Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Friday, January 16, 2009: A
reporter calls me and asks what are the investing lessons from this meltdown?
My stab at them:
Stick with what you know. Your job. Your company. Your profession. Do
it the best you possibly can. Concentrate on your first love.
Put the savings from your first love into the safest investment -- muni
bonds or treasuries. Reinvest the interest.
borrow anything. Don't buy stocks, houses, businesses or investments
on margin. If you can't afford to write a check for that ritzy house, you
can't afford to live in it.
and everything hot today will be cold tomorrow. That includes newspapers,
oil companies, gold companies, Chinese flu companies, housing makers...
You name it. If you must play the "hot" game, do it with money
you specifically designate as "fun." And don't forget our 15%
Stop Loss Rule.
in doubt, stay out. See below for Swiss banks.
investment you make requires accounting, tax forms and time beyond anyone's
imagination. And if it blows up (as it most likely will), the time it
will consume of your life will be monumental. It will take over your life.
believe anything your friends tell you. They are no more qualified than
you are. Worse, they have a big motivation to feed you stuff. They want
to "big note" themselves. They want to impress you with their
brilliance. Believe them, however, if they tell you to avoid something "like
the plague." They undoubtedly have a good reason.
eyeing your friends with jealousy. The life they're living neither they
nor you can afford, or want. There is pleasure in simplicity. A Subaru gets
you there just as fast as a Mercedes, and, yet, costs one third as much.
+ All the
panoply of securities "regulation" (both government and exchange
self-enforced) is nonsense. The SEC knew about Madoff and did nothing.
End of that story.
be protected from your own greed -- if you learn to say NO. Practice
saying it every morning in the shower.
Kingsdale's investment strategy. My friend Jim Kingsdale writes
Energy Investment Strategies. He's just posted his latest newsletter,
I am largely
in cash. Im not betting that Team Obama will or will not succeed.
Im trying to avoid being sucked into the market by bear market rallies.
The few equity
positions I have relate to special situations. I own Lynas, (LYSCF) an Australian
company that is opening the worlds largest deposit of Rare Earth Elements,
minerals that are required for many applications including nickel metal-hydride
batteries (now in nearly all hybrid cars presently on the market, and still
baked into many new hybrid cars planned for future introduction). REEs
are coming into shorter supply as China - the major supplier - reduces its
export quotas (recently by 32% with potentially more reductions coming).
Lynas, a 25 cent stock, is a startup with production projected for late
2009. It seems to have outstanding management and financial backing (although,
post-Madoff, who can have any confidence in judgments about people?).
I own some
shares of Boone Pickens natural gas supply company, Clean Energy Fuels
Corp (CLNE). He is developing the natural gas supply business for truck
fleets in this country. Like everything in the market, the price of this
company is way down. Analysts expect it to become profitable this year.
I suspect there will be a slow transition toward natural gas for trucks.
I own some
SQM, the Chilean minerals company about which I have written a great deal.
In addition to its wonderful fertilizer and iodine businesses, SQM is the
largest supplier of lithium, which may become a substantial part of the
new electric car business.
When the economic
clouds begin to pass - some months (or years) after Team Obamas stimulus
plan is passed and implemented at a cost of trill-a-dollars - there will
be a move away from fear and towards greed, an anticipation of inflationary
trends, and also a revulsion at the huge amount of debt that the U.S. government
has put on its books. At that point the latest bubble, the high price of
U.S. bonds, will burst, interest rates will rise, and the prices of bonds
will fall. One will want to own an ETF that rises as bond prices fall. Such
an ETF trades under the symbol TBT and I own some shares.
TBT is part
of what I call my farm system, a stable of stocks that I know
Ill want to own later but would like to watch the movement of in the
meantime. So I own a few shares (and I mean few) of TBT along with some
real estate trusts, battery makers, and assorted growth vehicles
- companies with business plans that make sense and/or stock prices that
are crazy-low in any world except a deflationary one. One that I own in
moderate size is TBS International (TBSI), a shipping company with a unique
business plan that separates it from commodity shippers and makes its revenue
less tied to the Baltic Dry Index, which is now in the pooper.
I also own
some income producing stocks like Annaly Capital (NLY), Inergy (NRGY), Energy
Transfer Partners (ETP), a pipeline company, and Brookfield Asset Management
(BAM). They have attractive dividend yields and I think they have manageable
risks in terms of a deflationary economy. Do your own research - on everything.
Im trying to dance to the strange and difficult music being played
by this dangerous market - a market that is now eating up equity values
but eventually will provide huge opportunities. I wont get my cash
to work at the exact bottom so Ill miss some of those early gains.
But in an economy that seems to be falling into deflation, which can last
for an indeterminate period, I want to keep a lot of my funds in cash.
in doubt, stay the hell out. Swiss banks
make money by taking yours, waiting until you die and then keeping it. They
don't make money by giving good advice. From the Wall Street Journal:
a Swiss Bank, Madoff Warnings
Swiss bank Union Bancaire Privée kept hundreds of millions of dollars
of its wealthy clients' money in Bernard Madoff's alleged Ponzi scheme despite
warnings from its own research team, according to people familiar with the
in the investment community had questioned Mr. Madoff's strategy and chosen
to stay away, the instance offers a sign that red flags were raised within
one of the large institutions that actually invested with Mr. Madoff.
Privée, known as UBP and one of the largest investors in hedge funds
globally, was part of an international network of so-called feeder funds
that channeled money into Mr. Madoff's investment firm. The Geneva-based
bank has said it has about $700 million in Madoff-related investments through
its funds-of-funds and client portfolios.
By early 2007,
though, UBP's research department had raised various concerns about Mr.
