Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Thursday, September 18, 2008: There
are several theories:
1. It will
continue going down. This chart compares 1973 with today. It was widely
circulated on Wall Street yesterday. The chart shows, theoretically, we have
a lot further to go down..
2. The world's
central banks will save us by pumping more and more money in. They're trying
that strategy today. I don't believe it will work. When the U.S. saved AIG,
stockmarkets should have rallied. Instead, they plummeted. No one can solve
this by writing checks. Checks solve individual crises. But they don't fix the
underlying cause -- the dropping value of assets, from houses to commercial
property, from the creation of new jobs to the hugely-high price of oil, etc.
Two years from now, many of today's stock prices will be great bargains. The
problem with this theory -- which suggests we should all be buying now -- is
that outside of financials, there really aren't any great compelling bargains.
Despite huge price drops, Apple is selling at a 25 P/E. Research in Motion is
selling at 34.4 P/E. Bucyrus is selling at 17 P/E. CSX at 16.1. Google at 27.2.
Johnson & Johnson at 16.9.
4. Fear is
palpable, exacerbated by fear of the unknown, and what might happen next. Here's
an example, from the Financial Times:
AIG takes the
biscuit. Here was a huge multinational insurance group with a reputation for
solid underwriting and risk management that decided to diversify from insuring
risks it knew well car crashes and fires to covering derivatives
it did not understand.
Of course, it thought it understood them. In presentations to investors this
year, it emphasised how thoroughly its AIG Financial Products arm assessed
the risks of insuring CDOs. It ran all the data and decided that, in the worst
case, it risked losing $2.4 billion on the portfolio.
Well, $24 billion of write-downs later a mere 10 times its maximum
estimate the company has burned through its equity, spread financial
chaos to all corners of the earth and humiliated the US Treasury. The job
of insurance companies is to guard others against catastrophes, not cause
The word irresponsible does not begin to describe AIGs behaviour.
Like Bear, Lehman and others, it saw a way to get in on the growing action
in mortgage-backed derivatives. Its bankers were soon earning huge fees for
themselves and AIG by piling up unimaginable risks.
Buffett has argued
that some of the new financial instruments were time bombs. I admit I'm in his
camp. Don't buy something you can't understand. I found this explanation last
swaps are financial instruments that are used to speculate on a company's
ability to repay debt. The agreements between so-called counterparties trade
over-the-counter, leaving each side exposed to the risk that their partner
will fail to pay its obligations. The contracts pay the buyer face value in
exchange for the underlying securities or the cash equivalent should a company
fail to adhere to its debt agreements.
Market Funds Enter a World of Risk. The first
money market fund has "defaulted." See yesterday's column. Today the
New York Times has a piece on what's happening to money markets.
here. Investors are obviously scared of
money market funds (as I am). Investors have flown to "safety" --
everyone is rushing to buy treasuries:
There are money
market funds which only invest in treasuries. There are muni bond funds
which only invest in muni bonds. The "problem" with muni bonds is
that some municipalities are suffering a huge drop in their tax revenues. Their
bonds are less safe than they used to be.
Gold is also up.
But I wouldn't gamble on it. It's been erratic.
year is 1533: King Henry's wife, Catherine of Arragon, can't deliver
a male heir. Henry wants to annul his 18-year marriage to Catherine and marry
his mistress, Anne Boleyn. The Pope refuses. The King severs with Rome, and
establishes the Church of England, whose new boss goes along with the annulment
and marriage to Boleyn. Meanwhile, Sir Thomas More, Chancellor, baulks, gets
thrown in jail and a year later loses his head. The story has been retold a
thousand times. But you won't find a better telling of it than presently playing
on Broadway in New York. Go. Please go. It's truly great theater.
is Henry. He's stunning. Tickets at Roundabout.
saver: Men lose their hearing faster than women. Hence we battle
over TV volume. The solution is the Sennheiser RS 110 headphones, which I have
now attached to each of our family's TV sets.
There are two ways of buying these headphones -- with the charging cradle,
for $76. Or without the charging cradle, which is Amazon's incorrect name for
the gray wireless transmitter. You want them with the transmitter. You
can use as many headphones as you want on with one transmitter. You can actually
be in bed and listen to a TV in another room. The headphones, by themselves,
are called Sennheiser HDR 110. For the set with the transmitter, go to Amazon.
I've mentioned all this before. Many of you are now cursing me because your
headphones are no longer working as well as they did when they first arrived.
Solution: Put in new batteries. That's it.
billboard: It's outside a restaurant in North Versaille, PA.
website is www.casadice.com.
An elderly couple were 85 and 86 years old, and had been married for sixty
years. Though they were far from rich, they managed to get by because they watched
Though not young,
they were both in very good health, largely due to the wife's insistence on
healthy foods and exercise for the last decade.
One day, their
good health didn't help when they went on a rare vacation and their plane crashed,
sending them off to Heaven.
They reached the
pearly gates, and St. Peter escorted them inside. He took them to a beautiful
mansion, furnished in gold and fine silks, with a fully stocked kitchen and
a waterfall in the master bath.
A maid could be
seen hanging their favorite clothes in the closet.
They gasped in
astonishment when he said, 'Welcome to Heaven. This will be your home now.'
The old man asked
Peter how much all this was going to cost.
Peter replied, 'remember, this is your reward in Heaven.'
The old man looked
out the window and right there he saw a championship golf course, finer and
more beautiful than any ever built on Earth.
'What are the
greens fees?,' grumbled the old man.
'This is heaven,'
St. Peter replied. You can play for free, every day.'
Next they went
to the clubhouse and saw the lavish buffet lunch, with every imaginable cuisine
laid out before them, from seafood to steaks to exotic deserts, free flowing
'Don't even ask,'
said St. Peter to the man. This is Heaven, it is all free for you to enjoy.'
The old man looked
around and glanced nervously at his wife.
'Well, where are
the low fat and low cholesterol foods, and the decaffeinated tea?,' he asked.<
'That's the best
part,' St. Peter replied. 'You can eat and drink as much as you like of whatever
you like, and you will never get fat or sick. This is Heaven!'
The old man pushed,
'No gym to work out at?' 'Not unless you want to,' was the answer. 'No testing
my sugar or blood pressure or...'
All you do here is enjoy yourself.'
The old man glared
at his wife and said, 'You and your horrible bran muffins. We could have been
here ten years ago!'
happened to my tiny brain. I now think old people jokes are funny.
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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