Technology Investor 

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

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8:30 AM Monday, December 19, 2005: Think tax losses. If you realized gains this year you may have expensive ordinary income. Hence now is a good time to get rid of some dogs. A by-product of tax-loss selling is that some "dogs" are being unloaded. Their prices are declining. Soon some will become a good buy as they will surely pop in the New Year. I'll give some examples of "good buys' as the end of the year gets closer. It's called the January Effect. All the people who sold stocks for tax-loss selling towards the end of the year now wait 31 days, then buy their stock back and start all over again.

My friend Jack Burns, broker: His advice today:
+ Buy dividend stocks, the government is giving you a deal at 15% taxation

+ Sell covered calls against low beta blue chips in an IRA. Not many people know you can.

+ Max out your IRA and 401-k's. The government is telling you it might not be there to help you when you retire.

+ Hold stocks for the long term (if you can). Tax make more sense.

+ Use disciplined stop losses, 7 to 8%. Live to see the next day. (Harry's note: I've always pushed 15%. Jack's lower number makes sense in today's volatile market.)

+ Albert Einstein said the best invention ever was compound interest. (So did my father.)

The Cramer pop: He hypes it. The following day it pops, then drops. Here are the charts on the two stocks he pushed most on Thursday night. You could have made money trading them -- buying on opening, then selling an hour or so later. If you hung on through the day, however, you had a 50-50 chance of losing money. Up with Sara Lee (SLE). Down with Cummins (CMI) I'm not recommending you play this game, simply commenting on it.

How retailers are conspiring to part you from your money: In the current issue of Psychology Today, Michelle Bryner reveals some tricks of the trade:

+ "Most shoppers turn right, probably because most are right-handed. The right-hand thoroughfare attracts the highest traffic anywhere in the store. It is the perfect location for high-profit merchandise."

+ Stores like Target and Old Navy that provide a shopping cart or basket to hold potential purchases sell more than those that don't.

+ Shoppers tend to move quickly through stores. To slow them, retailers provide mirrors wherever they can "because most people like to check out their hair as much as they do the clothes."

+ Those neatly folded piles of clothes intimidate some shoppers, who are afraid of messing up the stacks. So today's salespeople are trained to leave a few items unfolded, encouraging shoppers to look and touch.

+ The best place to put the cosmetic counter is across from the shoe department. Waiting for their size, shoppers are a captive audience.

The rise of organized middle eastern crime in Australia: The article starts "I BELIEVE that the rise of Middle Eastern organized crime in Sydney will have an impact on society unlike anything we have ever seen." It was published in early 2004. It's written by a now-retired detective. It tells the story of a society trying to do "the right thing," but taken advantage of by a bunch of imported thugs. Read it. It's fascinating and totally prescient, given the recent race riots in Sydney, my birth place. Click here.

How to get TiVo'ed shows onto a DVD:
Burn your TiVo DVD as a "data DVD." You won't be able to play it in your DVD player (the one attached to your TV set, but you will be able to play it on any PC. In case you missed it, on Friday I showed you how to program your TiVo remote to fast forward 30 seconds at a time. Click here.

One of the best financial journalists in the country: OK. I'm a James Surowiecki fan. He writes The Financial Page for the New Yorker magazine. He's also written several books. This man is smart. Here's his latest piece in the New Yorker. It explains what's happening with Research in Motion (RIMM) and its present patent fight. Fascinating:

Since it was introduced, in 1999, the BlackBerry, a handheld device that provides wireless e-mail access, has become not only an enormous financial success—nearly three million Americans now use one—but also the quintessential symbol of today’s connected world. Last month, though, it became clear that a patent-infringement case could force the BlackBerry’s manufacturers, a Canadian company called Research in Motion, to kill the service in the United States by the end of the year. Then the BlackBerry will become the quintessential symbol of something else: a patent system that is out of control.

The trouble for R.I.M. started in 2001, when it was sued by a small Virginia company called N.T.P. for infringing on five patents that described the design and operation of a primitive wireless e-mail network. In 2003, a judge granted an injunction saying that R.I.M. needed to cut a deal with N.T.P. or shut down the BlackBerry service. R.I.M. appealed, but to no avail. The injunction is still in place, and R.I.M.’s only chance of keeping the BlackBerry alive is to pay N.T.P. an enormous ransom—informed estimates run as high as a billion dollars. What’s more, there’s speculation that, once R.I.M. settles, N.T.P. could go after the cellular companies—Cingular, T-Mobile, and so on—that offer the BlackBerry.

