Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
Auction Rate Preferreds.
9.00 AM EST Friday, April 25, 2008: Yesterday
was my day of living my life through my kids. Fortunately they're both in Boston.
I stayed one night with Michael, went to class with him, played tennis with
him, exercised at the gym with him, had meals with him and generally "hung
out." That's the new fashionable term. Then I went to Claire's, had dinner,
stayed with her and loped to an early morning train back to New York.
report: They're both happy and on track.
you're at school, the path to success is defined. When you're one year out of
law school, in your first job, and just married, your path is also well-defined.
It's when you get older that things get hairy. There are choices. Some are not
clearcut. The first criteria has to be what turns you on, not what you're
forced to do. Happiness comes from accomplishment, not from comparative wealth
(though that conclusion is prominent among economists today). Since I go for
accomplishments, not wealth, my job, as father, to provide them best framework
for accomplishment and steer them towards what gives them great accomplishments.
They're both on
track to great accomplishments and hence, great happiness. Hence, I'm happy.
Yesterday's checkup was 100% positive. I'm teary this early morning. May I wish
my present joy on all fathers.
are safe? Yes and No. I've dilly-dallied with muni bonds and treasurys
for 10 years. Conventional wisdom says that, as you get older, you should have
more of them. Bonds offer three benefits for the aged.
1. They're safe. The issuer won't default. You'll never lose all your principal.
You can everywhere else. Trust me on this one.
2. You'll get a steady income. If you own enough bonds, you can live on that
3. You can always
sell them. The market for muni bonds is bigger than the market for stocks. I
have no idea how big the market is for treasurys. But it's got to be gigantic.
Perhaps the biggest of them all.
go up and down in price. That means they're unlike savings accounts or CDs at
banks, where your principal always stays the same. The best way to own
a bond is to buy it and hold it to maturity, i.e. when the issuer gives you
your money back. When you buy a bond and decide to hold it to maturity, they'll
tell you what you'll earn in interest each year -- i.e. the yield. This calculation
will take into account the price you pay. You may pay more or less than "par,"
typically $100. But, if you hold it to maturity, your yield is assured.
Let's say you
want to sell the bond before it matures. Maybe you need the money to buy a new
house. At that point you may find your bond is selling for less than
what you paid. What happened? Same thing as on the stockmarket. Fewer people
want your bond. The old law of supply and demand. What causes bonds to drop
in price is when interest rates rise. There's an inverse relationship
between yield and price. When one goes up, the other goes down and vice versa.
Once interest rates were stable. No more. No they fluctuate wildly as the world's
reserve banks try to fine-tune economies by messing around with interest rates.
And worse, now the hedge funds see bonds and treasurys as prime target for speculating.
All this makes investing in bonds harder -- unless you plan on holding them
to maturity. You can buy different maturities, which is called "laddering."
these bond thoughts was this morning's Bloomberg story:
April 25 (Bloomberg)
-- Japanese government bonds tumbled, causing the biggest jump in five-year
yields in nine years, after inflation accelerated, global stocks climbed and
the dollar rallied against the yen.
futures plunged as much as 1.8 percent, forcing the Tokyo Stock Exchange to
order a 15-minute halt in trading for the first time since September 2002.
The statistics bureau said consumer prices climbed 1.2 percent from a year
earlier in March, adding to speculation the Bank of Japan will increase its
target interest rate this year.
is in a bit of a panicked state,'' said Masahiro Sato, joint general manager
of the treasury division at Mizuho Trust & Banking Co. in Tokyo, a unit
of Japan's third- biggest lender. ``I can't say how far Japanese bond yields
will rise, because they've already broken through my forecast levels and the
selling pressure could snowball from here.'' ...
Is now a good
time to buy bonds? If you're buying for maturity and you're happy with today's
yield, be my guest. If you wait a month or so, the Fed will probably raise rates
(to counter our rising inflation) and bonds will become cheaper.
the riskiness of bonds. There have been many times in recent years where if
you had a bought a bond -- muni or treasury -- and sold it a year later, you
would have lost money, even including the interest you got paid. In other
words you lost more on the principal than the interest you received. That would
have been a stupid investment. (I've been there. Done that.)
There are some
people who believe that no one should own bonds and you'll always do better
in the stockmarket, despite its ups and downs. They opt for safety in equities
by buying index funds.
comes down to how much pain you can tolerate? If stocks drop for a year or two,
will you panic a lot, or a little? How much you panic and how much you need
current income from your investments determines the size of your bond portfolio.
As I grow older, I tend to like less panic, more cash. And that means more bonds.
I just need to learn to buy them when interest rates are high. For that's when
their prices are lowest.
