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Things I learned in 2011, amended by readers’ comments. Part 2.

Investing in things you have no control over is hard. Probably the hardest thing you’ll ever do. Yesterday I made a list and asked for comments. Here’s the amended list.

In investing with no control, 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 a 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 — maybe two months.

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  Susan and my living expenses – like food, outrageous real estate taxes, the many plays and dance performances we saw, occasional trips  and my daily tennis games. Several readers commented that 1.8% didn’t keep up with inflation. It didn’t. It was a hard year. But that return was after paying living expenses. That’s not the conventional way of measuring success. But at my age — 69 — it gives me a measure of financial survivability. Also all my assets are valued at cost or market, whichever is lower — unless they’re traded equities.

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. Dividends and interest payments were key in 2011 to staying afloat. Equities performed pretty miserbly and I stayed away from them. Gold tumbled recently. My stop loses kicked me out.

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: First, Tight stops. Sometimes as tight as 3%. Second, Don’t speculate. When in doubt, stay out. And, third, cash remains king. I ended the year with a lot of cash.

2. Diversification is a free lunch. The idea of diversification is that some things go up and 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 together. In short, you need to look further. There are oppotunities in real estate. But be wary of non-liquid investments. My friend Dan writes “Your lessons make sense to me. The only one that may need refinement is the notion of diversification. True diversification means investments that are not linked in some way. Too often, investments move up or down in sync. The trick is to find those that make sense in and of themselves but move in opposite directions. Not easy.”

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 Vanguard bond fund investing in government bonds. I recommend it.

4. Money managers are human. You won’t find one who works consistently well for you. Don’t even think about looking. That’s harsh. There are good ones. Hard to find. Hard to get into. Some of the best ones blew up in 2011. Remember, if you lose 50% one year, you have to double your money the next year to get back to even.

5. Wall Street is a product machine. They make things for you and me  to buy. We want our investments  to go up. They want fees. Their goals are different to ours.There were big IPOs in 2011, many of which tumbled badly. Wall Street got its fees. You got screwed. Wall Street’s measurements are different to ours. 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 they can do on the Internet.

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.

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

9. My friend Vahe says that owning individual stocks is VERY risky. He says only buy index funds over a diversified portfolio. Vahe is a devotee of the rebalanced portfolio theory. Every six months or so he re-balances his portfolio so he has even amounts of money in each of his chosen areas. he likes the philosophy of a company called Index Fund Advisors. He recommends everyone read their 12-step approach. Click here. You don’t have to use IFA, you can set yourself up with Vanguard index funds. See here.

10. Take profits. Play with the bank’s money. Eventually the rise stops and the fall begins. Nothing is forever. Take some money home.

11. Buy-in price, says Jeff, is critical. Buy when things are gloomy and prices low. Cash is king when prices are too high. Jeff has a list of stocks he will buy when they meed his price target: e.g. AA at $5, HUN under $5 and HPQ under $20.

12. Recognize upcoming train wrecks. It’s remarkable how many erstwhile “hot” industries have turned into train wrecks — like green energy, ethanol, biotech, financials and basically anything the Federal Government touches.

13. Watch out for your emotions. Roy writes this morning, “I am a disaster at investing because I can’t keep my emotions out of it. I tried the Vector Vest route some years ago and it was a farce. My online brokerage firm loved the transaction fees, however.”

Takeaways: Cash is King. When in doubt, stay out. Investing is close to gambling. don’t get sucked too far in.

Technology I can’t live without. Despite my love of technology, I use remarkably little of it every day:

+ I use three Thinkpad X201 computers each with128 GB  solid state drives and each running Windows XP. They run reliably and Lenovo’s service is superb. They are clones of each other. They’re ready as backups, should disaster happen.

+ I have two Apricorn external hard drives, which I use for file-by-file backups. Also two Kingston 128 GB SSDs as cloned backups. My life is on my main X201 laptop. Hence I’m obsessed with backups. I don’t backup to the cloud. I don’t trust it yet.

+ My iPhone 4 is more than a phone. It’s a note taker, a GPS, a camera, a music listening, video watching and book reading machine.

+ My Verizon MiFi gives me Internet access pretty anywhere in the U.S. Saves me logging onto insecure public WiFi networks.

+ For software: Firefox, Photoshop, Fidelity’s Active Trader Pro, Dreamweaver, WordPress, Outlook 2003, The Semware Editor, and occasionally Word 2003.

+ My Dahon MuSL folding bicycle, for getting around town and to tennis.

+ My Nikon D7000 and my Canon G12. Though these days I take more photos with my iPhone.

What I wish for in technology in 2012.