Fair enough, you might say. After all, we want to reward innovation and protect people from having their ideas stolen. Unfortunately, the real innovations in this case are not technological but legal. N.T.P. is a company without employees or products. It never tried to build a real business around its patents, and it never licensed them to others, until R.I.M. demonstrated just how lucrative wireless e-mail could be. No one alleges that R.I.M. used N.T.P.’s patents to build the BlackBerry; it invented its system from scratch. N.T.P., holding the patent on an idea and a crude design, waited until another company created a successful business based on similar ideas, and then headed to court. It is not alone in such endeavors. There are many companies, known unaffectionately as “patent trolls,” that thrive by suing other companies. Close to three thousand multimillion-dollar patent lawsuits (some valid, some questionable) are now filed annually—a number that has more than doubled in the past fifteen years—and many of them rely on what a federal judge termed “a combination of blitzkrieg and Shermanesque tactics.”

Over the past two decades, the U.S. has taken the view that the stronger patents are, the better. But patents, by their nature, are imperfect. They may encourage innovation, but, by allowing the patent holder complete control of an invention, they also limit it. Patents reward some inventors at the expense of others: more than one person can have an idea, but only one can patent it. That may be why, in a study of a hundred and fifty years of patent protection, Josh Lerner, of the Harvard Business School, found that countries that introduced stronger protections for patents saw no increase in innovation by their citizens. Similarly, in a study of nineteenth-century innovation based on data from two World’s Fairs, Petra Moser, an economist then at Berkeley, found that countries with patent laws (like Britain) did not innovate more than those without them (like the Netherlands and Denmark).

Protecting patent holders’ rights is important, of course, but the system needs to be rigorous in the way it hands out patents—careful not to grant patents for ideas that are obvious, already well established, or too broad. And it needs to be nuanced in matters of enforcement, weighing the interests of society alongside those of the patent holder. The U.S. fails on all counts. In the first place, too many patents are granted. According to a recent National Academy of Sciences report, ninety-five per cent of all patent applications in the U.S. are approved, compared with just sixty-five per cent in Europe and Japan. Understaffing at the United States Patent and Trademark Office—there are thirty-four hundred examiners and three hundred and fifty thousand applications a year—means that patent examiners don’t have enough time to properly research an idea’s originality. And since the office is funded by patent fees, as opposed to getting its budget from Washington, it has a financial incentive to process applications as quickly, rather than as diligently, as possible. (Generally, examiners spend somewhere between eleven and twenty-two hours per patent, and no extra time is allocated for commercially significant applications.) The appellate court responsible for patent cases also tends to be patent-holder-friendly. Injunctions of the kind that N.T.P. got against R.I.M., for instance, are usually employed only to prevent “irreparable harm,” but in patent cases they are now routine.

Patents, then, have never been easier to get or more lucrative to hold. Unsurprisingly, people have been patenting everything in sight. Since 1980, the number of applications has tripled, and the number of patents granted has nearly quadrupled, effectively allowing patent holders to rope off more and more of the economy, even though the quality of patents has been steadily declining. (A recent Federal Trade Commission report warned that “questionable patents are a significant competitive concern and can harm innovation.”) The BlackBerry mess is a case in point: in the past year, the Patent Office has reëxamined N.T.P.’s eight patents, and issued preliminary rulings declaring them, and the nineteen hundred claims they contain, invalid. Until those patents are formally invalidated, however, R.I.M. is still on the hook, so it may end up paying for infringements that it never committed. Now, that’s innovative.

Home improvement revisited:
A newlywed couple wanted to join a church. The pastor told them, "We have special requirements for new parishioners. You must abstain from sex for one whole month."

The couple agreed and, after two-and-a-half weeks, returned to the Church. When the Pastor ushers them into his office, the wife is crying, and the husband is obviously very depressed.

"You are back so soon...Is there a problem?" the pastor inquired.

"We are terribly ashamed to admit that we did not manage to abstain from sex for the required month," the young man replied sadly.

The pastor asked him what happened.

"Well, the first week was difficult. However, , we managed to abstain through sheer willpower. The second week was terrible, but with the use of prayer, we managed to abstain. However, the third week was unbearable. We tried cold showers, prayer, reading from the Bible...anything to keep our minds off carnal thoughts. One afternoon, my wife reached for a can of paint and dropped it. When she bent over to pick it up, I was overcome with lust and had my way with her right then and there," admitted the man, shamefacedly.

"You understand this means you will not be welcome in our church," stated the pastor.

"We know," said the young man, hanging his head, "We're not welcome at Home Depot, either".

Recent column highlights:
+ Dumb reasons we hold losing stocks. Click here.
+ How my private equity fund is doing. Click here.
+ Blackstone private equity funds. Click here.
+ Manhattan Pharmaceuticals: Click here.
+ NovaDel Biosciences appeals. Click here.
+ Hana Biosciences appeals. Click here.
+ All turned on by biotech. Click here.
+ Steve Jobs Commencement Address. The text is available: Click here. The full audio is available. Click here.
+ The March of the Penguins, an exquisite movie. Click here.
+ When to sell stocks. Click here.

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. 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.
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