Madoff's business, and later recommended that he be stricken from a list
of fund managers approved for its clients' investments, according to people
familiar with the matter and internal emails reviewed by The Wall Street
Christophe Bernard, top, was among officers in an discussion recommending
against investing with Bernard Madoff.
say that some of the bank's most senior executives were aware of the concerns
and discussed them. It is unclear how the matter was resolved, but UBP ultimately
left hundreds of millions of dollars of its clients' money with Mr. Madoff.
UBP has told
clients it was the victim of a "massive fraud," and that it conducted
due diligence, including visits with Mr. Madoff and various principals.
A UBP spokesman Tuesday said: "We make no further comment at this stage,
as the U.S. government is currently investigating the Madoff case."
In an email
exchange during February and March 2008 reviewed by the Journal, UBP's then-deputy
head of research, Gideon Nieuwoudt, listed a number of worries, including
the lack of even basic information such as how much Mr. Madoff had in assets,
how many feeder funds there were, and how the investment strategy worked.
In one email,
Mr. Nieuwoudt said he had spoken to more than 100 funds that invest or had
invested with Madoff, but none of them could explain how the strategy produced
such consistent returns. "It all seems very opaque," wrote Mr.
Nieuwoudt, who had previously worked for a hedge-fund consultant.
recommended in the email that Mr. Madoff be taken off UBP's list of approved
funds, which included more than 200 asset managers that had cleared UBP's
included in the email discussion were at least two members of UBP's executive
committee: Christophe Bernard, who headed the asset-management business,
and Michael de Picciotto, head of the bank's treasury. Mr. de Picciotto
is a nephew of the bank's founder, who also plays an active role in the
were also discussed during at least one investment-committee meeting, according
to people familiar with the matter.
The UBP spokesman
said Messrs. de Picciotto and Bernard weren't available for comment. Mr.
Nieuwoudt left UBP last year to join another firm.
UBP has said
it took comfort from the fact that Mr. Madoff's firm was registered with
the Securities and Exchange Commission, among other factors.
[swiss bank ubp and madoff] Reuters
weeks, the bank has said it is reducing the number of funds on its approved
list and is tightening its procedures for screening managers. For example,
it is requiring all of its managers to use independent administrators, which
help guard against fraud by serving as a third party responsible for confirming
that a manager has the assets it says it does.
with Mr. Madoff via four different feeder funds, including one run by Fairfield
Greenwich Group of New York, one of the main conduits for investors in Mr.
Madoff's funds. By early 2008, Mr. Madoff was among UBP's top five holdings,
according to one of the people familiar with the matter.
its investments in Fairfield, UBP had close ties to the firm, providing
advisory and other services to the management company of Fairfield's fund-of-funds
division. Beyond that, three Fairfield funds invested in UBP's own Madoff
feeder fund, called M-Invest Ltd., according to a person familiar with Fairfield.
As of October,
the three funds had a total of about $200 million invested with UBP's M-Invest,
this person said. The de Picciotto family originally created M-Invest as
a way to invest family money with Mr. Madoff and later opened it to others.
borrow money. It could imperil your future and everything you and
your family have worked for. From Jan/Feb Atlantic magazine:
all the predictions about the death of old media have assumed a comfortingly
long time frame for the end of printthe moment when, amid a panoply
of flashing lights, press conferences, and elegiac reminiscences, the newspaper
presses stop rolling and news goes entirely digital. Most of these scenarios
assume a gradual crossing-over, almost like the migration of dunes, as behaviors
change, paradigms shift, and the digital future heaves fully into view.
The thinking goes that the existing brandsThe New York Times, The
Washington Post, The Wall Street Journalwill be the ones making that
transition, challenged but still dominant as sources of original reporting.
But what if
the old media dies much more quickly? What if a hurricane comes along and
obliterates the dunes entirely? Specifically, what if The New York Times
goes out of businesslike, this May?
certainly plausible. Earnings reports released by the New York Times Company
in October indicate that drastic measures will have to be taken over the
next five months or the paper will default on some $400 million in debt.
With more than $1 billion in debt already on the books, only $46 million
in cash reserves as of October, and no clear way to tap into the capital
markets (the companys debt was recently reduced to junk status), the
papers future doesnt look good.
of our analysis of our uses of cash, we are evaluating future financing
arrangements, the Times Company announced blandly in October, referring
to the crunch it will face in May. Based on the conversations we have
had with lenders, we expect that we will be able to manage our debt and
credit obligations as they mature. This prompted Henry Blodget, whose
Web site, Silicon Alley Insider, has offered the smartest ongoing analysis
of the companys travails, to write: We expect that we
will be able to manage? Translation: Theres a possibility that
we wont be able to manage.
credit crisis comes against a backdrop of ongoing and accelerating drops
in circulation, massive cutbacks in advertising revenue, and the worst economic
climate in almost 80 years. As of December, its stock had fallen so far
that the entire company could theoretically be had for about $1 billion.
The former Times executive editor Abe Rosenthal often said he couldnt
imagine a world without The Times. Perhaps we should start.
best way to avoid a cold? Wash your hands.
People infected with the rhinovirus (which causes colds) transferred it to
35% of the surfaces they touched, where it survived for up to 18 hours, according
to a recent study at the University of Virginia. Exercise also boosts the
body's production of disease-fighting white blood cells. A student in Medicine
& Science in Sports found that physically active people suffered 20%
fewer upper respiratory infections a year than their less active friends.
Open Tennis begins this weekend. The huge
time difference makes this ideal for TiVo. Enjoy.
For the full schedule go to Tennis.com.
A happy day at Wal-Mart. Morning tip:
Twirl in front of the mirror before leaving the house.
Street and the Olympics
Q: What is
the one thing Wall Street and the Olympics have in common?
A: Synchronized diving.
Check out today's
results from Merrill, Citibank and Bank of America.
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
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