In Search of the Perfect Investment

My friends in real estate bemoan everything is too expensive.

The stockmarket is exploding (or did yesterday, despite my column).

The stockmarket has climbed back.

There are two types of investors:

1. Those freaked out by our “problems” — unemployment and lousy housing.

2. Those who see value in parts of the market.

The first group stay heavily in cash, obsess with “preserving capital” and keep their stops too tight.  The second group pursue value.

The key is understanding The Big Switch — from old line, dieing technology companies, like MSFT, INTC, DELL, HPQ, RIMM to new ones like LINKD and others we need to find…

Bubble. What bubble? LinkedIn’s market cap at a newly-raised $45 a share will be $4.25 billion. In 2010, according to Forbes, the company had revenue of $243 million, and a net income attributable to common stockholders of about $3.4 million, or 7 cents per fully diluted share; That would have been under 4 cents a share based on the share count after the offering. In Q1, 2011, the company had revenue of $93.9 million and net income of $2.1 million.

If you assume a full year of $10 million net income, LinkedIn’s P/E ratio will be a trivial 425.

The measure of LinkedIn’s value is not earnings, it’s how many people it connects. Remember eyeballs? That was a measure of the value of hot, profitless, web sites in the late 1990s.

Bubble. What bubble?

Soon there will be more social media IPOs  — including Facebook, Twitter and Groupon.

The only way to play these is to get shares on the IPO and sell them immediately — if your broker will allow you.

An example:  Renren (RENN), the Chinese social networking site, sold shares at $14. The shares closed at $18 on the first day of trading — May 4. Hence that day you would have made a handsome profit.

If you had held them, you would now be losing money. The stock closed last night at $13.70.

The IPO game is designed by Wall Street to reward big institutions for their business. “Do lots of business with me and I’ll reward you with shares you can sell and make free money on.”  Private investors — like you and me — are told:

+ You don’t give us enough business. So we don’t give you any shares.

+ Even if we squeeze you a few (because you’re being a nudge), you can’t sell them immediately. If you do, we’ll never give you any more shares in hot IPOs.

If I receive another email from LinkedIn saying, “Harry, Congratulations! You and XXX are now connected,” I’ll puke.

Should I charge LinkedIn a dollar for every email?

Cash works for retail shopping. Some gas stations are charging 3% extra for credit card and debit cards.  I always thought debit cards were risk-free to the bank. The explosion of bank fees is mindboggling. It’s cheaper with cash. Increasingly you can negotiate for cash payments — especially doctors and hospitals.

Dividend paying stocks are less volatile. I’m searching for studies. But it certainly feels that way.

10 Awesome Tweaks and Tricks for Google Maps. From Maximum PC Magazine. I love “smart zoom. ” Click here.

Those terribly clever French intellectuals.That’s the wonderful heading on an article on the Economist’s web site. The article by Schumpeter begins:

YOUR columnist admits that what follows has precious little to do with business or management, but cannot resist noting the absurdity of some French intellectuals’ comments on the arrest of the IMF’s chief. I have always been puzzled by the academic world’s reverence for the French intelligentsia. Michel Foucault was a colossal bore—and a bore, moreover, who encouraged the practice of seeing history exclusively in terms of the exploitation of an ever-multiplying band of victims even as living standards rose to unprecedented levels. Louis Althusser was a wife-killing buffoon. Pierre Bourdieu laboured the obvious. Jacques Lacan produced incomprehensible bilge. (France has produced its share of greats, of course, most notably Raymond Aron, but they are routinely ignored).

The rest of the article is not worth reading. If you want to, it’s here.

The new soldier.
A new soldier was on sentry duty at the main gate. His orders were clear. No car was to enter unless it had a special sticker on the windshield. A big Army car came up with a general seated in the back.
The sentry said, “Halt, who goes there?”

The chauffeur, a corporal, says, “General Wheeler.”

“I’m sorry, I can’t let you through. You’ve got to have a sticker on the windshield.”

The general said, “Drive on!”

The sentry said, “Hold it! You really can’t come through. I have orders to shoot if you try driving in without a sticker.”

The general repeated, “I’m telling you, son, drive on!”

The sentry walked up to the rear window and said, “General, I’m new at this. Do I shoot you or the driver?”

The friendly converter
There was a knock on the door this morning.

I opened it to find a young man standing there who said: “Hello sir, I’m a Jehovah’s Witness.”

I said, “Come in and sit down.”

I offered him coffee and asked, “What do you want to talk about?”

He said, “Beats me, I’ve never gotten this far before.”

Harry Newton who has recently put a little money into one Texas apartment complex, one shopping center in Canada and two private small technology companies that look promising.