Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8:30 AM EST Thursday, May 15, 2008: Everyone
had a horrible day yesterday (or maybe will today). Many people woke up to the
realization that things have changed fundamentally. And I mean structurally.
The old days are gone. The way we did business, the industry we were in... all
these are gone. To survive today, many of us are facing lifestyle cuts, headcount
reductions, office relocations (to cheaper space), entry into a new industry
or new job (with different necessary skills), and the possibility of divorce.
I write this not to depress you but to say "You are not alone."
key starts with reducing expenses. It's called staying alive. The second key
is asking what has changed and listing all the things. The third key is figuring
what is booming and how do I edge that way? There are plenty of things doing
well -- but they're probably not what you're doing. I repeat: The key is to
keep the expenses low, not to make long-term commitments and not to make dumb
desperate gambles. Cash is definitely king.
are your own worst enemy. But you are also your own best friend.
Street at less than its finest: Wall Street
is a product sale machine. It sells you whatever it can sell and make a commission
on. It does so without any regard for the long-term riskiness of what it's selling
or its appropriateness for you. Hence the obligation to figure what they're
selling you is 100% yours. When in doubt -- i.e. when you simply don't
understand or have any concerns about the downside -- your job is to say NO.
print out the above paragraph. Laminate it and read it every time you speak
to your broker or financial adviser.
are a zillion examples of Wall Street peddling crap (that's a technical term)
to investors. Among the most egregious of late have been auction rate securities.
I'm not going to bore you with these again. For that, you can go to my other
here I simply want to bring you up to date on Wall Street's egregiousness:
Most brokers sold their clients auction rate securities without telling the
clients what they were sold, without sending them a prospectus, or worse, without
telling them what the risks were.
Now that a secondary market has developed for auction rate securities, virtually
all brokers refuse to sell their clients' auction rate securities in this secondary
market. When asked "Why?" the brokers mumble, burble and evade. The
real reason is that if the client loses -- let's say 10% -- by selling his securities
on the secondary market, the broker becomes liable for the 10%. The client will
sue -- go to arbitration, etc. -- and most likely win. By refusing to sell the
securities, the broker has no liability.
Some of the auction rate securities are actually being redeemed for cash. In
many cases not all the securities in an issue are being redeemed. For example,
an issuer might redeem 60% of a particular issue. An investor who owns this
security can now assume that 60% of his issue will be redeemed. Wrong. We now
have a new practice called "discriminatory redemptions." You get 10%
of your money back. Someone else gets 100% of their money back. When you ask
"Why?" the brokers mumble, burble and evade. I know this for a fact.
I have examples of investors who got discriminatory redemptions What I don't
have are examples of investors who got 100% of their money back when they were
only entitled to 60%. What I'm guessing is that it's those investors who screamed
and shouted the loudest -- as well as those who were the broker's best clients.
not dismiss the above as the ravings of a pissed-off investor in auction rate
securities. You are right. I am pissed-off. But, in every disaster, I try to
draw lessons. And today's is simple: Never, ever, ever trust anything you hear
and/or are recommended by Wall Street. I'll go even one step further. What goes
for "research" on Wall Street-- i.e. the crap brokers feed us -- is
of a lower quality than what you read in this column. And that -- trust me --
is saying something.
out of First Solar. As you know I've been high on First Solar. (So
has Jim Cramer.) I recommended you get out yesterday. I did. I also sold stock
short at $315.70. I got out because the stock is way overpriced -- as measured
by three things, its P/E (121), its earnings growth (flat) and its hype -- much
of its recent rise was due to rumors that the Federal Government would renew
subsidies on solar. I believe it's going lower. Here's the movement of the last
you have absolutely no reason not to back up your hard drive. From
an email this morning:
A Russian woman married a Canadian gentleman. The lady was not very good with
One day, she went
to the butcher and wanted to buy chicken legs. She didn't know how to put forward
her request, and in desperation, clucked like a chicken and lifted up her skirt
to show her thighs. Her butcher got the message, and gave her the chicken legs.
Next day she needed
to get chicken breasts, again she didn't know how to say it, and so she clucked
like a chicken and unbuttoned her blouse to show the butcher her breasts. The
butcher understood again, and gave her some chicken breasts.
On the third day,
the poor lady needed to buy sausages. Unable to find a way to communicate this,
she brought her husband to the store...
What were you
thinking? Hellooooooo, her husband speaks English.
Three Rednecks were working up on a cell phone tower: Cooter, Bubba and Donnie.
As they start their descent, Cooter slips, falls off the tower and is killed
instantly. As the ambulance takes the body away, Bubba says, 'Well, damn, someone
should go and tell his wife.'
Donnie says, 'OK,
I'm pretty good at that sensitive stuff, I'll do it.
'Two hours later,
he comes back carrying a case of Budweiser. Bubba says, 'Where did you get that
gave it to me,' Bubba replies.
you told the lady her husband was dead and she gave you beer?'
'Well, not exactly',
Donnie says. 'When she answered the door, I said to her, you must be Cooter's
widow'.' She said, 'You must be mistaken, I'm not a widow.'
Then I said 'I'll
bet you a case of Budweiser you are.'
Rednecks are good
at the sensitive stuff.
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
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