Technology Investor 

Harry Newton's In Seabrch of The Perfect Investment Newton's In Search Of The Perfect Investment. Technology Investor.

Previous Columns
8:30 AM EST, Monday, April 23: The BIG messages from the weekend reading are simple:

1. Don't put all your eggs in one basket.

2. Each basket should make sense. And when it doesn't, get out.

3. Don't blindly follow an investment strategy. The world turns, sometimes for no reason. Things that were going up are now going down, and vice versa.

4. The more baskets you have, the more work you'll face.

5. The more you work personally on each basket (if you can), the better its outcome.

6. Our "15% down and Go" rule applies to money managers as well as individual investments.

7. If you use a someone to manage your money, you need to check his/her age, philosophy and experience.

Two weekend articles were of note:

+ An Elite Club's Fall from Grace from the Wall Street Journal's quarterly mutual fund survey. Excerpts:

At the end of March 2000, there were 275 funds -- about 9% of the stock funds around at the time -- posting gains of 100% or more for the previous 12 months, according to fund tracker Morningstar Inc. ... Ninety-seven of the funds no longer exist as investors in 2000 knew them: Forty-four had their track records swept under the rug as the portfolios were merged into other funds. Twenty-two were liquidated, with what little money there was returned to investors. Morningstar was unable to determine the fate of another 31; they had dropped out of its database. ...

The worst were those funds that were pedal to the metal and were paying little attention to the downside," says Christine Benz, director of mutual-fund analysis at Morningstar. That is, they threw money at stocks trading at nosebleed share-price-to-earnings multiples, and they concentrated bets in narrow parts of the market. "Funds that held up relatively better have been run by fund managers that pay attention to risk control." ...

No mutual fund was hotter than PBHG New Opportunities. Launched in February 1999 by Pilgrim, Baxter & Associates, it was run by Frank P. Slattery, who was 27 years old when he delivered a 533% total return in March 2000 for the prior 12 months.

The former investment banker was "like a kid in the candy shop" and "giddy with delight" even as the Nasdaq index dipped in early April 2000, he told a reporter at the time. Then, many investors thought the Nasdaq's decline was temporary, a lull in a rally that had distance to go. Mr. Slattery favored stocks with high and accelerating earnings-growth rates and potential for positive earnings surprises, and he was adding to holdings of small and midsize "momentum" stocks that he saw rebounding, he said.

"My outlook is very bullish for the rest of the year," he said at the time, pointing in part to Wall Street stock analysts, who "are more bullish than I have ever seen them" on some companies.

But any bullishness for the fund, which had assets of $459 million in March 2000, was misplaced: From March 31, 2000, through May 31, 2003, just before it merged with Old Mutual Emerging Growth Fund, PBHG New Opportunities lost 28% a year on average, compared with an 11.8%-a-year decline for the broader market.

+ Goal! He Spends It on Beckham This piece from the New York Times focused on one of America's richest and (I think) most brilliant investors, Phil Anschutz. Here are excerpts:

Denver: One night here in the late 1960s, around the time that Philip F. Anschutz began laying the foundations of a multibillion-dollar fortune, a drilling supervisor at one of his Wyoming oil rigs phoned him with bad news: The well was on fire. And if the fire kept burning, it would bankrupt him.

But there was a bright side, Mr. Anschutz reasoned. The fire meant that he had finally struck oil.

He rented a plane, flew to Wyoming, and by 8 the next morning gambled more money on his oil venture by buying up land around the burning well, according to an account that Mr. Anschutz provided to the State Historical Society of Colorado in 1974. He then hired Red Adair, a legendary oil-field firefighter, to put out the blaze, and, he said, invited a Hollywood studio to shoot the episode for the John Wayne thriller “Hellfighters.”

“There’s always a point that if you go forward you win, sometimes you win it all, and if you go back you lose everything,” Mr. Anschutz told the historian, recalling the fires. “That was that point for me.”

Today, Mr. Anschutz is one of the wealthiest — and most secretive — tycoons in the country, parlaying early oil coups into real estate paydays, savvy runs at the railroad business, and the creation of Qwest Communications International, a telephony company that became mired in an accounting scandal. ....

