Harry Newton's In Search of The Perfect Investment
AM EST, Monday, December 8, 2008: The good news is there's still
oodles of cash money looking for a place to invest. The bad news is that everyone
who has recently "put their money to work" has lived to regret it
-- as they watched their "bargains" plummet .
As we read the
financial press and watch BubbleVision (CNBC) we need to keep reminding ourselves:
These are full-time, "professional" money managers who must invest
their monies. No one is going to pay them the big bucks to keep your and my
money in cash. They are forced to invest. We are not. Cash is where I want
my money now. And where I want yours too.
the stockmarket is a forecasting animal. It comes back long before the economy.
Hence now is the time to invest. That's the argument I hear increasingly.
I don't buy it. I figure we're facing another three years of an awful economy.
"But Harry, last week it went up strongly." Yes, I reply. And there
are always big rallies in bear markets. Look at the chart. You'll see a number
of bounces, though the market has continued to slide.
The "big" news is the huge volatility. People who've got the stomach
for it can potentially make oodles of money trading this market. But it's
not my skill. You got to hawk eyes and an iron stomach. Frankly, I'd rather
sit on the sidelines waiting for something more normal. I'm happy to miss
the bottom. It's too hard to pick.
The Wall Street
Journal had a piece on Friday on a very successful fund manager, Kenneth Heebner,
who did well shorting the financials earlier this year. Then ...
Mr. Heebner built a more than $1 billion combined position in Citigroup
Inc. and Bank of America Corp. He has put $780 million in two Brazilian
banks, Banco Bradesco SA and Banco Itau Holding Financiera SA, counting
on U.S. actions to help lending abroad. CGM Focus's biggest holding through
September was $552 million in Wells Fargo & Co.
of his $4.3 billion CGM Focus was in financial stocks as of Sept. 30, according
to its portfolio report.
which ones to buy, Mr. Heebner is leery of certain traditional earnings
multiples that don't always best gauge affordability. So for banks he uses
two other measures, which suggest they are at historically cheap levels
and, because he feels strong rebounds are assured, are ripe for plucking.
One such metric
is "price-to-tangible book value." For 20 big lenders, including
Citigroup, Bank of America and Wells Fargo, this runs about 1.1 times, compared
with 2.7 on average since 1990, according to a Goldman Sachs report. Tangible
book value is the net worth of a company after stripping out intangible
assets such as goodwill and patents. A lower ratio suggests a bank's stock
is undervalued but can also suggest assets are overstated.
has gotten much cheaper in the past six months. In June, the bank's market
price was twice that of its tangible book value. As of Friday, its market
value had sunk to less than its hard assets, a 0.96 ratio, Citigroup's lowest
measure is the "price-to-preprovision earnings" ratio. For these
20 banks, it is 5.4 times compared with 12.2 times on average. Preprovision
earnings exclude provision expenses for loan losses and measure banks' earnings
power. A relatively low ratio can mean the market is underestimating the
value of a bank's potential for profits. But a low ratio also can be warranted
if the market believes a company hasn't provisioned enough for such losses.
stocks have been relatively cheap for some time, and many fund managers
got into them early, and paid for it dearly. Managers such as Oakmark Funds'
Bill Nygren still held Washington Mutual Inc. earlier this summer. Regulators
seized the firm in September and sold its banking operations to J.P. Morgan
Chase & Co. His nearly $2 billion Oakmark Select Fund is down 43%
this year, following a 14% slide in 2007.
previous bearishness about financials was unequivocal. By last June, he
had dumped shares of Goldman Sachs Group Inc., Morgan Stanley and Merrill
Lynch & Co. because he was concerned their hedge-fund, private-equity
and proprietary-trading businesses were using too much leverage.
He has shorted
Countrywide Financial Corp., IndyMac Bancorp Inc., Wachovia and Washington
Mutual because of their exposure to troubled mortgages. All four companies
either have collapsed or been acquired since last year.
So it is all
the more remarkable that Mr. Heebner, 68 years old, is changing his strategy.
In September, when the government started taking steps to inject capital
into banks and back troubled assets, he became convinced that confidence
in credit markets would be restored and financial stocks would benefit.
He was further
encouraged by consolidation within the sector, which he believes will bolster
big banks over time. This includes Wells Fargo deciding to buy Wachovia
and Bank of America acquiring Merrill Lynch this year.
For such companies,
"in the next year, lending and deposit accumulation will be more profitable
than ever before," he said.
knows his positions in financials could suffer more pain, as the recession
brings more mortgage foreclosures and asset write-offs. He admits that the
eruptions of bad news are sometimes disconcerting. Citigroup's announcement
last month that the government will absorb as much as $249 billion in potential
losses on real-estate loans and securities held by the bank "came out
of the blue" and "I was scratching my head," said Mr.
