Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Friday, May 12, 2006: How
do you invest in something "hot" you don't understand? The easiest
answer is you don't. There are too many "gotchas" -- bad things
that come out of left field that you can't predict because you don't know the
business. But... if it still smells boiling hot, the key due diligence is to
check who are the people behind it? There are two aspects:
1. Are they honest?
2. Are they competent?
you'll never know the answer to either. You can ask lots of questions. You should.
You can do background checks on them -- you should. That'll tell you if they've
had legal problems -- with the authorities, earlier investors, partners, etc.
But most cases are settled "on the courthouse's doorsteps" and the
details never recorded officially. So, you'll never find out.
The stats are against success, against your ever making money. Most people make
bad entrepreneurs. Most businesses fail. In the end, it's a judgment call. You
go with your gut. And get your rights in writing and your shares listed so you
can bail, wipe your hands, stop agonizing and move on.
After yesterday, several readers said watch out for movies. Sample:
One reader invested
$25,000 in a movie in 1970 ("at a time when $25k was meaningful to me").
The movie opened in a New York theater at 1:00 PM on a Friday and closed forever
that night. It was a movie about police brutality at the 1968 Democratic Convention.
I asked him, "Doesnt seem like your kind of movie. You must have been
pretty stupid in 1970?"
I wanted to
share my independent movie experience with you before you invest. A friend
of mine is a movie professor at a college here in North Carolina and filmed
a full length feature film two summers ago. All in all, he spent/raised about
$500k on the movie. The movie turned out great. It won several awards and
everyone who sees it really enjoys it. The one problem he has found when he
was shopping the movie to distributors was the lack of a recognizable star.
The stars of this movie had been guest stars on several (6 or 7) TV shows
and had done a lot of commercials and other things, but they were not 'known"
enough in the industry to help it get a foot in the door. Many of the bigger/major
film festivals passed on the film because it didn't have anyone in it. Of
course, now its going to go to DVD and it should make a very small amount
of money, but it's good enough to have made a lot more. So, when you read
the script, make sure you follow up on who is going to be cast. Of course,
if the director is the known commodity then that would probably work also.
His woeful response: "Stupid, naïve, inexperienced, whatever. Not
much progress (since), either." Not true. Now he says "No"
more often and tends to like hard asset investments -- like buildings that pay
regular cash returns from boring things like rent.
news for us investors: The Senate on Wednesday passed a $70 billion
package of tax cuts that will extend the lower 15% tax rate on
on capital gains and dividends from the end of 2008 through 2010.
It also would exempt about 15 million taxpayers from paying higher taxes under
the AMT by raising exemptions to $62,550 from $58,000 for couples, and to $42,500
from $40,250 for single filers. The bill now goes to President Bush who has
pledged to sign it.
oil over $70 a barrel, the economy is barreling along nicely. There
are more myths, stories and nonsenses about what "the real" story
is with oil and its affects on us. This piece comes from the June issue of Atlantic
Monthly. It's by Clive Crook, a senior editor. It's very balanced and makes
sense, at least to me:
lost $16 yesterday, or 4%.
Fred Hickey talks about Google being a train dashing along tracks at 300 MPH.
Any little "gotcha" could de-rail it. Associated Press ran a story yesterday,
"Bogus Hits Could Make Up 12% of Web Ad Clicks." Excerpts:
energy security lies closer than you might think
It should be
reassuring that the energy crisis one often reads about is always
looming. In recent months the price of oil has been persistently
higher than $50 a barrel. Just a few years ago, when it fell to less than
$10, a price that high would have seemed both improbable and quite scary.
It would have evoked memories of the oil shocks of the 1970s and the ruinous
economic dislocation that followed. But in 2006, preoccupied as the country
may be with its oil addiction and energy security, we still arent in
a crisis, apparently. The crisis is only looming.
Looking at the
performance of the economy, you could be forgiven for failing to notice the
price of oil altogether. Growth is strong; unemployment is low; inflation
is under control. Energy shocks do not look like this. Oil at $50, $60, $70
a barrel? People resent the price of gas at the pumps, yes. But the economy
seems to glide on, impervious.
Of course, high
oil prices have acted as a brake on an otherwise strong economybut only
a modest brake. The biggest reason is that the economy uses energy, and especially
oil, much less intensively than it did before. Since 1970 the countrys
economy has grown by roughly 200 percent; its consumption of oil has risen
by just 40 percent. The economy still needs oil to function. And in absolute
terms, it needs more than before. But it needs far less in relation to output;
that is, oil is a smaller component in the goods and services that America
produces than it used to be. This makes a huge difference. Why? Because any
given rise in oils price becomes easier for the country to absorb.
That is the
real meaning of energy security. Contrary to what many politicians
appear to believe, energy security does not reside in a low and stable price
of oil. Oil prices have always fluctuated wildly and probably always will;
the structure of the industry makes price stability an unrealistic goal. Security
lies in the improving ability of the economy to take widely fluctuating prices
in its stride. The economys movement away from energy-intensive industries
toward services has had precisely this effect. So too has the ordinary use
of new, energy-saving technologies designed primarily to drive down costs.
