Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
9:00 AM EST, Friday, March 6, 2009. My
tennis opponent yesterday told me he still has all his money invested
in the stockmarket and all managed by Fisher Investments. Last year
he lost 40%. He wanted, he told me, to go to cash when he was down
10%, but his Fisher "investment adviser" told him to hang
my friend not understand that his adviser got a fee if he was invested,
but not if he was in cash and out of Fisher? Yes, he understood that, but
the Fisher man was "so persuasive."
are still people in stocks. There are still people (investors and money managers)
whose only investment philosophy is to pray for a bottom and a turnaround.
Mark my lips: There is no early bottom and no early turnaround. There are
a handful of managers who have been able to handle the downdraft. But their
results are in line with sitting in cash, i.e. they've been flat. Most money
managers (of hedge and mutual funds, etc. ) live in the fantasy world that
they're better than Mr. Market. Berkshire Hathaway (that's Warren Buffett)
is down 51% since its September, 2008 peak. I figure if Berkshire can't
hack it, us mere mortals have little shot.
this reinforces my inviolate 15% Stop Loss rule. When you're down 15%
from the most recent peak, sell. Don't even think about praying, just
remains king. If you're inclined to "invest" 2% of your money,
then short the obvious stocks -- such as tech stocks, like Research in Motion,
Best Buy and Google -- and financials, like Wells Fargo, Deutsche Bank and
JPMorgan Chase. I believe you should also have some money in gold. The best
way to play that is GLD, the ETF. Its chart suggests that now is a good entry
do we stand? Floyd Norris is the New York
Times chief financial reporter. Yesterday he published this piece:
Markets, Then and Now
The stock market tanked again today, and for 2009 has lost nearly a quarter
of its value. And it is only early March.
To put that
in perspective, assume that the market ends 2009 at todays prices. This
would be the list of the worst years since 1900 for the Dow industrials:
1. 1931, down
2. 1907, down 38%
3. 2008, down 34%
4. 1930, down 34%
5. 1920, down 33%
6. 1937, down 33%
7. 1974, down 28%
8. 2009, down 25%
9. 1903, down 24%
10. 1932, down 23%
You will note
that we have not had consecutive really bad years since 1930, 1931 and 1932.
Here are the
rankings for worst two-year periods, again assuming 2009 ends at todays
2. 1931-32, down 64%
3. 2008-09, down 50%
4. 1929-30, down 45%
5. 1973-74, down 40%
6. 1906-07, down 39%
7. 2007-08, down 30%
8. 1940-41, down 26%
9. 1916-17, down 22%
10. 1920-21, down 25%
That may mean
that the market really is discounting a financial disaster.
another indication that investors feel more or less the way they did during
the last disaster:
It has been
513 calendar days since the stock market peaked on Oct. 9, 2007. Since then,
the S.&P. 500 is down 56 percent and the Dow is off 53 percent.
On Jan. 29,
1931 the identical number of days after the 1929 market peak
the S.&P. 500 was down 49 percent and the Dow was down 56 percent. The
1929 crash got off to a much faster start, but we have now more or less caught
You will note,
however, that the economic news now is not nearly as bad as it was in 1931.
Could there be a tad bit of overreaction this time?
good folks at accuweather.com would like to let you know that the weather
is also reminiscent of the bad old days:
The weather pattern has some similarities to that of the 1930s and
given the state of the economy these days make it quite sobering. While
modern farming practices and technological advances should prevent a 1930s
style dust bowl over the southern Plains, indeed some hardship lies ahead
unless the current pattern breaks. The spring planting season begins this
month in the region and crops need moisture to sprout and grow.
son turned me onto dshort.com. Doug
Short is a retired computer genius, who's obsessed with numbers and charts.
Here are four charts from his site. The Dow is now at the record high of 1966.
"the current bear market, now nearly 17 months old, has set yet another
new low. It continues to dominate our saga of the Four Bad Bears. In nominal
terms, the decline in the S&P 500 matches the Dow Crash of 1929 over the
equivalent time frame. In real (inflation adjusted) terms, it has surpassed
the Dow decline."
You can see
each of the bear markets in excruciating detail by clicking on this chart
and then clicking on the individual bear markets.
on the next chart, "About the only certainty in the stock market is that,
over the long haul, overperformance turns into underperformance and vice versa.