While the Qwest debacle bruised Mr. Anschutz’s reputation, his deal-making has not slowed down. In his latest act, he is now the biggest backer of professional soccer in the United States, having recruited the British star David Beckham with a five-year, $27.5 million package to play for the Los Angeles Galaxy, the highest-profile of Mr. Anschutz’s three soccer teams.

He has also started free newspapers to challenge local media incumbents like The Washington Post, and he controls America’s largest theater chain ...

Mr. Anschutz’s senior managers say he is confident that he can convert one of the world’s last big non-soccer-crazy nations to the sport, while also influencing the type of films that Hollywood produces. ...

“Twenty years ago, you would have won an enormous amount of money with people who would have bet you that he would not touch the entertainment industry,” says Tim Leiweke, one of Mr. Anschutz’s chief lieutenants, who runs AEG, Mr. Anschutz’s entertainment and sports enterprise, based in Los Angeles. “But it does follow a pattern. He has an unbelievable gut instinct for what is about to come (good).” ...

Like his older sister, Sue Anschutz-Rogers, Mr. Anschutz was raised in Kansas, enveloped by their father’s passion for real estate and oil.

“My father had a real knack for buying ranch land which also became a successful oil field,” Ms. Anschutz-Rogers recalled in an interview with a Denver historian. “As a girl, I would go out with him to check on oil wells and sit there on the wellhead with him, waiting hopefully for it to come in.” ...

He currently owns three ranches, and his affinity for land has lasted throughout his life. “I have always had faith in real estate,” he said in the Colorado historical society interview, one of the few forums in which he has offered on-the-record recollections about his life and career.

In 1980, Amoco discovered major oil and gas reserves in Wyoming, abutting the Anschutz Ranch East — a discovery that meant Mr. Anschutz was sitting on one of the biggest oil finds in decades. In 1982, as the oil market was booming, he sold half of his holdings to Mobil Oil for $500 million. “Anschutz was ahead of the curve because he got out before oil prices hit 10 bucks a barrel,” said Ron Rizzuto, a business professor at the University of Denver, of the subsequent price drop that crushed the oil market. “It was brilliant timing.”

Two years later, already having diversified into mining and Denver real estate, Mr. Anschutz latched onto railroads — deeply unfashionable relics from the 19th century. He bought a small local railroad before acquiring for $1.5 billion the vast Southern Pacific railroad, which had been slammed by years of underinvestment and competitive pressure from trucking.

“We got it on Oct. 13, 1988, and by January we realized we had a terrible hole,” said Robert F. Starzel, a lawyer who worked for the Anschutz Company for three decades. “We had negative cash flow of $450,000 a day.”

Mr. Anschutz moved to San Francisco, Southern Pacific’s home, for five days a week, taking a room in the Hyatt, and forced Southern Pacific to modernize its systems and controls. He also extended the line’s geographical reach to Chicago, while selling off $2 billion in other unwanted routes and real estate. He took Southern Pacific public in 1993 and then merged it with Union Pacific three years later in a $5.4 billion deal. He still owns slightly less than one percent of Union Pacific, a stake worth around $273 million, and until last year had a seat on the board.

Mr. Starzel, who is one of Mr. Anschutz’s closest friends, says that the mogul enjoys taking aggressive, all-or-nothing risks. “His father was a real deal maker — he took Phil around as a young child to show him how deals were made,” Mr. Starzel says. “One of Phil’s requirements in life and business is to have a number of things going at the same time because he recognizes that any one or two might fail.”

Southern Pacific owned a small unit that laid fiber-optic cable beside railroad tracks for other companies, a business that Mr. Anschutz decided to expand. After banks refused to back the expansion, he created a separate company, SP Telecom, that included the fiber-optics business and the railroad’s rights of way that allowed him to lay cable along Southern Pacific’s route. That company eventually became Qwest, a darling of the late ’90s Internet boom; Mr. Anschutz took it public in 1997 in a $297 million offering.

“He didn’t claim to know telecoms, but it was an asset, the rights of way, that he thought that he could make a little bit of money on,” says Dan Reingold, a former telecommunications analyst.

A little bit of money, indeed: by 2000, Mr. Anschutz’s fortune, enhanced by Qwest stock, had grown to more than $15 billion.