To some extent, energy efficiency and energy security turn out to be the same
Much of the
rhetoric about oil today is overheated. The world is not running out of the
stuff, or out of energy more generally. With present technologies, proven
and probable reserves of oil will be sufficient for decades. Even if prices
somewhat lower than those already seen this year were sustained, an array
of existing but not yet widely applied technologies would make it economically
feasible to extract oil from tar sands or shale, or to convert coal to liquid
fuel. There will be enough fuel from those sources to meet the worlds
needs as far into the future as one cares to lookeven if no brand-new
energy-producing technologies emerge anytime soon.
T he biggest
immediate problem is not the supply of energy in the long term, but its fixity
in the short term. Bringing new supplies onstream takes time, whether it is
a matter of building new power plants, sinking new oil wells, or adding new
refining capacity. At the same time, demand for energy is insensitive to price;
when capacity is stretched it takes a very sharp increase in prices to push
consumption down. Today, new investments are going ahead and consumers appear
to be reining back. Once capacity comfortably exceeds demand again, as it
did through the 1980s and 1990s, prices may eventually fall just as sharply.
But the cycle will likely repeat, leading to periodic vulnerability to oil
shocks. The unremarked improvement in Americas energy security has been
impressive, but it needs to continue, and it should be happening faster than
Up to a point,
there is a public interest in protecting the economy from wasteful volatility
by speeding the rate of decline in oils systemic importanceby,
as it were, investing in more shock protection than ordinary private cost
saving will achieve. Environmental risks clinch the argument. The science
and economics of manmade global warming are far more complicated than most
commentary on the subject would have you believe, but there is a strong case
for curbing global greenhouse-gas emissions. This can be done economically,
provided the investments are phased in over an extended span of time. (For
instance, it is far cheaper to build a new plant that emits less carbon dioxide
than to retrofit an existing plant to the same effect. One failing of the
Kyoto Protocol is its rush to impose immediate, drastic changes at ruinous
cost.) Still, the planning and the policies need to be put in place now.
would better insulate the economy from oil-price shocks and reduce emissions
of greenhouse gases. The economic instruments needed to speed this diversification
away from oil are close at hand: taxes on greenhouse-gas emissions (in principle,
a tax on carbon, implemented through higher taxes on gasoline and other fuels)
and subsidies for the use of oil-saving technologies.
administration has repeatedly paid lip service to the idea of energy diversification
but has done little so far to put it into practice. It should do much more.
Not because the oil is running out, and not because the world has just a few
years to avoid a global-warming catastrophe: there is plenty of oil, and dealing
with global warming intelligently must be a multidecade undertaking. Rather,
such policies are an opportunity for the United States to lead other nations
in effectively addressing the worlds biggest environmental risk, and
become more prosperous in the bargain.
(AP) -- John Thys still has not figured out how much his company has paid
Google Inc. for bogus sales referrals caused by ''click fraud'' -- a sham
aimed at a perceived weakness in the Internet search leader's lucrative advertising
Thys says he has uncovered enough of it to conclude that Google is trying
to shortchange his company and thousands of other advertisers by offering
refunds totaling $60 million (euro47.29 million) to settle a lawsuit.
like an insult that they expect us to take this token money,'' said Thys,
director of Internet marketing for Radiator.com.
expects to pay $30 million (euro23.64 million) to the lawyers who settled
the case on behalf of advertisers, raising the settlement's total value to
as high as $90 million (euro70.93 million). Still, that is a fraction of the
more than $10 billion (euro7.88 billion) in cash held by the search company.
judge is expected to consider the proposed class-action settlement in late
which will be provided in the form of advertising credits, are meant to compensate
Google's customers for undetected click fraud, which contributed to the $13.3
billion (euro10.48 billion) in ad revenue that has poured into the company
works out to a $4.50 (euro3.55) refund on every $1,000 (euro788) spent in
its vast advertising network over the past 4¼ years.
studies assert that anywhere from $100 (euro79) to $400 (euro315) of every
$1,000 (euro788) stems from click fraud. If those estimates prove correct,
Google might be on the hook for $1 billion (euro790 million) to $5 billion
(euro3.94 billion) in advertising refunds.
takes different shapes, but the end result is usually the same: Merchants
are billed for fruitless traffic generated by scam artists and mischief makers
who repeatedly click on an advertiser's Web link with no intention of buying
Based on a month-long
analysis of the traffic that Google ads referred to Radiator.com, Thys suspects
click fraud may have accounted for 35 percent of the Web site's $20,000 (euro15,763)
Thys' evidence, Google said its internal safeguards had spotted the suspicious
activity as it occurred and never billed Radiator.com for fraudulent clicks.
