Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
and Censored -- as of late Friday, November 3
AM EST Thursday, November 2, 2006: Hedge funds are
unregulated gambling machines. They were originally called "hedge"
because they're meant to hedge their bets by selling short as well as
going long. (Most mutual funds can't sell short.)
-- selling short -- can go disastrously wrong. You can lose gobs of money.
You can lose everything and more. And since the hedge fund biz has become super-competitive
-- with money flowing fast to the best-performers -- there's huge pressure on
hedge funds to take concentrated bets (i.e. no diversification).
When things go bad, well, they really go bad.
A pattern is emerging
-- A hedge fund does incredibly one year with a handful of successful (i.e.
lucky) bets. The following year it falters badly and often goes out of business.
Hedge Fund Rule: When the fund does incredibly well one year, take most
of your money out. If you want to keep playing, play with the bank's
money. No hedge fund can consistently achieve huge annual returns -- I'd say
over 40% up one year is likely to lead to a significant drop the following
saw that with Amaranth's disastrous natural gas gamble and with oodles of others.
And now we have another one. The name of fund is not relevant. I'm not revealing
it for now because I sadly (stupidly) have money in it.
you need to know is that in October the Fund lost 20%, bringing its drop
in 2006 so far to 30%. All the indexes it measures itself against are
UP. In my original column of Thursday, November 2, I excerpted the letter
sent by the fund's chief investment officer to investors in the fund. What was
most interesting was the desperation and utter confusion in this letter. Here
was a very successful manager making brilliantly researched decisions -- only
to find that the market suddenly and consistently went against his logic --
time and time again. It's what hedge fund managers face at present -- especially
as they try to guess the market from day to day. Sadly, few investors give hedge
fund managers a long-term horizon -- like you might Warren Buffett's Berkshire
Hathaway. You should be aware of this psychological environment before you put
money with these guys.
Here was where the original letter was -- now removed because the hedge
fund's director of investors relations asked that it be removed, claiming
it was confidential to the fund's investors.
a laptop? Use this. This
3" x 5" corded keypad has an optical mouse, left and right buttons,
a numeric keypad and -- best of all -- a scroll-wheel and a button
for entering 000.
The thing costs $40
and is available from Cyberguys. Click
movie worth seeing: The Departed:
Gripping movie. Great plot. Great action. Great stars -- Jack Nicholson, Matt
Demon, Leonard DiCaprio and directed by Martin Scorsese. Highly recommended.
Not for the queasy stomach. Oodles of violence.
Italians (or blondes, or whoever) can't be paramedics
Luigi and Salvatore are out in the woods hunting when suddenly Salvatore
grabs his chest and falls to the ground. He doesn't seem to be breathing; his
eyes are rolled back in his head. Luigi whips out his cell phone and calls 911.
He gasps to the operator, "I think Salvatore is dead. What should I do?"
in a calm soothing voice says, "Just take it easy and follow my instructions.
First, let's make sure he's dead."
There is a silence......
and then a shot is heard. Luigi's voice comes back on the line.
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 scanning the Internet for email addresses to spam. I have no
role in choosing the Google ads. Thus I cannot endorse any, though some look
mighty interesting. If you click on a link, Google may send me money. Please
note I'm not suggesting you do. That money, if there is any, may help pay Claire's
law school tuition. Read more about Google AdSense, click
here and here.