In Search of the Perfect Investment

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IDIOT ME.
I forgot that Friday (today) markets were open.
Apologies. I’ll be back on Monday.
Here’s Wednesday’s Thanksgiving Day column, in case you missed it.

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I’m giving thanks tomorrow for four things:

1. My health and my family’s health. Every one of them has gone off-the-planet nuts with exercise and diet. They won’t eat sugar, salt, meat, chocolate or bread — I’m not making this up. It makes for a very boring Thanksgiving. I’m the hold-out. I like bagels with cream cheese. You should see the looks I get.

Here they are in all their vegan glory.

2. Surprises. I don’t know why this.  I got it yesterday. It’s already in the bank.

As they say in Australia, it’s better than a slap in the belly with a cold fish. The American expression is a sharp stick in the eye.

3. The ability to say NO. Most of my brilliant private investments have lost money. Some may still pay off — like the Vintage Fund below. But there are several investment realities: There are very few decent money managers. I have two, but both are sucking wind. There are even fewer decent entrepreneurs who can grow your money. The fastest way to lose friends is to lend them money or invest in their businesses.

Practice saying NO. It’s an ultra-useful skill.

4. My new ability to recognize a bubble and get the hell out when my Stop Loss kicks in. Which means — after all these years — traded equities and bonds remain the best investment. There’s one key reason:  You can get out quickly. With everything else you’re stuck — through the next bust and the ultra-slow recovery. As an example,  my Goldman Sachs private equity fund won’t probably make a profit for 15 years from its inception. It was meant to be a five to eight year fund. There will always be booms and busts. The Feds, with their ultra-low interest rates, are creating another one, as we speak.

We’re going to be living with coal for a long, long time. From James Fallows’ latest piece in the Atlantic monthly:

Overall, coal-burning power plants provide nearly half (about 46 percent this year) of the electricity consumed in the United States. For the record: natural gas supplies another 23 percent, nuclear power about 20 percent, hydroelectric power about 7 percent, and everything else the remaining 4 or 5 percent. The small size of the “everything else” total is worth noting; even if it doubles or triples, the solutions we often hear the most about won’t come close to meeting total demand. In China, coal-fired plants supply an even larger share of much faster-growing total electric demand: at least 70 percent, with the Three Gorges Dam and similar hydroelectric projects providing about 20 percent, and (in order) natural gas, nuclear power, wind, and solar energy making up the small remainder. For the world as a whole, coal-fired plants provide about half the total electric supply. On average, every American uses the electricity produced by 7,500 pounds of coal each year.

Fallow’s piece is called “Dirty Coal, Clean Future” You can read it here. Coal stocks include BTU, PCX and ICO. I hear buzz about all three.

Another reason not to own a fund. I own part of something called Goldman Sachs Vintage Fund IV.It was sold to me (also called idiot) as a fund of intefrests in hedge funds that had been sold at “distress,: i.e. the owners needed the money and sold their interests cheaply. Of course, the only thing “distress” about my fund is that it’s in distress, i.e. under water. But the good news is that sometimes something happens — like the funds managers sell something and us investors rejoice.

Question: Why do the managers sell something?

Answer: because they want the fees, i.e. they want to pay themselves.

Here’s an excerpt from a November 17 letter I just received. Note the first line. I’m entitled to $99,998.00. But, by the time they’ve taken $11,084 in fees and $62,999 in a forced “contribution” to further disasters (and further fees) in the fund, I’m left with a miserable $25,915 which I’m receiving by wire today.

Beathlessly he calls:

“We’re taking a big position in Synaptics (SYNA). The company has 65% of the touch screen business, etc. etc. May we couunt you in? Is 500 shares — about $13,000 — OK for you?”

I reply, “The stock has fallen, despite higher earnings.”

Broker;  “Don’t worry about that. It was just because the president left. “

Harry: “Let me check. Call me in an hour.”

For pure kicks I check the Wall Street Journal on Insider Transactions. Every transaction this year has been a sale. Every single one. This gives lack of faith in their own company a whole new meaning.

All about ethanol. At one stage, Congress thought ethanol a good idea and encouraged it with oodles of subsidies and tax breaks. This helped the farm lobby. Corn and farm land skyrocketed. The farm lobby was happy. Investors stuck money into ethanol plants. most of which quickly  went broke.

Congress has a horrible record picking industries to prefer. It tends to prefer based on who contributes the most money to their campaign.

I was amused to read this:

David Pimentel, a professor of ecology at Cornell University who has been studying grain alcohol for 20 years, and Tad Patzek, an engineering professor at the University of California, Berkeley, co-wrote a recent report that estimates that making ethanol from corn requires 29 percent more fossil energy than the ethanol fuel itself actually contains.