But Thys said the search engine did not provide him with any data to back
up its findings in an e-mail signed simply by ''Ray'' from Google's click
its class-action settlement represents a fair offer that underscores how well
it has shielded advertisers from the costs of click fraud.
settlement of the Arkansas lawsuit will likely test advertisers' faith in
Google. The company is supposed to send out notices of the settlement later
this month, giving advertisers until late June to reject or protest the refund
offer. Radiator.com already has decided to reject the offer.
If the entire
deal is rejected, lawyers then go back to the negotiating table; individual
advertisers can also declare they will not participate, freeing them to file
their own lawsuits seeking better deals or join a separate one pending in
Judge Joe Griffin
is scheduled to decide whether to approve the settlement in a two-day hearing
beginning July 24.
Inc. -- owner of the Internet's second-largest advertising network -- continues
to fight similar click fraud allegations in the same Arkansas court as well
as a federal court in California. A click-fraud lawsuit filed against Google
in that same federal court has been suspended while its Arkansas settlement
The Google settlement,
announced in early March, already has focused more attention on click fraud.
The shady activity
produces revenue for Google, Yahoo and a long list of Web sites that display
the ads because the clicks trigger sales commissions even if a referral does
not produce a sale.
Suspected motives vary. Sometimes Web merchants try to deplete a rival's advertising
budget. In other instances, the owners of small Web sites participating in
the marketing networks run by Google and Yahoo are believed to click on ads
to generate more commissions for themselves.
the click fraud issue even further, search engine advertising is not subjected
to independent auditing like the advertising done in newspapers, magazines
and broadcast media. In
search advertising, Web site owners sign contracts obligating them to pay
for all valid clicks -- and the search engine has discretion over what is
Google is examining
ways to make its fraud-fighting efforts more transparent without revealing
crucial information that might help swindlers elude detection, said Shuman
Ghosemajumder, the company's product manager for trust and safety.
also may be on the way. The
class-action settlement requires a report from a yet-undisclosed independent
expert to verify that Google has made reasonable efforts to weed out click
Fair Isaac Co. is studying the issue, drawing on its years of helping lenders
Inc. recently set up a free service that intends to issue quarterly reports
on the frequency of click fraud, compiling information from more than 1,000
initial findings, released in late April, estimated Google and Yahoo suffered
a click fraud rate of 12 percent, translating to more than $1.5 billion (euro1.18
billion) of Google's ad revenue.
findings, the settlement amount in the Arkansas class action ''was very surprising
to us,'' said Tom Cuthbert, Click Forensics' chief executive. ''If I were
an advertiser, I would take great care in studying that settlement.''
Google in the California case say they will do everything possible to persuade
advertisers to reject the Arkansas settlement.
is 'do no evil,' but it's not following its own advice by entering into this
kind of settlement,'' lawyer Brian Kabateck said.
If enough advertisers
balk, it might derail the deal. Google has the right to nullify the settlement
if advertisers that supplied more than 5 percent of its revenue since 2001
reject the agreement.
Barry Schnitt said Kabateck and his colleagues are trying to rally opposition
to the Arkansas settlement so they can revive the California lawsuit in an
attempt to drum up more fees for themselves.
a Dallas lawyer who negotiated the Arkansas settlement, doubts advertisers
can get a better deal than what Google has offered. ''It's easy to take cheap
shots now, but what is the alternative and what are the chances of success?"
you don't know about women. Serious things: From
Kyra Sedgwick in the June issue of Esquire.
+ Sometimes we love you way more than we love ourselves.
+ Intimacy is the greatest foreplay. It's the 24 hour game.
+ You can never give us too many sincere compliments. To be honest, you can
never give us too many exaggerated ones, either.
+ Our friends are not your enemies and our enemies better not be your friends.
+ It isn't our period that's making us moody; it's you.
+ Knowing that you love us makes us strong.
to avoid a speeding ticket.
A Florida senior citizen drove his brand new Corvette convertible out of the
Taking off down
the road, he floored it to 80 mph, enjoying the wind blowing through what little
hair he had left. "Amazing!" he thought as he flew down I-75, pushing
the pedal to the metal even more.
Looking in his
rear view mirror, he saw the Highway Patrol behind him, blue lights flashing
and siren blaring.
"I can get
away from him - no problem!" thought the elderly nutcase as he floored
it to 100mph, then 110, then 120mph.
Suddenly, he thought,
"What on earth am I doing? I'm too old for this nonsense!" he pulled
over to the side of the road and waited for the Trooper to catch up with him.
Pulling in behind
him, the Trooper walked up to the driver's side of The Corvette, looked at his
watch and said, "Sir, my shift ends in 30 minutes. Today is Friday. If
you can give me a reason why you were speeding that I've never heard before,
I'll let you go."
The man, looking
very seriously at the Trooper, said, "Years ago, my wife ran off with a
Florida State Trooper. I thought you were bringing her back."
"Have a good
day, Sir," said the Trooper.
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.