Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, January 25, 2007: The
issue is re-balancing, also called re-allocation. Broad diversification is the
only way you mitigate the fact that you can't predict. But -- and this is the
hard part -- you must predict, because you don't have unlimited money.
year I had 2.5% of my portfolio in a commodities fund. It lost 0.5%.
I should have kept my money in a savings bank. Today's question: Is the commodities
boom over? Or, haven't we seen anything yet. China, India, Brazil, Russia and
others have oodles more developing to do, etc. And commodities prices will rise
The first good news is I could have done worse. Had I been in the Goldman Sachs
Commodity Index I would have lost 15%. My commodities fund had a lower
weighting (also called allocation) to energy -- oil and natural gas. Those two
were the killers in 2006. The energy sector -- crude oil, natural gas and heating
oil -- was down 41% in 2006. My fund had 35% allocated to them.
Goldman's index apparently had more than half, hence causing its poorer results.
curious is there are as many bears in commodities today as there are bulls.
The bears say the commodities boom was fueled by speculators, such as hedge
funds (who are now largely out). The bulls says the boom is real and fueled
by solid economic growth in China, India, Brazil and Russia. My commodities
man (i.e. the man managing my commodities fund) says his fund performed exactly
as it should have -- contra to the stockmarket, which boomed. He says they're
not "correlated." Which means they provide a "hedge" against
each other. One goes up (as stockmarkets did last year); the other goes down
(as commodities did). But, on average, your portfolio does OK. That's a great
theory. But my brain has problems with things that lose money -- even if they're
meant to. I want everything to go up or I don't sleep at night.
brings me back today's cogitation -- thinking, also called agonizing. Do I stay
in my commodities fund? (One extra news: Some commodities are cratering in 2007,
already.) Here's a piece from this week's Bloomberg:
Deutsche Bank Say Double Down on Commodities
Jan. 22 (Bloomberg)
-- Anyone who followed the advice of Goldman Sachs Group Inc. last year and
invested $10 million in the Goldman Sachs Commodity Index would have lost
15 percent, or $1.5 million. Like so many of Wall Street's best and brightest,
Goldman, the biggest securities firm by market value, says it wasn't wrong,
just early, and to expect an 8.1 percent return in 2007.
"The long-term secular story is very much intact,'' Jeff Currie, global
head of commodities research at New York-based Goldman, told customers in
London earlier this month. That's the same outlook provided 13 months ago
by Arun Assumall, the firm's London-based head of commodities sales.
Like Goldman, Deutsche Bank AG isn't discouraging anyone from doubling down
in what increasingly looks like a bear market.
Germany's largest bank in September said oil will trade between $60 and $70
a barrel this year, well above the $49.90 fetched last week. Barclays Capital,
the securities unit of the U.K.'s No. 3 bank, said four months ago crude won't
drop below $60.
As losses mount in copper, oil and sugar, these firms say the 20 percent plunge
in commodities, as measured by the Reuters/Jefferies CRB Index, since May
offers a chance to buy before demand from China and India causes a rebound.
History shows otherwise. The CRB index dropped at least 20 percent six times
since 1970, and on average, fell a further 7.7 percent before bottoming.
the course of this year, many investors who went into commodities will question
why they did so and whether they strategically want to be in it for the long
term,'' said Simon Hayley, a senior economist at London-based Capital Economics
Ltd., who said in May that prices would slump. Raw materials still ``have
further to fall,'' he said.
Stocks and bonds in 2006 offered better returns than commodities for the first
time in three years. The decline in energy prices led to a record $6.6 billion
loss from natural gas trading at Amaranth Advisors LLC and a 19 percent drop
at the $1.3 billion Oppenheimer Commodity Strategy Total Return Fund.
The CRB index, which reached a record high of 365 in May, fell 0.14 last week
to 290.48 Friday, its lowest weekly close in almost two years.
Goldman, which generated about $2.5 billion from trading commodities last
year, according to estimates from London-based Coalition Development, and
Deutsche Bank say the prospect of falling U.S. interest rates and rising demand
in China signal a recovery. China's oil use will increase 5.4 percent this
year, according to the International Energy Agency in Paris. Copper demand
will rise 5.8 percent, Deutsche Bank estimates.
Lewis, London-based head of commodities research at Deutsche Bank, prices
are undergoing a ``recurrent correction in a continuing bull run.'' Nickel,
zinc, gold and grains may rise this year, Lewis's team wrote Jan. 12.