The two scientists calculated all the fuel inputs for ethanol production—from the diesel fuel for the tractor planting the corn, to the fertilizer put in the field, to the energy needed at the processing plant—and found that ethanol is a net energy-loser. According to their calculations, ethanol contains about 76,000 BTUs per gallon, but producing that ethanol from corn takes about 98,000 BTUs. For comparison, a gallon of gasoline contains about 116,000 BTUs per gallon. But making that gallon of gas—from drilling the well, to transportation, through refining—requires around 22,000 BTUs.

In addition to their findings on corn, they determined that making ethanol from switch grass requires 50 percent more fossil energy than the ethanol yields, wood biomass 57 percent more, and sunflowers 118 percent more. The best yield comes from soybeans, but they, too, are a net loser, requiring 27 percent more fossil energy than the biodiesel fuel produced. In other words, more ethanol production will increase America’s total energy consumption, not decrease it.

The pat-down versus the machine. Please opt for the pat-down. You may not like it. But you don’t need the extra radiation.

Radiation is cumulative. It is harmful to your  long-term health. You get enough of it in your daily life.

Happy Thanksgiving
A young man named John received a parrot as a gift. The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird’s’ mouth was rude, obnoxious and laced with profanity.

John tried and tried to change the bird’s attitude by consistently saying only polite words, playing soft music and anything else he could think of to ‘clean up’ the bird’s vocabulary.

Finally, John was fed up and he yelled at the parrot. The parrot yelled back. John shook the parrot and the parrot got angrier and even more rude. John, in desperation, threw up his hand, grabbed the bird and put him in the freezer.

For a few minutes the parrot squawked and kicked and screamed. Then suddenly there was total quiet. Not a peep was heard for over a minute. Fearing that he’d hurt the parrot, John quickly opened the door to the freezer.

The parrot calmly stepped out onto John’s outstretched arms and said “I believe I may have offended you with my rude language and actions. I’m sincerely remorseful for my inappropriate transgressions and I fully intend to do everything I can to correct my rude and unforgivable behavior.”

John was stunned at the change in the bird’s attitude.

As he was about to ask the parrot what had made such a dramatic change in his behavior, the bird spoke-up, very softly, “May I ask what the turkey did?”

Thanksgiving Story – 2

An elderly man in Phoenix calls his son in New York and says, “I hate to ruin your day, but I have to tell you that your mother and I are divorcing; forty-five years of misery is enough.”

“Pop, what are you talking about!” the son screams.

“We can’t stand the sight of each other any longer,” the old man says. “We’re sick and tired of each other, and I’m sick of talking about this, so you call your sister in Chicago and tell her.” And he hangs up.

Frantic, the son calls his sister, who explodes on the phone. “Like Heck they’re getting a divorce,” she shouts. “I’ll take care of this.”

She calls Phoenix immediately, and screams at the old man, “You are NOT getting divorced! Don’t do a single thing until I get there. I’m calling my brother back and we’ll both be there tomorrow. Until then don’t do a thing,

“DO YOU HEAR ME?” And she hangs up.

The old man hangs up his phone and turns to his wife. “They’re coming for Thanksgiving and paying their own way.

There’ll be plenty of TV watching over Thanksgiving

A man is watching golf on TV, but he keeps switching channels to a dirty movie featuring a lusty couple having raucous sex.

“I don’t know whether to watch them or the game,” he says to his wife.

“For Heaven’s sake, watch them,” his wife says.

“You already know how to play golf!”

Harry Newton who is pleased with Apple, which innovates with remarkable speed. Latest: AirPlay,  AirPrint for iPhone and iPad, multitasking for the iPad, the new iOS 4.2 for the iPhone and the iPad, the fantastic MacBook Air,  iLife 11, the new iTouch  and signing the Beatles.  If only Microsoft made something I wanted…. iPad will be this year’s most-given electronic present. Everyone is getting one.

Scott Udine, money manager, emails me:

I know that General Motors (GM) has been in the headlines a lot this week and today the stock is barely above its offering price ($33) from yesterday. As I was going through the IPO prospectus again (yeah, I know, real exciting!), I noticed something significant and it backs up the reason of why I would never own the stock (besides what I mentioned yesterday and no real growth prospects). In their prospectus they stated “We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan?“

Huh? Are they serious? You would think that with all the taxpayer money that we pumped into them, they could get their financial controls and reporting taken care of. Anyway, as I mentioned yesterday, I believe Ford (F) will continue to do well and I think it has a significant amount of upside left in it (I do maintain stop loss orders in though, just in case I am wrong).