Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, May 18, 2006: My
son, Michael, blames me for yesterday's swoon on Wall Street. On Tuesday I wrote:
moving into the summer doldrums: Most years, the market goes sideways
between now and October. Most years some of my friends start leaving the market
around now. I suspect that some of the squirrelness of recent days has been
a combination of leaving and profit taking. The issue remains -- what to do
with the money in the meantime? Fortunately short-term interest rates are
up. Short-term muni bond triple tax-free floaters are now paying the equivalent
of 4.89% taxable -- which, as they say in Australia, is better than
a slap in the belly with a cold fish. Call Seth Wernick on 202-857-5459 for
floaters. He's good.
ascribed the shockwaves to April's 7.2% annual rate rise in retail prices.
Yesterday's decline in the Dow -- 214 points -- was the biggest daily point
drop in more than three years. Nasdaq is now at its low for the year.
It's hard to see a continuing serious rout
in the stockmarket. Earnings are up. The economy is healthy. Interest rates
are still handle-able. Most importantly, we're is awash in money. There's oodles
of cash "on the sidelines" ready to pounce and grab the "bargains."
The key is to wait for the rout to be over -- which I'm guessing won't be too
long. But perhaps not till the fall.
The BIG question is where will the opportunities be? There is discussion that
the recent mania for "exotic" (i.e. risky) investments -- gold, emerging
markets, energy exploration, etc. -- might now be ebbing and we might start
favoring dull, consistent earners like the old-line manufacturers, health care
and transportation (which is actually up this year).
Meantime enjoy the great Spring weather. Don't get bummed out over the market.
Michael and I went biking late last night along the Hudson River on the
west side of Manhattan. It was hugely wonderful.
is king in squirrelly markets.
The fever for exotic stocks: Many
of us have looked abroad to heavy exotica.
this New York Times chart. You'll find the original here.
Today the Times
has a piece called "The Fever for Exotic Stocks." It begins:
runs a hedge fund that invests in emerging markets, and so, perhaps not surprisingly,
prides himself on having a keen appetite for risk. But even he had to draw
the line when his broker tried to get him into Zambian treasury bills.
pure, baseless speculation," said Mr. Nocera, who has been investing
in developing markets for more than 15 years. "If I am going to play
the casinos, I would rather go to Las Vegas."
Mr. Nocera did
not make the trade, but a number of his even more adventuresome peers did.
Propelled by a boom in copper prices, Zambian government bonds, denominated
in kwachas and yielding 25 percent for five-year paper, returned more than
40 percent this spring for those with a stomach strong enough for such a risky
Four years into
what has become the longest bull market in the brief, turbulent history of
investing in emerging markets, investors from hedge funds to mutual funds
to public and private pension funds have shown a willingness to take on increased
levels of risk in developing markets. Benchmark stocks in the largest markets
like Brazil, Russia, India and China, collectively labeled B.R.I.C.
have experienced gravity-defying run-ups, prompting return-starved
investors to look farther afield. Now in vogue are banks in the former Soviet
republic of Georgia, airline companies in Kenya, oil refineries in the central
Russian republic of Bashkortostan and start-up stockbrokers in India that
go by the name of Indiabulls.
How short memories
This week, a
round of mini-devaluations in Turkey, South Africa and Indonesia was a reminder
that emerging markets, despite their improving economies and stabilizing currencies,
remain volatile and unpredictable. Seasoned investors note that while the
Mexican devaluation of 1994, the Asian currency crisis in 1997 and Russia's
default of its debt in 1998 were ultimately spawned by faulty policies in
each country, the pandemic nature of these blow-ups was deepened by the panicked
selling of unsophisticated investors.
Now, in the
eyes of some, this combination of record capital inflows and indications that
investors have once again have become indiscriminate in their buying, spells
For the New
York Times' full piece, click
Be wary of playing Sony BMG CDs on your PC. Some
of them had spyware that put your PC at risk. You'll know if the CD is dangerous
because it insists on putting software on your PC. You can't play its songs
with your normal software. Sony put the damaging software on the CD (and then
on your PC, if you agree) because it wanted to stop you from pirating its songs.
In fact, the resulting furor in the computer industry caused Sony to drop the
software -- but not until it had distributed several million CDs. For the amazing
story of one company's amazing stupidity, Click
Push them a little, it's good due diligence. Yesterday
I wrote about three key concerns of your due diligence:
1. The management, especially the CEO. What's been
2. What are they spending the money they're raising on? The business or themselves?
3. What's the total market cap of the company after raising all the money? And
who'll own what percentage? In particular, how will your shares (should you
invest) be watered down?
a fourth: Push them in some way. Make a ridiculous request. Raise questions
of technical competence. Whatever you can think of. Gauge their response. Often
it's immature -- they're hurt, they get annoyed. You're looking for an entrepreneur
who can take weird stuff in stride, with a sense of humor. After all, that's
what business life is all about.
technology of timing
She was in the kitchen doing the soft-boiled eggs for breakfast.
He walked in.
She said, "You've
got to make love to me NOW -- this very moment."
He thinks, 'This
is my lucky day,' and gives it his all on the kitchen table.
He says afterwards,
"What was that all about?"
She says, "The
egg timer's broken."
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
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