Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Wednesday, September 20, 2006: The Fed meets
today. Everyone expects it to not to raise interest rates since inflation has
ebbed. This has several implications: Waiting in cash for bond yields to rise
might be a sucker's game. Borrowing remains cheap. And, despite all talk of
inflation, bond yields have recently fallen, and fallen dramatically. Here's
the yield on the 10-year treasury note.
The Homebuilders Confidence index fell to a 15 year low yesterday (the biggest
drop came in the northeast). Many "buyers" are forfeiting their deposits
on apartments and homes that were in construction and are now ready to buy.
The prices have fallen so much it's cheaper to walk. The rental market is heating
up. Soon there will be good deals for aspiring landlords. See yesterday's column.
to lose lots of money fast: How much did the investors in Amaranth
lose? Here's an email I received yesterday from a broker which sells interests
in hedge and private equity funds.
As a result of yesterday's news from Amaranth we have received a number
of calls from Amaranth investors regarding the potential for liquidity.
In that regard, we have communicated with our customers and are pleased
to report that the indicative market for shares in Amaranth (based on the
August 31 NAV) is as follows:
Bids are between
10 and 20 cents
Offers are between 35 and 45 cents
Hedgebay Trading Corporation
Amaranth seems to have made the classic trading mistake -- not being disciplined
about getting out early enough and limiting its losses. That's why I insist
on 15% stop loss orders when buying equities for "investment." What
went specifically wrong at Amaranth, according to today's Wall Street Journal:
1. The hedge fund's chief energy trader, 32-year-old Brian Hunter, misgauged
when to take his chips off the table. (He's 32. What do you expect?)
2. He repeatedly used borrowed money to double-down on his bets. Buying more
futures contracts of the kind his fund already owned supported their price by
increasing demand, propping up paper gains. But that support only lasted as
long as Amaranth and its lenders were willing to spend cash to buy more contracts.
Such trades may also have masked growing weaknesses in market fundamentals,
his trading peers say.
3. Mr. Hunter employed a routine commodities strategy, exploiting the difference
between the prices of contracts for delivery of natural gas at various future
points. He also was buying options to buy or sell natural gas at prices that
others in the market thought unlikely but that would provide big payoffs if
the prices came to pass. Both strategies are supposed to be less
risky than simply betting that volatile natural-gas prices will move either
up or down.
4. By early September, Mr. Hunter had become something of a contrarian. As gas
prices fell precipitously because of a storage glut, Mr. Hunter held and increased
bets that would pay off exponentially only if natural-gas prices rebounded,
either on the prospect of a cold winter or a nasty hurricane that hit natural-gas
facilities. That didn't happen, and prices fell more as evidence pointed to
a meek hurricane season and a mild winter.
believe Amaranth's biggest mistake was messing in a field it knew little about
-- namely natural gas futures. The company's roots are in convertible bond trading,
which is a whole other ballgame.
Fortunately I wasn't invested in Amaranth, but companies who should have known
better were, including Morgan Stanley and Goldman Sachs were. When you give
money to a hedge fund, you know little about what they're doing -- unless you
ask up front for more specific, regular information and they agree to give it
to you. Personally I think nobody -- individual or trader should borrow money
to make "bets."
that word -- bet. That's the new word for gambling.
to avoid bugs when flying: Turn on the overhead vent
and direct the airflow just in front of your face. "On any given flight
there's a 40% chance you'll sit within a few rows of someone with an upper respiratory
infection," says Mark Gendreau, M.D. an emergency medicine specialist at
the Lahey Clinic and an expert in aviation- related illnesses. "The vent
will help tumble away any germs being spread. ... Drink plenty of fluids. The
desertlike air in the cabin can dry your mucus cilia (nose hairs),
preventing them from filtering out airborne germs." All this from my favorite
men's magazine, "Best Life."
amazing how cheap laptops have become: You can buy a decent one for
less than $1,000. I saw one reviewed by Laptop Magazine for $598 -- the Everex
Stepnote LM7WE. It had a big 15.4 inch screen, a DVD writing drive, 512 megs
of RAM, wireless and a reasonably fast processor. I was surprised how cheap
When you buy a laptop, you must decide if it's a desktop substitute, or a simple
portable for traveling. As a desktop substitute, you want something like Toshiba's
Tecra M5, which I used and which has a multitude of options, including removeable
drives, batteries, DVD drives, etc. If you want a pure travel thing, get a cheap
one. But be aware your options, especially for memory expansion, may be very
limited. Personally I find my Tecra M5 -- at 6 lbs -- to be perfectly fine for
A drunken cowboy lay sprawled across three entire seats in the posh
Amarillo Theater. When the usher came by and noticed this, he whispered to the
cowboy,"Sorry, sir, but you're only allowed one seat."
The cowboy groaned
but didn't budge. The usher became more impatient:
you don't get up from there I'm going to have to call the Manager."
Once again, the
cowboy just groaned. The usher marched briskly back up the aisle, and in a moment
he returned with the manager. Together the two of them tried repeatedly to move
the cowboy, but with no success.
Finally they summoned
the police. The Texas Ranger surveyed the situation briefly then asked, "All
right buddy what's your name?"
"Sam," the cowboy moaned.
from, Sam?" asked the Ranger.
pain in his voice, and without moving a muscle, Sam replied. "The balcony."
A story is told of a Jewish man who was riding on the subway reading
an Arab newspaper. A friend of his, who happened to be riding in the same subway
car, noticed this strange phenomenon. Very upset, he approached the newspaper
you lost your mind? Why are you reading an Arab newspaper?"
"I used to read the Jewish newspaper, but what did I find? Jews being persecuted;
Israel being attacked; Jews disappearing through assimilation and intermarriage;
Jews living in poverty. So I switched to the Arab newspaper. Now what do I find?
Jews own all the banks; Jews control the media; Jews are all rich and powerful;
Jews rule the world. The news is so much better!"
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.