8:30 AM Thursday, April 14, 2005: The
stockmarket remains the place NOT to be. Yesterday was another steep decline.
And there's little on the horizon to suggest that this year's present decline
won't continue -- especially in smaller caps and tech stocks:
This year is shaping up to The Year of Selling Short,
again. That's where the money this year will be made, especially with Cockroach
Stocks, like AIG and possibly Berkshire Hathaway. It's time to start identifying
them -- don't forget the tech stocks Fred Hickey identified. Click
perils of investing in technology. For the past year, Siebel Systems
praised J. Michael Lawrie as the perfect choice to improve the company's
flagging fortunes. The company's PR machine worked overtime to persuade investors
and reporters that Mr. Lawrie was an able leader to turn the company around.
Yesterday, the story changed. Siebel said its board had ousted Mr. Lawrie after
11 months on the job. Poor Mr. Lawrie couldn't turn the stock around. Another
good reason to be wary of tech stocks and another good reason to adhere to our
15% Stop Loss Rule.
Warren Buffet becomes the latest cockroach:
As the AIG mess unfolds each day in the press, more and more of it will
rub off onto Berkshire Hathaway. Indicative of changing sentiment about Mr.
Buffet is this email I received yesterday from a reader:
I don't want to get sued by Mr. Buffett. Haven't met him. He has a lot of money,
but, in my humble view is not the nice guy pictured by those Wall Street types
enamored by him. A tough smart aggressive ruthless money manager, yes. Apparently
damn good at that stuff. Wall Street and the investment banking world loves
him, as well it and they should. He's made them and himself a ton of money,
a ton of money. His words and thoughts are gospel; his annual report breathlessly
awaited every year. He has drawn a public picture of himself which the media
loves as a nice folksy Midwest kind of guy who brilliantly invests and saves
companies while painlessly increasing shareholder value. No news about firings,
layoffs, consolidations, et al. The management gets that bad press (Greenberg
and AIG being no exception).
So what's my view and what's it based upon? Well, some years ago I read an article
about him. His long term wife lives very comfortably without him in Calif. while
he lives with his long term girlfriend in Omaha. No midwestern family man. In
the recent Calif. election, he aggressively and very publicly pushed raising
real estate and other "rich people" taxes which, of course, would
have little effect on him. One, he is too wealthy to worry and undoubtedly is
well sheltered and, two, his wife's sizeable home here was purchased a long
time ago and therefore would not be effected by a higher tax rate (tax here
in Calfornia is based on the most recent sale or major restoration date). Like
other wealthy liberals, and unlike true midwesterners, he's all for more taxes
since they don't effect him.
Also some years ago I read a detailed article interviewing him in which he discussed
his view of management. He had nothing but disdain for management. This was
the article that really set me off against him - I saw his true colors. Managers
were nothing but hired hands who should be delighted to have a job and take
whatever the investors gave them. The value created should go to the investors.
Maybe that does reflect the world of big companies he deals with and maybe,
in hindsight, he's right! The value comes from dirty dealings in the backroom.
Hence my chucklings, no, glee, at his current troubles. In the world of small
high risk early-stage entrepreneurial companies I've spent the last 30+ years,
most of the credit goes to management's risk taking strategic direction, daily
sweat and agonizingly detailed execution.
So I think he is a phony! He's as slick as they come, focused on money. What's
he ever done of any importance? I don't consider making a ton of money important.
Nice for those making it, sure. I have no problem with that. But has he done
anything of importance? Is the world a better place because of anything he's
done? Not that I know of. He's just another Wall Street shark who happens to
live in Omaha."
And you thought Wall Street cared about you, the client:
Most stock exchanges are electronic. Computers try to match bid and ask and
get you the best price. Not so at the New York Stock Exchange, which has people
called "specialists" who watch the flow of orders from you and me
and then buy or sell for their own interests, i.e they cheat us.
Fifteen of the
elite traders who oversaw stock auctions on the New York Stock Exchange's floor
were recently indicted on criminal charges that they cheated investors. The
SEC said that unlawful trading by all seven of the exchange's specialist
firms cost investors more than $158 million. In some cases, the individual specialist
traders showed disdain for the electronic Designated Order Turnaround system
over which customer orders are entered at the NYSE, punctuating their improper
trading with statements such as "Screw the DOTs," according
to the SEC.
the former specialists collectively garnered $13 million in illegal profits
from trading between market orders, known as "interpositioning," and
about $19 million from trading ahead of customer orders. With interpositioning,
specialists were alleged to have stepped in between customer orders that should
have been simply matched.
