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 31: Amtrak's
expensive, fast Acela train to Boston has the worst seats ever invented. My
back is killing me. Two Advils will solve that. Rule number one: Take pillows
when you travel. We went to Boston to look at properties. The idea was we'd
buy a house; Michael would live in it for two years while at business school.
He'd rent out rooms to fellow students. We'd use the rents to pay the mortgage.
In two years we'd sell the place and pocket a 16% IRR return -- what
our numbers showed for the investment.
house was great, even bigger than we thought. But there were difficulties, chiefly
involved with managing it. All those kids, collecting rents, handling maintenance...
The location was great, but not perfect. We remembered that Michael was gong
to Boston to learn to be an MBA, not learn to be a slumlord. In the end we opted
for renting a nice apartment we found closer to his school. So much for being
a landlord. It had worked when Michael went to Dartmouth as an undergraduate.
We bought a two-bedroom apartment, rented out one bedroom and sold the thing
at a handsome profit two years later. That investment was a "no-brainer."
This one wasn't. These days I only like "no-brainer" investment, with
as little fuzz as possible.
good news was that my Verizon Broadband access worked flawlessly on the train.
It's an amazing feat of technology to be on a train whizzing along at 100 MPH
and have emails flowing into your laptop. This is the best gadget ever invented
for travel. If you travel a lot, you could happily skip paying for a DSL line
or cable modem at your house and use Verizon's broadband access service when
you're at home also. This way the $60/month service charge will seem more affordable.
This service now works overseas using the new BlackBerry 8830 as a tethering
device. More about that later.
Pain at Goldmans Flagship Hedge Fund: They
don't all come in the same flavor. They aren't all "hedged." Their
naming can be misleading. Some take big (i.e. excessive) risks. Even the biggest,
the most prestigious and the most touted can screw up and do. The moral of this
story: If you invest in a hedge you'd better find out what they "invest"
in and how much money they borrow (preferably nothing in my view). If they talk
about taking "bets" more than they talk about "value investing"
it's time to run for the exit. Many hedge fund managers think they have a license
to print money using your money as their stash. Many hedgies simply
don't have the skills to make your more money than you could earn on a simple
index fund. See "How
Harry's Money Managers are performing in 2007."
You don't hear much about hedge funds (except the successful ones). So it's
useful to read these two stories today. First, from The New York Times:
often seems as if Goldman Sachs, the highly profitable securities firm, knows
how to pluck money from thin air. But the firm is losing its touch with Global
Alpha, its flagship hedge fund, which manages money for some of Goldmans
wealthiest clients and employees.
in a weak performance in 2006, the investment pool has fallen 3.4 percent
in the first four months of this year, hurt by losses in the currency markets,
Bloomberg News said, citing a report sent to investors last week.
the average hedge fund gained 4.9 percent in the same four-month span.
All told, Global
Alpha, managed by Mark Carhart and Raymond Iwanowski, has dropped 12 percent
since 2005, a blow-out year when it rose 40 percent after fees.
an investor will accept one down year,' Gregory Dowling, vice president
for alternative investments at Fund Evaluation Group, told Bloomberg. After
two years, investors may get concerned about the stability of the investment
team and client base.
have been moving deeper into the hedge-fund business, which involves managing
private pools of capital for wealthy and institutional investors. The returns
can be highly volatile, however, and their operations are often opaque, making
it hard for analysts to gauge the inherent risks. Because so much of a hedge-fund
managers fees come in the form of a chunk of the funds profits,
a losing year means leaving a lot of money on the table.
many moving parts, and last years weak returns at Global Alpha did not
stop it from reporting record earnings and doling out big bonuses to
its top employees. In addition, the fund has eight months to recoup the losses
it has racked up so far in 2007.
to the number two spot on Alpha magazines annual list of the
biggest hedge funds, released this month. Still, the publication noted that
Goldmans hedge fund business is hardly shrinking. Alpha said that Goldman
showed $11 billion more in assets than last year, but it slipped in
the rankings in part because of the weaker performance of Global Alpha.
The story from
Alpha Hedge Fund Falls 3.4% in 2007, By
May 30 (Bloomberg)
-- Goldman Sachs Group Inc.'s largest hedge fund fell 3.4 percent in
the first four months of this year, trailing peers because of losses on bonds
and currencies, according to a report sent to investors last week.
in the Global Alpha fund compares with the average hedge-fund advance of
4.9 percent, data compiled by Chicago-based Hedge Fund Research Inc. show.
The fund has dropped 12 percent since 2005, when it rose 40 percent
and attracted more than $3 billion of new cash.
The $10 billion
fund, managed by Mark Carhart and Raymond Iwanowski, struggled in a 16-month
stretch when the Standard & Poor's 500 Index climbed 22 percent.