He is offsetting
those bets with defensive picks. That includes Wal-Mart Stores Inc. and
McDonald's Corp., bargain-oriented retailers that would both benefit as
consumers rein in spending. Gold stocks such as Goldcorp Inc. and Barrick
Gold Corp. represent another haven.
who likes to trade frequently, likely has shuffled some of his financial
stocks since September, but insists financials remain a top bet. For investors,
one problem with Mr. Heebner is rapid portfolio turnover, which can generate
trades his 25 to 30 stocks more frequently than other funds to reflect his
latest ideas. While the average U.S. stock mutual fund turns over assets
less than once a year, CGM Focus does so almost four times annually, according
to fund tracker Morningstar Inc.
has been investing money for more than 30 years. ...
are you putting your money?
Dear Reader, I know you're brighter and have
better ideas than I do. Where are
you investing now? Are you buyng equities and/or bonds? Are you in cash? What's
your thinking? What's your outlook? Send me an email, please. .
end tax strategies.
Harvest your losses is the old end-of-year battlecry.
No sense in paying taxes on stocks or mutual funds that might have profits.
to buy a telephoto lens for your new SLR.
First, your lens must be image stabilized
-- have electronics so you get a sharper picture.
Second, are you going to use it mainly outside in good light? Or will you
use it in difficult light. Zoom telephotos typically admit less light.
They force you to use a slower shutter speed, which means more diffculty getting
sharp focus, or the need to carry a tripod. Single focus telephotos typically
admit more light, but to get closer you have to move yourself.
once tried to photograph an evening wedding with zoom telephoto. It was a
disaster. The camera wouldn't focus. I couldn't see enough through the lens
to manually focus it. My favorite lens for my old, but trusty, Nikon D100
is the 85mm fixed lens. It's perfect for portraits. It opens to f1.8. It's
not image stabilized. But I can hold it. I also have an 18-200 MM zoom which
is image stabilized. But it typically shoots at f5.6, though it will open
to f3.5 on an 18 mm wideangle setting, which I rarely use. Today, my preference
is for fixed focus lenses.
with many screens -- update. Many screens
make light work. I routinely run four screens from my laptop -- the laptop's
and three external screens. This morning I'm running five screens. That's
five screens from one laptop -- my Lenovo ThinkPad X61 ( now about to be replaced
with the newer Thinkpad X200).
Harry's desk, showing stockmarket quotes, the Wall Street Journal, Outlook,
email and Dreamweaver.
I won't keep
running five screens. (Four is sufficient.) But it does demonstrates the wonders
of a great new product -- the $129 ViBook.
The ViBook is half the size of a cigarette pack.
The ViBook plugs
into your USB 2.0 port or USB 2.0 hub. Every time you plug one in, you power
up another monitor. You can plug in as many as six. The thing plugs into your
monitor's DVI port or its VGA/RGB port. Choose the DVI port. It's much clearer.
The thing works with Windows and Macs -- but you must have a Mac with an Intel
processor (the latest ones do).
You can plug
it directly into your monitor and have only a thin cable going to your computer's
USB slot or USB hub. Makes for a really neat installation.
screens is great -- one for Outlook's inbox, one for stock quotes, one for
the Internet, one for an Excel spreadsheet, one for answering emails and one
for buying goodies at Amazon to reward yourself for being so productive. You
can easily move things from one monitor to another, or spread an Excel spreadsheet
across five monitors and wallow in complete fantasy.
The ViBook will
power up to a 1680 x 1050 pixel screen -- which typically is a 22 inch monitor.
I have one in the middle. My others are 19" inch monitors -- 1280 x 1024
You buy the
thing from the maker Village
Tonic. I love my ViBooks. They work flawlessly. And I get lots of
exercise moving my head around, chasing screens.
An old retired sailor, puts on his old uniform and heads for the docks once
more, for old times sake. He engages a prostitute and takes her up to a room.
He's soon going at it as well as he can for a guy his age, but needing some
reassurance, he asks, 'How am I doing?? '
replies, 'Well, old sailor, you're doing about three knots '
he asks. 'What's that supposed to mean??'
She says, 'You're
knot hard, you're knot in, and you're knot getting your money back.
A woman's husband had been slipping in and out of a coma for several months,
yet she stayed by his bedside every single day. When he came to, he motioned
for her to come nearer. As she sat by him, he said, "You know what? You
have been with me all through the bad times. When I got fired, you were there
to support me. When my business failed, you were there. When I got shot, you
were by my side. When we lost the house, you gave me support. When my health
started failing, you were still by my side... And now you're by my side as
the market is falling. You know what?"
She asked gently.
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. 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
Michael's business school tuition. Read more about Google AdSense,
here and here.