Mr. Anschutz took Qwest public a year after the entire telecommunications business was deregulated, causing the industry’s overall fortunes to soar. To move things along, he hired Mr. Nacchio, a top AT&T salesman, to steer Qwest’s growth. Together in 2000, Mr. Nacchio and Mr. Anschutz won a $43.5 billion all-stock bid for U S West, the Denver-based telephone company whose cash-rich coffers provided the money to pay for the expansion of Qwest’s network. Qwest also took on piles of new debt.

AND that’s when the bubble began to burst. Use of the Internet did not expand as quickly as they had anticipated, and new compression technology meant that voice and data traffic could be carried by using a small fraction of the capacity of the cables that Qwest had laid down, so much of that expensive new network went unused.

As the entire telecommunications sector came under siege amid missed revenue goals and overly rosy financial projections, Qwest’s share price crashed from a peak of $66 in March 2000 to just over $1 by August 2002. In October 2003, Qwest revised downward by $2.48 billion its revenue for 2000 and 2001. The next year, it paid $250 million to settle Securities and Exchange Commission fraud charges without denying or admitting guilt. (Mr. Anschutz recruited a new chief executive to replace Mr. Nacchio; Qwest stabilized and was profitable for the first time in 2006. Its shares currently trade at $8.88.)

The Qwest sell-off lopped billions of dollars from Mr. Anschutz’s fortune and, analysts say, may have harmed his reputation. ...

When Qwest’s fortunes first began slipping, Mr. Anschutz had already embarked on another venture — in movie theaters. In 2000 and 2001, he bought three bankrupt theater chains — United Artists Theaters, Regal Cinemas and Edwards Theaters — with a partner, Oaktree Capital Management. Like the railroads, the theater business was in disarray because chains had overspent by building new sites with stadium-style seating.

Mr. Anschutz bought the companies’ debt, converted it to stock and used bankruptcy procedures to break the theaters’ property leases and shutter underused theaters. He rolled the three chains into a single entity, the Regal Entertainment Group, which now has 6,386, or 18 percent, of screens in the United States. It went public in 2002, in a $342 million public offering; the theaters have returned to profit although their earnings have not been stellar and the stock has traded erratically.

Mr. Anschutz’s team continues to work on a turnaround. They have found ways to fill theaters with alternative events when films are not showing, like networked business meetings and broadcasts of live shows. The Metropolitan Opera in New York is showing live operas on its screens, and Regal theaters are also offered as places for worship to faith-based organizations. (Religion is a pillar of Mr. Anschutz’s life, friends say; a Presbyterian, he attends church services regularly with his family.)

Regal’s biggest innovation has been the introduction of national advertising before the feature presentation. “Theaters were already selling advertising, but because they were not national, they were attracting local car dealers,” says Marla S. Backer, an analyst at Soleil — Research Associates. “But now all of those cinemas together can bring in national advertisers.”

All of this, associates say, reflects Mr. Anschutz’s modus operandi. “What he tends to do is buy at the right price, and makes sure there is something else you can do with the asset you are buying,” says Kurt C. Hall, who runs Regal’s advertising arm, a joint venture with two other companies; it was spun off this year. ....

That year, Mr. Anschutz and a partner bought the bankrupt Los Angeles Kings hockey team for $113 million; in 1998, they bought a stake in the Los Angeles Lakers basketball team. That same year they also broke ground on a new Los Angeles sports arena, the Staples Center. Today, the Staples Center is anchored by Kings and Lakers games, and AEG makes money from, among other things, ticket sales, merchandising and sponsorship. It fills out the days when the teams aren’t playing with concerts and shows.

AEG is now developing a $2.5 billion, four-million-square-foot entertainment district around the Staples Center called L.A. Live, which will include hotels, restaurants and Regal theater screens. AEG is deploying the same model as it builds entertainment complexes overseas, in central Berlin and in east London at the Millennium Dome. Mr. Leiweke says AEG also has plans for “something” soon in Asia, although he won’t be more specific.

THE sports and entertainment platforms that Mr. Anschutz has developed are also a launching pad for what analysts say is his biggest gamble yet: the rollout of soccer as a major American sport, starring one of the game’s thoroughbreds, David Beckham.