Is there a pattern to this movement? Let's apply some simple regression analysis
to the question. Here's a chart of the S&P Composite stretching back to
1871. The chart shows real (inflation-adjusted) monthly averages incorporating
data collected by Yale economist Robert Shiller. We're using a semi-log scale
to equalize vertical distances for the same percentage change regardless of
the index price range. The regression trendline drawn through the data clarifies
the secular pattern of variance from the trend those multi-year periods
when the market trades above and below trend.:
Obama a socialist? A pragmatist? An optimist? Or simply a man with
lot resting on his shoulders and no easy answers? I suspect that idealism
plays little role in the overarching urgent goal of getting this miserable
economy back on some sort of track. Economics is called the dismal science
because it's not a science. You can't do control experiments. You can can't
feed California a bail out pill and feed New York a placebo, and see what
happens. Everyone in Washington is flying blind. And they know it. Their hope
is that something they do will stick, because if it doesn't, we'll be in a
pickle for a long, long time.
nobody uses DSL broadband Internet service: It's
just too slow. When we first moved in, the house had DSL service from Verizon.
I ordered Time Warner cable modem service. Here are the results.
Quinta, Coachella Valley, CA
To test your
own speed, go to Speakeasy.
is not all. Several things determine how fast you'll see stuff on the Internet:
1. The speed
of your preferred site. Jon Stewart of Comedy Central's The Daily Show
did a brilliant piece on just how awful CNBC can be. Go here: CNBC
Gives Financial Advice. The piece is
so popular it's overwhelming Comedy Central's computer servers and sometimes
they hang. However, you must watch it -- even if you have to go back to the
site at different times.
The speed of your computer. The more powerful your computer and its graphics
chips, the faster it can assemble the onrush of bits into text, graphics and
The speed of your browser software. Allegedly
Apple's new Safari browser is really fast, but cumbersome. I prefer
Susan likes Internet Explorer.
Gotcha in Short Sales: Yesterday I wrote
about being taxed on short sales. It's more complicated. It's called "cancellation
of debt." This is what the IRS says:
If you borrow
money from a commercial lender and the lender later cancels or forgives
the debt, you may have to include the canceled amount in income for tax
purposes, depending on the circumstances. When you borrowed the money you
were not required to include the loan proceeds in income because you had
an obligation to repay the lender. When that obligation is subsequently
forgiven, the amount you received as loan proceeds is normally reportable
as income because you no longer have an obligation to repay the lender.
The lender is usually required to report the amount of the canceled debt
to you and the IRS on a Form 1099-C, Cancellation of Debt.
However in 2007,
Congress passed The Mortgage Forgiveness Debt Relief Act. It said that cancellation
of debt income was not taxable on qualified principal residence indebtedness.
For more, go to the IRS's
of Circuit City's stores will close for good by Sunday. Once Circuit
City was the nation's second-largest consumer electronics retailer.
Now it's gone. It is liquidating its remaining 567 U.S. stores and laying
off 34,000 employees. That's a lot of families.
This is my new
friend taking fixtures away. He paid $100 to fill his garage with very sturdy
in the Coachella Valley, CA. This is where
we're staying for March. Start with the Number One exhibit, the thermometer.
I took these photos yesterday afternoon.
is the view from our backyard looking one way.
the other way.
and you can see La Quinta mountain golf course. It costs a lot more to play
golf than tennis. There are rattlesnakes out there. They're friendly, so long
as you keep your golf balls on the green part.
This place employs
a veritable army of masked workers. This man came to blow away the leaves.
I didn't see any before he came. And I didn't see any after he left. But he
sure made a lot of noise.
This man came to spray for bugs. I haven't seen a bug yet. The stuff he had
was positively lethal. We declined his services.
I took all the
pictures with my new Canon G10. I underexposed most pictures by a stop or
two to enrich the color.
headlines that are not mistakes. Readers
bemoan today's lack of proofreading. They send me newspaper headlines. What
readers don't understand is this stuff is deliberate. Editors enjoy writing
great, bad headlines. I know I wrote them once, also. Enjoy:
Self Before Shooting Wife and Daughter (the man had a new skill).
Went Wrong in Jet Crash, Expert Says (You really think so?)
Campaign to Run Down Jaywalkers (These jaywalkers do get in the way).
Fails; Veterinarian Takes Over (What a guy).
War Dims Hope
for Peace (You think so?).
Isn't Settled Quickly, It May Last Awhile
of Obesity Looks for Larger Test Group (They weren't fat enough?).
Nutritious Snacks (Do they taste like chicken?)
Through Cemetery; Hundreds Dead (I could see that happening). I used to
ask my children, "How many people are dead in the cemetry over there?"
The answer, they figured early on, was "All of them." I have bright
kids. Now, only if they would make me some bright grandkids.
weekend. Don't read the financial section.
Go online and find yourself and the spouse a cheap four-day cruise. Hug the
kids. Play some tennis or golf. The economy will get better. It always has.
prices out here in the Coachella Valley are down 50%. Most places sell for
less than it costs to build them.
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,
here and here.