Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
AM EST Thursday, September 7, 2006: The U.S. Open
tennis is engrossing and utterly time-consuming. Thank God I don't have a day
entrepreneurial explosion continues: I have two beliefs.
1. Work for yourself.
2. Don't borrow or beg for money. It's humiliating and diluting.
Sometimes you have to.
Lately I've seen some startups with great products. Raising money is more
difficult than running the business. Investors are soured from their Tech
Wreck losses. They're less willing to part with their money -- even though
many of them have more of it (see yesterday's
column) Money-raising needs special skills and special attention. Keys:
+ Your track record. Have you made money for yourself and investors in the past?
+ Your personal and business references. Are they primed?
+ Your money raise. Will it be sufficient? Especially if you go down the wrong
marketing path three times -- as you will.
+ Your company's valuation. Is it too high? Will there be no upside for me,
+ Your receptiveness. Will you listen? This is a hard one. Most entrepreneurs
don't listen. That's why they're entrepreneurs.
+ Completeness. Do you have answers at hand?
Fred Hickey is bearish on technology: He
writes The High-Tech Strategist newsletter. I respect his work. He believes
consumer spending is slowing because of the tightening in housing. He likes
put options, not shorting. His present put option names: Best Buy (BBY), CDW
Corp. (CDWC), Freescale Semiconductor (FSL), SanDisk (SNDK), Texas Instruments
(TXN), Lam Research (LRCX), KLA Tencor (KLAC), Nvidia (NVDA), Garmin (GRMN),
Research in Motion (RIMM), NetLogic Microsystems (NETL), IBM, Apple Computer
(AAPL), Intel (INTC), Microchip Technology (MCHP), STM Electronics (STM) and
also has put options on financial-related stocks: Bear Stearns (BSC), Goldman
Sachs (GS), Capital One (COF), Countrywide Financial (CFC), AmeriCredit (ACF),
New Century Financial (NEW), Novastar Financial (NFI) Colonial Bancgroup (CNB)
and MGI Investment Group (MTG). He writes "these financial put options
have fared very well of late due to recent disclosures of lower mortgage activity
and sub-prime lending difficulties."
likes Newmont Mining (NEM). Personally I prefer my smaller Australian mining
stocks, including Kagara Zinc (KZL) and Minara Resources (MRE). For more on
Australian stocks, check out Yahoo Australia (click
here) and the Australian Stock Exchange (click
here). Nice thing about the ASX's site is that it lets you track your
chosen "Watchlist" in Australian dollars.
is going down the toi-tee: That's my unhumble
opinion. First, I read a piece by a young man who worked there for several weeks.
He talked of the gross manhandling of packages by employees. Second, my experiences
yesterday. I send a package to Kansas. It doesn't arrive. Online tracking is
useless. I finally reach an FedEx operator. He tells me "the plane was
late and will be there tomorrow," i.e. today. I ask why no one called or
emailed me. His answer: "We don't have enough staff to do that." I
say, "So, void out the charge." He says "call another number
(800-622-1147) for that." I say, "You gotta be kidding." He says
"that's the way the system works and hangs up on me."
When companies get big and successful, they lose their "oomph." If
FedEx treats its other customers like it treated me yesterday, it's a great
Top Investment Traps, courtesy the
North American Securities Administrators Association (NASAA):
+ Affinity Fraud. Members of closely knit religious, political, or ethnic
groups are targeted frequently by con artists. Their pitch is essentially, since
I am like you and believe like you, you can believe in me and in what I say.
When an investment is presented in this context, the potential investor should
be extremely wary. This pitch seeks to substitute an emotional appeal for careful
analysis and critical thought.
An abusive sales practice in which unethical securities professionals make unnecessary
and/or excessive trades in order to generate commissions. Most churning occurs
where a broker has discretion to trade the account. In such cases, it is not
necessary that the broker receive prior approval from the client to complete
+ Equity Indexed
Certificates of Deposit. Remember the days of FDIC-insured, bank-issued
certificates of deposit with guaranteed principal and interest? Equity Indexed
CDs are not the same product. These hybrid securities products offer an interest
coupon payment or return that is based on a stock market index, usually the
S&P 500. Returns are not FDIC insured. They are dependent on the performance
of the stock market. These are complex securities that promise a rate of return
calculated over a defined period of time based upon some form of securities
market index. A declining stock market means the possibility of no return on
your investment. As a result, these products pose liquidity problems and are
therefore, not suitable for seniors who may need the money for retirement living.