Global Alpha's decline has cut into fees that reached $700 million
after the gains of 2005 and has made New York-based Goldman, the biggest U.S.
securities firm by market value, vulnerable to client withdrawals.
an investor will accept one down year,'' said Gregory Dowling, vice president
for alternative investments at Cincinnati-based Fund Evaluation Group LLC.
His firm isn't an investor in the Goldman fund. ``After two years, investors
may get concerned about the stability of the investment team and client base.''
Peter Rose declined to comment about the fund's performance.
Iwanowski, both 41, must recoup the losses to collect incentive fees on the
cash that followed the 2005 rally. Their management fees, which equal 1.5
percent to 2 percent of assets, have been reduced by the fund's decline.
are private, largely unregulated pools of capital whose managers can buy or
sell any assets and participate substantially in profits from money invested.
which started in 1995 with $10 million, advanced 0.4 percent last month on
bets that global stocks and metals prices would increase, according to its
latest investor letter. Hedge funds globally gained an average 2 percent in
April, according to Hedge Fund Research.
fund's profits were trimmed by wagers that currencies, including the Canadian
dollar and Norwegian krone, would decline. The Canadian dollar
gained 4 percent against the U.S. dollar in April, and the krone gained
more than 2 percent.
returns also were hurt by so-called market- neutral investments in fixed-income
and equity markets, according to the latest monthly update. A market-neutral
strategy attempts to generate consistent gains regardless of whether prices
rise or fall.
The U.S. equity
market-neutral strategy "detracted from performance as our earnings quality
and valuation themes performed poorly,'' Global Alpha managers said in the
The fund makes
high-risk bets often based on computer- driven models, which can lead to swings
in performance. One of its objectives is a low level of correlation, or degree
of shared fluctuation, with the S&P 500. Goldman has marketed Global Alpha
as having a target annual return of 20 percent, according to two investors
who declined to be named because the fund is private.
the one-month U.S. dollar-based London interbank offered rate, or Libor, as
a benchmark for Global Alpha, according to the investor update. In the 12
months ended March 31, the benchmark yielded 5.49 percent as Global
Alpha declined 20 percent, according to the client report.
assets, which are part of Goldman Sachs Asset Management, rose 48 percent
to $32.5 billion in 2006, making it the second-largest U.S. hedge-fund manager
after New York-based JPMorgan Chase & Co., according to a survey by Absolute
Return magazine. JPMorgan managed $34 billion at the end of December.
great talks from TED: TED is THE BEST technology
conference of the year. Fortunately they video their talks. In previous columns,
I've highlighted talks I loved. Here are three more they've just put up from
+ John Doerr's impassioned talk on the
business implications of the climate crisis.
+ Blaise Aguera y Arcas's short-but-astonishing demo of his
Seadragon and Photosynth technologies -- seven minutes that generated
huge buzz in Monterey.
+ Ngozi Okonjo-Iweala's powerful vision of Africa's
future. Ngozi is the former Finance Minister of Nigeria.
There's also an
introduction to TED.
P.S. Don't think about applying for TED2008. They're totally booked out and
then some. Watch the videos for now.
is one of my endearing traits.
I'm clearly obsessed with MetroNaps' EnergyPod. Before
I finally tell you how much they cost, let me quote the "benefit statement'
email that came with the quote:
improves alertness, productivity, and mood. Researchers recently discovered
a nap a day can also decrease chances of dying from heart disease by 37% (Trichopoulos,
Harvard School of Public Health, 2007). Thanks to MetroNaps, you can now act
on this knowledge by installing the MetroNaps EnergyPod in your workplace.
will rent you a 20-minute nap in one of these things for $14, or sell you one
for -- wait for this -- $12,800. That includes the built-in sound system
($495) and privacy option visor ($1,995), which you can see below closed.
You can also buy this:
This Swedish camp cot from LLBean
folds, has a 2 3/4" mattress and costs the grand sum of $99. Who
am I to say they won't sell millions of EnergyPods?
A man walks into the women's department of Macy's. He tells a saleslady,
"I would like a Jewish bra for my wife, size 34B."
With a quizzical
look the saleslady asked, "What kind of bra?"
He repeated "A
Jewish bra. She said you would know what she means."
I remember," said the saleslady. "We don't get as many requests for
them as we used to. Mostly our customers lately want the Catholic bra, or the
Salvation Army bra, or the Presbyterian bra."
a little flustered, the man asked, "So, what are the differences?"
responded. "It is all really quite simple.
The Catholic bra
supports the masses.
Army bra lifts up the fallen, and
bra keeps them staunch and upright."
He mused on that
information for a minute, and asked, "So, what does the Jewish bra do?"
bra," she replied, "makes mountains out of molehills."
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
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