In Search of the Perfect Investment

You can smell it. The next boom will be things related to electricity.There’s electric cars. There’s hybrid electric cars.  There are cars that shut off they otherwise would be idling (saves 9% of gas). There are  batteries to power this all (e.g. AXPW). There are microprocessors and other electronics to reduce power consumption — e.g. the power management circuitry in laptops and phones. Buffett has BYDDF. The government is throwing money at smart electricity. And Thomas Friedman is nagging (again) about electric cars. From his column yesterday:

China is doing moon shots. Yes, that’s plural. When I say “moon shots” I mean big, multibillion-dollar, 25-year-horizon, game-changing investments. China has at least four going now: one is building a network of ultramodern airports; another is building a web of high-speed trains connecting major cities; a third is in bioscience, where the Beijing Genomics Institute this year ordered 128 DNA sequencers — from America — giving China the largest number in the world in one institute to launch its own stem cell/genetic engineering industry; and, finally, Beijing just announced that it was providing $15 billion in seed money for the country’s leading auto and battery companies to create an electric car industry, starting in 20 pilot cities. In essence, China Inc. just named its dream team of 16-state-owned enterprises to move China off oil and into the next industrial growth engine: electric cars.

The electric car industry is pivotal for three reasons, argues Shai Agassi, the C.E.O. of Better Place, a global electric car company that next year will begin operating national electric car networks in Israel and Denmark. First, the auto industry was the foundation for America’s manufacturing middle class. Second, the country that replaces gasoline-powered vehicles with electric-powered vehicles — in an age of steadily rising oil prices and steadily falling battery prices — will have a huge cost advantage and independence from imported oil. Third, electric cars are full of power electronics and software. “Think of the applications industry that will be spun out from electric cars,” says Agassi. It will be the iPhone on steroids.

Europe is using $7-a-gallon gasoline to stimulate the market for electric cars; China is using $5-a-gallon and naming electric cars as one of the industrial pillars for its five-year growth plan. And America? President Obama has directed stimulus money at electric cars, but he is unwilling to do the one thing that would create the sustained consumer pull required to grow an electric car industry here: raise taxes on gasoline. Price matters. Sure, the Moore’s Law of electric cars — “the cost per mile of the electric car battery will be cut in half every 18 months” — will steadily drive the cost down, says Agassi, but only once we get scale production going. U.S. companies can do that on their own or in collaboration with Chinese ones. But God save us if we don’t do it at all.

Profits in this new electrical world won’t happen overnight. But hype will lift stock prices.

This requires more research.

Six Rules of Michael Steinhardt, who was one of the most successful hedge fund managers of all time. A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995.

The following six rules were pulled out from a speech he gave many years ago:

1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.

2. Always make your living doing something you enjoy: Devote your full intensity for success over the long-term.

3. Be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.

4. Make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5. Always trust your intuition: Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6. Don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

Life Lessons I learned over the weekend:

+ Your children need financial education. They need warnings now — about the evils of excessive debt.They need to learn a little statistics — and the odds of winning anything from buying lottery tickets. My local convenience store sells lottery tickets to virtually every shopper. Yet none every win anything substantial. Lottery tickets are his second biggest seller. His biggest? Cigarettes. Yes, at $10 a pack. Go figure.

+ Check. Check. Check. My dermatologist prescribed Zyclara. Cost $1,000. When I balked, he suggested Aldara. Cost $825. The second pharmacist suggested Imiquimod. Cost $302. All the same stuff. Go figure.

+ Watch your portion. Restaurants serve way too much food. My idea: Order only appertisers. No one needs main courses. The major reason fat people are fat is they’ve got screwy ideas about portion control, i.e. how big a “portion” is.

+ Don’t put Flash on your web site. Web designers love it because they can charge extra and it’s “cool.” But more than 50 million iPhones and 4 million iPads can’t see your Flash.  To them, your flash is a blank screen. Moreover, Flash is often very slow. Use HTML5 instead, which will do the same thing as Flash, but is supported by the iPhones and the iPads.

+ Be wary of emails. Some have attachments (like resumes). Don’t open them.  Some suggest you you go to a web site. Don’t go there. Some offer prizes and inheritances. Don’t believe them. When in doubt, delete.

+ Moulded hearing aids aren’t easy to troubleshoot.My father-in-law is 94. His hearing aids are always giving trouble. Curiously his model doesn’t even have a volume control, nor a way to reboot it. His hearing aids cost twice as much as my newest, fastest laptop. His aids cost $6,000. When I went to an audiologist for my own ears, she prescribed $6,000 hearing aids. When I balked, she said “How about $3,000?” The hearing aid industry steals from old people. There’s an opportunity here for an honest hearing aid company. I am looking.

+ It’s dumb to drop off the face of the earth. And not answer your emails — even if you are on vacation. Your clients (and friends) will go elsewhere.

The Rosh Hashana service.
Man goes to temple on Rosh Hashana but is stopped by guard.

Guard: ’You have to buy a ticket to enter.’

Man: ‘But I just want to tell my brother what time dinner is.’

Guard:  ‘OK. But don’t let me catch you praying!’

Harry Newton who wonders why he deserves to own such a beautiful tree:

Taken on the weekend by my iPhone and showing our garden sculpture made from found automobile parts.