+ Oil and Gas
Investment Fraud. High oil prices mean oil and gas scams will continue to
attract victims. Oil and gas deals are complicated investments that generally
require a significant investment, often requiring a minimum deposit of thousands
of dollars. Increasingly, these deals are being promoted via the Internet with
claims of attractive tax advantages. Sales materials with official-looking
surveyor maps and geologist opinion letters touting the likelihood
that the managers of the drilling enterprise will hit pay dirt are
sent regularly to prospective investors more than 1,000 miles from the region
being prospected. Overall, these deals are highly risky, but the
lure of high profits often proves irresistible to investors.
Information Scams. The first step in separating a victim from his or her
money is convincing the victim to divulge personal financial information. When
the sales agent is a local tax preparer or unaffiliated insurance agent, he
or she enjoys a position of trust in the community. Con artists not enjoying
such a position of trust frequently style themselves as senior specialists
or adopt a pretext of preparing living will or a living trust.
A pretext that is of current concern to insurance and securities regulators
is the offer to help senior citizens qualify for prescription benefits by preparing
forms. In the guise of filling out forms, the scamster may ask unnecessary questions
about personal financial assets. To the con artist, this information provides
a comprehensive laundry list of what is available for the taking.
+ Prime Bank
Schemes. These schemes often promise high-yield, tax-free returns that are
said to result from off-shore trades of bank debentures. Investors
are told that only very wealthy people can get the benefit of these programs
but the promoter is able to make it available to the victim. Sometimes the victim
is required to execute a confidentiality agreement in order to invest
and is told not to consult an attorney, accountant or financial planner because
they keep these programs for the big boys and will deny that they
exist. There are no such programs, no such debentures and no such high-yield
trades. These prime bank schemes are the securities equivalent of a purse snatch.
Once the seller has your money, its gone off shore forever.
+ Pump and
Dump Schemes. Unethical broker-dealers frequently pump up the
value of low-priced securities traded on the NASDAQ pink sheets
and then dump the stock after naïve investors have purchased
the stock at inflated prices. The balloon breaks when the promoters no longer
maintain the myth that there is value in the shares and investors are left holding
worthless shares. These schemes frequently appear through unsolicited e-mail
Rooms. Scam artists buy and sell the names and financial information of
victims who have lost money to recovery room operators who promise,
in return for a fee that the victim must pay in advance, to recover the money
lost in a worthless investment. These sucker lists are bought by
crooks who know that people who have been deceived once are vulnerable to additional
scams; especially scams that give hope of recovering lost money. If you have
been the victim of a fraud, never give out your credit card or other personal
information to someone who contacts you with a promise to recover your money.
Remember, in the scam world this caller is known as a reloader and
he is setting you up for a second bite at the apple.
High-Interest Promissory Notes Publicly Advertised. Generally, the higher
the return promised, the greater the risk to your money. A track record of paying
high interest and repaying principal is not an assurance that you will get your
money back if the company fails. These notes are not suitable for retirement
+ Sale and
Leaseback Contracts. In an attempt to avoid the investor protections of
securities laws, some investments are structured to resemble the sale of a piece
of equipment such as a payphone, ATM machine or Internet booth located at a
remote venue where the investor cannot service and maintain the equipment and
must enter into a servicing agreement. In order to make the deal more attractive,
investors are told that after a given period the equipment can be sold back
to the seller at the investors original purchase price. The investor is
also promised a specific rate of return. In a variant of this scheme, a real
estate interest such as a long-term lease in a resort community is sold instead
of physical equipment. Frequently the equipment or property does not exist and
the seller lacks the financial capacity to keep the promise of repurchase.
Pension Plans. Many types of securities fraud require the victim to remove
funds from legitimate investments such as stock brokerage accounts, mutual funds,
insurance policies, deferred compensation plans and mutual funds so that they
can be invested in a worthless scam. This scam may begin with advice to convert
an employer-sponsored pension into a self-directed pension plan. While these
plans may serve legitimate investment purposes, all too often they only serve
to benefit the scam artist.
Annuities. Variable annuities are tax-deferred investments that typically
place mutual funds inside of an insurance wrapper for tax deferred potential
investment growth. While these products are legitimate investments, regulators
are concerned about their popularity in the sales community. Commissions to
those who sell variable annuities are very high, which provides incentive for
sellers to engage in inappropriate sales. Variable annuities are only suitable
for a very small percentage of the investing public and generally are not appropriate
for most seniors. The steep penalties for early withdrawals also make variable
annuities unsuitable for short-term investors. Be especially wary of any broker
who wants to sell you a variable annuity to hold inside a 401(k) or IRA. You
are already getting tax-deferred growth in an IRA or a 401(k), and the variable
annuity simply adds a layer of cost with no additional tax benefit.
US Tennis Open is on. Nadal is out. Roddick
is in. Here is the TV schedule -- only it varies, depending on the length of
the matches and if it's raining. Today is sunny. For today's Schedule of
Play, i.e. who's playing, click