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Things I learned in 2011. Part 1.

Investing in things you have no control over is hard. Probably the hardest thing you’ll ever do.

There is little joy in being right.

But there’s plenty of hurt (blaming yourself) when something goes wrong, as it always will.

It’s insane to take your hard-earned money — cash from your day job — and gamble it on something you read about on the Internet or heard about from your friend, or worse, from someone on TV (like Cramer).

Yet, we keep trying. We convince ourselves we’ll conquer this thing called investing and emerge rich beyond our wildest expectations, or at least have enough for our old age.

I’m not being deliberately glum this morning. The sun is shining. The family is alive and healthy. And the refrigerator has enough Christmas leftovers to feed us for a month.

My net worth is maybe up 1.8% for 2011. That’s not brilliant, but it’s good when you figure that was after paying our Susan and my living expenses — like food, outrageous real estate taxes, the many plays and dance performances we saw and the daily tennis games.

Only one thing worked spectacularly in 2011. And that, like all spectacular things, was a fluke. It was private investment in a Chinese Groupon-like venture. A month after I bought it, some nice person  bought it for double what I paid.  A couple of real estate commercial syndications were sold, one earning 12% and the other 15% IRR.

The backbone of my investments are triple tax-free muni bonds — none of which defaulted and all of which continue to pay interest.  thank you Todd. Surprisingly, my Vanguard Federal tax-free bond fund VWALX continues to do well and pay a handsome interest rate. I’ll put more money into it.

Here’s a short list of what I learned in 2011:

1. Capital preservation is key. I worked 24/7 for the money. I’m not pissing it away on some speculative nonsense which my friend whispers. There are three elements to this: Tight stops. Sometimes as little as 3%. Don’t speculate. When in doubt, stay out. And cash remains king. I ended the year with a lot of cash.

2. Diversification is a free lunch. But the idea of diversification is that some things go up. Some things go down. Diversification gives you a balance. But these days, a lot of things move together. If equities go down, gold is meant to go up. But lately it and equities have fallen. In short, you may need to look further. There are oppotunities in real estate. But be wary of non-liquid investments.

3. Dividends work. Bonds work. NLY will probably return me 6% this year. Not what its 14% dividend yield shows. VWALX will do better. It’s a bond fund investing in government bonds.

4. Money managers are human. You won’t find one who works consistently good for you. Don’t even think about looking. That’s harsh. There are good ones. hard to find. Hard to get into.

5. Wall Street is a product machine. They make things for you and I to buy. We want our investments  to go up. They want fees. Their goals are different to ours. Their measurements are different. They measure themselves “relatively.” We lost less than our competitors. You and I measure returns absolutely. Did I make any money this year?

6. Most entrepreneurs won’t make it. Don’t even consider giving any of them any of your serious money — despite the fact that there are some neat things you can do on the Internet these days.

7. Studying this investment stuff helps. But there are very few good sources of consistently good investment information. My column is not consistently good. It’s occasionally good. Thank God I warned my readers about tight stops. Have you seen what’s happening with gold?

8. Your time is the key. What do you want to do with your life? Sit in front of a screen. Go traveling? Play tennis? Spend more time with the family? If you don’t like this stuff, buy bonds or a bond funds and bug the family.

More tomorrow. What did you, my readers, learn in 2011? Send a comment or an email, please.

AT&T works best on the iPhone. You can’t get an iPhone with Verizon’s speedy 4G/LTE. You can only get it with slower 3G. Which carrier is best  — Verizon, AT&T or Sprint? Surprisingly, on balance, AT&T. Phone calls on Verizon are clearer and better. But 3G data is slow on Verizon and Sprint. But fast on AT&T. Laptop Magazine did the research. It confirms my own testing. I’m guessing Apple will introduce an iPhone 5 next year which will use Verizon’s 4G/LTE and offer it as a mobile hot spot as Verizon does with some Android phones today. That will be great. For now, the choice is AT&T and perhaps the Samsung Verizon MiFi broadband card. See right hand column.

Hugo’s hard disk, continued. He wakes up one morning. His Apple Mac won’t let him to his stuff recognize his USB-connected external hard drive.  Hugo freaks. It’s the only copy of all his files. All 350 gigabytes of movies and songs, several of which he’d written. No backups. Three days later he’s visited the Apple store, a local computer stores, spent many hours on the Internet searching for answers and talking to his hard disk drive maker, Western Digital. Apparently it’s a “rare” problem. There is, maybe, a solution — some software from Western Digital. I give Hugo a 500 gigabyte external drive. But Western Digital’s software, after many hours,  says my drive is  too small. No explanation. Hugo rushes to Best Buy and buys a 1.5 terrabyte drive (for $150). Western Digital’s recovery software ran all last night, while Hugo, age 14, slept.  The software may or may not have worked. If it worked, it messed up the entire organization of his hard drive, removed all the folders and recovered about 35,000 files in random (no particular) order.

This is clearly not a way to live. Hugo should have backed up his files regularly. A 500 gigabyte external hard drive would have cost him under $100, and saved the time and aggravation. Anotther day of this nonsense and he will develop gray hair.

I use two types of backups — a file by file backup of all my working files every day. The software is called FileSync. Once  a week I  clone my hard drive using the version of Acronis True Image that came with the Kingston SSD kit. See right hand column.

Not in the bike lane. New York City is cracking down on bicyclists like me, who don’t ride in the bike lane. The tickets generally cost $50. Yet riding in bike lanes is more far dangerous than riding in the car lanes. There are pedestrians checking their BlackBerries, cars parked illegally and a million other obstructions.

A ticketed bicyclist made a “public service announcement” which has been viewed by nearly five million people Watch it. It’s hysterical. Click here.

