Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Monday, October 20, 2008: It
was a wonderful weekend. The Fall colors were at their peak. Who could resist
a long walk?
I played tennis,
rested and read. Much reading was gloomy. The present financial crisis is a
wet dream for writers. The Economist had a cover "Capitalism at Bay."
BusinessWeek had a cover "The Future of Kapitalism." Newsweek was
the most optimistic:
It says "The
Bright Side by Fareed Zakaria" (their star writer). Writes Zakaria:
Some of usespecially
those under 60have always wondered what it would be like to live through
the kind of epochal event one reads about in books. Well, this is it. We're
now living history, suffering one of the greatest financial panics of all
time. It compares with the big ones1907, 1929and we cannot yet
know its full consequences for the financial system, the economy or society
as a whole.
that, in the end, the world's governments will win this battle against fear.
They have potentially unlimited tools at their disposal, especially if they
act in concert. They can nationalize firms, call bank holidays, suspend trading
for weeks, buy up debt and equity, and renegotiate home mortgages. Most important,
the American government can print money. All of these tools have long-term
effects that are extremely troublesome, but they are nothing compared with
the potential collapse of the financial system. And Washington seems to have
recognized that it must do whatever is required to shore up that system. Big
questions remain. What will it take to stop the fall? How costly will it be?
How long before the rescue plan starts to have an effect? But at some point,
the panic that gripped world markets last week will end. Of course, that will
not mean a return to growth or a bull market. We're in for tough times. But
it will mean a return to sanity.
Amid all the
difficulties and hardship that we are about to undergo, I see one silver lining.
This crisis hasdramatically, vengefullyforced the United States
to confront the bad habits it has developed over the past few decades. If
we can kick those habits, today's pain will translate into gains in the long
He goes on to
point out that:
The whole country
has been complicit in a great fraud. As economist Jeffrey Sachs points out,
"We've wanted lots of government, but we haven't wanted to pay for it."
So we've borrowed our way out of the problem. In 1990, the national debt stood
at $3 trillion. (That sounds high, but keep reading.) By 2000, it had almost
doubled, to $5.75 trillion. It is currently $10.2 trillion. The number moved
into 11 digits last month, which meant that the National Debt Clock in New
York City ran out of space to display the figures. Its owners plan to get
a new clock next year.
is the fancy Wall Street word for debt. It's at the heart of the current crisis.
Warren Buffett explained the problem in his inimitable way on "The Charlie
Rose Show." "Leverage," he said, "is the only way a smart
guy can go broke ... You do smart things, you eventually get very rich. If
you do smart things and use leverage and you do one wrong thing along the
way, it could wipe you out, because anything times zero is zero. But it's
reinforcing when the people around you are doing it successfully, you're doing
it successfully, and it's a lot like Cinderella at the ball. The guys look
better all the time, the music sounds better, it's more and more fun, you
think, 'Why the hell should I leave at a quarter to 12? I'll leave at two
minutes to 12.' But the trouble is, there are no clocks on the wall. And everybody
thinks they're going to leave at two minutes to 12."
If there is
a lesson to be taken from this crisis, it's a simple and old rule of economics:
there is no free lunch. If you want something, you have to pay for it. Debt
is not a bad thing. Used responsibly, it is at the heart of modern capitalism.
But hiding mountains of debt in complex instruments is a way to disguise costs,
an invitation to irresponsible behavior.
was a glimmer of hope in the markets as it rose a little last week -- for the
first time in months. You can see the "stabilization" efforts in this
I don't know what
that means. "They" (whoever they are) say markets tend to change direction
nine months before the economy changes. I can't see the economy turning upwards
for at least 18 months. If you get back in at present -- either going long or
short -- you're likely to be whipsawed by the daily volatility -- i.e. big swings
up and down.
Buffett, my philosophy remains "When in doubt, stay out. Don't chase yield.
Cash remains King, for now."
of Cramer?: I like watching Jim Cramer, not because he's always right.
Who is? But because he knows more about the business of investing than I do.
And he's actually extremely well educated. I enjoy his off-the-cuff references
to a wide range of literary, business and sport subjects.
There's big piece
on him in today's New
York Times by David Carr. The story is headlined, "Jim Cramer Retreats
Along With the Dow." It's worth reading. It points up his switch from aggressively
making money to be aggressively being defensive. The piece begins:
afternoon, Jim Cramer, CNBCs star stock-picker, took time before taping
his hour-long show, Mad Money, to talk to a visitor in the cable
networks headquarters in Englewood Cliffs, N.J.
of dreadful performance, it looked as if the Dow was finally giving investors
a chance to exhale, up some 200 points during the day, though it later ended
down 127 points. He chatted for a few minutes about how the markets
volatility was testing everyone, then he happened to glance at the computer
screen in his office.
now down a hundred just since we started talking, he said, shaking his
head in disbelief. Wow, what a terrible market.
to survive a downturn. My friends are fixing
their house big-time, spending huge monies and employing armies. I asked them:
"If I were a contractor -- carpenter, plumber, roofer -- what could I do
better?" And their answer? "Show up!" Then they regaled me with
stories of broken promises.
asked, "In today's squirrelly world, why would you not show up?"
And their answer, "if we knew the answer, we'd get our house finished faster
and our contractors would get paid more and faster."
experiences are the same. The best contractors are those who show up, return
phone calls and emails, do what they say they're going to do when they say,
and be realistic about how long things will take and about their own skills
-- they don't promise to do things they can't.
Allen once said 90% of success was showing up. He's right and wrong, but definitely
90% of failure is not showing up.
Jefferson on the banks:
that banking institutions are more dangerous to our liberties than standing
armies. If the American people ever allow private banks to control the issue
of their currency, first by inflation, then by deflation, the banks and corporations
that will grow up around the banks will deprive the people of all property until
their children wake-up homeless on the continent their fathers conquered.' --
Thomas Jefferson 1802
to have fun tonight
Bernie says to his wife Sarah, Lets go out tonight, darling
and have some fun.
Sarah replies, OK, but if you get home before I do, please leave the light
in the hall on.
If God had intended Jewish women to exercise, he'd have put diamonds
on the floor. -- Joan Rivers.
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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