Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Thursday, March 8, 2007: What
you can believe? Anything in print? Anything on the web?
First, recognize reporters are gullible, lazy and easily convinced. I know.
I've been one for 47 years. I try to check. I use a little logic. Sometimes
there are no "right" or "wrong" answers. No clear Yes or
No. And worse, everything these days seems to be politicized. Take global warming.
Take oil. Are we running out (the peak oil theory) or have we got plenty? Somebody
will hate you if you have the "wrong" answer.
I excerpted a front-page New York Times piece on oil. It said new technology
was giving us plenty of new oil. No need to worry! My friend and HBS classmate,
Jim Kingsdale, an oil expert, emails me:
Hi Harry. A
fine day here in the Crested Butte. I'm about to go skiing. But first I must
just say when I read the New York Times it seemed that an Exxon Mobil
mole must be working for the paper because their oil story was so slanted
First of all the "new" techniques for getting more oil out of the
ground have been well known for years, so there's no real news here. No front-page
Second, the amount of oil "previously" recoverable (presumably before
using the "new" techniques), was not the 35% quoted in the Times
but more like 50-70%.
Third, it's not really about how much comes out of the ground, but more about
how fast it comes out.
Fourth, there is a huge difference between on-shore and off-shore fields --
mainly that the off-shore fields (which are most of the new discoveries) are
not as susceptible to using the "new" techniques for maximizing
output as are the on-shore fields, viz. the North Sea fields which are now
declining very rapidly after producing only 40%-50% of their oil-in-place.
And finally, there was no mention of the decline of fields at all or the principle
fact of the "new" techniques that after their application to a field,
when the field starts to decline, it declines at a MUCH faster rate than fields
traditionally declined in the days before the "new" techniques were
Bottom line: crude oil will certainly peak and may very well have already
begun to peak. Some other forms of "oil" included in the Times
references to oil reserves are not oil at all (such as "oil shale")
and have never been susceptible to economic extraction. Conceivably they could
be extracted if the price of oil were high enough and/or some new technology
is discovered, but in either case we are not looking at a near term result.
All in all, a fine example of the maxim: don't believe everything you read
in the paper.
I emailed him
back, "What's going on? Why?" He writes back:
I hope you know
why the Exxon Mobils of the world want to talk down the price of oil by saying
there's plenty of it, not to worry. It's because their contracts with foreign
governments say that as their ROI goals are satisfied on a given oil field,
the oil field begins to revert back to the ownership of the foreign government.
So as they make enormous profits from higher oil prices, their RESERVES (oil
in the ground - that is, foreign ground) actually decline -- go back to the
ownership of the government. Wall St. analysts look at reserves in pricing
their stock. So the irony is that as their profits go up, their reserves go
down and their stock price (with which the execs are compensated) goes down.
Hence they lobby endlessly for the concept that there is no risk the the world's
oil supply. Reminds me exactly of the cigarette companies' views on cancer
up until a few years ago.
Jim is one of
the smartest investors I've ever met. He's averaged around 25% on his investments
for the past many years. I ask him what he likes. He replies:
I think the
oil sands stocks are presenting a GREAT buying opportunity right now. On the
drillers/service companies I like KEGS, a special turnaround situation, plus
virtually all the names everyone knows. Just to take one, Global SantaFe sells
for $58 and will earn over $7 this year and over $9 next. Both the rigs themselves
and even more importantly the people who work them are in very short supply
and both take many years to develop. Meanwhile virtually ALL the interesting
new oil fields are offshore. I think these companies' assets, which gush cash
flow, are extremely undervalued and are perfect for LBOing.
Plugins for Firefox: The Mozilla Firefox is
a far better browser than Microsoft's Internet Explorer. Trust me on this one.
Pick yourself up a free copy, click
here. Firefox is open software, which means that users write add-ons
to give Firefox those few extra features they want and they make those add-ons
free for the rest of us. Here are my favorite add-ons:
Firefox Showcase. Hit F12 and you see this.
They're all the web sites you currently have
open. I typically open 14 web sites each morning -- including the Wall Street
Journal, BusinessWeek, Forbes, the New York Times Business, the Economist, Yahoo!
Finance here and in Australia, etc. Click on one and you're right there. Huge
time saver. Download
Manager saves and restores the state of all windows and tabs - either when
you want it automatically at startup or after crashes. It lets you reopen (accidentally)
closed windows and tabs. If you're afraid of losing data while browsing -- this
extension allows you to relax....
Tab:Some web sites insist on Internet Explorer.
IE Tab runs the Internet Explorer engine. IE Tab is useful. You can easily check
what your web site looks in Firefox and Internet Explorer -- often very different.
This tool is useful if you're like me rushing to get out a web site. All it
does is put a ruler around whatever you want and give you the measurements in
Here you can see
that the bit I measured of the red bar is 397 pixels wide and 27 high. Useful
if you're designing ads for the web. Download
The Web is replete with forms to enter. Firefox, Internet Explorer and cookies
try to help you, but usually half fail. I've tried RoboForm and eWallet. Too
complicated. The easiest I've found is InFormEnter. It doesn't fill forms out
automatically. Shucks. But you can choose an answer from a list.
The worst thing you
can do is to have the same password for everything -- your bank, your credit
card, etc. But having the same one sure saves time. I recommend a combination
alpha and numbers -- something like Handsome321.
of a genius: From Albert Einstein, His Life and Universe by
+ Smoke like a
chimney, work like a horse, eat without thinking, go for a walk only in really
+ Certain people find everything boring.
+ I discovered
that nature was constructed in a wonderful way, and our task is to find out
the mathematical structure of the nature itself. It is a kind of faith that
has helped me through my whole life.
+ With fame I become more and more stupid, which of course is a very common
+ The dog is very smart. He feels sorry for me because I receive so much mail.
That's why he tries to bite the mailman.
Muriel Fullam, my wonderful assistant, says he looks like her puppy dog,
an English springer spaniel. He and her puppy have those same hanging cheeks.
+ I am a deeply
religious nonbeliever. This is a somewhat new kind of religion.
+ Anything truly novel is invented only during one's youth. Later one becomes
more experienced, more famous - and more blockheaded.
+ Nationalism is an infantile disease, the measles of mankind.
+ I have reached an age when, if somebody tells me to wear socks, I don't have
new best friend
Lou sat at the bar furiously pounding down shots of whiskey.
His best Friend,
Jim, spotted him and said, "Lou, what's going on?" "Are you okay?"
"I've known You for fifteen years and I've never seen You drink like this
Staring at his
next filled shot glass, Lou replied, "My Wife just ran off with my best
friend." He then tossed that drink down, too.
"But, I thought
that I was your best friend?" said Jim.
Lou looked at
Jim through bloodshot eyes, smiled, and slurred, "Not anymore. Now he is!"
power of flattery
Rachel: "What's wrong with your hair?
It looks like a wig."
"You know something. It IS a wig."
"How do you like that. You never could tell!"
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. Thus I cannot endorse any, though some look
mighty 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 Claire's
law school tuition. Read more about Google AdSense, click
here and here.