Favorite latest New Yorker cartoons:

Harry Newton who sometimes wonders about his readers. One of them actually criticized me for the quality of yesterday’s New Yorker cartoons, which he didn’t think were up to scratch! Frankly, I’d like to see less criticism of cartoons and more “I’m doing this investing. And its working.”  I don’t get much constructive, useful feedback. Can we all make that a resolution for the New Year?  It’s pretty hard writing this column every day. It  helps me “think things through.” But, golly, it would be nice to hear from my readers more often. OK? What’s working for you?


  1. Stephen says:

    Harry, that 1.8% is a lie.  How much did you pay at that burger joint you talk about?  Then compare to the price they charged a year ago.  Your 1.8% wasn't even keeping up with the published inflation rate, nonetheless the favorite burger joint (i.e., “real”) inflation rate.

    I can't believe how prices are ramping up so quickly yet the official numbers show stable prices.  The supercuts barber I used to frequent because a bad $10 haircut was better than a $29 style and blow dry.  Guess what?   That supercuts is now $18.

    I forgot a hat when traveling and figured I'ld just stop by a discount apparel store and find a $6 or $8 hat to get me through.  No dice, $14 was the cheapest they had.  $14 for a long piece of string!

    How else can you explain the reason more than a thousand people in NYC are willing to put their name and face on the member roster for the dumpster diving social club:

  2. Stephen Sparrow says:

    Frankly Harry, I thought the final paragraph was not up to your usual standards. It wasn't funny and not a single typo to be seen.
    I thought it was supposed to be us Brits who were the whinging poms!

    Love the site mate, keep up the good work!

  3. Jim says:

    What Harry learned in 2011 — If you have good rules, USE THEM. The 8% rule is good, Use it in Up and Down markets.
    What Jim learned in 2011 — the “MF” in MF Global did not stand for MAN FINANCIAL.

    Harry, I alway enjoy your sharing of ideas, family, humor and life in New York.  Thanks to you I can keep up to date on all the latest NY news (bike lanes etc.) and around the world as you travel.  Best of health and forturne to you in the coming year and maybe you will beat that 'young whipper-snapper' in tennis.

  4. Samuel Haskell says:

    thank you for the column. 
    concerning your frequent musings on mortgage reits, please chart libor vs. 10yr agencies and you'll find dividend capacity, as these portfolios roll off, will be cut in half.  you might prefer a hybrid strategy similar to what MITT employs. 
    secondly, for the reader below focused on Japan, google Kyle Bass and consider some of his interview points.  It is not a new argument; the trick is to identify the tipping point.  perhaps recent population decline?

  5. Zybroski says:


    Many thanks for your column and especially for sharing your actual experiences.  Refreshing, solid, sound advice.  Always enjoy the cartoons and gadget recommendations.  Regarding investments… Main goal has been to collect some income and avoid losses.  VZ and MO have been good to me for the past 2 years.  POM and John Hancock's HTD gave a scare back in August, but have come back.  Nice dividends.  Best wishes for the New Year!

  6. Pt says:

    Portfollio consists of
    7.TINX (Bonds)

  7. Carl says:

    I'm an old retired fellow in Oklahoma. Never thought about investing until I lost my job about 12 years ago. I read your column every morning and have a long time. I have learned a lot reading it. Thanks for your time and effort on your readers behalf. Refreshing to read your point of view. And to the guy griping about your cartoons reminds me of a guy who complains about what he has to eat at a free lunch.

  8. Peter says:

    Harry, as we get ready for our next Investment meeting in January I want to toss around Japan and an Japanese ETF. The Nikkei has been battered and as an sophisticated, organized market I am drawn to the possibilities that the Japanese with zero inflation and recovering from a severe natural disaster have to be peering around the corner and a recovery. Thoughts?
    Beyond that you know I am a big supporter of the municipal strategy and that portfolio has outperformed everything we have (except for our own business) the past 2-3 years.

  9. JimBobToo says:

    What has consistently worked for me over many years is writing naked puts on (mostly) medical stocks, or others that I love which are temporarily depressed too much due to some over-reaction. If I am temporarily “wrong” on guessing the time-value of the option, I temporarily own a stock that I love “on-sale”. I have made double digit returns doing this. Yes, some losers as with every approach, but not bad. Plus, I earn interest on the uncommitted funds in the account underlying the option position, though not so much lately 🙂

  10. Phil in Kentucky says:

    I want offer my thoughts about your column and why I enjoy reading it each day. First, I enjoy keeping up with Michael's progress. I met him when we was twelve and I knew, like many others, that he had special skills that would someday help others. If you don't believe me, ask Rich Kubik or Rose. Next, you allow your readers inside your angst as an individual investor. Most want to keep up their guard. I recommend your column to others including stock brokers and sometimes get their feedback, especially when they disagree with you. This in turn gives me license to argue with them on the virtues of their wisdom. And I love to argue. Now I am not sure that any of your investing tips will ever help me but my sons read this and we discuss your investing philosophies. When taken in combination with their additional market studies, maybe, just maybe, some of your insight might help them down the road. They are in their twenties and now is the time for them to develop independent thinking about how to manage their assets and not stritctly drink the kool aid a stock broker might be selling. And finally, I like the jokes, cartoons and videos you post. Happy New Years.

    • Peter says:

      Phil, where are you in Kentucky? I live in NYC but went to school at Centre so I always prop up when someone from the Bluegrass is in the room.

      • Phil in Kentucky says:

        I live in Glasgow. I often go to Danville. Centre is one of my accounts. I have played tennis with a couple of the professors at Centre whom you may know. Mark Lucas and Steve Powell, the glass blowing artist/teacher. He is an amazing athlete. He was a right handed player but severely cut his hand in his studio. He then taught himself to play left handed. Quite a trick. Not to mention his glass art is incredible.