Mr. Anschutz initially became interested in soccer, associates say, because he sees it as family-friendly, something that parents and children can play and watch together — a view that offers one of the more public instances in which Mr. Anschutz’s business and personal interests overlap. ...

IF Mr. Anschutz sees an underappreciated asset in soccer, he sees the same in another out-of-favor business: newspapers. He had long had an interest in newspapers, according to Mr. Starzel, whose own father worked for The Associated Press, and they had many conversations about the industry.

In February 2004, Mr. Anschutz bought The San Francisco Examiner. Like many other newspapers, The Examiner had falling readership and advertising. But Mr. Anschutz saw an opportunity to create a low-cost newspaper model that better served local readers and advertisers, which he thought traditional papers were ignoring.

“We decided there continues to be a big appetite for news and information, especially local news and local information, and news that has some use to it,” said Ryan McKibben, a former Denver Post publisher who now heads the Anschutz Company’s media division, which includes its newspapers and related Web sites.

Later in 2004, Mr. Anschutz bought Journal Newspapers Inc., publisher of three suburban dailies in the Washington area, and renamed them The Washington Examiner. Last year he opened another paper, The Baltimore Examiner. His publications are free and are mostly delivered to homes. Home delivery is the best way, Mr. McKibben says, to reach readers that advertisers most desire: 25- to 54-year-olds with household incomes of more than $75,000. All the Examiner papers use census data to target those readers, and Mr. McKibben said the papers’ low overhead (staff sizes are small) means that they can charge advertising rates that are 40 percent to 50 percent lower than those of incumbent newspapers.

Mr. Anschutz has trademarked The Examiner name in 63 other cities in the United States and already has Web sites covering 20 of them. Mr. McKibben says the Examiner papers are not trying to steal readers from city dailies like The Washington Post, but are seeking new customers who have not previously read newspapers.

Mr. Anschutz’s papers are still small. The San Francisco Examiner, for example, has a circulation of just 200,000 (including 150,000 by home delivery), Mr. McKibben says, while the Washington paper has a circulation of 260,000 (210,000 by home delivery). The papers favor short articles and wire copy, but Mr. McKibben notes that they have also successfully hired veteran reporters. Even so, some question the papers’ journalistic and financial merits.

“They do not strive to be high-quality,” said Sammy Papert, chief executive of Belden Associates, a newspaper consulting firm. “There are new audiences, certainly, but what is less certain is whether the financial underpinnings are solid.”

Mr. McKibben defends the quality of his papers and says they are designed to meet the needs of the market they serve. He declined to discuss the papers’ finances, but said that a recent audit indicated that readers were spending time with the publications.

Leaving no business stone left unturned, Mr. Anschutz has also plunged headlong into filmmaking.

In a speech at a leadership seminar in Naples, Fla., in 2004, Mr. Anschutz explained why he’s gone Hollywood. He said that digital production and distribution were upending the film business, opening opportunities for entrepreneurs like him. He also said that he believed that Hollywood had wandered too far away from mainstream tastes by misreading “the market and the mood of a large segment of the movie-going audience today.”

“Why can’t movies return to being something that we can go and see with our children and our grandchildren without being embarrassed or on the edge of our seats?” he asked.

His corporate answer to that question is Crusader Entertainment, which he set up in 2000 (later renaming it Bristol Bay Productions). Its first film, “Joshua,” was about a Christ-like figure in modern rural America. In 2001, he invested in Walden Media, a production company that specializes in family films. Micheal Flaherty, Walden’s co-founder, says the company makes movies based on existing stories already popular among children; Walden does market research in schools to unearth stories that children find fetching and markets its films as educational material to teachers and librarians.

Some of Mr. Anschutz’s early films flopped, but he has also enjoyed some notable successes. ...

How long will I live?
A distraught senior citizen phoned her doctor's office.

"Is it true," she wanted to know,

"that the medication you prescribed has to be taken for the rest of my life?"

"Yes, I'm afraid so," the doctor told her.

There was a moment of silence before the senior lady replied, "I'm wondering, then, just how serious is my condition because this prescription is marked 'NO REFILLS'."

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 my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
Go back.