In Search of the Perfect Investment

I’m an idiot. Let me explain. There are many ways to pick stocks to buy, or stocks to short. You can pick them by the products you like (e.g. Apple). You can pick them by their financials (e.g. Microsoft). You can pick them by their  popularity — LuluLemon, Chipotle, etc. You can pick them by their obscene business (e.g. RadioShack). You can pick them by a business that’s being obsoleted (like what Amazon is dong to Best Buy).

But the absolute best way is to pick an event that something good or bad is going to happen. Like the expiration of a lockup on an IPO.

I’d been recommending in this column to short Facebook from Day One. I’ve been right.

On Monday I recommended shorting FaceBook again. The lockup on Facebook’s IPO was set to expire on Thursday (i.e. yesterday). And I figured the stock would tank. Here’s the last five days, including yesterday.

And it fell I sold the stock short. I covered yesterday — not because it won’t go lower. It will. But I didn’t want the short to be open while I was away in Africa (see below). There are crazies out there who think Facebook is actually cheap.

So, why was I stupid? I didn’t short enough. I should have bet the farm. I knew it was going to fall. It was evident to Blind Freddie. A sure bet. Like Soros betting against the U.K.  pound, I could have made a cool billion. But I didn’t. Why? Because I simply didn’t think it through. I should class my bets (positive and negative) on the basis of stars. Five stars and I bet the farm. One star and I buy (or sell) one share. Yo get the idea.

RadioShack and Facebook were five star shorts. BestBuy is a two star short. Maybe the founder will scrounge the money and make it happen. Maybe.and pigs will fly.

The mortgage REiTs have mostly been five stars buys. Lately, the bad press many of them are receiving is dropping them to three (NLY) and four stars (AGNC).

I’m really annoyed at myself for missing the BIG reward on Facebook. The damn thing was a slam dunk. I could have paid for the entire African safari with one trade.

Two good things: First, I did make money on the Facebook short. Second, I’m learning. I may even be smart by the time I die.

Investing in real estate, again. Friends are buying commercial office buildings at 50% of what they sold for in 2005. Friends are buying apartment buildings and complex, because everyone is renting. No one can afford to buy. a house or apartment. Some friends are investing in storage. They say the business is safer because losing one tenant doesn’t destroy your cash flow. I was reminded of the virtues of self-storage by today’s Economist:

The economics of self-storage
The golden hoard: Why people are stupider than squirrels

THE best businesses take unpromising inputs and conjure from them a stable stream of profits. Self-storage firms fall into this category. They offer space-strapped customers a secure nest in which to store things they don’t need right now but can’t bring themselves to throw away. They invest in land most developers would shun and use tenancy contracts that would make other landlords shudder.

Yet they are big business in America, where one family in ten uses one of the countries’ 50,000 facilities. It’s a sector that has seen robust performance and rapid growth, according to the Self Storage Association, an industry body. It is popular elsewhere too: Britain has seen an 8% growth in the number of stores in the past year.

To appreciate the magic of the business model, start with the ropy ingredients. The base is in commercial property, a sector hit hard in the financial crisis. The facilities are generally in unglamorous locations, on noisy roads or the outskirts of town. Tenants renting space pay little or no deposit, and are free to leave at a moment’s notice. It sounds like a recipe for ruin. Yet storage firms make stonking profits.

Structured as Real Estate Investment Trusts (REITS), which pool cash to invest in property, they have avoided the sinking feeling that has dominated the REIT sector for the past five years. While property values have fallen, profits and cash-flow have held up, lifting share prices. Public Storage, Extra Space and Sovran, three publicly traded American self-storers, were up between 30% and 140% since August 2007, while REIT indexes have lost ground.

There are two reasons for the storage firms’ success. The first is that demand keeps growing. American workers are quite mobile, and often need a temporary spot to stash their stuff while they line up a move. More importantly, they keep acquiring stuff that cannot be consumed and never rots or rusts: plastic toys, metal garden furniture, porcelain knick-knacks. For some reason, they seldom chuck any of this rubbish out. This baffles economists, who assume “free disposal”, meaning that things that aren’t needed can be thrown away without making anyone feel bad about the loss. The fact that so many hoarders pay lots of cash to keep things shows the assumption needs a rethink.

The second is that a short-term contract does not mean short-term profits. Stored stuff is like a bank deposit-it’s contractually short term, but usually stays where it is. Contracts are often only for a month or so, yet hoarders stash things away for far longer. At Big Yellow, a British firm, 37% of space is filled with stuff that has been there for over three years. A cynic might compare human squirrels unfavourably to the wild sort, which usually remember to dig up their nuts come springtime.

