Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Monday, May 1, 2006: The
speculative real estate bubble is collapsing fast. A friend knows of a recent
meeting of salespeople where sales for one week in April were reported at $2
million, down from $20 million the previous week. Now comes word of the collapse
of a company called USA Capital, a Las-Vegas short-term
mortgage lender that filed for bankruptcy recently. USA Capital had $1 billion
in assets and office in Incline Village, Las Vegas and Reno. The company paid
investors up to 15% and loaned the money to developers. Personally, I don't
regard USA Capital's demise as significant, just indicative of the fringe madness
out west and their belief that prices would continue inexorably onwards and
The madness out west was driven by thousands of speculators, also called "investors."
These people would buy a property today in the belief they could sell it tomorrow
for lots more. They wouldn't live in the property. And they often wouldn't fix
it up. These "investors" figured strongly in the south-Florida condo
boom. Investors would sign up for apartments on the architect's plan and flip
the apartment when the thing was actually built. "Investors" have
now essentially disappeared from the real estate scene. (Some observers say
these people have fled to the stockmarket, accounting for much of this year's
What we're left with is not the Tech Wreck of 2000-2002, where
share prices of hot Internet stocks collapsed to zero. Real estate has land,
buildings and often rent rolls. That stuff is valuable, unlike shares of Webvan
or DrKoop. We're now left with a real estate "boom" where real people
account for the bulk of the sales. And "real" people are discerning,
careful and studied about spending their money on where they want to live. But
they do need a place to live. And there are powerful demographics --
new babies and immigration -- which will continue to power residential real
estate, but clearly not at its erstwhile mad, frenetic pace.
The big slowdowns
are in those places where we had the big speedups -- Southern California,
Arizona, Nevada and Southern Florida.
For more on USA
Capital's bankruptcy, click
By the way, the
"shrewd" real estate investors are now eyeing India, where land is
cheap and growth is explosive.
key remains asset allocation: I put more money last
week into those hedge funds performing well and took some money away from one
manager, who were performing desultory. The big keys are:
1. You can't predict the future, though you can predict the obvious -- like
the real estate bubble was ripe for pricking and we're all going to spend more
on health care.
2. You need sufficient assured cash flow from things like bonds to pay for your
living expenses -- if your other investments crater, as some will.
3. You have to sleep at night. Being 100% in anything makes for sleepless nights.
4. You have to deal with this stuff -- otherwise you really will have
Estate planning -- Part 3 (or so). The "big
family" fortunes all are managed by a staff of full-timers who get paid
to alter asset allocation and fiddle with estate planning. We mere mortals don't
have that luxury. But the need is as urgent. From my friend Frank Derfler, who
like me is aged between 60 and death:
Harry -- Marlene
and I have been "balancing" our trusts for years. Cars and trucks
go in, houses and condos go in, etc. You glide along nicely for a while, but
occasionally the bureaucrats bite you. In Florida, vehicles in a family trust
become "commercial". They have different licensing and tax structures.
Just another hassle.
We recently got stuck by bureaucrats in a way that hurt. After Hurricane Wilma
the local village, normally pure hell-on-wheels on permits and inspections,
gave a short-term dispensation to home owners for dock repairs. You could
go through a shorter permitting process, only pay $100, and repair your dock
to be like it was before the storm. Nice of them, eh? That is, until you are
ready to leave and some evil-eyed clerk notices that the house is in a trust.
Oh, no! That's a commercial property and you need to pay an architect for
plans, wait for review by the DNR and the Army Corps of Engineers, and pay
a $900 permit fee.
Just goes to prove two of my favorite sayings:
1. No good deed goes unpunished.
2. You can't do "just one thing" anymore, EVERYTHING has unforeseen
and unintended consequences.
keys to investing in biotech startups:
1. Their drugs seem to make sense, i.e. they
solve a large, often unmet, need.
2. They're beyond R&D. They're into testing for the FDA.
3. Patience. You never know when they might pop.
4. When they do pop, it's time to take profit off the table.
biotech stocks I've written about, own and still like:
One I've written about looks a little 'poppy,':
This chart is small because it covers only the time after Hana changed its symbol
to HNAB and my charting service -- Quote.com -- sucks.
Bank of America gets weirder and weirder.
In the same day's mail:
1. They're threatening if I don't pay them $27.68, I will be "unable
to establish an account in any financial institutions for up to five years,
even after you (meaning me) repay the debt." (I "owe"
them the $27.68 for bank charges on an account I closed.)
2. They sent me an offer for a US Airways Platinum credit card.
3. They sent me an offer for a Bank of America Platinum card.
On Saturday I reached a nice BofA person, who confided, "There
has been a system issue on closing accounts. They don't stay closed. Several
different functions need to be addressed. I'll see what I can do."
I've been flooded
with emails from readers telling me how they love their little, local bank.
I did too, until monster BofA gobbled it.
reasons from Thomas Friedman on why our nation's present energy policy is in
big trouble. (And why alternative energy ultimately
makes huge sense.)
First, we are
financing both sides in the war on terrorism: financing the U.S. military
with our tax dollars, and Islamist radicals and states with our energy purchases.
dependence on fossil fuels is going to bring on climate change so much faster
in an age when millions of new consumers in India and China are driving cars
and buying homes. And that's why renewable fuels and energy-efficient cars,
buildings and appliances are going to be the biggest growth industry of the
21st century. The tougher the energy-efficiency standards we impose on our
own companies, the more likely it is that they will dominate this new industry.
of the steady climb in oil prices, the seemingly unstoppable wave of free
markets and free peoples that we thought was unleashed by the fall of the
Berlin Wall is now being stymied by a counterwave of petro-authoritarian states
like Iran, Venezuela, Russia, Nigeria and Sudan which now have
more petro-dollars than ever to do the worst things for the longest time.
They will poison the post-cold-war world unless we bring down the price of
Fourth, we will
never plant the seeds of democracy in Iraq and the wider Arab world if we
don't also bring down the price of oil. These Arab oil regimes will not change
unless they have to, and as long as oil prices are soaring they won't have
to. Iraq will become just another Arab state that taps oil wells instead of
developing its people.
real estate boom -- Part 37
When NASA was preparing for the Apollo Project, it took the astronauts to a
Navajo reservation in Arizona for training. One day, a Navajo elder and his
son came across the space crew walking among the rocks. The elder, who spoke
only Navajo, asked a question. His son translated for the NASA people: "What
are these guys in the big suits doing?"
One of the astronauts
said that they were practicing a trip to the moon.
When his son relayed
this comment the Navajo elder got all excited and asked if it would be possible
to give to the astronauts a message to deliver to the moon.
promotional opportunity when he saw one, a NASA official accompanying the astronauts
said, "Why certainly!" and told an underling to get a tape recorder.
The Navajo elders
comments into the microphone were brief. The NASA official asked the son if
he would translate what his father had said.
The son listened
to the recording and laughed uproariously. But he refused to translate.
So the NASA people
took the tape to a nearby Navajo village and played it for other members of
the tribe. They too laughed long and loudly but also refused to translate the
elders message to the moon.
An official government
translator was summoned. After he finally stopped laughing, the translator relayed
for these guys. They have come to steal your land."
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
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