Harry Newton's In Search of The Perfect Investment
EST, Tuesday, November 11, 2008: New York State and
New York City will shortly increase their income tax rates. It won't be popular
but they have no choice. Many states and cities which levy income tax will follow
suit. The investment implications of this are ultra clear: Buy muni bonds,
which are triple tax-free -- free of federal, state and city taxes.
longer-term muni bonds are yielding over 5%. Which is extraordinary. That is
equivalent to earning over 8% pre-tax. You cannot get that safety and return
anywhere else. Trust me.
theory among New Yorkers friends (yes, I have a few) is that you ought to own
sufficient muni bonds such that the interest from them will pay for your life.
economy continues to crater: I recommend you take 5% of your cash
(I pray you no longer have a portfolio) and buy puts on or short stocks whose
prospects and earnings are collapsing. I'm not going to give you many specifics
today. Except to say: Think of all the industries that will suffer because of
Then think of
industries like advertising, radio, employment agencies, etc. This morning I
was mulling names like Google, which could easily fall another hundred points
and Barnes and Noble, whose competitor Borders is teetering on the edge of bankruptcy.
to "Don't try and catch a falling knife," is "Just
because it's fallen 50% doesn't mean it can't fall another 50%."
(I made that up.)
Sachs' lost decade. Goldman Sachs went public
in 1999. If you were stupid enough to buy the stock then and still hold it,
you would now be losing money. GS closed last night at $69.06. It will fall
lower. It was a favorite Cramer stock. But it's a stupid stock. Goldman's goal
is not to increase its earnings to its shareholders. Its goal is to maximize
partner and employee bonuses.
think you got problems: Colleges are being
hit hard by the economic downturn. They are firing people, imposing hiring freezes,
stopping construction, cutting expenses (like academic journal subscriptions),
etc. Even the richest of them is suffering. This email from Drew Faust, the
president of Harvard University was sent to everyone at Harvard:
To Harvard Faculty,
Students, and Staff:
I write today about the global economic crisis and its implications for us
We all know
of the extraordinary turbulence still roiling the world's financial markets
and the broader economy. The downturn is widely seen as the most serious in
decades, and each day's headlines remind us that heightened volatility and
persisting uncertainty have become our new economic reality.
For all the
challenges such circumstances present, we are fortunate to be part of an institution
remarkable for its resilience. Over centuries, Harvard has weathered many
storms and sustained its strength through difficult times. We have done so
by staying true to our academic values and our long-term ambitions, by carefully
stewarding our resources and thoughtfully adapting to change. We will do so
But we must
recognize that Harvard is not invulnerable to the seismic financial shocks
in the larger world. Our own economic landscape has been significantly altered.
We will need to plan and act in ways that reflect that reality, to assure
that we continue to advance our priorities for teaching, research, and service.
sources of revenue are all likely to be affected by these new economic forces.
Consider, first, the endowment. As a result of strong returns and the generosity
of our alumni and friends, endowment income has come to fund more than a third
of the University's annual operating budget. Our investments have often outperformed
familiar market indexes, thanks to skillful management and broad diversification
across asset classes. But given the breadth and the depth of the present downturn,
even well-diversified portfolios are experiencing major losses. Moody's, a
leading financial research and ratings service, recently projected a 30 percent
decline in the value of college and university endowments in the current fiscal
year. While we can hope that markets will improve, we need to be prepared
to absorb unprecedented endowment losses and plan for a period of greater
downturn also puts pressure on other revenues that fuel our annual budgets.
Donors and foundations will be harder pressed to support our activities. Federal
grants and contracts for sponsored research will be subject to the intensified
stress on the federal budget. Tuition remains an important source of revenue,
but in times like these we want to keep increases moderate, mindful that many
students and families are facing economic strain.
Over the past
several weeks I have been meeting individually and collectively with the deans
of the faculties, as well as the Corporation, to share ideas on how we can
best respond to this changed economic environment. We need to sustain our
high academic ambitions at the same time that we bring greater financial discipline
to all our activities. We have to think not just about what more we might
wish to do, but what we might do at a different pace or do without. Tradeoffs
and hard choices that can be avoided in times of plenty cannot be averted
now. And, given the ongoing volatility and uncertainty, we need to plan and
budget with a range of contingencies in view, including scenarios for reducing
our spending both this year and next.
As we plan,
we must also affirm our strong commitment to financial aid for our students.
