Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Wednesday, October 29, 2008: I
warn again about money market funds. Your money market fund may or may not be
safe. As I mentioned yesterday, only monies you had in your fund on September
19 are insured by the Feds. Anything you put in later is not insured. Further,
the insurance on your September 19 funds will expire on December 18.
order of safety: Cash, Treasuries and money market funds invested in treasuries.
order of importance in our lives: Our health, our family and our capital --
preservation is key.
The Feds will
reduce interest rates at 2:00 PM today EST. In anticipation of that reduction
the Dow rose nearly 11% yesterday on what's known as "a technical bounce"
-- meaning it had descended consistently for too many days. Yesterday's bounce
killed UltraShorts funds -- but the key to playing with Ultra-Short funds specifically
and being short generally is constant vigilance and ultra-tight stops. If the
market starts going against you, get out. There are three keys to being short:
1. Play with only
a small portion of your portfolio.
2. Thoroughly research those stocks you think are doing poorly. Some of my favorite
suffering industries include appliances, retailing, steel, coal and commodities.
3. Keep ultra-tight stops. Watch the tape. When the market goes against you,
cover. Wait for another day. Yesterday's big boost gives you the wonderful benefit
of having lifted the prices of shares and UltraShorts that will probably fall
more -- like US Steel (up $3.98 yesterday), Tiffanys (up $3.16) and EEV (down
Shall We Then Invest" by John Mauldin. He
says buy. Jeremy Grantham says it will get worse. Both are celebrated value
investors. Who is right? It all depends upon your view of the third derivative
of investing. Today we look at valuations in the stock market. ... While from
one perspective things look rather difficult, from another there is a ray
of hope. What can you expect to earn from stocks over the next five years?
It should make for an interesting letter. Note: this will be a little longer
than usual, but part of it is there are a LOT of charts. ...
should read his entire long piece. Click
sent Mauldin's piece to my friend, the ultra-talented professional money manager.
of all, this is a very interesting and thoughtful piece. Thanks for sending
it along. I will say, however, that your conclusion is not exactly his if
I read it right.
First of all,
his third dimension of time is one that you and he come at from very different
You read all
the way to the end for the key nuggets, right? Theres this one, which
argues that while we will likely see a lot of volatility that will make trend-following
(what I believe you call playing the next bubble and shorting it when its
done) difficult, we have seen or will soon see a bottom in the absolute price:
sometime, whether it was last week, or a few quarters in the future, we are
going to see a cycle low in terms of price.
And then theres
this one that argues for hiring experienced professionals like us (though
he clearly doesnt like our kind very much) to find good relative value
thats out there:
I don't want to be long an index fund, if you are a stock picker (as Buffett
is), then there is value out there.
theres this one, which warmed my heart, because its where Ive
allocated a lot of our personal wealth recently:
you are going to put some money into bonds and other fixed-income instruments
(not funds!), you should be doing it now. As I have been writing, there are
simply steals out there in the fixed-income markets, as the margin clerks
are forcing funds and individuals to sell any- and everything.
As a reminder,
I think the fixed income markets are opening up, which means the worst of
the financial crisis is behind us. Unfortunately, the economic crisis that
it will cause has barely begun. My thought is that you buy the opening fixed
income market, which I have done with JFR, but perhaps I should do
it with his recommended managers (again, he clearly hates funds).
shopping: Don't buy retail this Christmas.
Every store and their uncle is holding a sale. Everybody will bargain -- on
the phone or in person. My inbox is swamped with "new reduced prices on
this season's best looks." (Words from Gap this morning.)
sell anything to Nigeria: There's a Nigerian
called Tunde Glover who keeps trying to buy things with fake credit cards. If
you run a web site, be ultra-wary of selling anything to Nigeria. And I mean
you're having a bad day?
Get some exercise
today. Eat less. Rest more. Stress less. Kiss the spouse. Call the kids.
If you've just
lost your job, think seriously about starting or buying your own business. There
are huge opportunities out there. Most have to do with decent customer service.
Item: My friend is rebuilding his house in midstate New York. It snowed yesterday.
Not one of the contractors showed. Not one called with an explanation or an
apology. Dumb. Stupid.
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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