Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EDT, Friday, September 11, 2009: The market continues to go up because
it continues to go up. The economy is perceived as getting better, perhaps. New
investors may be climbing abroad for fear of missing the boom. No one knows why.
No one will ever. That doesn't stop the financial press from musing. My latest
favorite musing is this chart:
And what does this chart show? Here are the words:
For some perspective
on the current rally that began back on March 9th, today's chart presents
the Dow divided by the price of one ounce of gold. This results in what is
referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold.
For example, it currently takes 9.7 ounces of gold to buy the Dow.
This is considerably less (78% less) than the 44.8 ounces it took to buy the
Dow back in 1999. Since 2007, the Dow / gold ratio has declined at an accelerated
pace (see dashed lines). As a result of the recent rally, the Dow (priced
in gold) has moved up significantly and is currently testing resistance of
its accelerated downtrend.
I have absolutely
no idea what this means, except it sure sounds insightful. Maybe I'll develop
an index where I divide the Dow by the number of blonde anchors on BubbleVision
(CNBC, Fox Business , Bloomberg, etc.) . If there are more blondes and thus
my Dow/Blonde index declines, then it is sending me a signal that the market
is about to take a tumble -- judging by the fact that this sorry collection
of the news media perceives the need to crank up its appeal. (Their viewership
rises and falls with the market. But blonde anchors are perceived to help.)
Sorry, I don't have a chart, replete with trendlines and 50-day moving averages.
My line of perceptive
thinking may have another cause. My wife says my gray hair has too much yellow
in it, and hence, it's ugly. I have this shampoo which clearly isn't working.
So, as for all problems, it's to the Internet for in-depth, accurate "research."
The first solution suggested is to cut my hair shorter. This has a double charm;
it's easy, and cheap. Another solution is to check with my doctor. Some of my
medications could be messing with my hair. Nup. No medications. The final solution
is to see my "stylist." The problem with my "stylist" is
he's an overweight, Azerbaijani, Hasidic Jew who can only speak Russian, Farsi
and Hebrew.. Communicating the following solution might prove beyond my Farsi:
As another option,
you could consider seeing your stylist about bleaching the yellow from the
hair, or do it yourself at home by mixing your favorite conditioner with equal
parts of 30-volume peroxide and applying it to the hair, leaving it on for
20 minutes under a plastic cap. Afterwards, shampoo the hair carefully and
condition it again. You should see a lessening of the yellow. Follow up with
continued use of the brightening shampoo and conditioner. You can repeat the
peroxide/conditioner process as needed, but I would wait at least a week between.
If get bored with
messing with wearing a plastic cap for a week, I can always "increase the
value of my home."
How I got on the
junk mailing list for vinyl siding escapes me. Maybe, in someone's eyes, it's
"the perfect investment." There's no question, the new vinyl siding
is good. You have to tap it to figure it's plastic, not wood. Around our place,
vinyl siding is lower class since we have a bunch of strong believers in the
theory that something is worth what they paid for it. This theory makes all
my friends on Madison Avenue cringe with happiness, since their craft is clearly
recommended in recent weeks has gone up. That hasn't made me the genius I'd
like to be since so has everything else. And companies continue to rush to Wall
Street to raise money, especially in secondaries. Today's deals include CenterPoint
Energy (CNP), Cree (CREE), Entegris (ENTG)., Phototronics (PLAB), Penn Virginia
GP Holdings (PVG) Ramco-Gershenson (RPT), RTI International (RTI), Union Bankshares
(UBSH), and Horesehead Holdings (ZINC), Most of these should work, which means
the price will rise after the secondary. I like CNP, CREE and ENTG, Do your
own research. Mine is cursory (what Wall Street "research" isn't?).
remains the name of the game. The cost of investing
in something long-term, like a private equity fund, is that your hoped-for rewards
come in the next business cycle (polite term for next financial crisis). Hence
there is HUGE charm in investing in things you can sell instantly, if not sooner.
And that basically leaves publicly-listed stocks. Exhibit 1 is the Wall Street
Yale Are Big Losers in 'The Game' of Investing
It's a tie in the Harvard-Yale investment game. Both schools were thrown
for colossal losses.
on Thursday said their endowments, higher education's two largest, each lost
30% of their value in the year ended June 30. Combined, the pair of investment
pools shrank by a staggering $17.8 billion.
the endowments have forced the two schools to cut budgets and delay plans
to expand facilities and hire staff, as even the country's top colleges are
being forced by the financial crisis to retrench. The pain is being felt widely
across higher education. While many private colleges are getting less help
from their endowments, public universities are suffering because of state
and Yale University, such fierce rivals that their fall football contest is
known to both sides simply as "The Game," badly trailed the results
of the typical college in the latest year. The dismal returns have exposed
weaknesses in their exotic approach to investing, which after turning in chart-topping
performance for years has proved to be highly risky.
The schools were hurt by investments in assets that can't readily be sold,
such as private-equity partnerships, which were pummeled in the past year
after stellar results over the previous decade. In the category Harvard calls
"real assets," including timber, commodities and real estate, annual
losses neared 40%.
already budgeting for a 30% decline, but hadn't released a final tally. On
Thursday, it said its endowment shrank to $26 billion on June 30 from $36.9
billion a year before. The decline also reflects spending from the endowment
and donations. The Cambridge, Mass., university's investment loss itself was
27%, dwarfing the 18% drop in the median return for large endowments calculated
by Wilshire Associates, an investment consulting firm.