In Harvard College, that will mean carrying forward our recent years' initiatives
to make a Harvard education affordable for outstanding students from low-
and middle-income families. As before, families with incomes below $60,000
will pay nothing to send a child to Harvard College, and families with incomes
up to $180,000 and typical assets can expect to pay no more than approximately
10 percent of income. Across our graduate and professional schools, we will
maintain financial aid budgets at least at their current levels -- and ensure
that our students still have access to needed loans, even though many banks
are making them less readily available.
We have long
been dedicated to research and the discovery of new knowledge across a wide
range of fields of scientific and humanistic inquiry. In recent years we have
made significant investments toward breaking down intellectual barriers across
disciplines and across Schools to generate new knowledge and to develop new
courses and educational opportunities for our students. These commitments
must continue to guide us as we make decisions and choices in a significantly
more constrained fiscal environment.
its reputation as a stable and supportive employer, and we view our workforce
as a critical part of all we do. We recognize as well the responsibility that
comes with being one of the largest employers in the commonwealth of Massachusetts.
At the same time, changing financial realities will require us to look carefully
at compensation costs, which account for nearly half the University's budget.
We are assessing
all aspects of our ambitious capital planning program, including the phasing
and development of our campus in Allston.
We are working
with administrative and financial deans from across the University to develop
new approaches for generating both savings and new revenue sources, building
on the ideas and best practices of each of the Schools.
Harvard is a
famously decentralized place, and one size will not fit all. Each School will
face its own particular challenges. But we must at the same time join together
to address these new circumstances with creativity and a spirit of common
as never before, we need to work collectively to develop approaches and efficiencies
that will allow every part of Harvard to thrive in the years to come. Together,
we must continue to advance the priorities that define us.
For all that
has changed in recent weeks, we remain devoted to attracting the very best
students, faculty, and staff to Harvard. We will undertake the daily work
of education and scholarship with the same intensity and imagination. We will
set our academic sights just as high, and we will ensure that the ambitions
and vibrancy of our community and the strength of its commitment to the pursuit
of truth remain unsurpassed.
According to Bloomberg
this morning, Harvard's endowment returned 8.6 percent in the year ended June
30 compared with the 13.1 percent negative return for the Standard & Poor's
500 Index. The Harvard pool provides funds for more than a third of the university's
annual operating expenses, Faust said. The support from the endowment totaled
about $1.6 billion in fiscal 2008, according to Harvard Management Co., the
school's investment arm, based in Boston. ... Harvard officials have engaged
in preliminary talks to sell some of the university's stake in private-equity
funds held by the endowment, a person familiar with the negotiations said on
out for prescription drugs' side effects. My
limited experience with investing in biotech tells me that every drug
has some side affect. Often the side affects are really severe. And sometimes,
the side affects are worse than what the drug cures. I also learned that drug
companies are very lax about the warnings they provide with their drugs. They
don't want to scare their customers off. The FDA is also slow about forcing
warnings to be stronger.
brings me to Lariam, a popular anti-malaria drug. The December 2008 issue of
Outside magazine carries a piece by Jordan Campbell, a climber, who took the
drug, had severe problems for six years -- before he discovered two years later
that the drug caused had serious side affects, including dizziness, severe anxiety,
paranoia, disorientation, hallucinations, bad dreams, difficulty sleeping, depression
and suicidal thoughts -- and at least two actual suicides. A 2006 study at the
Walter Reed showed that the drug causes degeneration in the brain system of
drug is still being prescribed for children.
depressing column this morning. The good news
is I played four hours of tennis yesterday. Two hours of singles and two hours
of doubles and biked about six miles. I feel sore but healthy. Healthy is better
than being wealthy.
New York & Afghanistan
George W. Bush and Osama bin Laden are having a conversation via Al Jazeera
television. Bin Laden tells George Bush, "There is no point of engaging
in further war. I can see total peace in the future!"
George Bush replies,
"Oh yeah and tell me what you see?"
"I can see New York, with new great buildings on one side and beautiful
new buildings on the other side, and everything is peaceful and wonderful."
George Bush says,
"Wow is that what you see? Well I'll tell ya what I see for the future
of Afghanistan... I see a house here, a house there, a small building here and
small building there, but there are signs hanging in the middle of the street."
Osama asks, "And
what do they say?"
"Hell, I don't know. I can't read Hebrew!"
with this site: The idiots at my web hoster,
called web.com, are messing with this site. I'm about to switch web hosters.
If you can't get on the site, please email me .
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,
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