Self-storage firms are also well-placed to deal with the problem other landlords dread: non-paying tenants. They have the upper hand because they have your stuff. If you don’t pay up, they will flog it. This last trend has even spawned a television show-Storage Wars-in which rent-dodgers’ possessions are sold, often for surprisingly high prices. The lessons of hoardonomics are clear: don’t store your stuff, sell it. Then invest in a storage business.

What is fracking? Here’s a good visual explanation. Click here.

The best biking and driving insurance. This is the front of my friend’s bicycle:

You’ll ntoice the Garmin GPS and the little black gadget which is a ContourHD camera.

It’s actually an old version. The newer one is the ContourROAM.

My friend claims this $200 gadget brought him $75,000 in a settlement with the lawyer of a lady driver who cut him off and put him in hospital with back injuries. He told the lawyer he’d recorded the accident, had a video and produced the camera. The lawyer took one look at the camera and settled for the sum asked. The lawyer didn’t even bother looking at the video. But it had nicely recorded how the driver had cut him off and hit him.

You turn the camera on, go biking (or driving in your car). It will record many hours of full HD video — up to 8 hours of 1080p video (12 hours of 720p video) on a 32 gigabyte MicroSD card. That’s the card most every digital camera uses these days.

The ContourROAM is only $184 from Amazon. I bought a 32 GB card  for $18. You’ll also need a mount. I bought one for $30 for my bicycle. Click here. The contourROAm is the best insurance policy money can buy. Just remember to start it every time you go driving or biking. And remember to wipe the disk every time it fills up.

We’re going to Africa. I’m taking the family on “safari” to Botswana. We leave on Sunday. Susan and I have been before. Africa is the greatest vacation you can ever take. You may never remember Bali, Patagonia or Easter Island. But you will remember chasing wild animals in a Toyota Land Cruiser. You will remember when you see a lion bring down a zebra and the pride descend on the newly-killed zebra and have their lunch. You will remember the sounds of the chewing and the smell. Oih, the smell. You will remember the joy of seeing the leopard up the tree, neatly avoiding the family of baboons on he ground that would like he leopard for lunch.

Instead of boring your with pictures of Africa’s “Big Five’ — the elephant, the lion, the rhino, the leopard and the Cape buffalo — I’ll bore you with my worst African animal jokes.

African “Joke” 1.
A small zoo in Alabama obtained a very rare species of gorilla.

Within a few weeks the gorilla, a female, became very difficult to handle. Upon examination, the veterinarian determined the problem. The gorilla was in heat. To make matters worse, there was no male gorilla available.

Thinking about their problem, the Zoo Keeper thought of Bobby Lee Walton, a redneck part-time worker responsible for cleaning the animal cages. Bobby Lee, like most rednecks, had little sense but possessed ample ability to satisfy a female of any species.

The Zoo Keeper thought they might have a solution. Bobby Lee was approached with a proposition. Would he be willing to mate with the gorilla for $500?

Bobby Lee showed some interest, but said he would have to think the matter over carefully. The following day, he announced that he would accept their offer, but only under five conditions:

“First”, Bobby Lee said, “I ain’t gonna kiss her on the lips.” The Keeper quickly agreed to this condition.

“Second”, he said, “She gotta wear a ‘Dale Earnhardt Forever’ T-Shirt.” The keeper again readily agreed to this condition.

“Third”, he said, “You cain’t never tell no one about this.” The keeper again readily agreed to this condition.

“Fourth”, Bobby Lee said, “I want all the children raised Southern Baptist.” Once again it was agreed.

“And last,” Bobby Lee said, “I’ll need another week to come up with the $500.”

African “Joke” 2.
At a U2 concert in Ireland, Bono asks the audience for some quiet. Then he starts to slowly clap his hands.

Holding the audience in total silence, he says into the microphone….”I want you to think about something. Every time I clap my hands, a child in Africa dies.”

Suddenly, a voice from the front of the audience yells out….”Then stop clapping, ya asshole!”

Ah…You Got To Love the Irish!

African “Joke” 3.
A young woman comes to her parents’ home with a tall African guy, with huge gold rings hanging from his ears and his nose.

The father screams at her: “I told you to marry a RICH doctor.”

African “Joke” 4.
Two gay guys are walking through a zoo…

They come across the gorilla and notice that the male gorilla has a massive erection.

The gay men are fascinated by this.

One of the men just can’t bear it any longer, and he reaches into the cage to touch it.

The gorilla grabs him, drags him into the cage and mates with him for six hours, non-stop, while the zoo attendants stand by helplessly.

When he’s done, the gorilla throws the man out of the cage.

An ambulance is called and the man is taken away to the hospital.

A few days later, his friend visits him in the hospital and asks, “Are you hurt?”

“AM I HURT?” he shouts, “Wouldn’t you be? He hasn’t called…………he hasn’t written.

Harry Newton whose next column will be the day after Labor Day, if the lions don’t get him.