Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Wednesday, September 6, 2006: Today's lesson
is don't put your hard-earned money into something you know nothing about. Don't
be seduced by glamor. Don't be seduced by buxome stars. Don't be seduced by
(alleged) huge profits. This is advice from my heart. I once put $56,000 into
a "sure thing" Broadway play. I lost every penny. Or, better put,
I paid $56,000 for two seats to opening night, the cast party and a CD of the
That said, every reader of this column knows the world of investing faces too
much money chasing too few opportunities. This means everyone (including
those who are investing your money) are getting desperate. Latest desperation.
Hedge funds are moving into movies -- I turned a movie investment down recently
because my wife hated the script. And I wondered what do I know about movies?
Clearly not much. I can't even remember the name of the last one I saw. What
do hedge funds know about movies? Probably as little as I know. BusinessWeek
has this marvelous piece called, "Duds in the Water."
movies go, few were more fraught this summer season than the disaster remake
Poseidon. It featured no big stars, cost an estimated $160 million to produce,
and had to battle the public's nostalgia for the cheesy but successful original.
Few industry watchers were particularly surprised when the movie sank like,
yes, an overloaded cruise ship.
Good thing Poseidon's
maker, Warner Bros. (TWX) got someone else to pay half the upfront costs
-- and absorb half the potential losses. An equity fund created by Stark Investments,
a $7.5 billion hedge fund based in Milwaukee, has invested about half a
billion dollars in six Warner films, including Poseidon and V for Vendetta,
another dud. Based on a BusinessWeek analysis, Stark has so far lost $25 million
on its Poseidon misadventure, and a little less on V. There is already blood
in the water: The hedgie, which declined to comment for this story, has parted
ways with the former investment banker who was advising it.
have been using other people's money forever, often from wannabe tycoons with
only a tentative grasp of Hollywood's creative dealmaking. But recently the
so-called smart money has been flooding into Tinseltown. Over the past two
years, private-equity firms have ponied up nearly $5 billion, with everyone
from Merrill Lynch & Co. (MER) to Credit Suisse First Boston (CSR) joining
pros figured they had moviemaking all figured out. But several megaflops have
some Hollywood insiders wondering if the private-equity guys are in way over
their heads. "It's tough to be an investor when the studio gets to pick
the films and you stand behind them in line to get paid," says leading
Hollywood banker John W. Miller of JPMorgan Securities. "It's hard to
see how you can get more than single-digit returns -- if you're lucky."
The Wall Streeters
arrived in Hollywood armed with sophisticated models that they say will protect
them from losses. Essentially they project film profits based on the records
of directors, stars, genres, and even distribution dates. "You can never
take the risk out of investing in a film," says Ryan Kavanaugh, head
of Relativity Media, which has a pretty good record. It raised a $600 million
fund with Deutsche Bank (DB) to provide financing for Paramount Pictures
(VIA) and Universal Studios films. "But you can mitigate it by choosing
those that meet rigorous criteria." And to minimize the downside of any
one film that may bomb, private investors often put money into 20 or more
It's not exactly
bulletproof. Ask Legendary Partners. A $500 million fund set up by two Hollywood
veterans and backed by ABRY Partners, AIG Direct Investments (AIG), and Banc
of America Capital Investors (BAC), Legendary plans to invest in 25 Warner
films. It backed Lady in the Water, the animated Ant Bully, and Batman Begins.
While a fund spokeswoman says it's too early to judge its performance, the
first two films were flops, so Legendary will be lucky to break even on them.
Making a hit
movie doesn't guarantee a rich payday, either. Superman Returns falls into
that category. Since its June release, the Warner film has grossed a very
respectable $337 million-plus worldwide. Yet according to an investment banker
who crunched the numbers, Superman will earn a paltry $25 million for Legendary,
which teamed up with the Honeywell International pension fund for this deal.
That's barely a 7% return over 10 years, or the time it will take for profits
to roll in from the box-office take, DVD sales, and TV showings.
Why is it so hard for outsiders to make money in Hollywood? Ballooning budgets
and skyrocketing marketing costs don't help. But the studios game the system,
too. They insist on distribution fees of 10% to 15% before sharing profits
with investors. And backers often have to stand in line with stars and directors,
who tend to want a piece of the action. Besides, the studios make investors
take the riskiest movies while keeping likely hits for themselves. Credit
Suisse First Boston invested $505 million in Walt Disney Co. (DIS) films,
but the studio didn't let the firm in on two big summer moneymakers, Pirates
of the Caribbean: Dead Man's Chest and the animated smash Cars.
Maybe the private-equity
guys should follow Merrill Lynch, which launched one of the first funds with
Paramount, but has since switched to financing film directors like Ivan Reitman,
where it gets better terms. Or they could talk to Amir J. Malin. The former
chief of studio Artisan Entertainment Inc. now co-manages Qualia Capital,
which focuses on media and entertainment assets. Malin has turned down several
production deals. What's he investing in? Film libraries. With them, the risky
creative part is over.
and dump: I receive 20-30 emails a day telling
me about "The best stock to own for the next 10 years," "Trading
alert," "Short Term PrOfits!," or "This stock
will explode." I had a friend in the business of sending pump emails
for corporations. He used to get $5,000 plus some penny stock from the company
to send out several million emails to unlucky people like you and I. He told
me his emails always caused a pop in the stock. A couple of academics
looked at the phenomenon a bit closer and the Economist wrote a piece
are being pushed around by spammers. Investors beware
is a company that prides itself on its share-trading expertise. That must
have made it particularly galling when the publicly listed company fell victim
to a popular trading scam this month that knocked 37% off its share price
in a few days. Written with the usual blizzard of capital letters and exclamation
marks, spammers issued unsolicited emails telling investors to buy HLV Capital's
shares First Thing on August 8th. It's going to explode!,
the headline said. What the tipsters didn't say was that anyone left holding
the stock days later would feel as if a grenade had gone off in their hands.
