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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 Wednesday, December 28, 2005: Stockmarket indexes have their own poison. The Dow, with only 30 large stocks, was flat in 2005, pulled down by some big company failures. But Nasdaq, heavy with tech stocks, is up nearly 8%. The S&P 500 and Russell 2000 are up 4-5%.

Other investments performed much better. My real estate lending returned 14%+. My commodities fund is up 26%. My two hedge funds are up 20%+. My BIG return this year has come from real estate, with some properties showing returns of well over 30%. Some time next week I'll figure the precise numbers. Meantime, the major lessons are:

1. If you're buying an index fund, it matters which index. The four above performed differently.
2. Diversification clearly pays.
3. Diversification is not what Wall Street spoon feeds American investors -- stocks, bonds and cash.
4. Diversification is hard work. You have to actively search for alternatives. That means asking your friends, reading, reading and more reading. It means doing your due diligence. And it means acting quickly. Decent investments are getting scarcer and scarcer.
5. Prediction works broadly. It would have been stupid to bet commodities in general or energy in particular was going to fall in 2005 (though some hedge funds did). But which commodities? I look at my commodities funds' holdings. Energy was up 33.4%, but industrial metals -- aluminum, copper and nickel -- were up 40%, buoyed by copper's 77.9% explosion. You can't predict. But you must be there in some way to benefit.
6. You can't measure some investments -- like private equity and leveraged buyout funds -- because you simply can't tell until they've sold everything. And that takes years. Diversification also means a portfolio of investments with different time spans. That's something Wall Street doesn't teach either. With them it's typically Buy, Hold and Sell when the world changes -- as it did this year for newspaper stocks.

The first thing you learn on a skiing vacation with your son. A 63-year old father can't keep up with a 23-year old son. If the father tries, his back will collapse, his legs will ache, his ankles will scream and his body will crumble. To my credit, I'm still alive. That's about all I can say this morning. Yesterday was my BIG test. My son -- God bless him -- decides he'll take the old man (that's me) down a double black in the far distant bowls. The terrain was steeper than 50 degrees. You could fall over by standing up. That call this fun? He loved it.

A recession in 2006? I don't think so. But BubbleVision (CNBC) is desperate for things to speak out, what with the paucity of news this week. Every self-respecting CEO is at Vail or Aspen with his son destroying his body. BubbleVision has latched onto the inverted yield curve.
The 2-year treasury note is now yielding more than the 10-year note. TV guests are saying that every time this has happened we have a recession within 18 months. There are too many good things happening to predict a recession. Anyway, why waste your energy listening to the economic mumbo jumbo. Being heavily in cash -- the Mattress Theory -- was the worst possible investment strategy for 2005. In short, don't get spooked by all this inverted yield/recession talk.

Millions Face Identity Theft Risk This Coming Year: That's the latest scare headline. I suspect it was put out by the makers of shredders. One report reads, "25% do not yet shred their personal documents, despite the fact identity thieves could build enough personal information to apply for credit in their name. Women are more careful about shredding documents than men, with 77% of women saying they regularly shred personal information, compared with 68% of men."

If you really believe someone is going to sift through your garbage, buy yourself a shredder and go to town. Personally, I believe the biggest threat comes from corporations who have my credit card and who don't protect their databases adequately. There's nothing I can do about that -- except not deal with tiny, fly-by-night, schlocky retailers.

Stick To Wild Salmon: Farmed salmon has more heart-healthy omega-3 fatty acids than wild salmon. On the other hand, it also tends to have much levels of chemical contaminants. A new study shows the net benefits of eating wild Pacific salmon outweigh those of eating farmed Atlantic salmon, when the risks of chemical contaminants are considered, although there are important regional differences. For me, the real lesson remains. Stay away from red meat.

Google is funny: Google's computers "reads" my columns. If I mention skiing, I get ads for skiing. Check out the ads on the left. Nothing to do with investing.

The male anatomy:
A 3-year-old boy examined his testicles while taking a bath. "Mom", he asked, "Are these my brains?"

"Not yet," she replied.

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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