In Search of the Perfect Investment

Readers have asked, “Your investments are a mess. Please explain.”

OK. Here goes.

In the beginning, I concentrated on growing the business I started in 1969 — the year I graduated from business school.

I sold the business in September 1997. The seller agreed to keep the price confidential. Three days before I got the wire, I read about our sale in the Wall Street Journal. That unleashed a torrent of sellers, peddling funds — hedge, distress and venture — and startups  in biotech, IT, etc.

The first thing I learned (many years later) was the sellers had absolutely no stake in the outcome of what they were selling. If fact they were happy with their 7% commissh and a prayer that they’d never hear from me again.

Most of the stuff they sold me went kaput — except for the funds from the likes of Citigroup and Goldman Sachs which returned returns far worse than municipal bonds. Like 3% a year.

The second thing I learned was that last year’s funds did great. But the one I got sold did awful. If the expression about past performance means anything, I learned the hard way. 30% plus returns can easily turn into 3% when I am a fundholder in a new fund.

The third thing I learned was that the 10-year fund can easily stretch into 15 years. The managers have a huge incentive to keep the management fees flowing. To heck with selling the remaining assets and giving the money back to the poor, suffering fund holders. The places where fund managers get fees from boggle the imagination.

The fourth thing I learned is a fundholder (like me) has absolutely no say in how things are mismanaged. Note: I used the word mismanaged — deliberately. They set up barriers to wall off outside “interference.” By the time the fund is as young as my oldest grandchild (five), all the original brilliant managers have left. They were the ones who sold me on the fund and the reason I invested. Fees make hedge fund billionaires. Not performance.

So now it’s 22 years later. I am up about 20% — after paying for weddings, college and graduate schools, and living. And I’ve meandered my way to a new approach:

+ No Wall Street funds. They’re all terrible.

+ Lots of stocks. You have the list — in the right hand column on the web site. I can’t control them. But I can sell them and move on. Not so with ailing funds.

+ Oodles of real estate syndications — commercial and residential. The residential ones chase one and two bedroom middle class professionals, who can afford $900 to $1200 a month rent. None of the $3,000 to $40,000 rents they get in Manhattan. Nice, simple and affordable. If the economy goes south, these guys got to live somewhere. And we keep our borrowing reasonable. No more than 65% LTV (loan to value).

+ Plenty of cash, including CDs in places like Ally, Marcus, Capital One and JPMorgan Chase. I am slightly over 20% in cash. That’s much too high.  But I am aware that there’s too much money floating around and a huge desperation to “put it work.” I see skimpy five page overseas (also called decks). People invest $10 million on the basis of the deck and accept the fact that they won’t ever meet the management. It gives insanity a whole new meaning.

+ Some bonds. My bonds have done well with the recent boom in bonds. Thank you Todd. Forget the nonsense about the inverted yield curve. Everyone and their uncle overseas is buying American bonds. They’re safe and you actually get a dividend — not like the ones in Germany.

I am 77. If I live another 97 years, I’ve got enough money to keep my family in the style they have become accustomed to. Don’t increase it please. I still drive an 18-year old Subaru, which cannot pass New York State inspection (for now).

Check out our portfolio. I just updated it. It’s got too many stocks. But it has some great cloud stocks and a bunch of special situations — like Avon, Crown Castle, Roku, Crowdstrike, Grocery Outlet, Dunkin Brands, and Generac (because everyone is buying backup generators).

Don’t do stupid

+ The emergency room doctor told us the biggest cuts this summer were from cutting avocados.

+ The preference file on Fidelity’s servers gets confused and makes Active Trader Pro (which I use every day) lock up. You need to re-set the preference file. Tech Support at Fidelity will tell you how. It’s easy.

+ Anker equipment is great — well designed. And works well. Amazon sells much Anker stuff.

+ Older people don’t move enough. 23% of my business school class has died. Many of them played golf from the back of a golf cart.

+ Before you switch to Windows 10, check that there are drivers for your favorite printers. HP just told me that they didn’t make Windows 10 drivers for my three favorite (and most reliable) HP printers. And there’s no way the printers will work with my new Windows 10 machine. However, my old Windows 7 laptops still work. HP actually told me they preferred Windows 7 to drive their machines. They hated the complexity of Windows 10. Me too.

This week’s favorite New Yorker cartoons

The U.S. Tennis Open is on ESPN. I wish I could run as fast as those men and women. But I am getting faster. And this morning my partner, Mark Johnson, complimented my running. First time ever. Miracles happen. And they need to. Twenty-three percent of my business school class is now dead. Not happy making.

Kooky Ideas 101: Germany is so hot on protecting the environment there’s talk they’ll outlaw all private cars. They government will own all the cars. And you’ll have to beg to drive one. How about a good price on my old, trusty Subaru Outback 2002?

I had fun writing this blog. I hope you had fun reading it. Got any thoughts on what I should do better? — Harry Newton