+ I’d like to see vendors treat their customers as though they cared. I’m sick of web sites that don’t list phone numbers, email addresses or even street addresses for their executives. I’m sick of being asked the same “security” questions several times on the same phone call. I’m not excited by call centers in India.

+ I’d like to see the telecom and cable companies providing honest, easy-to-understand bills. I hate being lied to.

+ I’d like my favorite web sites to leave an item in my shopping cart and even allow me to backorder an item. Amazon does best. Bezos is obviously hands-on. When I ran a company I was, too.

+ I’d like Microsoft to act more rationally. Windows 7 won’t run some of my favorite software. It forces me into hours of re-configuring… For what? Microsoft’s pig-headedness  is reflected in their go-nowhere stock.

Be proactive with your health: Writes friend, Robert Self:

Treadmill and angiogram I requested resulted in emergency bypass surgery. That was 12 years ago.

Colonoscopy recently discovered three polyps. One was cancer. Had surgery.

Everything fine now. Definitely saved my life. Get all the tests you can before it’s too late.

Retail is getting stupider and stupider. This week I bought two items at Banana Republic. The list price was a total of $203.91, including tax. I paid of $75.20, or a 63% discount.

I got several  discounts — the items had been marked down, but were on sale. And I got another 15% because I opened a Banana Republic Visa account. My last Banana Republic Visa account had expired because I used it only once — for the same reason I opened an account again — to get a whopping discount.

Hugo’s story — Part 3. Remember Hugo’s  Mac computer? His external hard drive crashed. He bought a piece of software called Disk Drill Media Recovery for $9.99 from the Apple MacStore. The software worked perfectly. It recovered everything on his busted external hard drive. If you have a Mac with an external hard drive, you need this software — just in case. Buy it fast. After January 1, its price will go to $50. The software saved Hugo’s tushy and taught him one valuable lesson — back up your life. Click here.

We’re having a recession? I took Hugo, 14, to see Mission Impossible 4 at the local Imax. It was 4.45 PM. the place was packed. No empty seats. My senior ticket — $15.50. His adult ticket $19.00. That’s a lot of money to see ads for Apple and BMW on a very large screen in a very noisy theater.

The road to Mecca. It’s a fascinating play presented by Roundabout,  my favorite theater company. It has three great actors, Rosemary Harris, Jim Dale and Carla Gugino:


For more and tickets, click here.

The best investing strategy?
A blonde finds herself in serious trouble. Her business has gone bust and she’s in dire financial straits. She’s so desperate that she decides to ask God for help. She begins to pray…”God, please help me. I’ve lost my business and if I don’t get some money, I’m going to lose my house. Please let me win the Lotto.”

Lotto night comes, and somebody else wins it. She again prays…”God, please let me win the Lotto! I’ve lost my business, my house and I’m going to lose my car.”

Lotto night comes and she still has no luck. Once again, she prays…”My God, why have You forsaken me? I’ve lost my business, my house, and my car. My children are starving. I don’t often ask You for help, and I have always been a good servant to You. PLEASE let me win the Lotto just this one time so I can get my life back in order.”

Suddenly there is a blinding flash of light as the heavens open. The blonde is overwhelmed by the Voice of God Himself.. .

“Sweetheart, work with Me on this… Buy a ticket.”

The best TV watching strategy.
An old married couple was at home watching TV.

The husband had the remote and was switching back and forth between a fishing channel and the porn channel.

The wife became more and more annoyed and finally said:

“For god’s sake! Leave it on the porn channel. You already know how to fish!”


Harry Newton who’s looking at New Year Resolutions: Finish his book In Search Of The Perfect Investment. Update his Newton’s Telecom Dictionary to the 27th edition, vsit the doctors  for a battery of tests, including a colonoscopy and endoscopy. And finally, learn to be more sociable, though the thought nags me: By now, haven’t Ive earned the right to be anti-social?

  • The “Vanguard Federal fund” that Harry, or as I call him, “Gilligan” refers to – WLAX – is actually called the Vanguard High Yield Tax Exempt fund, if I'm reading the Vanguard site correctly. It may be a decent short-term hold but when interest rates go up – which they inevitably will, whether it's in a few months or two years – this fund will sink like a stone. It's a risky investment grade bond fund, folks, and to recommend it without describing it as such is, again, reckless and irresponsible on Gilligan's part.

  • Ah, yes, the Vanguard bond fund you recommend. Bond funds are great when they work and then one day they stop. Recommending a bond fund going into 2012 is recklessly irresponsibile, akin to recommending real estate in 2005. A bubble asset likely. Even if bonds are not in a bubble about to burst – you've just recommended a bond fund with mediocre performance after a year in which all bond funds did well. What a genius you are, newton. (I'm being sarcastic when I call you a genius.)

