rounded smart
phone (hence its name) is both stylish, useful and a joy to use. It also packs
such multimedia features as a 2-megapixel camera with built-in flash and 3X
digital zoom, and new desktop media management software developed in cooperation
+ Best Monitor--Design
and Features: The Widescreen HP w2207
Though pricier than most of its rivals, this 22-inch LCD display offers an attractive
design with easily adjustable double-hinged base and for its strikingly good
looks. And if you personalize your technology, HP separately sells various accessories
that you can attach to it: A Webcam, a clip to hold photos, and a bud vase to
add whimsy to a frequently ignored peripheral.
use the glasses in your hotel room: Hotels
simply don't wash the glasses properly. If you don't believe me, watch this
+ Sudan pardoned the British teacher for allowing her students to
name a teddy bear Muhammed, but Sudan is deporting her to England today.
+ Venezuela handed Hugo Chávez a small defeat -- quashing a referendum
that would have made him dictator for life. However, he remains president and
controls most power. Venezuela supplies around 15% of U.S. oil imports.
to catch fishermen
A fisherman from Dallas was out fishing on a lake in a small boat.
He noticed another man in a small boat open his tackle box and take out a mirror.
Being curious the man rowed over and asked, "What is the mirror for?"
secret way to catch fish," said the other man. "Shine the mirror on
the top of the water. The fish notice the spot of sun on the water above and
they swim to the surface. Then I just reach down and net them and pull them
into the boat."
that really work?"
be interested in selling that mirror? I'll give you $20 for it."
After the money
was transferred, the city fisherman asked, "By the way, how many fish have
you caught this week?"
sixth," he said.
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
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