Investing makes huge sense: My oil stock guru,
Jim Kingsdale, writes Energy
Investment Strategies, a web site devoted
to everything you wanted to know about investing in oil and gas. He knows what
he's talking about. He's done super-well. But energy is not the foundation
of his investment philosophy. It's something he calls Tsunami Investing. And
it's makes brilliant sense. Here are the words from Jim's excellent web site:
Investing by Jim Kingsale
style has always featured a concentration in one or a few sectors with powerful
growth dynamics. For many years I focused in the area of my prior business
experience, cable television. I built and operated a cable company from 1975
through 1996, when I sold the last piece of it. I became a professional
investor out of necessity in 1989, having sold the bulk of my cable TV assets.
Starting in 1996, when the EIS account was first funded, investing became
our only source of income.
My early investing
years seemed not to have any general organizing philosophy. But a recent analysis
showed that my investment decisions have always been guided by a set of beliefs
that I now call Tsunami Investing. It consists of concentrating
on economic sectors that are experiencing long term significant growth that
relate to my background and skillsets. Not all businesses are comprehensible
to me. For example, biotechnology is in a long term growth trend and probably
will be for many decades to come. But I cannot evaluate the sciences of biotechnology.
The same is true of the huge computer and Internet industries. When I have
invested in such fields, I have generally lost money.
On the other
hand, luck has allowed me to directly participate in three industries from
their infancy through to their maturity - mobile homes, cable television,
and cellular telephony. Each has had enormous impact on investors and on society.
Investors who participated in them over long time periods - say, a decade
or longer - created significant personal wealth. Each industry benefited from
a super-powerful, long-term trend, a Tsunami. Participating in
these businesses has shaped my investment outlook. It has convinced me that
Tsunami Investing offers superior rewards at surprisingly low levels of risk.
The risks of
Tsunami Investing are macro-economic, effecting nearly all investors, and
not particular to a given Tsunami. That is, when something occurs, like a
recession, that causes all stocks to decline, Tsunami stocks decline too,
regardless of their excellent long term prospects. In fact, Tsunami stocks
often decline more rapidly than the market as a whole during general market
downturns. To mitigate this risk one should avoid becoming too leveraged.
Leverage is unnecessary for achieving excellent returns when one is invested
in businesses that themselves have outstanding growth potential. And leverage
can cause such emotional reactions when the portfolio undergoes its inevitable
periods of decline that you can lose your whole position. This is a lesson
I have learned through much painful experience.
One of the benefits
of the energy Tsunami is the great breadth and the enormous scope of energy-related
businesses and therefore the opportunity to diversify to some extent while
still maintaining the energy theme. On the other hand, since most energy-related
companies will be effected in the same way by changes in the prices of oil
and natural gas, investments outside the energy area are also required to
obtain true diversification.
Why the Energy Sector?
If you can find
a sector undergoing a long term trend, you are by definition looking at a
potential investment opportunity. If that sector is one of the most important
in all of the economy, and if its growth is based on a scientific certainty
and if the price to earnings multiples of many stocks in that industry are
reasonable, you have identified an enormous opportunity. Thats why I
began to focus on energy.
In 2004, it
dawned on me that the world will run short of oil one day, probably within
the foreseeable future. If that was true, the implications were enormous.
I became a student of energy. I read books and blogs and news reports - everything
I could find - to learn about the history and technologies of producing and
distributing energy. My interest level grew with my knowledge of the field
- to the point that energy is now one of the primary lenses through which
I view both investments and the world at large.
The best ways
to invest in the energy space came into focus slowly. I began to buy companies
that produce oil and gas. Then I discovered opportunities in industries that
provide equipment and supplies for the discovery, drilling, maintenance, and
optimization of oil and gas harvesting. Eventually alternative energy companies,
and those in various energy conservation businesses presented themselves.
I became aware of the multitude of interlocking relationships between energy
and the total economy. Over time I became convinced that the changing energy
mix is the most powerful investment Tsunami likely to present itself during
my lifetime, perhaps ever, more powerful than were mobile homes, cable television,
or cellular telephony - nearly comparable with the power of the Internet itself.
are not to be outdone
So as not to be outdone by all the redneck, hillbilly, and Texan jokes, you
know you're from California if:
1. You make over
$300,000 a year and still can't afford a house.
2. Your child's
3rd-grade teacher has purple hair, a nose ring, and is named Flower.
3. You've been
to a baby shower that has two mothers and a sperm donor.
4. A really great
parking space can move you to tears.
5. Gas costs $1.00
per gallon more than anywhere else in the U.S.
6. Your car insurance
costs as much as your house payment.
7. Both you AND
your dog have therapists.
8. The Terminator
is your governor.
9. If you drive
illegally, they take your driver's license. If you're here illegally, they want
to give you one.
to look forward to...
My elderly neighbor and his wife were told there would be a 45-minute wait for
a table at a local restaurant.
'Young man, we're
both 90 years old,' the husband said. 'We may not have 45 minutes.'
They were seated
My husband and I divorced over religious differences.
He thought he
was God, and I didn't.
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 on this site. Thus I cannot endorse, though some look interesting.
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you do. That money, if there is any, may help pay Michael's business school
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here and here.