    • HarryNewton

      It's hard to respond to you. The Vanguard Bond Fund did well. Specific real estate I owned did well. It's a function of diversification. Do what looks best at the time. I can't predict 2012 any more than you can. So I do my best. My ideas and advice are for the taking. If you like them, take them. If you don't, don't take them.  I think the insults about “genius” are uncalled for, however.

  • Lucky

    I join the many others in saying how much I enjoy your blog every day. I am not heavy into investing…just a little real estate and some gold (my stomach can't stand stocks)…but I do enjoy the human interest aspect and the opportunity to contribute a joke once in awhile. Happy New Year Harry and may god bless you and your family in the New Year…the only thing I dislike about 3 day weekends is I have to go 3 whole days without your blog. It has been a pleasure knowing you for the past 30 odd years, Harry.
    Lucky

    • Your stomach can't stand stocks and you're in gold? THat's like saying you're scared of rabbit so you raise grizzley bears. Gold is the most volatile, unpredictable, no-real-value investment you can own and owning very much of it is a financial death wish.

      • HarryNewton

        Actually, as I've explained I'm virtually out of gold.It hit my stop loss levels and I sold. Real estate, like most investments, is a function of the price you pay. Pay high, you lose. Pay lose, you have a better shot.

  • Kristin Zhivago

    Happy New Year, Harry. Like your other readers, I always enjoy your posts, and I read them every day.

    And by the way, if you want companies to start treating customers the way they want to be treated, please tell them to read my book. It is the only book out there that actually teaches managers how to do that, by deliberately and intelligently interviewing customers who have already purchased, and who have lots of great ideas about how to make it easier to buy (not to mention creating services and products that we actually WANT to buy). Plus, you can pat yourself on the back. I wrote this second book with your comments about my first book in mind.

    Kristin Zhivago, author, Roadmap to Revenue: How to Sell the Way Your Customers Want to Buy

  • Island Girl

    You are one of the rockstars of blogging in my bookmark list!  Thanks for being a consistent writer, divulging your personal investing insights and experiences – both successful and not, the wonderfully irreverent humor, and allowing unfettered comments to your posts.  Good fortune, happiness and health to you and your family for 2012 – and as we say in the islands around this time of year: Hau'oli makahiki hou!

  • Tom

    Harry, I just want to add to the chorus of praise for your tireless blogging.  You are an inspiration to me because the self-discipline you maintain to write your blog day-in and day-out is very impressive, and something lacking in many areas of our society today.  The very first thing I do every week day morning is click on Technology Investor – that's the extent of my self-discipline 🙂

  • Gary Stoller

    I
    read your column all the time, keep up the good work. Try the
    Google Chrome browser instead of Firefox. I had used Firefox for
    years but found it noticeably slow, especially when opening my
    initial ten tabs. Tested the Chrome browser and it is much faster
    with the same features as Firefox.

    • HarryNewton

      I like Firefox because I can burn in two add-ons — MeasureIt and Showcase. Both are useful to me in writing this column.

      • Gary Stoller

        If not for you then your readers should check it out. I did a quick check and there is a MeasureIt Chrome extension. For Firefox showcase looks like “TooManyTabs” for Chrome is similar.

  • Preston Page

    Begin Quote:
    + I’d like Microsoft to act more rationally. Windows 7 won’t run some of my favorite software. It forces me into hours of re-configuring… For what? Microsoft’s pig-headedness  is reflected in their go-nowhere stock.End Quote

    How is it Microsofts fault when the software written by a third party isn't updated to run flawlessly on Windows 7?  You need to be nagging the software developer.  It's much easier to turn a fishing boat than a cruise ship Harry.

    • HarryNewton

      Actually it's some of their own software that doesn't work well on Windows 7.
      But worse — much worse — I can't configure Windows 7 to something I'm familiar with — as a result of my years with XP. I don't know of any other software developer that forces its users to change their behavior so dramatically.

      • Preston Page

        What software in particular are you having problems with?  I'm sure you've scoured the web looking for solutions.

  • Dandersen3959

    Many thanks for generously sharing your experience about finance and just as importantly about what really matters — family,health,happiness.  All the best for 2012.

  • Radiowave79

    Harry-

    Thanks for writing this every day!  It brings alot of joy to myself and others and maybe we can even make a little money while we are at it.

    All the best to you and your family for a great 2012…..

    Steve H.

  • David

    Harry,

    Well done on another year of blogging. I still find it one of the most interesting blogs around and of course I read it every day.

    God bless you and your  family. Best wishes for health, happiness and the perfect investment in 2012!

    David