Frederic Lasserre, the head of commodities research at Paris-based Societe
Generale, France's third-largest bank, said in May that prices would drop
in the fourth quarter of 2006 or the first quarter of 2007.
``It's best to wait,'' Lasserre said last week. ``Some investors who are still
attracted to commodities are postponing their decisions. If we see prices
fall further, then investors may start pouring in again.'' He expects markets
to bottom at the end of this quarter, when the CRB index reaches 260.
futures brokerage division, Fimat USA LLC, differs. Investors may add $25
billion this year to the $110 billion already in commodity markets, according
to the New York securities and commodities broker. Only $5 billion was invested
in commodity indexes in 2000, Morgan Stanley estimated.
New investors may include the California Public Employees' Retirement System,
the biggest U.S. pension fund, which plans to invest in commodities for the
first time, devoting $500 million.
Universities Superannuation Scheme Ltd. of Liverpool, the U.K.'s second-largest
pension fund, with $52 billion, may invest too.
'We feel the commodity markets are still underinvested,'' said David Burkart,
a money manager at Barclays Global Investors in San Francisco. ``We expect
higher prices in the long run.''
Barclays, which had the highest average oil price forecast among firms surveyed
by Bloomberg, last week cut its projection by 13 percent to $66.30 a barrel
because of warm weather.
"The warm weather has acted as a catalyst for some heavy selling of crude
and made it hard to hold on'' for higher prices, said Kevin Norrish, an analyst
at Barclays Capital, in a phone interview from London. ``It doesn't undermine
what are still very constructive fundamentals, but it has an impact on sentiment.''
firms are hiring for commodities as fast as ever, said Paul Chrispin, co-head
of energy and commodities at Principal Search Ltd., a recruitment firm with
offices in London and New York. His firm last year placed a record of about
70 commodity traders, more than double the number in 2005.
absolutely no let up'' in demand for traders, Chrispin said. ``As with 2006,
a handful of the top traders at the top banks will still be likely to make
$10 million or more in bonuses this year.''
Jim Rogers, the author of ``Hot Commodities'' who predicted the start of the
rally in 1999, said the slide in oil is a ``correction'' before prices head
above $100 a barrel. Crude ended last week at $51.99 and traded at $52.70
not smart enough to know how far down it will go and how long it will stay,
but I do know that within the context of the bull market, oil will go over
$100,'' Rogers said in a Jan. 17 interview in Tokyo. ``It will go over $150.
Whether that is in 2009 or 2013, I don't have a clue.''
Emerging-markets investors, the group most at risk when commodities sink,
are optimistic. The iShares MSCI Emerging Markets Index has gained 26 percent
since mid-July while the CRB index fell. The indexes had tracked each other
for the three years that ended in July.
"A lot of these countries are sitting on huge surpluses generated by
their commodities exports, and they will probably continue to see quite strong
domestic demand led by consumption and investment,'' said Devan Kaloo, fund
manager and head of global emerging markets in London at Aberdeen Asset Management
Ltd., which has $27 billion earmarked for emerging-market investment.
To Marc Faber,
who predicted the U.S. stock market crash in 1987, the rise in emerging markets
is a sign of excesses worldwide. Global assets are poised for a 'severe correction''
and it's time to sell stocks, bonds and commodities, he said Jan. 8 in New
The U.S. Treasury Department reported last week that OPEC nations sold 9.4
percent, or $10.1 billion, of their U.S.
government debt securities in the three months ended in November.
The Organization of Petroleum Exporting Countries last sold Treasuries for
three straight months in the period ending in June 2003.
A tumble in commodities may be the catalyst for a drop in financial assets,
said Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co.
in New York.
"If commodity prices continue to fall, there is the potential for fallout
in financial markets worldwide,'' he said. 'It would probably feed on itself,
with many investors seeking to exit the same door.''
Citigroup Global Markets, analyzing charts that some traders use to predict
price direction, said in a report Jan. 8 that "commodity markets, while
still considered in a bull run, are now overheated and vulnerable to significant
My tendency --
this morning -- is to lighten up on commodities, but stay with my Australian
miners. I'm still mulling. I'm worried about the heavy gains in recent years,
the slowing world economies and the new guys jumping in. I'm too late, I think.
Anyone out there with better ideas?
CHECK. CHECK. CHECK. IBM had "Think."
I have CHECK. It's amazing how many upcoming screwups you can catch if
you rigorously check now. Items:
+ TiVo was not about to automatically record this morning's Federer-Roddick
match. I manually set it.