In one example cited by the SEC, Freddy DeBoer (one of those indicted) could
have matched customer orders to trade 3,500 shares of Nokia Corp. at $16.39
on Oct. 23, 2002. Instead of matching the buy and sell orders, Mr. DeBoer sold
shares from the specialists firm's proprietary account at $16.39, then bought
them back six seconds later at $16.35, locking in a four-cent "riskless"
profit for his firm and hurting "various customer orders," the SEC
One of the specialists
alleged to have done heavy amounts of improper trading was David Finnerty, a
former specialist at Bank of America's Fleet unit who traded General Electric,
among other stocks. According
to the SEC, Mr. Finnerty made improper trades on about 40,000 occasions
in three stocks over a 3½-year period. The trading cost investors $9.4
million, the SEC alleged.
This is not
Hank Greenberg must have been one gigantic piece of work: Latest
+ He transferred
more than 41 million shares -- worth around $2.1 billion -- of the insurance
giant's stock to his wife three days before his ouster, according to
a regulatory filing.
+ From the Financial Times, "Maurice 'Hank' Greenberg, the deposed chief
executive of insurance giant American International Group, donated tens of millions
of dollars to organisations headed by some of the company's non-executive directors,
according to an examination of the tax filings of Mr Greenberg's charitable
foundation. The world's biggest insurance group also had direct financial relationships
with at least two companies that employed two independent directors at AIG.
Many of the directors' direct or indirect financial relationships with AIG and
Mr Greenberg's charitable group - the Starr Foundation - were never clearly
spelled out in the company's annual reports or proxy statements. However, several
AIG board members contacted by the Financial Times said the charitable donations
and financial links had no effect on their ability independently to evaluate
Mr Greenberg's stewardship."
They had no effect.
Millions of dollars had no effect? And pigs will absolutely fly.
new wiring-in charges: Our banks are getting
creative. Wire money in and they now charge you a "service fee."
For what? Accepting your money. You can object. Your bank will remove the charge.
And if you have a nice manager, he might actually remember not to charge next
time. Don't count on it.
yesterday's spoof about the Pope being annoyed with Heaven? Some
people take this stuff seriously. Where is our country headed? Here's an email
Whoever wrote this obviously didn't read all of Revelation 21 since he or she
missed the essence of the joy of being forgiven of one's sins in a place where
"...God will wipe away every tear from their eyes; there shall be no more
death, nor sorrow, nor crying. There shall be no more pain, for the former things
have passed away."
The names of the twelve tribes of the children of Israel are written on the
12 gates. "The city had no need of the sun or of the moon to shine for
the glory of God illuminated it."
Considering the alternative of the utter darkness of hell where there is wailing
and gnashing of teeth in the lake which burns with fire and brimstone, I doubt
that the Pope is too disappointed.
Obviously I didn't see any humor in this article, and I'm not even a Catholic.
I found it to be making a mockery not of the Pope so much as of God's Word."
housing bubble busts:
She spent the first day packing her belongings into boxes, crates and suitcases.
On the second day, she had the movers come and collect her things.
On the third day,
she sat down for the last time at their beautiful dining room table by candlelight,
put on some soft background music, and feasted on a pound of shrimp, a jar of
caviar, and a bottle of Chardonnay. When she had finished, she went into each
and every room and deposited a few half-eaten shrimp shells dipped in caviar,
into the hollow of the curtain rods. She then cleaned up the kitchen and left.
When the husband
returned with his new girlfriend, all was bliss for the first few days. Then
slowly, the house began to smell. They tried everything, cleaning, mopping,
and airing the place out. Vents were checked for dead rodents, and carpets were
steam cleaned. Air fresheners were hung everywhere. Exterminators were brought
in to set off gas canisters, during which they had to move out for a few days,
and in the end they even paid to replace the expensive wool carpeting.
People stopped coming over to visit. Repairmen refused to work in the house.
The maid quit. Finally, they could not take the stench any longer and decided
to move. A month later, even though they had cut their price in half, they could
not find a buyer for their stinky house.
Word got out,
and eventually, even the local realtors refused to return their calls. Finally,
they had to borrow a huge sum of money from the bank to purchase a new place.
The ex-wife called the man, and asked how things were going. He told her the
saga of the rotting house. She listened politely, and said that she missed her
old home terribly, and would be willing to reduce her divorce settlement in
exchange for getting the house back.
Knowing his ex-wife
had no idea how bad the smell was, he agreed on price that was about 1/10th
of what the house had been worth, but only if she were to sign the papers that
very day. She agreed, and within the hour his lawyers delivered the paperwork.
A week later the man and his girlfriend stood smiling as they watched the moving
company pack everything to take to their new home, including the curtain rods.
I love a happy
This column is about my personal search for the perfect investment. I don't
give investment advice. For that you have to be registered with regulatory authorities,
which I am not. I am a reporter and an investor. I make my daily column -- Monday
through Friday -- freely available for three reasons: Writing is good for sorting
things out in my brain. Second, the column is research for a book I'm writing
called "In Search of the Perfect Investment." Third, I encourage
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