Yale said its
endowment fell to $16 billion on June 30 from $22.9 billion a year before.
The New Haven, Conn., university didn't break out its investment results.
Yale had projected a drop of only 25% and Thursday warned of further budget
cuts. In a letter to Yale faculty and staff, Richard Levin, the school's president,
and Peter Salovey, its provost, said it now projects an annual deficit of
$150 million each year from 2010-11 through 2013-14.
Yale cut staff and nonsalary expenses by 7.5% for the 2009-10 academic year
and signaled it would ask for further cuts in nonsalary expenses of 5% for
2010-11. On Thursday, the university said it would ask for the 5% cut this
year instead. The administrators pledged to preserve financial aid, but said
otherwise "no area of expenditure will be immune from close scrutiny."
Messrs. Levin and Salovey said most major construction would be halted until
donor support could be found or financial markets recovered. They said Yale
would also slow the pace of faculty recruitment.
Facing a cash
crunch last fall, Harvard has laid off staff, suspended some faculty searches
and delayed a major expansion of its campus.
schools, including Stanford University, Princeton University and Massachusetts
Institute of Technology, have predicted losses similar to Harvard and Yale's.
They all follow an investment model that de-emphasizes traditional stocks
and bonds and instead loads up on alternatives unavailable to the average
Yale and Harvard
pioneered the approach, arguing they could afford to take big risks, because
they were investing for decades, even centuries. Many copied the schools,
saying they had found a high-return, low-risk strategy. But Eric Bailey, managing
principal of CapTrust Financial Advisors LLC, a Tampa, Fla., firm that advises
college endowments, says, "If it looks too good to be true, it probably
Mr. Bailey says
typical colleges outperformed Harvard last year, because they stuck to a plain-vanilla
approach, typically allocating 60% of their holdings to stocks and 40% to
bonds. That strategy would have generated a loss of roughly 13% in the year
ended June 30. Harvard aims to have only 4% of its investments in U.S. bonds,
which were one of the few safe havens over the last year. It has cut by more
than half its target for investments in U.S. bonds since 2005.
of Pennsylvania's endowment, by contrast, loaded up on Treasury securities
in 2008 and reported a more moderate 15.7% decline. In New York City, Cooper
Union for the Advancement of Science and Art, which charges no tuition, ratcheted
down the risk of its investment portfolio three years ago and expects its
endowment to hold steady for the year.
Yale and Harvard
say their long-term results justify the strategy. Harvard's endowment remains
the largest in higher education. In fact, the $10.9 billion it lost last year
is bigger than the 2008 value of the endowments of all but six colleges.
report, Jane Mendillo, Harvard's endowment manager, noted that Harvard achieved
an average annual return of 8.9% over 10 years, three times its peers' --
adding $18 billion in value over what would have been earned by a 60%-stock,
said the school is better off than it would have been if it had "pursued
a more conservative investment strategy over the longer term."
report, Harvard said its private-equity funds, which generally represent about
13% of its endowment model, fell almost 32%. Its real-asset segment, representing
nearly a quarter of the endowment, lost 38%. Investments in "absolute
return" hedge funds, designed to generate positive results in good times
and bad, instead posted a 19% loss.
The report showed
Harvard trimmed its endowment's risk profile by raising cash, cutting by $3
billion its future commitments to invest in private-equity and other investment
funds, and reducing its real-asset category to 23% from 26% of its model portfolio.
Harvard also said the school now aims to hold 2% of its assets in cash. Previously,
it targeted a negative-5% cash position, reflecting its use of borrowed money
to expand its investments. Ms. Mendillo said endowment managers had learned
to better reflect "the risk tolerance of the university."
pledged to manage more of the school's money in-house, giving it readier access
to securities to sell for cash. Currently, 70% is farmed out to outside managers.
That move could focus more attention on its managers' multimillion-dollar
paychecks, which have provoked controversy on campus. Ms. Mendillo said "a
substantial number of portfolio managers" had portions of their bonuses,
awarded for past years, "clawed back" into the endowment because
of poor performance.
Yale, like other schools, also signed contracts that committed them to huge
future investments in private-equity and other funds at exactly the time they
could ill afford them. In Thursday's report, Ms. Mendillo said Harvard cut
its "uncalled capital commitments" to $8 billion from $11 billion.
U.S. Open Tennis Schedule: Today and this weekend
are the end the US Open. Make sure you watch in high def -- which is
often on a different channel. For example, our low def Tennis Channel is 455.
Our high def Tennis Channel is 465. There'll be extra tennis today, I'm guessing,
since last night was rained out.
is the 8th anniversary:
Take a minute
to think of the 2,993 people who died. Take a moment to think of the profound
changes that day has brought -- from wars in Iraq and Afghanistan to new controls
on money transfers to fingerprinting of visitors. The good news is that all
the fears about a nuclear bomb in Times Square haven't been realized. We've
had eight years of homeland safety.
It's clearly time now to close down the wars in Iraq and Afghanistan. Neither
of those wars is worth the life of one more American man or woman. Their safety
mission has been accomplished.
Have a great weekend.
Stay away from the North East. It's raining cats and dogs.
In 17th century
England, houses had thatched roofs - - thick straw-piled high, with no wood
underneath. It was the only place for animals to get warm, so all the dogs,
cats and other small animals (mice, bugs) lived in the roof. When it rained,
it became slippery and sometimes the animals would slip and fall off the roof.
Hence the saying "It's raining cats and dogs."
You finally learned
something from this column.
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 .
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