Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Tuesday, October 13, 2008:
news : The FDIC is insuring all non-interest bearing bank accounts
up to any amount. That means your business' money -- the money you use for
payrolls, paying bills, etc. -- is now 100% covered by the FDIC. You don't
have to find a safe bank and move your monies to another bank. You can confidently
leave your monies where they are now.
the temptation. To jump in, grab a few favorites, ride them for the day and
then jump out with a handsome profit. I watched the big rally start yesterday
and I thought "this could end as fast as it started." Quickly I put
it in the "too hard" basket and played tennis.
market remains in the "too hard" basket. The continuing weak corporate
earnings speak against yesterday's gigantic "oversold rally." Also
called a "dead cat bounce." But then the weak earnings fundamentals
didn't justify the huge losses of the last few weeks. Markets are bundles of
wild emotions that change by the second. Today the "feedback" loop
is faster and stronger than ever before. Think ten years ago. Nobody carried
the stockmarket on their BlackBerry or their iPhone. No one bought and sold
stocks sitting in a meeting or in a taxi. That speed leads to volatility. And
volatility hurts our ability to make sane money. Ten years ago, people actually
believed in "buy and hold."
back to what Keynes said, "The stockmarket can stay irrational longer than
you stay solvent." In other words, "When in doubt stay out."
The good news
is concerted government action worldwide has definitely averted a depression.
We grabbed it fast -- 13 months. It took over three years before the U.S. government
did anything in the 1930s after the 1929 bust and then it didn't do anything
like what every government is doing now.
money into banks. The banking system won't fail. But for the economy of real
companies -- butchers, bakers and candlestick makers -- to survive requires
bank lending to resume. For that to happen requires confidence. To rebuild confidence
takes time. It is not a matter of writing a check (or in the present case, many
Others also are
putting the stockmarket in the "too hard" basket. Today's Wall Street
Journal has a
piece. Some excerpts:
Stays on the Sides
titans have yanked most of their money out of the stock market, a bearish
sign amid Monday's euphoria and an indication of how the hedge-fund business
is changing amid chaos.
In recent days, Steven Cohen, the hedge-fund manager who runs the $14 billion
SAC Capital Advisors, moved about half his funds, or about $7 billion, into
money-market and other short-term securities, eliminating much of his fund's
exposure to the stock market, says a person close to the fund. Mr. Cohen plans
on sitting on the sidelines for the rest of the year -- trading a small portfolio
himself but keeping shuttered most of the stock portfolios of his other managers.
who runs the $14 billion Millennium Partners fund, has shifted about $6 billion
from the stock market into cash, a person close to the fund says.
Paulson, manager of $35 billion Paulson & Co. -- who made a spectacularly
successful bet against the housing market last year -- has much of his fund
in cash equivalents.
The retrenchment by Wall Street's "smart money" crowd is part of
a larger effort by hedge funds that have put a total of as much as $400 billion
into cash equivalents recently, according to David Kostin, an analyst at Goldman
Sachs Group Inc.
Of course, much
of the smart money has been wrong in the credit crisis. Many hedge funds have
lost big money in the past year. That said, Messrs. Paulson, Cohen and Englander
have fared better than most: Mr. Paulson's main fund is up about 20% this
year; Mr. Englander's main fund is down 0.5%; and Mr. Cohen's main fund is
down more than 9% through September. This compares with a 29% loss in the
Dow Jones Industrial Average, year to date.
Kostin says some hedge funds are being forced to sell to meet investor redemptions.
For their part, Messrs. Cohen and Englander have moved to cash because of
extreme market chaos and investor panic, according to people familiar with
is a lot of uncertainty out there and some people may be saying from a timing
point of view they are more comfortable on the sidelines," Mr. Kostin
says, though he declined to comment on the strategies or positions of the
The moves come
amid stricter new regulatory limits on short selling, a strategy of betting
against stocks, which is popular with hedge funds. The Securities and Exchange
Commission twice this year imposed a partial ban on short selling.
have called for more transparency and oversight of hedge funds. The SEC also
is working on a rule that would require investors, including hedge funds,
to disclose their short positions to the SEC. ...
affecting the stockmarket for this quarter. From
yesterday's column (explained in greater detail yesterday).
1. The end of
the short selling ban.
2. Margin calls.
3. Hedge fund
4. Falling commodities
prices. Oil, nickel, iron ore, etc.
5. Business retrenchments.
6. Municipal governments
7. Falling profits.
The car makers' woes are out. But there are many other industries that haven't
reported their woes, yet.
8. Excess production
the wrong problem
women were playing golf. One teed off and watched in horror as her ball headed
directly toward a foursome of men playing the next hole. The ball hit one of
the men. He immediately clasped his hands together at his groin, fell to the
ground and proceeded to roll around in agony.
The woman rushed
down to the man, and immediately began to apologize.
me to help. I'm a Physical Therapist and I know I could relieve your pain if
you'd allow me,' she told him.
Oh no, I'll be
all right. I'll be fine in a few minutes,' the man replied.
He was in obvious
agony, lying in the fetal position, still clasping his hands together at his
groin. At her persistence, however, he finally allowed her to help.
She gently took
his hands away and laid them to the side, loosened his pants and put her hands
tender and artful massage for several long moments and asked, 'How does that
He replied: 'It
feels great, but I still think my thumb'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
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