+ Most brokerage fees come in wrong, i.e. too high. They need to be manually
adjusted. Ditto for phone bills.
+ My son went to India with an airline power adapter he didn't test. Predictably
it didn't work.
+ My son took his new Cingular Blackberry to India. When he got there, they
cut him off, thinking it was fraud or something. He should have checked with
them. You don't want to know how bad Cingular's customer "service"
is. It's beyond awful. Cingular is changing its name to AT&T, which seems
appropriate. That company never shined on service, either.
Australian Tennis Open 2007 is on.
I'm engrossed in the matches. One is better than the previous one. Here's the
remaining schedule. All times are EST. The tennis is a sound reason to buy a
Thursday, January 25
3:30 am - 6:00 am - - ESPN (Live)
3:00 pm - 6:00 pm - - ESPN2
Friday, January 26
12:00 am - 1:00 am - - ESPN2 (Live)
3:30 am - 6:00 am - - ESPN (Live)
3:00 pm - 6:00 am - - ESPN2
9:30 pm - 11:30 pm -- ESPN2
Sunday, January 28
3:30 am - 6:30 am - Final - ESPN2 (Live)
12:00 pm - 3:00 pm - Final - ESPN2
Free Sex with Fill-Up
A gas station in Kentucky was trying to increase its sales,
so the owner put up a sign saying, "Free Sex with Fill-Up".
Soon a local redneck
pulled in, filled his tank, and then asked for his free sex. The owner told
him to pick a number from 1 to 10. If he guessed correctly, he would get his
free sex. The redneck then guessed 8, and the proprietor said, "You were
close. The number was 7. Sorry, no sex this time."
A week later,
the same redneck, along with a buddy, Bubba, pulled in for a fill-up. Again
he asked for his free sex. The proprietor again gave him the same story, and
asked him to guess the correct number. The redneck guessed 2 this time. Again
the proprietor said, "Sorry, it was 3. You were close, but no free sex
As they were driving
away, the redneck said to his buddy, "I think that game is rigged. He doesn't
really give away free sex."
Bubba replied, "No it ain't, Billy Ray. It ain't rigged ----- my wife won
twice last week."
of the year:
+ I am a medical student currently doing a rotation in toxicology at
the poison control center.
Today, this woman
called in very upset because she caught her little daughter eating ants.
I quickly reassured
her that the ants are not harmful and there would be no need to bring her daughter
into the hospital. She calmed down and at the end of the conversation happened
to mention that she gave her daughter some ant poison to eat in order to kill
I told her that
she better bring her daughter into the emergency room right away.
Some Boeing employees on the airfield decided to steal a life raft from one
of the 747s. They were successful in getting it out of the plane and home. Shortly
after they took it for a float on the river, they noticed a Coast Guard helicopter
coming towards them. It turned out that the chopper was homing in on the emergency
locator beacon that activated when the raft was inflated.
They are no longer employed at Boeing.
A man, wanting to rob a downtown Bank of America, walked into the Branch
and wrote "this. Put all your muny in this bag."
in line, waiting to give his note to the teller, he began to worry that someone
had seen him write the note and might call the
police before he reached the teller's window.
So he left the
Bank of America and crossed the street to the Wells Fargo Bank. After waiting
a few minutes in line, he handed his note to the Wells Fargo teller. She read
it and, surmising from his spelling errors that he wasn't the brightest light
in the harbor, told him that she could not accept his stickup note because it
was written on a Bank of America deposit slip and that he would either have
to fill out a Wells Fargo deposit slip or go back to Bank of America.
defeated, the man said, "OK" and left.
He was arrested
a few minutes later, as he was waiting in line back at Bank of America.
A guy walked into a little corner store with a shotgun and demanded all of the
cash from the cash drawer.
After the cashier
put the cash in a bag, the robber saw a bottle of Scotch that he wanted behind
the counter on the shelf.
He told the cashier
to put it in the bag as well, but the cashier refused and said, "Because
I don't believe you are over 21."
The robber said
he was, but the clerk still refused to give it to him because she didn't believe
At this point,
the robber took his driver's license out of his wallet and gave it to the clerk.
The clerk looked
it over and agreed that the man was in fact over 21 and she put the Scotch in
The robber then
ran from the store with his loot.
The cashier promptly
called the police and gave the name and address of the robber that he got off
the robber two hours later.
A pair of Michigan robbers entered a record shop nervously waving revolvers.
The first one
shouted, "Nobody move!"
When his partner moved, the first bandit shot him.
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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