For the hapless
company, based in a New York office buzzing with professional traders, there
was little to do afterwards except field hundreds of emails from distressed
shareholders. But such spamming was not a one-off. A recent study by Rainer
Böhme and Thorsten Holz, two computer scientists from Germany's Technical
University of Dresden and Mannheim University, respectively, shows the practice
is widespread and does have an impact, at least in the short run, on share
trading and prices.
The study tracks
shares in America's S&P 500, the NASDAQ Composite, the Russell Microcap
Index and Pink Sheets, particularly thinly traded ones that tend to be promoted
by spammers. Between November 2004 and February 2006, the researchers found
391 different shares that were targeted. The 111 with sufficient historical
data tended to fluctuate 13% more after the e-mails went out than other shares
on the indices. In the short-term, they said prices tended to rise after a
spamming campaign. They did not study long-term effects.
however, including Joshua Cyr, who runs the website spamstocktracker.com.
He has performed an experiment by making virtual investments in
1,000 shares after he receives a spam tip. If his investment of more than
$69,000 had been real, Mr. Cyr would have lost more than $46,000 in the past
15 months. Mr. Cyr says share prices spike and then drop, sometimes by more
than 90%, before companies realize they have been spammed. Sometimes, they
have responded by changing their ticker symbols. Penny stocks are considered
ideal for spammers because they trade in low volumes, allowing a small amount
of investment activity to generate wild swings in value. This gives tipsters
the greatest opportunity to make a profit. Generally, they create excitement
about a stock that they also invest in, only to sell it after they successfully
push up the price. That can set off a wave of selling which eventually depresses
the share price.
and Exchange Commission has issued warnings about the dangers of such fraud.
In 2000 it settled a civil fraud suit against 15-year-old Jonathan Lebed,
who used the Internet to inflate share prices. He was forced to repay his
$272,826 in profit. But the negligible cost of sending mass emails and the
anonymity of spammers make it an easy business to start and a hard one to
headline from yesterday's computer press: "Electronics on
Planes: Scarier than Snakes?"
like YorkPhoto: Upload your digital photos. Push a few buttons. A
few days later you get nice prints, photo books, calendars, mugs, flip books,
etc. I've tried using color printers, but:
1. They too expensive. The paper and toners will put you into the poor house.
2. They're too slow.
3. They never seem to work perfectly.
There are a million online photo printers, including Shutterfly, Photoworks,
Ofoto, Snapfish, WalMart and Winkflash. I like YorkPhoto. They've given me good
service. And I'm a creature of habit. Click
my funny bone (though it probably is serious): The Arizona Republic
reports today that the founder of Scottsdale's fastest-growing
software company has sued his own company and its other directors, alleging
they ousted him last year because he is Iranian.
US Tennis Open is on. Here is the TV schedule
-- only it varies, depending on the length of the matches and if it's raining.
Today looks sunny. Two nights ago, it moved from USA to CNBC.
For today's Schedule of Play, i.e. who's playing, click
Tennis Open 2006 -- TV Schedule for August
times are Eastern Standard
a.m. - 4:00 a.m.
Match of the Day
a.m. - 6:00 p.m.
p.m. - 11:00 p.m.
a.m. - 1:07 a.m.
a.m. - 4:00 a.m.
Match of the Day
a.m. - 4:00 p.m.
Quarter Final & Mixed Doubles Final
p.m. - 11:00 p.m.
Quarter Final & Women's Doubles Semifinal
a.m. - 1:07 a.m.
a.m. - 6:00 p.m.
Doubles Final, Women's SF
a.m. - 1:07 a.m.
p.m. - 6:00 p.m.
p.m. - 10:00 p.m.
p.m. - 2:30 p.m.
p.m. - 7:00 p.m.
A Baptist Preacher was seated next to a cowboy on a flight to
Texas. After the plane took off, the cowboy asked for a whiskey and soda,
which was brought and placed before him.
flight attendant then asked the preacher if he would like a drink. Appalled,
the preacher replied, "I'd rather be tied up and taken advantage of
by women of ill-repute than let liquor touch my lips."
cowboy then handed his drink back to the attendant and said, "Me too,
I didn't know we had a choice.... "
woman visited a psychic of some local repute. In a dark and hazy room, peering
into a crystal ball, the mystic delivered grave news:
no easy way to say this, so I'll just be blunt -- prepare yourself to be
a widow. Your husband will die a violent and horrible death this year."
shaken, the woman stared intently at the psychic's lined face, then at the
single flickering candle, then down at her hands. She took a few deep breaths
to compose herself. She simply had to know. She met the fortune teller's
gaze, steadied her voice, and asked her next question:
I be acquitted?"
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
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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,
here and here.