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Newton's In Search Of The Perfect Investment. Technology Investor. Previous Columns
8:30 AM Tuesday, April 26, 2005: One in a hundred. That's the ratio my real estate friends find. Look at 100 deals. Say NO to 90+. Bid on five to eight. Succeed in one. It works with real estate because it's not a perfect market. Real estate prices are not listed on a national Internet-accessible market for everyone and his uncle to see. Someone selling something cheap in a hurry can't alert the world to his bargain.

One in a hundred also applies to new startups. The good news is that new startups are coming out the woodwork with increasing frequency. I'm looking at several this week. (My skills on saying NO are proving most valuable.) One of the best things I've got going at present is a small network of friends who, like me, have a little money to invest and are always searching for that perfect investment. We're able to help each other. Sample. We're looking at a specialty retailer which is raising $4 million. My friend laid out a bunch of neat questions for the company: including:

+ Please share with me your rationale for the step-up in valuation.
+ Please send me historical and projected sales by store.
+ Please discuss why you believe the Company will be cash flow self financing post $4 million raise.
+ Please discuss the Company’s new store strategy and how it selects markets and specific locations.
+ Are any of the store locations a mistake?
+ How has the Company’s marketing plan changed since inception?
+ Who are the Directors and what control do they have over management?
+ What is your exit strategy?
+ What is the compensation program for management and Directors?

Hard questions, but not untypical of the work necessary to check out a potential investment.

My timing sucked on Zimmer and Stryker. But my logic didn't. Remember I recommended buying them one day. Then the next day, the government said it was investigated their relationships with their doctor customers. Then the stock plummeted. But it's since recovered. Last night Zimmer reported 70 cents a share, up from 40 cents -- helped by strong knee implants. Heah.. My stocks can always use a leg up.

The real estate boom continues. Six months ago my friend bought 242 acres, a slightly run-down house and a nice barn for $2 million. Yesterday he agreed to sell it for $3 million. What's amazing:

1. He hadn't put the property back on the market.
2. It's in upstate New York where we have not seen irrational exuberance.

His logic. He bought the house and barn for $1 million. He got an acre of land for under $5,000. The going price for land (in smaller lots) in the neighborhood is around $10,000. Thus he got a bargain. He actually figures the new buyer also got a bargain.

The moral of this story: There are deals everywhere. By having cash, my friend was able to grab the property quickly. The key is maintaining a deal flow. My friend has great relationships with local brokers, who feed him handsome opportunities -- but, in return, expect him to move quickly. Which he does.

Hooked on Cramer: I plead guilty. I like Jim Cramer's new CNBC show, Mad Money, which runs daily at 6 PM. I TiVo it, so I can watch it when I want to. Despite his irritating personality, he remains the only TV show host, who actually knows what he's talking about. Last night, he talked about three stockmarket booms:

1. The airplane makers. UAL has a deal with the government to get rid of some of its pension liabilities. That means it will buy more planes from companies like Boeing.
2. Oil. The Valero takeover reflects that boom.
3. Paid search. Cramer owns Yahoo! but was pushing his viewers into Google, which he figures is cheap compared to Yahoo! He's probably right. But who has the stomach for Google at $223, sporting a P/E ratio of 90?

I like this logic. I hope he's right.
John Mauldin writes:

"$100 oil is not the problem, it's the solution, as converting to new energy sources is a huge growth dynamic. The need for new and cheaper sources of energy will compel all sorts of innovation and new invention. The steam engine was basically developed to pump water out of coal mines, as England needed new forms of energy to substitute for dwindling forests. Yet the collateral uses propelled the British Empire to its peak of economic power. Think of the resources and the money and the innovations that will come to play with the development of a new energy paradigm for the world."

China is the place to be: No question that China is the place to have some money. I don't know how. But I know that with China's currency about to be upvalued, there's a definite pop there. Latest: China is gearing up to sell cars to the U.S. That will be neat.

Cockroach stock AIG must continue its slide: There's too much bad, unusual stuff coming out regularly about the company. Here's the latest. From today's New York Time,

"American International Group, the insurance giant under scrutiny for using transactions to improve its financial condition, has uncovered at least $1 billion more in accounting problems, people briefed on the company's investigation said yesterday. But the number is fluid, the people said, and could ultimately turn out to be higher as the investigation continues."

And from today's Wall Street Journal:

"A report by lawyers for American International Group Inc. and its board raises serious questions about the integrity of AIG's financial-reporting systems, including checks and balances in the accounting process at the behemoth insurer, according to people knowledgeable about the matter. The report into the company's accounting indicates that recently retired Chairman and Chief Executive Maurice R. "Hank" Greenberg and dismissed Chief Financial Officer Howard I. Smith oversaw critical aspects of the company without certain financial and accounting controls in place to oversee their work, according to the knowledgeable people. The company's accounting has been under scrutiny in recent months by multiple state and federal regulators. Mr. Greenberg hasn't seen the draft report, according to one of his lawyers, but "looks forward to addressing the issues." Mr. Smith's lawyer couldn't be reached for comment late yesterday. The internal AIG report, more than 150 pages long, doesn't contain a specific red flag, but points to various ways that top management ran the company without controls, according to the people familiar with it. The report's authors note that a few employees declined to cooperate, leaving some gaps in the internal probe's findings, according to one of the people familiar with it."

And here's what the chart looks like. As I've written before, it will fall more.

Today's best statistic: 23% of all photocopier faults worldwide are caused by people sitting on them and photocopying their rears.

Smell the roses department: My dear friend Dan Good is on his early morning jog in the desert of California's Coachella Valley. Writes Dan, "I was mesmerized by the bright light from the full moon shinning down on desert in early morning twilight. I had to snap the photo to share it with everyone. Quite a humbling experience."

The Coachella Valley, California, 5:57 AM yesterday. Photo by Dan Good

Sometimes CNBC is amusing: Squawk Box host Mark Haines had a guest yesterday who delivered unsettling news. At the end of the presentation, Haines commented, "I'm puzzled. Do I shoot myself? Or do I shoot him?"

All about Passover, which we're in the middle of:
Passover is the eight day observance commemorating the freedom and exodus of the Israelites (Jewish slaves) from Egypt during the reign of the Pharaoh Ramses II.
A time of family gatherings, songs, customs and lavish meals called Seders, the story of Passover is retold through the reading of the Haggadah. Passover begins on the 15th day of the Jewish month of Nissan. As the Jewish day begins at sundown the night before, for the year 2005, the first night of Passover was April 23rd.

The real story of Passover:
Nine year old Joey, was asked by his mother what he had learned in Sunday school.

"Well, Mom, our teacher told us how God sent Moses behind enemy lines on a rescue mission to lead the Israelites out of Egypt. When he got to the Red Sea, he had his engineers build a pontoon bridge and all the people walked across safely. Then, he used his walkie-talkie to radio headquarters for reinforcements. They sent bombers to blow up the bridge and all the Israelites were saved."

"Now, Joey, is that really what your teacher taught you?" his mother asked.

"Well, no, Mom. But, if I told it the way the teacher did, you'd never believe it!"

Harry Newton

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. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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