Harry Newton's In Search of The Perfect Investment
EST, Monday, November 10, 2008: The first myth to
be shattered was "Diversification works." The second one to go is
that there are investments that are counter-cyclical -- when one goes up, the
other goes down. Hence, on balance you gain. This year's downturn has shattered
these myths for most of us, but especially our colleges which had this theory
that they had a hugely long timeframe and could afford long-term, illiquid investments.
This weekend Barrons did a cover piece on them and the problems colleges are
facing called Crash
the economy has worsened and asset values have plummeted, the question for all
of us becomes, "What are we really worth? How do we report our diminished
worth to our family and our faculty and alumnae? I wrestled with this question
over the weekend, since I also have investments in hedge funds, private equity
funds, leveraged buyout funds and real estate syndications. These things have
dropped dramatically in value in recent months -- but no one can tell me, with
any degree of certainty, what they're worth. There are two reasons for lack
of certainty -- there are no "comparables" (i.e. no sales) and the
bids on these things -- what people are prepared to pay today are few and ultra-low.
The answer I hear is "We'll know in five years."
In the old days
colleges used to be in stocks and in bonds. You could figure their value by
checking the Wall Street Journal's daily columns. Simple. End of story. Then,
reflecting the philosophy of Yale's, David Swensen, its influential endowment
director of the past 23 years, colleges diversified into stuff that theoretically
was more profitable.
Yale now has 70% of its endowment invested in three categories: hedge funds, private
equity and "real" assets, including timber, real estate and oil- and-gas
properties -- one of the most aggressive allocations among major endowments. Princeton
similarly has 70% in hedge funds, private equity and real assets, while Harvard
has 57% in those groups.
The worst thing
about all these illiquid investments is you can't apply our inviolate 15% Stop
Loss Rule -- which has saved our tushy so many times when the market turns against
us. When it turns against you in these non stockmarket-traded things, you can
do basically nothing, except lick your wounds, agonize, and listen to the baleful
stories of your managers.
forward: For me cash remains king, as I mull
my next move. For Fred Hickey, bearish author of The High-Tech Strategist newsletter,
he thinks gold will regain its shine, as the dollar "resumes its long-running
decline." He's long Newmont Mining, Agnico-Eagle Mines, Goldcorp and Yamana
Gold. He's out of puts, for now and is actually long EMC, Microsoft, SAP and
Adobe Systems. As to upcoming purchases of puts, he's looking at Amazon and
Research in Motion.
plans do consumers have for their spending?
victory speech and transcript. In case
you or your kids missed it, Click
here. It's worth listening to, no matter who you voted for.
A cowboy rides his horse up to a saloon.
All the patrons
gawked as the cowboy kissed his horse on the butt before coming in and asking
for a drink.
serves him and asks, "Mind if I ask why'd ya kiss your horse on the butt?"
The cowboy says,
"It's 'cause I got chapped lips."
asks, "Does manure help them heal?"
"No, but it keeps me from licking them."
wary of the advice you give
A man who smelled like a distillery flopped down on a subway seat next to a
priest. The man's tie was stained, his face was plastered with red lipstick,
and a half-empty bottle of gin was sticking out of his torn coat pocket.
He opened his
newspaper and began reading. After a few minutes, the disheveled guy turned
to the priest and asked, "Say, Father, what causes arthritis?"
it's caused by loose living, being with cheap women, too much alcohol and a
contempt for your fellow man!"
be damned!" the drunk muttered, returning to his paper.
The priest, thinking
about what he had said, nudged the man and apologized. "I'm very sorry,
I shouldn't have been so unpleasant about it. Tell me, how long have you had
have it, Father -- I was just reading here that the Pope does!"
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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